Sonyar05 e

Contents
Financial Highlights
Operating Performance Highlights
To Our Shareholders
Review of Operations
Electronics
Game
Entertainment
Financial Services
Other
R&D Strategies and Selection of
Key Technological Fields
The Sony Challenge: Seeing is Believing
Corporate Governance/New Directors
and Corporate Executive Officers
Corporate Social Responsibility
Financial Section
Stock Information
Stock Acquisition Rights and
Bond Information
Investor Information
1
2
4
8
8
13
16
20
22
23
26
32
34
35
130
131
132
Cautionary Statement
Statements made in this annual report with respect to Sonys current
plans, estimates, strategies and beliefs and other statements that are
not historical facts are forward-looking statements about the future
performance 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, aim, 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
managements 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 forwardlooking 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 Sonys markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the yen and
the U.S. dollar, the euro and other currencies in which Sony makes
significant sales or in which Sonys assets and liabilities are denominated; (iii) Sonys 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, Pictures and Other segments); (iv) Sonys ability to implement
successfully personnel reduction and other business reorganization
activities in its Electronics, Music, Pictures and Other segments;
(v) Sonys 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,
Pictures and Other segments in light of the Internet and other technological developments; (vi) Sonys 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); (vii) shifts in customer demand for financial services such as life insurance and failure to conduct successful Asset
Liability Management and (viii) the success of Sonys joint ventures
and alliances. Risks and uncertainties also include the impact of any
future events with material unforeseen impacts.
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Financial Highlights
Sony Corporation and Consolidated Subsidiaries Years ended March 31
Percent
change
Dollars in millions*
except per
share amounts
2005/2004
2005
Yen in millions
except per share amounts and number of employees
FOR THE YEAR

Sales and operating revenue . . . . . . . .
Operating income . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . .
Equity in net income (loss) of
affiliated companies . . . . . . . . . . . . . .
Income before cumulative effect of an
accounting change . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . .
2003
2004
2005
7,473,633
185,440
247,621
80,831
7,496,391
98,902
144,067
52,774
7,159,616
113,919
157,207
16,044
(44,690)
1,714
29,039
+1,594.2
271
115,519
115,519
90,628
88,511
168,551
163,838
+86.0
+85.1
1,575
1,531
853,788
(706,425)
632,635
(761,792)
646,997
(931,172)
+2.3
6,047
(8,703)
Cash flows from operating activities . . .

Cash flows from investing activities . . .
Per share data: (Yen, dollars)
Income before cumulative effect of an
accounting change
Basic . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . .
Net income
Basic . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . .
125.74.
118.21.
98.26.
89.03.
4.5%
+15.2
+9.1
69.6
180.96.
162.59.
+84.2%
+82.6
+83.3
+81.7
125.74.
118.21.
25.00.
95.97.
87.00.
25.00.
175.90.
158.07.
25.00.
AT YEAR-END
Stockholders equity . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . .
2,280,895
8,370,545
2,378,002
9,090,662
2,870,338
9,499,100
+20.7%
+4.5
Number of employees . . . . . . . . . . . . .
161,100
162,000
151,400
6.5%
$66,912
1,065
1,469
150
1.69.
1.52.
1.64.
1.48.
0.23.
$26,826
88,777
* U.S. dollar amounts have been translated from yen, for convenience only, at the rate of 107=U.S.$1, the approximate Tokyo foreign exchange
market rate as of March 31, 2005.
Please refer to pages 70 and 71 for detailed footnotes to the table above.
Sales and operating revenue

and operating income
(Yen in trillions)
(Yen in billions)
Net income and ROE

(Yen in billions)
800
200
600
150
Cash flows
(%)
(Yen in billions)
1,000
500
500
1,000
6.2%
5.0%
400
100
200
50
2003
2004
2005
3.8%
2003
2004
2005
2003
2004
2005
Sales and operating revenue (left)

Operating income (right)
Net income
Return on equity
Cash flows from operating activities

Cash flows from investing activities
*Years ended March 31
* Years ended March 31
Sony Corporation 1
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Operating Performance Highlights
Sales (Financial Services Revenues) and

Operating Income (Loss)
Financial Highlights by Business Segment

(Years ended March 31)
(Yen in billions)
Electronics
5,096.0
5,042.3
5,021.6
(Yen in billions, %)
Sales
65.9
66.5%
Operating (loss)
income
Operating margin
(6.8)
(34.3)
2003
2004
2005
Sales
Operating (loss) income
Assets
2004
2005
5,096.0
5,042.3
5,021.6
65.9.
(6.8.)
1.3
2,974.0
2,995.3
(3,434.1)
(34.3.)
2005/2004
(Percent
change)
0.4%
%
%
(Yen in billions)
Game
955.0
112.7
780.2
9.7%
729.8
67.6
2003
2004
2005
Sales
955.0
780.2
729.8
6.5%
112.7
67.6
43.2
36.1%
Operating margin
Assets
2003
2004
Sales
Operating income
2005/2004
(Percent
change)
Operating income
43.2
11.8
8.7
5.9
673.2
684.2
482.0
2005
(Yen in billions)
Music
466.3
440.3
249.1
3.3%
8.8
(6.0)
(28.3)
2003
2004
2005
Sales
Operating income (loss)
2005/2004
(Percent
change)
2003
2004
2005
Sales
249.1
43.4%
466.3
440.3
Operating income
(loss)
(28.3.)
(6.0.)
8.8.
Operating margin
3.5
500.6
484.0
325.9
Assets
(Yen in billions)
Pictures
802.8
9.7%
756.4
733.7
63.9
59.0
35.2
2003
2004
2005
Sales
Financial
Services
2005/2004
(Percent
change)
802.8
756.4
733.7
3.0%
Operating income
59.0
35.2
63.9
+81.4%
Operating margin
7.3
4.7
8.7
868.4
856.5
863.1
Assets
2003
2004
Sales
Operating income
2005
(Yen in billions)
7.4%
537.3
593.5
560.6
55.2
55.5
22.8
2005/2004
(Percent
change)
2003
2004
2005
Financial services
revenues
537.3
593.5
560.6
5.6%
Operating income
22.8
55.2
55.5
0.+0.6%
Operating margin
2003
2004
2005
Financial Services revenues
Operating income
Assets
4.2
9.3
0.9.9
2,897.1
3,475.0
3,885.5
0.0
(Yen in billions)
Other
3.4%
261.1
268.3
254.4
2003
2004
2005
Sales
261.1
268.3
254.4
(28.3.)
(12.1.)
333.5
371.7
347.9
Operating loss
Operating margin
(12.1)
(28.3)
2003
2004
Sales
Operating loss
(4.1)
Assets
(4.1.)
2005/2004
(Percent
change)
5.2%
%
%
2005
Notes: 1. Sales=Sales and operating revenue

2. Operating margin=Operating income / Sales and operating revenue x 100
3. Includes intersegment transactions
2 Sony Corporation
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2003
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Description of Business
Fiscal Year in Review
The Electronics segment comprises audio, video, televisions,

information and communications
equipment, semiconductors,
components and other products.
Segment sales were essentially level. Calculated using the same exchange rates as the previous fiscal year,
segment sales edged up 1%.
Sales of flat panel televisions, Cyber-shot digital still cameras and liquid crystal display (LCD) rear-projection
televisions increased, while sales of cathode-ray tube (CRT) televisions and portable audio products declined.
Despite a decrease in restructuring expenses, the segments operating loss widened as falling sales prices
prompted a further increase in the cost of sales ratio. Products contributing to the worsening of the segments
operating loss included CRT televisions, portable audio products and video cameras.
The Game segment encompasses Sonys game console and

software businesses, which are
conducted by Sony Computer
Entertainment Inc. (SCE).
Sales in this segment fell 6.5%.

Unit sales of PlayStation 2 (PS2) software reached a record high, but this was more than offset by a decline in
unit sales of PS2 hardware and strategic sales price reductions.
Operating income decreased 36.1% as falling hardware sales and startup costs for PlayStation Portable (PSP)
countered higher operating income for software.
The Music segment comprises the

businesses of Sony Music Entertainment (Japan) Inc. (SMEJ) and, from
April through July 2004, Sony Music
Entertainment Inc. (SMEI). In August
2004, SMEIs business was transferred to SONY BMG MUSIC
ENTERTAINMENT (SONY BMG), a
joint venture with Bertelsmann AG
accounted for by the equity method.
The transfer of SMEIs business to SONY BMG in August 2004 prompted a 43.4% decline in segment sales.
An increase in sales of recordings boosted SMEJs sales 6.9%.
SMEJ achieved a significant increase in operating income, reflecting higher sales and a lower cost of sales ratio.
The Pictures segment

encompasses motion pictures,
television and other businesses
conducted by Sony Pictures
Entertainment Inc. (SPE).
Segment sales decreased 3.0%, owing primarily to the appreciation of the yen. On a U.S. dollar basis, sales
rose 1%.
Higher sales on a U.S. dollar basis were largely attributable to increases in home entertainment and theatrical
revenues worldwide and television syndication sales outside the United States.
Worldwide home entertainment revenues rose on the strength of strong performances by DVD and VHS
releases and brisk syndication sales of films shown in theaters in the previous fiscal year, notably 50 First
Dates, Big Fish and Bad Boys II.
Theatrical revenues were bolstered by such successful releases as Spider-Man 2, Hitch and The Grudge.
Sales gains supported record-high operating income.
The Financial Services segment

comprises the businesses of
Sony Life Insurance Co., Ltd.
(Sony Life), Sony Assurance Inc.,
Sony Bank Inc. and Sony
Finance International, Inc.
Segment revenue declined 5.6%, owing largely to a change in Sony Lifes method of recognizing revenue.
Operating income increased 0.6%, reflecting the absence of impairment losses on lease assets recorded by
Sony Finance International in the preceding fiscal year.
This segment comprises a variety of

businesses, such as a network
service business, including Internetrelated services, carried out by Sony
Communication Network Corporation, a business for the production
and marketing of animation products,
a retail seller of imported general
merchandise in Japan and an
integrated circuit (IC) card business.
Sales decreased 5.2%. This was primarily due to a decrease in intersegment sales resulting from contractual
revisions at a Japan-based subsidiary in the advertising agency business.
Operating loss narrowed, reflecting lower fixed costs, a gain on the sale of a commercial building with a
showroom in Japan, and a robust performance by an animation production and marketing business.
Sony Corporation 3
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To Our Shareholders
A Message from Nobuyuki Idei

The Year in Review
In the fiscal year ended March 31, 2005, we recorded key strategic achievements
that positioned the Sony Group for further growth as a global enterprise. These
include strengthening our entertainment business through important alliances,
establishing a firm foundation for our mobile phone business and making significant
advances in the development of next-generation microprocessors. With regard to our
core electronics business, however, we faced an increasingly harsh operating environment, owing to such factors as intensified price competition. Accordingly, restoring
profitability in our mainstay Electronics segment remains managements top priority.
Sales and operating revenue in the period under review edged down from the
previous year, owing to the transfer of our non-Japanese recorded music business
to our new joint venture SONY BMG MUSIC ENTERTAINMENT (SONY BMG), which
is accounted for using the equity method, and to the impact of a strong yen. Operating income rose on the strength of strong performances by the Pictures and Music
segments, while the Financial Services segment continued to see steady gains. We
also registered a major increase in net income, reflecting contributions from Sony
Ericsson Mobile Communications AB, and other equity-method affiliates.
In the Electronics segment, we increased sales of flat panel televisions and digital
still cameras by enhancing product appeal. Nonetheless, segment sales were largely
unchanged, a consequence of flagging markets for cathode-ray tube (CRT) televisions, coupled with a shift in demand from MD Walkman, CD Walkman and other
portable audio products toward hard disk and flash memory audio players. The
segments operating loss widened, as higher variable costs accompanying downward pressure on prices outweighed the positive impact of restructuring-derived
reductions in fixed costs. In contrast, Sony Ericssons worldwide shipments of mobile
phones, particularly camera phones, exceeded 43 million units during the period,
significantly boosting its sales and operating profit.
In the Game segment, shipments of PlayStation 2 (PS2) software reached a record
252 million units during the period. Sales fell, however, as a result of a decline in PS2
hardware sales volume and strategic price reductions. PlayStation Portable (PSP) hardware and software had a strong start, following PSPs launch in Japan in December
2004 and North America in March 2005. A decline in the segments operating income
was largely attributable to a decrease in overall sales of game hardware and startup
costs for PSP.
4 Sony Corporation
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Nobuyuki Idei
Chairman and Group Chief Executive Officer
(Appointed Chief Corporate Advisor on June 22, 2005)
Sir Howard Stringer

Vice Chairman
In Charge of Entertainment Business Group
(Appointed Chairman and CEO on June 22, 2005)
Sony
Sony Corporation
Corporation 55
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Operating in a shrinking market, the Music segment generated an increase in operating income, thanks partly to a string of hits by new artists at Sony Music Entertainment (Japan) Inc. (SMEJ), which greatly bolstered SMEJs recorded music sales. In
the Pictures segment, expanded box office revenue as well as sales of titles on DVD
and VHSattributable to such hits as Spider-Man 2drove both sales and operating
income to new heights.
During the period, we took several steps that reinforced the already formidable position of our entertainment business in the industry. Of particular note, we formed two key
equity and business alliances. In August 2004, we created SONY BMG, a joint venture
that brings together our non-Japanese recorded music business Sony Music Entertainment Inc. and BMG, the music group of Bertelsmann AG, with the aim of raising
profitability through enhanced efficiency and expanded scale. In April 2005, a consortium comprising Sony and four partner companies completed the acquisition of
MetroGoldwynMayer Inc. (MGM).
In addition to using our global channels to distribute MGMs existing library of film
and television content, we will be involved in co-financing and producing new titles.
New Management Structure
Guided by our Transformation 60 (TR60) groupwide medium-term corporate strategy
which focuses on structural reforms aimed at enhancing operational profitability and
growth strategiesefforts to reduce fixed costs through the restructuring of operations
are proceeding according to plan. Although our electronics business has yet to sufficiently recover in terms of profitability, we have been implementing strategies that
will ensure the steady growth of the Sony Group. The fiscal year ending March 31,
2006, marks the start of the next stage of Sonys evolutiona stage of accelerated
growth. Accordingly, we judged this to be an opportune time to create a new
management structure.
At the Board of Directors meeting to be held following the Ordinary General Meeting of Shareholders on June 22, 2005, we expect three candidates for positions on
the Board to be approved: Sir Howard Stringer, nominated as Chairman and Chief
Executive Officer (CEO), Dr. Ryoji Chubachi, nominated as President and Electronics
CEO, and Mr. Katsumi Ihara, nominated as Executive Deputy President and President
of the Home Electronics Network Company. Under the robust guidance of this new
management team, the Sony Group will remain on course for further growth.
April 26, 2005
Nobuyuki Idei
Chairman and Group Chief Executive Officer
(Appointed Chief Corporate Advisor on June 22, 2005)
66 Sony
Sony Corporation
Corporation
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A Message from Sir Howard Stringer

Sony has built up important traditions and assets during its 60-year history. I am
honored to be given the responsibility of drawing upon these to carve out a new
history for Sony.
As CEO, my priority will be to recreate the excitement and spirit of innovation
that has evolved into the Sony brand over the past six decades. Although we face
many challenges, we also recognize a wealth of exciting opportunities. Together with
Dr. Chubachi and Mr. Ihara, I will work to deliver the best in electronics and entertainment
to customers by fostering the further convergence of Sonys technological hardware
and content development.
The new management team will not hold back from implementing reforms in all
businesses in its drive to ensure Sonys position as the worlds leading electronics
and entertainment company. We will accelerate the reforms introduced by the current
management and exert our best efforts to drive Sonys growth as a global enterprise
with core capabilities in electronics, entertainment and technology.
April 26, 2005
Sir Howard Stringer

Vice Chairman
In Charge of Entertainment Business Group
(Appointed Chairman and CEO on June 22, 2005)
A Message from Ryoji Chubachi
The Sony Group continues to operate in a very challenging business environment.
Accordingly, I am committed to forming a tightly knit management team with Sir Howard
and Mr. Ihara and working with them to enhance the Groups corporate value.
As CEO of the Electronics Business Group, my principal mission is to enhance the
competitiveness of our electronics business. I believe the key to this lies in our ability
to develop products from the customers viewpoint. Our passion for craftsmanship
remains as strong as ever. In addition to identifying key business areas and enhancing technological competence, we will strengthen our operations in areas crucial to
competitiveness, including engineering, manufacturing, distribution and sales. In
recent years, we have undertaken ambitious, growth-oriented technological development and capital investment, thereby sowing promising seeds for the future. Bringing
these seeds to bloom is our foremost challenge.
On this, the occasion of Sonys 60th anniversary, I renew my pledge to build a
strong, sound company. In the years ahead, we will continue to work to inspire and
delight our stakeholders, including our shareholders, customers, business partners,
employees and the community at large, while remaining true to our statement of
purpose: to establish an ideal factory that stresses a spirit of freedom and openmindedness. This statement is included in Sonys founding prospectus and
continues to define our spirit.
April 26, 2005
Ryoji Chubachi
Executive Deputy President and Electronics CEO
(Appointed President and Electronics CEO on June 22, 2005)
Sony Corporation 7
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Review of Operations
Electronics
http://www.sony.net/electronics/
Home Electronics
Televisions and other home electronics products with enhanced performance
and ease of use have become the hub of the modern living room, essential to
the enjoyment of television programming, movies, games and other types of
entertainment content.
With demand continuing to shift from cathode-ray tube (CRT) televisions toward flat
panel televisions, Sony is concentrating management resources on LCD and LCD
rear-projection televisions. In the fiscal year ended March 31, 2005, we reinforced our
lineup of LCD televisions with the introduction of lower-cost models as well as highend models with outstanding picture quality. Efforts to differentiate models contributed to a significant rise in Sonys market share during the 2004 year-end holiday
sales season. Of particular importance to this achievement were dramatic improvements in three fundamental areas: picture quality, audio fidelity and ease of operation.
The new WEGA Engine HD, an integrated digital high-definition system developed to
deliver greater depth and a higher degree of realism, renders a highly precise, beautiful picture. The S-Master sound engine is a 100W output, full-digital amplifier that
capitalizes on Sonys capabilities in high-fidelity audio to deliver the crystal clear audio
reproduction essential to complement large-screen viewing. The xross (cross) media
bar (XMB) is a graphical user interface (GUI) that applies technologies developed in
the games business to enhance operability, enabling people to access and enjoy
content from a variety of devices on their televisions quickly and easilyan important
consideration in this era of increasingly multifunctional televisions.
In spring 2005, we further expanded our lineup in Japan with the Happy Wega series
of digital high-definition (HD) televisions, which have earned a strong reputation. The
Happy Wega series uses fewer components and employs the same structure and circuitry as other Wega televisions. This led to a reduction of material and other manufacturing costs and is helping to improve the profitability of our LCD televisions.
Sony will begin sourcing LCD panels from S-LCD Corporation, our joint venture with
Samsung Electronics Co., Ltd. of Korea, as well as promoting in-house sourcing of
other key devices. These efforts should enable us to achieve further cost reductions
already realized with the Happy Wega seriesin other LCD televisions.
We plan to launch HD televisions featuring Cell, a next-generation, high-performance
processor developed in cooperation with IBM Corporation and Toshiba Corporation.
DVD recorder
DVD Recorders
Going into the 2004 year-end holiday sales season, we introduced new
Sugoroku DVD recorders featuring a high-capacity hard disk drive (HDD) and
an electronic program guide (EPG). These models also feature an automatic
recording function, which uses the EPG to automatically locate and record all
programs related to a particular keyword entered by the user.
Sugoroku, developed as an attractive post-VHS unit offering high picture quality,
easy operation and intelligent recording, has expanded and enhanced our product
mix. The PSX, a fun-to-use DVD recorder that enables users to enjoy video, music,
photographs and games on a single unit, is carving out a new market for intelligent
entertainment devices. These efforts will position us to respond to increasingly
diverse customer needs in the rapidly expanding market for DVD recorders.
8 Sony Corporation
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QUALIA 006 70-inch Micro-Display SXRD TV

Sony Corporation 9
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05.7.6, 2:31 PM
The Grand Wega LCD rear-projection television continued to enjoy popularity in the
U.S. market, reflecting consumer appreciation of comparatively inexpensive large
televisions. New additions to our LCD rear-projection lineup during the fiscal year
included a model featuring Sonys exclusive Silicon X-tal (crystal) Reflective Display
(SXRD) technology, which achieves high resolution and high contrast, as well as fast
responsiveness. This technology facilitates higher panel pixel density than conventional display devices, thereby realizing full HD (1920 x 1080 pixel) resolution and a
smooth-textured, cinematic picture quality. In the fiscal year ending March 31, 2006,
we will take further steps to differentiate our LCD rear-projection televisions from
those of other companiesincluding introducing new models with SXRDand
strengthen our lineup in all regions.
SXRD: Sonys exclusive SXRD achieves outstanding resolution and contrast, as well
as fast responsiveness, facilitating a sharper, richer and more smoothly textured picture
than ever before possible with consumer-use rear-projection television. A narrow interpixel spacing2,000,000 pixels with a pitch of 9 mdelivers full HD resolution within
an image area measuring a mere 0.78 inches across. In addition, a liquid crystal cell
gap of less than 2 m and vertically aligned liquid crystal materials facilitate contrast
of 3000:1 or higher and a response speed of less than five milliseconds, resulting in a
clear, stable picture.
Mobile Electronics
Cyber-shot DSC-T7
Sony expanded its video camera and digital still camera lineup. In portable
audio, the Network Walkman was a hit.
In the fiscal year ended March 31, 2005, the global market for digital still cameras
exhibited strong growth. Sony continues to command a significant share of this
market, thanks to the popular Cyber-shot lineup, which reflects our continuing efforts
to combine slim designs with large LCD screens and extended recording times. We
are also focusing efforts on the development of innovative products that combine
video and digital still camera features in a single unit.
Also in the period, we launched full-scale, global sales of DVD Handycam,
bolstering our lineup of video cameras, which previously focused on Handycams
using conventional tape media. While DVD Handycam accounted for approximately
10% to 20% of sales of Sony video cameras in the past fiscal year, we are aiming to
greatly increase shipments in the fiscal year ending March 31, 2006.
During the year, we introduced the first consumer-use video camera with full HD
resolution based on the 1080 interlaced (1080i) digital HD standard, bringing HD
picture quality out of the broadcast arena and into the home. Customers responded
to this easy-to-use model very favorably. We will promote the shift to HD video
cameras by enhancing our lineup, offering consumers a whole new experience.
Key devices are what really set Sonys video and digital still cameras apart from
those of other manufacturers. These include small LCD panels, batteries and
charge-coupled devices (CCDs), which are image-capturing devices that work like an
electronic version of a human eye. We source these devices internally, facilitating
vertically integrated production and ensuring our ability to enhance product appeal while
lowering production costs.
Super HAD CCD: Sonys CCD technology has enabled the development of the Super HAD
CCD, a CCD that offers both a high saturation signal level and increased sensitivity. This
technology greatly reduces the ineffective areas between the on-chip microlenses formed
over each pixel, thereby increasing the efficiency of utilization of incident light.
Real lmaging Processor: Sony designed the Real Imaging Processor using an exclusive
algorithm that increases processing precision and speed, improving picture quality and
reducing start-up time for a truly enjoyable picture-taking experience. Thanks to a system
large-scale integration (LSI) designed for energy efficiency, the Real Imaging Processor
consumes 30% less energy than previous processors, thus improving battery life.
10 Sony Corporation
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Network Walkman
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In the portable audio market, trends and ways of enjoying music are changing
rapidly as consumer preferences shift from CD-based and MD-based products to
those with flash memory and HDDs. In spring 2005, we released our latest Network
Walkman, reinforcing our lineup of Walkman portable audio products in the Japanese
market, which until then comprised the CD Walkman and the MD Walkman. The
Network Walkman, available in both flash memory and hard disk models, enjoyed
strong sales.
In November 2004, we established the Connect Company, a global business that
uses Sonys unique strengths to distribute content, client software and hardware. Not
limited to music distribution, Connect aims to foster a broad-based network business
that also encompasses movie and other entertainment content.
VAIO T-Series
VAIO T-Series
The VAIO T-Series, launched in autumn 2004, is a slim (25mm), lightweight
(1.38kg) notebook PC. This sleek machine was made possible by reducing the
number of components used and arranging them more efficiently. Despite its
small size, the VAIO T-Series carries an array of features comparable to those
found in a full-sized notebook, including a 10.6-inch-wide LCD display and a
DVDRW drive. The unique finish, with a texture similar to that of a leather-bound
book, and four rich color choices, including midnight blue and burgundy, add a
touch of quality and class that has earned a positive response from consumers
around the world. We will continue to combine our passion for making things
with advanced audiovisual technologies and IT capabilities to create high-valueadded products and build new PC markets.
Sony Ericsson Mobile Communications AB, established in October 2001 as a

5050 joint venture between Sony Corporation and LM Ericsson, maintained a high
average selling price and achieved significant increases in shipments and sales in the
fiscal year ended March 31, 2005, owing to the introduction of high-value-added
products. During the period, the company also succeeded in bolstering its operating
foundation, thanks to steady growth in sales of camera phones and brisk sales of
third-generation (3G) phones for the Universal Mobile Telecommunications System
(UMTS) network, positioning it to further expand its lineup of 3G-enabled handsets.
Groundbreaking new offerings include the W800, the first Walkman-branded
mobile phone; the K750, a 2-megapixel camera phone; and the Z800, a new 3G
phone for the Global System for Mobile Communications (GSM) and UMTS networks.
In Japan, Sony Ericsson launched the W31S for KDDI Corporation and the premini-II*
for NTT DoCoMo, Inc. The company also became a worldwide sponsor of the
Womens Tennis Association (WTA) Tour, which is now the Sony Ericsson WTA Tour.
* premini is a registered trademark of NTT DoCoMo, Inc.
K750
W800
Z800
W31S
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premini-II
Game
http://www.scei.co.jp/global/
The PlayStation 2 platform continues to expand further.

Since its launch by Sony Computer Entertainment Inc. (SCE) in 2000, PlayStation 2
(PS2) has continued to expand worldwide as the standard platform for home entertainment, and cumulative shipments surpassed the 90 million unit mark in June 2005.
The new slimline PS2 (SCPH-70000 series) has been particularly popular since its
release in November 2004. Now in its fifth year, PS2 is still in high demand, with
shipments reaching 16.17 million units in the fiscal year ended March 31, 2005.
Similarly, demand for PS2 software remains high. By March 31, 2005, there were
more than 5,000 game titles released for PS2 worldwide, and cumulative shipments
reached 824 million units. With first-party hits such as Gran Turismo 4, which sold
over 6 million units, as well as other major hit titles from third-party developers and
publishers, software shipments in the fiscal year ended March 31, 2005, recorded
New PlayStation 2 (SCPH-70000 CB)
SCE released a smaller, slimmer PS2 in November 2004
in the Japanese, North American and European markets.
While inheriting the basic functions and design architecture
of the original PS2, the volume was reduced by 75%, the
weight was halved and the thickness was trimmed down
to 2.8 centimeters (1.1 inches). With the built-in Ethernet
network connector included as a standard feature, users
can enjoy easy access to online games.
an all-time high of 252 million units.

New, attractive titles are expected to be released from first- and third-party
developers and publishers, and SCE will continue to expand the PS2 platform with
the strong software lineup as well as the popular slimline PS2.
PlayStation Portable creates a new market.
SCE released PlayStation Portable (PSP) in Japan in December 2004 and in North
America in March 2005. PSP is a new handheld entertainment system that brings
together a wide variety of entertainment content, including games, music and
movies, and employs full-scale 3-D computer graphics and the newly developed
high-capacity optical disc, Universal Media Disc (UMD).
Since its debut, PSP has enjoyed favorable hardware and software sales. Cumulative
hardware shipments as of March 31, 2005, in Japan and North America reached
2.97 million units, while shipments of software reached 5.7 million units.
By May 2005, there were more than 30 titles in the PSP game lineup in Japan and
over 20 titles in North America. Moreover, with the release of movie and music video
Gran Turismo 4: The latest title from the Gran Turismo series.
Cumulative worldwide shipments of the Gran Turismo
series for PS and PS2 reached 43 million units in March
2005. The series revolutionized the concept of racing
games, delivering an entertainment-packed experience
as a real-life driving and racing lifestyle simulator. It has
won strong support from a broad range of users all over
the world and received high acclaim from automobile
experts and enthusiasts.
titles on UMD in April 2005, the entertainment experience on PSP has been enhanced
further. PSP was also released in Asia in May 2005, and will be launched in Europe in
September. SCE and other content developers and publishers will continue to release
attractive software in all regions. As an entirely new handheld entertainment platform
enabling users to enjoy entertainment content at any time, anywhere, PSP will create
a new market around the world.
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PLAYSTATION 3, SCEs next-generation computer entertainment system, is

expected to be launched in spring 2006, creating a new world of computer
entertainment.
SCE announced the features of its next-generation computer entertainment system,
PLAYSTATION 3 (PS3), in May 2005. PS3 will incorporate many cutting-edge
advances, such as the Cell next-generation, high-performance processor jointly
developed by IBM Corporation, Sony Group and Toshiba Corporation, the RSX
graphics processor jointly developed by NVIDIA Corporation and SCE, and XDR
memory developed by Rambus Inc. PS3 will provide supercomputer-like power
which, in combination with Blu-ray Disc ROM (BD-ROM), will deliver entertainment
content in full high-definition (HD) quality.
PLAYSTATION 3
(Prototype)
In games, not only will movement of characters and objects be far more refined and
realistic, but landscapes and virtual worlds will also be rendered in real time, thereby
elevating the freedom of graphics expression to levels not experienced in the past. PS3
will also have built-in Gigabit Ethernet and wireless local area network (LAN) features,
thereby creating a new world of entertainment through its networking capabilities.
PS3 will also offer backward compatibility with over 13,000 game titles created for
PlayStation (PS) and PS2 worldwide by March 2005, allowing users to continue to
enjoy these enormous assets.
With PS, PS2, PSP and PS3, expected to be released in spring 2006, SCE will
create and develop a new world of computer entertainment through the fusion of
games, music, movies and broadcasting.
(Design and specifications are subject to change without notice)
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PlayStation Portable (PSP)

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Entertainment
The fiscal year ended March 31, 2005 was a pivotal year in Sonys entertainment businesses, with the successful integration of the SONY BMG MUSIC
ENTERTAINMENT (SONY BMG) joint venture and a record performance by
Sony Pictures Entertainment Inc. (SPE). In addition, the acquisition of
MetroGoldwynMayer (MGM) by a consortium led by Sony Corporation of
America (SCA) was completed in early April 2005.
In August 2004, Sony Corporation and Bertelsmann AG merged their recorded music
assets to create SONY BMG, a joint venture with an impressive array of current
artists and a vast catalog that includes some of the most important recordings in
history. SONY BMG is streamlining its operations and investing in talent development
to position the company for future growth.
In the fiscal year ended March 31, 2005, SPE generated record-breaking operating
income, due in part to the worldwide success of Spider-Man 2, strong home
entertainment sales and international television syndication. In April 2005, a consortium comprised of SCA, Providence Equity Partners Inc., Texas Pacific Group,
Comcast Corporation and DLJ Merchant Banking Partners completed its acquisition
of MGM. In conjunction with the acquisition, SPE entered into agreements to cofinance and produce new motion pictures with MGM and to distribute MGMs existing
film and television content. The members of the consortium entered into a separate
agreement to form a joint venture, to be managed by Comcast, establishing new
cable/satellite channels that will feature SPE and MGM content.
By expanding access to content, Sonys entertainment companies have improved
their strategic position. Licensing of the content to existing and emerging distribution
channels such as digital cable, mobile and broadband services, as well as distribution
in new media formats, are expected to create a wide array of revenue-generating
opportunities.
Through the consortiums acquisition of MGM, one of the worlds most
renowned motion picture studios, Sony has created a strategic partnership
with a massive library of entertainment content.
MGM owns the worlds largest library of modern films, comprising approximately 4,000 titles. MGMs film library has received 208 Academy Awards,
making it one of the largest award-winning collections in the world, and it
includes several of the most successful film franchises in history, including
James Bond, Pink Panther and Rocky.
Additionally, the library also includes over 10,400 episodes from television
series previously broadcast on prime-time network television, cable or in firstrun syndication, where original episodes are initially broadcast on a syndicate
of television stations and not on a single network. The programs in the MGM
library have won, among others, 108 Emmy Awards and 17 Golden Globe
Awards.
With our strong financial and strategic partners, Sony looks forward to
building on MGMs exceptional legacy and capitalizing on emerging technologies and markets to provide consumers worldwide more opportunities to enjoy
MGMs vast library.
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Music
Destinys Child
Destinys Childs Destiny Fulfilled was released in
November 2004 and went on to sell 5.5 million units
during the fiscal year, achieving double platinum
status in the United States, Canada and Japan,
and platinum and gold status in countries across
Europe, Oceania and Asia.
Maroon 5
Maroon 5 was honored with the Best New Artist
award at the 2005 GRAMMY Awards. Their debut album, Songs about Jane, has spent 104
weeks on the Billboard 200 Chart and sold more
than 8 million albums worldwide.
Ken Hirai
Ken Hirais soulful voice has cemented his
position as one of Japans most popular male
vocalists. His single Close Your Eyesused as
the theme song for the film Crying Out Love in the
Center of the World in 2004was one of a string
of hits from his sixth album, SENTIMENTALovers,
which sold 1.8 million units.
Gretchen Wilson
Gretchen Wilsons Here for the Party, which was
released in May 2004, was the top-selling debut
album in any genre for the year. The artist won the
2005 GRAMMY for Best Female Country Vocal
Performance.
Usher
Ushers Confessions, the worlds bestselling album
in 2004, was honored with three awards at the 2005
GRAMMY Awards.
ORANGE RANGE
Okinawas six-man pop-rock unit ORANGE RANGE
has emerged in recent years as one of Japans most
popular bands. The band has released several hit
singles, including Hana, used as the theme song
for the film Ima, Ai ni Yukimasu. Their second album,
musiQ, sold 2.8 million units, putting ORANGE
RANGE firmly among the top of the J-Pop scene.
Seinfeld
The first four seasons of Seinfeld, considered by
many to be the best TV sitcom ever, were released
on DVD by Sony Pictures Home Entertainment.
Seinfeld has become one of the fastest selling TV
titles on DVD ever.
Jeopardy!
Jeopardy! is a classic TV quiz show with a twist:
the host provides the answers and the contestants
must give the questions. Now in its 21st season,
Jeopardy! remains the highest-rated quiz show on
television, attracting 10 million viewers daily.
50 First Dates
Adam Sandler continues to be one of Columbia
Pictures most consistent and bankable stars. His
2004 romantic comedy 50 First Dates was a hit
with audiences in movie theaters worldwide and
was one of the studios most successful home
entertainment titles this past year.
Kung Fu Hustle
Produced by Columbia Pictures Film Production
Asia, Kung Fu Hustle has become one of Asias
most successful local films of all time, grossing close
to $70 million. It broke a number of records throughout Asia, including all-time biggest opening weekends in China, Hong Kong, Taiwan and Malaysia.
Spider-Man 2 Motion Picture 2004 Columbia Pictures

Industries, Inc. All rights reserved. Spider-Man Character
& 2004 Marvel Characters, Inc. All rights reserved.
Hitch
Will Smiths romantic comedy Hitch was a breakout
success around the world for Columbia Pictures in
2005, earning more than $359 million in ticket sales.
Pictures
Spider-Man 2
Columbia Pictures critically lauded blockbuster
Spider-Man 2 was the No. 1 live action film of 2004,
generating nearly $800 million in worldwide box
office receipts. Spider-Man 2 opened at No. 1 in
more than 70 territories around the globe.
Sony
Sony
Corporation
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MUSIC
Sony Music Network is leading the

evolution of network music services
in Japan.
Capitalizing on its digital network capabilities, on April 1, 2005, SMEJ established Sony Music Network Inc. The new
company operates SMEJs Internet
music distribution site, Sony Music
Online Japan, a pioneering site that
offers fee-based downloads of copyright-protected music, as well as music
video clips and a wide range of other
visual content.
The online music download service
market is expanding rapidly, and signs
point to further growth as the number
of Internet and advanced mobile phone
users rises. This trend is signaling a
crucial change in the way people enjoy
music. By upgrading and strengthening
its Internet music distribution services,
Chaku-Uta mobile phone master
ringtone download service and other
offerings, Sony Music Network aims to
bring entertainment even closer to its
customers. The company will also focus
on developing new businesses in such
areas as e-commerce and networkbased music and video promotions, with
the aim of further maximizing its digital
network capabilities.
http://www.sony.net/music/
The creation of the SONY BMG joint venture enables the company to continue to
invest aggressively in new talent and develop new musical content throughout its
worldwide operations. During the year, successful artist development efforts delivered
strong results from such artists as Anastacia, Ciara, Destinys Child, John Legend,
Jennifer Lopez, Mario, Maroon 5, Britney Spears, Rod Stewart, Usher and Gretchen
Wilson. At the 47th Annual GRAMMY Awards ceremony, the newly combined
company led the industry with a total of 28 GRAMMY Awards in a wide range of
genres, including R&B, pop, rock and country, with awards going to such artists as
Alicia Keys, Usher, John Mayer, Los Lonely Boys and Gretchen Wilson.
The merger also provided the company with the resources to continue to build on
its position as a global leader in the growing online and mobile music markets. SONY
BMG aggressively expanded its efforts in the mobile arena by establishing new
relationships for the distribution of master ringtones, which are actual recordings that
replace the standard mobile phone ringer, and ringback tones, which are recordings
that take the place of the ringing sound callers traditionally hear when dialing. The
company also entered into agreements with wireless carriers in Europe and Asia to
facilitate the growth of 3G mobile services, which provide such features as full-length
audio and video offerings. Master ringtones represented one of the largest areas of
growth in wireless service, with a number of master ringtones achieving total sales of
more than a million units during the fiscal year ended March 31, 2005.
Even as the music company forged a wide range of new relationships for the digital
distribution of its content, it also played an active role in the successful introduction of
a new product designed to rejuvenate the traditional retail market. In the United
States, SONY BMG led the music industrys rollout of DualDisc, a new, two-sided,
single-disc product that combines DVD video content and enhanced audio on one
side, with a full-length audio album on the other. High-profile titles such as Omarions
debut release O and Jennifer Lopezs Rebirth were issued simultaneously on CD and
DualDisc, with DualDisc accounting for well over 30% of weekly sales for both titles.
Sony Music Entertainment Japan
http://www.sonymusic.co.jp/
In the fiscal year ended March 31, 2005, a string of hits from leading artists, including
ORANGE RANGEs musiQ, Ken Hirais SENTIMENTALovers and Porno Graffittis
PORNO GRAFFITTI BEST BLUES, contributed to sales of Sony Music Entertainment
(Japan) Inc. (SMEJ). During the period, SMEJ continuously enjoyed the top share of
the Japanese music market in terms of sales. At the 19th Japan Gold Disc Awards,
ORANGE RANGE was named Artist of the Year, while releases by SMEJ artists
garnered seven of 20 Japanese Rock and Pop Album of the Year awards.
SMEJ also took steps to accelerate growth in its network service business.
Downloads from SMEJs various services, including Chaku-Uta, launched in 2002,
and Chaku-Uta Full master ringtone download services, are currently in the order of
5.0 million per month, and SMEJ continues to enjoy the top share of this key market
in terms of revenues.
Sony will continue to grow its music business in Japan by developing new talent
and providing exciting new recordings, while at the same time cultivating new ways of
enjoying music that take advantage of technological advances.
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PICTURES
http://www.sony.net/movies/
With a consistent and stable approach to its core businesses, SPE achieved record
profitability in the fiscal year ended March 31, 2005. The year was filled with critical
and commercial successes and further strengthened SPEs position as a global
leader in the entertainment industry. In calendar year 2004, the studio was No. 1 in
theatrical market share in the United States for the second time in the past three
years, and generated ticket sales in excess of $1 billion in each of the United States
and international markets for the third year in a row, which set a company record.
Leading the way was Spider-Man 2, which opened at No. 1 in the United States
and 70 of the international territories in which it was released. The film has grossed
nearly $800 million in worldwide box office revenue to date and won the Academy
Award for Best Achievement in Visual Effects. In addition, the studio experienced
tremendous success with films such as Hitch and The Grudge. SPE continues to
pursue a local language production and distribution strategy and achieved noteworthy results this year with the foreign language films The House of Flying Daggers and
Kung Fu Hustle, which both enjoyed critical acclaim and box office success around
the world.
The strength and consistency of the film slate has translated into significant results
in the home entertainment market, with Spider-Man 2 being this years top performer.
In addition, the studio capitalized on content from Sony Pictures Television for DVD
distribution, most notably Seinfeld, which has become one of the fastest selling
television titles on DVD in history. Having digitized more film and television titles than
any other studio, SPE is well positioned for continued success with emerging home
entertainment formats, including the Universal Media Disc (UMD) used by Sonys
PlayStation Portable (PSP). As a result, PSP owners have the opportunity to watch
some of SPEs latest films, including Spider-Man 2, on a portable device.
Sony Pictures Television International (SPTI) continued to pursue its branded
international channel strategy with the launches of Animax India in July 2004 and
AXN Germany in November 2004. To date, SPTI has formed or invested in approximately 40 international networks, which are available in more than 100 countries.
Local Language Television Production
The past decade has seen significant growth in demand for local language
television content. To capitalize on this market trend, SPTI has steadily
expanded its local language production capabilities in key markets around the
world. With dedicated offices in France, Germany, Hong Kong, Miami (Latin
America), the Peoples Republic of China, Spain and the United Kingdom, SPTI
manages the production of shows based on its popular game show formats,
such as The Dating Game and The Newlywed Game, as well as scripted
formats. The Nanny, for example, which ended production in the United States
in 1999, is now enjoying success with localized versions in Greece, Russia,
Turkey and Argentina.
Today, SPTI is the global leader in local language production, with more
than 9,000 episodes produced in over 30 countries. In fact, SPTI is the No. 1
independent comedy producer in Germany and produces more original
programming in Russia than any other major Hollywood studio. In November
2004, SPTI formed the first fully government-approved television production
joint venture in the Peoples Republic of China.
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Financial Services
http://www.sony.co.jp/money/
Sony Financial Holdings

In April 2004, Sony established Sony Financial Holdings Inc. (SFH) to oversee the
operations of Sony Life Insurance Co., Ltd. (Sony Life), Sony Assurance Inc. and
Sony Bank Inc. With this move, SFH became Japans first financial holding company
to integrate insurance and banking institutions under one umbrella.
In the fiscal year ended March 31, 2005, its first year of operation, SFH strengthened
tie-ups among the three companies in the provision and delivery of products and services, complementing the existing tie-ups in such areas as the provision of automobile
insurance and group credit life insurance. In June 2004, Sony Bank launched sales of
Sony Lifes pension insurance policies through its web site MONEYKit. In October
2004, Sony Assurance began to offer a fire insurance policy limited to customers taking
out Sony Bank loans, while in December 2004 Sony Lifes highly trained life insurance
professionals, Lifeplanners, began introducing Sony Banks housing loans.
Recognizing the importance of maintaining financial soundness for the protection
of policyholders and depositors, SFH took initiatives in reinforcing risk management
and compliance systems for the entire SFH Group. In June 2004, SFH took steps to
enhance Sony Banks financial condition, injecting into the bank 10.0 billion equity
with the proceeds of a third-party allotment of SFH shares to Sony.
In the fiscal year ending March 31, 2006, SFH will continue to reinforce the SFH
Groups synergies and bolster risk management and compliance systems, as well as
prepare for its initial public offering, which is being targeted to occur within the fiscal
year ending March 31, 2007.
Sony Life
Sony Life, by enforcing needs-based sales solutions through its Lifeplanners (sales
employees) and Partners (independent agents), provides optimal protection that best
matches the needs of each customer, as well as comprehensive after-sales services
for policyholders.
In May 2004, Sony Life introduced an optional feature for its existing family income
insurance policy, covering death and serious disability, which expands coverage to
include other specified disabilities and conditions requiring nursing care. Sony Life
also enhanced its lineup of services with the launch of a special agreement exempting policyholders from future premium payments if they fall victim to any of three major
illnessescancer, acute myocardial infarction and/or strokeor develop certain
disabilities, including conditions that necessitate nursing care.
In the fiscal year ended March 31, 2005, Sony Lifes results continued to improve
steadily. The amount of individual life insurance and annuity policies in force increased
6%, to 27,823.4 billion, and the solvency margin, which reflects a life insurance companys ability to pay claims and other benefits in unforeseen events, was 1,317.1%,
indicating an extremely high level of stability.
Sony Assurance
Sony Assurance has sold non-life insurance products using direct marketing via
telephone and the Internet since its operations began. Sony Assurance offers risksegmented automobile insurance and medical insurance, and aims to provide
carefully tailored policies with reasonable premiums.
In the fiscal year ended March 31, 2005, Sony Assurance offered a new discount
option to automobile insurance policyholders based on annually traveled distance, an
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example of risk segmentation. Policyholders can enjoy this option when their traveled
distance does not exceed a specified annual limit, and apply a discount to the following years premiums, the size of which is based on the distance remaining under the
limit. Sony Assurance also launched a new service that eliminates the requirement for
policyholders to report to the insurance company and to pay extra premiums when
they exceed the distance limit agreed to in the policy.
In medical insurance, to respond to diversifying customer needs, Sony Assurance
broadened the choice of coverage options for its whole-life insurance products and
commenced sales of SURE Basic and SURE Wide in May 2005.
In the fiscal year ended March 31, 2005, net premiums increased 18%, to 36.6
billion. The total number of automobile and cancer insurance policies in force
surpassed 650,000.
Sony Bank
Sony Bank, founded as an Internet bank that provides asset management and other
financial services to individual customers, has actively and inventively offered various
new services.
In June 2004, the New Zealand dollar was added to the foreign currency deposit
transaction service line-up. The foreign currency deposit service is one of the banks
main services. In addition, to support individual customers flexible investment activities, in December 2004 Sony Bank introduced limit order services as well as foreign
currency time deposits with special agreements.
In the fiscal year ended March 31, 2005, Sony Bank newly added 17 investment
trusts to its investment trust business, bringing the total number of funds it handles to
40. Meanwhile, the bank successfully enhanced the features of its housing loan business in November 2004 by, among other things, developing a special arrangement
that enables borrowers to partially set various fixed rates from time to time on their
floating-rate loans.
In the fiscal year ended March 31, 2005, deposits from customers in the banking
business rose 44%, to 546.7 billion, and the balance of loans doubled to 126.3
billion. Additionally, the number of accounts at Sony Bank as of March 31, 2005,
increased by 98,968, or 37%, to 367,748.
eLIO card
Sony Finance International

Sony Finance International, Inc., is involved in credit card, e-commerce payment
processing and leasing operations. In 2002, the company began issuing its eLIObranded cards, which were created specifically for Internet shopping and incorporated FeliCa, Sonys contactless IC card technology. Efforts to increase the number
of member merchants and affiliated partners are supporting steady growth in the total
number of eLIO card members and the volume of transactions. As of March 31, 2005,
Sony Finance International had issued approximately 750,000 eLIO cards and
900,000 conventional credit cards. Developed by Sony Finance International, eLIO is
a simple and secure credit service. Card members place their card on an electronic
reading device, instead of inputting personal identification numbers (PINs) or credit
card numbers, removing the need to transmit such vital information over the Web.
eLIO cards can be used for a variety of transactions, including shopping. They are
compatible with the Edy prepaid e-money service operated by bitWallet, Inc., and
also function as conventional Visa cards. During the fiscal year, Sony Finance International launched eLIO Order, an easy-to-use service allowing card members to
place orders and purchase products with their mobile phones*.
* eLIO Order is available for NTT DoCoMo mobile phones that have been embedded with a chip based
on FeliCa technology.
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Other
Sony Communication Network Corporation (SCN) is primarily expanding the So-net
Internet service in Japan. So-net presently provides Internet access and content
services to approximately 2.45 million subscribers.
The market for broadband Internet services continues to grow quickly. The domestic market for constant-connection broadband servicesincluding asymmetric digital
subscriber lines (ADSLs), fiber-to-the-home (FTTH) and cable televisionexceeded
18 million subscribers in December 2004, according to Ministry of Internal Affairs and
Communications statistics, and Internet users continue to join.
In the fiscal year ended March 31, 2005, SCN sought to attract new subscribers
by strengthening its broadband content services and adding personalized services,
such as the customizable portal My So-net and the easy-to-use personal web site
service, So-net Blog. To allow subscribers to use its network without worry, SCN was
an early adopter of personal privacy policies, obtaining Privacy Mark* certification in
November 1999.
Two of SCNs affiliates were listed on the Tokyo Stock Exchange Mothers market
in the period under review. So-net M3, Inc., a consolidated subsidiary of SCN listed
in September 2004, provides pharmaceutical marketing support services centered
on m3.com, a portal for physicians in Japan. In May 2005, the subscriber base for
m3.com reached 100,000, making it the largest in the country. DeNA Co., Ltd., an
SCN equity-method affiliate listed in February 2005, offers e-commerce solutions,
including Bidders, an auction and shopping site, and Mobaoku, an auction site for
mobile phone users.
To provide SCN with greater independence and more flexibility to adopt its own
management structures and growth strategies, we are considering the possibility of
pursuing an initial public offering of SCNs common stock and delisting our subsidiary
tracking stock. We believe this would allow SCN to achieve its full potential within the
Sony Group.
* Privacy Mark: Personal information management accreditation administered by the Japan Information
Processing Development Corporation (JIPDEC).
A 4 7 0 0 0 1 ( 0 3)
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R&D Strategies and Selection of Key Technological Fields
Research and development (R&D) are vital to achieving the continuous innovation
crucial to sustained corporate growth. After identifying key technological fields and
R&D themes with the potential to deliver growth, Sony manages its R&D activities
strategically to differentiate and increase the value-added components of its products
and services. While Sony naturally directs efforts toward technologies that sustain
and develop its current businesses, it also examines technologies that will create new
markets and give consumers fresh lifestyle ideas.
As we progress into the era of broadband networks, it is increasingly important to
create environments that facilitate the enjoyment of high-definition (HD) images and
other high-grade audiovisual content inside and outside the home. The key to realizing such environments is the home server, which is used to control both networked
audiovisual equipment and the content recorded or purchased by the consumer. We
recognize semiconductors, displays and storage technologies as essential to making
home servers and the connected audiovisual equipment better, easier to use, and
more feature-packed. Accordingly, we will concentrate our R&D activities on these
three key technological fields for the foreseeable future.
R&D Results for the Fiscal Year Ended March 31, 2005
Semiconductors
Electronics products derive the majority of their value-added, advanced features from
semiconductor devices. Accordingly, Sony has made semiconductor technologies a
key focus and is active in semiconductor design and process technology research,
as well as the development of high-performance, high-function devices closely linked
to products.
CellThe Next-Generation Processor
At the International Solid-State Circuits Conference (ISSCC) in February 2005, the Sony
Group, IBM Corporation and Toshiba Corporation revealed Cell, a high-performance
processor under joint development since March 2001. Built on a revolutionary new
multicore architecture, Cell features eight floating-point computing cores and a Powerbased processor core, achieving clock speeds exceeding 4GHz and supercomputer-level
floating-point computing performance. We will incorporate Cell into next-generation
audiovisual equipment, including computer entertainment systems, home servers and
digital televisions. We also plan to continue developing this processor to achieve breakthrough advances in performance for real-time processing of rich media applications.
Cellthe next-generation processor
1080i Standard HD CCD

Drawing on our proprietary imaging device technologies, we developed the first
consumer-use HD charge-coupled device (CCD) capable of supporting 1080 interlaced
(1080i) digital HD photography at a 16:9 aspect ratio.* In addition to paving the way
for high-resolution imaging with a total count of 1.12 million pixels, the 1080i standard
HD CCD attains excellent sensitivity and smear performances.** The new device is
being incorporated into the HDR-FX1, the first consumer-use digital HD video camera
recorder based on the 1080i standard.
** The aspect ratio is a displays width-to-height ratio.
** Smear is the effect created when strong incident light, such as sunlight, strikes the CCD sensor,
causing perpendicular white stripes to appear on the screen.
Sony Corporation 23
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05.7.6, 2:20 PM
Displays
With the advent of HD broadcasting and Blu-ray Disc recorders for recording and
playing back HD content, and of high-resolution digital still cameras and video cameras, Sony is developing the architecture that will allow people to enjoy and be entertained by the growing diversity of high-resolution content. To this end, we are using
our proprietary know-how to advance display technologies and devices in the pursuit
of realism, our concept of the ideal picture quality.
Triluminous Wide-Spectrum Backlit LED System
We developed Triluminous, a wide-spectrum backlit light-emitting diode (LED) system, and used it in the QUALIA 005 LCD television, making the QUALIA 005 the first
consumer-use LCD television with LED backlighting. By using independent panels for
red, green and blue (RGB) signals, this backlit LED system achieves more realistic,
wide-spectrum color reproduction than previous LCD television backlit systems.
GxL System
Our new projection format, called the GxL (G-by-L) system, utilizes diffraction grating elements on the surface of a micro-electromechanical systems (MEMS) chip and
primary color lasers to reproduce colors more faithfully than LEDs. The GxL system
debuted in March 2005 at the Laser Dream Theater at the 2005 World Exposition in
Aichi, Japan, projecting at high resolution onto an ultra-wide 2005-inch screen
(approximately 10 meters high and 50 meters wide).
Storage
We are developing a range of backbone devices compliant with the Blu-ray Disc
standard to complement our fast-track commercialization of Blu-ray Disc systems for
HD image recording and playback.
Three-Wavelength Optical Recording/Playback Heads for Blu-ray Discs,
DVDs and CDs
Combining our extensive experience in semiconductor laser, surface mount and
optical technologies, we developed a three-wavelength optical recording and playback
head that supports Blu-ray Disc, DVD and CD playback with a single optical head.
Joint Development of Dual Wavelength Coupler for Red and Blue-Violet Lasers
In collaboration with Nichia Corporation, we developed a dual wavelength coupler for
the playback of DVD-format and blue-violet laser optical discs. It integrates two laser
diodes for the different laser wavelengths, the respective pickup elements and the
components for transmitting and receiving optical signals. Because prior systems
relied on separate elements to support the different wavelengths, this coupler will
help to simplify, miniaturize and lighten optical heads while making them more reliable.
Dual wavelength coupler
24 Sony Corporation
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05.7.6, 2:20 PM
R&D Expenses for the Fiscal Year under Review

