(PLEASE Note: This Notice of Convocation is an English summary of the Japanese notice. The Japanese original is official, and this summary is for your reference only. Sharp does not guarantee the accuracy of this summary.) Securities Code: 6753 June 3, 2013 SHARP CORPORATION NOTICE OF CONVOCATION OF THE 119TH ORDINARY GENERAL MEETING OF SHAREHOLDERS To Our Shareholders: We hereby notify you of the convocation of the 119th Ordinary General Meeting of Shareholders of Sharp Corporation (hereinafter referred to as Sharp ) as per the description below. DESCRIPTION 1. Date and Time: Tuesday, June 25, 2013, at 10:00 a.m. 2. Place: 5-3-51 Nakanoshima, Kita-ku, Osaka Grand Cube Osaka (Osaka International Convention Center) Main Hall 3. Purpose of the Meeting: Report: 1. The Business Report, Consolidated Accounts and Audit of the Consolidated Accounts by the Accounting Auditors and the Audit & Supervisory Board for the 119th Term (from April 1, 2012 to March 31, 2013) 2. Accounts for the 119th Term (from April 1, 2012 to March 31, 2013) Resolution: Proposal No.1: Proposal No.2: Proposal No.3: Reduction of Common Stock, Capital Reserve and Legal Reserve Appropriation of Surpluses for the 119th Term Election of Nine (9) Directors -1 -
[Attachment 1] CONSOLIDATED BALANCE SHEET (As of March 31, 2013) (Millions of Yen) ASSETS LIABILITIES Current Assets Cash and deposits Notes and accounts receivable Inventories Non-trade accounts receivable Other current assets Allowance for doubtful receivables Non-Current Assets Tangible Fixed Assets 1,221,835 191,941 424,223 310,709 139,265 160,956-5,259 865,318 563,699 Current Liabilities Notes and accounts payable Electronically recorded obligations Short-term borrowings Current portion of straight bonds Current portion of Bonds with subscription rights to shares Accrued expenses Accrued employees bonuses Accrued product warranty Provision for loss on litigation Other current liabilities 1,667,533 293, 047 72,074 674,941 35,000 200,354 178,496 15,422 10,042 32,321 155,836 Buildings and structures Machinery, equipment and vehicles Tools and furniture Land Lease assets Construction in progress Other tangible fixed assets Less accumulated depreciation Intangible Fixed Assets Industrial Property Software Goodwill Other intangible fixed assets Investments and Other Assets Investment securities Other fixed assets Allowance for doubtful receivables 713,657 1,292,654 364,668 94,448 64,515 22,874 5,141-1,994,258 59,211 5,044 29,596 21,064 3,507 242,408 156,456 86,427-475 Long-Term Liabilities Straight bonds Long-term borrowings Allowance for severance and pension benefits Other long-term liabilities 285,393 160,000 73,087 6,501 45,805 Total Liabilities 1,952,926 NET ASSETS Owners' Equity 183,732 Common Stock 212,337 Capital Surplus 276,179 Retained Earnings -290,912 Less cost of Treasury Stock -13,872 Accumulated Other Comprehensive Income Net Unrealized Holding Gains on Securities Deferred Gains on Hedges Foreign Currency Translation Adjustments Pension Liability Adjustment of Foreign Subsidiaries -59,061 6,062-25 -61,467-3,631 Deferred Assets 610 Minority Interests 10,166 Bond issue cost 610 Total Net Assets 134,837 Total Assets 2,087,763 Total Liabilities and Net Assets 2,087,763 (Note) Fractions rounded to the nearest million yen. -2 -
[Attachment 2] CONSOLIDATED STATEMENT OF INCOME (From April 1, 2012 to March 31, 2013) (Millions of Yen) Net Sales 2,478, 586 Cost of sales 2,218,003 Gross Profit 260, 583 Selling, general and administrative expenses 406,849 Operating Loss 146,266 Non-Operating Income 14, 756 Interest and dividend income 2,278 Other non-operating income 12,478 Non-Operating Expenses 74,978 Interest expenses 13,170 Other non-operating expenses 61,808 Recurring Loss 206,488 Special Income 4,996 Gain on sales of noncurrent assets 4,268 Gain on sales of investment securities 728 Special Losses 264,695 Loss on sales and retirement of noncurrent assets 15,612 Impairment loss 47,396 Loss on valuation of investment securities 3,782 Loss on sales of stocks of subsidiaries and affiliates 3,583 Restructuring charges 143,397 Settlement package 17,899 Provision for loss on litigation 32,321 Loss on change in equity 705 Loss before Income Taxes and Minority Interests 466,187 Corporate income, inhabitant and business taxes 17, 607 Adjustment to income taxes 59,972 Loss before Minority Interests 543,766 Minority interests in income of consolidated subsidiaries 1,581 Net Loss 545,347 (Note) Fractions rounded to the nearest million yen. -3 -
[Attachment 3] CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (From April 1, 2012 to March 31, 2013) (Millions of Yen) Owners' Equity Common stock Capital surplus Retained earnings Less cost of treasury stock Balance at April 1, 2012 204,676 268,528 259,937-13,876 Changes of items during the period Issuance of new shares 7,661 7,661 Dividends from surplus -5,502 Net loss -545,347 Purchase of treasury stock -10-10 Disposal of treasury stock 14 Net changes of items other than owners' equity Total changes of items during the period 7,661 7,651-550,849 4 Balance at March 31, 2013 212,337 276,179-290,912-13,872 Net unrealized holding gains (losses) on securities Accumulated Other Comprehensive Income Deferred gains (losses) on hedges Foreign currency translation adjustments Pension liability adjustment of foreign subsidiaries Minority Interests Total Net Assets Balance at April 1, 2012 5,610-5,749-90,305-2,927 19,226 645,120 Changes of items during the period Issuance of new shares 15,322 Dividends from surplus -5,502 Net loss -545,347 Purchase of treasury stock -10 Disposal of treasury stock 4 Net changes of items other than owners' equity 452 5,724 28,838-704 -9,060 25,250 Total changes of items during the period 452 5,724 28,838-704 -9,060-510,283 Balance at March 31, 2013 6,062-25 -61,467-3,631 10,166 134,837 (Notes) Fractions rounded to the nearest million yen. -4 -
