Statements made in this annual report with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future 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,” “may” or “might” and words of similar meaning in connection with a discussion of future operations, financial performance, events or financial performance.conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. Sony cautions you that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore you should not place undue reliance on them. You also should not rely on any obligation of Sony to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Sony disclaims any such obligation. Risks and uncertainties that might affect Sony include, but are not limited to (i) the global economic environment in which Sony operates, as well as the economic conditions in Sony’s markets, particularly levels of consumer spending; (ii) exchange rates, particularly between the yen and the U.S. dollar, euro, and other currencies in which Sony makes significant sales or in which Sony’s assets and liabilities are denominated; (iii) Sony’s ability to continue to design and develop and win acceptance of its products and services, which are offered in highly competitive markets characterized by continual new product introductions, rapid development in technology, (particularly in the Electronics business), and subjective and changing consumer preferences (particularly in the Electronics, Game, Music and Pictures businesses)segments); (iv) Sony’s ability to implement successfully the restructuring initiativespersonnel reduction and other business reorganization activities in its Electronics and Music and Pictures businesses andsegments; (v) Sony’s ability to implement successfully its network strategy for its Electronics, Music, Pictures and Pictures businesses; (v) Sony’s abilityOther segments and to compete and develop and implement successful sales and distribution strategies in light of internet and other technological developments in its Music and Pictures businesses;segments in light of the Internet and other technological developments; (vi) Sony’s continued ability to devote sufficient resources to research and development and, with respect to capital expenditures, to correctly prioritize investments (particularly in the Electronics business)segment); and (vii) the success of Sony’s joint ventures and alliances; and (viii) the outcome of contingencies.alliances. Risks and uncertainties are also include the impact of any future events with material unforeseen impacts.

Not applicable

Not applicable

This section contains forward-looking statements that are subject to the Cautionary Statement Regarding Forward-Looking Statements appearing elsewhere in this annual report. Risks to Sony are also discussed elsewhere in this annual report, including without limitation in the other sections of thethis annual report referred to in the “Cautionary Statement with RespectCautionary Statement.

Sony may not be successful in implementing its broadband network strategy.

Sony believes that the utilization of broadband networks to Forward-Looking Statements.”

Purchases of products from Sony’s productsElectronics, Game, Music and Pictures segments are to a very significant extent discretionary. Economic downturns and declinesAccordingly, weakening economic conditions or outlook can reduce consumption in consumption inany of Sony’s major markets includingcausing material declines in Sony’s sales and operating income. In the year ended March 31, 2003 approximately 28.0 percent, 32.2 percent and 22.3 percent of Sony’s sales and operating revenue were attributable to Japan, the U.S., and Europe, respectively. If the current unfavorable economic climate in Japan continues, if the U.S. and Asia/Latin AmericaEuropean economies decline, if the effects of international political and military instability depress consumer confidence, or if other negative economic trends continue or accelerate in any of Sony’s major markets, Sony’s short to mid-term profitability may thusbe significantly adversely affected.

Foreign exchange fluctuations can affect the level of sales and Sony’s results reported in yen due to currency translation.

Sony’s consolidated statements of income are prepared from the local currency-denominated financial results and condition.

Foreign exchange fluctuations can affect Sony’s results of operations due to sales and expenses in different currencies.

Short-term exchange rate fluctuations affect Sony’s operating profitability because many of Sony’s products are sold in countries other than the ones in which they were manufactured. The Electronics and Game businesses, operating profits and losses segments

are highlyespecially sensitive to the yen’s appreciation because the research and development/development, production activities and headquartersadministrative functions are concentratedlargely located in Japan so that the ratio of yen-denominated costs to total costs is higher than in other business segments. Profits and losses resulting from differences between hedged rates and market rates in the evaluation or executionratio of contracts entered for the purpose of currency hedging such as foreign exchange forward contracts and foreign currency option contracts byyen-denominated revenue to total revenue. Although Sony Corporation and its subsidiaries hedge the net foreign currency exposure resulting from import and export transactions shortly before they are projected to occur, such as Aiwa Co., Ltd., Sony Computer Entertainment Inc., and finance subsidiaries inhedging activity cannot entirely remove the U.S., Europe, and Asia are recorded on a net basis in other income and expenses, and are not included in operating profits and losses. Although Sony engages in hedging transactions for actual requirementseffect of exchange rate fluctuations.

