Annual Reports

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

 
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Kyocera 20-F 2009
Annual Report
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 20-F

 

 

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (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, 2009

OR

 

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

For the transition period from                     to                     

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

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)

Shoichi Aoki, +81-75-604-3556, kyocera-ir@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, 2009, 183,528,034 shares of common stock were outstanding, comprised of 176,625,254 Shares and 6,902,780 American Depositary Shares (equivalent to 6,902,780 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 or 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    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, indicate 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

   13

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

   13

B. Business Overview

   15

C. Organizational Structure

   25

D. Property, Plants and Equipment

   28

Item 4A. Unresolved Staff Comments

   30

Item 5.    Operating and Financial Review and Prospects

   30

A. Operating Results

   30

B. Liquidity and Capital Resources

   57

C. Research and Development Activities

   62

D. Trend Information

   64

E. Off-Balance Sheet Arrangements

   65

F. Tabular Disclosure of Contractual Obligations

   65

Item 6.    Directors, Senior Management and Employees

   66

A. Directors and Senior Management

   66

B. Compensation

   70

C. Board Practices

   70

D. Employees

   71

E. Share Ownership

   72

Item 7.    Major Shareholders and Related Party Transactions

   73

A. Major Shareholders

   73

B. Related Party Transactions

   74

C. Interests of Experts and Counsel

   74

Item 8.    Financial Information

   75

A. Consolidated Statements and Other Financial Information

   75

B. Significant Changes

   75

Item 9.    The Offer and Listing

   75

A. Offering and Listing Details

   75

B. Plan of Distribution

   77

C. Markets

   77

D. Selling Shareholders

   77

E. Dilution

   77

F. Expenses of the Issue

   77

Item 10.    Additional Information

   77

A. Share Capital

   77

B. Memorandum and Articles of Association

   77

C. Material Contracts

   86

D. Exchange Controls

   86

E. Taxation

   87

 

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     Page

F. Dividends and Paying Agents

   91

G. Statement by Experts

   91

H. Documents on Display

   91

I. Subsidiary Information

   91

Item 11.    Quantitative and Qualitative Disclosures about Market Risk

   92

Item 12.    Description of Securities Other Than Equity Securities

   94

PART II

   95

Item 13.    Defaults, Dividend Arrearages and Delinquencies

   95

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

   95

Item 15.    Controls and Procedures

   95

Item 16A. Audit Committee Financial Expert

   96

Item 16B. Code of Ethics

   96

Item 16C. Principal Accountant Fees and Services

   96

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

   97

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

   98

Item 16F. Change in Registrant’s Certifying Accountant

   99

Item 16G. Corporate Governance

   99

PART IV

   102

Item 17.    Financial Statements

   102

Item 18.    Financial Statements

   102

Item 19.    Exhibits

   103

 

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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 statements 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;

 

   

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;

 

   

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;

 

   

credit risk on trade receivables;

 

   

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;

 

   

companies or assets acquired by us not produce the returns or benefits, or bring in business opportunities;

 

   

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;

 

   

environmental liability and compliance obligations by tightening of environmental laws and regulations;

 

   

impairment losses on investments in equity securities;

 

   

changes in accounting principles;

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

 

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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.

 

   

“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 2009” refers to Kyocera’s fiscal year ended March 31, 2009, 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, 2009, as of March 31, 2009 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 ¥99.00 = $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, 2009, 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.

 

     2005    2006    2007    2008    2009    2009
     (Yen in millions, U.S. dollars and shares in thousands, except per share amounts)

For the years ended March 31:

                 

Net sales

   ¥ 1,173,660    ¥ 1,173,544    ¥ 1,283,897    ¥ 1,290,436    ¥ 1,128,586    $ 11,399,859

Profit from operations

     97,660      99,695      135,102      152,420      43,419      438,576

Income from continuing operations

     42,657      66,088      101,329      107,244      29,506      298,040

Net income

     45,908      69,696      106,504      107,244      29,506      298,040

Earnings per share:

                 

Income from continuing operations:

                 

Basic

   ¥ 227.52    ¥ 352.44    ¥ 538.52    ¥ 566.58    ¥ 157.27    $ 1.59

Diluted

     227.47      352.21      537.35      565.80      157.23      1.59

Net income:

                 

Basic

     244.86      371.68      566.03      566.58      157.27      1.59

Diluted

     244.81      371.43      564.79      565.80      157.23      1.59

Weighted average number of shares outstanding:

                 

Basic

     187,489      187,514      188,160      189,283      187,618   

Diluted

     187,528      187,640      188,573      189,544      187,661   

Cash dividends declared per share:

                 

Per share of common stock

   ¥ 80    ¥ 100    ¥ 110    ¥ 120    ¥ 120   

Per share of common stock*

   $ 0.74    $ 0.84    $ 0.91    $ 1.10    $ 1.26   

At March 31:

                 

Total assets

   ¥ 1,745,519    ¥ 1,931,522    ¥ 2,130,464    ¥ 1,976,746    ¥ 1,773,802    $ 17,917,192

Long-term debt

     33,557      33,360      7,283      8,298      28,538      288,263

Common stock

     115,703      115,703      115,703      115,703      115,703      1,168,717

Stockholders’ equity

     1,174,851      1,289,077      1,514,560      1,451,165      1,323,663      13,370,333

Depreciation

   ¥ 58,699    ¥ 62,942    ¥ 70,155    ¥ 75,630    ¥ 83,753    $ 845,990

Capital expenditures

   ¥ 63,160    ¥ 88,860    ¥ 69,896    ¥ 85,101    ¥ 63,055    $ 636,919

 

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

 

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Note: On August 1, 2006 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 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    

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

2009

   110.48    87.80    100.62    99.15

For most recent six months

                   

December 2008

   93.71    87.84    91.28    90.79

January 2009

   94.20    87.80    90.12    89.83

February 2009

   98.55    89.09    92.92    97.74

March 2009

   99.34    93.85    97.86    99.15

April 2009

   100.71    96.49    98.98    98.76

May 2009

   99.24    94.45    96.64    95.55

The noon buying rate for Japanese yen on June 26, 2009 was $1.00 = ¥95.19

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 continuing downturn in the Japanese and global economy may significantly reduce demand for Kyocera’s products

In the second half of fiscal 2009, global economic conditions deteriorated significantly due to instability in the international financial markets stemming from the sub-prime mortgage crisis originating in the United States, resulting in a lack of available credit, increased volatility in international financial markets, a decline in consumer confidence and widespread reduction of business activity generally. With respect to Kyocera’s business environment, demand for our products has materially decreased during this period. Kyocera assumes that the current economic downturn may be prolonged and has concerns regarding the impact of a long-term recession in the Japanese and global economy. If the downturn in the global economy has further negative impacts on corporate investment or consumer spending in the markets for semiconductors, mobile phone handsets and personal computer (PC) related equipment in the electronics industry, and on solar energy products, on which Kyocera is substantially dependent for its growth, there can be no assurance that Kyocera’s business, financial condition and results of operations will not continue to be materially adversely affected.

 

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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 information and communication related products, including electronic components, mobile phone handsets, PCs and PC peripherals, and for solar energy related products 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 information and communication 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 selling prices will continue to be lower over fiscal 2010 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 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 58.1% of its total revenues in fiscal 2009. 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) Kyocera may be exposed to credit risk on trade receivables due to its customers’ worsening financial condition

Kyocera maintains allowances for doubtful accounts related to trade receivables for estimated losses resulting from customers’ inability to make timely payments. However, trade receivables in the ordinary operating activity are not covered by collateral or credit insurance. Therefore, if customers with whom Kyocera has substantial accounts receivable face difficulty in making payments due to economic downturn, Kyocera’s results of operations and financial position may be adversely affected.

(8) 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,

 

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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.

(9) 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 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.

(10) 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.

(11) 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.

(12) 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

 

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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. In addition, as a result of business combinations, Kyocera recognizes goodwill or intangible assets of the acquired companies under generally accepted accounting principles. Kyocera may be required to record impairment losses if their fair values are below their carrying amounts.

(13) 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.

(14) 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.

(15) 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.

(16) 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, 2009, Kyocera

 

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Corporation’s equity interest in KDDI Corporation was 12.76%. As of March 31, 2009, the aggregate fair value of equity securities included in available-for-sale securities was ¥291,137 million ($2,941 million), with gross unrealized gains in the amount of ¥22,099 million ($223 million) and gross unrealized losses in the amount of ¥1,118 million ($11 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.

(17) Changes in accounting standards may adversely impact our results of operations and financial positions.

Adoptions of new accounting standards, or changes in accounting standards may have an unpredictable adverse impact on our results of operation and financial positions. In addition, if Kyocera modifies its accounting software or information systems to introduce changes in accounting standards, certain investments or expenses may be required.

(18) 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 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.

(19) 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.

(20) 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.

 

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(21) Our shareholders of record on a record date may not receive the dividend they anticipate

The customary dividend payout practice of publicly listed companies in Japan may significantly differ from the practice widely followed in foreign markets. Our dividend payout practice is no exception. The declaration and payment of annual dividends requires the approval of shareholders of our common stock at the annual general meeting of shareholders held in June of each year. Our board of directors decides and submits a proposal for an annual dividend declaration a few weeks before the annual general meeting. If the shareholders’ approval is given, the annual dividend payment is made to shareholders of record as of the record date for such payment, which is March 31, whether or not the shareholders are still holding shares after such record date. The declaration and payment of interim dividends is decided by our board of directors and does not require the approval of shareholders. The interim dividend payment is made to shareholders of record as of the record date for such payment, which is September 30, whether or not the shareholders are still holding shares after such record date. Shareholders of record as of the applicable record date may sell shares in the market after the record date with the anticipation of receiving a certain dividend payment. However, the date of declaration of interim dividends is decided by our board, and the declaration of annual dividends is approved by our shareholders only in June, based upon a proposal submitted by our board. As such, we may have announced a dividend forecast before the applicable record date; but, in making a decision on the dividend declaration, neither our shareholders nor our board of directors are legally bound by such forecast. Therefore, our shareholders of record on the record dates for interim or annual dividends may not receive the dividend they anticipate.

(22) 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 applied ceramic products, including cutting tools, ceramic parts 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 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

 

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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 phone handsets, PHS-related products, copier machines, multifunctional peripherals and ECOSYS printers 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 establish 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. 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 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 since the middle of the 1990s. Kyocera also established a sales company, Kyocera (Tianjin) Sales and Trading Corporation, in March 2003 to cultivate the Chinese market through 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, Ltd. to Kyocera of its Surface Laminar Circuitry (SLC) business and we completed the transfer of IBM Japan, Ltd.’s SLC business from IBM Japan, Ltd. 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, Ltd. in Japan Medical Materials Corporation are 77% and 23%, respectively.

In October 2004, Kyocera Corporation invested in WILLCOM, Inc. which succeeded the PHS-related business of DDI Pocket, Inc. to 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). Kyocera decided the sale to concentrate our management resources on our core businesses in order to enhance and improve our corporate value.

 

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In April 2008, Kyocera acquired the mobile phone related business of SANYO Electric Co., Ltd. (SANYO) to strengthen and improve the profitability of the Telecommunications Equipment Group.

For further enhancement of sales channel of the Information Equipment Group, Kyocera Mita Corporation made TA Triumph-Adler AG (TAAG), a leading specialist in the information technology business and a distributor of printers and multifunctional peripherals in Germany, a subsidiary through the voluntary public takeover offer in January 2009.

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 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, 2009, we have 181 subsidiaries and 4 affiliates outside Japan and 30 subsidiaries and 6 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, please 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” from the perspective of corporate ethics, while maintaining continuous sales growth and high profitability. To achieve this management vision, Kyocera’s management policy is to further drive business expansion 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 among each business 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.

(1) Exploit Competitive Advantages

Sources of competitive advantage for Kyocera over other companies in implementing its diversification strategy are 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. With these foundations firmly in place, Kyocera endeavors to strengthen competitiveness in technological development, sales and marketing in the high-growth potential markets for information and communication and for environment and energy, and to translate its diversification strategy into improved business performance.

 

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(2) Strengthen Existing Businesses

Kyocera strives to continuously improve profitability in all existing businesses within Kyocera Group. Elsewhere, 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 information and communication and for environmental and energy.

Challenges

In order for Kyocera Group as a whole to overcome the current difficult circumstances and improve its performance, Kyocera has substantially changed its management structure by promoting young members of the management team as officers and directors of Kyocera Corporation and the group companies.

Kyocera faces the following challenges in fiscal 2010 and beyond.

(1) Establish Highly Profitable Corporate Structure

In fiscal 2010, it is expected that harsh business environment will continue, where expansion of sales is difficult. However, Kyocera will endeavor to enhance its corporate structure and to secure profitability even in the face of the current sluggish business environment. Particularly, Kyocera will manage its business by thoroughly implementing the “Kyocera Philosophy” and the “Amoeba Management System” to achieve “maximum sales and minimum costs” by all employees’ effort. In order to improve profitability as quickly as possible, all divisions will engage in all-out cost cutting, including the reduction of manufacturing costs and review of capital expenditures plans.

Kyocera will improve the profitability of existing businesses and develop competitive new products and technologies to establish a highly profitable structure by efficiently utilizing Kyocera’s management resources to pursue synergetic effects.

(2) Business Expansion in Important Markets

Kyocera will expand its businesses in the information and communication market and the environment and energy market. In the information and communication market, it is ensuring the linkage of new business opportunities with its business expansion, such as commencement of provision of new generation high speed wireless communication service in the Japanese market. It also aims to expand its component business and equipment business by releasing products meeting the need for advanced digital consumer equipment in a timely fashion.

In the environment and energy market, further growth is expected due to raising awareness of environmental issues. Kyocera will continue to implement strategic investments to expand production capacity for solar cells and modules. It will also make efforts to reduce manufacturing costs and to improve conversion efficiency and expand solar energy business as a core business of Kyocera Group. In addition, it will make further efforts to

 

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expand its business in the environment and energy market by creating new products and expanding product items such as solid oxide fuel cell (SOFC) based power generating units for home use, utilizing its fine ceramic materials technologies.

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 LCD Manufacturing Equipment,

Automotive Components,

General Industrial Ceramic Components

(2) Semiconductor Parts Group

Ceramic Packages for Crystal and SAW Devices,

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, Micro Drills,

Medical and Dental Implants,

Jewelry and Applied Products

(4) Electronic Device Group

Ceramic Capacitors, Tantalum Capacitors,

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

Surface Acoustic Wave (SAW) Devices, RF Modules, EMI Filters,

Connectors,

Thermal Printheads, Inkjet Printheads,

Amorphous Silicon Photoreceptor Drums,

Liquid Crystal Displays (LCDs)

(5) Telecommunications Equipment Group

CDMA Mobile Phone Handsets,

Personal Handy Phone System (PHS) Related Products (PHS Mobile Phone Handsets, PHS Base Stations) Wireless Broadband Systems such as iBurst

 

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(6) Information Equipment Group

ECOSYS Printers,

Copying Machines,

Multifunctional Peripherals

(7) Others

Telecommunications Engineering Business,

Integration Business on Information Systems and Network Infrastructures,

Data Center Business,

Management Consulting Business,

Chemical Materials for Electronic Components, Electrical Insulators, Molded Products,

Hotel 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 IC foundations. Kyocera also develops, manufactures and sells substrates for thermal printheads, thin film ceramic/alumina tape substrates for chip resistors, substrate for HDD thin film magnetic heads, sapphire substrates for LCD projectors and LEDs, components for semiconductor processing equipment, components for LCD manufacturing 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 papermaking machinery.

