Annual Reports

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  • 20-F (Jun 30, 2014)
  • 20-F (Jun 28, 2013)
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Kyocera 20-F 2011
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, 2011

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, 2011, 183,512,969 shares of common stock were outstanding, comprised of 180,495,282 Shares and 3,017,687 American Depositary Shares (equivalent to 3,017,687 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  x    No  ¨

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

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

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

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

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

If this is an annual report, 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

     14   

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

     14   

B. Business Overview

     15   

C. Organizational Structure

     23   

D. Property, Plants and Equipment

     25   

Item 4A. Unresolved Staff Comments

     27   

Item 5.    Operating and Financial Review and Prospects

     27   

A. Operating Results

     27   

B. Liquidity and Capital Resources

     53   

C. Research and Development, Patents and Licenses, etc.

     57   

D. Trend Information

     59   

E. Off-Balance Sheet Arrangements

     60   

F. Tabular Disclosure of Contractual Obligations

     60   

Item 6.    Directors, Senior Management and Employees

     60   

A. Directors and Senior Management

     60   

B. Compensation

     64   

C. Board Practices

     66   

D. Employees

     67   

E. Share Ownership

     68   

Item 7.    Major Shareholders and Related Party Transactions

     69   

A. Major Shareholders

     69   

B. Related Party Transactions

     70   

C. Interests of Experts and Counsel

     70   

Item 8.    Financial Information

     70   

A. Consolidated Statements and Other Financial Information

     70   

B. Significant Changes

     71   

Item 9.    The Offer and Listing

     71   

A. Offer and Listing Details

     71   

B. Plan of Distribution

     72   

C. Markets

     72   

D. Selling Shareholders

     72   

E. Dilution

     72   

F. Expenses of the Issue

     72   

Item 10.    Additional Information

     73   

A. Share Capital

     73   

B. Memorandum and Articles of Association

     73   

C. Material Contracts

     82   

D. Exchange Controls

     82   

E. Taxation

     82   

 

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     Page  

F. Dividends and Paying Agents

     87   

G. Statement by Experts

     87   

H. Documents on Display

     87   

I. Subsidiary Information

     87   

Item 11.    Quantitative and Qualitative Disclosures about Market Risk

     87   

Item 12.    Description of Securities Other than Equity Securities

     89   

A. Debt Securities

     89   

B. Warrants and Rights

     89   

C. Other Securities

     89   

D. American Depositary Shares

     90   

PART II

     91   

Item 13.    Defaults, Dividend Arrearages and Delinquencies

     91   

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

     91   

Item 15.    Controls and Procedures

     91   

Item 16.    [Reserved]

     91   

Item 16A. Audit Committee Financial Expert

     91   

Item 16B. Code of Ethics

     92   

Item 16C. Principal Accountant Fees and Services

     92   

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

     93   

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

     94   

Item 16F. Change in Registrant’s Certifying Accountant

     95   

Item 16G. Corporate Governance

     95   

PART III

     98   

Item 17.    Financial Statements

     98   

Item 18.    Financial Statements

     98   

Item 19.    Exhibits

     98   

 

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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:

 

  (1) general conditions in the Japanese or global economy;

 

  (2) unexpected changes in economic, political and legal conditions in countries where we operate;

 

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

 

  (4) the effect of foreign exchange fluctuations on our results of operations;

 

  (5) intense competitive pressures to which our products are subject;

 

  (6) manufacturing delays or defects resulting from outsourcing or internal manufacturing processes;

 

  (7) the possibility that future initiatives and in-process research and development may not produce the desired results;

 

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

 

  (9) inability to secure skilled employees, particularly engineering and technical personnel;

 

  (10) insufficient protection of our trade secrets and intellectual property rights including patents;

 

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

 

  (12) environmental liability and compliance obligations by tightening of environmental laws and regulations;

 

  (13) newly enacted stringent laws and regulations or stricter interpretations of laws;

 

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

 

  (15) earthquakes and other natural disasters affecting our headquarters and major facilities as well as our suppliers and customers;

 

  (16) credit risk on trade receivables;

 

  (17) fluctuations in the value of, and impairment losses on, securities and other assets held by us;

 

  (18) impairment losses on long-lived assets, goodwill and intangible assets;

 

  (19) unrealized deferred tax assets and additional liabilities for unrecognized tax benefits;

 

  (20) 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 2011” refers to Kyocera’s fiscal year ended March 31, 2011, and other fiscal years are referred to in a corresponding manner.

 

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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.

 

     2007      2008      2009      2010      2011  
     (Yen in millions and shares in thousands, except per share amounts)  

For the years ended March 31:

              

Net sales

   ¥ 1,283,897       ¥ 1,290,436       ¥ 1,128,586       ¥ 1,073,805       ¥ 1,266,924   

Profit from operations

     135,102         152,420         43,419         63,860         155,924   

Income from continuing operations attributable to shareholders of Kyocera Corporation

     101,329         107,244         29,506         40,095         122,448   

Net income attributable to shareholders of Kyocera Corporation

     106,504         107,244         29,506         40,095         122,448   

Earnings per share:

              

Income from continuing operations attributable to shareholders of Kyocera Corporation:

              

Basic

   ¥ 538.52       ¥ 566.58       ¥ 157.27       ¥ 218.47       ¥ 667.23   

Diluted

     537.35         565.80         157.23         218.47         667.23   

Net income attributable to shareholders of Kyocera Corporation:

              

Basic

     566.03         566.58         157.27         218.47         667.23   

Diluted

     564.79         565.80         157.23         218.47         667.23   

Weighted average number of shares outstanding:

              

Basic

     188,160         189,283         187,618         183,525         183,517   

Diluted

     188,573         189,544         187,661         183,525         183,517   

Cash dividends declared per share:

              

Per share of common stock

   ¥ 110       ¥ 120       ¥ 120       ¥ 120       ¥ 130   

Per share of common stock*

   $ 0.91       $ 1.10       $ 1.26       $ 1.32       $ 1.58  

At March 31:

              

Total assets

   ¥ 2,130,464       ¥ 1,976,746       ¥ 1,773,802       ¥ 1,848,717       ¥ 1,946,566   

Long-term debt

     7,283         8,298         28,538         29,067         24,538   

Common stock

     115,703         115,703         115,703         115,703         115,703   

Kyocera Corporation shareholders’ equity

     1,514,560         1,451,165         1,323,663         1,345,235         1,420,263   

Total equity

     1,581,483         1,516,167         1,383,088         1,407,262         1,483,359   

Depreciation

   ¥ 70,155       ¥ 75,630       ¥ 83,753       ¥ 60,602       ¥ 59,794   

Capital expenditures

   ¥ 69,896       ¥ 85,101       ¥ 63,055       ¥ 37,869       ¥ 70,680   

 

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

 

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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      

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   

2010

     100.71         86.12         92.93         93.40   

2011

     94.68         78.74         85.71         82.76   

For most recent six months

                           

December 2010

     84.23         81.67         83.34         81.67   

January 2011

     83.36         81.56         82.63         81.97   

February 2011

     83.79         81.48         82.54         81.94   

March 2011

     82.98         78.74         81.65         82.76   

April 2011

     85.26         81.31         83.18         81.31   

May 2011

     82.12         80.12         81.13         81.29   

The noon buying rate for Japanese yen on June 24, 2011 was $1.00 = 80.32

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.

Risk Related to Kyocera’s Business

(1) The continuing recession in the Japanese and global economy may significantly reduce demand for Kyocera’s products

During fiscal 2011, the United States and European economies showed a recovery trend, although financial anxiety triggered by the financial crises of Greece and Ireland and related concerns about the slowdown of the global economy have not yet been dispelled. With respect to the Asian economy, although a fundamental trend toward Chinese-led expansion is expected, there is also apprehension that growth rates may be reduced. In addition, the negative impact of the Great East Japan Earthquake of March 11, 2011 not only on the Japanese economy but also on the global economy is also a concern. In the event that stagnation in the Japanese and global economies has an adverse effect on capital investment in and consumption of digital consumer equipment, solar energy related products and industrial machinery, which are the principal markets for Kyocera, demand for Kyocera products may fall significantly, the business environment facing Kyocera may worsen, and the performance and financial condition of Kyocera may be adversely affected.

(2) A substantial portion of Kyocera’s business activity is conducted outside Japan, exposing Kyocera to the risks of international operations

A substantial amount of Kyocera’s investment has been targeted towards expanding manufacturing and sales channels located outside Japan, such as in the United States, Europe and Asia, which includes the developing and

 

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emerging markets in China. Kyocera faces a variety of potential risks in international activities. Kyocera may encounter unexpected legal or regulatory changes due to unfavorable political or economic factors such as control on trade, restriction on investment, restriction on repatriation and transfer pricing issue. Kyocera may also have difficulties in human resources and managing operations at its international locations. As the developing and emerging markets of Asia, which includes China, becomes considerably more important, Kyocera may become even more susceptible to these risks.

(3) 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 approximately 60% of its total revenues in fiscal 2011. 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 exports of Kyocera’s products;

 

   

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

 

   

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

(4) 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 transactions 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 Kyocera’s consolidated results of operations, financial condition, cash flows 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.

(5) 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 primary factors that impact 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 than in fiscal 2011 depending partly 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 maintain 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 business environment

 

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changes in a way that Kyocera cannot maintain these important relationships with customers or its market share or if it is forced in the future to further reduce prices in response to the actions of its competitors.

(6) 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. Several suppliers have manufacturing processes which are very complex and require a long lead-time. Kyocera may be affected by occasional delays in obtaining components and sub-assemblies. Kyocera’s production of these products will also be materially and adversely affected if Kyocera is unable to obtain 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 be non-functional. These factors can result 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 Kyocera’s consolidated results of operations, financial condition and cash flows.

(7) 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 desired results and market acceptance.

(8) Companies or assets acquired by Kyocera may require more costs than expected for integration, and may not produce returns or benefits, or bring in anticipated business opportunities

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

(9) Industry demand for skilled employees, particularly engineering and technical personnel, exceeds the number of personnel available and we may not be able to attract and retain key personnel

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 is intense. Because of recent intense competition for these skilled employees, Kyocera may be unable to retain its existing personnel or attract additional qualified employees in the future.

 

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Risk Related to Legal Restrictions and Litigations

(10) 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 affect Kyocera’s business, consolidated results of operations, financial condition and cash flows.

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.

(11) 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’s 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.

(12) 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 greenhouse gas mitigation, 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 due to factors including global climate change. With respect to greenhouse gas mitigation in particular, international emissions trading regime may be created based on the result of the intergovernmental dialogue on global climate change. Kyocera establishes 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 Kyocera’s results of operations, financial condition and cash flows.

 

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(13) Kyocera is subject to various other laws and regulations

Kyocera believes that it is substantially in compliance with applicable laws and regulations in countries or areas in which we operate. If laws and regulations that are more stringent than we assume are enacted in the future or interpretations of laws become stricter than we recognize, our business operation may be limited and its continuance may face difficulty.

Our failure or inability to fully comply with these and other applicable laws and regulations could have a material effect on Kyocera’s results of operations, financial condition and cash flows.

Risks Related to Disasters or Unpredictable Events

(14) 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 may 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, consolidated results of operations, financial condition and cash flows may be adversely affected.

(15) Kyocera’s headquarters and major facilities as well as its suppliers and customers are subject to the devastating effects of earthquakes and other disasters

Kyocera’s headquarters and major facilities including plants, sales offices and R&D centers 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, tsunamis, floods and so on. For instance, if a strong earthquake affected Kyocera’s employees, R&D or manufacturing facilities, Kyocera’s operating activities would be suspended and manufacturing and shipment would be delayed. Kyocera may also incur a great amount of expenses, such as repair expenses for the damaged machines or facilities. In addition, if the social and economic infrastructures suffer from adverse damages, traffic disturbance and electric power outages could occur and they may affect Kyocera’s supply chains or manufacturing operations. Furthermore, Kyocera may be unable to obtain raw materials if our suppliers sustain damage and Kyocera may also face difficulties to ship its products if its customers sustain damage. Those damages set forth above, as well as any resulting general economic slowdown and lower consumption levels, may have a material adverse effect on Kyocera’s consolidated results of operations, financial condition and cash flows.

Risks Related to Financial and Accounting

(16) 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 and if Kyocera is forced to write off those receivables, Kyocera’s consolidated results of operations, financial condition and cash flows may be affected.

(17) 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 us, which we generally holds on a long-term position for business relationship purposes. A substantial portion of these investments consists of shares of common stock of public companies in Japan, such as financial institutions and other companies including KDDI Corporation, a Japanese telecommunication service provider. Kyocera Corporation’s equity interest in KDDI Corporation was 12.76% as of March 31, 2011. If there are certain declines in the fair value,

 

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i.e., the market price, of the shares of these companies, and it determines that such declines are other-than-temporary, Kyocera will need to record an impairment loss. 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 us to do so at the time, speed or price we may wish.

(18) Kyocera may have to incur impairment losses on long-lived assets, goodwill and intangible assets

Kyocera has many long-lived assets, goodwill and intangible assets. Long-lived assets and intangible assets with definite useful lives are tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Goodwill and intangible assets with indefinite useful lives, rather than being amortized, are tested for impairment at least annually, and also following any events and changes in circumstances that might lead to impairment.

In case the above assets are considered to be impaired, a loss on impairment is recognized based on the amount by which the carrying value exceeds the fair value of these assets. Such losses on impairment may materially affect Kyocera’s consolidated results of operations and financial condition.

(19) Deferred tax assets may not be realized or additional liabilities for unrecognized tax benefits may be required.

Kyocera records valuation allowances against deferred tax assets based on the estimated future taxable income and feasible tax planning strategies to adjust their carrying amounts when we believe it is more likely than not that the assets will not be realized. 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.

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 Kyocera’s recognition.

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

Adoptions of new accounting standards, or changes in accounting standards may have an effect on Kyocera’s consolidated results of operations and financial condition. In addition, if Kyocera modifies its accounting software or information systems to introduce changes in accounting standards, certain investments or expenses may be required.

Other Risks

(21) 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.

 

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(22) 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.

(23) 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.

(24) 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.

(25) 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.

 

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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 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 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 a globally integrated electronic components manufacturer through our acquisition of AVX Corporation, a maker of capacitors and other passive electronic components, in January 1990. In the middle of the 1990s, Kyocera developed two main business categories, the “Components Business,” in which Kyocera provides parts and devices such as fine ceramics parts, semiconductor parts, applied ceramic products and electronic components and devices to mainly electronic equipment manufacturers in information and communications fields, and the “Equipment Business,” in which Kyocera manufactures and sells telecommunications equipment and information equipment, 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. and established our U.S. subsidiary, Kyocera Wireless Corp., which was merged into Kyocera Communications, Inc. in April 2010. 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.

