Annual Reports

  • 20-F (Jun 28, 2017)
  • 20-F (Jun 27, 2016)
  • 20-F (Jun 30, 2015)
  • 20-F (Jun 30, 2014)
  • 20-F (Jun 28, 2013)
  • 20-F (Jun 29, 2012)

 
8-K

 
Other

Kyocera 20-F 2008

Documents found in this filing:

  1. 20-F
  2. Ex-12.1
  3. Ex-12.2
  4. Ex-13.1
  5. Ex-13.2
  6. Ex-15.1
  7. Ex-15.1
Annual Report
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 20-F

 

 

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2008

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from                      to                     

Commission file number: 1-7952

 

 

Kyocera Kabushiki Kaisha

(Exact name of Registrant as specified in its charter)

Kyocera Corporation

(Translation of Registrant’s name into English)

 

 

 

Japan  

6, Takeda, Tobadono-cho, Fushimi-ku,

Kyoto 612-8501, Japan

(Jurisdiction of incorporation or organization)   (Address of principal executive offices)

Shoich Aoki, +81-75-604-3632, shoichi.aoki.xm@kyocera.jp, +81-75-604-3557,

6, Takeda, Tobadono-cho, Fushimi-ku, Kyoto 612-8501, Japan

(Name, Telephone, E-mail and/Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of Each Class

 

Name of Each Exchange On Which Registered

Common Stock (Shares)*

  New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of March 31, 2008, 189,454,171 shares of common stock were outstanding, comprised of 181,244,116 Shares and 8,210,055 American Depositary Shares (equivalent to 8,210,055 Shares).

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer  x                     Accelerated filer  ¨                     Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  x    International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨    Other   ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  ¨

If this is an annual report, indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

* Not for trading, but only in connection with the registration of the American Depositary Shares, each representing one share of Common Stock.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page

Cautionary Statement Regarding Forward-Looking Statements

   4

PART I

   6

Item 1.    Identity of Directors, Senior Management and Advisers

   6

Item 2.    Offer Statistics and Expected Timetable

   6

Item 3.    Key Information

   6

A. Selected Financial Data

   6

B. Capitalization and Indebtedness

   7

C. Reasons for the Offer and Use of Proceeds

   7

D. Risk Factors

   7

Item 4.    Information on Kyocera Corporation and its Consolidated Subsidiaries

   12

A. History and Development of Kyocera Corporation and its Consolidated Subsidiaries

   12

B. Business Overview

   14

C. Organizational Structure

   24

D. Property, Plants and Equipment

   27

Item 4A. Unresolved Staff Comments

   29

Item 5.    Operating and Financial Review and Prospects

   29

A. Operating Results

   29

B. Liquidity and Capital Resources

   53

C. Research and Development Activities

   57

D. Trend Information

   59

E. Off-Balance Sheet Arrangements

   59

F. Tabular Disclosure of Contractual Obligations

   60

Item 6.    Directors, Senior Management and Employees

   60

A. Directors and Senior Management

   60

B. Compensation

   65

C. Board Practices

   65

D. Employees

   66

E. Share Ownership

   66

Item 7.    Major Shareholders and Related Party Transactions

   70

A. Major Shareholders

   70

B. Related Party Transactions

   71

C. Interests of Experts and Counsel

   71

Item 8.    Financial Information

   71

A. Consolidated Statements and Other Financial Information

   71

B. Significant Changes

   71

Item 9.    The Offer and Listing

   72

A. Offering and Listing Details

   72

B. Plan of Distribution

   73

C. Markets

   73

D. Selling Shareholders

   73

E. Dilution

   73

F. Expenses of the Issue

   73

Item 10.    Additional Information

   73

A. Share Capital

   73

B. Memorandum and Articles of Association

   73

C. Material Contracts

   83

D. Exchange Controls

   83

E. Taxation

   83

 

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     Page

F. Dividends and Paying Agents

   87

G. Statement by Experts

   88

H. Documents on Display

   88

I. Subsidiary Information

   88

Item 11.    Quantitative and Qualitative Disclosures about Market Risk

   88

Item 12.    Description of Securities Other Than Equity Securities

   90

PART II

   91

Item 13.    Defaults, Dividend Arrearages and Delinquencies

   91

Item 14.    Material Modification to Rights of Security Holders and Use of Proceeds

   91

Item 15.    Controls and Procedures

   91

Item 16A. Audit Committee Financial Expert

   91

Item 16B. Code of Ethics

   92

Item 16C. Principal Accountant Fees and Services

   92

Item 16D. Exemption from the Listing Standards for Audit Committees

   93

Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers

   95

PART IV

   96

Item 17.    Financial Statements

   96

Item 18.    Financial Statements

   96

Item 19.    Exhibits

   97

 

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Cautionary Statement Regarding Forward-Looking Statements

This annual report on Form 20-F contains “forward-looking statements” within the meaning of Section 21E of the U.S. Securities and Exchange Act of 1934. To the extent that statements in this annual report on Form 20-F do not relate strictly to historical or current facts, they may constitute forward-looking statements. These forward-looking statements are based upon our current assumptions and beliefs in the light of the information currently available to us, but involve known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors may cause our actual actions or results to differ materially from those discussed in or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statement after the date of this annual report on Form 20-F, but investors are advised to consult any further disclosures by us in our subsequent filings pursuant to the U.S. Securities Exchange Act of 1934.

Important risks, uncertainties and other factors that may cause our actual results to differ materially from our expectations are generally set forth in Item 3.D “Risk Factors” of this annual report on Form 20-F and include, without limitation:

 

   

general conditions in the Japanese or global economy;

 

   

unexpected changes in economic, political and legal conditions in China;

 

   

intense competitive pressures to which our products are subject;

 

   

manufacturing delays or defects resulting from outsourcing or internal manufacturing processes;

 

   

various export risks which may affect the significant percentage of our revenues derived from overseas sales;

 

   

the effect of foreign exchange fluctuations on our results of operations;

 

   

industry demand for skilled employees;

 

   

insufficient protection of our intellectual property;

 

   

expenses associated with licenses we require to continue to manufacture and sell products;

 

   

our research and development not producing desired results;

 

   

our market or supply chains being affected by terrorism, plague, wars or similar events;

 

   

earthquakes and other natural disasters affecting our headquarters and major facilities;

 

   

impairment losses on investments in equity securities;

 

   

our ability to launch innovative products and otherwise meet the advancing technical requirements of our customers, particularly in the highly competitive markets for ceramics, semiconductors and electronic components;

and other risks discussed under Item 3.D “Risk Factors” and elsewhere in this annual report on Form 20-F.

Presentation of Certain Information

As used in this annual report on Form 20-F, references to “Kyocera,” “we,” “our” and “us” are to Kyocera Corporation and, except as the context otherwise requires, its consolidated subsidiaries.

Also, as used in this annual report on Form 20-F:

 

   

“U.S. dollar” or “$” means the lawful currency of the United States of America, “yen” or “¥” means the lawful currency of Japan and “Euro” means the lawful currency of the European Union.

 

   

“U.S. GAAP” means accounting principles generally accepted in the United States of America, and “Japanese GAAP” means accounting principles generally accepted in Japan.

 

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“ADS” means an America Depositary Share, each representing one share of Kyocera’s common stock, and “ADR” means an American Depositary Receipt evidencing ADSs.

 

   

“fiscal 2008” refers to Kyocera’s fiscal year ended March 31, 2008, and other fiscal years are referred to in a corresponding manner.

 

   

Unless otherwise indicated, we have translated the yen amounts for the year ended March 31, 2008, as of March 31, 2008 and thereafter presented in this annual report on Form 20-F into U.S. dollars solely for your convenience. The rate we used for such translations was ¥100.00 = $1.00, which was the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2008, rounded to the nearest yen. These translations do not imply that the yen amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars.

 

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PART I

Item 1.    Identity of Directors, Senior Management and Advisers

Not Applicable.

Item 2.    Offer Statistics and Expected Timetable

Not Applicable.

Item 3.    Key Information

A. Selected Financial Data

The selected consolidated financial data set forth below for each of the five fiscal years ended March 31 have been derived from Kyocera’s consolidated financial statements that are prepared in accordance with accounting principles generally accepted in the United States of America.

You should read the U.S. GAAP selected consolidated financial data set forth below together with Item 5 “Operating and Financial Review and Prospects” and Kyocera’s Consolidated Financial Statements included in this annual report on Form 20-F.

 

     2004    2005    2006    2007    2008    2008
     (Yen in millions, U.S. dollars and shares in thousands, except per share amounts)

For the years ended March 31:

                 

Net sales

   ¥ 1,132,696    ¥ 1,173,660    ¥ 1,173,544    ¥ 1,283,897    ¥ 1,290,436    $ 12,904,360

Profit from operations

     104,810      97,660      99,695      135,102      152,420      1,524,200

Income from continuing operations

     63,357      42,657      66,088      101,329      107,244      1,072,440

Net income

     68,086      45,908      69,696      106,504      107,244      1,072,440

Earnings per share:

                 

Income from continuing operations:

                 

Basic

   ¥ 339.46    ¥ 227.52    ¥ 352.44    ¥ 538.52    ¥ 566.58    $ 5.67

Diluted

     339.45      227.47      352.21      537.35      565.80      5.66

Net income:

                 

Basic

     364.79      244.86      371.68      566.03      566.58      5.67

Diluted

     364.78      244.81      371.43      564.79      565.80      5.66

Weighted average number of shares outstanding:

                 

Basic

     186,643      187,489      187,514      188,160      189,283   

Diluted

     186,649      187,528      187,640      188,573      189,544   

Cash dividends declared per share:

                 

Per share of common stock

   ¥ 60    ¥ 80    ¥ 100    ¥ 110    ¥ 120   

Per share of common stock*

   $ 0.55    $ 0.74    $ 0.84    $ 0.91    $ 1.10   

At March 31:

                 

Total assets

   ¥ 1,794,758    ¥ 1,745,519    ¥ 1,931,522    ¥ 2,130,464    ¥ 1,976,746    $ 19,767,460

Long-term debt

     70,608      33,557      33,360      7,283      8,298      82,980

Common stock

     115,703      115,703      115,703      115,703      115,703      1,157,030

Stockholders’ equity

     1,150,453      1,174,851      1,289,077      1,514,560      1,451,165      14,511,650

Depreciation

   ¥ 60,745    ¥ 58,699    ¥ 62,942    ¥ 70,155    ¥ 75,630    $ 756,300

Capital expenditures

   ¥ 54,901    ¥ 63,160    ¥ 88,860    ¥ 69,896    ¥ 85,101    $ 851,010

 

* Translated into U.S. dollars based on the exchange rates at each payment date.

 

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Note: Kyocera sold all of its shares in Kyocera Leasing Co., Ltd., a subsidiary engaged in financing services; as a result, business results and profit on sale for Kyocera Leasing Co., Ltd. for fiscal 2007 have been recorded as income from discontinued operations in conformity with Statement of Financial Accounting Standards No.144, “Accounting for the impairment or disposal of Long-Lived Assets.” Figures for fiscal 2004, 2005 and 2006 have been retrospectively reclassified for comparative purposes.

The following table shows the exchange rates for Japanese yen per $1.00 based upon the noon buying rate in New York City for cash transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York:

 

For the years ended March 31,

       High            Low            Average            Period-end    

2004

   120.55    104.18    112.75    104.18

2005

   114.30    102.26    107.49    107.22

2006

   120.93    104.41    113.15    117.48

2007

   121.81    110.07    116.92    117.56

2008

   124.09    96.88    114.31    99.85

For most recent 6 months

                   

December 2007

   114.45    109.68    112.45    111.71

January 2008

   109.70    105.42    107.82    106.74

February 2008

   108.15    104.19    107.03    104.19

March 2008

   103.99    96.88    100.76    99.85

April 2008

   104.56    100.87    102.68    104.53

May 2008

   105.52    103.01    104.36    105.46

The noon buying rate for Japanese yen on June 27, 2008 was $1.00 = ¥106.28

B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.

D. Risk Factors

You should carefully read the risks described below before making an investment decision.

(1) The Japanese or global economy may significantly reduce demand for Kyocera’s products

In fiscal 2009, fears of a business slowdown are arising in the Japanese economy as a result of slumping demands in Japan such as housing investment, and rising energy and raw material prices. Furthermore, heightened fears of global economic deceleration are leading to growing concerns of a subsequent slowdown in demand for consumer equipment. As a result, the outlook for components demand has become increasingly uncertain. Kyocera is substantially dependent for its growth on parallel growth in the markets for semiconductors, mobile phone handsets and personal computer (PC) related equipment. These markets are adversely affected by demand in the electronics industry, which includes digital consumer equipment, and by sluggish consumer spending brought by economic recession.

 

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(2) Unexpected changes in economic, political and legal conditions in China, in which Kyocera is becoming increasingly active, may have an adverse effect on Kyocera’s business

Based on its expectation that the Chinese markets for telecommunication information related products, including electronic components, mobile phone handsets, PCs and PC peripherals will continue to grow continuously, Kyocera has been making substantial investments in new production and marketing facilities in China. Kyocera now has principal production facilities located in Shanghai, Dongguan, and Tianjin, and plans to make additional investments to increase production capacity at these sites and to concurrently increase its marketing and distribution capabilities in China. Although the Chinese economy has been growing at a rapid rate in recent years, and the central government has been increasingly utilizing market forces as opposed to central economic planning, growth has been uneven among various regions of the country and among various sectors of the economy. Unexpected changes in the central government’s economic policy or in the business climate, including those due to changes in institutional systems in various parts of the country, may adversely affect its telecommunication information related markets in which Kyocera seeks to manufacture and sell its products. In addition, China is in the process of developing a comprehensive system of laws and regulations dealing with economic matters, such as currency controls, and foreign corporations currently active in the country, such as Kyocera, face risks and uncertainties including enforcement of contractual terms, administrative intrusion by local governments and difficulty with expatriation of profits.

(3) Kyocera sells a diverse variety of products, and in each of its businesses Kyocera is subject to intense competitive pressures, including in terms of price, technological change, product development, quality and speed of delivery, and these pressures are likely to increase in the near term

Kyocera sells a wide variety of products and therefore faces a broad range of competitors from large international companies to relatively small, rapidly growing and highly specialized companies. Kyocera has a variety of businesses in different industries while many of its competitors specialize in one or more of these business areas. As a result, Kyocera may not fund or invest in certain of its businesses to the same degree as its competitors, or these competitors may have greater financial, technical, and marketing resources available to them than the portion of its business against which they compete. While some of the factors that drive competition vary by product area, price and speed of delivery are factors in all areas of Kyocera’s business. Price pressure has been intense, and thus Kyocera predicts that its production prices will continue to be lower over fiscal 2009 partly depending on the demand and competition situation. In production businesses in which Kyocera develops, produces and distributes specialized parts for its customers’ products, its competitive position depends significantly on being involved early in the process of creating a new product that fits its customers’ needs for each business. To maintain these competitive advantages, it is critical to maintaining close ties with customers so that Kyocera can ensure that it is able to meet required specifications and be the first supplier to create and deliver the product. Kyocera’s gross margins may be reduced if the environment changes in the way that Kyocera cannot maintain these important relationships with customers or market share or if it is forced in the future to further reduce prices in response to the actions of its competitors.

(4) Small manufacturing delays or defects resulting from outsourcing or internal manufacturing processes can adversely affect Kyocera’s production yields and operating results

Kyocera ordinarily outsources the fabrication of certain components and sub-assemblies of its products, often to sole source suppliers or a limited number of suppliers. Kyocera has experienced occasional delays in obtaining components and sub-assemblies because the manufacturing process for these items is very complex and requires a long lead-time. Kyocera’s revenues derived from sales of these products will be materially and adversely affected if Kyocera is unable to obtain a high quality, reliable and timely supply of these components and sub-assemblies. In addition, any reduction in the precision of these components will result in sub-standard end products and will cause delays and interruptions in Kyocera’s production cycle.

Within Kyocera’s manufacturing facilities, minute impurities, difficulties in the production process or other factors can cause a substantial percentage of its products to be rejected or non-functional. These factors can result

 

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in lower than expected production yields, which delay product shipments and may materially and adversely affect Kyocera’s operating results. Because the majority of Kyocera’s costs of manufacture are relatively fixed, production yield and capacity utilization rate are critical to its financial results.

(5) Since a significant percentage of Kyocera’s revenues has been derived from foreign sales in recent years, various export risks may disproportionately affect its revenues

Kyocera’s sales to customers located outside Japan accounted for 60.6% of its total revenues in fiscal 2008. Kyocera believes that overseas sales will continue to account for a significant percentage of its revenues. Therefore, the following export risks may disproportionately affect Kyocera’s revenues:

 

   

a strong yen may make Kyocera’s products less attractive to foreign purchasers;

 

   

political and economic instability or significant economic downturns may inhibit export of Kyocera’s products;

 

   

Kyocera may experience difficulties in the timeliness of collection of accounts receivable due from foreign customers and be forced to write off those receivables;

 

   

tariffs and other barriers may make Kyocera’s products less cost competitive;

 

   

shipping and handling costs of Kyocera’s products may increase;

 

   

Kyocera may have difficulty in staffing and managing its international operations; and

 

   

the laws of certain foreign countries may not adequately protect Kyocera’s trade secrets and intellectual property.

(6) Currency exchange rate fluctuations could adversely affect Kyocera’s financial results

Kyocera conducts business in countries outside of Japan, which exposes it to fluctuations in foreign currency exchange rates. Kyocera may enter into short-term forward exchange transaction to hedge this risk according to its outlook on future exchange rates; nevertheless, fluctuations in foreign currency exchange rates could have an adverse effect on its business. Fluctuations in foreign currency exchange rates may affect its results of operations and the value of its foreign assets, which in turn may adversely affect reported earnings and the comparability of period-to-period results of operations. Changes in currency exchange rates may affect the relative prices at which Kyocera and foreign competitors sell products in the same market. In addition, changes in the value of the relevant currencies may affect the cost of imported items required in its operations.

(7) Industry demand for skilled employees, particularly engineering and technical personnel, exceeds the number of personnel available

Kyocera’s future success depends, in part, on its ability to attract and retain certain key personnel, including engineering, operational and management personnel. Kyocera anticipates that it will need to hire additional skilled personnel in all areas of its business. The competition for attracting and retaining these employees, especially engineers in key fields, including software design in telecommunications, is intense. Because of this intense competition for these skilled employees, Kyocera may be unable to retain its existing personnel or attract additional qualified employees in the future.

(8) Insufficient protection of Kyocera’s trade secrets and patents could have a significant adverse impact on its competitive position

Kyocera’s success and competitive position depend on protecting its trade secrets and other intellectual property. Kyocera’s strategy is to rely both on trade secrets and patents to protect its manufacturing and sales processes and products, but reliance on trade secrets is only an effective business practice insofar as trade secrets remain undisclosed and a proprietary product or process is not reverse engineered or independently developed. Kyocera

 

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takes certain measures to protect its trade secrets, including executing nondisclosure agreements with certain of its employees, joint venture partners, customers and suppliers. If parties breach these agreements or the measures Kyocera takes are not properly implemented, Kyocera may not have an adequate remedy. Disclosure of its trade secrets or reverse engineering of its proprietary products, processes or devices could materially and adversely affect its business, financial condition and results of operations.

Kyocera is actively pursuing patents on some of its recent inventions, but these patents may not be issued. Even if these patents are issued, they may be challenged, invalidated or circumvented. In addition, the laws of certain other countries may not protect Kyocera’s intellectual property to the same extent as Japanese laws.

(9) Kyocera may require licenses to continue to manufacture and sell certain of its products, the expense of which may adversely affect its results of operations

From time to time Kyocera has received, and may receive in the future, notice of claims of infringement of other parties’ proprietary rights and licensing offers to commercialize third party patent rights. Although Kyocera is not currently involved in any litigations relating to its intellectual property except in the ordinary course of its business, Kyocera cannot assure that:

 

   

infringement claims (or claims for indemnification resulting from infringement claims) will not be asserted against Kyocera,

 

   

future assertions against Kyocera will not result in an injunction against the sale of infringing or allegedly infringing products or otherwise significantly impair its business and results of operations; or

 

   

Kyocera will not be required to obtain licenses, the expense of which may adversely affect its results of operations.

(10) Future initiatives and in-process research and development may not produce the desired results

Kyocera intends to expand its product lines to satisfy customer demand in its target markets. Unexpected technical delays in completing these initiatives could lengthen development schedules and result in lower revenues based on the products or technologies developed from these initiatives. There can be no assurance that the products derived from Kyocera’s in-process research and development activities will achieve market acceptance.

(11) Companies or assets acquired by Kyocera may require more cost than expected for integration, and may not produce returns or benefits, or bring in business opportunities, which Kyocera expects

In the course of developing its business, from time to time Kyocera considers opportunities to acquire, and undertakes the acquisition of, companies or assets through mergers and acquisitions. There can be no assurance that Kyocera will be able to integrate the operations, products and personnel of the acquired companies with its own in an efficient manner. Nor can there be any assurance that Kyocera will be able to achieve operational and financial returns or benefits, or bring in new business opportunities, which it expects from the acquisition. An acquired company may not be able to manufacture products or offer services in the amounts or at the efficiency levels that Kyocera plans, and the demand for such products or services may not be at the levels that Kyocera anticipates. Failure to succeed in acquisitions could have a material adverse effect on Kyocera’s business.

(12) Kyocera’s markets or supply chains may be adversely affected by terrorism, plague, wars or similar events

Kyocera as a global company has been expanding its business worldwide. At the same time, we will be exposed to risks of our getting involved in terrorism, plague, war and other similar events. In the case that those events occur, Kyocera’s operating activities would be suspended. Furthermore, there would be delay, disorder or suspension in Kyocera’s R&D, manufacturing, sales and services. If such delay or disruption occurs and continues for a long period of time, Kyocera’s business, financial condition and results of operations may be adversely affected.

 

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(13) Kyocera’s headquarters and major facilities are subject to devastating effects of earthquakes and other natural disasters

Kyocera’s headquarters and major facilities including plants, sales offices and R&D centre are located not only in Japan but also all over the world. It might be inevitable that Kyocera would suffer from natural disasters such as earthquakes, typhoons, floods and so on. For instance, if a strong earthquake occurs, Kyocera’s R&D or manufacturing facilities could be devastated. In this case, Kyocera’s operating activities would be suspended and manufacturing and shipment would be delayed. Due to this, Kyocera would lose its sales and profits. Furthermore, Kyocera may incur a great amount of expenses, such as medical care expenses for injured employees and damage expenses for the damaged machines or facilities. As a consequence, Kyocera’s operating result and financial condition may be adversely affected.

(14) Changes in our environmental liability and compliance obligations may adversely impact our operations

Kyocera is subject to various environmental laws and regulations in Japan and the other countries, which are related to air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals used or generated in our manufacturing process, employee health and safety, labeling or other notifications with respect to the content or other aspects of our processes, products or packaging, restrictions on the use of certain materials in or on design aspects of our products or product packaging, and responsibility for disposal of products or product packaging. As well as our current operations, these laws and regulations can be applied to our past operations and may be applicable to the past operations of businesses acquired from other companies even if such operations occurred before our acquisitions. In addition, these laws and regulations which are applied to Kyocera can be more stringent or the scope of the laws and regulations can be broadened in the future. We establish reserves for specifically identified potential environmental liabilities when such liabilities are probable and can be reasonably estimated. In case we fail to comply with such laws and regulations, we could be required by the relevant governmental organizations to pay penalty costs or remediation compensation. Furthermore, we may make voluntary payments to compensate for environmental problems if we deem such compensation to be necessary. The cost obligations noted above may adversely affect our results of operations and financial positions.

(15) Kyocera may have to incur impairment losses on its investments in debt and equity securities

Kyocera holds investments in equity securities of companies not affiliated with itself, which Kyocera generally holds on a long-term basis for business relationship purposes. A substantial portion of these investments consists of shares of common stock of public companies in Japan, including KDDI Corporation (a Japanese telecommunication service provider), and Japanese financial institutions. As of March 31, 2008, the aggregate fair value of equity securities included in available-for-sale securities was ¥386,162 million ($3,862 million), with gross unrealized gains in the amount of ¥113,327 million ($1,133 million) and gross unrealized losses in the amount of ¥3,149 million ($31 million). If there is a decline in the fair value, i.e., the market price, of the shares Kyocera holds in those companies over a period of time, and it determines that the decline is other-than-temporary, Kyocera will need to record an impairment loss for the applicable fiscal period. For some of the equity securities Kyocera owns, including the shares of KDDI Corporation, Kyocera intends to keep its ownership at the current level in light of the importance of its business relationships with the issuers of these equity securities. For other equity securities in its portfolio, although, with periodical check, Kyocera may dispose of some securities which lack merit for Kyocera, market conditions may not permit it to do so at the time, speed or price it may wish.

(16) As a holder of ADSs, you will have fewer rights than a shareholder has and you will have to act through the depositary to exercise those rights

The rights of shareholders under Japanese law to take various actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining a company’s accounting books and records and exercising appraisal rights, are available only to holders of record. Because the depositary, through its

 

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custodian agents, is the record holder of the Shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited Shares. The depositary will make efforts to vote the Shares underlying your ADSs as instructed by you and will pay to you the dividends and distributions collected from us. However, in your capacity as an ADS holder, you will not be able to bring a derivative action, examine our accounting books and records or exercise appraisal rights through the depositary.

(17) Rights of shareholders under Japanese law may be more limited than under the law of other jurisdictions

Our Articles of Incorporation, Regulations of the Board of Directors, Regulations of the Board of Corporate Auditors and the Corporation Act of Japan govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from those that would apply if we were a U.S. company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of the United States. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a U.S. corporation. In addition, Japanese courts may not be willing to enforce liabilities against us in actions brought in Japan which are based upon the securities laws of the United States or any U.S. state.

(18) Because of daily price range limitations under Japanese stock exchange rules, you may not be able to sell your shares of our Common Stock at a particular price on any particular trading day, or at all

Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.

(19) Foreign exchange fluctuations may affect the dollar value of our ADSs and dividends payable to holders of our ADSs

Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.

