Untitled - David Kronemyer

conP"d$troHrs
KEY EVEilT3 O} I989
o Achieved record soles, income from
operolions, net income ond nel
income per shore.
o Completed on initiol public stock
offering of 35 million shores in
December. Listed on the Amsterdom
ond New York siock exchonges.
oAcquired lslond Records in July, ond
ogreed io ocquire A&M Records, os of
Jonuory 1990.
Ftltalrctal
HtcHttGHts
All amo!n}l in millions o{ Nerherloids suildeB onle$ s}ored othe ise 1988 % Chonoe
o Exponded music publishing with rhe
ocquisition of the Welk Music Group,
Sweden Music Publishing, ond the
music publishing operotions of the
lslond Group.
lnGome Stotement Dqtq
Net Soles
4,t 05
3,426
20
lncome from Operotions
457
339
J)
Net lncome
333
262
Nel lncome per Shore {NLG)
2.OA
1.64
27
Bolonce Sheet Doto
Totol Asseis
Long-Term Debt
3,693
l5r
2,944
43
25
251
Shoreholders'Equity
937
820
t4

To Our Shoreholders:
1989 wos on excellent yeor for
PolyGrom. We ochieved onolher
record in totol Group soles, income
from operotions, net income qnd net
income per shore.This follows similor
records in ,]987 ond 1988, ond five
yeors of consistent growth since
PolyGrom repositioned itself os o
compony with increosed focus on
developing ond morketing ortisis ond
reperloire.
The yeor wos olso the beginning of
o new ero for PolyGrom, in which we
mode mojor ocquisitions in populor
presence in the populor music
morkets, build our repertoire, ortisi
roster ond morket shore, ond give us
odditionol experienced ond respected
monogement skilled ot oitrocting ond
developing new ortists.
Our populor music revenues were
shorply higher in 1989. Our
iniernotionol morkeling copobilily
improved significontly. We hod
exceplionol performonces from o
number of cotrntries such os Fronce,
Itoly ond Brozil,We took odvontoge
of rhe breodth of our notionol ond
internoiionol cotologues. Most
importonily, the volue derived from
being o globol business wiih strong
noiionol componies come through
strongly in 1989.
ln our clossicol music business, we
increosed our soles ond profitobility
morkel severol films ond lelevision
progrommes.
music ond music publishing, ond
completed on initiol public offering of
35 million shores of common stock in
December.
The stock offering wos on
importont milestone for the Compony.
ln oddition to generoting cosh
resources which we were oble to use
in our ocquisition progromme, the
public offering hos olreody increosed
PolyGrom's public profile
intern otiono lly.
ln the lield of populor music, we
mode strotegic ocquisilions of lwo of
the most respected independent
recording componies in the world. We
ocquired lslond Records in July, ond
A&M Records, os of JonuorY 1990.
Both ocquisitions will increose our
levels, while continuing to defend our
leoding globol morket shore position
ogoinsi steodily increosing
competition. Soles conlinued to
benefii from the populority of the
compoct disc, which PolyGrom first
introduced with its clossicol repertoire
in ,l982.
ln our reloted businesses, we
continued to introduce CD Video
products worldwide, f urther
developed CD lnterociive softwore
for fuiure introduction, ond entered
into ogreemenls to produce ond
All of this could not hove been
occomplished without o dedicoted
ond experienced internotionol
monogement teom. ln ihe nexl four
poges of this report, five of my senior
colleogues ond I oddress mony of ihe
strolegic issues focing PolyGrom os
we enier the 1990's.
We ore enthusiosiic oboui the
chollenges ond opporir.rnilies oheod.
With the help of our 2,600 employees
worldwide, our ortisls, our customers,
licencees ond distributors, ond with
the support of our new shoreholders,
I om confidenl we will ochieve
our gools.
exponded our music pr.rblishing
/^)
octiviries wirh ihe ocqr.risition o[ the (/
Welk Music Gror..rp ond Sweden Music
Publishing, ond lslond s music
,,/
publishing operolions. We olso Lr/
-*
Dovid G. Fine
President ond Chief Executive Officer
Morch 15, 1990
-
\_)-/.-, -----""
2

Prior to PolyGrom's initiol public
offering in December 1989, the
Compony's senior execulives met wilh
members of the inveslmenl community
in over fifty meetings on three
continents to ocquoinl them wiih
PolyGrom. The questions osked in this
Diologue with Monogement ore
omong those being osked most
frequently by investors.
Gl: Mr. Fine, you hove spoken
of Polyorom entering o "new
ero". Whot moior chonges hove
fqken ploce over the po3t fiye
yeqrs lo po5illon the Gompony
for growth in the l990s?
Dovid Fine: PolyGrom is o very
differenl compony to whot ii wos in
1984. lt is o compony ihot hos further
developed its skills oi signing new
ortists ond ocquiring new reperloire,
boih in specific notionol morkets ond
ol on inlernotionol level. lt is o
morketing compony which hos
increosed its obilily lo merchondise
fully its extensive cotologue of
populor ond clossicol music. lt is o
stoble ond professionolly-monoged
compony with greot strength ond
depth of monogement worldwide,
oble to weother swings in ihe globol
economy, ond chonges in ihe
demogrophic ond sociologicol
mokeup of its morkets. li is on
innovqlive creotive group thoi, in
ossociolion with Philips, hos pioneered
new industry lechnologies ond is on
the culting edge of softwore
development. ln summory, il is o much
lorger compony, publicly-owned,with
o greoter morket shore ond
strengthened leodership worldwide.
Gl: Whot chonges hove you seen
from q finonciql point-of-view
durlng the sqme tlrne perlod?
Jon Cook: ln the lost five yeors, our
finonciol monogemenl ond controls
hove improved considerobly. Our
ossels ond investmenls ore now moinly
oimed ot ocquiring ond morketing
ortisls ond repertoire. lnlernolly, lhere
is o much greoter recognition of the
volue of reperloire ond bock
coiologue, cosh flow ond liquidity.
Everyone is owore lhot we ore
working for profil ond enhonced
operoting morgins. We ore olso o
much leoner compony with on
internoiionol monogement teom wilh
exlensive finonciol operoting
experience in o voriety of countries.
The result of oll this hos been to grow
revenues ond profits.
Q: Where does thot now ploco
Polycrom?
Dovid Fine: As o result of these
chonges, lbelieve PolyGrom is better
positioned lhon ot ony iime in its
history to be o world leoder in recorded
music, music publishing ond ollied
fields of oudio-visr-rol enterloinmenl.
Q: How would you
chqrocterlse PolyGrom,s
portormonce in 1989?
Dovid Fine: Very sotisfoctory. Soles
were r-rp 200lo. lncome from operotions
increosed 350/0, net income rose 270/0,
ond morgins coniinued to improve.
We mointoined our morket shore in
on exponding morket. We mode four
strotegicolly imporlont ocquisitions,
Our iniiiol public offering of 35 million
shores wos oversubscribed on three
continents. And mosi imporlont, we
continued io build on on olreody
slrong orlist ond repertoire bose,
Gl: Whor will be the impoct of
the lslond qnd A&ll
ocquieitions?
Aloin L6vy: In lhe very short-lerm,
in ,l990, there will be some pressure
on the bottom line os we move to
iniegrote lslond ond A&M into the
PolyGrom Group. Longer-term,

however,lhe impoct will be verY
positive. lslond ond A&M hove
excellent monogemenl in Chris
Blockwell, Jerry Moss ond Herb Alpert,
eoch with o proven trock record in
ottrocting new ortists ond bringing
them to morket successfully The U.S. is
on oreo where we need to strenglhen
PolyGrom, ond it is porticr-rlorly in the
U.S. where lslond ond A&M will helP
lo enhonce our profile. Most
imporlontly, lhe lwo componies bring
us odditionol cotologue, which will
contribute significontly to the growth
ol our notionol comPonies os well os
our globol business.They will olso give
us added morket shore ond criiicol
moss, both of which ore imPortont in
our business.
Q: How did PolyGrom do so
well in populor music in 1989,
in the sbsence of ony notoble
mego-hits?
Aloin L6vy: We ore verY skilled ot
whoi we coll "extended morketing".
We hove leorned how lo brooden lhe
oudience Ior o recording beyond its
originol purchosers, bY Promoting
strotegicolly through rodio, television
ond the prinl rnedio. We hove olso
continued lo exploil cotologue
through reissues in the CD Iormot ond
the releose of ortist comPilolion
olbums.
Qr How would you describe
the Compony'3 clqssicol music
performonce ln 1989?
Tim Horrold: 1989 wos o verY
successful yeor.We improved our
overoll morkel shore, with oll three
of our clossicol Iobels - Deutsche
Grommophon, Philips Clossics ond
Decco/ London - ochieving record
soles ond profils.Thot wos
occomplished in the foce of growing
competilion, bul in o good morket for
clossicol music. Equolly importont, we
were successful in renewing longstonding
controctuol ossociolions wilh
mony of the best known ortists ond
orcheslros oppeoring on our three
lobels, os well os introducing
recordings by new young oriists lo o
worldwide public for the first time.
Gl: How do PolyGrom's reloted
businesses fir, ond whot is rhe
strolegy in this oreo?
Michoel Kuhn: PolYGrom is o "Pure
ploy" recorded music group.We ore
olso involved, however, in testing the
woter in ossocioted oreos, ony one of
which con become o significont
contributor in lhe nexl lhree to five
yeors.These reloted oreos ore
concerned with odditionol corriers of
oudio ond visuol enterloinmenl - CD
Video, CD lnterocfive, os well os film
ond television. Our venlures in these
oreos complemenl our businesses wilh
our existing corriers - oudio loPe
cossetle, compoct disc, video toPe
cossette, ond vinyl disc.They simply
represenl odditionol woys for us lo
presenl our ortisls ond reperloire.
Gl: Whor i3 PolyOrom's outlook
lot l99O?
Jon Cook: 1990 will be o Yeor of
consolidolion for PolyGrom, following
four ocquisitions ond on initiol public
of{ering. From on industry stondpoint,
we expeci further worldwide growlh
in lhe soles of recorded music, oided
by conlinued peneirotion of the
compoct disc in lhe morket Ploce.
PolyGrom expects o significonl
improvemenl in world morkel shore
due to the ocquisilion of lslond ond
A&M.We olso look for o sirong Yeor
from PolyGrom repertoire oi both the
nolionol ond internotionol level, due
to increosed morketing of currenl
product ond bock cotologue, ond the
introduction of new orlisls ond new
recordings.
4