With the aim of becoming a more global enterprise and enhancing our profitability, we have been expanding our production in China located in Shanghai and Dongguan since the middle of the 1990s. Kyocera also established a sales company, Kyocera (Tianjin) Sales & 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 April 2004, Kyocera integrated the marketing division of Kyocera Kinseki Corporation 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.

 

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

In April 2008, Kyocera acquired the mobile phone related business of SANYO Electric Co., Ltd. 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 (currently TA Triumph-Adler GmbH, TA), 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.

On October 13, 2010, Kyocera Mita Corporation acquired all of the remaining shares of TA. As a result, TA has become a wholly-owned subsidiary of Kyocera Mita.

In order to strengthen Kyocera’s thin-film components business, Kyocera acquired a facility of the TFT LCD business in Yasu City, Shiga Prefecture, Japan from Sony Mobile Display Corporation in June 2010.

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, 2011, we had 170 subsidiaries and 3 affiliates outside Japan and 29 subsidiaries and 5 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.

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

Components for Semiconductor Processing Equipment and

LCD Manufacturing Equipment,

Information & Telecommunication Components,

General Industrial Ceramic Components,

Sapphire Substrates,

Automotive Components

(2) Semiconductor Parts Group

Ceramic Packages for Crystal and SAW Devices,

Ceramic Packages for CMOS/CCD Sensors,

LSI Ceramic Packages,

Wireless Communication Device Packages,

Optical Communication Device Packages and Components,

Organic Multilayer Packages and Substrates

 

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(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 Fine Ceramic Application Products

(4) Electronic Device Group

Ceramic Capacitors, Tantalum Capacitors,

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

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

Connectors,

Thermal Printheads,

Inkjet Printheads,

Amorphous Silicon Photoreceptor Drums,

Liquid Crystal Displays (LCDs),

Touch Panels

(5) Telecommunications Equipment Group

Mobile Phone Handsets,

Personal Handy Phone System (PHS) Related Products such as PHS Mobile Phone Handsets and PHS Base Stations

(6) Information Equipment Group

Color and Black & White Office Equipment such as ECOSYS Printers and Multifunctional Peripherals,

Wide Format Multifunctional Systems,

Printer and Multifunction Peripherals Supplies,

Business Solution Services such as Managed Print Service

(7) Others

Information Systems & Telecommunication Services,

Electrical Insulation and Sheet Materials, Synthetic Resin Molded Parts,

Real Estate Business

(1) Fine Ceramic Parts Group

Products in this reporting segment are widely used in the industrial machinery, telecommunications, computing, automotive and various other industrial sectors. These products are made from a variety of ceramic materials, such as alumina, silicon carbide and silicon nitrides as well as zirconia, 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 Light Emitting Diodes (LEDs), components for semiconductor processing equipment, components for LCD manufacturing equipment, engine components for the automobiles, mechanical seals for pumps, friction tight discs and thread guides for yarn texturing machines in the textile industry, rings for fishing rods, and nozzles and parts for papermaking machinery.

 

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(2) Semiconductor Parts Group

Kyocera develops, manufactures and sells both inorganic (ceramic) and organic packages and substrates 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 supplies various ceramic packages and components capitalized on material’s characteristics. Major products in this reporting segment are ceramic packages for crystal and SAW devices, ceramic packages for CMOS/CCD sensors, 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, Crystal Units and temperature compensated crystal oscillators (TCXOs), which are mostly inserted into mobile phone handsets. Ceramic packages for CCD/CMOS sensors are mainly used in image sensor equipped in camera-equipped mobile phone handsets and digital 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 develops, manufactures and sells organic flip-chip packages for high-end application specific integrated circuits (ASICs) and system in a package (SiP) substrates used in mobile phone handsets.

(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 concentrate the manufacturing of the solar cells in Japan, and assemble modules in Japan, China, Europe and North America.

Kyocera is working to expand production capacity to meet strong global demand for solar energy related products. We start our production at a solar cell plant in Yasu, Shiga Prefecture in August 2010 to complement the plant in Yokaichi, Shiga Prefecture.

2) Cutting Tools

Kyocera develops, manufactures and sells cutting tools, which are parts used in metal processing in industrial manufacturing that are made from composite materials based on ceramics and metal. These products are used mainly in the automotive industry.

3) Medical and Dental Implants

Kyocera produces medical and dental implants products, which include prosthetic joints and dental prosthetics that use ceramic materials and titanium alloys. In addition to these products, Kyocera supplies a wide range of medical materials such as cardiovascular type medical equipment and advanced X-ray computer tomography diagnosis equipment.

4) Jewelry and Applied Ceramic Related Products

Kyocera develops, manufactures and sells recrystallized jewelry comprised mainly of synthetic emeralds, alexandrines and rubies. These stones are manufactured using a single crystal growth technology developed by

 

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us, and are chemically and physically equivalent to natural stones. Kyocera also develops, produces and sells applied ceramic related products such as kitchen accessories 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, high frequency and low energy consumption. We develop, manufacture and sell high-value-added products such as miniature ceramic capacitors with high capacitance, tantalum capacitors, RF modules, miniature timing devices like TCXOs and connectors mainly for digital consumer equipment such as mobile phone handsets and PCs. We also deliver thin-film products such as thermal printheads, amorphous silicon photoreceptor drums by utilizing our thin-film technologies, and LCDs for office automation equipment and industrial equipment.

In this reporting segment, Kyocera is working to expand sales by strengthening cost competitiveness through overseas production and by collaborating with consolidated subsidiaries. We are utilizing production sites in China to further reduce costs for such products as ceramic capacitors and timing devices. U.S. based AVX Corporation, our consolidated subsidiary, develops, manufactures and sells ceramic capacitors, tantalum capacitors and other passive components mainly used for information and communication equipment. We are strengthening ties between our ceramic capacitor business and AVX Corporation in term of development and production fronts and expanding sales of Kyocera Group’s electronic devices overseas by leveraging AVX Corporation’s global manufacturing and sales network. In the timing device business, Kyocera Kinseki Corporation develops and manufactures crystal related products while Kyocera Corporation handles the sales.

(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. Mobile phone handsets are distributed mainly for KDDI Corporation in Japan, as well as for Sprint Nextel Corporation and other U.S. telecommunication service providers in the overseas market.

We also develop, manufacture and sell base stations, terminals and handsets for WILLCOM, Inc., which provides PHS services and UQ Communications Inc., which provides WiMAX wireless broadband system in Japan. Furthermore, we are pushing ahead with the development of products compatible with the next-generation communication service, Long Term Evolution (LTE).

(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 brand of “ECOSYS” with a focus on the concepts of long life cycle, ecology and economy, which use our in-house amorphous silicon photoreceptor drums.

Kyocera Mita Corporation develops, manufactures and sells the products in this reporting segment. Kyocera Mita manufactures hardware of page printers, copying machines and multifunctional peripherals in China in order to strengthen our price competitiveness. Development and production bases of consumables as well as research and development are centralized in Japan to pursue optimization. We currently have sales sites in approximately 30 countries and are working to increase sales of information equipment not only to industrialized countries but also to emerging countries.

(7) Others

This reporting segment includes revenues from information and communications service business. This segment also develops, manufactures and sells electronic insulation materials and molded products.

 

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Kyocera Communication Systems Co., Ltd. operates a total telecommunications engineering 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 business for business users by developing new products featuring network services as well as system integration business. Kyocera Communication Systems Co., Ltd. also conducts management consulting business based on implementation and operation of “Amoeba Management System,” which is Kyocera’s unique management method.

Kyocera Chemical Corporation develops new products by pursuing 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 sales in the Fine Ceramic Parts Group, the Semiconductor Parts Group and the Electronic Device Group are made directly to component and equipment manufacturers in Japan and overseas.

In the solar energy business in the Applied Ceramic Products Group, solar energy modules and systems are sold primarily to users via sales subsidiaries, distributors and their franchise chain. Cutting tools are sold to users such as automobile parts manufactures through wholesale dealers and distributors. Jewelry and applied ceramic products such as ceramic knives are sold through direct retail shops and general retailers. 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 telecommunications carriers in Japanese and overseas markets. Our key sales destinations are KDDI Corporation, Sprint Nextel Corporation, WILLCOM, Inc. and UQ Communications Inc.

The Information Equipment Group sells Kyocera brand products such as ECOSYS printers, copier machines and multifunctional peripherals through distributors and wholesalers worldwide or directly to original equipment manufacturers.

In the Others reporting segment, the Kyocera Communication Systems Group provides services from our Information and Communication Technologies (ICT) business and management consulting business to general companies, public institutions and healthcare corporations as well as services from our telecommunications engineering business to telecommunications carriers and wireless equipment vendors. 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 the 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.

 

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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 reduce the effect of these fluctuations and to absorb rising costs by making continuous internal improvements, including cost reductions. We have also executed long-term agreements with suppliers for certain raw materials to ensure that we have stable supply to meet plans to increase production, and a fair purchase price.

In fiscal 2011, we procured a sufficient level of raw materials and other materials to carry out our production plans. During fiscal 2012, although we have concerns that the sources and availability of raw materials and supplies may be volatile due to the Great East Japan Earthquake which occurred on March 11, 2011, we strive to procure a sufficient level of raw materials and other materials to carry out our production plans, and currently we do not expect to have material shortages of raw materials and supplies during fiscal year 2012.

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 have significant impact on Kyocera’s entire operation. The following table sets forth information, as of March 31, 2011, 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

Canon Inc.

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

Competitive Position

(1) Fine Ceramic Parts Group

Since our founding, Kyocera has worked continuously to develop fine ceramic materials and products to cultivate new markets. At present, we provide fine ceramic products to a wide range of industries, notably the information and communication market, the industrial machinery market and the automotive market.

Although competitors in this reporting segment are mainly Japanese manufacturers and differ in each market, Kyocera has differentiate ourselves to become a global market leader through 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 efforts, and this differentiates us from competitors.

 

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(2) Semiconductor Parts Group

In this reporting segment, our goal is to further strengthen our competitive position in both 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 in the digital consumer equipment market, optical and wireless communications markets, and in the automotive and medical industries, etc.

In the ceramic package business, Kyocera is already a global market leader. We aim to further increase customer satisfaction by utilizing our expertise in development and manufacturing technology.

In the organic package field, Kyocera SLC Technologies Corporation (KST) produces flip-chip packages for servers, routers and game consoles. KST also produces system in package substrates for mobile phone handsets. In the flip-chip package market, fine design and high reliability are required, and we aim to become the leading company on a global technology front. In this market, we have several competitors which are Japanese and Asian manufactures. In pursuit of excellence in engineering and production technology for finer pitch and smaller and thinner packages, we aim to expand our market share.

(3) Applied Ceramic Products Group

In the solar energy business, the market is expanding due to enhanced environmental awareness worldwide, which has led to numerous competitors around the world. In addition, many kinds of solar cells using various raw materials and production methods have been introduced to the market, and competition on the technological and price fronts is intensifying. Despite the fierce competitive situation, Kyocera has established a competitive advantage based on 35 years of experience in the development of solar cells. In multicrystalline silicon solar cells, we manufacture products in-house, from silicon ingots to solar modules, enabling us to reduce costs and enhance productivity in every manufacturing process. Kyocera’s multicrystalline silicon solar cells realize high conversion efficiency and long-term product reliability based on accumulated development and production technologies. We are also pushing ahead with the development of thin-film solar cells toward future business expansion. Also, Kyocera is working to increase production of solar cells and modules at each site in Japan and overseas to meet growing global demand for solar energy related products.

Kyocera is one of the largest suppliers of cutting tools in Japan. Our cutting tools are employed primarily in automotive related markets. Although we have many competitors, we provide a diverse array of cutting tools for machine tools based on advanced ceramic materials technology. We also supply cutting tools for printed circuit boards and now have a broad customer base. Efforts are being made to further increase market share in this business, particularly in Japan and Asia, by boosting sales of new products.

(4) Electronic Device Group

Kyocera develops, manufactures and sells capacitors, timing devices, connectors and thin-film components. One of our competitive advantages is that we can supply a wide variety of components. There are many competitors in ceramic capacitor business, not only in Japan but also in Asia, and the market is particularly competitive in terms of price, quality and delivery.

Kyocera Kinseki Corporation and AVX Corporation, our subsidiaries, are major suppliers in the global timing devices market and the tantalum capacitors market, respectively. We are also a major supplier in thin-film components with focus on industrial use, such as thermal printheads and amorphous silicon photoreceptor drums, which are mainly used in information equipment, notably printers, copying machines and multifunctional peripherals. In particular, 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 realize longer lasting products compared to the competition. In the LCD business of our thin-film components group, we are working to expand our line-up of products with industrial application by

 

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leveraging strengths in mass-production technology for STN and TFT LCDs. Since Kyocera took over the TFT LCD business at the Yasu facility from Sony Mobile Display Corporation in June 2010, we are striving to strengthen the competitiveness of this business.

(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.

Kyocera is currently providing products specifically for the CDMA2000 protocol and producing approximately 16 million units per year. This production volume ranks in the top class among Japanese manufacturers.

In overseas markets, we are mainly targeting the North America region even though our share is not large there.

In terms of telecommunication system equipment business such as PHS related products, our main competitors are Japanese manufacturers, and we are a market leader in PHS handset and base station businesses.

 

(6) Information Equipment Group

We have many competitors in Japan and abroad in the information equipment business, which includes 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 our ability to differentiate our products from those of the competitors.

Kyocera’s information equipment is based on the “ECOSYS” concept, which realizes environmental friendliness through longer life and reduced running costs for users by equipping printers and other information equipment with an amorphous silicon photoreceptor drum that was developed in-house and has exceptional resistance to wear. Our ECOSYS concept is used in the majority of our printers, copying machines and multifunctional peripherals in both black & white and color, and from low-speed to high-speed models. These products are recognized as green products for office equipment, particularly in Europe, where environmental awareness is particularly high. We also have been increasing the coverage of our dealers through proactive mergers and acquisitions overseas.

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 properties, consumer and business taxation, exchange controls, and material procurement in public works. We do not believe that such governmental regulations currently have significant 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 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 we are not involved in any pending or threatened proceedings that would require curtailment of our business, and our operations are currently in substantial compliance, in all material respects, with all applicable environmental laws and regulations. Accordingly, the cost of continuing compliance will not be considered to have a material effect on our financial condition or results of operations.

 

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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. 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. While AVX Corporation believes that it is in material compliance with applicable environmental laws, it does not necessarily have knowledge of all past occurrences on sites that it currently occupies. The risk of environmental liability and remediation costs is inherent in the nature of its business and, therefore, there can be no assurance that material environmental costs, including remediation costs, will not arise in the future.

