Sony 2003 Annual Report Download - page 112

Consolidated Financial Information 2003
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 During the fiscal year ended March 31, 2002, Sony Corporation of America (“SCA”) entered into a financing
arrangement with a VIE to lease its headquarters, which qualified for off-balance sheet treatment. The total
obligation of the VIE under this arrangement is 255 million U.S. dollars. Upon the maturity of this lease
arrangement in December 2008, SCA has guaranteed a residual value totaling 214 million U.S. dollars if SCA
decides to forgo the purchase of the building or renewal of the lease. Upon Sony’s adoption of FASB’s FIN 46,
“Consolidation of Variable Interest Entities”, Sony will begin consolidation of the special purpose entity.
 In the fiscal year ended March 31, 2000, SPE entered into a joint venture agreement with a VIE for the purpose
of funding certain film production and acquisition costs. The joint venture allows SPE to utilize its existing
international distribution capabilities while sharing the possible risks of financing the increased acquisition and
distribution activities with third party investors. SPE contributed 11 million U.S. dollars of the VIE’s total equity
capitalization of 106 million U.S. dollars. Additionally, the VIE has a 300 million U.S. dollar bank credit facility of
which 11.2 million U.S. dollars was outstanding as of March 31, 2003. Under this financing arrangement, SPE is
obligated to acquire international distribution rights, as defined, for twelve pictures meeting certain minimum
requirements within a 3.5- to 4.5-year period and transfer those rights to the VIE at cost plus a 5 percent fee.
SPE is required to distribute the product internationally, for contractually defined fees determined as
percentages of gross receipts, as defined, and is responsible for all distribution and marketing expenses which
are recouped from such distribution fees. Under the agreement, SPE will bear all losses incurred by the VIE of
less than or equal to 30 million U.S. dollars as SPE’s 11 million U.S. dollar equity investment in the VIE is the last
equity to be repaid, and as SPE must use a portion of its distribution fees to repay third party investors up to 19
million U.S. dollars of any losses they incur. If losses incurred by the VIE exceed 30 million U.S. dollars, third
party investors will bear the remainder of the losses. If the venture is profitable, all parties will share in any net
proceeds, as defined, remaining after the third party investors’ equity has been repaid. If, and only if, SPE fails to
deliver twelve pictures meeting the minimum requirements to the VIE and the bank credit facility or the
third-party equity investors are not paid in full by March 10, 2008 (or earlier upon the occurrence of certain
events), SPE is required to reimburse the VIE to the extent necessary to repay the bank credit facility in full and
pay certain minimum returns to the third party equity investors. As of March 31, 2003, the maximum exposure
amount was 255 million U.S. dollars. Sony guarantees all of the financial obligations of SPE under this financing
arrangement. Sony does not reflect in its balance sheet the production costs of the films acquired by the VIE, the
VIE’s bank credit facility debt, or the third-party equity investment. Upon adoption of FASB’s FIN 46, SPE will
begin consolidation of the VIE.
 During the fiscal years ended March 31, 1995 and 1997, Sony made an investment in a VIE which has been
accounted for under the equity method by Sony, for the purpose of erecting and operating a multi-use real estate
complex in Berlin, Germany. The VIE was initially capitalized with 90.8 billion yen of total funding, 32.6 billion
yen was provided by the equity investors with the remaining funding of 58.2 billion yen being provided through a
syndicated bank loan which matures in November 2004. The syndicated bank loan is secured by the multi-use
real estate complex. Should the VIE be unable to meet its obligations under the syndicated bank loan, Sony