[Attachment 4] Consolidated Explanatory Notes (Notes concerning Important Matters Presented in Consolidated Financial Statements) 1. Scope of Consolidation (1) Number of Consolidated Subsidiaries and Names of Major Consolidated Subsidiaries Number of consolidated subsidiaries: eighty-two (82) Names of major consolidated subsidiaries: omitted Changes in Scope of Consolidation: Sharp Electronics (Europe) Limited and three (3) other companies, which were newly established in this consolidated fiscal year, are included in the scope of consolidation. In addition, MKT Moderne Kopiertechnik GmbH Rhein-Main, which Sharp acquired in this consolidated fiscal year, is included in the scope of consolidation. Sharp Maintenance Italy s.r.l., which was a non-consolidated company in the previous consolidated fiscal year, is included in the scope of consolidation in consideration of its importance. On the other hand, Sakai Display Products Corporation (its corporate name was changed from Sharp Display Products Corporation on July 17, 2012), which was a consolidated subsidiary in the previous consolidated fiscal year, is to be an affiliate and is excluded from the scope of consolidation due to a decline of Sharp s stake through transfer of its shares to SIO International Holdings Limited and the business integration (simplified absorption-type company split) of the LCD color filter businesses operated by Toppan Printing Co., Ltd., Dai Nippon Printing Co., Ltd., and DNP Color Techno Sakai Co., Ltd. at the Sakai Plant. In addition, Sharp Electronica España S.A., which was a consolidated subsidiary in the previous consolidated fiscal year, is excluded from the scope of consolidation because it was taken over by Sharp Electronics (Europe) Limited in this consolidated fiscal year. Although all of the Recurrent Energy, LLC-owned one-hundred-seventy-seven (177) subsidiaries related to solar power generation plants are included in the scope of consolidation, in counting consolidated subsidiaries of Sharp, they and Recurrent Energy, LLC are considered as one company in consideration that it is a solar project developer. (2) Names of Major Non-consolidated Companies and Others Names of major non-consolidated companies: Sharp India Ltd. Reason why this company is not included in consolidation: From the viewpoint of total assets, sales, net income (loss) for the current term, retained earnings and other items, this company is minor and, as a whole, does not have a material effect on the items of the consolidated financial statements. 2. Matters concerning Application of Equity Method (1) Number and Names of Major Non-consolidated Companies and Affiliates to Which Equity Method is Applied Number of non-consolidated companies to which equity method is applied: one (1) Number of affiliates to which equity method is applied: twenty-two (22) Names of major companies: Sharp Roxy (Hong Kong) Ltd. Changes in Scope of Application of the Equity Method: -5-
Sakai Display Products Corporation, which is to be an affiliate in this consolidated fiscal year as described in 1. Scope of Consolidation (1) Number of Consolidated Subsidiaries and Names of Major Consolidated Subsidiaries is included among the affiliates to which the equity method is applied. In addition, Electricity Generated by Solar Energy Co., Ltd., which has been acquired in this consolidated fiscal year, is included among the affiliates to which the equity method is applied. On the other hand, Sharp Electronics Inc. of Korea and another company are excluded from affiliates to which the equity method is applied because of completion of liquidation in this consolidated fiscal year. Although all of the Recurrent Energy, LLC-owned twenty-five (25) affiliates related to solar power generation plants are included among the affiliates to which the equity method is applied, in counting affiliates to which Sharp applies the equity method, they and Recurrent Energy, LLC are considered as one company as it is a solar project developer. (2) Names of Major Non-consolidated Companies and Affiliates to Which Equity Method is Not Applied and Others Names of major non-consolidated companies and affiliates to which equity method is not applied: Sharp Telecommunications of Europe, Limited Reason for not applying equity method: The effect on consolidated net income and consolidated retained earnings and other items is minor and, as a whole, is not material. 3. Matters concerning Business Year, etc. of Consolidated Subsidiaries The business years of Sharp Office Equipments (Changshu) Co., Ltd. and fifteen (15) other companies end on December 31. For presenting consolidated financial statements, Sharp provisionally settles the accounts of these companies at the end of the consolidated fiscal year end for consolidation. 4. Matters Related to Accounting Procedure Standards (1) Valuation Standards and Methods for Important Assets 1) Valuation Standards and Methods for Securities Other Securities Securities with available fair market values: Primarily, stated at fair market value based on average of market price during the last month of the fiscal year (valuation differences are disposed using the direct net asset adjustment method and the cost of securities sold is calculated using the average cost method). Securities with no available fair market value: Primarily, stated at average cost. 2) Valuation Standards and Methods for Inventories Inventories held by Sharp and its domestic consolidated subsidiaries are primarily stated at moving average cost (for the book value of inventories on the balance sheets, by writing inventories down based on their decrease in profitability of assets). For overseas consolidated subsidiaries, inventories are stated at the lower of moving average cost or market. -6 -
(2) Depreciation Methods Used for Important Depreciable Assets 1) Method of Depreciation for Property, Plant and Equipment (Except for Lease Assets) For Sharp and its domestic consolidated subsidiaries, depreciation is based primarily on the declining-balance method, except for machinery and equipment at LCD plants in Mie, Kameyama and Sakai, and buildings (excluding attached structures) acquired on and after April 1, 1998, which are depreciated on the straight-line method. Overseas consolidated subsidiaries primarily use the straight-line method. 2) Method of Amortization for Intangible Fixed Assets (Except for Lease Assets) Amortization is based on the straight-line method. Software used by Sharp is amortized by the straight-line method over an estimated useful life of principally five (5) years, however, software embedded in products is amortized over the forecasted sales quantity. 