Mid- to minimize the negative effects from short-term fluctuationslong-term volatile changes of foreign exchange rates among major invoicing currenciesrate levels, such as the decade-long strengthening of the yen against major currencies between 1985 and 1995 when it strengthened against the U.S. dollar eurofrom over 260 yen to less than 80 yen, may interfere with Sony’s global allocation of resources and yen, mid-to-long-term volatile changes of the exchange rate levels make it difficult for Sonyhinder Sony’s ability to execute planned procurement, production, logistics, and sales activities in a manner that is profitable after the effect of such exchange rate changes. Refer to“Item 11. Quantitative and may adversely affect Sony’s consolidated financial resultsQualitative Disclosure about Market Risk” and condition.

Sony must continually develop new products reflecting technological advances.

Sony’s businesses, particularly the Electronics and Game segments and certain Internet-related businesses in accounting standardsthe Other business segment, compete in product markets characterized by rapid technological innovation and rapidly changing consumer demand. In order to compete in such markets Sony must continually innovate and adopt new technology in order to produce new products. Technologies that are significant for Sony’s future growth include new microprocessor and other system LSIs for the next generation of computer entertainment system, digital consumer electronics and broadband network products and display technologies for organic electro-luminescent displays, field emission displays, LCDs and imaging devices. Sony has incurred and may continue to incur significant expenditures in research and development and other expenses to develop and acquire technology, and if Sony is not successful in such efforts there may be promulgatedan adverse affect on Sony’s reputation as a technological innovator and on Sony’s sales.

Sony’s business reorganization efforts are costly and may not attain their objectives.

In order to allocate managerial resources properly into core areas and improve operating efficiency and profitability, Sony is concentrating its resources in profitable businesses by withdrawing from or downsizing under-performing businesses. In the last three fiscal years, significant restructuring activities include, in the future cannotElectronics segment, the exit from certain computer display CRT manufacturing activities, the restructuring of, acquisition of the third-party minority interest in, and subsequent merger with Aiwa Co., Ltd. and its subsidiaries (“Aiwa”) and the decision to close a semiconductor plant in the U.S., and, in the Music segment, the shutdown of a cassette and CD assembly and distribution center in Holland and a CD manufacturing facility in the U.S., and the downsizing of and withdrawal from a number of businesses designed to capitalize on the growth of the Internet through strategic investments. Sony is proceeding to reduce the number of its employees around the world, and personnel reductions have been carried out in the Electronics and Music segments. Restructuring has also been carried out in the Pictures segment, including the consolidation of its television operations and downsizing of the network television production business. Restructuring charges recorded for all segments combined were 35 billion yen, 107 billion yen and 106 billion yen for the years ended March 31, 2001, 2002 and 2003, respectively.

Sony is planning to incur costs totaling approximately 300 billion yen in restructuring charges over the next three years. Reorganization expenses incurred in connection with these actions are recorded in cost of sales or selling, general and administrative expense, and thus decrease Sony’s consolidated net income. Moreover, due to factors including regional labor regulations and union contracts, it may not be predictedpossible to execute such reorganizations as planned. Therefore such reorganizations may not result in reductions in expenses, improved efficiency, increased ability to respond to market changes or reallocation of resources to more profitable activities. Inability to fully implement successfully these planned restructuring initiatives may cause Sony to have insufficient financial resources to carry out its research and development plans and invest in targeted

growing business areas. Without such investment, Sony may not be able to develop advanced digital technology and create new types of products and business platforms that combine media content distribution services and broadband-ready digital technology products.

Sony must manage its supply of parts and inventory based on demand forecasts.

Particularly in the Electronics and Game segments Sony places orders for components, determines production and plans inventory in advance based on its forecast of consumer demand, which is highly volatile and difficult to predict. In the past Sony has experienced both a shortage of semiconductors that caused Sony to be unable to meet demand for its personal computers and AV products as well as a surplus in certain semiconductors that resulted in losses when semiconductor prices fell. Restructuring and other changes in the semiconductor industry may cause a shortage of supply of semiconductors and affect Sony’s production and/or the cost of goods sold because Sony consumes a tremendous volume of semiconductor parts and components for its products. Sony’s profitability may be adversely affected by supply or inventory shortages, delays in cost reductions or inventory adjustments that, as a result of efforts to reduce inventory by temporarily halting production or by reducing the retail price of goods, will lead to an increase in the ratio of cost of sales to sales and a resultant decrease in profitability. Sony writes down the value of its inventory when components or products have become obsolete, exceed the amount expected to be used or are otherwise recorded at more than net realizable value. Such inventory adjustments have had, and if Sony is not successful in managing its inventory may in the future have, a material adverse effectaffect on Sony’s reported consolidatedoperating income and profitability.