Item 4.     Information on Kyocera Corporation and its Consolidated Subsidiaries

A. History and Development of Kyocera Corporation and its Consolidated Subsidiaries

Kyocera Corporation is a joint stock corporation that was incorporated under the laws of Japan in 1959 with the name Kyoto Ceramic Kabushiki Kaisha. Its name was changed to Kyocera Kabushiki Kaisha (or Kyocera Corporation) in 1982. Our corporate headquarters is at 6 Takeda Tobadono-cho, Fushimi-ku, Kyoto 612-8501, Japan. Our telephone number is +81-75-604-3500.

Our business originally consisted of the manufacture of ceramic parts for electronic equipment. In the 1960s, we expanded our business and technology horizontally into the design and production of fine ceramic parts, ceramic integrated circuit (IC) packages and electronic components. In the 1970s, we began to produce consumer-related products, including cutting tools, ceramics for medical and dental uses, jewelry and solar energy products.

In the 1980s, we diversified into new strategic fields. In 1982, we merged with Cybernet Electronics Corporation, a telecommunications equipment manufacturer in which we had made an equity investment three years earlier. We expanded into another new business through the acquisition of Yashica Co., Ltd., a camera and camera lens

 

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manufacturer. We also played a leading role in the establishment of DDI Corporation (currently KDDI Corporation), which has become one of Japan’s leading providers of telecommunications services. In 1989, we gained a presence in the electronic connector market through our acquisition of Elco International Corporation (currently Kyocera Elco Corporation).

In the 1990s, we strengthened our position as an internationally integrated electronic components manufacturer through our acquisition of AVX Corporation, a maker of capacitors and other passive electronic components, in January 1990.

In the middle of the 1990s, Kyocera developed two main business categories, “the Components Business,” in which Kyocera provides parts and devices such as fine ceramics parts, semiconductor parts, applied ceramic products and electronic components and devices to mainly electronic equipment manufacturers in IT industrial fields, and “the Equipment Business,” in which Kyocera manufactures and sells telecommunications and information equipment and optical instruments, such as mobile handsets, PHS-related products, copier machines, multifunctional systems, ECOSYS printers and digital still cameras to distributors or directly to customers.

Since 2000, we have further enhanced our position as a market leader in telecommunications and information equipment. In February 2000, we acquired the code division multiple access (CDMA) mobile phone handset business from QUALCOMM Inc. to create our U.S. subsidiary, Kyocera Wireless Corp. In April 2000, we invested in Kyocera Mita Corporation, a manufacturer of copier machines and other document solutions equipment, and made it a wholly-owned subsidiary, and in April 2002, we transferred Kyocera Corporation’s printer business to Kyocera Mita Corporation to further enhance our information equipment business by pursuing group synergies.

In addition, we also strengthened the components business resources to become a leading company in IT-related applications. In August 2002, we made Toshiba Chemical Corporation (currently Kyocera Chemical Corporation) a wholly-owned subsidiary through a share exchange in order to reinforce our electronic components and materials businesses by pursuing group synergies between fine chemical technologies and fine ceramic technologies.

With the aim of becoming a more global enterprise and enhancing our profitability, we have been expanding our production in China through Chinese production bases located in Shanghai and Dongguan. Kyocera also established a sales company, Kyocera (Tianjin) Sales and Trading Corporation, in March 2003 to cultivate the Chinese market. We are enhancing our marketing ability for both our products manufactured in China as well as our products imported into China. In addition, we established a subsidiary, Kyocera (Tianjin) Solar Energy Co., Ltd. to assemble solar modules, production of which commenced in November 2003, and to respond to market needs swiftly.

In August 2003, we made Kinseki, Limited (currently Kyocera Kinseki Corporation), a major producer of artificial crystal-related products, a wholly-owned subsidiary through a share exchange to strengthen our Electronic Device Group. In addition, to further enhance our organic circuit board business by pursuing group synergies, we also entered into an agreement with IBM Corporation and IBM Japan, Ltd. for the transfer from IBM Japan to Kyocera of its Surface Laminar Circuitry (SLC) business and we completed the transfer of IBM Japan’s SLC business from IBM Japan to a newly-established wholly-owned subsidiary, Kyocera SLC Technologies Corporation in August 2003. In April 2004, Kyocera integrated the organic material components business into Kyocera SLC Technologies Corporation and the marketing division of Kyocera Kinseki Corporation was merged into the marketing division of the electronic components of Kyocera Corporation and the manufacturing division of crystal related components of Kyocera Corporation was transferred to Kyocera Kinseki Corporation through corporate splits.

In September 2004, Kyocera and Kobe Steel, Ltd. established Japan Medical Materials Corporation and Kyocera Corporation transferred its medical materials business to Japan Medical Materials Corporation through corporate splits. The shareholding ratios of Kyocera and Kobe Steel in Japan Medical Materials Corporation are 77% and 23%, respectively.

 

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In October 2004, Kyocera Corporation invested in WILLCOM, Inc. which succeeded the PHS-related business of DDI Pocket, Inc. The investment in WILLCOM, Inc. will enhance our PHS-related business.

To meet with strong demand for solar energy products, Kyocera established Kyocera Solar Europe S.R.O. for the assembling of solar modules in the Czech Republic in April 2005.

In August 2006, Kyocera sold all of its shares in Kyocera Leasing Co., Ltd. to Diamond Lease Company Limited (presently Mitsubishi UFJ Lease & Finance Company Limited). The sale concentrated our management resources on our core businesses in order to enhance and improve our corporate value.

In January 2008, Kyocera executed an agreement regarding the acquisition of the mobile phone-related business of SANYO Electric Co., Ltd. to improve the profitability of the Telecommunications Equipment Group. In April 2008, Kyocera acquired the mobile-phone related business of SANYO Electric Co., Ltd.

For a discussion of recent and current capital expenditures, please see Item 5 “Operating and Financial Review and Prospects” of this annual report on Form 20-F. We have had no recent significant divestitures nor are any significant divestitures currently being made.

B. Business Overview

Overview

Kyocera is engaged in numerous high-tech fields, from fine ceramic components to electronics devices, equipment, services and networks. Our manufacturing and distribution operations are conducted worldwide. As of March 31, 2008, we had 146 subsidiaries and 3 affiliates outside Japan and 30 subsidiaries and 7 affiliates in Japan. Our customers include individuals, corporations, governments and governmental agencies. For information on our sales by category of activity and information on our sales by geographic area and product segment, see Item 5.A “Operating Results” of this annual report on Form 20-F.

Business Strategy

Kyocera aims to be respected by society as “The Company,” a model company in the field of corporate ethics, while maintaining continuous sales growth and high profitability. To achieve this management vision, Kyocera’s management policy is to expand business further in order to be “a creative company that continues to grow.” In order to implement this policy, Kyocera aims to increase corporate value by expanding businesses, namely by promoting efficient use of management resources and further strengthening consolidated group management.

<Target of Pre-tax Income to Net Sales Ratio>

To be “a creative company that continues to grow,” Kyocera aims to achieve its target of a pre-tax income ratio of 15% or higher.

<Medium Term Management Strategy>

Kyocera promotes “high-value-added diversification” as its management strategy to realize such management policy. This involves ensuring that each business is highly profitable and pursuing synergies within Kyocera with the objective of driving sustainable growth even in an ever-changing business environment.

Specifically, Kyocera aims to: 1) exploit competitive advantages; 2) strengthen existing businesses; and 3) create new businesses.

 

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(1) Exploit competitive advantages

The “Kyocera Philosophy,” which places people’s hearts at its core, the “Amoeba Management” system, which is unique to Kyocera and has been a driving force for growth since Kyocera Corporation’s earliest days, and a strong financial structure, are sources of competitive advantage for Kyocera over other companies in implementing its diversification strategy. With these foundations firmly in place, Kyocera endeavors to strengthen competitiveness in technological development, sales and marketing in the high-growth potential markets for telecommunications and information processing and for environmental protection, and to translate diversification strategy into improved business performance.

(2) Strengthen existing businesses

Kyocera strives to continuously improve profitability in all existing businesses within Kyocera Group. By strengthening ties and maximizing synergies between headquarters Kyocera Corporation and Kyocera Group companies, Kyocera seeks to improve profitability in each business segment on a consolidated basis. In promoting a global strategy in each business, Kyocera has created development, manufacturing and sales systems in optimal locations, while the integration of Group-wide resources helps boost the competitiveness of existing businesses. Kyocera regularly reviews those businesses that have lost market competitiveness and that show little promise of expansion going forward.

(3) Create new businesses

Kyocera endeavors to create businesses that will become its core going forward in order to improve consolidated performance over the medium term. To achieve this goal, Kyocera integrates Group-wide management resources to develop new technologies and products and create new markets. The focus of Kyocera’s business creation strategy lies in the markets for telecommunications and information processing and for environmental protection.

Challenges

Kyocera promotes “high-value-added diversification” as its medium-term management strategy to be “a creative company that continues to grow.” This involves ensuring that each business is highly profitable and pursuing synergies within Kyocera with the objective of driving sustainable growth even in an ever-changing business environment.

Kyocera faces the following challenges in fiscal 2009 onward, in light of the aforementioned medium-term management strategy.

(1) Improve profitability in the Telecommunications Equipment Group

Kyocera acquired the mobile phone business of SANYO Electric Co., Ltd. on April 1, 2008. As a result, the Telecommunications Equipment Group now generates the largest amount of sales among all of Kyocera’s reporting segments. Going forward, Kyocera seeks to achieve the following three goals as a means to swiftly improve profitability in such business: a) expand sales and improve profitability in the mobile phone market in North America; b) further expand market share and establish strong business foundations in the Japanese mobile phone market; and c) expand the wireless telecommunication systems business.

(2) Strengthen new product development and create new businesses

Kyocera promotes the development of small ceramics and organic packages in the Semiconductor Parts Group and electronic devices befitting sophisticated digital consumer equipment for the telecommunications and information processing market. Kyocera is also striving to increase the conversion efficiency of photovoltaic generating systems for the environmental preservation market. In addition, Kyocera seeks to create new

 

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businesses in key markets by leveraging its cutting-edge materials and components technologies amassed across departments within Kyocera. Specifically, Kyocera is pushing ahead with development aimed at quick commercialization of solid oxide fuel cells (SOFC) for household use by exploiting materials technology employed in fine ceramic parts.

Operations

Kyocera categorizes its operations into seven reporting segments: (1) Fine Ceramic Parts Group, (2) Semiconductor Parts Group, (3) Applied Ceramic Products Group, (4) Electronic Device Group, (5) Telecommunications Equipment Group, (6) Information Equipment Group, and (7) Others.

Our principal products and services offered in each reporting segment are shown below.

(1) Fine Ceramic Parts Group

Information & Telecommunication Components,

Sapphire Substrates,

Components for Semiconductor Processing Equipment,

Components for Liquid Crystal Displays Manufacturing Equipment,

Automotive Components,

General Industrial Ceramic Components

(2) Semiconductor Parts Group

Surface Mount Device (SMD) Ceramic Packages,

CCD/CMOS Sensor Ceramic Packages,

LSI Ceramic Packages,

Wireless Communication Device Packages,

Optical Communication Device Packages and Components,

Organic Multilayer Packages and Substrates

(3) Applied Ceramic Products Group

Residential and Industrial Solar Power Generating Systems,

Solar Cells and Modules

Cutting Tools,

Printed Circuit Board Micro Drills,

Jewelry and Applied Products,

Dental Implants, Artificial Bone and Joint Prosthesis

(4) Electronic Device Group

Ceramic Capacitors, Tantalum Capacitors,

Timing Devices (Temperature Compensated Crystal Oscillators (TCXOs), Crystal Units, Ceramic Resonators),

Surface Acoustic Wave (SAW) Filters,

RF Modules,

Connectors,

Thermal Printheads, LED Printheads,

Amorphous Silicon Photoreceptor Drums,

Liquid Crystal Displays (LCD)

(5) Telecommunications Equipment Group

CDMA Mobile Phone Handsets,

Personal Handy Phone System (PHS) Related Products (PHS Mobile Phone Handsets, PHS Base Stations, High Speed Wireless Data Transmission Systems)

 

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(6) Information Equipment Group

ECOSYS Printers,

Copying Machines,

Multifunctional Peripheral

(7) Others

Telecommunications Engineering Business,

Information and Communication Technology Business,

Management Consulting Business,

Chemical Materials for Electronic Components,

Electrical Insulators,

Synthetic Resin Molded Products,

Optical Components,

Hotel Business,

Realty Development Business,

Insurance Agent and Travel Agent Business

(1) Fine Ceramic Parts Group

Products in this reporting segment are widely used in the computing, telecommunications, automotive and various other industrial sectors. These products are made from a variety of ceramic materials, such as silicon carbide, silicon nitrides and zirconia as well as alumina, utilizing their characteristics of heat resistance, corrosion resistance and wear resistance.

Products Kyocera develops, manufactures and sells in this reporting segment include substrates, which are thin ceramic bases used by manufacturers for hybrid integrated circuit (IC) foundations. Kyocera also develops, manufactures and sells substrates for thermal printheads, ceramic/alumina tape substrates for thin film chip resistors, substrate for HDD thin film magnetic heads, sapphire substrates for LCD projectors and LEDs, components for LCD manufacturing equipment, components for semiconductor processing equipment, mechanical seals for pumps, engine components for the automobile industry, friction tight discs and thread guides for yarn texturing machines in the textile industry, rings for fishing rods, nozzles and parts for paper-making machinery.

(2) Semiconductor Parts Group

Kyocera develops, manufactures and sells inorganic (ceramic) and organic packages in this reporting segment.

Ceramic packages have the characteristics of being air and water tight and corrosion resistant, and also have the ability to dissipate heat efficiently. In addition, they have a superior capacity for use in high frequency and embedded passive components. Kyocera develops, manufactures and sells ceramic packages for IC or other semiconductor and electronic components.

The most common types of the ceramic packages Kyocera develops, manufactures and sells are multilayer packages, including surface mount device (SMD) ceramic packages and pin grid array packages, etc. Kyocera also develops, manufactures and sells optical communication device packages and ceramic parts for fiber-optic communications connectors. SMD ceramic packages are used for surface acoustic wave (SAW) filters and temperature compensated crystal oscillators (TCXOs), which are mostly inserted into mobile phone handsets. Pin grid array packages are used in MPUs and other logic ICs, and are principally inserted into information equipment and peripherals. Kyocera also develops, manufactures and sells ceramic packages for charge-coupled-devices (CCDs) and complementary metal oxide semiconductor (CMOS) devices, which are mainly used in camera-equipped mobile phone handsets and digital still cameras.

 

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In the organic package business, Kyocera established a specialized high density organic circuit board manufacturer, Kyocera SLC Technologies Corporation. Kyocera SLC Technologies Corporation develops, manufactures and sells system in a package (SiP) substrates used in mobile phone handsets and organic flip-chip packages for high-end application specific integrated circuits (ASICs). Kyocera SLC Technologies Corporation expects to increase sales of organic packages for MPUs and its peripheral devices used in digital consumer equipment.

(3) Applied Ceramic Products Group

This reporting segment consists of four product lines: 1) Solar Energy Products, 2) Cutting Tools, 3) Jewelry and Applied Ceramic Related Products, 4) Dental Implants, Artificial Bone and Joint Prosthesis.

1) Solar Energy Products

Kyocera develops, manufactures and sells solar cells and modules, applied solar cell products and residential and industrial solar power generating systems. We are expanding our solar cell and module production capacity in Japan and commenced assembly of solar modules by KYOCERA (Tianjin) Solar Energy Co., Ltd in China, which was established as our manufacture and sales subsidiary of solar modules in May 2003. In addition, Kyocera commenced assembly of solar module in KYOCERA Solar, Inc. Mexico Plant in Tijuana Mexico, for U.S market in October 2004. To increase sales in Europe, Kyocera also commenced assembly of solar module in Czech Republic in October 2005. Kyocera produces solar cells and modules in global quadripartite production system.

2) Cutting Tools

Kyocera develops, manufactures and sells cutting tools for metal processing in industrial production, particularly in the automotive industry. To expand its cutting tools business, Kyocera Corporation acquired Tycom Corporation (currently Kyocera Tycom Corporation, a consolidated subsidiary), which was a manufacturer of micro drill for printed circuit boards in the United States, in January 2001. Kyocera aims to be a market leader in the cutting tools business by pursuing synergies between Kyocera Tycom Corporation and Kyocera Corporation in worldwide manufacturing and sales channels.

3) Jewelry and Applied Ceramic Related Products

Recrystallized jewelry comprises mainly synthetic emeralds, alexandrines and rubies. These stones are manufactured using a single crystal growth technology developed by us, and are chemically and physically equivalent to natural stones. We introduced recrystallized jewelry products to meet consumer needs and to cultivate our sales network. Kyocera also produces and sells applied ceramic related products such as kitchen knives utilizing ceramic characteristics of wear resistance and corrosion resistance against acidity and alkalinity.

4) Dental Implants, Artificial Bone and Joint Prosthesis

Kyocera established Japan Medical Materials Corporation with Kobe Steel, Ltd. by integrating the medical material businesses in September 2004. Japan Medical Materials Corporation produces a wide range of products such as dental implants, artificial bone and joint prosthesis, artificial knee joint replacement systems, and ceramic materials helping heal hip fractures by combinations of material, processing technologies of ceramics and titanium alloys and integrating business resources such as development, manufacturing, marketing and sales channels with Kyocera and Kobe Steel, Ltd.

(4) Electronic Device Group

Kyocera develops, manufactures and sells high quality and cost competitive electronic components and devices for the telecommunications and information processing industry. This field creates demand for miniaturization, low voltage, high frequency and low energy consumption, and we develop, manufacture and sell high-value-

 

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added products such as miniature ceramic capacitors with high capacitance capacitors, tantalum capacitors, miniature timing devices like TCXOs, RF modules and connectors for mobile phone handsets and PCs. We also develop, manufacture and sell thin-film products such as thermal printheads, amorphous silicon photoreceptor drums and LCDs for audio visual electronic equipment, office automation equipment and industrial equipment.

We are strengthening our manufacturing and sales in China to enhance price competitiveness and to cultivate new markets. Shanghai Kyocera Electronics Co., Ltd. mainly produces ceramic capacitors. We aim to expand sales in China through the sales subsidiaries in China which markets our products made in China and around the world.

To expand this reporting segment business, we are pursuing the synergies with subsidiaries. AVX Corporation and its consolidated subsidiaries, which develops, manufactures and sells ceramic capacitors, tantalum capacitors and other passive components for telecommunications and information equipment, has a global manufacturing and sales network. AVX Corporation is a major contributor to our Electronic Device Group sales and pursue synergies with development and manufacturing in the ceramic capacitor business. In our timing device business, Kyocera Corporation acquired Kinseki, Limited (currently Kyocera Kinseki Corporation, a consolidated subsidiary) through a share exchange in August 2003. The marketing division of Kyocera Kinseki Corporation was merged into the marketing division of the electronic components of Kyocera Corporation and the manufacturing division of crystal related components of Kyocera Corporation was transferred to Kyocera Kinseki Corporation through corporate splits to pursue synergies in development, manufacturing and marketing in April 2004.

(5) Telecommunications Equipment Group

This reporting segment includes CDMA mobile phone handsets and PHS-related products such as PHS mobile phone handsets and base stations. These products are produced and distributed mainly for KDDI Corporation and WILLCOM, Inc., as well as for other U.S. telecommunication service providers. KDDI Corporation is a telecommunications service company, in which we made an equity investment when it was founded in 1984, when the telecommunications business, which had previously been monopolized by a national telephone company, was opened to private companies. KDDI Corporation and its subsidiaries are currently engaged in providing domestic, long distance, international telephone services and mobile phone services. WILLCOM, Inc. provides PHS services and Kyocera owns 30% of WILLCOM, Inc.

One of our major businesses in Telecommunications Equipment Group is the mobile phone handset business, and we focus on CDMA protocol. We acquired the CDMA mobile phone handset business of Qualcomm Inc. and established Kyocera Wireless Corp., a wholly-owned subsidiary in February 2000. In addition, we established Kyocera Wireless (INDIA) PVT. LTD., a subsidiary that developes software for CDMA mobile phone handsets, in June 2003.

In September 2005, we decided to outsource the manufacturing division of Kyocera Wireless Corp. to Flextronics International Ltd., a leading provider of electronics manufacturing services. With regard to the mobile phone handsets business, we expect to expand the CDMA mobile phone handsets business through the outsourcing and global development structure based in Japan, the United States and India.

The other major business in the Telecommunications Equipment Group is the PHS-related business. We are expanding this business by cultivating markets through the expansion of PHS technology. Specifically, we are promoting new PHS mobile phone handsets and base stations compatible with the high speed data transmission services offered in Japan. We also promote iBurst®, a wireless Internet system, which enable internet services to be used at broadband speed with wireless technology. By promoting these businesses in appropriate market, we expect to increase sales of PHS related products.

 

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With the objective of further enhancing the Telecommunications Equipment Group, Kyocera concluded a basic agreement with SANYO Electric Co., Ltd. in October 2007 and also concluded a final agreement in January 2008 regarding the acquisition of the mobile phone business of SANYO Electric Co., Ltd. by Kyocera. From fiscal 2009, through this acquisition, Kyocera seeks to expand sales and improve profitability in the Telecommunications Equipment Group by expanding its sales channels in North America and by integrating product development and design technologies of SANYO Electric Co., Ltd. with the management resources of Kyocera.

(6) Information Equipment Group

The major products in this reporting segment comprise page printers, copying machines and multifunctional peripheral. Our products are marketed under the name of “ECOSYS” with a focus on the concepts of long life cycle, ecology and economy, and which use our thin film products and amorphous silicon photoreceptor drums.

In April 2000, Kyocera Mita Corporation became our wholly-owned subsidiary. Kyocera Corporation’s ECOSYS printer unit was merged into this subsidiary, enabling us to build a unified presence in the document solutions business. Further efficiencies have resulted from the merger of our printer and copier sales operations with those of Kyocera Mita Corporation. We have enhanced our product line through the standardization of engines between the printers, copying machines and multifunctional systems. We established a new plant, Kyocera Mita Office Equipment (Dongguan) Co., Ltd in Dongguan, China due mainly to strengthen price competitiveness in December 2001.

We expect further strong demand for color ECOSYS printers, copying machines and multifunctional systems. We are focused on expanding our comprehensive color-capable product line up of ECOSYS printers, copying machines and multifunctional systems with original “ECOSYS” concepts as well as expanding monochrome products.

(7) Others

This reporting segment includes revenues from telecommunication network systems. This segment also develops, manufactures and sells electronic component materials, electric insulators and synthetic resin molded products.

Kyocera Communication Systems Co., Ltd. operates a total telecommunications network system business, from system development to design, construction and maintenance services.

Kyocera Communication Systems Co., Ltd. is also expanding data center services for mobile phone content distribution services and IT solutions services for business users by developing new products featuring network services as well as system integration services.

Kyocera Chemical Corporation, which joined Kyocera in August 2002, mainly produces electronic component materials. We will develop new products by pursuing the synergies with fine chemical technologies and our components technologies such as those employed by the Electronic Device Group.

In August 2006, Kyocera sold all of its shares in Kyocera Leasing Co., Ltd. to Diamond Lease Company Limited (presently Mitsubishi UFJ Lease & Finance Company Limited). The sale concentrated our management resources on our core businesses in order to enhance and improve our corporate value.

Sales and Distribution

Kyocera products are marketed worldwide by our sales personnel, as well as by sales companies within our group, and by independent distributors. We have regional sales and design application personnel in strategic locations to provide technical and sales support for customers and distributors. We believe that this combination of distribution channels leads to a high level of market penetration and efficient coverage of services for our customers.

 

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Most of the sales in the Fine Ceramic Parts Group, the Semiconductor Parts Group and the Electronic Device Group are made directly to component and equipment manufacturers who incorporate them into their own products.

In the Applied Ceramic Products Group, solar energy products for residential use and public/industrial use are sold primarily to users via sales subsidiaries and distributors. Cutting tools are sold to users such as automobile parts and construction machinery parts makers, etc. through wholesale dealers and distributors. Jewelry and applied ceramic related products are sold mainly through direct retail shops, as well as through distributors. Dental implants, artificial bones and joint prostheses are sold mainly to dental clinics and hospitals through distributors.

In the Telecommunications Equipment Group, we primarily sell products directly to communications carriers in Japan and overseas markets. Our key sales destinations are KDDI Corporation and WILLCOM, Inc.

The Information Equipment Group markets products such as ECOSYS printers, copier machines and multifunctional peripheral under the Kyocera brand through distributors and wholesalers both in Japan and abroad, while direct sales are conducted at original equipment manufacturers (OEMs).

In the Others reporting segment, services from the telecommunications engineering business and the data center business of Kyocera Communication Systems Co., Ltd., as well as from our management consulting business are provided directly to customers and users. Electronic materials and components from Kyocera Chemical Corporation are sold directly to secondary manufacturers who incorporate them into their own products.

Domestic sales are made in yen, while overseas sales are made in a variety of currencies, but predominantly in U.S. dollars and the Euro.

Sources and Availability of Raw Materials and Supplies

We purchase a variety of raw materials and other materials for our businesses.

The principal raw materials include alumina, zirconia, silicon nitride, silicon particles, nickel powder and epoxy resins. . These raw materials are used mainly in the manufacturing of products for the Components Business. They are also the main materials supplied for use in key components such as chip sets and liquid crystal displays in the Equipment Business.

Our basic policy is to procure raw materials and other materials from several companies, though we may use a single supplier if (1) the final customer selects the material supplier; or (2) the number of suppliers who can deliver high-quality raw materials or other materials to ensure the high quality of final products is limited.

The purchase price of these raw materials and other materials fluctuates depending on the supply-demand situation, as well as the rising cost of certain raw materials and fuel, among others. We work hard to lessen the effect of these fluctuations and to absorb rising costs by making steady internal improvements, including cost reductions. We have also concluded long-term agreements with suppliers for certain raw materials aimed at ensuring stable supply to meet plans to increase production, and a fair purchase price.

