Edgar Filing: SONY CORP

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the month of October 2018

Commission File Number: 001-06439

SONY CORPORATION

(Translation of registrant's name into English)

1-7-1 KONAN, MINATO-KU, TOKYO, 108-0075, JAPAN

(Address of principal executive offices)

The registrant files annual reports under cover of Form 20-F.

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F,

Form 20-F X

Form 40-F __

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934, Yes No X

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-______

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SONY CORPORATION
	(Registrant)


	By: /s/ Hiroki Totoki
	(Signature)
	Hiroki Totoki
	Senior Executive Vice President and
	Chief Financial Officer

Date: October 30, 2018

List of materials

Documents attached hereto:

i) Quarterly Financial Statements for the Second Quarter Ended September 30, 2018 And Outlook for the Fiscal Year Ending March 31, 2019

Quarterly Financial Statements

for the Second Quarter Ended September 30, 2018

And

Outlook for the Fiscal Year Ending March 31, 2019

October 30, 2018

Sony Corporation

Quarterly Financial Statements (Unaudited)	F-1

Consolidated Balance Sheets	F-1
Consolidated Statements of Income (Three months ended September 30)	F-2
Consolidated Statements of Comprehensive Income (Three months ended September 30)	F-2
Consolidated Statements of Income (Six months ended September 30)	F-3
Consolidated Statements of Comprehensive Income (Six months ended September 30)	F-3
Consolidated Statements of Cash Flows (Six months ended September 30)	F-4
Notes to Consolidated Financial Statements	F-5
-Business Segment Information	F-5
-Going Concern Assumption	F-12
-Significant Changes in Shareholders’ Equity	F-12
-Accounting Policies and Other Information	F-12

Outlook for the Fiscal Year Ending March 31, 2019	1

Outlook for the Fiscal Year Ending March 31, 2019	1

Cautionary Statement	4

All amounts are presented on the basis of Generally Accepted Accounting Principles in the U.S. (“U.S. GAAP”).

Sony Corporation and its consolidated subsidiaries are together referred to as “Sony”.

(Unaudited)
Consolidated Financial Statements
Consolidated Balance Sheets
				(Millions of yen)
	March 31			September 30			Change from
ASSETS	2018			2018			March 31, 2018
Current assets:
Cash and cash equivalents	¥	1,586,329		¥	1,540,779		¥	-45,550
Marketable securities		1,176,601			1,335,735			+159,134
Notes and accounts receivable, trade and contract assets		1,061,442			1,290,317			+228,875
Allowance for doubtful accounts		(48,663	)		(24,349	)		+24,314
Inventories		692,937			814,639			+121,702
Other receivables		190,706			305,880			+115,174

Prepaid expenses and other current assets		516,744			480,714			-36,030
Total current assets		5,176,096			5,743,715			+567,619

Film costs		327,645			416,527			+88,882

Investments and advances:
Affiliated companies		157,389			171,798			+14,409
Securities investments and other		10,598,669			11,133,787			+535,118
		10,756,058			11,305,585			+549,527

Property, plant and equipment:
Land		84,358			84,549			+191
Buildings		655,434			666,852			+11,418
Machinery and equipment		1,798,722			1,852,401			+53,679
Construction in progress		38,295			29,245			-9,050
		2,576,809			2,633,047			+56,238
Less-Accumulated depreciation		1,837,339			1,891,203			+53,864
		739,470			741,844			+2,374

Other assets:
Intangibles, net		527,168			522,616			-4,552
Goodwill		530,492			551,058			+20,566
Deferred insurance acquisition costs		586,670			605,989			+19,319
Deferred income taxes		96,772			98,652			+1,880
Other		325,167			339,464			+14,297
		2,066,269			2,117,779			+51,510
Total assets	¥	19,065,538		¥	20,325,450		¥	+1,259,912


LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	¥	496,093		¥	628,528		¥	+132,435
Current portion of long-term debt		225,522			166,423			-59,099
Notes and accounts payable, trade		468,550			781,338			+312,788
Accounts payable, other and accrued expenses		1,514,433			1,549,389			+34,956
Accrued income and other taxes		145,905			197,721			+51,816
Deposits from customers in the banking business		2,159,246			2,252,480			+93,234
Other		610,792			655,871			+45,079
Total current liabilities		5,620,541			6,231,750			+611,209

Long-term debt		623,451			510,165			-113,286
Accrued pension and severance costs		394,504			388,955			-5,549
Deferred income taxes		449,863			430,704			-19,159
Future insurance policy benefits and other		5,221,772			5,452,484			+230,712
Policyholders’ account in the life insurance business		2,820,702			2,998,376			+177,674
Other		278,338			291,417			+13,079
Total liabilities		15,409,171			16,303,851			+894,680

Redeemable noncontrolling interest		9,210			8,442			-768

Equity:
Sony Corporation’s stockholders’ equity:
Common stock		865,678			871,925			+6,247
Additional paid-in capital		1,282,577			1,264,863			-17,714
Retained earnings		1,440,387			1,828,777			+388,390
Accumulated other comprehensive income		(616,746	)		(595,900	)		+20,846
Treasury stock, at cost		(4,530	)		(4,627	)		-97
		2,967,366			3,365,038			+397,672

Noncontrolling interests		679,791			648,119			-31,672
Total equity		3,647,157			4,013,157			+366,000
Total liabilities and equity	¥	19,065,538		¥	20,325,450		¥	+1,259,912

F-1

Consolidated Statements of Income
		(Millions of yen, except per share amounts)
		Three months ended September 30
		2017		2018		Change
Sales and operating revenue:
Net sales	¥	1,764,916		¥	1,809,739	¥	+44,823
Financial services revenue		277,434			351,493		+74,059
Other operating revenue		20,181			21,528		+1,347
		2,062,531			2,182,760		+120,229
Costs and expenses:
Cost of sales		1,234,646			1,222,744		-11,902
Selling, general and administrative		386,279			397,129		+10,850
Financial services expenses		240,305			312,334		+72,029
Other operating (income) expense, net		(901	)		13,383		+14,284
		1,860,329			1,945,590		+85,261

Equity in net income of affiliated companies		2,026			2,341		+315

Operating income		204,228			239,511		+35,283

Other income:
Interest and dividends		4,252			4,571		+319
Gain on equity securities, net		–			9,935		+9,935
Other		511			1,461		+950
		4,763			15,967		+11,204
Other expenses:
Interest		2,730			3,876		+1,146
Foreign exchange loss, net		6,298			4,922		-1,376
Other		1,398			282		-1,116
		10,426			9,080		-1,346

Income before income taxes		198,565			246,398		+47,833

Income taxes		55,751			59,268		+3,517
Net income		142,814			187,130		+44,316

Less - Net income attributable to noncontrolling interests		11,962			14,129		+2,167

Net income attributable to Sony Corporation’s stockholders	¥	130,852		¥	173,001	¥	+42,149

Per share data:
Net income attributable to Sony Corporation’s stockholders
— Basic	¥	103.57		¥	136.38	¥	+32.81
— Diluted		101.35			133.43		+32.08

Consolidated Statements of Comprehensive Income
		(Millions of yen)
		Three months ended September 30
		2017			2018		Change

