Sony 2007 Annual Report Download - page 80

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OFF-BALANCE SHEET ARRANGEMENTS
Sony has several off-balance sheet arrangements to provide
liquidity, capital resources and/or credit risk support.
During the fiscal year ended March 31, 2005, Sony entered
into accounts receivable sales programs that provide for the
accelerated receipt of up to 47.5 billion yen of eligible trade
accounts receivable of Sony Corporation. Through these
programs, Sony can sell receivables to special purpose entities
owned and operated by banks. These transactions are accounted
for as a sale in accordance with Financial Accounting Standards
(“FAS”) No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,” because
Sony has relinquished control of the receivables. Accordingly,
accounts receivable sold under these transactions are excluded
from receivables in the accompanying consolidated balance
sheet. Total receivables sold for the fiscal years ended March 2006
and 2007 were 146.2 billion yen and 152.5 billion yen, respec-
tively. Losses from these transactions were insignificant. Although
Sony continues servicing the sold receivables, no servicing
liabilities are recorded because costs regarding collection of the
sold receivables are insignificant.
Refer to Note 6 of Notes to Consolidated Financial Statements
for more information on the accounts receivable securitization.
Sony has, from time to time, entered into various arrangements
with variable interest entities (“VIEs”). In several of the arrange-
ments in which Sony holds a significant variable interest, Sony is
the primary beneficiary and therefore consolidates these VIEs.
These arrangements include facilities which provide for the
leasing of certain property, the financing of film production and
the U.S. based music publishing business. In addition, Sony
holds a significant variable interest in VIEs in which Sony is not
the primary beneficiary and therefore does not consolidate.
These VIEs include the film production/co-financing arrangements
noted as follows.
On December 30, 2005, a subsidiary in the Pictures segment
entered into a production/co-financing agreement with a VIE
to co-finance 11 films that were released over the 15 months
ended March 31, 2007. The subsidiary received 373 million
U.S. dollars over the term of the agreement to fund the produc-
tion or acquisition cost of films (including fees and expenses).
The subsidiary is responsible for the marketing and distribution
of the product through its global distribution channels. The VIE
shares in the net profits, as defined, of the films after the
subsidiary recoups a distribution fee, its marketing and distribu-
tion expenses, and third-party participation and residual costs,
each as defined. The subsidiary did not make any equity
investment in the VIE nor issue any guarantees with respect to
the VIE. On April 28, 2006, the subsidiary entered into a second
production/co-financing agreement with a VIE to co-finance
additional films. Nine films are anticipated to be released under
this financing arrangement. The subsidiary will receive approxi-
mately 240 million U.S. dollars over the term of the agreement to
fund the production or acquisition cost of the films (including
fees and expenses). Similar to the first agreement, the subsidiary
is responsible for the marketing and distribution of the product
through its global distribution channels. The VIE shares in the
net profits, as defined, of the films after the subsidiary recoups a
distribution fee, its marketing and distribution expenses, and
third-party participation and residual costs, each as defined. As
of March 31, 2007, three co-financed films have been released
by the subsidiary and 37 million U.S. dollars has been received
from the VIE under this agreement. The subsidiary did not make
any equity investment in the VIE nor issue any guarantees with
respect to the VIE. On January 19, 2007, the subsidiary entered
into a third production/co-financing agreement with a VIE to
co-finance a majority of the films to be submitted through
March 2012. The subsidiary has received a commitment from
the VIE that the VIE will fund up to 525 million U.S. dollars on a
revolving basis to fund the production or acquisition cost of films
(including fees and expenses). As of March 31, 2007, no films of
the subsidiary have been funded by this VIE. Similar to the first
two agreements, the subsidiary is responsible for marketing and
distribution of the product through its global distribution channels.
The VIE shares in the net profits, as defined, of the films after the
subsidiary recoups a distribution fee, its marketing and distribu-
tion expenses, and third-party participation and residual costs,
each as defined. The subsidiary did not make any equity
investment in the VIE nor issue any guarantees with respect to
the VIE.
Refer to Note 22 of Notes to Consolidated Financial Statements
for more information on variable interest entities.
CASH FLOWS
Operating Activities: During the fiscal year ended March 31,
2007, Sony generated 561.0 billion yen of net cash from
operating activities, an increase of 161.2 billion yen, or 40.3
percent, compared with the previous fiscal year. Of this total, all
segments excluding the Financial Services segment generated
305.6 billion yen of net cash from operating activities, an increase
of 53.6 billion yen, or 21.3 percent, compared with the previous
fiscal year, and the Financial Services segment generated 256.5
billion yen of net cash from operating activities, an increase of
109.4 billion yen, or 74.3 percent, compared with the previous
fiscal year.
During the fiscal year, there was a positive impact on operating
cash flow from an increase in notes and accounts payable,