In fiscal 2008, despite a supply shortage of raw materials for certain products, the impact of this on financial results was only slight. In fiscal 2009, we believe we can procure a sufficient level of raw materials and other materials to carry out our current production plans.

Patents and Licenses

Our success and competitive position depend on a number of significant patents, licenses and trade secrets relating to our manufacturing and sales processes and products. All of Kyocera’s intellectual properties are considered to be important. However, Kyocera believes that neither its expiration nor termination of any specific

 

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intellectual properties would affect significant impact on Kyocera’s entire operation. The following table sets forth information, as of March 31, 2008, with respect to our significant patents and license agreements.

 

(a) License permitted to produce products

 

Counterparty

  

Country

  

Contents

  

Period

Qualcomm Incorporated    United States    License under patents regarding mobile phone    From August 31, 1996 to patent expiration

 

(b) License—cross agreements

 

Counterparty

  

Country

  

Contents

  

Period

Motorola, Inc.

   United States    License under patents regarding mobile phone    From July 1, 2004 to June 30, 2009

Nokia Corporation

   Finland    License under patents regarding mobile phone    From October 1, 2005 to September 30, 2008

Canon Incorporated

   Japan    License under patents regarding electric photo printer    From April 1, 2002 to patent expiration

Competitive Position

(1) Fine Ceramic Parts Group

Since our founding, Kyocera has worked continuously to develop fine ceramic materials and to cultivate new markets. At present, we provide fine ceramic products to a wide array of industries, notably the semiconductor fabrication equipment market, the telecommunications and information processing market, the general industrial machinery market and the automotive market.

Although competitors in this reporting segment differ in each market, Kyocera has established a competitive advantage in materials technology, accumulated since our founding, and in outstanding production technology and capability, which enables us to meet customer requirements, particularly in terms of product dimension, size and amount. We also boast an internal integrated system from fundamental research to next-generation product development through our R&D divisions, and this differentiates us from the competition.

(2) Semiconductor Parts Group

In this reporting segment, our goal is to further strengthen our competitive position in both the ceramic and organic package business in the global market. To achieve this, we strive to provide high-value-added products and to develop new applications such as wireless and optical communications in the telecommunications market, and in the digital consumer equipment, automotive and medical industries, etc.

In the ceramic package business, Kyocera is already one of the global leaders in surface mount device (SMD) packages for electronic components and CCD/CMOS sensor ceramic packages. We also aim to be a market leader in other ceramic package areas and to increase customer satisfaction by applying our technological and managerial expertise.

In the organic package field, which we entered relatively late, to strengthen our technological expertise and expand business, we acquired the Surface Laminar Circuitry (SLC) business of IBM Japan, Ltd. in August 2003, and established Kyocera SLC Technologies Corporation. In April 2004, we integrated the organic material components business into Kyocera SLC Technologies Corporation, and established a new plant in Ayabe, Kyoto in June 2005. We aim to strengthen our position in the organic package business going forward by developing more advanced package technology and by fully utilizing this new plant.

 

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(3) Applied Ceramic Products Group

Awareness of the need for environmental preservation is growing worldwide. In the solar energy business, Kyocera has established a quadripartite production system for solar module assembly that spans Japan, China, Mexico and the Czech Republic. Production of solar cells and modules in fiscal 2008 amounted to approximately 200MW. In 2007, we were fourth in the world in terms of solar cell and module production volume. Aiming to be the market leader in solar energy business, we have been expanding production capacity of solar cells since fiscal 2008. We intend to more than double yearly production volume from the 200MW recorded in fiscal 2008 to 500MW in fiscal 2011.

We are also one of the biggest suppliers of cutting tools in Japan, with the major application being for the automotive industry. Although we have many global competitors, we will work to expand sales of new products in order to further increase our share in the domestic and Asian markets.

(4) Electronic Device Group

Kyocera develops, manufactures and sells capacitors, timing devices (crystal-related components), connectors and thin-film devices. One of our competitive advantages is that we can supply a wide variety of components compared with our competitors. We have many competitors in this field, not only in Japan but also throughout Asia, and the market is particularly competitive in terms of price, quality and delivery.

Kyocera is one of the biggest manufacturers of capacitors and timing devices (crystal-related components) in the world. Most of our competitors in this reporting segment are Japanese manufacturers. However, AVX Corporation, a U.S. subsidiary, competes with overseas manufacturers in developing, manufacturing and selling tantalum capacitors. Our thin-film products, such as thermal printheads and amorphous silicon photoreceptor drums, are mainly used in information equipment, notably printers, copier machines and multifunction systems. Amorphous silicon photoreceptor drums have outstanding resistance to wear compared with organic photoconductor (OPC) drums. Incorporating our amorphous silicon photoreceptor drums into information equipment helps to realize longer lasting products relative to the competition.

We are also continuing to seek synergies within Kyocera in order to expand sales, reduce costs and increase market share in this reporting segment. As one measure to increase sales, we are making full use of the sales channel of AVX Corporation in the overseas market. In production, our domestic sites specialize in manufacturing high-value-added ceramic capacitors that are compact and have high capacity, while we make maximum use of our facilities in China to manufacture general ceramic capacitors, as one example. Through this structure, we can reduce manufacturing costs and strengthen price competitiveness.

(5) Telecommunications Equipment Group

In the Japanese market, our main competitors for mobile phone handsets are Japanese manufacturers. In the mobile phone handset market outside Japan, Kyocera competes with European, U.S. and Asian manufacturers. We are currently a middle-class supplier in terms of sales volume in the global CDMA handset market. During fiscal 2006, Kyocera outsourced its CDMA handset production at Kyocera Wireless Corp. to Flextronics International Ltd. to reduce manufacturing costs and improve profitability. In terms of PHS-related products in Japan, our main competitors are Japanese manufacturers.

In April 2008, Kyocera acquired the telecommunications equipment business of SANYO Electric Co., Ltd. Through this move, we aim to further strengthen development, manufacturing and sale of CDMA handsets worldwide, and to expand business in wireless communication systems, including next-generation PHS-related products.

 

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(6) Information Equipment Group

We have many competitors in Japan and abroad in information equipment, such as printers, copying machines and multifunctional peripheral. Although the scale of sales in this reporting segment is small compared with our competitors, and our global market share is not high, our major strength is differentiation of our products from those of the competitors.

Our products are based on our unique “ECOSYS” concept that provides long life cycle and thus environmental friendliness, while also having the benefit of low running costs for users, by utilizing our highly durable amorphous silicon photoreceptor drum with exceptional abrasion resistance. Our ECOSYS concept is used in the majority of our printers, copier machines and multifunction systems, in both monochrome and color, and from low-speed to high-speed models. These products are recognized as green products for the office, particularly in Europe, where environmental awareness is particularly high.

Government Regulation

There are various governmental regulations specifically applicable to industries in which Kyocera operates, including regulations relating to business and investment approvals, export regulations, tariffs, intellectual property, consumer and business taxation, and exchange controls. We do not believe that such governmental regulations currently have material effects on Kyocera’s business.

Kyocera is also subject to various regulations concerning the environment of the countries where we operate. These regulations cover air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals used or generated in our manufacturing process, employee health and safety, labeling or other notifications with respect to the content or other aspects of our processes, products or packaging, restrictions on the use of certain materials in or on design aspects of our products or product packaging, and responsibility for disposal of products or product packaging. They also include several new regulations for chemical substance in products, such as the European Union Directive on the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS Directive), the European Union Directive on Waste Electrical and Electronic Equipment (WEEE Directive), the European Union’s Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), and similar regulations required in the other countries and areas including China. Based on our periodic reviews of the operating policies and practices at all of our facilities, we believe that our operations are currently in substantial compliance, in all material respects, with all applicable environmental laws and regulations and that the cost of continuing compliance will not have a material effect on our financial condition or results of operations.

C. Organizational Structure

We had 186 subsidiaries and affiliates as of March 31, 2008. Our management structure is based on a business segment structure. Therefore, the management of each segment is conducted uniformly regardless of whether our operations are conducted by the parent company or by one of our subsidiaries.

 

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The following table sets forth information, as of March 31, 2008, with respect to our significant subsidiaries.

 

Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
   

Main Business

(1) Fine Ceramic Parts Group

       

Kyocera Industrial Ceramics Corporation

   United States    100.00 %   Manufacture and sale of fine ceramic-related products and sale of electronic devices

(2) Semiconductor Parts Group

       

Kyocera SLC Technologies Corporation

   Japan    100.00 %   Manufacture and sale of organic multilayer printed circuit boards

Kyocera America, Inc.

   United States    100.00 %   Manufacture and sale of fine ceramic-related products

Kyocera Korea Co., Ltd.

   Korea    100.00 %   Sale of fine ceramic-related products

Shanghai Kyocera Electronics Co., Ltd.

   China    100.00 %   Manufacture and sale of fine ceramic-related products and electronic devices

(3) Applied Ceramic Products Group

       

Kyocera Solar Corporation

   Japan    100.00 %   Sale of solar energy products

Japan Medical Materials Corporation

   Japan    77.00 %   Development, manufacture and sale of medical materials and equipment

Kyocera Solar, Inc.

   United States    100.00 %   Manufacture and sale of solar energy products

Kyocera Tycom Corporation

   United States    100.00 %   Manufacture and sale of micro drills

Kyocera (Tianjin) Solar Energy Co., Ltd.

   China    90.00 %   Manufacture and sale of solar energy products

Dongguan Shilong Kyocera Optics Co., Ltd.

   China    90.00 %   Manufacture and sale of cutting tools and thin-film devices

Kyocera Precision Tools Korea Co., Ltd.

   Korea    90.00 %   Manufacture and sale of cutting tools

Kyocera Solar Europe S.R.O.

   Czech    100.00 %   Manufacture of solar energy products

Kyocera Mexicana, S.A. de C.V.

   Mexico    100.00 %   Manufacture of ceramic-related products and solar modules

Universal Optical Industries, Ltd.

   China    100.00 %   Sale of cutting tools and thin-film devices

(4) Electronic Device Group

       

Kyocera Kinseki Corporation

   Japan    100.00 %   Manufacture of electronic devices

Kyocera Elco Corporation

   Japan    100.00 %   Manufacture and sale of electronic devices

 

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Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
   

Main Business

Kyocera Display Institute Co., Ltd.

   Japan    100.00 %   R&D of organic electro luminescence displays

AVX Corporation

   United States    71.20 %   Manufacture and sale of electronic devices

Kyocera Elco Korea Co., Ltd.

   Korea    100.00 %   Manufacture of electronic devices

(5) Telecommunications Equipment Group

       

Kyocera Wireless Corp.

   United States    100.00 %   Manufacture and sale of telecommunications equipment

Kyocera Wireless (India) PVT. Ltd.

   India    100.00 %   R&D of telecommunications equipment

Kyocera Telecommunications Research Corporation

  

United States

  

100.00

%

 

R&D of telecommunications equipment

(6) Information Equipment Group

       

Kyocera Mita Corporation

   Japan    100.00 %   Manufacture and sale of information equipment

Kyocera Mita Japan Corporation

   Japan    100.00 %   Sale of information equipment

Kyocera Mita America, Inc.

   United States    100.00 %   Sale of information equipment

Kyocera Mita Office Equipment (Dongguan) Co., Ltd.

  

China

  

92.76

%

 

Manufacture and sale of information equipment

Kyocera Mita Europe B.V.

   Netherlands    100.00 %   Sale of information equipment

Kyocera Mita Deutschland GmbH

   Germany    100.00 %   Sale of information equipment

(7) Others

       

Kyocera Communication Systems Co., Ltd.

   Japan    76.30 %   Provision of IT services

Kyocera Optec Co., Ltd.

   Japan    100.00 %   Manufacture and sale of optical equipment components

Kyocera Realty Development Co., Ltd.

   Japan    100.00 %   Real estate services

Hotel Kyocera Co., Ltd.

   Japan    100.00 %   Hotel management and operations

Hotel Princess Kyoto Co., Ltd.

   Japan    100.00 %   Hotel management and operations

Kyocera International Co., Ltd.

   Japan    100.00 %   Insurance and travel agency

Kyocera Chemical Corporation

   Japan    100.00 %   Manufacture and sale of electronic materials

Piazza Investment Co., Ltd.

   China    100.00 %   Real estate leasing

 

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Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
   

Main Business

(8) Regional Holding or Sales Companies

       

Kyocera International, Inc.

   United States    100.00 %   Holding company and headquarters in North America

Kyocera Asia Pacific Pte. Ltd.

   Singapore    100.00 %   Sale of fine ceramic-related products and electronic devices mainly in Southeast Asia

Kyocera Fineceramics GmbH

   Germany    100.00 %   Sale of fine ceramic-related products, solar energy products and thin-film devices mainly in Europe

Kyocera (Tianjin) Sales & Trading Corporation

   China    90.00 %   Sale of fine ceramic-related products, solar energy products, electronic devices and information equipment mainly in China

In addition to the above consolidated subsidiaries, Kyocera had 133 other consolidated subsidiaries as of March 31, 2008. Kyocera also had interests in two subsidiaries accounted for by the equity method and 10 affiliates accounted for by the equity method as of March 31, 2008

AVX Corporation, in our Electronic Device Group, is one of our most significant subsidiaries. Most of the electronic devices we produce for overseas sales are distributed through AVX Corporation by utilizing AVX Corporation’s wide range of marketing channels. In addition, we market passive components produced by AVX Corporation in the Japanese market. We also utilize AVX Corporation’s manufacturing process for ceramic capacitors to improve productivity and to enhance our competitiveness. In addition, AVX Corporation introduced our materials technologies into its ceramic capacitor production. We have been seeking better ways to cooperate in expanding our electronic device businesses. Currently, four of our directors are members of AVX Corporation’s board of directors and AVX Corporation’s chief executive officer is one of our directors. Within the Electronic Device Group, we have a close relationship with AVX Corporation in marketing, manufacturing, and research and development, and we are seeking and pursuing synergies to be a leading passive component manufacturer. AVX Corporation posted net income of $149,473 thousand in fiscal 2008 and its strong performance contributed significantly to Kyocera’s results of operations and financial condition. See Item 5.A “Operating Results” of this annual report on Form 20-F.

D. Property, Plants and Equipment

Our manufacturing operations are conducted in Japan, the United States, Mexico, El Salvador, Brazil, the United Kingdom, Germany, France, the Czech Republic, Singapore, South Korea, China, Taiwan, Malaysia, Israel, Thailand and Philippines. As of March 31, 2008, we had property, plants and equipment with a net book value of ¥285,899 million ($2,859 million). During the five years ended March 31, 2008, we invested a total of ¥361,918 million ($3,619 million) for additions to property, plants and equipment. Our property, plants and equipment are subject to some material encumbrances or environmental issues. See Item 5.A “Operating Results” of this annual report on Form 20-F.

 

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The following table sets forth information, as of March 31, 2008, with respect to our manufacturing facilities with floor space of more than 250,000 square feet.

 

Name of Plant

 

Location

 

Status

  Floor Space  

Lease
Expires

 

Principal Products
Manufactured

            (in thousands
of square feet)
       

Japan

         

Hokkaido Kitami Plant

  Kitami, Hokkaido   Owned   295     Telecommunications equipment, Semiconductor parts, Fine ceramic parts

Nagano Okaya Plant

  Okaya, Nagano   Owned   382    

Fine ceramic parts, Electronic components,

Cutting tools

Kawaguchi Plant

  Kawaguchi, Saitama   Owned   389     Electronic parts and materials

Tamaki Plant

  Watarai, Mie   Owned   288     Information equipment

Shiga Gamo Plant

  Higashi-Ohmi, Shiga   Owned   686     Fine ceramic parts, Semiconductor parts

Shiga Yokaichi Plant

  Higashi-Ohmi, Shiga   Owned   1,555     Fine ceramic parts, Electronic components, Solar cells, Cutting tools

Hirakata Plant

  Hirakata, Osaka   Owned   604     Information equipment

Kagoshima Sendai Plant

  Satsuma-Sendai, Kagoshima   Owned   1,928    

Fine ceramic parts, Semiconductor parts, Electronic components,

Cutting tools

Kagoshima Kokubu Plant

 

Kirishima, Kagoshima

 

Owned

 

2,750

   

Fine ceramic parts, Semiconductor parts, Electronic components

Kagoshima Hayato Plant

  Kirishima, Kagoshima   Owned   278     Electronic components

Yamagata Higashine Plant

 

Higashine, Yamagata

 

Owned

 

379

   

Electronic components

Ayabe Plant

  Ayabe, Kyoto   Owned   291     Organic multilayer printed circuit boards

United States

         

Balboa Plant

  San Diego, California   Owned   300     Semiconductor parts

Myrtle Plant

  Myrtle Beach, South Carolina   Owned   569     Electronic components

South Carolina Plant

  Fountain Inn, South Carolina   Owned   300     Information equipment

El Salvador

         

San Salvador Plant

  San Salvador   Owned   420     Electronic components
France          

Saint-Apollinaire Plant

  Saint-Apollinaire   Leased   387   2016   Electronic components

Czech Republic

         

Lanskroun Plant

  Lanskroun   Owned   308     Electronic components

Uherske Hradiste Plant

  Uherske Hradiste   Owned   273     Electronic components

 

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Name of Plant

 

Location

 

Status

  Floor Space  

Lease
Expires

 

Principal Products
Manufactured

            (in thousands
of square feet)
       
China          

Tianjin Plant

  Tianjin   Owned   520     Electronic components

Shilong Plant

  Dongguan, Guandong   Leased   2,331   2020   Information equipment

Shilong Plant

  Dongguan, Guandong   Owned   795     Cutting tools, Electronic components

Shanghai Pudong Plant

  Shanghai   Owned   1,040    

Semiconductor parts,

Electronic components

Thailand          

Thailand Plant

  Thailand   Owned   264     Electronic components
Philippines          

Philippines Plant

  Philippines   Owned   332     Electronic components

Item 4A.    Unresolved Staff Comments

We are a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934. There are no written comments which have been provided by the staff of the Securities and Exchange Commission regarding our periodic reports under that Act not less than 180 days before the end of the fiscal year ended March 31, 2008 and which remain unresolved as of the date of the filing of this annual report on Form 20-F with the Commission.

Item 5.    Operating and Financial Review and Prospects

A. Operating Results

You should read the discussion of our financial condition and results of operations together with our consolidated financial statements and information included in this annual report on Form 20-F. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Item 3.D “Risk Factor” and elsewhere in this annual report on Form 20-F.

Overview

Kyocera develops, produces and distributes various kinds of products for the telecommunications and information processing and environmental protection markets worldwide. Kyocera Corporation was established in 1959 as a manufacturer of ceramic parts for electronic equipment and has been expanding and diversifying its business mainly through active mergers and acquisitions, as well as applying its fine ceramic technologies to the areas of semiconductor parts, electronic devices, telecommunication, metal processing, medical and dental implants and solar energy fields. Kyocera develops, produces and distributes a variety of parts and devices for electronic equipment such as computers, automobiles, printers, copiers and multi functional peripheral as well as consumer electronic equipment such as mobile phone handsets, digital still cameras and flat panel TV sets. Kyocera earns revenue and income and generates cash through sales of these products.

Kyocera’s operations are categorized into seven reporting segments: (1) Fine Ceramic Parts Group, (2) Semiconductor Parts Group, (3) Applied Ceramic Products Group, (4) Electronic Device Group, (5) Telecommunications Equipment Group, (6) Information Equipment Group, and (7) Others. Kyocera groups the Fine Ceramic Parts Group, the Semiconductor Parts Group, the Applied Ceramic Products Group and the Electronic Device Group into one main business referred to as “the Components Business” and groups the Telecommunications Equipment Group and the Information Equipment Group into another main business referred to as “the Equipment Business.”

 

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The Japanese economy in fiscal 2008 was characterized by steadily increasing exports and a high level of corporate earnings, while individual consumption was also stable. Slumping housing investment and rising energy and raw material prices, however, resulted in only moderate economic expansion overall. In the United States, credit uneasiness worsened, triggered by issues related to housing loans for individuals with low creditworthiness and culminating in heightened fears of a business slowdown beginning in the summer of 2007. Combined with this, a drop-off in individual consumption and restrained capital investment occurred and resulted in economic deceleration. The European economy expanded moderately, supported by an increase in exports. Individual consumption in Europe has tapered off since the start of calendar year 2008, however, and the economic outlook has become increasingly uncertain. The Chinese economy continued to expand on account of increases in capital investment and exports, together with robust individual consumption.

Most profits at Kyocera come through sales of products and providing services in the information technology (IT) markets including electronic equipment related market. In the digital consumer equipment market, which is the principal market for Kyocera, demands for mobile phone handsets, flat panel TV sets and other equipment expanded steadily, particularly in the first half of fiscal 2008. There have been inventory adjustments for mobile phone handsets in certain Asian markets, however, since the start of calendar year 2008. In addition, the yen appreciated against the U.S. dollar, with the exchange rate at one time dropping below 100 yen to the dollar. Amid these market environments, Kyocera worked aggressively to introduce new products and improve productivity in order to achieve continuous sales expansion and high profitability. As a result, consolidated net sales for fiscal 2008 amounted to ¥1,290,436 million ($12,904 million), an increase of only 0.5% compared with the year ended March 31, 2007. This result can be attributed to an increase in sales in the Components Business, which more than offset a decrease in sales in the Equipment Business. Operating profit increased by 7.2% to ¥156,332 million ($1,563 million) due to a significant increase in profit in the Equipment Business, which was partly offset by a decrease in profit in the Components Business.

 

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Results of Operations

Fiscal 2008 compared with Fiscal 2007

The following table shows a summary of Kyocera’s results of operations for fiscal 2007 and fiscal 2008:

 

     Years ended March 31,     Increase
(Decrease)
 
     2007     2008    
     Amount     %     Amount     %     %  
     (Yen in millions and U.S. dollars in thousands)  

Net sales

   ¥ 1,283,897     100.0     ¥ 1,290,436     $ 12,904,360     100.0     0.5  

Cost of sales

     900,470     70.1       883,763       8,837,630     68.5     (1.9 )
                                          

Gross profit

     383,427     29.9       406,673       4,066,730     31.5     6.1  

Selling, general and administrative expenses

     248,325     19.4       254,253       2,542,530     19.7     2.4  
                                          

Profit from operations

     135,102     10.5       152,420       1,524,200     11.8     12.8  

Interest and dividend income

     15,472     1.2       18,444       184,440     1.4     19.2  

Interest expense

     (1,647 )   (0.1 )     (1,480 )     (14,800 )   (0.1 )   —    

Foreign currency transaction losses, net

     (65 )   (0.0 )     (956 )     (9,560 )   (0.1 )   —    

Equity in earnings of affiliates and unconsolidated subsidiaries

     2,621     0.2       6,091       60,910     0.5     132.4  

Gains (losses) on sales of securities, net

     3,819     0.3       (622 )     (6,220 )   (0.1 )   —    

Other, net

     1,238     0.1       945       9,450     0.1     (23.7 )
                                          
     21,438     1.7       22,422       224,220     1.7     4.6  
                                          

Income from continuing operations before income taxes and minority interests

     156,540     12.2       174,842       1,748,420     13.5     11.7  

Income taxes

     48,887     3.8       60,235       602,350     4.6     23.2  
                                          

Income from continuing operations before minority interests

     107,653     8.4       114,607       1,146,070     8.9     6.5  

Minority interests

     (6,324 )   (0.5 )     (7,363 )     (73,630 )   (0.6 )   —    
                                          

Income from continuing operations

     101,329     7.9       107,244       1,072,440     8.3     5.8  

Income from discontinued operations

     5,175     0.4       —         —       —       —    
                                          

Net income

   ¥ 106,504     8.3     ¥ 107,244     $ 1,072,440     8.3     0.7  
                                          

Net sales

Consolidated net sales for fiscal 2008 increased by ¥6,539 million ($65 million), or 0.5%, to ¥1,290,436 million ($12,904 million), compared with ¥1,283,897 million in fiscal 2007.

Consolidated net sales in the Components Business in fiscal 2008 increased by ¥29,113 million ($291 million), or 4.5%, to ¥679,990 million ($6,800 million) compared with fiscal 2007. In particular, sales in the Applied Ceramic Products Group increased by ¥18,839 million ($188 million), or 14.4% compared with fiscal 2007. This significant increase in sales in the Applied Ceramic Products Group was driven by the solar energy business, which was particularly strong in the overseas market. In addition, a steady increase in production in the digital consumer equipment market until the third quarter in fiscal 2008 led to growth in sales in the Electronic Device Group by ¥8,045 million ($80 million), or 2.8% compared with fiscal 2007. The Semiconductor Parts Group also posted an increase in sales of ¥2,246 million ($22 million), or 1.5% compared with fiscal 2007. On the other hand, sales in the Fine Ceramic Parts Group in fiscal 2008 slightly decreased by ¥17 million ($0.2 million), compared with fiscal 2007 due to the effect by slowdown in semiconductor industry.

 

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By contrast, consolidated net sales in the Equipment Business in fiscal 2008 decreased by ¥22,401 million ($224 million), or 4.3% to ¥497,563 million ($4,976 million) compared with fiscal 2007. Sales in the Telecommunication Equipment Group decreased by ¥30,366 million ($304 million), or 12.1% compared with fiscal 2007, due to a decline in sales of mobile phone handsets. On the other hand, sales in the Information Equipment Group increased by ¥7,965 million ($80 million), or 3.0% compared with fiscal 2007, spurred by enhanced sales activities through aggressive new product introductions of printers and multi functional peripherals (MFPs).