Net income	¥	142,814		¥	187,130		¥	+44,316

Other comprehensive income, net of tax –
Unrealized losses on securities		(1,469	)		(24,337	)		-22,868
Unrealized gains (losses) on derivative instruments		594			(563	)		-1,157
Pension liability adjustment		2,339			2,467			+128
Foreign currency translation adjustments		16,502			32,168			+15,666
Total comprehensive income		160,780			196,865			+36,085
Less - Comprehensive income attributableto noncontrolling interests		13,178			5,314			-7,864
Comprehensive income attributableto Sony Corporation’s stockholders	¥	147,602		¥	191,551		¥	+43,949

F-2

Consolidated Statements of Income
		(Millions of yen, except per share amounts)
		Six months ended September 30
		2017		2018			Change
Sales and operating revenue:
Net sales	¥	3,293,559		¥	3,411,934		¥	+118,375
Financial services revenue		578,794			684,733			+105,939
Other operating revenue		48,291			39,717			-8,574
		3,920,644			4,136,384			+215,740
Costs and expenses:
Cost of sales		2,349,738			2,335,231			-14,507
Selling, general and administrative		743,658			746,890			+3,232
Financial services expenses		495,563			604,490			+108,927
Other operating (income) expense, net		(27,012	)		13,058			+40,070
		3,561,947			3,699,669			+137,722

Equity in net income (loss) of affiliated companies		3,142			(2,198	)		-5,340

Operating income		361,839			434,517			+72,678

Other income:
Interest and dividends		13,037			9,305			-3,732
Gain on equity securities, net		–			124,714			+124,714
Other		1,644			2,194			+550
		14,681			136,213			+121,532

Other expenses:
Interest		7,246			7,194			-52
Foreign exchange loss, net		19,266			3,911			-15,355
Other		2,549			1,141			-1,408
		29,061			12,246			-16,815

Income before income taxes		347,459			558,484			+211,025

Income taxes		110,247			134,490			+24,243

Net income		237,212			423,994			+186,782

Less - Net income attributable to noncontrolling interests		25,489			24,546			-943

Net income attributable to Sony Corporation’s stockholders	¥	211,723		¥	399,448		¥	+187,725

Per share data:
Net income attributable to Sony Corporation’s stockholders
— Basic	¥	167.61		¥	315.02		¥	+147.41
— Diluted		164.06			308.17			+144.11

Consolidated Statements of Comprehensive Income
		(Millions of yen)
		Six months ended September 30
		2017			2018		Change

Net income	¥	237,212		¥	423,994		¥	+186,782

Other comprehensive income, net of tax –
Unrealized losses on securities		(4,658	)		(21,066	)		-16,408
Unrealized gains on derivative instruments		229			915			+686
Pension liability adjustment		4,644			4,743			+99
Foreign currency translation adjustments		30,087			40,465			+10,378
Total comprehensive income		267,514			449,051			+181,537
Less - Comprehensive income attributable to noncontrolling interests		27,356			13,231			-14,125
Comprehensive income attributable to Sony Corporation’s stockholders	¥	240,158		¥	435,820		¥	+195,662

F-3

Consolidated Statements of Cash Flows
	(Millions of yen)
	Six months ended September 30
	2017			2018
Cash flows from operating activities:
Net income	¥	237,212		¥	423,994
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including amortization of deferred insurance acquisition costs and contract costs		169,962			171,826
Amortization of film costs		160,142			133,892
Accrual for pension and severance costs, less payments		2,583			(5,310	)
Other operating (income) expense, net		(27,012	)		13,058
Gain on securities investments, net (other than financial services business)		(167	)		(124,717	)
Gain on marketable securities and securities investments held in the financial services business, net		(47,715	)		(109,791	)
Deferred income taxes		8,160			(3,350	)
Equity in net (income) loss of affiliated companies, net of dividends		(1,312	)		4,559
Changes in assets and liabilities:
Increase in notes, accounts receivable, trade and contract assets		(197,747	)		(185,855	)
Increase in inventories		(272,386	)		(118,255	)
Increase in film costs		(188,281	)		(190,494	)
Increase in notes and accounts payable, trade		309,160			302,979
Increase in accrued income and other taxes		49,662			62,075
Increase in future insurance policy benefits and other		258,762			368,871
Increase in deferred insurance acquisition costs		(43,394	)		(47,090	)
Increase in marketable securities held in the life insurance business		(44,002	)		(43,949	)
Increase in other current assets		(125,652	)		(72,246	)
Increase (decrease) in other current liabilities		23,571			(43,719	)
Other		(6,190	)		(125,649	)
Net cash provided by operating activities		265,356			410,829

Cash flows from investing activities:
Payments for purchases of fixed assets		(130,254	)		(154,819	)
Proceeds from sales of fixed assets		6,760			11,355
Payments for investments and advances by financial services business		(461,046	)		(563,301	)
Payments for investments and advances (other than financial services business)		(10,969	)		(25,373	)
Proceeds from sales or return of investments and collections of advances by financial services business		152,561			140,969
Proceeds from sales or return of investments and collections of advances (other than financial services business)		4,219			1,996
Proceeds from sales of businesses		18,684			—
Proceeds related to sales of Spotify Technology S.A. Shares		—			82,467
Other		8,199			(21,295	)
Net cash used in investing activities		(411,846	)		(528,001	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		72,430			50,958
Payments of long-term debt		(16,299	)		(229,504	)
Increase in short-term borrowings, net		55,904			133,248
Increase in deposits from customers in the financial services business, net		88,344			132,628
Dividends paid		(12,649	)		(18,992	)
Payment for purchase of Nile Acquisition LLC shares from noncontrolling interests		–			(32,041	)
Other		(8,207	)		(36,567	)
Net cash provided by (used in) financing activities		179,523			(270	)

Effect of exchange rate changes on cash and cash equivalents, including restricted		6,650			70,344

Net increase (decrease) in cash and cash equivalents, including restricted		39,683			(47,098	)
Cash and cash equivalents, including restricted, at beginning of the fiscal year		968,624			1,592,938

Cash and cash equivalents, including restricted, at end of the period		1,008,307			1,545,840

Less - restricted cash and cash equivalents, included in other current assets and other assets		7,475			5,061
Cash and cash equivalents at end of the period	¥	1,000,832		¥	1,540,779

F-4

Notes to Consolidated Financial Statements
Business Segment Information
(Business Segments)
	(Millions of yen)
	Three months ended September 30
Sales and operating revenue	2017			2018			Change
Game & Network Services
Customers	¥	414,255		¥	535,754		¥	+121,499
Intersegment		18,949			14,311			-4,638
Total		433,204			550,065			+116,861
Music
Customers		202,837			200,294			-2,543
Intersegment		3,729			3,562			-167
Total		206,566			203,856			-2,710
Pictures
Customers		243,738			242,021			-1,717
Intersegment		265			(1,150	)		-1,415
Total		244,003			240,871			-3,132
Home Entertainment & Sound
Customers		300,770			274,496			-26,274
Intersegment		163			442			+279
Total		300,933			274,938			-25,995
Imaging Products & Solutions
Customers		155,170			161,623			+6,453
Intersegment		1,550			2,268			+718
Total		156,720			163,891			+7,171
Mobile Communications
Customers		169,818			114,886			-54,932
Intersegment		2,223			2,935			+712
Total		172,041			117,821			-54,220
Semiconductors
Customers		193,407			222,924			+29,517
Intersegment		34,956			31,522			-3,434
Total		228,363			254,446			+26,083
Financial Services
Customers		277,434			351,493			+74,059
Intersegment		1,790			1,960			+170
Total		279,224			353,453			+74,229
All Other
Customers		95,592			77,226			-18,366
Intersegment		17,228			11,892			-5,336
Total		112,820			89,118			-23,702
Corporate and elimination		(71,343	)		(65,699	)		+5,644
Consolidated total	¥	2,062,531		¥	2,182,760		¥	+120,229

Game & Network Services (“G&NS”) intersegment amounts primarily consist of transactions with All Other.