Gl: Whar doe3 thol meon
flnonciolly?
Dovid Fine: We expect soles to be
ot record levels in 1990, wilh
commensurote profits even ofter
obsorbing the integrotion cosis of
ocquisitions.
Gl3 Whot ore the moior
chollenges for the future?
Dovid Fine: We hove built our
business lo ihis poinl from o Europeon
bose, ond ore proud of our origins.
The opportuniiy for the future,
however, is to increose our U.S.
presence which now only represents
obout 15% o{ our revenue, bui over
300/o of the world's recorded music
business. We must build our U.S.
business ond by doing so, provide U.S.
repertoire for PolyGrom worldwide.
Bruce Mockenzie: Looking ot it
from o nolionol perspeciive, mony of
our morkets outside of the U.S. qre
foirly moture ones in which we
olreody hove significonl shores. ln
ihose countries, we need ro build
morkel shore by ocquisition, the
introduction of new ortisls ond
reperloire, or by growing the
oudience for our producl. ltoly, Spoin
ond Austrolio in porticulor stond out
os torgets of opportunity. We olso
hove the polentiol to grow in morkets
of culiurol offinily, such os oll of
Europe for Europeon orlists, or Spoin
ond Lotin Americo for Sponishspeoking
ortists.
Glr lhe world hos undergone
drqmotic politicol chonge in
1989 in Edstern Europe, Do
lh€se chonges presenl
opportunities fo. Polycrom?
Bruce Mockenzie: Eostern Europe
is experiencing unporolleled chonge,
ond PolyGrom is the best positioned,
becouse of iis long hisrory of selling
ond recording there, to benefit over
lime os lhe Eostern Europeon
economies develop.
Q! Whqt strotegies ore in
ploce to ottock the chollenges
of I99O ond beyond?
Aloin L6vy: ln the short term, we
hove progrommes underwoy lo
integrote lslond ond A&M inio the
PolyGrom Group ond io reorgonise
our U.S. business for moximum
ef f iciency, growth ond prof itobility.
Tim Horrold: And in South Eost
Asio we hove olreody mode
oggressive moves in Toiwon ond
Koreo to open new componies there.
ln our clossicol business, we ore toking
lhe long-term view, working hord lo
ideniify young emerging orlists ond
sign them for o long-term coreer.We
olso hove slrolegies lo help us grow
in developing morkels, os well os lo
ensure thoi PolyGrom's clossicol ortists
ond repertoire will be port of the
oudio-visuol future, be ii on on oplicol
disc, video cossetle or ony other
corrier.
Michoel Kuhn: ln the oudio-visuol
oreo, we hove releosed extensive
music video repertoire on VHS ond
CDV We ore enlorging our morkets os
CDV hordwore goins occeptonce. CD
lnieroclive softwore is well olong on
its development leorning curve, ond
is scheduled to be lounched in the
consumer morkel in 1991.We hove
reslruclured our music video
business to integrote it wiih our core
recorded music businesses. And we
hove entered inlo ioinl ventures to
produce ond morket specific film
ond television produci.
Gl: ln facing these chollenges,
is PolyGrom unique from its
comPelilion?
Bruce Mockenzie: PolyGrom is
unique, os Michoel Kuhn soid, in thot
we ore o "pure ploy" music
compony. We ore olso unique os o
Europeon-bosed globol recording
group composed of very slrong
notionol componies, eoch wiih their
own orlists ond repertoire, which
they morket iogether wilh our
internotionolly occloimed clossicol
ond populor recordings.
Q: Looking oheod, whot is
PolyGrom's vision for the
fufure?
Dovid Fine: Looking to 1995, we
woni lo remoin focused on the
populor ond clossicol music business,
bul we will expond our scope to

include musicolly-oriented visuol
products.These will include music
video on CDV ond VHS, film, CD
lnleroctive ond television
progromming thoi utilise our oriisls
ond reperloire. We will olso be in the
vonguord of new technology built on
the oplicol disc, providing pockoged
product for home eniertoinment ond
personol enrichment.
We will conlinue to be o group of
strong noiionol componies wilh o
globol perspective. We expect to be o
much bigger ployer thon ot present in
lhe u-S. morkel ond lo seek new
opportunities in the emerging morkets
of the world os the threoi of
unouihorised copying of our producl
on on industriol scole is controlled by
legisloiion. Finolly, we hope lo expond
ihe morkels lor home, workploce ond
mobile enterloinmenl, using our
globol distribution ond morkeiing
copobility.
Gl: And whot qr€ PolyGrom's
financiol gools for the luture?
Jon Cook: We seek lo conlinuolly
improve Group soles, income from
operotions, net income ond
shoreholders' equity per shore.
Additionolly, we look to improve our
current operoling morgins, up monyfold
from severol yeors ogo, ond from
its current l lolo-
Diologue with Alonqgement
Parlicipontg
Dovid G. Fine, o British cilizen, hos
been in lhe music induslry for over 35
yeors. He ioined PolyGrom in 1979 os
Chief Execuiive Officer of PolyGrom's
U.K. operolions, become Executive
Vice Presidenl o{ the Compony in
1983, ond wqs nomed Presideni ond
Chief Execuiive Officer ond o member
of the Boord of Monogemenl in 1982
Jon Cook ioined PolyGrom from
Philips in 1974. After serving in o
senior finonciol posilion in the U.S.
until 1978 qnd then in music
publishing, he wos oppointed
Executive Vice President, Chief
Finonciol Officer ond o member o{ the
Boord of Monogemenl in 1985. He is
o notive of The Netherlonds.
fim Horrold, o duol Brilish qnd
Conodion citizen, joined PolyGrom in
l9Z0 in the U.K., ond subsequently
served in senior executive copocilies
in the U.S., Conodo ond Germony. He
wos oppoinled on Executive Vice
President in 1984 with responsibilily
for clossicol music, ond olso hos
responsibility for cenlrol
monufocturing ond dislribution
operoiions ond the Group's operolions
in Soulh Eosl Asio ond Jopqn.
Aloin L6vy' o French cilizen, wos
oppointed Chief Execulive O{ficer of
PolyGrom's French operotions in 1984,
ofier o 12 yeor coreer with CBS in
New York qnd Fronce. ln
'1989, he wos
nomed Execulive Vice Presidenl wilh
responsibility for popr-rlor music, music
publishing ond PolyGrom's operotions
in Fronce. He is olso serving os Chief
Execulive Officer of PolyGrom U.S.A.
llichoel Kuhn, o British notionol,
joined PolyGrom in 1964 in the U.K.
He wos oppoinled Generol Counsel in
1983 ond in 1987 Senior Vice Presideni
wilh responsibiliry for music video,
CDV CDl, films ond lelevision.
D, Bruce tlcckenzie, on
Austrolion cilizen, ioined PolyGrom in
1983 os Monoging Director of its
Auslrolosion operolions. He wos
oppoinled Senior Vice President
responsible for regionol operotions
in 1987.

