Sony 2003 Annual Report Download - page 221

Consolidated Financial Information 2003
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Stock options issued by affiliated companies accounted for under the equity method for the years ended
March 31, 2001, 2002 and 2003, which have a potentially dilutive effect by decreasing net income allocated
to common stock, were excluded from the computation of diluted EPS since such stock option did not have a
dilutive effect.
On October 1, 2002, Sony implemented a share exchange as a result of which Aiwa Co., Ltd. became a
wholly-owned subsidiary. As a result of this share exchange, Sony issued 2,502 thousand shares. The
shares were included in the computation of basic and diluted EPS.
(3) EPS attributable to subsidiary tracking stock:
Weighted-average shares used for computation of EPS attributable to subsidiary tracking stock for the years
ended March 31, 2002 and 2003 were 3,072 thousand shares. As discussed in Note 2, there were no
potentially dilutive securities for EPS of subsidiary tracking stock outstanding at March 31, 2002 and 2003.
23. Variable Interest Entities
Sony has, from time to time, entered into various arrangements with VIEs. These arrangements consist of
facilities which provide for the leasing of certain property, the financing of film production, the development and
operation of a multi-use real estate complex and the implementation of a stock option plan for Japanese
selected employees. As discussed below, certain of these entities are currently not consolidated by Sony. As
described in Note 2, the FASB issued FIN No. 46, which will require the consolidation or disclosure of VIEs.
Although Sony continues to evaluate the impact of FIN No. 46 on Sony’s results of operations and financial
position, the potential VIEs that may be consolidated or disclosed are described as follows:
Sony leases the headquarters of its U.S. subsidiary from a VIE, which was not consolidated by Sony at
March 31, 2002 and 2003. Effective July 1, 2003, Sony will be required to consolidate the VIE. Upon
consolidation of the VIE, assets and liabilities are expected to increase by approximately ¥30,600 million ($255
million) and Sony will record a charge of approximately ¥1,800 million ($15 million) as a cumulative effect of
accounting change. The impact on net income for the year ending March 31, 2004 will be a decrease of ¥840
million ($7 million). Sony has the option to purchase the building at any time during the lease term which
expires in December 2008 for ¥30,600 million ($255 million). At the end of the lease term, Sony has agreed to
either renew the lease, purchase the building or remarket it to a third party on behalf of the owner. If the sales
price is less than ¥30,600 million ($255 million), Sony is obligated to make up the lesser of the shortfall or
¥25,727 million ($214 million). At March 31, 2003, the fair value of the building exceeded ¥30,600 million
($255 million).
A subsidiary in the Pictures business entered into a joint venture agreement with a VIE for the purpose of
funding the acquisition of certain international film rights. The subsidiary is required to distribute the