Sony Corporation announces Consolidated Financial Results for the Third Quarter Ended December 31, 2004
Market Wire, January, 2005
Sony Corporation
6-7-35 Kitashinagawa
Shinagawa-ku
Tokyo 141-0001 Japan
No: 05-003E
3:00 P.M. JST, January 27, 2005
Consolidated Financial Results
for the Third Quarter Ended December 31, 2004
Tokyo, January 27, 2005 -- Sony Corporation today announced its
consolidated results for the third quarter ended December 31, 2004
(October 1, 2004 to December 31, 2004).
(Billions of yen, millions of U.S. dollars, except per share
amounts)
Third quarter ended December 31
2003 2004 Change in 2004*
Yen
---------- ------ ------ ------ ------
Sales and operating Y2,323.4 Y2,148.2 -7.5% $20,856
revenue
Operating income 158.8 138.2 -13.0 1,341
Income before 157.8 149.2 -5.4 1,449
income taxes
Equity in net income 3.1 2.3 -23.5 22
of affiliated
companies
Net income 92.6 143.8 +55.3 1,396
Net income per share
of common stock
- Basic Y100.16 Y155.32 +55.1% $1.51
- Diluted 92.51 138.08 +49.3 1.34
* U.S. dollar amounts have been translated from yen, for convenience
only, at the rate of Y103=U.S.$1, the approximate Tokyo foreign
exchange market rate as of December 30, 2004.
Unless otherwise specified, all amounts are on the basis of Generally
Accepted Accounting Principles in the U.S. ("U.S. GAAP").
Consolidated Results for the Third Quarter Ended December 31, 2004
------------------------------------------------------------------
Sales and operating revenue ("sales") decreased 7.5% compared with
the same quarter of the previous fiscal year; on a local currency
basis sales decreased 8%. (For all references herein to results on a
local currency basis, see Note I.)
There was a 0.9% decrease in sales within the Electronics segment.
Although sales of flat panel televisions, digital still cameras and
LCD rear projection televisions increased, there was a decrease in
sales primarily of CRT televisions, portable audio products and
optical heads. In the Game segment, an increase in software sales was
more than offset by a decline in hardware sales, resulting in a
decrease to overall segment sales. In the Music segment, although
sales at Sony Music Entertainment Japan Inc. ("SMEJ") increased,
overall sales decreased because Sony BMG Music Entertainment ("Sony
BMG"), a recorded music business joint venture formed with
Bertelsmann AG, has been accounted for by the equity method since
August 2004 (please refer to the note.) In the Pictures
segment, there was an increase in sales, primarily as a result of the
contribution of home entertainment sales from Spider-Man 2. In the
Financial Services segment, revenue increased mainly due to an
increase in revenue from insurance premiums at Sony Life Insurance
Co., Ltd. ("Sony Life").
Operating income decreased 13.0% (a 19% decrease on a local currency
basis) compared with the same quarter of the previous fiscal year.
In the Electronics segment, operating income declined mainly due to a
deterioration in the cost of sales ratio associated with a decline in
unit selling prices. In the Game segment, as a result of a decline in
hardware sales, there was a decrease in operating income. In the
Pictures segment, there was a significant increase in operating
income primarily due to the strong home entertainment sales from
Spider-Man 2. In the Financial Services segment, there was an
increase in operating income due to an improvement in profitability
at Sony Bank Inc. ("Sony Bank").
Restructuring charges, which are recorded as operating expenses, for
the third quarter amounted to Y10.5 billion ($102 million) compared
to Y53.6 billion in the same quarter of the previous fiscal year. In
the Electronics segment, restructuring charges were Y10.4 billion
($101 million) compared to Y47.2 billion in the same quarter of the
previous fiscal year.
Income before income taxes decreased 5.4% compared to the same
quarter of the previous fiscal year. However, there was an
improvement in the net effect of other income and expenses compared
to the same quarter of the previous fiscal year. This improvement was
the result of the recording of a loss on devaluation of securities
investments in the same quarter of the previous fiscal year due to
the devaluation of an investment in a privately held Japanese company
in which Sony has a minority interest.
Compared to an effective tax rate of 42.8% in the same quarter of the
previous fiscal year, the effective tax rate was 4.7% in the current
quarter. As fully discussed in Sony's Form 20-F for the fiscal year
ended March 31, 2004, as a result of the recording of operating
losses in the past, the U.S. subsidiaries of Sony have had valuation
allowances against deferred tax assets for U.S. federal and certain
state taxes. However, in the third quarter of the current fiscal
year, based on both an improvement in recent years and a sound
outlook for the operating performance at Sony's U.S. subsidiaries,
Sony reversed Y67.9 billion ($659 million) of such valuation
allowances, resulting in a reduction to income tax expense. This
reversal was the major factor impacting the effective tax rate
decline for the quarter.
Equity in net income of affiliated companies of Y2.3 billion ($22
million) was recorded, a 23.5% decrease from the same quarter of the
previous fiscal year. Sony Ericsson Mobile Communications AB ("Sony
Ericsson") contributed Y3.1 billion ($30 million) to equity in net
income, an 11% increase compared to the same quarter of the previous
year. In addition, Sony BMG, established in August 2004, contributed
Y1.1 billion ($11 million) to equity in net income. However, equity
in net loss was recorded at affiliates such as Star Channel Inc., a
Japanese-based subscription television company specializing in the
broadcast of movies, and S-LCD Corporation, a joint-venture with
Samsung Electronics Co., Ltd., for the manufacture of amorphous TFT
LCD panels.
Net income, as a result, increased 55.3% compared to the same quarter
of the previous fiscal year.
Remarks by Nobuyuki Idei, Chairman and Group CEO of Sony Corporation
--------------------------------------------------------------------
During the third quarter, although there was a decrease in operating
income within the Game and Electronics segments, our Pictures and
Financial Services segments continued to demonstrate strong operating
results, and the launch of our handheld video game system PlayStation
Portable ("PSP") has been a great success.
Looking forward, we anticipate that the intense environment within
the electronics industry is likely to continue. Sony reiterates its
belief that strengthening the competitiveness of our electronics
products is the most pressing issue facing our management today.
Within the display business, we are focusing strategic resources into
LCD and rear projection televisions utilizing Sony's unique SXRD
display device. In addition, we are further enhancing our range of
DVD camcorders, at the same time as actively pushing ahead with our
plans to bring high picture quality to the video camera market
through the promotion of High Definition. In addition, through the
establishment of the Connect Company in November 2004, we are
launching a complete digital audio business fusing download
distribution services, content and hardware. Furthermore, to enhance
the differentiation of our products and generate added-value, we are
continuing our active investment in semiconductors and key devices.
Through the Company-wide implementation of such measures, we are
resolutely working to ensure a revitalization in the profitability of
the Sony Group.
Operating Performance Highlights by Business Segment
----------------------------------------------------
Note: As of August 1, 2004, Sony and Bertelsmann AG combined their
recorded music businesses in a joint venture. The newly formed
company, Sony BMG, is 50% owned by each parent company. Under U.S.
GAAP, Sony BMG is accounted for by Sony using the equity method and,
since August 1, 2004, 50% of net profits or losses of this business
have been included under "Equity in net income (loss) of affiliated
companies."
In connection with the establishment of this joint venture, Sony's
non-Japan based disc manufacturing and physical distribution
businesses, formerly included within the Music segment, have been
reclassified to the Electronics segment to recognize the new
management reporting structure whereby Sony's Electronics segment has
now assumed responsibility for these businesses. Results for the
previous fiscal year in the Electronics and Music segments have been
restated to account for this reclassification.
In the Music segment, results for this fiscal year only include the
results of Sony Music Entertainment Inc.'s ("SMEI") recorded music
business for the months of April through July 2004, and both the
third quarter and the nine month results of SMEI's music publishing
business and Sony Music Entertainment (Japan) Inc. ("SMEJ"). However,
results for the previous fiscal year in the Music segment include the
consolidated results for SMEI's recorded music business for all three
months of the quarter, and nine months year-to-date, as well as the
full quarter and year-to-date results for SMEI's publishing business
and SMEJ.
Electronics
(Billions of yen, millions of U.S. dollars)
Third quarter ended December 31
2003 2004 Change in 2004
Yen
---------- ------ ------ ------ ------
Sales and operating Y1,524.4 Y1,510.8 -0.9% $14,668
revenue
Operating income 64.4 49.4 -23.3 479
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales decreased 0.9% (1% decrease on a local currency basis). Sales
to outside customers decreased 2.8% compared to the same quarter of
the previous fiscal year. There was an increase in sales of several
products including flat panel televisions and digital still cameras,
which both experienced increased unit sales in all geographic areas,
and LCD rear projection televisions, which saw increased unit sales
especially in the U.S. However, there was a decline in sales of CRT
televisions, faced with a continued shift in demand towards flat
panel televisions, portable audio, which faced changes in the
competitive environment, and optical heads, which experienced a
decline in demand.