R&D expenses for the fiscal year ended March 31, 2005, decreased 2.4%, to 502.0
billion, equivalent to 7.6% of net sales, excluding the Financial Services segment,
compared with 7.5% of net sales the prior year. R&D expenses in the Electronics
segment rose 0.8%, to 432.8 billion, while those in the Game segment declined
17.9%, to 68.5 billion. Approximately 62% of R&D expenses in the Electronics segment were allocated to prototype development and 38% to new, mid- to long-term
technologies focusing primarily on semiconductors, communications, displays and
next-generation optical disc technologies.
Long-Term Research Fields
In step with Moores Law,* semiconductor device development is evolving from the
micro to the nano** level as techniques for fabricating and measuring are increasingly miniaturized. Miniaturization is expanding computing capacity, accelerating the
transition to broadband networks, and stimulating the electrification and digitization
of staggering volumes of information and content in the form of text, voice, still-image
and video data. Accordingly, information technologies are transitioning from giga to
tera and peta.**
Advances in processors, storage, networks and software will drive massive
changes in the computing environment, making it possible to run large-scale simulations and process rich media applications in real time on a daily basis, impossible
until now because of a lack of computing power. In addition, Sonys integration of
recognition technologies with IT will render communication between humans and
QRIO bipedal robot
products/services more natural. In particular, it will enable the development of robots

that are more human-friendly.
We believe these technological trends will continue. Accordingly, in addition to
R&D for traditional devices that are viewed and interacted with as collections of many
molecules, atoms and electrons, we are starting to pursue research at a nano-device
and nano-electronics level into the qualitative characteristics of small numbers
of particles. Rather than relying solely on the top-down process represented by
traditional semiconductor processes, the fabrication of nano devices will combine
bottom-up processes in which the molecules align themselves. We are also venturing
R&D expenses
(Yen in billions)
600
into biotechnology and other areas, learning how to apply in our devices the qualities
of DNAthe legacy of evolutionand mimic the elegantly elaborate formation of
514.5
1.7
450
443.1
1.3
61.5
83.4
502.0
0.7
68.5
protein molecules.
We will continue R&D into these new technologies to facilitate their use in daily life
and enable us to offer products, services and entertainment that improve the quality
of life for people everywhere.
300
380.3
429.4
432.8
** Moores Law is the principle that the data density of integrated circuits doubles every 1824 months.
** Micro=one millionth, nano=one billionth, giga=1 billion, tera=1 trillion, peta=1 quadrillion (1,000 trillion)
150
2003
2004
The Sony
Challenge:
Seeing is
Believing
At Sony, our commitment to creating new visual
experiences doesnt stop at consumer electronics.
In this special feature, we take a look at three
applications of Sony technologies that underscore
this statement: the Laser Dream Theater, which uses
innovative technologies to offer images of unsurpassed
beauty; Sony Pictures Imageworks, a visual effects
and character animation leader; and CineAlta, a
revolutionary digital movie production system.
2005
Our challenge is to continue developing technologies
Electronics
Game
Other
like these, enabling us to offer innovative content

and hardware that mean seeing really is believing.
Sony Corporation 25
26 Sony Corporation
R&D Expenses for the Fiscal Year under Review

R&D expenses for the fiscal year ended March 31, 2005, decreased 2.4%, to 502.0
billion, equivalent to 7.6% of net sales, excluding the Financial Services segment,
compared with 7.5% of net sales the prior year. R&D expenses in the Electronics
segment rose 0.8%, to 432.8 billion, while those in the Game segment declined
17.9%, to 68.5 billion. Approximately 62% of R&D expenses in the Electronics segment were allocated to prototype development and 38% to new, mid- to long-term
technologies focusing primarily on semiconductors, communications, displays and
next-generation optical disc technologies.
Long-Term Research Fields
In step with Moores Law,* semiconductor device development is evolving from the
micro to the nano** level as techniques for fabricating and measuring are increasingly miniaturized. Miniaturization is expanding computing capacity, accelerating the
transition to broadband networks, and stimulating the electrification and digitization
of staggering volumes of information and content in the form of text, voice, still-image
and video data. Accordingly, information technologies are transitioning from giga to
tera and peta.**
Advances in processors, storage, networks and software will drive massive
changes in the computing environment, making it possible to run large-scale simulations and process rich media applications in real time on a daily basis, impossible
until now because of a lack of computing power. In addition, Sonys integration of
recognition technologies with IT will render communication between humans and
QRIO bipedal robot
products/services more natural. In particular, it will enable the development of robots

that are more human-friendly.
We believe these technological trends will continue. Accordingly, in addition to
R&D for traditional devices that are viewed and interacted with as collections of many
molecules, atoms and electrons, we are starting to pursue research at a nano-device
and nano-electronics level into the qualitative characteristics of small numbers
of particles. Rather than relying solely on the top-down process represented by
traditional semiconductor processes, the fabrication of nano devices will combine
bottom-up processes in which the molecules align themselves. We are also venturing
R&D expenses
(Yen in billions)
600
into biotechnology and other areas, learning how to apply in our devices the qualities
of DNAthe legacy of evolutionand mimic the elegantly elaborate formation of
514.5
1.7
450
443.1
1.3
61.5
83.4
502.0
0.7
68.5
protein molecules.
We will continue R&D into these new technologies to facilitate their use in daily life
and enable us to offer products, services and entertainment that improve the quality
of life for people everywhere.
300
380.3
429.4
432.8
** Moores Law is the principle that the data density of integrated circuits doubles every 1824 months.
** Micro=one millionth, nano=one billionth, giga=1 billion, tera=1 trillion, peta=1 quadrillion (1,000 trillion)
150
2003
2004
The Sony
Challenge:
Seeing is
Believing
At Sony, our commitment to creating new visual
experiences doesnt stop at consumer electronics.
In this special feature, we take a look at three
applications of Sony technologies that underscore
this statement: the Laser Dream Theater, which uses
innovative technologies to offer images of unsurpassed
beauty; Sony Pictures Imageworks, a visual effects
and character animation leader; and CineAlta, a
revolutionary digital movie production system.
2005
Our challenge is to continue developing technologies
Electronics
Game
Other
like these, enabling us to offer innovative content

and hardware that mean seeing really is believing.
Sony Corporation 25
26 Sony Corporation
Laser Dream Theater
Size: 34 x 6 x 2mm
GxL device
Magnified image of surface

Size: 25 microns
GxL System
GxL color
reproduction
spectrum
HDTV color
reproduction
specifications
Spectrum
locus
CIE 1931 chromaticity diagram
(xy chromaticity diagram)
GxL Color Reproduction
Sonys GxL display technology offers images like none ever seen before.
At the 2005 World Exposition in Aichi, Japan, Sony is presenting the Laser Dream
Theater, where high-quality images are projected with lasers onto one of the worlds
largest screens. The ultra-wide, 2005-inch screen is big enough to show even a
whale in life-size proportions, or display the skyline at dusk over the savanna with
such realism that you believe the real thing is right before your eyes.
Behind this amazing performance is the GxL (G-by-L) system under development
at Sony. GxL is a projection system that combines our proprietary high-output laser
technologies and cutting-edge micro-electromechanical systems (MEMS). By using
red, green and blue (RGB) lasers, it is able to more than double the
vividness of color produced in cathode-ray tube (CRT) televisions.
For example, only the GxL system can faithfully reproduce the brilliant
deep blue of the earth as shown at the end of Laser Dream Theaters Morpho menelaus
Clive S. Pratt
presentationthe same hue as found on the wings of the Morpho
The Insect Company
butterfly (morpho menelaus) dwelling in the Amazon.
The Laser Dream Theater brings together multiple Sony Group technologies, from
those used in content planning around the Expos theme, Natures Wisdom, to
those used in filming, music scores and image projection. A specially developed
camera system was used to film the images, which entered a single lens and were
simultaneously recorded onto three Hi-Vision video system HDCAM-SRs. Sony Music
Entertainment Japan also produced the high-fidelity music flowing from the 86
speakers installed in the theater.
Gathering the best in technology, Sony overcame numerous difficulties to realize its
dream of delivering high-quality, beautiful imagery never before seen on so gigantic a
screen. In pursuit of achievements like this, we will continue to follow our dreams and
curiosity to bring wonder and delight to people worldwide.
Naoya Eguchi
General Manager, Laser & Optics Development Department,
Photonics Development Division, Core Technology
Development Group, Micro Systems Network Company,
Sony Corporation
It was the summer of 2002 when I first heard about Sonys plans to participate
in the World Exposition. About the only thing decided then was that we would
try to create a 2005-inch screen to honor the year of the Expo. At the time, the
GxL prototype could only project up to 200 inches, so there was a more than
tenfold discrepancy between that and the 2005-inch goal. Nevertheless, a passion burned within us to create a laser display, a so-called dream display, with
our own hands. We managed to overcome many obstacles in an amazingly
short period to develop brand-new blue and green lasers.
The human optic nerve is constituted so it can respond to the three additive
primary colorsred, green and blue. The GxL system uses single wavelength
RGB lasers with outstanding color purity, enabling it to reproduce the same
colors as in real objects. The beauty it produces far exceeded even my own
expectations. When you look at the real world through a 2005-inch screen like
some huge window, you cant help but feel a sense of wonder and excitement.
Sony Corporation 27
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05.7.6, 2:19 PM
Spider-Man 2 Motion Picture 2004 Columbia Pictures Industries, Inc. All rights reserved. Spider-Man Character & 2004
Marvel Characters, Inc. All rights reserved.
Sony Pictures Imageworks (Imageworks) is driven by challenge. Imageworks is an

Academy Award-winning global leader in visual effects and character animation
because it meets the creative and technical demands presented by some of the
worlds preeminent, most cutting-edge filmmakers, who themselves are challenged
by an increasingly sophisticated worldwide audience. Its success stems from a
commitment to combining world-class artists and leading-edge technology.
Jay Redd
Visual Effects Supervisor,
Sony Pictures Imageworks
My job is to work with the director and
From left: Senior Visual Effects Supervisor John Dykstra, Visual

Effects Supervisor Scott Stokdyk, Special Effects Coordinator John
Frazier and Animation Supervisor Anthony LaMolinara celebrate the
Academy Award for Best Achievement in Visual Effects backstage
at the Awards.
production designers at the beginning of

a film and determine how to best realize
the conceptual ideas and bring the fantasy world to life. The director just has to
say, I want to do this. Then, its our job
Carlo Allegri/GettyImages. Oscar statuette

A.M.P.A.S.
Sony Pictures Entertainment Inc. (SPE) established Imageworks in 1992, initially to
to figure out how to do it. We have to
assist filmmakers in planning complex stunt sequences using computer-generated
decide how to shoot it, what kind of
(CG) imagery. SPE management recognized the importance of digital production as
technologies to use, what kinds of com-
filmmaking became more dependent on visual effects. Imageworks services are
puters, software and talent we need and
available to other studios in the motion picture industry and are the choice for leading
what kind of casting of visual effects art-
filmmakers. Some of Hollywoods most notable films featuring the companys visual
ists is necessary. I think the challenge is
effects and animation include Bewitched, The Aviator (Miramax), The Polar Express
to continue making effects that are truly
(Warner Bros.), Bad Boys II, Spider-Man and Spider-Man 2, Big Fish, The Matrix
magical and draw the audience into the
Revolutions (Warner Bros.), The Haunted Mansion (Disney), Seabiscuit (Universal),
experience so they forget they are in a
The Lord of the Rings: The Two Towers (New Line), Stuart Little and Stuart Little 2,
movie theater or watching TV.
The Matrix Reloaded (Warner Bros.), Harry Potter and the Sorcerers Stone (Warner
Bros.), Cast Away (Fox/DreamWorks) and Charlies Angels.
28 Sony Corporation
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05.7.6, 2:19 PM
Spider-Man 2, winner of the 2005 Academy Award for Best Achievement in Visual
Effects, demonstrated Imageworks drive to surpass its previous accomplishments
a challenge of the highest order. In Spider-Man 2, the hero gets up close and personal
with the tentacled villain, Doctor Otto OctaviusDoc Ock. Spider-Man engages in
extensive hand-to-hand combat with both real and virtual versions of Doc Ock, which
required complex and detailed CG versions of both characters. The reality of SpiderMans moves and reactions to attacks and blows from Doc Ocks tentacles required
Jerome Chen
a complete rethinking of the Spider-Man character, with even higher expectations for
Senior Visual Effects Supervisor,
the animators. Both digital characters showcased the state of the art in digital humans,
Sony Pictures Imageworks
with lifelike movement and appearance, especially in the rendering of skin, hair and
I help filmmakers tell their stories. Often
fabric. In the original Spider-Man, both the title character and the villain were masked.
the success of their story requires some-
In Spider-Man 2, we see their individual faces close up, which required the development
thing that hasnt been done before. My
of a new CG skin technology pipeline.
job is to figure out how to do it, ignoring

that at first glance it might seem impossible. This was the case last year with
The Polar Express. Film director Robert
Zemeckis was determined to faithfully
bring the visual style of the popular
childrens book to the big screen. He
didnt see it as a live-action film, but he
also didnt want to create the movie with
conventional animation. What he wanted
was something in between, a technique
that would transform an actors performance into a digital character. When
faced with a daunting challenge, I usually
think of what would be the most simple
and intuitive approach. With The Polar
Spider-Man 2 Motion Picture 2004 Columbia Pictures Industries, Inc. All rights reserved. Spider-Man Character & 2004
Marvel Characters, Inc. All rights reserved.
Express, I thought the simplest way to

get the best result was to capture the
details of the actors face and body at
the same time. We developed a new
performance-capture technique called
Imagemotion, in which the complete
performance is captured together and
later integrated by our digital artists into
the CG characters and environments.
The process also enabled Zemeckis to
stage his scenes with multiple actors,
A detailed digital city in Spider-Man 2, far more extensive than anything seen in Spider-Man, enabled the filmmakers to stage scenes across an urban landscape. This was most spectacularly revealed in the scenes in
which Spider-Man flies through the city and throughout a sequence where fully digital characters Spider-Man
and Doc Ock fight onboard a speeding train.
all of whom could be performancecaptured simultaneously. Scenes could

be played just as they would in live
action, with all of the spontaneity and
energy that comes with a live performance. What was simple to conceive
was incredibly difficult to accomplish, but
the results opened the door to a new
way of making movies.
Sony Corporation 29
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05.7.6, 2:19 PM
For more than a decade, Imageworks has challenged itself to build on its own
capabilities and expand the creative palette. Imagemotion, a new proprietary
technology developed by Imageworks, enables live-action filmmakers to work in an
all-CG environment while using all of their familiar moviemaking tools. Imagemotion
allows for the simultaneous recording of face and body performance data by multiple
live actors and the application of that data to create CG images and camera movements. Imageworks pioneered the Imagemotion process in its groundbreaking work
Jill Culton
on Robert Zemeckiss The Polar Express, and is currently using Imagemotion on
Director, Sony Pictures Animation
Columbia Pictures Monster House and Beowulf.
Im very proud to be directing Sony
The promise of all-CG animation inspired Imageworks to test itself by indepen-
Pictures Animations first feature film,
dently producing The ChubbChubbs!, which ultimately won the Academy Award for
Open Season. Directing an animated film
Best Animated Short in 2003. The establishment of Sony Pictures Animation to
presents many challenges, but ultimately
produce all-CG animated motion pictures presents Imageworks with its next chal-
I feel its my job to tell a great story. We
lenge. Sony Pictures Animations first two feature films, Open Season and Surfs Up,
strive to develop a story with humor,
are now in production.
emotion and a cast of endearing characters. At the same time, we have to think
about the look and style of the picture.
On Open Season, were going for a
graphic, stylized look. I really want the
audience to have the feeling you get
when youre in the woods for the first
time and your senses are overwhelmed
by the magnificence around you. One of
The ChubbChubbs! won the Academy Award for Best

Animated Short in 2003.
2002 Sony Pictures Imageworks. All rights reserved.
the things we did to achieve this look

was to develop new technology to create water that has the correct reflective
characteristics and volume.
In creating characters, expression is
essential. Today, were able to create
expression with infinite detail, closely mirroring the range of motion and expression that were accustomed to seeing in
life. The wink of an eye, the curve of a
smile, the furrow of a brow all contribute
to the performance. For directors, this is
Open Season will be the first feature length animated film

from Sony Pictures Animation. It is the story of a 900 pound
domesticated grizzly bear and a scrawny, one-horned mule
deer, stranded together in the woods during hunting season.
They must work together to rally the animals of the forest
and turn the tables on the hunters. Open Season is scheduled to be released in fall 2006.
an exciting advancement because the

expression we imagine can be seen on
the screen.
2005 Sony Pictures Animation. All rights reserved.
30 Sony Corporation
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05.7.6, 2:18 PM
Cinemas Digital Revolution
Director George Lucas on the set of

Star Wars Episode II: Attack of the Clones
Rick McCallum
Producer, Lucasfilm Ltd.
Let me be blunt. We simply could not
have made Star Wars Episode III without
the help of Sony and their development
of the HDCAM-SR 4:4:4 camera and
recording system.
Since we have gone to a completely
digital pipeline, another world has
opened up to us.
George Lucas and I are very passionate about digital filmmaking, and all of us
at Lucasfilm appreciate the contribution
CineAlta has made to our work. The two
main ways it has impacted our work has
been in allowing us to be more creative
and increasing our workflow efficiency.
For example, we can instantly access
footage we have just shot, which helps
not only the director, but the cast as well.
This, coupled with longer recording
times, helps us keep the production
moving at a fast pace without losing
momentum for camera reloads. Additionally, digital shooting allows us to go
into post production, not only off-line but
even online without any chemical processes like telecine, film scanning and
color timing, which increases our
production efficiency dramatically.
I believe that digital acquisition gives
us a significant advantage. It really is a
shame that very few people can enjoy
our movies in theaters at the same
quality level in which we shoot them.
Someday when the entire process
is digital, including the elusive final link of
theatrical distribution, moviegoers will get
to see films the way they were meant to
be seen. That will be a great day, and
one that Sony will have made a major
contribution to.
The CineAlta professional movie production system, a high-definition video format

(HDCAM 24P), has introduced a revolutionary new movie production process that
employs digital technologies while recording on tape to achieve the realism of
film imaging.
CineAlta, which takes its name from cinema and alta, the Spanish word for high,
uses the same frame rate, 24 frames per second, as conventional movie films and
achieves the same color and texture quality. The CineAlta project team, formed in
1998, succeeded in commercializing CineAlta in merely one and a half years.
The CineAlta system was used to shoot the entire 2002 blockbuster Star Wars
Episode II: Attack of the Clones, as well as 2005s sequel Star Wars Episode III:
Revenge of the Sith. The more recent film used the upgraded CineAlta RGB444
system, which has RGB color reproduction capabilities that deliver even greater
realism.
Sony Electronics Inc. and Panavision Inc. jointly
received a 2004 Primetime Emmy Engineering
Award from the Academy of Television Arts &
Sciences for the Panavised F900 HD 1080/24P
CineAlta camcorder. The Panavised F900 has
become the new standard for documentary and
independent moviemakers as the worlds first digital
24P imaging system. It incorporates high-quality
From left: Noritaka Miyaji and Kiyoshi
optics and cutting-edge digital processing and
Yamauchi (Professional Solutions Network
recording technologies in a single package.
Company, Sony Corporation) and Yasuhiko
Mikami (Sony Electronics Inc.) celebrate as
co-recipients of the 2004 Primetime Emmy
Engineering Award.
Sonys 4K SXRD projector heralds new

advances in digital cinema.
At Sony, we were not content to stop at modernizing film production. We pressed on with the development of digital cinema, in which
movies are both recorded and projected digitally. In 2005, we successfully commercialized and launched the industrys first 4K digital projector. The 4K projector is a
digital cinema projector incorporating a 4K Silicon X-tal (crystal) Reflective Display
(SXRD) device, which produces high-resolution 8.85-megapixel images, four times
sharper than those of current high-definition televisions.
With the advent of our digital projector, movies can be presented in theaters with
virtually no degradation in quality from when they are recorded. Quality does not
diminish with repeated use, leading to significant time and cost savings.
James Cameron, renowned director of

Titanic, shot the 3-D feature Ghosts of the
Abyss using a CineAlta system in a special
housing. Diving 3,650 meters in a deep-sea
submersible to explore the Titanic, Camerons
crew penetrated the interior of the sunken
liner to capture scenes never before
witnessed by the living.
A still from the film Ghosts of the Abyss directed by James Cameron and
used with the permission of Walden Media, LLC.
Sony Corporation 31
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05.7.6, 2:17 PM
Corporate Governance/New Directors and Corporate Executive Officers
Sony follows the Company with Committees corporate governance system

under the Japanese Commercial Code, under which the Board of Directors
maintains an important oversight role separate from the executive function
and delegates broad authority to the Corporate Executive Officers to run the
companys affairs. This separation of functions allows for sound and transparent
management as well as swift and dynamic decision making in a rapidly changing
environment.
Governance Structure
As statutory decision-making bodies, Sony has established the Board of Directors,
three Board committees (the Nominating Committee, Audit Committee and Compensation Committee) and the Corporate Executive Officers. In addition to those
statutory bodies, Sony has Corporate Executives who carry out business operations
within specific areas. The primary roles of each body are set out below.
Board of Directors
1. Determines the fundamental management policies of the Sony Group
2. Oversees the management of Sony Groups business operations
3. Determines Directors who comprise the statutory committees
4. Appoints and dismisses Corporate Executive Officers
Statutory Committees
Nominating Committee:
Audit Committee:
Proposes the appointment and dismissal of Directors

Audits the execution of duties by Directors and
Corporate Executive Officers with regard to financial
statements, disclosure controls and procedures,
internal controls, compliance structure, risk management structure, internal audit structure, whistleblower
protections and other matters; proposes appointment/
dismissal of, approves the compensation of, oversees
and evaluates Sonys independent auditors.
Compensation Committee: Determines remuneration for individual Directors,
Corporate Executive Officers, Corporate Executives
and Group Executives.
Corporate Executive Officers
Make decisions regarding the execution of Sony Group business activities within the
scope of the authority delegated to them by the Board of Directors.
Corporate Executives
Carry out business operations within specific areas, including business units,
research and development and/or head office functions, in accordance with the
fundamental policies determined by the Board of Directors and the Corporate
Executive Officers.
Sony Initiatives
To strengthen governance beyond Commercial Code requirements, Sony has added
several provisions to its Regulations of the Board of Directors to ensure the separation
of the Board of Directors from the execution of business activities, and to advance the
proper functioning of the statutory committees. The main provisions are as follows:
Separating the roles of the Board chairman/vice chairman and Representative
Limiting the number of terms outside Directors may serve and rotating committee
membership
Appointing chairmen of statutory committees from the ranks of outside Directors
Instituting qualifications for director candidates aimed at eliminating conflicts of
interest and ensuring independence
Raising the minimum number of Nominating Committee members (five or more),
prohibiting the appointment of the CEO or COO of Sony Group (or person at any
equivalent position) to the Compensation Committee, and discouraging the
concurrent appointment of Audit Committee members to other committees
Meeting Record
During the year ended March 31, 2005, the Board of Directors convened seven
times. The Nominating Committee met seven times, the Audit Committee 15 times,
and the Compensation Committee seven times.
32 Sony Corporation
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05.7.6, 2:17 PM
Structure of Sony Corporate Governance System

Supervision
Board of Directors
Determination of fundamental management policies for the Sony Group
Oversight of management of Sony Groups business operations
Determination of Directors organizing each committee
Appointment and dismissal of Corporate Executive Officers
Chairman of the Board: Yotaro Kobayashi*
Sir Howard Stringer
Ryoji Chubachi
Katsumi Ihara
Akishige Okada*
Hirobumi Kawano*
Yotaro Kobayashi*
Sakie T. Fukushima*
Yoshihiko Miyauchi*
Yoshiaki Yamauchi*
Sir Peter Bonfield*
Fueo Sumita*
Gran Lindahl
Vice Chairman of the Board: Hirobumi Kawano*
Sony Corporation Chairman and Chief Executive Officer

Sony Corporation President and Electronics CEO
Sony Corporation Executive Deputy President and NC President, Home Electronics Network Company
Chairman of the Board (Representative Director), Sumitomo Mitsui Financial Group, Inc.
Chairman of the Board (Representative Director), Sumitomo Mitsui Banking Corporation
Senior Vice President, JFE Steel Corporation
Chairman of the Board, Fuji Xerox Co., Ltd.
Representative Director & Regional Managing Director Japan, Korn/Ferry International
Member of the Board, Korn/Ferry International, U.S.A.
Director, Representative Executive Officer, Chairman and Chief Executive Officer, ORIX Corporation
Director, Sumitomo Mitsui Financial Group, Inc.
Member of the Board, Telefonaktiebolaget LM Ericsson
Chief of Sumita Accounting Office
Sony Corporation
Nominating Committee
Proposes the appointment and
dismissal of Directors
Yotaro Kobayashi* (Chairman)
Hirobumi Kawano*
Akishige Okada*
Sir Howard Stringer
Ryoji Chubachi
Audit Committee
Compensation Committee
Audits the execution of duties by Directors

and Corporate Executive Officers with regard
to financial statements, disclosure controls
and procedures, internal controls, compliance structure, risk management structure,
internal audit structure, whistleblower
protections and other matters; proposes
appointment/dismissal of, approves the
compensation of, oversees and evaluates
Sonys independent auditors.
Determines remuneration for individual

Directors, Corporate Executive Officers,
Corporate Executives and Group
Executives.
Akishige Okada* (Chairman)
Yoshihiko Miyauchi*
Gran Lindahl
Yoshiaki Yamauchi* (Chairman)

Sakie T. Fukushima*
Fueo Sumita*
* An outside director appointed in accordance with Paragraph 2, Subsection 7, Section 2, Article 188 of the Commercial Code.
Execution
Execution of Sony Group Business activities within the scope of authority delegated by the Board of Directors
Representative Corporate Executive Officers:
Sir Howard Stringer** Chairman and Chief Executive Officer
Ryoji Chubachi**
President and Electronics CEO
Katsumi Ihara**
Executive Deputy President and NC President, Home Electronics Network Company
Corporate Executive Officers:
Nobuyuki Oneda
Executive Vice President and Chief Financial Officer
Keiji Kimura
Executive Vice President and Officer in Charge of Technology Strategies
NC President, Information Technology & Communications Network Company
Nicole Seligman
Executive Vice President and General Counsel
Yutaka Nakagawa
Executive Vice President and NC President, Personal Audio Visual Network Company
** Concurrently serving as Director.
New Directors and Corporate Executive Officers as of June 22, 2005
Sony Corporation 33
SONY AR-E0629
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05.7.6, 2:16 PM
Corporate Social Responsibility
Sony CSR Report 2005

Please refer to the Sony CSR Report for
full details of our CSR activities.
http://www.sony.net/csr/
The Sony CSR Policy and Activities

The core responsibility of the Sony Group to society is to pursue enhancement of
corporate value through innovation and sound business practices. The Sony Group
recognizes that its businesses have direct and indirect impact on the societies in
which it operates. Sound business practice requires that business decisions give due
consideration to the interests of Sonys stakeholders, including shareholders,
customers, employees, suppliers, business partners, local communities and other
organizations.
To ensure our ability to continue fulfilling our fundamental social responsibility, we
are acting on a number of fronts. These include strengthening our corporate governance, compliance and quality management systems, as well as maintaining sound
labor and employment practices and a healthy working environment, conserving the
environment (mainly through reducing greenhouse gases emissions, raising resource
productivity and improving chemical substance management), and contributing to
our communities through social contribution programs.
Compliance System Improvements
We have established the Sony Group Code of Conduct and have introduced it at all
Group companies with the objective of reinforcing Sonys commitment to integrity,
corporate governance, legal and regulatory compliance and ethical business
practices. In addition, we have set up the Sony Group Compliance Hotline, an
internal tool designed to provide each employee with a means of reporting any
perceived violation of law, regulation or internal company rule or policy, or to raise
concerns about any such matters.
Through our global network of Regional Compliance Offices, we are continually
working to strengthen our compliance system throughout the Sony Group.
Sony Group Compliance Network
Corporate Executive Officer in Charge of Compliance
Compliance Office
*1
East Asia
*2
Pan-Asia
*3
Regional
Compliance
Offices
Americas
Europe
Japan
Compliance
Officer
Compliance
Officer
Compliance
Officer
Compliance
Officer
Compliance
Officer
Regional
Subsidiaries
Subsidiaries in
the Americas
Subsidiaries in
Europe
Subsidiaries in
Japan
Subsidiaries in
East Asia
Subsidiaries in
Pan-Asia
*1. Responsible for Japan, South Korea and Taiwan

*2. Responsible for Mainland China and Hong Kong
*3. Responsible for Southeast Asia, the Middle East, Africa and Oceania
Socially Responsible Investing

Sonys efforts to be socially responsible are recognized worldwide with its inclusion in
such leading indices as the Dow Jones Sustainability Indexes (as of April 1, 2005).
Dow Jones Sustainability Indexes

Jointly developed by Dow Jones Indexes (United
States), STOXX Limited (Switzerland) and the
SAM Group (Switzerland)
34 Sony Corporation
FTSE4Good Global 100 Index

Developed by the FTSE Group, a Financial Times Ltd.
(United Kingdom) and London Stock Exchange plc joint
venture
Financial Section
Contents
Operating and Financial Review and Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Five-Year Summary of Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Quarterly Financial and Stock Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Segment Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Consolidated Statements of Changes in Stockholders Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Sony Corporation 35
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Operating and Financial Review and Prospects

Sony Corporation and Consolidated Subsidiaries
OPERATING RESULTS
Operating Results for the Fiscal Year Ended March 31, 2005
left the company primarily through early retirement programs.

For more detailed information about restructuring, please refer
compared with the Fiscal Year Ended March 31, 2004
to Note 25 of Notes to the Consolidated Financial Statements.
OVERVIEW
After translation of Sonys financial results into yen (the currency in
ELECTRONICS
Restructuring charges in the Electronics segment for the fiscal
which Sonys financial statements are prepared), in accordance

with Generally Accepted Accounting Principles in the U.S. (U.S.
year ended March 31, 2005 were 81.8 billion yen, compared to
143.3 billion yen in the previous fiscal year. Of these restructuring
GAAP). Sonys sales and operating revenue (sales) for the fiscal
year ended March 31, 2005 decreased 4.5 percent compared
charges, restructuring charges of 2.1 billion yen and 1.1 billion

yen, for the years ended March 31, 2004 and 2005, respectively,
with the previous fiscal year. On a local currency basis (regarding

references to results of operations expressed on a local currency
were recorded in the non-Japan based disc manufacturing and

physical distribution businesses, formerly included within the
basis, refer to Foreign Exchange Fluctuations and Risk Hedging

below), sales for the fiscal year decreased approximately 3 per-
Music segment but reclassified to the Electronics segment. See

Note 25 of Notes to the Consolidated Financial Statements for
cent. This decrease is mainly due to the fact that, as of August

1, 2004, the sales of Sonys overseas recorded music business
more information on this reclassification.

In the fiscal year ended March 31, 2004, Sony made a
are no longer recorded within Sonys consolidated sales as a result

of the establishment of SONY BMG MUSIC ENTERTAINMENT
decision to shut down certain TV display CRT manufacturing

operations in Japan to rationalize production facilities and
(SONY BMG), which is accounted for by the equity method,

through the merger of Sonys overseas recorded music business
downsize its business, due to a contraction in the market as a

result of a shift in demand from CRT televisions to plasma and
with Bertelsmann AGs recorded music business, and a change

in the method of recognizing insurance premiums received on
liquid crystal display (LCD) panel televisions. In the year ended

March 31, 2005, as part of this restructuring program, Sony
certain products at Sony Life Insurance Co., Ltd. (Sony Life),

as of the third quarter beginning October 1, 2003, from being
recorded a non-cash impairment charge of 7.5 billion yen for the

CRT TV display manufacturing facilities located in Europe. The
recorded as revenues to being offset against the related

provision for future insurance policy benefits.
impairment charge was calculated as the difference between

the carrying value of the asset group and the present value of
Operating income increased 15.2 percent compared with the

previous fiscal year. On a local currency basis, operating income
estimated future cash flows. The charge was recorded in loss on

sale, disposal or impairment of assets, net in the consolidated
increased approximately 26 percent compared with the previous

fiscal year. In addition to a decrease in restructuring charges
statements of income.
In addition to the above restructuring efforts, Sony undertook
compared to the previous fiscal year, several segments experienced an improvement in profitability such as the Pictures
several headcount reduction programs to further reduce operating costs in the Electronics segment. As a result of these pro-
segment, where Spider-Man 2 was a significant contributor,

and the Music segment, where several best-selling albums and
grams, Sony recorded restructuring charges of 50.3 billion yen

for the fiscal year ended March 31, 2005, and these charges
singles in Japan contributed to improved profitability. On the

other hand, the Electronics segment, where the cost of sales
were included in selling, general and administrative expenses in

the consolidated statements of income. These staff reductions
ratio deteriorated due to pricing pressures, and the Game

segment, where there was a decrease in hardware sales,
were achieved worldwide mostly through the implementation of

early retirement programs. The remaining liability balance as of
both experienced deteriorated profitability.
March 31, 2005 was 14.0 billion yen and will be paid through
the fiscal year ending March 31, 2006. Sony will continue seek-
RESTRUCTURING
In the fiscal year ended March 31, 2005, Sony recorded restruc-
ing the appropriate headcount level to optimize the workforce in

the Electronics segment.
turing charges of 90.0 billion yen, a decrease from the 168.1 billion yen recorded in the previous fiscal year. The primary restruc-
MUSIC
turing activities were in the Electronics and Music segments.

Of the total 90.0 billion yen, Sony recorded 53.6 billion yen in
Restructuring charges in the Music segment, including at Sony

Music Entertainment (Japan) Inc. (SMEJ), for the fiscal year
personnel related costs. This expense was incurred because

12,000 people, mainly in Japan, the U.S. and Western Europe,
ended March 31, 2005 were 3.8 billion yen, compared to 9.9
billion yen in the previous fiscal year.
36 Sony Corporation
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05.7.7, 3:35 AM
Due to the continued contraction of the worldwide music

market caused by slow worldwide economic growth, the
and other operating revenue portions of consolidated sales

and operating revenue, and excludes Financial service revenue.
saturation of the CD market, the effects of piracy and other

illegal duplication, parallel imports, pricing pressures and the
This is because Financial Service expenses are recorded

separately from cost of sales and selling, general and adminis-
diversification of customer preferences, Sony has been actively

repositioning the Music segment for the future by looking to
trative expenses. Furthermore, in the analysis of cost of sales,

including research and development costs, to sales, only net
create a more effective and profitable business model. As a

result, the Music segment has undertaken a worldwide restruc-
sales are used. This is because cost of sales is an expense

associated only with net sales. The calculations of all ratios
turing program since the fiscal year ended March 31, 2001 to
reduce staffing and other costs through the consolidation and
below that pertain to business segments include intersegment

transactions.)
rationalization of facilities worldwide.

During the fiscal year ended March 31, 2005, in continuation of
the worldwide restructuring program and in connection with the
merger of its recorded music business into a joint venture with

and operating income
(Yen in billions)
(Yen in billions)
8,000
800
charges exclude restructuring charges that were recorded in the

non-Japan based disc manufacturing and physical distribution
6,000
600
businesses that were formerly included in the Music segment but

have now been reclassified to the Electronics segment. Restruc-
4,000
400
Bertelsmann AG, Sony recorded restructuring charges totaling

3.0 billion yen within the Music segment. These restructuring
turing activities included the shutdown of certain distribution

operations after the establishment of the recorded music joint
venture with Bertelsmann AG as well as the further rationalization
of overhead functions through staff reductions. The restructuring
charges consisted of personnel related costs of 0.9 billion yen
and other related costs of 2.1 billion yen. These charges are
included in selling, general and administrative expenses in the
consolidated statements of income. Positions were eliminated
2.5%
2,000
1.3%
2003
2004
1.5% 200
2005
Sales and operating revenue (left)

Operating margin
across various employee levels, business functions, operating

units, and geographic regions during this phase of the worldwide
COST OF SALES AND SELLING, GENERAL AND

ADMINISTRATIVE EXPENSES
restructuring program.
Cost of sales for the fiscal year ended March 31, 2005 decreased
by 58.1 billion yen, or 1.1 percent, to 5,000.1 billion yen com-
OPERATING PERFORMANCE
pared with the previous fiscal year, but increased from 73.5
percent to 76.2 percent as a percentage of sales. Year on year,
Yen in billions
Years ended March 31
Percent change
2004
2005
2005/2004
Sales and operating revenue . .
7,496.4
7,159.6
Operating income . . . . . . . . . .
98.9
113.9
+15.2
Income before income taxes . .
144.1
157.2
+9.1
affiliated companies . . . . . . . .
1.7
29.0
+1,594.2
Net income . . . . . . . . . . . . . . .
88.5
163.8
+85.1
4.5%
Equity in net income of
SALES
Sales for the fiscal year ended March 31, 2005 decreased by
336.8 billion yen, or 4.5 percent, to 7,159.6 billion yen compared with the previous fiscal year. A further breakdown of sales
figures is presented under Operating Performance by Business
Segment below.
(Sales in this analysis of the ratio of selling, general and
administrative expenses to sales refers only to the net sales
the cost of sales ratio rose from 78.9 percent to 81.8 percent in
the Electronics segment and increased from 70.1 percent to
73.0 percent in the Game segment. On the other hand, the cost
of sales ratio decreased from 58.5 percent to 57.2 percent in
the Music segment and improved in the Pictures segment from
60.0 percent to 58.7 percent.
In the Electronics segment, there was a deterioration in the
cost of sales ratio particularly within the CRT television, portable
audio, DVD recorder (including PSX) and video camera businesses. In the Game segment, there was an increase in the cost
of sales ratio as a result of costs associated with both the
launch of the PlayStation Portable (PSP) and the changeover
to the new PlayStation 2 (PS2) model. The cost of sales ratio
in the Music segment improved due to the establishment of
SONY BMG which is accounted for under the equity method
resulting in a higher percentage of sales being derived from
SMEJ which benefited from the contribution of greatest hits
Sony Corporation 37
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05.7.7, 3:35 AM
album sales. In the Pictures segment, the cost of sales ratio also
improved primarily due to the substantial contribution from
advertising and publicity expenses for the fiscal year decreased

by 51.6 billion yen compared to the previous fiscal year. This
Spider-Man 2.
Personnel related costs included in cost of sales decreased
was primarily due to the fact that advertising and publicity

expenses that were recorded in the Music segment decreased
by 52.5 billion yen compared with the previous fiscal year,

primarily within the Electronics segment.
due to the establishment of SONY BMG and a reduction in

advertising and publicity expenses in the Pictures segment.
Research and development costs (all research and development costs are included within cost of sales) for the fiscal year
Loss on sale, disposal or impairment of assets, net was

28.0 billion yen, compared with 35.5 billion in the previous fiscal
ended March 31, 2005 decreased by 12.5 billion yen to 502.0

billion yen compared with the previous fiscal year. The ratio of
year. Although losses were recorded on the sale, disposal and

impairment of CRT and CRT television production equipment
research and development costs to sales was 7.6 percent

compared to 7.5 percent in the previous fiscal year.
in the Electronics segment, gains were recorded mainly from

the sale of land and buildings in both the Electronics and
Selling, general and administrative expenses for the fiscal year

ended March 31, 2005 decreased by 263.2 billion yen, or 14.6
Other segments.
percent, to 1,535.0 billion yen compared with the previous fiscal

year. The ratio of selling, general and administrative expenses to
OPERATING INCOME
Operating income for the fiscal year ended March 31, 2005
sales improved from 25.9 percent in the previous fiscal year to

23.2 percent. Year on year, the ratio of selling, general and
increased by 15.0 billion yen, or 15.2 percent, to 113.9 billion yen

compared with the previous fiscal year. The operating income
administrative expenses to sales improved from 21.2 percent to

19.0 percent in the Electronics segment, from 21.1 percent to
margin increased from 1.3 percent to 1.6 percent. The business

segments that contributed the most to operating income, in
21.0 percent in the Game segment, and improved from 41.8

percent to 38.9 percent in the Music segment, and from 35.0
descending order by amount of financial impact, were the

Pictures, Financial Services and Game segments. On the other
percent to 32.5 percent in the Pictures segment.

Personnel related costs in selling, general and administrative
hand, the Electronics segment recorded an operating loss mainly

due to the appreciation of the yen against the U.S. dollar as well
expenses decreased by 169.3 billion yen compared with the

previous fiscal year mainly due to a decrease in severance
as an increase in cost of sales that exceeded the reduction in selling, general and administrative expenses. For a further break-
related expenses in the Electronics segment resulting from the

implementation of restructuring initiatives, and the fact that
down of operating income for each segment, please refer to

Operating Performance by Business Segment below.
personnel related costs in Sonys recorded music business

outside Japan are no longer recorded within Sonys consoli-
OTHER INCOME AND EXPENSES
dated selling, general and administrative expenses due to the

establishment of SONY BMG mentioned above. In addition,
In the consolidated results for the fiscal year ended March 31,
2005, other income decreased by 24.7 billion yen, or 20.2
percent, to 97.6 billion yen, while other expenses decreased by
22.8 billion yen, or 29.5 percent, to 54.3 billion yen, compared
Research and development

expenses and as a percentage
of sales
(Yen in billions)
600
7.5%
7.6%
Cost of sales and selling, general

and administrative (SGA) expenses
as a percentage of sales
(%)
(%)
80
72.0%
73.5%
76.2%
300
60
40
exchange gain of 18.1 billion yen recorded in the previous fiscal

year. The net foreign exchange loss was recorded because the
25.6%
150
decrease of 1.9 billion yen, or 4.2 percent, compared with the

previous fiscal year.
A net foreign exchange loss of 0.5 billion yen was recorded in
the fiscal year ended March 31, 2005, compared to a net foreign
6.4%
450
with the previous fiscal year. The net amount of other income
and other expenses was net other income of 43.3 billion yen, a
25.9%
23.2%
20
value of the yen, especially during the first quarter of the fiscal
year ended March 31, 2005, was lower than the value of the yen
at the time that Sony entered into foreign exchange forward
contracts and foreign currency option contracts. These con-
2003
2004
2005
2003
2004
Cost of sales/sales
SGA/sales
Research and development

expenses
Percentage of sales

* Excluding the Financial
Services segment

*Excluding the Financial
Services segment
2005
tracts are entered into by Sony to mitigate the foreign exchange

rate risk to cash flows that arises from settlements of foreign
currency denominated accounts receivable and accounts
payable, as well as foreign currency denominated transactions
between consolidated subsidiaries.
38 Sony Corporation
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05.7.7, 3:35 AM
For the fiscal year ended March 31, 2005, a loss on devaluation of securities investments of 3.7 billion yen was recorded, an
RESULTS OF AFFILIATED COMPANIES ACCOUNTED FOR

UNDER THE EQUITY METHOD
improvement of 12.8 billion yen, or 77.5 percent, compared with

the previous year. This improvement was primarily due to the
Equity in net income of affiliated companies during the fiscal year

ended March 31, 2005 was 29.0 billion yen, an increase of 27.3
recording of valuation losses of 10.3 billion yen in the previous

fiscal year related to securities issued by a privately held Japa-
billion yen, or 1,594.2 percent, compared to 1.7 billion yen

recorded in the previous fiscal year. Equity in net income of Sony
nese company engaged in cable broadcasting and other

businesses which Sony accounted for under the cost method.
Ericsson Mobile Communications AB (Sony Ericsson), a joint

venture focused on mobile phone handsets, was 17.4 billion
The gain on change in interest in subsidiaries and equity

investees increased by 11.5 billion yen, or 235.2 percent
yen, an increase of 11.0 billion yen, or 171.9 percent, compared

to the 6.4 billion yen recorded in the previous fiscal year. Equity
compared to the previous fiscal year to 16.3 billion yen. This

was mainly the result of gains of 9.0 billion yen from a change in
in net income of affiliated companies for the current fiscal year

includes the recording of 12.6 billion yen as equity in net income
interest from Monex Inc., an equity affiliate of Sony, following its

business integration by way of share transfer with Nikko Beans,
from InterTrust Technologies Corporation (InterTrust). This

amount reflects InterTrusts proceeds from a license agreement
Inc and total gains of 4.7 billion yen from the sale of stock and a
change in interest in a subsidiary resulting from the initial public
with Microsoft Corporation arising from the settlement of a

patent-related lawsuit. In addition, due to significant restructur-
offering of So-net M3 Inc., a consolidated subsidiary of Sony

Communication Network Corporation (SCN).
ing costs, an equity loss of 3.4 billion yen was recorded at

SONY BMG. Furthermore, equity in net loss was recorded at
In addition, the net gain recorded on sales of securities

investments decreased 6.3 billion yen, or 53.8 percent, to 5.4
affiliates such as STAR CHANNEL INC., a Japan-based subscription television company specializing in the broadcast of
billion yen. This was primarily a result of the recording of a

deferred gain of 6.0 billion yen in the fiscal year ended March 31,
movies, and S-LCD Corporation (S-LCD), a joint-venture with

Samsung Electronics Co., Ltd. (Samsung), for the manufacture
2004, from Sonys sale, during the fiscal year ended March 31,
2003, of its equity interest in Telemundo Communications
of amorphous TFT LCD panels.
Group, Inc. and its subsidiaries (Telemundo), a U.S.-based

Spanish language television network and station group that was
MINORITY INTEREST IN INCOME OF CONSOLIDATED

SUBSIDIARIES
accounted for under the equity method.
In the fiscal year ended March 31, 2005, minority interest in

income of consolidated subsidiaries decreased by 0.7 billion
INCOME BEFORE INCOME TAXES

Income before income taxes for the fiscal year ended March 31,
yen, or 30.6 percent, to 1.7 billion yen. This decrease was

primarily due to the recording of minority interest at certain
2005 increased 13.1 billion yen, or 9.1 percent, to 157.2 billion

yen compared with the previous fiscal year, as a result of the
television and home entertainment subsidiaries in the Pictures

segment in the previous fiscal year.
increase in operating income and the decrease in net amount of

other income and other expenses mentioned above.
NET INCOME
INCOME TAXES
Net income for the fiscal year ended March 31, 2005 increased
by 75.3 billion yen, or 85.1 percent, to 163.8 billion yen com-
Income taxes for the fiscal year ended March 31, 2005 decreased by 36.7 billion yen, or 69.6 percent, to 16.0 billion yen.
pared with the previous fiscal year. This increase was the result
primarily of the abovementioned increase in income before
Compared to an effective tax rate of 36.6 percent in the previous

fiscal year, the effective tax rate was 10.2 percent in the current
income taxes, a decrease in the effective tax rate, as well as an

increase in equity in net income of affiliated companies. As a
fiscal year. As a result of the recording of operating losses in the

past, the U.S. subsidiaries of Sony have had valuation allow-
percentage of sales, net income increased from 1.2 percent to

2.3 percent. Return on stockholders equity increased from 3.8
ances against deferred tax assets for U.S. federal taxes and
certain state taxes. However, in the fiscal year ended March 31,
percent to 6.2 percent. (This ratio is calculated by dividing net

income by the simple average of stockholders equity at the end
2005, based on both improved operating results in recent years

and a sound outlook for the future operating performance at
of the previous fiscal year and at the end of the fiscal year ended
March 31, 2005.)
Sonys U.S. subsidiaries, Sony reversed 67.9 billion yen of such

valuation allowances, resulting in a reduction to income tax
Basic net income per share was 175.90 yen compared with
95.97 yen in the previous fiscal year, and diluted net income per
expense. On the other hand, certain of Sonys subsidiaries

recorded new valuation allowances against deferred tax assets
share was 158.07 yen compared with 87.00 yen in the previous
fiscal year. Refer to Notes 2 and 22 of Notes to Consolidated
during the fiscal year ended March 31, 2005.
Financial Statements.
Sony Corporation 39
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05.7.7, 3:35 AM
Net income and ROE
(Yen in billions)
Net income per share of

common stock
(%)
200
Shares of sales and operating revenue by business segment
(Yen)
200
150
7.4%
Electronics
Game
Music
Pictures
Financial Services
Other
3.4%
9.7%
6.2%
150
3.3%
5.0%
9.7%
100
3.8%
50
2003
2004
2005
100
50
66.5%
*Including intersegment transactions
2003
2004
company, SONY BMG, is 50 percent owned by each parent

company. Under U.S. GAAP, SONY BMG is accounted for by
2005
Net income
ROE
Basic
Diluted
Sony using the equity method and, since August 1, 2004, 50

percent of net profits or losses of this business have been
OPERATING PERFORMANCE BY BUSINESS SEGMENT

The following discussion is based on segment information.
Sales and operating revenue in each business segment include
intersegment transactions. Refer to Note 25 of Notes to
included under equity in net income (loss) of affiliated companies.

In connection with the establishment of this joint venture,
Sonys non-Japan based disc manufacturing and physical
distribution businesses, formerly included within the Music
Consolidated Financial Statements.
segment, have been reclassified to the Electronics segment to

reflect the new management reporting structure whereby Sonys
BUSINESS SEGMENT INFORMATION
Electronics segment has now assumed responsibility for these

businesses. Results for the previous fiscal year in the Electronics
Yen in billions
2004
Percent change
2005
2005/2004

Electronics . . . . . . . . . . . .
Game . . . . . . . . . . . . . . . .
5,042.3
780.2
5,021.6
729.8
0.4%
6.5%
Music . . . . . . . . . . . . . . . .
Pictures . . . . . . . . . . . . . .
440.3
756.4
249.1
733.7
43.4%
3.0%
Financial Services . . . . . . .
Other . . . . . . . . . . . . . . . .
593.5
268.3
560.6
254.4
5.6%
5.2%
and Music segments have been restated to account for this

reclassification.
In the Music segment, results for the fiscal year ended March
31, 2005 only include the results of Sony Music Entertainment
Inc.s (SMEI) recorded music business for the months of April
through July 2004, and the twelve months results of SMEIs
music publishing business and SMEJ. However, results for the
previous fiscal year in the Music segment include the consolidated results for SMEIs recorded music business for all twelve
months of the fiscal year, as well as the full years results for
Elimination . . . . . . . . . . . .
(384.7)
(389.6)
Consolidated . . . . . . . . . . . .
7,496.4
7,159.6
4.5%
Operating income (loss)

Electronics . . . . . . . . . . . .
(6.8)
(34.3)
Game . . . . . . . . . . . . . . . .
Music . . . . . . . . . . . . . . . .
67.6
(6.0)
43.2
8.8
36.1%
%
transferring Sony Computer Entertainment Inc.s semiconductor

manufacturing operation from the Game segment to the
Pictures . . . . . . . . . . . . . .
Financial Services . . . . . . .
35.2
55.2
63.9
55.5
+81.4%
+0.6%
Electronics segment. As a result of this transfer, sales revenue

and expenditures associated with this operation are now
Other . . . . . . . . . . . . . . . .
(12.1)
(4.1)
Total . . . . . . . . . . . . . . . . . . .
133.1
133.0
0.1%
recorded within the Semiconductor category in the Electronics

segment. The results for the same period of the previous fiscal
corporate expenses . . . .
(34.2)
(19.0)
year have not been restated as such comparable figures cannot

be practically obtained given that it was not operated as a
Consolidated . . . . . . . . . . . .
98.9
113.9
+15.2%
Elimination and unallocated
SMEIs music publishing business and SMEJ.