Popular tnusic had a re

Wet Wel Wel, Elton John, Von Morrison ond the debut
olbum from Texos selling in excess of one million unils
worldwide, o rore occurrence for o first olbum. The nolionol
componies - Polydor, Phonogrom qnd London - were ioined by
lslond Records in mid-'1989 qnd the U.K. orm of A&M Records in
Jonuory l990.This combinolion of five highly successful yet diverse locol
componies will give us not only continued U.K. morkel leodership in
1990, but substontiol internqtionol soles ond income.
PolyGrom U.S.A. increosed ils inlernotionql prominence in
1989, due moinly to lhe conlinued world touring of rock supergroup
Bon Jovi, together with criticolly occloimed olbums f rom Michelle
Shocked, John Mellencomp ond the ropidly-developing Don Reed
Network. PolyGrom's U.S. presence will be strongly bolstered by the
oddition of lslond Records in NewYork, ond in 1990, A&M Records in
Los Angeles.
PolyGrom Germony wos very successful with its three
componies - Polydor ond Metronome in Homburg ond Phonogrom in
Cologne - with locol ond world selling ortisls such os Jomes Lost,Yello,
Gionno Nonnini, Doro ond Comoufloge. PolyGrom Hollond hod
increosing inlernolionol success on the Polydor ond Phonogrom lobels
with its rosler of octs including BZN, Lois Lqne ond Gerord Joling, ond
further enhonced its reputolion os o most successful nolionol repertoire
compony.
Similor notionol morket leodership wos ochieved in mony other
morkets, wilh PolyGrom's operotions in Soulh Eqst Asio being worthy of
speciol mention. Similorly, PolyGrom Brozil hod locol ortists such os
Wondo, Cozuzo ond Kororo eoch sell over hqlf o million units, together
with mony oriists now being developed worldwide os port of the lotest
"lombodo" donce sensolion.
ln ltoly, we lounched the second million-plus selling olbum
from Zucchero, who in Jonuory '1990 begon o mojor internotionol
coreer by performing os the opening ocl for Eric Clopton's
W'e atquited two ttf the rnost
t' e s p e c tat al inrlc p e nde nt
recot'd eornpanies -
Island a'r.I A&DI-

Vlb now' have a witfu:
portfolio o;f national and
inle.r national an'lists, as
well as conpeling record
organisations in all our
sIrate,gi.: r,n.a'.kets.
record-breoking concerls in London.
ln oddition lo PolyGrom's slrengih in notionol reperloire ond
its increosing inlernotionol polenliol, 1989 qlso sow the soles evoluiion
of exlended morketing compoigns ocross mony morkets of qrlists whose
product hod been delivered prior lo 1989. This opprooch lo exlending
lhe soles life of estoblished ortists led to odditionol world soles of more
thon o million units eoch of olbums from Dire Stroits, Def Leppord, Bon
Jovi, Bononoromo, Vongelis ond lhe Andrew Lloyd Webber hit musicol
"The Phontom o{ the Opero".
Following the ocquisition of lslqnd ond A&M, PolyGrom in
1990 is not only bolstering ils U.S. operolions, but through restructuring
ond exponsion, is looking ot increosing the number of creolive record
componies in morkets such os Austrolio, ltqly, JoPon ond severol olher
lerritories.
lslond's presligious rosler of currenl ortisls includes lhe world
renowned lrish bond U2, os well os Anthrox, Melisso Etheridge,Tone Loc,
Tom Woits ond The Christiqns. lslond's bock cotologue, which hos
consideroble exploitolion potentiol, includes Bob Morley ond The
Woilers, Cot Stevens, Sleve Winwood, The Spencer Dovis Group, Robert
Polmer ond Foirporl Convention, os well os mony legendory reggoe
recordings.
Current A&M ortisls include Jonet Jockson, Suzonne Vego,
Bryon Adoms, Herb Alperl ond the Tiiuono Bross, Chris de Burgh, '38
Speciol ond Sting. ln oddition, A&M's bqck cotologue consists of
opproximotely 9,000 tilles, including recordings by world-fomous ortisls
such os Joon Armotroding, Burl Bochoroch, The Corpenlers, Joe Cocker,
Peter Fromplon, Quincy Jones, Sergio Mendes, Nozorelh, The Police, Styx
ond Supertromp. A&M ond lslond will be oriislicolly oulonomous unils
wiihin ihe PolyGrom Group.
We look for continued exponsion ond development in 1990,
oided signif icontly by the ocquisition o{ A&M ond lslond, ond
further morkef shore goins in mosl, if not oll, world
morkels.

PolyGrom hod qn eventful yeor in 1989 in the clossicol music oreo, where
it is the globol morket leoder with three world-renowned lobels -
Deutsche Grommophon, Philips Clossics ond Decco/ London. We improved
our overoll morkel shore worldwide, qnd eoch of rhe lobels wos qble to
increose ils soles ond profils lo record levels during the yeor.
significont volume in recent yeors with new releqses ond re-issued bock
The internotionol demond for clossicol music remoined slrong,
driven by increosing occeptonce of the compoct disc formot. PolyGrom
introduced the CD in 1982 through its clossicql business, ond hos goined
cotologue in lhe new formot.
The goins in soles, operoling income ond mqrket shore occurred
in lhe foce of growing compelition from both estoblished ond new lqbels.
The yeor's per{ormonce demonslrqted the strength of PolyGrom in
clossicol music, os well os our obility lo otlroct ond develop new orlists,
We were olso oble lo morkel our bock cotologue more successfully thon
ever before-
The outlook for 1990 is positive, with o full schedule of new
releoses being plonned for the yeor in the CD ond lope cossetle formots,
qs well os increosed emphosis being ploced on clqssicol releoses on CD
Video ond VHS videotope.
Decco/London
Sir Georg Solti mode his losl Europeon Tour os Music Director of lhe
Chicogo Symphony Orchestro ofter o 20 yeor ossociotion with the
orchestro. Decco releqsed lwo recordings to commemorote the tour -
Shoslokovich's Symphony No.8 ond Beethoven's Postorol Symphony,
the lotesl instolment of the Sohi/ CSO Beelhoven cycle. ln
oddition, the Clevelond Orchestro under Christoph von
Dohndnyi hod o very successful Europeon lour, releosing
Bruckner's Symphony No.9 ond Mohler's Symphony No.5
lo coincide with lhe event.
Luciono Povorotli mode moior oppeoronces in
Europe ond Jopon during the yeor in concert with lhe
promotion of his new best selling compilotion -
"Tulto Povorotli". ln oddition, "Povorolti ol Cornegie
Holl" wos Decco's top selling offering of the
yeor. The world-renowned tenor olso slorred
in o new recording of Verdi's "Rigoletlo".
Chrislopher Hogwood ond
The Acodemy of Ancient Music
completed lhe recording of the
complete Beethoven symphonies
on originol instruments. Begun
in 1983, this ombilious project
brought together the lorgest
ever number of originol
inslrumenls, moking
up on orchestro
thot resembled

os closely os possible
thol envisoged by lhe
composer.
Two moior evenls
were orgonised in '1989 to
celebrote Vodimir Ashkenozy's
25th onniversory on lhe Decco
lobel. "The Complete Musicion"
wos releosed in the Spring ond
the'Ashkenozy Edition" in lhe Foll,
coinciding wilh his emotionol return
lo ploy in lhe U.S.S.R. ofter o 26 yeor
obsence.
1989 qlso morked lhe 30 yeor
portnership between Dqme Joon Sutherlond ond
Decco, ond wos commemoroled by the releose of
six mid-priced sets of Dqme Joqn's finest triumphs.
Another besl-seller wos soprono Dome Kiri Te Konowo's
"Songs of lnspirotion" with lhe Mormon Tobernocle Choir.
Decco renewed its exclusive conlrqcl wilh Herbed Blomstedt
ond the Son Froncisco Symphony Orcheslro by issuing o new releqse
in Blomstedt's Nielsen Symphony cycle ond o complete version of
Grieg's "Peer Gynt". The lobel olso signed lhe sensolionol young ltolion
mezzo-soprono Cecilio Bortoli, ond releosed her debul recordings o{
"The Borber o{ Seville" qnd o recitol of Rossini orios.
Deutsche Grommophon
Leonord Bernslein wos nomed "Musicion of the Yeor" by ihe publicotion
"Musicol Americo" ond releosed powerful new recordings of Mohler
symphonies, os well os recording his own comic operetto "Condide".
Corlo Morio Giulini received Deulsche Grommophon's prestigious Golden
Gromophone Aword for his long-stonding ossociotion with the lqbel qnd
releosed q furlher recording in his occloimed Bruckner series wilh the
Vienno Philhormonic.
The yeor wos morked by first time recordings from cellist Moll
Hoimovitz, violinist Gil Shohom ond pionisl Lilyo Zilbersiein, os well os
Deutsche Grommophon debul recordings from Gerhord Oppiiz ond
Moriq Jo6o Pires. ln oddition, the Emerson String Quorlet wos oworded
Gromophone mogozine's "Record of lhe Yeor" oword.
ln opero, Luciono Pqvqrotti mode his debut recording for
Deutsche Grommophon, while Plqcido Domingo siorred in lhree opero
releoses for lhe lobel. Other opero recordings come from Cloudio
Abbodo, Jomes Levine ond Giuseppe Sinopoli.
Deutsche Grommophon ond the world of clossicol music were
soddened by the deoths of Herbert von Koroion ond Vlodimir Horowitz
in 1989.Von Korojon hod o close ossociotion of over 50 yeors with the
lobel, which hos the privilege of releosing his lhree finol recordings -
Tchoikovsky's First Piono Concerlo with the young Russion pionisl Yevgeny
Kissin qnd the Berlin Philhormonic Orchesiro, his lost opero recording of