Semiconductors intersegment amounts primarily consist of transactions with the G&NS segment, the Imaging Products & Solutions (“IP&S”) segment and the Mobile Communications (“MC”) segment.

All Other intersegment amounts primarily consist of transactions with the G&NS segment, the Music segment and the Pictures segment.

Corporate and elimination includes certain brand and patent royalty income.

	(Millions of yen)
	Three months ended September 30
Operating income (loss)	2017			2018			Change
Game & Network Services	¥	54,750		¥	90,622		¥	+35,872
Music		32,514			31,501			-1,013
Pictures		7,696			23,535			+15,839
Home Entertainment & Sound		24,387			24,457			+70
Imaging Products & Solutions		18,870			21,813			+2,943
Mobile Communications		(2,453	)		(29,814	)		-27,361
Semiconductors		49,370			47,928			-1,442
Financial Services		36,599			39,160			+2,561
All Other		(28	)		5,042			+5,070
Total		221,705			254,244			+32,539
Corporate and elimination		(17,477	)		(14,733	)		+2,744
Consolidated total	¥	204,228		¥	239,511		¥	+35,283

Operating income (loss) is sales and operating revenue less costs and expenses, and includes equity in net income (loss) of affiliated companies.

Corporate and elimination includes headquarters restructuring costs and certain other corporate expenses, including the amortization of certain intellectual property assets such as the cross-licensing of intangible assets acquired from Ericsson at the time of the Sony Mobile Communications acquisition, which are not allocated to segments.

Beginning from the first quarter of the fiscal year ending March 31, 2019, a change has been made to the calculation method used for allocating indirect expenses incurred by sales companies to the segments every quarter. As a result of this change, a year-on-year increase in expenses, composed primarily of 0.6 billion yen in the Home Entertainment & Sound (“HE&S”) segment, is included for the three months ended September 30, 2018. However, because a decrease in expenses totaling the same amount is included in Corporate and elimination, this change has no impact on consolidated operating income for the three months ended September 30, 2018. Additionally, because increases and decreases in expenses per quarter for each segment resulting from this change in the calculation method will be offset by the increases and decreases in expenses in other quarters for that segment throughout the current year, this change will also have no impact on operating income (loss) for each segment, or for Corporate and elimination, for the fiscal year ending March 31, 2019.

F-5

(Business Segments)
	(Millions of yen)
	Six months ended September 30
Sales and operating revenue	2017			2018			Change
Game & Network Services
Customers	¥	737,306		¥	985,734		¥	+248,428
Intersegment		43,960			36,432			-7,528
Total		781,266			1,022,166			+240,900
Music
Customers		367,913			378,002			+10,089
Intersegment		7,225			7,325			+100
Total		375,138			385,327			+10,189
Pictures
Customers		449,408			415,248			-34,160
Intersegment		406			704			+298
Total		449,814			415,952			-33,862
Home Entertainment & Sound
Customers		557,235			546,453			-10,782
Intersegment		565			572			+7
Total		557,800			547,025			-10,775
Imaging Products & Solutions
Customers		309,287			324,106			+14,819
Intersegment		3,068			3,987			+919
Total		312,355			328,093			+15,738
Mobile Communications
Customers		348,884			245,240			-103,644
Intersegment		4,344			5,088			+744
Total		353,228			250,328			-102,900
Semiconductors
Customers		366,086			399,597			+33,511
Intersegment		66,538			57,088			-9,450
Total		432,624			456,685			+24,061
Financial Services
Customers		578,794			684,733			+105,939
Intersegment		3,590			3,925			+335
Total		582,384			688,658			+106,274
All Other
Customers		189,696			151,673			-38,023
Intersegment		32,364			20,369			-11,995
Total		222,060			172,042			-50,018
Corporate and elimination		(146,025	)		(129,892	)		+16,133
Consolidated total	¥	3,920,644		¥	4,136,384		¥	+215,740

G&NS intersegment amounts primarily consist of transactions with All Other.

Semiconductors intersegment amounts primarily consist of transactions with the G&NS segment, the IP&S segment and the MC segment.

All Other intersegment amounts primarily consist of transactions with the G&NS segment, the Music segment and the Pictures segment.

Corporate and elimination includes certain brand and patent royalty income.

	(Millions of yen)
	Six months ended September 30
Operating income (loss)	2017			2018			Change
Game & Network Services	¥	72,483		¥	174,072		¥	+101,589
Music		57,536			63,605			+6,069
Pictures		(1,801	)		15,934			+17,735
Home Entertainment & Sound		46,970			41,848			-5,122
Imaging Products & Solutions		42,074			47,890			+5,816
Mobile Communications		1,163			(40,572	)		-41,735
Semiconductors		104,812			77,065			-27,747
Financial Services		82,822			79,741			-3,081
All Other		(8,259	)		5,336			+13,595
Total		397,800			464,919			+67,119
Corporate and elimination		(35,961	)		(30,402	)		+5,559
Consolidated total	¥	361,839		¥	434,517		¥	+72,678

Operating income (loss) is sales and operating revenue less costs and expenses, and includes equity in net income (loss) of affiliated companies.

Beginning from the first quarter of the fiscal year ending March 31, 2019, a change has been made to the calculation method used for allocating indirect expenses incurred by sales companies to the segments every quarter. As a result of this change, a year-on-year increase in expenses, composed primarily of 3.0 billion yen in the HE&S segment, is included for the six months ended September 30, 2018. However, because a decrease in expenses totaling the same amount is included in Corporate and elimination, this change has no impact on consolidated operating income for the six months ended September 30, 2018. Additionally, because increases and decreases in expenses per quarter for each segment resulting from this change in the calculation method will be offset by the increases and decreases in expenses in other quarters for that segment throughout the current year, this change will also have no impact on operating income (loss) for each segment, or for Corporate and elimination, for the fiscal year ending March 31, 2019.

F-6

(Sales to Customers by Product Category)

The following tables include a breakdown of sales and operating revenue to external customers for certain segments shown in the Business Segment Information on page F-5 and F-6. Sony management views each segment as a single operating segment. However, Sony believes that the breakdown of sales and operating revenue to external customers for the segments in these tables is useful to investors in understanding sales by product category.