In July 2004, in order to establish a more efficient and coordinated semiconductor supply structure, Sony completed the
integration of its semiconductor manufacturing business by
separate business within the Game segment. This integration of

the semiconductor manufacturing businesses is a part of Sonys
As of August 1, 2004, Sony and Bertelsmann AG combined

their recorded music businesses, excluding Sonys Japanese
semiconductor strategy of utilizing semiconductor technologies

and manufacturing equipment originally developed or designed
recorded music business, in a joint venture. The newly formed
for the Game business within Sony as a whole.
40 Sony Corporation
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ELECTRONICS
Sales for the fiscal year ended March 31, 2005 decreased 20.7
to 571.9 billion yen. Sales of headphone stereos declined as a

result of a significant decrease in the unit shipments of both CD
billion yen, or 0.4 percent, to 5,021.6 billion yen compared with

the previous fiscal year. An operating loss of 34.3 billion in the
format and MD format devices due to a shift in demand towards

hard disc- and flash-based memory players. Worldwide ship-
Electronics segment was recorded compared to the operating

loss of 6.8 billion yen in the previous fiscal year. Sales to outside
ments of CD format devices decreased by approximately 3.68

million units to approximately 7.28 million units and worldwide
customers on a yen basis decreased 1.1 percent compared to

the previous fiscal year. Regarding sales to outside customers
shipments of MD format devices decreased by approximately

1.44 million units to 1.92 million units. Sales of home audio
by geographical area, although sales decreased in Japan by 10

percent and in the U.S. by 4 percent, they remained almost
declined primarily due to a contraction of the market. On the

other hand, overall sales of car audio increased slightly due to
unchanged in Europe and increased by 9 percent in non-Japan

Asia and other geographic areas (Other Areas).
strong sales in the European market and Other Areas.

Video sales increased by 85.5 billion yen, or 9.0 percent, to
In Japan, although there was a significant increase in the sales

of LCD televisions, and an increase in the sales of DVD record-
1,034.7 billion yen. There was a growth in the sales of digital

still cameras outside of Japan and DVD recorders (including
ers (including PSX), there was a decrease in the sales of PCs,

cellular phones, primarily to Sony Ericsson, broadcast- and
PSX) recorded a significant increase in sales worldwide. Worldwide shipments of digital still cameras increased by approxi-
professional-use equipment and CRT televisions. In the U.S.,

there was an increase in sales of LCD rear projection televisions
mately 4.0 million units to approximately 14.0 million units.

Worldwide shipments of DVD recorders were approximately
and digital still cameras, although sales mainly of CRT televisions, PCs, computer displays and portable audio declined.
650,000 units in the previous fiscal year but increased to

approximately 1.7 million units in the fiscal year ended March
In Europe, sales increased, primarily of digital still cameras,

LCD televisions and plasma televisions. However, there was
31, 2005. Worldwide shipments of home-use video cameras

increased by approximately 750,000 units to approximately
a decrease in the sales mainly of CRT televisions and portable

audio. In Other Areas, sales mainly of digital still cameras,
7.35 million units, but overall sales remained almost unchanged,

due to increased price competition. DVD-Video player sales
CD-R/RW and DVD+/-R/RW drives and PCs increased while

sales of primarily portable audio, optical pickups and home
decreased due to pricing pressure, although unit shipments

increased by approximately 1.0 million units to approximately
audio decreased.
9.5 million units.

Televisions sales increased by 31.6 billion yen, or 3.4
Sales and operating income

(loss) in the Electronics segment
(Yen in billions)
(Yen in billions)
percent, to 957.1 billion yen. In addition to a significant increase

in worldwide sales of LCD televisions, there was a significant
6,000
600
increase in the sales of plasma televisions outside of Japan,

particularly in Europe, and of projection televisions in the U.S.
4,000
400
Worldwide shipments of LCD televisions increased by approximately 570,000 units, compared to the previous fiscal year, to
2,000
200
1.3%
0
0.1%
0.7%
2,000
2003
2004
2005
200
Sales (left)
Operating income (loss) (right)
Operating margin
Performance
by Product Category
approximately 1.0 million units; plasma television shipments

increased by approximately 90,000 units to approximately
300,000 units; and projection televisions shipments increased
by approximately 280,000 units to approximately 1.2 million
units. On the other hand, although there was an increase in
worldwide shipments of CRT televisions by approximately
100,000 units to approximately 9.5 million units, sales decreased
significantly as a result of a fall in unit prices due to the continued shift in demand towards flat panel televisions. In addition,
sales of computer displays also decreased worldwide.
Information and Communications sales decreased by 56.4
billion yen, or 6.8 percent, to 778.4 billion yen. Despite an
Sales and operating revenue by product category discussed

below represent sales to outside customers, which do not
increase in notebook PC sales due to strong sales outside

Japan, overall sales decreased due to a decrease in sales of
include intersegment transactions. Refer to Note 25 of Notes to

Consolidated Financial Statements.
desktop PCs. Worldwide unit shipments of PCs increased

approximately 100,000 units to approximately 3.3 million units.
Audio sales decreased by 103.6 billion yen, or 15.3 percent,
Sales of personal digital assistants decreased significantly due

Sony Corporation 41
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to a downsizing of the business. Sales of broadcast- and

professional-use products decreased slightly compared to the
charges recorded in the Electronics segment, the amount

recorded in selling, general and administrative expenses
previous fiscal year, despite recording increased sales outside

Japan, as sales in Japan decreased as a result of the recording
decreased by 71.4 billion yen from 124.7 billion yen in the

previous fiscal year to 53.3 billion yen. Of the restructuring
of higher sales, in the previous fiscal year, from the sale of

equipment to two television stations which opened new
charges recorded in selling, general and administrative

expenses, the amount recorded for headcount reductions,
broadcasting facilities.
Semiconductors sales decreased by 6.9 billion yen, or
including reductions through the early retirement program, was

50.3 billion yen, a decrease of 67.7 billion yen compared with
2.7 percent, to 246.3 billion yen. The decrease was due to a

decrease in sales of CCDs as the result of pricing pressures.
the previous fiscal year. On the other hand, royalty expenses

increased 17.3 billion yen. The ratio of selling, general and
Regarding LCDs, sales of low temperature polysilicon LCDs

for cellular phones increased significantly.
administrative expenses to sales decreased 2.2 percentage

points from the 21.2 percent recorded in the previous fiscal
Components sales decreased by 4.3 billion yen, or 0.7

percent, to 619.5 billion yen. The decrease was primarily due
year to 19.0 percent.

Loss on sale, disposal or impairment of assets, net decreased
to a decrease in sales of CD-R/RW drives and optical pickups

associated mainly with significant declines in unit prices. Sales
6.0 billion yen to 23.4 billion yen compared with the previous
fiscal year. This amount includes 18.8 billion yen in restructuring
of DVD+/-R/RW drives increased due to a production and sales

alliance with a third party. Regarding lithium-ion batteries, sales
charges, which includes 7.5 billion yen related to CRT and CRT
televisions manufacturing facilities in Europe. The amount of
for use in digital still cameras and cellular phones increased.

Other sales increased by 2.1 billion yen, or 0.4 percent, to
restructuring charges included in loss on sale, disposal or

impairment, net in the previous fiscal year was 10.6 billion yen.
578.3 billion yen. The increase resulted from increased sales at

Sonys non-Japan based disc manufacturing business. How-
An increased operating loss was recorded in the Electronics

segment for the fiscal year ended March 31, 2005 due to a
ever, there was a slight decrease in sales of mobile phone

handsets mainly to Sony Ericsson.
significant deterioration in the cost of sales ratio, as mentioned

above. Regarding profit performance by product, excluding
In the Electronics segment, cost of sales for the fiscal year

ended March 31, 2005 increased by 129.1 billion yen, or 3.3
restructuring charges, semiconductors recorded an operating

loss for the fiscal year, compared to the operating profit of the
percent to 4,079.1 billion yen compared with the previous fiscal

year. The cost of sales to sales ratio deteriorated by 2.9 percent
previous fiscal year. This loss was due to the recording, within
the Electronics segment, of research and development costs
to 81.8 percent compared to 78.9 percent in the previous fiscal

year. Products that contributed to the deterioration in the cost of
related to system large scale integration (LSI) manufacturing,

in particular the next generation processor chip, as a result of
sales to sales ratio were CRT televisions and portable audio

products, which both experienced a decrease in sales, and DVD
the integration of Sonys semiconductor manufacturing business

operations within the Electronics segment mentioned above.
recorders (including PSX) and video cameras, which were both

impacted by falling unit prices. Restructuring charges recorded
These costs were previously recorded within the Game segment. CRT televisions and portable audio products recorded a
in cost of sales amounted to 9.6 billion yen, a decrease of 0.5

billion yen compared with the 10.1 billion yen recorded in the
loss for the fiscal year compared to the operating income

recorded in the previous fiscal year. DVD recorders (including
previous fiscal year. Research and development costs increased

2.4 billion yen, or 0.5 percent, from 430.5 billion yen in the
PSX) also experienced an increased operating loss. The operating income for video cameras also decreased.
previous fiscal year to 432.8 billion yen. Although there was an

increase in research and development costs within the segment
On the other hand, results were positively affected by a

decreased operating loss from personal digital assistants
as a result of the transfer of semiconductor manufacturing

operations from the Game segment to the Electronics segment
through the implementation of significant business downsizing,

and a significant increase in operating income recorded for PCs
in association with the business integration of Sonys semiconductor manufacturing operations, overall research and develop-
and broadcast- and professional-use products.
ment costs within the segment only increased slightly as a result

of the carrying out of a stringent process for the selection of
Manufacturing
by Geographic Area
Approximately 50 percent of the Electronics segments total
research and development activities.

Selling, general and administrative expenses decreased by
annual production during the fiscal year ended March 31, 2005
took place in Japan, including the production of digital still
116.3 billion yen, or 10.9 percent to 953.4 billion yen compared

with the previous fiscal year. The primary reason for this decrease
cameras, video cameras, flat panel televisions, PCs, semiconductors and components such as batteries and Memory Sticks.
was a decrease in restructuring charges. Of the restructuring
Approximately 60 percent of the annual production in Japan
42 Sony Corporation
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was destined for other regions. China accounted for approximately 10 percent of total annual production, approximately 70
Total worldwide production shipments of hardware and

software were as follows:
Million units
percent of which was destined for other regions. Asia, excluding

Japan and China, accounted for slightly more than 10 percent of
total annual production, with approximately 60 percent destined
for Japan, the U.S. and Europe. The Americas and Europe
together accounted for the remaining slightly less than 30 percent
of total annual production, most of which was destined for local
distribution and sale.

2004
2005
Total Production Shipments

of Hardware*
PlayStation + PS one . . . .
3.31
2.77
102.49
PS2 . . . . . . . . . . . . . . . . .
20.10
16.17
87.47
2.97
2.97
PSP . . . . . . . . . . . . . . . . .
Comparison of Results on a Local Currency Basis and

Results on a Yen Basis
In the Electronics segment, the negative effect of the appreciation of the yen against the U.S. dollar exceeded the positive
effect of the appreciation of the euro against the yen. Sales for
the fiscal year ended March 31, 2005 decreased, on a yen
basis, by 0.4 percent, but increased on a local currency basis
by approximately 1 percent. In terms of operating performance,
there was a deterioration in the operating loss compared to the
previous fiscal year, but if calculated on a local currency basis,
this operating loss was smaller compared to the actual results
on a yen basis.
Sales to outside customers by geographic area on a yen basis
decreased in Japan by 10 percent, and in the U.S. by 4 percent:
however, sales in Europe remained relatively unchanged and
sales increased in Other Areas by 9 percent. Sales on a local
currency basis for regions outside Japan increased in the U.S.
by 1 percent and in Other Areas by 13 percent, but decreased
Cumulative as of
March 31, 2005
Total Production Shipments

of Software*/**
PlayStation . . . . . . . . . . . .
32.00
10.00
959.00
PS2 . . . . . . . . . . . . . . . . .
222.00
252.00
824.00
5.70
5.70
PSP . . . . . . . . . . . . . . . . .
** Production shipments of hardware and software are counted upon shipment of

the products from manufacturing bases. Sales of such products are recognized
when the products are delivered to customers.
** Including those both from Sony and third parties under Sony licenses.
Operating income decreased compared with the previous

fiscal year. Although there was an increase in software sales,
the decrease in operating income was the result of a decrease
in hardware sales coupled primarily with start up costs for the
PSP. The cost of sales to sales ratio deteriorated as a result of
costs associated with both the launch of the PSP and with the
changeover to the new PS2 model. The ratio of selling, general
and administrative expenses to sales compared to the previous
fiscal year was relatively unchanged.
in Europe by 2 percent.
in the Game segment
GAME
50.5 billion yen, or 6.5 percent, to 729.8 billion yen compared
with the previous fiscal year. Operating income decreased by
(Yen in billions)
11.8%
(Yen in billions)
1,200
240

with the previous fiscal year, and the operating income margin
900
decreased from 8.7 percent to 5.9 percent.

Sales in the Game segment on a local currency basis decreased
600
120
approximately 6 percent. In addition, on a local currency basis,

operating income decreased approximately 45 percent com-
300
60
pared to the previous fiscal year. By region, although sales

increased in Japan, there was a decrease in sales in the U.S.
and Europe.
Hardware sales declined. Although there was an increase
in sales in Japan primarily associated with the launch of PSP in
December 2004, there was a decline in hardware sales in the
8.7%
180
5.9%
2003
2004
2005
Sales (left)
Operating margin
U.S. and Europe associated with a decline in unit sales, and

strategic price reductions, of PS2. On the other hand, both units
sales and overall sales of software increased in Japan, the U.S.
and Europe.
Sony Corporation 43
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MUSIC
operating income margin increased from 4.7 percent to

8.7 percent. The results in the Pictures segment consist of the

with the previous fiscal year. Of the Music segments sales,
results of Sony Pictures Entertainment Inc. (SPE), a U.S.

based subsidiary.
62 percent were generated by SMEJ, a Japan-based subsidiary,

and 38 percent were generated by SMEI, a U.S.-based
On a U.S. dollar basis, sales for the fiscal year in the Pictures
segment increased approximately 1 percent and operating
subsidiary. Compared to an operating loss of 6.0 billion yen

in the previous fiscal year, operating income of 8.8 billion yen
income increased by approximately 76 percent. Sales increased

primarily due to higher worldwide home entertainment, interna-
was recorded.
On a local currency basis, sales in the Music segment
tional television syndication and worldwide theatrical revenues

on films. Worldwide home entertainment and international
decreased by approximately 42 percent, although the Music

segment recorded operating income as compared to an
television syndication revenues were higher as a result of the

performance of films from the prior year release slate including
operating loss in the previous fiscal year.

As previously noted, the recorded music business of SMEI
50 First Dates, Big Fish and Bad Boys 2. For theatrical revenues, the success of the current year film slate, particularly
merged with the recorded music business of Bertelsmann AG

to form SONY BMG. As a result, there were no recorded music
Spider-Man 2, Hitch and The Grudge, more than offset the

impact of releasing fewer films this fiscal year. Sales for the fiscal
sales at SMEI after July 31, 2004. Therefore, SMEIs results are
not comparable with the results of the previous fiscal year.
year release slate decreased 70 million U.S. dollars as compared to the previous fiscal year. However, sales in the fiscal
Sales at SMEJ increased by 6.9 percent compared with the

previous fiscal year mainly due to an increase in album and
year ended March 31, 2005 from the prior year release slate
increased 304 million U.S. dollars as compared to sales in the
single sales. Best-selling albums and singles during the fiscal

year included musiQ by ORANGE RANGE, SENTIMENTALovers
previous fiscal year from the release slate for the fiscal year
ended March 31, 2003. While benefiting from higher theatrical
by Ken Hirai and two greatest hits albums by Porno Graffitti.

Operating income increased by approximately 250 percent
revenues, total fiscal year release slate revenues were lower due
to the timing of the fiscal years film slates release in the home
compared to the previous fiscal year due mainly to the higher

sales noted above and an improvement in the cost of sales ratio
entertainment market. The higher sales from films were partially

offset by a 248 million U.S. dollar decrease in sales resulting
associated with strong sales of greatest hits albums.
from the absence in the fiscal year ended March 31, 2005 of
several transactions in the television business that occurred in

(loss) in the Music segment
(Yen in billions)
90
agreement for Wheel of Fortune. Television sales in the fiscal

year ended March 31, 2005 benefited from the highly successful
60
DVD release of Seinfeld.

Operating income for the segment increased significantly,
(Yen in billions)
600
400
200
30
0
1.4%
200
6.1%
2003
2004
2005
resulting in record operating income for the segment, due to the

strong overall performance of the current year film slate and the
home entertainment and international television syndication
carryover performance of the prior year film slate noted above.
3.5%
0
the prior fiscal year. These included syndication sales of King of

Queens and Seinfeld as well as the extension of a licensing
30
Sales (left)
Operating income (loss) (right)
Operating margin
Operating loss from the fiscal year release slate decreased 415
million U.S. dollars and operating income for the prior years
release slate increased 173 million U.S. dollars as compared to
the prior year. Spider-Man 2s worldwide success contributed
substantially to this fiscal years earnings, offset somewhat by
the disappointing theatrical performance of Spanglish. Further
improving operating income was a 38 million U.S. dollar decrease
in restructuring charges. Partially offsetting these increases in
PICTURES
with the previous fiscal year. Operating income increased by
28.7 billion yen, or 81.4 percent, to 63.9 billion yen and the
operating income was the impact of the absence of the television transactions noted above, which reduced operating income
by approximately 150 million U.S. dollars due primarily to the
factors noted above for revenue.
As of March 31, 2005, unrecognized license fee revenue at
44 Sony Corporation
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SPE was approximately 1.3 billion U.S. dollars. SPE expects to

record this amount in the future having entered into contracts
in insurance-in-force at the end of the fiscal year compared to

the end of the previous fiscal year. Operating income at Sony
with television broadcasters to provide those broadcasters with

completed motion picture and television product. The license
Life decreased by 2.2 billion yen or 3.4 percent to 61.0 billion

yen, mainly due to a decrease in valuation gains against stock
fee revenue will be recognized in the fiscal year that the product
is available for broadcast.
conversion rights from convertible bonds, although this was

partially offset by an increase in revenue from insurance premi-
Sales and operating income in

the Pictures segment
(Yen in billions)
(Yen in billions)
800
7.3%
400
At Sony Assurance, revenue increased due to higher insurance

revenue brought about by an expansion in automobile insurance-
60
in-force. Operating income increased due to an increase in

insurance revenue, although there was a deterioration in the loss
40
4.7%
200
FINANCIAL
20
2003
2004
2005
income from the change in revenue recognition method noted

above was slight.
80
8.7%
600
ums excluding the effect of the change in revenue recognition

method noted above. In addition, the impact on operating
ratio (the ratio of insurance payouts to premiums).

At Sony Bank, which started operations in June 2001,
revenue rose as there was an increase in interest revenue
associated with an increase in the balance of funds from
investing activities. Although revenue increased, an increase in
operating expenses resulted in a relatively unchanged operating
Sales (left)
Operating margin
loss compared with the previous fiscal year.

At Sony Finance International, Inc. (Sony Finance), a leasing
and credit financing business subsidiary in Japan, revenue

decreased due to a fall in leasing revenue. In terms of profitabil-
SERVICES
ity, the operating loss decreased due to the recording of a loss,

in the previous fiscal year ended March 31, 2004, from the lease
Please note that the revenue and operating income at Sony Life,
Sony Assurance Inc. (Sony Assurance) and Sony Bank Inc.
of certain fixed assets to Crosswave Communications Inc.

(CWC), which commenced reorganization proceedings under
(Sony Bank) discussed below differ from the results that Sony
Life, Sony Assurance and Sony Bank disclose on a Japanese
the Corporate Reorganization Law of Japan during the same

fiscal year.
statutory basis.
Financial Services revenue for the fiscal year ended March 31,
2005 decreased by 33.0 billion yen, or 5.6 percent, to 560.6
billion yen compared with the previous fiscal year. Operating
income increased by 0.3 billion yen, or 0.6 percent, to 55.5
billion yen and the operating income margin increased to
9.9 percent compared with the 9.3 percent of the previous
fiscal year.
At Sony Life, revenue decreased by 38.7 billion yen, or
7.5 percent, to 474.3 billion yen compared with the previous
fiscal year. The main reasons for the decrease in revenue were
a change in the method of recognizing insurance premiums
received on certain products, as of the third quarter beginning
October 1, 2003, from being recorded as revenues to being
offset against the related provision for future insurance policy
benefits, coupled with a small decrease in valuation gains in the
current fiscal year compared to the previous fiscal year in which
significant valuation gains were recorded against stock conver-
Revenue and operating income in

the Financial Services Segment
(Billions of yen)
(Billions of yen)
800
80
9.9%
9.3%
600
60
400
40
4.2%
200
20
2003
2004
2005
Financial Services revenue (left)

Operating margin
sion rights from convertible bonds. Although there was a

decrease in insurance premium revenue as a result of the above
mentioned change in accounting method, there were increases
Sony Corporation 45
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Condensed Statements of Income Separating Out the

Financial Services Segment (Unaudited)
segment is different in nature from Sonys other segments, Sony

believes that a comparative presentation may be useful in
The following schedule shows unaudited condensed statements

of income for the Financial Services segment and all other
understanding and analyzing Sonys consolidated financial

statements.
segments excluding Financial Services as well as condensed

consolidated statements of income. This presentation is not
Transactions between the Financial Services segment and all

other segments excluding Financial Services are eliminated in
required under U.S. GAAP, which is used in Sonys consolidated

financial statements. However, because the Financial Services
the consolidated figures shown below.
CONDENSED STATEMENTS OF INCOME SEPARATING OUT THE FINANCIAL SERVICES SEGMENT

Yen in millions
Sony without
Financial Services
Financial Services
2004
2005
2004
Consolidated
2005
2004
2005
Financial Services revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
593,544
560,557
565,752
537,715
Net sales and operating revenue . . . . . . . . . . . . . . . . . . . . . . . . .
6,939,964
6,632,728
6,930,639
6,621,901
..................................................
593,544
560,557
6,939,964
6,632,728
7,496,391
7,159,616
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
538,383
505,067
6,896,377
6,575,354
7,397,489
7,045,697
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,161
55,490
43,587
57,374
98,902
113,919
Other income (expenses), net . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,958
10,204
52,746
40,639
45,165
43,288
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,119
65,694
96,333
98,013
144,067
157,207
Income taxes and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,975
25,698
30,916
(37,043)
53,439
(11,344)
Income before cumulative effect of an accounting change . . . . . .
34,144
39,996
65,417
135,056
90,628
168,551
Cumulative effect of an accounting change . . . . . . . . . . . . . . . . .
(4,713)
(2,117)
(2,117)
(4,713)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,144
35,283
63,300
135,056
88,511
163,838
OTHER
During the fiscal year ended March 31, 2005, sales within the
losses decreased despite the absence in the fiscal year ended
Other segment were comprised mainly of sales from an advertising agency business in Japan; SCN, an Internet-related
March 31, 2005 of a 7.7 billion yen one-time gain recorded at a

business operated by a U.S. subsidiary on the sale of rights
service business subsidiary operating mainly in Japan; an

imported general merchandise retail business; an in-house
related to a portion of the Sony Credit Card portfolio in the

previous fiscal year.
oriented facility management business; and from an IC-card

business.
13.9 billion yen, or 5.2 percent, to 254.4 billion yen, compared
Sales and operating loss

in the Other segment
with the previous fiscal year. Of total segment sales, 72 percent

were sales to outside customers. In terms of profit performance,
400
40
operating losses for the segment improved for the fiscal year
from 12.1 billion yen to 4.1 billion yen.
200
20
During the fiscal year, sales decreased primarily as the result

of a decrease in intersegment sales due to contract changes at
(Yen in billions)
a Japanese subsidiary involved in the advertising agency

business. Regarding profit performance, an operating loss of 4.1
billion yen was recorded, an 8.0 billion yen improvement on the
12.1 billion yen loss recorded in the previous fiscal year. This
improvement was mainly due to a reduction of fixed costs, a
gain from the sale of a retail and showroom building in Japan
and the strong performance of a business engaged in the
production and marketing of animation products. Segment
(Yen in billions)
1.6%
4.5%
200
20
10.8%
400
2003
2004
2005
40
Sales (left)
Operating loss (right)
Operating margin
46 Sony Corporation
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CHANGES IN THE CLASSIFICATION OF BUSINESS

SEGMENTS FOR THE FISCAL YEAR ENDING MARCH 31, 2006
Therefore, analysis and discussion of certain portions of the

operating results of SMEI and SPE are specified as being on a
In association with a significant contraction in the size of the

Music segment as a result of the establishment of SONY BMG
U.S. dollar basis. Results on a local currency basis and results

on a U.S. dollar basis are not on the same basis as Sonys
in August, 2004, Sony will discontinue the separate reporting of

the Music segment as of the first quarter of the fiscal year
consolidated financial statements and do not conform with U.S.

GAAP. In addition, Sony does not believe that these measures
ending March 31, 2006, and will instead consolidate its results
within the Other segment. After the establishment of SONY
are a substitute for U.S. GAAP measures. However, Sony

believes that local currency basis results provide additional
BMG, for the second half of the fiscal year ended March 31,
2005, sales revenue for the Music segment (including
useful information to investors regarding operating performance.

Sonys consolidated results are subject to foreign currency
intersegment sales) was 2.3 percent of total consolidated sales

and operating income was 7.9 percent of the total operating
rate fluctuations mainly derived from the fact that the countries
where manufacturing takes place may be different from those
income for all segments recording an operating profit. In

addition, total assets for the Music segment, as of March 31,
where such products are sold. In order to reduce the risk

caused by such fluctuations, Sony employs derivatives, includ-
2005, were 3.5 percent of the total assets for all segments.
Furthermore, as of the first quarter of the fiscal year ending
ing foreign exchange forward contracts and foreign currency

option contracts, in accordance with a consistent risk manage-
March 31, 2006, Sonys Japan-based disc manufacturing and

distribution business, previously classified within the Music
ment strategy. Such derivatives are used primarily to mitigate the

effect of foreign currency exchange rate fluctuations on cash
segment, is scheduled to be reclassified to the Electronics

segment.
flows generated by anticipated intercompany transactions and

intercompany accounts receivable and payable denominated in
FOREIGN EXCHANGE FLUCTUATIONS AND RISK
foreign currencies.
Sony Global Treasury Services Plc (SGTS) in London
HEDGING
During the fiscal year ended March 31, 2005, the average value
provides integrated treasury services for Sony Corporation and

its subsidiaries. Sonys policy is that Sony Corporation and all
of the yen was 106.5 yen against the U.S. dollar, and 133.7 yen
against the euro, which was 5.2 percent higher against the U.S.
subsidiaries with foreign exchange exposures should enter into

commitments with SGTS for hedging their exposures. Sony
dollar and 1.9 percent lower against the euro, respectively, compared with the average of the previous fiscal year. Operating
Corporation and most of its subsidiaries utilize SGTS for this

purpose. The concentration of foreign exchange exposures at
results on a local currency basis described in Overview and

Operating Performance show results of sales and operating
SGTS means that, in effect, SGTS hedges the net foreign

exchange exposure of Sony Corporation and its subsidiaries.
revenue and operating income obtained by applying the yens

monthly average exchange rate in the previous fiscal year to
SGTS in turn enters into foreign exchange transactions with

creditworthy third-party financial institutions. Most of the
monthly local currency-denominated sales, cost of sales, and selling, general and administrative expenses for the fiscal year ended
transactions are entered into against projected exposures before

the actual export and import transactions take place. In general,
March 31, 2005, as if the value of the yen had remained constant.
In the Music segment, Sony consolidates the yen-translated
SGTS hedges the projected exposures on average three months

before the actual transactions take place. However, in certain
results of SMEI (a U.S.-based operation that aggregates the

results of its worldwide subsidiaries on a U.S. dollar basis) and
cases, SGTS partially hedges the projected exposures one

month before the actual transactions take place when business
the results of SMEJ (a Japan based operation that aggregates

the results of its operations in yen). In addition, in the Music
requirements such as shorter production-sales cycle for certain

products arise. Sony enters into foreign exchange transactions
segment, results for this fiscal year only include the results of
SMEIs recorded music business for the months of April through
with financial institutions primarily for hedging purposes. Sony

does not use these derivative financial instruments for trading
July 2004, and the twelve month results for SMEIs music
publishing business and SMEJ. However, results for the previ-
or speculative purposes except for certain derivatives in the

Financial Services segment utilized for portfolio investments.
ous fiscal year in the Music segment include the consolidated

results for SMEIs recorded music business for all twelve
To minimize the adverse effects of foreign exchange fluctuations on its financial results, particularly in the Electronics
months, as well as the full years results for SMEIs publishing

business and SMEJ.
segment, Sony seeks, when appropriate, to localize material

and parts procurement, design, and manufacturing operations
In the Pictures segment, Sony translates into yen the U.S.

dollar consolidated results of SPE (a U.S. based operation that
in areas outside of Japan.

Changes in the fair value of derivatives designated as cash
has worldwide subsidiaries).
flow hedges, including foreign exchange forward contracts and

Sony Corporation 47
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05.7.7, 3:34 AM
foreign currency option contracts, are initially recorded in other

comprehensive income and reclassified into earnings when the
(based on the average of inventories at the end of each fiscal

year and previous fiscal year) was 1.56 months compared to
hedged transaction affects earnings. Foreign exchange forward

contracts, foreign currency option contracts and other deriva-
1.53 months at the end of the previous fiscal year. Sony considers this level of inventory to be appropriate in the aggregate.
tives that do not qualify as hedges are marked-to-market with

changes in value recognized in Other Income and Expenses.
Current assets on March 31, 2005 in the Financial Services

segment increased by 290.5 billion yen, or 41.5 percent, to
The notional amounts of foreign exchange forward contracts,

currency option contracts purchased and currency option
990.2 billion yen, compared with the previous fiscal year-end.

The increase was primarily attributable to an increase in
contracts written as of March 31, 2005 were 1,545.8 billion

yen, 428.3 billion yen and 146.5 billion yen, respectively.
marketable securities. (Refer to Note 8 of Notes to Consolidated

Financial Statements.)
INVESTMENTS
AND ADVANCES
ASSETS, LIABILITIES AND STOCKHOLDERS

EQUITY
Investments and advances on March 31, 2005 increased by

232.7 billion yen, or 9.3 percent, to 2,745.7 billion yen, com-
ASSETS
pared with the previous fiscal year-end.

Investments and advances on March 31, 2005 in all segments
Total assets on March 31, 2005 increased by 408.4 billion yen,

or 4.5 percent, to 9,499.1 billion yen, compared with the
excluding the Financial Services segment increased by 86.8

billion yen, or 24.2 percent, to 445.4 billion yen. This increase
previous fiscal year-end. Total assets on March 31, 2005 in all

segments excluding the Financial Services segment decreased
was mainly the result of investments associated with the

establishment of S-LCD, a joint venture with Samsung for the
by 32.9 billion yen, or 0.5 percent, to 6,027.9 billion yen and

total assets on March 31, 2005 in the Financial Services
manufacture of amorphous TFT LCD panels.

Investments and advances on March 31, 2005 in the Financial
segment increased by 410.5 billion yen, or 11.8 percent, to

3,885.5 billion yen, compared with the previous fiscal year-end.
Services segment increased by 104.5 billion yen, or 4.6 percent,

to 2,379.0 billion yen, compared with the previous fiscal year-
Total assets on March 31, 2005 in all segments excluding the

Financial Services segment would have decreased by approxi-
end. This increase was primarily due to investments mainly in

Japanese fixed income securities resulting from an increase in
mately 2 percent compared with the previous fiscal year-end if

the value of the yen had remained the same on March 31, 2005
insurance premiums at Sony Life, and an increase in housing

loans due to a campaign carried out at Sony Bank.
as it was on March 31, 2004.
Also see Investments below.
CURRENT
ASSETS
Current assets on March 31, 2005 increased by 192.8 billion
PROPERTY,
yen, or 5.7 percent, to 3,556.2 billion yen compared with the

previous fiscal year-end. Current assets on March 31, 2005 in all
Property, plant and equipment on March 31, 2005 increased by

7.4 billion yen, or 0.5 percent, to 1,372.4 billion yen, compared
segments excluding the Financial Services segment decreased

by 99.6 billion yen, or 3.7 percent, to 2,592.8 billion yen.
with the previous fiscal year-end.

Property, plant and equipment on March 31, 2005 in all
Cash and cash equivalents on March 31, 2005 in all segments

excluding Financial Services segment decreased 73.2 billion
segments excluding the Financial Services segment increased

by 9.6 billion yen, or 0.7 percent, to 1,333.8 billion yen, com-
yen, or 12.3 percent, to 519.7 billion yen compared with the

previous fiscal year-end. This is primarily a result of a 57.3 billion
pared with the previous fiscal year-end.

Capital expenditures (part of the increase in property, plant and
yen repayment of long-term debt relating to a variable interest

entity responsible for the operation and development of a real
equipment) for the fiscal year ended March 31, 2005 decreased
by 21.4 billion yen, or 5.7 percent, to 356.8 billion yen compared
estate complex in Berlin, Germany.

Notes and accounts receivable, trade (net allowance for
with the previous fiscal year. Capital expenditures in the Electronics segment increased by 59.1 billion yen, or 23.5 percent, to
doubtful accounts and sales returns) on March 31, 2005, in all

segments excluding Financial Services segment increased 9.1
311.1 billion yen but decreased in the Game segment by 81.5

billion yen, or 81.2 percent, to 18.8 billion yen. Capital expendi-
billion yen, or 1.0 percent, compared with the previous fiscal

year-end to 952.7 billion yen.
tures in the semiconductor businesses mainly in the Electronics

segment amounted to 150.0 billion yen, of which investments in
Inventories on March 31, 2005 decreased by 35.2 billion yen,

or 5.3 percent, to 631.3 billion yen compared with the previous
production equipment for system large-scale integration (LSI)

including the Cell next-generation, high-performance processor
fiscal year-end. The inventory to cost of sales turnover ratio
amounted to 90.0 billion yen. Capital expenditures in the Music
PLANT AND EQUIPMENT (AFTER DEDUCTION

OF ACCUMULATED DEPRECIATION)
48 Sony Corporation
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05.7.7, 3:34 AM
segment decreased by 0.8 billion yen, or 20.7 percent, to 2.9

billion yen, and decreased in the Pictures segment by 0.2 billion
previous fiscal year-end if the value of the yen had remained the
same on March 31, 2005 as it was on March 31, 2004.
yen, or 3.4 percent to 5.8 billion yen, and decreased in the Other
segment by 4.0 billion yen, or 39.3 percent, to 6.1 billion yen.
CURRENT
Property, plant and equipment on March 31, 2005 in the

Financial Services segment decreased by 2.3 billion yen, or 5.6
Current liabilities on March 31, 2005 decreased by 172.8 billion

percent, to 38.6 billion yen compared with the previous fiscal

year-end. Capital expenditures in the Financial Services segment
previous fiscal year-end. Current liabilities on March 31, 2005 in

all segments excluding the Financial Services segment decreased
decreased by 0.8 billion yen, or 16.7 percent, to 3.8 billion yen.
by 236.1 billion yen, or 9.9 percent, to 2,137.5 billion yen.

Short-term borrowings and the current portion of long-term
OTHER ASSETS
Other assets on March 31, 2005 decreased by 46.7 billion yen,
debt on March 31, 2005 in all segments excluding the Financial

Services segment decreased 205.7 billion yen, or 50.2 percent,
or 2.9 percent, to 1,545.9 billion yen, compared with the

previous fiscal year-end.
to 204.0 billion yen compared with the previous fiscal year-end.

This decrease was mainly a result of the fact that of 300.0 billion
Other assets on March 31, 2005 in all segments excluding

the Financial Services segment decreased by 62.5 billion yen to
yen of convertible bonds due on March 31, 2005, 5.0 billion yen
were redeemed on the maturity date with 282.8 billion yen of the
1,189.4 billion yen. This decrease was primarily the result of the
fact that, due to the establishment of SONY BMG, artists
287.8 billion yen balance outstanding at the start of the fiscal

year being converted into common stock, which was partially
contracts belonging to the joint venture are no longer recorded

as intangible assets within Sonys consolidated balance sheets.
offset by the reclassification of long-term debt to current liabilities

mainly consisting of 119.0 billion yen of straight bonds and
Deferred tax assets on March 31, 2005 increased by 37.2 billion yen, or 18.3 percent, to 240.4 billion yen compared with the
bonds with warrants redeemable during the fiscal year ending

March 31, 2006. (Refer to Note 12 of Notes to Consolidated
previous fiscal year-end. As a result of the recording of operating

losses in the past, certain U.S. subsidiaries of Sony have had
Financial Statements.)
Notes and accounts payable, trade on March 31, 2005 in all
valuation allowances against deferred tax assets for U.S. federal

taxes and certain state taxes. However, in the fiscal year ended
segments excluding the Financial Services segment increased

by 28.0 billion yen, or 3.6 percent, to 801.3 billion yen compared
March 31, 2005, based on both improved operating results in

recent years and a sound outlook for the future operating perfor-
with the previous fiscal year-end, mainly due to an increase

within the Game segment.
mance at Sonys U.S. subsidiaries, Sony reversed 67.9 billion

yen of such valuation allowances. On the other hand, certain of
Current liabilities on March 31, 2005 in the Financial Services

segment increased by 59.8 billion yen, or 9.2 percent, to 708.6
Sonys subsidiaries recorded new valuation allowances against

deferred tax assets during the fiscal year ended March 31, 2005.
billion yen, mainly due to the increase in deposits from customers

in the banking business. Deposits from customers in the banking
Other assets in the Financial Services segment on March 31,

2005 increased by 17.8 billion yen, or 3.9 percent, to 477.8
business increased by 167.9 billion yen, or 44.3 percent, to 546.7

billion yen, due to the expansion of the banking business.
billion yen compared with the previous fiscal year-end. This was
mainly due to an increase in deferred insurance acquisition costs
LONG-TERM
LIABILITIES
LIABILITIES
at Sony Life.
Long-term liabilities on March 31, 2005 increased by 88.0 billion

LIABILITIES
Total current and long-term liabilities on March 31, 2005
previous fiscal year-end.

Long-term liabilities on March 31, 2005 in all segments
decreased by 84.9 billion yen, or 1.3 percent, to 6,604.9 billion

yen compared with the previous fiscal year-end. Total current
excluding the Financial Services segment decreased by 253.5

billion yen, or 17.1 percent, to 1,228.9 billion yen. Long-term
and long-term liabilities on March 31, 2005 in all segments

excluding the Financial Services segment decreased by 489.5

Services segment decreased 147.9 billion yen, or 19.1 percent,
billion yen, or 12.7 percent, to 3,366.4 billion yen. Total current

and long-term liabilities in the Financial Services segment on
to 627.4 billion yen. This was primarily the result of the reclassification of long-term debt to current liabilities, including 119.0
March 31, 2005 increased by 365.5 billion yen, or 11.8 percent,

to 3,465.3 billion yen, compared with the previous fiscal year-
billion yen of bonds redeemable during the fiscal year ending

March 31, 2006 and a decrease in accrued pension and
end. Total current and long-term liabilities on March 31, 2005 in

all segments excluding the Financial Services segment would
severance costs of 20.2 billion yen, or 5.6 percent, to 338.0

billion yen, primarily due to the reform of Sonys employee
have decreased by approximately 14 percent compared with the
retirement pension plan in Japan.

Sony Corporation 49
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Long-term liabilities on March 31, 2005 in the Financial

Services segment increased by 305.7 billion yen, or 12.5
fiscal year-end, and other comprehensive income (net of tax)

was 64.3 billion. This was primarily due to 74.2 billion yen
percent, to 2,756.7 billion yen. This was due to an increase in

insurance-in-force in the life insurance business which resulted
arising from foreign currency translation adjustments due to

the devaluation of the yen, partially offset by the recording of a
in an increase in future insurance policy benefits and other of

285.7 billion yen, or 13.1 percent, to 2,464.3 billion yen.
change in accumulated other comprehensive income of 7.3

billion yen arising from unrealized gains on securities in the cur-
TOTAL
rent fiscal year. The ratio of stockholders equity to total assets

increased 4.0 percent from 26.2 percent to 30.2 percent.
INTEREST-BEARING DEBT
Total interest-bearing debt on March 31, 2005 decreased by

343.4 billion yen, or 27.4 percent, to 909.3 billion yen, compared with the previous fiscal year-end. Total interest-bearing
Services segment decreased by 353.6 billion yen, or 29.8
percent, to 831.4 billion yen.
Stockholders equity and

stockholders equity ratio
Stockholders equity per share

of common stock
(Yen in billions)
(%)
(Yen)
3,200
40
3,200
30
2,400
1,600
20
1,600
800
10
800
30.2%
2,400
Interest-bearing liabilities
27.2%
26.2%
(Yen in billions)
1,600
1,200
800
2003
2004
2005
Stockholders equity
Stockholders equity ratio
Stockholders equity ratio=
Stockholders equity/Total assets
400
2003
2004
2005
* As of March 31
*As of March 31
2003
2004
2005
Short-term (including the current

portion of long-term debt)
Long-term
* As of March 31
CONDENSED BALANCE SHEETS SEPARATING OUT THE

FINANCIAL SERVICES SEGMENT (UNAUDITED)
The following schedule shows an unaudited condensed balance
sheet for the Financial Services segment and all other segments
STOCKHOLDERS EQUITY
Stockholders equity on March 31, 2005 increased by 492.3
excluding Financial Services as well as the condensed consolidated balance sheet. This presentation is not required under
billion yen, or 20.7 percent, to 2,870.3 billion yen compared with

the previous fiscal year-end. As noted above, of 300.0 billion yen
U.S. GAAP, which is used in Sonys consolidated financial statements. However, because the Financial Services segment is dif-
of convertible bonds due on March 31, 2005, 5.0 billion yen were
redeemed on the maturity date with 282.8 billion yen of the 287.8
ferent in nature from Sonys other segments, Sony believes that

a comparative presentation may be useful in understanding and
billion yen balance outstanding at the start of the fiscal year being
converted into common stock, and, therefore, incorporated into
analyzing Sonys consolidated financial statements. Transactions

between the Financial Services segment and all other segments
stockholders equity and additional paid-in capital. Retained

earnings increased 139.0 billion yen compared with the previous
excluding Financial Services are eliminated in the consolidated

figures shown below.
50 Sony Corporation
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CONDENSED BALANCE SHEETS SEPARATING OUT THE FINANCIAL SERVICES SEGMENT (UNAUDITED)
Yen in millions
Sony without
Financial Services
Financial Services
2004
2005
Consolidated
2004
2005
2004
2005
Assets
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
699,698
990,191
2,692,436
2,592,849
3,363,355
3,556,171
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
256,316
259,371
592,895
519,732
849,211
779,103
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
270,676
456,130
4,072
4,072
274,748
460,202
Notes and accounts receivable, trade . . . . . . . . . . . . . . . . . . .
72,273
77,023
943,590
952,692
1,011,189
1,025,362
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,433
197,667
1,151,879
1,116,353
1,228,207
1,291,504
Film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256,740
278,961
256,740
278,961
Investments and advances . . . . . . . . . . . . . . . . . . . . . . . . . .
2,274,510
2,378,966
358,629
445,446
2,512,950
2,745,689
Investments in Financial Services, at cost . . . . . . . . . . . . . .
176,905
187,400
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . .
40,833
38,551
1,324,211
1,333,848
1,365,044
1,372,399
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
459,998
477,809
1,251,901
1,189,398
1,592,573
1,545,880
Deferred insurance acquisition costs . . . . . . . . . . . . . . . . . . . .
349,194
374,805
349,194
374,805
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
110,804
103,004
1,251,901
1,189,398
1,243,379
1,171,075
................................................
3,475,039
3,885,517
6,060,822
6,027,902
9,090,662
9,499,100
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
648,803
708,613
2,373,550
2,137,480
2,982,215
2,809,368
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,748
45,358
409,766
204,027
475,017
230,266
Liabilities and stockholders equity
Notes and accounts payable, trade . . . . . . . . . . . . . . . . . . . . .
7,847
7,099
773,221
801,252
778,773
806,044
Deposits from customers in the banking business . . . . . . . . . .
378,851
546,718
378,851
546,718
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175,357
109,438
1,190,563
1,132,201
1,349,574
1,226,340
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,450,969
2,756,679
1,482,378
1,228,927
3,707,587
3,795,547
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135,811
135,750
775,233
627,367
777,649
678,992
Accrued pension and severance costs . . . . . . . . . . . . . . . . . . .
10,183
14,362
358,199
338,040
368,382
352,402
Future insurance policy benefits and other . . . . . . . . . . . . . . . .
2,178,626
2,464,295
2,178,626
2,464,295
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,349
142,272
348,946
263,520
382,930
299,858
Minority interest in consolidated subsidiaries . . . . . . . . . . .
5,476
17,554
18,471
22,858
23,847
Stockholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
375,267
414,749
2,187,340
2,643,024
2,378,002
2,870,338
................................................
3,475,039
3,885,517
6,060,822
6,027,902
9,090,662
9,499,100
INVESTMENTS
Sony regularly evaluates its investment portfolio to identify other-
and whether or not Sony is able to retain the investment for a

period of time sufficient to allow for the anticipated recovery in
than-temporary impairments of individual securities. Factors that

are considered by Sony in determining whether an other-than-
market value.
In evaluating the factors for available-for-sale securities with
temporary decline in value has occurred include: the length of

time and extent to which the market value of the security has
readily determinable fair values, management presumes a

decline in value to be other-than-temporary if the fair value of
been less than its original cost, the financial condition, operating
results, business plans and estimated future cash flows of the
the security is 20 percent or more below its original cost for an

extended period of time (generally a period of up to six to twelve
issuer of the security, other specific factors affecting the market

value, deterioration of issuers credit condition, sovereign risk,
months). The presumption of an other-than-temporary impairment in such cases may be overcome if there is evidence to
Sony Corporation 51
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05.7.7, 3:34 AM
support that the decline is temporary in nature due to the existence of other factors which overcome the duration or magnitude
expected operating results, business plans and future cash

flows of the issuer of the security. Accordingly, it is possible that
of the decline. On the other hand, there may be cases where

impairment losses are recognized when the decline in the fair
investments in Sonys portfolio that have had a decline in value

that Sony currently believes to be temporary may be determined
value of the security is not more than 20 percent or such decline

has not existed for an extended period of time, as a result of
to be other-than-temporary in the future based on Sonys evaluation of additional information such as continued poor operating
considering specific factors which may indicate the decline in

the fair value is other-than-temporary.
results, future broad declines in value of worldwide equity markets and the effect of world wide interest rate fluctuations. As a
The assessment of whether a decline in the value of an investment is other-than-temporary is often judgmental in nature and
result, unrealized losses recorded for investments may be

recognized into income in future periods.
involves certain assumptions and estimates concerning the

The following table contains available for sale and held to maturity securities, breaking out the unrealized gains and losses by
investment category.
Yen in millions
Unrealized
gain
Cost
March 31, 2005
Unrealized
loss
Fair market
value
Financial Services
Available for sale
Debt securities
Sony Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,769,693
56,988
(2,130)
1,824,551
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
315,101
1,096
(281)
315,916
Sony Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,256
22,735
(278)
64,713
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,469
5,172
(12)
14,629
Equity securities
Held to maturity
Debt securities
Sony Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,414
530
(13)
27,931
Total Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,163,933
86,521
(2,714)
2,247,740
Available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,212
21,520
(577)
82,155
Held to maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
17
Total Non-Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,229
21,520
(577)
82,172
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,225,162
108,041
(3,291)
2,329,912
Non-Financial Services:
The most significant portion of these unrealized losses relate
These unrealized losses related to numerous investments, with
to investments held by Sony Life. Sony Life principally invests in

debt securities in various industries. Almost all of these securi-
no single investment being in a material unrealized loss position.

In addition, there was no individual security with unrealized
ties were rated BBB or better by Standard & Poors, Moodys

or others. As of March 31, 2005, Sony Life had debt and equity
losses that met the test discussed above for impairment as the
declines in value were observed to be small both in amounts
securities which had gross unrealized losses of 2.1 billion yen

and 0.3 billion yen, respectively. Of the unrealized loss amounts
and percentage, and therefore, the decline in value for those

investments was still determined to be temporary in nature. The
recorded by Sony Life, less than 1 percent relate to securities

being in an unrealized loss position of greater than 12 months.
percentage of noninvestment grade securities held by Sony Life

represents approximately 3 percent of Sony Lifes total invest-
52 Sony Corporation
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05.7.7, 3:34 AM
ment portfolio, while the percentage of unrealized losses that

relate to those noninvestment grade securities was approxi-
value. For publicly traded investments, fair value is determined

by the closing stock price as of the date on which the impair-
mately 4 percent of Sony Lifes total unrealized losses as of

March 31, 2005.
ment determination is made. For non-public investments, fair

value is determined through the use of such methodologies as
For fixed maturity securities with unrecognized losses held by

Sony Life as of March 31, 2005 (2.1 billion yen), maturity dates
discounted cash flows, valuation of recent financings and

comparable valuations of similar companies. The impairment
vary as follows:
losses that were recorded in each of the three fiscal years

related to the unique facts and circumstances of each individual
Within
1
1 year . . . . . . . . . . . . . . . . . . . . . . . . . 18 percent
to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . 55 percent
investment and did not significantly impact other investments.

Sony Life and Sony Banks investments constitute the majority
to 10 years . . . . . . . . . . . . . . . . . . . . . . . . . 21 percent
of the investments in the Financial Services segment. Sony Life

and Sony Bank account for approximately 84 percent and 14
Sony also maintains long-term investment securities issued by

a number of non-public companies. The aggregate carrying
amount of these investments in non-public companies at March
31, 2005 was 48.9 billion yen. A non-public equity investment is
percent of the investments of the Financial Services segment,

respectively.
Sony Lifes basic investment policy is to take both expected
valued at cost as fair value is not readily determinable. If the

value is estimated to have declined and such decline is judged
returns and investment risks into account in order to maintain

sound asset quality, structuring its asset management portfolio
to be other than temporary, impairment of the investment is

recognized and the carrying value is reduced to its fair value.
to ensure steady medium- and long-term returns by investing

assets in an efficient manner and responding flexibly to changes
For the fiscal years ended March 31, 2003, 2004 and 2005,
total impairment losses were 25.5 billion yen, 16.7 billion yen
in financial conditions and the investment environment. Moreover, Sony Life analyzes the character of future insurance policy
and 4.2 billion yen of which 2.3 billion yen, 0.2 billion yen and
0.5 billion yen, respectively, were recorded by Sony Life in
benefits by utilizing Asset Liability Management (ALM), a

method of managing interest rate fluctuation risk through the
Financial Services revenue (Refer to Financial Services under

Operating Performance by Business Segment for the fiscal
comprehensive identification of the mismatches of duration and

cash flows between assets and liabilities. Government bonds,
years ended March 31, 2005 and March 31, 2004). Impairment
losses other than at Sony Life in each of the three fiscal years
convertible bonds, and straight corporate bonds constitute a

majority of Sony Lifes current portfolio. Sony Life invests in
were reflected in non-operating expenses and primarily relate to

the certain strategic investments in non-financial services
various types of bonds in many countries, companies and

industries, to diversify associated risks. Stocks accounted for
businesses. These investments primarily relate to the certain

strategic investments in Japan, the U.S. and Europe with which
approximately 3 percent of the current portfolio.

Sony Bank operates using a similar basic investment policy as
Sony has strategic relationships for the purposes of developing

and marketing new technologies. The impairment losses were
Sony Life, taking expected returns and investment risks into

account in order to disperse associated risks, and structuring its
recorded for each of the three fiscal years as these companies

failed to successfully develop and market such technology, the
asset portfolio to ensure steady returns from investments. In

addition, Sony Bank is careful to match the duration of its asset
operating performance of the companies was more unfavorable

than previously expected and the decline in fair value of these
portfolio with the duration of liabilities resulting from customer

deposits, in order to ensure that significant discrepancies do not
companies was judged as other-than-temporary. None of these

impairment losses was individually material to Sony, except for
occur. Government bonds and corporate bonds in yen or other

currencies constitute a majority of Sony Banks current portfolio.
the devaluation of securities explained in Other Income and

Expenses for the fiscal years ended March 31, 2005, March 31,
To safeguard its assets Sony Bank does not invest in equity

securities but invests in various types of government and
2004 and March 31, 2003.

