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Re-growth
on Track
Annual Report 2014
For the year ended March 31, 2014

Table of contents

  • Page 1
    Re-growth on Track Annual Report 2014 For the year ended March 31, 2014

  • Page 2
    Message to our Shareholders Kozo Takahashi April 1980 September 2008 Joined Sharp Corporation Executive Officer; Group General Manager, Health and Environment Systems Group Executive Managing Officer; Group General Manager, North and South America Group Executive Vice President; Chief Officer, ...

  • Page 3
    ... its Medium-Term Management Plan. For a start, this will require reforms of our corporate culture and customs. Since I became president in June 2013, I have personally visited not only our large business operations but also sales and service offices with small personnel numbers to hear the...

  • Page 4
    ... report contains certain statements describing the future plans, strategies and performance of Sharp Corporation and its consolidated subsidiaries (hereinafter "Sharp"). These statements are not based on historical or present fact, but rather assumptions and estimates based on information currently...

  • Page 5
    Contents Annual Report 2014 3

  • Page 6
    Presentation by the President Progress Status of Medium-Term Management Plan From Restructuring Stage to Re-growth Stage Presentation by the President 4 SHARP CORPORATION

  • Page 7
    ... overseas businesses focusing on the ASEAN market (4) Reducing fixed costs by reforming our cost structure (5) Improving our financial position Presentation by the President Fiscal 2014 Objectives In fiscal 2014, the first year of the Re-growth Stage, Sharp will target "strengthening profitability...

  • Page 8
    ... the transition into an energy solutions provider offering design, procurement, construction, power generation, and other services. In electronic devices business, Sharp worked to expand its business centered on mainstay camera modules. We will further continue focusing on No. 1 categories while...

  • Page 9
    ..., buoyed by an increasing number of users. 9 clients 13 14 Others 9 clients (fiscal years) New major Chinese clients Sales* of IGZO LCDs (FY2013/1H = 1) *Sales to outside customers Raise Small- and Medium-Size LCD Production Ratio at the Kameyama No. 2 Plant To address flourishing demand from...

  • Page 10
    Presentation by the President 8 SHARP CORPORATION

  • Page 11
    ...region Improve profitability by changing sales channel mix and product mix Step up initiatives with high-earnings business model in IT services business and solutions business In Asia, Sharp particularly put its efforts to expand businesses. We fast-tracked the opening of a new plant in Indonesia...

  • Page 12
    ...streamline production at our LCD plants. In fiscal 2014, we will launch a new counteroffensive of investments in the Re-growth Stage of the Medium-Term Management Plan. This will entail strategic investments in LCD plants, as well as investments in development of new electronic devices. Presentation...

  • Page 13
    ..., Sharp focused on three vital actions: introduction of a business group system, establishment of Corporate Management Group and Structural Reform Group, and management participation from two main banks. Through the year of operation, the new measures have achieved major results: product development...

  • Page 14
    ...these assets and the sales channels and technologies of our business partners, we are working to broaden our presence in new fields. We have identified five areas of focus: healthcare/medical services, robotics, smart home/mobility/office, safety and security of food/water/air, and education. In all...

  • Page 15
    Challenge for Change Continuously embracing challenges Presentation by the President Annual Report 2014 13

  • Page 16
    ... leased properties is included in capital investment. 3. The computation of net income (loss) per share is based on the weighted average number of shares of common stock outstanding during each fiscal year. 4. The number of shares outstanding is net of treasury stock. Financial Highlights Net Sales...

  • Page 17
    ..., solar cells, and small- and medium-size LCDs. We also took various measures on a company-wide basis to improve our business foundation, including inventory reduction, capital investment restriction, and a radical cut in overall costs. As a result, consolidated net sales for the fiscal year totaled...

  • Page 18
    ... Outline Sharp Corporation and Consolidated Subsidiaries for the Years Ended March 31 Products Business Device Business Net Sales Operating Income Total Assets Capital Investment 31.7% 42.0% 58.0% 68.3% 46.4% 53.6% 54.8% 45.2% Product Business Net Sales (billions of yen) Operating Income...

  • Page 19
    ... 2013 Review by Product Group Sharp Corporation and Consolidated Subsidiaries for the Years ended March 31 Product Business Digital Information Equipment Sales by Product Group Net Sales (billions of yen) 1,200 800 23.4% 400 0 12 13 14 Despite a decline in sales of mobile phones, total sales...

  • Page 20
    ...industrial applications, as well as a solid performance by our solar developer business overseas. We will work to expand sales of home energy management systems (HEMS), including storage batteries. We will also build a solid income foundation by shifting our emphasis to the energy solutions business...