3) Method of Depreciation for Lease Assets Finance leases that do not transfer ownership Depreciation is based on the straight-line method that takes the lease period as the depreciable life and the residual value as zero (0). Regarding finance leases of Sharp and its domestic consolidated subsidiaries that do not transfer ownership, for which the starting date for the lease transaction is prior to March 31, 2008, lease payments are recognized as expenses. (3) Accounting Standard for Important Allowances and Reserves 1) Allowance for Doubtful Receivables The estimated amounts of allowance for general receivables are primarily determined based on the past credit loss ratio. For particular receivables, including those from debtors at risk of bankruptcy, the allowance is provided for individually estimated unrecoverable amounts. This procedure is made against possible credit loss. 2) Accrued Employees Bonuses The reserve for payment of employees bonuses is set aside based on estimated amounts to be paid in the subsequent period. 3) Accrued Product Warranty Estimated amounts of warranty are accrued based on the past experience. This procedure is made against expense for after-sales service within the warranty period. 4) Provision for Loss on Litigation Out of possible future loss on litigation, the amount to be considered necessary is estimated. 5) Allowance for Severance and Pension Benefits To provide for employees severance and pension benefits, reserves are set aside based on the estimated amounts of projected benefit obligation and the fair value of plan assets at the end of the current consolidated fiscal year. Prior service costs are amortized over the average of the estimated remaining service lives [sixteen (16) years]. Actuarial losses are recognized primarily in expenses over the average of estimated remaining service lives [sixteen (16) years] commencing with the following consolidated fiscal year. -7-
(4) Other Important Matters Presenting Consolidated Financial Statements 1) Method for Amortization for Deferred Assets Bond Issue Cost: Bond issue cost is amortized under the straight-line method over the redemption period. 2) Method and Period for Amortization of Goodwill Goodwill for which the effective term is possible to be estimated is amortized evenly over the estimated terms, while the other is amortized evenly over five (5) years. However, if the amount is minor, the entire amount is amortized during the period of occurrence. 3) Accounting for Consumption Taxes, etc. The tax exclusion method is applied. 4) Adoption of Consolidated Tax Return System The consolidated tax return system is adopted. (Notes concerning Changes in Accounting Policies) Changes in 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, Sharp and its domestic consolidated subsidiaries have changed the depreciation method for those tangible fixed assets acquired on or after April 1, 2012. This change had an immaterial impact on financial statements. (Notes concerning Changes in Presentation Method) Concerning Consolidated Balance Sheet (1) Non-trade accounts receivable is individually described in Current Assets due to its growing importance in this consolidated fiscal year, although 82,044 million yen was included in and described as Other current assets of Current Assets in the previous consolidated fiscal year. (2) Deferred tax assets of 19,369 million yen in Current Assets is included in and described as Other current assets of Current Assets due to a decrease in its importance in this consolidated fiscal year, although it was individually described in Current Assets in the previous consolidated fiscal year. (3) Lease assets is individually described in Tangible Fixed Assets due to its growing importance in this consolidated fiscal year, although 35,706 million yen was included in and described as Other tangible fixed assets of Tangible Fixed Assets in the previous consolidated fiscal year. (4) Goodwill is individually described in Intangible Fixed Assets due to its growing importance in this consolidated fiscal year, although 23,129 million yen was included in and described as Other intangible fixed assets of Intangible Fixed Assets in the previous consolidated fiscal year. (5) Deferred tax liabilities of 14,044 million yen is included in and described as Other long-term liabilities of Long-Term Liabilities due to a decrease in its importance in this consolidated fiscal year, although it was individually described in Long-Term Liabilities in the previous consolidated fiscal year. -8 -
(Notes to Consolidated Balance Sheet) 1. Inventories Finished products Work in process Raw materials and supplies Total 157,373 million yen 90,431 million yen 62,905 million yen 310,709 million yen 2. Collateral Assets and Liabilities of the Collateral (1) Collateral Assets Cash and deposits Notes and accounts receivable Inventories Non-trade accounts receivable Other current assets Buildings and structures Machinery, equipment and vehicles Tools and furniture Land Investment securities Total 316 million yen 73,450 million yen 188,868 million yen 5,672 million yen 19,212 million yen 237,285 million yen 37,215 million yen 3,075 million yen 88,032 million yen 45,000 million yen 698,125 million yen (2) Liabilities of the Collateral Short-term borrowings 333,183 million yen Long-term borrowings 2,613 million yen Total 335,796 million yen A part of the above-mentioned collateral assets is pledged as collateral of 50,000 million yen, which is not provided, out of maximum 180,000 million yen of uncommitted credit facility under loan contract on September 27, 2012. In addition, 2,684 million yen out of 45,000 million yen investment securities is pledged as collateral of 20,393 million yen long-term borrowings of affiliates. 3. Guarantee Liability Guarantee for employee housing borrowing 23,103 million yen 4. Discount on Notes Receivable 30 million yen 5. Others In relation to TFT-LCD business, Sharp and some of its subsidiaries are currently subject to the investigations being conducted by the Directorate General for Competition of the European Commission etc., and civil lawsuits seeking monetary damages resulting from the alleged anticompetitive behavior have been filed against Sharp and some of its subsidiaries in North America and Europe. -9 -