(2) Semiconductor Parts Group

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

Ceramic packages have the characteristic of being extremely air tight, and can be small and thin, while also having exceptional heat resistance and heat dissipation. In addition, they have good high frequency properties and facilitate the embedding of passive components. Kyocera develops, manufactures and sells various ceramic packages and components capitalized on material’s characteristics. Major products in this reporting segment are ceramic packages for crystal and SAW devices, CCD/CMOS sensorceramic packages, LSI ceramic packages such as ball grid array packages and optical communication device packages and ceramic parts for fiber-optic communications connectors. Ceramic packages for crystal and SAW devices are used for SAW filters and temperature compensated crystal oscillators (TCXOs), which are mostly inserted into mobile phone handsets. CCD/CMOS sensorceramic packages are mainly used in camera-equipped mobile phone handsets and digital still cameras. Ball grid array packages are used in MPUs and other logic ICs, which are mainly inserted into high-end servers.

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).

 

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(3) Applied Ceramic Products Group

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

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 U.S.-based manufacturer of micro drill for printed circuit boards, in January 2001.

3) Medical and Dental Implants

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) 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. Kyocera also develops, 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) Electronic Device Group

Kyocera develops, manufactures and sells high quality and cost competitive electronic components and devices for the information and communication market. This field creates demand for miniaturization, low voltage, high frequency and low energy consumption, and we develop, manufacture and sell high-value-added products such as miniature ceramic capacitors with high capacitance, 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 consumer 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 market our products made in China and around the world.

 

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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 information and communication equipment, has a global manufacturing and sales network. AVX Corporation is a major contributor to our Electronic Device Group sales and pursues 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 in April 2004.

(5) Telecommunications Equipment Group

This reporting segment includes CDMA mobile phone handsets business and telecommunication system equipment business 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% stakes of WILLCOM, Inc.

In the mobile phone handsets business, 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 develops 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 the objective of further enhancing the Telecommunications Equipment Group, Kyocera acquired the mobile phone business of SANYO in April 2008. Through this acquisition, Kyocera seeks to expand sales and improve profitability in the Telecommunications Equipment Group by integrating product development and design technologies of SANYO with the management resources of Kyocera.

In the telecommunication system equipment 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 by WILLCOM, Inc in Japan. We also promote iBurstTM, a wireless internet system, which enable internet services to be used at broadband speed with wireless technology in overseas market. In addition, we develop next generation telecommunication equipment such as for next generation PHS, WiMAX and Long Term Evolution (LTE) services, which will be commenced from the latter half of 2009 and on ward, in Japan.

(6) Information Equipment Group

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

 

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with those of Kyocera Mita Corporation. We have enhanced our product line through the standardization of engines between the printers, copying machines and multifunctional peripherals. We established a plant, Kyocera Mita Office Equipment (Dongguan) Co., Ltd. in Dongguan, China due mainly to strengthen our price competitiveness in December 2001.

In January 2009, Kyocera Mita Corporation acquired TAAG, a sales company of information equipment in Germany, in order to expand the sales channels in Europe.

(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. In addition, Kyocera Communication Systems Co., Ltd. provides 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 Communication Systems Co., Ltd. also operates management consulting business based on operating of “Amoeba Management System,” which is Kyocera’s unique management method.

Kyocera Chemical Corporation, which joined Kyocera in August 2002, mainly produces electronic component materials, and 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.

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.

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 Japanese and overseas markets. Our key sales destinations are KDDI Corporation and WILLCOM, Inc. in Japan.

The Information Equipment Group markets products such as ECOSYS printers, copier machines and multifunctional peripherals under the TASKalfa brand mainly through distributors and wholesalers both in Japan and abroad.

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

 

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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 the 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 LCDs 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 2009, we procured a sufficient level of raw materials and other materials to carry out our production plans, and we do not have any concern about shortage of raw materials and supplies during fiscal 2010.

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 intellectual properties would affect significant impact on Kyocera’s entire operation. The following table sets forth information, as of March 31, 2009, 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

Canon Incorporated

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

 

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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 information and communication market, the general industrial machinery market and the automotive market.

Although competitors in this reporting segment are mainly Japanese manufacturers and 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 competitors.

(2) Semiconductor Parts Group

In this reporting segment, our goal is to further strengthen our competitive position in both the ceramic and organic package businesses 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 packages for crystal and SAW devices and CCD/CMOS sensor 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 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 mass producing of various packages and substrates.

(3) Applied Ceramic Products Group

In the solar energy business where the market is expanding rapidly supported by enhanced environmental awareness on a global basis, many companies entered into the market and the competition is becoming intense. Kyocera has been providing solar energy products for more than thirty years and has various expertise and experiences in terms of manufacturing and development as well as of global marketing. Kyocera manufactures products in-house through silicon casting to cell and module processes, and can afford to reduce costs and enhance efficiency in every process. Based on these our strengths such as quality, the world’s highest level of conversion efficiency of multi-crystalline solar cells and long-term product reliability, Kyocera manufactures our products in Japan, China, Mexico and Czech and will expand its production capacity in each site towards further business expansion.

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 Japanese and Asian markets.

(4) Electronic Device Group

Kyocera develops, manufactures and sells various capacitors, timing devices, connectors and thin-film devices. One of our competitive advantages is that we can supply a wide variety of components compared with our

 

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competitors. Though 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, most of our competitors in this reporting segment are Japanese manufacturers.

Kyocera is one of the biggest manufacturers of timing devices in the world. 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, copying machines and multifunctional peripherals. 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 among 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. In terms of telecommunication system equipment business, our main competitors are Japanese manufacturers. In April 2008, Kyocera acquired the mobile phone business of SANYO. Through this move, we aim to further strengthen development, manufacturing and sale of CDMA handsets worldwide, and to expand business in telecommunication system equipment business including next generation PHS system, WiMAX system and LTE system.

(6) Information Equipment Group

We have many competitors in Japan and abroad in information equipment business, such as printers, copying machines and multifunctional peripherals. Although the scale of sales in this reporting segment is relatively 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, copying machines and multifunctional peripherals, 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.

With the objective of expanding its product line-up, Kyocera launched and started sales of the TASKalfa brand of multifunctional peripherals in January 2009, which complements the ECOSYS brand of printers. Features of TASKalfa include use of micro-particle toner that is produced at a new toner plant in Japan, which was established in fiscal 2009, and containment of toner consumption and power consumption. TASKalfa products incorporate a new software platform and have expandability via connectivity with external systems and applications.

 

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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 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.

In addition, AVX Corporation, a subsidiary in the United States, is subject to federal, state and local laws and regulations concerning the environment in the United States and to the environmental laws and regulations of the other countries in which it operates. Specifically, AVX Corporation is subject to oversight by the United States Environmental Protection Agency (“EPA”), and is currently engaged in ongoing negotiations with the EPA, state governmental agencies and other private parties with respect to various clean-up and remediation activities. AVX Corporation is not involved in any pending or threatened proceedings that would require curtailment of its operations, and based on its periodic reviews of the operating policies and practices at its facilities, believes that its 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 its financial condition or results of operations.

C. Organizational Structure

We had 221 subsidiaries and affiliates as of March 31, 2009. 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, 2009, 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 thin-film 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

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 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 fine ceramic- related products and solar modules

(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

AVX Corporation

   United States    71.49   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   Sale of telecommunications equipment

Kyocera Wireless (India) PVT. Ltd.

   India    100.00   R&D of telecommunications equipment

Kyocera Telecom Equipment (Malaysia) Sdn. Bhd.

  

Malaysia

  

100.00

 

Manufacture of telecommunications equipment

(6) Information Equipment Group

       

Kyocera Mita Corporation

   Japan    100.00   Development and manufacture 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 mainly in North America

TA Triumph-Adler AG

   Germany    94.19   Sale of information equipment mainly in Europe

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 mainly in Europe

Kyocera Mita Deutschland GmbH

   Germany    100.00   Sale of information equipment mainly in Europe

(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

 

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Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
   

Main Business

Kyocera Chemical Corporation

   Japan    100.00   Manufacture and sale of electronic materials

(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 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, cutting tools and information equipment mainly in China

Kyocera Korea Co., Ltd.

   Korea    100.00   Sale of fine ceramic-related products and solar energy products mainly in Asia

In addition to the above consolidated subsidiaries, Kyocera had 170 other consolidated subsidiaries as of March 31, 2009. 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, 2009.

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, three 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 $80,846 thousand in fiscal 2009 and its 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, Malaysia, Israel, Thailand and Philippines. As of March 31, 2009, we had property, plants and equipment with a net book value of ¥266,054 million ($2,687 million). During the five years ended March 31, 2009, we invested a total of ¥370,072 million ($3,738 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, 2009, 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

Yamagata Higashine Plant

  Higashine, Yamagata   Owned   379     Electronic components

Nagano Okaya Plant

  Okaya, Nagano   Owned   384     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   713     Fine ceramic parts, Semiconductor parts

Shiga Yokaichi Plant

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

Ayabe Plant

  Ayabe, Kyoto   Owned   288     Organic multilayer printed circuit boards

Hirakata Plant

  Hirakata, Osaka   Owned   604     Information equipment

Kagoshima Sendai Plant

  Satsuma-Sendai, Kagoshima   Owned   2,112     Fine ceramic parts, Semiconductor parts, Electronic components, Cutting tools

Kagoshima Kokubu Plant

 

Kirishima, Kagoshima

 

Owned

  2,747
   

Fine ceramic parts, Semiconductor parts, Electronic components

Kagoshima Hayato Plant

  Kirishima, Kagoshima   Owned   278     Electronic components

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   322   2010   Electronic components

Czech Republic

         

Lanskroun Plant

  Lanskroun   Owned   360     Electronic components

Uherske Hradiste Plant

  Uherske Hradiste   Owned   275     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   Owned   2,331     Information equipment

Shilong Plant

  Dongguan, Guandong   Owned   795     Cutting tools, Electronic components

Shanghai Pudong Plant

  Shanghai   Owned   1,132     Semiconductor parts, Electronic components

Thailand

         

Thailand Plant

  Thailand   Owned   264     Electronic components

Philippines

         

Philippines Plant

  Philippines   Owned   332     Electronic components

Malaysia

         

Malaysia Plant

  Malaysia   Owned   315     Telecommunications equipment

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, 2009 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 information and communications market and environment and energy market 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 printers and multifunctional peripherals as well as consumer electronic equipment such as mobile phone handsets. 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

 

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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.”

In fiscal 2009, the impact of the financial crisis triggered in the United States in September 2008 affected the real economy, resulting in rapid deceleration in the global economy commencing the second half of fiscal 2009. In the Japanese economy, exports decreased significantly due to the slowdown in overseas economies and appreciation of the yen against the U.S. dollar and Euro, while there was a significant decline in corporate production activity. As a result, the recession in the Japanese economy has become evident rapidly.

Due to the impact of the slumping global consumer spending, the digital consumer equipment market, which is a principal market for Kyocera Corporation and its consolidated subsidiaries, posted sluggish growth in sales of mobile phone handsets, PCs, flat panel TV sets and digital still cameras. In addition, the business environment has changed dramatically commencing the second half of fiscal 2009 due to the sharp decline in corporate information technology investment. As a result, sales for both components business and equipment business decreased compared with fiscal 2008. The solar energy market expanded worldwide, due in part to subsidies from national governments despite harsh environment.

Consolidated net sales for fiscal 2009 amounted to ¥1,128,586 million ($11,400 million), a decrease of 12.5% compared with fiscal 2008, due primarily to the impact of a decrease in demand affected by deteriorating business environment and to the yen’s appreciation.

Amid such a harsh business environment, Kyocera continued to pursue synergies by effectively utilizing management resources and to aggressively release new products, while also promoting comprehensive Group-wide cost reductions. Nonetheless, profit from operations for fiscal 2009 decreased by 71.5% compared with fiscal 2008 to ¥43,419 million ($439 million) due mainly to a decrease in demand and product selling price erosion. Income before income taxes decreased by 68.0% to ¥55,982 million ($565 million) due to the decrease in profit from operations. Net income decreased by 72.5% to ¥29,506 million ($298 million).

Average exchange rates for fiscal 2009 were ¥101 to the U.S. dollar and ¥143 to the Euro, marking appreciation of ¥13 and ¥19, respectively, compared with fiscal 2008. As a result, net sales and income before income taxes after translation into the yen for fiscal 2009 were pushed down by approximately ¥91,000 million ($919 million) and ¥23,000 million ($232 million), respectively.

 

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Results of Operations

Fiscal 2009 compared with Fiscal 2008

The following table shows a summary of Kyocera’s results of operations for fiscal 2008 and fiscal 2009:

 

     Years ended March 31,     Increase
(Decrease)
 
     2008     2009    
     Amount     %     Amount     %     %  
     (Yen in millions and U.S. dollars in thousands)  

Net sales

   ¥ 1,290,436      100.0      ¥ 1,128,586      $ 11,399,859      100.0      (12.5

Cost of sales

     883,763      68.5        836,638        8,450,889      74.1      (5.3
                                          

Gross profit

     406,673      31.5        291,948        2,948,970      25.9      (28.2

Selling, general and administrative expenses

     254,253      19.7        248,529        2,510,394      22.1      (2.3
                                          

Profit from operations

     152,420      11.8        43,419        438,576      3.8      (71.5

Interest and dividend income

     18,444      1.4        15,441        155,970      1.4      (16.3

Interest expense

     (1,480   (0.1     (1,206     (12,182   (0.1   —     

Foreign currency transaction losses, net

     (956   (0.1     (91     (919   (0.0   —     

Equity in earnings of affiliates and unconsolidated subsidiaries

     6,091      0.5        6,460        65,253      0.6      6.1   

Losses on sales of securities, net

     (622   (0.1     (2,840     (28,687   (0.3   —     

Losses on impairment of securities

     (248   (0.0     (7,141     (72,131   (0.6   —     

Other, net

     1,193      0.1        1,940        19,595      0.2      62.6   
                                          
     22,422      1.7        12,563        126,899      1.2      (44.0
                                          

Income before income taxes and minority interests

     174,842      13.5        55,982        565,475      5.0      (68.0

Income taxes

     60,235      4.6        22,779        230,091      2.1      (62.2
                                          

Income before minority interests

     114,607      8.9        33,203        335,384      2.9      (71.0

Minority interests

     (7,363   (0.6     (3,697     (37,344   (0.3   —     
                                          

Net income

   ¥ 107,244      8.3      ¥ 29,506      $ 298,040      2.6      (72.5
                                          

Net sales

Consolidated net sales for fiscal 2009 decreased by ¥161,850 million ($1,635 million), or 12.5%, to ¥1,128,586 million ($11,400 million), compared with ¥1,290,436 million in fiscal 2008.

Net sales in the Components Business, which comprised 51.1% of consolidated net sales, decreased by ¥102,935 million ($1,040 million) in fiscal 2009, or 15.1%, to ¥577,055 million ($5,829 million) compared with fiscal 2008. This was principally due to stagnation in production activity in numerous industries, namely digital consumer equipment including mobile phone handsets and PCs, semiconductors, and automotive related industries, particularly in the second half, while inventory adjustments continued apace for equipment and components by Kyocera’s customers, causing component demand to drop. In contrast, sales in the Applied Ceramic Products Group decreased only slightly compared with fiscal 2008 owing to steady expansion in demand for solar energy business, mainly in Europe and the United States, until the third quarter.

Net sales in the Equipment Business, which comprised 39.7% of consolidated net sales, decreased by ¥49,508 million ($500 million) in fiscal 2009, or 10.0%, to ¥448,055 million ($4,526 million) compared with fiscal 2008. Although sales in both Japanese and overseas market weakened, sales in the Telecommunications Equipment Group decreased slightly compared with fiscal 2008, due to the acquisition of the mobile phone business of SANYO. Sales in the Information Equipment Group decreased compared with fiscal 2008, due to the

 

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impact of the yen’s appreciation against the Euro and U.S. dollar, coupled with the sharp decline in investments in information technology at corporate sectors, especially in Europe and the United States.