  • Page 21
    ...patent-related income. We will continue developing new customers while expanding business with existing major clients, in order to increase the sales ratio for small- and medium-size LCDs. For large-size LCDs, meanwhile, we will work to stabilize earnings by increasing the inch size of our offerings...

  • Page 22
    ...efficient R&D. Free-Form Display R&D and Intellectual Property Cloud-based services offered via COCOROBO test model Tenant (1) Use, inquiries (4) Provides range of information COCOROBO, robotic vacuum cleaner (test model) Sharp developed the Free-Form Display, which can be shaped to meet a wide...

  • Page 23
    ... strict environmental standards. * Released by Sharp Manufacturing Systems Corporation in October 2013 (BM-300C). Microbe sensor Intellectual Property Strategy Sharp views its intellectual property strategy as one of its key management measures, promoting it in a coherent manner with business and...

  • Page 24
    Corporate Social Responsibility (CSR) Business Philosophy and Business Creed "Make products that others want to imitate." This message of Sharp's founder Tokuji Hayakawa encapsulates management's stance of aiming to become a trusted company by contributing to society as a manufacturer that is among...

  • Page 25
    ... of growing worldwide interest. Going forward, we will proactively develop high-efficiency solar power generation systems and products that minimize power consumption. Product Manufacture Sharp works actively to raise the environmental performance of its plants in order to reduce the impact on the...

  • Page 26
    ... directors/ managing directors (Executive officers) Deliberation on key policies, etc. Supplement business execution functions Executive Management Committee Executive officers, etc. Audit & Supervisory Board Staff Office Consultative Committee Business execution and checks Discussion/report...

  • Page 27
    ... development and implementation of initiatives related to the internal control system, then reports on and discusses important matters with the Board of Directors. The department promoting internal controls on a company-wide basis oversees the internal controls of the business execution departments...

  • Page 28
    ... the world, mainly in countries of the U.S., Europe, and Asia. Business results and financial position are thus subject to economic and consumer trends (especially trends in private consumption and corporate capital investment), competition with other companies, product demand, raw material supply...

  • Page 29
    ... position may work to its disadvantage with respect to competition with other companies with robust financial positions, and contract-related issues could also arise between Sharp and its lenders or business partners. (8) Technological Innovation New technologies are emerging rapidly in the markets...

  • Page 30
    ... 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 31
    ... and financial position. (14) 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...

  • Page 32
    ... Members and Executive Officers Director Director Director Director Akihiro Hashimoto Makoto Kato*1 Shigeo Ohyagi*1 Mikinao Kitada*1 Audit & Supervisory Board Members Full-time Audit & Supervisory Board Members Executive Officers President Executive Managing Officers Executive Officers...

  • Page 33
    ...Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Net Assets Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Financial Section Independent Auditors' Report Consolidated Subsidiaries Annual Report 2014...

  • Page 34
    ... the Years Ended March 31 2010 2011 Yen (millions) 2012 2013 2014 U.S. Dollars (thousands) 2014 Net Sales Domestic sales Overseas sales Operating Income (Loss) Income (Loss) before Income Taxes and Minority Interests Net Income (Loss) Net Assets Total Assets Capital Investment*1 Depreciation...

  • Page 35
    ...Consumer/Information Products LCDs Solar Cells Other Electronic Devices Electronic Components Total Digital Information Equipment Health and Environmental Equipment Solar Cells Business Solutions Product Business LCDs Electronic Devices Device Business Total Sales by Region Japan The Americas Europe...

  • Page 36
    ... Consolidated net sales for the year ended March 31, 2014 amounted to ¥2,927,186 million, up 18.1% from the previous year. Other expenses, net of other income, resulted in a net loss position and amounted to ¥62,590 million. Accordingly, income before income taxes and minority interests totaled...

  • Page 37
    ... year. Financial Section Sales by Product Group 2012 Yen (millions) 2013 2014 U.S. Dollars (thousands) 2014 Digital Information Equipment Health and Environmental Equipment Solar Cells Business Solutions Product Business LCDs Electronic Devices Device Business Adjustments Total ¥ 1,061...

  • Page 38
    ... million. Included in inventories, finished products increased ¥3,087 million to ¥160,460 million; work in process declined ¥14,295 million to ¥76,136 million; and raw materials and supplies were down ¥4,375 million to ¥58,530 million. Property, plant and equipment, at cost, declined by ¥43...

  • Page 39
    ... internal sales between segments (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...