A detailed analysis and discussion of Kyocera’s net sales by reporting segment and geographic segment are as follows:

Net sales by reporting segment

The following table shows a breakdown of Kyocera’s total consolidated net sales for fiscal 2007 and fiscal 2008 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2007     2008    
     Amount     %     Amount     %     %  
     (Yen in millions and U.S. dollars in thousands)  

Fine Ceramic Parts Group

   ¥ 81,326     6.3     ¥ 81,309     $ 813,090     6.3     (0.0 )

Semiconductor Parts Group

     152,292     11.9       154,538       1,545,380     12.0     1.5  

Applied Ceramic Products Group

     131,103     10.2       149,942       1,499,420     11.6     14.4  

Electronic Device Group

     286,156     22.3       294,201       2,942,010     22.8     2.8  
                                          

Total Components Business

     650,877     50.7       679,990       6,799,900     52.7     4.5  

Telecommunications Equipment Group

     251,183     19.6       220,817       2,208,170     17.1     (12.1 )

Information Equipment Group

     268,781     20.9       276,746       2,767,460     21.5     3.0  
                                          

Total Equipment Business

     519,964     40.5       497,563       4,975,630     38.6     (4.3 )

Others

     137,235     10.7       138,494       1,384,940     10.7     0.9  

Adjustments and eliminations

     (24,179 )   (1.9 )     (25,611 )     (256,110 )   (2.0 )   —    
                                          
   ¥ 1,283,897     100.0     ¥ 1,290,436     $ 12,904,360     100.0     0.5  
                                          

Note 1: Commencing fiscal 2008, the “Optical Equipment Group,” previously a separate reporting segment, has been reclassified into “Others.” Accordingly, net sales of “Others” in fiscal 2007 have been retroactively reclassified and increased by ¥11,579 million and “Adjustments and eliminations” decreased by ¥(125) million compared with those previously announced.

(1) Fine Ceramic Parts Group

Sales in this reporting segment in fiscal 2008 remained almost unchanged from fiscal 2007 at ¥81,309 million ($813 million), compared with ¥81,326 million in fiscal 2007.

Sales of parts for diesel engines for automobiles, sapphire substrates for LEDs and dielectric parts for mobile phone base stations all increased. However, there was a decrease in demand for parts for semiconductor fabrication equipment, one of the core products in this reporting segment, due to a decrease in capital investment in the semiconductor industry.

(2) Semiconductor Parts Group

Sales in this reporting segment in fiscal 2008 increased by ¥2,246 million ($22 million), or 1.5%, to ¥154,538 million ($1,545 million), compared with ¥152,292 million in fiscal 2007.

 

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Demands for ceramic packages used in mobile phone handsets and digital-still-cameras increased steadily. Furthermore, sales of organic packages for servers increased. Sales of parts for optical telecommunications devices decreased due to demand adjustments and a decline in selling prices, however, leading to only a slight increase in overall sales in this reporting segment compared with fiscal 2007.

(3) Applied Ceramic Products Group

Sales in this reporting segment in fiscal 2008 increased by ¥18,839 million ($188 million), or 14.4%, to ¥149,942 million ($1,499 million), compared with ¥131,103 million in fiscal 2007.

An increase of approximately 10% in production volume and stable selling price for PV systems due to worldwide brisk demand, notably in Europe, coupled with the depreciation of the yen against the Euro led to a considerable growth in sales in the solar energy business. In addition, sales in the cutting tool business also increased due to strong sales of new products. As a result, overall sales in this reporting segment increased.

(4) Electronic Device Group

Sales in this reporting segment in fiscal 2008 increased by ¥8,045 million ($80 million), or 2.8%, to ¥294,201 million ($2,942 million), compared with ¥286,156 million in fiscal 2007.

Demands for capacitors and timing devices decreased in Asia in the fourth quarter of fiscal 2008. Production of digital consumer equipment was solid throughout fiscal 2008, however, resulting in steady growth in sales in this reporting segment compared with fiscal 2007. Decline in selling prices occurred only within 10% range overall compared with fiscal 2007, although more than 10% decline were recognized in some products.

(5) Telecommunications Equipment Group

Sales in this reporting segment in fiscal 2008 decreased by ¥30,366 million ($304 million), or 12.1%, to ¥220,817 million ($2,208 million), compared with ¥251,183 million in fiscal 2007.

Although sales in PHS related products remained on par with fiscal 2007, sales in the mobile phone handset business declined by approximately 14% compared with fiscal 2007. Shipment volume of mobile phone and PHS handsets in fiscal 2008 decreased by approximately 6%, to approximately 12.9 million units compared with approximately 13.7 million units in fiscal 2007.

(6) Information Equipment Group

Sales in this reporting segment in fiscal 2008 increased by ¥7,965 million ($80 million), or 3.0%, to ¥276,746 million ($2,767 million), compared with ¥268,781 million in fiscal 2007. Sales of printers, particularly in Europe, increased spurred by aggressive new product introductions and enhanced sales activities.

Unit sales of printers, copying machines and MFPs in fiscal 2008 increased by approximately 6% to approximately 1.20 million units compared with approximately 1.13 million units in fiscal 2007. In addition, sales of MFPs and consumables also increased compared with fiscal 2007.

(7) Others

Sales in this reporting segment in fiscal 2008 increased by ¥1,259 million ($13 million), or 0.9%, to ¥138,494 million ($1,385 million), compared with ¥137,235 million in fiscal 2007. This increase was due mainly to growth of sales in the telecommunications engineering business for mobile telecommunication market at Kyocera Communication Systems Co., Ltd.

 

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Net sales by geographic segment

The following table shows a breakdown of Kyocera’s total consolidated net sales for fiscal 2007 and fiscal 2008, distinguishing between domestic and overseas sales and, with respect to overseas sales, showing the geographical areas in which such sales were made:

 

     Years ended March 31,    Increase
(Decrease)
 
     2007    2008   
     Amount    %    Amount    %    %  
     (Yen in millions and U.S. dollars in thousands)  

Japan

   ¥ 496,959    38.7    ¥ 507,837    $ 5,078,370    39.4    2.2  

United States of America

     274,361    21.4      248,760      2,487,600    19.3    (9.3 )

Asia

     216,663    16.9      232,425      2,324,250    18.0    7.3  

Europe

     210,726    16.4      224,066      2,240,660    17.3    6.3  

Others

     85,188    6.6      77,348      773,480    6.0    (9.2 )
                                     
   ¥ 1,283,897    100.0    ¥ 1,290,436    $ 12,904,360    100.0    0.5  
                                     

Sales in Japan, which comprised 39.4% of consolidated net sales, increased by ¥10,878 million ($109 million), or 2.2%, to ¥507,837 million ($5,078 million), compared with ¥496,959 million in fiscal 2007. This growth was mainly led by an increase in sales in the Semiconductor Parts Group. This increase was caused by a rise in demand for both ceramic and organic packages and by a sales increase in “Others” business due to sales growth at Kyocera Communication Systems Co., Ltd.

Overseas sales, which comprised 60.6% of consolidated net sales, decreased by ¥4,339 million ($43 million), or 0.6%, to ¥782,599 million ($7,826 million), compared with ¥786,938 million, in fiscal 2007.

Although sales in Asia and Europe increased, sales in the United Stated and in Others declined.

Sales in the United States in fiscal 2008 decreased by ¥25,601 million ($256 million), or 9.3%, to ¥248,760 million ($2,488 million), compared with ¥274,361 million in fiscal 2007, due mainly to a decline in sales of mobile phone handsets at Kyocera Wireless Corp.

Sales in Asia in fiscal 2008 increased by ¥15,762 million ($158 million), or 7.3%, to ¥232,425 million ($2,324 million), compared with ¥216,663 million in fiscal 2007, due to sales growth of the Electronic Device Group for digital consumer equipment.

Sales in Europe in fiscal 2008 increased by ¥13,340 million ($133 million), or 6.3%, to ¥224,066 million ($2,241 million), compared with ¥210,726 million in fiscal 2007, due to sales growth of products in the Information Equipment Group such as printers and MFPs combined with growth in sales in the Applied Ceramic Products Group driven by expanded sales in the solar energy business.

Sales in Others in fiscal 2008 decreased by ¥7,840 million ($78 million), or 9.2%, to ¥77,348 million ($ 773 million), compared with ¥85,188 million in fiscal 2007, due mainly to sales declines in the Telecommunication Equipment Group in Latin America and Oceania, offset by sales increases in the Information Equipment Group in Latin America and Middle East.

Almost all of Kyocera’s overseas sales were denominated in the U.S. dollars or the Euro. On average, the yen appreciated against the U.S. dollar by ¥3 and depreciated against the Euro by ¥12, compared with fiscal 2007. Net sales in U.S. dollars amounted to $4,154 million and net sales in Euro amounted to €1,404 million in fiscal 2008. In converting these currencies into yen, the positive impact produced by the yen’s depreciation against the Euro outweighed the negative impact of the yen’s appreciation against the U.S. dollar, increasing net sales by approximately ¥5,900 million ($59 million) compared with fiscal 2007.

 

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Cost of sales and gross profit

In fiscal 2008, cost of sales decreased by ¥16,707 million ($167 million), or 1.9%, to ¥883,763 million ($8,838 million) from ¥900,470 million in fiscal 2007. Raw material costs of ¥377,203 million ($3,772 million) accounted for 42.7% of the total cost of sales, and labor costs of ¥167,542 million ($1,675 million) accounted for 19.0%. The change in depreciation methods in Kyocera Corporation and its domestic subsidiaries caused an increase of ¥11,295 million ($113 million) in the depreciation expense of cost of sales. However, due mainly to an increase in the contribution ratio to net sales of the Components Business, of which the ratio of cost of sales to net sales was relatively low, as well as due to improved productivity, the ratio of cost of sales to net sales was 68.5% in fiscal 2008, a decrease of 1.6 points as compared with 70.1% in fiscal 2007.

As a result, gross profit increased in fiscal 2008 by ¥23,246 million ($232 million), or 6.1%, to ¥406,673 million ($4,067 million) from ¥383,427 million in fiscal 2007. The gross profit to net sales ratio increased by 1.6 percentage points from 29.9% to 31.5%.

SG&A expenses and profit from operations

Selling, general and administrative (SG&A) expenses in fiscal 2008 increased by ¥5,928 million ($59 million), or 2.4%, to ¥254,253 million ($2,543 million) compared with ¥248,325 million in fiscal 2007. Labor cost was ¥123,538 million ($1,235 million), or 48.6% of total SG&A expenses, and sales promotion and advertising cost was ¥40,544 million ($405 million), or 15.9% of total SG&A expenses. The proportion of SG&A expenses to net sales increased by 0.3 percentage points to 19.7% in fiscal 2008 from 19.4% in fiscal 2007. This increase primarily reflected increases in labor costs in sales subsidiaries in Europe due to the average depreciation of the yen against the Euro compared with fiscal 2007, as well as increases in depreciation expense in Kyocera Corporation and its domestic subsidiaries due to the change in depreciation methods. The depreciation expense increased by ¥998 million ($10 million) due to the change in depreciation methods.

Although SG&A expenses increased as above, profit from operations increased by ¥17,318 million ($173 million), or 12.8%, to ¥152,420 million ($1,524 million), compared with ¥135,102 million in fiscal 2007, due to a further increase in gross profit. The operating margin rose by 1.3 percentage points to 11.8% in fiscal 2008, compared with 10.5% in fiscal 2007.

Interest and dividend income

Interest and dividend income in fiscal 2008 increased by ¥2,972 million ($30 million), or 19.2%, to ¥18,444 million ($184 million), compared with ¥15,472 million in fiscal 2007. This was mainly due to favorable investment management results and an increase in dividend income from KDDI Corporation. Kyocera has an investment policy aimed at low risk, stability and liquidity, and does not invest in high-risk financial instruments only for pursuing profits.

Interest expense

Interest expense in fiscal 2008 decreased by ¥167 million ($2 million), or 10.1%, to ¥1,480 million ($15 million), compared with ¥1,647 million in fiscal 2007. This was mainly due to a decrease of borrowings at domestic subsidiaries, in spite of a slight upward trend of interest rates in the Japanese financial market.

Foreign currency translation

During fiscal 2008, the average exchange rate for the yen appreciated by ¥3, or 2.6%, against the U.S. dollar and depreciated by ¥12, or 8.0%, against the Euro, as compared with fiscal 2007. At March 31, 2008, the yen had appreciated by ¥18, or 15.3%, against the U.S. dollar and had depreciated by ¥1, or 0.6%, against the Euro, as compared with March 31, 2007. Kyocera recorded foreign currency transaction losses of ¥956 million ($10 million) in fiscal 2008.

 

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Kyocera typically enters into forward exchange contracts to minimize currency exchange risks on foreign currency denominated receivables and payables. Kyocera confines its use of derivative financial instruments for hedging its foreign exchange exposures, and does not utilize derivative transactions for trading purposes.

Gains and losses from investments

In fiscal 2008, Kyocera’s earnings on equity-method investments increased by ¥3,470 million ($35 million), or 132.4%, to ¥6,091 million ($61 million), compared with ¥2,621 million in fiscal 2007.

Kyocera’s equity in earnings of affiliates and unconsolidated subsidiaries in fiscal 2008 was derived mainly from interests in WILLCOM, Inc.

Kyocera Corporation owns a 30% interest in WILLCOM, Inc., which operates a PHS service in Japan. Kyocera Corporation accounted for this investment using the equity method. The increase in net income at WILLCOM, Inc. was caused by an increase in net sales due to a steady increase in customers in fiscal 2008. As a result, Kyocera’s earnings on equity-method investments increased significantly.

Gains (losses) on sales of securities, net in fiscal 2008 decreased by ¥4,441 million ($44 million), from a gain of ¥3,819 million in fiscal 2007 to a loss of ¥622 million ($6 million) in fiscal 2008. Gains in fiscal 2007 were due mainly to realization of unrealized gains by sale of investment securities.

Kyocera Mita Corporation owns a 30% interest in Triumph-Adler AG Group (TA), which is a distributor of office equipment, Kyocera Mita Corporation accounted for its investment in TA under the equity method. Kyocera recognized loss on impairment of investment in TA of ¥3,492 million due to an extended decline in TA’s market value in fiscal 2006. Kyocera did not recognize loss on impairment of investment in TA due to an increase of TA’s market value in fiscal 2007 and 2008.

Income from continuing operations before income taxes

Income from continuing operations before income taxes in fiscal 2008 increased by ¥18,302 million ($183 million), or 11.7%, to ¥174,842 million ($1,748 million) compared with ¥156,540 in fiscal 2007.

Due mainly to an increase in depreciation costs of ¥9,510 million ($95 million), or 20.8%, in fiscal 2008 compared with fiscal 2007, which resulted from a comprehensive review of the value of fixed assets, operating profit in Components Business decreased by ¥4,335 million ($43 million), or 4.1%, to ¥100,373 million ($1,004 million) in fiscal 2008 compared with fiscal 2007.

In Equipment business, however, the profits of both the Telecommunications Equipment Group and the Information Equipment Group increased significantly by ¥12,063 million ($121 million) to ¥46,324 million ($463 million), or 35.2% compared with fiscal 2007. In addition, interest and dividend income and equity in earnings of affiliates and unconsolidated subsidiaries, as mentioned earlier, also increased by ¥2,972 million ($30 million), or 19.2%, and by ¥3,470 million ($35 million), or 132.4%, respectively.

 

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Operating profit by reporting segment

The following table shows Kyocera’s consolidated income from continuing operations before income taxes, and operating profit for fiscal 2007 and fiscal 2008, broken down by the seven reporting segments:

 

     Years ended March 31,    Increase
(Decrease)
 
     2007    2008   
     Amount     %*    Amount     %*    %  
     (Yen in millions and U.S. dollars in thousands)  

Fine Ceramic Parts Group

   ¥ 15,677     19.3    ¥ 11,167     $ 111,670     13.7    (28.8 )

Semiconductor Parts Group

     22,210     14.6      20,027       200,270     13.0    (9.8 )

Applied Ceramic Products Group

     22,334     17.0      32,655       326,550     21.8    46.2  

Electronic Device Group

     44,487     15.5      36,524       365,240     12.4    (17.9 )
                                        

Total Components Business

     104,708     16.1      100,373       1,003,730     14.8    (4.1 )

Telecommunications Equipment Group

     291     0.1      6,786       67,860     3.1    —    

Information Equipment Group

     33,970     12.6      39,538       395,380     14.3    16.4  
                                        

Total Equipment Business

     34,261     6.6      46,324       463,240     9.3    35.2  

Others

     6,881     5.0      9,635       96,350     7.0    40.0  
                                        

Operating profit

     145,850     11.4      156,332       1,563,320     12.1    7.2  

Corporate

     8,569     —        12,497       124,970     —      45.8  

Equity in earning of affiliates and unconsolidated subsidiaries

     2,621     —        6,091       60,910     —      132.4  

Adjustments and eliminations

     (500 )   —        (78 )     (780 )   —      —    
                                        

Income from continuing operations before income taxes

   ¥ 156,540     12.2    ¥ 174,842     $ 1,748,420     13.5    11.7  
                                        

 

* % to net sales of each corresponding segment

Note 2: Commencing fiscal 2008, the “Optical Equipment Group,” previously a separate reporting segment, has been reclassified into “Others.” Accordingly, operating profit of “Others” in fiscal 2007 have been retroactively reclassified and decreased by ¥1,895 million compared with those previously announced.

(1) Fine Ceramic Parts Group

Operating profit in this reporting segment in fiscal 2008 decreased by ¥4,510 million ($45 million), or 28.8%, to ¥11,167 million ($112 million) compared with ¥15,677 million in fiscal 2007.

This was primarily due to an increase of ¥2,995 million ($30 million) in depreciation costs, or 67.2% compared with fiscal 2007.

(2) Semiconductor Parts Group

Operating profit in this reporting segment in fiscal 2008 decreased by ¥2,183 million ($22 million), or 9.8%, to ¥20,027 million ($200 million), compared with ¥22,210 million in fiscal 2007.

Although losses shrank substantially in the organic package business, overall operating profit in this reporting segment decreased due mainly to an increase in depreciation costs of ¥2,086 million ($21 million), or 17.0% compared with fiscal 2007, in addition to a decline in selling prices.

(3) Applied Ceramic Products Group

Operating profit in this reporting segment in fiscal 2008 increased by ¥10,321 million ($103 million), or 46.2%, to ¥32,655 million ($327 million), compared with ¥22,334 million in fiscal 2007.

 

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Significant sales increases in the solar energy business largely contributed to this growth in operating profit in this reporting segment.

(4) Electronic Device Group

Operating profit in this reporting segment in fiscal 2008 decreased by ¥7,963 million ($80 million), or 17.9%, to ¥36,524 million ($365 million), compared with ¥44,487 million in fiscal 2007.

This substantial decrease in operating profit compared with fiscal 2007 was due to rising production costs led by rising raw material prices and an increase in depreciation costs in total of ¥2,861 million ($ 29 million), or 13.6%.

(5) Telecommunications Equipment Group

Operating profit in this reporting segment in fiscal 2008 increased by ¥6,495 million ($65 million), to ¥6,786 million ($68 million) compared with ¥291 million in fiscal 2007.

Despite of an effort to reduce production costs, sales declined substantially in the mobile phone handset business compared with fiscal 2007, resulting in a decrease in operating profit to ¥4.2 billion ($42 million) compared with ¥4.9 billion in fiscal 2007. Operating profit in PHS related business, on the other hand, improved considerably in fiscal 2008, posted a substantial increase of ¥7.2 billion ($72 million), led to ¥2.6 billion ($26 million), compared with ¥4.6 billion loss in fiscal 2007 due to concentration of the PHS business in the Japanese market.

(6) Information Equipment Group

Operating profit in this reporting segment in fiscal 2008 increased by ¥5,568 million ($56 million), or 16.4%, to ¥39,538 million ($395 million), compared with ¥33,970 million in fiscal 2007.

This significant increase in operating profit was due to increased in sales of new product introductions and the contribution of increased sales of consumables, which constituted approximately 40% of sales in this reporting segment, in addition to the positive effect of the yen’s depreciation against the Euro.

(7) Others

Operating profit in this segment in fiscal 2008 increased by ¥2,754 million ($28 million), or 40.0%, to ¥9,635 million ($96 million), compared with ¥6,881 million in fiscal 2007.

This was due mainly to improved profitability at Kyocera Communication Systems Co., Ltd. and improved productivity in the optical related business.

(8) Corporate

Corporate income and losses mainly constitute investment management income, and income and expenses related to the provision of management-related services by Kyocera’s head office to each reporting segment. Corporate income increased by ¥3,928 million ($39 million), or 45.8%, to ¥12,497 million ($125 million) compared with ¥8,569 million in fiscal 2007. Interest and dividend income, which were the main contributors, increased compared with fiscal 2007. As a result, corporate profit increased compared with fiscal 2007.

Taxes

Current and deferred income taxes in fiscal 2008 increased by ¥11,348 million ($113 million), or 23.2%, to ¥60,235 million ($602 million) compared with ¥48,887 million in fiscal 2007.

Current income taxes in fiscal 2007 included the tax refunds of ¥4,305 million. The tax refunds were related to the cancellation of a portion of ¥12,748 million additional taxes imposed by Osaka Regional Tax Bureau on March 28, 2005 which Kyocera had expensed in the year ended March 31, 2005. Current income taxes in fiscal

 

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2008 included the tax expense of ¥3,242 million ($32 million) by applying the Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB statement No.109” (“FIN 48”).

The effective tax rate of 34.5% in fiscal 2008 was 3.3 points higher than the effective rate in fiscal 2007 of 31.2%. The increase in the effective tax rate is due mainly to the decrease in tax refunds in fiscal 2007 by 2.8 points from the Japanese statutory tax rate, while the increase by 1.9 points from applying FIN 48 and a decrease of 0.9 points due to a change in tax rates in Chinese subsidiaries in fiscal 2008.

For detailed information, see Note 17 to the Consolidated Financial Statements in this annual report on Form 20-F.

Minority interests

Minority interests in fiscal 2008 amounted to ¥7,363 million ($74 million) and minority interests related to AVX Corporation, which accounted for approximately 30% of minority ownership interests, amounted to ¥4,964 million ($50 million). Minority interests in fiscal 2008 increased by ¥1,039 million ($10 million) compared with minority interests of ¥6,324 million in fiscal 2007. This was due mainly to an increase in net income at Kyocera Communication Systems Co., Ltd., which accounted for approximately 25% of minority ownership interests.

Fiscal 2007 compared with Fiscal 2006

The following table shows a summary of Kyocera’s results of operations for fiscal 2006 and fiscal 2007:

 

     Years ended March 31,     Increase
(Decrease)
 
     2006     2007    
     Amount     %     Amount     %     %  
     (Yen in millions)  

Net sales

   ¥ 1,173,544     100.0     ¥ 1,283,897     100.0     9.4  

Cost of sales

     835,042     71.2       900,470     70.1     7.8  
                                  

Gross profit

     338,502     28.8       383,427     29.9     13.3  

Selling, general and administrative expenses

     238,807     20.3       248,325     19.4     4.0  
                                  

Profit from operations

     99,695     8.5       135,102     10.5     35.5  

Interest and dividend income

     8,990     0.8       15,472     1.2     72.1  

Interest expense

     (1,301 )   (0.1 )     (1,647 )   (0.1 )   —    

Foreign currency transaction gains (losses), net

     (316 )   0.0       (65 )   (0.0 )   —    

Equity in (losses) earnings of affiliates and unconsolidated subsidiaries

     (1,216 )   (0.1 )     2,621     0.2     —    

Gains on sales and maturities of securities, net

     1,472     0.1       3,819     0.3     159.4  

Gains on exchange for the shares

     5,294     0.4       24     0.0     (99.5 )

Gain on sale of investment in an affiliate

     6,931     0.6       26     0.0     (99.6 )

Loss on impairment of investment in an affiliate

     (3,492 )   (0.3 )     —       —       —    

Other, net

     1,180     0.1       1,188     0.1     0.7  
                                  
     17,542     1.5       21,438     1.7     22.2  
                                  

Income from continuing operations before income taxes and minority interests

     117,237     10.0       156,540     12.2     33.5  

Income taxes

     46,760     4.0       48,887     3.8     4.5  
                                  

Income from continuing operations before minority interests

     70,477     6.0       107,653     8.4     52.7  

Minority interests

     (4,389 )   (0.4 )     (6,324 )   (0.5 )   —    
                                  

Income from continuing operations

     66,088     5.6       101,329     7.9     53.3  

Income from discontinued operations

     3,608     0.3       5,175     0.4     43.4  
                                  

Net income

   ¥ 69,696     5.9     ¥ 106,504     8.3     52.8  
                                  

 

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Note 3: Kyocera sold its all of our shares in Kyocera Leasing Co., Ltd., a subsidiary engaged in financing services; as a result, business results and profit on sales for Kyocera Leasing Co., Ltd. for fiscal 2007 have been recorded as income from discontinued operations in conformity with Statement of Financial Accounting Standards No.144, “Accounting for the impairment or disposal of Long-Lived Assets.” Figures for fiscal 2006 have been retrospectively reclassified for comparative purposes. As a result, reclassified consolidated net sales for fiscal 2006 decreased by ¥7,945 million compared with the result previously reported, reclassified profit from operations decreased by ¥3,512 million and income from continuing operations before income taxes and minority interests for fiscal 2006 decreased by ¥4,151 million, respectively.

Net sales

Consolidated net sales for fiscal 2007 increased by ¥110,353 million, or 9.4%, to ¥1,283,897 million, compared with ¥1,173,544 million in fiscal 2006.

Consolidated net sales in the Components Business in fiscal 2007 increased by ¥69,058 million, or 11.9%, to ¥650,877 million compared with fiscal 2006. In particular, sales in the Electronic Device Group were strong throughout the year, notably in ceramic capacitors and timing devices. As a result, sales in the Electronic Device Group increased by ¥26,564 million, or 10.2% compared with fiscal 2006. In addition, sales in the Fine Ceramic Parts Group, the Semiconductor Parts Group and the Applied Ceramic Products Group also achieved growth of 17.2%, 12.6% and 11.5%, respectively, compared with fiscal 2006.

Consolidated net sales in the Equipment Business increased by ¥41,548 million, or 8.7% to ¥519,964 million compared with fiscal 2006. Sales in the Telecommunications Equipment Group and the Information Equipment Group increased by ¥22,148 million, or 9.7%, and ¥19,400 million, or 7.8% compared with fiscal 2006. These increases were due to strong demand in mobile phone handsets and new printers and multifunctional systems.