Sharp received a cease and desist order and an administrative surcharge payment order from the Japan Fair Trade Commission. However, Sharp has submitted a complaint to the Japan Fair Trade Commission, which is currently pending. (Notes to Consolidated Statement of Income) 1. Details of Impairment Loss Category Item Department and Location Assets for business use (Production equipment of LCD panels, etc.) Assets for business use (Production equipment of audio-visual equipment, etc.) Buildings and structures, Machinery, equipment and vehicles Long-term prepaid expenses, etc. Buildings and structures, Long-term prepaid expenses, etc. Display Device Business Division Kameyama, Mie prefecture Digital Information Appliance Division Yaita, Tochigi prefecture Sharp group categorizes assets for business use in view of business facility, type of business and others in a comprehensive manner. Idle assets are categorized by each asset. Sharp group reduced the book value of production equipment of LCD panels and audio-visual equipment to an estimated recoverable amount due to the decreasing profitability and the unlikelihood of recouping investment, and recognized the decreased amount of 47,396 million yen as an impairment loss in special loss this consolidated fiscal year. Details are as follows: 13,527 million yen, for buildings and structures; 16,416 million yen, for machinery, equipment and vehicles; 13,137 million yen, for long-term prepaid expenses; 4,316 million yen, for others. 2. Restructuring Charges Details of Restructuring Charges are as follows: (1) This concerns LCD business and comprises costs of 12,056 million yen incurred for maintenance of inactive fixed assets caused in Sharp and Sharp Display Products Corporation (its corporate name was changed to Sakai Display Products Corporation on July 17, 2012), along with improving production to meet the increasing demand for high value-added products in this consolidated fiscal year. (2) This mainly concerns reduction of production of Sharp s Large-size LCD panels and comprises the loss on valuation of inventories of 53,468 million yen. (3) This mainly concerns a structural switch of Solar Cells business and comprises costs of 31,526 million yen incurred to impairment loss on fixed assets. Category Item Department and Location Idle Assets Buildings and structures, Machinery, equipment and vehicles, Lease assets, Long-term prepaid expenses, etc. Solar Systems Division Katsuragi, Nara prefecture Toyama, Toyama prefecture, etc. Sharp group categorizes assets for business use in view of business facility, type of business and others in a comprehensive manner. Idle assets are categorized by each asset. Sharp group reduced the book value of idle and unused-in-the-future production equipment of thin-film solar cells to an estimated recoverable amount, and recognized the decreased amount of 31,526 million yen as a restructuring charge included in special loss in this consolidated fiscal year. Details are as follows: 17,568 million yen, for buildings and structures; 4,963 million yen, for machinery, equipment and vehicles; 4,007 million yen, for lease assets; 2,247 million yen, for long-term prepaid expenses; 2,741 million yen, for others. (4) This comprises the loss on cancellation of lease contracts, etc. by structural switch of Solar Cells business, of 14,249 million yen. (5) This comprises the costs of restructuring of consolidated subsidiaries of, 6,602 million yen. (6) This comprises the costs of the voluntary retirement program for employees of Sharp and its domestic consolidated subsidiaries, of 25,496 million yen. - 10 -
(Notes to Consolidated Statement of Changes in Net Assets) 1. Type and Number of Issued Shares as at the End of This Consolidated Fiscal Year Common Stock 1,176,623,887 shares (Note) The number of the issued shares has increased by 65,924,000 shares as a result of the issuance of new shares by way of third party allotments on December 27, 2012 and March 28, 2013 2. Matters concerning Dividends (1) Amount of Dividends Paid Resolution Type of Shares Total Dividends OGM on June 26, 2012 Common stock 5,502 million yen Source of Dividend Retained earnings Dividend per Share Record Date Effective Date 5 yen March 31, 2012 June 27, 2012 (2) Dividends with record date included in this consolidated fiscal year, which become effective in the following consolidated fiscal year. It is not applicable. 3. Type and Number of Shares which are Subject to Subscription Rights as of the End of This Consolidated Fiscal Year Breakdown of Subscription Rights Subscription rights attached to the unsecured convertible bonds with subscription rights to shares, due 2013 (issued on October 17, 2006) (the Bond ) Types of Shares Subject to Subscription Rights End of Previous Consolidated Fiscal Year Number of Shares Subject to Subscription Rights Increase in This Decrease in This Consolidated Consolidated Fiscal Year Fiscal Year End of This Consolidated Fiscal Year Common stock 79,018,964 shares 253,698 shares 0 shares 79,272,662 shares (Note) 1. The number of shares subject to subscription rights indicated in the End of Previous Consolidated Fiscal Year and the End of This Consolidated Fiscal Year columns are the maximum numbers of shares calculated at the conversion price as of the end of the previous and this consolidated fiscal year, respectively. 2. All of the above subscription rights are enforceable. 3. Increase of the number of shares subject to subscription rights is due to adjustment of the conversion price of the Bond from 2,531 yen to 2,522.90 yen on March 29, 2013 in association with the issuance of new shares by third party allotment on March 28, 2013, which meets the terms of adjustment of the conversion price in the Bond requirements. (Note to Financial Instruments) 1. Matters Related to the Status of Financial Instruments Sharp Group ( Sharp and Consolidated Subsidiaries ) procures necessary funds mainly through bank loans and issuing bonds in light of its capital investment plan for its main business of manufacturing and distributing electronics equipment, electronic components and others. Short-term operating funds are procured through bank loans. Long-term borrowings and straight bonds are used to procure funds principally necessary for capital investment. Derivative transactions are transactions of exchange contracts, currency swaps and interest-rate swaps in order to hedge exposure to risks of exchange -11-