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 2008 and fiscal 2009 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2008     2009    
     Amount     %     Amount     %     %  
     (Yen in millions and U.S. dollars in thousands)  

Fine Ceramic Parts Group

   ¥ 81,309      6.3      ¥ 61,730      $ 623,535      5.4      (24.1

Semiconductor Parts Group

     154,538      12.0        135,137        1,365,020      12.0      (12.6

Applied Ceramic Products Group

     149,942      11.6        148,917        1,504,212      13.2      (0.7

Electronic Device Group

     294,201      22.8        231,271        2,336,071      20.5      (21.4
                                          

Total Components Business

     679,990      52.7        577,055        5,828,838      51.1      (15.1

Telecommunications Equipment Group

     220,817      17.1        218,758        2,209,677      19.4      (0.9

Information Equipment Group

     276,746      21.5        229,297        2,316,131      20.3      (17.1
                                          

Total Equipment Business

     497,563      38.6        448,055        4,525,808      39.7      (10.0

Others

     138,494      10.7        126,043        1,273,162      11.2      (9.0

Adjustments and eliminations

     (25,611   (2.0     (22,567     (227,949   (2.0   —     
                                          
   ¥ 1,290,436      100.0      ¥ 1,128,586      $ 11,399,859      100.0      (12.5
                                          

(1) Fine Ceramic Parts Group

Sales in this reporting segment in fiscal 2009 decreased by ¥19,579 million ($198 million), or 24.1%, to ¥61,730 million ($624 million), compared with ¥81,309 million in fiscal 2008.

Component demand was decreased in fiscal 2009 as prolonged stagnation in the semiconductor market since fiscal 2008 resulted in a year-on-year decline in sales of ceramic parts for semiconductor fabrication equipment, while there was a sharp decline in production activity in numerous industries, namely the digital consumer equipment and automotive industries. Overall sales in this reporting segment for fiscal 2009 were pushed down by approximately ¥3,100 million ($31 million) compared with fiscal 2008 due to the impact of the yen’s appreciation.

(2) Semiconductor Parts Group

Sales in this reporting segment in fiscal 2009 decreased by ¥19,401 million ($196 million), or 12.6%, to ¥135,137 million ($1,365 million), compared with ¥154,538 million in fiscal 2008.

Sales of both ceramic packages and organic packages decreased compared with fiscal 2008. This was due primarily to rapid deterioration in demand for ceramic packages used mainly in mobile phone handsets and digital still cameras, and for organic packages used mainly in servers from the latter half of the second quarter of fiscal 2009. Overall sales in this reporting segment for fiscal 2009 were pushed down by approximately ¥9,400 million ($95 million) compared with fiscal 2008 due to the impact of the yen’s appreciation.

 

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(3) Applied Ceramic Products Group

Sales in this reporting segment in fiscal 2009 decreased by ¥1,025 million ($10 million), or 0.7%, to ¥148,917 million ($1,504 million), compared with ¥149,942 million in fiscal 2008.

Despite an increase in sales in the solar energy business due primarily to growth in demand in Europe and the United States until the third quarter, this decrease was due to lower sales in the cutting tools business and the impact of the yen’s appreciation against the foreign currencies.

In the solar energy business, despite the yen’s appreciation against the Euro from the second half and a rapid decline in demand in Europe and the United States in the fourth quarter, production volume of solar cells and modules in fiscal 2009 increased by approximately 45% compared with fiscal 2008, while product selling prices remained relatively stable. However, sales in the cutting tools business decreased due to stagnation in production activity in automotive industries from the second half. Overall sales in this reporting segment for fiscal 2009 were pushed down by approximately ¥11,100 million ($112 million) compared with fiscal 2008 due to the impact of the yen’s appreciation.

(4) Electronic Device Group

Sales in this reporting segment in fiscal 2009 decreased by ¥62,930 million ($636 million), or 21.4%, to ¥231,271 million ($2,336 million), compared with ¥294,201 million in fiscal 2008.

There were main reasons for this decrease: a decline in demand, a reduction in product selling prices, and the yen’s appreciation. Demand for digital consumer equipment such as mobile phone handsets and PCs decreased due to the global economic downturn, forcing a rapid decline in production of digital consumer equipment and inventory adjustments for components thereof from the second half. In line with deterioration in the supply-demand situation, component prices also dropped compared with the end of fiscal 2008. In addition, sales at AVX Corporation, a core overseas subsidiary in this reporting segment, decreased by $229 million, or 14.1%, to $1,390 million, compared with $1,619 million in fiscal 2008. Overall sales in this reporting segment for fiscal 2009 were pushed down by approximately ¥27,800 million ($281 million) compared with fiscal 2008 due to the impact of the yen’s appreciation.

(5) Telecommunications Equipment Group

Sales in this reporting segment in fiscal 2009 decreased by ¥2,059 million ($21 million), or 0.9%, to ¥218,758 million ($2,210 million), compared with ¥220,817 million in fiscal 2008.

Although the mobile phone business acquired from SANYO contributed approximately ¥87,000 million ($879 million) to segment sales in fiscal 2009, replacement demand for mobile phone handsets in the Japanese market weakened sharply due to the introduction of an installment sales method, while sales in the United States decreased and new product development was delayed, leading to an overall decline in sales compared with fiscal 2008. In addition, sales in this reporting segment for fiscal 2009 were pushed down by approximately ¥11,400 million ($115 million) compared with fiscal 2008 due to the impact of the yen’s appreciation. Shipment volume of mobile phones and PHS handsets in fiscal 2009 decreased by approximately 13% compared with fiscal 2008.

(6) Information Equipment Group

Sales in this reporting segment in fiscal 2009 decreased by ¥47,449 million ($479 million), or 17.1%, to ¥229,297 million ($2,316 million), compared with ¥276,746 million in fiscal 2008.

A sharp decline in corporate information technology investment due to the economic downturn in the second half led to lower sales of printers and digital multifunctional peripherals. Kyocera acquired additional equity interest

 

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in TAAG, a German-based distributor of information equipment, to turn it into a consolidated subsidiary in January 2009 with the objective of further expanding business in the Information Equipment Group in Europe. Sales volume of both printers and digital multifunctional peripherals decreased by approximately 10%. Overall sales in this reporting segment for fiscal 2009 were pushed down by approximately ¥27,500 million ($278 million) compared with fiscal 2008 due to the impact of the yen’s appreciation.

(7) Others

Sales in this reporting segment in fiscal 2009 decreased by ¥12,451 million ($126 million), or 9.0%, to ¥126,043 million ($1,273 million), compared with ¥138,494 million in fiscal 2008. Sales at Kyocera Communication Systems Co., Ltd decreased due mainly to stagnation in telecommunications infrastructure related business, while sales in the electronic component materials business of Kyocera Chemical Corporation also decreased.

Net sales by geographic segment

The following table shows a breakdown of Kyocera’s total consolidated net sales for fiscal 2008 and fiscal 2009, 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)
 
     2008    2009   
     Amount    %    Amount    %    %  
     (Yen in millions and U.S. dollars in thousands)  

Japan

   ¥ 507,837    39.4    ¥ 473,387    $ 4,781,687    41.9    (6.8

United States of America

     248,760    19.3      201,502      2,035,374    17.9    (19.0

Europe

     229,830    17.8      200,483      2,025,081    17.8    (12.8

Asia

     232,425    18.0      183,347      1,851,990    16.2    (21.1

Others

     71,584    5.5      69,867      705,727    6.2    (2.4
                                     
   ¥ 1,290,436    100.0    ¥ 1,128,586    $ 11,399,859    100.0    (12.5
                                     

Sales in Japan, which comprised 41.9% of consolidated net sales, decreased by ¥34,450 million ($348 million), or 6.8%, to ¥473,387 million ($4,782 million), compared with ¥507,837 in fiscal 2008, due to a decline in demand for components used in digital consumer equipment.

Overseas sales, which comprised 58.1% of consolidated net sales, decreased by ¥127,400 million ($1,287 million), or 16.3%, to ¥655,199 million ($6,618 million), compared with ¥782,599 million in fiscal 2008.

Almost all of Kyocera’s overseas sales were denominated in U.S. dollar or the Euro. In fiscal 2009, the yen appreciated ¥13 against the U.S. dollar and appreciated ¥19 against the Euro on average, compared with fiscal 2008. Net sales in U.S. dollars amounted to approximately $3,900 million and net sales in Euro amounted to approximately €1,350 million in fiscal 2009. Including the impact of exchange rate changes against other currencies, consolidated net sales were pushed down by approximately ¥91,000 million ($919 million) compared with fiscal 2008.

Sales in United States in fiscal 2009 decreased by ¥47,258 million ($477 million), or 19.0%, to ¥201,502 ($2,035 million), compared with ¥248,760 million in fiscal 2008, due mainly to the impact of the yen’s appreciation, combined with sluggish growth in sales in the Telecommunications Equipment Group and the Information Equipment Group, and a decline in demand for electronic components.

 

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Sales in Europe in fiscal 2009 decreased by ¥29,347 million ($296 million), or 12.8%, to ¥200,483 million ($2,025 million), compared with ¥229,830 million in fiscal 2008, due mainly to the impact of the yen’s appreciation coupled with a decrease in sales in the Information Equipment Group caused by a reduction in information technology investment.

Sales in Asia in fiscal 2009 decreased by ¥49,078 million ($496 million), or 21.1%, to ¥183,347 million ($1,852 million), compared with ¥232,425 million in fiscal 2008, due primarily to a decline in demand for components used in digital consumer equipment and the yen’s appreciation.

Sales in Others in fiscal 2009 decreased by ¥1,717 million ($17 million), or 2.4%, to ¥69,867 million ($706 million), compared with ¥71,584 million in fiscal 2008, due to a decrease in sales in the Information Equipment Group, which offset the addition of the sales from mobile phone handset related business acquired from SANYO.

Cost of sales and gross profit

In fiscal 2009, cost of sales decreased by ¥47,125 million ($476 million), or 5.3%, to ¥836,638 million ($8,451 million) from ¥883,763 million in fiscal 2008. The ratio of cost of sales to net sales was 74.1% in fiscal 2009, an increase of 5.6 percentage points as compared with 68.5% in fiscal 2008. This was due mainly to an increase in the Telecommunication Equipment Group with the acquisition of the mobile phone related business from SANYO of which the ratio of cost of sales to net sales was relatively high, in addition to deterioration of profit due to a decline in selling prices of various components, which was partially offset by comprehensive Group-wide cost reduction activity.

Raw material costs of ¥319,738 million ($3,230 million) accounted for 38.2% of the total cost of sales in fiscal 2009, which decreased by ¥57,465 million ($580 million), or 15.2%, from ¥377,203 million in fiscal 2008. Labor costs of ¥165,809 million ($1,675 million) accounted for 19.8% in fiscal 2009, which decreased by ¥1,733 million ($18 million), or 1.0%, from ¥167,542 million in fiscal 2008. Depreciation expense of ¥70,162 million ($709 million) accounted for 8.4% in fiscal 2009, which increased by ¥8,497 million ($86 million), or 13.8%, from ¥61,665 million in fiscal 2008 due to expanded capital expenditures in fiscal 2008.

As a result, gross profit in fiscal 2009 decreased by ¥114,725 million ($1,159 million), or 28.2%, to ¥291,948 million ($2,949 million) from ¥406,673 million in fiscal 2008. The gross profit ratio to net sales decreased by 5.6 percentage points from 31.5% to 25.9%.

SG&A expenses and profit from operations

Selling, general and administrative (SG&A) expenses in fiscal 2009 decreased by ¥5,724 million ($58 million), or 2.3%, to ¥248,529 million ($2,510 million) compared with ¥254,253 million in fiscal 2008. This was due mainly to gains on sales of certain properties of ¥8,314 million ($84 million) which were recorded as deductions of SG&A expenses, however, Kyocera recorded impairment losses of ¥2,240 million ($23 million) in goodwill related to the subsidiary in the United States, and of ¥2,309 million ($23 million) of long-lived assets which were used for a production of Organic Light-Emitting Diode (OLED) displays in fiscal 2009.

Labor costs of ¥122,883 million ($1,241 million) accounted for 49.4% of total SG&A expenses in fiscal 2009, which decreased by ¥655 million ($7 million), or 0.5%, from ¥123,538 million in fiscal 2008. Sales promotion and advertising cost of ¥36,668 million ($370 million) accounted for 14.8% in fiscal 2009, which decreased by ¥3,876 million ($39 million), or 9.6%, from ¥40,544 million in fiscal 2008.

Although SG&A expenses decreased as mentioned above, profit from operations decreased by ¥109,001 million ($1,101 million), or 71.5%, to ¥43,419 million ($439 million), compared with ¥152,420 million in fiscal 2008, due to a further decrease in gross profit. The operating margin decreased by 8.0 percentage points to 3.8% in fiscal 2009, compared with 11.8% in fiscal 2008.

 

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Interest and dividend income

Interest and dividend income in fiscal 2009 decreased by ¥3,003 million ($30 million), or 16.3%, to ¥15,441 million ($156 million), compared with ¥18,444 million in fiscal 2008. This was due mainly to a decrease of interest income in AVX Corporation resulting from lower interest rate in the United States.

Interest expense

Interest expense in fiscal 2009 decreased by ¥274 million ($3 million), or 18.5%, to ¥1,206 million ($12 million), compared with ¥1,480 million in fiscal 2008. This was due mainly to payments of a part of borrowings at overseas subsidiaries.

Foreign currency translation

During fiscal 2009, the average exchange rate for the yen appreciated by ¥13, or 11.4%, against the U.S. dollar, and by ¥19, or 11.7%, against the Euro, as compared with fiscal 2008. At March 31, 2009, the yen appreciated by ¥2, or 2.0%, against the U.S. dollar, and by ¥28, or 17.7%, against the Euro, as compared with March 31, 2008. Kyocera recorded foreign currency transaction losses of ¥91 million ($1 million) in fiscal 2009.

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 2009, Kyocera’s earnings on equity-method investments increased by ¥369 million ($4 million), or 6.1%, to ¥6,460 million ($65 million), compared with ¥6,091 million in fiscal 2008.

Kyocera’s equity in earnings of affiliates and unconsolidated subsidiaries in fiscal 2009 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 Kyocera’s earnings on equity-method investments was mainly derived from an increase in net income at WILLCOM, Inc.

Losses on sales of securities, net in fiscal 2009 increased by ¥2,218 million ($22 million), or 356.6%, to ¥2,840 million ($29 million), compared with ¥622 million in fiscal 2008. This was resulted from sales of certain securities which was held by Kyocera as a part of its asset allocation.

Losses on impairment of securities in fiscal 2009 increased by ¥6,893 million ($70 million) to ¥7,141 million ($72 million), compared with ¥248 million in fiscal 2008. Kyocera recognized impairment losses as a result of significant declines in market value of certain securities. The major part of such losses was derived from the shares of Mitsubishi UFJ Financial Group, Inc. and its amount was ¥3,935 million ($40 million).

Income before income taxes

Income before income taxes in fiscal 2009 decreased by ¥118,860 million ($1,201 million), or 68.0%, to ¥55,982 million ($565 million) compared with ¥174,842 million in fiscal 2008.

Operating profit in the Components Business decreased by ¥68,543 million ($692 million), or 68.3%, to ¥31,830 million ($322 million) in fiscal 2009, compared with fiscal 2008 due mainly to a decline in capacity utilization rate owing to a sharp reduction in demand, and to a reduction in product selling prices.