Sony’s Game and Electronics segments’ sales display year-end holiday seasonal variation.

Since the Game segment offers a relatively small range of products (PS one hardware, PlayStation 2 hardware and related software) and is dependent upon year-end holiday season demand, it is particularly susceptible to weak sales and supply shortages that prevent it from meeting demand for its products during this season.

The Electronics segment is also dependent upon year-end holiday season demand and, to a lesser extent, is susceptible to weak sales and supply shortages that prevent it from meeting demand for its products during this season.

Sony’s Music and Pictures segments are subject to digital piracy, and this risk grows more acute as new technologies develop.

In Sony’s Music and Pictures segments, technological developments have created new risks with respect to Sony’s ability to protect its intellectual property. Advances in technology that allow for the transfer and downloading of digital music and AV files from the Internet without authorization from the owners of rights to such content have threatened the conventional copyright-based business model by making it easier to create and redistribute unauthorized music and AV files. Such unauthorized distribution has adversely affected sales and operating results within the Music segment and threatens to adversely affect sales and operating income in the Pictures segment. These technological advances include new digital devices such as analog recorders, personal video recorders, CD and DVD burners and peer-to-peer digital distribution services. As a result, Sony has incurred and may continue to incur expenses to develop new services for the authorized digital distribution of music, movies and television programs and to combat unauthorized digital distribution of its intellectual property. These initiatives will increase Sony’s near-term expenses and may not achieve their intended result.

Sony’s Music segment is dependent on establishing new artists, and Sony’s Music and Pictures segments are subject to higher prices for talent.

Sony’s Music segment is highly dependent on establishing artists that appeal to customers, and the competition with other entertainment companies for such talent is intense. Therefore, if the Music segment is

unable to find and establish new talented artists, it may adversely affect this segment’s sales and operating income. In addition, with respect to both the Music and Pictures segments, Sony has experienced and may continue to experience significant increases in talent-related spending.

Sony’s Pictures segment is subject to labor interruption.

The Pictures segment is directly or indirectly dependent upon highly specialized union members who are essential to the production of motion pictures and television programs. A strike by one or more of these unions could delay or halt production activities. Such a delay or halt, depending on the length of time involved, could cause delay or interruption in the release of new motion pictures and television programs and thereby could adversely affect revenues and cash flows in the Pictures segment.

Sony’s Financial Services segment is subject to variability in claims, valuation losses, shifts in customers’ demand, prudent and foresightful ALM and mandatory contributions to a policy holder insurance fund.

Sony’s Financial Services segment faces unpredictable increases in insurance claims and shifts in customers’ demand from more profitable products such as life guarantees to less profitable products such as annuities. This segment also may incur valuation losses if the value of securities purchased for investment purposes continues to decrease. In addition if it failed to conduct Asset Liability Management (“ALM”) in a prudent and foresightful manner to pursue optimal combination of possible risks and expected returns on investment assets and underwriting risks on insurance policy benefit, Sony’s Financial Services segment may not be able to keep providing competitive products and services to customers on a long-term basis. Sony’s Financial Services segment is also subject to mandatory contributed reserves for the Life Insurance Policyholders Protection Corporation of Japan (“PPC”). The PPC was established in 1998 to provide financial resultssupport to insolvent life insurance companies, and condition.

Sony’s physical facilities and information systems are subject to damage as a result of disasters, outages, malfeasance or similar events.

Sony headquarters, part of Sony’s major data centers and many of Sony’s most advanced device manufacturing facilities, including those for semiconductors, are located in Japan, where the possibility of disaster or damage from earthquake is generally higher than in other parts of the world. In addition, Sony’s facilities and offices, including those for research and development, material procurement, manufacturing, logistics, sales, and services are located throughout the world and are subject to the possibility of disaster or outage or similar disruption as a result of any of a number of events. As the role of information systems becomes more important in Sony’s operating activities, such issues as shutdowns of information systems due to the aforementioned disasters, software/hardware defects, and computer viruses, as well as misappropriation, leakage, falsification, and disappearance of internal databases, including information of customers or vendors, pose increasing risks. Despite backup and other redundancies for major data centers, Sony may be unable to avoid or prevent such events, and if any such event occurs, it may impair Sony’s operational activities, generate expenses relating to physical or personal damage, or hurt Sony’s brand image.