Upon determination that the value of an investment is im-
corporate bonds in many countries, companies and industries,

to diversify associated risks. With respect to loans, Sony Bank
paired, the value of the investment is written down to its fair
mainly offers housing loans to individuals and does not have any
corporate loan exposure.
Sony Corporation 53
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CONTRACTUAL OBLIGATIONS, COMMITMENTS, AND CONTINGENT LIABILITIES

The following table summarizes Sonys contractual obligations and major commitments as of March 31, 2005. Please note that
references to Notes below are references to particular notes within the Notes to Consolidated Financial Statements.
Yen in millions
Payments due by period

Total
Less than
1 year
1 to 3 years
3 to 5 years
After 5 years
Contractual Obligations and Major Commitments*:

Long-term debt (Note 12)
Capital lease obligations (Notes 9 and 12) . . . . . . . . . . . . . . . . . . . . . . .
40,301
11,173
17,435
6,655
4,498
Other long-term debt (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
805,561
155,157
192,741
278,684
178,979
Minimum rental payments required under operating leases (Note 9) . . . . . .
169,951
38,182
53,561
24,556
53,652
83,683
67,698
15,973
12
82,080
45,651
36,429
Purchase commitments for property, plant and equipment and

other assets (Note 24) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected cost for the production or purchase of films and
television programming or certain rights (Note 24) . . . . . . . . . . . . . . . . . .
* The total amount of expected future pension payments is not included in the above table or the total amount of commitments outstanding at March 31, 2005 discussed
below as such amount is not currently determinable. Sony expects to contribute approximately 35.0 billion yen to the Japanese pension plans and approximately 6.0 billion
yen to the foreign pension plans for the fiscal year ending March 31, 2006 (Note 15).
* The total unused portion of the line of credit extended under loan agreements in the Financial Services segment is not included in the above table or the amount of
commitments outstanding at March 31, 2005 discussed below as it is not foreseeable how many loans will be executed. The total unused portion of the line of credit
extended under these contracts was 199.9 billion yen as of March 31, 2005 (Note 24).
* The 5 year Revolving Credit Agreement with Sony BMG, which matures on August 5, 2009 and provides for a base commitment of 32.1 billion yen and additional
incremental borrowings of up to 16.1 billion yen, is not included in the above table or the amount of commitments outstanding at March 31, 2005 discussed below as such
amount is not currently determinable. Sonys outstanding commitment under this Credit Agreement as of March 31, 2005 was 24.1 billion yen (Note 24).
The total amount of commitments outstanding at March 31,

2005 was 240.7 billion yen (Refer to Note 24 of Notes to
Consolidated Financial Statements). The commitments include
The following table summarizes Sonys contingent liabilities as

of March 31, 2005.
Yen in millions
major purchase obligations as shown above.

In the ordinary course of business, Sony makes commitments
for the purchase of property, plant and equipment. As of March
31, 2005, such commitments outstanding were 83.7 billion yen.
A subsidiary in the Pictures segment has committed to fund a
portion of the production cost of completed films and is responsible for all distribution and marketing expenses relating to these
films under a distribution agreement with a third party. Further,
certain subsidiaries in the Pictures segment have entered into
agreements with creative talent for the development and
production of films and television programming as well as
agreements with third parties to acquire completed films, or
certain rights therein. As of March 31, 2005, the total amount of
the expected cost for the production or purchase of films and
television programming or certain rights under the above
commitments was 82.1 billion yen.
In order to fulfill its commitments, Sony will use cash generated by its operating activities, intra-group loans and borrowings
from subsidiaries with excess funds to subsidiaries that are short
of funds through its finance subsidiaries such as SGTS, and
raise funds from the global capital markets and from banks
when necessary.
Total amounts of
contingent liabilities
Contingent Liabilities (Notes 24):

Loan guarantees to related parties . . . . . . . .
7,642
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,407
Total contingent liabilities . . . . . . . . . . . . . . .
26,049
OFF-BALANCE SHEET ARRANGEMENTS

Sony has several accounts receivable securitization programs to
provide liquidity, capital resources and credit risk support.
In the United States, Sony has set up an accounts receivable
securitization program that provides for the accelerated receipt
of up to 53.5 billion yen of cash on eligible trade accounts
receivable of Sonys U.S. electronics subsidiary. Through this
program, Sony can securitize and sell a percentage of an
undivided interest in that pool of receivables to several multiseller commercial paper conduits owned and operated by a
bank. These securitization transactions are accounted for as a
sale in accordance with FAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities, because Sony has relinquished control of the
receivables. Accordingly, accounts receivable sold under these
transactions are excluded from receivables in the accompanying
consolidated balance sheet. During the period from April 2004
54 Sony Corporation
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to January 2005, Sony sold a total of 80.3 billion yen of accounts

receivable under this program. There were no outstanding
recently entered into several joint ventures and made certain

strategic investments which include SONY BMG, S-LCD and
amounts due at March 31, 2005 relating to the existing undivided interests in the pool of receivables that had been sold.
MetroGoldwynMayer Inc. (MGM). Sony has reviewed these

investments and determined that both SONY BMG and S-LCD
Losses from these transactions were insignificant. This program

was terminated in May 2005.
are not VIEs while MGM is a VIE. However, MGM will not be
consolidated as Sony is not the primary beneficiary of this VIE.
During the fiscal year ended March 31, 2005, Sony entered
into new accounts receivable sales programs that provide for
Accordingly, Sony has accounted for these investments under

the equity method.
the accelerated receipt of up to 47.5 billion yen of eligible trade

accounts receivable of Sony Corporation. Through these
programs, Sony can sell receivables to special purpose
entities owned and operated by banks. These transactions
CASH FLOWS
are accounted for as a sale in accordance with FAS No. 140,

because Sony has relinquished control of the receivables.
(The fiscal year ended March 31, 2005 compared with the fiscal
year ended March 31, 2004)
Accordingly, accounts receivable sold under these transactions

are excluded from receivables in the accompanying consolidated
Operating Activities: During the fiscal year ended March 31,

2005, Sony generated 647.0 billion yen of net cash from
balance sheet. The initial sale of these receivables was in March

2005, and Sony sold a total of 10.0 billion yen for the fiscal year
operating activities, a increase of 14.4 billion yen, or 2.3 percent

compared with the previous fiscal year. Of this total, all segments
ended March 31, 2005. Losses from these transactions were

insignificant. Although Sony continues servicing the sold receiv-
excluding the Financial Services segment generated 485.4 billion

yen of net cash from operating activities, a increase of 84.3 billion
ables, no servicing liabilities are recorded because costs regarding

collection of the sold receivables are insignificant.
yen, or 21.0 percent, compared with the previous fiscal year, and
the Financial Services segment generated 168.1 billion yen of net
Refer to Note 7 of Notes to Consolidated Financial Statements

for more information.
cash from operating activities, a decrease of 73.5 billion yen, or

30.4 percent, compared with the previous fiscal year.
Sony has, from time to time, entered into various financing

arrangements with Variable Interest Entities (VIEs). These
During the fiscal year, in addition to profit contributions from

the Pictures, Financial Services, Game and Music segments and
arrangements include facilities which provide for the leasing of

certain property, the financing of film production and the
depreciation expenses, operating cash flow benefited from an

increase in notes and accounts payable, trade, primarily associ-
development and operation of a multi-use real estate complex.

Although not a significant part of its financing activities, Sony
ated with an increase in sales and procurement related primarily

to the PSP within the Game segment during the fourth quarter
employs these arrangements because they provide a diversification of funding sources. The assets and liabilities associated with
of the fiscal year, a decrease in notes and accounts receivable,

trade, associated with a sales decrease in the Pictures segment
these arrangements previously qualified for off-balance sheet

treatment. On July 1, 2003, Sony adopted FIN 46 and accord-
during the fourth quarter and within the Music segment associated with the decrease in sales after August 2004, and a
ingly, the assets and liabilities associated with these arrangements were consolidated. Refer to Note 23 of Notes to Consoli-
decrease in inventory mainly within the Game and Electronics

segments. Partially offsetting these contributions were factors
dated Financial Statements for more information. As a result,

Sony recognized a one time charge with no tax effect of 2.1
including an increase in notes and accounts receivable, trade

primarily within the Game segment. In addition, in the Financial
billion yen for cumulative effect of an accounting change for the

year ended March 31, 2004. Additionally, Sonys assets and
Services segment, an increase in future insurance policy benefits

and other, due to an increase in insurance-in-force, contributed
liabilities increased as non-cash transactions, which resulted in

no cash flows, by 95.3 billion yen and 98.0 billion yen, respec-
to operating cash flow in the Financial Services segment.

Compared with the previous fiscal year, net cash provided by
tively. Cash and cash equivalents as of March 31, 2005, also

increased by 1.5 billion yen compared with previous fiscal year-
operating activities increased, due to a decrease in inventory

during the fiscal year compared to an increase in inventory in the
end. As of March 31, 2005, Sony is a primary beneficiary for all

the VIEs in which Sony holds a significant variable interest, and
previous fiscal year, and there was a smaller increase in notes

and accounts receivable, trade, compared with the previous
all these VIEs are consolidated by Sony.

Also, in connection with Sonys utilization of joint venture and
fiscal year associated with the decrease in sales. These factors

were partially offset by factors such as a smaller increase in
alliances to achieve certain strategic objectives, Sony has
notes and accounts payable, trade.
Sony Corporation 55
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Investing Activities: During the fiscal year, Sony used 931.2

billion yen of net cash in investing activities, an increase of 169.4
In the Financial Services segment, as a result of a 294.4 billion

yen increase in customer deposits due to factors such as an
billion yen, or 22.2 percent, compared with the previous fiscal

year. Of this total, all segments excluding the Financial Services
increase in insurance-in-force at Sony Life and an increase in

deposits from customers in the banking business, 256.4 billion
segment used 472.1 billion yen of net cash in investing activities,

an increase of 119.6 billion yen, or 33.9 percent, compared with
yen was procured by financing activities.

Accounting for all these factors and the effect of exchange
the previous fiscal year, and the Financial Services segment

used 421.4 billion yen in net cash, an increase of 19.8 billion
rate changes, the total outstanding balance of cash and cash

equivalents at the end of the fiscal year decreased by 70.1 billion
yen, or 4.9 percent.

During the fiscal year, purchases of fixed assets (capital
yen, or 8.3 percent, to 779.1 billion yen, compared with the end
of the previous fiscal year. The total outstanding balance of cash
expenditures) were made, primarily due to proactive capital

expenditures in semiconductors mainly within the Electronics
and cash equivalents of all segments excluding the Financial

Services segment decreased by 73.2 billion yen, or 12.3
segment, mostly associated with system LSI including the Cell

next-generation, high-performance processor, as well as
percent, to 519.7 billion yen, and for the Financial Services

segment, increased by 3.1 billion, or 1.2 percent, to 259.4 billion
investments associated with the establishment of the amorphous

TFT LCD panel manufacturing joint venture S-LCD. Within the
yen, compared with the end of the previous fiscal year.
Financial Services segment, payments for investments and

advances exceeded proceeds from maturities of marketable
securities, sales of securities investments and collections of
advances primarily as a result of both investments in mainly
Japanese fixed income securities resulting from an increase in
insurance premiums at Sony Life, and a housing loan campaign
Cash flows
(Yen in billions)
1,000
500
carried out at Sony Bank.

Compared with the previous fiscal year, net cash used in
investing activities increased, due primarily to investments
associated with S-LCD. In all segments excluding the Financial
Services segment, the amount of payments for investments and
advances increased by 124.8 billion yen from 33.3 billion yen to
158.2 billion yen due to the abovementioned investments at SLCD. On the other hand, in the Financial Services segment, net
cash used in investing activities increased due to an increase in
proceeds from investments and advances year on year.
500
1,000
2003
2004
2005
Cash flows from operating activities

Cash flows from investing activities
Cash flows from financing activities
In all segments excluding the Financial Services segment, the

difference between cash generated from operating activities and
cash used in investing activities was 13.3 billion yen for the fiscal
year, a decrease of 35.3 billion yen, or 72.6 percent, compared
CONDENSED STATEMENTS OF CASH FLOWS

SEPARATING OUT THE FINANCIAL SERVICES SEGMENT
with the previous fiscal year.

Financing Activities: During the fiscal year ended March 31,
(UNAUDITED)
The following schedule shows unaudited condensed statements
2005, 205.2 billion yen of net cash was provided by financing

activities. Of the total, 95.4 billion yen of net cash was used for
of cash flow for the Financial Services segment and all other
segments excluding the Financial Services segment as well as
financing activities in all segments excluding the Financial

Services segment as a result of 89.7 billion yen being used for
condensed consolidated statements of cash flow. These

presentations are not required under U.S. GAAP, which is used
the repayment of long term debt and 23.0 billion yen in cash
being used for the payment of dividends.
in Sonys consolidated financial statements. However, because

the Financial Services segment is different in nature from Sonys
In the fiscal year ended March 31, 2005, net cash was used
for financing activities compared to 153.8 billion yen of net cash
other segments, Sony believes that a comparative presentation

may be useful in understanding and analyzing Sonys consoli-
procured in the previous fiscal year. This change was due mainly
to the issuance of 250.0 billion yen in euro yen convertible
dated financial statements. Transactions between the Financial

Services segment and all other segments excluding the Financial
bonds (bonds with stock acquisition rights) within the previous

fiscal year.
Services segment are eliminated in the consolidated figures

shown below.
56 Sony Corporation
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CONDENSED STATEMENTS OF CASH FLOWS SEPARATING OUT THE FINANCIAL SERVICES SEGMENT
Yen in millions
Sony without
Financial Services
Financial Services
2004
2005
2004
Consolidated
2005
2004
2005
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . .
241,627
168,078
401,090
485,439
632,635
646,997
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . .
(401,550)
(421,384)
(352,496)
(472,119)
(761,792)
(931,172)
Net cash provided by (used in) financing activities . . . . . . . . . . . .
141,696
256,361
153,759
(95,373)
313,283
205,177
Effect of exchange rate changes on cash and cash equivalents . .
(47,973)
8,890
(47,973)
8,890
Net increase (decrease) in cash and cash equivalents . . . . . . . . .
(18,227)
3,055
154,380
(73,163)
136,153
(70,108)
Cash and cash equivalents at beginning of the fiscal year . . . . . .
274,543
256,316
438,515
592,895
713,058
849,211
Cash and cash equivalents at end of the fiscal year . . . . . . . . . . .
256,316
259,371
592,895
519,732
849,211
779,103
MARKET ACCESS
LIQUIDITY AND CAPITAL RESOURCES

Sonys financial policy is to secure adequate liquidity and
financing for its operations and to maintain the strength of its
balance sheet.
Sony intends to continue both structural reform and investment for future growth in several segments. Sony believes that it
can maintain sufficient liquidity and financial flexibility to satisfy its
various capital needs, including the funding requirements that
arise from this business strategy, working capital needs, repayment of existing debt, payment of dividend and all its other
capital needs, through operating cash flows and cash and cash
equivalents, its ability to procure necessary funds from the
financial and capital markets, its commitment lines with banks,
and other means.
Sony Corporation and SGTS, a finance subsidiary in the U.K.,

procure funds from the financial and capital markets.
In order to meet long-term funding requirements, Sony
Corporation utilizes its access to global equity and bond
markets and did not issue any stock or bonds during the fiscal
year. Sony has a shelf registration of 300 billion yen in the
Japanese domestic bond market, of which no bonds were
issued as of March 31, 2005.
In order to meet the working capital requirements of Sony,
SGTS maintains commercial paper (CP) programs and a
medium-term note (MTN) program. SGTS maintains CP
programs for the U.S., Euro and Japanese CP markets. As of
March 31, 2005, the total amount of these CP programs was
1,251.5 billion yen. During the fiscal year ended March 31,
2005, the largest month-end outstanding balance of CP at
SGTS was 122.5 billion yen in November 2004. There was no
outstanding balance of CP as of March 31, 2005.
SGTS maintains a Euro MTN program of whose total program
Depreciation and amortization
Capital expenditures
(additions to property, plant
and equipment)
amount as of March 31, 2005 was 536.8 billion yen. There was
no outstanding balance as of March 31, 2005. Sony Capital
Corporation (SCC), a Sony finance subsidiary in the U.S., had
an outstanding MTN balance of approximately 58.8 billion yen
(Yen in billions)
(Yen in billions)
400
400
300
300
financing function was integrated into that of SGTS.
200
200
LIQUIDITY MANAGEMENT
Sony defines its liquidity sources as the amount of cash, cash
100
100
equivalents (cash balance), and committed lines of credit

contracted with financial institutions. Working capital needs of
2003
2004
2005

* Including amortization
expenses for intangible assets
and for deferred insurance
acquisition costs
as of March 31, 2005. However, Sony does not intend to utilize

SCCs program for future financing requirements as SCCs
2003
2004
2005
Sony shows general seasonality to grow significantly in the third

quarter (from October to December). In Sonys liquidity management, it is basic policy to secure sufficient liquidity throughout
the relevant fiscal year, covering such factors as short-term cash
flow volatility mentioned above, repayments for debts whose
Sony Corporation 57
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due date come within the fiscal year, and possible downward
earnings risk due to business environment change.
On November 22, 2004, S&P downgraded Sonys long-term

debt rating from A+ to A (outlook: negative). This action reflected
Sony has a policy to keep more than a certain level of cash

balance to absorb any working capital needs daily and monthly.
the concerns of S&P that it is uncertain if Sony will strengthen and

stabilize its profitability particularly in the electronics business,
The cash balance on March 31, 2005, was 523.8 billion yen. A
short-term shortage in the cash balance is financed by the
under the severe competition and deflationary pressures. Sonys

short-term debt rating from S&P has been unaffected. Despite the
issuance of CP. However, Sony controls the outstanding CP

amount through internal limits as part of its short-term debt risk
downgrading of Sonys long-term debt rating by S&P, Sony

believes its access to the global capital markets and ability to
management strategy. In the fiscal year ended March 31, 2005,

there was no outstanding CP amount.
issue CP for its working capital needs has not been limited.
As part of its additional liquidity sources, Sony has a total of

868.7 billion yen in committed lines of credit, of which the
CASH MANAGEMENT
Sony is centralizing and working to make more efficient its global
unused amount was approximately 863.9 billion yen as of March

31, 2005. Major committed lines of credit include 574.3 billion
cash management activities through SGTS. The excess or

shortage of cash at most of Sonys subsidiaries is invested or
yen of the Global Commitment Facilities contracted with a

syndicate of global banks, and 250 billion yen of committed lines
funded by SGTS after having been netted out, although Sony

recognizes that fund transfers are limited in certain countries and
of credit contracted with a syndicate of Japanese banks. There

has been no major change since the last fiscal year in terms of
geographical areas due to restrictions on capital transactions. In

order to pursue more efficient cash management, Sony man-
the total amount and composition of the committed lines of

credit. Sony uses these lines for general corporate purposes,
ages uneven cash distribution among its subsidiaries directly or

indirectly through SGTS so that Sony can reduce unnecessary
including the support of commercial paper programs and for

emergency purposes. There are no financial covenants in any
cash and cash equivalents as well as borrowings as much as

possible.
of Sonys material financial agreements that would cause an

acceleration of the obligation in the event of a downgrade in
The above description covers liquidity and capital resources

for consolidated Sony excluding the Financial Services segment
Sonys credit ratings. However, a downgrade in Sonys credit

ratings could increase the cost of borrowings. There are no
which secure liquidity on their own.
restrictions on how Sonys borrowings can be used except that

some borrowings may not be used to acquire securities listed
FINANCIAL SERVICES SEGMENT

In the Financial Services segment, the management of Sony
on a U.S. exchange or traded over-the-counter in U.S., and use

of such borrowings must comply with the rules and regulations
Financial Holdings Inc., Sony Life, Sony Assurance and Sony

Bank recognize the importance of securing sufficient liquidity to
issued by authorities such as the Board of Governors of the

Federal Reserve Board.
cover the payment obligations that they take on as a result of

their ordinary course of business, and these companies abide
RATINGS
by the regulations imposed by regulatory authorities and

establish and operate under company guidelines that comply
Sony considers it to be one of managements top priorities to

maintain a stable and appropriate credit rating in order to ensure
with these regulations. Their purpose in doing so is to maintain

sufficient cash and cash equivalents and secure sufficient means
financial flexibility for liquidity and capital management, and to

continue to maintain adequate access to sufficient funding
to pay their obligations. For instance, Sony Lifes cash inflows

come mainly from policyholders insurance premiums and Sony
resources in the financial and capital markets.

In order to facilitate access to global capital markets, Sony
Life keeps sufficient liquidity in the form of investments primarily

in various securities. Sony Bank, on the other hand, uses its
obtains credit ratings from two rating agencies, Moodys

Investors Service (Moodys) and Standard and Poors Rating
cash inflows, which come mainly from customers deposits

in local or foreign currencies, in order to offer housing loans
Services (S&P). In addition, Sony maintains a rating from

Rating and Investment Information, Inc. (R&I), a rating agency
to individuals or to make bond investments, and establish

a necessary level of liquidity for the smooth settlement of
in Japan, for access to the Japanese capital market.

Sonys current debt ratings from each agency are noted below:
transactions.
Sony Life currently obtains ratings from four rating agencies:
A+ by S&P both for long-term local currency issuer ratings and
insurance and finance capability ratings, A+ by AM Best
Moodys
S&P
R&I
Long-term debt
A1 (Outlook:
Negative)
A (Outlook:
Negative)
AA
Corporation for insurance and finance capability ratings, and AA

by R&I and the Japan Credit Rating Agency Ltd for insurance
Short-term debt
P-1
A-1
a-1+
claim payment capabilities ratings. Sony Bank obtained an A-/A-2
58 Sony Corporation
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rating from S&P for its long-term/short-term local/foreign

currency issuer ratings.
conductors, communications, displays and next generation

optical discs. There was an increase in research and development costs related to semiconductor process technology
associated with the transfer of Sony Computer Entertainments
RESEARCH AND DEVELOPMENT
semiconductor manufacturing operations from the Game

segment to the Electronics segment. However, the stringent
Recognizing that research and development are indispensable

for business growth, Sony has established semiconductors,
selection of research and development activities resulted in a

small increase in research and development costs within the
displays, and optical technologies and related devices as focus

areas for research and development and is devoting its energies
Electronics segment. Research and development costs in

the Game segment remained high due to the research and
to the development of a variety of strategic devices and innovative new products as part of research and development activities
development associated with PSP and PLAYSTATION 3 (PS3).
within the Network companies and business groups. Moreover,

a Technology Round Table has been set up to facilitate the
REWARDING SHAREHOLDERS
selection, consolidation and convergence of themes for research

and development, for the sharing and validation of research and
Sony believes that continuously increasing corporate value and
development roadmaps and to frame research and development

strategy. In addition, while continually endeavoring to improve
providing dividends are essential to rewarding shareholders. It is

Sonys policy to utilize retained earnings, after ensuring the
product quality, Sony is also striving to develop products that

are even more environmentally-friendly. During the fiscal year
perpetuation of stable dividends, to carry out various investments

that contribute to an increase in corporate value such as those
ended March 31, 2005, Sony received a special commendation

and award from the Ministry of Agriculture, Forestry and Fisher-
that ensure future growth and strengthen competitiveness.

A fiscal year-end cash dividend of 12.5 yen per share of Sony
ies of Japan for excellence in the utilization of biomass as a

result of Sonys technological development and proactive
Corporation Common Stock was approved at the Board of

Directors meeting held on May 16, 2005 and was paid on June
implementation of vegetable-based plastics in home electronic

appliances. Sony continues to strengthen the basic research
1, 2005. Sony Corporation has already paid an interim dividend

for Common Stock of 12.5 yen per share to each shareholder;
and development structure at two of its corporate laboratories,

the Material Laboratories and the Information Technology
accordingly, the total annual cash dividend per share of

Common Stock is 25.0 yen.
Laboratories. These laboratories closely collaborate with the

research and development activities carried out by the network
Regarding shares of subsidiary tracking stock issued in Japan

by Sony Corporation, SCN has been working to manage its
companies, with the aim of forging new future markets. In

addition, Sony operates three independent research laborato-
operations so as to expand cash flow, fully solidify its financial

base and increase its retained earnings to aggressively expand
ries; Sony Computer Science Laboratories, Inc. (focusing on

fundamental research and user interface research); Sony-Kihara
its business to strengthen its foundation and respond to the

quickly expanding Internet market. For these reasons, SCN
Research Center, Inc. (focusing on three-dimensional computer

graphics and image processing technologies); and Sony
does not plan to distribute earnings to SCN shareholders for

the time being. As such, Sony Corporation will continue its
Intelligence Dynamics Laboratories, Inc.

Research and development costs for the fiscal year ended
policy of not paying dividends to shareholders of the subsidiary

tracking stock.
March 31, 2005 decreased 12.5 billion yen, or 2.4 percent, to

502.0 billion yen, compared with the previous fiscal year. The
ratio of research and development costs to sales (excluding the
Financial Services segment) increased from 7.5 percent to 7.6
NUMBER OF EMPLOYEES
percent. The bulk of research and development costs were

incurred in the Electronics and Game segments. Expenses in
The number of employees at the end of March 2005 was

approximately 151,400, a decrease of approximately 10,600
the Electronics segment increased 2.4 billion yen, or 0.5

percent, to 432.8 billion yen, and expenses in the Game
employees from the end of March 2004. Although employees

increased at manufacturing facilities in Asia, particularly in China,
segment decreased 14.9 billion yen, or 17.9 percent, to 68.5

billion yen. In the Electronics segment, approximately 62 percent
the total number of employees declined due to the reductions

associated with the implementation of restructuring activities in
of expenses were for the development of new product prototypes while the remaining 38 percent were for the development
Japan, the U.S., Europe and South-East Asia, and a decrease in

the number of employees due to the establishment of Sony BMG.
of mid- to long-term new technologies in such areas as semiSony Corporation 59
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TREND INFORMATION
intense price erosion in the end-user consumer audio visual

products market. To respond to these challenges, Sony is
This section, including the Forecast of Consolidated Results,

contains forward-looking statements about the possible future
striving to keep pace with price erosion by reducing its manufacturing and other costs. It is seeking to maintain the premium
performance of Sony and should be read in light of the cautionary statement on that subject, which appears on the inside front
pricing it enjoys on many of its end-user products by adding

functionality to those products and developing new applications
cover page and which applies to this entire document.
and ways of use that are then communicated to the consumer.

In addition, it is taking steps to increase its competitive edge by
ISSUES FACING SONY AND MANAGEMENTS RESPONSE

TO THOSE ISSUES
developing high value-added semiconductors and other digital

key devices in-house. By increasing the ratio of key devices
Competition in many of Sonys business segments continues to

intensify and price erosion, especially in the Electronics seg-
produced in-house, Sony aims to capture the value that has

become increasingly concentrated in those devices.
ment, remains persistent. Competition has intensified due to the

penetration of broadband, which has led to an augmentation of
In the area of semiconductors, in the fiscal years ended March

31, 2004 and 2005, Sony carried out 175 billion yen and 150
network infrastructure, making it easier for companies in other

sectors to enter the markets in which Sony competes.
billion yen, respectively, of capital expenditure mainly on system

LSIs and CCDs. Of this, Sony invested 69 billion yen in the fiscal
In response to these challenges, over the three fiscal years

ending March 31, 2006, Sony is implementing Transformation
year ended March 31, 2004 and invested 90 billion yen in the
fiscal year ended March 31, 2005 on semiconductor fabrication
60, a series of fundamental reforms aimed at improving operational profitability and competitiveness in anticipation of future
equipment built at the 65 nanometer level of process technology. Chips that will be manufactured using this equipment will
growth. Through greater focus of management resources on

strategic businesses, accelerated reform of its manufacturing
be some of the most highly advanced on the market, and will

include the Cell next-generation, high-performance processor,
platform, headcount reductions in administrative (including

corporate) and sales functions and reductions in the cost of
as well as other system LSI for use in the next generation

computer entertainment system PS3 and a variety of future
non-production materials, Sony intends to reduce fixed costs.

Sony also aims to lay the seeds for future growth through
consumer electronics products. Sony began developing Cell

together with IBM Corporation and Toshiba Corporation in the
strategic investments in research and development, as well as

aggressive capital expenditures in the area of semiconductors.
spring of 2001. In July 2004, in order to establish a more efficient

and coordinated semiconductor supply structure, Sony has
In addition to this cost-cutting and investment for growth,

each of Sonys business segments grappled with issues specific
integrated its semiconductor manufacturing business by transferring Sony Computer Entertainments semiconductor manufac-
to that segment. Below is a description of the issues management believes each segment continues to face and an explana-
turing operation from the Game segment to the semiconductor

category within the Electronics segment.
tion as to how each segment is approaching those issues.
In the area of other key devices, Sony invested in 7th generation amorphous TFT LCD panel production equipment, through
ELECTRONICS
Although the Electronics segment continues to hold a very
a one billion U.S. dollar investment in S-LCD, a joint venture with

Samsung, based in South Korea. This investment reflects Sonys
strong position in the worldwide consumer audio visual products

market, that position has become increasingly threatened as a
belief that demand for LCD televisions will continue to increase

rapidly. Samsung holds 50 percent plus one share of the equity
result of the entrance of new manufacturers and distributors.

These new entrants are threatening Sonys position due to the
of the joint venture while Sony holds 50 percent minus one

share of the equity of the joint venture. The President and CEO
industry shift from analog to digital technology. In the analog era,

complicated functionality of electronics products was made
comes from Samsung while the CFO comes from Sony. Production of LCD panels began in April 2005. Expected production
possible through the combination of several complex parts, and

Sony held a competitive advantage in the design and manufac-
capacity is 60,000 sheets per month at the 7th generation

(1,870 mm x 2,200 mm) level of technology.
ture of those parts as a result of its accumulated expertise. In

the digital era, however, complicated functionality has become
GAME
concentrated on semiconductors and other key digital devices.

Since these semiconductors and key devices are able to be
In the Game segment, PS2 has a high share of the global game
console market, and the PS2 business, particularly the PS2
mass produced, they have become readily available to new

market entrants, and the functionality that once commanded a
software business, remains in its harvest stage. However,

production shipment units of PS2 hardware are expected to
high premium has become more affordable. This has led to
decrease in the fiscal year ending March 31, 2006. In order to
60 Sony Corporation
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ensure future growth in the Game segment, Sony is investing,

as described above, in the research and development of
individual needs, in April 2004 Sony established Sony Financial

Holdings, a holding company comprised of Sony Life, Sony
cutting-edge microprocessors and other LSIs that will be

used in the next generation computer entertainment system,
Assurance and Sony Bank, with the aim of both increasing the
synergies between these businesses and targeting an initial
PS3. Furthermore, Sony is working to develop a new market

through its introduction of PSP, a new handheld video game
public offering during the fiscal year ending March 31, 2007.
system on which a variety of content can be enjoyed. PSP

was introduced in Japan and U.S. in December 2004 and
FORECAST OF CONSOLIDATED RESULTS

Factors which may affect Sonys financial performance include
March 2005, respectively and will be introduced in Europe in

September 2005.
the following: market conditions, including general economic

conditions, in major areas where Sony conducts its businesses,
MUSIC
levels of consumer spending, foreign exchange fluctuations,

Sonys ability to continue to design, develop, manufacture, sell,
Within the music industry, album sales over the past several
years have decreased due to piracy and competition from other
and win acceptance of its products and services, Sonys ability

to continue to implement personnel reductions and other
entertainment sectors. One way Sony is working to combat

digital piracy and generate profits is through the digital distribu-
business reorganization initiatives, Sonys ability to implement its

network strategy, and implement successful sales and distribu-
tion of content, is through its launch of the Connect music store,

a digital downloading service, which is now classified as part of
tion strategies in the light of the Internet and other technological

developments, Sonys ability to devote sufficient resources to
the Other segment. As part of an effort to achieve significant

operational efficiencies, Sony merged its recorded music
research and development, and capital expenditures, and the

success of Sonys joint ventures and alliances. Risks and
business, excluding its recorded music business in Japan, with

the recorded music business of Bertelsmann AG in August
uncertainties also include the impact of any future events with

material unforeseen impacts. Refer also to the Cautionary
2004, forming the joint venture SONY BMG. The newly formed
company is 50 percent owned by each parent company and is
Statement.
accounted for by Sony under the equity method.
Regarding the forecast of consolidated results for the fiscal

year ending March 31, 2006, sales and operating revenue,
PICTURES
In the Pictures segment, Sony faces intense competition, rising
operating income, and income before income taxes are expected

to increase compared with the fiscal year ended March 31,
advertising and promotion expenses and a growing trend

toward digital piracy. To meet these challenges, Sony is working
2005. Net income is expected to decrease. This forecast

assumes that the yen for the fiscal year ending March 31, 2006
to distribute a diversified portfolio of motion pictures and

capitalize on the expanding DVD home entertainment market,
will strengthen against the U.S. dollar and the euro compared
with the fiscal year ended March 31, 2005.
which is becoming a more significant source of revenues and

profits. One of the ways that Sony is working to distribute a
During the fiscal year ending March 31, 2006, restructuring

charges, primarily in the Electronics segment, of approximately
diversified portfolio of motion pictures and capitalize on the

expanding DVD home entertainment market is through its
72 billion yen are expected to be incurred across Sony as a

whole. 90 billion yen of restructuring charges were recorded in
participation in the acquisition of MGM. In conjunction with the

transaction, SPE entered into agreements to co-finance and
the fiscal year ended March 31, 2005.

The forecast for operating income and income before income
produce new motion pictures with MGM and to distribute

MGMs existing film and television content in, among other
taxes reflects an estimated gain of approximately 60 billion yen

related to the transfer to the Japanese Government of the
markets, the DVD home entertainment market.
substitutional portion, the benefit obligation related to past

employee service, of Sonys Employee Pension Fund. Further-
FINANCIAL SERVICES
In the Financial Services segment, the value of assets accumu-
more, 35 billion yen of this estimated gain is reflected in the

forecast for net income after deductions for the effect of
lated by the businesses in the segment has grown continuously

over the past several fiscal years, resulting in a large portion
income taxes.
In June 6, 2005, SCN sold 17,935 shares of So-Net M3 Inc.,
(approximately 40 percent) of Sonys total assets being accounted for by the Financial Services segment. To strengthen
at 694,600 yen per share with a total value of 12.5 billion yen.
As a result of this sale, Sony records approximately 11.9 billion
asset management and risk management in parallel with this

growing asset value, enhance disclosure of business details,
yen gain on the sale of its stock for the year ending March 31,
2006, and Sonys ownership interest has been reduced from
and offer customers integrated financial services tailored to their
74.8 percent to 60.8 percent.

Sony Corporation 61
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As of March 31, 2005, Sony had deferred tax assets on tax

loss carry forwards in relation to Japanese local income taxes
increase of 15 percent compared with the fiscal year ended

March 31, 2005. Approximately 90 percent of the amount is
totaling 77.5 billion yen. However, there is a possibility that,

depending on future operating performance, Sony may establish
expected to be spent in the Electronics segment. Of this

amount, capital expenditures on semiconductors during the
a valuation allowance against part or all of its deferred tax assets

that would be charged to income as an increase in tax expense.
fiscal year are expected to amount to 160 billion yen (actual

amount in the fiscal year ended March 31, 2005 was 150 billion
However, the forecast above does not include this possibility.

The forecast for each business segment (excluding the
yen). For an explanation regarding fund procurement, refer to

Liquidity and Capital Resources above.
anticipated gain from the transfer of the substitutional portion of

Sonys Employee Pension Fund) is as follows:
DEPRECIATION
ELECTRONICS
In the fiscal year ending March 31, 2006, expenses for depreciation and amortization, which includes the amortization of
Sales are expected to increase primarily due to an increase in

the sales of products such as flat panel televisions and LCD rear
intangible assets and the amortization of deferred insurance

acquisition costs, are expected to be 390 billion yen, an in-
projection televisions. With regard to operating performance,

although an improvement is expected due to the increase in
crease of 5 percent compared with the fiscal year ended March

31, 2005. Both expenses for the amortization of deferred
sales and a reduction in fixed costs relating to restructuring

implemented during the previous fiscal year, a decline in unit
insurance acquisition costs in the Financial Services segment

and expenses for depreciation and amortization in the
prices, appreciation of the yen against the U.S. dollar and euro
and increase in both depreciation and amortization and research
Electronics segment are expected to increase.
and development costs are also anticipated. An improvement in

operating performance is expected, reflecting the above-
RESEARCH
AND DEVELOPMENT
Sony expects research and development costs (total of expenses
mentioned factors, as well as an anticipated reduction in

restructuring charges.
for the development of new product prototypes and expenses for

the development of mid- to long-term new technologies) for the
GAME
fiscal year ending March 31, 2006 to be 520 billion yen, a 4

percent increase compared with the fiscal year ended March 31,
Sales are expected to increase due to the contribution from

both PSP hardware and software. Although PS2 and PSP are
2005. Research and development costs for both the Electronics

and Game segments are expected to increase.
AND AMORTIZATION
expected to contribute to operating income, increased research

and development costs primarily for PS3 are expected to leave
operating income relatively unchanged.
CRITICAL ACCOUNTING POLICIES
MUSIC
Due to the establishment of SONY BMG, sales are expected to
The preparation of the consolidated financial statements in

conformity with U.S. GAAP requires management to make
decrease. A small increase in operating income is anticipated.
estimates and assumptions that affect the reported amounts of

assets and liabilities, disclosure of contingent assets and
PICTURES
Although sales are expected to increase due to the impact of
liabilities at the date of the financial statements and the reported

amounts of revenues and expenses during the reporting period.
SPEs agreements with MGM, operating income is expected to

decrease compared to the fiscal year ended March 31, 2005, in
On an ongoing basis, Sony evaluates its estimates which are

based on historical experience and on various other assump-
which Spider-Man 2 was a substantial contributor.
tions that are believed to be reasonable under the circumstances. The results of these evaluations form the basis for
FINANCIAL SERVICES
Although revenue is expected to continue to grow mainly due to
making judgments about the carrying values of assets and

liabilities and the reported amounts of expenses that are not
an increase in revenue from insurance premiums at Sony Life, a

small decrease is expected in operating income due to the
readily apparent from other sources. Actual results may differ

from these estimates under different assumptions. Sony
conservative estimation of insurance claim payments.
considers an accounting policy to be critical if it is important to

its financial condition and results, and requires significant
CAPITAL EXPENDITURES
In the fiscal year ending March 31, 2006, capital expenditures
judgments and estimates on the part of management in its

application. Sony believes that the following represent the critical
(additions to fixed assets) are expected to be 410 billion yen, an
accounting policies of the company.
62 Sony Corporation
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INVESTMENTS
Sonys investments are comprised of debt and equity securities
IMPAIRMENT OF LONG-LIVED ASSETS

Sony reviews the carrying value of its long-lived assets held and
accounted for under both the cost and equity method of

accounting. If it has been determined that an investment has
used and long-lived assets to be disposed of whenever events

or changes in circumstances indicate that the carrying value of
sustained an other-than-temporary decline in its value, the

investment is written down to its fair value by a charge to
the assets may not be recoverable. This review is performed

using estimates of future cash flows by product category (e.g.
earnings. Sony regularly evaluates its investment portfolio to

identify other-than-temporary impairments of individual securi-
TV display CRTs) or entity (e.g. semiconductor manufacturing

division in the U.S.). If the carrying value of the asset is consid-
ties. Factors that are considered by Sony in determining whether

an other-than-temporary decline in value has occurred include:
ered impaired, an impairment charge is recorded for the amount

by which the carrying value of the asset exceeds its fair value.
the length of time and extent to which the market value of the
security has been less than its original cost, the financial
Fair value is determined using the present value of estimated net

cash flows or comparable market values.
condition, operating results, business plans and estimated future

cash flows of the issuer of the security, other specific factors
Management believes that the estimates of future cash flows

and fair value are reasonable; however, changes in estimates
affecting the market value, deterioration of credit condition of the

issuers, sovereign risk, and ability to retain the investment for a
resulting in lower future cash flows and fair value due to unforeseen changes in business assumptions could negatively affect
period of time sufficient to allow for the anticipated recovery in

market value.
the valuations of those long-lived assets. These unforeseen

changes include a possible further decline in demand for TV
In evaluating the factors for available-for-sale securities whose

fair values are readily determinable, management presumes a
display CRTs due to a shift in demand from CRT displays to

LCD and plasma panel displays.
decline in value to be other-than-temporary if the fair value of the

security is 20 percent or more below its original cost for an
In the fiscal year ended March 31, 2003, Sony recorded

impairment charges for long-lived assets totaling 12.4 billion
extended period of time (generally a period of up to six to twelve

months). This criteria is employed as a threshold to identify
yen. This included 8.1 billion yen for the impairment of semiconductor and computer display CRT manufacturing equipment to
securities which may have a decline in value that is other-thantemporary. The presumption of an other-than-temporary
be abandoned or to be sold in connection with certain restructuring activities in the Electronics segment. It also included 2.7
impairment in such cases may be overcome if there is evidence

to support that the decline is temporary in nature due to the
billion yen for the impairment of a CD manufacturing facility in

the U.S., the fair value of which was estimated by using meth-
existence of other factors which overcome the duration or

magnitude of the decline. On the other hand, there may be
ods such as a survey of the local real estate market.

cases where impairment losses are recognized when the decline

in the fair value of the security is not more than 20% or such

yen. This included 5.3 billion yen for the impairment of long-lived
decline has not existed for an extended period of time, as a

result of considering specific factors which may indicate the
assets such as semiconductor and TV display CRT manufacturing equipment to be abandoned or sold in connection with
decline in the fair value is other-than-temporary.

The assessment of whether a decline in the value of an
certain restructuring activities in the Electronics segment. It also

included 3.0 billion yen for the impairment of long-lived assets in
investment is other-than-temporary often requires management

judgment based on evaluation of relevant factors. Those factors
the Music segment such as a certain CD manufacturing facility

to be abandoned or sold and a recording studio and equipment
include business plans and future cash flows of the issuer of the
security, the regulatory, economic or technological environment
to be held and used in Japan. Fair value of these assets was

determined using estimated future discounted cash flows based
of the investee, and the general market condition of either the

geographic area or the industry in which the investee operates.
on the best information available.

Accordingly, it is possible that investments in Sonys portfolio

that have had a decline in value that are currently believed to

yen. This included 7.5 billion yen for the impairment of long-lived
be temporary may determine to be other-than-temporary in the

future based on Sonys evaluation of additional information such
assets of CRT TV display manufacturing facilities to be held and

used in Europe in connection with certain restructuring activities
as continued poor operating results, future broad declines in

value of worldwide equity markets or circumstances in market
in the Electronics segment. Fair value of these assets was

determined using estimated future discounted cash flows based
interest rate fluctuations. As a result, unrealized losses

recorded for investments may be recognized into income
on the best information available.
in future periods.
Sony Corporation 63
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GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets that are determined to have
market information that is publicly available. Estimates of fair

value are primarily determined using discounted cash flow
an indefinite life are not amortized, but are tested for impairment
in accordance with FAS No. 142 on an annual basis and
analysis. This approach uses significant estimates and assumptions including projected future cash flows, the timing of such
between annual tests if an event occurs or circumstances

change that would more likely than not reduce the fair value of
cash flows, discount rates reflecting the risk inherent in future

cash flows, perpetual growth rates, determination of appropriate
these assets below their carrying value. Such an event would

include unfavorable variances from established business plans,
market comparables and the determination of whether a

premium or discount should be applied to comparables. During
significant changes in forecasted results or volatility inherent to

external markets and industries, which are periodically reviewed
the fourth quarter of the fiscal year ended March 31, 2005, Sony
performed the annual impairment analysis and no impairment
by management. Specifically, goodwill impairment is determined

using a two-step process. The first step of the goodwill impair-
loss has been recognized.

Management believes that the estimates of future cash flows
ment test is used to identify potential impairment by comparing

the fair value of a reporting unit (generally, Sonys operating
and fair value are reasonable; however, changes in estimates

resulting in lower future cash flows and fair value due to unfore-
segments) with its carrying amount, including goodwill. If the fair

value of a reporting unit exceeds its carrying amount, goodwill of
seen changes in business assumptions could negatively affect

the valuations, which may result in Sony recognizing impairment
the reporting unit is considered not impaired and the second

step of the impairment test is unnecessary. If the carrying
charges for goodwill and other intangible assets in the future.

In order to evaluate the sensitivity of the fair value calculations
amount of a reporting unit exceeds its fair value, the second

step of the goodwill impairment test is performed to measure
on the impairment analysis, Sony applied a hypothetical 10%

decrease to the fair value of each reporting unit. As of March
the amount of impairment loss, if any. The second step of the

goodwill impairment test compares the implied fair value of the
31, 2005, a 10% hypothetical decrease to the fair value of

each reporting units would not have resulted in a material
reporting units goodwill with the carrying amount of that

goodwill. If the carrying amount of the reporting units goodwill
impairment loss.
exceeds the implied fair value of that goodwill, an impairment

loss is recognized in an amount equal to that excess. The
PENSION BENEFITS COSTS

Employee pension benefit costs and obligations are dependent
implied fair value of goodwill is determined in the same manner

as the amount of goodwill recognized in a business combina-
on certain assumptions including discount rates, retirement

rates and mortality rates, which are based upon current statisti-
tion. That is, the fair value of the reporting unit is allocated to all
of the assets and liabilities of that unit (including any unrecog-
cal data, as well as expected long-term rates of return on plan

assets and other factors. Specifically, the discount rate and
nized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the
expected long-term rate of return on assets are two critical

assumptions in the determination of periodic pension costs and
reporting unit was the purchase price paid to acquire the

reporting unit. Other intangible assets are tested for impairment
pension liabilities. Assumptions are evaluated at least annually,

or at the time when events occur or circumstances change and
by comparing the fair value of the intangible asset with its

carrying value. If the carrying value of the intangible asset
these events or changes could have a significant effect on these

critical assumptions. In accordance with U.S. GAAP, actual
exceeds its fair value, an impairment loss is recognized in an

amount equal to that excess.
results that differ from the assumptions are accumulated and

amortized over future periods. Therefore, actual results generally
Determining the fair value of a reporting unit under the first

step of the goodwill impairment test and determining the fair
affect recognized expenses and the recorded obligations for

pensions in future periods. While management believes that the
value of individual assets and liabilities of a reporting unit

(including unrecognized intangible assets) under the second
assumptions used are appropriate, differences in actual experience or changes in assumptions may affect Sonys pension
step of the goodwill impairment test is judgmental in nature and

often involves the use of significant estimates and assumptions.
obligations and future expenses.

Sonys principal pension plans are its Japanese pension plans.
Similarly, estimates and assumptions are used in determining the

fair value of other intangible assets. These estimates and
Foreign pension plans are not significant individually with total

assets and pension obligations amounting to less than 10% of
assumptions could significantly impact whether or not an

impairment charge is recognized as well as the magnitude of
those of the aggregate of the Japanese pension plans.

To determine the benefit obligation of the Japanese pension
any such charge. In its impairment review, Sony performs

internal valuation analyses or utilizes third-party valuations when
plans, Sony used a discount rate of 2.3% for its Japanese

pension plans as of March 31, 2005. The discount rate was
management believes it to be appropriate, and considers other
determined by using available information about rates of return
64 Sony Corporation
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05.7.7, 3:33 AM
on high-quality fixed-income investments currently available and

expected to be available during the period to maturity of the
DEFERRED TAX ASSET VALUATION

Sony records a valuation allowance to reduce the deferred tax
pension benefit obligation. The 2.3% discount rate represents a

10 basis point decrease from the 2.4% discount rate used for
assets to an amount that management believes is more likely than

not to be realized. In establishing the appropriate valuation allow-
fiscal year ended March 31, 2004 and reflects current market
interest rate conditions. For Japanese pension plans, a 10 basis
ance for deferred tax assets (including deferred tax assets on tax
loss carry-forwards), all available evidence, both positive and
point decrease in the discount rate would increase pension

costs by approximately 1.2 billion yen for the fiscal year ending
negative, is considered. Information on historical results is supplemented by all currently available information on future years,
March 31, 2006.

To determine the expected long-term rate of return on
because realization of deferred tax assets is dependent on

whether each tax-filing unit generates sufficient taxable income.
pension plan assets, Sony considers the current and expected

asset allocations, as well as historical and expected long-term
The estimates and assumptions used in determining future

taxable income are consistent with those used in Sonys approved
rates of return on various categories of plan assets. For Japanese pension plans, the expected long-term rate of return on
forecasts of future operations. Although realization is not assured,

management believes it is more likely than not that all of the
pension plan assets was 4.0% and 3.2% as of March 31, 2004
and 2005 respectively. The actual loss on pension plan assets
deferred tax assets, less valuation allowance, will be realized.

Sony applied to file its corporate income tax return under the
for the fiscal year ended March 31, 2005 was 0.1%. Actual
results that differ from the expected return on plan assets are
consolidated tax filing system in Japan beginning with the fiscal

year ended March 31, 2004. Under the consolidated tax filing
accumulated and amortized as a component of pension costs

over the average future service period, thereby reducing the
system, the tax-filing unit consists of Sony Corporation, the

ultimate parent company of the Sony Group, and its wholly
year-to-year volatility in pension costs. As of March 31, 2004

and 2005, Sony had unrecognized actuarial losses of 328.5
owned Japanese subsidiaries. The eventual ability to realize the

tax benefit of its deferred tax assets is dependent on whether
billion yen and 322.2 billion yen, respectively, including losses

related to plan assets. The unrecognized actuarial losses reflect
the tax-filing unit as a whole will be able to generate sufficient

taxable income in the future. In addition, Sony is subject to local
the overall unfavorable performance of equity markets over the

past several years and will result in an increase in pension costs
income taxes in Japan. For purposes of local income taxes,

each entity is taxed as a stand alone tax filing unit. The eventual
as they are recognized.

Sony recorded a liability for the unfunded accumulated benefit
ability to realize the tax benefit of deferred tax assets for local
income taxes is dependent on whether Sony Corporation and
obligation for Japanese pension plans of 149.4 billion yen and

128.6 billion yen as of March 31, 2004 and 2005, respectively.
each subsidiary will be able to generate sufficient taxable

income in the future. As of March 31, 2005, Sony Corporation
This liability represents the excess of the accumulated benefit

obligation under Sonys qualified defined benefit pension plans
had deferred tax assets for local income taxes totaling 77.5
billion yen. The eventual ability to realize the tax benefit of its
over the fair value of the plans assets. This liability was established by a charge to stockholders equity, resulting in no impact
deferred tax assets is dependent on whether Sony Corporation

will be able to generate sufficient taxable income in the future.
to the accompanying consolidated statements of income.

The following table illustrates the sensitivity to a change in the
Management believes that Sony Corporations historical results,

when evaluated in connection with relevant qualitative factors
discount rate and the expected return on pension plan assets,

while holding all other assumptions constant, for Japanese
and available information concerning its business and industry,

provided substantial positive evidence, which outweighs the
pension plans as of March 31, 2005:
negative evidence available. However, under recent conditions,

management considers that it is possible that Sony
CHANGE IN ASSUMPTION
Yen in billions
Pre-tax
PBO
Pension
expense
Equity
(net of tax)
/+45.0
/+3.0
+/1.8
25 basis point increase /

decrease in discount rate . . .
25 basis point increase /
decrease in expected
return on assets . . . . . . . . . .
/+1.3
+/0.8
Corporations future results may yield sufficient negative evidence to support the future determination that it is more likely
than not that Sony Corporation will not realize the tax benefit of
all these deferred tax assets. If this is the case, subject to review
of relevant qualitative factors and uncertainties, Sony may
establish a valuation allowance against part or all of the deferred
tax assets of Sony Corporation. Such valuation allowances
would be charged to income as an increase in tax expense.
Sony Corporation 65
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FILM ACCOUNTING
An aspect of film accounting that requires the exercise of
RECENTLY ADOPTED ACCOUNTING

STANDARDS
judgment relates to the process of estimating the total revenues

to be received throughout a films life cycle. Such estimate of a
ACCOUNTING
AND REPORTING BY INSURANCE
films ultimate revenue is important for two reasons. First, while a

film is being produced and the related costs are being capital-
ENTERPRISES FOR CERTAIN NONTRADITIONAL LONGDURATION CONTRACTS AND FOR SEPARATE
ized, it is necessary for management to estimate the ultimate

revenue, less additional costs to be incurred, including exploita-
ACCOUNTS
In July 2003, the Accounting Standards Executive Committee of
tion costs which are expensed as incurred, in order to determine

whether the value of a film has been impaired and thus requires
the American Institute of Certified Public Accountants (AcSEC)

issued the Statement of Position (SOP) 03-1, Accounting and
an immediate write off of unrecoverable film costs. Second, the

amount of film costs recognized as cost of sales for a given film
Reporting by Insurance Enterprises for Certain Nontraditional

Long-Duration Contracts and for Separate Accounts. SOP 03-
as it is exhibited in various markets throughout its life cycle is

based upon the proportion that current period actual revenues
1 requires insurance enterprises to record additional reserves for

long-duration life insurance contracts with minimum guarantee
bear to the estimated ultimate total revenues.