	(Millions of yen)
	Three months ended September 30
Sales and operating revenue (to external customers)	2017		2018		Change

Game & Network Services
Network	¥	222,986	¥	334,264	¥	+111,278
Hardware and Others		191,269		201,490		+10,221
Total		414,255		535,754		+121,499

Music
Recorded Music		109,177		105,463		-3,714
Music Publishing		19,501		19,436		-65
Visual Media and Platform		74,159		75,395		+1,236
Total		202,837		200,294		-2,543

Pictures
Motion Pictures		124,800		109,334		-15,466
Television Productions		57,389		68,482		+11,093
Media Networks		61,549		64,205		+2,656
Total		243,738		242,021		-1,717

Home Entertainment & Sound
Televisions		219,553		191,705		-27,848
Audio and Video		80,639		81,861		+1,222
Other		578		930		+352
Total		300,770		274,496		-26,274

Imaging Products & Solutions
Still and Video Cameras		99,343		103,034		+3,691
Other		55,827		58,589		+2,762
Total		155,170		161,623		+6,453

Mobile Communications		169,818		114,886		-54,932

Semiconductors		193,407		222,924		+29,517

Financial Services		277,434		351,493		+74,059

All Other		95,592		77,226		-18,366

Corporate		9,510		2,043		-7,467
Consolidated total	¥	2,062,531	¥	2,182,760	¥	+120,229

F-7

(Sales to Customers by Product Category)
	(Millions of yen)
	Six months ended September 30
Sales and operating revenue (to external customers)	2017		2018		Change

Game & Network Services
Network	¥	418,288	¥	634,650	¥	+216,362
Hardware and Others		319,018		351,084		+32,066
Total		737,306		985,734		+248,428

Music
Recorded Music		208,999		205,202		-3,797
Music Publishing		36,359		40,900		+4,541
Visual Media and Platform		122,555		131,900		+9,345
Total		367,913		378,002		+10,089

Pictures
Motion Pictures		195,074		177,902		-17,172
Television Productions		119,287		113,897		-5,390
Media Networks		135,047		123,449		-11,598
Total		449,408		415,248		-34,160

Home Entertainment & Sound
Televisions		398,927		378,255		-20,672
Audio and Video		157,361		166,790		+9,429
Other		947		1,408		+461
Total		557,235		546,453		-10,782

Imaging Products & Solutions
Still and Video Cameras		205,206		216,290		+11,084
Other		104,081		107,816		+3,735
Total		309,287		324,106		+14,819

Mobile Communications		348,884		245,240		-103,644

Semiconductors		366,086		399,597		+33,511

Financial Services		578,794		684,733		+105,939

All Other		189,696		151,673		-38,023

Corporate		16,035		5,598		-10,437
Consolidated total	¥	3,920,644	¥	4,136,384	¥	+215,740

In the G&NS segment, Network includes network services relating to game, video and music content provided by Sony Interactive Entertainment; Hardware and Others includes home and portable game consoles, packaged software and peripheral devices. In the Music segment, Recorded Music includes the distribution of physical and digital recorded music and revenue derived from artists’ live performances; Music Publishing includes the management and licensing of the words and music of songs; Visual Media and Platform includes the production and distribution of animation titles, including game applications based on the animation titles, and various service offerings for music and visual products. In the Pictures segment, Motion Pictures includes the worldwide production, acquisition and distribution of motion pictures and direct-to-video content; Television Productions includes the production, acquisition and distribution of television programming; Media Networks includes the operation of television and digital networks worldwide. In the HE&S segment, Televisions includes LCD and OLED televisions; Audio and Video includes Blu-ray disc players and recorders, home audio, headphones and memory-based portable audio devices. In the IP&S segment, Still and Video Cameras includes interchangeable lens cameras, compact digital cameras, consumer video cameras and video cameras for broadcast; Other includes display products such as projectors and medical equipment.

F-8

(Condensed Financial Services Financial Statements)

The following schedules show unaudited condensed financial statements for the Financial Services segment and all other segments excluding Financial Services. These presentations are not in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which is used by Sony to prepare its consolidated financial statements. However, because the Financial Services segment is different in nature from Sony’s other segments, Sony believes that a comparative presentation may be useful in understanding and analyzing Sony’s consolidated financial statements. Transactions between the Financial Services segment and Sony without the Financial Services segment, including noncontrolling interests, are included in those respective presentations, then eliminated in the consolidated figures shown below.

Condensed Balance Sheets

					(Millions of yen)
	Financial Services				Sony without Financial Services				Consolidated

	March 31		September 30		March 31		September 30		March 31		September 30
	2018		2018		2018		2018		2018		2018
ASSETS
Current assets:
Cash and cash equivalents	¥	393,133	¥	465,645	¥	1,193,196	¥	1,075,134	¥	1,586,329	¥	1,540,779
Marketable securities		1,176,601		1,335,735	–		–			1,176,601		1,335,735
Notes and accounts receivable, trade and contract assets		15,612		15,224		1,003,558		1,256,244		1,012,779		1,265,968
Inventories	－		－			692,937		814,639		692,937		814,639
Other receivables		60,819		57,795		130,393		248,445		190,706		305,880
Prepaid expenses and other current assets		137,539		126,147		379,893		355,251		516,744		480,714
Total current assets		1,783,704		2,000,546		3,399,977		3,749,713		5,176,096		5,743,715

Film costs	–		–			327,645		416,527		327,645		416,527

Investments and advances		10,560,933		10,980,688		272,545		381,124		10,756,058		11,305,585

Investments in Financial Services, at cost	–		–			133,514		153,968	–		–

Property, plant and equipment		22,424		22,550		715,760		718,008		739,470		741,844

Other assets:
Intangibles, net		34,622		36,882		492,546		485,734		527,168		522,616
Goodwill		7,225		7,225		523,267		543,833		530,492		551,058
Deferred insurance acquisition costs		586,670		605,989	－		－			586,670		605,989
Deferred income taxes		1,684		1,972		95,088		96,680		96,772		98,652
Other		33,267		32,693		295,650		310,518		325,167		339,464
		663,468		684,761		1,406,551		1,436,765		2,066,269		2,117,779
Total assets	¥	13,030,529	¥	13,688,545	¥	6,255,992	¥	6,856,105	¥	19,065,538	¥	20,325,450

LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	¥	433,119	¥	570,421	¥	288,496	¥	224,530	¥	721,615	¥	794,951
Notes and accounts payable, trade	–		–			468,550		781,338		468,550		781,338
Accounts payable, other and accrued expenses		37,479		31,698		1,477,875		1,518,499		1,514,433		1,549,389
Accrued income and other taxes		19,401		25,486		126,504		172,235		145,905		197,721
Deposits from customers in the banking business		2,159,246		2,252,480	–		–			2,159,246		2,252,480
Other		181,467		191,608		435,996		470,003		610,792		655,871
Total current liabilities		2,830,712		3,071,693		2,797,421		3,166,605		5,620,541		6,231,750

Long-term debt		205,373		215,089		421,817		298,818		623,451		510,165
Accrued pension and severance costs		33,062		33,452		361,442		355,503		394,504		388,955
Deferred income taxes		342,405		318,483		107,458		112,221		449,863		430,704
Future insurance policy benefits and other		5,221,772		5,452,484	–		–			5,221,772		5,452,484
Policyholders’ account in the life insurance business		2,820,702		2,998,376	–		–			2,820,702		2,998,376
Other		17,778		14,885		284,270		299,500		278,338		291,417
Total liabilities		11,471,804		12,104,462		3,972,408		4,232,647		15,409,171		16,303,851

Redeemable noncontrolling interest	–		–			9,210		8,442		9,210		8,442

Equity:
Stockholders’ equity of Financial Services		1,557,062		1,582,327	–		–		–		–
Stockholders’ equity of Sony without Financial Services	–		–			2,173,128		2,522,186	–		–
Sony Corporation’s stockholders’ equity	–		–		–		–			2,967,366		3,365,038
Noncontrolling interests		1,663		1,756		101,246		92,830		679,791		648,119
Total equity		1,558,725		1,584,083		2,274,374		2,615,016		3,647,157		4,013,157
Total liabilities and equity	¥	13,030,529	¥	13,688,545	¥	6,255,992	¥	6,856,105	¥	19,065,538	¥	20,325,450

F-9

Condensed Statements of Income


	(Millions of yen)
	Three months ended September 30

	Financial Services						Sony without Financial Services					Consolidated
	2017			2018			2017			2018		2017			2018

