RE: Argentina

Not concerned at all. Don't think they would use anything against us in Argentina when we rep them in Brazil and given the bigger relationship.

-----Original Message-----

From: Bruno, Steve

Sent: Friday, November 01, 2013 9:33 AM

To: ODell, Steven

Subject: Re: Argentina

It isn't a big deal I suppose but it's something they might try to use against us (or in their favor) at some point assuming we pull back

On Nov 1, 2013, at 9:11 AM, "ODell, Steven" <Steven_O'dell@spe.sony.com> wrote:

> I would definitely involve UIP but not worried about their expectations. Overhead has only increased by perhaps Rosana + 1 and fees more than cover that.

>

> From: Bruno, Steve

> Sent: Thursday, October 31, 2013 5:49 PM

> To: ODell, Steven

> Subject: FW: Argentina

> Importance: High

>

> Steven:

>

> I'm fine scaling back but i'm not sure that we have gotten word from finance that getting money out the country is not possible. If that is the case for sure, then of course we can scale back. We can do anything everyone wants us to do.

>

> I think if we pull back, we will need to address the UIP of it because I am sure that they are expecting a certain amount of fee revenue and this would definitely be a change to that.

>

> As for Battle of the Year and This is the End, we are trying to gross like we have been asked to do. We can absolutely pull out of that but it would make Argentina the only market we have rejected the titles in.

>

> Nebraska and the others will be NRP eventually, of course.

>

> Let me know

>

> Thanks

> Steve

>

>

> From: <Parker>, Paula <Paula_Parker@spe.sony.com<mailto:Paula_Parker@spe.sony.com>>

> To: ITPS <steve_bruno@spe.sony.com<mailto:steve_bruno@spe.sony.com>>

> Cc: "ODell, Steven" <Steven_O'dell@spe.sony.com<mailto:Steven_O'dell@spe.sony.com>>, "Castellanos, Amber" <Amber_Castellanos@spe.sony.com<mailto:Amber_Castellanos@spe.sony.com>>

> Subject: RE: Argentina

>

> Steve:

>

> We haven’t heard from you, what are your thoughts? I agree with Steven and that is where I was going with this as well.

> In 2011

>

> - We netted $3.4M*, about 75% related to Smurf’s profit. The remaining titles either LOST money or had marginal profitability.

>

> - Yet, excluding Smurfs, we spent $2.4M in releasing costs for all remaining titles.

>

> - All other things being equal, if we had only released Smurfs, we would have saved $2.4M in releasing costs.

>

> In 2012

>

> - We netted $6.2M* with ASM, Hotel T and MIB3 making up 75% of the profit. The remaining titles either LOST money or had marginal profitability.

>

> - Excluding ASM, HT, and MIB3, we spent $3.1M in releasing costs for all remaining titles.

>

> - All other things being equal, if we had only released Smurfs, we would have saved $3.1M in releasing costs.

>

> *Before overhead

>

> 2013 Year to date:

>

> - For now, the big winner is Smurfs again (although there are a number of October releases with revenues to be reported). Interesting is looking at what seems to be the very good and consistent results we have had since being distributed by UIP. Year to date, they have been PROFITABLE 9 of 10 films. WHD is the only title showing with a minimal loss ($63k) which really is a wash and could end up profitable in the end since a Sept release.

>

> How much money are we getting out of Argentina?

>

> - I checked with Finance and Felix Perez, and prior to UIP, the last Theatrical remittance was in 2005 for only $250k. Per Felix, “There were many factors that impeded us to make remittances after that moment: our royalties current account had a balance on our favor when SPRGmbH in Germany issued to us a Credit Note after a big loss we had, the rules from the Central Bank began to be more complicate with the authorizations to send monies abroad, we had a negative net worth some fiscal years, etc. “.

>

>

>

> - Under UIP, we now have $4.5M to remit, but when all is said in done with the remittance restrictions (including bond discounts on the remittances), that $4.5M* becomes potentially $2.4M. *I think it’s up closer to $5M now

>

> All the above taken into consideration, what is our release strategy for Argentina? Do we stay the path or do we take a more limited approach to releases? It seems that only the big tent pole/animated titles make any real money so that we may be better saving the releasing costs (and especially since any marginal profitability per title is subject to remittance restrictions). If we are interested in limiting our release slate, we currently have This Is The End, Battle of the Year, Nebraska, Foxcatcher, Her, etc scheduled for release. Per Finance and Tax, and you may have already spoken to them (?), the remittance situation would not seem to be looking any brighter in the future.

>

> Please provide your thoughts.

>

> Paula

>

>

> From: ODell, Steven

> Sent: Monday, October 21, 2013 9:52 PM

> To: Castellanos, Amber; Parker, Paula; Bruno, Steve

> Cc: Bruer, Rory

> Subject: RE: Argentina

> Importance: High

>

> I’m concerned. If we aren’t going to try to get our money out and if devaluation is inevitable, then we are wasting valuable cash just to put a number on the box office reports. Some studios delay releases in Venezuela for such issues. Given our financial situation, we either need an aggressive decision to get money out or else we should consider scaling back our business considerably in Argentina and invest our money elsewhere.

>

> Need a decision from finance first before we make the commercial decision. Please advise.

>

> Steven

>

> From: Castellanos, Amber

> Sent: Monday, October 21, 2013 6:33 PM

> To: Parker, Paula; Bruno, Steve

> Cc: ODell, Steven

> Subject: RE: Argentina

>

> From a finance perspective, I think we have two options:

>

>

> 1) We report as is, but we should reserve against the 41% hit. I would have to check with our Technical Accounting group to see if that reserve would go against Revenues or as an Fx cost.

