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RECOVERY
AND
GROWTH
Annual Report 2013
For the year ended March 31, 2013

Table of contents

  • Page 1
    R ECOVERY AND G R O WTH Annual Report 2013 For the year ended March 31, 2013

  • Page 2
    ... Deliver New Values and Joy to People around the World Refine Technology with Customers First Technology to Customers Directing our Energies toward Recovery and Growth C onten ts 1 Financial Highlights 2 Message to our Shareholders 4 Special Feature: Medium-Term Management Plan for Fiscal 2013...

  • Page 3
    ... sales Operating Income (Loss) Income (Loss) before Income Taxes and Minority Interests Net Income (Loss) Net Assets Total Assets Capital Investment R&D Expenditures Per Share of Common Stock (yen and U.S. dollars) Net income (loss) Cash dividends Net assets Return on Equity (ROE) Number of Shares...

  • Page 4
    ...Joined Sharp Corporation September 2008 Executive Officer; Group General Manager, Health and Environment Systems Group April 2010 Executive Managing Officer; Group General Manager, North and South America Group April 2012 Executive Vice President; Chief Officer, Sales and Marketing; Group General...

  • Page 5
    ... innovative products and services in accordance with client needs by making full use of our advanced electronics technologies. Based on this vision, we have developed our Medium-Term Management Plan, aiming to become a new Sharp that achieves stable growth in profits and steady cash generation...

  • Page 6
    ...by implementing the MediumTerm Management Plan based on the following three basic strategies. Shift to "advantageous markets and fields" 1 Exit closed innovation and aggressively utilize alliances 2 Strengthen execution capabilities through governance system innovation 3 4 SHARP CORPORATION

  • Page 7
    ...-Term Management Plan, we will create a new Sharp with the mindset to change everything other than our business philosophy and business creed. Targeted Goals and Five Strategic Measures Targeted goals By implementing our five strategic measures, we will seek to achieve an operating income ratio...

  • Page 8
    ...-Driven Market Scale-driven competitiveness is required Global Value Market Added value for each customer type can be pursued Regional Value Market Local adaptation for each region is required Communication systems Health and environment Solar cells BtoC Business Digital information equipment...

  • Page 9
    ...and developing new major accounts in fiscal 2013 and onwards through product development and marketing activities from customer's viewpoint. Going forward, we plan to elevate the ratio of sales to major clients in total LCD sales to the level of 50% plus, with the aim of growing this business while...

  • Page 10
    ....1 No.2 2012 market shares (Source: Sharp) Sharp's Business Development in Indonesia To structure the most powerful value chain for local production for local consumption Planning Europe Development Production Marketing Sales Service Asia 31 The Americas Middle East/Africa China Indonesia...

  • Page 11
    ... Sales: 1 company New Zealand Sales: 1 company * Activities include strategy, personnel, sales planning, AV product planning/ development, design center, lifestyle marketing, branding, sales promotion, quality/service planning, parts supply, and materials purchasing. (As of June 2013) Annual Report...

  • Page 12
    ... year-ends) Inventories (left axis) Inventory ratio against monthly turnover (right axis) (2) Minimization of capital investment We will dramatically reduce capital investment in LCDs where we made an enormous investment in the past, by utilizing not only our own plants but also other companies...

  • Page 13
    ...-the Product Business Group and the Device Business Group-to create a one-stop management structure that addresses customer needs, from product planning and development to sales and services. In this way, we will strive to expedite our responses to customer needs and improve operating efficiency...

  • Page 14
    ..., electric fans, dehumidifiers, humidifiers, Plasmacluster Ion generators, electric heaters, beauty appliances, LED lights, solar-powered LED lights, network control units Total Assets Information Equipment 36.9% 63.1% Main Products POS systems, handy data terminals, electronic cash registers...

  • Page 15
    ... 13 (billions of yen) 09 10 11 12 13 1,500 300 1,000 200 500 100 0 0 09 10 11 12 13 09 10 11 12 13 Annual Report 2013 13

  • Page 16
    ...-definition and high-image-quality. In mobile phones, we will differentiate our models by pursuing user-friendliness and offering new uses enabled by our advanced software technologies and devices, such as IGZO LCDs. Health and Environmental Equipment Sales by Product Group Sales (billions of yen...