 

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The Equipment Business recorded an operating loss of ¥4,216 million ($43 million) in fiscal 2009, a decrease of ¥50,540 million ($511 million) compared with fiscal 2008, due to significant profit declines in the Telecommunications Equipment Group and the Information Equipment Group.

Operating profit (loss) by reporting segment

The following table shows a breakdown of Kyocera’s consolidated income before income taxes, and operating profit for fiscal 2008 and fiscal 2009 by the seven reporting segments:

 

     Years ended March 31,    Increase
(Decrease)
 
     2008    2009   
     Amount     %*    Amount     %*    %  
     (Yen in millions and U.S. dollars in thousands)  

Fine Ceramic Parts Group

   ¥ 11,167      13.7    ¥ (240   $ (2,424   —      —     

Semiconductor Parts Group

     20,027      13.0      8,671        87,586      6.4    (56.7

Applied Ceramic Products Group

     32,655      21.8      27,469        277,464      18.4    (15.9

Electronic Device Group

     36,524      12.4      (4,070     (41,111   —      —     
                                        

Total Components Business

     100,373      14.8      31,830        321,515      5.5    (68.3

Telecommunications Equipment Group

     6,786      3.1      (17,713     (178,919   —      —     

Information Equipment Group

     39,538      14.3      13,497        136,333      5.9    (65.9
                                        

Total Equipment Business

     46,324      9.3      (4,216     (42,586   —      —     

Others

     9,635      7.0      14,106        142,485      11.2    46.4   
                                        

Operating profit

     156,332      12.1      41,720        421,414      3.7    (73.3

Corporate

     12,497      —        7,632        77,091      —      (38.9

Equity in earning of affiliates and unconsolidated subsidiaries

     6,091      —        6,460        65,253      —      6.1   

Adjustments and eliminations

     (78   —        170        1,717      —      —     
                                        

Income before income taxes

   ¥ 174,842      13.5    ¥ 55,982      $ 565,475      5.0    (68.0
                                        

 

* % to net sales of each corresponding segment

(1) Fine Ceramic Parts Group

This reporting segment recorded operating loss of ¥240 million ($2 million) in fiscal 2009.

Production activity in numerous industries, namely the semiconductor, digital consumer equipment and automotive industries, declined sharply due to the global economic downturn, which led to a substantial slump in component demand. Operating profit decreased by ¥11,407 million ($115 million) compared with ¥11,167 million in fiscal 2008 due to the reduction in production volume and decline in capacity utilization rate. Other factors behind the profit decline included an increase in depreciation costs. Operating profit in this reporting segment in fiscal 2009 was pushed down by approximately ¥900 million ($9 million) compared with fiscal 2008 due to the impact of the yen’s appreciation.

(2) Semiconductor Parts Group

Operating profit in this reporting segment in fiscal 2009 decreased by ¥11,356 million ($115 million), or 56.7%, to ¥8,671 million ($88 million), compared with ¥20,027 million in fiscal 2008.

In particular, the capacity utilization rate declined significantly from the second half due to a decrease in component demand for mobile phone handsets, digital still cameras and servers, and to a slump in

 

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telecommunications infrastructure related investment, leading to lower profitability from ceramic packages and organic packages. Operating profit in this reporting segment in fiscal 2009 was pushed down by approximately ¥2,100 million ($21 million) compared with fiscal 2008 due to the impact of the yen’s appreciation.

(3) Applied Ceramic Products Group

Operating profit in this reporting segment in fiscal 2009 decreased by ¥5,186 million ($52 million), or 15.9%, to ¥27,469 million ($277 million), compared with ¥32,655 million in fiscal 2008.

Despite the significant impact of the yen’s appreciation, the solar energy business posted profit for fiscal 2009 due to the positive effects of sales growth coupled with comprehensive cost reductions in each production process. Overall operating profit in this reporting segment declined, however, due to stagnant production activity and continued inventory adjustments in automobile industries, a substantial decline in production volume of cutting tools caused by a decrease in demand, and impairment loss on goodwill of ¥2,240 million ($23 million) at a subsidiary. Operating profit in this reporting segment in fiscal 2009 was pushed down by approximately ¥6,200 million ($63 million) compared with fiscal 2008 due to the impact of the yen’s appreciation.

(4) Electronic Device Group

This reporting segment recorded operating loss of ¥4,070 million ($41 million) in fiscal 2009, a decrease of ¥40,594 million ($410 million) compared with operating profit of ¥36,524 million in fiscal 2008.

The capacity utilization rate was down, particularly for ceramic capacitors, timing devices, and connectors, due to a sharp decline in component demand from the second half owing to lower production of mobile phone handsets, PCs and digital consumer electronics. In addition, the decline in demand led to intense component price competition, causing prices to drop significantly, by around 20% in certain components. The yen’s appreciation also forced profits down by approximately ¥4,600 million ($46 million) compared with fiscal 2008. Furthermore, the decrease in profit reflected an impairment loss of ¥2,309 million ($23 million) on long-lived asset used for production of Organic Light-Emitting Diode (OLED) displays, AVX Corporation’s restructuring charges of approximately ¥1,800 million ($18 million) related to employee separations and facility consolidations, and AVX Corporation’s accrual of ¥1,711 million ($17 million) for estimated environmental remediation costs.

(5) Telecommunications Equipment Group

This reporting segment recorded operating loss of ¥17,713 million ($179 million) in fiscal 2009, a decrease of ¥24,499 million ($247 million) compared with operating profit of ¥6,786 million in fiscal 2008.

Profitability in the mobile phone handset business acquired from SANYO was depressed due to deterioration in market conditions and to a considerable decline in sales of handsets in Japan and overseas owing to a reduction in the number of new models released. Profitability was also decreased in Kyocera’s traditional mobile phone handset business as sales at Kyocera Wireless Corp., a subsidiary in the U.S., declined due to delayed development of new products and to the economic downturn. Other factors behind the decline in profit were increases in depreciation and amortization costs and R&D expenses by ¥8,193 million ($83 million) and ¥3,468 million ($35 million), respectively, compared with fiscal 2008, due mainly to the acquisition of the mobile phone related business from SANYO. Employee separations were implemented at Kyocera Wireless Corp. in the fourth quarter to enhance profitability from the following fiscal period, and this resulted in the recording of approximately ¥1,300 million ($13 million).

(6) Information Equipment Group

Operating profit in this reporting segment in fiscal 2009 decreased by ¥26,041 million ($263 million), or 65.9%, to ¥13,497 million ($136 million), compared with ¥39,538 million in fiscal 2008.

 

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Operating profit for fiscal 2009 was pushed down by approximately ¥7,200 million ($73 million) compared with fiscal 2008 due to the impact of the yen’s appreciation against the Euro and U.S. dollar. A significant decline in investments in information technology at corporate sectors led to reduction in sales volumes of both printers and multifunctional peripherals compared with fiscal 2008. In addition, product selling prices dropped between 5% to 15% on a full-year basis for both printers and multifunctional peripherals.

(7) Others

Operating profit in this reporting segment in fiscal 2009 increased by ¥4,471 million ($45 million), or 46.4%, to ¥14,106 million ($142 million), compared with ¥9,635 million in fiscal 2008.

Despite profit declines at Kyocera Communication Systems Co., Ltd. and Kyocera Chemical Corporation due to deterioration in the business environment, recorded ¥9,352 million ($94 million) of gains on sales of property, plant and equipment, net which includes gains on sales of certain properties.

(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 decreased by ¥4,865 million ($49 million), or 38.9%, to ¥7,632 million ($77 million) compared with ¥12,497 million in fiscal 2008. This was mainly due to losses on sales of securities and losses on impairment of securities recognized in fiscal 2009.

Taxes

Current and deferred income taxes in fiscal 2009 decreased by ¥37,456 million ($378 million), or 62.2%, to ¥22,779 million ($230 million) compared with ¥60,235 million in fiscal 2008.

The effective tax rate of 40.7% in fiscal 2009 was 6.2 points higher than the effective rate in fiscal 2008 of 34.5%. This was due mainly to an increase in valuation allowances on deferred tax assets recorded at certain foreign subsidiaries with pre-tax losses.

For detailed information, see Note 19 to the Consolidated Financial Statements in this annual report on Form 20-F.

Minority interests

Minority interests in fiscal 2009 amounted to ¥3,697 million ($37 million) and minority interests related to AVX Corporation, which accounted for approximately 30% of minority ownership interests, amounted to ¥2,406 million ($24 million). Minority interests in fiscal 2009 decreased by ¥3,666 million ($37 million), or 49.8%, compared with minority interests of ¥7,363 million in fiscal 2008. This was due mainly to a decrease in net income at AVX Corporation.

 

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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     %     %  

Net sales

   ¥ 1,283,897      100.0      ¥ 1,290,436      100.0      0.5   

Cost of sales

     900,470      70.1        883,763      68.5      (1.9
                                  

Gross profit

     383,427      29.9        406,673      31.5      6.1   

Selling, general and administrative expenses

     248,325      19.4        254,253      19.7      2.4   
                                  

Profit from operations

     135,102      10.5        152,420      11.8      12.8   

Interest and dividend income

     15,472      1.2        18,444      1.4      19.2   

Interest expense

     (1,647   (0.1     (1,480   (0.1   —     

Foreign currency transaction losses, net

     (65   (0.0     (956   (0.1   —     

Equity in earnings of affiliates and unconsolidated subsidiaries

     2,621      0.2        6,091      0.5      132.4   

Gains (losses) on sales of securities, net

     3,819      0.3        (622   (0.1   —     

Other, net

     1,238      0.1        945      0.1      (23.7
                                  
     21,438      1.7        22,422      1.7      4.6   
                                  

Income from continuing operations before income taxes and minority interests

     156,540      12.2        174,842      13.5      11.7   

Income taxes

     48,887      3.8        60,235      4.6      23.2   
                                  

Income from continuing operations before minority interests

     107,653      8.4        114,607      8.9      6.5   

Minority interests

     (6,324   (0.5     (7,363   (0.6   —     
                                  

Income from continuing operations

     101,329      7.9        107,244      8.3      5.8   

Income from discontinued operations

     5,175      0.4        —        —        —     
                                  

Net income

   ¥ 106,504      8.3      ¥ 107,244      8.3      0.7   
                                  

Net sales

Consolidated net sales for fiscal 2008 increased by ¥6,539 million, or 0.5%, to ¥1,290,436 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, or 4.5%, to ¥679,990 million compared with fiscal 2007. In particular, sales in the Applied Ceramic Products Group increased by ¥18,839 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, or 2.8% compared with fiscal 2007. The Semiconductor Parts Group also posted an increase in sales of ¥2,246 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, compared with fiscal 2007 due to the effect by slowdown in semiconductor industry.

By contrast, consolidated net sales in the Equipment Business in fiscal 2008 decreased by ¥22,401 million, or 4.3% to ¥497,563 million compared with fiscal 2007. Sales in the Telecommunication Equipment Group decreased by ¥30,366 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, or 3.0% compared with fiscal 2007, spurred by enhanced sales activities through aggressive new product introductions of printers and multi functional peripherals (MFPs).

 

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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)  

Fine Ceramic Parts Group

   ¥ 81,326      6.3      ¥ 81,309      6.3      (0.0

Semiconductor Parts Group

     152,292      11.9        154,538      12.0      1.5   

Applied Ceramic Products Group

     131,103      10.2        149,942      11.6      14.4   

Electronic Device Group

     286,156      22.3        294,201      22.8      2.8   
                                  

Total Components Business

     650,877      50.7        679,990      52.7      4.5   

Telecommunications Equipment Group

     251,183      19.6        220,817      17.1      (12.1

Information Equipment Group

     268,781      20.9        276,746      21.5      3.0   
                                  

Total Equipment Business

     519,964      40.5        497,563      38.6      (4.3

Others

     137,235      10.7        138,494      10.7      0.9   

Adjustments and eliminations

     (24,179   (1.9     (25,611   (2.0   —     
                                  
   ¥ 1,283,897      100.0      ¥ 1,290,436      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, 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, or 1.5%, to ¥154,538 million, compared with ¥152,292 million in fiscal 2007.

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.

 

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(3) Applied Ceramic Products Group

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

An increase of approximately 10% in production volume and stable selling price for photovoltaic 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, or 2.8%, to ¥294,201 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, or 12.1%, to ¥220,817 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, or 3.0%, to ¥276,746 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, or 0.9%, to ¥138,494 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)  

Japan

   ¥ 496,959    38.7    ¥ 507,837    39.4    2.2   

United States of America

     274,361    21.4      248,760    19.3    (9.3

Europe

     215,672    16.8      229,830    17.8    6.6   

Asia

     216,663    16.9      232,425    18.0    7.3   

Others

     80,242    6.2      71,584    5.5    (10.8
                              
   ¥ 1,283,897    100.0    ¥ 1,290,436    100.0    0.5   
                              

Sales in Japan, which comprised 39.4% of consolidated net sales, increased by ¥10,878 million, or 2.2%, to ¥507,837 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, or 0.6%, to ¥782,599 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, or 9.3%, to ¥248,760 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 Europe in fiscal 2008 increased by ¥14,158 million, or 6.6%, to ¥229,830 million, compared with ¥215,672 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 Asia in fiscal 2008 increased by ¥15,762 million, or 7.3%, to ¥232,425 million, compared with ¥216,663 million in fiscal 2007, due to sales growth of the Electronic Device Group for digital consumer equipment.

Sales in Others in fiscal 2008 decreased by ¥8,658 million, or 10.8%, to ¥71,584 million, compared with ¥80,242 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.

 

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In converting these currencies into the 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 compared with fiscal 2007.

Cost of sales and gross profit

In fiscal 2008, cost of sales decreased by ¥16,707 million, or 1.9%, to ¥883,763 million from ¥900,470 million in fiscal 2007. Raw material costs of ¥377,203 million accounted for 42.7% of the total cost of sales, and labor costs of ¥167,542 million accounted for 19.0%. The change in depreciation methods in Kyocera Corporation and its domestic subsidiaries caused an increase of ¥11,295 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, or 6.1%, to ¥406,673 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, or 2.4%, to ¥254,253 million compared with ¥248,325 million in fiscal 2007. Labor cost was ¥123,538 million, or 48.6% of total SG&A expenses, and sales promotion and advertising cost was ¥40,544 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 due to the change in depreciation methods.

Although SG&A expenses increased as above, profit from operations increased by ¥17,318 million, or 12.8%, to ¥152,420 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, or 19.2%, to ¥18,444 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, or 10.1%, to ¥1,480 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 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, or 132.4%, to ¥6,091 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, from a gain of ¥3,819 million in fiscal 2007 to a loss of ¥622 million in fiscal 2008. Gains in fiscal 2007 were due mainly to realization of unrealized gains by sale of investment securities.

Income from continuing operations before income taxes

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

Due mainly to an increase in depreciation costs of ¥9,510 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, or 4.1%, to ¥100,373 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 to ¥46,324 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, or 19.2%, and by ¥3,470 million, or 132.4%, respectively.

 

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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 2007 and fiscal 2008 by the eight reporting segments:

 

     Years ended March 31,    Increase
(Decrease)
 
     2007    2008   
     Amount     %*    Amount     %*    %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 15,677      19.3    ¥ 11,167      13.7    (28.8

Semiconductor Parts Group

     22,210      14.6      20,027      13.0    (9.8

Applied Ceramic Products Group

     22,334      17.0      32,655      21.8    46.2   

Electronic Device Group

     44,487      15.5      36,524      12.4    (17.9
                                

Total Components Business

     104,708      16.1      100,373      14.8    (4.1

Telecommunications Equipment Group

     291      0.1      6,786      3.1    —     

Information Equipment Group

     33,970      12.6      39,538      14.3    16.4   
                                

Total Equipment Business

     34,261      6.6      46,324      9.3    35.2   

Others

     6,881      5.0      9,635      7.0    40.0   
                                

Operating profit

     145,850      11.4      156,332      12.1    7.2   

Corporate

     8,569      —        12,497      —      45.8   

Equity in earnings of affiliates and unconsolidated subsidiaries

     2,621      —        6,091      —      132.4   

Adjustments and eliminations

     (500   —        (78   —      —     
                                

Income from continuing operations before income taxes

   ¥ 156,540      12.2    ¥ 174,842      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, or 28.8%, to ¥11,167 million compared with ¥15,677 million in fiscal 2007.