Financial services revenue	¥	279,224		¥	353,453		¥	–		¥	–	¥	277,434		¥	351,493
Net sales and operating revenue		–			–			1,787,354			1,833,252		1,785,097			1,831,267
		279,224			353,453			1,787,354			1,833,252		2,062,531			2,182,760

Cost of sales		–			–			1,237,623			1,225,837		1,234,646			1,222,744
Selling, general and administrative		–			–			385,559			396,019		386,279			397,129
Financial services expenses		242,095			314,296			–		–			240,305			312,334
Other operating (income) expense, net		(24	)		14			(877	)		13,369		(901	)		13,383
		242,071			314,310			1,622,305			1,635,225		1,860,329			1,945,590

Equity in net income (loss) of affiliated companies		(554	)		17			2,580			2,324		2,026			2,341

Operating income		36,599			39,160			167,629			200,351		204,228			239,511

Other income (expenses), net		–			(19	)		(5,663	)		6,906		(5,663	)		6,887

Income before income taxes		36,599			39,141			161,966			207,257		198,565			246,398

Income taxes		10,370			10,398			45,382			48,870		55,751			59,268

Net Income		26,229			28,743			116,584			158,387		142,814			187,130

Less - Net income attributable to noncontrolling interests		34			67			2,243			4,042		11,962			14,129

Net income of Financial Services	¥	26,195		¥	28,676		¥	–		¥	–	¥	–		¥	–

Net income of Sony without Financial Services	¥	–		¥	–		¥	114,341		¥	154,345	¥	–		¥	–

Net income attributable to Sony Corporation's stockholders	¥	–		¥	–		¥	–		¥	–	¥	130,852		¥	173,001

		Six months ended September 30

		Financial Services						Sony without Financial Services						Consolidated
		2017			2018			2017			2018			2017			2018

Financial services revenue	¥	582,384		¥	688,658		¥	–		¥	–		¥	578,794		¥	684,733
Net sales and operating revenue	–			–				3,345,046			3,455,586			3,341,850			3,451,651
		582,384			688,658			3,345,046			3,455,586			3,920,644			4,136,384

Cost of sales		–			–			2,355,222			2,341,273			2,349,738			2,335,231
Selling, general and administrative		–			–			741,370			744,782			743,658			746,890
Financial services expenses		499,153			608,416			–		–				495,563			604,490
Other operating (income) expense, net		(24	)		39			(26,988	)		13,019			(27,012	)		13,058
		499,129			608,455			3,069,604			3,099,074			3,561,947			3,699,669

Equity in net income (loss) of affiliated companies		(433	)		(462	)		3,575			(1,736	)		3,142			(2,198	)

Operating income		82,822			79,741			279,017			354,776			361,839			434,517

Other income (expenses), net		–			(36	)		693			140,446			(14,380	)		123,967

Income before income taxes		82,822			79,705			279,710			495,222			347,459			558,484

Income taxes		23,826			21,930			86,422			112,560			110,247			134,490

Net Income		58,996			57,775			193,288			382,662			237,212			423,994

Less - Net income attributable to noncontrolling interests		84			113			3,615			3,689			25,489			24,546

Net income of Financial Services	¥	58,912		¥	57,662		¥	–		¥	–		¥	–		¥	–

Net income of Sony without Financial Services	¥	–		¥	–		¥	189,673		¥	378,973		¥	–		¥	–

Net income attributable to Sony Corporation's stockholders	¥	–		¥	–		¥	–		¥	–		¥	211,723		¥	399,448

F-10

Condensed Statements of Cash Flows

	(Millions of yen)
	Six months ended September 30

	Financial Services						Sony without Financial Services						Consolidated
	2017			2018			2017			2018			2017			2018
Cash flows from operating activities:
Net income (loss)	¥	58,996		¥	57,775		¥	193,288		¥	382,662		¥	237,212		¥	423,994
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization, including amortization of deferred insurance acquisition costs and contract costs		32,381			33,438			137,581			138,388			169,962			171,826
Amortization of film costs	–			–				160,142			133,892			160,142			133,892
Other operating (income) expense, net		(24	)		39			(26,988	)		13,019			(27,012	)		13,058
(Gain) loss on marketable securities and securities investments, net		(47,715	)		(109,791	)		(167	)		(124,717	)		(47,882	)		(234,508	)
Changes in assets and liabilities:
(Increase) decrease in notes, accounts receivable, trade and contract assets		(1,351	)		388			(195,822	)		(185,352	)		(197,747	)		(185,855	)
(Increase) decrease in inventories	–			–				(272,386	)		(118,255	)		(272,386	)		(118,255	)
(Increase) decrease in film costs	–			–				(188,281	)		(190,494	)		(188,281	)		(190,494	)
Increase (decrease) in notes and accounts payable, trade	–			–				309,160			302,979			309,160			302,979
Increase (decrease) in future insurance policy benefits and other		258,762			368,871		–			–				258,762			368,871
(Increase) decrease in deferred insurance acquisition costs		(43,394	)		(47,090	)	–			–				(43,394	)		(47,090	)
(Increase) decrease in marketable securities held in the life insurance business		(44,002	)		(43,949	)	–			–				(44,002	)		(43,949	)
Other		(2,918	)		(8,949	)		(47,521	)		(175,651	)		(49,178	)		(183,640	)
Net cash provided by (used in) operating activities		210,735			250,732			69,006			176,471			265,356			410,829

Cash flows from investing activities:
Payments for purchases of fixed assets		(6,559	)		(9,600	)		(123,701	)		(145,228	)		(130,254	)		(154,819	)
Payments for investments and advances		(460,995	)		(563,301	)		(10,306	)		(25,373	)		(472,015	)		(588,674	)
Proceeds from sales or return of investments and collections of advances		153,177			140,969			3,603			84,463			156,780			225,432
Other		79			78			33,566			(10,019	)		33,643			(9,940	)
Net cash provided by (used in) investing activities		(314,298	)		(431,854	)		(96,838	)		(96,157	)		(411,846	)		(528,001	)

Cash flows from financing activities:
Increase (decrease) in borrowings, net		122,241			146,992			(10,200	)		(192,289	)		112,035			(45,298	)
Increase (decrease) in deposits from customers, net		88,344			132,628		–			–				88,344			132,628
Dividends paid		(23,921	)		(26,100	)		(12,649	)		(18,992	)		(12,649	)		(18,992	)
Other		111			114			502			(58,987	)		(8,207	)		(68,608	)
Net cash provided by (used in) financing activities		186,775			253,634			(22,347	)		(270,268	)		179,523			(270	)

Effect of exchange rate changes on cash and cash equivalents	–			–				6,650			70,344			6,650			70,344

Net increase (decrease) in cash and cash equivalents, including restricted		83,212			72,512			(43,529	)		(119,610	)		39,683			(47,098	)
Cash and cash equivalents, including restricted, at beginning of the fiscal year		268,382			393,133			700,242			1,199,805			968,624			1,592,938
Cash and cash equivalents, including restricted, at end of the period		351,594			465,645			656,713			1,080,195			1,008,307			1,545,840
Less - restricted cash and cash equivalents, included in other current assets and other assets	–			–				7,475			5,061			7,475			5,061
Cash and cash equivalents at end of the period	¥	351,594		¥	465,645		¥	649,238		¥	1,075,134		¥	1,000,832		¥	1,540,779

F-11

Going Concern Assumption

Not Applicable

Significant Changes in Shareholders' Equity

Not Applicable

Accounting Policies and Other Information

(Recently adopted accounting pronouncements)

Revenue from contracts with customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 addressing revenue recognition which superseded the previous revenue recognition requirements, including most industry-specific guidance. The guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Sony adopted the updated guidance from fiscal year beginning April 1, 2018 on a modified retrospective method. Under this method, Sony applied the new guidance to all open contracts existing as of April 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change.