"Un Bollo in Moschero" ond Bruckner's Sevenlh Symphony wilh the
Boulez, ond the Berlin ond Vienno Philhormonic Orchestros.
Deutsche Grommophon hos recorded the Berlin Philhormonic
since the eorly yeors of the century. Cloudio Abbodo's oppointment os
Vienno Philhormonic Orcheslro. Deulsche Grommophon olso releosed
"Horowitz ot Home", which immediotely become o best-selling releose
olong with "Horowitz in Moscow" releosed eorlier.
Looking lo the future, the lobel signed long-lerm controcls with
Trevor Pinnock, lvo Pogorelich, Mqurizio Pollini, Kryslion Zimermon, Pierre
Chief Conductor ond Artistic Director of thol orcheslrq ond the new Berlin
Philhormonic contrqcl ossure conlinuity of the sqme high musicol
stqndqrds for yeors lo come.
Philips €lossics
The Philips Clossics releose of the yeor wos Bizel's "Cormen" with Jessye
Normon in the title role. The recording wos supported by intensive
morketing compoigns worldwide, including o documentory film - "Jessye
Normon Sings Cormen" - shown in lhe U.K., Fronce, The Netherlonds,
U.S. qnd Germony. ln oddilion,Jessye Normon wos lhe stor of the July 14
Bicentenniql celebrqlion in Fronce, seen by hundreds of millions of
television viewers worldwide.
The other moior opero releose of lhe yeor wos Rossini's
"Guglielmo Tell", recorded live ot Lq Scqlq ond condudeC by Riccordo
Muli, the first opero under his new conlroct wilh the lobel.
At lhe Solzburg Festivol, Philips Clossics onnounced lhe mosl
ombitious recording proiect ever undertoken. Beginning in Augusl 1990,
the lobel will releose its complete Mozort Edition, conioining oll ihe works
composed by Mozort collected together for the firsl time ond issued in
one compoct disc series.
Philips Clossics signed three moior new conlrocts in l989.They
ore the young Russion boritone Dimitri Hvorostovsky, the winner of
lhe Cordiff Singer of the World Compelition; the world-renowned
Conodiqn Bross; ond the eminent Soviel conductor Vo16ry
Gergiev, music director of the Kirov Opero ond Bollet
Theotre. The lobel olso signed o new long-term recording
conlrocl with the Vienno Philhormonic Orchesfrq.
The Acodemy of St Mortin-in-the-Fields
celebroied its 3Oth onniversqry in 1989 with
the releose o{'Acodemy Jubilee", o len CD
sel of besl-selling ilems from lhe
orchestro's colologue.
The lobel olso releosed two
more recordings in its criticolly
occloimed Mohler symphony cycles
- Symphony No.5 wilh the Berlin
Philhormonic conducted by
Bernord Hoitink ond Symphony
No. I with Seiii Ozowo ond the
Boslon Symphony Orcheslrq.

Supplementory io its populor ond clossicql recording operolions,
PolyGrom is involved in music publishing, ond in oudio-visuol
entertoinment using video cossefte, Compocl Disc Video (CDV), Compoct
Disc lnteroctive (CDl), film ond lelevision progromming. li wos on
extremely oclive yeor for PolyGrom in lhese reloted businesses.
ln the music publishing field, we become one of the moior globol
componies with ihe ocquisition of the Welk Music Group, Sweden Music
Publishing ond lhe music publishing operotions of the lslond Group os
porl o{ the broqder lslond ocquisition.These ocquisitions, together with
olhers mode eorlier, provide us wilh over 82500 titles from which we con
receive royohy fees bosed on live, broodcost or recorded performonces.
The Welk Music Group cotologue, for exomple, hos 27,000 songs
from lhe Twenties to lhe present including lhe enlire Jerome Kern
colologue ond mony populor slondords ocquired over 30 yeors.
PolyGrom owns rights lo songs by Abbo, Elton John ond Morvin Hqmlisch,
omong mony others.
The 1989 ocquisitions complemenl those mqde eorlier of
Dick Jomes Music Limited of London, Cedorwood Music Publishing in
Noshville, Boby Records Publishing of ltoly ond severol olher smoller
music publishers.
We ore oggressively morkeling our music publishing colologue
to olher recording componies, performing ortisls, ond providers of music
for home, workploce or mobile use, ond ore octively seeking to ocquire
odditionol copyrights in our moior morkels.
PolyGrom is qlso involved in lhe production of films ond
television progromming. During 1989, we entered into ioint
venture production qrrongements with Los Angeles-bosed
Propogondo Films, ond Working Title Films Limited, o U.K.
independent film producer, lo produce severol films. ln
1989, fhe Compony hod five films in vorious stoges of
production ond posl-produclion.These included
"Fools of Forlune" with Julie "Chrislie ond Mory
Elizobeth Mostrontonio; "Chicogo Joe ond the
Showgirl" with Kiefer Sutherlqnd ond Emily
Lloyd; "Doddy's Dying" storring Beou
Bridges; ond "Wild ot Heort" direcled
by Dovid Lynch with Nicolos Coge,
Louro Dern ond lsobello Rossellini.

The lhree ioint venture portners
olso estoblished Monifesto Film
Soles to morket their films worldwide.
A televis ion f ilm - "Smock
ond Thistle" - ond o television
series - "Twin Peoks" - were olso
in produclion or post-production during lhe yeor.
Compoct Disc Video (Loser Disc) technology continued to build
morkei occeptonce in 1989, porticulorly in Jopon ond the U.S. where disc
production is increosing significontly to keep poce wilh oggressive
morkeling of CDV hqrdwore by o number of monufocturers. CDV is q
compoct disc thoi combines digitolly recorded music ond onologue video.
Bosed on lhe encouroging increose in soles of CDV ployers in
1989, we believe CDV holds promise os on odditionol corrier for
PolyGrom ortists qnd reperioire.
Our PolyGrom Music Video business hos been reorgonised, os
we work io integrote it with our core music business ond reqlise its full
polentiol. Best sellers in 'l989 included music videos by such ortists os Bon
Jovi, Def Leppord, Dire Stroits, Pink Floyd, Wet Wet Wei, Eric Clopton,
Level 42 qnd INXS. During the yeor, we entered into o worldwide music
video distribution ogreement with Chrysolis Records, ocquired the music
video cotologues of lslond Visuol Arts ond A&M ond releosed their music
video bock colologues.These ogreements broodened our music video
reperloire to include ortists such os Jonel Jockson, Chris de Burgh,Jethro
Tull, Midge Ure, Blondie ond The Procloimers.
PolyGrom, in coordinotion with Philips' development of hordwore
lechnology, is developing soflwore for the next generolion of CDs ofter
CDV. Known os CD lnteroctive or CDl, this new technology combines
digitolly recorded oudio with digitol video, wiih rhe odded feoture of
interoctivity for the user. Consumer inlroduclion of CDI in the U.S. is
currenlly plonned for 1991.

REPORT OF 'HE
BOARD OF MANAGEMENT
lnlgSg,PolyGromochievedrecordlevelsofnelsolesondnetincome,ocquiredtherecordedmUsicbUsinessoflslondond
threemusicpublishingoperotions,ogreedtoocquiretherecordedmusicbusinessofA&M'ondmodeoninitiolpublic
offering of PolyGrom shores on ihe Amslerdom ond New York stock exchonges'
Ner soles in 1989 increosed 20% to NLG 4.,] billion, on increose of NLG 679 million over 1988, of which NLG 178 million
come from newly consolidoted componies ond NLG 75 million wos due to currency flucluotions'
lncome from operolions grew 350/o to NLG 457 million, on improvemenl of NLG 118 million over l988 This figure included
o loss from new consolidotions of NLG 15 million. Growth of soles volume resulted in on increose of our gro5s morgin which
wos further enhonced os o resuli of lhe higher shore of compoct discs in the totol product mix.The penetrotion of ihe
compoct disc progressed further in 1989 ond the soles of musicossettes olso increosed; soles of convenlionol vinyl discs
continued to decline.The compoct disc occounted lor 540/o of PolyGrom's soles of recorded music in 1989'
polyGrom continued to develop music video, cD video ond cD Interoctive in l989.The reloted expenses ond investmenls
were obsorbed in lncome from Operolions'
Finonciol income ond expenses improved by NLG l2 million due to increosed inlerest eornings becouse of higher liquid
ossets during most of the yeor, ond due lo increosed interest rotes.The e{fective lox rote increosed to 340/o moinly becouse of
less utilisotion of loss corry forwords from prior yeors'
Net income grew 27a/o to NLG 333 million, on improvemenl of NLG 7l million over the ,]988 result There were no
extroordinory items in ,1989 or ,l988.
Shoreholders'Equily increosed l4% in 1989 from NLG 820 million to NLG 93l million This chonge is the bolonce of
increoses from retoined eornings, NLG 233 million; proceeds from the issue of l0 million shores, NLG 3,]3 million' ond other
chonges of NLG l9 million; decreoses becouse of goodwill on ocquisitions, NLG 367 million, ond tronslolion differences, NLG
8l million. Retoined eornings consisted of net income of NLG 333 million minus on interim dividend poid of NLG 100 million'
Deposits with Philips were fully repoid to PolyGrom, liquid ossets grew by NLG 473 million io NLG 869 million, ond bonk
loons were increosed by only N LG 98 million.
polyGrom's totol number of employees increosed from 6,996 ot the end of ,]988 to 7,593 oi the end of 1989. stoff
increoses stem from new consolidolions, ond from increoses in the morketing, distribution ond reloted octivities sectors'
ln t9g9, polyGrom ocquired the recorded music ond music publishing businesses of lslond lnternotionol Ltd. Other moior
ocqr'Jisiiions were ihe Welk Music Group ond sweden Music Pr-rblishing. Following on ogreement in 1989, on Jonuory 3, 1990
PolyGrom ocquired lhe recorded music business of A&M Records, lnc'
polyGrom begon 1990 with continuing growih. lt is expected thot PolyGrom's soles ond net income in 1990 will benefit
from the new reperloire which comes ovoiloble from the lslond ond A&M ocquisiiions ond from o furfher morket penelrotion
of the cD ond o growing demond for cD Video. our investment policy will be oimed ot enhoncing the exploitotion of our
reperloire, colologues, ond our monufocturing ond internotionol supply cenire {ocilities'
polyGrom's operoiions in tie U.S.A. ore in the process of being restructured following the ocquisiiion of lslond ond A&M.
No olher significont chonges in structure or orgonisotion ore expected, ond odditions to ihe loiol number of employees ore
moinly due to the ocquisition ond integrotion of A&M
Boorn, Morch 15,,]990
Dovid G. Fine
Jon Cook
Richord Busch
Dr Wolfgong Hix
Robert A.E. Siuyt