This was primarily due to an increase of ¥2,995 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, or 9.8%, to ¥20,027 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, 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, or 46.2%, to ¥32,655 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, or 17.9%, to ¥36,524 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, or 13.6%.

(5) Telecommunications Equipment Group

Operating profit in this reporting segment in fiscal 2008 increased by ¥6,495 million, to ¥6,786 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 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, led to ¥2.6 billion, 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, or 16.4%, to ¥39,538 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, or 40.0%, to ¥9,635 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, or 45.8%, to ¥12,497 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, or 23.2%, to ¥60,235 million compared with ¥48,887 million in fiscal 2007.

 

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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 2008 included the tax expense of ¥3,242 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 19 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 and minority interests related to AVX Corporation, which accounted for approximately 30% of minority ownership interests, amounted to ¥4,964 million. Minority interests in fiscal 2008 increased by ¥1,039 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.

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 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 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.

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.

 

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Allowances for doubtful accounts

Kyocera maintains allowances for doubtful accounts related to trade notes receivables, trade accounts receivables 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 ¥5,141 million and ¥8,719 million ($88 million) in fiscal 2008 and 2009, respectively. The amounts of these inventory write-downs by reporting segments appear in Note 21 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 electronic device. These products turned out to be obsolete because of their short product lives, and were subject to a decrease in demand and a decline in price.

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 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 ¥248 million and ¥7,141 million ($72 million) in fiscal 2008 and 2009, respectively. Mainly, Kyocera recorded losses on impairment of certain equity securities due to the decline in fair value below cost for considerable length of time and the extent was severe in fiscal 2009.

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, 2009, the unrealized gain of ¥15,540 million ($157 million) on the shares of KDDI Corporation held by Kyocera had decreased compared with that of ¥99,697 million as of at March 31, 2008, reflecting a fluctuation of the market price of the shares of KDDI Corporation during fiscal 2009. 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 4 to the Consolidated Financial Statements in this report.

 

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Impairment of long-lived assets

Kyocera reviews its long-lived assets and intangible assets with definite useful lives for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. 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.

Kyocera recognized ¥2,309 million ($23 million) of a loss on impairment on the long-lived assets which were used for a production of OLED displays in the Electronic Device Group and included such loss in selling, general and administrative expenses.

Since qualities and characteristics of OLED displays requested by the users heightened recently and Kyocera changed the target of production in which they were used, Kyocera transferred such business from a manufacturing department to a research and development department. As a result of this transfer, Kyocera reviewed the future plan of OLED displays business and concluded the expected undiscounted cash flow from the long-lived assets of OLED displays business was less than its carrying value. Consequently, Kyocera recorded a loss on impairment based on the amount by which the carrying value exceeded the fair value of the long-lived assets of OLED displays business. The fair value of the long-lived assets of OLED displays business was estimated by using the expected present value of future cash flow.

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.

In fiscal 2009, Kyocera recognized ¥26,449 million ($267 million) of goodwill in total as results of the acquisition of the mobile phone-related business from SANYO by Kyocera Corporation included in the Telecommunications Equipment Group and additional equity interest in TAAG by Kyocera Mita Corporation to turn TAAG into a consolidated subsidiary included in the Information Equipment Group. In fiscal 2008, Kyocera recognized ¥10,413 million of goodwill as a result of the acquisition of American Technical Ceramics Corp. by AVX Corporation included in the Electronic Device Group. For detailed information of this acquisition, see Note 3 to the Consolidated Financial Statements in this report.

In fiscal 2009, Kyocera recognized impairment losses on goodwill in the amounts of ¥2,240 million ($23 million) in the Applied Ceramic Products Group and ¥1,217 million ($12 million) in the Others segment. The sluggish performances at a U.S. subsidiary in the Applied Ceramic Products Group and at a Japanese subsidiary in Others segment led to significant decline in their fair values. The fair values of those goodwill were determined through the use of various methodologies such as discounted cash flows and comparable valuations of similar companies.

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, 2009, deferred tax assets amounted to ¥91,403 million

 

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($923 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 2009.

Benefit plans

The over funded or under funded status of defined benefit postretirement plans, which depends on projected benefit obligations and plan assets, are recognized as an asset or liability in its consolidated balance sheets and changes in that funded status are recognized through comprehensive income in the year in which the changes occur. Projected benefit obligations are determined on an actuarial basis and are significantly affected by the assumptions used in their calculation, such as the discount rates, the rate of increase in compensation levels and other assumptions. The expected long-term rate of return on plan assets is also used as an assumption.

Kyocera determines the discount rate by referencing the yield on high quality fixed income securities such as Japanese Government Bonds. The rate of increase in compensation levels is determined based mainly on results of operations and inflation. 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. Kyocera annually reviews the assumptions underlying its actuarial calculations, making adjustments based on current market conditions, if necessary.

If Kyocera is required to decrease its assumptions of the discount rate and the expected long-term rate of return on plan assets because of a stagnation of Japanese and global economies, projected benefit obligations and net periodic pension costs will increased.

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, 2009
    Effect on projected
benefit obligation
as of March 31, 2009
 
     (Yen in millions and U.S. dollars in thousands)  

Discount rates:

    

0.25% decrease

   ¥ 4,239      $ 42,818   

0.25% increase

     (3,999     (40,394
     Effect on income
before income taxes
for the year ending
March 31, 2010
    Effect on income
before income taxes
for the year ending
March 31, 2010
 

Discount rates:

    

0.25% decrease

   ¥ (91   $ (919

0.25% increase

     88        889   

Expected rate of return on plan assets:

    

0.25% decrease

     (325     (3,283

0.25% increase

     325        3,283   

 

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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, a subsidiary in the U.S., has been named as a potentially responsible party (“PRP”) 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. AVX Corporation continues to monitor these actions and proceedings and to vigorously defend its interests. AVX Corporation currently has reserves for current remediation, compliance and legal cost related to these matters.

In July 2007, AVX Corporation received oral notification from the Environmental Protection Agency (“EPA”), 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 1991 consent decree relating to the environmental conditions at, and remediation of, New Bedford Harbor in the Commonwealth of Massachusetts. The EPA has indicated that remediation costs through December 6, 2007 (which remediation is ongoing) are approximately ¥31,213 million ($315 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 U.S. Department of Justice 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 EPA 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.

 

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Uncertainty in income taxes

Kyocera adopts an interpretation of FASB statement No. 109 “Accounting for Uncertainty in Income Taxes—an interpretation of FASB statement No. 109” (FIN 48). Kyocera records liabilities for unrecognized tax benefits based on the premise of being subject to income tax examination by tax authorities, when it is more likely than not that tax benefits associated with tax positions will not be sustained. Actual results such as settlements with tax authorities may differ from the recognition accounted for under FIN48.

At March 31, 2009, gross unrecognized tax benefits amounted to ¥10,518 million ($106 million). Kyocera does not anticipate the final resolution of procedures to have a material impact on the consolidated statements of income in the future.

Recently adopted 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. The measurement and disclosure requirements related to financial assets and financial liabilities were effective for fiscal years beginning April 1, 2008. The adoption of SFAS No. 157 for financial assets and financial liabilities has no material impact on Kyocera’s consolidated results of operations, financial positions and cash flows.

In February 2008, the FASB issued FASB Staff Position (FSP) No. 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” and FSP No. 157-2, “Effective Date of FASB Statement No. 157. “FSP No. 157-1 amended SFAS No. 157 to remove certain leasing transactions from its scope and was effective for fiscal years beginning April 1, 2008. FSP No. 157-2 postponed one year the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities. FSP No. 157-2 is effective for fiscal years beginning after November 15, 2008. As such effective April 1, 2009, Kyocera will apply the guidance of SFAS No. 157 for all non financial assets and non financial liabilities.

In October 2008, the FASB issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active” (FSP No. 157-3). FSP No. 157-3 clarifies the application of SFAS No. 157 in a market that is not active, and addresses application issues such as the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. FSP No. 157-3 is effective beginning for the three months ended December 31, 2008. The adoption of FSP 157-3 has no material impact on Kyocera’s consolidated results of operations, financial positions and cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132 (R).” SFAS No. 158 requires an employer to measure the funded status of a benefit plan as of the date of its fiscal year-end statement of financial position for the years ending after December 15, 2008. Kyocera adopted this measurement date provision for fiscal years beginning April 1, 2008 and measured the funded status of its benefit plans at the date of its fiscal year-end statement of financial position. As a result of applying the transition method of this provision, retained earnings and other comprehensive income at April 1, 2008 decreased by ¥522 million ($5 million) and ¥418 million ($4 million), respectively.

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 for fiscal years beginning April 1, 2008. For adoption of SFAS No. 159, see Note 4 to the Consolidated Financial Statements in this annual report on Form 20-F.

 

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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 SFAS 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 for fiscal years and interim periods beginning after November 15, 2008. As SFAS No. 161 does not impact the measurement or recognition of derivative instruments, the adoption of the SFAS No. 161 did not have any impact on Kyocera’s consolidated results of operations, financial positions and 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

 

  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 SFAS No. 162 was effective on November 15, 2008.

The adoption of SFAS No. 162 did not have any impact on Kyocera’s consolidated results of operations, financial positions and cash flows.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS No. 141(R)), “Business Combinations,” which requires assets, liabilities and noncontrolling interests be measured at fair value. Under SFAS No. 141(R), 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. The FASB issued FASB Staff Position (FSP) 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” as amendment of SFAS No. 141(R) in April 2009. FSP141(R)-1 requires the companies to recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. Otherwise they will be processed based on the requirement of SFAS No. 5, “Accounting for Contingencies.” SFAS No. 141(R) and FSP141(R)-1 are effective for fiscal years beginning on or after December 15, 2008. Kyocera does not expect the adoption of SFAS No. 141(R) and FSP141(R)-1 will have any material impact on Kyocera’s consolidated results of operations, financial positions and cash flows.

 

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statement 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 does not expect the adoption of SFAS NO. 160 will have any material impact on Kyocera’s consolidated results of operations, financial positions and cash flows.

In December 2008, the FASB issued FSP No. 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” which provides guidance on employers’ disclosures of a defined benefit pension or other postretirement plan. Specifically, employers are required to disclose information about fair value measurements of plan assets. FSP No. 132(R)-1 will be effective for fiscal years ending after December 15, 2009. As FSP No. 132(R)-1 is a provision for disclosure, the adoption of FSP No. 132(R)-1 will not have any impact on Kyocera’s consolidated results of operations, financial positions and cash flows.

In April 2009, the FASB issued three FASB Staff Positions, (a) FSP No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” (b) FSP No. 115-2 and FSP No. 124-2, “Recognition and Presentation of Other-Than Temporary Impairments” and (c) FSP No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments.”

 

  (a) FSP No. 157-4 provides guidance on how to estimate the fair value of assets or liabilities when the volume and level of activity for asset or liability have significantly decreased and on identifying circumstances that indicate a transaction is not orderly. In addition, FSP No. 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to estimate fair value and a discussion of changes in valuation techniques.

 

  (b) FSP No. 115-2 and FSP No. 124-2 amends the other-than-temporary impairment guidance for debt securities and presentation and disclosure requirement of other-than-temporary impairments of debt and equity securities.

 

  (c) FSP No. 107-1 and APB No. 28-1 requires interim disclosures regarding the fair values of financial instruments that are within the scope of SFAS No. 107. Additionally, FSP No. 107-1 and APB No. 28-1 requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on a interim basis as well as changes of the methods and significant assumptions from previous periods.

These three FASB Staff Positions are effective for interim and annual reporting periods ending after June 15, 2009. The adoption of these three FASB Staff Positions is not expected to have a significant impact on Kyocera’s consolidated results of operations, financial positions and cash flows.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” The purpose of SFAS No. 165 is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim or annual financial periods ending June 15, 2009. Kyocera does not expect the adoption of SFAS No. 160 will have any material impact on Kyocera’s consolidated results of operations, financial positions and cash flows.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140.” SFAS No. 166 removes the concept of a qualifying special-purpose entity from Statement 140 and removes the exception from applying FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to qualifying special-purpose entities and establishes specific conditions for reporting a transfer of a portion of a financial asset as a sale. SFAS No. 166 must be applied as of

 

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the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Kyocera is currently evaluating the impact that SFAS No. 166 will have on Kyocera’s consolidated results of operations, financial positions and cash flows.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).” SFAS No. 167 requires an enterprise to perform an analysis to identify the primary beneficiary of a variable interest entity and also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 167 shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Kyocera is currently evaluating the impact that SFAS No. 167 will have on Kyocera’s consolidated results of operations, financial positions and cash flows.

B. Liquidity and Capital Resources

Capital resources

In fiscal 2009, in accordance with global economic deterioration commencing the second half of fiscal 2009, a demand for product rapidly decreased and product selling price significantly declined. Appreciation of the yen against the Euro and the U.S. dollar had a large negative impact on Kyocera’s financial result.

However, Kyocera’s net cash provided by operating activities in fiscal 2009 was ¥97,794 million ($988 million), and cash and cash equivalents, at March 31, 2009 were ¥269,247 million ($2,720 million). Kyocera held liquid financial assets, additionally. Based on those facts, Kyocera does not expect to face financial difficulties in near future.

In the short term, Kyocera expects cash demands for working capital and funds for capital expenditures required for the expansion of operations, contribution to pension plans 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. As of March 31, 2009, Kyocera’s short-term borrowings and long-term debt including current portion totaled ¥53,403 million ($539 million). The ratio to total assets of 3.0% still reflected a low level of dependence. Most borrowings were denominated in the 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 2009 decreased by ¥22,046 million ($223 million), or 25.9%, to ¥63,055 million ($637 million) compared with ¥85,101 million in fiscal 2008. In fiscal 2009, Kyocera made capital expenditures in the solar energy business to expand production capacity, but Kyocera reduced capital expenditures in other businesses in the fourth quarter due to the weak business environment. R&D expenses increased by ¥4,327 million ($44 million), or 7.0%, to ¥65,932 million ($666 million) compared with ¥61,605 million in fiscal 2008. In fiscal 2009, Kyocera’s research and development activities developed new products and strengthened functions of products in the Electronic Device Group, Telecommunications Equipment Group and the Information Equipment Group. In the Telecommunications Equipment Group R&D, expenditures particularly increased by ¥3,468 million ($35 million) compared with fiscal 2008 due to an acquisition of the mobile phone handset related business of SANYO. Nearly all capital and R&D expenditures were funded by using cash in hand.

During fiscal 2010, Kyocera expects total capital expenditures to be approximately ¥43,000 million ($434 million) and total R&D expenses to be approximately ¥58,000 million ($586 million). Kyocera expects that total capital expenditures will decrease compared with fiscal 2009, except the solar energy business in which Kyocera will expand production capacity. Kyocera expects that R&D expenditures will decrease compared with fiscal 2009, however the proportion of R&D expenditures to net sales will be flat compared with fiscal 2009. Nearly all

 

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capital and R&D expenditures will be funded by using cash in hand. 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.