Although the adoption of this new guidance did not have a material impact on Sony’s results of operations and financial position, there are several areas where Sony’s revenue recognition changed as compared with historical U.S. GAAP. The more significant of these areas are as follows:

In the Pictures segment, (1) licensing revenue associated with certain renewals or extensions of existing agreements for motion pictures and television programming is recognized at a later point in time, which is when the licensee can use and benefit from the content, instead of when the agreement is renewed or extended, and (2) licensing revenue associated with minimum guarantees for symbolic intellectual property (e.g., brands, trademarks and logos) is recognized over the license term instead of at the inception of the license term.

In the MC segment, the incremental costs of obtaining contracts for the internet-related service business are recognized as assets and amortized to expense over the contract period.

In addition, the ASU changed the presentation of certain items in the consolidated financial statements, such as sales returns, with no impact to the timing of the recognition of revenue or expense.

Recognition and measurement of financial assets and financial liabilities

In January 2016, the FASB issued ASU 2016-01 amending various aspects of the recognition, measurement, presentation, and disclosure requirements for financial instruments. The changes mainly relate to the requirement to measure equity investments in unconsolidated subsidiaries, other than those accounted for under the equity method of accounting, at fair value with changes in fair value recognized in earnings. However, this ASU permits entities to elect to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This ASU is effective for Sony as of April 1, 2018. As a result of the adoption of this ASU, Sony reclassified 15,526 million yen in the unrealized gains and losses, net of tax, on equity securities previously classified as available-for-sale, from accumulated other comprehensive income to retained earnings. In addition, changes in value due to the revaluation of equity securities held in the Financial Services segment at the end of the period are recorded in financial services revenue, and changes in value due to the revaluation of equity securities held in all segments other than the Financial Services segment are recorded in gain on equity securities, net in the consolidated statement of income.

F-12

Intra-entity transfers of assets other than inventory

In October 2016, the FASB issued ASU 2016-16, which amends the accounting for income taxes. This update requires recognition of the income tax consequences of an intra-entity transfer of assets other than inventory when the transfer occurs. Under historical U.S. GAAP, the income tax consequences for asset transfers other than inventory could not be recognized until the asset was sold to a third party. This ASU is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This ASU is effective for Sony as of April 1, 2018. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.

Changes to the opening balances resulting from the adoption of the above new guidance were as follows:

	Yen in millions
	March 31, 2018			Impact of Adoption									April 1, 2018
	March 31, 2018			ASU2014-09			ASU2016-01			ASU2016-16			April 1, 2018
ASSETS
Current assets:
Notes and accounts receivable, trade		1,061,442			(2,993	)		–			–			1,058,449
Allowance for doubtful accounts and sales returns *		(48,663	)		25,114			–			–			(23,549	)
Inventories		692,937			(12,404	)		–			–			680,533
Other receivables		190,706			9,628			–			–			200,334
Prepaid expenses and other current assets		516,744			(5,520	)		–			–			511,224
Film costs		327,645			7,647			–			–			335,292
Other assets:
Deferred income taxes		96,772			(326	)		–			–			96,446
Other		325,167			1,068			–			–			326,235
Total assets		19,065,538			22,214			–			–			19,087,752
LIABILITIES
Current liabilities:
Accounts payable, other and accrued expenses		1,514,433			(3,290	)		–			–			1,511,143
Other *		610,792			31,777			–			–			642,569
Deferred income taxes		449,863			-			–			(14,680	)		435,183
Other		278,338			10,525			–			–			288,863
Total liabilities		15,409,171			39,012			–			(14,680	)		15,433,503
EQUITY
Retained earnings		1,440,387			(16,798	)		15,526			9,248			1,448,363
Accumulated other comprehensive income		(616,746	)		-			(15,526	)		–			(632,272	)
Noncontrolling interests		679,791			-			–			5,432			685,223
Total equity		3,647,157			(16,798	)		–			14,680			3,645,039
Total liabilities and equity		19,065,538			22,214			–			–			19,087,752

* Under the new guidance, Sony presents sales returns as a liability instead of as a contra-asset allowance. Accordingly, Sony changed the presentation from “Allowance for doubtful accounts and sales returns” to “Allowance for doubtful accounts” on the consolidated balance sheet.

Restricted Cash

In November 2016, the FASB issued ASU 2016-18, which requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents in the statement of cash flows. This ASU also requires entities to disclose how the statement of cash flows that includes restricted cash and restricted cash equivalents with cash and cash equivalents reconciles to the balance sheet. This ASU is effective for Sony as of April 1, 2018. This ASU is required to be applied on a retrospective basis. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.

F-13

Presentation of net periodic pension and postretirement benefit costs

In March 2017, the FASB issued ASU 2017-07, which requires separate presentation of service costs and other components of net benefit costs. The service costs will only be presented with other employee compensation costs in operating income or capitalized, while the other components of net benefit costs will be presented outside of operating income, and will not be eligible for capitalization. This ASU is effective for Sony as of April 1, 2018. This ASU is required to be applied on a retrospective basis for the presentation of service costs and other components of net benefit costs, and on a prospective basis for the capitalization of only the service costs component of net benefit costs. The adoption of this ASU did not have a material impact on Sony’s results of operations and financial position.

(Number of Consolidated Subsidiaries and Affiliated Companies)

As of September 30, 2018, Sony had 1,314 consolidated subsidiaries (including variable interest entities) and 119 affiliated companies accounted for under the equity method.

(Weighted-average Number of Outstanding Shares Used for the Computation of EPS of Common Stock)

	(Thousands of shares)
	Three months ended September 30
Net income attributable to Sony Corporation’s stockholders	2017		2018
— Basic		1,263,452		1,268,535
— Diluted		1,291,038		1,296,562

	(Thousands of shares)
	Six months ended September 30
Net income attributable to Sony Corporation’s stockholders	2017		2018
— Basic		1,263,186		1,268,017
— Diluted		1,290,522		1,296,190

The dilutive effect in the weighted-average number of outstanding shares for the three and six months ended September 30, 2017 and 2018 primarily resulted from convertible bonds which were issued in July 2015.

(Segmentation)

The G&NS segment includes network services businesses, the manufacture and sales of home gaming products and production and sales of software. The Music segment includes the Recorded Music, Music Publishing and Visual Media and Platform businesses. The Pictures segment includes the Motion Pictures, Television Productions and Media Networks businesses. The HE&S segment includes Televisions as well as Audio and Video businesses. The IP&S segment includes the Still and Video Cameras business. The MC segment includes the manufacture and sales of mobile phones and Internet-related service businesses. The Semiconductors segment includes the image sensors business. The Financial Services segment primarily represents individual life insurance and non-life insurance businesses in the Japanese market and a bank business in Japan. All Other consists of various operating activities, including the overseas disc manufacturing and recording media businesses. Sony’s products and services are generally unique to a single operating segment.

(Accounting Methods Used Specifically for Interim Consolidated Financial Statements)

Income Taxes -

Sony estimates the annual effective tax rate (“ETR”) derived from a projected annual net income before taxes and calculates the interim period income tax provision based on the year-to-date income tax provision computed by applying the ETR to the year-to-date net income before taxes at the end of each interim period. The income tax provision based on the ETR reflects anticipated income tax credits and net operating loss carryforwards; however, it excludes the income tax provision related to significant unusual or infrequent transactions. Such income tax provision is separately reported from the provision based on the ETR in the interim period in which it occurs.