  • Page 40
    ... 2012, 2013 and 2014 ASSETS Current Assets: Cash and cash equivalents (Note 7) Time deposits (Note 7) Restricted cash (Note 7) Notes and accounts receivable (Note 7) - Trade Other Nonconsolidated subsidiaries and affiliates Allowance for doubtful receivables Inventories (Note 3) Deferred tax assets...

  • Page 41
    ... portion of 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 2012 Yen (millions) 2013 2014 U.S. Dollars...

  • Page 42
    Consolidated Statements of Operations Sharp Corporation and Consolidated Subsidiaries for the Years Ended March 31, 2012, 2013 and 2014 2012 Yen (millions) 2013 2014 U.S. Dollars (thousands) 2014 Net Sales Cost of Sales Gross profit Selling, General and Administrative Expenses Operating income ...

  • Page 43
    ... Statements of Comprehensive Income Sharp Corporation and Consolidated Subsidiaries for the Years Ended March 31, 2012, 2013 and 2014 2012 Yen (millions) 2013 2014 U.S. Dollars (thousands) 2014 Income (Loss) before Minority Interests Other Comprehensive Income: Net unrealized holding...

  • Page 44
    ...scal 2014 Net income Issuance of new shares Transfer to capital surplus from common stock Deficit disposition Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders' equity Balance at end of fiscal 2014 Common Capital Number of stock surplus Shares (Note...

  • Page 45
    Consolidated Statements of Cash Flows Sharp Corporation and Consolidated Subsidiaries for the Years Ended March 31, 2012, 2013 and 2014 2012 Yen (millions) 2013 2014 U.S. Dollars (thousands) 2014 Cash Flows from Operating Activities: Income (loss) before income taxes and minority interests ...

  • Page 46
    ... and financial policies are accounted for under the equity method. In the elimination of investments in consolidated subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are evaluated using the fair value at the time the Company...

  • Page 47
    ..., inventories are measured at the lower of moving average cost and net realizable value. (g) Depreciation and amortization For the Company and its domestic consolidated subsidiaries, depreciation of plant and equipment other than lease assets is computed using the declining-balance method...

  • Page 48
    ... income decreased by ¥106,034 million as of March 31, 2014. (p) Changes in accounting estimates The Company and its domestic consolidated subsidiaries previously amortized actuarial gain/loss and past service costs on the severance and pension benefits over 16 years. Effective from the year ended...

  • Page 49
    ... Finished products Work in process Raw materials and supplies ¥ 194,220 264,577 68,686 ¥ 527,483 ¥ 157,373 90,431 62,905 ¥ 310,709 ¥ 160,460 76,136 58,530 ¥ 295,126 $ 1,573,137 746,431 573,824 $ 2,893,392 For the years ended March 31, 2012, 2013, and 2014, the write-offs of the inventory...

  • Page 50
    ...rate for financial statements purposes for the year ended March 31, 2014: 2012 2013 2014 2014. The Company and its wholly owned domestic subsidiaries have adopted the consolidated tax return system of Japan. Statutory tax rate Foreign withholding tax Expenses not deductible for tax purposes Income...

  • Page 51
    ...effective tax rate which the Company used for the calculation of deferred tax assets and deferred tax liabilities that are expected to be settled in FY2014 has been changed from 37.9% to 35.5%. This change had an immaterial impact on financial statements for the year ended March 31, 2014. 5. Short...

  • Page 52
    ... convertible bonds with subscription rights to shares, due 2013 0.250%-1.177% unsecured Euroyen notes issued by a consolidated subsidiary, due 2012 to 2013 0.500% unsecured Pound discount notes issued by a consolidated subsidiary, due 2012 to 2014 Lease obligations Less-Current portion included in...

  • Page 53
    ... and commenced on or before March 31, 2008, lease payments are recognized as expenses. Information relating to finance leases that do not transfer ownership and commenced on or before March 31, 2008, as of, and for the years ended March 31, 2012, 2013 and 2014, were as follows: As lessee (1) Future...

  • Page 54
    ... (1) Policies for financial 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 electronic communication equipment, electronic...

  • Page 55
    ... estimated are not included in the tables. Refer to (Note 2) for the details of such financial instruments. Yen (millions) 2014 Consolidated Balance Sheet Amount Fair Value Difference (1) Cash and cash equivalents, Time deposits, and Restricted cash (2) Notes and accounts receivable (3) Investments...

  • Page 56
    ... (thousands) 2014 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...

  • Page 57
    ...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 58
    ... 31, 2013 and ¥26,871 million ($263,441 thousand) as of March 31, 2014. Since there are no 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...

  • Page 59
    ... Net Assets and Per Share Data Under the Japanese Corporate Law ("the Law"), the entire amount paid for new shares is required to be designated as common stock. However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding onehalf of the price of the new shares...