  • Page 17
    ... an operating loss due to an inventory write-down recognized as part of structural reforms. We will work to further expand our business by stepping up development and sales of power-related devices, touchscreen systems, and sensing devices, in addition to camera modules. Annual Report 2013 15

  • Page 18
    ... Intellectual Property R&D Strategy Sharp conducts R&D activities with the goal of developing the technologies needed to constantly create one-of-a-kind products from the perspective of users to uncover new demand, as well as the goal of consistently delivering new levels of value and joy to people...

  • Page 19
    ... manner, Sharp's Intellectual Property Center, under the Corporate Research and Development Division, undertakes management of overall strategy and cooperates with patent-related entities within each Business Division and site. At the same time, the center organizes various initiatives related to...

  • Page 20
    ... create new value through the development of innovative products. Business Philosophy We do not seek merely to expand our business volume. Rather, we are dedicated to the use of our unique, innovative technology to contribute to the culture, benefits and welfare of people throughout the world. It...

  • Page 21
    ... Logistics companies Energy-saving products Solar power generation Use Customers Disposal, recycling Recycling companies • Detailed information on Sharp's CSR activities is available at the following website: http://www.sharp-world.com/corporate/eco/index.html (English) Annual Report 2013 19

  • Page 22
    ... system is adequate in terms of transparency, objectivity and soundness. The Board of Directors Meetings of Sharp Corporation are held on a monthly basis in principle to make decisions on matters stipulated by law and management-related matters of importance, and to supervise the state of business...

  • Page 23
    ... 120th Ordinary General Meeting of Shareholders, which will be held by June 30, 2014. * For more details of the Plan, please visit the website below: http://www.sharp-world.com/corporate/ir/topics/pdf/130514.pdf Ongoing Development of the Internal Control System In May 2006, the Board of Directors...

  • Page 24
    ... or competing products of other companies, and intensified competition stemming from the entry of new companies into the market. Because the sales of our LCDs and mobile phones are dominated by only a small number of clients, Sharp's business results and financial position could be affected...

  • Page 25
    ... reward system governed by internal regulations, an employee may consider such payment inadequate and initiate legal action. If any of the above problems related to intellectual property were to occur, it could impact Sharp's business results and financial position. (10) Long-Term Investments and...

  • Page 26
    ...Leakage of Personal Data and Other Information Sharp retains personal data and other confidential information concerning its customers, business partners and employees. Extreme care is taken to protect this information. A company-wide management system promotes employee education, internal auditing...

  • Page 27
    ... Relating to Assumed Going Concern The operating results for the six months ended March 31, 2013, turned positive due to sales increase of distinctive devices and products such as smartphones and tablet terminals with IGZO LCDs as well as Black Solar high-efficiency solar cells. Also, company-wide...

  • Page 28
    ...Executive Officers Directors, Corporate Auditors and Executive Officers (As of June 25, 2013) Directors Representative Director,...Corporate Auditors Full-time Corporate Auditors Executive Officers President Executive Managing Officers Executive Officers Junzo Ueda Shinji Hirayama*2 Corporate...

  • Page 29
    ... of Operations 37 Consolidated Statements of Comprehensive Income 38 Consolidated Statements of Changes in Net Assets 39 Consolidated Statements of Cash Flows 40 Notes to the Consolidated Financial Statements 68 Independent Auditors' Report 69 Consolidated Subsidiaries Annual Report 2013 27

  • Page 30
    ...,946) 1,449,860 22,449,065 886,645 2,127,742 1,483,183 Yen U.S. Dollars Per Share of Common Stock Net income (loss) Diluted net income Cash dividends Net assets Other Financial Data Return on equity (ROE) Return on assets (ROA) Equity ratio ¥ (114.33) - 21.00 944.24 ¥ 4.00 3.78 17.00 949.19...