rate fluctuations on accounts receivable and payable and so on in foreign currencies. Transactions involving such financial instruments are made with creditworthy financial institutions. For accounts receivables of Sharp, Sharp periodically monitors the status of its key customers, administers their respective deadlines and remaining balances, and makes efforts to recognize at an early stage and reduce irrecoverable risks due to deteriorating financial conditions or any other reasons. Consolidated subsidiaries are also involved in the same monitoring and administration as we are. 2. Matters Related to Fair Value and Others of Financial Investments The consolidated balance sheet amount, the fair value and difference between the two as of March 31, 2013 are as follows: (1) Cash and deposits (2) Notes and accounts receivable (3) Non-trade accounts receivable (4) Securities and investments in securities 1) Debt securities held to maturity 2) Shares of subsidiaries and affiliates 3) Other securities Consolidated Balance Sheet Amount - 12-191,941 424,223 139,265-1,419 44,294 Fair Value 191,941 420,346 139,265-1,433 44,294 (Millions of Yen) Difference 0-3,877 0 Total of Assets 801,142 797,279-3,863 (5) Notes and accounts payable (6) Electronically recorded obligations (7) Short-term borrowings (8) Straight bonds (9) Bonds with subscription rights to shares (10) Long-term borrowings 293,047 72,074 674,941 195,000 200,354 73,087 293, 047 72,074 674,941 156,441 175,897 73,749-14 0 0 0 0-38,559-24,457 662 Total of Liabilities 1,508,503 1,446,149-62,354 (11) Derivative transactions* 1,508 1,914 406 *Net receivables and payables arising from derivative transactions are indicated, and net payables are indicated by -. (Note 1) Methods of Calculating the Fair Value of Financial Instruments and Matters Related to Securities and Derivative Transactions (1) Cash and Deposits As the fair value of deposits approximates their book value due to their short maturity, they are stated at book value. (2) Notes and Accounts Receivable As the fair value of notes and accounts receivable with a short maturity approximates their book value, they are stated at book value. For the fair value of accounts receivable with a long maturity, the amount of each accounts receivable classified based on certain terms is discounted using a rate which reflects both the period until maturity and credit risk. (3) Non-trade accounts receivable As the fair value of non-trade accounts receivable approximates their book value due to their short maturity, they are stated at book value. (4) Securities and Investments in Securities The fair value of securities and investments in securities is based on average prices on the relevant
exchanges during the last month of the fiscal year. (5) Notes and Accounts Payable As the fair value of notes and accounts payable approximates their book value due to their short maturity, they are stated at book value. (6) Electronically recorded obligations As the fair value of electronically recorded obligations approximates their book value due to their short maturity, they are stated at book value. (7) Short-term Borrowings As the fair value of short-term borrowings approximates their book value due to their short maturity, they are stated at book value. (8) Straight Bonds Marketable straight bonds are stated at the price on the relevant exchange. Non-marketable straight bonds are stated based on quotes from financial institutions. (9) Bonds with Subscription Rights to Shares Marketable bonds with subscription rights to shares are stated at the price on the relevant exchange. Non-marketable bonds with subscription rights to shares are stated based on quotes from financial institutions. (10) Long-term Borrowings For the fair value of long-term borrowings, the total amount of the principal and interest is discounted using the rate which would apply if similar borrowings were newly made. (11) Derivative Transactions The fair value of such transactions, including exchange contracts as the appropriation processing is adopted for, is computed by using the forward exchange rate at fiscal year end. The fair value of transactions of currency swaps and interest-rate swaps is stated based on quotes from financial institutions. (Note2) As unlisted stocks (consolidated balance sheet amount of 103,671 million yen) and equity (consolidated balance sheet amount of 7,071 million yen) have no market price and as it is impossible to estimate future cash flows, it is extremely difficult to determine their fair value. Therefore, they are not included in (4) Securities and Investments in Securities. (Note to Leased Properties) Conditions and market value of leased properties are omitted, as there is no significant importance. (Note to Per Share Information) 1. Net assets per share 106.90 yen 2. Net loss per share 489.83 yen (Note to Others) Business Combination Business Divestiture Sharp entered into an agreement to execute capital and business alliance with four companies of the Hon Hai Group on March 27, 2012. - 13 -
In association with the above capital and business alliance, Sharp 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-Ming Gou, the representative of Hon Hai Precision Industry Co., Ltd ( Hon Hai ). Furthermore, Sharp, Toppan Printing Co., Ltd. ( Toppan ) and Dai Nippon Printing Co., Ltd. ( DNP ) executed a basic agreement on April 10, 2012, with regard to the business integration of the LCD color filter businesses operated by Toppan, DNP and DNP s wholly owned subsidiary, DNP Color Techno Sakai Co., Ltd. ( DNP Color Techno Sakai ) at the Sakai Plant, into SDP, and conducted deliberations on concrete issues. Sharp resolved at its Board of Directors Meeting held on May 24, 2012 to execute business integration agreements with Toppan and DNP respectively and transfer the LCD color filter businesses at the Sakai Plant operated by Toppan, DNP and DNP Color Techno Sakai, to SDP in the manner of a simplified absorption-type company split. On August 11, 2012, the simplified absorption-type company split came into effect. 1. Outline of business divestitures (1) Name of parties who succeed the divested business SIO International Holdings Limited, Toppan Printing Co., Ltd., Dai Nippon Printing Co., Ltd and DNP Color Techno Sakai Co., Ltd. (2) Nature of divested business Development, production and sales of LCD panels (3) Aim of business divestiture With the efforts such as 1) promotion of the enhancement of cost competitiveness and profit performance through maintaining a high facility operation rate of SDP by making practical use of Hon Hai s purchasing power and 2) integration of the LCD color filter businesses, Sharp is seeking to promote further efficiency of the large-size LCD business including the businesses of color filters, the primary component of LCD panels, as well as to achieve improvement of the competitiveness of such businesses. (4) Date of business divestiture 1) Transfer of shares: July 12, 2012 2) Simplified absorption-type company split: August 11, 2012 (5) Other items with regard to outline of transactions which include description of legal form 1) Transfer of shares Sharp will receive only assets such as cash as consideration for the transfer of shares. 2) Absorption-type company split The method to be employed is a simplified absorption-type company split which designates Toppan, DNP and DNP Color Techno Sakai as split companies and SDP as their succeeding company. 2. Outline of accounting method (1) Transfer profit and loss Loss on sales of stocks of subsidiaries and affiliates Loss on change in equity 3,346 million yen 705 million yen - 14 -