In fiscal 2009, Kyocera contributed ¥12,102 million ($122 million) to its benefit pension plans, and in fiscal 2010, Kyocera forecasts to contribute ¥9,643 million ($97 million) to its benefit pension plans. During fiscal 2009, instabilities of financial markets led to a weak performance of benefit plan assets and projected benefit obligations increased due to a decrease in assumptions used in actuarial calculations. However, as of March 31, 2009, Kyocera’s funded status of benefit pension plans ensured the sources of funds sufficient to cover the pension benefits paid to participants and beneficiaries, and large amounts of additional contributions are not considered to be necessary. Kyocera expects contributions to pension plan assets will be made by using cash in hand.

In fiscal 2009, Kyocera Corporation paid cash dividends totaling ¥22,755 million ($230 million), at ¥120 ($1.2) per share. Kyocera Corporation received approval at the general meeting of shareholders held on June 25, 2009 for the payment of year-end dividends totaling ¥11,012 million ($111 million), ¥60 ($0.6) per share, on June 26, 2009 to all stockholders of record on March 31, 2009.

Based on the resolution at the meeting of the Board of Directors held on November 27, 2008, Kyocera acquired its own shares in the market as its treasury stock from November 28, 2008 to December 22, 2008. The total number of shares acquired and the total acquisition price were 6,256,000 shares and ¥38,000 million ($384 million), respectively. Due mainly to this acquisition, the balance of treasury stock at March 31, 2009 increased by ¥(35,279 million) ($(356 million)), to ¥(50,568 million) ($(511 million)), compared with ¥(15,289 million) as of March 31, 2008. This acquisition was funded by using cash in hand. 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.

As described in Note 3 to the consolidated Financial Statement, Kyocera acquired the businesses and the shares. These acquisition costs, net of cash acquired were ¥47,512 million ($480 million), and nearly all acquisitions were funded by using cash in hand.

As of March 31, 2009, Kyocera’s working capital totaled ¥714,355 million ($7,216 million), a decrease of ¥102,188 million ($1,032 million), or 12.5%, compared with ¥816,543 million as of March 31, 2008. This was due mainly to decreases in cash generated by operations affected by weak business environment, and increases in cash demands, such as payments for acquisition costs for business combination and treasury stock. Despite this, its working capital requirements, capital expenditures, debt repayments and other obligations were funded by using cash in hand.

Kyocera believes cash in hand will be sufficient to fund all cash requirements outlined above at least through fiscal 2010. 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 74.6% at March 31, 2009, 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.

 

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Cash flows

Fiscal 2009 compared with Fiscal 2008

The following table shows a summary of Kyocera’s cash flows for fiscal 2008 and fiscal 2009:

 

     Years ended March 31,  
     2008     2009     2009     Increase
(Decrease)
 
     Amount     Amount     Amount     %  
     (Yen in millions and U.S. dollars in thousands)  

Cash flows from operating activities

   ¥ 196,935      ¥ 97,794      $ 987,818      (50.3

Cash flows from investing activities

     14,894        (201,957     (2,039,970   —     

Cash flows from financing activities

     (28,071     (62,417     (630,475   122.4   

Cash and cash equivalents at end of year

     447,586        269,247        2,719,667      (39.8

Net cash provided by operating activities in fiscal 2009 decreased by ¥99,141 million ($1,001 million), or 50.3%, to ¥97,794 million ($988 million) from ¥196,935 million in fiscal 2008. This was due mainly to a decrease in net income.

Cash flow from investing activities turned from ¥14,894 million of cash inflows in fiscal 2008 to ¥201,957 million ($2,040 million) of cash outflows in fiscal 2009, which represented a decrease in cash inflow by ¥216,851 million ($2,190 million) compared with fiscal 2008.

This was due mainly to a decrease in withdrawal of certificate deposits and time deposits, and a decrease in proceeds from sales and maturities of available-for-sale securities.

Net cash used in financing activities in fiscal 2009 increased by ¥34,346 million ($347 million), or 122.4%, to ¥62,417 million ($630 million) from ¥28,071 million in fiscal 2008.

This was due mainly to purchases of treasury stock from November 28, 2008 to December 22, 2008.

Due mainly to the yen’s appreciation against the Euro and the U.S. dollar between March 31, 2008 and March 31, 2009 resulted in decreases in cash and cash equivalents of ¥11,759 million ($119 million).

At March 31, 2009, cash and cash equivalents totaled ¥269,247 million ($2,720 million). This represented a decrease of ¥178,339 million ($1,801 million), or 39.8%, from ¥447,586 million at March 31, 2008. 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 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     Increase
(Decrease)
     Amount     Amount     %
     (Yen in millions)

Cash flows from operating activities

   ¥ 149,644      ¥ 196,935      31.6

Cash flows from investing activities

     (151,703     14,894      —  

Cash flows from financing activities

     (20,645     (28,071   36.0

Cash and cash equivalents at end of year

     282,208        447,586      58.6

 

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Net cash provided by operating activities in fiscal 2008 increased by ¥47,291 million, or 31.6%, to ¥196,935 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 of cash inflows in fiscal 2008, and increased by ¥166,597 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, or 36.0%, to ¥28,071 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.

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.

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

Assets, liabilities and stockholders’ equity

Kyocera’s total assets at March 31, 2009 decreased by ¥202,944 million ($2,050 million), or 10.3% to ¥1,773,802 million ($17,917 million), compared with ¥1,976,746 million at March 31, 2008.

Cash and cash equivalents decreased by ¥178,339 million ($1,801 million), or 39.8%, to ¥269,247 million ($2,720 million). This was due mainly to the effect of payment for acquisition of the mobile phone handsets related business and its related assets and liabilities from SANYO and acquisitions of certificate of deposits in addition to a purchase of treasury stocks at Kyocera Corporation.

Short-term investments increased by ¥54,640 million ($552 million), or 37.0%, to ¥202,143 million ($2,042 million), due mainly to acquisitions of certificate deposits at Kyocera Corporation.

Trade receivables-Accounts decreased by ¥46,768 million ($472 million), or 22.8%, to ¥158,754 million ($1,604 million), due mainly to a decrease in sales caused by declines in overall demand due to downturn of economic conditions and the yen’s appreciation.

Other current assets increased by ¥23,128 million ($234 million), or 41.9%, to ¥78,263 million ($791 million), due mainly to an increase of advance payments of the long-term purchase agreements for certain materials at Kyocera Corporation and combined with short-term lease receivable owned by TAAG, a newly consolidated subsidiary by Kyocera Mita.

Securities and other investments decreased by ¥85,520 million ($864 million), or 19.6%, to ¥351,849 million ($3,554 million), due mainly to declines in market values of the shares of KDDI Corporation and other equity securities at March 31, 2009 compared with March 31, 2008.

 

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Total property, plant and equipment at cost, net of accumulated depreciation, decreased by ¥19,845 million ($200 million), or 6.9%, to ¥266,054 million ($2,687 million). Capital expenditure in fiscal 2009 was ¥63,055 million ($637 million), and depreciation was ¥83,753 million ($846 million).

Goodwill increased by ¥23,432 million ($237 million), or 58.9%, to ¥63,226 million ($639 million), due mainly to an acquisition of the mobile phone handsets related business from SANYO by Kyocera Corporation and a acquisition of additional interests in TAAG by Kyocera Mita. Intangible assets increased by ¥30,248 million ($306 million), or 101.4%, to ¥60,077 million ($607 million) as well.

Other assets increased by ¥12,027 million ($121 million), or 24.6%, to ¥60,904 million ($615 million) due mainly to an increase of long-term lease receivable owned by TAAG, a newly consolidated subsidiary by Kyocera Mita.

Kyocera’s total liabilities at March 31, 2009 decreased by ¥69,865 million ($706 million), or 15.2%, to ¥390,714 million ($3,947 million), compared with ¥ 460,579 million at March 31, 2008.

Notes and accounts payable-Trade decreased by ¥32,811 million ($331 million), or 34.4%, to ¥62,579 million ($632 million) compared with March 31, 2008, due mainly to a decline in purchases in line with a slump in sales.

Notes and accounts payable-Other decreased by ¥23,305 million ($235 million), or 34.9%, to ¥43,452 million ($439 million) due mainly to a decline in capital expenditure in line with downturn of economic conditions and a decrease in payables for acquisitions of certificate deposits at Kyocera Corporation.

Accrued income taxes decreased by ¥19,688 million ($199 million), or 72.6%, to ¥7,430 million ($75 million) due mainly to a reduction of overall operating profits.

Long-term debt increased by ¥20,240 million ($204 million), or 243.9%, to ¥28,538 million ($288 million) due to an increase of long-term debt owned by TAAG, a newly consolidated subsidiary by Kyocera Mita.

Accrued pension and severance liabilities increased ¥19,526 million ($197 million), or 129.8%, to ¥34,567 million ($349 million) due mainly to a weak performance of benefit plan assets affected by instabilities of financial markets and an increase in projected benefit obligation resulted from a decrease in discount rates applied to actuarial calculation.

Deferred taxes liabilities decreased by ¥46,477 million ($469 million), or 39.4%, to ¥71,539 million ($723 million), due mainly to declines in market values of the shares of KDDI Corporation and other equity securities at March 31, 2009 compared with March 31, 2008.

Minority interests in subsidiaries, principally AVX Corporation, decreased by ¥5,577 million ($56 million), or 8.6%, to ¥59,425 million ($600 million), compared with ¥65,002 million at March 31, 2008, due mainly to the reduction of operating profit of subsidiaries caused by aggravation of business conditions.

Total stockholders’ equity at March 31, 2009 decreased by ¥127,502 million ($1,288 million), or 8.8%, to ¥1,323,663 million ($13,370 million), compared with ¥1,451,165 million at March 31, 2008.

Retained earnings at March 31, 2009 increased by ¥6,229 million ($63 million), or 0.5%, due to a net income for fiscal 2009 of ¥29,506 million ($298 million) offset by a cumulative effect of applying SFAS No. 158 of the ¥522 million ($5 million) as of April 1, 2008 and cash dividend payments of ¥22,755 million ($230 million).

Accumulated other comprehensive income decreased by ¥98,739 million ($997 million), to ¥(54,673 million) ($(552 million)). Net unrealized gains on securities decreased by ¥53,178 million ($537 million), or 82.1%, due mainly to declines in market values of the shares of KDDI Corporation and other equity securities at March 31, 2009 compared with March 31, 2008.

 

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Pension adjustment decreased by ¥12,812 million ($129 million), or 99.6%, to ¥53 million ($1 million). Unamortized actuarial gains decreased due mainly to a weak performance of benefit plan assets affected by instabilities of financial markets and an increase in projected benefit obligation resulted from a decrease in discount rates applied to actuarial calculation.

Foreign currency translation adjustments decreased by ¥32,408 million ($327 million), or 95.9%, to ¥(66,202 million) ($(669 million)), due mainly to the appreciation of the yen against the Euro.

The stockholders’ equity ratio at March 31, 2009 was 74.6%, up 1.2 percentage points from 73.4% at March 31, 2008.

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 information and communication and for environmental and energy. R&D activities are conducted in all of these markets. 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 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 camera modules to enhance driving safety, and glow plugs that utilize 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 that meet advancements in electronic equipment. In the organic package business, Kyocera is developing new flip chip packages for next-generation high-performance semiconductors and system in a package (SiP) to realize even thinner packages with narrower pitches.

(3) Applied Ceramic Products Group

While striving to further increase the conversion efficiency and strengthen 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 in the wireless telecommunications market. In the industrial machinery and information equipment markets, Kyocera is developing various sensors and actuators through piezoelectric ceramic technology.

 

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In the thin film components, Kyocera is developing thermal printheads for barcode printers that incorporate “eco-generation specifications” as part of a new environmental concept, as well as inkjet printheads capable of high-speed full-color prints, and STN color LCDs with touch panel.

(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. Kyocera is also strengthening the development of equipment such as base stations and terminals for next generation telecommunication systems 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 printers, multifunction peripherals and other information equipment based on the “ECOSYS” concept, which realizes longer engine life, reduced running costs and minimal waste. 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 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 technologies related to network infrastructure creation and of applied systems that are key to next-generation mobile telecommunications and the convergence of telecommunications and broadcasting. In addition, Kyocera Communications Systems develops infrastructure systems facilitating the progress of information technology in the medical field by utilizing RFID (Radio Frequency Identification), for instance.

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,    Increase
(Decrease)
 
     2007     2008     2009   
     Amount     Amount     Amount    %  
     (Yen in millions and U.S. dollars in thousands)  

Fine Ceramic Parts Group

   ¥ 3,769      ¥ 3,655      ¥ 3,346      $ 33,798    (8.5

Semiconductor Parts Group

     3,757        3,498        3,227        32,596    (7.7

Applied Ceramic Products Group

     4,138        5,146        4,992        50,424    (3.0

Electronic Device Group

     12,123        11,641        12,690        128,182    9.0   
                                     

Total Components Business

     23,787        23,940        24,255        245,000    1.3   

Telecommunications Equipment Group

     15,123        12,396        15,864        160,242    28.0   

Information Equipment Group

     17,983        19,587        20,127        203,303    2.8   
                                     

Total Equipment Business

     33,106        31,983        35,991        363,545    12.5   

Others

     4,207        5,682        5,686        57,435    0.1   
                                     

R&D expenses

   ¥ 61,100      ¥ 61,605      ¥ 65,932      $ 665,980    7.0   
                                     

% to net sales

     4.8     4.8     5.8     —      —     

 

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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.

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 4B “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 core high-growth potential markets for information and communications, and environment and energy, and we seek to translate our diversification strategy into improved business performance.

In fiscal 2009, the impact of the financial crisis triggered in the United States affected the real economy, fueling deceleration in the global economy from the second half, which resulted in stagnation in production activity in core industrial sectors. This led to sudden production adjustments in digital consumer equipment and inventory adjustments for components thereof in the information and communications market, which had been expanding steadily.

Despite major production and inventory adjustments in the second half, which are projected to improve the situation moderately, particularly in mobile phone handsets, PCs, digital consumer electronics and other consumer products, full-fledged recovery in the information and communications market is not expected until the latter half of fiscal 2010 and beyond. Meanwhile, the semiconductor equipment market and the automotive market are projected to recover from fiscal 2011.

Although it will take time before genuine recovery, the information and communications market is expected to continue growing, since digital consumer equipment is becoming increasingly advanced, and systems are being created for new next-generation high-speed wireless communication services scheduled to commence in the domestic market in fiscal 2010. These market trends are expected to have a positive impact on performance in both Kyocera’s components business and equipment business.

Despite temporary restraint in IT-related investment at government and other public offices and in the corporate sector, digital MFPs featuring higher speed, better security functionality and enhanced energy conservation capability is projected to remain in demand. The Information Equipment Group will seize the opportunity to increase business by expanding its line-up of high-speed printers and color digital MFPs in accord with these market requirements.

In the environment and energy market, demand for solar energy products has slowed temporarily, especially in Europe, due to the global economic downturn and financial crisis. However, environmental awareness is expected to continue growing, thus driving expansion in the solar energy market over the medium to long term. Subsidy policies implemented by various governments also support the proliferation of solar energy systems. As a result, demand for solar energy systems is projected to increase in Europe, the United States, Japan and other Asian nations in the medium to long term. In line with this market trend, Kyocera will continue making strategic capital investments to increase production of solar cells and strive to expand solar energy business.

Kyocera will also make further efforts to expand business in the environment and energy market by creating new products and expanding product items such as SOFC based power generating units utilizing fine ceramic materials technologies for home use, and components that contribute to a reduction in exhaust gas for the automotive market.

 

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E. Off-Balance Sheet Arrangements

Refer to Note 16 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.

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, 2009. Kyocera anticipates that the funds required to fulfill these debt obligations and commitments will be cash in hand.