  • Page 31
    ... Sales Sales by Product Group (Sales to Outside Customers) Audio-Visual and Communication Equipment Health and Environmental Equipment Information Equipment Consumer/Information Products LCDs Solar Cells Other Electronic Devices Electronic Components Total Sales by Region*2 Japan The Americas Europe...

  • Page 32
    Financial Section Financial Review Sharp Corporation and Consolidated Subsidiaries Operations Consolidated net sales for the year ended March 31, 2013 amounted to ¥2,478,586 million, up 0.9% from the previous year. Other expenses, net of other income, resulted in a net loss position and amounted...

  • Page 33
    ... half of the year. Sales by Product Group 2011 Yen (millions) 2012 2013 U.S. Dollars (thousands) 2013 Audio-Visual and Communication Equipment Health and Environmental Equipment Information Equipment Consumer/Information Products LCDs Solar Cells Other Electronic Devices Electronic Components...

  • Page 34
    ...size LCDs, in order to meet ï¬,ourishing demand for LCDs for mobile devices such as smartphones and tablet terminals. By business segment, capital investment was Â¥19,772 million for Consumer/Information Products and Â¥58,316 million for Electronic Components. Unallocated capital investment amounted...

  • Page 35
    ... (Consumer/Information Products and Electronic Components). Operating income (loss) figures are the amounts before adjustment for intersegment trading. 3. Capital investment figures shown in "Capital Investment and Depreciation" include the amount of leased properties. Annual Report 2013 33

  • Page 36
    ... Cash and cash equivalents (Note 7) Time deposits (Note 7) Restricted cash (Notes 2 and 7) Notes and accounts receivable (Note 7) - Trade Other Nonconsolidated subsidiaries and affiliates Allowance for doubtful receivables Inventories (Note 3) Deferred tax assets (Note 4) Other current assets Total...

  • Page 37
    ...long-term debt (Notes 5 and 7) Notes and accounts payable (Note 7) - Trade Construction and other Nonconsolidated subsidiaries and affiliates Accrued expenses Income taxes (Note 4) Other current liabilities (Note 4) Total current liabilities 2011 Yen (millions) 2012 2013 U.S. Dollars (thousands...

  • Page 38
    Financial Section Consolidated Statements of Operations Sharp Corporation and Consolidated Subsidiaries for the Years Ended March 31, 2011, 2012 and 2013 2011 Yen (millions) 2012 2013 U.S. Dollars (thousands) 2013 Net Sales Cost of Sales Gross profit Selling, General and Administrative ...

  • Page 39
    ... Statements of Comprehensive Income Sharp Corporation and Consolidated Subsidiaries for the Years Ended March 31, 2011, 2012 and 2013 2011 Yen (millions) 2012 2013 U.S. Dollars (thousands) 2013 Income (Loss) before Minority Interests Other Comprehensive Income: Net unrealized holding...

  • Page 40
    ... foreign subsidiaries $ (31,473) Number of Shares Balance at beginning of fiscal 2013 Net loss Dividends from surplus Issuance of new shares Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders' equity Balance at end of fiscal 2013 1,176,623 1,110,699...

  • Page 41
    Financial Section Consolidated Statements of Cash Flows Sharp Corporation and Consolidated Subsidiaries for the Years Ended March 31, 2011, 2012 and 2013 2011 Yen (millions) 2012 2013 U.S. Dollars (thousands) 2013 Cash Flows from Operating Activities: Income (loss) before income taxes and ...

  • Page 42
    ...its related accounting regulations and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards ("IFRS"). The financial statements of...

  • Page 43
    ... other than lease assets is computed using the declining-balance method, except for machinery and equipment at the LCD plants in Mie and Kameyama and the buildings (excluding attached structures) acquired by the Company and its domestic consolidated subsidiaries on and after April 1, 1998; all...

  • Page 44
    ...accounting policies that are difficult to distinguish from changes in accounting estimates In accordance with the amendment of the Corporation Tax Law, effective from the year ended March 31, 2013, the Company and its domestic consolidated subsidiaries have changed the depreciation method for plant...