Operating income decreased by Y15.0 billion, or 23.3% compared with
the same quarter of the previous fiscal year. Although there was a
decrease in restructuring charges, operating income decreased due to
a deterioration in the cost of sales ratio as a result of a decline
in unit selling prices. With regard to products within the
Electronics segment, the decrease in sales of CRT televisions and
portable audio, as well as the decline in unit selling prices,
primarily of video cameras, contributed to the decrease in operating
income.
Inventory, as of December 31, 2004, was Y570.9 billion ($5,543
million), a Y29.3 billion, or 5.4%, increase compared with the level
as of December 31, 2003 and a Y117.6 billion, or 17.1%, decrease
compared with the level as of September 30, 2004.
Note: In association with the completion of business integration of
Sony Group's semiconductor manufacturing businesses in July 2004, it
was decided to account for semiconductor manufacturing operations
inventory, which was previously recorded in the Game segment, within
the Electronics segment as of the quarter beginning July 1, 2004.
(Regarding the integration of Sony Group's semiconductor
manufacturing operations, please refer to note 6.)
Game
(Billions of yen, millions of U.S. dollars)
Third quarter ended December 31
2003 2004 Change in 2004
Yen
---------- ------ ------ ------ ------
Sales and operating Y367.0 Y282.6 -23.0% $2,744
revenue
Operating income 70.5 44.6 -36.8 433
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales decreased 23.0% compared with the same quarter of the previous
fiscal year (a 24% decrease on a local currency basis).
Hardware: In addition to a decline of PS2 unit sales in Japan, the
U.S. and Europe, strategic price reductions, compared to the same
quarter of the previous fiscal year, of the PS2 in Japan, the U.S.
and Europe resulted in a decline in sales.
Software: Overall software sales increased as a result of an increase
in unit sales of, and revenue from, PS2 software, despite being
offset by a decrease in unit sales of, and revenue from, PlayStation
software. Software sales revenue increased in Japan and Europe, but
decreased in the U.S.
In addition, "PSP," on sale in Japan as of December 2004, has
recorded very positive hardware and software sales.
Operating income decreased by Y25.9 billion, or a 36.8% decrease
compared with the same quarter of the previous fiscal year, mainly as
a result of the decrease in hardware sales, despite an increase in
software sales.
Worldwide hardware production shipments:*
-> PS2: 7.39 million units (an increase of 0.56 million units)
-> PS one: 0.84 million units (a decrease of 0.18 million units)
-> PSP 0.51 million units
Worldwide software production shipments:*
-> PS2: 109 million units (an increase of 5 million units)
-> PlayStation: 3 million units (a decrease of 7 million units)
-> PSP 1.3 million units
* Production shipment units of hardware and software are counted upon
shipment of the products from manufacturing bases. Sales of such
products are recognized when the products are delivered to customers.
Inventory, as of December 31, 2004, was Y45.4 billion ($441 million),
a Y83.2 billion, or 64.7%, decrease compared with the level as of
December 31, 2003 and a Y8.0 billion, or 15.0%, decrease compared
with the level as of September 30, 2004. (Regarding inventory, please
refer to the note in the above Electronics segment.)
Music
(Billions of yen, millions of U.S. dollars)
Third quarter ended December 31
2003 2004 Change in 2004
Yen
---------- ------ ------ ------ ------
Sales and operating Y141.1 Y56.3 - 60.1% $547
revenue
Operating income 16.1 12.0 -25.6 116
The amounts presented above are the sum of the yen-translated results
of SMEI, a U.S -based operation which aggregates the results of its
worldwide subsidiaries on a U.S. dollar basis, and the results of
SMEJ, a Japan-based operation which aggregates results in yen. In
addition, please refer to the note regarding the establishment of
Sony BMG.
Sales decreased 60.1% compared with the same quarter of the previous
fiscal year. Of the Music segment's sales, 86% were generated by
SMEJ, and 14% were generated by SMEI. As noted above, due to the
establishment of the Sony BMG joint venture, there were no recorded
music sales at SMEI in this fiscal year's third quarter as compared
to the same quarter of the previous fiscal year. Therefore, SMEI's
results are not comparable with results of prior quarters.
SMEJ: Sales increased 10.5% compared with the same quarter of the
previous fiscal year mainly as a result of an increase in album and
singles sales. Best-selling albums during the quarter included musiQ
by ORANGE RANGE and SENTIMENTALover by Ken Hirai.
Operating income at SMEJ increased significantly compared to the same
quarter of the previous fiscal year due to the higher sales noted
above and an improvement in the cost of sales ratio.
Pictures
(Billions of yen, millions of U.S. dollars)
Third quarter ended December 31
2003 2004 Change in 2004
Yen
---------- ------ ------ ------ ------
Sales and operating Y181.2 Y203.1 + 12.1% $1,972
revenue
Operating income 5.6 18.6 +232.2 181
The results presented above are a yen-translation of the results of
Sony Pictures Entertainment ("SPE"), a U.S.-based operation which
aggregates the results of its worldwide subsidiaries on a U.S. dollar
basis. Management analyzes the results of SPE in U.S. dollars, so
discussions of certain portions of its results are specified as being
on "a U.S. dollar basis."
Sales increased 12.1% compared with the same quarter of the previous
fiscal year (15% increase on a U.S. dollar basis). Sales, on a U.S.
dollar basis, increased primarily due to higher worldwide home
entertainment revenues led by the strong performance of Spider-Man 2
and the television series Seinfeld. A total of over 30 million DVD
and VHS units of these two titles was shipped worldwide during the
quarter. U.S. theatrical revenues included the strong theatrical
performance of The Grudge and Christmas with the Kranks.
Operating income increased Y13.0 billion, or 232.2%, to Y18.6 billion
($181 million), compared with the same quarter of the previous fiscal
year. Spider-Man 2 contributed substantially to this quarter's
earnings. The increase was also attributable to the theatrical
performance of The Grudge, offset somewhat by the disappointing
theatrical performance of Spanglish.
Financial Services
(Billions of yen, millions of U.S. dollars)
Third quarter ended December 31
2003 2004 Change in 2004
Yen
---------- ------ ------ ------ ------
Financial service Y137.3 Y145.0 +5.5% $1,407
revenue
Operating income 12.7 13.9 +9.8 135
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Therefore, they differ from the results that Sony Life and Sony Bank
disclose on a Japanese statutory basis.
Financial service revenue increased 5.5% compared with the same
quarter of the previous fiscal year, mainly due to an increase in
revenue at Sony Life. Revenue at Sony Life was Y121.8 billion ($1,182
million), a Y4.2 billion, or 3.6% increase compared with the same
quarter of the previous year. Despite a deterioration in valuation
gains and losses from investments, this was more than offset by an
increase in revenue from insurance premiums.
Operating income increased by Y1.2 billion or 9.8% compared with the
same quarter of the previous fiscal year, mainly due to an
improvement in profitability at Sony Bank. Operating income at Sony
Bank was recorded compared to an operating loss in the same quarter
of the previous fiscal year mainly due to foreign exchange gains
related to transactions in foreign currency denominated assets and
liabilities and an increase in gains from the fund management,
primarily, of housing loans. Operating income at Sony Life increased
by Y0.3 billion or 2.0% to Y14.0 billion ($136 million).
Other
(Billions of yen, millions of U.S. dollars)
Third quarter ended December 31
2003 2004 Change in 2004
Yen
---------- ------ ------ ------ ------
Sales and operating Y71.8 Y64.2 -10.6% $623
revenue
Operating income (loss) (2.9) 2.5 - 24
Unless otherwise specified, all amounts are on a U.S. GAAP basis.
Sales decreased 10.6% compared to the same quarter of the previous
fiscal year. This was primarily the result of a decrease in
intersegment sales due to contract changes at a Japanese subsidiary
involved in the advertising agency business.
Operating income of Y2.5 billion ($24 million) was recorded,
representing an improvement of Y5.4 billion compared with the
operating loss of Y2.9 billion recorded in the same quarter of the
previous fiscal year. This improvement was mainly due to the sale of
a retail and showroom building in Japan, and from cost reductions at
several businesses in the segment, including Sony Communication
Network Corporation.
Operating Results for Major Affiliates Accounted for by the Equity
Method
------------------------------------------------------------------
The following operating results for significant companies accounted
for by the equity method are not consolidated in Sony's consolidated
financial statements. However, Sony believes that this disclosure
provides additional useful analytical information to investors
regarding operating performance. In addition, please note that the
operating results of Sony Ericsson discussed below are reported on an
International Financial Reporting Standards basis, and thereby differ
from the operating results reported on a U.S. GAAP basis contained
within Sony's equity in net income of affiliated companies.
Sony Ericsson recorded sales for the quarter ended December 31, 2004
of Euro 2,005 million, representing a Euro 568 million or 40%
increase compared to the same quarter of the previous fiscal year.
Income before taxes was Euro 140 million, a 204%, or Euro 94 million
increase compared to the same quarter of the previous fiscal year,
and net income of Euro 55 million was recorded, a Euro 12 million, or
28% increase year on year. Sony Ericsson experienced a strong quarter
led by consumer demand for mid and high-end GSM models as well as 3G
UMTS phones. As a result, equity in net income of Y3.1 billion ($30
million) was recorded by Sony.