 

Contractual obligations

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

Short-term borrowings

   ¥ 11,000    ¥ —      ¥ —      ¥ —      ¥ 11,000

Interest payments for short-term borrowings*

     215      —        —        —        215

Long-term debt (including due within one year)

     13,865      18,131      8,463      1,944      42,403

Interest payments for long-term debt*

     1,799      1,854      488      62      4,203

Supply agreement material used in operation

     14,666      38,626      50,651      193,524      297,467

Operating Leases

     6,237      7,316      2,826      1,075      17,454

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

     11,153      —        —        —        11,153
                                  

Total Contractual Obligations

   ¥ 58,935    ¥ 65,927    ¥ 62,428    ¥ 196,605    ¥ 383,895
                                  

Contractual obligations

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

Short-term borrowings

   $ 111,111    $ —      $ —      $ —      $ 111,111

Interest payments for short-term borrowings*

     2,172      —        —        —        2,172

Long-term debt (including due within one year)

     140,051      183,142      85,485      19,636      428,314

Interest payments for long-term debt*

     18,171      18,727      4,930      626      42,454

Supply agreement material used in operation

     148,141      390,162      511,626      1,954,788      3,004,717

Operating Leases

     63,000      73,899      28,545      10,859      176,303

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

     112,657      —        —        —        112,657
                                  

Total Contractual Obligations

   $ 595,303    $ 665,930    $ 630,586    $ 1,985,909    $ 3,877,728
                                  

 

* For Kyocera’s variable interest rate of borrowings and debt, Kyocera utilized the rates in effect as of March 31, 2009 when estimating schedule of interest payments.

In addition to contractual obligations shown in the above tables, Kyocera forecasts to contributing ¥9,643 million ($97 million) to its defined benefit pension plans in fiscal 2010, and Kyocera recorded liabilities for gross unrecognized tax benefits in accordance with FIN48 by ¥10,518 million ($106 million) at March 31, 2009, which are not included in the above tables because it is unable to make reasonable estimates of the period of settlements. For detailed information, see Note 19 to the Consolidated Financial Statements in this annual report on Form 20-F.

 

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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 vice 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 vice chairman and the president can provide diverse perspectives on critical issues.

The following table shows Kyocera’s Directors and Corporate Auditors as of June 25, 2009.

 

Name

  

Date of Birth

  

Position

   Since

Makoto Kawamura

   August 13, 1949    Representative Director and Chairman    2005

(Chairman 2009)

Yuzo Yamamura

   December 4, 1941    Representative Director and Vice Chairman    2003

Tetsuo Kuba

   February 2, 1954    Representative Director and President    2008
(President 2009)

Tatsumi Maeda

   January 1, 1953    Representative Director and Vice President    2008

Hisao Hisaki

   July 2, 1946    Director    1991

Yasuyuki Yamamoto

   April 2, 1951    Director    2009

Yoshihiro Kano

   April 5, 1953    Director    2009

Goro Yamaguchi

   January 21, 1956    Director    2009

Shoichi Aoki

   September 19, 1959    Director    2009

Katsumi Komaguchi

   March 5, 1951    Director    2009

Rodney N. Lanthorne

   February 5, 1945    Director    1989

John S. Gilbertson

   December 4, 1943    Director    1995

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

Kazuo Yoshida

   January 10, 1948    Corporate Auditor    2008

Yoshinari Hara

   April 3, 1943    Corporate Auditor    2009

Makoto Kawamura has served as a Representative Director and Chairman of Kyocera Corporation since 2009. 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 Chairman of the Board of Directors of Dongguan Shilong Kyocera Optics Co., Ltd., Representative Trustee of Japan Photovoltaic Energy Association, Representative Director and Chairman of Kyocera Mita Corporation, Representative Director and Chairman of Kyocera SLC Technologies Corporation, Representative Director and Chairman of Kyocera Display Institute Co., Ltd., and Representative Director and Chairman of Kyocera Realty Development.

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 the President and Representative Director of Kyocera Elco Corporation in 1992. He retired from a Director 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 a Director and the Executive Advisor of Kyocera Elco Corporation and the General Manager of Corporate Communication Equipment Group.

Tetsuo Kuba has served as a Representative Director and President of Kyocera Corporation since 2009. He became an Executive Officer in 2003, a Managing Executive Officer in 2005, a Senior Managing Executive

 

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Officer in 2007 and a Director in 2008. He joined Kyocera Corporation in 1982 and has served as the Chairman of the Board of Directors of Shanghai Kyocera Electronics Co., Ltd.

Tatsumi Maeda has served as a Representative Director and Vice President of Kyocera Corporation since 2009. He became a Director in 2001 and retired in 2003. He became a Managing Executive officer in 2003, a Senior Managing Executive Officer in 2007 and 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., Representative Director and Chairman of Kyocera Solar Corporation, Representative Director and Chairman and President in Kyocera Korea Co., Ltd., and General Manager of Solar Energy Group and Corporate Electronic Components Group.

Hisao Hisaki has served as a Director of Kyocera Corporation since 1991. He became a Managing Executive Officer in 2003 and retired in 2005. He joined Kyocera Corporation in 1969 and has served as a Senior Managing Executive Officer and Chairman of the Board and the General Manager of Kyocera Tianjin Sales and Trading Corporation.

Yasuyuki Yamamoto has served as a Director of Kyocera Corporation since 2009. He became an Executive Officer in 2003 and a Senior Executive Officer in 2008. He joined Kyocera Corporation in 1976 and has served as a Managing Executive Officer and the Deputy General Manager of Corporate Communication Equipment Group.

Yoshihiro Kano has served as a Director of Kyocera Corporation since 2009. He became an Executive Officer in 2005. He joined Kyocera International, Inc. in 1980, transferred to Kyocera Corporation in 1991 and has served as a Managing Executive Officer and the General Manager of Corporate Development Group.

Goro Yamaguchi has served as a Director of Kyocera Corporation since 2009. He became an Executive Officer in 2003 and a Senior Executive Officer in 2005. He joined Kyocera Corporation in 1978 and has served as a Managing Executive Officer and the General Manager of Corporate Semiconductor Components Group.

Shoichi Aoki has served as a Director of Kyocera Corporation since 2009. He became an Executive Officer in 2005. He joined Kyocera Corporation in 1983 and has served as a Managing Executive Officer and the General Manager of Corporate Financial and Accounting Group.

Katsumi Komaguchi has served as a Director of Kyocera Corporation since 2009. He became an Executive Officer in 2008. He joined Kyocera Corporation in 1986 and has served as a Managing Executive Officer and the Representative Director and President of Kyocera Mita 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.

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.

 

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

Yoshinari Hara has served as a Corporate Auditor of Kyocera Corporation since 2009. He has served as Chief Corporate Adviser of Daiwa Securities Group Inc.

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.

The following table shows Kyocera’s Executive Officers as of June 25, 2009.

 

Name

 

Position

Tetsuo Kuba

  Executive Officer and President

Tatsumi Maeda

 

Executive Officer and Vice President

(General Manager of Corporate Solar Energy Group and Corporate Electronic Components Group)

Hisao Hisaki

 

Senior Managing Executive Officer

(Chairman of the Board and General Manager of Kyocera Tianjin Sales and Trading Corporation)

Yasuyuki Yamamoto

 

Managing Executive Officer

(Deputy General Manager of Corporate Communication Equipment Group)

Yoshihiro Kano

 

Managing Executive Officer

(General Manager of Corporate Development Group)

Goro Yamaguchi

 

Managing Executive Officer

(General Manager of Corporate Semiconductor Components Group)

Shoichi Aoki

 

Managing Executive Officer

(General Manager of Corporate Financial & Accounting Group)

Katsumi Komaguchi

 

Managing Executive Officer

(Representative Director and President of Kyocera Mita Corporation)

Hisashi Sakumi

 

Managing Executive Officer

(General Manager of Corporate Environment Group)

Tsutomu Yamori

 

Managing Executive Officer

(General Manager of Corporate General Affairs Human Resources 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 Overseas Sales) and Representative Director and President of Kyocera Communications, Inc.)

Osamu Nomoto

 

Senior Executive Officer

(General Manager of Corporate Legal and Intellectual Property Group)

Keijiro Minami

 

Senior Executive Officer

(General Manager of Corporate R&D Group for Components and Devices)

Yoshihito Ohta

 

Senior Executive Officer

(General Manager of Corporate Office of the Chief Executives)

Takenori Ugari

 

Senior Executive Officer

(Deputy General Manager of Corporate Communication Equipment Group)

 

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Name

 

Position

Yasushi Matsumura

 

Executive Officer

(Representative Director and Vice President of Kyocera Kinseki Corporation)

Junichi Jinno

 

Executive Officer

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

Gen Takayasu

 

Executive Officer

(Deputy General Manager of Corporate Electronic Components Group)

Junzo Katsuki

 

Executive Officer

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

Masakazu Mitsuda

 

Executive Officer

(General Manager of Corporate Business Systems Administration Group)

Toshimi Gejima

 

Executive Officer

(General Manager of R&D Center Kagoshima, Corporate R&D Group for Components and Devices)

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)

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 Corporate Education Group)

Hitoshi Takao

 

Executive Officer

(General Manager of Corporate Thin Film Components Group)

Yoshiharu Nakamura

 

Executive Officer

(Deputy General Manager of Dongguan Shilong Kyocera Optec Co., Ltd.)

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 Itoh

 

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 Mobile Communication Equipment Technical Division, Corporate Communication Equipment Group)

 

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Name

 

Position

Kouji Mae

 

Executive Officer

(Representative Director and President of Kyocera SLC Technologies Corporation)

Motoo Kobayashi

 

Executive Officer

Representative Director and president of Kyocera Communication Systems Co., Ltd.)

Nobuo Kitamura

 

Executive Officer

(Deputy General Manager of Corporate Solar Energy Group)

Ken Ishii

 

Executive Officer

(General Manager of Corporate Cutting Tool Group)

Takeshi Oda

 

Executive Officer

(General Manager of Corporate Mobile Communication Equipment Technical Division, Corporate Communication Equipment Group)

B. Compensation

The aggregate amount of compensation, including bonuses, paid by Kyocera Corporation and its certain subsidiaries in fiscal 2009 to all Directors, Corporate Auditors and Executive Officers of Kyocera Corporation was ¥ 1,667 million ($ 17 million).

Under our prior remuneration system for Directors and Corporate Auditors, which was revised as explained below, when a Director or Corporate Auditor retired, a proposal to pay a lump sum retirement allowance was submitted to the ordinary general meeting of shareholders for approval. After such approval, the amount to be paid to each Director was considered and fixed by the Board of Directors, and the amount to be paid to each Corporate Auditor was also consulted with and fixed by the Board of Corporate Auditors. The amount to be paid to each Executive Officer is considered and fixed by the Board of Directors. Annual provisions were made in the accounts of Kyocera Corporation for the estimated cost of the retirement allowance for Directors, Corporate Auditors and Executive Officers. The annual provisions and costs charged to income for such retirement allowance in fiscal 2009 were ¥ 163 million ($2 million).

Our remuneration system for Directors and Corporate Auditors was revised following the approval of such revision by our shareholders at the general meeting of shareholders held on June 25, 2009. As revised, the above-mentioned retirement allowances were abolished, and instead the Directors receive “basic remuneration,” the aggregate amount of which shall be no more than ¥ 400 million per year, and “bonuses,” the aggregate amount of which shall not exceed the lower of 0.2% of the consolidated net income of Kyocera Corporation for the relevant fiscal year and ¥ 300 million per year. For those Directors who also serve as employees of Kyocera Corporation, such basic remuneration and bonuses do not include any salaries for their services as employees. The Corporate Auditors receive “basic remuneration,” the aggregate amount of which shall be no more than ¥ 100 million per year, and will not receive bonuses.

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

C. Board Practices

In accordance with the requirements of the Corporation Act of Japan (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

 

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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.

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

D. Employees

At March 31, 2009, Kyocera had 59,514 employees, of whom 3,213 worked in the Fine Ceramic Parts Group, 8,347 worked in the Semiconductor Parts Group, 6,170 worked in the Applied Ceramic Products Group, 17,718 worked in the Electronic Device Group, 4,782 worked in the Telecommunications Equipment Group, 12,775 worked in the Information Equipment Group, 4,879 worked for Others and 1,630 worked in Corporate.

Although the number of employees worked in the Telecommunications Equipment Group increased by 1,800 as a result of the acquisition of the mobile phone-related business from Sanyo, total number of employees worked in the reporting segments other than the Telecommunications Equipment Group at March 31, 2009 decreased by 8,782 compared with those at March 31, 2008 due mainly to employee separations at subsidiaries outside Japan.

Kyocera Corporation had 13,973 employees, and their average age and average service years were 39.0 and 15.1 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 our actions, labor unrest or strikes will not occur.

 

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E. Share Ownership

Kyocera’s Directors, Corporate Auditors and Executive Officers as of June 25, 2009 owned 932,068 shares of Kyocera Corporation in total (904,353 shares of common stock of Kyocera Corporation and 27,715 ADRs of Kyocera Corporation), or 0.5% of the outstanding shares of Kyocera Corporation at March 31, 2009. The numbers of shares owned by each Directors, Corporate Auditors and Executive Officers are shown in the following table.

 

Name

  

Title

   Number of Shares

Makoto Kawamura

   Representative Director and Chairman    3,000

Yuzo Yamamura

   Representative Director and Vice Chairman    82,000

Tetsuo Kuba

   Representative Director and President    2,000

Tatsumi Maeda

   Representative Director and Vice President    1,140

Hisao Hisaki

   Director    5,171

YasuyukiYamamoto

   Director    259

Yoshihiro Kano

   Director    199

Goro Yamaguchi

   Director    7,178

Shoichi Aoki

   Director    1,085

Katsumi Komaguchi

   Director    1,923

Rodney N. Lanthorne

   Director    3,628 (ADR)

John S. Gilbertson

   Director    18,867 (ADR)

Yoshihiko Nishikawa

   Full-time Corporate Auditor    2,222

Kokichi Ishibitsu

   Full-time Corporate Auditor    1,923

Osamu Nishieda

   Corporate Auditor    736,086

Kazuo Yoshida

   Corporate Auditor    36

Yoshinari Hara

   Corporate Auditor    —  

Hisashi Sakumi

   Managing Executive Officer    9,000

Tsutomu Yamori

   Managing Executive Officer    2,898

Akiyoshi Okamoto

   Managing Executive Officer    5,262

Eiichi Toriyama

   Managing Executive Officer    3,398

Osamu Nomoto

   Senior Executive Officer    2,544

Keijiro Minami

   Senior Executive Officer    1,099

Yoshihito Ota

   Senior Executive Officer    3,599

Takenori Ugari

   Senior Executive Officer    164

Yasushi Matsumura

   Executive Officer    1,699

Junichi Jinno

   Executive Officer    —  

Gen Takayasu

   Executive Officer    1,200

Junzo Katsuki

   Executive Officer    1,198

Masakazu Mitsuda

   Executive Officer    1,699

Toshimi Gejima

   Executive Officer    1,480

Michiaki Furuhashi

   Executive Officer    9,406

Mitsuru Imanaka

   Executive Officer    1,100

Yoichi Yamashita

   Executive Officer    199

Robert E. Whisler

   Executive Officer    4,539 (ADR)

John S. Rigby

   Executive Officer    681 (ADR)

Masaki Kozu

   Executive Officer    1,982

Hitoshi Takao

   Executive Officer    160

Yoshiharu Nakamura

   Executive Officer    1,246

Kazumasa Umemura

   Executive Officer    82

Takafumi Matsuda

   Executive Officer    918

Masaaki Itoh

   Executive Officer    246

Masahisa Shimizu

   Executive Officer    87

 

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Name

  

Title

   Number of Shares

Tsuyoshi Egami

   Executive Officer    16

Kouji Mae

   Executive Officer    5,200

Motoo Kobayashi

   Executive Officer    1,699

Nobuo Kitamura

   Executive Officer    175

Ken Ishii

   Executive Officer    2,007

Takeshi Oda

   Executive Officer    368

Stock Option Plans

Previously, Kyocera provided three stock option plans for its Directors, Corporate Auditors, Corporate Executive Officers and certain key employees. The exercise periods for stock options under these plans all ended on September 30, 2008.