A detailed analysis and discussion of Kyocera’s net sales by reporting segment and geographic segment are as follows:

Net sales by reporting segment

The following table shows a breakdown of Kyocera’s total consolidated net sales for fiscal 2006 and fiscal 2007 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
     2006     2007    
     Amount     %     Amount     %     %
     (Yen in millions)

Fine Ceramic Parts Group

   ¥ 69,373     5.9     ¥ 81,326     6.3     17.2

Semiconductor Parts Group

     135,299     11.6       152,292     11.9     12.6

Applied Ceramic Products Group

     117,555     10.0       131,103     10.2     11.5

Electronic Device Group

     259,592     22.1       286,156     22.3     10.2
                                

Total Components Business

     581,819     49.6       650,877     50.7     11.9

Telecommunications Equipment Group

     229,035     19.5       251,183     19.6     9.7

Information Equipment Group

     249,381     21.2       268,781     20.9     7.8
                                

Total Equipment Business

     478,416     40.7       519,964     40.5     8.7

Others

     132,290     11.3       137,235     10.7     3.7

Adjustments and eliminations

     (18,981 )   (1.6 )     (24,179 )   (1.9 )   —  
                                
   ¥ 1,173,544     100.0     ¥ 1,283,897     100.0     9.4
                                

 

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Note 4: Commencing in fiscal 2007, the Precision Machine Division of Kyocera Corporation, formerly included in “Corporate,” has been reclassified into “Others.” In addition, commencing in fiscal 2008, the “Optical Equipment Group,” previously a separate reporting segment, has been reclassified into “Others.” Accordingly, previously reported results of these reporting segments for fiscal 2006 and 2007 have been retrospectively reclassified.

(1) Fine Ceramic Parts Group

Sales in this segment in fiscal 2007 increased by ¥11,953 million, or 17.2%, to ¥81,326 million, compared with ¥69,373 million in fiscal 2006. This increase was due primarily to expanded demand for components for semiconductor processing equipment, spurred by strong production activities in the semiconductor industry.

(2) Semiconductor Parts Group

Sales in this segment increased by ¥16,993 million, or 12.6%, to ¥152,292 million, compared with ¥135,299 million in fiscal 2006. This increase was due mainly to increased demand for ceramic packages used in mobile phone handsets and digital still cameras.

(3) Applied Ceramic Products Group

Sales in this segment increased by ¥13,548 million, or 11.5%, to ¥131,103 million, compared with ¥117,555 million in fiscal 2006. This increase was due mainly to sales growth of solar energy products, particularly in the European market, combined with increased demand for medical materials and cutting tools.

(4) Electronic Device Group

Sales in this segment increased by ¥26,564 million, or 10.2%, to ¥286,156 million, compared with ¥259,592 million in fiscal 2006. Demand for products such as ceramic capacitors, crystal-related components, and connectors expanded primarily due to strong production activity for digital consumer equipment. In addition, AVX Corporation, a U.S. subsidiary, also recorded increased sales.

(5) Telecommunications Equipment Group

Sales in this segment increased by ¥22,148 million, or 9.7%, to ¥251,183 million, compared with ¥229,035 million in fiscal 2006. This increase was due to sales growth of new mobile phone handsets in Japan and overseas.

(6) Information Equipment Group

Sales in this segment increased by ¥19,400 million, or 7.8%, to ¥268,781 million, compared with ¥249,381 million in fiscal 2006. Sales of multifunctional systems and ECOSYS printers expanded overseas as a result of the aggressive introduction of new products and enhanced marketing activities.

(7) Others

Sales in this segment increased by ¥4,945 million, or 3.7%, to ¥137,235 million, compared with ¥132,290 million in fiscal 2006. This increase was due mainly to growth of sales in the telecommunications engineering business at Kyocera Communication Systems Co., Ltd.

 

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Net sales by geographic segment

The following table shows a breakdown of Kyocera’s total consolidated net sales for fiscal 2006 and fiscal 2007, distinguishing between domestic and overseas sales and, with respect to overseas sales, showing the geographical areas in which such sales were made:

 

     Years ended March 31,    Increase
(Decrease)
     2006    2007   
     Amount    %    Amount    %    %
     (Yen in millions)

Japan

   ¥ 467,035    39.8    ¥ 496,959    38.7    6.4

United States of America

     253,696    21.6      274,361    21.4    8.1

Asia

     198,731    16.9      216,663    16.9    9.0

Europe

     184,351    15.7      210,726    16.4    14.3

Others

     69,731    6.0      85,188    6.6    22.2
                            
   ¥ 1,173,544    100.0    ¥ 1,283,897    100.0    9.4
                            

Note 5: For the reasons set forth in Note 3, consolidated sales in Japan in fiscal 2006 decreased by ¥7,945 million, compared with those previously reported.

Sales in Japan, which comprised 38.7% of consolidated net sales, increased by ¥29,924 million, or 6.4%, to ¥496,959 million, compared with ¥467,035 million in fiscal 2006, due to sales growth in mobile phone handsets and products in the Fine Ceramic Parts Group, such as components for semiconductor processing equipment. Overseas sales, which comprised 61.3% of consolidated net sales, increased by ¥80,429 million, or 11.4%, to ¥786,938 million, compared with ¥706,509 million in fiscal 2006, due to sales growth of the Electronic Device Group in Asia, the Information Equipment and solar energy business in Europe, and mobile phone handsets and the Semiconductor Parts Group in the United States.

Since almost all overseas sales were denominated in U.S. dollars or Euro, the depreciation of the yen against these currencies during fiscal 2007 produced a positive impact of approximately ¥39.6 billion in net sales compared with fiscal 2006, after translation into yen.

Sales in the United States increased by ¥20,665 million, or 8.1%, to ¥274,361 million, compared with ¥253,696 million in fiscal 2006, due to sales growth of mobile phone handsets at Kyocera Wireless Corp., sales growth of the Semiconductor Parts Group, and sales growth of the Information Equipment Group. Sales in Asia increased by ¥17,932 million, or 9.0%, to ¥216,663 million, compared with ¥198,731 million in fiscal 2006, due to higher sales growth of the Electronic Device Group for digital consumer equipment and higher sales growth of the Semiconductor Parts Group. Sales in Europe increased by ¥26,375 million, or 14.3%, to ¥210,726 million, compared with ¥184,351 million in fiscal 2006, due mainly to sales growth of the Information Equipment Group, including products such as ECOSYS printers and multifunctional systems, and sales growth of the Electronic Device Group, combined with expanded sales in solar energy products. Sales in Others increased by ¥15,457 million, or 22.2%, to ¥85,188 million, compared with ¥69,731 million in fiscal 2006, due primarily to sales growth of mobile phone handsets.

Cost of sales and gross profit

In fiscal 2007, cost of sales increased by ¥65,428 million, or 7.8%, to ¥900,470 million from ¥835,042 million in fiscal 2006. This is due mainly to an increase in raw material costs as well as expansion of production due to strong demand in the Components Business and the Equipment Business.

Raw material costs of ¥388,095 million accounted for 43.1%, and labor costs of ¥163,836 million accounted for 18.2% out of the total cost of sales. The ratio of cost of sales to net sales was 70.1%, a decrease of 1.1 points compared with 71.2% in fiscal 2006. This decrease was primarily caused by improved productivity. Reduction of

 

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production costs at Kyocera Wireless Corp. as a result of structural reforms as well as cost reduction in the Optical Equipment Group due mainly to the downsizing of the camera business contributed to this improvement.

As a result, gross profit increased by ¥44,925 million, or 13.3%, in fiscal 2007 to ¥383,427 million from ¥338,502 million in fiscal 2006. The gross profit to net sales ratio increased by 1.1 points from 28.8% to 29.9%.

SG&A expenses and profit from operations

Selling, general and administrative (SG&A) expenses in fiscal 2007 increased by ¥9,518 million, or 4.0%, to ¥248,325 million, compared with ¥238,807 million in fiscal 2006. This primarily reflected increases in sales promotion costs due to strengthened marketing efforts and in software development costs in the Equipment Business. Labor cost was ¥119,267 million, or 48.0% of total SG&A expenses, and sales promotion and advertising cost was ¥41,337 million, or 16.6% of total SG&A expenses. The proportion of SG&A expenses to net sales dropped by 0.9 points to 19.4% in fiscal 2007, compared with 20.3% in fiscal 2006.

The increase in gross profit was more than an increase in SG&A expenses and as a result, profit from operations increased by ¥35,407 million, or 35.5%, to ¥135,102 million compared with ¥99,695 million in fiscal 2006 due to further increase of gross profit. The operating margin rose by 2.0 points to 10.5% in fiscal 2007 compared with 8.5% in fiscal 2006.

Interest and dividend income

Interest and dividend income in fiscal 2007 increased by ¥6,482 million, or 72.1%, to ¥15,472 million, compared with ¥8,990 million in fiscal 2006. This was mainly due to favorable investment management results and an increase in dividend income from KDDI Corporation. Kyocera has an investment policy aimed at low risk, stability and liquidity, and it does not typically invest in high-risk financial instruments only for pursuing profits.

Interest expense

Interest expense in fiscal 2007 increased by ¥346 million, or 26.6%, to ¥1,647 million, compared with ¥1,301 million in fiscal 2006. This was mainly due to an increase in interest expense at foreign subsidiaries and a slight upward trend of interest rates in Japanese financial market.

Foreign currency translation

During fiscal 2007, the average exchange rate for the yen depreciated by ¥4, or 3.5%, against the U.S. dollar and depreciated by ¥12, or 8.7%, against the Euro as compared with fiscal 2006. At March 31, 2007, the yen had depreciated by ¥1, or 0.9%, against the U.S. dollar and had depreciated by ¥14, or 9.8%, against the Euro compared with at March 31, 2006. Kyocera recorded foreign currency transaction losses of ¥65 million in fiscal 2007.

Kyocera typically enters into forward exchange contracts to minimize currency exchange risks on foreign currency denominated receivables and payables. Kyocera confines its use of derivative financial instruments to the hedging of its foreign exchange exposures and does not utilize derivative transactions for trading purposes.

Gains and losses from investments

In fiscal 2007, Kyocera’s earnings or losses on equity-method investments resulted in earnings of ¥2,621 million, an increase of ¥3,837 million, compared with losses of ¥1,216 million in fiscal 2006. Kyocera’s equity in earnings of affiliates and unconsolidated subsidiaries in fiscal 2007 was derived mainly from interests in WILLCOM, Inc.

 

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Kyocera Corporation owns a 30% interest in WILLCOM, Inc., which operates a PHS service in Japan. Kyocera Corporation accounted for this investment using the equity method. WILLCOM, Inc. recorded net losses due mainly to temporary sales commission in fiscal 2006. However, WILLCOM, Inc. recorded net income derived from an increase in net sales originated by a steady increase of customers in fiscal 2007. As a result, Kyocera recognized earnings on equity method investments.

Net gains on sales and maturities of securities in fiscal 2007 increased by ¥2,347 million, or 159.4%, to ¥3,819 million, compared with ¥1,472 million in fiscal 2006. This was due mainly to realization of unrealized gains by sale of investment securities.

Following the merger of Mitsubishi Tokyo Financial Group, Inc. and UFJ Holdings, Inc., on October 1, 2005, Kyocera’s shares of UFJ Holdings, Inc. were exchanged for the shares of the new company, Mitsubishi UFJ Financial Group, Inc. As a result of this share exchange, Kyocera recorded a gain of ¥5,281 million in fiscal 2006.

Kyocera Corporation owned a 36.02% interest in Taito Corporation, a major affiliate which operates in the electric amusement business. Kyocera accounted for its investment under the equity method. On September 28, 2005, Kyocera Corporation sold its entire holding of shares of Taito Corporation in a tender offer bid for the shares of Taito Corporation by Square Enix Co., Ltd., one of the leading companies in the game software industry. As a result of this sale of the shares of Taito Corporation, Kyocera Corporation recorded a gain on sales of investment in an affiliate of ¥6,931 million in fiscal 2006.

Kyocera Mita Corporation owns a 30% interest in Triumph-Adler AG Group (TA), a distributor of office equipment, and Kyocera Mita Corporation accounted for its investment under the equity method. Kyocera recognized a loss on impairment of investment in TA of ¥3,492 million due to an extended decline in its market value in fiscal 2006. Kyocera did not recognize a loss on impairment of investment in TA as a result of an increase of its market value in fiscal 2007.

Income from continuing operations before income taxes

Enhanced profitability through the effects of increased sales and improved productivity contributed to increased operating profit of all reporting segments in the Components Business and the Equipment Businesses. In addition, interest and dividend income and equity in earnings of affiliates and unconsolidated subsidiaries increased compared with fiscal 2006. As a result, income from continuing operations before income taxes for fiscal 2007 increased by ¥39,303 million, or 33.5%, to ¥156,540 million compared with ¥117,237 million in fiscal 2006. Operating profit in the Components Business resulted in an increase of ¥26,906 million, or 34.6%, due primarily to sales growth and improved productivity in the Electronic Device Group. Operating profit in the Equipment Business significantly increased, growing by ¥13,434 million, or 71.0%, due to rising sales of the Information Equipment Group. This increase resulted in a profit in the Telecommunications Equipment Group and decreased operating loss in the Optical Equipment Group.

 

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Operating profit by reporting segment

The following table shows a breakdown of Kyocera’s consolidated income from continuing operations before income taxes, and operating profit for fiscal 2006 and fiscal 2007 by the eight reporting segments:

 

     Years ended March 31,    Increase
(Decrease)
 
     2006    2007   
     Amount     %*    Amount     %*    %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 11,014     15.9    ¥ 15,677     19.3    42.3  

Semiconductor Parts Group

     17,742     13.1      22,210     14.6    25.2  

Applied Ceramic Products Group

     21,876     18.6      22,334     17.0    2.1  

Electronic Device Group

     27,170     10.5      44,487     15.5    63.7  
                                

Total Components Business

     77,802     13.4      104,708     16.1    34.6  

Telecommunications Equipment Group

     (1,706 )   —        291     0.1    —    

Information Equipment Group

     26,412     10.6      33,970     12.6    28.6  
                                

Total Equipment Business

     24,706     5.2      34,261     6.6    38.7  

Others

     3,209     2.4      6,881     5.0    114.4  
                                

Operating profit

     105,717     9.0      145,850     11.4    38.0  

Corporate

     12,785     —        8,569     —      (33.0 )

Equity in (losses) earnings of affiliates and unconsolidated subsidiaries

     (1,216 )   —        2,621     —      —    

Adjustments and eliminations

     (49 )   —        (500 )   —      —    
                                

Income from continuing operations before income taxes

   ¥ 117,237     10.0    ¥ 156,540     12.2    33.5  
                                

 

* % to net sales of each corresponding segment

Note 6: Commencing in fiscal 2007, the Precision Machine Division of Kyocera Corporation, formerly included within “Corporate,” has been reclassified into “Others.” In addition, commencing in fiscal 2008, the “Optical Equipment Group,” previously a separate reporting segment, has been reclassified into “Others.” Accordingly, previously reported results of these reporting segments for fiscal 2006 and 2007 have been retrospectively reclassified.

(1) Fine Ceramic Parts Group

Operating profit in this segment increased by ¥4,663 million, or 42.3%, to ¥15,677 million, compared with ¥11,014 million in fiscal 2006. This was primarily due to sales growth of components for semiconductor processing equipment, which are the core products in this reporting segment.

(2) Semiconductor Parts Group

Operating profit in this segment increased by ¥4,468 million, or 25.2%, to ¥22,210 million, compared with ¥17,742 million in fiscal 2006. This increase was due mainly to sales growth of ceramic packages for mobile phone handsets and digital still cameras.

(3) Applied Ceramic Products Group

Operating profit in this segment increased by ¥458 million, or 2.1%, to ¥22,334 million, compared with ¥21,876 million in fiscal 2006. Operating profit in this segment grew mainly due to increased profit in dental implants, artificial bone and joint prosthesis, and jewelry and applied ceramic related products.

 

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(4) Electronic Device Group

Operating profit in this segment increased by ¥17,317 million, or 63.7%, to ¥44,487 million, compared with ¥27,170 million in fiscal 2006. Demand for products such as capacitors, crystal-related components, and connectors expanded due primarily to strong production activity for digital consumer equipment throughout the year. In addition, AVX Corporation in particular improved its operating profit.

(5) Telecommunications Equipment Group

Operating profit in this segment improved by ¥1,997 million to ¥291 million, compared with ¥1,706 million in operating loss in fiscal 2006. Despite the impairment loss of inventory in the PHS business in fiscal 2007, operating profit in this segment improved due to reduction of operating loss at Kyocera Wireless Corp. as a result of structural reforms, along with sales growth of new mobile phone handsets in Japan.

In fiscal 2006, Kyocera outsourced the manufacture of mobile phone handsets of Kyocera Wireless Corp. and sold its manufacturing equipment and inventories to Flextronics International Ltd, a leading provider of electronics manufacturing services. Kyocera Wireless Corp. reduced its manufacturing costs significantly and improved its profitability by taking cost-down activities in its procurements of parts and materials through a strong promotion of the outsourcing to Flextronics International Ltd. and by making fixed costs related to the manufacturing of mobile phone handsets into variable costs. Kyocera Wireless Corp. also focused its business operation on specializing in the research, development, sales and marketing of mobile phone handsets.

(6) Information Equipment Group

Operating profit in this segment increased by ¥7,558 million, or 28.6%, to ¥33,970 million, compared with ¥26,412 million in fiscal 2006. This was due to sales growth of ECOSYS printers, multifunctional systems and consumables as well as due to the positive effects of the yen’s depreciation against the Euro and the U.S. dollar.

(7) Others

Operating profit in this segment increased by ¥3,672 million, or 114.4%, to ¥6,881 million, compared with ¥3,209 million in fiscal 2006. In spite of a loss on impairment of goodwill, which was caused by stagnant sales and profit results amounting to ¥1,478 million at a domestic subsidiary in fiscal 2007, downsizing of the camera business and an absence of expenses for structural reform, which were recorded in fiscal 2006, contributed to an overall increase in operating profit.

(8) Corporate

Corporate income and losses constitute income and expenses related to the provision of management-related services by Kyocera’s head office to each reporting segment, together with any profit-and-loss items that management judges not to belong within the above reporting segments, such as gains or losses relating to investment securities. Corporate income decreased by ¥4,216 million, or 33.0%, to ¥8,569 million, compared with ¥12,785 million in fiscal 2006. Interest and dividend income, which were the main contributors, increased compared with fiscal 2006. However, the income in fiscal 2006 included a gain of ¥6,931 million through the sale of all of our shares of Taito Corporation, an exchange gain of ¥5,281 million on shares of UFJ Holdings, Inc. in connection with the exchange of those shares of those shares of Mitsubishi UFJ Financial Group, and a loss of ¥3,492 million on impairment of investment in TA, an affiliate of Kyocera Mita Corporation. As a result, corporate profit decreased compared with fiscal 2006.

Taxes

On March 28, 2005, Kyocera Corporation received a notice of tax assessment based on transfer pricing adjustments from the Osaka Regional Tax Bureau stating that, in the Bureau’s judgment, allocation of profit

 

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earned from the transfer of products between Kyocera Corporation and its overseas subsidiaries was not appropriate for the five years from fiscal 1999 through fiscal 2003. The notice indicated that income should be adjusted upwards by ¥24,394 million and that resultant additional tax, including local taxes, etc., amounted to ¥12,748 million.

Current and deferred income taxes in fiscal 2007 increased by ¥2,127 million, or 4.5%, to ¥48,887 million compared with ¥46,760 million in fiscal 2006.

Current income taxes in fiscal 2007 included the tax refunds of ¥4,305 million. The tax refunds were related to the cancellation of a portion of ¥12,748 additional taxes imposed by Osaka Regional Tax Bureau on March 28, 2005 which Kyocera had expensed in the year ended March 31, 2005. For detailed information, see Note 17 to the Consolidated Financial Statements in this annual report on Form 20-F.

The effective tax rate of 31.2% in fiscal 2007 was 8.7 points lower than 39.9% in fiscal 2006. The decrease in the effective tax rate is due mainly to the changes in valuation allowance against deferred tax assets. In fiscal 2006, Kyocera recognized additional valuation allowance against deferred tax assets at several subsidiaries with continued losses, which made the effective tax rate 5.8% higher than the Japanese statutory tax rate. In fiscal 2007, there were no significant changes in valuation allowance against deferred tax assets. The tax refunds related to the transfer pricing adjustments also contributed to the lower effective tax rate in fiscal 2007, which made the effective tax rate 2.8% lower than the Japanese statutory tax rate. For detailed information, see Note 17 to the Consolidated Financial Statements in this annual report on Form 20-F.

Minority interests

Kyocera’s minority interests are principally related to AVX Corporation, which accounted for approximately 30% of all minority ownership interests. Minority interests increased by ¥1,935 million to ¥6,324 million in fiscal 2007, compared with ¥4,389 million in fiscal 2006. This was due mainly to a large increase in net income at AVX Corporation.

Discontinued Operations

On August 1, 2006, Kyocera sold all of our shares in Kyocera Leasing Co., Ltd. (presently Diamond Asset Finance Company Limited) to Diamond Lease Company Limited (presently Mitsubishi UFJ Lease & Finance Company Limited) for ¥25,274 million, aiming to concentrate Kyocera’s management resources on its core businesses to enhance and improve its corporate value. In recent years active reorganization has been ongoing within the financing industry. Under such circumstances, Kyocera considered it better for Kyocera Leasing Co., Ltd. to work with Diamond Lease Company Limited and not with Kyocera, which is mainly engaged in manufacturing, to enable Kyocera Leasing Co., Ltd. to continue to grow and further develop its businesses. Kyocera also believed this sale would enable Kyocera to concentrate management resources on its businesses requiring enhancement to improve its corporate value. Kyocera has accounted for the results of operations and the sale of Kyocera Leasing Co., Ltd. less appreciable income taxes as discontinued operations in accordance with Statement of Financial Accounting Standards (SFAS) No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” in its consolidated statements of income.

Critical Accounting Policies and Estimates

Kyocera’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results may differ from these estimates, judgments and assumptions.

 

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An accounting estimate in Kyocera’s consolidated financial statements is a critical accounting estimate if it requires Kyocera to make assumptions about matters that are highly uncertain at the time the accounting estimate is made and if either different estimates that Kyocera reasonably could have used in the current period or changes in the accounting estimate that are reasonably likely to occur from period to period would have a material impact on the presentation of Kyocera’s financial condition, changes in financial condition or results of operations. Kyocera has identified the following critical accounting policies with respect to its financial presentation.

Allowances for doubtful accounts

Kyocera maintains allowances for doubtful accounts related to both trade and finance receivables for estimated losses resulting from customers’ inability to make timely payments, including interest on finance receivables. Kyocera’s estimates are based on various factors, including the length of past due payments, historical experience and current business environments. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations, a specific allowance against these amounts is provided considering the fair value of assets pledged by the customer as collateral.

Inventory valuation

Kyocera estimates the amount of write-downs required to properly value inventory. Write-downs are provided for excess, slow-moving and obsolete inventory as well as valuation losses required to adjust recorded cost to its market value. Kyocera generally considers all inventory aged over certain holding periods to be slow-moving or obsolete. Kyocera also records inventory write-downs based on its projections of future demand, market conditions and related management-led initiatives even though the age of corresponding inventory is shorter than certain holding periods.

As a result of continuous strict controls and adjustments on inventories, Kyocera recognized inventory write-downs of ¥11,328 million and ¥5,141 million ($51 million) in fiscal 2007 and 2008, respectively. The amounts of these inventory write-downs by reporting segments appear in Note 19 to the Consolidated Financial Statements included in this annual report on Form 20-F. A large portion of these inventory write-downs arose from inventories of telecommunications equipment and information equipment. These products were subject to a decrease in demand and a decline in price, and turned out to be obsolete because of their short product lives.

The majority of Kyocera’s inventories are produced for the IT industry. Each of these products generally has a short product life, and is susceptible to market demand and price fluctuations. In light of the impacts by segments, inventory write-downs significantly affect all the segments. If market conditions and demand in the information technology industry are less favorable than Kyocera’s projections, additional write-downs may be required.

Impairment of securities and investments

Kyocera records impairment charges for debt and equity securities and investments in affiliates and unconsolidated subsidiaries accounted for under the equity method when it believes that the decline of fair value is other-than-temporary. Kyocera regularly reviews each security and investment for impairment based on the extent to which the fair value is less than cost, the duration of the decline, the anticipated recoverability of fair value in the future and the financial conditions of the issuer. Poor operating results of the issuers of these securities or adverse changes in the market may cause impairment losses in future periods. The impairment losses are recorded as Corporate losses.

Kyocera recognized losses on impairment of securities (current asset) and investment securities (non-current) of ¥955 million and ¥247 million ($2 million) in fiscal 2007 and 2008, respectively.

Kyocera is currently a major shareholder of KDDI Corporation. The price fluctuation of the shares of KDDI Corporation may affect Kyocera’s financial conditions. At March 31, 2008, the unrealized gain of ¥99,697 million ($997 million) on the shares of KDDI Corporation held by Kyocera had decreased considerably

 

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compared with that of ¥289,853 million as of at March 31, 2007, reflecting a fluctuation of the market price of the shares of KDDI Corporation during fiscal 2008. As the operating results of KDDI Corporation were stable, the performance of the shares of KDDI Corporation is considered to be temporary. For detailed information on the gross unrealized gain or loss, see Note 5 to the Consolidated Financial Statements in this report.

Impairment of long-lived assets

Kyocera reviews its long-lived assets and intangible assets with definite useful lives for impairment periodically. Long-lived assets and intangible assets with definite useful lives are considered to be impaired when the expected undiscounted cash flow from the asset group is less than its carrying value. A loss on impairment is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets and intangible assets with definite useful lives.