FIlIANCIAI
REVIEW COIITENTS
FINANCIAI. STATE ENIS
Accountlng Policlos
Conrolldoted Stotements of lncome of rhe polyorom
Group
20
22
Consolidoted Bolonce Sheets ofthe polyGrom Group 29
Con30lidoted Stotements of Cosh Flows of rhe polyGrom
Group
Notes to the Consolldoted Finonclsl Stotement3 of the
PolyGrom Group 25
Finonciol Stotements of PolyGrom N.y.
3t
Notes to rhe Flnoncicl Stotements of polyGrom N.V. 32
OTHER INFORIIAIION REOARDING POLYGRA N.V.
Auditors' R.eport
Di3tributlon of lncone occording to the Articles of
As3oclotion
Proposed Distribution of lncome
APPLICATION OF GENERATLY ACCEPTED ACCOUNTING
PRINCIPI.ES IN THE U.S.A.

ACCO U NII NG POLIGIES
Consolidoted finonciol slotemenls of the PolyGrom Group
The consolidoted finonciol stotements of the PolyGrom Group include the occounts o{ PolyGrom NV. ond its subsidiories
{the "PolyGrom Group").
The PolyGrom Group includes businesses oround the world which ore chiefly involved in the ocquisilion, produclion ond
morketing o{ repertoire os well os the soles ond distribution of pre-recorded sound corriers, such os records, cossetles, ond
compoct discs,ln oddition PolyGrom is engoged in oclivilies wilh respect lo music video, in lhe production of films, television
progromming ond in music publishing. Some Group componies ore olso involved in lhe developmenl of new softwJre
opplicotions for compocl discs.
Policies of consolldcrrion
The consolidoted finonciol stotements include oll of the subsidiories in which q conlrolling inlerest is held by PolyGrom
NY., or through ony of its subsidiories directly or indirectly. These componies ore included in full in the consolidotion; the
oggregote of minority interests of ihird porlies ore disclosed seporolely.
With regord io the finonciol stotements of the mojority of the Dutch privote limited liobilhy componies, included in the
consolidoted finonciol stotements, the exemption is opplied os referred to in orlicle 403, section l, Book 2 of lhe Civil Code.
Policies followed in yoluoiion ond income colculotion
HISTORIC COST CONVENTION
The voluotion os well os the depreciotion ond/or consumption of fixed ossets ond inventories, is bosed on the hisloric cost
convention wiih the exception of entities in highly inflotionory economies (hyper-inflotion countries) where the voluotion of
lhese ossels ond olso depreciotion ond/or consumpiion ore bosed on current volue.
FOREIGN CURRE NCIES
All foreign currency omounts in the bolonce sheets hove been lronsloled to Netherlonds guilders ("NLG") ot the officiol
exchonge roles oi lhe bolonce sheet dote. Goins ond losses resulting from foreign currency lronsoclions ore included in the
consolidoted slotements of income. Exchonge differences due lo the tronslolion inlo NLG of inveslmenls in foreign
subsidiories hove been occounled for os tronslolion differences in Shoreholders' Equity.
ln the consolidoted stotements of income, the omounts sloied for soles, expenses ond resulis ol foreign poriicipotions
hove been lronslqled to NLG bosed upon the rotes of exchonge for the periods involved.
ACQUISITION OF S U BSIDIARIES
Newly ocquired componies ore volued ot their net osset volue. Goodwill orising from o difference belween purchose
price ond net osset volue is occounted for directly in Shoreholders' Equity.
FACE VALUE
Unless specific voluotion rules ore meniioned, oll items in the finonciol sloiements ore volued ot foce volue.
Bolonce sheett
INTANGIBLE FIXED ASSETS
A cotologue of recorded music is considered on intongible ossel if the colologue is purchosed os pod oI o lobel
ocquisition.The omount recognised os on ossel is omortized if ond to the exlent thot the net present volue of lhe expected
income generoted by the ocquired lobel is less thon the book volue.
Music publishing rights ore volued bosed upon either lhe octuol omouni poid to third poriies or lhe present volue
o{ expected income, whichever is lower. Amortizotion is bosed on the eslimqted income pottern during lhe expected
economic life.
TANGIBLE FIXED ASSETS
Tongible fixed ossets ore generolly volued ot iheir ocquisilion cost less depreciolion. Depreciofion is colculoled on o
stroighi line bosis toking into occount the ossels'economic life.

AGGOUNIIilG
POLICIES
N ON-CON SOLIDATE D COMPANIES
The voluolion of invesiments in non-consolidoled componies is bosed on net osset volue. The voluotion of ossels, liobilities,
equity ond income of non-consolidoted componies reflecls, os much os possible, the occount;ng policies esioblished for lhe
consolidoted finonciol stotemenis.
INVENTORIES
Recording cosls qre volued ot cos| less depreciotion, which is bosed on the overoge economic life. Films ore volued qt cosi
or lhe eslimoted nel reolisoble volue, whichever is lower. Other inventories ore vqlued ol cost, bosed on o first-in first-oui
melhod, reduced by o provision for lhe risk of obsolescence, Any income derived from intercompony ironsfers of goods ond
moteriols hos been eliminoled.
RECEIVABTES AND PRE PAID EXPENSES
Trode occounts ond oiher receivobles ore volued ot foce volue less on ollowonce for the risk of doubtful occounls.
For odvonces to ortisis ond reperloire owners, eoch controct is opproised individuolly ond the volue of the unrecouped
portion is delermined by fhe prospects of future recoupment toking into occount current populority ond recent soles.
MINORITY INTERESTS
Minority interesls in totol equity of consolidoted componies ore shown ot net osset volue, colculoted in occordonce with
the policies estoblished in lhe preporotion of the consolidoted finonciol stoiements.
LIAB ILITIES
Provisions ore nol ossocioted wilh specific ossets, bui qre creoted io cover certoin business obligotions ond risks.
Provisions ore stoted ot foce volue, wilh the exception of provisions for employee pension benefits ond severonce poyments,
which ore stoted ot lhe present volue of lhe fuir-rre obligotions.
The provision for employee pension benefits is bosed on octuoriol colculotions ond relotes to those pension obligotions
thot ore not funded by seporote pension funds or by lhird porlies. Post service liobilities ore, in generol, covered to the
retiremenl doles of the employees concerned.The totql pension coveroge provided by this provision together wiih ihe
vorious seporole pension funds is equol to ot leost the presenl volue of existing pension benefits bosed upon the number o{
prior yeors of employment wilh PolyGrom.
Deferred income ioxes. which ore determined for eoch fiscol entity, include the deferred income toxes orising from timing
di{{erences beiween book (commerciol) ond toxoble (fiscol) income. ln the event thot the deferred income tox benefits
exceed the deferred income tox liobility for o given fiscol entity, the net income tox benefit is shown os on osset.
St.rtements of incorne
Net income is determined toking inio occount the following occounting policies:
Net soles represent lhe revenues derived from products delivered to, ond services performed for, third porties, net of
returns.
The costs reloted io the products ond services sold ore colculoted on the bosis of hisloric cost, including wrile-downs of
ony inventories or fixed ossets.
The costs of reseorch ond development ore chorged io income when incurred.
Equity in net income of non-consolidoted componies hos been recognised, in oll moteriol qspects, in occordonce with the
occounting policies followed in the preporotion of the consolidoted finonciol stotements,

in millions of Netherlonds guilders, except per shore doto ond shore omounls
Ner soles (l)
Direct cosis of soles (2)
Gross income
Selling expenses (2)
Generol ond odministrotive expenses (2)
lncome from operutions
Finonciol income ond expenses (3)
lncome before loxes
lncome toxes {4)
lncome ofter loxeg
Equity in net income of non-consolidoled componies
Group income
Minority interests
Nel income
Ayeroge number of shores (par yolue NtG O.5O)
qssumed oul5tonding during the yeor
Net income per shore