(2) Appropriate book value of the assets and liabilities transferred and its main items Current assets 43,461 million yen Non-current assets 177,915 million yen Deferred assets 590 million yen Total assets 221,966 million yen Current liabilities 77,297 million yen Long-term liabilities 5,941 million yen Total liabilities 83,238 million yen (3) Accounting method The difference between the amount received as a value of transferred business and the amount of owner s equity regarding the transferred business is recognized as transfer profit or loss. This accounting method is assuming that the investment regarding transferred business of development, production and sales of LCD panels, is liquidated. 3. The name of reportable segment in which transferred business was included Electronic Components segment 4. Estimated amount of profit and loss regarding divested business, which was recorded in consolidated financial results for the year ended March 31, 2013 Net sales million yen Operating income 107 million yen 5. Outline of ongoing commitment Purchase of LCD displays from SDP and temporary transfer of employees to SDP As of July 17, 2012, Sharp Display Products Corporation has changed its corporate name to Sakai Display Products Corporation. Additional Information Termination of the subscription payment term of third party allotment associated with business alliance Sharp passed a resolution at the Board of Directors Meeting held on March 27, 2012 to (i) form a business alliance with Hon Hai Precision Industry Co., Ltd. ( Hon Hai ), (ii) issue new shares through a third-party allotment to four companies of Hon Hai group ( Capital Increase Through Third-Party Allotment ), and (iii) enter into a capital and business alliance with four companies of Hon Hai group ( Capital and Business Alliance ). However, the subscription payment ( This Payment ) from the allottee of Capital Increase Through Third-Party Allotment was not executed by March 26, 2013, the last day of the term of This Payment, mainly due to the reason that the approval for the Capital Increase Through Third-Party Allotment from the relevant authorities could not be received. - 15 -
[Attachment 5] ASSETS Current Assets Cash and deposits Notes receivable Accounts receivable Finished products Work in process Raw materials and supplies Advances Prepaid expenses Short-term loans receivable from subsidiaries and affiliates Non-trade accounts receivable Other current assets Allowance for doubtful receivables Non-Current Assets Tangible Fixed Assets Buildings Structures Machinery and equipment Vehicles Tools and furniture Land Lease assets Construction in progress Intangible Fixed Assets Industrial property Rights to use facilities Software Other intangible fixed assets Investments and Other Assets Investment securities Stocks of subsidiaries and affiliates Investments in capital of subsidiaries and affiliates Long-term prepaid expenses Prepaid pension cost Other fixed assets Allowance for doubtful receivables Deferred Assets Bond issue cost BALANCE SHEET (based on non-consolidated results) (As of March 31, 2013) 786,324 122,030 462 378,407 54,680 77,653 28,133 30,093 654 32,259 49,500 19,572-7,125 887,333 457,558 232,530 9,768 65,892 32 12,715 87,515 33,083 16,020 31,642 4,694 407 26,262 278 398,132 47,142 254,409 41,096 31,016 19,524 4,955-12 610 610-16 - LIABILITIES Current Liabilities Notes payable Electronically recorded obligations Accounts payable Short-term borrowings Current portion of straight bonds Current portion of bonds with subscription rights to shares Lease liabilities Accounts payable-other Accrued expenses Income taxes payable Deferred tax liabilities Advances received Deposits received Accrued employees bonuses Accrued product warranty Provision for loss on litigation Other current liabilities (Millions of Yen) 1,348, 732 1,049 70,877 202,201 545,357 30,000 200,354 10,106 33,211 121,465 376 255 49,053 39,437 7,800 3,600 32,320 1,264 Long-term Liabilities 260,807 Straight bonds 160,000 Long-term borrowings 69,500 Lease liabilities 12,675 Deferred tax liabilities 11,731 Other long-term liabilities 6,900 Total Liabilities 1,609,539 NET ASSETS Owners' Equity Common Stock Capital Surplus Capital reserve Other capital surplus Retained Earnings Legal reserve Other retained earnings Reserve for special depreciation Reserve for advanced depreciation on non-current assets Reserve for severance payment General reserve Retained earnings carried forward Treasury Stock Valuation and Translation Adjustments Net Unrealized Holding Gains on Securities Deferred Gains on Hedges 60,194 212,336 276,178 269,076 7,101-414,448 26,115-440,563 1,469 4,292 1,756 76,950-525,030-13,872 Total Net Assets 64,728 Total Assets 1,674,268 Total Liabilities and Net Assets 1,674,268 (Note) Fractions rounded down to the nearest million yen. 4,533 5,116-583
[Attachment 6] STATEMENT OF INCOME (based on non-consolidated results) (From April 1, 2012 to March 31, 2013) (Millions of Yen) Net Sales 1,787,116 Cost of sales 1,780,437 Gross Profit 6,678 Selling, general and administrative expenses 205,610 Operating Loss 198,931 Non-Operating Income 35,847 Interest and dividend income 23,723 Other non-operating income 12,123 Non-Operating Expenses 71,006 Interest expenses 9,746 Other non-operating expenses 61,259 Recurring Loss 234,089 Special Income 3,813 Gain on sales of noncurrent assets 3,097 Gain on sales of investment securities 715 Special Losses 243,272 Loss on sales and retirement of noncurrent assets 14,177 Impairment loss 47,396 Loss on valuation of investment securities 793 Loss on valuation of stocks of subsidiaries and affiliates 5,058 Loss on valuation of investments in capital of subsidiaries and affiliates 6,835 Loss on sales of stocks of subsidiaries and affiliates 29 Restructuring charges 118,761 Settlement package 17,898 Provision for loss on litigation 32,320 Loss before Income Taxes 473,549 Corporate income, inhabitant and business taxes 2,861 Adjustment to income taxes 53,471 Net Loss 529,881 (Note) Fractions rounded down to the nearest million yen. - 17 -