Goodwill and other intangible assets

Kyocera has adopted SFAS No.142, “Goodwill and Other Intangible Assets.” This requires that, rather than being amortized, goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually and also following any events or changes in circumstances that might lead to impairment. Intangible assets with definite useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

An increase in goodwill of ¥10,413 million ($104 million) in fiscal 2008 mainly reflected goodwill that resulted from the acquisition of American Technical Ceramics Corp. by AVX Corporation, which is included in the Electronic Device Group. For detailed information about this acquisition, see Note 4 to the Consolidated Financial Statements in this annual report on Form 20-F.

In the three months ended March 31, 2007, Kyocera performed the annual impairment test of goodwill and other intangible assets and recorded an impairment loss of ¥ 1,478 million in a reporting unit in the Others segment. The impairment charge reflected the overall decline in the fair value of a domestic subsidiary. The fair value of the subsidiary was estimated principally using the expected present value of future cash flow.

In the three months ended March 31, 2008, Kyocera also performed the annual impairment test and no impairment loss was recognized.

Deferred tax assets

Kyocera records deferred tax assets with valuation allowances to adjust their carrying amounts when it believes that it is more likely than not that the assets will not be realized. The valuation of deferred tax assets principally depends on the estimation of future taxable income and feasible tax planning strategies. If future taxable income is lower than expected due to future market conditions or poor operating results, significant adjustments to deferred tax assets may be required. At March 31, 2008, deferred tax assets amounted to ¥88,978 million ($890 million), which Kyocera considers will reasonably be realized in the future. This estimate is reasonable when compared with the amounts of income from continuing operations before income taxes and income taxes in fiscal 2008.

Benefit plans

Projected benefit obligations and net periodic costs are determined on an actuarial basis and are significantly affected by the assumptions used in their calculation, such as the discount rates, the expected long-term rate of return on plan assets, the rate of increase in compensation levels and other assumptions. Kyocera determines the discount rate by referencing the yield on high quality fixed income securities such as Japanese Government Bonds. The expected return on plan assets is determined based on the rate of historical earnings and Kyocera’s expectation of future performance of the funds in which plan assets are invested. The rate of increase in

 

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compensation levels is determined based mainly on results of operations and inflation. Kyocera annually reviews the assumptions underlying its actuarial calculations, making adjustments based on current market conditions, if necessary. If Japanese and global financial markets stagnate, Kyocera may be required to decrease its assumptions of the discount rate and the expected long-term rate of return on plan assets, and a decrease in such assumptions will lead to an increase in projected benefit obligations and net periodic pension costs.

As of March 31, 2007, Kyocera adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” which requires an employer to recognize the over funded or under funded status of its defined benefit postretirement plans as an asset or liability in its consolidated balance sheets and to recognize changes in that funded status through comprehensive income in the year in which the changes occur. Accordingly, if changes in the assumptions lead to increases of projected benefit obligations or decrease in the value of plan assets, the amounts of comprehensive income will decrease.

Sensitivity analysis of benefit plans

The following table illustrates the effect of assumed changes in discount rates and the expected rate of return on plan assets, while holding assuming all other assumptions consistent, for the benefit plan at Kyocera Corporation and its major domestic subsidiaries which accounts for a significant portion of Kyocera’s projected benefit obligations and net periodic pension costs.

 

     Effect on projected
benefit obligation

as of March 31, 2008
 
     (Yen in millions)  

Discount rates:

  

0.25% decrease

   ¥ 3,671  

0.25% increase

     (3,462 )
     Effect on income
before income taxes

for the year ending
March 31, 2009
 

Discount rates:

  

0.25% decrease

   ¥ (100 )

0.25% increase

     96  

Expected rate of return on plan assets:

  

0.25% decrease

     (300 )

0.25% increase

     300  

Contingencies

Kyocera is subject to various lawsuits and claims which arise in the ordinary course of business. Kyocera consults with legal counsel and assesses the likelihood of adverse outcomes of these contingencies. Kyocera records liabilities for these contingencies when the likelihood of an adverse outcome is probable and the amount is reasonably estimable. In making these estimates, Kyocera considers the progress of the lawsuits, the situations of other companies that are subject to similar lawsuits and other relevant factors. The amounts of liabilities accrued are based on estimates and may be significantly affected by further developments or the resolution of these contingencies in the future.

AVX Corporation has been named as a potentially responsible party in state and federal administrative proceedings seeking contribution for costs associated with the correction and remediation of environmental conditions at various waste disposal and operating sites. To resolve AVX Corporation’s liability at each of the sites at which AVX Corporation has been named a potentially responsible party, AVX Corporation has entered into various administrative orders and consent decrees with federal and state regulatory agencies. AVX Corporation has paid, or reserved for, all estimated amounts required under the terms of these orders and decrees corresponding to AVX Corporation’s apportioned share of the liabilities.

 

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In July 2007, AVX Corporation received oral notification from the Environmental Protection Agency, and in December 2007, written notification from the U.S. Department of Justice indicating that the United States is preparing to exercise the reopener provision under a consent decree relating to the environmental conditions at, and remediation of, New Bedford Harbor in the Commonwealth of Massachusetts. The Environmental Protection Agency has indicated that remediation costs through December 6, 2007 (which remediation is ongoing) are approximately ¥31,850 million ($319 million). AVX Corporation has not yet completed an investigation of the monies spent or its available defenses in light of the notification. AVX Corporation has also not yet determined whether or to what extent other parties may bear responsibility for these costs. On April 1, 2008, the Environmental Protection Agency indicated that the future work to be performed at the harbor is expected to exceed hundreds of millions of dollars under current estimates. AVX Corporation anticipates further discussions with the U.S. Department of Justice, the Environmental Protection Agency and the Commonwealth of Massachusetts.

The potential impact of this matter on Kyocera’s financial position, results of operations and cash flows cannot be determined at this time.

Revenue recognition

Kyocera sells various types of products, including fine ceramic parts, semiconductor parts, and telecommunications equipment. Kyocera recognizes revenue upon completion of the earnings process, which occurs when products are shipped or delivered to customers in accordance with the terms of an agreement of sale, there is a fixed or determinable selling price, title and risk of loss have been transferred, and collectibility is reasonably assured. Most of these conditions are satisfied at the time of delivery to customers in domestic sales (FOB destination) and at the time of shipment (FOB shipping) for export sales.

Sales returns

Kyocera records an estimated sales return allowance at the time of sales based on its historical returns experience.

Products warranty

For after-service costs to be paid during warranty periods, Kyocera accrues a product warranty liability for claims under warranties relating to the products that have been sold. Kyocera records an estimated product warranty liability based on its historical repair experience.

Recently adopted Accounting Standards

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48) which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 also provides guidance on derecognition, classification, interest and penalties, disclosure and transitional measures. FIN 48 was effective for fiscal years beginning after December 15, 2006. The cumulative effect of applying FIN48, which was effective April 1, 2007, increased the opening balance of retained earnings by ¥3,968 million ($40 million). For detailed information, see Note 17 to the Consolidated Financial Statements in this annual report on Form 20-F.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” The purpose of SFAS No. 157 is to define fair value, establish a framework for measuring fair value and enhance disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (FSP 157-1) and

 

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FSP 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2). FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities. The measurement and disclosure requirements related to financial assets and financial liabilities are effective April 1, 2008. The adoption of SFAS No. 157 for financial assets and financial liabilities is not expected to have a material impact on Kyocera’s consolidated results of operations and financial position. Kyocera is currently evaluating the impact that SFAS No. 157 will have on Kyocera’s consolidated results of operations and financial position when it is applied to non-financial assets and non-financial liabilities beginning after April 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS No.159 provides companies with an option to report selected financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings. SFAS No.159 is effective beginning after April 1, 2008. The adoption of SFAS No. 159 is not expected to have a significant impact on Kyocera’s consolidated results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS No. 141R), “Business Combinations”, which requires assets, liabilities and noncontrolling interests be measured at fair value. Under SFAS No.141R, transaction and restructuring costs are required to be generally expensed, as well as contingent consideration and in-process research and development be recorded at fair value on acquisition date as a part of fair value of acquired business. In addition, any tax adjustment made after the measurement period impacts income tax expenses. Kyocera will assess the impact of SFAS No.141R on any future acquisition and SFAS No. 141R will become effective for Kyocera on April 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an Amendment of Accounting Research Bulletin No.51.” SFAS No.160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No.160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No.160 is effective for fiscal years beginning on or after December 15, 2008. Kyocera is currently evaluating the impact that SFAS No.160 will have on Kyocera’s consolidated results of operations and financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities an Amendment of FASB Statement No.133”. SFAS No. 161 requires enhanced disclosures regarding an entity’s derivative and hedging activities to provide adequate information about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SAFS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective beginning after November 15, 2008. As SFAS No. 161 does not impact the measurement or recognition of derivative instruments, the adoption of SFAS No. 161 will not have any impact on Kyocera’s financial position, financial performance or cash flows.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States of America. The sources of accounting principles that are generally accepted are categorized in descending order as follows:

 

  a) FASB Statements of Financial Accounting Standards and Interpretations, FASB Statement 133 Implementation Issues, FASB Staff Positions and American Institute of Certified Public Accountants (AICPA) Accounting Research Bulletins and Accounting Principles Board Opinions that are not superseded by actions of the FASB

 

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  b) FASB Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and Accounting Guides and Statements of Position

 

  c) AICPA Accounting Standards Executive Committee Practice Bulletins that have been cleared by the FASB, consensus positions of the FASB Emerging Issues Task Force (EITF) and the Topics discussed in Appendix D of EITF Abstracts (EITF D-Topics) and

 

  d) Implementation guides (Q&As) published by the FASB staff, AICPA Accounting Interpretations, AICPA Industry Audit and Accounting Guides and Statements of Position not cleared by the FASB and practices that are widely recognized and prevalent either generally or in the industry

The adoption of SFAS No. 162 is not expected to have any impact on Kyocera’s consolidated results of operations and financial position.

B. Liquidity and Capital Resources

Capital resources

In the short term, Kyocera expects cash demands for working capital and funds for capital expenditures required for the expansion of operations, purchases of its treasury stock and payments of dividends to stockholders. Kyocera’s primary source of short-term liquidity is cash generated by operations. Certain subsidiaries also generate capital in the form of loans from financial institutions. At March 31, 2008, Kyocera’s short-term borrowings and long-term debt including current portion totaled ¥19,009 million ($190 million). The ratio to total assets of 1.0% still reflected a low level of dependence. Most borrowings were denominated in U.S. dollar and the yen but certain borrowings were denominated in other foreign currencies. Details of these borrowings are described in “Tabular Disclosure of Contractual obligations,” which also includes the information regarding obligations for the acquisition or construction of property, plant and equipment.

Capital expenditures in fiscal 2008 increased by ¥15,205 million ($152 million), or 21.8%, to ¥85,101 million ($851 million) from ¥69,896 million in fiscal 2007. In fiscal 2008, Kyocera made capital expenditures to expand production capacity in the solar energy business, the Electronic Device Group and the Information Equipment Group. R&D expenditures increased by ¥505 million ($5 million), or 0.8%, to ¥61,605 million ($616 million) from ¥61,100 million in fiscal 2007. In fiscal 2008, Kyocera’s research and development activities developed new products and strengthened functions of products in the solar energy business, the Electronic Device Group and the Information Equipment Group. Nearly all capital and R&D expenditures were funded using cash in hand or cash generated by operations.

During fiscal 2009, Kyocera expects total capital expenditures to be approximately ¥84,000 million ($840 million) and total R&D expenditures to be approximately ¥72,000 million ($720 million). In addition, Kyocera will pay the total amount of the consideration for the acquisition of the mobile phone-related business of SANYO Electric Co., Ltd. in cash during fiscal 2009. See Note 22 to the Consolidated Financial Statements on Form 20-F for the detail of the consideration of this acquisition. Kyocera believes that Kyocera needs to invest its resources continuously in the development of new business areas and improved technology in order to create new products, commercialize advanced technologies and thereby secure future earnings streams.

At March 31, 2008, Kyocera’s working capital totaled ¥816,543 million ($8,165 million), an increase of ¥76,240 million ($762 million), or 10.3%, from ¥740,303 million at March 31, 2007. This was due mainly to the effect of decreases in notes and accounts receivables and a decrease in inventory caused by the integration of inventory control locations at subsidiaries. Kyocera plans to continue to improve capital efficiency by shortening manufacturing lead time and reducing inventory level.

Cash from operations has generally been sufficient for Kyocera to fund its working capital requirements and to fulfill its future capital expenditures, debt repayments and other obligations. Kyocera’s net cash provided by operating activities in fiscal 2008 was ¥196,935 million ($1,969 million), and cash and cash equivalents at March 31, 2008 were ¥447,586 million ($4,476 million). Kyocera believes that its working capital is sufficient for present and predictable future requirements.

 

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Kyocera Corporation acquires treasury stock to facilitate the implementation of flexible capital policies and to develop its business in a dynamic manner in response to changes in the operating environment.

In fiscal 2008, Kyocera Corporation paid cash dividends totaling ¥22,684 million ($227 million), at ¥120 ($1.2) per share. Kyocera Corporation received approval at the general meeting of shareholders held on June 26, 2008 for the payment of year-end dividends totaling ¥11,367 million ($114 million), ¥60 ($0.6) per share, on June 27, 2008 to all stockholders of record on March 31, 2008.

Kyocera believes cash on hand and cash from operations will be sufficient to fund all cash requirements outlined above at least through fiscal 2009. Consequently, Kyocera does not currently intend to use any other external financing sources that might affect its credit agency ratings. If cash generated by operations are insufficient for funding purposes, Kyocera retains other financing options, including external sources, such as short-term or long-term borrowings, as well as financing directly in the capital markets through issuances of debt or equity securities. As evidenced by equity to assets ratio of 73.4% at March 31, 2008, Kyocera maintains a strong financial position, which leads Kyocera to believe that any capital requirements could be secured from external sources at a relatively low cost. Kyocera also maintains good business relationships with several major financial institutions.

Any future significant deterioration in market demand for Kyocera’s products, or a slump in product prices to levels substantially below those projected by Kyocera, could adversely affect Kyocera’s operating results and financial position, possibly resulting in reduced liquidity.

Cash flows

Fiscal 2008 compared with Fiscal 2007

The following table shows a summary of Kyocera’s cash flows for fiscal 2007 and fiscal 2008:

 

     Years ended March 31,
     2007     2008     2008     Increase
(Decrease)
     Amount     Amount     Amount     %
     (Yen in millions and U.S. dollars in thousands)

Cash flows from operating activities

   ¥ 149,644     ¥ 196,935     $ 1,969,350     31.6

Cash flows from investing activities

     (151,703 )     14,894       148,940     —  

Cash flows from financing activities

     (20,645 )     (28,071 )     (280,710 )   36.0

Cash and cash equivalents at end of year

     282,208       447,586       4,475,860     58.6

Net cash provided by operating activities in fiscal 2008 increased by ¥47,291 million ($473 million), or 31.6%, to ¥196,935 million ($1,969 million) from ¥149,644 million in fiscal 2007. Although accrued income taxes that increased in fiscal 2007 decreased in fiscal 2008, receivables and inventories that increased in fiscal 2007 decreased significantly in fiscal 2008. As a result, net cash provided by operating activities in fiscal 2008 increased.

Cash flow from investing activities turned from ¥151,703 million of cash outflows in fiscal 2007 to ¥14,894 million ($149 million) of cash inflows in fiscal 2008, and increased by ¥166,597 million ($1,666 million) compared with fiscal 2007. This was due mainly to a decrease in purchase of available-for-sales securities and a large increase in withdrawal of time deposits, which exceeded increases in purchases of property, plant and equipment, and intangible assets. This increase was also due to acquisitions of businesses as well as an absence of proceeds from the sale of shares of Kyocera Leasing Co., Ltd. in fiscal 2007.

Net cash used in financing activities in fiscal 2008 increased by ¥7,426 million ($74 million), or 36.0%, to ¥28,071 million ($281 million) from ¥20,645 million in fiscal 2007. This was due mainly to a decrease in short-term borrowings that had increased in fiscal 2007. This decrease exceeded a decrease in payments of long-tem debts in fiscal 2008.

 

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On August 1, 2006, Kyocera sold its shares of Kyocera Leasing Co., Ltd., a subsidiary engaged in financing services. As a result, both the amounts of proceeds from issuance of short-tem and long-term debts, and the amounts of payments of short-term and long-term debt, which were included in financial activities, decreased in fiscal 2008. However, such decreases did not have significant effects on Kyocera’s cash flows in total.

The yen’s appreciation against the U.S. dollar between March 31, 2007 and March 31, 2008 resulted in decreases in cash and cash equivalents of ¥18,380 million ($184 million).

At March 31, 2008, cash and cash equivalents totaled ¥447,586 million ($4,476 million). This represented a increase of ¥165,378 million ($1,654 million), or 58.6%, from ¥282,208 million at March 31, 2007. Most of Kyocera’s cash and cash equivalents were denominated in yen but certain cash and cash equivalents, mainly in overseas subsidiaries, were denominated in foreign currencies, such as the U.S. dollar.

Fiscal 2007 compared with Fiscal 2006

The following table shows a summary of Kyocera’s cash flows for fiscal 2006 and fiscal 2007:

 

     Years ended March 31,  
     2006     2007     Increase
(Decrease)
 
     Amount     Amount     %  
     (Yen in millions)  

Cash flows from operating activities

   ¥ 171,077     ¥ 149,644     (12.5 )

Cash flows from investing activities

     (165,467 )     (151,703 )   (8.3 )

Cash flows from financing activities

     (23,289 )     (20,645 )   (11.4 )

Cash and cash equivalents at end of year

     300,809       282,208     (6.2 )

Net cash provided by operating activities in fiscal 2007 decreased by ¥21,433 million, or 12.5%, to ¥149,644 million from ¥171,077 million in fiscal 2006. This was due mainly to decreases in cash inflow related to inventories and receivables, although net income increased by ¥36,808 million, or 52.8%, to ¥106,504 million from ¥69,696 million in fiscal 2006. As a result, net cash provided by operating activities in fiscal 2007 decreased compared with fiscal 2006.

Net cash used in investing activities in fiscal 2007 decreased by ¥13,764 million, or 8.3%, to ¥151,703 million from of ¥165,467 million in fiscal 2006.

There was ¥24,553 million of cash inflow proceeds from sale of shares of Kyocera Leasing Co., Ltd. in fiscal 2007, whereas there was ¥24,133 million of cash flow proceeds from sale of shares of Taito Corporation in fiscal 2006. In addition, although acquisition of time deposits significantly increased, there were decreases in payments for purchases of property, plant and equipment, and purchases of available-for-sales securities as well as increases in sales or redemptions of available-for-sales securities and withdrawals of time deposits. As a result, net cash used in investing activities in fiscal 2007 decreased compared with fiscal 2006.

Net cash used in financing activities in fiscal 2007 decreased by ¥2,644 million, or 11.4%, to ¥20,645 million from ¥23,289 million in fiscal 2006. This was due to an increase of ¥5,327 million in sale of treasury stock by exercises of stock options and a decrease in payments of long-term debt, which exceeded decreases in proceeds from short-term borrowings and long-term debt.

The yen’s depreciation against the U.S. dollar and the Euro between March 31, 2006 and March 31, 2007 resulted in increases in cash and cash equivalents of ¥4,103 million.

At March 31, 2007, cash and cash equivalents totaled ¥282,208 million. This represented a decrease of ¥18,601 million, or 6.2%, from ¥300,809 million at March 31, 2006. Most of Kyocera’s cash and cash equivalents were denominated in yen but certain cash and cash equivalents, mainly in overseas subsidiaries, were denominated in foreign currencies, such as the U.S. dollar.

 

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Assets, liabilities and stockholders’ equity

Kyocera’s total assets at March 31, 2008 decreased by ¥153,718 million ($1,537 million), or 7.2% to ¥1,976,746 million ($19,767 million), compared with ¥2,130,464 million at March 31, 2007.

Cash and cash equivalents increased by ¥165,378 million ($1,654 million), or 58.6%, to ¥447,586 million ($4,476 million). This was due mainly to the effect of sales of government bonds and withdrawal of time deposits in addition to an increase of operating profit.

Short-term investments decreased by ¥65,992 million ($660 million), or 30.9%, to ¥147,503 million ($1,475 million), due mainly to withdrawals of certificate and time deposits at Kyocera Corporation.

Accounts receivables decreased by ¥30,858 million ($309 million), or 13.1%, to ¥205,522 million ($2,055 million), due mainly to a decrease in sales of the Telecommunications Equipment Group in United States of America.

Other current assets increased by ¥14,378 million ($144 million), or 35.3%, to ¥55,135 million ($551 million), due mainly to an increase of advance payments of the long-term purchase agreements for certain materials at Kyocera.

Securities and other investments decreased by ¥253,199 million ($2,532 million), or 36.7%, to ¥437,369 million ($4,374 million), due mainly to declines in market values of the shares of KDDI Corporation and other equity securities at March 31, 2008 compared with March 31, 2007.

Total property, plant and equipment at cost, net of accumulated depreciation, increased by ¥4,993 million ($50 million), or 1.8%, to ¥285,899 million ($2,859 million). Capital expenditure in fiscal 2008 was ¥85,101 million ($851 million), and depreciation was ¥75,630 million ($756 million) including ¥12,293 million ($123 million) which was influenced by the change in depreciation methods.

Kyocera’s total liabilities at March 31, 2008 decreased by ¥88,402 million ($884 million), or 16.1%, to ¥460,579 million ($4,606 million), compared with ¥ 548,981 million at March 31, 2007.

Notes and accounts payable increased by ¥17,623 million ($176 million), or 35.9%, to ¥66,757 million ($668 million) compared with March 31, 2007, due mainly to a significant increase in payable for acquisitions of certificate deposits at March 31, 2008.

Deferred income taxes-non-current liabilities decreased by ¥88,842 million ($888 million), or 42.9%, to ¥118,016 million ($1,180 million), due mainly to declines in market values of the shares of KDDI Corporation and other equity securities at March 31, 2008 compared with March 31, 2007.

Minority interests in subsidiaries, principally AVX Corporation, decreased by ¥1,921 million ($19 million), or 2.9%, to ¥65,002 million ($650 million), compared with ¥66,923 million at March 31, 2007, due mainly to the impact of substantial appreciation of the yen against the U.S dollar at March 31, 2008 compared with March 31, 2007.

Total stockholders’ equity at March 31, 2008 decreased by ¥63,395 million ($634 million), or 4.2%, to ¥1,451,165 million ($14,512 million), compared with ¥1,514,560 million at March 31, 2007.

Retained earnings at March 31, 2008 increased by ¥88,528 million ($885 million), or 8.4%, due to a net income for fiscal 2008 of ¥107,244 million ($1,072 million) and a cumulative effect of applying FIN 48 of the ¥3,968 million ($40 million) on the balance at April 1, 2007, offset by cash dividend payments of ¥22,684 million ($227 million).

Accumulated other comprehensive income decreased by ¥158,990 million ($1,590 million), or 78.3%, to ¥44,066 million ($441 million). Net unrealized gains on securities decreased by ¥119,871 million ($1,199 million), or 64.9%, due mainly to declines in market values of the shares of KDDI Corporation and other equity securities at March 31, 2008 compared with March 31, 2007. Foreign currency translation adjustments decreased

 

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by ¥36,698 million ($367 million) to ¥(33,794 million) ($(338 million)), due mainly to the appreciation of the yen against the U.S dollar.

The stockholders’ equity ratio at March 31, 2008 was 73.4%, up 2.3 percentage points from 71.1% at March 31, 2007.

C. Research and Development Activities

Kyocera continuously aims at expanding sales and boosting profitability in its Components and Equipment Businesses. To achieve these objectives, Kyocera seeks to create new technologies, products and businesses by integrating group-wide management resources while advancing and focusing technological capabilities.

Kyocera will channel its energies into high-growth-potential areas; namely, the markets for telecommunications and information processing and for environmental preservation. R&D activities are conducted in all of these markets in the realms of materials, components, devices and equipment. Specific initiatives in each reporting segment are as follows.

(1) Fine Ceramic Parts Group

By making effective use of fine ceramic materials technology, processing technology and design technology, Kyocera is seeking to strengthen the development of fine ceramic components such as for next generation semiconductor processing equipment, and higher quality sapphire substrates for LEDs, the demand for which is expected to expand.

In the growing automotive market, efforts are being undertaken to develop products that meet the need for advanced electronics and safety and growing concerns with the environment. Specific endeavors include the development and production of glow plugs by fully utilizing the high temperature durability of ceramics and piezoelectric-stacks that enable precision control for the fuel injection of diesel engine cars, which are becoming more widespread in Europe.

(2) Semiconductor Parts Group

Kyocera is advancing the development of new ceramic packages and organic packages for digital consumer equipment, where demand is expected to expand. In the ceramic package business, efforts are being made to develop smaller, thinner and more highly sophisticated ceramic packages with a variety of built-in functions that meet advancements in mobile phone handsets. In the organic package business, Kyocera is developing new flip chip packages for next-generation high-performance semiconductors and narrow pitch flip-chip system in a package (SiP) substrates to realize even thinner packages.

(3) Applied Ceramic Products Group

While striving to further increase the conversion efficiency and cost reduction of solar cells for the environmental preservation market, Kyocera is developing a variety of next-generation solar cells. Kyocera is also eagerly working toward the practical application of SOFCs, which are expected to be the next-generation distributed power generation system for small-scale power sources.

(4) Electronic Device Group

Kyocera develops small, thin ceramic capacitors and various filters for mobile phone handsets and other electronic products in the wireless telecommunications market. In the industrial machinery and automotive related market, Kyocera is developing various sensors and actuators through piezoelectric ceramic technology.

In thin film components, Kyocera is developing thermal printheads for high-resolution digital photo printers and small printer module units. Development is also being done towards the mass-producing of organic light emitting diode (OLED) displays that realize low power consumption and that have moving image quality seen as outstanding for mobile devices.