  • Page 60
    ... 2012 2013 2014 U.S. Dollars (thousands) 2014 Time deposits Restricted cash Notes and accounts receivable Trade Nonconsolidated subsidiaries and affiliates Inventories Other current assets Land Buildings and structures Machinery and equipment Investments in securities Investments in nonconsolidated...

  • Page 61
    ... of the Company and its domestic consolidated subsidiaries for the years ended March 31, 2012 and 2013 consisted of the following: Yen (millions) 2012 2013 2014 U.S. Dollars (thousands) 2014 Service costs Interest costs on projected benefit obligation Expected return on plan assets Actuarial...

  • Page 62
    ... rate of expected return on plan assets used by the Company and its domestic consolidated subsidiaries for the years ended March 31, 2012 and 2013 was 3.7% and 3.1%, respectively. Reconciliation of the defined benefit obligations of the Company and its consolidated subsidiaries as of March 31, 2014...

  • Page 63
    ... of the fair value of plan assets of the Company and its consolidated subsidiaries as of March 31, 2014 consisted of the following: 2012 2013 2014 2014 Bonds Equity securities Cash and cash equivalents Life insurance company general accounts Other Total - - - - - - - - - - - - 35% 23 9 18...

  • Page 64
    ..., health and environmental equipment, solar cells and business solutions products. The Device Business segment includes LCDs and electronic device products. Information about reported segment income or loss, segment assets and other material items for the years ended March 31, 2012, and 2013 is...

  • Page 65
    ... Segment information as of and for the years ended March 31, 2012, 2013 and 2014 was as follows: Yen (millions) 2012 2013 2014 U.S. Dollars (thousands) 2014 Net Sales: Product Business: Customers Intersegment Total Device Business: Customers Intersegment Total Eliminations Consolidated Net Sales...

  • Page 66
    ...in Sharp Finance Corporation. Adjustments of increase in plant, equipment and intangible assets were ¥13,493 million, ¥8,142 million and ¥6,308 million ($61,843 thousand) for the years ended March 31, 2012, 2013 and 2014, respectively, and mainly comprised increase in the Company's R&D groups and...

  • Page 67
    Related information Sales by product/service for the years ended March 31, 2012, 2013 and 2014 were as follows: Yen (millions) 2012 2013 2014 U.S. Dollars (thousands) 2014 Sales to outside customers: LCDs LCD Color TVs Others Total ¥ 420,226 581,357 1,454,267 ¥ 2,455,850 ¥ 650,847 388,436 ...

  • Page 68
    ...fixed assets by reportable segment Impairment Loss of fixed assets by reportable segment for the years ended March 31, 2012, 2013 and 2014 were as follows: Yen (millions) 2012 2013 2014 U.S. Dollars (thousands) 2014 Impairment Loss: Product Business Device Business Corporate Assets and Elimination...

  • Page 69
    ... characteristics and business operation. As a result, idle assets are identified as respective cash generating units. The Company and its consolidated subsidiaries reduced the book value of idle and unused-in-the-future production equipment of thin-film solar cells in the Katsuragi Plant etc. to...

  • Page 70
    ... use in view of business facility, type of business and others in a comprehensive manner. Idle assets are categorized by each asset. The Company and its consolidated subsidiaries reduced the book value of idle and unused-in-the-future production equipment of thin-film solar cells to an estimated...

  • Page 71
    ..., 2014 The third quarter of the fiscal year ending March 31, 2015 (planned) (b) Outline of the affiliated company accounted for by the equity-method, whose shares are to be transferred (1) Name (2) Business (3) Transaction details with the Company Renesas SP Drivers Inc. Design, development, sales...

  • Page 72
    ...of comprehensive income, statements of changes in net assets and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for...

  • Page 73
    ...> Sharp Corporation of New Zealand Ltd. Sharp Middle East FZE *1: In addition to the companies listed above, there are 23 consolidated subsidiaries. *2: Although all of the Recurrent Energy, LLC-owned 180 subsidiaries related to solar power generation plants...

  • Page 74
    .... Total 1,701,214,887 shares Japanese individual shareholders 674,479,531(39.65%) Stock Exchange Listings Tokyo Investor Information Transfer Agent Mizuho Trust & Banking Co., Ltd. Stock Transfer Agency Department, Head Office 1-2-1, Yaesu, Chuo-ku, Tokyo 103-8670, Japan Investor Relations...

  • Page 75
    22-22, Nagaike-cho, Abeno-ku, Osaka 545-8522, Japan Phone: +81-6-6621-1221 http://www.sharp.co.jp