  • Page 45
    ... Finished products Work in process Raw materials and supplies ¥ 191,628 206,614 87,818 ¥ 486,060 ¥ 194,220 264,577 68,686 ¥ 527,483 ¥ 157,373 90,431 62,905 ¥ 310,709 $ 1,692,183 972,376 676,398 $ 3,340,957 For the years ended March 31, 2011, 2012 and 2013, the write-offs of the inventory...

  • Page 46
    ... tax rate and the effective tax rate for financial statements purposes for the year ended March 31, 2011: 2011 2012 2013 31, 2013. The Company and its wholly owned domestic subsidiaries have adopted the consolidated tax return system of Japan. Statutory tax rate Foreign withholding tax Dividends...

  • Page 47
    ...Income Tax Act and other related laws/regulations, in order to establish a taxation system that reï¬,ects structural changes in the economy and society" and the "Act regarding securing funds necessary for implementing programs promoting recovery from the Great East Japan Earthquake," the Company has...

  • Page 48
    ... price is subject to adjustment for certain subsequent events such as the issue of common stock at less than market value and stock splits. If all convertible bonds with subscription rights to shares The aggregate annual maturities of long-term debt as of March 31, 2013 were as follows: Years ending...

  • Page 49
    ... assets Operating leases (a) As lessee ¥ 14,182 237 ¥ 10,116 512 ¥ 5,502 0 $ 59,161 0 Future minimum lease payments for only non-cancelable contracts as of March 31, 2011, 2012 and 2013 were as follows: Yen (millions) 2011 2012 2013 U.S. Dollars (thousands) 2013 Due within one year Due...

  • Page 50
    ... instruments The Company and its consolidated subsidiaries obtain necessary funds mainly through bank loans and issuing bonds according to its capital investment plan for its main business of manufacturing and distributing electronics equipment and electronic components. Short-term operating funds...

  • Page 51
    ...) 2013 Consolidated Balance Sheet Amount Fair Value Difference (1) Cash and cash equivalents, Time deposits, and Restricted cash (2) Notes and accounts receivable (3) Investments in securities 1) Shares of nonconsolidated subsidiaries and affiliates 2) Other securities Total Assets (4) Notes and...

  • Page 52
    ...U.S. Dollars (thousands) 2013 Consolidated Balance Sheet Amount Fair Value Difference (1) Cash and cash equivalents, Time deposits, and Restricted cash (2) Notes and accounts receivable (3) Investments in securities 1) Shares of nonconsolidated subsidiaries and affiliates 2) Other securities Total...

  • Page 53
    ...by "( )." (Note 1) Methods of Calculating the Fair Value of Financial Instruments and Matters Related to Securities and Derivative Transactions (1) Cash and cash equivalents, Time deposits, and Restricted cash The fair value of time deposits and Restricted cash approximates their book value, due to...

  • Page 54
    ... quoted market prices and it is too difficult to estimate the fair values, they are not included in "(3) Investments in securities." (Note 3) Maturity analysis for Cash and cash equivalents, Time deposits, and Restricted cash, and Notes and accounts receivable. Yen (millions) 2013 Due in one year...

  • Page 55
    ... of the Hon Hai Group on March 27, 2012. In association with the above capital and business alliance, the Company has transferred a part of shares of its owned subsidiary, Sharp Display Products Corporation ("SDP"), to SIO International Holdings Limited, an investment company of Mr. Terry Tai...

  • Page 56
    ... or loss. This accounting method is assuming that the investment regarding transferred business of development, production and sales of LCD panels, is liquidated. (c) The name of reportable segment in which transferred business was included The Electronic Components business segment (d) Estimated...

  • Page 57
    ... at the end of such fiscal year. However, cash dividends per share shown in the accompanying consolidated statements of operations reï¬,ect dividends applicable to the respective period. At the annual shareholders' meeting held on June 25, 2013, a resolution of no dividend to shareholders of record...

  • Page 58
    ... in North America and Europe. The Company received a cease and desist order and an administrative surcharge payment order from the Japan Fair Trade Commission. However, the Company has submitted a complaint to the Japan Fair Trade Commission, which is currently pending. 12. Employees' Severance and...