 

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(5) Telecommunications Equipment Group

By making effective use of component, device and software technologies within the group, Kyocera is conducting research and development towards introduction of high-value-added products for the mobile telecommunications equipment market, in which functions are becoming increasingly advanced. In the domestic PHS market, Kyocera is developing handsets compatible with high-performance PHS base stations to ensure faster data transmission rates and the provision of diverse services. Kyocera is also strengthening the development of equipment for wireless broadband systems such as iBurst® and VoIP (Voice over Internet Protocol) that enable stable, high-speed and high-data rate communication.

(6) Information Equipment Group

Kyocera is promoting the development of more color-based and solutions-oriented products based on the “ECOSYS” concept. We are pursuing this goal through the incorporation of our amorphous silicon photoreceptor drum with high abrasion resistance. Apart from bolstering the lineup for both black and white and color ECOSYS printers, copying machines and multifunction peripherals, Kyocera is advancing the development of document solutions products that can handle the integrated management of documents and digital information. Efforts are also being made to strengthen security functions.

(7) Others

Kyocera Communications Systems Co., Ltd. is conducting the development of engineering, optimization, and other related advance technologies by anticipating the needs of next-generation mobile telecommunication infrastructures such as WiMAX. In addition, Kyocera Communication Systems Co., Ltd. continues to develop authentication and security technologies, which seek to meet the needs of fast advancing next-generation networks.

Kyocera Chemical Corporation is currently strengthening the development of materials for semiconductor and electronic components. Focused efforts include the development of epoxy molding compounds for semiconductors and the development of conductive paste for electronic components.

R&D expenses by reporting segment are as follows.

 

     Years ended March 31,       
     2006     2007     2008    Increase
(Decrease)
 
     Amount     Amount     Amount    %  
     (Yen in millions and U.S. dollars in thousands)  

Fine Ceramic Parts Group

   ¥ 3,107     ¥ 3,769     ¥ 3,655     $ 36,550    (3.0 )

Semiconductor Parts Group

     3,549       3,757       3,498       34,980    (6.9 )

Applied Ceramic Products Group

     3,923       4,138       5,146       51,460    24.4  

Electronic Device Group

     10,940       12,123       11,641       116,410    (4.0 )
                                     

Total Components Business

     21,519       23,787       23,940       239,400    0.6  

Telecommunications Equipment Group

     15,313       15,123       12,396       123,960    (18.0 )

Information Equipment Group

     16,416       17,983       19,587       195,870    8.9  
                                     

Total Equipment Business

     31,729       33,106       31,983       319,830    (3.4 )

Others

     4,188       4,207       5,682       56,820    35.1  
                                     

R&D expenses

   ¥ 57,436     ¥ 61,100     ¥ 61,605     $ 616,050    0.8  
                                     

% to net sales

     4.9 %     4.8 %     4.8 %     —      —    

Note: Commencing fiscal 2008, the “Optical Equipment Group,” previously a separate reporting segment, has been reclassified into “Others.” Accordingly, R&D expenses of “Others” in fiscal 2007 have been retroactively reclassified.

 

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We have a variety of patents in Japan and other countries, and we hold licenses for the use of patents from others. Details are set forth in “Patents and Licenses” included in Item  4 B “Business Overview” in this annual report on Form 20-F.

D. Trend Information

Kyocera endeavors to strengthen competitiveness in technological development, sales and marketing in the high-growth potential markets for telecommunications and information processing and for environmental protection, and we seek to translate our diversification strategy into improved business performance.

In fiscal 2009, the global economic downturn is expected to intensify, fueling fear of a negative impact on demand for digital consumer equipment, and therefore uncertainty in the outlook for components demand.

In the mid to long-term trend, however, Kyocera has a positive view for digital consumer equipment markets. In the telecommunications and information processing markets, which are key areas for Kyocera, demand for mobile handsets in emerging markets is expected to expand, coupled with the commencement of new services in developed countries. More specifically, rising popularity of advanced mobile handsets featuring built-in cameras and other functions including GPS (global positioning system) and terrestrial TV broadcasting is expected to propel demand for mobile phone handsets. In addition, stable growth is predicted to continue for PC-related products, digital still cameras, game consoles, and flat panel TVs. Kyocera expects growth in these areas will positively impact both the components and equipment businesses.

In the information equipment industry, demand for color MFPs is expected to grow. To seize this opportunity, we aim to expand our product lines, particularly for high-speed color models.

In the environmental preservation market, which is another key area for Kyocera, the solar energy market is growing rapidly on a global scale as an alternative energy source due to increasing environmental awareness. Demand for solar energy products is expanding, especially in Europe, where demand is stimulated by government subsidy systems. While there is an outlook for the reexamination to decrease the amount of governmental subsidies in some parts of European counties, as such systems are also being introduced in the United States and other Asian countries, the demand for solar energy is expected to continuously expand on worldwide basis. In addition, demand for ceramic components for automobiles that comply with current environmental regulations is also expected to grow in the future.

E. Off-Balance Sheet Arrangements

Refer to Note 15 in The Consolidated Financial Statements included in this annual report on Form 20-F.

As a part of our ongoing business, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent obligations.

 

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F. Tabular Disclosure of Contractual Obligations

The following tables provide information about Kyocera’s contractual obligations and other commercial commitments that will affect Kyocera’s liquidity for the next several years, as of March 31, 2008. Kyocera anticipates that the funds required to fulfill these debt obligations and commitments will be generated internally from operations.

 

Contractual obligations

   Less than
1 year
   2-3 years    4-5 years    Thereafter    Total
     (Yen in millions)

Short-term borrowings

   ¥ 7,279    ¥ —      ¥ —      ¥ —      ¥ 7,279

Interest payments for short-term borrowings*

     252      —        —        —        252

Long-term debt (including due within one year)

     3,432      5,912      1,423      963      11,730

Interest payments for long-term debt*

     262      271      67      48      648

Supply agreement material used in operation

     9,489      31,922      39,141      83,171      163,723

Operating Leases

     5,651      6,706      2,916      3,946      19,219

Obligations for the acquisition or construction of property, plant and equipment

     16,057      —        —        —        16,057
                                  

Total Contractual Obligations

   ¥ 42,422    ¥ 44,811    ¥ 43,547    ¥ 88,128    ¥ 218,908
                                  

Contractual obligations

   Less than
1 year
   2-3 years    4-5 years    Thereafter    Total
     (U.S. dollars in thousands)

Short-term borrowings

   $ 72,790    $ —      $ —      $ —      $ 72,790

Interest payments for short-term borrowings*

     2,520      —        —        —        2,520

Long-term debt (including due within one year)

     34,320      59,120      14,230      9,630      117,300

Interest payments for long-term debt*

     2,620      2,710      670      480      6,480

Supply agreement material used in operation

     94,890      319,220      391,410      831,710      1,637,230

Operating Leases

     56,510      67,060      29,160      39,460      192,190

Obligations for the acquisition or construction of property, plant and equipment

     160,570      —        —        —        160,570
                                  

Total Contractual Obligations

   $ 424,220    $ 448,110    $ 435,470    $ 881,280    $ 2,189,080
                                  

 

* For Kyocera’s variable interest rate of borrowings and debt, Kyocera utilized the rates in effect as of March 31, 2008 when estimating schedule of interest payments.

In addition to contractual obligations shown in the above tables, Kyocera forecasts to contributing ¥9,255 million ($93 million) to its defined benefit pension plans in fiscal 2009.

Item 6.    Directors, Senior Management and Employees

A. Directors and Senior Management

Kyocera believes that its current management system enables faster decision-making across the board through the use of a top management system comprising the chairman, the deputy chairman and the president. With this setup, the chairman takes on the position as the head of the board of directors, providing guidance to the president, while the president has total responsibility for daily business execution. It is also believed that more accurate management decisions can be made with this management system, as the chairman, the deputy chairman and the president can provide diverse perspectives on critical issues.

 

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The following table shows Kyocera’s Directors and Corporate Auditors as of June 26, 2008.

 

Name

  

Date of Birth

  

Position

   Since

Kensuke Itoh

   December 17, 1937    Director and Executive Advisor    1975

Noboru Nakamura

   October 6, 1944    Representative Director and Chairman    1991

(Chairman 2006)

Yuzo Yamamura

   December 4, 1941    Representative Director and Vice Chairman    2003

Naoyuki Morita

   April 8, 1942    Representative Director and Vice Chairman    2003

Makoto Kawamura

   August 13, 1949    Representative Director and President    2005
(President 2005)

Michihisa Yamamoto

   November 13, 1942    Director    1987

Isao Kishimoto

   November 30, 1943    Director    1993

Hisao Hisaki

   July 2, 1946    Director    1991

Rodney N. Lanthorne

   February 5, 1945    Director    1989

John S. Gilbertson

   December 4, 1943    Director    1995

Tetsuo Kuba

   February 2, 1954    Director    2008

Tatsumi Maeda

   January 1, 1953    Director    2008

Yoshihiko Nishikawa

   September 11, 1945    Full-time Corporate Auditor    2005

Kokichi Ishibitsu

   December 25, 1943    Full-time Corporate Auditor    2008

Osamu Nishieda

   January 10, 1943    Corporate Auditor    1993

Shigekazu Tamura

   February 18, 1950    Corporate Auditor    2005

Kazuo Yoshida

   January 10, 1948    Corporate Auditor    2008

Kensuke Itoh has served as a Director and the Executive Advisor of Kyocera Corporation since 2005. He became a Director in 1975, a Managing Director in 1979, a Senior Managing Director in 1981, an Executive Vice President and Representative Director in 1985, a Representative Director and President in 1989 and the Chairman of the Board and Representative Director in 1999. He joined Kyocera Corporation in 1959 and has served as Representative Director and Chairman of Kyoto Purple Sanga Ltd.

Noboru Nakamura has served as a Representative Director and Chairman of Kyocera Corporation since 2006. He became a Director in 1991, a Managing Director in 1995, a Senior Managing and Representative Director in 1997 and an Executive Vice President and Representative Director in 1999. He joined Kyocera Corporation in 1967 and has served as the Representative Director and Chairman of Kyocera Chemical Corporation, Representative Director and Chairman of Japan Medical Materials Corporation, Representative Director and Chairman of Kyocera Solar Corporation, Representative Director and Chairman of Kyocera SLC Technologies Corporation, and Representative Director and Chairman of Kyocera Display Institute Co., Ltd., Representative Director and Chairman of Kyocera Realty Development, and Representative Director and Chairman of Kyoto Optec Co., Ltd., and Representative Director and Chairman of Kyocera Mita Corporation.

Yuzo Yamamura has served as a Representative Director and Vice Chairman since 2006. He rejoined Kyocera Corporation as a Director in 2003. He first became a Director in 1987 and retired in 1993. He rejoined Kyocera Corporation as a Senior Managing and Representative Director in 1995 and retired again in 1999. He originally joined Kyocera Corporation in 1965 and has served as the President and Representative Director of Kyocera Elco Corporation, and General Manager of Corporate Communication Equipment Group.

Naoyuki Morita has served as a Representative Director and Vice Chairman since 2006. He rejoined Kyocera Corporation as a Director in 2003. He first became a Director in 1987, a Managing Director in 1989 and a Senior Managing and Representative Director in 1995, and he retired in 1999. He originally joined Kyocera Corporation in 1967 and has served as the Representative Director and Chairman of Kyocera Communication Systems Co., Ltd., and Representative Director and Chairman of Couei Corporation.

 

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Makoto Kawamura has served as a Representative Director and President of Kyocera Corporation since 2005. He became a Director in 2001 and retired in 2003. He rejoined as a Representative Director and President in 2005. He joined Kyocera Corporation in 1973 and has served as the Chairman of the Board of Directors of Shanghai Kyocera Electronics Co., Ltd. and Chairman of the Board of Directors of Donggaun Shilong Kyocera Optics Co., Ltd.

Michihisa Yamamoto has served as a Director of Kyocera Corporation since 1987. He became a Director in 1987, a Managing Director in 1989, a Senior Managing and Representative Director in 1992, and an Executive Vice President and a Representative Director in 1999. He joined Kyocera Corporation in 1970 and has served as a Deputy General Manager of Corporate Communication Equipment Group.

Isao Kishimoto has served as a Director of Kyocera Corporation since 1993. He became a Director in 1993, a Managing Director in 1997 and a Senior Managing Director in 2001. He joined Kyocera Corporation in 1967 and has served as the Representative Director and President of Kyocera Kinseki Corporation.

Hisao Hisaki has served as a Director of Kyocera Corporation since 1991. He joined Kyocera Corporation in 1969 and has served as the General Manager and Chairman of the Board of Directors of Kyocera Tianjin Sales and Trading Corporation.

Rodney N. Lanthorne has served as a Director of Kyocera Corporation since 1989. He became a Director in 1989, a Managing Director in 1990 and a Senior Managing and Representative Director in 1999. He joined Kyocera International, Inc. in 1979 and has served as Director and President of Kyocera International, Inc.

John S. Gilbertson has served as a Director of Kyocera Corporation since 1995. He became a Director in 1995 and a Managing Director in 1999. He joined AVX Corporation in 1981 and has served as Director, President and Chief Executive Officer of AVX Corporation.

Tetsuo Kuba has served as a Director of Kyocera Corporation since 2008. He became a Director in 2008. He joined Kyocera Corporation in 1982 and has served as the Representative Director and Chairman and President in Kyocera Korea Co., Ltd.

Tatsumi Maeda has served as a Director of Kyocera Corporation since 2008. He became a Director in 2001, and retired in 2003. He rejoined as a Director in 2008. He joined Kyocera Corporation in 1975 and has served as the Chairman of the Board of Kyocera (Tianjin) Solar Energy Co., Ltd., and General Manager of Solar Energy Group.

Yoshihiko Nishikawa has served as a Full-time Corporate Auditor of Kyocera Corporation since 2005. He became a Director in 1995 and retired in 2003. He joined Kyocera Corporation in 1970.

Kokichi Ishibitsu has served as a Full-time Corporate Auditor of Kyocera Corporation since 2008. He became a Director in 1991 and retired in 2000. He joined Kyocera Corporation in 1975.

Osamu Nishieda has served as a Corporate Auditor of Kyocera Corporation since 1993. He has served as an In-House Council of Kyocera Corporation.

Shigekazu Tamura has served as a Corporate Auditor of Kyocera Corporation since 2005. He is registered as a Certified Public Accountant as defined by the Certified Public Accountant Law of Japan.

Kazuo Yoshida has served as a Corporate Auditor of Kyocera Corporation since 2008. He has served as Professor at Kyoto University.

Kyocera adopts an “executive officer system,” which aims to establish corporate governance appropriate for a global corporation together with a decision making system responsive to the business environment and to train the next generation of senior executives.

 

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The following table shows Kyocera’s Executive Officers as of June 26, 2008.

 

Name

 

Position

Makoto Kawamura

  Executive Officer and President

Tetsuo Kuba

 

Senior Managing Executive Officer

(General Manager of Corporate Fine Ceramics Group and Corporate Semiconductor Components Group)

Tatsumi Maeda

 

Senior Managing Executive Officer

(General Manager of Corporate Solar Energy Group)

Hisashi Sakumi

 

Managing Executive Officer

(General Manager of Corporate Environment and Education Group)

Tsutomu Yamori

 

Managing Executive Officer

(General Manager of Corporate General Affairs Human Resources Group)

Takashi Itou

 

Managing Executive Officer

(General Manager of Corporate Purchasing Group)

Osamu Nomoto

 

Managing Executive Officer

(General Manager of Corporate Electronic Components Group)

Akiyoshi Okamoto

 

Managing Executive Officer

(General Manager of Shanghai Kyocera Electronics Co., Ltd.)

Eiichi Toriyama

 

Managing Executive Officer

(Deputy General Manager of Corporate Communication Equipment Group (In charge of Sales))

Keijiro Minami

 

Senior Executive Officer

(General Manager of Corporate Legal and Intellectual Property Group)

Gorou Yamaguchi

 

Senior Executive Officer

(Deputy General Manager of Corporate Semiconductor Components Group and General Manager of Corporate Semiconductor Components Sales Division)

Yoshihito Ohta

 

Senior Executive Officer

(General Manager of Corporate Office of the Chief Executives)

Yasuyuki Yamamoto

 

Senior Executive Officer

(Deputy General Manager of Corporate Communication Equipment Group & General Manager of Corporate 1st Mobile Communication Equipment Division & General Manager of Corporate Communication Systems Equipment Division)

Takenori Ugari

 

Senior Executive Officer

(Deputy General Manager of Corporate Communication Equipment Group & General Manager of Corporate 2nd Mobile Communication Equipment Division)

Yasushi Matsumura

 

Executive Officer

(General Manager of Corporate Display Group, Representative Director and President of Kyocera Display Institute)

Yukihiro Takarabe

 

Executive Officer

(General Manager of Corporate Cutting Tool Group)

Junichi Jinno

 

Executive Officer

(General Manager of Corporate R&D Group for Equipment and Systems)

Gen Takayasu

 

Executive Officer

(General Manager of Corporate Communication Devices Division, Corporate Semiconductor Components Group)

Nobuhiro Ochiai

 

Executive Officer

(General Manager of Corporate Capacitor Division, Corporate Electronic Components Group)

 

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Name

 

Position

Junzo Katsuki

 

Executive Officer

(General Manager of Corporate Electronic Components Sales Division, Corporate Electronic Components Group)

Masakazu Mitsuda

 

Executive Officer

(General Manager of Corporate Business Systems Administration Group)

Toshimi Gejima

 

Executive Officer

(General Manager of Corporate Automotive Components Group)

Michiaki Furuhashi

 

Executive Officer

(General Manager of General Affairs Division, Corporate General Affairs Human Resources Group)

Mitsuru Imanaka

 

Executive Officer

(Representative Director and President of Kyocera Fineceramics GmbH)

Shoichi Aoki

 

Executive Officer

(General Manager of Corporate Financial & Accounting Group)

Yoshihiro Kano

 

Executive Officer

(General Manager of Corporate Development Group)

Yoichi Yamashita

 

Executive Officer

(General Manager of Corporate Production Technology & Development Group)

Robert E. Whisler

 

Executive Officer

(Director and President of Kyocera America Inc.)

John S. Rigby

 

Executive Officer

(Director and President of Kyocera Industrial Ceramics Corporation)

Masaki Kozu

 

Executive Officer

(General Manager of Education and Planning Division, Corporate Environment and Education Group)

Hitoshi Takao

 

Executive Officer

(General Manager of Corporate Thin Film Components Group)

Yoshiharu Nakamura

 

Executive Officer

(Deputy General Manager of Corporate Fine Ceramics Group)

Kazumasa Umemura

 

Executive Officer

(General Manager of International Division, Corporate Office of the Chief Executives)

Takafumi Matsuda

 

Executive Officer

(General Manager of Jewelry & Application Products Division)

Masaaki Itou

 

Executive Officer

(General Manager of Corporate Communications Division, Corporate General Affairs Human Resources Group)

Masahisa Shimizu

 

Executive Officer

(Deputy General Manager of Corporate 2nd Mobile Communication Equipment Division, Corporate Communication Equipment Group)

Tsuyoshi Egami

 

Executive Officer

(Deputy General Manager of Corporate 2nd Mobile Communication Equipment Division, Corporate Communication Equipment Group)

Katsumi Komaguchi

 

Executive Officer

(Representative Director and President of Kyocera Mita Corporation)

 

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B. Compensation

The aggregate amount of compensation, including bonuses, paid by Kyocera Corporation and its certain subsidiaries in fiscal 2008 to all Directors, Executive Officers and Corporate Auditors of Kyocera Corporation was ¥1,585 million ($16 million).

In accordance with our internal provision, when a Director or Corporate Auditor retires, a proposal to pay a lump sum retirement allowance is submitted to the ordinary general meeting of shareholders for approval. After such approval, the amount to be paid to each Director is considered and fixed by the Board of Directors, and the amount to be paid to each Corporate Auditor is also consulted with and fixed by the Board of Corporate Auditors.

Annual provisions are made in the accounts of Kyocera Corporation for the estimated cost of the retirement allowance for Directors and Corporate Auditors. The annual provisions and costs charged to income for such retirement allowance in fiscal 2008 were ¥85 million ($1 million).

The annual provisions and costs charged to income for retirement allowance of Executive Officers in fiscal 2008 were ¥94 million ($1 million).

We have neither disclosed to our shareholders nor otherwise made public any of the information specified in this item for individually named Directors, Officers or Corporate Auditors.

C. Board Practices

In accordance with the requirements of the Corporation Act of Japan which came into effect on May 1, 2006 (the Corporation Act), our Articles of Incorporation provide for not more than five Corporate Auditors. Corporate Auditors are elected at a general meeting of shareholders, and their normal term of office is four years. However, Corporate Auditors may serve any number of consecutive terms. At least half of the Corporate Auditors must be persons who have not been Directors or employees of Kyocera Corporation or its subsidiaries (Outside Corporate Auditors). Corporate Auditors form the Board of Corporate Auditors. Corporate Auditors are under a statutory duty to oversee the administration of our affairs by the Directors, to examine our financial statements and business reports to be submitted by the Board of Directors to the general meetings of shareholders and to report their opinions thereon to the shareholders. They are obliged to attend meetings of the Board of Directors and to express their opinions, but they are not entitled to vote. Corporate Auditors also have a statutory duty to provide their report on the audit report prepared by our independent certified public accountants to the Board of Corporate Auditors, which must submit its audit report to the Board of Directors. The Board of Corporate Auditors will also determine matters relating to the duties of the Corporate Auditors, such as audit policy and methods of investigation of our affairs.

Under the Corporation Act, the Directors and Corporate Auditors are liable for any damages suffered by us as a result of their violation of laws or regulations or any failure to perform their duties. Under our Articles of Incorporation, any such liabilities incurred by the Outside Corporate Auditors may, except in the case of willful misconduct or gross negligence or in certain other cases, be limited by a liability limitation agreement entered into between the Outside Corporate Auditors and us, up to an amount to be calculated in accordance with the relevant provisions of the Corporation Act with reference to annual remuneration, retirement allowance and profits received upon exercise or transfer of stock options, if any.

Kyocera Corporation has no remuneration committee. Matters of remuneration are decided by top management as a group. None of our Directors have contracts with us providing for benefits upon termination. It is customary to provide lump-sum severance benefits to Directors and Corporate Auditors upon retirement and we provide such benefits in accordance with our internal regulations.

There is no arrangement or understanding between any Director or Corporate Auditor and any other person pursuant to which he was elected as a Director or a Corporate Auditor.

 

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There is no family relationship between any Director or Corporate Auditor and any other Director or Corporate Auditor.

D. Employees

At March 31, 2008, Kyocera had 66,496 employees, of whom 3,526 worked in the Fine Ceramic Parts Group, 10,389 worked in the Semiconductor Parts Group, 6,225 worked in the Applied Ceramic Products Group, 23,548 worked in the Electronic Device Group, 2,982 worked in the Telecommunications Equipment Group, 13,218 worked in the Information Equipment Group, 4,913 worked for Others and 1,695 worked in Corporate. Kyocera’s number of employees at March 31, 2008 increased by 3,019 from 63,477 employees at March 31, 2007.

Kyocera Corporation had 13,128 employees, and their average age and average service years were 38.5 and 15.6, respectively.

Most regular employees of Kyocera Corporation, other than management, are members of the Kyocera Union. Over 90% of Kyocera Corporation’s regular employees are members of this union. The Kyocera Union is only open to Kyocera Corporation employees, not to our Japanese or overseas subsidiaries. The employees at three of our subsidiaries in Japan are unionized. Employees at our Japanese subsidiaries are not otherwise unionized. Our employees in the United States are generally unionized, and employees at some of our subsidiaries in other countries are unionized as well. Employees of our overseas subsidiaries belong to industry-wide labor unions, as opposed to a company-specific union like the Kyocera Union. Our relationship with our employee union groups is generally good. However, no assurance can be given that, in response to changing economic conditions and the company’s actions, labor unrest or strikes will not occur.

E. Share Ownership

As of March 31, 2008, Kyocera’s Directors, Corporate Auditors and Executive Officers owned 1,502,826 shares of Kyocera Corporation in total (1,476,360 shares of common stock of Kyocera Corporation and 26,466 ADRs of Kyocera Corporation), or 0.8% of the outstanding shares of Kyocera Corporation. The numbers of shares owned by each Directors, Corporate Auditors and Executive Officers are shown in the following table.

 

Name

  

Title

   Number of Shares

Kensuke Itoh

   Director and Executive Advisor    527,072

Noboru Nakamura

   Representative Director and Chairman    4,200

Yuzo Yamamura

   Representative Director and Vice Chairman    82,000

Naoyuki Morita

   Representative Director and Vice Chairman    3,100

Makoto Kawamura

   Representative Director and President    3,000

Michihisa Yamamoto

   Director    9,232

Isao Kishimoto

   Director    5,500

Hisao Hisaki

   Director    3,171

Rodney N. Lanthorne

   Director    3,589 (ADR)

John S. Gilbertson

   Director    18,186 (ADR)

Tetsuo Kuba

   Director    2,000

Tatsumi Maeda

   Director    1,100

Yoshihiko Nishikawa

   Corporate Auditor    2,102

Kokichi Ishibitsu

   Corporate Auditor    1,800

Osamu Nishieda

   Corporate Auditor    776,037

Shigekazu Tamura

   Corporate Auditor    —  

Kazuo Yoshida

   Corporate Auditor    —  

Hisashi Sakumi

   Managing Executive Officer    9,000

Tsutomu Yamori

   Managing Executive Officer    2,700

Takashi Itou

   Managing Executive Officer    9,000

Osamu Nomoto

   Managing Executive Officer    2,415

 

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Name

  

Title

   Number of Shares

Akiyoshi Okamoto

   Managing Executive Officer    4,864

Eiichi Toriyama

   Managing Executive Officer    2,900

Keijiro Minami

   Senior Executive Officer    900

Gorou Yamaguchi

   Senior Executive Officer    3,900

Yoshihito Ohta

   Senior Executive Officer    1,000

Yasuyuki Yamamoto

   Senior Executive Officer    100

Takenori Ugari

   Senior Executive Officer    —  

Yasushi Matsumura

   Executive Officer    700

Yukihiro Takarabe

   Executive Officer    400

Junichi Jinno

   Executive Officer    —  

Gen Takayasu

   Executive Officer    500

Nobuhiro Ochiai

   Executive Officer    1,000

Junzo Katsuki

   Executive Officer    1,000

Masakazu Mitsuda

   Executive Officer    600

Toshimi Gejima

   Executive Officer    1,400

Michiaki Furuhashi

   Executive Officer    7,967

Mitsuru Imanaka

   Executive Officer    1,100

Shoichi Aoki

   Executive Officer    200

Yoshihiro Kano

   Executive Officer    100

Yoichi Yamashita

   Executive Officer    100

Robert E. Whisler

   Executive Officer    4,019(ADR)

John S. Rigby

   Executive Officer    672(ADR)

Masaki Kozu

   Executive Officer    1,300

Hitoshi Takao

   Executive Officer    100

Yoshiharu Nakamura

   Executive Officer    1,100

Kazumasa Umemura

   Executive Officer    600

Takafumi Matsuda

   Executive Officer    400

Masaaki Itou

   Executive Officer    200

Masahisa Shimizu

   Executive Officer    —  

Tsuyoshi Egami

   Executive Officer    —  

Katsumi Komaguchi

   Executive Officer    500

Stock Option Plans

On June 25, 2003, the stockholders approved Kyocera Corporation’s Board of Directors resolution for approval of the issuance of stock acquisition rights (Plan 2003) to directors, corporate auditors, corporate executive officers and certain key employees of Kyocera. The stock acquisition rights were granted on September 1, 2003 and fully vested on October 1, 2003 to 1,388 persons to acquire amounts ranging from 600 to 8,000 shares of common stock each, or to acquire 1,070,100 shares of common stock in the aggregate. The exercise price of Plan 2003 has been set at ¥7,900 per share, and the exercisable period is from October 1, 2003 to September 30, 2008.