[Attachment 7] STATEMENT OF CHANGES IN NET ASSETS (based on non-consolidated results) (From April 1, 2012 to March 31, 2013) (Millions of Yen) Capital Surplus Owners Equity Retained Earnings Other Retained Earnings Common Stock Capital Reserve Other Capital Surplus Total Capital Surplus Legal Reserve Reserve for Special Depreciation Reserve for Deferred Gains on Fixed Assets Reserve for Severance Payment General Reserve Retained Earnings Carried Forward Total Retained Earnings Balance at April 1, 2012 204,675 261,415 7,112 268,527 26,115 5,303 4,395 1,756 423,950-340,584 120,934 Changes of items during the period Issuance of new shares 7,661 7,661 7,661 Reversal of reserve for special depreciation -3,834 3,834 Reversal of reserve for advanced depreciation -103 103 on non-current assets Reversal of general reserve -347,000 347,000 Payment of surplus dividend -5,501-5,501 Net loss -529,881-529,881 Purchase of treasury stock Disposal of treasury stock -10-10 Net changes of items other than owners' equity Total changes of items during the period 7,661 7,661-10 7,650-3,834-103 -347,000-184,445-535,382 Balance at March 31, 2013 212,336 269,076 7,101 276,178 26,115 1,469 4,292 1,756 76,950-525,030-414,448 Owners' Equity Valuation and Translation Adjustments Treasury Stock Total Owners' Equity Net Unrealized Holding Deferred Gains (Losses) Total Valuation and Total Net Assets Gains (Losses) on on Hedges Translation Adjustments Securities Balance at April 1, 2012-13,875 580,261 4,520-5,893-1,373 578,888 Changes of items during the period Issuance of new shares 15,322 15,322 Reversal of reserve for special depreciation Provision of reserve for deferred gains on fixed assets Provision of general reserve Payment of surplus dividend -5,501-5,501 Net loss -529,881-529,881 Purchase of treasury stock -9-9 -9 Disposal of treasury stock 13 2 2 Net changes of items other than owners' equity 596 5,310 5, 907 5,907 Total changes of items during the period 3-520,066 596 5,310 5, 907-514,159 Balance at March 31, 2013-13,872 60,194 5,116-583 4,533 64,728 (Notes) Fractions rounded down to the nearest million yen. - 18 -
[Attachment 8] Individual Explanatory Notes (Notes concerning Matters relating to Material Accounting Policies) 1. Valuation Standards and Methods for Assets (1) Valuation Standards and Methods for Securities Shares of Subsidiaries and Affiliates: Stated at average cost. Other securities Securities with available fair market values: Stated at fair market value based on average of market price during the last month of the fiscal year (valuation differences are disposed using the direct net asset adjustment method and the cost of securities sold is calculated using the average cost method). Securities with no available fair market value: Stated at average cost. (2) Valuation Standards and Methods for Inventories Finished products, raw materials and work in process: Stated at moving average cost (for the book value of inventories on the balance sheets, by writing inventories down based on their decrease in profitability of assets). Supplies: Stated at the current production and purchase costs. 2. Depreciation Methods Used for Non-current Assets Tangible Fixed Assets: (1) Method of Depreciation for Property, Plant and Equipment (Except for Lease Assets) Depreciation of plant and equipment is based on the declining balance method, except for machinery and equipment in the Mie and Kameyama Plants, which are depreciated on the straight-line method. However, buildings (excluding annexed structures) obtained on or after April 1, 1998 are depreciated on the straight-line method. (2) Method of Amortization for Intangible Fixed Assets (Except for Lease Assets) Amortization is based on the straight-line method. Software used by Sharp is amortized by the straight-line method over an estimated useful life of principally five (5) years, however, software embedded in products is amortized over the forecasted sales quantity. (3) Method of Depreciation for Lease Assets Finance leases that do not transfer ownership Depreciation is based on the straight-line method that takes the lease period as the depreciable life and the residual value as zero (0). Regarding finance leases of Sharp that do not transfer ownership, for which the starting date for the lease transaction is prior to March 31, 2008, lease payments are recognized as expenses. - 19 -
3. Accounting Standard for Allowances and Reserves (1) Allowance for Doubtful Receivables The estimated amounts of allowance for general receivables are determined based on the past credit loss ratio. For particular receivables, including those from debtors at risk of bankruptcy, the allowance is provided for individually estimated unrecoverable amounts. This procedure is made against possible credit loss. (2) Accrued Employees Bonuses The reserve for payment of employees bonuses is set aside based on estimated amounts to be paid in the subsequent period. (3) Accrued Product Warranty Estimated amounts of warranty are accrued based on the past experience. This procedure is made against expense for after-sales service within the warranty period. (4) Provision for Loss on Litigation Out of possible future loss on litigation, the amount to be considered necessary is estimated. (5) Allowance for Severance and Pension Benefits To provide for employees severance and pension benefits, reserves are set aside based on the estimated amounts of projected benefit obligation and the fair value of plan assets at the end of this fiscal year. Prior service costs are amortized over the average of the estimated remaining service lives [sixteen (16) years]. Actuarial losses are recognized primarily in expenses over the average of estimated remaining service lives [sixteen (16) years] commencing with the following period. 4. Other Important Matters Presented in Financial Statements (1) Method for Amortization for Deferred Assets Bond Issue Cost: Bond issue cost is amortized under the straight-line method over the redemption period (2) Accounting for Consumption Taxes, etc. The tax exclusion method is applied. (3) Adoption of Consolidated Tax Return System The consolidated tax return system is adopted. (Notes concerning Changes in Accounting Policies) Changes in accounting policies that are difficult to distinguish from changes in accounting estimates In accordance with the amendment of the Corporation Tax Law, effective from this fiscal year, Sharp has changed the depreciation method for those tangible fixed assets acquired on or after April 1, 2012. This change had an immaterial impact on financial statements. (Notes concerning Changes in Presentation Method) Concerning Balance Sheet (1) Short-term loans receivable from subsidiaries and affiliates is individually described in Current Assets due to its growing importance in this fiscal year, although 16,881 million yen was included in and described as Other current assets of Current Assets in the previous fiscal year. - 20 -