C. Organizational Structure

We had 207 subsidiaries and affiliates as of March 31, 2011. 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.

The following table sets forth information, as of March 31, 2011, 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   Development, manufacture and sale of organic multilayer packages and substrates

Shanghai Kyocera Electronics Co., Ltd.

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

Kyocera America, Inc.

   United States      100.00   Development, manufacture and sale of fine ceramic-related products

(3) Applied Ceramic Products Group

       

Kyocera Solar Corporation

   Japan      100.00   Sale of solar energy products

Kyocera (Tianjin) Solar Energy Co., Ltd.

   China      90.00   Manufacture of solar energy products

Kyocera Solar, Inc.

   United States      100.00   Manufacture and sale of solar energy products

Kyocera Solar Europe S.R.O.

   Czech      100.00   Manufacture of solar energy products

Kyocera Precision Tools Korea Co., Ltd.

   Korea      90.00   Manufacture and sale of cutting tools

Kyocera Tycom Corporation

   United States      100.00   Manufacture and sale of cutting tools

Japan Medical Materials Corporation

   Japan      77.00   Development, manufacture and sale of medical material

 

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Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
   

Main Business

(4) Electronic Device Group

       

Kyocera Elco Corporation

   Japan      100.00   Development, manufacture and sale of electronic devices

Kyocera Kinseki Corporation

   Japan      100.00   Development and manufacture of electronic devices

Dongguan Shilong Kyocera Optics Co., Ltd.

   China      90.00   Manufacture of cutting tools and thin-film devices

AVX Corporation

   United States      71.59   Development, manufacture and sale of electronic devices

(5) Telecommunications Equipment Group

       

Kyocera Telecom Equipment (Malaysia) Sdn. Bhd.

  

Malaysia

  

 

100.00

 

Manufacture of telecommunications equipment

Kyocera Communications, Inc.

   United States      100.00   Sale 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 mainly in Japan

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

  

China

  

 

92.76

 

Manufacture of information equipment

Kyocera Mita America, Inc.

   United States      100.00   Sale of information equipment mainly in North America

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

TA Triumph-Adler GmbH

   Germany      100.00   Sale of information equipment mainly in Europe

(7) Others

       

Kyocera Communication Systems Co., Ltd.

   Japan      76.30   Provision of engineering services and IT services

Kyocera Chemical Corporation

   Japan      100.00   Development, manufacture and sale of electrical insulation materials

Kyocera Realty Development Co., Ltd.

   Japan      100.00   Real estate services

 

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Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
   

Main Business

(8) Regional Holding or Sales Companies        
Kyocera (Tianjin) Sales & Trading Corporation    China      90.00   Sale of fine ceramic-related 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 Korea

Kyocera Asia Pacific Pte. Ltd.

   Singapore      100.00   Sale of fine ceramic-related products, solar energy products and electronic devices mainly in Asia

Kyocera International, Inc.

   United States      100.00   Holding company and headquarters of the subsidiaries mainly in North America

Kyocera Fineceramics GmbH

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

In addition to the above consolidated subsidiaries, Kyocera had 165 other consolidated subsidiaries as of March 31, 2011. Kyocera also had interests in two subsidiaries accounted for by the equity method and eight affiliates accounted for by the equity method as of March 31, 2011.

AVX Corporation, in our Electronic Device Group, is one of our most significant subsidiaries. Most of the electronic devices we produce for overseas sales are distributed through AVX Corporation by utilizing AVX Corporation’s wide range of marketing channels. In addition, we market passive components produced by AVX Corporation in the Japanese market. We also utilize AVX Corporation’s manufacturing process for ceramic capacitors to improve productivity and to enhance our competitiveness. In addition, AVX Corporation introduced our materials technologies into its ceramic capacitor production. We have been seeking better ways to cooperate in expanding our electronic device businesses. Currently, four of our directors are members of AVX Corporation’s board of directors and AVX Corporation’s chief executive officer is one of our directors. Within the Electronic Device Group, we have a close relationship with AVX Corporation in marketing, manufacturing, and research and development, and we are seeking and pursuing synergies to be a leading passive component manufacturer. AVX Corporation posted net income of $244,003 thousand in fiscal 2011 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

As of March 31, 2011, we had property, plants and equipment with a net book value of ¥247,754 million. During the five years ended March 31, 2011, we invested a total of ¥326,601 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, 2011, 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     387        Fine ceramic parts, Thin-film components, Cutting tools

Kawaguchi Plant

  Kawaguchi, Saitama   Owned     389        Electrical insulation materials

Tamaki Plant

  Watarai, Mie   Owned     288        Information equipment

Shiga Gamo Plant

  Higashi-Ohmi, Shiga   Owned     690        Fine ceramic parts, Semiconductor parts

Shiga Yokaichi Plant

  Higashi-Ohmi, Shiga   Owned     1,476        Fine ceramic parts, Thin-film components, Solar cells, Cutting tools

Shiga Yasu Plant

  Yasu, Shiga   Owned     1,821        Solar cells, Thin-film components

Kyoto Ayabe Plant

  Ayabe, Kyoto   Owned     288        Organic multilayer package, Organic multilayer printed circuit boards

Hirakata Plant

  Hirakata, Osaka   Owned     604        Information equipment

Kagoshima Sendai Plant

  Satsuma-Sendai, Kagoshima   Owned     1,951        Fine ceramic parts, Semiconductor parts, Electronic components, Cutting tools

Kagoshima Kokubu Plant

  Kirishima, Kagoshima   Owned     2,466        Fine ceramic parts, Semiconductor parts, Electronic components

Kagoshima Hayato Plant

  Kirishima, Kagoshima   Owned     278        Thin-film components

United States

         

Balboa Plant

  San Diego, California   Owned     300        Semiconductor parts

Myrtle Beach Plant

  Myrtle Beach, South Carolina   Owned     500        Electronic components

Fountain Inn Plant

  Fountain Inn, South Carolina   Owned     300        Electronic components

 

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Name of Plant

 

Location

 

Status

  Floor Space     Lease
Expires
 

Principal Products
Manufactured

            (in thousands
of square feet)
         

El Salvador

         

San Salvador Plant

  San Salvador   Owned     420        Electronic components

France

         

Saint-Apollinaire Plant

  Saint-Apollinaire   Leased     322      2016   Electronic components

Czech Republic

         

Lanskroun Plant

  Lanskroun   Owned     500        Electronic components

Uherske Hradiste Plant

  Uherske Hradiste   Owned     276        Electronic components

China

         

Tianjin Plant

  Tianjin   Owned     520        Electronic components

Tianjin Plant

  Tianjin   Owned     308        Solar cells

Shilong Plant

  Dongguan, Guangdong   Owned     2,331        Information equipment

Shilong Plant

  Dongguan, Guangdong   Owned     795        Cutting tools, Thin-film 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

Malaysia Plant

  Malaysia   Leased     300      2012   Electronic components

Item 4A.    Unresolved Staff Comments

We are a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934. There are no written comments which have been provided by the staff of the Securities and Exchange Commission regarding our periodic reports under that Act not less than 180 days before the end of the fiscal year ended March  31, 2011 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

 

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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 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 2011, the Japanese economy showed signs of recovery compared with fiscal 2010 due to increases in exports, mainly to Asia, and capital investment. With respect to the overseas economy, personal consumption and capital investment continued to rebound in the U.S., while the European economy recovered solidly owing to an increase in exports supported by the depreciation of the Euro, despite fears of an economic slowdown due to heightened financial insecurity triggered by financial crises in Greece and Ireland. The Asian economy led by China continued to expand strongly, driven by growth in exports and personal consumption.

In the information and communications market, which is the principal market for Kyocera, all production activities of various digital consumer equipment such as mobile phone handsets, including smartphones, expanded as a whole compared with fiscal 2010.

The yen’s average exchange rates for fiscal 2011 were ¥86 to the U.S. dollar and ¥113 to the Euro, representing an appreciation of ¥7 (7.5%) and ¥18 (13.7%), respectively, compared with fiscal 2010. As a result, net sales and income before income taxes for fiscal 2011 were down approximately ¥68 billion and ¥28 billion, respectively, compared with fiscal 2010.

In spite of the impact on sales and profit by the yen’s appreciation, sales and profit in all reporting segments exceeded levels recorded in fiscal 2010 due to an expansion of the information and communications market and efforts to improve profitability by reducing costs and enhancing productivity in each business.

Net sales for fiscal 2011 increased by ¥193,119 million, or 18.0%, to ¥1,266,924 million, compared with ¥1,073,805 million for fiscal 2010. Profit from operations for fiscal 2011 increased by ¥92,064 million, or 144.2%, to ¥155,924 million, compared with ¥63,860 million in fiscal 2010. Income before income taxes increased by ¥111,534 million, or 183.5%, to ¥172,332 million, compared with ¥60,798 million in fiscal 2010. Net income attributable to shareholders of Kyocera Corporation for fiscal 2011 increased by ¥82,353 million, or 205.4%, to ¥122,448 million, compared with ¥40,095 million for fiscal 2010. Profit from operations and income before income taxes for fiscal 2010 were reduced by ¥8,961 million and ¥28,948 million, respectively, due to a recognition of a loss related to an investment in WILLCOM, Inc.

 

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Although production activities were temporarily suspended at Kyocera’s production sites in the Tohoku and Kanto regions due to an electric power outage and traffic disturbance caused by the Great East Japan Earthquake, this did not have a significant impact on Kyocera’s business results for fiscal 2011.

The Corporate Reorganization Procedure for WILLCOM, Inc.

Since October 2004, Kyocera Corporation owned a 30% interest in WILLCOM, Inc., which is engaged in the personal handy phone system (PHS) business. Kyocera sells PHS handsets and PHS base stations to WILLCOM, Inc. Kyocera accounted for its investment in WILLCOM, Inc. as an equity method investment.

On September 24, 2009, WILLCOM, Inc. applied and was accepted to undergo Alternative Dispute Resolution with the Japanese Association of Turnaround Professionals (JATP), a process for corporate revitalization prescribed in the Act on Special Measures for Industrial Revitalization. The process of Alternative Dispute Resolution is not a legal procedure like a bankruptcy or a corporate reorganization procedure, but rather constitutes a flexible private settlement mechanism that allows the subject company to continue its daily commercial operations, while securing fairness through the involvement of the JATP. The JATP has been authorized by the Minister of Economy, Trade and Industry to act as an unbiased intermediary to achieve resolution among relevant parties.

During the three months ended December 31, 2009, Kyocera recognized an impairment loss of ¥19,987 million on its investment in WILLCOM, Inc., recorded as equity in losses of affiliates, reflecting management’s belief that the investment might not be recoverable.

On February 18, 2010, WILLCOM, Inc. filed a petition with the Tokyo District Court for commencement of corporate reorganization procedures and applied to the Enterprise Turnaround Initiative Corporation of Japan (ETIC) for support, after terminating the process of Alternative Dispute Resolution. On March 12, 2010, the Tokyo District Court agreed to commence the corporate reorganization procedures. Upon such decision, most of the directors of WILLCOM, Inc., including all of those simultaneously serving as directors of Kyocera, resigned, and trustees and acting trustees were appointed by the Tokyo District Court. On the same day, the ETIC agreed to provide support to WILLCOM, Inc. Due to the commencement of the corporate reorganization procedures, Kyocera lost significant influence over WILLCOM, Inc. and therefore discontinued its application of equity method accounting.

Taking into consideration the decision to commence corporate reorganization procedures, Kyocera recognized a bad debt loss of ¥8,961 million on receivables from WILLCOM, Inc., recorded as selling, general and administrative expenses in the Telecommunications Equipment Group for the year ended March 31, 2010, based on publicly disclosed information such as the outline of the business revitalization plan of WILLCOM, Inc., etc.

On August 2, 2010, WILLCOM, Inc. entered into a sponsor agreement with SOFTBANK CORP. SOFTBANK CORP. agreed to dispatch a business trustee to WILLCOM, Inc. and to provide necessary support for business operations and execution of the reorganization plan.

On October 14, 2010, the trustees of WILLCOM, Inc. filed the reorganization plan with the Tokyo District Court.

Based on the filed reorganization plan, during the three months ended September 30, 2010, Kyocera recognized an additional bad debt loss of ¥708 million on receivables from WILLCOM, Inc., in selling, general and administrative expenses in the Telecommunications Equipment Group.

On November 30, 2010, the filed reorganization plan was approved by the creditors’ committees in written vote and subsequently by the Tokyo District Court. The implementation of the corporate reorganization plan and WILLCOM, Inc.’s business performance may have a significant effect on Kyocera’s consolidated results of operations, financial condition and cash flows. Kyocera has continued to sell PHS handsets and PHS base stations to WILLCOM, Inc.

 

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Results of Operations

Fiscal 2011 compared with Fiscal 2010

The following table shows a summary of Kyocera’s results of operations for fiscal 2010 and fiscal 2011:

 

     Years ended March 31,     Increase
(Decrease)
 
     2010     2011    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Net sales

   ¥ 1,073,805        100.0      ¥ 1,266,924        100.0      ¥ 193,119        18.0   

Cost of sales

     787,970        73.4        888,869        70.2        100,899        12.8   
                                                

Gross profit

     285,835        26.6        378,055        29.8        92,220        32.3   

Selling, general and administrative expenses

     221,975        20.7        222,131        17.5        156        0.1   
                                                

Profit from operations

     63,860        5.9        155,924        12.3        92,064        144.2   

Interest and dividend income

     13,202        1.3        12,963        1.0        (239     (1.8

Interest expense

     (2,926     (0.3     (2,259     (0.2     667        —     

Foreign currency transaction gains, net

     2,830        0.3        3,824        0.3        994        35.1   

Equity in earnings (losses) of affiliates and unconsolidated subsidiaries

     (18,297     (1.7     (160     (0.0     18,137        —     

Gains (losses) on sales of securities, net

     (93     (0.0     52        0.0        145        —     

Losses on impairment of securities

     (217     (0.0     (341     (0.0     (124     —     

Other, net

     2,439        0.2        2,329        0.2        (110     (4.5
                                                
     (3,062     (0.2     16,408        1.3        19,470        —     
                                                

Income before income taxes

     60,798        5.7        172,332        13.6        111,534        183.5   

Income taxes

     15,365        1.5        42,214        3.3        26,849        174.7   
                                                

Net income

     45,433        4.2        130,118        10.3        84,685        186.4   

Net income attributable to noncontrolling interests

     (5,338     (0.5     (7,670     (0.6     (2,332     —     
                                                

Net income attributable to shareholders of Kyocera Corporation

   ¥ 40,095        3.7      ¥ 122,448        9.7      ¥ 82,353        205.4   
                                                

Net Sales

Net sales in fiscal 2011 increased by ¥193,119 million, or 18.0%, to ¥1,266,924 million, compared with ¥1,073,805 million in fiscal 2010.