Sony is subject to financial and reputational risks due to product quality and liability issues.

Sony products, such as software (including software for mobile phone handsets) and electronic devices including semiconductors, are becoming increasingly sophisticated and complicated as rapid advancements in technologies occur and demand increases for digital equipment. At the same time, since technological life cycles are becoming shorter, Sony is required to introduce new products and services in a shorter period of time. Handling these changes is particularly important for Sony because technological and product leadership is a factor in its competitive success. At the same time product quality and liability issues present greater risks. In the first half of the fiscal year ended March 31, 2002, Sony recalled products in the mobile phone handset business duplication amongfor quality reasons, which resulted in increased after-sales service expenses of 18.6 billion yen. Sony’s efforts to manage change and control product quality may not be successful and if they are not, Sony may incur expenses such as those for product recalls, service and lawsuits and Sony’s brand image and reputation for quality products may suffer.

Sony may be adversely affected by its group subsidiaries, by entering into alliances, joint ventures,employee benefit obligations.

Sony recognizes an unfunded pension obligation (in an amount equal to (i) its Projected Benefit Obligation or “PBO” less (ii) the fair value of plan assets and strategicaccrued pension and severance costs) as a pension cost in a systematic and gradual manner over employees’ average remaining service periods as required under FAS No. 87, “Employers’ Accounting for Pensions”. Any decrease of pension asset value due to low return from investments or increase of PBO due to a lower discount rate may increase unfunded pension obligations, resulting in an increase in pension expenses recorded as cost of goods sold or as a selling, general and administrative expense. Refer to Note 14 of Notes to Consolidated Financial Statements for more information regarding Sony’s pension and severance plans.

Most pension assets and liabilities recognized on Sony’s consolidated balance sheets relate to Japanese plans, which are designedsubject to improve the corporateJapanese Welfare Pension Insurance Law pursuant to which Sony is required to meet certain financial criteria including periodic actuarial revaluation and annual settlement of gain or loss of the plan. In case of a plan deficit, that is in excess of the actuarial reserve required by the law over the fair value of pension assets, Sony may be required to make an additional contribution to the Sony group by diversifying the businesses of its subsidiaries, business overlaps and inefficiencies may arise.

Sony’s products incorporate a wide variety of infringement will nottechnologies. Claims could be asserted against Sony or against our customers in connection with their use of Sony’s systemsthat such technology infringes intellectual property owned by others, and products, nor can there be any assurance as to the outcome of any such claims, givenclaim would be uncertain. In addition, many of Sony’s products are designed to include intellectual property licensed from third

parties. Based upon past experience and industry practice, Sony believes that it will be able to obtain or renew licenses relating to various intellectual properties useful in its business that it needs in the technological complexity of our systemsfuture; however, such licenses may not be available at all or on acceptable terms.

Increased reliance on external suppliers may increase financial, reputational and products.

Sony is subject to environmental and occupational health and safety regulations relating to matters such as reductions in the use of harmful substances, comprehensive risk management in manufacturing activities and final products, the use of lead-free soldering, decreases in the level of standby power, and the recycling of products and packaging materials. For example, in October 2001, Sony Computer Entertainment Europe Limited temporarily halted shipments of the PS one game console destined for the European market after Dutch authorities determined levels of cadmium were above the limits allowed under Dutch regulations. PS one shipments were resumed after confirming that there was no health risk to users during use, and Sony worked closely with Dutch authorities to replace non-compliant components to meet their standards. Moreover, on February 13, 2003 the European Parliament and the Counsel of the European Union published directives on waste electrical and electronic equipment and on the restriction of the use of certain hazardous substances in electrical and electronic equipment. These directives will generally require electronics producers after August 2005 to bear the cost of collection, treatment, recovery and safe disposal of past and future products from end-users and to ensure after June 2006 that new electrical and electronic equipment does not contain specified hazardous substances. While the cost of these directives to Sony cannot be determined before regulations are adopted in individual member states, it may be substantial. Sony may not comply in all cases with applicable environmental and other regulations, and if it does not, Sony may incur remediation cost or sustain injury to its brand image. Sony’s activities may be limited if Sony is unable to comply with such regulations, which could adversely affect Sony’s results.

Sony is subject to the risks of operations in different countries.