Sony BMG recorded sales revenue of $1,507 million, income before
income taxes of $35 million, and net income of $21 million. Income
before income taxes includes $168 million of restructuring charges.
As a result, equity in net income of Y1.1 billion ($11 million) was
recorded by Sony.
Cash Flow
The following charts show Sony's unaudited condensed statements of
cash flow on a consolidated basis for all segments excluding the
Financial Services segment and for the Financial Services segment
alone. These separate condensed presentations are not required under
U.S. GAAP, which is used in Sony's consolidated financial statements.
However, because the Financial Services segment is different in
nature from Sony's other segments, Sony believes that these
presentations may be useful in understanding and analyzing Sony's
consolidated financial statements.
Cash Flow - Consolidated (excluding Financial Services segment)
---------------------------------------------------------------
(Billions of yen, millions of U.S. dollars)
Nine months ended December 31
Cash flow 2003 2004 Change in 2004
Yen
---------- ------ ------ ------ ------
- From operating Y191.6 Y230.8 Y +39.2 $2,240
activities
- From investing (268.7) (414.7) -146.0 (4,026)
activities
- From financing 319.9 (35.4) -355.3 (343)
activities
Cash and cash 438.5 592.9 +154.4 5,756
equivalents at
beginning of the
fiscal year
Cash and cash 636.5 378.1 -258.4 3,671
equivalents as of
December 31
Operating Activities: During the nine months ended December 31, 2004,
although there was a significant increase in notes and accounts
receivable, trade within the Electronics segment associated with the
year-end sales season, an increase in notes and accounts payable,
trade, in addition to net income, excluding depreciation and
amortization, recorded primarily in the Electronics and Pictures
segments, resulted in operating activities generating more cash than
was used.
Investing Activities: During the nine months ended December 31, 2004,
Sony made significant capital investments in semiconductors,
particularly the advanced microprocessor "Cell," as well as
investments associated with the amorphous TFT LCD panel manufacturing
joint venture (S-LCD Corporation) established with Samsung
Electronics Co., Ltd.
As a result, the total amount of cash flow from operating activities
and from investing activities was a use of cash of Y183.9 billion
($1,785 million).
Financing Activities: During the nine months ended December 31, 2004,
financing was carried out primarily through the issuance of
commercial paper. Sony also redeemed a portion of its long-term debt.
Cash and Cash Equivalents: In addition to the aforementioned
information, the total balance of cash and cash equivalents,
accounting for the effect of foreign currency exchange rate
fluctuations, was Y378.1 billion ($3,671 million) as of December 31,
2004, a decrease of Y214.8 billion compared to March 31, 2004 and a
decrease of Y258.4 billion compared to December 31, 2003.
Cash Flow - Financial Services segment
--------------------------------------
(Billions of yen, millions of U.S. dollars)
Nine months ended December 31
Cash flow 2003 2004 Change in 2004
Yen
---------- ------ ------ ------ ------
- From operating Y204.5 Y114.5 Y-90.0 $1,111
activities
- From investing (333.7) (455.2) -121.6 (4,420)
activities
- From financing 115.8 281.7 +165.8 2,735
activities
Cash and cash 274.5 256.3 -18.2 2,489
equivalents at
beginning of the
fiscal year
Cash and cash 261.2 197.2 -64.0 1,915
equivalents as of
December 31
Operating Activities: Operating activities generated more cash than
was used due to an increase in income from insurance premiums and
other, reflecting primarily an increase in insurance-in-force at Sony
Life.
Investing Activities: Payments for investments and advances exceeded
proceeds from sales of securities investments, maturities of
marketable securities and collections of advances primarily as a
result of the fact that in addition to the carrying out of investment
in mainly Japanese fixed income securities primarily as a result of
an increase in income from insurance premiums at Sony Life, a housing
loan campaign and investment in securities was carried out at Sony
Bank as a result of increased customer deposits.
Financing Activities: In addition to the increase in policyholders'
accounts at Sony Life, and factors including an increase in the
number of accounts, deposits from customers in the banking business
increased.
Cash and Cash Equivalents: As a result of the above, the balance of
cash and cash equivalents was Y197.2 billion ($1,915 million) as of
December 31, 2004, which was a decrease of Y59.1 billion compared to
March 31, 2004, and a decrease of Y64.0 billion compared to December
31, 2003.
Notes
Note I: During the third quarter ended December 31, 2004, the average
value of the yen was Y105.0 against the U.S. dollar and Y135.6
against the euro, which was 2.8% higher against the U.S. dollar and
5.7% lower against the euro, compared with the average rates for the
same quarter of the previous fiscal year. Operating results on a
local currency basis described herein reflect sales and operating
income obtained by applying the yen's average exchange rate in the
same quarter of the previous fiscal year to local
currency-denominated monthly sales, cost of sales, and selling,
general and administrative expenses in the quarter. Local currency
basis results are not reflected in Sony's financial statements and
are not measures conforming with U.S. GAAP. In addition, Sony does
not believe that these measures are a substitute for U.S. GAAP
measures. However, Sony believes that local currency basis results
provide additional useful analytical information to investors
regarding operating performance.
Note II: "Sales and operating revenue" in each business segment
represents sales and operating revenue recorded before intersegment
transactions are eliminated. "Operating income" in each business
segment represents operating income recorded before intersegment
transactions and unallocated corporate expenses are eliminated.
Note III: In the third quarter ended December 31, 2004, Sony adopted
Emerging Issues Task Force ("EITF") Issue No. 04-8, "The Effect of
Contingently Convertible Instruments on Diluted Earnings per Share."
As a result of adopting EITF Issue No. 04-8, diluted earnings per
share of net income for the three months ended December 31, 2003 have
been restated (see Note 9 regarding EITF Issue No.04-8).
Outlook for the Fiscal Year ending March 31, 2005
-------------------------------------------------
As announced on January 20, 2005, Sony's forecast for consolidated
operating results for the fiscal year ending March 31, 2005 has been
revised as per the table below:
Current Change from October
Forecast previous year Forecast
------ ------ ------
Sales and operating Y7,150 billion -5% Y7,350 billion
revenue
Operating income 110 billion +11 160 billion
Income before income 140 billion -3 170 billion
taxes
Net income 150 billion +69 110 billion
Assumed foreign currency exchange rates for the fourth quarter ending
March 31, 2005: approximately Y103 to the U.S. dollar, and
approximately Y136 to the Euro.
The above revised forecast is primarily a result of the following
reasons:
1. Sales and operating income are lower than the previous forecast
as a result of changes in the business and competitive environment
within Electronics.
2. During the third quarter ended December 31, 2004, as a result of
the reversal of valuation allowances against deferred tax assets
of Y67.9 billion ($659 million) by Sony's U.S. subsidiaries, there
was a reduction in income tax expense, leading to an increase in
the forecast for net income (please refer to the discussion
regarding effective tax rates.)
Further to the aforementioned reasons, the revision to the forecast
for income before income taxes also reflects an increase in foreign
exchange gains.
In addition, the forecast for operating income also includes
restructuring charges, as operating expenses, of approximately Y100
billion (a reduction of Y10 billion in restructuring charges since
the October forecast), and the forecast for net income incorporates
approximately Y24 billion in equity in net income of affiliated
companies.
Primary Reasons for the Downward Revision to the Forecast for Sales
and Operating Income
-------------------------------------------------------------------
- As a result of a greater than anticipated deterioration in unit
selling prices of several products in Electronics including
televisions, DVD recorders and video cameras, profitability is
below Sony's previously announced forecasts.
- Due to a decrease in demand, in particular from external
customers, sales and profit for semiconductors and components are
below Sony's expectations.
- Sales and profit for portable audio products are also anticipated
to fall short of Sony's estimates as a result of changes in the
competitive environment.
- With regard to sales revenue on a regional basis, in Japan, sales,
in particular those of DVD recorders, portable audio products
and "VAIO" PCs are lower than anticipated. In Europe, sales of
portable audio products and video cameras, in particular, are below
Sony's expectations.
Our forecast for capital expenditures, depreciation and amortization
or research and development costs is as per the table below:
Forecast Change from
previous year
------ ------
Capital expenditures
(additions to fixed assets) Y370 billion -2%
Depreciation and amortization* 370 billion +1
(Depreciation expenses for 290 billion +1)
tangible assets
* Including amortization of intangible assets and amortization of
deferred insurance acquisition costs.
Research and development expenses 550 billion +7
We have downwardly revised by Y40 billion our forecast, as of October
28, 2004, for capital expenditures. This reduction in capital
expenditures is focused mainly within our semiconductor business.
There has been no change to our forecast as of October 28, 2004 for
depreciation and amortization or research and development costs.
As of December 31, 2004, Sony had deferred tax assets in relation to
Japanese local income taxes totaling Y89.1 billion. However, there is
a possibility that, depending on future operating performance, Sony
may establish a valuation allowance against part or all of its
deferred tax assets that would be charged to income as an increase in
tax expense.
However, it should be noted that the forecast above does not include
the possibility of the establishment of a valuation allowance against
deferred tax assets in Japan.
For your reference, further details about valuation allowances
against deferred tax assets can be found under the "Deferred tax
asset valuation" section of "Critical Accounting Policies" in Item 5.