(2) Advance disbursement of 452 million yen in Current Assets is included in and described as Other current assets of Current Assets due to a decrease in its importance in this fiscal year, although it was individually described in Current Assets in the previous fiscal year. (3) Prepaid pension cost is individually described in Investments and Other Assets due to its growing importance in this fiscal year, although 22,956 million yen was included in and described as Other fixed assets of Investments and Other Assets in the previous fiscal year. (Notes to Balance Sheet) 1. Collateral Assets and Liabilities of the Collateral (1) Collateral Assets Notes receivable Accounts receivable Finished products Work in process Raw materials and supplies Non-trade accounts receivable Buildings Structures Machinery and equipment Tools and furniture Land Investment securities Investments in capital of subsidiaries and affiliates Total (2) Liabilities of the Collateral 24 million yen 99,952 million yen 50,313 million yen 76,209 million yen 23,799 million yen 6,499 million yen 226,565 million yen 9,570 million yen 32,369 million yen 3,075 million yen 87,515 million yen 39,878 million yen 4,532 million yen 660,307 million yen Short-term borrowings 309,974 million yen A part of the above-mentioned collateral assets is pledged as collateral of 50,000 million yen, which is not provided, out of maximum 180,000 million yen of uncommitted credit facility under loan contract on September 27, 2012. In addition, Capital invested in affiliates of 4,532 million yen is pledged as collateral of 20,393 million yen long-term borrowings of affiliates. 2. Accumulated depreciation of tangible fixed assets 1,812,333 million yen 3. (1)Guarantee Liability Guarantee for employee housing borrowing Guarantee for bank loans P.T. Sharp Semiconductor Indonesia Total 23,103 million yen 235 million yen 23,338 million yen (2)Letter of Comfort on Management Advice This is an agreement with subsidiaries for the purpose of complementing the credibility of such subsidiaries. Sharp International Finance (U.K.) Plc. 5,000 million yen 4. Short-term monetary claims to subsidiaries and affiliates 276,271 million yen Long-term monetary claims to subsidiaries and affiliates 990 million yen Short-term monetary liabilities to subsidiaries and affiliates 156,684 million yen Long-term monetary liabilities to subsidiaries and affiliates 11,938 million yen - 21 -
5. Others In relation to TFT-LCD business, Sharp and some of its subsidiaries are currently subject to the investigations being conducted by the Directorate General for Competition of the European Commission etc., and civil lawsuits seeking monetary damages resulting from the alleged anticompetitive behavior have been filed against Sharp and some of its subsidiaries in North America and Europe. Sharp received a cease and desist order and an administrative surcharge payment order from the Japan Fair Trade Commission. However, Sharp has submitted a complaint to the Japan Fair Trade Commission, which is currently pending. (Notes to Statement of Income) 1. Amount of sales to affiliates 1,118,758 million yen Amount of goods purchased from affiliates 901,514 million yen Amount of transactions with affiliates other than business transactions 53,636 million yen 2. Details of Impairment Loss Category Item Department and Location Assets for business use (Production equipment of LCD panels, etc.) Assets for business use (Production equipment of audio-visual equipment, etc.) Buildings, Machinery and equipment, Long-term prepaid expenses, etc. Buildings, Long-term prepaid expenses, etc. Display Device Business Division Kameyama, Mie prefecture Digital Information Appliance Division Yaita, Tochigi prefecture Sharp categorizes for business use in view of business facility, type of business and others in a comprehensive manner. Idle assets are categorized by each asset. Sharp reduced the book value of production equipment of LCD panels and audio-visual equipment to an estimated recoverable amount due to the decreasing profitability and the unlikelihood of recouping investment, and recognized the decreased amount of 47,396 million yen as an impairment loss in special loss in this fiscal year. Details are as follows: 12,688 million yen, for buildings; 16,415 million yen, for machinery and equipment; 13,136 million yen, for long-term prepaid expenses; 5,155 million yen, for others. 3. Restructuring Charges Details of Restructuring Charges are as follows: (1) This concerns LCD business and comprises costs of 3,257 million yen incurred for maintenance of inactive fixed assets caused in Sharp, along with improving production to meet the increasing demand for high value-added products. (2) This mainly concerns reduction of production of Sharp s Large-size LCD panels and comprises the loss on valuation of inventories of 53,467 million yen. (3) This mainly concerns a structural switch of Solar Cells business and comprises costs of 26,686 million yen incurred to impairment loss on fixed assets. Category Item Department and Location Idle Assets Buildings, Lease assets, Long-term prepaid expenses, etc. - 22 - Solar Systems Division Katsuragi, Nara prefecture Toyama, Toyama prefecture, etc. Sharp categorizes assets for business use in view of business facility, type of business and others in a comprehensive manner. Idle assets are categorized by each asset. Sharp reduced the book value of idle and unused-in-the-future production equipment of thin-film solar cells to an estimated recoverable amount, and recognized the decreased amount of 26,686 million yen as a restructuring charge included in special loss in this fiscal year.