F-14

(Reclassifications)

Certain reclassifications of the financial statements and accompanying footnotes for the three and six months ended September 30, 2017 have been made to conform to the presentation for the three and six months ended September 30, 2018.

(Spotify Technology S.A. Shares)

On April 3, 2018, Spotify Technology S.A. (“Spotify”) was publicly listed for trading on the New York Stock Exchange. Sony owned 5.707% of Spotify’s shares at the time of the public listing.

During the six months ended September 30, 2018, Sony sold a portion of the shares for aggregate consideration of 82,616 million yen (768 million U.S. dollars) in cash proceeds. The sale of shares, offset by costs to be paid to its artists and distributed labels and other transaction costs which directly related to the gains recognized from the Spotify shares, resulted in a net pre-tax realized gain of 54,179 million yen (504 million U.S. dollars) recorded in gain on equity securities, net in the consolidated statement of income. The payments to its artists and distributed labels are included within other in the investing activities section of the consolidated statement of cash flows.

The remaining shares retained as of September 30, 2018 have a gross fair value of 105,242 million yen (927 million U.S. dollars), and resulted in a pre-tax unrealized gain, net of costs to be paid to its artists and distributed labels and other costs which directly related to the gains recognized from the Spotify shares, of 63,596 million yen (589 million U.S. dollars) recorded in gain on equity securities, net in the consolidated statement of income.

F-15

Outlook for the Fiscal Year Ending March 31, 2019

The forecast for consolidated results for the fiscal year ending March 31, 2019, as announced on July 31, 2018, has been revised as follows:

	(Billions of yen)
	March 31, 2018 Results		July Forecast		October Forecast		Change from July Forecast
Sales and operating revenue	¥	8,544.0	¥	8,600	¥	8,700	+¥100 billion	+1.2	%
Operating income		734.9		670		870	+¥200 billion	+29.9	%
Income before income taxes		699.0		760		975	+¥215 billion	+28.3	%
Net income attributable to Sony Corporation’s stockholders		490.8		500		705	+¥205 billion	+41.0	%

Assumed foreign exchange rates are the following:

	Assumed foreign exchange rates for the six months ending March 31, 2019	(For your reference)
		Assumed foreign exchange rates for the fiscal year ending March 31, 2019 at the time of the July forecast
1 U.S. dollar	approximately 112 yen	approximately 110 yen
1 Euro	approximately 132 yen	approximately 127 yen

Consolidated sales and operating revenue (“sales”) for the fiscal year ending March 31, 2019 are expected to be higher than the July forecast mainly due to higher-than-expected sales primarily in the Game & Network Services (“G&NS”) segment and the Music segment, partially offset by lower-than-expected sales in the Mobile Communications (“MC”) segment.

Consolidated operating income is expected to be higher than the July forecast mainly due to expected increases in operating income primarily in the Music and G&NS segments. Although an increase in operating loss is expected in the MC segment, a portion of this increase was previously included in the allocation for contingencies incorporated into the July forecast for All Other, Corporate and elimination. Therefore, the impact of this expected increase in operating loss has been substantially offset by the reduction in allocations for contingencies incorporated into the October forecast.

Concerning the forecast for the Music segment, on June 29, 2018, Sony and the investor consortium led by Mubadala Investment Company announced the signing of a definitive agreement for Sony to acquire the Mubadala consortium’s approximately 60% equity interest in DH Publishing, L.P. (“EMI”), which owns and manages EMI Music Publishing. Because Sony expects this transaction to close within the 2018 calendar year, approximately 25 billion yen in revenue and 110 billion yen in each of operating income and income before income taxes have been incorporated into the October forecast for the fiscal year ending March 31, 2019, reflecting both an expected non-cash step-up gain for the approximately 40% equity interest in EMI that Sony currently owns, and the expected impact of the consolidation of EMI, which is currently accounted for under the equity method. As Sony is currently evaluating the income tax expense expected to result from the closing of this transaction, the same amount of increase as has been incorporated into the forecast for income before income taxes is currently incorporated into the forecast for net income attributable to Sony Corporation’s stockholders. Consequently, there is a possibility that the forecast for net income attributable to Sony Corporation’s stockholders might change as a result of the evaluation of income tax expense related to this transaction.

In light of smartphone sales results in the current quarter, as well as the expectation of continued difficulty in the business environment in the second half of the fiscal year ending March 31, 2019 and beyond, Sony conducted a review of the future profitability forecast for the MC segment, which resulted in a downward revision in that forecast. The outcome of this downward revision was a decrease in expected future cash flows, which resulted in the recording of an impairment charge against long-lived assets of 16.2 billion yen in the smartphone business within the MC segment, recorded as an operating loss in the current quarter. When it established the new profitability forecast for the smartphone business, Sony revised its profitability improvement plan and adopted a new goal of reducing operating costs in the fiscal year ending March 31, 2021 compared with the fiscal year ended March 31, 2018 by 50% compared with its previous goal of 30%.

Restructuring charges for the Sony Group are expected to increase by 5 billion yen compared to the July forecast to approximately 27 billion yen (22.4 billion yen was recorded in the fiscal year ended March 31, 2018) due to an expected increase in restructuring charges primarily in the Pictures segment. This amount will be recorded as an operating expense included in the above-mentioned forecast for operating income.

Income before income taxes is expected to be 975 billion yen, which is higher than the July forecast. This expected increase is primarily due to the above-mentioned expected increase in operating income, as well as a higher-than-expected gain on equity securities, net, in the current quarter.

Net income attributable to Sony Corporation’s stockholders is expected to be higher than the July forecast due to the above-mentioned expected increase in income before income taxes, as well as lower-than-expected effective tax rates.

As of March 31, 2018, Sony has an approximately 250 billion yen valuation allowance recorded against its U.S. federal and state net deferred tax assets that are attributable to Sony Americas Holding Inc. and its U.S. subsidiaries. Because Sony’s U.S. businesses continue to show improved profitability, it is reasonably possible that more than 50% of this valuation allowance could be reversed in the near future. The potential reduction in income taxes that may result from such reversal has not been included in the October forecast as Sony continues to monitor the realizability of these assets.

The forecast for each business segment for the fiscal year ending March 31, 2019 has been revised as follows:

	(Billions of yen)
	March 31, 2018 Results			July Forecast			October Forecast
Game & Network Services (G&NS)
Sales and operating revenue	¥	1,943.8		¥	2,180		¥	2,350
Operating income		177.5			250			310
Music
Sales and operating revenue		800.0			760			820
Operating income		127.8			115			230
Pictures
Sales and operating revenue		1,011.1			990			1,000
Operating income		41.1			44			50
Home Entertainment & Sound (HE&S)
Sales and operating revenue		1,222.7			1,150			1,150
Operating income		85.8			86			86
Imaging Products & Solutions (IP&S)
Sales and operating revenue		655.9			670			680
Operating income		74.9			78			81
Mobile Communications (MC)
Sales and operating revenue		723.7			610			510
Operating loss		(27.6	)		(30	)		(95	)
Semiconductors
Sales and operating revenue		850.0			890			910
Operating income		164.0			120			140
Financial Services
Financial services revenue		1,228.4			1,270			1,270
Operating income		178.9			170			170
All Other, Corporate and elimination
Operating loss		(87.6	)		(163	)		(102	)
Consolidated
Sales and operating revenue		8,544.0			8,600			8,700
Operating income		734.9			670			870

Game & Network Services

Sales are expected to be higher than the July forecast primarily due to higher-than-expected game software sales, the impact of foreign exchange rates, higher-than-expected unit sales of PlayStation®4 (“PS4”) hardware, as well as higher-than-expected sales for PlayStation®Plus (“PS Plus”), a paid membership service. Operating income is expected to be significantly higher than the July forecast primarily due to the impact of the above-mentioned higher-than-expected game software and PS Plus sales, as well as expected reductions for promotional and other costs related to PS4 hardware, based on the recent strong business momentum.