>

> 2) We treat this like Venezuela and only report based on a cash remittance basis. We wouldn’t accrue for the Argentina revenue due to the risk of loss and you would only see cash in hand reported for reports like Top 10. I have to coordinate with Corporate on this since they want us to be consistent with other Sony entities.

>

> I am currently waiting for Corporate to tell me which Option we have to do. They want to talk to Sony Corp. to make sure all entities are being consistent so we may not have a choice in the matter. However, this is only how we report revenue and should not be the final say on whether or not we do business in Argentina. As of right now we can certainly continue to distribute in Argentina from a finance perspective, however, depending on the accounting protocol it may not be as big of numbers as we had in the past.

>

>

> From: Parker, Paula

> Sent: Monday, October 21, 2013 4:00 PM

> To: Castellanos, Amber; Bruno, Steve

> Cc: ODell, Steven

> Subject: RE: Argentina

>

> So Amber what direction should we take on this? It would seem Treasury’s advice to us is to stop doing business in Argentina?? That said, a 41% hit bond discount is substantial but still aren’t we better receiving US$2.4 million at the discounted rate on the US$4.1 million balance rather than nothing at all?

>

> In calendar 2012 we released 15 films and 13 films in 2011. In 2011, pretty much all revenues (74%) related to Smurfs and in 2012 75% related to only ASM, Hotel T and MIB3. Given the difficulty of remitting money, and they high discount placed on getting monies out, maybe our releases should be limited to only the very big titles? Steve what are your thoughts and recommendations?

>

>

>

> From: Tholen, John

> Sent: Thursday, October 17, 2013 2:52 PM

> To: Parker, Paula

> Cc: Castellanos, Amber

> Subject: RE: Argentina

>

> Paula, I agree that we need to continue to strategize to discover ways to get funds out of Argentina. As it is, Argentina is one of the most difficult countries to get foreign currency and the only way at current is the bond program.

>

> Whereas we can potentially send the existing funds to the Electronics business, this may only be an opportunity while they are in a net debt position. Once they are net long, they will no longer want our currency as they will be faced with the same issues SPRI is facing. If we were to remit to Electronics, we may also need to consider either winding down the business in Argentina and/or putting it on a temporary hiatus until/if the economic conditions change to something more favorable for foreign investors.

>

> I am still chasing Electronics to gauge their appetite for this and considering they are non-responsive, I do not feel they want our Pesos either.

>

> Additionally, are we currently reserving for any currency devaluations?

>

> Below I have attached two bits of news, the first is from CNBC and was published in 2011. The second is from Reuters and was published in May 2012. Both speak to the difficulties of doing business in Argentina:

>

>

>

>

> 1) From CNBC

>

> [cid:image001.png@01CED6E2.4E10CD40]

>

>

>

>

>

>

> 2) From Reuters

>

> [cid:image002.jpg@01CED6E2.4E10CD40]

>

>

>

> Thanks.

>

> -John

>

> From: Childs, David [mailto:David_Childs@uip.com]

> Sent: Thursday, October 17, 2013 11:50 AM

> To: Castellanos, Amber

> Cc: Parker, Paula; Liang, Ai-Lien; Tholen, John

> Subject: RE: Argentina Remittances

>

>

> Hi Amber,

>

> According to our latest information, the official rate = 5.84 (yesterday) and the “secondary market” (bond process) rate quoted to us by our broker today = 9.20. AR Pesos 1,000 = USD 171 at the official rate and USD 109 at the secondary market rate, a reduction of 36%. On that basis a reduction of 40%+ is in the right ball park. The discount suffered on the Universal related remittance was of a similar magnitude. The rates are always changing and so it is difficult to make an accurate prediction on what will be the eventual realized rate.

>

> Best regards,

>

> David

>

>

> From: Castellanos, Amber [mailto:Amber_Castellanos@spe.sony.com]

> Sent: 16 October 2013 22:39

> To: Childs, David

> Cc: Parker, Paula; Liang, Ai-Lien; Tholen, John

> Subject: RE: Argentina Remittances

>

> Hi David,

>

> In discussing this with local advisors we understand the exchange rate differences could amount to anywhere from 40 to 50% reduction in the cash settlement. Is this right? Was this the same sort of hit UIP took in getting cash out? I just want to make sure I tell everyone what the impact of the bond process would be before we get to far down this road.

>

> Just to lay it out - of the approximately AR$24.1 million owed to SPRI, at the end of the transaction we would receive only about US$2.4 million. Based on the “official” exchange rate the current amount owed to SPRI is closer to a US$4.1 million balance (approx. 41% difference).

>

> Please let me know if I have this wrong or if you had more favorable exchange rates in your UIP bond transactions.

>

> Thank you!

> Amber

>

>

> From: Parker, Paula

> Sent: Wednesday, October 16, 2013 1:50 PM

> To: Tholen, John

> Cc: Castellanos, Amber

> Subject: Argentina

>

> John we want to continue to work to come up with creative (legal) solutions to get our money out of Argentina. For now, it seems that if we go with the bond purchase solution, bonds would be discounted to effectively net $2.6M from the $4.5M we have available. What better solutions are available? Are there more favorable ways we can license (maybe through another country)? Can we send the $4.5M to Sony Electronics in Argentina to pay their operating expenses (rent, warehousing, shipping, salaries, whatever)? Is there another local entity we can remit monies to?

>

> What are some creative solutions other than the bonds since the bond discount fees are steep.

>

> Paula

> <image001.png>

> <image002.jpg>