Sony 2001 Annual Report Download - page 73

Sony Corporation Annual Report 2001
71
Results of Affiliated Companies Accounted for under the Equity Method
During the fiscal year ended March 31, 2001, equity affiliates included i) in the Electronics business - S.T. Liquid
Crystal Display Corp. (“ST-LCD”), an LCD joint venture in Japan and Crosswave Communications Inc., a provider
of high-capacity/high-speed network services in Japan, ii) in the Music business - The Columbia House Company
(“CHC”), a direct marketer of music and videos, iii) in the Pictures business - Telemundo, a U.S. based Spanish
language television network and station group and Loews Cineplex Entertainment Corporation (“Loews”), a
theatrical exhibition company, and iv) in the Other business - a commercial- and other-use facility in Germany
and a satellite broadcasting business in Japan.
During the year, equity in net losses of affiliated companies increased from 37.8 billion yen in the previous
year to 44.5 billion yen. Equity in net losses of affiliated companies during the year was primarily due to losses at
Loews and CHC. With respect to Loews, 25.0 billion yen of equity in net losses was recorded during the year,
primarily due to continued losses as well as the impairment loss recorded against the entire carrying value of
Sony’s investment in Loews. In the previous year, 2.2 billion yen of equity in net losses was recorded for Loews.
In February 2001, Loews filed petitions for corporate reorganization in the U.S. under Chapter 11 of the Federal
Bankruptcy Code, and in Canada under the Companies-Creditors Arrangement Act, and signed a letter of intent
with a group of investors regarding a proposed acquisition of Loews and a restructuring of its indebtedness.
When the reorganization is completed, it is expected that Sony will no longer be a shareholder in Loews and
Loews will be excluded from Sony’s equity affiliates. In addition, in relation to CHC, 6.0 billion yen of equity in
net losses was recorded during the year, primarily due to sluggish sales reflecting the maturity of the CD market,
severe competition from other online retailers, and costs associated with various restructuring activities. In the
previous year, 13.6 billion yen of equity in net losses was recorded for CHC, primarily due to the costs relating to
shortened amortization periods and an impairment of advertising and member acquisition expenses. Given the
challenging business environment, CHC has restructured its business by reducing costs while seeking to focus on
growth areas such as DVD video and online sales. Also, with respect to Telemundo, a satellite broadcasting
business in Japan, a commercial- and other-use facility in Germany, and ST-LCD, although equity in net losses
were recorded during the year, the amount of losses decreased compared with the previous year.