Operating and Financial Review and Prospects of Sony Corporation's
Form 20-F for the fiscal year ended March 31, 2004.
URL:http://www.sec.gov/Archives/edgar/data/313838/000114554904000801/
0001145549-04-000801-index.htm
Cautionary Statement
Statements made in this release 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 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, the euro and other currencies in which Sony
makes significant sales or in which Sony's assets and liabilities are
denominated; (iii) Sony's ability to continue to design and develop
and win acceptance of its products and services, which are offered in
highly competitive markets characterized by continual new product
introductions, rapid development in technology and subjective and
changing consumer preferences (particularly in the Electronics, Game,
Music and Pictures segments); (iv) Sony's ability to implement
successfully personnel reduction and other business reorganization
activities in its Electronics, Music and Pictures segments; (v)
Sony's ability to implement successfully its network strategy for its
Electronics, Music, Pictures and Other segments and to develop and
implement successful sales and distribution strategies in its Music
and Pictures segments in light of the Internet and other
technological developments; (vi) Sony's continued ability to devote
sufficient resources to research and development and, with respect to
capital expenditures, to correctly prioritize investments
(particularly in the Electronics segment); (vii) the success of
Sony's joint ventures and alliances; and (viii) the risk of being
unable to obtain regulatory approval to successfully complete the
acquisition of MGM. Risks and uncertainties also include the impact
of any future events with material unforeseen impacts.
Investor Relations Contacts:
----------------------------
Tokyo New York London
Yukio Ozawa Takeshi Sudo/ Chris Hohman/
Justin Hill Shinji Tomita
+81-(0)3-5448-2180 +1-212-833-6722 +44-(0)20-7444-9713
Home Page: http://www.sony.net/IR/
Business Segment Information (Unaudited)
----------------------------------------
(Millions of yen, millions of U.S. dollars)
Three months ended December 31
Sales and 2003 2004 Change 2004
operating revenue
---------- ------ ------ ------ ------
Electronics
Customers Y1,479,622 Y1,438,682 -2.8% $13,968
Intersegment 44,775 72,110 700
---------- ------ ------ ------ ------
Total 1,524,397 1,510,792 -0.9 14,668
Game
Customers 356,212 273,599 -23.2 2,656
Intersegment 10,739 9,022 88
---------- ------ ------ ------ ------
Total 366,951 282,621 -23.0 2,744
Music
Customers 130,670 46,317 -64.6 450
Intersegment 10,441 10,030 97
---------- ------ ------ ------ ------
Total 141,111 56,347 -60.1 547
Pictures
Customers 181,227 203,097 +12.1 1,972
Intersegment 0 0 0
---------- ------ ------ ------ ------
Total 181,227 203,097 +12.1 1,972
Financial
Services
Customers 130,319 139,479 +7.0 1,354
Intersegment 7,023 5,483 53
---------- ------ ------ ------ ------
Total 137,342 144,962 +5.5 1,407
Other
Customers 45,351 47,011 +3.7 456
Intersegment 26,488 17,183 167
---------- ------ ------ ------ ------
Total 71,839 64,194 -10.6 623
Elimination (99,466) (113,828) - (1,105)
---------- ------ ------ ------ ------
Consolidated Y2,323,401 Y2,148,185 -7.5% $20,856
total
Electronics intersegment amounts primarily consist of transactions
with the Game business.
Music intersegment amounts primarily consist of transactions with the
Game and Pictures businesses.
Other intersegment amounts primarily consist of transactions with the
Electronics business.
Operating income (loss) 2003 2004 Change 2004
---------- ------ ------ ------ ------
Electronics Y64,419 Y49,381 -23.3% $479
Game 70,519 44,574 -36.8 433
Music 16,086 11,964 -25.6 116
Pictures 5,613 18,646 +232.2 181
Financial Services 12,666 13,904 +9.8 135
Other (2,939) 2,500 - 24
---------- ------ ------ ------ ------
Total 166,364 140,969 -15.3 1,368
Unallocated (7,592) (2,796) - (27)
corporate expenses
and elimination
---------- ------ ------ ------ ------
Consolidated total Y158,772 Y138,173 -13.0% $1,341
Commencing April 1, 2004, Sony has partly realigned its business
segment configuration. Results of the previous year have been
reclassified to conform to the presentations for the current quarter
(See Notes 5 and 6).
(Millions of yen, millions of U.S. dollars)
Nine months ended December 31
Sales and 2003 2004 Change 2004
operating revenue
---------- ------ ------ ------ ------
Electronics
Customers Y3,714,850 Y3,724,772 +0.3% $36,163
Intersegment 180,060 124,519 1,209
---------- ------ ------ ------ ------
Total 3,894,910 3,849,291 -1.2 37,372
Game
Customers 632,296 488,534 -22.7 4,743
Intersegment 21,187 19,097 185
---------- ------ ------ ------ ------
Total 653,483 507,631 -22.3 4,928
Music
Customers 308,779 185,631 -39.9 1,802
Intersegment 26,482 24,257 236
---------- ------ ------ ------ ------
Total 335,261 209,888 -37.4 2,038
Pictures
Customers 519,768 543,030 +4.5 5,272
Intersegment 0 0 0
---------- ------ ------ ------ ------
Total 519,768 543,030 +4.5 5,272
Financial
Services
Customers 421,073 386,828 -8.1 3,756
Intersegment 20,330 17,620 171
---------- ------ ------ ------ ------
Total 441,403 404,448 -8.4 3,927
Other
Customers 127,434 133,800 +5.0 1,299
Intersegment 70,892 51,428 499
---------- ------ ------ ------ ------
Total 198,326 185,228 -6.6 1,798
Elimination (318,951) (236,921) - (2,300)
---------- ------ ------ ------ ------
Consolidated Y5,724,200 Y5,462,595 -4.6% $53,035
total
Electronics intersegment amounts primarily consist of transactions
with the Game business.
Music intersegment amounts primarily consist of transactions with the
Game and Pictures businesses.
Other intersegment amounts primarily consist of transactions with the
Electronics business.
Operating income (loss) 2003 2004 Change 2004
---------- ------ ------ ------ ------
Electronics Y122,433 Y65,123 -46.8% $632
Game 74,464 41,682 -44.0 405
Music 3,129 11,412 +264.7 111
Pictures (1,404) 50,165 - 487
Financial Services 37,969 39,188 +3.2 380
Other (5,548) 97 - 1
---------- ------ ------ ------ ------
Total 231,043 207,667 -10.1 2,016
Unallocated (22,385) (16,335) - (158)
corporate expenses
and elimination
---------- ------ ------ ------ ------
Consolidated total Y208,658 Y191,332 -8.3% $1,858
Commencing April 1, 2004, Sony has partly realigned its business
segment configuration. Results of the previous year have been
reclassified to conform to the presentations for the current quarter
(See Notes 5 and 6).
Electronics Sales and Operating Revenue to Customers by Product
Category
(Millions of yen, millions of U.S. dollars)
Three months ended December 31
Sales and operating 2003 2004 Change 2004
revenue
---------- ------ ------ ------ ------
Audio Y219,602 Y183,977 -16.2% $1,786
Video 310,655 329,743 +6.1 3,201
Televisions 306,386 318,441 +3.9 3,092
Information and 231,454 218,056 -5.8 2,117
Communications
Semiconductors 69,460 53,755 -22.6 522
Components 169,857 164,746 -3.0 1,600
Other 172,208 169,964 -1.3 1,650
---------- ------ ------ ------ ------
Total Y1,479,622 Y1,438,682 -2.8% $13,968
Nine months ended December 31
Sales and operating 2003 2004 Change 2004
revenue
---------- ------ ------ ------ ------
Audio Y543,381 Y465,388 -14.4% $4,518
Video 751,746 826,824 +10.0 8,027
Televisions 710,244 734,483 +3.4 7,131
Information and 625,941 573,811 -8.3 5,571
Communications
Semiconductors 187,074 195,657 +4.6 1,900
Components 464,335 476,837 +2.7 4,630
Other 432,129 451,772 +4.5 4,386
---------- ------ ------ ------ ------
Total Y3,714,850 Y3,724,772 +0.3% $36,163
The above table is a breakdown of Electronics sales and operating
revenue to customers in the Business Segment Information. The
Electronics segment is managed as a single operating segment by
Sony's management. However, Sony believes that the information in
this table is useful to investors in understanding the product
categories in this business segment. In addition, commencing
April 1, 2004, Sony has partly realigned its product category
configuration in the Electronics segment. Accordingly, results of the
previous year have been restated. (See Note 7)
Geographic Segment Information (Unaudited)
------------------------------------------
(Millions of yen, millions of U.S. dollars)
Three months ended December 31
Sales and operating 2003 2004 Change 2004
revenue
---------- ------ ------ ------ ------
Japan Y622,930 Y597,586 -4.1% $5,802
United States 650,658 645,831 -0.7 6,270
Europe 633,889 508,984 -19.7 4,942
Other Areas 415,924 395,784 -4.8 3,842
---------- ------ ------ ------ ------
Total Y2,323,401 Y2,148,185 -7.5% $20,856
Nine months ended December 31
Sales and operating 2003 2004 Change 2004
revenue
---------- ------ ------ ------ ------
Japan Y1,670,787 Y1,572,982 -5.9% $15,272
United States 1,628,381 1,521,797 -6.5 14,775
Europe 1,358,097 1,244,587 -8.4 12,083
Other Areas 1,066,935 1,123,229 +5.3 10,905
---------- ------ ------ ------ ------
Total Y5,724,200 Y5,462,595 -4.6% $53,035
Classification of Geographic Segment Information shows sales and
operating revenue recognized by location of customers.