GONSOIIDATED BAlAIICE SHEETS O} rHE POIYGRAM GNOUP
a+ter proposed distribution of income
in millions oI Netherlonds guilders
os of December 3l
1988
ASSErli
Flxad qsrets
lnrongible fixed ossers {5)
Tongible fixed ossets (6)
Non-consolidoted componies (7)
Olher non-currenl finonciol ossets (8)
Totol fixed ossels
Curr€nl os3elr
lnventories (9)
Receivobles ond prepoid expenses {10)
Liquid cssets
624
204
35
ta
340
r,603
869
17
162
25
28
88r 262
258
2,028
396
Iolol GUrrent orsels 2,812
3,693 2,944
OROUP EQUITY AND LIABIUTIES
Grcup Equiry
Shoreholders' Equity
Minority interests (11)
Iotol Gllup Equity
Long-term provlslons (12)
Short-term provitionr (12)
long-term lloblllrles (l3l
Curenr liobillrle3 (l4l
937
44
98r
434
412
t5t
1 ,715
860
227
403
43
'I
,41 I
Iotol 3,693 2,944

in millions ol Netherlonds guilders
Cosh flows lrom operoling oclivitieg
Net income
Adiustmenls to reconcile nei income to net coih
provided by operoting qctivitiet
Deprecioiion ond omortizoiion ol tongible ond inlongible ossets
Provisions for losses on receivobles ond prepoid expenses
Equity in net income of non-consolidoted componies
Minority interest
€honge in qrselr ond liobilities
Decreose (increose) in ossets:
Receivobles ond prepoid expenses
Long-term receivobles
lnventories
Other ossels
lncreose {decreose) in liobilities:
Accounts poyoble
Other currenl ond occrued liobilities
Provisions
Other liobilities
lotol odiustment
Net cosh prcvided by operoling octiyitieg
Cosh flow from inve3ting octivities
Cosh poyments for new consolidotions
Net investments in tongible ond intongible ossets
Non-consolidoted componies
Net co5h us€d in investing octivilie5
Cosh flow from finoncing sctivilies
Poyobles to bonks
Deposiis due from Philips
Long-term debts (including to Philips)
lssuonce of l0 million shores
Dividend poid
Net cosh used for finoncing odivitieg
Net inc!€sse in co5h
Tronslolion dif f erences
Cosh os of Jonuory I
Cosh os per the end of period

All omounls dre expressed in millions of Netherlonds guilders unless olherwise sloted.The comporoble figures ore
reclossified to conform to currently odopted presentotion methods where necessory.
The finonciol doto of PolyGrom NY ore included in the consolidoled finonciol slotements of the Group,The stolemenls of
income for PolyGrom N.V., therefore, report only lhe net income from porlicipotions, ond olher income ofter toxes.
Effective July l, 1989 PolyGrom ocquired the recorded music ond music publishing businesses ("lslond') of lslond
lnfernoiionol Limiled.The purchose price omounled to NLG 582 million; on omount of NLG 363 million is ollocoted to
goodwill ond chorged lo Shoreholders' Equily. Activities ond eornings of lslond os from July 1,1989 ore included in the ,l989
consolidoted finonciol stotemenls of the PolyGrom Group,
NOTES IO THE CONSOLIDATED SIAT E El{TS OF INGOTE
I.NEISALES
Nef soles ore shown below per geogrophicol oreo.
Geogruphicol orco
The Neiherlonds
Europe excluding The Nelherlonds
U.S.A. ond Conodo
Asio
Rest of World
Direct cosls of soles
Selling expenses
Generol ond odminislrotive expenses
R.eseqrch ond development
The expenditures for reseorch ond development ociivilies omounled to NLG 4l million (lost yeor NLG l6 million) ond hove
been included in the costs of sqles.
Solqrles ond woges
lncluded in costs of soles ore solories ond woges omounting lo NLG 451 million {lost yeor, NLG 406 million).The costs for
reloted sociol security ond similor benefils totolled NLG 105 million (lost yeor, NLG 93 million). lncluded in the cosls for sociol
securily ore the cosls for pension plons totolling NLG 32 million (lost yeot NLG 33 million). ln 1989 remunerolion o{ members
ond former members of ihe Boord of Monogemenl poid by the Group totolled NLG 2,520,000 (lost yeor, NLG 2,270,000).

T{OTES TO THE COI{SOLIDATED STATEMENTS OF IT{COME
2. COSIS OF SALES (conrinued)
Employees
The following chort shows the number of employees per geogrophicol oreo.
Geogrophicol oreo
The Nelherlonds
Europe excluding The Netherlonds
U.5.A. ond Conodo
Asio
Rest of World
December 3l
1989
835
3,92A
r,43O
s83
al7
number of employees os of
December 3l
198 8
802
3,572
1,218
524
780
overoge number of
employees
in 1989
422
3,720
|,332
583
808
7,593 6,896 7,265
3. FINANCIAT INCO}IE AND EXPENSES
The following items of income ond expenses ore included in lhis occount:
lnierest expense
lnteresi income
Exchonge goins ond losses
Oiher finonciol expenses
Totol
(36)
r09
(4)
(t t)
lncluded in ihe inlerest income is NLG 37 million, representing interest income from Philips (lost yeor, NLG 31 million).
4. INCOME TAXES
lncome toxes omounted to NLG 174 million (losl yeoq NLG 121 million) resuhing in on effective tox rote of 340/o (lost yeor,
310/o). The income toxes were not reduced by the utilizotion of loss corryforwords from operoting losses of previous periods
(losl yeor, NLG 39 million). At December 31, 1989 ond 1988 the iotol operoting loss corryforwords oggregoted opproximolely
NIG 285 million ond NLG 184 million, respectively, of which opproximotely NLG l7 million will expire within five yeors (lost
yeor, NLG l3 million).
Wiihholding toxes reloting to income of subsidiories to be poid os dividends in the neor future ore generolly deducted
from lhe income in the yeor in which ihe income is generoled.
The deferred income lox positions ore determined for eoch fiscol entity; such on entity represenls o compony or o group
of componies, the lotler hoving permission of the tox outhorilies to file one consolidoled tox return ond to be toxed os one
corporotion.
lncome toxes ore included in the bolonce sheel under receivobles in the evenl, ond to the extent, ihot ihe toiol deferred
income lox debits exceed lhe loiol of deferred income tox liobililies. Conversely, income toxes ore included in the bolonce
sheel under provisions in lhe event, ond to the extenl, thot the iotol de{erred income tox liobilities exceed the totol of
deferred income tox debiis.

Bolonce os per Jonuory I
Chonges:
lncome loxes occrued
lncome toxes poid
New consolidoiions
Other chonges (including tronslotion differences)
Bolonce qs of December 3I
Book volue os of Jonuory l, 1989
Changer:
lnveslmenis
Amorlizotion
Tronslotion dif ferences
Acquisition price
Amorlizotion
lnveslments include music publishing righrs ond fhe cotologue of recorded music which were ocquired wiih the purchose
of lslond.The book volue os per December 31,'1989 includes N[G 412 million for the cotologue of recorded music ond NLG
212 million for music publishing rights.
6.TANGIBLE FIXED ASSETS
The book volue of the tongible fixed ossets increosed from NtG'162 million ro NLG 204 million ot ihe end of
December 1989.
Breokdown of the book volue,
Lond ond buildings
Mochinery ond equipment
Other deprecioble ossets
Assels under conslruclion
Assets nol in use

NOTES TO THE CONSOlIDATED BAIANCE SHEETS
6.TANGIBLE FIXED ASSETS (continued)
The chonges in the tongible fixed ossets ore os follows,
Book volue os of Jonuory 1, 1989
Chongesr
lnvestments
New consolidolions
Depreciotion
Soles
Other chonges
rond ond t"t'::f; ,.'."o",j[i] fi:"J;
buildings equiPmenl
Book volue q3 ol December 31,1989 120
ossels construction
35
o
162
7. NON-CONSOLIDATED COMPANI ES
The totol volue of non-consolidoted componies includes PolyGrom's shore in lhe equity ond loons receivoble from lhese
componies.
Equity
Boionce os of Jonuory l, 19Q9
Chonges:
Nel inveslments
Equity in net income
Dividends
Other chonges
Bolonce qs of December 31, I 989
Securities
Other occounts receivoble
Totol
4
l4
Repertoire (recording costs ond films)
Row moteriols
Finished goods
t2a
4t
171 r38
Trode occounls
Receivobles f rom shoreholders
Non-consolidoted componies
Deferred lox cloims
Advonces ond loons lo ortists ond reperloire owners
Other receivobles
Prepoid expenses ond occrued income
992
4
3t
t43
197
104
132
952
585
20
136
156
ll8
6t
r,603 2,028