In fiscal 2011, the Japanese economy as well as the U.S. and the European economy recovered and the Asian economy led by China continued to expand strongly. Under these circumstances, net sales increased in spite of the yen appreciation compared with fiscal 2010. Affected by the yen appreciation against the U.S. dollar and the Euro, net sales after translation into the yen in fiscal 2011 were down by approximately ¥68,000 million, compared with fiscal 2010.

Net sales in the Components Business in fiscal 2011 increased by ¥140,704 million, or 25.6%, to ¥691,239 million, compared with ¥550,535 million in fiscal 2010. Net sales in the Equipment Business in fiscal 2011 increased by ¥43,601 million, or 10.3%, to ¥465,084 million, compared with ¥421,483 million in fiscal 2010.

For detail of net sales, please refer to page 34, “Business Overview by Reporting Segment.”

 

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Net Sales by Geographic Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2010 and fiscal 2011, 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)
 
     2010      2011     
     Amount      %      Amount      %      Amount      %  
     (Yen in millions)  

Japan

   ¥ 470,643         43.8       ¥ 559,883         44.2       ¥ 89,240         19.0   

United States of America

     180,861         16.8         220,706         17.4         39,845         22.0   

Asia

     172,510         16.1         215,913         17.0         43,403         25.2   

Europe

     198,058         18.5         210,131         16.6         12,073         6.1   

Others

     51,733         4.8         60,291         4.8         8,558         16.5   
                                                     

Net sales

   ¥ 1,073,805         100.0       ¥ 1,266,924         100.0       ¥ 193,119         18.0   
                                                     

Sales in Japan for fiscal 2011 increased compared with fiscal 2010. Sales in the solar energy business in the Applied Ceramic Products Group increased. Sales in the Telecommunications Equipment Group also increased due to an increase in sales volume of mobile phone handsets and PHS handsets. Furthermore, sales in the Electronic Device Group grew mainly for digital consumer equipment.

Overseas sales, which comprised 55.8% of consolidated net sales, increased by ¥103,879 million, or 17.2%, to

¥707,041 million, compared with ¥603,162 million in fiscal 2010.

Sales in the United States for fiscal 2011 increased compared with fiscal 2010. This was due to sales increase in the Telecommunications Equipment Group led by an increase in sales volume of mobile phone handsets through launches of new products as well as sales increase in the Semiconductor Parts Group and the Electronic Device Group.

Sales in Asia for fiscal 2011 increased compared with fiscal 2010. This was due to sales increase in the Electronic Device Group and the Semiconductor Parts Group led by an increase in component demand, reflecting expanded production of digital consumer equipment.

Sales in Europe for fiscal 2011 increased compared with fiscal 2010. This was due to sales increase in the Electronic Device Group and the Fine Ceramic Parts Group led by an increase in component demand for digital consumer equipment and for automotive related markets, etc.

Sales for Others for fiscal 2011 increased compared with fiscal 2010. This was due to sales increase in the Information Equipment Group, the Electronic Device Group and the Semiconductor Parts Group.

Cost of Sales and Gross Profit

In fiscal 2011, cost of sales increased by ¥100,899 million, or 12.8%, to ¥888,869 million from ¥787,970 million in fiscal 2010. Although raw material costs increased in line with an increase in sales volume, the ratio of cost of sales to net sales in fiscal 2011 decreased 3.2 percentage points to 70.2% from 73.4% in fiscal 2010 due to our continuing cost-cutting measures and improvement of productivity.

Raw material costs of ¥341,442 million accounted for 38.4% of total cost of sales in fiscal 2011, which increased by ¥51,876 million, or 17.9%, from ¥289,566 million in fiscal 2010. Labor costs of ¥171,307 million accounted for 19.3% of total cost of sales in fiscal 2011, which increased by ¥16,367 million, or 10.6%, from ¥154,940 million in fiscal 2010. Depreciation expense of ¥50,204 million accounted for 5.6% of total cost of sales in fiscal 2011, which decreased by ¥1,017 million, or 2.0%, from ¥51,221 million in fiscal 2010 due to reduced capital expenditures.

 

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As a result, gross profit in fiscal 2011 increased by ¥92,220 million, or 32.3%, to ¥378,055 million from ¥285,835 million in fiscal 2010. The gross profit ratio to net sales increased by 3.2 percentage points from 26.6% to 29.8%.

SG&A Expenses and Profit from Operations

Selling, general and administrative (SG&A) expenses in fiscal 2011 increased by ¥156 million, or 0.1%, to ¥222,131 million compared with ¥221,975 million in fiscal 2010. The ratio of SG&A expenses to net sales was 17.5% in fiscal 2011, a decrease of 3.2 percentage points as compared with 20.7% in fiscal 2010 due primarily to a recognition of a bad debt loss of ¥8,961 million on receivables from WILLCOM, Inc. in fiscal 2010. As a result, SG&A expenses remained roughly constant compared with fiscal 2010.

Labor costs of ¥116,759 million accounted for 52.6% of total SG&A expenses in fiscal 2011, which decreased by ¥1,554 million, or 1.3%, from ¥118,313 million in fiscal 2010. Sales promotion and advertising costs of ¥34,530 million accounted for 15.5% in fiscal 2011, which increased by ¥4,177 million, or 13.8%, from ¥30,353 million in fiscal 2010. Depreciation expense of ¥13,674 million accounted for 6.2% in fiscal 2011, which decreased by ¥1,700 million, or 11.1%, from ¥15,374 million in fiscal 2010.

As a result, profit from operations in fiscal 2011 increased by ¥92,064 million, or 144.2%, to ¥155,924 million, compared with ¥63,860 million in fiscal 2010. The operating margin increased by 6.4 percentage points to 12.3% in fiscal 2011, compared with 5.9% in fiscal 2010.

Interest and Dividend Income

Interest and dividend income in fiscal 2011 decreased by ¥239 million, or 1.8%, to ¥12,963 million, compared with ¥13,202 million in fiscal 2010. This was due mainly to a decrease in interest income resulting from lower interest rates.

Interest Expense

Interest expense in fiscal 2011 decreased by ¥667 million, or 22.8%, to ¥2,259 million, compared with ¥2,926 million in fiscal 2010. This was due mainly to a decrease in long-term debt at TA.

Foreign Currency Translation

During fiscal 2011, the average exchange rate for the yen appreciated by ¥7, or 7.5%, against the U.S. dollar, and by ¥18, or 13.7%, against the Euro, as compared with fiscal 2010. At March 31, 2011, the yen appreciated by ¥10, or 10.8%, against the U.S. dollar, and by ¥7, or 5.6%, against the Euro, as compared with March 31, 2010. Kyocera recorded foreign currency transaction gains of ¥3,824 million in fiscal 2011.

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

Kyocera’s earnings (losses) on equity method investments in fiscal 2011 resulted in losses of ¥160 million, a decrease of ¥18,137 million, or 99.1%, compared with losses of ¥18,297 million in fiscal 2010. The decrease in fiscal 2010 was primarily due to the fact that Kyocera recognized an impairment loss of ¥19,987 million on its investment in WILLCOM, Inc.

Gains (losses) on sales of securities, net turned from losses of ¥93 million in fiscal 2010 to gains of ¥52 million in fiscal 2011.

 

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Losses on impairment of securities in fiscal 2011 increased by ¥124 million, or 57.1%, to ¥341 million, compared with ¥217 million in fiscal 2010.

Income before Income Taxes

Income before income taxes in fiscal 2011 increased by ¥111,534 million, or 183.5%, to ¥172,332 million compared with ¥60,798 million in fiscal 2010. Margin of income before income taxes against net sales increased by 7.9 percentage points to 13.6% compared with 5.7% in fiscal 2010.

Despite an effect of the yen appreciation against the U.S. dollar and the Euro, income before income taxes in fiscal 2011 increased substantially compared with fiscal 2010. Profit margin improved with effects of an increase in net sales and continuous improvement of productivity and profitability from fiscal 2010 by promoting cost-cutting measures including manufacturing cost reductions. In fiscal 2010, Kyocera recorded a one-time loss of ¥28,948 million relating to WILLCOM, Inc. Affected by the yen appreciation against the U.S. dollar and the Euro, income before income taxes after translation into the yen for fiscal 2011 were down by approximately ¥28,000 million compared with fiscal 2010.

Operating profit in the Components Business in fiscal 2011 increased by ¥70,460 million, or 142.2%, to ¥119,995 million, compared with ¥49,535 million in fiscal 2010. Operating profit in the Equipment Business in fiscal 2011 increased by ¥20,601 million, or 279.7%, to ¥27,966 million, compared with ¥7,365 million in fiscal 2010.

For a detail of income before taxes, please refer to page 34, “Business Overview by Reporting Segment.”

Income Taxes

Current and deferred income taxes in fiscal 2011 increased by ¥26,849 million, or 174.7%, to ¥42,214 million compared with ¥15,365 million in fiscal 2010.

The effective tax rate of 24.5% in fiscal 2011 was 0.8 percentage points less than the effective rate in fiscal 2010

of 25.3%. This was due mainly to a reversal of valuation allowance against deferred tax assets at certain

subsidiaries with increasing realization of deferred tax assets triggered by a significantly improved operating results.

For detailed information, see Note 16 to the Consolidated Financial Statements in this annual report on Form 20-F.

Noncontrolling Interests

Net income attributable to noncontrolling interests in fiscal 2011 amounted to ¥7,670 million and noncontrolling interests related to AVX Corporation, which accounted for approximately 30% of noncontrolling ownership interests, amounted to ¥5,915 million. Net income attributable to noncontrolling interests in fiscal 2011 increased by ¥2,332 million, or 43.7%, compared with ¥5,338 million in fiscal 2010. This was due mainly to an increase in net income at AVX Corporation.

 

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Business Overview by Reporting Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2010 and fiscal 2011 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2010     2011    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)        

Fine Ceramic Parts Group

   ¥ 53,056        5.0      ¥ 76,269        6.0      ¥ 23,213        43.8   

Semiconductor Parts Group

     140,507        13.1        174,687        13.8        34,180        24.3   

Applied Ceramic Products Group

     157,033        14.6        197,642        15.6        40,609        25.9   

Electronic Device Group

     199,939        18.6        242,641        19.2        42,702        21.4   
                                                

Total Components Business

     550,535        51.3        691,239        54.6        140,704        25.6   

Telecommunications Equipment Group

     189,118        17.6        225,168        17.8        36,050        19.1   

Information Equipment Group

     232,365        21.6        239,916        18.9        7,551        3.2   
                                                

Total Equipment Business

     421,483        39.2        465,084        36.7        43,601        10.3   

Others

     124,577        11.6        139,383        11.0        14,806        11.9   

Adjustments and eliminations

     (22,790     (2.1     (28,782     (2.3     (5,992     —     
                                                

Net sales

   ¥ 1,073,805        100.0      ¥ 1,266,924        100.0      ¥ 193,119        18.0   
                                                
The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2010 and fiscal 2011 by the seven reporting segments:    
     Years ended March 31,     Increase
(Decrease)
 
     2010     2011    
     Amount     %*     Amount     %*     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ (788     —        ¥ 11,969        15.7      ¥ 12,757        —     

Semiconductor Parts Group

     17,235        12.3        37,331        21.4        20,096        116.6   

Applied Ceramic Products Group

     19,858        12.6        29,049        14.7        9,191        46.3   

Electronic Device Group

     13,230        6.6        41,646        17.2        28,416        214.8   
                                                

Total Components Business

     49,535        9.0        119,995        17.4        70,460        142.2   

Telecommunications Equipment Group

     (14,726     —          2,121        0.9        16,847        —     

Information Equipment Group

     22,091        9.5        25,845        10.8        3,754        17.0   
                                                

Total Equipment Business

     7,365        1.7        27,966        6.0        20,601        279.7   

Others

     6,769        5.4        9,651        6.9        2,882        42.6   
                                                

Operating profit

     63,669        5.9        157,612        12.4        93,943        147.5   

Corporate

     15,665        —          16,882        —          1,217        7.8   

Equity in earning of affiliates and unconsolidated subsidiaries

     (18,297     —          (160     —          18,137        —     

Adjustments and eliminations

     (239     —          (2,002     —          (1,763     —     
                                                

Income before income taxes

   ¥      60,798            5.7      ¥      172,332            13.6      ¥ 111,534        183.5   
                                                

 

* % to net sales of each corresponding segment

(1) Fine Ceramic Parts Group

Sales in this reporting segment for fiscal 2011 increased by ¥23,213 million, or 43.8%, to ¥76,269 million, compared with ¥53,056 million in fiscal 2010. The increase in sales was mainly due to rising demand overall

 

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in line with recovered production activities in various industrial machinery and automotive markets. In particular, total sales of main products such as semiconductor fabrication equipment parts, components for information and communications devices and automotive parts increased by approximately ¥18,000 million compared with fiscal 2010.

Operating profit in this reporting segment for fiscal 2011 amounted to ¥11,969 million, an improvement of ¥12,757 million from a loss of ¥788 million in fiscal 2010. The increase in operating profit was mainly due to an increase in gross profit by sales growth, reduced manufacturing costs and enhanced productivity. Gross profit increased by approximately ¥3,000 million due to the increase in sales and by approximately ¥10,000 million mainly due to a reduction in manufacturing costs.

Sales and operating profit were down by approximately ¥3,000 million and ¥1,000 million, respectively, in fiscal 2011 due to the yen’s appreciation.

(2) Semiconductor Parts Group

Sales in this reporting segment for fiscal 2011 increased by ¥34,180 million, or 24.3%, to ¥174,687 million, compared with ¥140,507 million in fiscal 2010. In addition to increasing demand for such products as mobile phone handsets, digital cameras and servers, popularity grew for multifunctional products such as smartphones that are fitted with an even higher number of components. This resulted in growth in sales as demand for ceramic packages and organic packages for these products rose. In response to this vigorous demand growth, Kyocera expanded production capacity of ceramic packages, especially for crystal and SAW devices and for CMOS/CCD image sensors by approximately 30%, respectively, compared with fiscal 2010. As a result, total sales of ceramic packages increased by approximately ¥28,000 million compared with fiscal 2010 despite a decline of approximately 10% in selling prices for fiscal 2011.

Operating profit in this reporting segment for fiscal 2011 increased by ¥20,096 million, or 116.6%, to ¥37,331 million, compared with ¥17,235 million in fiscal 2010. The increase in operating profit was mainly due to the increase in gross profit by sales growth, reduced manufacturing costs and enhanced productivity. Gross profit increased by approximately ¥7,000 million due to the increase in sales and by approximately ¥13,000 million mainly due to a reduction in manufacturing costs.