Consolidated Statements of Income (Unaudited)
---------------------------------------------
(Millions of yen, millions of U.S. dollars, except per share
amounts)
Three months ended December 31
2003 2004 Change 2004
------ ------ ------ ------
Sales and %
operating revenue:
Net sales Y2,180,714 Y1,996,676 $19,385
Financial service 130,319 139,479 1,354
revenue
Other operating 12,368 12,030 117
revenue
------ ------ ------
2,323,401 2,148,185 -7.5 20,856
Costs and expenses:
Cost of sales 1,551,627 1,489,359 14,460
Selling, general 485,073 393,269 3,818
and administrative
Financial service 117,665 125,609 1,220
expenses
Loss on sale, 10,264 1,775 17
disposal or
impairment of
assets, net
------ ------ ------
2,164,629 2,010,012 19,515
Operating income 158,772 138,173 -13.0 1,341
Other income:
Interest and 3,337 2,427 24
dividends
Royalty income 5,671 4,898 48
Foreign exchange 9,278 5,381 52
gain, net
Gain on sale of 350 3,425 33
securities
investments, net
Gain on change in 919 1,612 16
interest in
subsidiary and
equity investee
Other 6,154 5,924 57
------ ------ ------
25,709 23,667 230
Other expenses:
Interest 7,196 7,265 70
Loss on 10,911 106 1
devaluation
of securities
investments
Other 8,564 5,244 51
------ ------ ------
26,671 12,615 122
------ ------ ------
Income before income 157,810 149,225 -5.4 1,449
taxes
Income taxes 67,587 7,017 68
------ ------ ------
Income before minority 90,223 142,208 +57.6 1,381
interest and equity in
net income of
affiliated companies
Minority interest 656 728 7
in income of
consolidated
subsidiaries
Equity in net income 3,052 2,334 22
of affiliated
companies
------ ------ ------
Net income Y92,619 Y143,814 +55.3 $1,396
------ ------ ------
Per share data:
Common stock
Net income
- Basic Y100.16 Y155.32 +55.1 $1.51
- Diluted 92.51 138.08 +49.3 1.34
Subsidiary tracking
stock
Net income (loss)
- Basic (10.71) 27.29 - 0.26
(Millions of yen, millions of U.S. dollars, except per share
amounts)
Nine months ended December 31
2003 2004 Change 2004
------ ------ ------ ------
Sales and operating %
revenue:
Net sales Y5,267,642 Y5,035,823 $48,891
Financial service 421,073 386,828 3,756
revenue
Other operating 35,485 39,944 388
revenue
------ ------ ------ ------
5,724,200 5,462,595 -4.6 53,035
Costs and expenses:
Cost of sales 3,819,905 3,776,754 36,667
Selling, general 1,302,861 1,131,889 10,989
and administrative
Financial service 379,165 348,119 3,380
expenses
Loss on sale, 13,611 14,501 141
disposal or
impairment of
assets, net
------ ------ ------ ------
5,515,542 5,271,263 51,177
Operating income 208,658 191,332 -8.3 1,858
Other income:
Interest and 13,368 10,517 102
dividends
Royalty income 23,855 22,017 214
Foreign exchange 10,471 - -
gain, net
Gain on sale of 11,746 5,451 53
securities
investments, net
Gain on change in 919 15,107 147
interest in
subsidiary and
equity investee
Other 26,448 18,607 180
------ ------ ------ ------
86,807 71,699 696
Other expenses:
Interest 20,670 21,823 212
Loss on 12,550 2,419 24
devaluation
of securities
investments
Foreign exchange - 553 5
loss, net
Other 24,605 19,136 186
------ ------ ------ ------
57,825 43,931 427
------ ------ ------ ------
Income before income 237,640 219,100 -7.8 2,127
taxes
Income taxes 103,272 21,378 207
------ ------ ------ ------
Income before 134,368 197,722 +47.1 1,920
minority interest,
equity in net income
(loss) of affiliated
companies and
cumulative effect of
an accounting change
Minority interest 1,822 1,300 13
in income of
consolidated
subsidiaries
Equity in net (3,763) 28,579 277
income (loss)
of affiliated
companies
------ ------ ------ ------
Income before 128,783 225,001 +74.7 2,184
cumulative effect
of an accounting
change
Cumulative effect (2,117) (4,713) (45)
of an accounting
change (2003: Net
of income taxes of
Y0 million)
(2004: Net of income
taxes of Y2,675
million)
------ ------ ------ ------
Net income Y126,666 Y220,288 +73.9 $2,139
------ ------ ------ ------
Per share data:
Common stock
Income before
cumulative effect
of an accounting
change
- Basic Y139.56 Y243.04 +74.1 $2.36
- Diluted 130.19 216.87 +66.6 2.11
Net income
- Basic 137.27 237.95 +73.3 2.31
- Diluted 128.08 212.36 +65.8 2.06
Subsidiary
tracking stock
Net income (loss)
- Basic (28.67) 45.41 - 0.44
Consolidated Balance Sheets (Unaudited)
---------------------------------------
(Millions of yen, millions of U.S. dollars)
December March December December
31 31 31 31
ASSETS 2003 2004 2004 2004
------ ------ ------ ------
Current assets:
Cash and cash Y897,691 Y849,211 Y575,341 $5,586
equivalents
Time deposits 7,611 4,662 2,485 24
Marketable 273,261 274,748 540,177 5,244
securities
Notes and accounts 1,496,804 1,123,863 1,383,540 13,432
receivable, trade
Allowance for (118,125) (112,674) (97,979) (951)
doubtful accounts
and sales returns
Inventories 712,737 666,507 653,790 6,347
Deferred income 122,579 125,532 121,938 1,184
taxes
Prepaid expenses 480,276 431,506 489,047 4,749
and other current
assets
------ ------ ------ ------
3,872,834 3,363,355 3,668,339 35,615
Film costs 269,183 256,740 263,157 2,555
Investments and
advances:
Affiliated companies 85,364 86,253 262,287 2,546
Securities 2,230,022 2,426,697 2,501,026 24,282
investments and
other
------ ------ ------ ------
2,315,386 2,512,950 2,763,313 26,828
Property, plant
and equipment:
Land 193,278 189,785 182,133 1,768
Buildings 950,656 930,983 912,906 8,863
Machinery and 2,073,346 2,053,085 2,102,492 20,413
equipment
Construction in 92,273 98,480 141,645 1,375
progress
Less-Accumulated (1,945,638) (1,907,289)(1,978,404) (19,208)
depreciation
------ ------ ------ ------
1,363,915 1,365,044 1,360,772 13,211
Other assets:
Intangibles, net 250,856 248,010 209,385 2,033
Goodwill 284,911 277,870 270,645 2,628
Deferred insurance 344,835 349,194 373,288 3,624
acquisition costs
Deferred income 265,356 203,203 224,694 2,181
taxes
Other 425,136 514,296 465,869 4,524
------ ------ ------ ------
1,571,094 1,592,573 1,543,881 14,990
------ ------ ------ ------
Y9,392,412 Y9,090,662 Y9,599,462 $93,199
------ ------ ------ ------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term Y228,625 Y91,260 Y207,504 $2,014
borrowings
Current portion 89,925 383,757 450,305 4,372
of long-term debt
Notes and accounts 916,594 778,773 848,643 8,239
payable, trade
Accounts payable, 868,899 812,175 771,552 7,491
other and accrued
expenses
Accrued income 115,633 57,913 79,282 770
and other taxes
Deposits from 358,611 378,851 512,800 4,979
customers in the
banking business
Other 392,509 479,486 408,991 3,971
------ ------ ------ ------
2,970,796 2,982,215 3,279,077 31,836
Long-term liabilities:
Long-term debt 1,070,503 777,649 637,063 6,185
Accrued pension and 535,021 368,382 328,562 3,190
severance costs
Deferred income 99,185 96,193 66,949 650
taxes
Future insurance 2,111,994 2,178,626 2,383,749 23,143
policy benefits
and other
Other 244,565 286,737 242,628 2,356
------ ------ ------ ------
4,061,268 3,707,587 3,658,951 35,524
Minority interest 18,493 22,858 24,140 234
in consolidated
subsidiaries
Stockholders' equity:
Capital stock 480,263 480,267 480,348 4,664
Additional paid-in 993,138 992,817 992,556 9,636
capital
Retained earnings 1,416,786 1,367,060 1,575,526 15,296
Accumulated other (540,503) (449,959) (405,232) (3,934)
comprehensive
income
Treasury stock, (7,829) (12,183) (5,904) (57)
at cost
------ ------ ------ ------
2,341,855 2,378,002 2,637,294 25,605
------ ------ ------ ------
Y9,392,412 Y9,090,662 Y9,599,462 $93,199
------ ------ ------ ------
Consolidated Statements of Cash Flows (Unaudited)
-------------------------------------------------
(Millions of yen, millions of U.S. dollars)
Nine months ended December 31
2003 2004 2004
------ ------ ------
Cash flows from operating
activities:
Net income Y126,666 Y220,288 $2,139
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and amortization, 266,930 268,740 2,609
including amortization of
deferred insurance
acquisition costs
Amortization of film costs 209,035 206,925 2,009
Accrual for pension and 42,936 14,475 141
severance costs, less
payments
Loss on sale, disposal or 13,611 14,501 141
impairment of assets, net
Gain on sales of securities (11,746) (5,451) (53)
investments, net
Gain on change in interest (919) (15,107) (147)
in subsidiary and equity
investee
Deferred income taxes 7,591 (57,349) (557)
Equity in net (gain) loss of 5,070 (27,851) (270)
affiliated companies, net
of dividends
Cumulative effect of an 2,117 4,713 45