Management bases its estimates of ultimate revenue for
or annuity receivable options. Additionally, SOP 03-1 provides

guidance for the presentation of separate accounts. This
each film on several factors including the historical performance

of similar genre films, the star power of the lead actors and
statement is effective for fiscal years beginning after December

15, 2003. Sony adopted SOP 03-1 on April 1, 2004. As a result
actresses, the expected number of theaters at which the film

will be released, anticipated performance in the home entertain-
of the adoption of SOP 03-1, Sonys operating income

decreased by 5.2 billion yen for the fiscal year ended March 31,
ment, television and other ancillary markets, and agreements for

future sales. Management updates such estimates based on the
2005. Additionally, on April 1, 2004, Sony recorded a 4.7 billion

yen charge (net of income taxes of 2.7 billion yen) as a cumula-
actual results to date of each film. For example, a film that has
resulted in lower than expected theatrical revenues in its initial
tive effect of an accounting change. In addition, the separate

account assets, which are defined by insurance business law in
weeks of release would generally have its theatrical, home entertainment and television distribution ultimate revenues adjusted
Japan and were previously included in Securities investments

and other in the consolidated balance sheet, were excluded
downward; a failure to do so would result in the understatement

of amortized film costs for the period. Since the total film cost to
from the category of separate accounts under the provision

of SOP 03-1. Accordingly, the assets previously treated as
be amortized for a given film is fixed, the estimate of ultimate

revenues impacts only the timing of film cost amortization.
separate account assets are now treated within general

account assets.
FUTURE
THE
INSURANCE POLICY BENEFITS
EFFECT OF CONTINGENTLY CONVERTIBLE
Liabilities for future insurance policy benefits are established in

amounts adequate to meet the estimated future obligations of
INSTRUMENTS ON DILUTED EARNINGS PER SHARE

In July 2004, the Emerging Issues Task Force (EITF) issued
policies in force. These liabilities are computed by the net level

premium method based upon estimates as to future investment
EITF Issue No. 04-8, The Effect of Contingently Convertible

Instruments on Diluted Earnings per Share. In accordance with
yield, morbidity, mortality, withdrawals and other factors. Future

policy benefits are computed using interest rates ranging from
Statement of Financial Accounting Standards (FAS) No.128,

Earnings per Share, Sony had not previously included in the
approximately 1.30% to 5.20%. Mortality, morbidity and withdrawal assumptions for all policies are based on either the life
computation of diluted earnings per share (EPS) the number

of potential common stock issuable upon the conversion of
insurance subsidiarys own experience or various actuarial

tables. Generally these assumptions are locked-in upon the
contingently convertible debt instruments (Co-Cos) that had

not met the conditions to exercise the stock acquisition rights.
issuance of new insurance. While management believes that the

assumptions used are appropriate, differences in actual experi-
EITF Issue No. 04-8 requires that the maximum number of

common stock that could be issued upon the conversion of
ence or changes in assumptions may affect Sonys future

insurance policy benefits.
Co-Cos be included in diluted EPS computations from the date

of issuance regardless of whether the conditions to exercise the
66 Sony Corporation
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stock acquisition rights have been met. EITF Issue No. 04-8 is
effective for reporting periods ending after December 15, 2004.
cumulative effect of accounting change in the consolidated

statement of income, and Sonys assets and liabilities increased
Sony adopted EITF Issue No. 04-8 during the quarter ended
December 31, 2004. As a result of the adoption of EITF Issue
by 95.3 billion yen and 98.0 billion yen, respectively. These

increases were treated as non-cash transactions in the consoli-
No. 04-8, Sonys diluted EPS of income before cumulative effect

of an accounting change and net income for the fiscal year
dated statement of cash flows. In addition, cash and cash

equivalents increased by 1.5 billion yen. See Note 23 of Notes
ended March 31, 2004 were restated respectively. Sonys

diluted EPS of income before cumulative effect of an accounting
to Consolidated Financial Statements for further discussion on

the VIEs that are used by Sony.
change and net income for the fiscal year ended March 31,
2005 were decreased by 7.26 yen and 7.06 yen, respectively,
In December 2003, the FASB issued revised FIN No. 46

(FIN No. 46R), which replaced FIN No. 46. Sony early adopted
compared to those before adopting EITF Issue No. 04-8.
the provisions of FIN No. 46R upon its issuance. The adoption
of FIN No. 46R did not have an impact on Sonys results of
EMPLOYERS
operations and financial position or impact the way Sony had

previously accounted for VIEs.
DISCLOSURES ABOUT PENSIONS AND

OTHER POSTRETIREMENT BENEFITS
In December 2003, the Financial Accounting Standards Board

(FASB) issued FAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits
(FAS No. 132(R)), which revised FAS No. 132, Employers
RECENT PRONOUNCEMENTS
Disclosures about Pensions and Other Postretirement Benefits,

an amendment of FAS No. 87, Employers Accounting for
ACCOUNTING FOR STOCK-BASED COMPENSATION

In December 2004, the FASB issued FAS No. 123 (revised
Pensions, FAS No. 88, Employers Accounting for Settlements

and Curtailments of Defined Benefit Pension Plans and for
2004), Share-Based Payment (FAS No. 123(R)). This

statement requires the use of the fair value based method
Termination Benefits, and FAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. FAS No.
of accounting for employee stock-based compensation and

eliminates the alternative use of the intrinsic value method pre-
132(R) revised employers disclosures about pension plans and

other postretirement benefit plans. It did not change the mea-
scribed by Accounting Principle Board Opinion (APB) No. 25,

Accounting for Stock Issued to Employees. With limited
surement or recognition of those plans required by FAS No. 87,

88 and 106. While retaining the disclosure requirements of FAS
exceptions, FAS No. 123(R) requires that the grant-date fair

value of share-based payments to employees be expensed over
No. 132, FAS No. 132(R) requires additional disclosures about

assets, obligations and cash flows. The provisions of FAS No.
the period the service is received. Sony has accounted for its
employee stock-based compensation in accordance with the
132(R) were generally effective for financial statements with fiscal

years ending after December 15, 2003, excluding the disclosure
provisions prescribed by APB No. 25 and its related interpretations and has disclosed the net effect on net income and net
of certain information about foreign plans. The information about

foreign plans is effective for fiscal years ending after June 15,
ncome per share allocated to the common stock if Sony had

applied the fair value recognition provisions of FAS No. 123 to
2004. In accordance with FAS No. 132(R), Note 15 of Notes to

the Consolidated Financial Statements, Pension and severance
stock-based compensation as described in Consolidated

Financial Statements Note 2(2) Significant accounting policies
plans, has been expanded to include the new disclosures.
Stock-based compensation. This statement shall be effective for

fiscal years beginning after June 15, 2005, with early adoption
CONSOLIDATION
OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FASB Interpretation (FIN)
encouraged during the fiscal years beginning after the date this
statement is issued. The options for transition methods
No. 46, Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51. FIN No. 46 addresses consolidation by a
prescribed in FAS No. 123(R) include either the modified prospective or the modified retrospective methods. Sony intends
primary beneficiary of a variable interest entity (VIE). Sony early

adopted the provisions of FIN No. 46 on July 1, 2003. As a
to adopt the modified prospective method of transition, which

requires that compensation expense be recorded for all
result of adopting the original FIN No. 46, Sony recognized a

one-time charge with no tax effect of 2.1 billion yen as a
unvested stock acquisition rights as the requisite service is

rendered beginning with the first period of adoption. Sony is
Sony Corporation 67
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currently evaluating the impact of adopting this new pronouncement. However, Sony expects that the total expenses to be
recorded in the future periods will be consistent with the pro
forma information in Note 2(2) of Notes to the Consolidated
Financial StatementsStock-based compensation.
INVENTORY
COSTS
In November 2004, the FASB issued FAS No. 151, Inventory
Costs, an amendment of Accounting Research Bulletin (ARB)
No. 43, Chapter 4. This statement requires certain abnormal
expenditures to be recognized as expenses in the current
period. It also requires that the amount of fixed production
overhead allocated to inventory be based on the normal
capacity of the production facilities. This statement shall be
effective for fiscal years beginning after June 15, 2005, with early
adoption encouraged during the fiscal years beginning after the
date this statement is issued. The adoption of FAS No. 151 is
not expected to have a material impact on Sonys results of
operations and financial position.
EXCHANGES
OF NONMONETARY ASSETS
In December 2004, the FASB issued FAS No. 153, Exchanges
of Nonmonetary Assets, an amendment of APB Opinion No.
29. This statement requires that exchanges of productive
assets be accounted for at fair value unless fair value cannot
be reasonably determined or the transaction lacks commercial
substance. This statement shall be effective for nonmonetary
asset exchanges occurring in the fiscal periods beginning after
June 15, 2005, with early adoption during the fiscal periods
beginning after the date this statement is issued encouraged.
Sony is currently evaluating the impact of adopting this new
pronouncement.
68 Sony Corporation
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Five-Year Summary of Selected Financial Data

Sony Corporation and Consolidated Subsidiaries Years ended March 31
Dollars in
millions except
per share
amounts
Yen in millions
except per share amounts
2001
FOR THE YEAR

Sales and operating revenue . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income (loss) of affiliated companies . .
Income before cumulative effect of accounting
changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share data:
Common stock
Income before cumulative effect of
accounting changes
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . .
Number of weighted-average shares for basic
per share data (thousands of shares) . . . . . . .
Subsidiary tracking stock
Net income (loss)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of weighted-average shares for basic
per share data (thousands of shares) . . . . . . .
Depreciation and amortization* . . . . . . . . . . . . . . . .
Capital expenditures (additions to property, plant
and equipment) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . .
AT YEAR-END
Net working capital . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders equity . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders equity per share attributable to
common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shares issued at year-end
(thousands of shares):
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary tracking stock . . . . . . . . . . . . . . . . . . .
2002
2003
2004
7,314,824 7,578,258 7,473,633 7,496,391

225,346
134,631
185,440
98,902
265,868
92,775
247,621
144,067
115,534
65,211
80,831
52,774
(44,455)
(34,472)
(44,690)
1,714
121,227
16,754
9,332
15,310
132.64.
124.36.
115,519
115,519
2005
2005
7,159,616
113,919
157,207
16,044
29,039
$66,912
1,065
1,469
150
271
168,551
163,838
1,575
1,531
90,628
88,511
10.21.
10.18.
125.74.
118.21.
98.26.
89.03.
180.96.
162.59.
$ 1.69.
1.52.
18.33.
19.28.
25.00.
16.72.
16.67.
25.00.
125.74.
118.21.
25.00.
95.97.
87.00.
25.00.
175.90.
158.07.
25.00.
1.64.
1.48.
0.23.
913,932
918,462
919,706
923,650
931,125
(15.87.)
(41.98.)
(41.80.)
17.21.
3,072
3,072
3,072
3,072
348,268
354,135
351,925
366,269
372,865
$ 3,485
465,209
416,708
326,734
433,214
261,241
443,128
378,264
514,483
356,818
502,008
3,335
4,692
830,734
2,315,453
778,716
2,370,410
719,166
2,280,895
381,140
2,378,002
746,803
2,870,338
$ 6,979
26,826
2,521.19. 2,570.31. 2,466.81. 2,563.67. 2,872.21.

7,827,966. 8,185,795. 8,370,545. 9,090,662. 9,499,100.
$ 26.84.
$88,777
919,617
919,744
3,072
922,385
3,072
926,418
3,072
0.16.
997,211
3,072
* Including amortization expenses for intangible assets and for deferred insurance acquisition costs
Sony Corporation 69
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Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of 107=U.S. $1, the approximate Tokyo foreign exchange market rate as of
March 31, 2005.
2. In July 2003, the Accounting Standards Executive Committee of American Institute of Certified Public Accountants (AcSEC) issued Statement of Position (SOP)
03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts. SOP 03-1 requires
insurance enterprises to record additional reserves for long-duration life insurance contracts with minimum guarantee or annuity receivable options. Additionally,
SOP 03-1 provides guidance for the presentation of separate accounts. This statement is effective for fiscal years beginning after December 15, 2003. Sony
adopted SOP 03-1 on April 1, 2004. As a result of the adoption of SOP 03-1, Sonys operating income decreased by 5,156 million ($48 million) for the year
ended March 31, 2005. Additionally, on April 1, 2004, Sony recognized 4,713 million ($44 million) of loss (net of income taxes of 2,675 million) as a cumulative
effect of an accounting change. In addition, the separate account assets, which are defined by insurance business law in Japan and were previously included in
Securities investments and other on the consolidated balance sheet, were excluded from the category
of separate accounts under the provision of SOP 03-1. Accordingly, the assets previously treated as separate account assets are now treated within general
account assets.
3. In July 2004, the Emerging Issues Task Force (EITF) issued EITF Issue No. 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings per
Share. In accordance with Statement of Financial Accounting Standards (FAS) No. 128, Sony had not previously included in the computation of diluted earnings
per share (EPS) the number of potential shares of common stock issuable upon the conversion of contingently convertible debt instruments (Co-Cos) that have
not met the conditions to exercise the associated stock acquisition rights. EITF Issue No. 04-8 requires that the maximum number of shares of common stock
that could be issued upon the conversion of Co-Cos be included in diluted EPS computations from the date of issuance regardless of whether the conditions to
exercise such rights have been met. EITF Issue No. 04-8 is effective for reporting periods ending after December 15, 2004. Sony adopted EITF Issue No. 04-8
during the quarter ended December 31, 2004. As a result of the adoption of EITF Issue No. 04-8, Sonys diluted EPS of income before cumulative effect of an
accounting change and its net income for the year ended March 31, 2004 were restated respectively. Sonys diluted EPS of income before cumulative effect of an
accounting change and its net income for the year ended March 31, 2005 were decreased by 7.26 ($0.07) and 7.06 ($0.07), respectively, compared to those
before the adoption of EITF Issue No. 04-8.
4. In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 46, Consolidation of Variable Interest Entitiesan
Interpretation of ARB No. 51. FIN No. 46 addresses consolidation by a primary beneficiary of a variable interest entity (VIE). Sony early adopted the provisions of
FIN No. 46 on July 1, 2003.
As a result of adopting the original FIN No. 46, Sony recognized a one-time charge with no tax effect of 2,117 million as a cumulative effect of accounting
change in the consolidated statement of income, and Sonys assets and liabilities increased by 95,255 million and 97,950 million, respectively. These increases
were treated as non-cash transactions in the consolidated statement of cash flows. In addition, cash and cash equivalents increased by 1,521 million.
See Note 23 for further discussion on the VIEs that are used by Sony.
In December 2003, the FASB issued revised FIN No. 46 (FIN No. 46R), which replaced FIN No. 46. Sony early adopted the provisions of FIN No. 46R upon its
issuance. The adoption of FIN No. 46R did not have an impact on Sonys results of operations and financial position or impact the way Sony had previously
accounted for VIEs.
5. On April 1, 2001, Sony adopted FAS No.133, Accounting for Derivative Instruments and Hedging Activities as amended by FAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activitiesan Amendment of FASB Statement No. 133. As a result, Sonys operating income, income before income
taxes and net income for the year ended March 31, 2002 decreased by 3,007 million, 3,441 million and 2,167 million, respectively. Additionally, Sony recorded
a one-time non-cash after-tax unrealized gain of 1,089 million in accumulated other comprehensive income in the consolidated balance sheet, as well as an aftertax gain of 5,978 million in the cumulative effect of accounting changes in the consolidated statement of income.
6. In July 2001, the FASB issued FAS No. 142, Goodwill and Other Intangible Assets. Sony adopted FAS No. 142 retroactive to April 1, 2001. As a result, Sonys
operating income and income before income taxes for the year ended March 31, 2002 increased by 20,114 million and income before cumulative effect of
accounting changes as well as net income for the year ended March 31, 2002 increased by 18,932 million.
7. In June 2000, AcSEC issued SOP 00-2, Accounting by Producers or Distributors of Films. Sony adopted SOP 00-2 retroactive to April 1, 2000. As a result,
Sonys net income for the year ended March 31, 2001 included a one-time, non-cash charge with no tax effect of 101.7 billion, primarily to reduce the carrying
value of its film inventory.
8. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
Sony adopted SAB No. 101 in the fourth quarter ended March 31, 2001 retroactive to April 1, 2000. As a result, a one-time no-cash cumulative effect adjustment
of 2.8 billion was recorded in the income statement directly above the caption of net income for a change in accounting principle. In December 2003, SAB No.
101 was amended by SAB No. 104, Revenue Recognition. The amendment did not have an impact on Sonys results of operations and financial position.
70 Sony Corporation
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Quarterly Financial and Stock Information

Sony Corporation and Consolidated SubsidiariesYears ended March 31 (Unaudited)
Yen in billions except per share amounts

1st quarter
2004
Sales and operating revenue . . . . . . .

Operating income (loss) . . . . . . . . . . .
Income (loss) before income taxes . . .
Income taxes . . . . . . . . . . . . . . . . . . .
Equity in net income (loss) of affiliated
companies . . . . . . . . . . . . . . . . . . . .
Income (loss) before cumulative
effect of accounting changes . . . . . .
Net income (loss) . . . . . . . . . . . . . . . .
Per share data of common stock
Income (loss) before cumulative
effect of accounting changes
Basic . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . .
Net income (loss)
Basic . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . .
Depreciation and amortization* . . . . .
Capital expenditures
(additions to fixed assets) . . . . . . . . .
R&D expenses . . . . . . . . . . . . . . . . . .
Tokyo Stock Exchange price per
share of common stock**:
High . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . .
New York Stock Exchange price
per American Depositary Share**:
High . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . .
2nd quarter
2005
2004
3rd quarter
2005
2004
4th quarter
2005
2004
2005
1,603.8.
16.7.
35.8.
25.4.
1,612.1.
9.8.
6.6.
(1.8.)
1,797.0.
33.2.
44.1.
10.3.
1,702.3.
43.4.
63.3.
16.2.
2,323.4.
158.8.
157.8.
67.6.
2,148.2.
138.2.
149.2.
7.0.
1,772.2.
(109.8.)
(93.6.)
(50.5.)
1,697.0.
(77.4.)
(61.9.)
(5.3.)
(9.7.)
20.1.
2.9.
6.1.
3.1.
2.3.
5.5.
0.5.
1.1.
1.1.
28.0.
23.3.
35.0.
32.9.
53.2.
53.2.
92.6.
92.6.
143.8.
143.8.
(38.2.)
(38.2.)
(56.5.)
(56.5.)
1.24.
1.24.
30.20.
28.52.
37.99.
35.60.
57.50.
53.76.
100.16.
92.51.
155.32.
138.08.
(41.23.)
(41.23.)
(59.40.)
(59.40.)
1.24.
1.24.
25.10.
23.81.
35.69.
33.48.
57.50.
53.76.
100.16.
92.51.
155.32.
138.08.
(41.23.)
(41.23.)
(59.40.)
(59.40.)
99.3.
104.1.
84.3.
85.5.
87.4.
91.2.
95.2.
92.0.
81.0.
114.2.
88.1.
123.6.
90.0.
136.2.
90.1.
127.0.
97.6.
123.8.
78.7.
119.4.
109.6.
140.4.
100.0.
132.0.
4,190
2,720
4,670
3,890
4,410
3,430
4,160
3,590
4,200
3,520
3,970
3,650
4,660
3,780
4,400
3,760
$ 35.51.
23.92.
$ 43.66.
34.08.
$ 38.30.
29.23.
$ 38.44.
32.50.
$ 37.96.
32.59.
$ 38.96.
34.02.
$ 42.36.
34.98.
$ 41.47.
36.34.
* Including amortization expenses for intangible assets and for deferred insurance acquisition costs.
** Stock price data are based on daily closing prices.
Notes: 1. In July 2003, AcSEC issued SOP 03-1. SOP 03-1 requires insurance enterprises to record additional reserves for long-duration life insurance contracts with minimum
guarantee or annuity receivable options. Additionally, SOP 03-1 provides guidance for the presentation of separate accounts. This statement is effective for fiscal years
beginning after December 15, 2003. Sony adopted SOP 03-1 on April 1, 2004. As a result of the adoption of SOP 03-1, Sonys operating income decreased by
1,595 million ($15 million) and 5,156 million ($48 million) for the three months and the year ended March 31, 2005. Additionally, on April 1, 2004, Sony recognized
4,713 million ($44 million) of loss (net of income taxes of 2,675 million) as a cumulative effect of an accounting change. In addition, the separate account assets,
which are defined by insurance business law in Japan and were previously included in Securities investments and other on the consolidated balance sheet, were
excluded from the category of separate accounts under the provision of SOP 03-1. Accordingly, the assets previously treated as separate account assets are now
treated within general account assets.
2. In July 2004, EITF issued EITF Issue No. 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share. In accordance with FAS No. 128,
Sony had not previously included in the computation of diluted EPS the number of potential shares of common stock issuable upon the conversion of Co-Cos that
have not met the conditions to exercise the associated stock acquisition rights. EITF Issue No. 04-8 requires that the maximum number of shares of common stock
that could be issued upon the conversion of Co-Cos be included in diluted EPS computations from the date of issuance regardless of whether the conditions to
exercise such rights have been met. EITF Issue No. 04-8 is effective for reporting periods ending after December 15, 2004. Sony adopted EITF Issue No. 04-8
during the quarter ended December 31, 2004. As a result of the adoption of EITF Issue No. 04-8, Sonys diluted EPS of income before cumulative effect of an
accounting change and its net income for the year ended March 31, 2004 were restated. Sonys diluted EPS of its income before cumulative effect of an accounting change and net income for the year ended March 31, 2005 were decreased by 7.26 ($0.07) and 7.06 ($0.07), respectively, compared to those before the
adoption of EITF Issue No. 04-8.
3. In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51. FIN No. 46 addresses consolidation
by a primary beneficiary of a VIE. Sony early adopted the provisions of FIN No. 46 on July 1, 2003.
As a result of adopting the original FIN No. 46, Sony recognized a one-time charge with no tax effect of 2,117 million as a cumulative effect of accounting
change in the consolidated statement of income, and Sonys assets and liabilities increased by 95,255 million and 97,950 million, respectively. These increases
were treated as non-cash transactions in the consolidated statement of cash flows. In addition, cash and cash equivalents increased by 1,521 million.
See Note 23 for further discussion on the VIEs that are used by Sony.
In December 2003, the FASB issued revised FIN No. 46 (FIN No. 46R), which replaced FIN No. 46. Sony early adopted the provisions of FIN No. 46R upon
its issuance. The adoption of FIN No. 46R did not have an impact on Sonys results of operations and financial position or impact the way Sony had previously
accounted for VIEs.
Sony Corporation 71
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Segment Information
Sony Corporation and Consolidated SubsidiariesYears ended March 31
SALES AND OPERATING REVENUE BY BUSINESS SEGMENT*

Yen in millions
Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...................................................
Dollars in millions**
2003
2004
2005
4,624,181
4,838,268
4,786,236
61.9.%
64.5.%
2005
$44,731
66.9.%
Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...................................................
936,274
12.5.
753,732
10.1.
702,524
9.8.
6,566
Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...................................................
433,147
5.8.
409,487
5.5.
216,779
3.0.
2,026
Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
802,770
756,370
733,677
6,857
...................................................
10.7.
10.1.
10.2.
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...................................................
509,398
6.8.
565,752
7.5.
537,715
7.5.
5,025
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...................................................
167,863
2.3.
172,782
2.3.
182,685
2.6.
1,707
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,473,633
7,496,391
7,159,616
$66,912
**Sales and operating revenue to customers.

**U.S. dollar amounts have been translated from yen, for convenience only, at the rate of 107=U.S.$1, the approximate Tokyo foreign exchange market rate as of March 31, 2005.
<ELECTRONICS SALES AND OPERATING REVENUE TO CUSTOMERS BY PRODUCT CATEGORY>

Yen in millions
2003
Audio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.........................................................
784,114
17.0.%
2004
675,496
14.0.%
2005
571,864
12.0.%
2005
$ 5,345
Video . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...................................................
828,308
17.9.
949,261
19.6.
1,034,736
21.6.
9,670
Televisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
981,655
925,501
957,122
8,945
...................................................
21.2.
19.1.
20.0.
Information and Communications . . . . . . . . . . . . . . . . . . . . . . . . .

...................................................
836,724
18.1.
834,757
17.3.
778,374
16.3.
7,275
Semiconductors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...................................................
204,710
4.4.
253,237
5.2.
246,314
5.1.
2,302
Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
527,782
623,799
619,477
5,789
...................................................
11.4.
12.9.
12.9.
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...................................................
460,888
10.0.
576,217
11.9.
578,349
12.1.
5,405
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,624,181
4,838,268
4,786,236
$44,731
*U.S. dollar amounts have been translated from yen, for convenience only, at the rate of 107=U.S.$1, the approximate Tokyo foreign exchange market rate as of March 31, 2005.
Note: The above table is a breakdown of Electronics sales and operating revenue in Sonys business segment information. The Electronics segment is managed as a single
operating segment by Sonys management. Effective for the year ended March 31, 2005, Sony has partly changed its product category configuration. The main
changes are that AIWA product group has been moved from Other to Audio or Video or Televisions, and the set-top box product group has been moved from
Video to Televisions. Accordingly, sales and operating revenue for the years ended March 31, 2003 and 2004 have been restated to conform to the presentation for
the year ended March 31, 2005.
72 Sony Corporation
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SALES AND OPERATING REVENUE BY GEOGRAPHIC INFORMATION

Yen in millions
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.........................................................
2003
2004
2005
2,093,880
2,220,747
2,100,793
28.0.%
29.6.%
2005
$19,634
29.3.%
U.S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.........................................................
2,403,946
32.2.
2,121,110
28.3.
1,977,310
27.6.
18,479
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.........................................................
1,665,976
22.3.
1,765,053
23.6.
1,612,536
22.6.
15,070
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,309,831
1,389,481
1,468,977
13,729
.........................................................
17.5.
18.5.
20.5.
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,473,633
7,496,391
7,159,616
$66,912
*U.S. dollar amounts have been translated from yen, for convenience only, at the rate of 107=U.S.$1, the approximate Tokyo foreign exchange market rate as of March 31, 2005.
Note: Classification of geographic segment information shows sales and operating revenue recognized by location of customers.
Sony Corporation 73
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Consolidated Balance Sheets

Sony Corporation and Consolidated SubsidiariesMarch 31
Dollars in millions
(Note 3)
Yen in millions
2004
2005
2005
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0,849,211
4,662
0,779,103
1,492
$07,281
14
Marketable securities (Notes 8 and 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes and accounts receivable, trade (Notes 6 and 7) . . . . . . . . . . . . . . . . . . . . . . .
274,748
1,123,863
460,202
1,113,071
4,301
10,403
Allowance for doubtful accounts and sales returns . . . . . . . . . . . . . . . . . . . . . . . . . .

Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(112,674)
666,507
(87,709)
631,349
(820)
5,900
Deferred income taxes (Note 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,532
431,506
141,154
517,509
1,319
4,837
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,363,355
3,556,171
33,235
Film costs (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256,740
278,961
2,607
ASSETS
Current assets:
Investments and advances:

Affiliated companies (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,253
252,905
2,364
Securities investments and other (Notes 8, 11 and 12) . . . . . . . . . . . . . . . . . . . . . . .
2,426,697
2,492,784
23,297
.............................................................
2,512,950
2,745,689
25,661
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
189,785
930,983
182,900
925,796
1,709
8,652
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,053,085
98,480
2,192,038
92,611
20,486
866
Property, plant and equipment (Notes 9 and 12):
.............................................................
3,272,333
3,393,345
31,713
LessAccumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,907,289
2,020,946
18,887
.............................................................
1,365,044
1,372,399
12,826
Intangibles, net (Notes 10 and 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
248,010
277,870
187,024
283,923
1,748
2,653
Deferred insurance acquisition costs (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

349,194
203,203
374,805
240,396
3,503
2,247
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
514,296
459,732
4,297
.............................................................
1,592,573
1,545,880
14,448
...................................................................
9,090,662
9,499,100
$88,777
Other assets:
(Continued on following page.)
74 Sony Corporation
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Dollars in millions
(Note 3)
Yen in millions
2004
2005
2005
Short-term borrowings (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Current portion of long-term debt (Notes 9, 12 and 14) . . . . . . . . . . . . . . . . . . . . . .
0,091,260
383,757
0,063,396
166,870
$00,592
1,560
Notes and accounts payable, trade (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accounts payable, other and accrued expenses (Notes 5 and 15) . . . . . . . . . . . . . .
778,773
812,175
806,044
746,466
7,533
6,976
Accrued income and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deposits from customers in the banking business (Note 13) . . . . . . . . . . . . . . . . . .
57,913
378,851
55,651
546,718
520
5,110
Other (Notes 21 and 24) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
479,486
424,223
3,965
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,982,215
2,809,368
26,256
Long-term liabilities:
Long-term debt (Notes 9, 12 and 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
777,649
678,992
6,346
Accrued pension and severance costs (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . .

368,382
96,193
352,402
72,227
3,293
675
Future insurance policy benefits and other (Note 11) . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,178,626
286,737
2,464,295
227,631
23,031
2,127
.............................................................
3,707,587
3,795,547
35,472
Minority interest in consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,858
23,847
223
Authorized 100,000,000 shares, outstanding 3,072,000 shares . . . . . . . . . . . . . .

Common stock, no par value
3,917
3,917
36
2004Authorized 3,500,000,000 shares, outstanding 926,418,280 shares . . . . .

2005Authorized 3,500,000,000 shares, outstanding 997,211,213 shares . . . . .
476,350
617,792
5,774
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
992,817
1,367,060
1,134,222
1,506,082
10,600
14,076
Accumulated other comprehensive income

Unrealized gains on securities (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69,950
62,669
586
Unrealized losses on derivative instruments (Note 14) . . . . . . . . . . . . . . . . . . . . . .

Minimum pension liability adjustment (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . .
(600)
(89,261)
(2,490)
(90,030)
(23)
(841)
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(430,048)
(355,824)
(3,326)
.............................................................
(449,959)
(385,675)
(3,604)
LIABILITIES AND STOCKHOLDERS EQUITY

Current liabilities:
Stockholders equity (Note 16):

Subsidiary tracking stock, no par value
Treasury stock, at cost

Subsidiary tracking stock (20040 shares, 200532 shares) . . . . . . . . . . . . . . .
(0)
(0)
Common stock (20042,468,258 shares, 20051,118,984 shares) . . . . . . . . . .
(12,183)
(6,000)
(56)
.............................................................
2,378,002
2,870,338
26,826
9,090,662
9,499,100
$88,777
Commitments and contingent liabilities (Notes 9 and 24)

.............................................................
The accompanying notes are an integral part of these statements.
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Consolidated Statements of Income

Dollars in millions
(Note 3)
Yen in millions
2003
2004
2005
Sales and operating revenue:

Net sales (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,916,042
509,398
48,193
6,883,478
565,752
47,161
6,565,010
537,715
56,891
$61,355
5,025
532
...................................................
7,473,633
7,496,391
7,159,616
66,912
4,979,421
1,782,367
486,464
5,058,205
1,798,239
505,550
5,000,112
1,535,015
482,576
46,730
14,346
4,510
Costs and expenses:

Cost of sales (Notes 6, 18 and 19) . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative (Notes 17, 18 and 19) . . . . . . . .
Financial service expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale, disposal or impairment of assets, net
(Notes 10 and 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
39,941
35,495
27,994
261
...................................................
7,288,193
7,397,489
7,045,697
65,847
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
185,440
98,902
113,919
1,065
14,441
32,375
1,928
72,552
18,756
34,244
18,059
11,774
14,708
31,709
5,437
137
296
51
36,232
4,870
34,587
16,322
29,447
153
275
...................................................
157,528
122,290
97,623
912
Other expenses:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on devaluation of securities investments . . . . . . . . . . . . . . . .
Foreign exchange loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,314
23,198
44,835
27,849
16,481
32,795
24,578
3,715
524
25,518
230
35
5
238
Other income:
Interest and dividends (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gain, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of securities investments, net (Notes 6 and 8) . . . . . .
Gain on change in interest in subsidiaries and equity investees
(Note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...................................................
95,347
77,125
54,335
508
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
247,621
144,067
157,207
1,469
Income taxes (Note 21):

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178,847
(98,016)
87,219
(34,445)
85,510
(69,466)
799
(649)
...................................................
80,831
52,774
16,044
150
Income before minority interest, equity in net income

(loss) of affiliated companies and cumulative effect
of an accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest in income of consolidated subsidiaries . . . . . . . . .
Equity in net income (loss) of affiliated companies (Note 6) . . . . . . .
166,790
6,581
(44,690)
91,293
2,379
1,714
141,163
1,651
29,039
1,319
15
271
Income before cumulative effect of an accounting change . . . .
115,519
90,628
168,551
1,575
Cumulative effect of an accounting change

(2004: Net of income taxes of 0 million
(2005: Net of income taxes of 2,675 million) (Note 2) . . . . . . . .
(2,117)
(4,713)
(44)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0,115,519
0,088,511
0,163,838
$01,531
76 Sony Corporation
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Dollars
(Note 3)
Yen
2003
Per share data (Note 22):

Common stock
Income before cumulative effect of an accounting change
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of an accounting change
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary tracking stock (Note 16)
Net income (loss)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2005
2005
125.74.
118.21.
98.26.
89.03.
180.96.
162.59.
$1.69.
1.52.
(2.29.)
(2.03.)
(5.06.)
(4.52.)
(0.05.)
(0.04.)
125.74.
118.21.
25.00.
95.97.
87.00.
25.00.
175.90.
158.07.
25.00.
1.64.
1.48.
0.23.
(41.98.)
(41.80.)
17.21.
0.16.
Sony Corporation 77
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Consolidated Statements of Cash Flows

Dollars in millions
(Note 3)
Yen in millions
2003
Cash flows from operating activities:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2005
2005
115,519
088,511
163,838
$1,531
Depreciation and amortization, including amortization of

deferred insurance acquisition costs . . . . . . . . . . . . . . . . . . .
351,925
366,269
372,865
3,485
Amortization of film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accrual for pension and severance costs, less payments . . . .
312,054
37,858
305,786
35,562
276,320
22,837
2,582
214
Loss on sale, disposal or impairment of assets, net

(Notes 10 and 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,941
35,495
27,994
261
Gain on sale or loss on devaluation of securities investments,

net (Notes 6 and 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(49,354)
4,707
(1,722)
(16)
Adjustments to reconcile net income to net cash provided

by operating activities
Gain on change in interest in subsidiaries and equity

investees (Note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,870)
(16,322)
(153)
Deferred income taxes (Note 21) . . . . . . . . . . . . . . . . . . . . . . .

Equity in net (income) losses of affiliated companies,
(98,016)
(34,445)
(69,466)
(649)
net of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of an accounting change (Note 2) . . . . . . . .
46,692
1,732
2,117
(15,648)
4,713
(146)
44
trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . .
174,679
36,039
(63,010)
(78,656)
(22,056)
34,128
(206)
319
Increase in film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase (decrease) in notes and accounts payable,
(317,953)
(299,843)
(294,272)
(2,750)
trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accrued income and other taxes . . . .
(58,384)
14,637
93,950
(46,067)
31,473
3
294
0
Increase in future insurance policy benefits and other . . . . .

Increase in deferred insurance acquisition costs . . . . . . . . .
233,992
(66,091)
264,216
(71,219)
144,143
(65,051)
1,347
(608)
Changes in assets and liabilities:

(Increase) decrease in notes and accounts receivable,
(Increase) decrease in marketable securities held in the

financial service business for trading purpose . . . . . . . . . .
369
(28,524)
(266)
(Increase) decrease in other current assets . . . . . . . . . . . . .

Increase in other current liabilities . . . . . . . . . . . . . . . . . . . . .
29,095
26,205
(34,991)
44,772
(29,699)
46,545
(278)
435
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,950
22,250
64,898
607
Net cash provided by operating activities . . . . . . . . . . .
853,788
632,635
646,997
$6,047
78 Sony Corporation
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Dollars in millions
(Note 3)
Yen in millions
2003
2004
2005
(275,285)
(427,344)
(453,445)
$ (4,238)
Proceeds from sales of fixed assets . . . . . . . . . . . . . . . . . . . . . .

Payments for investments and advances
25,711
33,987
34,184
319
by financial service business . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payments for investments and advances
(1,012,508)
(1,167,945)
(1,309,092)
(12,235)
(other than financial service business) . . . . . . . . . . . . . . . . . . . .

Proceeds from maturities of marketable securities, sales of
(123,839)
(33,329)
(158,151)
(1,478)
529,395
791,188
923,593
8,632
(other than financial service business) . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148,977
1,124
35,521
6,130
25,849
5,890
242
55
Net cash used in investing activities . . . . . . . . . . . . . . .
(706,425)
(761,792)
(931,172)
(8,703)
Cash flows from investing activities:

Payments for purchases of fixed assets . . . . . . . . . . . . . . . . . . .
securities investments and collections of advances by

financial service business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
Proceeds from maturities of marketable securities, sales of

securities investments and collections of advances
Cash flows from financing activities:

Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . .
12,323
267,864
57,232
535
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase (decrease) in short-term borrowings . . . . . . . . . . . . . . .
Increase in deposits from customers in the financial
(238,144)
(7,970)
(32,042)
(57,708)
(94,862)
11,397
(887)
107
service business (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase (decrease) in call money and bills sold in the
142,023
129,874
294,352
2,751
banking business (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,700
(22,871)
30,300
(23,106)
(40,400)
(22,978)
(377)
(215)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,195)
(1,899)
436
Net cash provided by (used in) financing activities . . . . .
(93,134)
313,283
205,177
1,918
Effect of exchange rate changes on cash and cash equivalents . . .
(24,971)
(47,973)
8,890
83
Net increase (decrease) in cash and cash equivalents . . . . . . . . . .
29,258
136,153
(70,108)
(655)
Cash and cash equivalents at beginning of the fiscal year . . . . . . .
683,800
713,058
849,211
7,936
849,211
779,103
$ 7,281
Cash and cash equivalents at end of the fiscal year . . . . . . . . . . . . . . . . . .
713,058
Supplemental data:
Cash paid during the year for
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash investing and financing activities
Conversion of convertible bonds . . . . . . . . . . . . . . . . . . . . . . . .
171,531
22,216
114,781
22,571
344
65,477
18,187
612
170
7,977
282,744
$ 2,641
Obtaining assets by entering into capital lease . . . . . . . . . . . . . .

Contribution of Net assets into the Joint Venture with
9,034
18,298
19,049
178
Bertelsmann AG (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,402
88
Sony Corporation 79
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Consolidated Statements of Changes in Stockholders Equity

Yen in millions
Subsidiary
tracking
stock
Balance at March 31, 2002 . . . . . . . . . . . . . . . . .

Conversion of convertible bonds . . . . . . . . . . . . .
Stock issued under exchange offering (Note 16) . .
3,917
Common
stock
472,189
172
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax
(Note 16)
Unrealized gains on securities:
Unrealized holding gains or losses arising
during the period . . . . . . . . . . . . . . . . . . .
Less: Reclassification adjustment for gains
Less: or losses included in net income . . . .
Unrealized losses on derivative instruments:
Minimum pension liability adjustment . . . . . .
Foreign currency translation adjustments:
Translation adjustments arising during
the period . . . . . . . . . . . . . . . . . . . . . . . .
Less: Reclassification adjustment for
Less: losses included in net income . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . .
Stock issue costs, net of tax . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . .
Reissuance of treasury stock . . . . . . . . . . . . . . . .
Balance at March 31, 2003 . . . . . . . . . . . . . . . . .
Stock issued under exchange offering (Note 16) . .
Retained
earnings
968,223 1,209,262
172
15,791
(275,593)
Treasury
stock, at
cost
115,519
(9,627)
(9,627)
4,288
4,288
(4,477)
(4,477)
395
(110,636)
395
(110,636)
(83,993)
(83,993)
7,665
7,665
(80,866)
(19)
(23,022)
3,917
472,361
3,989
10
984,196 1,301,740
3,988
5,409
(471,978)
(19)
(23,022)
(1,817)
(1,817)
64
74
(9,341) 2,280,895
7,977
5,409
88,511
88,511
57,971
57,971
(5,679)
(5,679)
7,537
7,537
(3,344)
93,415
(3,344)
93,415
(129,113)
(129,113)
1,232
1,232
110,530
(53)
(23,138)
3,917
476,350
(776)
992,817 1,367,060
(449,959)
(53)
(23,138)
(8,523)
(8,523)
5,681
4,905
(12,183) 2,378,002
(Continued on following page)
80 Sony Corporation
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Total
(7,588) 2,370,410
344
15,791
115,519
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Note 16)
the period . . . . . . . . . . . . . . . . . . . . . . . .
Less: Reclassification adjustment for losses
Less: included in net income . . . . . . . . . . . . . .
Reissuance of treasury stock . . . . . . . . . . . . . . . . .
Balance at March 31, 2004 . . . . . . . . . . . . . . . . .
Additional
paid-in
capital
Accumulated
other
comprehensive
income
05.7.7, 3:33 AM
Yen in millions
Subsidiary
tracking
stock
Balance at March 31, 2004 . . . . . . . . . . . . . . . . .

Exercise of stock acquisition rights . . . . . . . . . . . .
Stock based compensation (Note 17) . . . . . . . . .
3,917
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Note 16)
the period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at March 31, 2005 . . . . . . . . . . . . . . . . .
Common
stock
476,350
52
141,390
Additional
paid-in
capital
Retained
earnings
992,817 1,367,060
53
141,354
340
Accumulated
other
comprehensive
income
(449,959)
Treasury
stock, at
cost
(12,183) 2,378,002
105
282,744
340
163,838
163,838
5,643
5,643
(12,924)
(12,924)
(209)
(209)
(1,681)
(769)
(1,681)
(769)
74,224
74,224
228,122
(541)
(24,030)
3,917
Total
(342)
(245)
617,792 1,134,222 1,506,082 (385,675)
(541)
(24,030)
(416)
(416)
6,599
6,012
(6,000) 2,870,338
(Continued on following page)
Sony Corporation 81
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Dollars in millions (Note 3)
Subsidiary
tracking
stock
Balance at March 31, 2004 . . . . . . . . . . . . . . . . .

Exercise of stock acquisition rights . . . . . . . . . . . .
Stock based compensation (Note 17) . . . . . . . . .
$36
Common
stock
$4,452
1
1,321
Additional
paid-in
capital
$ 9,279
1
1,320
3
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Note 16)
the period . . . . . . . . . . . . . . . . . . . . . . . .
Balance at March 31, 2005 . . . . . . . . . . . . . . . . .
Retained
earnings
Accumulated
other
comprehensive
income
$12,776
$(4,205)
Treasury
stock, at
cost
$(114)
1,531
$36
$5,774
(2)
$14,076
53
53
(121)
(121)
(2)
(2)
(16)
(7)
(16)
(7)
694
694
2,132
$(3,604)
(4)
62
$ (56)
The accompanying notes are an integral part of these statements
82 Sony Corporation
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$22,224
2
2,641
3
1,531
(5)
(224)
(3)
$10,600
Total
(5)
(224)
(4)
57
$26,826
Notes to Consolidated Financial Statements

Index to Notes to Consolidated Financial Statements

1. Nature of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
2. Summary of significant accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
3. U.S. dollar amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
5. Film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6. Related party transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
7. Accounts receivable securitization programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
8. Marketable securities and securities investments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
9. Leased assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10. Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
11. Insurance-related accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12. Short-term borrowings and long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
13. Deposits from customers in the banking business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
14. Financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
15. Pension and severance plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
16. Stockholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
17. Stock-based compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
18. Restructuring charges and asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
19. Research and development costs, advertising costs and shipping and handling costs . . . . . 116
20. Gain on change in interest in subsidiaries and equity investees . . . . . . . . . . . . . . . . . . . . . . . 116
21. Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
22. Reconciliation of the differences between basic and diluted net income per share (EPS) . . . 120
23. Variable interest entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
24. Commitments and contingent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
25. Business segment information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Sony Corporation 83
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Notes to Consolidated Financial Statements

1. Nature of operations
issued the Statement of Position (SOP) 03-1, Accounting and
Sony Corporation and consolidated subsidiaries (hereinafter

collectively referred to as Sony) are engaged in the develop-
Reporting by Insurance Enterprises for Certain Nontraditional

Long-Duration Contracts and for Separate Accounts. SOP 03-
ment, design, manufacture, and sale of various kinds of electronic equipment, instruments, and devices for consumer and
1 requires insurance enterprises to record additional reserves for

long-duration life insurance contracts with minimum guarantee
industrial markets. Sony also develops, produces, manufactures, and markets home-use game consoles and software.
or annuity receivable options. Additionally, SOP 03-1 provides

guidance for the presentation of separate accounts. This state-
Sonys principal manufacturing facilities are located in Japan, the

United States of America, Europe, and Asia. Its electronic
ment is effective for fiscal years beginning after December 15,

2003. Sony adopted SOP 03-1 on April 1, 2004. As a result of
products are marketed throughout the world and game products are marketed mainly in Japan, the United States of America
the adoption of SOP 03-1, Sonys operating income decreased

by 5,156 million ($48 million) for the year ended March 31,
and Europe by sales subsidiaries and unaffiliated local distributors as well as direct sales via the Internet. Sony is engaged in
2005. Additionally, on April 1, 2004, Sony recorded a 4,713

million ($44 million) charge (net of income taxes of 2,675
the development, production, manufacture, marketing, distribution and broadcasting of image-based software, including film,
million) as a cumulative effect of an accounting change. In

addition, the separate account assets, which are defined by
video and television product. Sony is also engaged in the development, production, manufacture, and distribution of recorded
insurance business law in Japan and were previously included in

Securities investments and other in the consolidated balance
music, in all commercial formats and music genres. Further,

Sony is engaged in various financial service businesses including
sheet, were excluded from the category of separate accounts

under the provision of SOP 03-1. Accordingly, the assets previ-
insurance operations through a Japanese life insurance subsidiary and non-life insurance subsidiaries, banking operations
ously treated as separate account assets are now treated within

general account assets (Note 8).
through a Japanese internet-based banking subsidiary and

leasing and credit financing operations in Japan. In addition to
The
the above, Sony is engaged in Internet-related businesses, an

animation production and marketing business, an imported
diluted earnings per share

In July 2004, the Emerging Issues Task Force (EITF) issued
general merchandise retail business, an IC card business and an

advertising agency business in Japan.
EITF Issue No. 04-8, The Effect of Contingently Convertible

Instruments on Diluted Earnings per Share. In accordance with
effect of contingently convertible instruments on
Statement of Financial Accounting Standards (FAS) No.128,

Earnings per Share, Sony had not previously included in the
2. Summary of significant accounting policies

Sony Corporation and its subsidiaries in Japan maintain their
computation of diluted earnings per share (EPS) the number of

potential common stock issuable upon the conversion of contin-
records and prepare their financial statements in accordance

with accounting principles generally accepted in Japan while its
gently convertible debt instruments (Co-Cos) that had not met

the conditions to exercise the stock acquisition rights. EITF Issue
foreign subsidiaries maintain their records and prepare their

financial statements in conformity with accounting principles
No. 04-8 requires that the maximum number of common stock

that could be issued upon the conversion of Co-Cos be in-
generally accepted in the countries of their domiciles. Certain

adjustments and reclassifications have been incorporated in the
cluded in diluted EPS computations from the date of issuance

regardless of whether the conditions to exercise the stock
accompanying consolidated financial statements to conform

with accounting principles generally accepted in the United
acquisition rights have been met. EITF Issue No. 04-8 is effective for reporting periods ending after December 15, 2004. Sony
States of America (U.S. GAAP). These adjustments were not

recorded in the statutory books of account.
adopted EITF Issue No. 04-8 during the quarter ended December 31, 2004. As a result of the adoption of EITF Issue No. 04-8,
(1) Newly adopted accounting pronouncements:
Sonys diluted EPS of income before cumulative effect of an

accounting change and net income for the year ended March
Accounting
31, 2004 were restated respectively. Sonys diluted EPS of

income before cumulative effect of an accounting change and
separate accounts
In July 2003, the Accounting Standards Executive Committee of
net income for the year ended March 31, 2005 were decreased
by 7.26 ($0.07) and 7.06 ($0.07), respectively, compared to
the American Institute of Certified Public Accountants (AcSEC)
those before adopting EITF Issue No. 04-8.
and reporting by insurance enterprises for

certain nontraditional long-duration contracts and for
84 Sony Corporation
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Employers
disclosures about pensions and other
postretirement benefits
In December 2003, the Financial Accounting Standards Board
(FASB) issued FAS No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits (FAS
No. 132(R)), which revised FAS No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits, an amendment of FAS No. 87, Employers Accounting for Pensions, FAS
No. 88, Employers Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits,
and FAS No. 106, Employers Accounting for Postretirement
Benefits Other Than Pensions. FAS No. 132(R) revised employers disclosures about pension plans and other postretirement
benefit plans. It did not change the measurement or recognition of
those plans required by FAS No. 87, 88 and 106. While retaining
the disclosure requirements of FAS No. 132, FAS No. 132(R)
requires additional disclosures about assets, obligations and cash
flows. The provisions of FAS No. 132(R) were generally effective
for financial statements with fiscal years ending after December
15, 2003, excluding the disclosure of certain information about
foreign plans. The information about foreign plans is effective for
fiscal years ending after June 15, 2004. In accordance with FAS
No. 132(R), (Note 15), Pension and severance plans, has been
Sony Corporation and its majority-owned subsidiary companies,

general partnerships in which Sony has a controlling interest,
and variable interest entities for which Sony is the primary
beneficiary. All intercompany transactions and accounts are
eliminated. Investments in business entities in which Sony does
not have control, but has the ability to exercise significant influence over operating and financial policies generally through 2050% ownership, are accounted for under the equity method. In
addition, investments in general partnerships in which Sony
does not have a controlling interest and limited partnerships are
also accounted for under the equity method. Under the equity
method, investments are stated at cost plus/minus Sonys
equity in undistributed earnings or losses. Consolidated net
income includes Sonys equity in current earnings or losses of
such companies, after elimination of unrealized intercompany
profits. If the value of an investment has declined and is judged
to be other than temporary, the investment is written down to its
fair value.
On occasion, a consolidated subsidiary or an affiliated company accounted for by the equity method may issue its shares
to third parties in either a public or private offering or upon
conversion of convertible debt to common stock at amounts per
expanded to include the new disclosures.
share in excess of or less than Sonys average per share carrying value. With respect to such transactions, where the sale of
Consolidation
such shares is not part of a broader corporate reorganization

and the reacquisition of such shares is not contemplated at the
of variable interest entities

In January 2003, the FASB issued FASB Interpretation (FIN)
No. 46, Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51. FIN No. 46 addresses consolidation by a
primary beneficiary of a variable interest entity (VIE). Sony early
adopted the provisions of FIN No. 46 on July 1, 2003. As a
result of adopting the original FIN No. 46, Sony recognized a
one-time charge with no tax effect of 2,117 million as a cumulative effect of accounting change in the consolidated statement
of income, and Sonys assets and liabilities increased by
95,255 million and 97,950 million, respectively. These increases were treated as non-cash transactions in the consolidated statement of cash flows. In addition, cash and cash
equivalents increased by 1,521 million. See Note 23 for further
discussion on the VIEs that are used by Sony.
In December 2003, the FASB issued revised FIN No. 46 (FIN
No. 46R), which replaced FIN No. 46. Sony early adopted the
provisions of FIN No. 46R upon its issuance. The adoption of
FIN No. 46R did not have an impact on Sonys results of operations and financial position or impact the way Sony had previously accounted for VIEs.
(2) Significant accounting policies:
of consolidation and accounting for investments in
Basis
affiliated companies
The consolidated financial statements include the accounts of
time of issuance, the resulting gains or losses arising from the

change in interest are recorded in income for the year the
change in interest transaction occurs. If the sale of such shares
is part of a broader corporate reorganization, the reacquisition of
such shares is contemplated at the time of issuance or realization of such gain is not reasonably assured (i.e., the entity is
newly formed, non-operating, a research and development or
start-up/development stage entity, or where the entitys ability to
continue in existence is in question), the transaction is accounted for as a capital transaction.
The excess of the cost over the underlying net equity of
investments in consolidated subsidiaries and affiliated companies accounted for on an equity basis is allocated to identifiable
assets and liabilities based on fair values at the date of acquisition. The unassigned residual value of the excess of the cost
over the underlying net equity is recognized as goodwill.
Use
of estimates
The preparation of the consolidated financial statements in

conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Sony Corporation 85
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Translation
of foreign currencies
All asset and liability accounts of foreign subsidiaries and affili-
subsidiary companies in electronics which is determined on the

first-in, first-out basis.
ates are translated into Japanese yen at appropriate year-end

current rates and all income and expense accounts are trans-
Film
lated at rates that approximate those rates prevailing at the time

of the transactions. The resulting translation adjustments are
Film costs related to theatrical and television product (which

includes direct production costs, production overhead and
accumulated as a component of accumulated other comprehensive income.
acquisition costs) are stated at the lower of unamortized cost or

estimated fair value and classified as non-current assets. Film
Foreign currency receivables and payables are translated at

appropriate year-end current rates and the resulting translation
costs are amortized, and the estimated liabilities for residuals

and participations are accrued, for an individual product based
gains or losses are taken into income.
on the proportion that current period actual revenues bear to the

estimated remaining total lifetime revenues. These estimates are
Cash
and cash equivalents

Cash and cash equivalents include all highly liquid investments,
reviewed on a periodic basis.
generally with original maturities of three months or less, that are

readily convertible to known amounts of cash and are so near
Property,
maturity that they present insignificant risk of changes in value

because of changes in interest rates.
of property, plant and equipment is primarily computed on the

declining-balance method for Sony Corporation and its Japa-
Marketable
nese subsidiaries, except for certain semiconductor manufacturing facilities whose depreciation is computed on the straight-line
debt and equity securities
costs
plant and equipment and depreciation

Property, plant and equipment are stated at cost. Depreciation
Debt and equity securities designated as available-for-sale, whose

fair values are readily determinable, are carried at fair value with
method, and on the straight-line method for its foreign subsidiaries at rates based on estimated useful lives of the assets, princi-
unrealized gains or losses included as a component of accumulated other comprehensive income, net of applicable taxes. Debt
pally, ranging from 15 years up to 50 years for buildings and

from 2 years up to 10 years for machinery and equipment.
and equity securities classified as trading securities are carried at

fair value with unrealized gains or losses included in income. Debt
Significant renewals and additions are capitalized at cost. Maintenance and repairs, and minor renewals and betterments are
securities that are expected to be held-to-maturity are carried at

amortized cost. Individual securities classified as either available-
charged to income as incurred.
for-sale or held-to-maturity are reduced to net realizable value by

a charge to income for other than temporary declines in fair value.
Goodwill
Realized gains and losses are determined on the average cost

method and are reflected in income.
to have an indefinite life are not amortized and are tested for
impairment on an annual basis and between annual tests if an
Equity
event occurs or circumstances change that would more likely

than not reduce the fair value below its carrying amount. Fair
securities in non-public companies
and other intangible assets

Goodwill and certain other intangible assets that are determined
Equity securities in non-public companies are carried at cost as

fair value is not readily determinable. If the value of a non-public
value for those assets is generally determined using a discounted

cash flow analysis.
equity investment is estimated to have declined and such decline

is judged to be other than temporary, Sony recognizes the
Intangible assets that are determined not to have an indefinite

life mainly consist of artist contracts, music catalogs, acquired
impairment of the investment and the carrying value is reduced

to its fair value. Determination of impairment is based on the
patent rights and software to be sold, leased or otherwise

marketed. Artist contracts and music catalogs are amortized on
consideration of such factors as operating results, business

plans and estimated future cash flows. Fair value is determined
a straight-line basis over a period of up to 40 years. Acquired

patent rights and software to be sold, leased or otherwise mar-
through the use of such methodologies as discounted cash

flows, valuation of recent financings and comparable valuations
keted are amortized on a straight-line basis over 3 to 10 years.
of similar companies.
Accounting
Inventories
Inventories in electronics, game and music as well as non-film
with FAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.
inventories for pictures are valued at cost, not in excess of

market, cost being determined on the average cost basis
In the Electronics segment, costs related to establishing the

technological feasibility of a software product are expensed as
except for the cost of finished products carried by certain
incurred as a part of research and development in cost of sales.
for computer software to be sold

Sony accounts for software development costs in accordance
86 Sony Corporation
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Costs that are incurred to produce the finished product after

technological feasibility is established are capitalized and
assets held and used, other than goodwill and intangible assets
with indefinite lives, and assets to be disposed of, whenever
amortized over the estimated economic life of the product,

which is generally three years. Sony performs periodic reviews
events or changes in circumstances indicated that the carrying

amount may not be recoverable. Long-lived assets to be held
to ensure that unamortized program costs remain recoverable

from future revenue.
and used are reviewed for impairment by comparing the carrying

value of the assets with their estimated undiscounted future
In the Game segment, technological feasibility of the underlying software is reached shortly before the products are released
cash flows. If it is determined that an impairment loss has

occurred, the loss would be recognized during the period. The
to manufacturing. Costs incurred after technological feasibility is

established are not material, and accordingly, Sony expenses
impairment loss would be calculated as the difference between

asset carrying value and the present value of estimated net cash
software development costs for the Game segment as incurred

as a part of research and development in cost of sales.
flows or comparable market values, giving consideration to

recent operating performance. Long-lived assets that are to be
Deferred
disposed of other than by sale are considered held and used

until they are disposed of. Long-lived assets that are to be
insurance acquisition costs
Costs that vary with and are primarily related to acquiring new
insurance policies are deferred as long as they are recoverable.
disposed of by sale are reported at the lower of their carrying

value or fair value less cost to sell. Reductions in carrying value
The deferred insurance acquisition costs include such items as

commission, medical examination and inspection report fees.
are recognized in the period in which the long-lived assets are

classified as held for sale.
The deferred insurance acquisition costs for traditional life

insurance contracts are amortized over the premium-paying
Derivative
period of the related insurance policies using assumptions

consistent with those used in computing policy reserves. The
All derivatives, including certain derivative financial instruments

embedded in other contracts, are recognized as either assets or
deferred insurance acquisition costs for non-traditional life

insurance contracts are amortized over the expected life in
liabilities in the balance sheet at fair value. Changes in the fair

value of derivative financial instruments are either recognized
proportion to the estimated gross profits.
periodically in income or stockholders equity (as a component

of accumulated other comprehensive income), depending on
Product
warranty
Sony provides for the estimated cost of product warranties at
whether the derivative financial instrument qualifies as a hedge

and the derivative is being used to hedge changes in fair value
the time revenue is recognized by either product category group

or individual product. The product warranty is calculated based
or cash flows.
In accordance with FAS No. 133, the derivative financial instru-
upon product sales, estimated probability of failure and estimated cost per claim. The variables used in the calculation of
ments held by Sony are classified and accounted as below.
the provision are reviewed on a periodic basis.