Sales and operating profit were down by approximately ¥8,000 million and ¥2,000 million, respectively, in fiscal 2011 due to the yen’s appreciation.

(3) Applied Ceramic Products Group

Sales in this reporting segment for fiscal 2011 increased by ¥40,609 million, or 25.9%, to ¥197,642 million, compared with ¥157,033 million in fiscal 2010. In particular, the increase in sales was due to sales increase in the solar energy business and the cutting tool business, the core businesses in this reporting segment. In the solar energy business, demand grew steadily in the key markets of Japan, Europe and the United States, spurred by the subsidy policies of each country. Production volume of solar cells in fiscal 2011 increased by approximately 60% to 650MW compared with fiscal 2010. On the other hand, selling prices dropped by approximately 20% for the year due to fierce competition. In the cutting tool business, demand grew considerably in line with expanded production in automotive related markets, which are main markets for this business. As a result, total sales from both the solar energy business and the cutting tool business increased by approximately ¥40,000 million compared with fiscal 2010.

Operating profit in this reporting segment for fiscal 2011 increased by ¥9,191 million, or 46.3%, to ¥29,049 million, compared with ¥19,858 million in fiscal 2010. In addition to the effect of sales growth in the solar energy business and the cutting tool business, the positive results of efforts to enhance profitability, mainly

 

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by reducing costs, emerged significantly as sales increased in the cutting tool business. As a result, operating profit in both businesses increased by approximately ¥10,000 million compared with fiscal 2010, which led to the overall operating profit increase in this reporting segment.

Sales and operating profit were down by approximately ¥10,000 million and ¥6,000 million, respectively, in fiscal 2011 due to the yen’s appreciation.

(4) Electronic Device Group

Sales in this reporting segment for fiscal 2011 increased by ¥42,702 million, or 21.4%, to ¥242,641 million, compared with ¥199,939 million in fiscal 2010. The increase in sales was mainly due to growth in component demand for digital consumer equipment such as mobile phone handsets and for various industrial equipment. In addition to an increase in demand for such products as ceramic capacitors, timing devices and connectors, sales of thin-film components also rose substantially owing to the acquisition of the TFT LCD business at the Yasu facility from Sony Mobile Display Corporation. As a result, sales of these components increased by approximately ¥22,000 million compared with fiscal 2010. Sales at AVX Corporation, a key consolidated subsidiary in this reporting segment, also grew by approximately ¥20,000 million after translation into the yen, compared with fiscal 2010.

Operating profit in this reporting segment for fiscal 2011 increased by ¥28,416 million, or 214.8%, to ¥41,646 million, compared with ¥13,230 million in fiscal 2010. The increase in operating profit was mainly due to an increase in gross profit as a result of reduced manufacturing costs, etc. Gross profit increased by approximately ¥9,000 million due to an increase in sales and by approximately ¥19,000 million mainly due to a reduction in manufacturing costs.

Sales and operating profit were down by approximately ¥15,000 million and ¥5,000 million, respectively, in fiscal 2011 due to the yen’s appreciation.

(5) Telecommunications Equipment Group

Sales in this reporting segment for fiscal 2011 increased by ¥36,050 million, or 19.1%, to ¥225,168 million, compared with ¥189,118 million in fiscal 2010. The increase in sales was mainly due to growing sales of mobile phone handsets in Japan and overseas. Sales volume of handsets including basic mobile phone and PHS handsets for the Japanese market increased by approximately 50% compared with fiscal 2010 and sales in Japan grew by approximately ¥20,000 million, or 20%, compared with fiscal 2010. In the mobile phone handset business for the overseas market, Kyocera augmented its line-up by releasing new products, including smartphones, while marketing efforts mostly made on low-end models. As a result, sales volume outside Japan increased by approximately 20%, and overseas sales increased by approximately ¥16,000 million, or 20%, compared with fiscal 2010.

Operating profit in this reporting segment for fiscal 2011 amounted to ¥2,121 million, an improvement of ¥16,847 million from an operating loss of ¥14,726 million in fiscal 2010. Operating profit increased substantially, as a result of the significant improvement in gross profit by sales growth and the effect of structural reforms implemented in fiscal 2010 aimed at strengthening development and marketing systems. Gross profit increased by approximately ¥3,500 million due to an increase in sales and by approximately ¥4,000 million due to the effect of structural reforms. Furthermore, Kyocera recorded an impairment loss of ¥8,961 million on account receivables from WILLCOM, Inc. in fiscal 2010, although there was an additional loss of ¥708 million in fiscal 2011, a decrease of ¥8,253 million, compared with fiscal 2010.

Sales and operating profit were down by approximately ¥9,000 million and ¥4,000 million, respectively, in fiscal 2011 due to the yen’s appreciation.

 

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(6) Information Equipment Group

Sales in this reporting segment for fiscal 2011 increased by ¥7,551 million, or 3.2%, to ¥239,916 million, compared with ¥232,365 million in fiscal 2010. Kyocera aggressively launched new products amid moderate recovery in information technology investment by customers in line with global economic resurgence. As a result, although average selling prices decreased by 10% to 15% compared with fiscal 2010, sales volume increased approximately 30% compared with fiscal 2010, which led to the increase in sales.

Operating profit in this reporting segment for fiscal 2011 increased by ¥3,754 million, or 17.0%, to ¥25,845 million, compared with ¥22,091 million in fiscal 2010. Kyocera recognized a one-time gain of ¥1,521 million related to the sale of real estate in fiscal 2010, while there was no such one-time gain in fiscal 2011. R&D expenses increased by ¥969 million compared with fiscal 2010 in line with a reinforcement of new product development. Due primarily to these factors, SG&A expenses increased by approximately ¥3,500 million compared with fiscal 2010. However, operating profit increased due to an increase in gross profit as a result of an increase in sales, sales growth in highly profitable consumables such as color toners and cost reductions. Gross profit increased by approximately ¥4,000 million due to an increase in sales and by approximately ¥3,000 million mainly due to sales growth in consumables and cost reductions.

Sales and operating profit were down by approximately ¥23,000 million and ¥10,000 million, respectively, in fiscal 2011 due to the yen’s appreciation.

(7) Others

Sales in this reporting segment for fiscal 2011 increased by ¥14,806 million, or 11.9%, to ¥139,383 million, compared with ¥124,577 million in fiscal 2010. The increase in sales was mainly due to a gain of approximately ¥12,000 million in aggregate sales from Kyocera Communication Systems Co., Ltd., which deploys information and communication services, and Kyocera Chemical Corporation, which manufactures and sells products such as molding compounds for semiconductor encapsulation, in line with recovery in information technology investment in the corporate sector and in production activities in the semiconductor industry.

Operating profit in this reporting segment for fiscal 2011 increased by ¥2,882 million, or 42.6%, to ¥9,651 million, compared with ¥6,769 million in fiscal 2010. In addition to the increase in sales at Kyocera Communications Systems Co, Ltd. and Kyocera Chemical Corporation, operating profit increased due primarily to enhanced profitability at Kyocera Chemical, mainly through cost reductions.

(8) Corporate

Corporate income and losses mainly constitute gains or losses related to financial assets, and income related to management supporting service provided by Kyocera’s head office to each reporting segment. Corporate income increased by ¥1,217 million, or 7.8%, to ¥16,882 million, compared with ¥15,665 million in fiscal 2010. This was mainly due to an increase in dividend income.

 

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Fiscal 2010 compared with Fiscal 2009

The following table shows a summary of Kyocera’s results of operations for fiscal 2009 and fiscal 2010:

 

     Years ended March 31,     Increase
(Decrease)
 
     2009     2010    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Net sales

   ¥ 1,128,586        100.0      ¥ 1,073,805        100.0      ¥ (54,781     (4.9

Cost of sales

     836,638        74.1        787,970        73.4        (48,668     (5.8
                                                

Gross profit

     291,948        25.9        285,835        26.6        (6,113     (2.1

Selling, general and administrative expenses

     248,529        22.1        221,975        20.7        (26,554     (10.7
                                                

Profit from operations

     43,419        3.8        63,860        5.9        20,441        47.1   

Interest and dividend income

     15,441        1.4        13,202        1.3        (2,239     (14.5

Interest expense

     (1,206     (0.1     (2,926     (0.3     (1,720     —     

Foreign currency transaction (losses) gains, net

     (91     (0.0     2,830        0.3        2,921        —     

Equity in earnings losses of affiliates and unconsolidated subsidiaries

     6,460        0.6        (18,297     (1.7     (24,757     —     

Losses on sales of securities, net

     (2,840     (0.3     (93     (0.0     2,747        —     

Losses on impairment of securities

     (7,141     (0.6     (217     (0.0     6,924        —     

Other, net

     1,940        0.2        2,439        0.2        499        25.7   
                                                
     12,563        1.2        (3,062     (0.2     (15,625     —     
                                                

Income before income taxes

     55,982        5.0        60,798        5.7        4,816        8.6   

Income taxes

     22,779        2.1        15,365        1.5        (7,414     (32.5
                                                

Net income

     33,203        2.9        45,433        4.2        12,230        36.8   

Net income attributable to noncontrolling interests

     (3,697     (0.3     (5,338     (0.5     (1,641     —     
                                                

Net income attributable to shareholders of Kyocera Corporation

   ¥ 29,506        2.6      ¥ 40,095        3.7      ¥ 10,589        35.9   
                                                

Net Sales

Consolidated net sales in fiscal 2010 decreased by ¥54,781 million, or 4.9%, to ¥1,073,805 million, compared with ¥1,128,586 million in fiscal 2009.

Net sales in fiscal 2010 have had an increasing trend due to the continued recovery of the general business environment after the second quarter during fiscal 2010. Consolidated net sales in fiscal 2010, however, decreased compared with the fiscal 2009 due to the continued deterioration of the business environment until the second quarter and the impact of appreciation of the yen. Affected by the yen’s appreciation against the Euro and the U.S. dollar, net sales after translation into the yen in fiscal 2010 were down by approximately ¥49,000 million, compared with fiscal 2009.

For detail of net sales, please refer to page 42, “Business Overview by Reporting Segment.”

 

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Net Sales by Geographic Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2009 and fiscal 2010, 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)
 
     2009      2010     
     Amount      %      Amount      %      Amount     %  
     (Yen in millions)  

Japan

   ¥ 473,387         41.9       ¥ 470,643         43.8       ¥ (2,744     (0.6

Europe

     200,483         17.8         198,058         18.5         (2,425     (1.2

United States of America

     201,502         17.9         180,861         16.8         (20,641     (10.2

Asia

     183,347         16.2         172,510         16.1         (10,837     (5.9

Others

     69,867         6.2         51,733         4.8         (18,134     (26.0
                                                    

Net sales

   ¥ 1,128,586         100.0       ¥ 1,073,805         100.0       ¥ (54,781     (4.9
                                                    

Sales in Japan remained roughly unchanged from fiscal 2009, due to a decline in sales in the Telecommunications Equipment Group, especially for mobile phone handsets, offset by a substantial increase in sales of solar energy business in the Applied Ceramic Products Group due to an increase of demand.

Overseas sales, which comprised 56.2% of consolidated net sales, decreased by ¥52,037 million, or 7.9%, to ¥603,162 million, compared with ¥655,199 million in fiscal 2009.

Sales in Europe decreased slightly compared with fiscal 2009 due mainly to the impact of appreciation of the yen, coupled with a decline in sales of the Electronic Device Group, offset by an increase in sales in the Information Equipment Group due to the contribution of new consolidated subsidiaries which joined from the fourth quarter of fiscal 2009.

Sales in the United States decreased compared with fiscal 2009, due mainly to an impact of the yen’s appreciation, as well as a decline in sales in the Telecommunications Equipment Group and the Electronic Device Group.

Sales in Asia decreased compared with fiscal 2009, due mainly to a decline in sales in the Electronic Device Group.

Sales in Others decreased compared with fiscal 2009, due mainly to a decline in sales in the Telecommunications Equipment Group.

Cost of Sales and Gross Profit

In fiscal 2010, cost of sales decreased by ¥48,668 million, or 5.8%, to ¥787,970 million from ¥836,638 million in fiscal 2009. The ratio of cost of sales to net sales was 73.4% in fiscal 2010, a decrease of 0.7 percentage points as compared with 74.1% in fiscal 2009. This significant decrease was an achievement made by promoting cost-cutting measures and improving productivity throughout the Kyocera Group.

Raw material costs of ¥289,566 million accounted for 36.7% of the total cost of sales in fiscal 2010, which decreased by ¥30,172 million, or 9.4%, from ¥319,738 million in fiscal 2009. Labor costs of ¥154,940 million accounted for 19.7% in fiscal 2010, which decreased by ¥10,869 million, or 6.6%, from ¥165,809 million in fiscal 2009. Depreciation expense of ¥51,221 million accounted for 6.5% in fiscal 2010, which decreased by ¥18,941 million, or 27.0%, from ¥70,162 million in fiscal 2009 due to reduced capital expenditures.

 

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As a result, gross profit in fiscal 2010 decreased by ¥6,113 million, or 2.1%, to ¥285,835 million from ¥291,948 million in fiscal 2009. The gross profit ratio to net sales increased by 0.7 percentage points from 25.9% to 26.6%.

SG&A Expenses and Profit from Operations

Selling, general and administrative (SG&A) expenses in fiscal 2010 decreased by ¥26,554 million, or 10.7%, to ¥221,975 million compared with ¥248,529 million in fiscal 2009. Although Kyocera recognized a bad debt loss of ¥8,961 million on receivables from WILLCOM, Inc. in fiscal 2010, Kyocera’s cost reduction activities offset the bad debt loss. In fiscal 2009, gains on sales of certain properties of ¥8,314 million were recorded as deductions of SG&A expenses. These gains were offset by impairment losses of ¥2,240 million in goodwill related to the subsidiary in the United States, and of ¥2,309 million of long-lived assets which were used for a production of Organic Light-Emitting Diode displays.

Labor costs of ¥118,313 million accounted for 53.3% of total SG&A expenses in fiscal 2010, which decreased by ¥4,570 million, or 3.7%, from ¥122,883 million in fiscal 2009. Sales promotion and advertising cost of ¥30,353 million accounted for 13.7% in fiscal 2010, which decreased by ¥6,315 million, or 17.2%, from ¥36,668 million in fiscal 2009. Depreciation expense of ¥15,374 million accounted for 6.9% in fiscal 2010, which decreased by ¥4,510 million, or 22.7%, from ¥19,884 million in fiscal 2009.

As a result, profit from operations in fiscal 2010 increased by ¥20,441 million, or 47.1%, to ¥63,860 million, compared with ¥43,419 million in fiscal 2009. The operating margin increased by 2.1 percentage points to 5.9% in fiscal 2010, compared with 3.8% in fiscal 2009.