accounting change
Changes in assets and
liabilities:
Increase in notes and (423,890) (288,539) (2,801)
accounts receivable, trade
(Increase) decrease in (109,843) 5,099 50
inventories
Increase in film costs (212,481) (217,185) (2,108)
Increase in notes and 229,608 77,125 749
accounts payable, trade
Increase in accrued income 7,295 23,073 224
and other taxes
Increase in future insurance 197,584 100,665 977
policy benefits and other
Increase in deferred insurance (53,118) (48,882) (475)
acquisition costs
(Increase) decrease in 369 (23,138) (225)
marketable securities held
in the financial service
business for trading purpose
Increase in other current (82,315) (59,213) (575)
assets
Increase in other current 95,610 96,528 937
liabilities
Other 76,336 49,428 480
------ ------ ------
Net cash provided by 386,446 338,845 3,290
operating activities
------ ------ ------
Cash flows from investing
activities:
Payments for purchases of (306,204) (345,073) (3,350)
fixed assets
Proceeds from sales of 31,672 27,504 267
fixed assets
Payments for investments and (899,450) (998,760) (9,697)
advances by financial
service business
Payments for investments and (31,997) (143,382) (1,392)
advances (other than financial
service business)
Proceeds from maturities of 584,602 573,218 5,565
marketable securities, sales
of securities investments and
collections of advances by
financial service business
Proceeds from maturities of 26,933 22,534 219
marketable securities, sales
of securities investments and
collections of advances
(other than financial service
business)
Other (718) 4,871 47
------ ------ ------
Net cash used in investing (595,162) (859,088) (8,341)
activities
------ ------ ------
Cash flows from financing
activities:
Proceeds from issuance 258,776 10,286 100
of long-term debt
Payments of long-term debt (23,866) (86,516) (840)
Increase in short-term 109,497 64,356 625
borrowings
Increase in deposits from 109,316 222,735 2,162
customers in the financial
service business
Dividends paid (23,189) (23,049) (224)
Other 7,705 54,080 525
------ ------ ------
Net cash provided by 438,239 241,892 2,348
financing activities
------ ------ ------
Effect of exchange rate changes (44,890) 4,481 44
on cash and cash equivalents
------ ------ ------
Net increase (decrease) in 184,633 (273,870) (2,659)
cash and cash equivalents
Cash and cash equivalents at 713,058 849,211 8,245
beginning of the fiscal year
------ ------ ------
Cash and cash equivalents at Y897,691 Y575,341 $5,586
December 31
------ ------ ------
(Notes)
1. U.S. dollar amounts have been translated from yen, for
convenience only, at the rate of Y103 = U.S. $1, the approximate
Tokyo foreign exchange market rate as of December 30, 2004.
2. As of December 31, 2004, Sony had 909 consolidated subsidiaries
(including variable interest entities). It has applied the
equity accounting method in respect to 59 affiliated companies.
3. Sony calculates and presents per share data separately for Sony's
common stock and for the subsidiary tracking stock which is
linked to the economic value of Sony Communication Network
Corporation, based on Statement of Financial Accounting Standards
("FAS") No.128, "Earnings per Share". The holders of the tracking
stock have the right to participate in earnings, together with
common stock holders. Accordingly, Sony calculates per share data
by the "two-class" method based on FAS No.128. Under this method,
basic net income per share for each class of stock is calculated
based on the earnings allocated to each class of stock for the
applicable period, divided by the weighted-average number of
outstanding shares in each class during the applicable period. The
earnings allocated to the subsidiary tracking stock are determined
based on the subsidiary tracking stockholders' economic interest in
the targeted subsidiary's earnings available for dividends or
change in accumulated losses that do not include those of the
targeted subsidiary's subsidiaries. The earnings allocated to
common stock are calculated by subtracting the earnings allocated
to the subsidiary tracking stock from Sony's net income for the
period.
Weighted-average shares used for computation of earnings per share
of common stock are as follows. The dilutive effect in the
weighted-average shares for the three months and nine months ended
December 31, 2003 and 2004 mainly resulted from convertible bonds.
Weighted-average shares (Thousands of shares)
----------------------- Three months ended December 31
2003 2004
Net income ------ ------
- Basic 925,086 925,368
- Diluted 1,007,639 1,045,178
Weighted-average shares (Thousands of shares)
----------------------- Nine months ended December 31
2003 2004
Income before cumulative ------ ------
effect of an accounting
change and net income
- Basic 923,387 925,183
- Diluted 1,002,877 1,045,037
By adopting the Emerging Issues Task Force ("EITF") Issue No. 04-8,
"The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share", issued in July 2004, diluted earnings per
share of income before cumulative effect of an accounting change
for the nine months ended December 31, 2003, net income for the
three months and nine months ended December 31, 2003 have been
restated (see Note 9. Adoption of New Accounting Standards).
Weighted-average shares used for computation of earnings per share
of the subsidiary tracking stock for the three months and nine
months ended December 31, 2003 and 2004 are 3,072 thousand shares.
There were no potentially dilutive securities or options granted
for earnings per share of the subsidiary tracking stock.
4. Sony's comprehensive income is comprised of net income and
other comprehensive income. Other comprehensive income includes
changes in unrealized gains or losses on securities, unrealized
gains or losses on derivative instruments, minimum pension
liabilities adjustments and foreign currency translation
adjustments. Net income, other comprehensive income and
comprehensive income for the three months and nine months ended
December 31, 2003 and 2004 were as follows:
(Millions of yen, millions of U.S. dollars)
Three months ended Nine months ended
December 31 December 31
---------- ------ ------ ------ ------ ------ ------
2003 2004 2004 2003 2004 2004
---------- ------ ------ ------ ------ ------ ------
Net income Y92,619 Y143,814 $1,396 Y126,666 Y220,288 $2,139
Other
comprehensive
income
(loss):
Unrealized 1,026 (1,779) (17) 30,907 (14,293) (139)
gains
(losses) on
securities
Unrealized (3,303) 2,532 25 2,891 119 1
gains
(losses) on
derivative
instruments
Minimum 788 7,582 74 (2,196) 28,535 277
pension
liabilities
adjustments
Foreign (22,004) (56,100) (545) (100,129) 30,366 295
currency
translation
adjustments
------ ------ ------ ------ ------ ------
(23,493) (47,765) (463) (68,527) 44,727 434
---------- ------ ------ ------ ------ ------ ------
Comprehensive Y69,126 Y96,049 $933 Y58,139 Y265,015 $2,573
income
---------- ------ ------ ------ ------ ------ ------
5. As of August 1, 2004, Sony and Bertelsmann AG combined their
recorded music businesses in a joint venture. In connection with
the establishment of this joint venture, the non-Japan based disc
manufacturing and physical distribution businesses, formerly
included within the Music segment, have been reclassified to
"Other" category in the Electronics segment. Results for the same
period of the previous year in the Electronics and Music segments
have been restated to conform to the presentation for this year.
6. In July 2004, in order to establish a more efficient and
coordinated semiconductor supply structure, the Sony group has
integrated its semiconductor manufacturing business by transferring
Sony Computer Entertainment's semiconductor manufacturing operation
from the Game segment to the Electronics segment. As a result of
this transfer, sales revenue and expenditures associated with this
operation are now recorded within the "Semiconductor" category in
the Electronics segment. The results for the same period of the
previous fiscal year have not been restated as such comparable
figures cannot be practically obtained given that it was not
operated as a separate line of business within the Game segment.
This integration of the semiconductor manufacturing businesses is
a part of Sony's semiconductor strategy of utilizing semiconductor
technologies and manufacturing equipment originally developed or
designed for the Game business within the Sony group as a whole.