Certain subsidiaries in the Electronics segment offer extended
Fair value hedges

Changes in the fair value of derivatives designated and effective
warranty programs. The consideration received through extended

warranty service is deferred and amortized on a straight-line
as fair value hedges for recognized assets or liabilities or unrecognized firm commitments are recognized in earnings as offsets to
basis over the term of the extended warranty.
changes in the fair value of the related hedged assets or liabilities.
Future
insurance policy benefits

Liabilities for future insurance policy benefits are primarily com-
Cash flow hedges

Changes in the fair value of derivatives designated and effective
prised of the present value of estimated future payments to

policyholders. These liabilities are computed by the net level
as cash flow hedges for forecasted transactions or exposures

associated with recognized assets or liabilities are initially recorded
premium method based upon the assumptions such as future

investment yield, morbidity, mortality and withdrawals. These
in other comprehensive income and reclassified into earnings

when the hedged transaction affects earnings. Changes in the
assumptions are reviewed on a periodic basis. Liabilities for

future insurance policy benefits also include liabilities for guaran-
fair value of the ineffective portion are recognized in current

period earnings.
teed benefits related to certain non-traditional long-duration life

and annuity contracts.
Derivatives not designated as hedges
Accounting
Changes in the fair value of derivatives that are not designated

as hedges under FAS No. 133 are recognized in current period
for the impairment of long-lived assets
Sony periodically reviews the carrying value of its long-lived
financial instruments
earnings.
Sony Corporation 87
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Sony formally documents all hedging relationships between

the derivatives designated as hedges and hedged items, as well
Disclosurean Amendment of FASB Statement No. 123. In

accordance with APB No. 25, stock-based compensation cost
as its risk management objectives and strategies for undertaking

various hedging activities. Sony links all hedges that are desig-
is recognized in income based on the excess, if any, of the

quoted market price of the common stock or subsidiary tracking
nated as fair value or cash flow hedges to specific assets or

liabilities on the balance sheet or to the specific forecasted
stock of Sony Corporation at the grant date of the award or

other measurement date over the stated exercise price of the
transaction. Sony also assesses, both at the inception of the

hedge and on an on-going basis, whether the derivatives that
award. As the exercise prices for Sonys stock-based compensation plans are generally determined based on the prevailing
are designated as hedges are highly effective in offsetting

changes in fair value or cash flows of hedged items. When it is
market price shortly before the date of grant, the compensation

expense for these plans is not significant. For awards that
determined that a derivative is not highly effective as a hedge,

Sony discontinues hedge accounting.
generate compensation expense as defined under APB No. 25,

Sony calculates the amount of compensation expense and
Stock-based
recognizes the expense over the vesting period of the award.

The following table reflects the net effect on net income and
compensation
Sony applies Accounting Principle Board Opinion (APB) No.

25, Accounting for Stock Issued to Employees, and its related
net income per share allocated to the common stock if Sony

had applied the fair value recognition provisions of FAS No. 123,
interpretations in accounting for its stock-based compensation

plans and follows the disclosure-only provisions of FAS No. 148,
Accounting for Stock-Based Compensation, to its stockbased compensation. See Note 17 for detailed assumptions.
Accounting for Stock-Based CompensationTransition and

Dollars in
millions
Yen in millions
2003
2004
2005
2005
Income before cumulative effect of an accounting change allocated to common stock:

115,648
90,756
168,498
$1,575
Deduct: under the fair value based method, net of related tax effects . . . . . . . . . . . . . . .
(7,008)
(6,334)
(4,690)
(44)
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108,640
84,422
163,808
$1,531
115,648
88,639
163,785
$1,531
Deduct: under the fair value based method, net of related tax effects . . . . . . . . . . . . . . .
(7,008)
(6,334)
(4,690)
(44)
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
108,640
82,305
159,095
$1,487
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deduct: Total stock-based compensation expense determined
Net income allocated to common stock:

As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deduct: Total stock-based compensation expense determined
Yen
2003
2004
Dollars
2005
2005
Income before cumulative effect of an accounting change allocated to common stock:

Basic EPS:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125.74.
98.26.
180.96.
$1.69.
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118.12.
91.40.
175.92.
1.64.
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118.21.
89.03.
162.59.
$1.52.
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111.20.
82.96.
158.10.
1.48.
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125.74.
95.97.
175.90.
$1.64.
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118.12.
89.11.
170.86.
1.60.
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118.21.
87.00.
158.07.
$1.48.
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111.20.
80.94.
153.58.
1.44.
Diluted EPS:
Net income allocated to common stock:

Basic EPS:
Diluted EPS:
88 Sony Corporation
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Net income and net income per share allocated to the subsidiary tracking stock would not be impacted if Sony had applied
such as interest sensitive whole life contracts, single payment

endowment contracts, single payment juvenile contracts and
the fair value recognition provisions of FAS No. 123.

As a result of the adoption of EITF Issue No. 04-8, Sonys
other contracts without life contingencies are recognized as

deposits to policyholder account balances and included in future

change and net income for the year ended March 31, 2004
insurance policy benefits and other. Revenues from these contracts are comprised of fees earned for administrative and
were restated in the above table.
contract-holder services, which are recognized over the period

of the contracts, and included in financial service revenue.
Free
distribution of common stock

On occasion, Sony Corporation may make a free distribution of
Property and casualty insurance policies that the non-life

insurance subsidiary writes are primarily automotive insurance
common stock which is accounted for either by a transfer from

additional paid-in capital to the common stock account or with
contracts which are categorized as short-duration contracts.

Premiums from these policies are reported as revenue over the
no entry if free shares are distributed from the portion of previously

issued shares in the common stock account.
period of the contract in proportion to the amount of insurance

protection provided.
Under the Japanese Commercial Code, a stock dividend can

be effected by an appropriation of retained earnings to the
Accounting for consideration given to a customer or a reseller
common stock account, followed by a free share distribution

with respect to the amount appropriated by resolution of the
In accordance with EITF Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer or Reseller of the
Board of Directors meeting.

Free distribution of common stock is recorded in the consoli-
Vendors Products, cash consideration given to a customer or a

reseller including payments for buydowns, slotting fees and coop-
dated financial statements only when it becomes effective, except

for the calculation and presentation of per share amounts.
erative advertising programs, is accounted for as a reduction of

revenue unless Sony receives an identifiable benefit (goods or ser-
Stock
vices) in exchange for the consideration, can reasonably estimate

the fair value of this benefit and receives documentation from the
issue costs
Stock issue costs are directly charged to retained earnings, net

of tax, in the accompanying consolidated financial statements as
reseller to support the amounts spent. Any payments meeting

these criteria are treated as selling, general and administrative
the Japanese Commercial Code prohibits charging such stock

issue costs to capital accounts which is the prevailing practice in
expenses. For the years ended March 31, 2003, 2004 and 2005,
consideration given to a reseller, primarily for free promotional
the United States of America.
shipping and cooperative advertising programs included in selling, general and administrative expense totaled 29,135 million,
Revenue
recognition
Revenues from electronics, game and music sales are recog-
30,338 million and 27,946 million ($261 million), respectively.
nized upon delivery which is considered to have occurred when

the customer has taken title to the product and the risk and
Cost
rewards of ownership have been substantively transferred. If the

sales contract contains a customer acceptance provision, then
manufacturing of products and include such items as material

cost, subcontractor cost, depreciation of fixed assets, personnel
sales are recognized after customer acceptance occurs or the

acceptance provisions lapse.
expenses, research and development costs, and amortization of

film cost related to theatrical and television products.
Revenues from the theatrical exhibition of motion pictures are

recognized as the customer exhibits the film. Revenues from the
Research
of sales
Costs classified as cost of sales relate to the producing and
and development costs
licensing of feature films and television programming are recorded

when the material is available for telecast by the licensee and
Research and development costs are expensed as incurred.
when any restrictions regarding the exhibition or exploitation of the

product lapse. Revenues from the sale of home videocassettes
Selling,
and DVDs are recognized upon availability of sale to the public.

Traditional life insurance policies that the life insurance subsid-
selling of products and include such items as advertising,

promotion, shipping, and warranty expenses.
iary writes, most of which are categorized as long-duration contracts, mainly consist of whole life, term life and accident and
General and administrative expenses include operating items

such as officers salaries, personnel expenses, depreciation of
health insurance contracts. Premiums from these policies are

reported as revenue when due from policyholders.
fixed assets, office rental for sales, marketing and administrative

divisions, a provision for doubtful accounts and amortization of
Amounts received as payment for non-traditional contracts
general and administrative

Costs classified as selling expense relate to the promoting and
intangible assets.
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Selling, general and administrative expenses are expensed

as incurred.
this method, basic net income per share (EPS) for each class
of stock is calculated based on the earnings allocated to each
Financial
class of stock for the applicable period, divided by the weightedaverage number of outstanding shares in each class during the
service expenses
Financial service expenses include a provision for policy reserves

and amortization of deferred insurance acquisition cost, and all
applicable period.
The earnings allocated to the subsidiary tracking stock are
other operating costs such as personnel expenses, depreciation

of fixed assets, and office rental of subsidiaries in the Financial
determined based on the subsidiary tracking stock holders

economic interest in the targeted subsidiarys earnings available
Services segment.
for dividends. As defined by Sony Corporations articles of

incorporation, the amount distributable to the subsidiary tracking
Advertising
costs
Advertising costs are expensed when the advertisement or
stock holders is based on the declared dividends of the targeted

subsidiary, which may only be declared from the amounts
commercial appears in the selected media, except for advertising

costs for acquiring new insurance policies which are deferred and
available for dividends of the targeted subsidiary. The targeted

subsidiarys earnings available for dividends are, as stipulated by
amortized as part of insurance acquisition costs.
the Japanese Commercial Code, not including those of the

targeted subsidiarys subsidiaries. If the targeted subsidiary has
Shipping
and handling costs

The majority of shipping and handling, warehousing and internal
accumulated losses, a change in accumulated losses is also

allocated to the subsidiary tracking stock. The subsidiary track-
transfer costs for finished goods are included in selling, general

and administrative expenses. An exception to this is in the
ing stock holders economic interest is calculated as the number

of the subsidiary tracking stock outstanding (3,072,000 shares
Pictures segment where such costs are charged to cost of sales

as they are integral part of producing and distributing the film
as of March 31, 2005) divided by the number of the targeted

subsidiarys common stock outstanding (235,520 shares as of
under SOP 00-2, Accounting by Producers or Distributors of

Films. All other costs related to Sonys distribution network are
March 31, 2005), subject to multiplying by the Standard Ratio

(tracking stock : subsidiarys common stock=1 : 100, as defined
included in cost of sales, including inbound freight charges,

purchasing and receiving costs, inspection costs and warehous-
in the articles of incorporation). The earnings allocated to the

common stock are calculated by subtracting the earnings allo-
ing costs for raw materials and in-process inventory. In addition,

amounts paid by customers for shipping and handling costs are
cated to the subsidiary tracking stock from Sonys net income

for the period.
included in net sales.
The computation of diluted net income per common stock

reflects the maximum possible dilution from conversion, exer-
Income
taxes
The provision for income taxes is computed based on the pretax
cise, or contingent issuance of securities including the conversion of Co-Cos regardless of whether the conditions to exercise
income included in the consolidated statements of income. The

asset and liability approach is used to recognize deferred tax
the conversion rights have been met.

There are no potentially dilutive securities for net income per
assets and liabilities for the expected future tax consequences

of temporary differences between the carrying amounts and the
subsidiary tracking stock, as tracking stock shares outstanding

are increased upon potential subsidiary tracking stocks being
tax bases of assets and liabilities. Sony records a valuation

allowances to reduce deferred tax assets to the amount that
exercised, which results in a proportionate increase in earnings

allocated to the subsidiary tracking stock. However, they could
management believes is more likely than not to be realized.

In assessing the likelihood of realization, Sony considers all
have a dilutive effect on net income per common stock, as

earnings allocated to the common stock would be decreased.
currently available evidence for future years, both positive and

negative, supplemented by information of historical results for
(3) Recent pronouncements:
each tax filling unit.
Accounting
Net
income per share

Sony calculates and presents per share data separately for
2004), Share-Based Payment (FAS No. 123(R)). This statement requires the use of the fair value based method of account-
Sonys common stock and for the subsidiary tracking stock,

based on FAS No. 128. The holders of the subsidiary tracking
ing for employee stock-based compensation and eliminates the

alternative use of the intrinsic value method prescribed by APB
stock have the right to participate in earnings, together with

common stockholders. Accordingly, Sony calculates per share
No. 25. With limited exceptions, FAS No. 123(R) requires that
the grant-date fair value of share-based payments to employees
data by the two-class method based on FAS No. 128. Under
be expensed over the period the service is received. Sony has
for stock-based compensation

In December 2004, the FASB issued FAS No. 123 (revised
90 Sony Corporation
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accounted for its employee stock-based compensation in

accordance with the provisions prescribed by APB No. 25 and
ended March 31, 2003 and 2004 have been made to conform
to the presentation for the year ended March 31, 2005.
its related interpretations and has disclosed the net effect on net
income and net income per share allocated to the common
stock if Sony had applied the fair value recognition provisions of
FAS No. 123 to stock-based compensation as described above
3. U.S. dollar amounts
in (2) Significant accounting policiesStock-based compensation. This statement shall be effective for fiscal years beginning
included solely for the convenience of the reader. These translations should not be construed as representations that the yen
after June 15, 2005, with early adoption during the fiscal years
amounts actually represent, or have been or could be converted

into U.S. dollars. As the amounts shown in U.S. dollars are for
The options for transition methods prescribed in FAS No. 123(R)

include either the modified prospective or the modified retro-
convenience only, the rate of 107=U.S.$1, the approximate

current rate at March 31, 2005, has been used for the purpose
spective methods. Sony intends to adopt the modified prospective method of transition, which requires that compensation
of presentation of the U.S. dollar amounts in the accompanying

consolidated financial statements.
U.S. dollar amounts presented in the financial statements are
expense be recorded for all unvested stock acquisition rights as

the requisite service is rendered beginning with the first period of
adoption. Sony is currently evaluating the impact of adopting
this new pronouncement. However, Sony expects that the total
4. Inventories
Inventories comprise the following:
expenses to be recorded in the future periods will be consistent

with the pro forma information above in (2) Significant accounting
policiesStock-based compensation.
Inventory
costs
In November 2004, the FASB issued FAS No. 151, Inventory
Costs, an amendment of Accounting Research Bulletin (ARB)
No. 43, Chapter 4. This statement requires certain abnormal
expenditures to be recognized as expenses in the current period.
It also requires that the amount of fixed production overhead
allocated to inventory be based on the normal capacity of the
production facilities. This statement shall be effective for fiscal
years beginning after June 15, 2005, with early adoption during
the fiscal years beginning after the date this statement is issued
March 31
2004
2005
Finished products . . . . . . . .
427,877
405,616
$3,791
Work in process . . . . . . . . . .
2005
98,607
93,181
871
Raw materials, purchased

components and
supplies . . . . . . . . . . . . . . .
140,023
132,552
1,238
....................
666,507
631,349
$5,900
5. Film costs
Film costs comprise the following:
encouraged. The adoption of FAS No. 151 is not expected to

have a material impact on Sonys results of operations and
Dollars in
millions
Yen in millions
March 31
financial position.
Dollars in
millions
Yen in millions
2004
2005
2005
Theatrical:
Exchanges
of nonmonetary assets
In December 2004, the FASB issued FAS No. 153, Exchanges
Released (including
acquired film libraries) . . .
136,057
119,438
$1,116
of Nonmonetary Assets, an amendment of APB Opinion No.

29. This statement requires that exchanges of productive
Completed not released . .
7,946
11,358
106
79,198
118,271
1,106
33,378
29,894
279
assets be accounted for at fair value unless fair value cannot be

reasonably determined or the transaction lacks commercial
In production and
development . . . . . . . . .
Television licensing:
substance. This statement shall be effective for nonmonetary

asset exchanges occurring in the fiscal periods beginning after
Released (including
June 15, 2005, with early adoption during the fiscal periods
In production and
Sony is currently evaluating the impact of adopting this new

pronouncement.
acquired film libraries) . . .

development . . . . . . . . .
161
....................
256,740
278,961
$2,607
Sony estimates that approximately 88% of unamortized costs

(4) Reclassifications:
Certain reclassifications of the financial statements for the years
of released films (excluding amounts allocated to acquired film

libraries) at March 31, 2005 will be amortized within the next
Sony Corporation 91
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three years. Approximately 94,790 million ($886 million) of

released film costs are expected to be amortized during the next
In April 2002, Sony completed the sale of its equity interest

in the Telemundo Group which resulted in cash proceeds of
twelve months. As of March 31, 2005, unamortized acquired

film libraries of approximately 12,371 million ($116 million)
88,373 million and a gain of 66,502 million. In the year ended

March, 31 2003, Sony had deferred 5,939 million of the gain
remained to be amortized on a straight-line basis over an average of the remaining life of 5 years. Approximately 108,833
related to the sale of Telemundo as a result of certain indemnifications provided by Sony to the acquirer, which was subse-
million ($1,017 million) of accrued participation liabilities included

in accounts payable, other and accrued expenses are expected
quently recognized in April 2003, as these indemnifications

expired with no amounts being refunded by Sony.
to be paid during the next twelve months.
In June 2002, Sony completed the partial sale of its equity

investment in the Columbia House Company (CHC), a 50-50
6. Related party transactions
joint venture between AOL Time Warner Inc. and Sony, to

Blackstone Capital Partners III LP (Blackstone), an affiliate of
Sony accounts for its investments in affiliated companies over

which Sony has significant influence or ownership of 20% or
The Blackstone Group, a private investment bank. The chairman

of The Blackstone Group was also a director of Sony until June
more but less than or equal to 50% under the equity method.
In addition, investments in general partnerships in which Sony
2002. Under the terms of the sale agreement, Sony received

cash proceeds of 17,839 million and a subordinated note
does not have a controlling interest and limited partnerships are

also accounted for under the equity method. Such investments
receivable from Columbia House Holdings, Inc., a majority

owned subsidiary of Blackstone, with a face amount of 7,827
include but are not limited to Sonys interest in Sony Ericsson

Mobile Communications AB (50%), SONY BMG MUSIC
million. The sale resulted in a gain of 1,324 million. As of March

31, 2005, Sony still had a 7.5% ownership interest in CHC,
ENTERTAINMENT (SONY BMG) (50%), S-LCD Corporation

(S-LCD) (50% minus 1 share), ST Liquid Crystal Display Corpora-
which was accounted for as a cost method investment as a

result of the partial sale of this investment. In May 2005, an
tion (50%), bit Wallet, Inc (34.6%), STAR CHANNEL, INC. (17.8%),
and InterTrust Technologies Corporation (InterTrust) (49.5%).
agreement was reached between Blackstone and a third party

for the sale of CHC to the third party. As part of this transaction,
Summarized combined financial information that is based on

information provided by equity investees is shown below:
Sony has also agreed to sell its remaining ownership interest in

CHC and settle the outstanding subordinated note receivable.
Dollars in
millions
Yen in millions
March 31
2004
Current assets . . . . . . . . . . .
2005
2005
433,154 0,942,328
$08,807
Property, plant and

equipment . . . . . . . . . . . . .
94,130
361,406
3,377
Other assets . . . . . . . . . . . .
57,756
250,245
2,339
Total assets . . . . . . . . . . .
585,040 1,553,979
$14,523
Current liabilities . . . . . . . . . .
397,242 0,876,430
$08,191
Long-term liabilities . . . . . . .
27,639
115,999
1,084
Stockholders equity . . . . . .
160,159
561,550
5,248
585,040 1,553,979
$14,523
Total liabilities and

stockholders equity . . . .
Number of companies
at end of the fiscal year . . .
66
2003
2004
Dollars in
millions
2005
Gross profit . . .
785,697 1,009,005 1,473,273

140,078
231,083
477,796
(81,422)
11,323
63,404
from Corning Asahi Corporation. As a result, AVGC is no longer

accounted for under the equity method and is now a consolidated subsidiary. The financial position and operating results of
AVGC as of and for the years ended March 31, 2004 and 2005
are not included in the above summarized combined financial
information.
Effective July 1, 2003, in accordance with FIN No. 46, Sony
consolidated BE-ST Bellevuestrasse Development GmbH & Co.
financial position and operating results of BE-ST as of and for

the years ended March 31, 2004 and 2005 are not included in
the above summarized combined financial information.
In August 2003, Crosswave Communications Inc. (CWC), of
$13,769
4,465
which Sony owned approximately a 23.9% interest, commenced

reorganization proceedings under the Corporate Reorganization
593
Law of Japan. As a result, Sony no longer has a significant influence on the decision making of CWC. Therefore, CWC is no
Net income
(loss) . . . . . . .
In May 2003, Sony acquired the remaining 50% interest in

American Video Glass Company (AVGC) that it did not own
2005
Sales and
revenue . . . . .
In January 2003, Sony acquired a 49.5% interest in InterTrust

for 23,076 million.
First Real Estate KG, Berlin (BE-ST). As a result, BE-ST is no

longer accounted for under the equity method (Note 23). The
56
Yen in millions
In September 2002, Sony completed the sale of its equity interest in Sony Tektronix Inc., which resulted in a gain of 3,090 million.
longer accounted for under the equity method. The financial

92 Sony Corporation
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position and operating results of CWC as of and for the years

ended March 31, 2004 and 2005 are not included in the above
summarized combined financial information.
S-LCD, a joint venture with Samsung Electronics Co., Ltd.,
focused on manufacturing amorphous TFT panel, was established in April 2004 as a joint venture in which Sony has
an ownership interest of 50% minus 1 share. Sony invested
100,073 million ($935 million) in S-LCD during the year ended
March 31, 2005.
As of August 1, 2004, Sony combined its recorded music
business, except for the operations of its recorded music business in Japan, with the recorded music business of Bertelsmann
AG in a joint venture. The newly formed company, known as
SONY BMG, is 50% owned by each parent company. As a
result, the results of the recorded music business, except for the
recorded music business in Japan, are no longer consolidated
but are accounted for under the equity method.
On April 8, 2005, a consortium led by Sony Corporation of
America (SCA) and its equity partners, Providence Equity
Partners, Texas Pacific Group, Comcast Corporation and DLJ
Merchant Banking Partners, completed the acquisition of Metro
GoldwynMayer Inc. (MGM). Under the terms of the acquisition agreement, the aforementioned investor group acquired
MGM for $12.00 in cash per MGM share, for a total purchase
price of approximately $5.0 billion. As part of this transaction,
Sony Pictures Entertainment (SPE) will co-finance and produce
new motion pictures with MGM as well as distribute MGMs
existing film and television contents through SPEs global distribution channels. MGM will continue to operate under the Metro
GoldwynMayer name as a private company headquartered in
Los Angeles. As part of the acquisition, SCA invested $257
million for 20% of the total equity capital. However, based on the
percentage of common stock owned, Sony will record 45% of
MGMs net income (loss) as equity in net income of affiliated
companies.
Affiliated companies accounted for under the equity method
with an aggregate carrying amount of 6,081 million and
17,676 million ($165 million) at March 31, 2004 and 2005,
were quoted on established markets at an aggregate value of
Account balances and transactions with affiliated companies
accounted for under the equity method are presented below:
Yen in millions
Dollars in
millions
Yen in millions
2003
2004
2005
2005
Sales . . . . . . . .
161,983
258,454
256,799
$2,400
Purchases . . . .
102,735
106,100
101,976
$ 953
As of April 1, 2004, Sony Corporation made Sony Computer

Entertainment Inc. (SCE) a wholly-owned subsidiary through
a stock for stock exchange pursuant to the provision of Article
358 of the Japanese Commercial Code which does not require
the approval of the General Meeting of Shareholders. The stock
for stock exchange ratio was determined based on the estimated
equity values of SCE and Sony on a consolidated basis. Through
the stock for stock exchange, Sony Corporation provided
1,000,000 shares of its common stock to an Executive Deputy
President, Corporate Executive Officer of Sony Corporation who
had owned 100 shares of SCEs common stock. This transaction
did not have a material impact on Sonys results of operations
and financial position for the year ended March 31, 2005.
Dividends from affiliated companies accounted for under the
equity method for the years ended March 31, 2003, 2004 and
2005 were 2,002 million, 3,446 million and 13,391 million
($125 million), respectively.
7. Accounts receivable securitization programs

In the United States of America, Sony has set up an accounts
receivable securitization program whereby Sony can sell interests in up to 53,500 million ($500 million) of eligible trade
accounts receivable, as defined. Through this program, Sony
can securitize and sell a percentage of an undivided interest in
that pool of receivables to several multi-seller commercial paper
conduits owned and operated by a bank. Sony can sell receivables in which the agreed upon original due dates are no more
than 90 days after the invoice dates. The value assigned to
undivided interests retained in securitized trade receivables is
based on the relative fair values of the interest retained and sold
in the securitization. Sony has assumed that the fair value of the
retained interest is equivalent to its carrying value as the receivables are short-term in nature, high quality and have appropriate
reserves for bad debt incidence. These securitization transactions are accounted for as a sale in accordance with FAS No.
140, Accounting for Transfers and Servicing of Financial Assets
Dollars in
millions
and Extinguishments of Liabilities, because Sony has relinquished control of the receivables. During the period from April
2005
2004 to January 2005, Sony sold a total of 80,250 million

($750 million) of accounts receivable under this program. There
March 31
2004
2005
Accounts receivable, trade . .
62,359
50,062
$468
Advances . . . . . . . . . . . . . .
561
16,756
$157
Accounts payable, trade . . .
13,547
15,225
$142
were no outstanding amounts due at March 31, 2005 relating to

the existing undivided interests in the pool of receivables that
had been sold. Losses from these transactions were insignificant. This program was terminated in May 2005.
Sony Corporation 93
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In Japan, Sony set up several accounts receivable sales

programs whereby Sony can sell up to 47,500 million ($444
accounted for as sales in accordance with FAS No. 140, because

Sony has relinquished control of the receivables. The initial sale of
million) of eligible trade accounts receivable. Through these

programs, Sony can sell receivables to special purpose entities
these receivables was in March 2005 in which Sony sold a total of

10,041 million ($94 million). Losses from these transactions were
owned and operated by banks. Sony can sell receivables in

which the agreed upon original due dates are no more than 190
insignificant. Although Sony continues servicing the sold receivables, no servicing liabilities are recorded because costs for
days after the sales of receivables. These transactions are
collection of the sold receivables are insignificant.
8. Marketable securities and securities investments and other

Marketable securities and securities investments and other include debt and equity securities of which the aggregate cost, gross
unrealized gains and losses and fair value pertaining to available-for-sale securities and held-to-maturity securities are as follows:
Yen in millions
March 31, 2004
Cost
Gross
unrealized
gains
March 31, 2005
Gross
unrealized
losses
Fair value
Cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Available-for-sale:
Debt securities . . . . . . . . . . . . . . . . . . 1,938,673
55,922
Equity securities . . . . . . . . . . . . . . . . .
86,517
63,225
Held-to-maturity securities . . . . . . . . . . .
26,439
381
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 2,051,629
119,528
(2,072) 1,992,523 2,090,605
58,161
(1,886)
147,856
107,126
(28)
26,792
27,431
530
(3,986) 2,167,171 2,225,162
108,041
(2,464) 2,146,302
49,350
(814)
155,662
(13)
27,948
(3,291) 2,329,912
Dollars in millions
March 31, 2005
Cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Available-for-sale:
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,538
$ 544
$(23)
$20,059
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,002
461
(8)
1,455
Held-to-maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256
(0)
261
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,796
$1,010
$(31)
$21,775
At March 31, 2005, debt securities classified as available-forsale securities and held-to-maturity securities mainly consist of
Japanese government and municipal bonds and corporate debt
securities with maturities of one to ten years.
Proceeds from sales of available-for-sale securities were
215,554 million, 397,817 million and 613,035 million ($5,729
million) for the years ended March 31, 2003, 2004 and 2005,
respectively. On those sales, gross realized gains computed on
the average cost basis were 3,570 million, 9,525 million and
24,080 million ($225 million) and gross realized losses were
3,125 million, 1,906 million and 5,940 million ($56 million),
respectively.
Marketable securities classified as trading securities at March 31,
2004 and 2005 were 131,044 million and 315,946 million
($2,953 million), respectively, which consist of debt and equity
securities including short-term investments in money market funds.
In the ordinary course of business, Sony maintains long-term
investment securities, included in securities investments and
other, issued by a number of non-public companies. The aggre-
gate carrying amounts of the investments in non-public companies at March 31, 2004 and 2005, were 51,367 million and
48,877 million ($457 million), respectively. A non-public equity
investment is valued at cost as fair value is not readily determinable. If the value is estimated to have declined and such decline
is judged to be other than temporary, the impairment of the
investment is recognized and the carrying value is reduced to its
fair value.
Securities investments and other as of March 31, 2004 also
included separate account assets (Note 11) in the life insurance
business, which were carried at fair value and excluded from the
above table as gains or losses accrue directly to policyholders.
As a result of the adoption of SOP 03-1, the separate account
assets, which are defined by insurance business law in Japan and
were previously included in Securities investments and other on
the consolidated balance sheet, were excluded from the category
of separate accounts under the provision of SOP 03-1. Accordingly, the assets previously treated as separate account assets are
now treated within general account assets. On April 1, 2004,
94 Sony Corporation
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assets of 164,461 million ($1,537 million) were reclassified from

Securities investments and other to each respective account by
nature including Marketable securities and Cash and cash
equivalents. Of the total, 154,528 million ($1,444 million) was
reclassified to Marketable securities.
The net change in the unrealized gains or losses on trading
securities that has been included in earnings during the years
ended March 31, 2003 and 2004 was insignificant. For the
year ended March 31, 2005, Sony booked 12,631 million
($118 million) of net unrealized gain on trading securities
which is mainly derived from the general accounts in the life
insurance business reclassified from the separate accounts as
explained above.
The following table presents the gross unrealized losses on, and fair value of, Sonys investment securities with unrealized losses,
aggregated by investment category and the length of time that individual investment securities have been in a continuous unrealized loss
position, at March 31, 2005.
Yen in millions
Less than 12 months
12 months or more
Unrealized
losses
Fair value
Total
Unrealized
losses
Fair value
Unrealized
losses
Fair value
Available-for-sale:
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
242,388
(2,044)
41,523
(420)
283,911
(2,464)
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,010
(457)
1,225
(357)
12,235
(814)
Held-to-maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
239
(0)
660
(13)
899
(13)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
253,637
(2,501)
43,408
(790)
297,045
(3,291)
Dollars in millions
Less than 12 months
12 months or more
Unrealized
losses
Fair value
Total
Unrealized
losses
Fair value
Unrealized
losses
Fair value
Available-for-sale:
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,265
$(19)
$388
$(4)
$2,653
$(23)
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
103
(5)
12
(3)
115
(8)
Held-to-maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0)
(0)
(0)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,370
$(24)
$406
$(7)
$2,776
$(31)
In evaluating the factors for available-for-sale securities whose

fair values are readily determinable, Sony presumes a decline in
9. Leased assets
value to be other-than-temporary if the fair value of the security

is 20 percent or more below its original cost for an extended
plant, office space, warehouses, employees residential facilities

and other assets.
period of time (generally a period of up to six to twelve months).

This criteria is employed as a threshold to identify securities
which may have a decline in value that is other-than-temporary.
The presumption of an other-than-temporary impairment in such
Sony leases certain communication and commercial equipment,
An analysis of leased assets under capital leases is as follows:

Dollars in
millions
Yen in millions
March 31
2004
2005
2005
cases may be overcome if there is evidence to support that the

decline is temporary in nature due to the existence of other
Class of property:
Land . . . . . . . . . . . . . . . . . .
(00,174
(00,181
$(002
factors which overcome the duration or magnitude of the decline. On the other hand, there may be cases where impairment
Buildings . . . . . . . . . . . . . . .
12,421
11,089
104
36,907
33,747
315
losses are recognized when the decline in the fair value of the
security is not more than 20 percent or such decline has not
existed for an extended period of time, as a result of considering
specific factors which may indicate the decline in the fair value is
Machinery, equipment
and others . . . . . . . . . . . . .
Accumulated depreciation . .
(19,385)
(18,509)
(173)
....................
(30,117
(26,508
$(248
other-than-temporary.
At March 31, 2005, Sony determined that the decline in value
for securities with unrealized losses shown in the above table is
not other-than-temporary in nature.
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The following is a schedule by year of the future minimum

lease payments under capital leases together with the present
2,923 million and 1,933 million ($18 million), respectively. The

total minimum rentals to be received in the future under noncan-
value of the net minimum lease payments as of March 31, 2005:
celable subleases as of March 31, 2005 were 14,954 million

($140 million). The minimum rental payments required under
Yen in
millions
Dollars in
millions
Year ending March 31:

2006 . . . . . . . . . . . . . . . . . . . . . . . . .
15,211
$142
2007 . . . . . . . . . . . . . . . . . . . . . . . . .
11,062
103
operating leases that have initial or remaining noncancelable lease

terms in excess of one year at March 31, 2005 are as follows:
Yen in
millions
Dollars in
millions
2008 . . . . . . . . . . . . . . . . . . . . . . . . .
8,895
83
2009 . . . . . . . . . . . . . . . . . . . . . . . . .
10,873
102

2006 . . . . . . . . . . . . . . . . . . . . . . . . .
038,182
$0,357
2010 . . . . . . . . . . . . . . . . . . . . . . . . .
3,001
28
2007 . . . . . . . . . . . . . . . . . . . . . . . . .
30,568
286
Later years . . . . . . . . . . . . . . . . . . . . .
5,428
51
2008 . . . . . . . . . . . . . . . . . . . . . . . . .
22,993
215
Total minimum lease payments . . . . . . .
54,470
509
2009 . . . . . . . . . . . . . . . . . . . . . . . . .
14,060
131
132
2010 . . . . . . . . . . . . . . . . . . . . . . . . .
10,496
98
Later years . . . . . . . . . . . . . . . . . . . . .
53,652
501
Total minimum future rentals . . . . . . . . .
169,951
$1,588
LessAmount representing interest . . .
14,169
Present value of net minimum lease

payments . . . . . . . . . . . . . . . . . . . . . .
40,301
377
LessCurrent obligations . . . . . . . . . . .
11,713
110
Long-term capital lease obligations . . . .
28,588
$267
10. Goodwill and intangible assets

Minimum lease payments have not been reduced by minimum
sublease income of 11,480 million ($107 million) due in the
future under noncancelable subleases.
Minimum rental expenses under operating leases for the years
ended March 31, 2003, 2004 and 2005 were 94,364 million,
Sublease rentals received under operating leases for the years
Intangible assets acquired during the year ended March 31,

2005 totaled 22,844 million ($213 million), which are subject
to amortization and primarily consist of acquired patent rights
of 6,673 million ($62 million) and software to be sold, leased
or otherwise marketed of 11,546 million ($108 million). The
weighted average amortization period for acquired patent rights
and software to be sold, leased or otherwise marketed is 8 years
and 3 years, respectively.
Intangible assets subject to amortization comprise the following:

Yen in millions
2004
Dollars in millions
2005
March 31
Artist contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
080,675
0(68,300)
015,218
(11,094)
$0,142
$(104)
Music catalog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109,795
(47,610)
65,674
(19,641)
614
(184)
Acquired patent rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,996
(23,172)
55,173
(26,139)
516
(244)
Software to be sold, leased or otherwise marketed . . . . . . . . . . .
31,983
(13,577)
31,907
(16,181)
298
(151)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,048
(27,422)
27,648
(11,625)
258
(108)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
330,497
(180,081)
195,620
(84,680)
$1,828
$(791)
Accumulated
amortization
Gross
carrying
amount
2005
Gross
carrying
amount
Accumulated
amortization
The aggregate amortization expenses for intangible assets for

the years ended March 31, 2003, 2004 and 2005 was 27,871
million, 28,866 million and 24,993 million ($234 million),
respectively. The estimated aggregate amortization expense for
intangible assets for the next five years is as follows:
Gross
carrying
amount
Accumulated
amortization
Yen in
millions

2006 . . . . . . . . . . . . . . . . . . . . . . . . .
22,650
$212
2007 . . . . . . . . . . . . . . . . . . . . . . . . .
18,287
171
2008 . . . . . . . . . . . . . . . . . . . . . . . . .
12,202
114
2009 . . . . . . . . . . . . . . . . . . . . . . . . .
10,623
99
2010 . . . . . . . . . . . . . . . . . . . . . . . . .
8,874
83
96 Sony Corporation
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Dollars in
millions
05.7.7, 3:33 AM
In addition to the amortizable and indefinite-lived intangible

assets shown in the above tables, intangible assets at March 31,
Total carrying amount of intangible assets having an indefinite

life comprise the following:
2004 and 2005 also include unrecognized prior service costs

totaling 21,376 million and 41 million ($0 million), respectively,
Dollars in
millions
Yen in millions
which were recorded under FAS No. 87 as discussed in Note 15.
March 31
2004
2005
2005
Trademarks . . . . . . . . . . . .
57,384
57,195
$535
Distribution agreement . . . .
18,834
18,848
176
.....................
76,218
76,043
$711
The changes in the carrying amount of goodwill by operating segment for the years ended March 31, 2004 and 2005 are as follows:
Yen in millions
Electronics
Balance at March 31, 2003 . . . . . . . . . . . . . . . . . .
Game
Music
Pictures
Financial
Services
Other
Total
Goodwill acquired during year . . . . . . . . . . . . . . . . .

Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . .
53,179
5,634
(6,049)
110,606
(46,021
76
78,697
1,666
1,624
534
290,127
7,910
(6,049)
Other * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(528)
(244)
(3,771)
(9,574)
(1)
(14,118)
Balance at March 31, 2004 . . . . . . . . . . . . . . . . .

Reallocated from Music segment to
Electronics segment . . . . . . . . . . . . . . . . . . . . .
Goodwill acquired during year . . . . . . . . . . . . . . .
Goodwill contributed to the Joint Venture
with Bertelsmann AG . . . . . . . . . . . . . . . . . . . . .
Other * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,236
110,362
42,326
70,789
2,157
277,870
12,329
5,872
4,349
(12,329)
52
5,868
441
2,069
18,651
378
29
(15,626)
1,281
1,277
63
(15,626)
3,028
Balance at March 31, 2005 . . . . . . . . . . . . . . . . .
70,815
114,740
(15,704
77,934
441
4,289
283,923
Dollars in millions
Electronics
Game
Music
Pictures
Financial
Services
Other
Total
Balance at March 31, 2004 . . . . . . . . . . . . . . . . . .

Reallocated from Music segment to
Electronics segment . . . . . . . . . . . . . . . . . . . . . . .
Goodwill acquired during year . . . . . . . . . . . . . . . .
Goodwill contributed to the Joint Venture
with Bertelsmann AG . . . . . . . . . . . . . . . . . . . . . .
Other * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$488
$1,031
$396
$662
$20
$2,597
116
55
41
(116)
1
54
$4
19
174
(146)
12
12
(146)
28
Balance at March 31, 2005 . . . . . . . . . . . . . . . . . .
$662
$1,072
$147
$728
$4
$40
$2,653
*Other consists of translation adjustments and reclassification to/from other accounts.
During the year ended March 31, 2004, Sony performed the
annual impairment test for goodwill and recorded an impairment
Electronics segment and accordingly, Sony reallocated 12,329

million ($116 million) of goodwill relating to the non-Japan based
loss of 6,049 million in the Electronics segment. This impairment charge reflected the overall decline in the fair value of a
disc manufacturing and physical distribution business from the

Music segment to the Electronics segment.
subsidiary within the Electronics segment. The fair value of that

reporting unit was estimated principally using the expected
present value of future cash flows.
As discussed in Notes 6 and 25, as of August 1, 2004, Sony
11. Insurance-related accounts
and Bertelsmann AG combined their recorded music business in

a joint venture. In connection with the establishment of the joint
their accounting records as described in Note 2 in accordance

with the accounting principles and practices generally accepted
venture, assets contributed by Sony included 15,626 million

($146 million) of goodwill. In addition, the non-Japan based disc
in Japan, which vary in some respects from U.S. GAAP.

Those differences are mainly that insurance acquisition costs
manufacturing and physical distribution businesses, formerly

included within the Music segment, have been reclassified to the
for life and non-life insurance are charged to income when

incurred in Japan whereas in the United States of America those
Sonys life and non-life insurance subsidiaries in Japan maintain
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costs are deferred and amortized generally over the premiumpaying period of the related insurance policies, and that future
tions for all policies are based on either the subsidiarys own
experience or various actuarial tables. At March 31, 2004 and
policy benefits for life insurance calculated locally under the

authorization of the supervisory administrative agencies are
2005, future insurance policy benefits amounted to 1,605,178

million and 1,782,850 million ($16,662 million), respectively.
comprehensively adjusted to a net level premium method with

certain adjustments of actuarial assumptions for U.S. GAAP
(4) Separate account assets:
purposes. For purposes of preparing the consolidated financial

statements, appropriate adjustments have been made to reflect
Separate account assets are funds on which investment income

and gains or losses accrue directly to policyholders. Separate
such items in accordance with U.S. GAAP.

The amounts of statutory net equity of the subsidiaries as of
account assets are legally segregated. They are not subject to

the claims that may arise out of any other business of a life
March 31, 2004 and 2005 were 146,540 million and 153,228
million ($1,432 million), respectively.
insurance subsidiary. As described in Note 2, the AcSEC issued

SOP 03-1, Accounting and Reporting by Insurance Enterprises
(1) Insurance policies:
for Certain Nontraditional Long-Duration Contracts and for

Separate Accounts. As a result of the adoption of SOP 03-1 on
Life insurance policies that the life insurance subsidiary writes,

most of which are categorized as long-duration contracts,
April 1, 2004, the separate account assets, which are defined by

insurance business law in Japan and were previously included in
mainly consist of whole life, term life and accident and health
insurance contracts. The life insurance revenues for the years
Securities investments and other (Note 8) in the consolidated

balance sheet, were excluded from the category of separate
437,835 million and 426,774 million ($3,989 million), respec-
accounts under the provision of SOP 03-1. Accordingly, the

assets previously treated as separate account assets are now
tively. Property and casualty insurance policies that the non-life

insurance subsidiary writes are primarily automotive insurance
treated within general account assets. The related liabilities are

treated as policyholders account and included in future insur-
contracts which are categorized as short-duration contracts.

The non-life insurance revenues for the years ended March 31,
ance policy benefits and other in the consolidated balance

sheet. Fees earned for administrative and contract-holder
2003, 2004 and 2005 were 21,269 million, 28,371 million and
35,454 million ($331 million), respectively.
services performed for the separate accounts are recognized as

financial service revenue.
(2) Deferred insurance acquisition costs:

Insurance acquisition costs, including such items as commission, medical examination and inspection report fees, that vary
12. Short-term borrowings and long-term debt

Short-term borrowings comprise the following:
with and are primarily related to acquiring new insurance policies

are deferred as long as they are recoverable. The deferred
insurance acquisition costs for traditional life insurance contracts
are amortized over the premium-paying period of the related
insurance policies using assumptions consistent with those
used in computing policy reserves. The deferred insurance
acquisition costs for non-traditional life insurance contracts are
amortized over the expected life in proportion to the estimated
gross profits. Amortization charged to income for the years
ended March 31, 2003, 2004 and 2005 amounted to 44,578
million, 50,492 million and 47,120 million ($440 million),
respectively.
Dollars in
millions
Yen in millions
March 31
2004
2005
2005
Unsecured loans,
principally from banks:
with weighted-average
interest rate of 1.80% . . .
26,260
38,796
$362
65,000
24,600
230
....................
91,260
63,396
$592
Secured call money:

Secured bills sold:
(3) Future insurance policy benefits:

Liabilities for future policy benefits are established in amounts
adequate to meet the estimated future obligations of policies in
force. These liabilities are computed by the net level premium
method based upon estimates as to future investment yield,
At March 31, 2005, marketable securities and securities
morbidity, mortality and withdrawals. Future policy benefits are

computed using interest rates ranging from approximately
investments with a book value of 27,433 million ($256 million)

were pledged as collateral for bills sold by a Japanese bank
1.30% to 5.20%. Mortality, morbidity and withdrawal assump-
subsidiary.
98 Sony Corporation
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Long-term debt comprises the following:

Dollars in
millions
Yen in millions
March 31
2004
2005
2005
Secured loans, representing obligations to banks:

Due 2004 to 2008 with interest ranging from 2.20% to 3.73% per annum . . . . . . . . . . . . . . . . . . . .
58,786
Due 2005 to 2008 with interest of 2.20% per annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,122
$ 11
113,436
1,060
58,755
550
287,753
2,336
Unsecured loans, representing obligations principally to banks:

77,646
Medium-term notes of consolidated subsidiaries:
60,537
Due 2006 with interest ranging from 2.78% to 4.95% per annum . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured 1.4% convertible bonds, due 2005, convertible at 3,995.5 for one common share,
redeemable before due date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unsecured zero coupon convertible bonds, due 2008, convertible currently at 5,605 ($52) for
one common share, redeemable before due date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
250,000
250,000
Unsecured 0.03% bonds, due 2004 with detachable warrants, net of unamortized discount . . . . . . . .
3,981
Unsecured 0.1% bonds, due 2005 with detachable warrants, net of unamortized discount . . . . . . . . .
3,924
3,981
37
Unsecured 1.55% bonds, due 2006 with detachable warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,000
12,000
112
Unsecured 0.9% bonds, due 2007 with detachable warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,300
7,300
68
Unsecured 0.9% bonds, due 2007 with detachable warrants of subsidiary tracking stock . . . . . . . . . .
150
150
Unsecured 1.42% bonds, due 2005, net of unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99,994
99,998
935
99,994
99,996
935
49,981
49,984
467
49,996
49,997
467
Unsecured 2.0% bonds, due 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,000
15,000
140
Unsecured 1.99% bonds, due 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,000
15,000
140
Unsecured 2.35% bonds, due 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,900
4,900
46
40,301
377
Capital lease obligations:

Due 2004 to 2014 with interest ranging from 2.15% to 30.00% per annum . . . . . . . . . . . . . . . . . . .
42,689
Due 2005 to 2019 with interest ranging from 1.55% to 30.00% per annum . . . . . . . . . . . . . . . . . . .
Guarantee deposits received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,775
23,942
224
............................................................................
1,161,406
845,862
7,906
LessPortion due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
383,757
166,870
1,560
............................................................................
0,777,649
678,992
$6,346
At March 31, 2005, machinery and equipment with a book

value of 4,502 million ($42 million) were pledged as collateral
for secured loans, representing obligations to banks.
There are no adverse debt covenants or cross-default

provisions relating to Sonys borrowings.
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A summary of the exercise rights of the detachable warrants as of March 31, 2005 is as follows:
Exercise price
Issued on
August 23, 1999

October 19, 2000
December 21, 2001
December 21, 2001
Exercisable during
Yen
Dollars
Number of shares per warrant
September 1, 2000
through August 22, 2005
November 1, 2001
through October 18, 2006
January 6, 2003
through December 20, 2007
June 20, 2002
through June 20, 2007
07,167
$067
12,457
116
6,039
56
3,300
31
279 shares of common

stock of Sony Corporation
75 shares of subsidiary
tracking stock
Status of exercise
2,000 warrants outstanding

600 warrants outstanding
14. Financial instruments
Aggregate amounts of annual maturities of long-term debt
(1) Derivative instruments and hedging activities:
during the next five years are as follows:

Yen in
millions
Dollars in
millions

2006 . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . .
166,870
178,117
32,059
282,430
$1,560
1,665
300
2,640
2010 . . . . . . . . . . . . . . . . . . . . . . . . .
2,909
27
At March 31, 2005, Sony had unused committed lines of

credit amounting to 863,956 million ($8,074 million) and can
generally borrow up to 90 days from the banks with whom Sony
Sony has certain financial instruments including financial assets

and liabilities incurred in the normal course of business. Such
financial instruments are exposed to market risk arising from the
changes of foreign currency exchange rates and interest rates.
In applying a consistent risk management strategy for the
purpose of reducing such risk, Sony uses derivative financial
instruments, which include foreign exchange forward contracts,
foreign currency option contracts, and interest rate and currency
swap agreements. Foreign exchange forward contracts and
foreign currency option contracts are utilized primarily to limit the
exposure affected by changes in foreign currency exchange rates
on cash flows generated by anticipated intercompany transac-
has committed line contracts. Furthermore, Sony has Commercial Paper Programs, the size of which was 1,251,450 million
tions and intercompany accounts receivable and payable denominated in foreign currencies. Interest rate and currency swap
($11,696 million). There was no commercial paper outstanding at

March 31, 2005. Under those programs, Sony can issue com-
agreements are utilized primarily to lower funding costs, to diversify sources of funding and to limit Sonys exposure associated
mercial paper for the period generally not in excess of 270 days
up to the size of the programs. In addition, Sony has Medium
with underlying debt instruments and available-for-sale debt

securities resulting from adverse fluctuations in interest rates,
Term Notes programs, the size of which was 536,750 million

($5,016 million). At March 31, 2005, the total outstanding bal-
foreign currency exchange rates and changes in the fair value.