Interest and Dividend Income

Interest and dividend income in fiscal 2010 decreased by ¥2,239 million, or 14.5%, to ¥13,202 million, compared with ¥15,441 million in fiscal 2009. This was due mainly to a decrease of interest income in AVX Corporation resulting from lower interest rates in the United States.

Interest Expense

Interest expense in fiscal 2010 increased by ¥1,720 million, or 142.6%, to ¥2,926 million, compared with ¥1,206 million in fiscal 2009. This was due mainly to an increase of long-term debt as a result of the acquisition of TA Triumph - Adler GmbH in the 4th quarter of fiscal 2009, which had borrowed the long-term debt.

Foreign Currency Translation

During fiscal 2010, the average exchange rate for the yen appreciated by ¥8, or 7.9%, against the U.S. dollar, and by ¥12, or 8.4%, against the Euro, as compared with fiscal 2009. At March 31, 2010, the yen appreciated by ¥5, or 5.1%, against the U.S. dollar, and by ¥5, or 3.8%, against the Euro, as compared with March 31, 2009. Kyocera recorded foreign currency transaction gains of ¥2,830 million in fiscal 2010.

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

Kyocera’s earnings (losses) on equity method investments decreased by ¥24,757 million, from earnings of ¥6,460 million in fiscal 2009 to losses of ¥18,297 million in fiscal 2010.

 

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The decrease in fiscal 2010 was primarily due to the fact that Kyocera recognized an impairment loss of ¥19,987 million on its investment in WILLCOM, Inc., and Kyocera’s equity in earnings of affiliates and unconsolidated subsidiaries except the impairment loss in fiscal 2010 decreased due mainly to a decrease in the net income of WILLCOM, Inc.

Losses on sales of securities, net in fiscal 2010 decreased by ¥2,747 million, or 96.7%, to ¥93 million, compared with ¥2,840 million in fiscal 2009. Losses in fiscal 2009 were the result of sales of certain securities which were held by Kyocera, as a part of its asset allocation.

Losses on impairment of securities in fiscal 2010 decreased by ¥6,924 million, or 97.0%, to ¥217 million, compared with ¥7,141 million in fiscal 2009. In fiscal 2009, Kyocera had recognized impairment losses as a result of significant declines in market value of certain securities and the major part of such losses was derived from the shares of Mitsubishi UFJ Financial Group, Inc., which amounted to ¥3,935 million.

Income before Income Taxes

Income before income taxes in fiscal 2010 increased by ¥4,816 million, or 8.6%, to ¥60,798 million compared with ¥55,982 million in fiscal 2009. Margin of income before income taxes against net sales increased by 0.7% to 5.7% compared with 5.0% in fiscal 2009.

Despite an effect of the yen’s appreciation against the Euro and the U.S. dollar, income before income taxes in fiscal 2010 increased compared with fiscal 2009 because Kyocera continued to improve profitability from fiscal 2009 by promoting cost-cutting measures including manufacturing cost reductions, and by improving productivity. Kyocera reduced depreciation and amortization costs for fiscal 2010 by ¥24,748 million compared with fiscal 2009, by curtailing capital expenditure from the third quarter in fiscal 2009, which contributed to a reduction in fixed costs. In addition, Kyocera reduced R&D expenses by ¥16,021 million to ¥49,911 million compared with ¥65,932 million in fiscal 2009, by narrowing down R&D themes in order to concentrate our management resources. Furthermore, losses on impairment of securities decreased by ¥6,924 million to ¥217 million compared with ¥7,141 million in fiscal 2009 which were recorded due to the stock market decline. However, Kyocera recorded a one-time loss of ¥28,948 million relating to WILLCOM, Inc. in fiscal 2010.

Affected by the yen appreciation against the Euro and the U.S. dollar, income before income taxes after translation into the yen for fiscal 2010 were down by approximately ¥13,500 million compared with fiscal 2009.

For a detail of income before taxes, please refer to page 42, “Business Overview by Reporting Segment.”

Income Taxes

Current and deferred income taxes in fiscal 2010 decreased by ¥7,414 million, or 32.5%, to ¥15,365 million compared with ¥22,779 million in fiscal 2009.

The effective tax rate of 25.3% in fiscal 2010 was 15.4 percentage points less than the effective rate in fiscal 2009 of 40.7%. This was due mainly to the changes in valuation allowances against deferred tax assets.

For detailed information, see Note 16 to the Consolidated Financial Statements in this annual report on Form 20-F.

Noncontrolling Interests

Net income attributable to noncontrolling interests in fiscal 2010 amounted to ¥5,338 million and noncontrolling interests related to AVX Corporation, which accounted for approximately 30% of noncontrolling ownership

 

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interests, amounted to ¥3,761 million. Net income attributable to noncontrolling interests in fiscal 2010 increased by ¥1,641 million, or 44.4%, compared with ¥3,697 million in fiscal 2009. This was due mainly to an increase in net income at AVX Corporation.

Business Overview by Reporting Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2009 and fiscal 2010 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2009     2010    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 61,730        5.4      ¥ 53,056        5.0      ¥ (8,674     (14.1

Semiconductor Parts Group

     135,137        12.0        140,507        13.1        5,370        4.0   

Applied Ceramic Products Group

     148,917        13.2        157,033        14.6        8,116        5.5   

Electronic Device Group

     231,271        20.5        199,939        18.6        (31,332     (13.5
                                                

Total Components Business

     577,055        51.1        550,535        51.3        (26,520     (4.6

Telecommunications Equipment Group

     218,758        19.4        189,118        17.6        (29,640     (13.5

Information Equipment Group

     229,297        20.3        232,365        21.6        3,068        1.3   
                                                

Total Equipment Business

     448,055        39.7        421,483        39.2        (26,572     (5.9

Others

     126,043        11.2        124,577        11.6        (1,466     (1.2

Adjustments and eliminations

     (22,567     (2.0     (22,790     (2.1     (223     —     
                                                

Net sales

   ¥ 1,128,586        100.0      ¥ 1,073,805        100.0      ¥ (54,781     (4.9
                                                

The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2009 and fiscal 2010 by the seven reporting segments:

 

     Years ended March 31,      Increase
(Decrease)
 
     2009      2010     
     Amount     %*      Amount     %*      Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ (240     —         ¥ (788     —         ¥ (548     —     

Semiconductor Parts Group

     8,671        6.4         17,235        12.3         8,564        98.8   

Applied Ceramic Products Group

     27,469        18.4         19,858        12.6         (7,611     (27.7

Electronic Device Group

     (4,070     —           13,230        6.6         17,300        —     
                                                  

Total Components Business

     31,830        5.5         49,535        9.0         17,705        55.6   

Telecommunications Equipment Group

     (17,713     —           (14,726     —           2,987        —     

Information Equipment Group

     13,497        5.9         22,091        9.5         8,594        63.7   
                                                  

Total Equipment Business

     (4,216     —           7,365        1.7         11,581        —     

Others

     14,106        11.2         6,769        5.4         (7,337     (52.0
                                                  

Operating profit

     41,720        3.7         63,669        5.9         21,949        52.6   

Corporate

     7,632        —           15,665        —           8,033        105.3   

Equity in earning of affiliates and unconsolidated subsidiaries

     6,460        —           (18,297     —           (24,757     —     

Adjustments and eliminations

     170        —           (239     —           (409     —     
                                                  

Income before income taxes

   ¥ 55,982        5.0       ¥ 60,798        5.7       ¥ 4,816        8.6   
                                                  

 

* % to net sales of each corresponding segment

 

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(1) Fine Ceramic Parts Group

Sales in this reporting segment for fiscal 2010 decreased by ¥8,674 million, or 14.1%, to ¥53,056 million, compared with ¥61,730 million in fiscal 2009.

A decline in sales was mainly due to decreased demand and selling price in core products, such as sapphire substrates for LEDs, parts for semiconductor and LCD fabrication equipment, and for automotive related parts, as well as the yen appreciation against the Euro and the U.S. dollar. Demand for digital consumer equipment components, such as sapphire substrates for LEDs, registered tones of recovery from the beginning of fiscal 2010. In addition, demand for fine ceramic parts used in industrial machineries, such as semiconductor and LCD fabrication equipment, and for automotive related parts, recovered from the third quarter of fiscal 2010. However, demand fell short of levels posted in fiscal 2009 on the whole. Furthermore, selling price of these components declined by 10% to 20% compared with fiscal 2009. Mainly due to a decline in demand and selling price, sales in this reporting segment decreased by approximately ¥7,000 million compared with fiscal 2009. In addition, sales in this reporting segment decreased by approximately ¥1,500 million affected by the yen appreciation.

Operating loss in this reporting segment amounted to ¥788 million, an increase in loss of ¥548 million compared with a loss of ¥240 million in fiscal 2009.

Kyocera suppressed capital expenditures and promoted cost reduction measures comprehensively in fiscal 2010 to improve profitability amid difficulties in expanding sales due to continued weak demand and price erosion. As a result, depreciation and amortization costs for fiscal 2010 decreased by ¥2,267 million to ¥5,719 million, compared with ¥7,986 million in fiscal 2009. Kyocera offset such negative impacts from declined sales volumes and selling prices with comprehensive cost reductions. However, the yen appreciation also produced an impact of approximately ¥500 million on operating profit, resulting in expanded operating loss in this reporting segment compared with fiscal 2009.

(2) Semiconductor Parts Group

Sales in this reporting segment in fiscal 2010 increased by ¥5,370 million, or 4.0%, to ¥140,507 million, compared with ¥135,137 million in fiscal 2009.

Sales in this reporting segment increased due to an expansion in demand, despite a decrease in sales of approximately ¥6,000 million due to an appreciation in yen compared with fiscal 2009. Demand for ceramic packages for crystal and SAW devices and for CCD/CMOS sensors, and for organic packages used in servers declined from the third quarter of fiscal 2009, due to a decrease in production of digital consumer equipment affected by the global economic downturn. In line with expanded production of mobile phone handsets, PCs, and digital cameras from the start of fiscal 2010, however, demand for each package was on course for recovery. Demand for packages from the third quarter of fiscal 2010 reached higher level of the first half of fiscal 2009 when demand was brisk. As a result, sales in this reporting segment for fiscal 2010 increased compared with fiscal 2009.

Operating profit in this reporting segment was ¥17,235 million, up ¥8,564 million, or 98.8%, compared with ¥8,671 million in fiscal 2009.

Since the third quarter of fiscal 2009 when demand started to decline rapidly, Kyocera has been promoting reductions in capital expenditures and various costs throughout the group. As a result, operating profit in this reporting segment increased compared with fiscal 2009. Notably, depreciation and amortization costs for fiscal 2010 were ¥9,795 million, down ¥3,797 million compared with ¥13,592 million in fiscal 2009 due to curtailment of capital expenditures. The subcontracting costs and labor costs also decreased by approximately ¥2,000 million compared with fiscal 2009 due mainly to promoting in-house production in order to enhance production capacity utilization rate and improving production processes. Coupled with these cost-cutting measures, operating profit increased by ¥2,500 million due to effects of increased sales and a reduction in other costs.

 

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(3) Applied Ceramic Products Group

Sales in this reporting segment for fiscal 2010 increased by ¥8,116 million, or 5.5%, to ¥157,033 million, compared with ¥148,917 million in fiscal 2009.

In the solar energy business, a core business in this reporting segment, overseas sales decreased as fierce competition in the European and the U.S. markets forced a decline in selling prices by 30% to 40% compared with fiscal 2009, as well as the impact of the yen appreciation. Nonetheless, demand in the Japanese market increased due mainly to the recommencement of government subsidies in the housing sector and the introduction of a purchase system for electricity by electric power companies, while selling prices remained stable, resulting in a significant sales increase. Production volume of solar cells in fiscal 2010 amounted to 400MW, an increase of roughly 40% compared with fiscal 2009. In addition, sales of the medical and dental implants business for fiscal 2010 increased compared with fiscal 2009. As a result, total sales of the solar energy business and the medical and dental implants business for fiscal 2010 increased by approximately ¥16,000 million compared with fiscal 2009. On the other hand, in the cutting tools business, demand for cutting tools remained at a low level compared with 2009, despite tones of recovery in demand due to resurgence in production activities in automotive related markets since the third quarter of fiscal 2010. Furthermore, sales of the jewelry and applied ceramic related products business for fiscal 2010 decreased compared with fiscal 2009 due to the deterioration in the economy. As a result, total sales of the cutting tools business and the jewelry and applied ceramic related products business for fiscal 2010 decreased by approximately ¥8,000 million compared with fiscal 2009.

Operating profit in this reporting segment decreased by ¥7,611 million, or 27.7%, to ¥19,858 million, compared with ¥27,469 million in fiscal 2009.

A decline in operating profit in this reporting segment was mainly due to decreased profit in the solar energy and cutting tools businesses. Although sales of solar energy business increased, gross profit margin was lowered by declined selling price, the yen appreciation and increased depreciation cost due to an expansion of production capacity. Despite the efforts to improve profitability through reducing manufacturing costs, operating profit in the cutting tools business decreased due to a decline in sales and lowered production capacity utilization until the end of second quarter of fiscal 2010. As a result, total operating profit of the solar energy business and the cutting tools business decreased by approximately ¥8,000 million compared with fiscal 2009.

Affected by the yen appreciation, sales and operating profit in this reporting segment were pushed down by approximately ¥6,000 million and ¥2,500 million, respectively, compared with fiscal 2009.

(4) Electronic Device Group

Sales in this reporting segment for fiscal 2010 decreased by ¥31,332 million, or 13.5%, to ¥199,939 million, compared with ¥231,271 million in fiscal 2009.

Despite tones of recovery in component demand for digital consumer equipment such as mobile phone handsets from April 2009, sales remained at a low level on the whole compared with fiscal 2009. Sales at AVX Corporation, a U.S.-based subsidiary that mainly produces and sells passive components, decreased by approximately ¥20,000 million compared with fiscal 2009 due to a decline in demand and the impact of the yen appreciation. In addition, sales for crystal related components, connectors, and thin film products decreased affected by the yen appreciation and slow demand. Sales in this reporting segment decreased by approximately ¥14,000 million due to the yen appreciation.

Operating profit in this reporting segment amounted to ¥13,230 million, an improvement of ¥17,300 million from an operating loss of ¥4,070 million in fiscal 2009.