Music

Sales are expected to be higher than the July forecast primarily due to the above-mentioned expected impact from the consolidation of EMI and the strong performance of the mobile gaming application Fate/Grand Order. Operating income is expected to be significantly higher than the July forecast primarily due to the above-mentioned expected impact of a non-cash step-up gain for the approximately 40% equity interest in EMI that Sony currently owns and the consolidation of EMI, as well as the impact of the above-mentioned increase in sales.

Pictures

Sales are expected to be higher than the July forecast primarily due to the strong theatrical performance of Motion Pictures’ titles released in the current fiscal year and higher-than-expected television licensing revenues for titles released in the previous fiscal year, as well as the impact of foreign exchange rates, partially offset by lower-than-expected sales for Media Networks. Operating income is expected to be higher than the July forecast primarily due to the impact of the above-mentioned increase in sales.

Imaging Products & Solutions

Both sales and operating income are expected to be higher than the July forecast primarily due to an improvement in the product mix of Still and Video Cameras reflecting a shift to high value-added models, as well as the impact of foreign exchange rates.

Mobile Communications

Sales are expected to be significantly lower than the July forecast due to an expected decrease in smartphone unit sales mainly in Europe and Japan. Operating loss is expected to be significantly higher than the July forecast primarily due to the impact of the above-mentioned decrease in sales, an impairment charge against long-lived assets of 16.2 billion yen that was recorded as an operating loss in the current quarter, as well as the negative impact of foreign exchange rates, partially offset by expected reductions in operating costs.

Semiconductors

Both sales and operating income are expected to be higher than the July forecast primarily due to higher-than-expected sales of image sensors for mobile products, as well as the impact of foreign exchange rates.

The forecasts for sales and operating income for the HE&S and Financial Services segments remain unchanged from the July forecast.

The effects of future gains and losses on investments held by the Financial Services segment due to market fluctuations have not been incorporated within the above forecast as it is difficult for Sony to predict market trends in the future. Accordingly, future market fluctuations could further impact the current forecast.

The above forecast is based on management’s current expectations and is subject to uncertainties and changes in circumstances. Actual results may differ materially from those included in this forecast due to a variety of factors. See “Cautionary Statement” below.

Notes about Financial Performance of the Music, Pictures and Financial Services segments

The Music segment results include the yen-translated results of Sony Music Entertainment and Sony/ATV Music Publishing, both U.S.-based operations which aggregate the results of their worldwide subsidiaries on a U.S. dollar basis, and the results of Sony Music Entertainment (Japan) Inc., a Japan-based music company which aggregates its results in yen. The segment also includes equity in net income (loss) for EMI, an affiliated company accounted for under the equity method for which Sony records 39.8% of EMI’s net income in the segment’s operating income. Because Sony expects to complete the acquisition of the remaining equity interest in EMI within the 2018 calendar year, both an expected non-cash step-up gain for the equity interest in EMI that Sony currently owns and the expected impact of the consolidation of EMI have been incorporated into the October forecast for the fiscal year ending March 31, 2019.

The results presented in Pictures are a yen-translation of the results of Sony Pictures Entertainment Inc., a U.S.-based operation that aggregates the results of its worldwide subsidiaries on a U.S. dollar basis.

The Financial Services segment results include Sony Financial Holdings Inc. (“SFH”) and SFH’s consolidated subsidiaries such as Sony Life Insurance Co., Ltd., Sony Assurance Inc. and Sony Bank Inc. The results of SFH and its consolidated subsidiaries discussed in the Financial Services segment differ from the results that these companies disclose separately on a Japanese statutory basis.

Cautionary Statement

Statements made in this release with respect to Sony’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Sony. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. Sony cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, and therefore investors should not place undue reliance on them. Investors also should not rely on any obligation of Sony to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Sony disclaims any such obligation. Risks and uncertainties that might affect Sony include, but are not limited to:

(i)	Sony’s ability to maintain product quality and customer satisfaction with its products and services;
(ii)	Sony’s ability to continue to design and develop and win acceptance of, as well as achieve sufficient cost reductions for, its products and services, including image sensors, game and network platforms, smartphones and televisions, which are offered in highly competitive markets characterized by severe price competition and continual new product and service introductions, rapid development in technology and subjective and changing customer preferences;
(iii)	Sony’s ability to implement successful hardware, software, and content integration strategies, and to develop and implement successful sales and distribution strategies in light of new technologies and distribution platforms;
(iv)	the effectiveness of Sony’s strategies and their execution, including but not limited to the success of Sony’s acquisitions, joint ventures, investments, capital expenditures, restructurings and other strategic initiatives;
(v)	changes in laws, regulations and government policies in the markets in which Sony and its third-party suppliers, service providers and business partners operate, including those related to taxation, as well as growing consumer focus on corporate social responsibility;
(vi)	Sony’s continued ability to identify the products, services and market trends with significant growth potential, to devote sufficient resources to research and development, to prioritize investments and capital expenditures correctly and to recoup its investments and capital expenditures, including those required for technology development and product capacity;
(vii)	Sony’s reliance on external business partners, including for the procurement of parts, components, software and network services for its products or services, the manufacturing, marketing and distribution of its products, and its other business operations;
(viii)	the global economic and political environment in which Sony operates and the economic and political conditions in Sony’s markets, particularly levels of consumer spending;
(ix)	Sony’s ability to meet operational and liquidity needs as a result of significant volatility and disruption in the global financial markets or a ratings downgrade;
(x)	Sony’s ability to forecast demands, manage timely procurement and control inventories;
(xi)	foreign exchange rates, particularly between the yen and the U.S. dollar, the euro and other currencies in which Sony makes significant sales and incurs production costs, or in which Sony’s assets, liabilities and operating results are denominated;
(xii)	Sony’s ability to recruit, retain and maintain productive relations with highly skilled personnel;
(xiii)	Sony’s ability to prevent unauthorized use or theft of intellectual property rights, to obtain or renew licenses relating to intellectual property rights and to defend itself against claims that its products or services infringe the intellectual property rights owned by others;
(xiv)	the impact of changes in interest rates and unfavorable conditions or developments (including market fluctuations or volatility) in the Japanese equity markets on the revenue and operating income of the Financial Services segment;
(xv)	shifts in customer demand for financial services such as life insurance and Sony’s ability to conduct successful asset liability management in the Financial Services segment;
(xvi)	risks related to catastrophic disasters or similar events;
(xvii)	the ability of Sony, its third-party service providers or business partners to anticipate and manage cybersecurity risk, including the risk of unauthorized access to Sony’s business information and the personally identifiable information of its employees and customers, potential business disruptions or financial losses; and
(xviii)	the outcome of pending and/or future legal and/or regulatory proceedings.

Risks and uncertainties also include the impact of any future events with material adverse impact. Important information regarding risks and uncertainties is also set forth in Sony’s most recent Form 20-F, which is on file with the U.S. Securities and Exchange Commission.