These instruments are executed with creditworthy financial
ance of Medium Term Notes was 58,755 million ($550 million).
institutions, and virtually all foreign currency contracts are

denominated in U.S. dollars, euros and other currencies of
13. Deposits from customers in the banking

business
major countries. Although Sony may be exposed to losses in

the event of nonperformance by counterparties or unfavorable
All deposits from customers in the banking business are interest
interest and currency rate movements, it does not anticipate

significant losses due to the nature of Sonys counterparties or
bearing deposits and are owned by a Japanese bank subsidiary

which was established as an Online Internet bank for individuals.
the hedging arrangements. These derivatives generally mature

or expire within 5 months after the balance sheet date. Sony
At March 31, 2004 and 2005, the balance of time deposits

issued in amounts of 10 million ($93 thousand) or more were
does not use these derivative financial instruments for trading or

speculative purposes except for certain derivatives utilized for

At March 31, 2005, aggregate amounts of annual maturities
portfolio investments such as interest rate swap agreements and

interest rate future contracts in the Financial Services segment.
of time deposits with a remaining term of more than one year

include 25,697 million ($240 million) and 23,910 million ($223
These derivative transactions utilized for portfolio investments in

the Financial Services segment are executed within a certain
million) for the years ending March 31, 2007 and 2008, respectively. There are no deposits having a maturity date after March
limit in accordance with an internal risk management policy.

Derivative financial instruments held by Sony are classified and
31, 2008.
accounted for as described below pursuant to FAS No. 133.
100 Sony Corporation
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Fair value hedges

The derivatives designated as fair value hedges include interest
payable and forecasted transactions denominated in functional

currencies (Japanese yen, U.S. dollars and euros) of Sonys
rate and currency swap agreements.

Both the derivatives designated as fair value hedges and
major operating units. The majority of written foreign currency

option contracts are a part of range forward contract arrange-
hedged items are reflected at fair value in the consolidated

balance sheet. Changes in the fair value of the derivatives
ments and expire in the same month with the corresponding

purchased foreign currency option contracts.
designated as fair value hedges as well as offsetting changes in

the carrying value of the underlying hedged items are recognized
Sony also enters into foreign exchange forward contracts,

which effectively fix the cash flows from foreign currency
in income.
The amount of ineffectiveness of these fair value hedges, that
denominated debt. Accordingly, these derivatives have been

designated as cash flow hedges in accordance with FAS
was reflected in earnings, was not material for the years ended
March 31, 2003, 2004 and 2005. In addition, there were no
No. 133.
Foreign exchange forward contracts and foreign currency
amounts excluded from the assessment of hedge effectiveness

of fair value hedges.
option contracts that do not qualify as hedges are markedto-market with changes in value recognized in other income
and expenses.
Cash flow hedges

The derivatives designated as cash flow hedges include foreign
exchange forward contracts, foreign currency option contracts
Interest rate and currency swap agreements

Sony enters into interest rate and currency swap agreements,
and interest rate and currency swap agreements.

Changes in the fair value of derivatives designated as cash
which are used for reducing the risk arising from the changes in
the fair value of fixed rate debt and available-for-sale debt
flow hedges are initially recorded in other comprehensive income

and reclassified into earnings when the hedged transaction
securities. For example, Sony enters into interest rate and

currency swap agreements, which effectively swap foreign
affects earnings. For the years ended March 31, 2003 and
2004, these cash flow hedges were fully effective. For the year
currency denominated fixed rate debt for functional currency

denominated variable rate debt. These derivatives are consid-
ended March 31, 2005, the amount of ineffectiveness of these

cash flow hedges that was reflected in earnings was not mate-
ered to be a hedge against changes in the fair value of Sonys

foreign denominated fixed-rate obligations. Accordingly, these
rial. In addition, there were no amounts excluded from the

assessment of hedge effectiveness of cash flow hedges. At
derivatives have been designated as fair value hedges in accordance with FAS No. 133.
March 31, 2005, amounts related to derivatives qualifying as

cash flow hedges amounted to a net reduction of equity of
Sony also enters into interest rate and currency swap agreements that are used for reducing the risk arising from the
2,490 million ($23 million). Within the next twelve months,

1,615 million ($15 million) is expected to be reclassified from
changes in anticipated cash flow of variable rate debt and

foreign currency denominated debt. For example, Sony enters
equity into earnings as loss. For the year ended March 31,
2005, there were no forecasted transactions that failed to occur
into interest rate and currency swap agreements, which effectively swap foreign currency denominated variable rate debt for
which resulted in the discontinuance of cash flow hedges.
functional currency denominated fixed rate debt. These derivatives are considered to be a hedge against changes in the
Derivatives not designated as hedges

The derivatives not designated as hedges under FAS No. 133
anticipated cash flow of Sonys foreign denominated variable

rate obligations. Accordingly, these derivatives have been desig-
include foreign exchange forward contracts, foreign currency

option contracts, interest rate and currency swap agreements,
nated as cash flow hedges in accordance with FAS No. 133.

Certain subsidiaries in the Financial Services segment have
convertible rights included in convertible bonds and other.

Changes in the fair value of derivatives not designated as
interest rate swap agreements as part of portfolio investments,

which are marked-to-market with changes in value recognized
hedges are recognized in income.

A description of the purpose and classification of the deriva-
in financial service revenue.

Any other interest rate and currency swap agreements that do
tive financial instruments held by Sony is as follows:
not qualify as hedges, which are used for reducing the risk
arising from changes of variable rate and foreign currency
Foreign exchange forward contracts and foreign currency option

contracts
dominated intercompany debt, are marked-to-market with

changes in value recognized in other income and expenses.
Sony enters into foreign exchange forward contracts and purchased and written foreign currency option contracts primarily to
Interest rate future contracts
fix the cash flows from intercompany accounts receivable and
Certain subsidiaries in the Financial Services segment have

Sony Corporation 101
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05.7.7, 3:33 AM
interest rate future contracts as part of portfolio investments,

which are marked-to-market with changes in value recognized
derivatives and are marked-to-market with changes in value

recognized in financial service revenue.
in financial service revenue.

(2) Fair value of financial instruments:
Embedded derivatives
Changes in the fair value of embedded derivatives that must be
The estimated fair values of Sonys financial instruments are

summarized as follows. The following summary excludes cash
separated from the host contracts and accounted for as derivative instruments under FAS No. 133 are recognized in income.
and cash equivalents, time deposits, notes and accounts receivable, trade, short-term borrowings, notes and accounts payable,
For example, the convertible rights included in convertible bonds

held by Sonys life insurance subsidiary, which are classified as
trade and deposits from customers in the banking business that

are carried at amounts which approximate fair value. The sum-
available-for-sale debt securities, are considered embedded
mary also excludes debt and equity securities which are disclosed
in Note 8.
Yen in millions
2004
Notional
amount
March 31
Long-term debt including the current portion . . . . . . . . . . . . . . . .
2005
Carrying
amount
Estimated
fair value
Carrying
amount
Estimated
fair value
(845,862)
(856,321)
(994) 1,545,814
(55)
(55)
(1,161,406) (1,235,669)
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . 1,348,157
(994)
Notional
amount
Currency option contracts purchased . . . . . . . . . . . . . . . . . . . . .
375,582
10,781
10,781
428,261
1,646
1,646
Currency option contracts written . . . . . . . . . . . . . . . . . . . . . . . .
124,925
(1,000)
(1,000)
146,506
(3,390)
(3,390)
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . .
218,101
(4,229)
(4,229)
171,133
(4,417)
(4,417)
Interest rate and currency swap agreements . . . . . . . . . . . . . . . .
8,574
384
384
5,734
131
131
Interest rate future contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,007
(9)
(9)
136,470
(92)
(92)
Embedded derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
421,416
12,885
12,885
405,756
11,894
11,894
Dollars in millions
2005
Notional
amount
March 31
Carrying
amount
Estimated
fair value
Long-term debt including the current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(7,906)
$(8,003)
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,447
(1)
(1)
Currency option contracts purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,002
15
15
Currency option contracts written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,369
(32)
(32)
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,599
(41)
(41)
Interest rate and currency swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54
Interest rate future contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,275
(1)
(1)
Embedded derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,792
111
111
The following are explanatory notes regarding the estimation

method of fair values in the above table.
Derivative financial instruments

The fair values of foreign exchange forward contracts and
Long-term debt including the current portion
foreign currency option contracts were estimated based on

market quotations. The fair values of interest rate and currency
The fair values of long-term debt, including the current portion,

were estimated based on either the market value or the dis-
swap agreements were estimated based on the discounted

amounts of future net cash flows. The fair values of convertible
counted amounts of future cash flows using Sonys current

incremental debt rates for similar liabilities.
rights, which were a majority of embedded derivatives, were

estimated based on the market price of stock which will be
acquired by the exercise of these rights.
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05.7.7, 3:33 AM
15. Pension and severance plans

Upon terminating employment, employees of Sony Corporation
employer and employees pension fund plan to separate the

substitutional portion from its employees pension fund and
and its subsidiaries in Japan are entitled, under most circumstances, to lump-sum indemnities or pension payments as
transfer the obligation and related assets to the government. In

July, 2004, in accordance with the law, the Japanese Govern-
described below. For employees voluntarily retiring, payments

are determined based on current rates of pay and lengths of
ment approved applications submitted by Sony Corporation and

most of its subsidiaries in Japan for an exemption from the
service. In calculating the payments for employees involuntarily

retiring, including employees retiring due to meeting mandatory
obligation to pay benefits for future employee services related

to the substitutional portion of the governmental welfare pension
retirement age requirements, Sony may grant additional benefits.

In July, 2004, Sony Corporation and certain of its subsidiaries
program. In January 2005, the government also approved

applications for an exemption from the obligation to pay benefits
amended their pension plans and introduced a point-based plan

under which a point is added every year reflecting the individual
for past employee services related to the substitutional portion.

As of March 31, 2005 the benefit obligation for past employee
employees performance over that year. Under the point-based

plan the amount of payment is determined based on sum of
services related to the substitutional portion and the related

government-specified portion of the plan assets have not been
cumulative points from past services and interest points earned

on the cumulative points regardless of whether or not the em-
transferred to the government.

EITF Issue No. 03-2, Accounting for the Transfer to the
ployee is voluntarily retiring. As a result of the plan amendment,

the projected benefit obligation was decreased by 120,873
Japanese Government of the Substitutional Portion of Employee

Pension Fund Liabilities, requires employers to account for the
million ($1,130 million).

Sony Corporation and most of its subsidiaries in Japan have
entire separation process of a substitutional portion from an

entire plan upon completion of the transfer of the substitutional
contributory funded defined benefit pension plans, which are

pursuant to the Japanese Welfare Pension Insurance Law. The
portion of the benefit obligation and related plan assets to the

government as the culmination of a series of steps in a single
contributory pension plans cover a substitutional portion of the

governmental welfare pension program, under which the contri-
settlement transaction. In accordance with EITF Issue No. 03-2,

no accounting for the transfer was recorded for the year ended
butions are made by the companies and their employees, and

an additional portion representing the substituted noncontribu-
March 31, 2005.

Many of foreign subsidiaries have defined benefit pension
tory pension plans. Under the contributory pension plans, the

defined benefits representing the noncontributory portion of the
plans or severance indemnity plans, which substantially cover all

of their employees. Under such plans, the related cost of ben-
plans, in general, cover 65% of the indemnities under existing

regulations to employees. The remaining indemnities are cov-
efits is currently funded or accrued. Benefits awarded under

these plans are based primarily on the current rate of pay and
ered by severance payments by the companies. The pension

benefits are payable at the option of the retiring employee either
length of service.
Sony uses a measurement date of March 31 for substantially
in a lump-sum amount or monthly pension payments. Contributions to the plans are funded through several financial institutions
all of its pension and severance plans.

The components of net pension and severance costs, which
in accordance with the applicable laws and regulations.

In June 2001, the Japanese Government issued the Defined
exclude employee termination benefits paid in restructuring

activities, for the years ended March 31, 2003, 2004 and 2005
Benefit Corporate Pension Plan Act which permits each
were as follows:
Japanese plans:
Dollars in
millions
Yen in millions
2003
2004
2005
2005
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(47,884
(54,501
(31,971
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,857
19,489
21,364
$(299
200
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,726)
(22,812)
(16,120)
(151)
Amortization of net transition asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(375)
(375)
(375)
(4)
Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,655
31,019
20,236
189
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(939)
(939)
(7,216)
(67)
Gains on curtailments and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,380)
(876)
(8)
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(60,976
(80,883
(48,984
$(458
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05.7.7, 3:33 AM
Foreign plans:
Dollars in
millions
Yen in millions
2003
2004
2005
2005
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,954
11,252
(6,419
$060
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,478
8,566
8,091
76
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,319)
(6,812)
(6,712)
(63)
Amortization of net transition asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(47)
(27)
(18)
(0)
Recognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,452
1,569
1,637
15
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(208)
(117)
(114)
(1)
(Gains) losses on curtailments and settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(460)
5,574
1,713
16
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,850
20,005
11,016
$103
The changes in benefit obligation and plan assets, funded status and composition of amounts recognized in the consolidated
balance sheets were as follows:
Japanese plans
Yen in millions
March 31
2004
Foreign plans
Dollars in
millions
2005
Dollars in
millions
Yen in millions
2005
2004
2005
2005
Change in benefit obligation:

Benefit obligation at beginning of the fiscal year . . . . . . . . . . . . 1,031,760
(993,542
$(9,285
157,580
155,838
$1,456
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,501
31,971
299
11,252
6,419
60
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,489
21,364
200
8,566
8,091
76
Plan participants contributions . . . . . . . . . . . . . . . . . . . . . . . .
5,802
2,111
20
644
873
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(120,873)
(1,130)
3,900
286
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(81,873)
1,641
15
431
12,210
114
Foreign currency exchange rate changes . . . . . . . . . . . . . . . . .
(17,082)
14,288
134
Curtailments and settlements . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,988)
(28)
(66)
(628)
(6)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(36,137)
(25,042)
(234)
(9,387)
(11,639)
(109)
Divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32,140)
(301)
Benefit obligation at end of the fiscal year . . . . . . . . . . . . . . . . .
993,542
901,726
8,427
155,838
153,598
1,435
Fair value of plan assets at beginning of the fiscal year . . . . . . .
405,248
513,095
4,795
67,937
85,662
800
Actual return (loss) on plan assets . . . . . . . . . . . . . . . . . . . . . .
93,154
(354)
(3)
13,065
7,513
70
Change in plan assets:
Foreign currency exchange rate changes . . . . . . . . . . . . . . . . .
(3,420)
3,517
33
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,243
34,581
323
16,475
18,406
172
Plan participants contributions . . . . . . . . . . . . . . . . . . . . . . . .
5,802
2,111
20
644
873
Curtailments and settlements . . . . . . . . . . . . . . . . . . . . . . . . . .
(112)
(1)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,352)
(14,982)
(140)
(9,039)
(11,168)
(104)
Divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12,666)
(118)
Fair value of plan assets at end of the fiscal year . . . . . . . . . . . 513,095
(534,451
$(4,995
85,662
(92,025
$0,860
In connection with the establishment of the SONY BMG joint

venture with Bertelsmann AG as discussed in Note 6, Sony
and 12,666 million ($118 million) of its plan assets which were
included in Sonys foreign plans to the joint venture.
transferred 32,140 million ($301 million) of its benefit obligation
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05.7.7, 3:33 AM
Japanese plans
Yen in millions
March 31
2004
Foreign plans
Dollars in
millions
2005
Dollars in
millions
Yen in millions
2005
2004
2005
2005
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(480,447)
(367,275)
$(3,432)
(70,176)
(61,573)
$(575)
Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
328,467
322,237
3,011
27,550
37,383
349
Unrecognized net transition asset . . . . . . . . . . . . . . . . . . . . . . . .
(479)
(104)
(1)
211
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . .
(20,784)
(134,440)
(1,256)
(748)
(501)
(5)
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(173,243)
(179,582)
$(1,678)
(43,163)
(24,684)
$(231)
(001,795
$(0,017
(02,609
(01,351
$(013
portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(322,677)
(309,957)
(2,897)
(61,452)
(42,934)
(401)
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,263
113
41
Amounts recognized in the consolidated balance sheet consist of:

Prepaid benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued pension and severance costs, including current
Accumulated other comprehensive income . . . . . . . . . . . . . . .
128,171
128,580
1,202
15,567
16,858
157
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(173,243)
(179,582)
$(1,678)
(43,163)
(24,684)
$(231)
The accumulated benefit obligation for all defined benefit pension plan as follows:
Japanese plans
Yen in millions
March 31
2004
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . .
2005
830,898
Foreign plans
Dollars in
millions
2005
835,420
$7,808
Dollars in
millions
Yen in millions
2004
129,879
2005
2005
121,176
$1,132
The projected benefit obligations, the accumulated benefit obligations and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were as follows:
Japanese plans
Yen in millions
March 31
2004
Foreign plans
Dollars in
millions
2005
2005
Dollars in
millions
Yen in millions
2004
2005
2005
Projected benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
991,030
898,985
$8,402
135,459
132,556
$1,239
Accumulated benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . .
830,362
835,420
7,808
113,020
115,147
1,076
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
512,720
533,926
4,990
74,167
86,070
804
Weighted-average assumptions used to determine benefit obligations as of March 31, 2003, 2004 and 2005 were as follows:
Japanese plans:
Foreign plans:
March 31
2003
Discount rate . . . . . . . . . . . .
2004
2005
1.9%
2.4%
2.3%
3.0
3.0
3.3
Rate of compensation
increase . . . . . . . . . . . . . . .
March 31
2003
Discount rate . . . . . . . . . . . .
2004
2005
6.3%
5.8%
5.5%
4.1
4.0
3.3
increase . . . . . . . . . . . . . . .
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05.7.7, 3:33 AM
Weighted-average assumptions used to determine net pension and severance costs for the years ended March 31, 2003, 2004 and
2005 were as follows:
Japanese plans:
Foreign plans:
2003
Discount rate . . . . . . . . . . . .
2.4%
2004
1.9%
2005
2.4%
Expected return on plan
2003
Discount rate . . . . . . . . . . . .
2004
2005
6.6%
6.3%
5.8%
8.1
8.3
7.8
4.5
4.1
4.0
Expected return on plan
assets . . . . . . . . . . . . . . . .
4.0
4.0
3.2
assets . . . . . . . . . . . . . . . .
increase . . . . . . . . . . . . . . .
3.0
3.0
3.3
As required under FAS No. 87, the assumptions are reviewed
increase . . . . . . . . . . . . . . .
Following FAS132(R), the weighted-average rate of
in accordance with changes in circumstances.

To determine the expected long-term rate of return on pen-
compensation increase is calculated based on the pay-related

plans only. The point-based plan discussed above is excluded
sion plan assets, Sony considers the current and expected

asset allocations, as well as historical and expected long-term
from the calculation because payments made under the plan

are not based on employee compensation.
rate of returns on various categories of plan assets.

Weighted-average pension plan asset allocations based on the fair value of such assets as of March 31, 2004 and 2005 were
as follows:
Japanese plans:
Foreign plans:
March 31
2004
2005
March 31
2004
2005
Equity securities . . . . . . . . . . . . . . . . . . .
39.0%
28.0%
Equity securities . . . . . . . . . . . . . . . . . . .
63.2%
68.3%
Debt securities . . . . . . . . . . . . . . . . . . . .
14.7
34.7
Debt securities . . . . . . . . . . . . . . . . . . . .
26.6
23.4
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
42.7
33.7
Real estate . . . . . . . . . . . . . . . . . . . . . .
3.2
4.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.6
3.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.0
4.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
100.0%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
100.0%
For the pension plans of Sony Corporation and most of its
as deemed appropriate by management after considering the
subsidiaries, Sonys asset investment policy is set so as to

compensate the appropriate level for employees benefit over
fair value of plan assets, expected return on plan assets and the
present value of benefit obligations. Sony expects to contribute
the long term.

For the pension plans of Sony Corporation and most of its
approximately 35 billion ($327 million) to the Japanese plans

and approximately 6 billion ($56 million) to the foreign plans for
subsidiaries in Japan, the target allocation as of March 31,

2005, is, as a result of our Asset Liability management, 34% of
the year ending March 31, 2006.

The future benefit payments are expected as follows:
public equity, 56% of fixed income securities and 10% of other.

When determining an appropriate asset allocation, diversification
among assets is duly considered. The actual asset allocation as
of March 31, 2005 for Sonys principal pension plans did not
meet the aforementioned target allocation as the Sony Employees Pension Fund tentatively held cash to be paid to the Japanese government in relation to the transfer of the substitutional
portion of the benefit obligation and the related governmentspecified portion of the plan assets discussed above. Such
transfer is expected to occur in the year ending March 31, 2006.
Sony makes contributions to its contributory funded defined
benefit pension plans as required by government regulation or
Japanese plans
Yen in
millions
Dollars in
millions
Foreign plans
Yen in
millions

$ 171
5,625
$ 53
2007 . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . 018,281
19,734
184
5,977
56
2008 . . . . . . . . . . . . .
22,075
206
6,308
59
2009 . . . . . . . . . . . . .
24,600
230
6,860
64
2010 . . . . . . . . . . . . .
29,475
275
7,912
74
20112015 . . . . . . . .
181,527
1,697
51,919
485
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Dollars in
millions
05.7.7, 3:33 AM
16. Stockholders equity

(1) Subsidiary tracking stock:
shares of common stock of SCN, the number of shares of SCN

common stock obtained by multiplying the number of shares of
On June 20, 2001, Sony Corporation issued shares of subsidiary tracking stock in Japan, the economic value of which is
the subsidiary tracking stock held by each holder by the Standard Ratio or the net proceeds from the sale of the shares of
intended to be linked to the economic value of Sony Communication Network Corporation (SCN), a directly and indirectly
SCN common stock so to be distributed will be distributed to

the holders of the subsidiary tracking stock.
wholly owned subsidiary of Sony Corporation which is engaged

in Internet-related services. The subsidiary tracking stock hold-
The shares of subsidiary tracking stock may be subject to

repurchase and retirement in the same manner and under the
ers have no direct rights in the equity or assets of SCN or the

assets of Sony Corporation. Except as summarized below, the
same restriction as the shares of common stock. In addition, at

any time after the passage of three years from the date of the
shares of subsidiary tracking stock have the same rights and

characteristics as those of shares of common stock.
initial issuance of shares of a series of subsidiary tracking stock,

it may retire the entire amount of all outstanding shares of that
The dividend on the shares of this series of subsidiary tracking

stock is payable only when the Board of Directors of SCN has
series of subsidiary tracking stock upon paying to the shareholders thereof an amount equal to the current market price of the
resolved to pay to its common stock holders a dividend in an

amount per share of the subsidiary tracking stock equal to the
subsidiary tracking stock out of Sony Corporations retained

earnings available for dividend payments. Sony Corporation may
amount of SCNs dividend per share of its common stock

multiplied by the Standard Ratio (as defined in the articles of
also retire the shares of a series of subsidiary tracking stock in

their entirety pursuant to the procedures prescribed by the
incorporation), subject to statutory restriction on Sony

Corporations ability to pay dividends on its shares of capital
Japanese Commercial Code for the reduction of capital upon

payment to the subsidiary tracking stock holders an amount
stock and the maximum dividend amount (as defined in the

articles of incorporation). If the amount of dividends paid to the
equal to the market value thereof as set forth above.

At any time after the passage of three years from the date of
subsidiary tracking stock holders is less than the amount, which

should have been paid pursuant to the formula set forth above
the initial issuance of shares of a series of subsidiary tracking

stock, it may convert the entire amount of all outstanding shares
due to the statutory restriction referred to above or for any other

reason, such shortfall will be accumulated and such cumulative
of the subsidiary tracking stock into the shares of Sony

Corporations common stock at the rate of the multiple of 1.1 of
amount will be paid to the subsidiary tracking stock holders for

subsequent fiscal years. Any such dividend on the subsidiary
the market value (as defined in the articles of incorporation) of

shares of the subsidiary tracking stock divided by the market
tracking stock is payable in priority to the payment of dividends

to the common stock holders. However, the subsidiary tracking
value (as similarly defined) of the shares of Sony Corporations

common stock.
stockholders have no right to participate in the dividends to

common stock holders. Furthermore, even if the Board of
If any events (as defined in the articles of incorporation) occur,

the entire amount of all outstanding shares of the subsidiary
Directors of SCN does not take a resolution for the payment of

dividends to SCNs common stock holders, Sony Corporation
tracking stock will be either retired or converted into shares of

Sony Corporations common stock at the price or rate set forth
may decide to pay dividends to its common stock holders.

The subsidiary tracking stockholders have the same voting
above. On April 26, 2005, Sony Corporation decided at the Board

of Directors to go through procedures for the initial public offering
rights as those of the common stock holders and, thus, are

entitled to participate and vote at any General Meeting of Share-
of SCN. If the listing of SCN common stock is approved by the

stock exchange, subject to required procedures, all of the subsid-
holders in the same way as the common stock holders. In

addition, as each series of subsidiary tracking stock is a sepa-
iary tracking stock will be compulsorily terminated pursuant to the

articles of incorporation. The method of such termination will be
rate class of stock different from common stock, if any resolution of the General Meeting of Shareholders would adversely
one of the following: 1) compulsory retirement in cash, 2) compulsory conversion to common stock of Sony Corporation, or 3)
affect the rights of the shareholders of a particular class of

subsidiary tracking stock, the shareholders of each class of
compulsory exchange with common stock of SCN.

The number of shares of the subsidiary tracking stock issued
subsidiary tracking stock will have the right to approve or disapprove such resolution by a special resolution of the meeting of
and outstanding at March 31, 2005 was 3,072,000. At March

31, 2005, 136,454 shares of the subsidiary tracking stock would
shareholders of that class of subsidiary tracking stock.

In the event of distribution of residual assets to the sharehold-
be issued upon exercise of warrants and stock acquisition rights

outstanding.
ers of Sony Corporation where, as long as such assets include
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05.7.7, 3:33 AM
(2) Common stock:

Changes in the number of shares of common stock issued and
enacted on April 1, 2002, purchase by Sony Corporation of its

own shares was subject to the prior approval of shareholders at
outstanding during the years ended March 31, 2003, 2004 and
2005 have resulted from the following:
the Ordinary General Meeting of Shareholders, which included the

maximum number of shares and the maximum total amount to be
Number of shares
Balance at March 31, 2002 . . . . . . . . . . . . . . . . . . . 919,744,355

Conversion of convertible bonds . . . . . . . . . . . . . . .
138,330
Stock issued under exchange offering . . . . . . . . . . .
2,502,491
Balance at March 31, 2003 . . . . . . . . . . . . . . . . . . . 922,385,176

2,944,800
Stock issued under exchange offering . . . . . . . . . . .
1,088,304
Balance at March 31, 2004 . . . . . . . . . . . . . . . . . . . 926,418,280

70,765,533
Exercise of stock acquisition rights . . . . . . . . . . . . .
27,400
Balance at March 31, 2005 . . . . . . . . . . . . . . . . . . . 997,211,213
purchased for each class of stock. Once such approval of shareholders was obtained, Sony Corporation could purchase its own
shares at any time during the period up to the conclusion of the
next Ordinary General Meeting of Shareholders.
The Ordinary General Meeting of Shareholders held on June
20, 2002 approved that Sony Corporation acquire up to a total
not exceeding 90 million outstanding shares of its common
stock at an amount in total not exceeding 650 billion and a
total not exceeding 300 thousand outstanding shares of the
subsidiary tracking stock at an amount in total not exceeding 1
billion until the conclusion of the General Meeting of Shareholders held for the year ended March 31, 2003. As a result, no
At March 31, 2005, 55,609,085 shares of common stock

would be issued upon conversion or exercise of all convertible
common stock and subsidiary tracking stock had been acquired

under this approval.
bonds, warrants and stock acquisition rights outstanding.

On October 1, 2002, Sony Corporation implemented a share

20, 2003 approved that Sony Corporation acquire up to a total
exchange as a result of which Aiwa Co., Ltd. became a whollyowned subsidiary. As a result of this share exchange, Sony
not exceeding 90 million outstanding shares of its common stock

at an amount in total not exceeding 400 billion and a total not
Corporation issued 2,502,491 new shares, the minority interest

in Aiwa Co., Ltd. was eliminated from the balance sheet, and
exceeding 300 thousand outstanding shares of the subsidiary

tracking stock at an amount in total not exceeding 1 billion. As a
additional paid-in capital increased 15,791 million.

On May 1, 2003, Sony Corporation implemented a share
result, Sony Corporation had acquired 2 million outstanding

shares of its common stock at an amount in 8,200 million. No
exchange as a result of which CIS Corporation became a

wholly-owned subsidiary. As a result of this share exchange,
subsidiary tracking stock had been acquired under this approval.

Sony Corporation issued 1,088,304 new shares, and additional

paid-in capital increased 5,409 million.
22, 2004 approved to amend the articles of incorporation that

Sony Corporation may purchase its own shares by a resolution
On November 20, 1991, Sony Corporation made a free share

distribution of 33,908,621 shares in ratios of one share for each
of the Board of Directors, in accordance with the amendments

to the Japanese Commercial Code enacted on September 25,
ten shares held for which no accounting entry was required in

Japan. Had the distribution been accounted for in the manner
2003. With the amendment of the articles of incorporation, Sony

Corporation may purchase its own shares at any time by a
adopted by companies in the United States of America,

201,078 million would have been transferred from retained
resolution of the Board of Directors up to the retained earnings

available for dividends to shareholders. No common stock and
earnings to the appropriate capital accounts. This has been the

only free distribution of common stock where no accounting
subsidiary tracking stock had been acquired by the resolution of

the Board of Directors during the year ended March 31, 2005.
entry was required in Japan.

Conversions of convertible bonds into common stock are
(3) Retained earnings:
accounted for in accordance with the provisions of the Japanese Commercial Code by crediting approximately one-half of
The amount of statutory retained earnings of Sony Corporation

available for dividends to shareholders as of March 31, 2005
the conversion proceeds to the common stock account and the

remainder to the additional paid-in capital account.
was 557,856 million ($5,214million). The appropriation of

retained earnings for the year ended March 31, 2005 including
Prior to the amendments to the Japanese Commercial Code

enacted on April 1, 2002, purchase and retirement by Sony
cash dividends for the six-month period ended March 31, 2005
has been incorporated in the accompanying consolidated
Corporation of its own shares could be made at any time by

resolution of the Board of Directors. No common stock and
financial statements. This appropriation of retained earnings was

approved at the meeting of the Board of Directors of Sony
subsidiary tracking stock had been acquired under the approval

during the year ended March 31, 2002.
Corporation held on May 16, 2005 and was then recorded in the
statutory books of account, in accordance with the Japanese
Following the amendments to the Japanese Commercial Code
Commercial Code.
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05.7.7, 3:33 AM
Retained earnings include Sonys equity in undistributed

earnings of affiliated companies accounted for by the equity
method in the amount of 2,261 million and 2,724 million ($25

million) at March 31, 2004 and 2005, respectively.
(4) Other comprehensive income:

Other comprehensive income for the years ended March 31, 2003, 2004 and 2005 were as follows:
Yen in millions
Pre-tax
amount
Tax
expense
Net-of-tax
amount
For the year ended March 31, 2003:

Unrealized gains on securities
Unrealized holding gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0(18,575)
08,948
00(9,627)
Less: Reclassification adjustment for gains (losses) included in net income . . . . . . . . . . . . . . . . . . .
3,421
867
4,288
(4,477)
Unrealized losses on derivative instruments

(6,268)
1,791
682
(287)
395
Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(181,725)
71,089
(110,636)
(87,103)
3,110
(83,993)
Foreign currency translation adjustments

Translation adjustments arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Reclassification adjustment for losses included in net income . . . . . . . . . . . . . . . . . . . . . . . .
7,665
7,665
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(281,903)
85,518
(196,385)
(089,861
(31,890)
(057,971
(7,371)
1,692
(5,679)
11,586
(4,049)
7,537


(5,961)
2,617
(3,344)
162,408
(68,993)
93,415

(134,312)
5,199
(129,113)
Less: Reclassification adjustment for losses included in net income . . . . . . . . . . . . . . . . . . . . . . . . .
1,232
1,232
(117,443
(95,424)
(022,019
(07,184
(1,541)
( 05,643
(18,140)
5,216
(12,924)


(2,015)
1,806
(209)
(2,848)
1,167
(1,681)
(1,700)
931
(769)
76,585
(2,361)
74,224
(59,066
(5,218
(64,284
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05.7.7, 3:33 AM
Dollars in millions
Pre-tax
amount
Tax
expense
Net-of-tax
amount

$(068
$(15)
$(053
(170)
49
(121)
(19)
17
(2)
(27)
11
(16)
(16)
(7)
716
(22)
694
$(552
$(49
$(601
During the years ended March 31, 2003 and 2004, 7,665
million and 1,232 million of foreign currency translation adjust-
(2) Convertible bond plan:

Sony has an equity-based compensation plan for selected
ments were transferred respectively from other comprehensive

income and charged to income as a result of the liquidation of
executives of Sonys United States of America subsidiaries using

U.S. dollar-denominated non-interest bearing convertible bonds
certain foreign subsidiaries.

As discussed in Note 6, as of August 1, 2004, Sony and
which have characteristics similar to that of an option plan. Each

convertible bond can be converted into 100 shares of the
Bertelsmann AG combined their recorded music businesses in a

joint venture. In connection with the establishment of the joint
common stock of Sony Corporation at an exercise price based

on the prevailing market rate shortly before the date of grant.
venture, the minimum pension liability attributable to employees

who were transferred to SONY BMG totaling 6,053 million ($57
The convertible bonds vest ratably over a three-year period and

are exercisable up to ten years from the date of grant. As the
million) was transferred from other comprehensive income to the

carrying value of Sonys investment in SONY BMG.
convertible bonds were issued in exchange for a non-interest

bearing employee loan and a right of offset exists between the
convertible bonds and the employee loans, no accounting
recognition was given to either the convertible bonds or the
17. Stock-based compensation plans
employee loans in Sonys consolidated balance sheet.
Sony has four types of stock-based compensation plans as

incentive plans for directors, corporate executive officers and
selected employees.
(3) Stock acquisition rights:

During the year ended March 31, 2003, Sony adopted an
(1) Warrant plan:
equity-based compensation plan that issues common stock

acquisition rights for the purpose of granting stock options to
Upon issuance of unsecured bonds with detachable warrants

which are described in Note 12, Sony Corporation has pur-
the directors, corporate executive officers and selected employees of Sony, and subsidiary tracking stock acquisition rights for
chased all of the detachable warrants and distributed them to

the directors, corporate executive officers and selected employ-
the purpose of granting stock options to the directors and

selected employees of SCN, pursuant to the Commercial Code
ees of Sony. By exercising a warrant, directors, corporate executive officers and selected employees can purchase the
of Japan. The stock acquisition rights generally vest ratably over

a period of three years and are exercisable up to ten years from
common stock or subsidiary tracking stock of Sony Corporation, the number of which is designated by each plan. The
the date of grant.
warrants generally vest ratably over a period of three years, and

are exercisable up to six years from the date of grant.
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Presented below is a summary of the activities regarding common stock warrant, convertible bond and stock acquisition rights
plans for the years shown:
2003
2004
2005
WeightedWeightedWeightedWeightedNumber of
average
Number of
average
Number of
average
average
shares
exercise price
shares
exercise price
shares
exercise price exercise price
Yen
Yen
Outstanding at beginning of the fiscal year . . . . . . . .
5,853,892
8,648
9,640,892
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,874,100
5,313
2,621,400
Yen
7,832 11,705,592
5,017
Dollars
6,082
$56.84
2,433,600
3,996
37.35
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27,400)
3,896
36.41
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(87,100)
8,306
(556,700)
6,760
(998,592)
5,923
55.36
Outstanding at end of the fiscal year . . . . . . . . . . . .
9,640,892
7,832 11,705,592
6,082 13,113,200
5,754
$53.78
Exercisable at end of the fiscal year . . . . . . . . . . . . .
4,314,292
9,773
7,522
6,994
$65.36
5,853,892
7,223,600
A summary of common stock warrants, convertible bond options and stock acquisition rights outstanding and exercisable at March
31, 2005 is as follows:
Outstanding
Exercise price range
Exercisable
WeightedWeightedWeightedNumber of
average
average
average
shares
exercise price exercise price remaining life
Yen
Yen
3,78207,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,497,600
Dollars
WeightedWeightedNumber of
average
average
shares
Years
Yen
Dollars
04,680
$43.74.
8.24.
4,608,000
05,250
$49.07.
2,615,600
10,065
94.07.
3.14.
2,615,600
10,065
94.07.
3,78213,202 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,113,200
05,754
$53.78.
7.22.
7,223,600
06,994
$65.36.
7,00113,202 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A summary of subsidiary tracking stock warrants and stock acquisition rights outstanding and exercisable at March 31, 2005 is as
follows:
Outstanding

Yen
Yen
8153,300 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable
average
average
average
shares
181,500
1,591
Dollars
average
average
shares
Years
$14.87.
7.22.
Yen
90,300
2,118
Dollars
$19.79.
As the exercise prices for the warrant, convertible bond and

stock acquisition rights plans were determined based on the
of the joint venture are no longer considered employees of Sony

under FAS No. 123 as these individual are now employees of
prevailing market price shortly before the date of grant, the

compensation expense for these plans was not significant for
SONY BMG which is accounted for under the equity method. As

a result, a compensation charge of 340 million ($3 million) was
the years ended March 31, 2003, 2004 and 2005.

As a result of the establishment of the joint venture between
recorded based on the fair value method of accounting for

stock-based compensation using the Black-Scholes model. The
Sonys recorded music business with the recorded music business of Bertelsmann AG (Note 6), employees of Sonys recorded
fair value of the options as of August 1, 2004, the date on which

the joint venture was established, was 538 million ($5 million)
music business who were granted options under the convertible

bond and stock acquisition rights plans prior to the establishment
and is being recognized into income over the remaining vesting

period of the options.
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The weighted-average fair value per share at the date of grant

of common stock warrants, convertible bond options and stock
using the Black-Scholes option-pricing model with the following

weighted-average assumptions:
acquisition rights granted during the years ended March 31,

2003, 2004 and 2005 were 2,063, 1,413 and 1,085
($10.14), respectively. The fair value of common stock warrants,

convertible bond options and stock acquisition rights granted on
Weighted-average
assumptions:
the date of grant, which is amortized to expense over the vesting period in determining the pro forma impact, is estimated
2003
2004
2005
Risk-free interest rate . . .
2.76%
2.18%
2.04%
Expected lives . . . . . . . .
4.23 years
3.67 years
3.54 years
Expected volatility . . . . .
47.33%
42.83%
35.56%
Expected dividend . . . . .
0.47%
0.57%
0.62%
(4) SAR plan:

Sony granted stock appreciation rights (SARs) in Japan,
Europe and the United States of America for selected employees. Under the terms of these plans, employees on exercise
receive cash equal to the amount that the market price of Sony
Corporations common stock exceeds the strike price of the
SARs. The SARs generally vest ratably over a period of three
the date of grant. Sony holds treasury stock for the SAR plan in
Japan to minimize cash flow exposure associated with the
SARs. In addition, Sony uses various strategies to minimize the
compensation expense associated with the SAR plans in the
United States of America and Europe.
The status of the SAR plans is summarized as follows:
years, and are generally exercisable up to six to ten years from

2003
2004
2005
WeightedWeightedWeightedWeightedNumber of
average
Number of
average
Number of
average
average
SARs
exercise price
SARs
exercise price
SARs
Yen
Yen
Yen
Dollars
Outstanding at beginning of the fiscal year . . . . . . . .
2,410,394
6,644
2,343,028
6,341
1,526,568
6,424
$60.04.
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,750
6,323
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11,800)
5,727
(241,134)
3,955
36.96.
Expired or forfeited . . . . . . . . . . . . . . . . . . . . . . . . .
(84,316)
7,274
(816,460)
5,494
(420,350)
5,855
54.72.
Outstanding at end of the fiscal year . . . . . . . . . . . .
2,343,028
6,341
1,526,568
6,424
865,084
7,436
$69.50.
Exercisable at end of the fiscal year . . . . . . . . . . . . .
2,176,319
6,211
1,462,391
6,421
856,156
7,455
$69.67.
A summary of SARs outstanding and exercisable at March 31, 2005 is as follows:

Outstanding
Exercisable
average
average
average
SARs

Yen
Yen
Dollars
average
average
SARs
Years
Yen
03,23405,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61,850
04,767
$044.55.
6.77.
61,850
04,767
$044.55.
05,00110,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
749,109
7,365
68.83.
1.08.
740,181
7,386
69.03.
10,00113,419 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,125
11,471
107.21.
4.56.
54,125
11,471
107.21.
03,23413,419 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
865,084
07,436
$069.50.
1.70.
856,156
07,455
$069.67.
In accordance with APB No. 25 and its related interpretations,

the SARs compensation expense is measured as the excess of
the quoted market price of Sony Corporations common stock
over the SARs strike price, which is consistent with the accounting treatment prescribed for SAR plans in FAS No. 123. For the
year ended March 31, 2003, Sony recognized a reduction in
SARs compensation expense of 670 million due to the decline

in Sonys stock price during the year. For the year ended March
31, 2004, Sony recognized 105 million of SARs compensation
expense. For the year ended March 31, 2005, Sony recognized
a reduction in SARs compensation expense of 74 million ($1
million).
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18. Restructuring charges and asset impairments

As part of its effort to improve the performance of the various
next several years. The overall restructuring plan is still being

formulated as Sony is carefully monitoring the market situation in
businesses, Sony has undertaken a number of restructuring

initiatives within the Electronics, Music and Pictures segments.
each area. As a result, the expected completion date and total

estimated cost of this program cannot be determined at this time.
For the years ended March 31, 2003, 2004 and 2005, Sony
recorded total restructuring charges of 106,251 million,
As part of its worldwide plan, Sony made a decision in the

year ended March 31, 2004 to discontinue certain CRT TV

Significant restructuring charges and asset impairments include
display manufacturing operations in Japan. Restructuring

charges totaling 8,478 million consisted of personnel related
the following:
costs of 3,139 million and non-cash equipment impairment,

disposal and other costs of 5,339 million. Of the total restruc-
Electronics Segment
In an effort to improve the performance of the Electronics seg-
turing charges, 158 million was recorded in cost of sales,

3,139 million was included in selling, general and administrative
ment, Sony has undergone a number of restructuring efforts to

reduce its operating costs. For the years ended March 31,
expenses, and 5,181 million was included in loss on sale,

disposal or impairment of assets, net in the consolidated state-
2003, 2004 and 2005, Sony recorded total restructuring

charges of 72,473 million, 143,310 million and 81,768
ments of income. This phase of the restructuring program was

completed in the year ended March 31, 2004 and no liability
million ($764 million), respectively, within the Electronics segment. In addition to the above charges, the Electronics segment
existed as of March 31, 2005.

In the year ended March 31, 2005, as part of this restructuring
also reflects restructuring of 7,950 million and 2,122 million

for the years ended March 31, 2003 and 2004, respectively, that
program, Sony recorded a non-cash impairment charge of

7,479 million ($70 million) for the CRT TV display manufactur-
relate to the non-Japan based disc manufacturing and physical

distribution businesses that were part of the restructuring
ing facilities located in Europe. The impairment charge was

calculated as the difference between the carrying value of the
charges of the Music segment which is discussed below. These

restructuring charges were formerly included within the Music
asset group and the present value of estimated future cash

flows. The charge was recorded in loss on sale, disposal or
segment but were reclassified to the Electronics segment. See

Notes 6 and 25 for more information on this reclassification.
impairment of assets, net in the consolidated statements of

income. This phase of the restructuring program was completed
Significant restructuring activities are the following:
in the year ended March 31, 2005 and no liability existed as of

March 31, 2005.
Downsizing of computer display CRT operations

In the year ended March 31, 2003, due to the market shrinkage
Aiwa Co., Ltd. restructuring
and demand shift from CRT displays to LCDs, Sony made a

decision to discontinue certain computer display CRT manufac-
Due to the continued decline in the operating results of Aiwa,

the restructuring program that was initiated in the year ended
turing operations in Japan and Southeast Asia to rationalize

production facilities and downsize its business. Restructuring
March 31, 2002 was accelerated and additional restructuring

charges of 23,007 million were recorded in the year ended
charges totaling 6,902 million consisted of personnel related

costs of 1,208 million, non-cash equipment impairment and
March 31, 2003. Additional restructuring included further cuts in

staffing levels and the shutdown of remaining production facili-
disposal costs of 4,010 million and contract termination and

other costs of 1,684 million. Of the total restructuring charges,
ties. These charges consisted of non-cash equipment impairment and disposal costs of 3,504 million, personnel related
1,264 million was recorded in cost of sales; 1,684 million was

included in selling, general and administrative expenses, and
costs of 7,647 million, devaluation of inventory of 6,144

million, operating lease termination costs of 3,823 million and
3,954 million was recorded in loss on sale, disposal or impairment of assets, net in the consolidated statements of income.
other costs of 1,889 million. Among these charges 13,791

million was recorded in cost of sales, 5,712 million was in-
The restructuring activity was completed in the year ended

March 31, 2003 and no liability existed as of March 31, 2004.
cluded in selling, general and administrative expenses, and

3,504 million was included in loss on sale, disposal or impair-
Downsizing of CRT TV display operations
ment of assets, net in the consolidated statements of income.

The restructuring program was completed in the year ended
Due to the worldwide market shrinkage and demand shift from

CRT displays to plasma and LCD panel displays, Sony has
March 31, 2003 and no liability existed as of March 31, 2003.

Aiwa Co., Ltd. was merged into Sony Corporation as of Decem-
begun to implement a worldwide plan to rationalize production

facilities of CRT TV display and downsize its business over the
ber 1, 2002.
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Closing of a semiconductor plant in the U.S.

Due to a significant decline in the business conditions of the
CD market, the effects of piracy and other illegal duplication,

parallel imports, pricing pressures and the diversification of
U.S. semiconductor industry, Sony made a decision in the fourth

quarter of the year ended March 31, 2003, to close a semicon-
customer preferences, Sony has been actively repositioning the

Music segment for the future by looking to create a more effec-
ductor plant in the U.S. This restructuring activity was substantially completed in the year ended March 31, 2005 and total
tive and profitable business model. As a result, the Music segment has undergone a worldwide restructuring program since
restructuring charges of 4,936 million ($46 million) have been

incurred through March 31, 2005. The remaining liability balance
the year ended March 31, 2001 to reduce staffing and other
costs through the consolidation and rationalization of facilities
as of March 31, 2005 was 161 million ($2 million) and will be
paid or settled through the year ended March 31, 2006.
worldwide excluding Japan. As part of this restructuring program, Sony combined its recorded music business with the
During the year ended March 31, 2003, Sony recorded

restructuring charges totaling 5,856 million, which consisted
recorded music business of Bertelsmann AG to form SONY

BMG, a joint venture that is accounted for under the equity
of the accelerated depreciation of equipment of 3,128 million,

personnel related costs of 1,329 million and the devaluation of
method. See Note 6 for more information on this transaction.

For the years ended March 31, 2003, 2004 and 2005, Sony
inventory and other costs of 1,399 million. These charges were

all recorded in cost of sales in the consolidated statements
recorded total restructuring charges of 22,350 million, 10,691

million and 3,025 million ($28 million), respectively, related to
of income.
During the year ended March 31, 2004, Sony recorded net
the restructuring of the Music segment excluding Japan. Of

these restructuring charges, 7,950 million and 2,122 million
restructuring charges totaling 874 million which consisted of

the accelerated depreciation and write-down of equipment of
for the years ended March 31, 2003 and 2004, respectively,
were recorded in the non-Japan based disc manufacturing and
1,982 million, gain on disposal of assets of 1,962 million, and

854 million of other costs including lease contract termination
physical distribution businesses, formerly included within the

Music segment but reclassified to the Electronics segment. See
costs. Among these charges 1,760 million was recorded in

cost of sales, while asset write-down and disposal costs of
Notes 6 and 25 for more information on this reclassification. This

worldwide restructuring of the Music segment is expected to be
1,076 million and the gain on asset disposals of 1,962 million

were included in loss on sale, disposal or impairment of assets,
completed during the year ended March 31, 2006, and the total
cost of the program is estimated to be 53,106 million ($496
net in the consolidated statements of income.

During the year ended March 31, 2005, Sony sold the facilities
million), of which 52,573 million ($491 million) was incurred from

the inception of the program through the year ended March 31,
and recorded a gain on disposal of 1,794 million ($17 million).

The gain was included in loss (gain) on disposal or impairment of
2005. The restructuring costs within the Music segment do not

include the restructuring costs of SONY BMG since the establish-
assets, net in the consolidated statements of income.
ment of the joint venture. At March 31, 2005, the liability balance
was 1,856 million ($17 million) with most of the liabilities to be
Retirement programs
In addition to the restructuring efforts disclosed above, Sony has
paid or settled during the year ending March 31, 2006.

In addition to the above, Sony also recorded restructuring
undergone several headcount reduction programs to further reduce

operating costs in the Electronics segment. As a result of these
charges of 1,519 million, 1,291 million and 803 million ($8

million) for the years ended March 31, 2003, 2004 and 2005,
programs, Sony recorded restructuring charges totaling 22,236

million, 114,870 million and 50,276 million ($470 million) for
respectively, in Japan, which were primarily personnel related

costs included in selling, general and administrative expenses
the years ended March 31, 2003, 2004 and 2005, respectively,
and these charges were included in selling, general and admin-
in the consolidated statement of income.

Significant restructuring activities included the following:
istrative expenses in the consolidated statements of income.

These staff reductions were achieved worldwide mostly through
In the year ended March 31, 2003, restructuring charges related

to the worldwide restructuring of the Music segment totaled
the implementation of early retirement programs. The remaining

liability balance as of March 31, 2005 was 14,011 million ($131
22,350 million. Restructuring activities included the further

consolidation of operations through the shutdown of a cassette
million) and will be paid through the year ending March 31, 2006.
Sony will continue seeking the appropriate level of headcount to
and CD manufacturing and distribution center in Holland and a

CD manufacturing facility in the U.S. as well as further staff
optimize the workforce in the Electronics segment.
reductions in other areas. The restructuring charges consisted of

personnel related costs of 14,932 million, non-cash asset
Music Segment
Due to the continued contraction of the worldwide music market
impairment and disposal costs of 3,256 million and other costs

of 4,162 million including lease termination costs. Among these
due to slow worldwide economic growth, the saturation of the
charges 19,094 million was recorded in selling, general and
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administrative expenses, and 3,256 million was included in loss

on sale, disposal or impairment of assets, net in the consolidated
companies and other production and distribution companies to

license product to the major televisions networks is becoming
statements of income. Employees were eliminated across

various employee levels, business functions, operating units,
more intense. This competitive environment has resulted in

fewer opportunities to produce shows for the networks and a
and geographic regions during this phase of the worldwide

restructuring program.
shorter lifespan for ordered shows that do not immediately

achieve favorable ratings. This trend has resulted in an increase
During the year ended March 31, 2004, Sony broadened the
scope of its worldwide restructuring of the Music segment,
in the number of new programs being distributed yet canceled in

their first or second season, which are generally less profitable,
which resulted in restructuring charges totaling 10,691 million.

Restructuring activities included the continuation of the shut-
and a decrease in the number of network programs that are

able to achieve syndication, which are generally more profitable.
down of the CD manufacturing facility in the U.S. as well as the

restructuring of music label operations and the further rational-
As a result, in the year ended March 31, 2002, Sony decided to

consolidate its television operations and downsize the network
ization of overhead functions through staff reductions. The

restructuring charges consisted of personnel related costs of
television production business in the Pictures segment. In the year

ended March 31, 2003, Sony recorded restructuring charges
5,137 million, lease abandonment costs of 1,323 million and

other related costs of 4,231 million including non-cash asset
totaling 480 million. These costs were included in cost of sales

in the consolidated statements of income. This restructuring
impairment and disposal costs. Most of these charges are

program was completed in the year ending March 31, 2005,

and the total cost of the program from the inception was 8,932
consolidated statements of income. Employees were eliminated

across various employee levels, business functions, operating
million ($83 million). No liability existed as of March 31, 2005.
units, and geographic regions during this phase of the worldwide restructuring program.
Fixed cost reduction program

During the year ended March 31, 2004, the Pictures segment
During the year ended March 31, 2005, in continuation of the

worldwide restructuring program and in connection with the
implemented a fixed cost reduction program to further reduce its

operating costs. This restructuring program primarily related to
establishment of the joint venture with Bertelsmann AG (Note 6),

Sony recorded restructuring charges totaling 3,025 million ($28
the reduction of staffing levels and the disposal of certain longlived assets. This restructuring program was substantially com-
million) within the Music segment. Restructuring activities included

the shutdown of certain distribution operations that were no
pleted during the year ended March 31, 2005 and the total cost
of this restructuring program was 4,996 million ($47 million).
longer required as a result of the recorded music joint venture

with Bertelsmann AG as well as the further rationalization of
The Pictures segment recorded 4,611 million of these costs

during the year ended March 31, 2004. These restructuring
overhead functions through staff reductions. The restructuring

charges consisted of personnel related costs of 883 million
charges consisted of personnel related costs of 993 million,

non-cash asset impairment and disposal costs of 1,746 million,
($8 million) and other related costs of 2,142 million ($20 million). These charges are included in selling, general and adminis-
and other costs of 1,872 million including those relating to the

buy-out of term deal commitments. Of the restructuring costs
trative expenses in the consolidated statements of income.