One-time expenses of approximately ¥5,820 million which include an impairment loss of ¥2,309 million on long-lived assets for organic light-emitting diodes business, restructuring charges in AVX Corporation of

 

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approximately ¥1,800 million related to employee separations and facility consolidations and accrual of ¥1,711 million for estimated environmental remediation cost at AVX Corporation in fiscal 2009. There were no such significant one-time charges in fiscal 2010. Kyocera promoted drastic cost reductions in order to improve profitability including reductions in capital expenditures and R&D expenses while narrowing down R&D themes. Notably, depreciation and amortization costs in fiscal 2010 were ¥16,934 million, a decrease of ¥7,395 million compared with ¥24,329 million in fiscal 2009, due to curtailment of capital expenditures and facility consolidations at AVX Corporation in fiscal 2009. Additionally, R&D expenses for fiscal 2010 were ¥8,444 million, a decrease of ¥4,246 million compared with ¥12,690 million in fiscal 2009.

(5) Telecommunications Equipment Group

Sales in this reporting segment for fiscal 2010 decreased by ¥29,640 million, or 13.5%, to ¥189,118 million, compared with ¥218,758 million in fiscal 2009.

Despite an increase in sales volume of mobile phone handsets in Japan by approximately 10% in fiscal 2010 compared with fiscal 2009, sales in Japan declined by approximately ¥10,000 million year over year. This was due mainly to a decrease of average selling price of around 20% driven by increased sales of low-end models. Although sales volume of mobile phone handsets overseas were up approximately 20% in fiscal 2010 compared with fiscal 2009, overseas sales decreased by approximately ¥7,000 million, due to declined average selling price of 20% with increased sales of low-end models as well as a negative impact of the yen appreciation amounting to approximately ¥6,000 million. In addition, sales of telecommunication system equipment business, of which are mainly consisted of PHS-related products such as base stations and handsets, also decreased by approximately ¥12,000 million, due to stagnant capital expenditures and a decline in new subscribers affected by difficult financial situation at WILLCOM, Inc.

Operating loss in this reporting segment improved by ¥2,987 million from ¥17,713 million in fiscal 2009 to ¥14,726 million.

During fiscal 2010, an impairment loss of ¥8,961 million on account receivables from WILLCOM, Inc. was recorded in this reporting segment by taking into the decision to commence corporate reorganization procedures. However, the effects of business restructuring implemented in fiscal 2009 started to emerge, contributing to reduced operating loss. Through structural reforms and refined R&D themes, R&D expenses for fiscal 2010 decreased by ¥7,011 million, to ¥8,853 million, compared with ¥15,864 million in fiscal 2009. In addition, depreciation and amortization costs for fiscal 2010 decreased by ¥7,494 million, to ¥9,452 million, compared with ¥16,946 million in fiscal 2009, by curtailing capital expenditures. Operating profit in this reporting segment was down around ¥3,000 million compared with fiscal 2009 due to the yen appreciation against the U.S. dollar.

(6) Information Equipment Group

Sales in this reporting segment for fiscal 2010 increased by ¥3,068 million, or 1.3%, to ¥232,365 million, compared with ¥229,297 million in fiscal 2009.

Business climate in fiscal 2010 was quite severe due to a significant curtailment of information technology investment by customers as a result of the global economic downturn. Under such circumstances, sales for the U.S. were down by approximately ¥2,500 million compared with fiscal 2009 affected by stagnant sales and to the impact of the yen appreciation. Sales for Europe, however, increased by approximately ¥6,500 million despite a negative impact curtailed information technology investment. This was due mainly to a full-year contribution from TA Triumph-Adler GmbH in fiscal 2010, a sales subsidiary that was consolidated in January 2009, which amounted to approximately ¥27,000 million in sales in fiscal 2010. Affected by slow demand, sales for Asia including Japan and for other areas decreased by approximately ¥1,000 million compared with fiscal 2009.

Operating profit increased by ¥8,594 million, or 63.7%, to ¥22,091 million, compared with ¥13,497 million in fiscal 2009.

 

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Operating profit in this reporting segment increased strongly compared with fiscal 2009, due to the effect of cost reductions, an increase in the sales ratio of high-value-added and mid-speed models as well as color models, and to a one-time gain of ¥1,521 million related to sale of real estate overseas. Sales volume of printers and multifunctional peripherals in fiscal 2010 roughly unchanged from fiscal 2009. Compared with fiscal 2009, sales volume of high-value-added and mid-speed models increased mainly in the European and the U.S. markets in fiscal 2010, while replacement to color models continued apace. As a result, the average selling price in fiscal 2010 increased by approximately 3% compared with fiscal 2009. Kyocera also standardized design of software which controlled printers and Multifunctional Peripherals, and this resulted in a decrease in R&D expenses in fiscal 2010 to ¥17,400 million, a decrease of ¥2,727 million, from ¥20,127 million in fiscal 2009. In addition, depreciation and amortization costs in fiscal 2010 decreased by ¥1,623 million to ¥12,846 million, compared with ¥14,469 million in fiscal 2009. Furthermore, a reduction in cost of approximately ¥2,500 million, including labor costs in manufacturing division and advertising costs, contributed to increased operating profit compared with fiscal 2009.

(7) Others

Sales in this reporting segment for fiscal 2010 decreased by ¥1,466 million, or 1.2%, to ¥124,577 million, compared with ¥126,043 million in fiscal 2009.

Sales decreased due mainly to a decline in sales in the optical components business by approximately ¥2,000 million, despite sales in IT related business increased compared with fiscal 2009. Operating profit decreased by ¥7,337 million, or 52.0%, to ¥6,769 million, compared with ¥14,106 million in fiscal 2009.

Operating profit decreased significantly compared with fiscal 2009, due mainly to the recognition of a one-time gain on sales of real estate in the amount of ¥9,352 million in fiscal 2009. However, operating profit in IT related business and the electronic component materials business increased compared with fiscal 2009 due to increased sales and cost-cutting measures to improve profitability.

(8) Corporate

Corporate income and losses mainly constitute gains or losses related to financial assets, and income related to management supporting service provided by Kyocera’s head office to each reporting segment. Corporate income increased by ¥8,033 million, or 105.3%, to ¥15,665 million compared with ¥7,632 million in fiscal 2009. This was mainly due to significant decreases in losses on sales of securities and losses on impairment of securities.

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.

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,

 

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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 ¥9,207 million and ¥5,291 million in fiscal 2010 and 2011, respectively. The amounts of these inventory write-downs by reporting segments appear in Note 18 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 applied ceramic products. 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 information technology 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 debt and equity securities of ¥217 million and ¥341 million in fiscal 2010 and 2011, respectively.

Kyocera is currently a major shareholder of KDDI Corporation. The price fluctuation of the shares of KDDI Corporation may affect Kyocera’s financial conditions. The unrealized gain on the shares of KDDI Corporation held by Kyocera at March 31, 2011 had increased by ¥17,753 million, or 63.1%, to ¥45,893 million compared with that of ¥28,140 million at March 31, 2010, due to a fluctuation of the market price of the shares of KDDI Corporation. For detailed information on the gross unrealized gain or loss, see Note 3 to the Consolidated Financial Statements in this annual report on Form 20-F.

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 flows 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.

 

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Goodwill and Other Intangible Assets

Goodwill and intangible assets with indefinite useful lives, rather than being amortized, are tested for impairment at least annually, and also following any events and changes in circumstances that might lead to impairment. Intangible assets with definite useful lives are amortized straight line 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.

Kyocera concluded that there was no goodwill impairment at any reporting unit as of January 1, 2011. However, the fair value of the Telecommunications Equipment Group reporting unit (which includes goodwill of ¥18,456 million in its carrying amount as of March 31, 2011) slightly exceeded its carrying amount by 0.2%. Accordingly, there is a significant future impairment risk to goodwill if the future net cash flows of the Telecommunications Equipment Group are adversely affected by future market conditions or increased negative operating results or changes to key assumptions including the discount rate applied.

The goodwill of ¥1,538 million which Kyocera group acquired during fiscal 2010 was based on acquisitions of the common stocks of two distributors of information equipment in Korea, Kyocera Mita Korea Co., Ltd. and Kyocera Mita Korea Document Solution Co., Ltd., by Kyocera Mita included in the Information Equipment Group and based on the acquisition of the common stocks of Net It Works, Inc. by Kyocera Communication Systems Co., Ltd. included in Others segment.

For detailed information of these acquisitions, see Note 2 and 9 to the Consolidated Financial Statements in this annual report on Form 20-F.

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, 2011, deferred tax assets amounted to ¥97,925 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 2011.

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 our 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.

 

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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 obligations
as of March 31, 2011
 
     (Yen in millions)  

Discount rates:

  

0.25% decrease

   ¥ 4,346   

0.25% increase

     (4,185
     Effect on income before income taxes
for the year ending March 31, 2012
 
     (Yen in millions)  

Discount rates:

  

0.25% decrease

   ¥ (70

0.25% increase

     75   

Expected rate of return on plan assets:

  

0.25% decrease

     (342

0.25% increase

     342   

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 identified by the United States Environmental Protection Agency (EPA), state governmental agencies or other private parties as a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or equivalent state or local laws for clean-up and response costs associated with sites at which remediation is required. Because CERCLA has been construed to authorize joint and several liability, the EPA could seek to recover all clean-up costs from any one of the PRPs at a site despite the involvement of other PRPs. At certain sites, financially responsible PRPs other than AVX also are, or have been, involved in site investigation and clean-up activities. We believe that any liability resulting from these sites will be apportioned between AVX and other PRPs.

To resolve AVX’s liability at each of the sites at which AVX has been named a PRP, AVX has entered into various administrative orders and consent decrees with federal and state regulatory agencies governing the timing and nature of investigation and remediation. AVX has paid, or reserved for, all estimated amounts required under the terms of these orders and decrees corresponding to its apportioned share of the liabilities. As is customary, the orders and decrees regarding sites where the PRPs are not themselves implementing the chosen remedy contain provisions allowing the EPA to reopen the agreement and seek additional amounts from settling PRPs in the event that certain contingencies occur, such as the discovery of significant new information about site conditions during clean-up or substantial cost overruns for the chosen remedy. The existence of these reopener provisions, combined with the difficulties of reliably estimating clean-up costs and the joint and several nature of CERCLA liability, makes it difficult to predict the ultimate liability at any site with certainty.

 

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In July 2007, AVX received oral notification from the 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 October 22, 2010 were approximately ¥35,499 million, not all of which is subject to the reopener provisions. In March 2011, EPA issued a proposal providing alternative remedial action plan to the existing plan for which the future cost estimates ranging from ¥30,046 million to ¥33,283 million, net present value.

AVX has not received complete documentation of past response cost from EPA and therefore has not yet completed an investigation of the monies spent or its available defenses in light of the notification. AVX has also not yet determined whether it can avoid responsibility for all, or some portion, of these costs because the remediation method has changed over time and costs can be appropriately allocated to parties other than AVX. AVX anticipates further discussions with the U.S. Department of Justice, the EPA, and the Commonwealth of Massachusetts regarding the remediation plan and to explore options for resolution of the matter. AVX is continuing to investigate the claim as well as potential defenses and other actions with respect to the site. In light of the foregoing, the potential impact of this matter on Kyocera’s consolidated results of operations, financial condition and cash flows cannot be determined at this time.

Revenue Recognition

Kyocera generates revenue principally through the sale of industrial components and telecommunications and information equipment. Kyocera’s operations consist of the following 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 recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred and title and risk of loss have been transferred to the customer or services have been rendered, the sales price is fixed or determinable and collectability is reasonably assured in accordance with ASC 605, “Revenue Recognition.” Sales to customers in each of the above segments are based on the specific terms and conditions contained in basic contracts with customers and firm customer orders which detail the price, quantity and timing of the transfer of ownership (such as risk of loss and title) of the products.

For most customer orders, the transfer of ownership and revenue recognition occurs at the time of shipment of the products to the customer. For the remainder of customer orders, the transfer of ownership and revenue recognition occurs at the time of receipt of the products by the customer, with the exception of sales of solar power generating systems in the Applied Ceramic Products Group and information equipment in the Information Equipment Group for which sales are made to end users together with installation services. The transfer of ownership and revenue recognition in these cases occur at the completion of installation and customer acceptance, as Kyocera have no further obligations under the contracts and all revenue recognition criteria under ASC 605 are met. When Kyocera provides a combination of products and services, the arrangement is evaluated under ASC 605-25, “Multiple-Element Arrangements.”

In addition, in the Information Equipment Group, Kyocera may enter into sales contracts and lease agreements ranging from one to seven years directly with end users. Sales contracts and lease agreements may include installation services and have customer acceptance clauses. For sales and sales-type lease agreements, revenue is recognized at the completion of installation and customer acceptance which usually occurs on the same business day as delivery. For sales-type leases, unearned income (which represents interest) is amortized over the lease term using the effective interest method in accordance with ASC 840, “Leases.”

For all sales in the above segments, product returns are only accepted if the products are determined to be defective. There are no price protections, stock rotation or returns provisions, except for certain programs in the Electronic Device Group as noted below.

 

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Sales Incentives

In the Electronic Device Group, sales to independent electronic component distributors may be subject to various sale programs for which a provision for incentive programs is recorded as a reduction of revenue at the time of sale, as further described below in accordance with ASC 605-50, “Customer Payments and Incentives” and ASC 605-15, “Products.”

(a) Distributor Stock Rotation Program

Stock rotation is a program whereby distributors are allowed to return for credit, qualified inventory, semi-annually, equal to a certain percentage of the previous six months net sales. In accordance with ASC 605-15, an estimated sales allowance for stock rotation is recorded at the time of sale based on a percentage of distributor sales using historical trends, current pricing and volume information, other market specific information and input from sales, marketing and other key management. These procedures require the exercise of significant judgments. Kyocera believes that these procedures enable Kyocera to make reliable estimates of future returns under the stock rotation program. Kyocera’s actual results approximate its estimates. When the products are returned and verified, the distributor is given credit against their accounts receivables.

(b) Distributor Ship-from-Stock and Debit Program

Ship-from-Stock and Debit (ship and debit) is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end customers. Ship and debit programs require a request from the distributor for a pricing adjustment of a specific part for a sale to the distributor’s end customers from the distributor’s stock. Ship and debit authorizations may cover current and future distributor activity for a specific part for a sale to their customers. In accordance with ASC 605, at the time Kyocera records the sales to distributors, an allowance for the estimated future distributor activities related to such sales is provided since it is probable that such sales to distributors will result in ship and debit activities. In accordance with ASC 605-15, Kyocera records an estimated sales allowance based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends noted in direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. These procedures require the exercise of significant judgments. Kyocera believes that these procedures enable Kyocera to make reliable estimates of future credits under the ship and debit program. Kyocera’s actual results approximate its estimates.

Sales Rebates

In the case of sales to distributors in the Applied Ceramic Products Group and Information Equipment Group, Kyocera provides cash rebates when predetermined sales targets are achieved during a certain period. Provisions for sales rebates are recorded as a reduction of revenue at the time of revenue recognition based on the best estimate of forecasted sales to each distributor in accordance with ASC 605-50.