7. Commencing April 1, 2004, Sony has partly realigned its product
category configuration in the Electronics segment. Accordingly,
results of the previous year have been reclassified. The primary
changes are as follows;
Main Product Previous Product New Product Category
Category
AIWA "Other" -> "Audio" or "Video" or
"Televisions"
Set-top box "Video" -> "Televisions"
8. In January 2003, the Financial Accounting Standards Board
("FASB") issued FASB Interpretation ("FIN") No.46, "Consolidation
of Variable Interest Entities - an Interpretation of Accounting
Research Bulletins ("ARB") No.51", and the revised FIN No.46 was
issued in December 2003. This interpretation addresses
consolidation by a primary beneficiary of a variable interest
entity ("VIE"). FIN No.46 is effective immediately for all new
VIEs created or acquired after January 31, 2003. Sony has not
entered into any new arrangements with VIEs on or after February
1, 2003. For VIEs created or acquired prior to February 1, 2003,
Sony adopted FIN No.46 on July 1, 2003. As a result of the
adoption of FIN No.46, Sony recognized Y2,117 million of loss as
the cumulative effect of an accounting change. Additionally,
Sony's assets and liabilities increased as non-cash transactions,
which resulted in no cash flows, by Y95,255 million and
Y97,950 million, respectively, as well as cash and cash
equivalents of Y1,521 million.
9. Adoption of New Accounting Standards
Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts
In July 2003, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement
of Position ("SOP") 03-1, "Accounting and Reporting by Insurance
Enterprises for Certain Nontraditional Long-Duration Contracts and
for Separate Accounts". SOP 03-1 requires insurance enterprises to
record additional reserves for long-duration life insurance
contracts with minimum guarantee or annuity receivable options.
Additionally, SOP 03-1 provides guidance for the presentation of
separate accounts. This statement is effective for fiscal years
beginning after December 15, 2003. Sony adopted SOP 03-1 on April
1, 2004. As a result of the adoption of SOP 03-1, Sony's operating
income decreased by Y344 million ($3 million) and Y3,561 million
($35 million) for the three months and nine months ended December
31, 2004, respectively. Additionally, on April 1, 2004, Sony
recognized Y4,713 million ($45 million) of loss (net of income
taxes of Y2,675 million) as a cumulative effect of an accounting
change. In addition, the separate account assets, which are
defined by insurance business law in Japan and were previously
included in "Security investments and other" on the consolidated
balance sheet, were excluded from the category of separate
accounts under the provision of SOP 03-1. Accordingly, the
separate account assets are now treated as general accounts and
included in "Marketable securities" on the consolidated balance
sheet.
The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share
In July 2004, the EITF issued EITF Issue No. 04-8, "The Effect of
Contingently Convertible Instruments on Diluted Earnings per
Share". In accordance with FAS No.128, Sony had not included in
the computation of diluted earnings per share ("EPS") the number
of potential common stock upon the conversion of contingently
convertible debt instruments ("Co-Cos") that have not met the
conditions to exercise the stock acquisition rights. EITF Issue
No. 04-8 requires that the maximum number of common stock that
could be issued upon the conversion of Co-Cos be included in
diluted EPS computations from the date of issuance regardless of
whether the conditions to exercise the rights have been met. EITF
Issue No. 04-8 is effective for reporting periods ending after
December 15, 2004. Sony adopted EITF Issue No. 04-8 during the
quarter ended December 31, 2004. As a result of the adoption of
EITF Issue No. 04-8, Sony's diluted EPS of income before
cumulative effect of an accounting change for the nine months
ended December 31, 2003, and net income for the three months and
nine months ended December 31, 2003 have been restated. Sony's
diluted EPS of income before cumulative effect of an accounting
change for the nine months ended December 31, 2004, net income for
the three months and nine months ended December 31, 2004 were
decreased by Y9.67 ($0.09), Y6.16 ($0.06) and Y9.47 ($0.09),
respectively, compared to those before adopting EITF Issue
No. 04-8.
Other Consolidated Financial Data
(Millions of yen, millions of U.S. dollars)
Three months ended December 31
2003 2004 Change 2004
------ ------ ------ ------
Capital Y97,649 Y78,700 -19.4% $764
expenditures
(additions
to property,
plant and
equipment)
Depreciation 95,229 92,036 -3.4 894
and amortization
expenses*
(Depreciation (74,670) (75,594) (+1.2) (734)
expenses for
tangible assets)
Research and 123,760 119,430 -3.5 1,160
development
expenses
Nine months ended December 31
2003 2004 Change 2004
------ ------ ------ ------
Capital Y268,682 Y256,822 -4.4% $2,493
expenditures
(additions
to property,
plant and
equipment)
Depreciation 266,930 268,740 +0.7 2,609
and amortization
expenses*
(Depreciation (210,426) (217,080) (+3.2) (2,108)
expenses for
tangible assets)
Research and 374,115 370,030 -1.1 3,593
development
expenses
* Including amortization expenses for intangible assets and for
deferred insurance acquisition costs
Condensed Financial Services Financial Statements (Unaudited)
-------------------------------------------------------------
The results of the Financial Services segment are included in Sony's
consolidated financial statements. The following schedules show
unaudited condensed financial statements for the Financial Services
segment and all other segments excluding Financial Services. These
presentations are not required under U.S. GAAP, which is used in
Sony's consolidated financial statements. However, because the
Financial Services segment is different in nature from Sony's other
segments, Sony believes that a comparative presentation may be useful
in understanding and analyzing Sony's consolidated financial
statements.
Transactions between the Financial Services segment and Sony
without Financial Services are eliminated in the consolidated figures
shown below.
(Millions of yen, millions of U.S. dollars)
Condensed Statements Three months ended December 31
of Income
--------------------
Financial Services 2003 2004 Change 2004
------ ------ ------ ------
%
Financial service Y137,342 Y144,962 +5.5 $1,407
revenue
Financial service 124,676 131,058 +5.1 1,272
expenses
------ ------ ------ ------
Operating income 12,666 13,904 +9.8 135
Other income 2,137 861 -59.7 8
(expenses), net
------ ------ ------ ------
Income before 14,803 14,765 -0.3 143
income taxes
Income taxes and 6,006 5,399 -10.1 52
other
------ ------ ------ ------
Net income Y8,797 Y9,366 +6.5 $91
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Three months ended December 31
Sony without 2003 2004 Change 2004
Financial Services
------ ------ ------ ------
%
Net sales and Y2,195,686 Y2,012,140 -8.4 $19,535
operating
revenue
Costs and 2,049,716 1,888,195 -7.9 18,332
expenses
------ ------ ------ ------
Operating income 145,970 123,945 -15.1 1,203
Other income (2,963) 10,516 - 102
(expenses), net
------ ------ ------ ------
Income before 143,007 134,461 -6.0 1,305
income taxes
Income taxes and 59,426 13 -100.0 0
other
------ ------ ------ ------
Net income Y83,581 Y134,448 +60.9 $1,305
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Three months ended December 31
Consolidated 2003 2004 Change 2004
------ ------ ------ ------
%
Financial service Y130,319 Y139,479 +7.0 $1,354
revenue
Net sales and 2,193,082 2,008,706 -8.4 19,502
operating revenue
------ ------ ------ ------
2,323,401 2,148,185 -7.5 20,856
Costs and 2,164,629 2,010,012 -7.1 19,515
expenses
------ ------ ------ ------
Operating income 158,772 138,173 -13.0 1,341
Other income (962) 11,052 - 108
(expenses), net
------ ------ ------ ------
Income before 157,810 149,225 -5.4 1,449
income taxes
Income taxes 65,191 5,411 -91.7 53
and other
------ ------ ------ ------
Net income Y92,619 Y143,814 +55.3 $1,396
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Condensed Statements Nine months ended December 31
of Income
--------------------
Financial Services 2003 2004 Change 2004
------ ------ ------ ------
%
Financial service Y441,403 Y404,448 -8.4 $3,927
revenue
Financial service 403,434 365,260 -9.5 3,547
expenses
------ ------ ------ ------
Operating income 37,969 39,188 +3.2 380
Other income 2,049 9,754 +376.0 95
(expenses), net
------ ------ ------ ------
Income before 40,018 48,942 +22.3 475
income taxes
Income taxes and 15,872 18,857 +18.8 184
other
------ ------ ------ ------
Income before 24,146 30,085 +24.6 291
cumulative effect
of an accounting
change
Cumulative effect - (4,713) - (45)
of an accounting
change
------ ------ ------ ------
Net income Y24,146 Y25,372 +5.1 $246