Employees were eliminated across various employee levels,
incurred, 1,525 million was included in cost of sales, 1,340

million was included in selling, general and administrative
business functions, operating units, and geographic regions

during this phase of the worldwide restructuring program.
expenses, and 1,746 million was included in loss on sale,

disposal or impairment of assets, net in the consolidated
Pictures Segment
statements of income.
During the year ended March 31, 2005, the Pictures segment
In an effort to improve the performance of the Pictures segment,

Sony has undergone a number of restructuring efforts to reduce
substantially completed the fixed cost reduction program and

recorded 385 million ($4 million) of additional restructuring
its operating costs. For the years ended March 31, 2003, 2004
and 2005, Sony recorded total restructuring charges of 480
costs. These restructuring charges consisted primarily of personnel related costs of 292 million ($3 million) which were
million, 4,611 million and 385 million ($4 million), respectively,

within the Pictures segment. Significant restructuring activities

consolidated statements of income. At March 31, 2005, the
are the following:
remaining liability balance was 207 million ($2 million), which

will be paid or settled over the next year.
Consolidation of television operations

Due to changes within the television production and distribution
business, the competition between network owned production
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The changes in the accrued restructuring charges for the years ended March 31, 2003, 2004 and 2005 are as follows:
Yen in millions
Employee
Non-cash
termination write-downs
benefits and disposals
Other
associated
costs
Total
Balance at March 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,243
13,637
19,880
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,953
42,768
16,530
106,251
Non-cash charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(42,240)
(42,240)
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(38,548)
(23,172)
(61,720)
Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
136
(528)
(1,208)
(1,600)
Balance at March 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,784
5,787
20,571
133,367
19,170
15,554
168,091
Non-cash charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(19,170)
(19,170)
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(124,674)
(13,686)
(138,360)
Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,173
333
1,506
Balance at March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,650
7,988
32,638
53,563
25,564
10,836
89,963
Non-cash charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,564)
(25,564)
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(61,523)
(10,427)
(71,950)
Adjustments* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,705)
(3,096)
(4,801)
Balance at March 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,985
5,301
20,286
Dollars in millions
Employee
Non-cash
termination write-downs
benefits and disposals
Other
associated
costs
Total
Balance at March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 230
$ 75
501
$ 239
101
$ 305
841
Non-cash charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(239)
(239)
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(575)
(97)
(672)
Adjustments* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(16)
(29)
(45)
Balance at March 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 140
$ 50
$ 190
*Adjustments primarily consist of the transfer of the accrued restructuring charges to SONY BMG, a joint venture with Bertelsmann AG (Note 6).
19. Research and development costs, advertising

costs and shipping and handling costs
and 107,983 million ($1,009 million), respectively, which included

the internal transportation costs of finished goods.
(1) Research and development costs:

Research and development costs charged to cost of sales for the
years ended March 31, 2003, 2004 and 2005 were 443,128
million, 514,483 million and 502,008 million ($4,692 million),
respectively.
20. Gain on change in interest in subsidiaries and

equity investees
In January 2004, FeliCa Networks, Inc., whose field of business
(2) Advertising costs:
is Mobile FeliCa IC chip development and production/sales

licensing and operation of the Mobile FeliCa service platform,
Advertising costs included in selling, general and administrative

expenses for the years ended March 31, 2003, 2004 and 2005
issued 115,000 shares at 100,000 per share with a total value

of 11,500 million in connection with its private offering. As a
were 442,741 million, 421,433 million and 359,661 million

($3,361 million), respectively.
result of this issuance, Sony recorded a gain of 3,364 million

and provided deferred taxes on this gain. This issuance reduced
(3) Shipping and handling costs:
Sonys ownership interest from 100% to 60%.

In addition to the above transaction, for the year ended March
Shipping and handling costs for finished goods included in selling,

general and administrative expenses for the years ended March
31, 2004, Sony recognized 1,506 million of other gains on

change in interest in subsidiaries and equity investees resulting
31, 2003, 2004 and 2005 were 98,195 million, 106,590 million
in total gains of 4,870 million.
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In August 2, 2004, Monex Inc., which provides on-line security

trading services in Japan, and Nikko Beans, Inc. established
In June 6, 2005, SCN sold 17,935 shares of So-net M3 Inc.,

at 694,600 ($6,492) per share with a total value of 12,458
Monex Beans Holdings, Inc. by way of share transfer of the

existing shares of Monex Inc. and Nikko Beans, Inc.. At this
million ($116 million). As a result of this sale, Sony records

11,979 million ($112 million) gain on the sale of its stock for the
establishment, 1 share of Monex Beans Holdings, Inc. was

allotted to each share of Monex Inc. and 3.4 shares of Monex
year ending March 31, 2006, and Sonys ownership interest has
been reduced from 74.8% to 60.8%.
Beans Holdings, Inc. were allotted to each share of Nikko

Beans, Inc.. As a result of this share transfer, Monex Beans
In January 2005, DeNA Co., Ltd., whose field of business is

operation of on-line auction websites in Japan, issued 14,000
Holdings, Inc. issued 2,341,287 shares and Sony recorded a

gain of 8,951 million ($84 million) and provided deferred taxes
shares at 204,600 ($1,912) per share with a total value of

2,864 million ($27 million) in connection with its initial public
on this gain. This issuance reduced Sonys ownership interest

from 29.9% to 20.1%.
offering. In March 2005, SCN, which had owned 27.7% interest

in DeNA Co., Ltd., sold 2,000 shares of DeNA Co., Ltd. at
In September 2004, So-net M3 Inc., which provides medical

services via the Internet in Japan, issued 2,800 shares at
204,600 ($1,912) per share with a total value of 409 million

($4 million). As a result of these transactions, Sony recorded a
850,000 ($7,944) per share with a total value of 2,380 million

($22 million) in connection with its initial public offering. SCN, a
686 million ($6 million) gain on issuance of stock by DeNA Co.,

Ltd. and provided deferred taxes on this gain. In addition, Sony
parent company of So-net M3 Inc., sold 3,260 shares of So-net

M3 Inc., at 790,500 ($7,388) per share with a total value of
recorded a 76 million ($1 million) gain on the sale of its stock.

These transactions reduced Sonys ownership interest from
2,577 million ($24 million). In October 2004, SCN sold 740

shares of So-net M3 Inc., at 790,500 ($7,388) per share with a
27.7% to 24.8%.
In addition to the above transactions, for the year ended
total value of 585 million ($5 million). As a result of these transactions, Sony recorded a 1,823 million ($17 million) gain on
March 31, 2005, Sony recognized 1,911 million ($18 million) of

other gains on change in interest in subsidiaries and equity
issuance of stock by So-net M3 Inc. and provided deferred

taxes on this gain. In addition, Sony recorded a 2,876 million
investees resulting in total gains of 16,322 million ($153 million).

These transactions were not part of a broader corporate reorgani-
($27 million) gain on the sale of its stock. These transactions

reduced Sonys ownership interest from 90.0% to 74.8%.
zation and the reacquisition of such shares was not contemplated

at the time of issuance.
21. Income taxes

Income before income taxes and income tax expense comprise the following:
Dollars in
millions
Yen in millions
2003
2004
2005
2005
Income (loss) before income taxes:

Sony Corporation and subsidiaries in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,998)
(84,571)
005,005
$0,047
Foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
255,619
228,638
152,202
1,422
...................................................................
247,621
144,067
157,207
$1,469
Income taxesCurrent:
069,311
22,286
23,497
$ 220
109,536
64,933
62,013
579
...................................................................
178,847
87,219
85,510
$ 799
$
Income taxesDeferred:
(90,016)
(32,845)
0(4,976
(8,000)
(1,600)
(74,442)
(696)
...................................................................
(98,016)
(34,445)
(69,466)
$ (649)
47
Sony is subjected to a number of different income taxes. Due

to changes in Japanese income tax regulations, a consolidated
ning with the year ended March 31, 2004. Under the Japanese
consolidated tax filing system, a 2% surtax was imposed only
tax filing system was introduced on April 1, 2002. Sony applied

to file its return under the consolidated tax filing system begin-
for the year ended March 31, 2004. As a result, the statutory tax
rate was 43.9% for the year ended March 31, 2004.
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During the year ended March 31, 2005, a corporation sizebased enterprise tax was introduced in Japan and the portion
approximately 41% effective April 1, 2004. The effect of the

change in the tax rate on the balance of deferred tax assets
of enterprise tax subject to income was reduced. As a result,

the statutory tax rate for the year ended March 31, 2005 was
and liabilities was insignificant.
Reconciliation of the differences between the statutory tax rate and the effective income tax rate is as follows:
2003
Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
42.0%
43.9%
2005
41.0%
Increase (reduction) in taxes resulting from:

Income tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.9)
(2.4)
(0.1)
Change in valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.5
6.5
(22.7)
Decrease in deferred tax liabilities on undistributed earnings of foreign subsidiaries . . . . . . . . . . . . .
(14.8)
(9.2)
(4.0)
Lower tax rate applied to life and non-life insurance business in Japan . . . . . . . . . . . . . . . . . . . . . . .
(0.6)
(2.6)
(1.9)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4
0.4
(2.1)
32.6%
36.6%
10.2%
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The significant components of deferred tax assets and liabilities are as follows:
Dollars in
millions
Yen in millions
March 31
2004
2005
2005
Deferred tax assets:

Operating loss carryforwards for tax purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(196,308
(193,212
$(1,806
Accrued pension and severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150,073
159,610
1,492
Film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,194
56,746
530
Warranty reserve and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,664
56,551
529
Future insurance policy benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,855
36,654
343
Accrued bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,285
34,536
323
Inventoryintercompany profits and write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,241
30,270
283
Depreciations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,108
15,320
143
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,740
8,552
80
Reserve for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,005
6,574
61
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141,731
153,525
1,434
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
732,204
751,550
7,024
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(127,577)
(89,110)
(833)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
604,627
662,440
6,191
Deferred tax liabilities:

Insurance acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(125,768)
(135,083)
(1,262)
Unbilled accounts receivable in the Pictures business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(71,586)
(57,314)
(536)
Unrealized gains on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(45,239)
(41,564)
(388)
Intangible assets acquired through exchange offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(36,490)
(35,418)
(331)
Undistributed earnings of foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(44,778)
(30,865)
(288)
Gain on securities contribution to employee retirement benefit trust . . . . . . . . . . . . . . . . . . . . . . . . .
(16,899)
(6,184)
(58)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(39,435)
(58,714)
(550)
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(380,195)
(365,142)
(3,413)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(224,432
(297,298
$(2,778
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The valuation allowance mainly relates to deferred tax assets

of Sony Corporation and certain consolidated subsidiaries with
At March 31, 2005, no deferred income taxes have been

provided on undistributed earnings of foreign subsidiaries not
operating loss carryforwards and tax credit carryforwards for tax

purposes that are not expected to be realized. The net changes in
expected to be remitted in the foreseeable future totaling

988,515 million ($9,238 million), and on the gain of 61,544
the total valuation allowance were a decrease of 136,140 million

for the year ended March 31, 2003, an increase of 11,509
million on a subsidiarys sale of stock arising from the issuance

of common stock of Sony Music Entertainment (Japan) Inc.
million for the year ended March 31, 2004 and a decrease of
38,467 million ($360 million) for the year ended March 31, 2005.
(SMEJ) in a public offering to third parties in November 1991,

as Sony does not anticipate any significant tax consequences
As a result of recording of operating losses in the past, the

U.S. subsidiaries of Sony have had valuation allowances against
on possible future disposition of its investment based on its tax

planning strategies. The unrecognized deferred tax liabilities as
deferred tax assets for U.S. federal and certain state taxes.
However, based on both improved operating results in recent
of March 31, 2005 for such temporary differences amounted to

217,792 million ($2,035 million).
years and a sound outlook for the future operating performance

of Sonys U.S. subsidiaries, Sony reversed 67,892 million ($635
Operating loss carryforwards for corporate income tax and

local income tax purposes of Sony Corporation and certain
million) of valuation allowance, resulting in a reduction of income

tax expenses for the year ended March 31, 2005.
consolidated subsidiaries in Japan at March 31, 2005 amounted

to 266,763 million ($2,493 million) and 520,556 million
For the year ended March 31, 2003, 33,525 million of the
decrease in the valuation allowance relates to the realization of tax
($4,865 million), respectively, which are available as an offset

against future taxable income. Deferred tax asset on the operat-
benefits from operating loss carryforwards that were acquired in

connection with Sonys acquisition of companies within the
ing loss carryforwards for corporate income tax and local income tax in Japan are calculated by multiplying approximately
Electronics, Music and Pictures segments. The reversal of the

valuation allowance upon realization of tax benefit from operating
28% and 13%, respectively.

Operating loss carryforwards for tax purposes of certain
loss carryforwards resulted in the reduction of goodwill.

Tax benefits which have been realized through utilization of
foreign consolidated subsidiaries at March 31, 2005 amounted

to 139,100 million ($1,300 million).
operating loss carryforwards for the years ended March 31,

2003, 2004 and 2005 were approximately 19,000 million,
With the exception of 115,714 million ($1,081 million) with no

expiration period, total available operating loss carryforwards

Net deferred tax assets are included in the consolidated
expire at various dates primarily up to 7 years.

Tax credit carryforwards for tax purposes at March 31, 2005
balance sheets as follows:
amounted to 8,552 million ($80 million). With the exception of

6,995 million ($65 million) with no expiration period, total
Yen in millions
March 31
2004
2005
Dollars in
millions
2005
Current assets
Deferred income taxes . . . .
125,532
141,154
$1,319
Other assets
203,203
240,396
2,247
Current liabilities
Other . . . . . . . . . . . . . . . . .
(8,110)
(12,025)
(113)
Long-term liabilities
(96,193)
(72,227)
(675)
Net deferred tax assets . . . .
224,432
297,298
$2,778
available tax credit carryforwards expire at various dates primarily up to 9 years. Realization is dependent on whether such
companies will be able to generate sufficient taxable income
prior to expiration of the loss carryforwards and tax credit
carryforwards. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax
assets, less valuation allowance, will be realized. The amount of
such net deferred tax assets considered realizable, however,
could be changed in the near term if estimates of future taxable
income during the carryforward period are changed.
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22. Reconciliation of the differences between basic and diluted net income per share (EPS)
(1) Income before cumulative effect of accounting changes and net income allocated to each class of stock:
Dollars in
millions
Yen in millions
2003
Income before cumulative effect of an accounting change allocated to the common stock . .
2004
2005
2005
115,648
90,756
168,498
$1,575
tracking stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(129)
(128)
53
Income before cumulative effect of an accounting change . . . . . . . . . . . . . . . . . . . . . . . . .
115,519
90,628
168,551
$1,575
Net income allocated to the common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115,648
88,639
163,785
$1,531
Net income allocated to the subsidiary tracking stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(129)
(128)
53
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115,519
88,511
163,838
$1,531
Income before cumulative effect of an accounting change allocated to the subsidiary
As discussed in Note 2, the earnings allocated to the subsid-
in Note 16) used for computation of earnings per share attribut-
iary tracking stock are determined based on the subsidiary

tracking stockholders economic interest. The accumulated
able to subsidiary tracking stock were 779 million, 1,764

million and 1,358 million ($13 million) as of March 31, 2003,
losses of SCN (the subsidiary tracking stock entity as discussed
2004 and 2005, respectively.
(2) EPS attributable to common stock:

Reconciliation of the differences between basic and diluted EPS for the years ended March 31, 2003, 2004 and 2005 is as follows:
.
Dollars in
millions
Yen in millions
2003
Income before cumulative effect of an accounting change allocated to the common stock . .
Effect of dilutive securities:
Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary tracking stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before cumulative effect of an accounting change allocated to the common stock
for diluted EPS computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2005
2005
115,648
90,756
168,498
$1,575
2,398
2,260
1,209
(0)
11
(0)
118,046
93,016
169,707
$1,586
Thousands of shares
Weighted-average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive securities:
Warrants and stock acquisition rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
919,706
923,650
931,125
12
78,873
48
121,120
61
112,589
Weighted-average shares for diluted EPS computation . . . . . . . . . . . . . . . . . . . . . . . . . . .
998,591
1,044,818
1,043,775
Yen
Dollars
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125.74.
98.26.
180.96.
$1.69.
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118.21.
89.03.
162.59.
$1.52.
Potential common stock upon the exercise of warrants and

stock acquisition rights, which were excluded from the compu-
have a potentially dilutive effect by decreasing net income

allocated to common stock, were excluded from the computa-
tation of diluted EPS since they have an exercise price in excess

of the average market value of Sonys common stock during the
tion of diluted EPS since they did not have a dilutive effect.
Stock options issued by affiliated companies accounted for
fiscal year, were 4,141 thousand shares, 6,796 thousand

shares, and 7,987 thousand shares for the years ended March
under the equity method for the years ended March 31, 2003,
2004 and 2005, which have a potentially dilutive effect by
31, 2003, 2004 and 2005, respectively.

Warrants and stock acquisition rights of subsidiary tracking
decreasing net income allocated to common stock, were excluded from the computation of diluted EPS since such stock
stock for the years ended March 31, 2003 and 2004, which
options did not have a dilutive effect.
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On October 1, 2002, Sony implemented a share exchange as

a result of which Aiwa Co.,Ltd. became a wholly-owned subsid-
defined, and is responsible for all distribution and marketing

expenses, which are recouped from such distribution fees. The
iary. As a result of this share exchange, Sony issued 2,502

thousand shares. The shares were included in the computation
VIE was capitalized with total financing of 43,584 million. Of

this amount, 1,181 million was contributed by the subsidiary,
of basic and diluted EPS.

On May 1, 2003, Sony implemented a share exchange as a
10,198 million was provided by unrelated third party investors

and the remaining funding is provided through a 32,205 million
result of which CIS Corporation became a wholly-owned subsidiary. As a result of this share exchange, Sony issued 1,088
bank credit facility. On July 1, 2003, Sony consolidated this entity.

Upon consolidation of the VIE, assets and liabilities increased by
thousand shares. The shares were included in the computation

of basic and diluted EPS.
10,179 million and 10,586 million, respectively, and a cumulative effect of accounting change of 388 million was charged to
As a result of the adoption of EITF Issue No. 04-8, Sonys

net income with no tax effect. As of March 31, 2005, the total
outstanding under the bank credit facility was 6,441 million
change for the year ended March 31, 2004 was restated in the
above table (Note 2).
($60 million). Under the agreement, the subsidiarys 1,181

million ($11 million) equity investment is the last equity to be
(3) EPS attributable to subsidiary tracking stock:
repaid. Additionally, it must pay to the third party investors up

to 2,040 million ($19 million) of any losses out of a portion of
Weighted-average shares used for computation of EPS attributable to subsidiary tracking stock for the years ended March 31,
its distribution fees. Any losses incurred by the VIE over and
above 3,221 million ($30 million) will be shared by the other
2003, 2004 and 2005 were 3,072 thousand shares. As discussed in Note 2, there were no potentially dilutive securities for
investors. The subsidiary acquired the international distribution

rights, as defined, to twelve pictures meeting certain minimum
EPS of subsidiary tracking stock outstanding at March 31,

2003, 2004 and 2005.
requirements within the time period provided in the agreement.

Sony had utilized a VIE to erect and operate a multi-use real
estate complex in Berlin, Germany, which had been accounted
for under the equity method by Sony until June 30, 2003. On
23. Variable interest entities

Sony has, from time to time, entered into various arrangements
July 1, 2003, Sony consolidated this entity. Upon consolidation

of the VIE, assets and liabilities increased by 61,320 million and
with VIEs. These arrangements consist of facilities which provide

for the leasing of certain property, the financing of film production,
60,329 million, respectively. However, there was no impact to

Sonys net income. On November 4, 2004, Sony purchased the
the development and operation of a multi-use real estate complex

and the implementation of a stock option plan for Japanese
remaining shares of the VIE from other partners. As a result, it is

now a 100% owned subsidiary and no longer a VIE.
employees. As described in Note 2, the FASB issued FIN No. 46,

which requires the consolidation or disclosure of VIEs. The VIEs
Sony has utilized a VIE to implement a stock option plan for

selected Japanese employees. The VIE has been consolidated by
that have been consolidated by Sony are described as follows:

Sony leases the headquarters of its U.S. subsidiary from a
Sony since its establishment. With respect to this entity, there was
no impact to Sonys results of operations and financial position
VIE, which has been consolidated by Sony since July 1, 2003.

Upon consolidation of the VIE, assets and liabilities increased by
upon the adoption of FIN No. 46. Under the terms of the stock
option plan, upon exercise, Japanese employees receive cash
25,277 million and 27,035 million, respectively, and a cumulative effect of accounting change of 1,729 million was charged to
equal to the amount that the market price of Sony Corporations

common stock exceeds the strike price of the plan. In order to
net income with no tax effect. Sony has the option to purchase
the building at any time during the lease term which expires in
minimize cash flow exposure associated with the plan, Sony

holds treasury stock through the VIE. The VIE purchased the
December 2008 for 27,374 million ($256 million). The debt held
by the VIE is unsecured. At the end of the lease term, Sony has
common stock with funding provided by the employees cash

contribution and a bank loan. At March 31, 2005, the balance of
agreed to either renew the lease, purchase the building or

remarket it to a third party on behalf of the owner. If the sales price
the bank loan was 3,034 million ($28 million).

As of March 31, 2005, there is no VIE in which Sony holds a
is less than 27,374 million ($256 million), Sony is obligated to

make up the lesser of the shortfall or 22,973 million ($215 million).
significant variable interest that Sony is not the primary beneficiary.

As described in Note 6, on April 8, 2005, a consortium led by
A subsidiary in the Pictures segment entered into a joint

venture agreement with a VIE for the purpose of funding the
SCA and its equity partners completed the acquisition of MGM.

Sony has reviewed the investment and determined that MGM is
acquisition of certain international film rights. The subsidiary is

required to distribute the product internationally, for contractually
a VIE. However, MGM will not be consolidated but accounted

for under the equity method as Sony is not the primary beneficiary
defined fees determined as percentages of gross receipts, as
of this VIE.
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24. Commitments and contingent liabilities

(1) Commitments:
B. Loan Commitments
Subsidiaries in the Financial Services segment have entered into
A. Purchase Commitments
Commitments outstanding at March 31, 2005 amounted to
loan agreements with their customers in accordance with the

condition of the contracts. As of March 31, 2005, the total unused
240,729 million ($2,250 million). The major components of

these commitments are as follows:
portion of the line of credit extended under these contracts was

199,878 million ($1,868 million).
In the ordinary course of business, Sony makes commitments

for the purchase of property, plant and equipment. As of March
At August 2004, Sony and Bertelsmann AG (Bertelsmann)

combined their recorded music businesses in a joint venture. In
31, 2005, such commitments outstanding were 83,683 million

($782 million).
connection with the establishment of the SONY BMG joint

venture, Sony and Bertelsmann have entered into a 5 year
Certain subsidiaries in the Pictures segment have entered into

agreements with creative talent for the development and pro-
Revolving Credit Agreement with the joint venture. Under the

terms of the Credit Agreement, Sony and Bertelsmann have
duction of films and television programming as well as agreements with third parties to acquire completed films, or certain
each agreed to provide one-half of the funding. The Credit

Agreement, which matures on August 5, 2009, provides for a
rights therein. These agreements cover various periods through

March 31, 2008. As of March 31, 2005, these subsidiaries were
base commitment of $300 million and additional incremental

borrowings of up to $150 million. As of March 31, 2005, the joint
committed to make payments under such contracts of 51,625

million ($482 million).
venture had no borrowings outstanding under the Credit Agreement. Accordingly, Sonys outstanding commitment under the
A subsidiary in the Pictures segment has also entered into a

distribution agreement with a third party to distribute, in certain
Credit Agreement as of March 31, 2005 was 24,075 million

($225 million).
markets and territories, all feature length films produced or

acquired by the third party during the term of the agreement.
The aggregate amounts of future year-by-year payments for

these loan commitments cannot be determined.
The distribution agreement expires on December 31, 2006 if a

minimum of 36 films have been delivered as of that date. If 36
(2) Contingent liabilities:
films have not been delivered by December 31, 2006, the

distribution agreement expires on the earlier of the delivery of the
Sony had contingent liabilities including guarantees given in the

ordinary course of business, which amounted to 26,049 million
36th film or May 25, 2007. It is estimated that the third party will
produce or acquire a total of 39 films under the distribution
($243 million) at March 31, 2005. The major components of the

contingent liabilities are as follows:
agreement. The subsidiary has the right to distribute the films for
15 years from the initial theatrical release of the film. Under the
Sony has issued loan guarantees to related parties comprised

of affiliated companies accounted for under the equity method
terms of the distribution agreement, the subsidiary must fund a

portion of the production cost and is responsible for all distribu-
and unconsolidated subsidiaries. The terms of these guarantees

are mainly within 1 year. Sony would be required to perform
tion and marketing expenses. As of March 31, 2005, 29 films

have been released or funded by the subsidiary. The subsidiarys
under these guarantees upon non-performance of the primary

borrowers. The contingent liability related to these guarantees
estimated commitment to fund the production of the remaining

films under this agreement is 30,455 million ($285 million).
was 7,642 million ($71 million) and was not recorded on the
consolidated balance sheet as of March 31, 2005.
The schedule of the aggregate amounts of year-by-year

payment of purchase commitments during the next five years
The European Commission (EC) has issued the Waste

Electrical and Electronic Equipment (WEEE) directive in February
and thereafter is as follows:
2003. The WEEE directive will require electronics producers after

August 2005 to be responsible for organizing a scheme, and
Yen in
millions
Dollars in
millions
possibly financing the cost, for collection, treatment, recovery

and safe disposal of waste products. While the cost of this

2006 . . . . . . . . . . . . . . . . . . . . . . . . .
145,111
$1,357
2007 . . . . . . . . . . . . . . . . . . . . . . . . .
53,753
502
2008 . . . . . . . . . . . . . . . . . . . . . . . . .
16,412
153
2009 . . . . . . . . . . . . . . . . . . . . . . . . .
1,632
15
2010 . . . . . . . . . . . . . . . . . . . . . . . . .
712
Thereafter . . . . . . . . . . . . . . . . . . . . . . .
23,109
216
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
240,729
$2,250
directive to Sony cannot be determined before regulation is

adopted in individual member states, Sony continues to evaluate
the impact of adopting this regulation.
Sony has agreed to indemnify certain third parties against tax
losses resulting from transactions entered into in the normal
course of business. The maximum amount of potential future
payments under these guarantees cannot be estimated at this
time. These guarantees were not recorded on the consolidated
balance sheet as of March 31, 2005.
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Sony Corporation and certain of its subsidiaries are defendants in several pending lawsuits. However, based upon the
lawsuits, if any, would not have a material effect on Sonys

consolidated financial statements.
information currently available to both Sony and its legal

counsel, management of Sony believes that damages from such
The changes in product warranty liability for the years ended

March 31, 2004 and 2005 are as follows:
Dollars in
millions
Yen in millions
2004
2005
2005
Balance at beginning of the fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,892
50,670
$ 474
Provision for warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,569
33,493
313
Settlements (in cash or in kind) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(46,971)
(40,358)
(377)
Changes in estimate for pre-existing warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,970)
(751)
(7)
Translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,850)
1,865
17
Balance at end of the fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,670
44,919
$ 420
25. Business segment information

Effective for the year ended March 31, 2005, Sony has partly
changed its business segment configuration as described below.
As of August 1, 2004, Sony and Bertelsmann AG combined
their recorded music businesses in a joint venture. In connection
with the establishment of this joint venture, the non-Japan
based disc manufacturing and physical distribution businesses,
formerly included within the Music segment, have been reclassified to the Other category in the Electronics segment. Results
for the year ended March 31, 2003 and 2004 in the Electronics
and Music segments have been restated to conform to the
presentation for the year ended March 31, 2005.
In July 2004, in order to establish a more efficient and coordinated semiconductor supply structure, the Sony group has
integrated its semiconductor manufacturing business by transferring SCEs semiconductor manufacturing operation from the
Game segment to the Electronics segment. As a result of this
transfer, sales revenue and expenditures associated with this
operation are now recorded within the Semiconductor category in the Electronics segment. The results for the year ended
March 31, 2003 and 2004 have not been restated as such
comparable figures cannot be practically obtained given that it
was not operated as a separate line business within the Game
segment. This integration of the semiconductor manufacturing
businesses is a part of Sonys semiconductor strategy of utilizing
semiconductor technologies and manufacturing equipment
originally developed or designed for the Game segment within
the Sony group as a whole.
The Electronics segment designs, develops, manufactures
and distributes audio-visual, informational and communicative
equipment, instruments and devices throughout the world. The
Game segment designs, develops and sells PlayStation,
PlayStation 2 and PlayStation Portable game consoles and
related software mainly in Japan, the United States of America

and Europe, and licenses to third party software developers. The
Music segment is mainly engaged in the development, production, manufacture, and distribution of recorded music, in all
commercial formats and musical genres. As discussed above,
due to the establishment of the joint venture with Bertelsmann
AG, the results for the year ended March 31, 2005 only include
the results of Sony Music Entertainment Inc.s (SMEI) recorded
music business for the months of April through July 2004 and
the results of SMEIs music publishing business and SMEJ for
the full fiscal year. Results for the year ended March 31, 2003
and 2004 in the Music segment include the consolidated results
of SMEIs recorded music business for the full fiscal year, as well
as the results of SMEIs publishing business and SMEJ for the
full fiscal year. The Pictures segment develops, produces and
manufactures image-based software, including film, video, and
television mainly in the United States of America, and markets,
distributes and broadcasts in the worldwide market. The Financial Services segment represents primarily individual life insurance and non-life insurance businesses in the Japanese market,
leasing and credit financing businesses and bank business in
Japan. The Other segment consists of various operating activities, primarily including a business focused on network service
business including Internet-related services, an animation production and marketing business, an imported general merchandise retail business, an IC card business, and an advertising
agency business in Japan. Sonys products and services are
generally unique to a single operating segment.
The operating segments reported below are the segments of
Sony for which separate financial information is available and for
which operating profit or loss amounts are evaluated regularly by
executive management in deciding how to allocate resources
and in assessing performance.
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Business segments
Dollars in
millions
Yen in millions
2003
2004
2005
2005

Electronics
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,624,181 4,838,268 4,786,236
$44,731
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
471,798
204,051
235,411
2,200
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,095,979
5,042,319
5,021,647
46,931
Game
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
936,274
753,732
702,524
6,566
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,757
26,488
27,230
255
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
955,031
780,220
729,754
6,821
Music
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
433,147
409,487
216,779
2,026
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,191
30,819
32,326
302
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
466,338
440,306
249,105
2,328
Pictures
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
802,770
756,370
733,677
6,857
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
802,770
756,370
733,677
6,857
5,025
Financial Services
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
509,398
565,752
537,715
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,878
27,792
22,842
213
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
537,276
593,544
560,557
5,238
1,707
Other
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
167,863
172,782
182,685
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,282
95,535
71,742
671
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
261,145
268,317
254,427
2,378
Elimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(644,906)
(384,685)
(389,551)
(3,641)
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,473,633 7,496,391 7,159,616
$66,912
Electronics intersegment amounts primarily consist of transactions with the Game and Pictures segments.
Game intersegment amounts primarily consist of transactions with the Electronics segment.
Music intersegment amounts primarily consist of transactions with the Game segment.
Other intersegment amounts primarily consist of transactions with the Electronics segment.
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Segment profit or loss:

Dollars in
millions
Yen in millions
2003
2004
2005
2005
Operating income (loss):

Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
065,939
(6,824)
(34,305)
$ (321)
Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112,653
67,578
43,170
404
Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28,261)
(5,997)
8,783
82
Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,971
35,230
63,899
597
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,758
55,161
55,490
519
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28,316)
(12,054)
(4,077)
(38)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
203,744
133,094
132,960
1,243
Elimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,065
13,226
13,530
126
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,369)
(47,418)
(32,571)
(304)
Consolidated operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
185,440
98,902
113,919
1,065
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157,528
122,290
97,623
912
Unallocated amounts:
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(95,347)
(77,125)
(54,335)
(508)
Consolidated income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
247,621
144,067
157,207
$1,469
Operating income is sales and operating revenue less costs

and operating expenses.
In the quarter beginning October 1, 2003, the recognition
method for insurance premiums received on certain products by
Sony Life Insurance Co., Ltd., was changed from being recorded
future insurance policy benefits, reducing revenue in the Financial

Services segment in the year ended March 31, 2004 and 2005,
by approximately 30.8 billion and 32.5 billion ($304 million),
respectively. This change did not have a material effect on
operating income.
as revenues to being offset against the related provision for

Assets:
Dollars in
millions
Yen in millions
2003
2004
2005
2005
Total assets:
Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,973,972 2,995,306 3,434,138
$32,095
Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
673,208
684,226
482,037
4,505
Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500,627
483,990
325,928
3,046
Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
868,395
856,517
863,056
8,066
2,897,119
3,475,039
3,885,517
36,313
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
333,485
371,720
347,885
3,251
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,246,806
8,866,798
9,338,561
87,276
Elimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(266,167)
(319,204)
(439,489)
(4,107)
Corporate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
389,906
543,068
600,028
5,608
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,370,545 9,090,662 9,499,100
$88,777
Unallocated corporate assets consist primarily of cash and cash equivalents, securities investments and property, plant and equipment maintained for general corporate purposes.
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Other significant items:

Dollars in
millions
Yen in millions
2003
2004
2005
2005
Depreciation and amortization:

Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
203,433
210,888
275,701
$2,577
Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,496
57,256
16,504
154
Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,008
16,123
9,451
88
Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,552
7,844
5,598
52
Financial Services, including deferred insurance acquisition costs . . . . . . . . . . . . . . . . .
52,041
56,586
52,788
494
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,157
13,455
8,564
80
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
347,687
362,152
368,606
3,445
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,238
4,117
4,259
40
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
351,925
366,269
372,865
$3,485
Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181,316
251,980
311,101
$2,908
Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,986
100,360
18,824
176
Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,291
3,651
2,894
27
Pictures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,138
6,013
5,808
54
Capital expenditures for segment assets:
3,655
4,618
3,845
36
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,993
10,124
6,149
57
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
259,379
376,746
348,621
3,258
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,862
1,518
8,197
77
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
261,241
378,264
356,818
$3,335
The capital expenditures in the above table represent the

additions to fixed assets of each segment.
configuration. The main changes are that AIWA product group

has been moved from Other to Audio or Video or Televi-
The following table is a breakdown of Electronics sales and

operating revenue to external customers by product category.
sions, and the set-top box product group has been moved
from Video to Televisions. Accordingly, sales and operating
The Electronics segment is managed as a single operating

segment by Sonys management. Effective for the year ended
revenue for the years ended March 31, 2003 and 2004 have
been restated to conform to the presentation for the year ended
March 31, 2005, Sony has partly changed its product category
March 31, 2005.

Dollars in
millions
Yen in millions
2003
2004
2005
Audio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0,784,114 0,675,496 0,571,864
$05,345
Video . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
828,308
949,261
1,034,736
9,670
Televisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
981,655
925,501
957,122
8,945
Information and Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
836,724
834,757
778,374
7,275
Semiconductors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
204,710
253,237
246,314
2,302
Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
527,782
623,799
619,477
5,789
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
460,888
576,217
578,349
5,405
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,624,181 4,838,268 4,786,236
$44,731
BH6/30
2005
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Geographic information:
Sales and operating revenue which are attributed to countries based on location of customers for the years ended March 31, 2003,
2004 and 2005 and long-lived assets as of March 31, 2003, 2004 and 2005 are as follows:
Dollars in
millions
Yen in millions
2003
2004
2005
2005

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,093,880 2,220,747 2,100,793
$19,634
U.S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,403,946
2,121,110
1,977,310
18,479
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,665,976
1,765,053
1,612,536
15,070
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,309,831
1,389,481
1,468,977
13,729
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,473,633 7,496,391 7,159,616
$66,912
Dollars in
millions
Yen in millions
March 31
2003
2004
2005
2005
Long-lived assets:
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,365,160 1,430,443 1,414,632
$13,221
U.S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
713,524
671,534
662,120
6,188
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164,459
211,147
183,620
1,716
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148,616
133,640
144,896
1,354
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,391,759 2,446,764 2,405,268
$22,479
There are not any individually material countries with respect to

the sales and operating revenue and long-lived assets included in
Europe and Other areas.
There are no sales and operating revenue with a single major

external customer for the years ended March 31, 2003, 2004
and 2005.
Transfers between reportable business or geographic segments

are made at arms-length prices.
BH6/30
Page 127
05.7.7, 3:32 AM
The following information shows sales and operating revenue

and operating income by geographic origin for the years ended
supplemental information in accordance with disclosure requirements of the Japanese Securities and Exchange Law, to which
March 31, 2003, 2004 and 2005. In addition to the disclosure

requirements under FAS No. 131, Sony discloses this
Sony, as a Japanese public company, is subject.
Dollars in
millions
Yen in millions
2003
2004
2005
2005

Japan
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,247,030 (2,352,923 (2,249,548
$(21,024
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,433,998
2,514,698
2,575,093
24,066
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,681,028
4,867,621
4,824,641
45,090
20,246
U.S.A.
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,632,176
2,341,304
2,166,323
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
189,502
198,450
235,362
2,200
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,821,678
2,539,754
2,401,685
22,446
14,244
Europe
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,520,930
1,647,694
1,524,182
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121,598
66,950
52,417
490
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,642,528
1,714,644
1,576,599
14,734
1,073,497
1,154,470
1,219,563
11,398
Other
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
789,444
813,798
804,721
7,521
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,862,941
1,968,268
2,024,284
18,919
Elimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,534,542) (3,593,896) (3,667,593)
(34,277)
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,473,633 (7,496,391 (7,159,616
$(66,912
Operating income:
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0,011,444 0,0(69,875) 0,000,(765)
98,762
85,290
72,414
677
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,206
78,822
12,186
114
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63,773
70,543
58,554
547
Corporate and elimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50,745)
(65,878)
(28,470)
(266)
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0,185,440 (0,098,902 (0,113,919
$(01,065
BH6/30
$00,00(7)
U.S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page 128
05.7.7, 3:32 AM
Report of Independent Auditors
BH6/30
Page 129
05.7.7, 3:32 AM
Stock Information
Ownership and Distribution of Shares

2003
2004
Foreign institutions and individuals . . . . . . . . .

Japanese financial institutions . . . . . . . . . . . .
Japanese individuals and others . . . . . . . . . .
Other Japanese corporations . . . . . . . . . . . . .
Japanese securities firms . . . . . . . . . . . . . . . .
331,477,756
249,934,658
281,939,398
51,973,659
10,131,705
1,660
446
791,371
6,017
121
366,289,954
192,651,120
316,428,972
44,113,525
10,006,709
1,444
386
823,335
5,726
97
480,990,694
172,413,987
300,072,586
37,334,315
9,471,631
1,409
350
776,192
5,240
72
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
925,457,176
799,615
929,490,280
830,988 1,000,283,213
783,263
Foreign institutions and individuals

2003
Number of
shareholders
20.7%
48.1%
Number of
shares held
Number of
shareholders
Japanese
securities
firms
Other Japanese
corporations
Japanese individuals and others
27.0%
39.4%
2005
Number of
shares held
Japanese financial institutions
35.8%
2004
Number of
shareholders
2005
Number of
shares held
30.5%
5.6%
1.1%
34.0%
4.8%
1.1%
3.7%
1.0%
17.2%
30.0%
Stock Price Range and Trading Volume on the Tokyo Stock Exchange
Nikkei stock average
Closing price of Sony Corporation stock
Subsidiary tracking stock
Stock price and

Nikkei stock average
(Yen)
25,000
20,000
15,000
10,000
5,000
Trading volume
(Million shares)
200
100
0
2001
Notes: 1.
2.
3.
4.
2002
2003
2004
2005
This trading volume shows the monthly volume of trade on the Tokyo Stock Exchange. Each fiscal year starts in April and ends in March.
Stock prices and the Nikkei stock average is based on a simple average of daily closing prices for each day of every month at the Tokyo Stock Exchange.
Stock prices have been adjusted to reflect the two-for-one stock split completed on May 19, 2000.
On June 20, 2001, Sony issued 3,072,000 shares of subsidiary tracking stock.
2001
Stock price (Yen)

At year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual increase/decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,900
15,100
7,510
38.6.%
2002
6,700
10,340
3,960
24.7.%
2003
2004
2005
4,200
7,530
4,070
37.3.%
4,360
4,670
2,720
+3.8.%
4,270
4,710
3,550
2.1.%
Number of shares outstanding at year-end (thousands of shares) . . . . . . . . .
919,617
919,744
922,385
926,418
997,211
Market capitalization at year-end (Yen in trillions) . . . . . . . . . . . . . . . . . . . . . .
8.18.
6.16.
3.87.
4.04.
4.26.
Per share of common stock data (Yen)

Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income (diluted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25.0.
19.28.
2,521.19.
25.0.
16.67.
2,570.31.
25.0.
118.21.
2,466.81.
25.0.
89.03.
2,563.67.
25.0.
162.59.
2,872.21.
Note: Stock prices and per share data have been adjusted to reflect the two-for-one stock split completed on May 19, 2000. However, no adjustment to reflect such stock
split has been made to the number of shares outstanding at the year ended March 31, 2000. Stock price data are based on daily closing prices.
BH6/30
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05.7.7, 3:32 AM
Stock Acquisition Rights and Bond Information

As of March 31, 2005
Stock Acquisition Rights (SARs)

Name
The first series of common stock acquisition rights

The second series of subsidiary tracking stock
acquisition rights
The third series of common stock acquisition rights
The fourth series of common stock acquisition rights
The fifth series of subsidiary tracking stock
acquisition rights
The sixth series of common stock acquisition rights
The seventh series of common stock acquisition rights
The eighth series of subsidiary tracking stock
acquisition rights
The ninth series of common stock acquisition rights
Date of issue
(Exercise period)
Total number of
SARs to be issued
December 9, 2002
(December 8, 2012)
December 9, 2002
(December 8, 2012)
March 31, 2003
(March 31, 2013)
November 14, 2003
(November 13, 2013)
November 14, 2003
(November 13, 2013)
March 31, 2004
(March 31, 2014)
November 18, 2004
(November 17, 2014)
November 18, 2004
(November 17, 2014)
March 31, 2005
(March 31, 2015)
12,004
Exercise
price
Outstanding
balance
Percentage of
SARs exercised (%)
5,396.00
12,004
455
1,008.00
455
14,475
U.S.$36.57
14,201
1.9
13,978
4,101.00
13,978
455
815.00
455
12,236
U.S.$40.90
12,236
14,242
3,782.00
14,242
455
1,259.00
455
10,094
U.S.$40.34
10,094
Note: Stock acquisition rights numbers 1 through 9 were issued at no cost for the purpose of granting stock options. The number of shares to be issued upon exercise of each stock acquisition right is 100.
Convertible Bonds
Name
Date of issue
Interest rate
(%)
Total amount
of issue
Conversion
price
Outstanding balance
(Percentage of bonds converted)
Euroyen-denominated notes with convertible bond-type

stock acquisition rights and conversion restrictions
U.S. dollar convertible bonds
December 18, 2003
250,000.million
5,605.0
April 17, 2000
10
U.S.$57,331.thousand
13,220.0
April 16, 2001
10
8,814.0
December 17, 2001
5,952.23
April 15, 2002
10
6,931.0
250,000.million
(0%)
(0%)
(0%)
(0%)
(0%)
Years
Notes: 1. The stock acquisition rights of the bonds with stock acquisition rights (principal amount of 250 billion) cannot be detached from the bonds, and the exercise of a stock acquisition right causes
the corresponding bond to be canceled in lieu of a cash payment for purchase of shares. Due to this close interrelation between the bonds and stock acquisition rights, and in consideration of
the value of the stock acquisition rights and the economic value obtainable by issuing the bonds with the coupon, issue price and other terms of the issue, the stock acquisition rights are
issued at no cost.
2. All U.S. dollar convertible bonds were issued to provide equity-based compensation to certain executives in Sonys U.S. subsidiary companies. All U.S. dollar convertible bonds were issued for
distribution to certain executives in Sony Corporations U.S. subsidiary companies as an equity-based incentive plan. Although the conversion ratio is 0% for all these bonds, the value of bonds
issued does not match the outstanding balance of bonds because Sony Corporation purchased and canceled a portion of these warrants that were not used for the incentive plan.
3. The fourth series of unsecured convertible bonds (outstanding balance: 5,008 million) was redeemed at maturity on March 31, 2005..
Bonds with Warrants

Name
The seventh series of unsecured

bonds with warrants
The tenth series of unsecured
bonds with warrants
The thirteenth series of unsecured
bonds with warrants
The fourteenth series of unsecured bonds with
warrants for shares of subsidiary tracking stock
Date of issue
Years
Interest rate
(%)
Total amount
of issue
Conversion
price
Outstanding balance
(Percentage of warrants exercised)
August 23, 1999
0.1
4,000 million
7,166.5
October 19, 2000
1.55
12,000 million
12,457.0
December 21, 2001
0.9
7,300 million
6,039.0
December 21, 2001
0.9
3,300.0
4,000 million
(0%)
11,490 million
(0%)
6,920 million
(0%)
150 million
(0%)
150 million
Notes: 1. All bonds with warrants were issued for distribution to the directors and other executives of Sony Corporation as an equity-based incentive plan. The fourteenth series of unsecured bonds with
warrants for shares of subsidiary tracking stock was issued for distribution to the directors and other executives of Sony Communication Network. Regarding the tenth series of unsecured
bonds with warrants and the thirteenth series of unsecured bonds with warrants, Sony Corporation canceled a portion of the warrants that were not used for the incentive plan. As a result,
although the exercise ratio is 0% for both issues, the value of bonds issued does not match the outstanding balance of warrants.
2. The sixth series of unsecured bonds with warrants (4,000 million) was redeemed at maturity on August 17, 2004.
Straight Bonds
Name
The sixth (2) series of unsecured bonds

The seventh (2) series of unsecured bonds
The eighth (2) series of unsecured bonds
The eighth series of unsecured bonds
The ninth series of unsecured bonds
The eleventh series of unsecured bonds
The twelfth series of unsecured bonds
Date of issue
Years
Interest rate (%)
Total amount of issue
Outstanding balance
October 23, 1998

July 26, 2000
July 26, 2000
September 13, 2000
September 13, 2000
September 17, 2001
September 17, 2001
7
7
10
5
10
5
10
2.00
1.99
(Note 2)
1.42
2.04
0.64
1.52
15,000 million
15,000 million
5,000 million
100,000 million
50,000 million
100,000 million
50,000 million
15,000 million
15,000 million
4,900 million
100,000 million
50,000 million
100,000 million
50,000 million
Notes: 1. Sony Corporation assumed responsibility for the sixth (2) series of unsecured bonds, the seventh (2) series of unsecured bonds and the eighth (2) series of unsecured bonds as a result of its
merger with AIWA Corporation. Sony Corporation repurchased and canceled 100 million of the eighth (2) series of unsecured bonds.
2. The interest rate of the eighth (2) series of unsecured bonds is calculated by subtracting 2-year interest rate swap from 20-year interest rate swap and then adding 1.00%. (If the result of this
calculation is negative, the interest rate is 0%.)
BH6/30
Page 131
05.7.7, 3:32 AM
Investor Information
SONY CORPORATION
7-35, Kitashinagawa 6-chome, Shinagawa-ku
Tokyo 141-0001, Japan
Phone:
81-(0)3-5448-2111
Facsimile: 81-(0)3-5448-2244
DEPOSITARY, TRANSFER AGENT AND REGISTRAR

FOR AMERICAN DEPOSITARY RECEIPTS
JPMorgan Chase Bank
270 Park Avenue,
New York, NY 10017-2070
INVESTOR RELATIONS OFFICES

If you have any questions or would like a copy of our Form 20-F,
filed with the U.S. Securities and Exchange Commission, or our
annual report to shareholders, please direct your request to:
Japan
SONY CORPORATION
IR Office
7-35, Kitashinagawa 6-chome,
Shinagawa-ku, Tokyo 141-0001
Phone:
81-(0)3-5448-2180
Facsimile: 81-(0)3-5448-2183
U.S.A.
SONY CORPORATION OF AMERICA
Investor Relations
550 Madison Avenue, 27th Floor
New York, NY 10022-3211
Phone:
U.S. and Canada 800-556-3411
International
1-402-573-9867
Facsimile: 1-212-833-6938
U.K.
SONY GLOBAL TREASURY SERVICES PLC.
Investor Relations
11th Floor, St. Helens, 1 Undershaft
London EC3A 8EE
Phone:
44-(0)20-7444-9713
Facsimile: 44-(0)20-7444-9763
SONY ON THE INTERNET

Sonys Investor Relations Home Pages on the World Wide Web
offer a wealth of corporate information, including the latest
annual report and financial results.
http://www.sony.net/IR/
ORDINARY GENERAL MEETING OF SHAREHOLDERS
The Ordinary General Meeting of Shareholders is held in June
in one of the wards of Tokyo or in the city of Yokohama in
Kanagawa Prefecture, Japan.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ChuoAoyama PricewaterhouseCoopers
Tokyo, Japan
Contact Address:
JPMorgan Service Center
JPMorgan Chase Bank
P.O. Box 43013
Providence, RI 02940-3013
Phone: U.S.
800-360-4522
International 1-781-575-4328
CO-TRANSFER AND CO-REGISTRAR AGENT

CIBC Mellon Trust Company
2001 University Street, 16th Floor,
Montreal, Quebec, H3A 2A6, Canada
Phone: 1-514-285-3600
TRANSFER AGENT OF COMMON SHARES HANDLING
OFFICE
UFJ Trust Bank Limited
Corporate Agency Department
10-11, Higashisuna 7-chome, Koto-ku,
Tokyo 137-8081, Japan
Phone: 81-(0)3-5683-5111
OVERSEAS STOCK EXCHANGE LISTINGS
New York, Pacific, Chicago, Toronto, London, Paris, Frankfurt,
Dsseldorf, Brussels, Vienna and Swiss stock exchanges
JAPANESE STOCK EXCHANGE LISTINGS
Tokyo and Osaka stock exchanges
NUMBER OF SHAREHOLDERS
(As of March 31, 2005)
783,263
Information regarding CSR
(Corporate Social Responsibility)
Sonys CSR and Environmental Activities Report and
information about Sony CSR and environmental
activities can be accessed at the following web site.
http://www.sony.net/csr/
Inquiries concerning the aforementioned activities can be
directed to:
Sony Corporation
Social and Environmental Affairs,
Compliance Office
Phone: 81-(0)3-5448-3533
Facsimile: 81-(0)3-5448-7838
BH6/30
Page 132
05.7.7, 3:32 AM
Motion pictures and artwork 2005 Sony Pictures Entertainment Inc.

All rights reserved.
SONY AR-E0629
Page 37
Printed on 100% recycled paper.

Printed using VOC (volatile organic compound)-free vegetable oil-based ink.
05.7.6, 2:16 PM

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Contents

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FOR THE YEAR

Cash flows from operating activities . . .

Sales and operating revenue

Net income and ROE

Sales and operating revenue (left)

Cash flows from operating activities

*Years ended March 31

*Years ended March 31

* Years ended March 31

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Operating Performance Highlights

Sales (Financial Services Revenues) and

Financial Highlights by Business Segment

Notes: 1. Sales=Sales and operating revenue

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Fiscal Year in Review

The Electronics segment comprises audio, video, televisions,

The Game segment encompasses Sonys game console and

Sales in this segment fell 6.5%.

The Music segment comprises the

The Pictures segment

The Financial Services segment

This segment comprises a variety of

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A Message from Nobuyuki Idei

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Sir Howard Stringer

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A Message from Sir Howard Stringer

Sir Howard Stringer

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QUALIA 006 70-inch Micro-Display SXRD TV

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Sony Ericsson Mobile Communications AB, established in October 2001 as a

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The PlayStation 2 platform continues to expand further.

an all-time high of 252 million units.

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PLAYSTATION 3, SCEs next-generation computer entertainment system, is

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PlayStation Portable (PSP)

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Spider-Man 2 Motion Picture 2004 Columbia Pictures

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Sony Music Network is leading the

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Sony Financial Holdings

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Sony Finance International

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R&D Strategies and Selection of Key Technological Fields

1080i Standard HD CCD

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Dual wavelength coupler

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