NOTES TO THE COilSOI. IDAT!D !ALAIIGE SHEETS
t O. RECEMBTES AND PREpAtD EXptNSES (conrinued)
The receivobles from shoreholders in 1988 moinly represenl deposits lodged with philips.The receivobles from nonconsolidoted
componies ore moinly trode debls.
ln occordonce with industry proctices, odvonces lo orlists ond reperloire owners include certoin omounts wilh o life in
excess of one yeor.
I I. MINORITY INIEN,ES?S
Bolonce os of Jonuory 1, 1989
Chongesr
Shore in group income
Tronslotion diff erences
Olher movements
Bclonce os of December 3 l, t 989
Provisions for:
Pensions
Deferred income toxes
Returns
Other obligotionsrcnd risks
lotol provisions
Consisting of:
Long-term provisions
Short-term provisions
r39
289
r09
309
434
412
r 3l
85
ll3
301
PolyGrom hos severol pension plons covering its employees. Employee pension plons hove been estoblished in mony
counlries in occordonce with the legol requirements, cusloms ond the locol siluotion in the counlries involved. The pension
obligotions hove, in mosl coses, been tronsferred lo seporote pension funds or to third porties, which limit ony further
obligotions of rhe PolyGrom Group io the beneficiories.
The provision for pensions covers the pension plon for ihe PolyGrom employees in Germony (,|989, NtG 122 million;
1988, NtG ll4 million).The remoining omount (1989, NLG l7 million;1988, NtG 17 million) relotes to pension plons in other
countries.
The provision for returns covers the cosl of expected returns of goods sold. Expected returns ore estimoled on the bosis
of post experience os well os currenl soles.
I 3. TONG-TERTN LIABILITIES
long-lerm bonk loons
Olher long-term debts
Iotol
17
t34
l5t
lncluded in other long-term debis ore noles ol net present volue (inierest rote 70lo) poyoble on December 31, 1994 with o
nominol volue of US$20 million (NLG 38 million) ond on December 3'1, 1996 with o nominol volue of US$50 million (NLG 96
million) issued os port of the considerotion for the lslond ocquisiiion.
29

Poyobles to bonks
Accounts poyoble to trode creditors
Accounis poyoble to non-consolidoted componies
lncome toxes poyoble
Other debts poyoble
Accrued licence {ees poyoble
Other occrued expenses
thereofter
Totol
GuotunteeS:
Guoronlees on beholf of non-consolidoted componies ond third porties
Guorontees to ortisls ond reperloire owners
legol proceedings:
PolyGrom hos extensive iniernotionol operolions, ond is subiect to o number of legol proceedings incidenlol lo these
operotions. PolyGrom does noi expect thot the oulcome ol currently pending proceedings ogoinst PolyGrom will, either
individuolly or in the oggregote, hove o moteriol odverse effect upon ihe finonciol condition of PolyGrom.
Eorn-ou158
ln oddiiion to the purchose price o{ lslond, omounts up io U5$60 million ore poyoble lo the vendor bosed on increoses in
eornings before toxes PolyGrom for ony three consecutive yeors during 1990 through 1999. Additionol omounts ore olso
poyoble bosed on eornings before loxes ol the ocquired business for ony three conseculive yeors during 1992 through 1999.
I6. SUBSEOUENT EVENIS
On Jonuory 3, 1990, PolyGrom ocquired the recorded music business ("A&M") of A&M Records, Inc. for o considerotion of
U5$460 million.This considerotion is subiect to cerloin odiustments,
From the purchose price of A&M on omount of opproximotely NLG 270 million will be ollocoied to goodwill ond chorged
io Shoreholders' Equily.

FtNAltctal stat E Et{rs oF
ofter proposed dirtribution of income
BAIANCE SHEETS OF POIYON.AM N.Y.
in millions of Netherlonds suilders
a55Ers
Non-turr.ent finonclol oss€ts
Porticipolions {A)
Currfeni os3€t3
Receivobles (B)
Liquid ossets
279
r50
6t I
1,040
os of December 3l
1988
SHAREHOLDERS' EQUIIY AND LIABIUTIES
Shcreholders' Equity
Shore copilol, issued ond poid (C)
legol reserve porticipotions {D)
Other reserves {E)
Iotol Shorsholder3r Equlty
Short-term provisions
long-rerm debrs (F)
Curr"ent liobilities
85
452
937
9
89
5
t,o4o
80
171
569
STATEMENTS OF INCOME O' POIYORA, T N.V.
in millions of Netherlonds suilders
Net income from porticipoiions
Other income ofter loxes
Net income
280
53
yeors ended December 3l
1988
248
14

lIOIE5 TO THE FIlIAIICIAl SIATEMENIS OF POLYGRA N.V.
All omounts ore expressed in millions of Netherlonds guilders unless otherwise sioted
A. PARTICIPATIONS
Porticipotions qre included in the bolonce sheets bosed on the net ossel volue in occordonce wilh the oforementioned
policies. Other receivobles due {rom porticipolions ond liobililies to porticipotions ore occounled for in ihe respeclive ossel
ond liobiliiy occounts.
A list of porticipotions, drown up in occordonce with the relevont legol requirements, is ovoiloble ot lhe Trode Regisler
office in Amersfoort,The Netherlonds.
Bolonce os of Jonuory l, 1989
Ghonges:
Equiiy in nel income
Dividends poid
Revoluotion
Goodwill
Trqnslotion differences
588
2AO
(601
l9
14671
(8rl
Bolonce os of December 31,1989 279
Shoreholders
Porlicipotions
Other
t5(,
100
r32
I
C.SHARE CAPITAI., ISSUED AND PAID
At Jonuory l, 1989, the shore copitol, issued ond poid, omounted to NLG 80 million ond consisted of 80 million shores wilh
o por vqlue of NLG 1.00.
On November l, 1989, o two-for-one slock splil occurred resuhing in 160 million shores, issued ond poid, with o por volue
of NLG 0.50.
On December 20, 1989, l0 million shores were issued ond sold for o totol considerotion of NLG 313 million. As o resull,
the shore copitol, issued ond poid, per December 31, 1989 omounls to NLG 85 million ond consisls of 170 million shores with
o por volue of NLG 0.50.
D. LEGAL RESERVC PARTICIPATIONS
Bolonce os of Jonuory l, 1989
Chonges in the locol price level
Chonges resuliing from undistributed income
Tronslotion differences
171
t9
(r 09)
(8t)
Bqlonce qs of De.ember 31,I989

NOTES TO THE;INAl{CIAL
STATEilTENTS OF POLYGRAM N.V'
E. OTHER RESERVES
Toior ,."i,.lffi ,.3$:
Bolonce os ofJonuory 1,1989 569 126 443
Chonges:
Distribrlion o{ income 233 - 233
lssuonce of l0 million shores 308 308
Goodwill 1367) - 1367)
Tronsfer from ihe legol reserve porticipotions 109 - 109
Bolonce qs of December 31, 1989 852 434 41 8
F. TONG.TERM DEBTS
Long-term debis represent the net present volue of the notes issued os porl of the considerotion for the lslond ocquisition.
Boorn, Morch ,]5, 1990
The Boord ol Monogemenl:
D.G. Fine, President
J. Cook, Executive Vice President L.P.H. Dos
R. Busch J.A. Ruigers
Dr.W. Hix
R.A.E. Stuyt
The Supervisory Boord:
J.D.Timmer, Choirmon
OTHER INFORTIATIOII REGARDII{G POlYGRAM N.V.
Auditors' Report
We hove exomined the finonciol stotements of PolyGrom N.V., Boorn, for the yeor 1989, os included on the
poges 20 to 33 inclusive.
ln our opinion, bosed upon our exominotions, lhese {inonciol stolemenls present foirly the finonciol position of the
Compony ot December 31, 1989 ond the resuhs of its operolions for the yeor lhen ended.
KPMG Klynveld Krooyenhof & Co.
Amsterdom, Morch '15, 1990
Distribution of lncome occordlng to lhe Articler ol As3ociotion of PolyGrom NV. os stipuloted in Articles 33,
35 ond 36: Upon proposol of the Boord of Monogement, which proposol musl be opproved by the Supervisory Boord, the
Generol Meeting of Shoreholders of PolyGrom N.V. moy decide to moke distributions in cosh or in shores of PolyGrom N.V.
poyoble out o{ the distributoble profil of the yeor, "other reserves" ond/or "shore premium occounl" os shown in the
finonciol stolements.
Proposed Dislributlon of lncome
ln view of the stipulotion of Article 35 of Arlicles of Associotion, it hos been proposed ihot no dividend will be poid in
oddition io the interim dividend poid on November l, ,l989 of NLG ,]00 million ond thot ihe remoining omounl of net income
of NLG 233 million be odded to "olher reserves".