A substantial portion of Sony’s activities are conducted outside Japan, including in developing and emerging markets. Sony operates its manufacturing subsidiaries in 16 countries and its sales subsidiaries in 43 countries. Countries where Sony manufactures its principal products are Japan, Malaysia, China, the U.S., the U.K., Spain and Mexico. Sony seeks advantages from international operations, such as low-cost production and mid- to long-term potential of consumer markets in China, particularly in the Electronics and Game segments, and the potential prolonging of product life cycles in the current hardware business through sales to markets in Eastern Europe, the Middle East and East Asia (excluding Japan) in the Game segment.

However, international operations bring challenges. Production in China and other Asian countries of Electronics products increases the time necessary to supply products to Europe and the U.S., which can make it more difficult to meet changing customer demand and preferences. Concentration of production of personal

computer components in China and Taiwan could lead to production interruptions if another catastrophe or widespread contagion, similar to the spread of Severe Acute Respiratory Syndrome “SARS”, occurred there. Further, Sony may encounter difficulty in planning and managing operations due to unfavorable political or economic factors, such as the suspension of trading of the peso and resulting disorder in Argentina, cultural and religious conflicts or unexpected legal or regulatory changes such as import or export controls, nationalization or restrictions on repatriation of returns from foreign investments.

Sony is subject to competition from firms that may be more specialized.

Sony’s businesses face a broad range of competitors, from large international companies to an increasing number of relatively small, rapidly growing, and highly specialized organizations. Sony has a portfolio of businesses in different industries while many of its competitors specialize in one or more of these business areas. As a result, Sony may not fund or invest in certain of its businesses to the same degree that its competitors do, and these companies may have greater financial, technical, and marketing resources available to them than the businesses of Sony against which they compete.

Sony Corporation’s registered office is located at 7-35, Kitashinagawa 6-chome, Shinagawa-ku, Tokyo 141-0001, Japan, telephone +81-3-5448-2111.

The following table sets forth the significant subsidiaries owned, directly or indirectly, by Sony Corporation.

The following table sets forth Sony’s sales and operating revenue by operating segments and product categories.

SMEI and SMEJ produce recorded music and video through contracts with many artists worldwide in all musical genres. SMEI and SMEJ produce, manufacture, market and distribute CDs, MDs, DVDs, Super Audio CDs, and pre-recorded audio and video cassettes and produce and manufacture CD-ROMs and DVD-ROMs.

The Music businesssegment has an extensive and geographically diversified software manufacturing capacity, with plants in the U.S., Austria, Japan, Brazil, Australia, India, Canada, Hong Kong, and Mexico. Software is manufactured primarily for the Music business,segment, the Game business,segment, the Pictures businesssegment and third parties.

Global operations in the Pictures business global operationssegment encompass motion picture production, acquisition and distribution; television programming, syndication, production, acquisition and distribution; home videoentertainment acquisition and distribution; television broadcasting; digital production, online distribution and broadband services; and operation of studio facilities.

SPE’s motion picture arm, the Columbia TriStar Motion Picture Group, includes SPE’s principal motion picture production organizations, Columbia Pictures, Screen Gems and Sony Pictures Classics as well as Columbia TriStar Home Entertainment, Sony Pictures Releasing and Columbia TriStar Film Distributors International. SPE is an equity investor in Revolution Studios and marketshas the rights to market and distributesdistribute its motion picture product in over 80 percentthroughout most of countries around the world.

SPE also manages two studio facilities, Sony Pictures Studios, which includes post production facilities, and The Culver Studios, both of which are located at SPE’s world headquarters in Culver City, California.

The Financial Services business includessegment includes: Sony Life, Insurance Co., Ltd.,which underwrites insurance policies, primarily for individual life insurance products in Japan, and sells non-life insurance products provided by Sony Assurance; Sony Assurance, which conducts an insurance-related underwriting business, primarily individual lifeautomobile and medical insurance business in Japan,Japan; Sony Assurance Inc., which conducts individual automobile insurance business in Japan, Sony Bank, Inc., which conducts an Internet-based banking business, including personal loans, mortage loans, investment trusts, and deposits, for individual customers in Japan,Japan; and Sony Finance, International Inc., which conducts a leasing and credit financing business in Japan, focusing on a new credit card business utilizing a non-contact IC card technology developed independently by Sony for Internet shopping.

The Other business consistssegment is mainly comprised of various operating activities, includingNACS, which includes SCN, an Internet-related service business subsidiary mainly in Japan, an in-house oriented information system service business and an IC card business, and an advertising agency business in Japan and a location-based business in Japan and the U.S.