On June 25, 2004, the stockholders approved Kyocera Corporation’s Board of Directors resolution for approval of the issuance of stock acquisition rights (Plan 2004) to directors, corporate auditors, corporate executive officers and certain key employees of Kyocera. The stock acquisition rights were granted on September 1, 2004 and fully vested on October 1, 2004 to 1,644 persons to acquire amounts ranging from 600 to 8,000 shares of common stock each, or 1,243,300 shares of common stock in the aggregate. The exercise price of Plan 2004 has been set at ¥8,725 per share, and the exercisable period is from October 1, 2004 to September 30, 2008.

On June 28, 2005, the stockholders approved Kyocera Corporation’s Board of Directors resolution for approval of the issuance of stock acquisition rights (Plan 2005) to directors, corporate auditors, corporate executive officers and certain key employees of Kyocera. The stock acquisition rights were granted on September 1, 2005

 

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and fully vested on October 1, 2005 to 1,715 persons to acquire common stock ranging from 600 to 8,000 shares or to acquire 1,301,900 shares of common stock in the aggregate. The exercise price and the exercisable period of Plan 2005 have been set at ¥8,619 per share, and from October 1, 2005 to September 30, 2008.

Kyocera Corporation did not grant any stock options for the years ended March 31, 2007 and 2008.

Kyocera Corporation covers Plan 2003, Plan 2004 and Plan 2005 by utilizing common stock held by Kyocera Corporation (treasury stock).

As of May 31, 2008, the amount of common stock to be issued upon the exercise of all outstanding stock acquisition rights issued to Directors, Corporate Auditors and Executive Officers is set forth in further detail in the following table. Note, however, that there can be no assurances that the stock acquisition rights described below will be exercised in whole or in part.

 

Option Holder

  

Title

  

Total Stock
Acquisition Rights
Outstanding

  

Exercise Price per Share

Kensuke Itoh

   Director and Executive Advisor    —      —  

Noboru Nakamura

   Representative Director and Chairman    —      —  

Yuzo Yamamura

   Representative Director and Vice Chairman   

6,000 (Plan 2003)

6,000 (Plan 2004)

6,000 (Plan 2005)

  

7,900 YEN (Plan 2003)

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Naoyuki Morita

   Representative Director and Vice Chairman    —      —  

Makoto Kawamura

   Representative Director and President   

2,000 (Plan 2003)

4,000 (Plan 2004)

8,000 (Plan 2005)

  

7,900 YEN (Plan 2003)

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Michihisa Yamamoto

   Director   

6,000 (Plan 2004)

6,000 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Isao Kishimoto

   Director    6,000 (Plan 2005)    8,619 YEN (Plan 2005)

Hisao Hisaki

   Director    —      —  

Rodney N. Lanthorne

   Director   

1,500 (Plan 2004)

4,500 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

John S. Gilbertson

   Director   

4,500 (Plan 2003)

4,500 (Plan 2004)

4,500 (Plan 2005)

  

7,900 YEN (Plan 2003)

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Tetsuo Kuba

   Director    2,100 (Plan 2004)    8,725 YEN (Plan 2004)

Tatsumi Maeda

   Director    4,000 (Plan 2004)    8,725 YEN (Plan 2004)

Yoshihiko Nishikawa

   Corporate Auditor   

3,000 (Plan 2004)

3,000 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Kokichi Ishibitsu

   Corporate Auditor    —      —  

Osamu Nishieda

   Corporate Auditor    —      —  

Shigekazu Tamura

   Corporate Auditor    —      —  

Kazuo Yoshida

   Corporate Auditor    —      —  

Hisashi Sakumi

   Managing Executive Officer   

4,000 (Plan 2004)

4,000 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Tsutomu Yamori

   Managing Executive Officer    —      —  

Takashi Itou

   Managing Executive Officer    —      —  

Osamu Nomoto

   Managing Executive Officer    3,000 (Plan 2005)    8,619 YEN (Plan 2005)

Akiyoshi Okamoto

   Managing Executive Officer    3,000 (Plan 2004)    8,725 YEN (Plan 2004)

 

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Option Holder

  

Title

  

Total Stock
Acquisition Rights
Outstanding

  

Exercise Price per Share

Eiichi Toriyama

   Managing Executive Officer   

1,000 (Plan 2004)

4,000 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Keijiro Minami

   Senior Executive Officer    —      —  

Gorou Yamaguchi

   Senior Executive Officer    3,000 (Plan 2005)    8,619 YEN (Plan 2005)

Yoshihito Ohta

   Senior Executive Officer    2,500 (Plan 2005)    8,619 YEN (Plan 2005)

Yasuyuki Yamamoto

   Senior Executive Officer   

2,500 (Plan 2003)

2,500 (Plan 2004)

2,500 (Plan 2005)

  

7,900 YEN (Plan 2003)

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Takenori Ugari

   Senior Executive Officer    —      —  

Yasushi Matsumura

   Executive Officer   

100 (Plan 2003)

1,600 (Plan 2004)

3,000 (Plan 2005)

  

7,900 YEN (Plan 2003)

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Yukihiro Takarabe

   Executive Officer    2,500 (Plan 2005)    8,619 YEN (Plan 2005)

Junichi Jinno

   Executive Officer    —      —  

Gen Takayasu

   Executive Officer    2,500 (Plan 2005)    8,619 YEN (Plan 2005)

Nobuhiro Ochiai

   Executive Officer    2,500 (Plan 2004)    8,725 YEN (Plan 2004)

Junzo Katsuki

   Executive Officer    1,400 (Plan 2005)    8,619 YEN (Plan 2005)

Masakazu Mitsuda

   Executive Officer   

1,100 (Plan 2004)

1,200 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Toshimi Gejima

   Executive Officer   

2,500 (Plan 2004)

2,500 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Michiaki Furuhashi

   Executive Officer   

400 (Plan 2004)

2,500 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Mitsuru Imanaka

   Executive Officer   

1,200 (Plan 2004)

2,500 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Shoichi Aoki

   Executive Officer    —      —  

Yoshihiro Kano

   Executive Officer    2,500 (Plan 2005)    8,619 YEN (Plan 2005)

Yoichi Yamashita

   Executive Officer   

600 (Plan 2004)

1,700 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Robert E. Whisler

   Executive Officer   

2,500 (Plan 2004)

500 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

John S. Rigby

   Executive Officer   

1,000 (Plan 2004)

3,000 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Masaki Kozu

   Executive Officer   

600 (Plan 2003)

600 (Plan 2004)

600 (Plan 2005)

  

7,900 YEN (Plan 2003)

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Hitoshi Takao

   Executive Officer    —      —  

Yoshiharu Nakamura

   Executive Officer    600 (Plan 2005)    8,619 YEN (Plan 2005)

Kazumasa Umemura

   Executive Officer    —      —  

Takafumi Matsuda

   Executive Officer    600 (Plan 2005)    8,619 YEN (Plan 2005)

Masaaki Itou

   Executive Officer   

600 (Plan 2004)

600 (Plan 2005)

  

8,725 YEN (Plan 2004)

8,619 YEN (Plan 2005)

Masahisa Shimizu

   Executive Officer    —      —  

Tsuyoshi Egami

   Executive Officer    —      —  

Katsumi Komaguchi

   Executive Officer    2,500 (Plan 2005)    8,619 YEN (Plan 2005)

Total

     

15,700 (Plan 2003)

56,200 (Plan 2004)

87,700 (Plan 2005)

  

 

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Item 7.    Major Shareholders and Related Party Transactions

A. Major Shareholders

As far as is known to us, Kyocera is not, directly or indirectly, owned or controlled by any other corporation or by the Japanese or any foreign government, and there is no arrangement which may at a subsequent date result in a change in control of Kyocera.

The following table shows the ten largest stockholders of record of Kyocera Corporation at March 31, 2008.

 

Name

   Shares owned    Ownership
     (in thousands)    (%)

State Street Bank and Trust Company
(Standing proxy: Mizuho Corporate Bank, Ltd.)

   17,925    9.37

The Master Trust Bank of Japan, Ltd.
(Trust Account)

   10,836    5.66

Japan Trustee Services Bank, Ltd.
(Trust Account)

   9,224    4.82

The Bank of Kyoto, Ltd.

   7,218    3.77

Kazuo Inamori

   6,806    3.56

Nats Cumco
(Standing proxy: The Bank of Tokyo-Mitsubishi UFJ, Ltd.)

   5,110    2.67

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

   5,076    2.65

The Inamori Foundation

   4,680    2.45

Deutsche Securities Inc.

   4,351    2.27

KI Enterprise Co., Ltd.

   3,550    1.86

Total

   74,777    39.09

None of the above shareholders has voting rights that are different from those of other shareholders.

Under the Financial Instruments and Exchange Law of Japan, any person that becomes a holder (together with its related persons) of 5% of the total issued voting shares of a company listed on any Japanese stock exchange (including ADSs representing such shares) must file a report with the Director of the relevant Local Finance Bureau and send a copy of such report to the company. A similar report must also be filed if the percentage holding of a holder of more than 5% of the total issued voting shares of a company increases or decreases by 1% or more.

In accordance with the Financial Instruments and Exchange Law of Japan, Dodge & Cox (see below) informed us that it became a holder of over 5% of the total issued voting shares of Kyocera Corporation. However, it is not included in the above major shareholders because we do not identify it as a single holder on our shareholders record as of March 31, 2008.

 

Filing Date

  

Name

 

Shares owned

   Ownership
         (in thousands)    (%)

March 21, 2008

   Dodge & Cox   Holding 14,578 thousand shares as of March 14, 2008    7.62

None of the above shareholders has voting rights that are different from those of other shareholders.

According to Citibank N.A., depositary for Kyocera’s ADSs, as of March 31, 2008, 8,209,060 shares of Kyocera’s common stock were held in the form of ADSs and there were 844 ADS holders of record in the United States. According to Kyocera’s register of shareholders, as of March 31, 2008, there were 65,310 holders of Kyocera’s common stock of record worldwide. As of March 31, 2008, there were 110 record holders of Kyocera’s common stock with addresses in the United States, holding 39,028,525 shares of the outstanding

 

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common stock on that date. Because some of these shares were held by brokers or other nominees, the number of record holders with addresses in the United States might not fully show the number of beneficial owners in the United States.

B. Related Party Transactions

Significant customer

In fiscal 2008, Kyocera’s sales to KDDI Corporation amounted to ¥128,330 million ($1,283 million), or 9.9% of consolidated net sales.

KDDI Corporation provides telecommunication services, and Kyocera sells mainly telecommunication equipment to KDDI Corporation. Kyocera Corporation made an equity investment in KDDI Corporation when it was founded, and currently a director of Kyocera Corporation is a member of the board of directors of KDDI Corporation. At March 31, 2008, Kyocera Corporation’s equity interest in KDDI Corporation was 12.77%. Kyocera serves KDDI Corporation as an independent vendor in terms of price determination, remittance condition and product distribution. All of the agreements and ongoing contractual commitments between Kyocera and KDDI Corporation have been made on an arm’s -length basis. Kyocera expects that KDDI Corporation will remain a significant customer in the future. See Note 19 to the Consolidated financial Statements in this annual report on Form 20-F.

C. Interests of Experts and Counsel

Not Applicable.

Item 8.    Financial Information

A. Consolidated Statements and Other Financial Information

Financial Statements

The information required by this item is set forth beginning on page F-3 of this annual report on Form 20-F.

Dividend Policy

Kyocera believes that the best way to increase corporate value and meet shareholders’ expectations is to improve future consolidated performance. Kyocera therefore strongly takes into consideration the linkage between dividend amounts and consolidated performance and has implemented a dividend policy aiming for a consolidated dividend ratio of approximately 20% to 25%. In addition, Kyocera determines dividend amounts based on an overall assessment, taking into account various factors that include the amount of capital expenditures necessary for medium to long-term growth.

Pursuant to this policy and based on performance during fiscal 2008, Kyocera determined a year-end dividend for the year ended March 31, 2008 of 60 yen per share. When aggregated with the interim dividend in the amount of 60 yen per share, the total annual dividend amount was 120 yen per share, an increase of 10 yen compared with fiscal 2007.

It is also proposed that other general reserve shall be set aside, in order to take into account the necessary reserve amounts for creation of new businesses, cultivation of new markets, development of new technologies and acquisition of outside management resources needed to achieve stable and sustainable corporate growth of Kyocera.

We held a board of directors meeting for the interim dividend on October 30, 2007.

B. Significant Changes

Except as disclosed in this annual report on Form 20-F, there have been no significant changes since March 31, 2008.

 

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Item 9.    The Offer and Listing

A. Offering and Listing Details

Price Range of Shares

The principal non-United States market on which the shares of Common Stock of Kyocera Corporation are traded is the Tokyo Stock Exchange, the largest stock exchange in Japan. The American Depositary Shares of Kyocera Corporation, each representing one share of Common Stock of Kyocera Corporation, are traded on the New York Stock Exchange. Citibank, N.A. acts as the Depositary in respect of the American Depositary Shares. Common Stock of Kyocera Corporation is also listed on the Osaka Securities Exchange in Japan.

 

     Tokyo Stock Exchange    New York Stock Exchange
     Price per Share of
Common Stock

(yen)
   Price per American
Depositary Share

(U.S. dollars)*

Years ended March 31

       High            Low            High            Low    

2004

   8,970    5,570    84.66    47.25

2005

   9,630    7,080    90.90    67.81

2006

   10,830    7,090    91.59    62.58

2007

   11,590    8,180    98.01    71.73

2008

   13,390    7,760    110.01    73.09

Most Recent 6 months

   High    Low    High    Low

December 2007

   10,290    9,500    92.78    83.91

January 2008

   9,560    7,760    88.45    73.09

February 2008

   9,020    8,060    84.00    75.06

March 2008

   9,010    8,000    89.97    81.43

April 2008

   9,640    8,180    92.90    82.23

May 2008

   10,340    9,410    99.10    90.20

 

* The prices of American Depositary Shares are based upon reports by the New York Stock Exchange, with all fractional figures rounded up to the nearest two decimal points.

The following table shows the information about high and low sales prices for each quarterly period in fiscal 2007 and 2008 in respect of the shares of Common Stock of Kyocera Corporation on the Tokyo Stock Exchange, and the American Depositary Shares on the New York Stock Exchange.

For Voting Securities by Fiscal Quarter

 

          2007
          1st    2nd    3rd    4th

Common Stock:

              

Market price per share (A)

   —High    ¥ 11,590    ¥ 10,250    ¥ 11,310    ¥ 11,480
  

—Low

     8,180      8,300      9,970      10,040

Cash dividends paid per share

        50.00      —        50.00      —  

American Depositary Share:

              

Market price per share (B)

   —High    $ 98.01    $ 87.75    $ 95.51    $ 95.65
  

—Low

     71.73      71.85      86.52      86.43

Cash dividends paid per share (C)

        0.43      —        0.43      —  

 

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          2008
          1st    2nd    3rd    4th

Common Stock:

              

Market price per share (A)

   —High    ¥ 13,180    ¥ 13,390    ¥ 11,190    ¥ 9,560
  

—Low

     10,970      9,930      9,300      7,760

Cash dividends paid per share

        60.00      —        60.00      —  

American Depositary Share:

              

Market price per share (B)

   —High    $ 108.00    $ 110.01    $ 95.97    $ 89.97
  

—Low

     94.07      87.16      81.00      73.09

Cash dividends paid per share (C)

        0.48      —        0.54      —  

 

(A) Price on the Tokyo Stock Exchange
(B) Price on the New York Stock Exchange
(C) Translated into U.S. dollars based on the exchange rates at each payment date

B. Plan of Distribution

Not Applicable.

C. Markets

See Item 9.A. of this annual report on Form 20-F for information on the markets on which our common stock is listed or quoted.

D. Selling Shareholders

Not Applicable.

E. Dilution

Not Applicable.

F. Expenses of the Issue

Not Applicable.

Item 10.    Additional Information

A. Share Capital

Not Applicable.

B. Memorandum and Articles of Association

General

Set out below is certain information regarding the organization and shares of Kyocera Corporation, including brief summaries of certain provisions of the Articles of Incorporation, the Share Handling Regulations and the Regulations of the Board of Directors of Kyocera Corporation and of the Corporation Act relating to joint stock corporations (kabushiki kaisha) and certain related legislation, all as currently in effect.

Organization

Kyocera Corporation is a joint stock corporation (kabushiki kaisha) incorporated in Japan under the Corporation Act. It is registered in the Commercial Register maintained by the Kyoto Local Registry Office of the Ministry of Justice.

 

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Objects and Purposes

The objects of Kyocera Corporation are set forth in Article 2 of its Articles of Incorporation, as follows:

 

(1) Manufacture and sale of and research on fine ceramics and various kinds of products utilizing fine ceramics;

 

(2) Manufacture and sale of and research on single crystal materials and various kinds of products utilizing single crystal materials;

 

(3) Manufacture and sale of and research on composite materials;

 

(4) Manufacture and sale of and research on specialty plastics;

 

(5) Manufacture and sale of and research on measurement instruments for electronics;

 

(6) Manufacture and sale of and research on electronic and electric instruments and parts thereof;

 

(7) Manufacture and sale of and research on component parts of automobiles;

 

(8) Manufacture and sale of and research on precious metals, precious stones and semiprecious stones and various kinds of products utilizing precious metals, precious stones and semiprecious stones;

 

(9) Manufacture and sale of and research on accessories and interior and exterior decorations and ornaments;

 

(10) Wholesales and retail sale of health foods;

 

(11) Manufacture and sale of and research on material and equipment for medical use;

 

(12) Manufacture and sale of and research on equipment utilizing solar energy;

 

(13) Manufacture and sale of and research on optical machinery and instruments and precision machinery and instruments and parts hereof;

 

(14) Manufacture and sale of and research on machinery and equipment for business use and machinery and equipment for industrial use and parts thereof;

 

(15) Manufacture and sale of and research on photosensitive materials for photographic use;

 

(16) Design, control and contract of construction relating to public works, building, electric equipment and piping construction;

 

(17) Sale, purchase, lease, maintenance and brokerage of real estate;

 

(18) Lease, maintenance and management of facilities relating to sports, recreation, medical care, hotels and restaurants, and the travel agency business;

 

(19) Road freight handling and warehousing;

 

(20) Business relating to non-life insurance agency and life insurance canvassing, and general leasing, factoring and finance business;

 

(21) Sale and purchase of various kinds of plants and technology related thereto;

 

(22) Design and sale of software relating to computers;

 

(23) Disposition through sale and the like and acquisition through purchase and the like of patents and other industrial property rights and know-how appertaining to the preceding items and acting as intermediary in such transactions;

 

(24) Businesses relating to import and export of any of the foregoing items; and

 

(25) All commercial activities relating or incidental to any of the foregoing.

 

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Directors

Under the Corporation Act, the Board of Directors has the ultimate responsibility for the management of Kyocera Corporation and each Representative Director, who is elected from among the members of the Board of Directors, has the statutory authority to represent Kyocera Corporation in all respects. Under both the Corporation Act and the Regulations of the Board of Directors of Kyocera Corporation, the Directors must refrain from engaging in any business competing with Kyocera Corporation unless approved by the Board of Directors and any Director who has a material interest in the subject matter of a resolution to be taken by the Board of Directors cannot vote in such resolution. The Corporation Act and the Articles of Incorporation of Kyocera Corporation provide that remuneration of Directors and Corporate Auditors shall be determined at a general meeting of shareholders.

Except as stated below, neither the Corporation Act nor Kyocera Corporation’s Articles of Incorporation make any special provision as to a Director’s or Corporate Auditor’s power to vote in connection with their compensation; or the borrowing powers exercisable by a Representative Director (or a Director who is given power by a Representative Director to exercise such powers), their retirement age or requirement to hold any shares of capital stock of Kyocera Corporation.

The Corporation Act specifically requires a resolution of the Board of Directors for a joint stock corporation, among other things, to acquire or dispose of material assets; to borrow substantial amounts of money; to employ or discharge from employment important employees, such as executive officers; to establish, change or abolish a material corporate organization such as a branch office; or to issue bonds. A resolution of the Board of Directors is also specifically required for the establishment of a control system to ensure adequacy of Kyocera Corporation’s affairs, such as a control system to ensure the exercise of Directors’ duty to comply with laws and regulations and the Articles of Incorporation of Kyocera Corporation. The Regulations of the Board of Directors of Kyocera Corporation require a resolution of the Board of Directors for Kyocera Corporation, among other things, to issue bonds or bonds with stock acquisition rights; to borrow, lend or contribute a significant amount of money; to give a guarantee of a significant amount of debt; or to waive the right to receive a significant amount of money. The Regulations of the Board of Directors of Kyocera Corporation defines a “significant amount” as five billion yen or more with respect to borrowing and one hundred million yen or more with respect to other matters. The Regulations of the Board of Directors of Kyocera Corporation also require a resolution of the Board of Directors to approve any transaction between a Director and Kyocera Corporation; allocate remuneration and bonuses of Directors as previously determined or approved by the general meeting of shareholders; or determine the amount and manner of payment of retirement allowances or condolence money payable to Directors, determination of which has been previously entrusted to the Board of Directors by the general meeting of shareholders.

Capital Stock

General

All issued shares are fully paid, non-assessable, and in registered form. Transfer of shares is effected by delivery of share certificates, but in order to assert shareholders’ rights against Kyocera Corporation, the transferee must have his or her name and address registered in Kyocera Corporation’s register of shareholders. For this purpose, shareholders are required to file their names, addresses and seals with Kyocera Corporation’s transfer agent (effective on the effective date of the New Clearing Law (as defined below), such seals will become unnecessary). Non-resident shareholders are required to appoint a standing proxy in Japan or provide a mailing address in Japan. Japanese securities firms and commercial banks customarily act as standing proxy and provide related services at market rates.

Kyocera Corporation’s transfer agent is Daiko Clearing Services Corporation.

The Law Concerning Central Clearing of Share Certificates and Other Securities of Japan establishes a central clearing system that is applicable to the shares. Pursuant to this system, a holder of shares is able to choose, at his or her discretion, to participate in this system, and all share certificates elected to be placed into this

 

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system are deposited with Japan Securities Depository Center, Inc. (“JASDEC”) (through a participating institution having a clearing account with JASDEC, if the holder is not such a participating institution). All such shares are registered in the name of JASDEC in Kyocera Corporation’s register of shareholders. Each participating shareholder will, in turn, be registered in Kyocera Corporation’s register of beneficial shareholders and treated in the same way as shareholders registered in its register of shareholders. In connection with transfer of shares under this system, entry of the transfer of shares in the book maintained by JASDEC for the participating institutions, or entry in the book maintained by each participating institution for its customers, or both have the same effect as delivery of share certificates.

A statute establishing a new electronic central clearing system for shares of listed companies and eliminating the issuance and use of certificates for such shares (the “New Clearing Law”) was promulgated in June 2004, and certain parts of the New Clearing Law that are relevant to the shares will become effective within five years of the date of the promulgation. Currently, the effective date has not yet been determined but it is expected to be January 5, 2009. On the effective date, all existing share certificates will become null and void, and a new electronic central clearing system will be established and become responsible for handling shares of all Japanese companies listed on any Japanese stock exchange, including the shares of Kyocera Corporation. Thereafter, the transfer of such shares will be effected exclusively through entry in the records maintained under the new electronic central clearing system.

Under the new electronic central clearing system, promptly after record dates and certain other dates as described in the New Clearing Law, the operator of the new electronic central clearing system will provide Kyocera Corporation with notice with respect to shareholders as of each such date (sou-kabunushi-tsuuchi), containing, among other information, the name and number of shares held by each shareholder. Kyocera Corporation, upon receipt of each such notice, will update its register of shareholders to reflect the information such notice contains.

In connection with the introduction of this new electronic central clearing system, shares not deposited with JASDEC (which is expected to be the operator of the new electronic central clearing system) by two weeks prior to the effective date of the New Clearing Law will be registered in a “special account” with JASDEC maintained by Kyocera Corporation and will not be transferable to any third party other than Kyocera Corporation unless first transferred to the shareholder’s own account. Any shares constituting less than one unit (see “‘Unit’ share system” below) will be registered in the special account upon introduction of the new electronic central clearing system. It is expected that the entry of such shares in the special account will be made 15 business days after the effective date of the New Clearing Law. In addition, the transfer of such shares from the special account to the shareholder’s own account, as a