The occounting policies followed in lhe preporolion of the consolidoted finonciol stotemenls differ in some respecis to
those generolly occepted in the United Stotes of Americo {U.S.GAAP),
Those di{ferences which hove o moieriol effecl on net income ond/orShoreholders'Equity ore os follows:
o Goodwill orising from o difference belween purchose price ond net ossel volue of newly ocquired componies is
occounted for directly in Shoreholders' Equity According io U.S.GAAP. goodwill is recorded os on osset ond omortized
over 40 yeors.
b' The coiologue of recorded music is omorlized io the extent thoi lhe net present volue of the expected income generoled
by the ocquired lobel is less thon the book volue. Under U.S.GAAP, omortizotion of such intongible ossefs is bosed on fhe
expected economic life of 25 yeors.
c. The functionol currencies of the hyper-inflolion countries ore lheir locol currencies. According io U.S.GAAp, the
Netherlonds guilder should be the functionol currency.
d' PolyGrom entered inlo o sole ond leose-bock tronsoction during 1984. PolyGrom recorded o goin of NLG 2l million on
the sole of properties which is included os port of other business income in the 1984 stotements of income. Under
U.S.GAAP such goins ore deferred ond recognized over the term of ihe leose.
The colculotion of nel income ond Shoreholders' Equity, substontiolly in occordonce with U.S.GAAp, is os follows:
in millions of Netherlonds guilders
Net income ca per Consolidated Stqtements
o, income of ihe PolyGrum Group
Adiustments to reported income:
o. omorlizotion of goodwill
b. omortizolion of the coiologue of
recorded music
c. remeosuremeni of finonciol stotemenls
of entities in hyper-inflotion countries
d. sole ond leose-bock tronsoclion
Nel income in occodonce wirh U.S.GAAP
Shoreholders' Equity os per Consolidoted
Bqlqnce Sheets of the PolyGrom Group
Adiustments to reported equity:
o. goodwill
b. coiologue of recorded music
d. other provisions
Shoreholders' Equity in occodonce with U.S.GAAP

RGPONT O' TIIE SUPENVISONY BOAND OT POLYCNAN N'Y'
The finqnciol slolemenls of PolyGrom N.V. for 1989 hqve been exomined by KPMG Klynveld Krooyenhol & Co',
independent public occounlonls.We osk you lo odopt lhese finonciol slqlemenls in occordonce with the recommendolion of
the Boord of Monogement.
lggg wos qnolher excellent yeor for PolyGrom, os hos been reporied in the preceding poges of this 1989 Annuol Reporl.
The supervisory Boord opproved two moior ocquisitions by PolyGrom during the yeor,The ocquisition of lslond Records in
July 1989 ond thot of A&M Records, effective jonuory 1, 1990 , were moior ochievemenls in PolyGrom's history'
During the yeor, we decided to divide PolyGrom's equity into smoller units, wilh q lwo-for-one shore split resulting in on
issued shore copitol of 160 million shores of NLG 0.50 por volue. After consulring with PolyGrom's Boord of Monogemenl, the
Supervisory Boord decided to seek shoreholder opprovol for on iniliol public offering of PolyGrom shores. NV' Philips'
Gloeilompenfobrieken. Polycrom's principol shoreholder, ogreed to flool 25 million PolyGrom shores in on initiol public
offering, with the shores to be listed on the Amsterdom ond NewYork stock exchonges.The supervisory Boord then decided,
ot polyGrom's request ond with the opprovol of NV. Philips' Gloeilompenfobrieken, to issue on odditionol 10 million
PolyGrom shqres in the some public offering.
We ore pleosed to report thot the offering wos over-subscribed worldwide, ond thot todoy PolyGrom hos public
shoreholders for iust over 20% of its increqsed equity of 170 million shores'
We wish to express our greot qppreciotion to Dovid Fine. the olher members of PolyGrom monqgemenl, ond lhe Group's
7,600 employees for their exiroordinory efforts in 1989. PolyGrom's coniinuing record results ore due directly to their
dedicotion ond hord work.
We look lorword to conlinued growth ond progress in 1990.
The Supervisory Boord
Boorn, Morch ,l5, 1990

go
L't g R A M
THE N ETH E RI.ANOS
PolyGrom N.V.
PolyGrom lnternotionol Holding B.V.
PolyGrom lnternotionol Music B.V.
PolyGrom Record Service B.V.
PolyGrom Nederlond B.V.
PolyGrom lnlernotionol Finonce B.V.
Phonogrom B.V
Polydor B.V.
Wisseloord Studio s B.V.
E U ROPE EXCI.UDING THC N EIHERTANDS
Austrld
PolyGrom Ges.m.b.H.
lelgium
PolyGrom Records S.A.
Dcnmark
PolyGrom Records A/5
Federol Republi< of Germony
PolyGrom GmbH
Deutsche Grommophon GmbH
Phonogrom GmbH
Polydor GmbH
Metronome Musik GmbH
PolyGrom Songs Musikverlog GmbH
Korussell Musik & Video GmbH
PolyGrom Record Service GmbH
PolyGrom Film Produktion GmbH
Frqnae
PolyGrom S.A.
lslond Enterloinment Group S.A.
PolyGrom Music S.A.R.l,.
D.l.A.l-.- Diffusion lnlernotionole
d'Arts et toisirs S.A.
Grogce
PolyGrom Records S.A.
lrelqnd
PolyGrom Records Ltd.
Itoly
PolyGrom lrolio S.r.[.
Norwoy
PolyGrom Records A/S
Portugol
PolyGrom Discos S.A.
Spoin
PolyGrom lberico S.A.
Sweden
PolyGrom A.B.
Sweden Music F6rlogs A.B.
Switzerlond
PolyGrom Records A.G.
Unltod Kingdom
PolyGrom [eisure lld.
PolyGrom lnternotionol ltd.
PolyGrom lnlernotionol Music
Publishing Ltd.
PolyGrom UK Ltd.
lslond Entertoinment Group Ltd.
Phonogrom ltd.
Polydor Ltd.
PolyGrom Record Operotion! Ltd.
36

woR ao
exico
PolyGrom Discos S.A. de C.V
A'RICA
Kenyo
PolyGrom Records ltd.
Nlg.rlq
PolyGrom Records Ltd.
60%
ASIA
Hong Kong
PolyGrom Records Ltd.
PolyGrom Music Publishing
Brilonnio Music Compony Ltd.
Ffrr Records Ltd.
The Decco Record Compony [td.
PolyGrom Musicvideo Ltd.
Dick Jomes Music ltd.
Chonnel 5 Video Distribution Ltd.
NORIH A ERICA
Conodq
PolyGrom lnc.
lslond Records of Conodo ttd-
49%
Unlted slqto. ol Amorlco
PolyGrorn Holding, lnc.
PolyGrom Records,lnc.
l3lond Entertoinment Group, lnc.
PolyGrom lnternotionol Publishing, lnc.
Ameri

Nct Soler
Net lncoma
E,lrdord'norr reh NtG ld6
thoreholdort' Equlty
hconc frorn Ogcrotlonr
Exl.dordinory item NIG 0.96 p€, 5ho,e
Employ..r ol end ofYoqt

Responsibility for the monogement of
PolyGrom is with the Boord of
Monogement,'ii is occountoble to ihe
Supervisory Boord.

tltvE StoR I llloRtlrlol{
Annucl cetlng
The Annuql Generol Meeting of PolyGrom NV. will be held ot the Am:terdom Hilton Hotel, Apolloloon, Amderdom,
The Netherlonds on Tuesdoy, Moy 1, 1990 storting ot l0 o.m.
Shoroholder lnforincl'bn
Shoreholders needing informotion reloting to their shoreholdings in PolyGrom N.V. should conloct lhe Shoreholder
lnformotion Deportment, PolyGrom N.V., Gerrit von derVeenloon ,{, 3743 DN Boorn,The Netherlqnds. Shoreholders who
purchosed their shores on lhe NewYork Stock Exchonge moy conlocl lhe Compony's U.S.Tronsfer Agent ond Registror,
Bonkers Trust €ompony, €orporole Trusl ond Agency Group, Four Albony Slreet, New York, NY 10015. {212) 250-6706.
lnve3lor lntonnotion
lnvestors desiring further informqtion obout PolyGrom should conloct the Corporole lnveslor Relolions Deportment oi:
PolyGrom lnlernotionol [ld. or PolyGrom Holding,lnc.
30 Berkeley Squore Worldwide Plqzo
London WIX 5HA
825 8th Avenue
NewYork,NY 10019, USA
Englond
(01) 493-8800 (212) 333-8000
PolyGram
PolyGrom NV., Gerrit von derVeenloon 4,3743 DN Boorn,The Netherlonds
Desisn.d br Ccttondon Ltdr P'oieci Coordinorion bylh€ W€bl€r Grclp,lnc.; lllusl'qtio6 bylon Soe.ler; Monosen.nt Phorogrophy by.lohn Cob;
Type'erine byWo.dworl plc,Pinted btCenturion Pt€s BV
ao