  • Page 59
    ... based on current market prices. Segment profit and loss is determined as operating profit less basic research and development costs and administrative expenses related to the Company's corporate headquarters. Depreciable assets of sales and distribution groups of the Company's headquarters and...

  • Page 60
    ...reported segment income or loss, segment assets and other material items Segment information as of and for the years ended March 31, 2011, 2012 and 2013 was as follows: Yen (millions) 2011 2012 2013 U.S. Dollars (thousands) 2013 Net Sales: Consumer/Information Products: Customers Intersegment Total...

  • Page 61
    ... and 2013, respectively. Corporate assets not allocated to each reportable segment were mainly attributable to cash and cash equivalents, deferred tax assets, the Company's investments in securities, and depreciable assets related to the Company's R&D groups as well as the administrative, sales and...

  • Page 62
    Financial Section Related information Sales by product/service for the years ended March 31, 2011, 2012 and 2013 were as follows: Yen (millions) 2011 2012 2013 U.S. Dollars (thousands) 2013 Sales to outside customers: LCDs LCD Color TVs Others Total ¥ 614,373 803,592 1,604,008 ¥ 3,021,973 ¥...

  • Page 63
    ... Large size LCD plant operation This loss for the year ended March 31, 2012 comprises extraordinary operating expenses caused by the temporary suspension of production of large-size LCD panels in the Company and its consolidated subsidiary, Sharp Display Products Corporation. Annual Report 2013 61

  • Page 64
    ... concerning plants that were suspended in the Company and its consolidated subsidiary, Sharp Display Products Corporation to improve production to meet the increasing demand for high value-added products, and costs of ¥68,125 million incurred to reinforce business foundations (inventory write-down...

  • Page 65
    ... about reported segment income or loss, segment assets and other material items for the year ended March 31, 2013, based on the new segment classifications was as follows: Yen (millions) 2013 U.S. Dollars (thousands) 2013 Net Sales: Product Business: Customers Intersegment Total Device Business...

  • Page 66
    ...100,957 thousand). Corporate assets not allocated to each reportable segment were mainly attributable to cash and cash equivalents, the Company's investments in securities, and depreciable assets related to the Company's R&D groups as well as the administrative, sales and distribution groups of the...

  • Page 67
    ... were informed to the labor union on the same the day, and were accepted by the labor union on June 20, 2013. (a) Reasons to continue measures to reinforce business foundations The Company group is currently in the process of recovering its business performance. As part of its measures to reduce...

  • Page 68
    ... (Micro Electro Mechanical System) display and the capital alliance agreement dated December 4, 2012 between the Company and Qualcomm, the payment of the second issue passed at its board of directors meeting held on June 7, 2013 was fully made on June 24, 2013 as scheduled. 66 SHARP CORPORATION

  • Page 69
    ... to be used for costs and expenses, and equipment investment for the commercialization of the Next-Generation MEMS Display. The Renewal of Current Syndicated Loan Agreement and Signing of New Agreement The Company signed the agreement on June 25, 2013 regarding renewal of the agreement which was...

  • Page 70
    ... respects, the financial position of Sharp Corporation and its consolidated subsidiaries as at March 31, 2013, 2012 and 2011, and their financial performance and cash ï¬,ows for the years then ended in accordance with accounting principles generally accepted in Japan. Emphasis of Matter Without...

  • Page 71
    ...> Sharp Corporation of New Zealand Ltd. Sharp Middle East FZE *1 In addition to the companies listed above, there are 22 consolidated subsidiaries. *2 Although all of the Recurrent Energy, LLC-owned 177 subsidiaries related to solar power generation plants are...

  • Page 72
    ...Meiji Yasuda Life Insurance Company Mizuho Corporate Bank, Ltd. The Bank of Tokyo-Mitsubishi UFJ, Ltd. Samsung Electronics Japan Co., Ltd. Mitsui Sumitomo Insurance Company, Limited Qualcomm Incorporated SHARP Employee Share-Holding Association Japan Trustee Services Bank, Ltd. (Trust Account) Sompo...

  • Page 73
    22-22, Nagaike-cho, Abeno-ku, Osaka 545-8522, Japan Phone: +81-6-6621-1221 http://www.sharp.co.jp