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, 2009.

 

Name

   Shares owned    Ownership
     (in thousands)    (%)

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

   13,587    7.10

Japan Trustee Services Bank, Ltd.
(Trust Account)

   12,495    6.53

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

   11,855    6.20

Japan Trustee Services Bank, Ltd.
(Trust Account 4G)

   9,763    5.10

Kyocera Corporation

   7,781    4.07

The Bank of Kyoto, Ltd.

   7,218    3.77

Kazuo Inamori

   6,806    3.56

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

   5,076    2.65

The Inamori Foundation

   4,680    2.45

Citibank As Depositary Bank For Depositary Receipt Holders
(Standing proxy: The Bank of Tokyo- Mitsubishi UFJ, Ltd.)

   3,839    2.01

Total

   83,101    43.44

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 mentioned above, Mitsubishi UFJ Financial Group, Inc. and its related partners informed us that it became a holder of over 5% of the total issued

 

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voting shares of Kyocera Corporation on January 9, 2009 as follows. However, they are not included in the above major shareholders because we do not identify them as a single holder on our shareholders record as of March 31, 2009. None of them has voting rights that are different from those of other shareholders.

 

Name

  

Shares owned

   Ownership
          (%)

Mitsubishi UFJ Financial Group, Inc. and its related partners

  

Holding 11,208 thousand shares as of December 29, 2008

  

5.86

Dodge & Cox and its related partners also informed us that they became a holder of over 5% of the total issued voting shares of Kyocera Corporation on June 4, 2009 as follows. However, they are not included in the above major shareholders because we do not identify them as a single holder on our shareholders record as of March 31, 2009. None of them has voting rights that are different from those of other shareholders.

 

Name

  

Shares owned

   Ownership
          (%)

Dodge & Cox

   Holding 9,977 thousand shares as of May 29, 2009    5.22

According to Citibank N.A., depositary for Kyocera’s ADSs, as of March 31, 2009, 6,902,780 shares of Kyocera’s common stock were held in the form of ADSs and there were 793 ADS holders of record in the United States. According to Kyocera’s register of shareholders, as of March 31, 2009, there were 65,582 holders of Kyocera’s common stock of record worldwide. As of March 31, 2009, there were 130 record holders of Kyocera’s common stock with addresses in the United States, holding 32,900,756 shares of the outstanding 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 and Related Party Transactions

In fiscal 2009, Kyocera’s sales to KDDI Corporation amounted to ¥127,225 million ($1,285 million), or 11.3% 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 director of KDDI Corporation. At March 31, 2009, Kyocera Corporation’s equity interest in KDDI Corporation was 12.76%. 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.

For information regarding related party transactions with WILLCOM, Inc., an affiliate company of Kyocera, see note 7 to the Consolidated financial Statements in this annual report on Form 20-F.

C. Interests of Experts and Counsel

Not Applicable.

 

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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 on an ongoing basis. Kyocera therefore has adopted a principal guideline that dividend amounts within a range based on net income on a consolidated basis, and has set its consolidated dividend policy to maintain a consolidated dividend ratio at a level of approximately 20% to 25% of consolidated net income. In addition, Kyocera determines dividend amounts based on an overall assessment, taking into account various factors including the amount of capital expenditures necessary for medium to long-term corporate growth.

Kyocera normally pays cash dividends twice per year as an interim and a year-end dividend. Year-end dividends must be approved by shareholders at the ordinary general shareholders’ meeting. In addition to year-end dividend, Kyocera may pay an interim dividend by resolution of its board of directors and without shareholder approval.

Kyocera also has adopted policies to ensure a sound financial basis, and, for such purpose, it sets aside other general reserves in preparation for the creation of new businesses, cultivation of new markets, development of new technologies and acquisition of outside management resources necessary to achieve sustainable corporate growth.

Based on performance during fiscal 2009 and pursuant to the aforementioned policies, Kyocera distributed a year-end dividend in the amount of 60 yen per share for the year ended March 31, 2009. When aggregated with the interim dividend in the amount of 60 yen per share, the total annual dividend was 120 yen per share, the same amount as fiscal 2008.

We held a board of directors meeting for the interim dividend on October 30, 2008.

B. Significant Changes

Except as disclosed in this annual report on Form 20-F, there have been no significant changes since March 31, 2009.

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.

 

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     Tokyo Stock Exchange    New York Stock Exchange
     Price per Share of
Common Stock
   Price per American
Depositary Share*

Years ended March 31,

       High            Low            High            Low    

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

2009

     10,940      4,330      100.78      45.41

Most Recent 6 months

   High    Low    High    Low

December 2008

   ¥ 6,720    ¥ 5,430    $ 74.64    $ 57.38

January 2009

     7,360      5,600      76.61      62.77

February 2009

     6,420      5,620      69.77      57.78

March 2009

     7,090      5,310      72.45      52.98

April 2009

     7,640      6,320      78.80      64.91

May 2009

     8,170      7,180      82.03      75.71

 

* 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 2008 and 2009 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

 

          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      —  
          2009
          1st    2nd    3rd    4th

Common Stock:

      ¥ 10,940    ¥ 10,080    ¥ 8,090    ¥ 7,360

Market price per share (A)

        8,180      7,650      4,330      5,310

Cash dividends paid per share

        60      —        60      —  

American Depositary Share:

              

Market price per share (B)

   —High    $ 100.78    $ 94.09    $ 76.16    $ 76.61
   —Low      82.23      72.86      45.41      52.98

Cash dividends paid per share (C)

        0.56      —        0.64      —  

 

(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

 

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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.

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;

 

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(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.

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.

 

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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

On January 5, 2009, a new central clearing system for shares of Japanese listed companies was established pursuant to the Law Concerning Book-Entry Transfer of Corporate Bonds, Shares, etc. (including regulations promulgated thereunder, the Book-Entry Law), and the shares of all Japanese companies listed on any Japanese stock exchange, including Kyocera Corporation’s shares, became subject to this new system.

On the same day, all existing share certificates for such shares became null and void. At present, Japan Securities Depository Center, Inc. (JASDEC) is the only institution that is designated by the relevant authorities as a clearing house which is permitted to engage in the clearing operations of shares of Japanese listed companies under the Book-Entry Law. Under the new clearing system, in order for any person to hold, sell or otherwise dispose of shares of Japanese listed companies, it must have an account at an account management institution unless such person has an account at JASDEC. “Account management institutions” are financial instruments traders (i.e., securities companies), banks, trust companies and certain other financial institutions which meet the requirements prescribed by the Book-Entry Law, and only those financial institutions that meet further stringent requirements of the Book-Entry Law can open accounts directly at JASDEC.

Under the Book-Entry Law, any transfer of shares is effected through book entry, and title to the shares passes to the transferee at the time when the transferred number of the shares is recorded at the transferee’s account at an account management institution. The holder of an account at an account management institution is presumed to be the legal owner of the shares held in such account.

Under the Corporation Act of Japan and the Book-Entry Law, in order to assert shareholders’ rights against Kyocera Corporation, a shareholder must have its name and address registered in the register of shareholders of Kyocera Corporation, except in limited circumstances.

Non-resident shareholders are required to appoint a standing proxy in Japan or provide a mailing address in Japan. Each such shareholder must give notice of such standing proxy or mailing address to the relevant account managing institution. Such notice will be forwarded to us through JASDEC. Japanese securities companies and commercial banks customarily act as standing proxies and provide related services for standard fees. Notices from us to non-resident shareholders are delivered to such standing proxies or mailing addresses.

 

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The registered beneficial holder of deposited shares underlying the ADSs is the depositary for the ADSs. Accordingly, holders of ADSs will not be able to directly assert shareholders’ rights.

Authorized capital

Article 6 of the Articles of Incorporation of Kyocera Corporation provides that the total number of shares authorized for issuance by Kyocera Corporation is 600,000,000 shares.

Distributions of Surplus

General

Under the Corporation Act, distributions of cash or other assets by joint stock corporations to their shareholders, so-called “dividends,” are referred to as “distributions of Surplus” (“Surplus” is defined in “—Restriction on distributions of Surplus”). Kyocera Corporation may make distributions of Surplus to its shareholders any number of times per fiscal year, subject to certain limitations described in “—Restriction on distributions of Surplus”. Distributions of Surplus are required in principle to be authorized by a resolution of a general meeting of shareholders, but may also be made pursuant to a resolution of the Board of Directors if all the requirements described in (a) through (c) are met:

 

  (a) Kyocera Corporation’s Articles of Incorporation provide that the Board of Directors has the authority to decide to make distributions of Surplus;

 

  (b) the normal term of office of Kyocera Corporation’s Directors is not longer than one year; and

 

  (c) Kyocera Corporation’s non-consolidated annual financial statements and certain documents for the latest fiscal year present fairly its assets and profit or loss, as required by ordinances of the Ministry of Justice.

In the case of Kyocera Corporation, at present, the requirements in (a) and (b) above are not met. Nevertheless, Kyocera Corporation may make distributions of Surplus in cash as an interim dividend (an “interim dividend”) to its shareholders by resolutions of the Board of Directors once per fiscal year under Kyocera Corporation’s Articles of Incorporation and the Corporation Act.

Under Kyocera Corporation’s Articles of Incorporation, a year-end dividend may be distributed to shareholders of record as of March 31 of each year pursuant to a resolution of a general meeting of shareholders, and an interim dividend may be distributed to shareholders of record as of September 30 of each year pursuant to a resolution of the Board of Directors. In addition, under the Corporation Act, Kyocera Corporation may make further distributions of Surplus by resolution of general meetings of shareholders. Kyocera Corporation is not obliged to pay any dividends unclaimed for a period of three years after the date on which they first became payable.

Distributions of Surplus, other than interim dividends, may be made in cash or in kind in proportion to the number of shares held by each shareholder. A resolution of a general meeting of shareholders or the Board of Directors authorizing a distribution of Surplus must specify the kind and aggregate book value of the assets to be distributed, the manner of allocation of such assets to shareholders, and the effective date of the distribution. If a distribution of Surplus is to be made in kind, Kyocera Corporation may, pursuant to a resolution of a general meeting of shareholders or (as the case may be) the Board of Directors, grant a right to its shareholders to require Kyocera Corporation to make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution of Surplus must be approved by a special resolution of a general meeting of shareholders (see “Voting rights” with respect to a “special resolution”).

In Japan the “ex-dividend” date and the record date for dividends precede the date of determination of the amount of the dividend to be paid. The market price of shares generally goes ex-dividend on the third business day prior to the record date.

 

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Restriction on distributions of Surplus

When Kyocera Corporation makes a distribution of Surplus, it must, until the sum of its additional paid-in capital and legal reserve reaches one-quarter of its stated capital, set aside in its additional paid-in capital and/or legal reserve an amount equal to one-tenth of the amount of Surplus so distributed

The amount of Surplus at any given time must be calculated in accordance with the following formula:

A + B + C + D - (E + F + G)

In the above formula:

 

  “A” = the total amount of other capital surplus and other retained earnings, each such amount being that appearing on Kyocera Corporation’s non-consolidated balance sheet as of the end of the last fiscal year

 

  “B” = (if Kyocera Corporation has disposed of its treasury stock after the end of the last fiscal year) the amount of the consideration for such treasury stock received by Kyocera Corporation less the book value thereof

 

  “C” = (if Kyocera Corporation has reduced its stated capital after the end of the last fiscal year) the amount of such reduction less the portion thereof that has been transferred to additional paid-in capital or legal reserve (if any)

 

  “D” = (if Kyocera Corporation has reduced its additional paid-in capital or legal reserve after the end of the last fiscal year) the amount of such reduction less the portion thereof that has been transferred to stated capital (if any)

 

  “E” = (if Kyocera Corporation has cancelled its treasury stock after the end of the last fiscal year) the book value of such treasury stock

 

  “F” = (if Kyocera Corporation has distributed Surplus to its shareholders after the end of the last fiscal year) the total book value of the Surplus so distributed

 

  “G” = certain other amounts set forth in ordinances of the Ministry of Justice , including (if Kyocera Corporation has reduced Surplus and increased its stated capital, additional paid-in capital or legal reserve after the end of the last fiscal year) the amount of such reduction and (if Kyocera Corporation has distributed Surplus to its shareholders after the end of the last fiscal year) the amount set aside in its additional paid-in capital or legal reserve (if any) as required by ordinances of the Ministry of Justice

The aggregate book value of Surplus distributed by Kyocera Corporation may not exceed a prescribed distributable amount (the “Distributable Amount”), as calculated on the effective date of such distribution. The Distributable Amount at any given time shall be equal to the amount of Surplus less the aggregate of (a) the book value of its treasury stock, (b) the amount of consideration for any of its treasury stock disposed of by it after the end of the last fiscal year and (c) certain other amounts set forth in ordinances of the Ministry of Justice, including (if the sum of one-half of goodwill and the deferred assets exceeds the total of stated capital, additional paid-in capital and legal reserve, each such amount being that appearing on Kyocera Corporation’s non-consolidated balance sheet as of the end of the last fiscal year) all or certain part of such exceeding amount as calculated in accordance with the ordinances of the Ministry of Justice.

If Kyocera Corporation has become at its option a company with respect to which consolidated balance sheets should also be taken into consideration in the calculation of the Distributable Amount (renketsu haito kisei tekiyo kaisha), it will be required to further deduct from the amount of Surplus the excess amount, if any, of (x) the total amount of shareholders’ equity appearing on its non-consolidated balance sheet as of the end of the last fiscal year and certain other amounts set forth by an ordinance of the Ministry of Justice over (y) the total amount of shareholders’ equity and certain other amounts set forth by an ordinance of the Ministry of Justice appearing on its consolidated balance sheet as of the end of the last fiscal year.

 

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If Kyocera Corporation has prepared interim financial statements as described below, and if such interim financial statements have been approved by the Board of Directors or (if so required by the Corporation Act) by a general meeting of shareholders, then the Distributable Amount must be adjusted to take into account the amount of profit or loss, and the amount of consideration for any of its treasury stock disposed of by it, during the period in respect of which such interim financial statements have been prepared. Kyocera Corporation may prepare non-consolidated interim financial statements consisting of a balance sheet as of any date subsequent to the end of the last fiscal year and an income statement for the period from the first day of the current fiscal year to the date of such balance sheet. Interim financial statements so prepared by Kyocera Corporation must be audited by its Corporate Auditors and independent certified public accountants, as required by ordinances of the Ministry of Justice.

General Meeting of Shareholders

Pursuant to the Articles of Incorporation of Kyocera Corporation, an ordinary general meeting of shareholders of Kyocera Corporation shall be convened within three months after the last day of each fiscal year. In addition, Kyocera Corporation may hold an extraordinary general meeting of shareholders whenever necessary.

Notice of a shareholders’ meeting, setting forth the place, time and purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to the resident proxy or mailing address thereof in Japan) at least two weeks prior to the date set for the meeting. Under the Corporation Act, such notice may be given to shareholders by electronic means, subject to the consent of the relevant shareholders.

Any shareholder or group of shareholders holding at least 300 voting rights or one percent of the total number of voting rights for six months or more may propose a matter to be considered at a general meeting of shareholders by submitting a request to a Representative Director at least eight