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Nine months ended December 31
Sony without 2003 2004 Change 2004
Financial Services
------ ------ ------ ------
%
Net sales and Y5,309,512 Y5,083,519 -4.3 $49,355
operating
revenue
Costs and 5,138,694 4,931,856 -4.0 47,883
expenses
------ ------ ------ ------
Operating income 170,818 151,663 -11.2 1,472
Other income 36,196 24,995 -30.9 243
(expenses), net
------ ------ ------ ------
Income before 207,014 176,658 -14.7 1,715
income taxes
Income taxes and 93,336 (24,758) - (240)
other
------ ------ ------ ------
Income before 113,678 201,416 +77.2 1,955
cumulative effect
of an accounting
change
Cumulative effect (2,117) - - -
of an accounting
change
------ ------ ------ ------
Net income Y111,561 Y201,416 +80.5 $1,955
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Nine months ended December 31
Consolidated 2003 2004 Change 2004
------ ------ ------ ------
%
Financial service Y421,073 Y386,828 -8.1 $3,756
revenue
Net sales and 5,303,127 5,075,767 -4.3 49,279
operating revenue
------ ------ ------ ------
5,724,200 5,462,595 -4.6 53,035
Costs and 5,515,542 5,271,263 -4.4 51,177
expenses
------ ------ ------ ------
Operating income 208,658 191,332 -8.3 1,858
Other income 28,982 27,768 -4.2 269
(expenses), net
------ ------ ------ ------
Income before 237,640 219,100 -7.8 2,127
income taxes
Income taxes 108,857 (5,901) - (57)
and other
------ ------ ------ ------
Income before 128,783 225,001 +74.7 2,184
cumulative effect
of an accounting
change
Cumulative effect (2,117) (4,713) - (45)
of an accounting
change
------ ------ ------ ------
Net income Y126,666 Y220,288 +73.9 $2,139
------ ------ ------ ------
Condensed Balance Sheets
------------------------
(Millions of yen, millions of U.S. dollars)
Financial December March December December
Services 31 31 31 31
ASSETS 2003 2004 2004 2004
------ ------ ------ ------
Current assets:
Cash and cash Y261,222 Y256,316 Y197,245 $1,915
equivalents
Marketable 268,944 270,676 536,099 5,205
securities
Notes and 84,141 72,273 77,462 752
accounts
receivable,
trade
Other 113,840 100,433 130,348 1,265
------ ------ ------ ------
728,147 699,698 941,154 9,137
Investments and 2,067,251 2,274,510 2,383,676 23,142
advances
Property, plant 40,503 40,833 38,686 376
and equipment
Other assets:
Deferred 344,835 349,194 373,288 3,624
insurance
acquisition
costs
Other 108,514 110,804 103,539 1,006
------ ------ ------ ------
453,349 459,998 476,827 4,630
------ ------ ------ ------
Y3,289,250 Y3,475,039 Y3,840,343 $37,285
------ ------ ------ ------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short-term Y79,010 Y86,748 Y141,777 $1,376
borrowings
Notes and 9,759 7,847 8,747 85
accounts
payable, trade
Deposits from 358,611 378,851 512,800 4,979
customers in
the banking
business
Other 104,441 175,357 108,416 1,053
------ ------ ------ ------
551,821 648,803 771,740 7,493
Long-term
liabilities:
Long-term debt 139,184 135,811 136,472 1,325
Accrued pension 10,064 10,183 11,518 112
and severance
costs
Future insurance 2,111,994 2,178,626 2,383,749 23,143
policy benefits
and other
Other 120,033 126,349 135,749 1,318
------ ------ ------ ------
2,381,275 2,450,969 2,667,488 25,898
Minority interest - - 5,560 54
in consolidated
subsidiaries
Stockholders' 356,154 375,267 395,555 3,840
equity
------ ------ ------ ------
Y3,289,250 Y3,475,039 Y3,840,343 $37,285
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Sony without December March December December
Financial Services 31 31 31 31
ASSETS 2003 2004 2004 2004
------ ------ ------ ------
Current assets:
Cash and cash Y636,469 Y592,895 Y378,096 $3,671
equivalents
Marketable 4,317 4,072 4,078 39
securities
Notes and 1,298,808 943,590 1,212,422 11,771
accounts
receivable,
trade
Other 1,245,792 1,151,879 1,156,326 11,227
------ ------ ------ ------
3,185,386 2,692,436 2,750,922 26,708
Film costs 269,183 256,740 263,157 2,555
Investments and 368,341 358,629 504,131 4,894
advances
Investments in 176,905 176,905 187,400 1,819
Financial Services,
at cost
Property, plant 1,323,412 1,324,211 1,322,086 12,835
and equipment
Other assets 1,227,008 1,251,901 1,183,216 11,489
------ ------ ------ ------
Y6,550,235 Y6,060,822 Y6,210,912 $60,300
------ ------ ------ ------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short-term Y276,798 Y409,766 Y537,924 $5,223
borrowings
Notes and 910,052 773,221 842,852 8,183
accounts
payable,
trade
Other 1,284,782 1,190,563 1,160,417 11,266
------ ------ ------ ------
2,471,632 2,373,550 2,541,193 24,672
Long-term
liabilities:
Long-term debt 1,066,067 775,233 630,981 6,126
Accrued pension 524,957 358,199 317,044 3,078
and severance
costs
Other 304,079 348,946 273,839 2,659
------ ------ ------ ------
1,895,103 1,482,378 1,221,864 11,863
Minority interest 13,014 17,554 18,680 181
in consolidated
subsidiaries
Stockholders' 2,170,486 2,187,340 2,429,175 23,584
equity
------ ------ ------ ------
Y6,550,235 Y6,060,822 Y6,210,912 $60,300
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Consolidated December March December December
31 31 31 31
ASSETS 2003 2004 2004 2004
------ ------ ------ ------
Current assets:
Cash and cash Y897,691 Y849,211 Y575,341 $5,586
equivalents
Marketable 273,261 274,748 540,177 5,244
securities
Notes and 1,378,679 1,011,189 1,285,561 12,481
accounts
receivable,
trade
Other 1,323,203 1,228,207 1,267,260 12,304
------ ------ ------ ------
3,872,834 3,363,355 3,668,339 35,615
Film costs 269,183 256,740 263,157 2,555
Investments and 2,315,386 2,512,950 2,763,313 26,828
advances
Property, plant 1,363,915 1,365,044 1,360,772 13,211
and equipment
Other assets:
Deferred 344,835 349,194 373,288 3,624
insurance
acquisition
costs
Other 1,226,259 1,243,379 1,170,593 11,366
------ ------ ------ ------
1,571,094 1,592,573 1,543,881 14,990
------ ------ ------ ------
Y9,392,412 Y9,090,662 Y9,599,462 $93,199
------ ------ ------ ------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Short-term Y318,550 Y475,017 Y657,809 $6,386
borrowings
Notes and 916,594 778,773 848,643 8,239
accounts
payable,
trade
Deposits from 358,611 378,851 512,800 4,979
customers in
the banking
business
Other 1,377,041 1,349,574 1,259,825 12,232
------ ------ ------ ------
2,970,796 2,982,215 3,279,077 31,836
Long-term
liabilities:
Long-term debt 1,070,503 777,649 637,063 6,185
Accrued pension 535,021 368,382 328,562 3,190
and severance
costs
Future insurance 2,111,994 2,178,626 2,383,749 23,143
policy benefits
and other
Other 343,750 382,930 309,577 3,006
------ ------ ------ ------
4,061,268 3,707,587 3,658,951 35,524
Minority interest 18,493 22,858 24,140 234
in consolidated
subsidiaries
Stockholders' 2,341,855 2,378,002 2,637,294 25,605
equity
------ ------ ------ ------
Y9,392,412 Y9,090,662 Y9,599,462 $93,199
------ ------ ------ ------
(Millions of yen, millions of U.S. dollars)
Condensed Statements Nine months ended December 31
of Cash Flows
--------------------
Financial Services 2003 2004 2004
------ ------ ------
Net cash provided by Y204,485 Y114,487 $1,111
operating activities
Net cash used in investing (333,650) (455,219) (4,420)
activities
Net cash provided 115,844 281,661 2,735
financing activities
------ ------ ------
Net decrease in cash (13,321) (59,071) (574)
and cash equivalents
Cash and cash equivalents at 274,543 256,316 2,489
beginning of the fiscal year
------ ------ ------
Cash and cash equivalents Y261,222 Y197,245 $1,915
at December 31
------ ------ ------
(Millions of yen, millions of U.S. dollars)
Nine months ended December 31
Sony without Financial 2003 2004 2004
Services
------ ------ ------
Net cash provided by Y191,620 Y230,785 $2,240
operating activities
Net cash used in investing (268,699) (414,690) (4,026)
activities
Net cash provided by 319,923 (35,375) (343)
(used in) financing activities
Effect of exchange rate changes (44,890) 4,481 44
on cash and cash equivalents
------ ------ ------
Net increase (decrease) in 197,954 (214,799) (2,085)
cash and cash equivalents
Cash and cash equivalents at 438,515 592,895 5,756
beginning of the fiscal year
------ ------ ------
Cash and cash equivalents at Y636,469 Y378,096 $3,671
December 31
------ ------ ------
(Millions of yen, millions of U.S. dollars)
Nine months ended December 31
Consolidated 2003 2004 2004
------ ------ ------
Net cash provided by Y386,446 Y338,845 $3,290
operating activities
Net cash used in investing (595,162) (859,088) (8,341)
activities
Net cash provided by 438,239 241,892 2,348
financing activities
Effect of exchange rate (44,890) 4,481 44
changes on cash and cash
equivalents
------ ------ ------
Net increase (decrease) in 184,633 (273,870) (2,659)
cash and cash equivalents
Cash and cash equivalents at 713,058 849,211 8,245
beginning of the fiscal year
------ ------ ------
Cash and cash equivalents at Y897,691 Y575,341 $5,586
December 31
------ ------ ------
This information is provided by RNS
The company news service from the London Stock Exchange
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