Sales Returns

Kyocera records an estimated sales returns allowance at the time of sales based on historical return 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 with consideration given to the expected level of future warranty costs.

In the Information Equipment Group, Kyocera provides a standard one year manufacturer’s warranty on its products. For sales directly to end users, Kyocera offers extended warranty plans that may be purchased and that are renewable in one year incremental periods at the end of the warranty term. Service revenues are recognized over the term of the related service maintenance contracts in accordance with ASC 605-20, “Services.”

 

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Uncertainty in Income Taxes

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 taxing authorities may differ from the recognition accounted for under ASC 740.

At March 31, 2011, gross unrecognized tax benefits amounted to ¥6,874 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

Kyocera adopted the FASB’s Accounting Standards Update (ASU) No. 2009-16, “Accounting for Transfers of Financial Assets” on April 1, 2010. This accounting standard codified former Statement of Financial Accounting Standards (SFAS) No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140” issued in June 2009 in the ASC 860, “Transfers and Servicing.” This accounting standard removes the concept of a qualifying special purpose entity from former SFAS No. 140 and removes the exception from applying former 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. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

Kyocera adopted the ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” on April 1, 2010. This accounting standard codified former SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” issued in June 2009 in the ASC 810, “Consolidation.” This accounting standard 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. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

In July 2010, the FASB issued ASU No. 2010-20, “Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This accounting standard requires an entity to provide certain existing disclosures and new disclosures, on a disaggregated basis, about its financing receivables and related allowance for credit losses. Kyocera adopted the disclosure as of the end of a reporting period for the nine months ended December 31, 2010. Kyocera also adopted the disclosures about activity that occurs during a reporting period for the year ended March 31, 2011. As this accounting standard is a provision for disclosure, the adoption of this accounting standard did not have an impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

Recently Issued Accounting Standards

In September 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” which addressed the accounting for multiple-deliverable arrangements to enable vender to account for products or services separately rather than as a combined unit. This accounting standard addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. This accounting standard will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of this accounting standard is not expected to have material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

In December 2010, the FASB issued ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” This accounting standard modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. This accounting standard will be effective for fiscal years, and interim periods

 

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within those years, beginning after December 15, 2010. The adoption of this accounting standard is not expected to have material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

In December 2010, the FASB issued ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.” The amendments in this Update require a public entity that enters into business combination(s) to disclose revenue and earnings of the combined entity in the comparative financial statements as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This accounting standard will be effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. As this accounting standard is a provision for disclosure, the adoption of this accounting standard will not have an impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This accounting standard amends current U.S. GAAP to create more commonality with IFRSs by changing the wording used to describe requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. This accounting standard will be effective during interim and annual periods beginning after December 15, 2011. The adoption of this accounting standard is not expected to have material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

B. Liquidity and Capital Resources

Capital Resources

In fiscal 2011, in spite of the negative impact on sales and profit by the yen’s appreciation, sales and profit in the Components Business and the Equipment Business exceeded those in fiscal 2010 due to an expansion of the information and communications market and efforts to improve profitability by reducing costs and enhancing productivity in each business. Kyocera’s net cash provided by operating activities in fiscal 2011 was ¥119,687 million, and cash and cash equivalents at March 31, 2011 were ¥273,471 million. In addition, Kyocera also held

significant amount of highly-liquid financial assets. Based on those facts, Kyocera does not expect to face any liquidity issue in the foreseeable 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 shareholders. Kyocera’s primary source of short-term liquidity is cash generated by operations. Certain subsidiaries also generate capital in the form of loans from financial institutions. At March 31, 2011, Kyocera’s short-term borrowings and long-term debt including current portion totaled ¥43,077 million. The ratio to total assets of 2.2% continues to reflect a low level of dependence. Most borrowings were denominated in the Euro and the U.S. dollar, 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 2011 increased by ¥32,811 million, or 86.6%, to ¥70,680 million compared with ¥37,869 million in fiscal 2010. In fiscal 2011, Kyocera constructed new plants to expand production capacity in the solar energy business included in the Applied Ceramic Products Group. In addition, Kyocera actively introduced LED Substrates in the Fine Ceramic Parts Group and made capital expenditures to expand production capacity of Ceramic packages and Organic packages in the Semiconductor Parts Group. R&D expenses were nearly flat, which totaled ¥49,474 million in fiscal 2011 compared with ¥49,911 million in fiscal 2010. Almost all capital and R&D expenditures were funded by using cash at hand.

During fiscal 2012, Kyocera expects total capital expenditures to be approximately ¥80,000 million and total R&D expenses to be approximately ¥54,000 million. Kyocera expects that total capital expenditures will increase compared with fiscal 2011 for expanding production capacity mainly in the Components Business. Kyocera also expects that R&D expenses will increase compared with fiscal 2011. Kyocera will promote R&D of new

 

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businesses such as cell stacks for Solid Oxide Fuel Cells (SOFCs) and LED lighting system. The proportion of R&D expenses to net sales will be flat compared with fiscal 2011. Nearly all capital and R&D expenditures will be funded by using cash at hand. Kyocera believes that Kyocera needs to invest its resources continuously in the development of new business areas and enhancement of technology in order to create new products, commercialize advanced technologies and thereby secure future earnings streams.

Kyocera contributed ¥10,789 million to its benefit pension plans in fiscal 2011 and Kyocera expects to contribute ¥9,954 million to its benefit pension plans in fiscal 2012. At March 31, 2011, Kyocera’s funded status of its 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 at hand.

In fiscal 2011, Kyocera Corporation paid cash dividends totaling ¥22,022 million, at ¥120 per share. Kyocera Corporation received approval at the general meeting of shareholders held on June 28, 2011 for the payment of year-end dividends totaling ¥12,846 million, or ¥70 per share, on June 29, 2011 to all shareholders of record on March 31, 2011.

As described in Note 2 to the Consolidated Financial Statements, Kyocera acquired several businesses. In fiscal 2011, these acquisition costs, net of cash acquired were ¥1,581 million, and all acquisitions were funded by using cash at hand.

At March 31, 2011, Kyocera’s working capital totaled ¥828,886 million, an increase of ¥83,743 million, or 11.2%, compared with ¥745,143 million at March 31, 2010. Our working capital requirements, capital expenditures, debt repayments and other obligations were funded by using cash at hand.

Kyocera believes cash at hand will be sufficient to fund all cash requirements outlined above at least during fiscal 2012. 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 borrowings or long-term debts, as well as financing directly in the capital markets through issuances of debt or equity securities. As evidenced by equity to assets ratio of 73.0% at March 31, 2011, 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 condition, possibly resulting in reduced liquidity.

Cash flows

Fiscal 2011 compared with Fiscal 2010

The following table shows a summary of Kyocera’s cash flows for fiscal 2010 and fiscal 2011:

 

     Years ended March 31,     Increase
(Decrease)
 
     2010     2011    
     Amount     Amount     %  
     (Yen in millions)  

Cash flows from operating activities

   ¥ 137,583      ¥ 119,687        (13.0

Cash flows from investing activities

     (49,318     (121,364     146.1   

Cash flows from financing activities

     (38,047     (26,820     (29.5

Effect of exchange rate changes on cash and cash equivalents

     (6,339     (11,158     76.0   

Net increase (decrease) in cash and cash equivalents

     43,879        (39,655     —     

Cash and cash equivalents at beginning of year

     269,247        313,126        16.3   

Cash and cash equivalents at end of year

     313,126        273,471        (12.7

 

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Net cash provided by operating activities in fiscal 2011 decreased by ¥17,896 million, or 13.0%, to ¥119,687 million from ¥137,583 million in fiscal 2010. This was due mainly to a significant increase in net income of ¥84,685 million when compared with fiscal 2010. The amount was offset by cash outflows from an increase in inventories. As a result, net cash provided by operating activities decreased in fiscal 2011.

Net cash used in investing activities for fiscal 2011 increased by ¥72,046 million, or 146.1%, to ¥121,364 million from ¥49,318 million for fiscal 2010. This was due mainly to an increase in purchases of property, plant and equipment as well as a decrease in withdrawals of certificate deposits and time deposits.

Net cash used in financing activities for fiscal 2011 decreased by ¥11,227 million, or 29.5%, to ¥26,820 million from ¥38,047 million for fiscal 2010. This was due mainly to decreases in payments of short-term borrowings and long-term debts.

Decreases in the effect of exchange rate changes on cash and cash equivalents of ¥11,158 million were due mainly to the yen’s appreciation against the Euro and the U.S. dollar between March 31, 2010 and March 31, 2011.

At March 31, 2011, cash and cash equivalents totaled ¥273,471 million. This represented a decrease of ¥39,655 million, or 12.7%, from ¥313,126 million at March 31, 2010. 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.

Fiscal 2010 compared with Fiscal 2009

The following table shows a summary of Kyocera’s cash flows for fiscal 2009 and fiscal 2010:

 

     Years ended March 31,     Increase
(Decrease)
 
     2009     2010    
     Amount     Amount     %  
     (Yen in millions)  

Cash flows from operating activities

   ¥ 97,794      ¥ 137,583        40.7   

Cash flows from investing activities

     (201,444     (49,318     (75.5

Cash flows from financing activities

     (62,930     (38,047     (39.5

Effect of exchange rate changes on cash and cash equivalents

     (11,759     (6,339     (46.1

Net increase (decrease) in cash and cash equivalents

     (178,339     43,879        —     

Cash and cash equivalents at beginning of year

     447,586        269,247        (39.8

Cash and cash equivalents at end of year

     269,247        313,126        16.3   

Net cash provided by operating activities in fiscal 2010 increased by ¥39,789 million, or 40.7%, to ¥137,583 million from ¥97,794 million in fiscal 2009. This was due mainly to an increase in net income.

Net cash used in investing activities in fiscal 2010 decreased by ¥152,126 million, or 75.5%, to ¥49,318 million from ¥201,444 million in fiscal 2009. This was due mainly to an increase in withdrawals of certificate deposits and time deposits, and a decrease in payments for acquisitions of businesses.

Net cash used in financing activities in fiscal 2010 decreased by ¥24,883 million, or 39.5%, to ¥38,047 million from ¥62,930 million in fiscal 2009. This was due mainly to a significant decrease in payments for acquisition of treasury stock.

Decreases in the effect of exchange rate changes on cash and cash equivalents of ¥6,339 million were due mainly to the yen’s appreciation against the Euro and the U.S. dollar between March 31, 2009 and March 31, 2010.

At March 31, 2010, cash and cash equivalents totaled ¥313,126 million. This represented an increase of ¥43,879 million, or 16.3%, from ¥269,247 million at March 31, 2009. 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.

 

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Assets, Liabilities and Equity

Kyocera’s total assets at March 31, 2011 increased by ¥97,849 million, or 5.3% to ¥1,946,566 million, compared with ¥1,848,717 million at March 31, 2010.

Cash and cash equivalents decreased by ¥39,655 million, or 12.7%, to ¥273,471 million. This was due mainly to the effect of purchases of securities and capital expenditures, exceeding net cash gained by operating activities.

Short-term investments in debt securities increased by ¥32,368 million, or 278.0%, to ¥44,012 million, due mainly to the purchases of securities and reclassification from long-term investments in debt and equity securities.

Trade receivables-accounts increased by ¥17,501 million, or 9.2%, to ¥208,404 million, due mainly to increases in sales driven by recovery of economic conditions.

Inventories, particularly raw material and finished goods inventories, increased by ¥55,538 million, or 31.3%, to ¥232,899 million, due mainly to the effect of increases in productions and sales.

Advance payments increased by ¥19,891 million, or 38.0%, to ¥72,207 million, due to an increase of advance payments of the long-term purchase agreements for certain materials at Kyocera Corporation.

Long-term investments in debt and equity securities increased by ¥6,951 million, or 1.9%, to ¥377,075 million, due mainly to increases in market values of the shares of KDDI Corporation and other equity securities at March 31, 2011 compared with March 31, 2010, and purchases of debt securities.

Total property, plant and equipment at cost, net of accumulated depreciation, increased by ¥7,655 million, or 3.2%, to ¥247,754 million. Capital expenditure in fiscal 2011 was ¥70,680 million, and depreciation was ¥59,794 million.

Intangible assets decreased by ¥7,433 million, or 15.0%, to ¥42,160 million, due mainly to amortization.

Other assets decreased by ¥6,478 million, or 8.6%, to ¥68,571 million, due mainly to decreased prepaid benefit cost resulted from increase in projected benefit obligation resulted from a change in discount rates applied to actuarial calculation.

Kyocera’s total liabilities at March 31, 2011 increased by ¥21,752 million, or 4.9%, to ¥463,207 million, compared with ¥441,455 million at March 31, 2010.

Trade notes and accounts payable increased by ¥11,515 million, or 12.8%, to ¥101,265 million compared with March 31, 2010, due mainly to an increase in purchases in line with an increase in sales.

Deferred taxes liabilities increased by ¥14,386 million, or 19.0%, to ¥90,005 million, due mainly to increases in market values of the shares of KDDI Corporation and other equity securities at March 31, 2011 compared with March 31, 2010.

Total equity at March 31, 2011 increased by ¥76,097 million, or 5.4%, to ¥1,483,359 million, compared with ¥1,407,262 million at March 31, 2010.

Retained earnings at March 31, 2011 increased by ¥100,426 million, or 8.6%, due to a net income for fiscal 2011 of ¥122,448 million offset by cash dividend payments of ¥22,022 million.

Accumulated other comprehensive income decreased by ¥24,623 million, to a loss of ¥(75,633) million. Net unrealized gains on securities increased by ¥8,767 million, or 37.4%, due mainly to increases in market values of the shares of KDDI Corporation and other equity securities at March 31, 2011 compared with March 31, 2010. Foreign currency translation adjustments decreased by ¥28,856 million to a loss of ¥(104,305) million, due mainly to the appreciation of the yen against the U.S. dollar.

 

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The Kyocera Corporation shareholders’ equity ratio at March 31, 2011 was 73.0%, up 0.2 percentage points from 72.8% at March 31, 2010.

Noncontrolling interests in subsidiaries, principally AVX Corporation, increased by ¥1,069 million, or 1.7%, to ¥63,096 million, compared with ¥62,027 million at March 31, 2010, due mainly to strong performance at AVX Corporation and at Kyocera Communication Systems Co., Ltd.

C. Research and Development, Patents and Licenses, etc.

Kyocera seeks to create new technologies, products and markets by integrating group-wide management resources and thereby generate business that will become core to the group in the future. In particular, we are focusing on R&D in the information and communications market and environment and energy market that have high-growth potential. An outline of R&D activities in each reporting segment follows.

(1) Fine Ceramic Parts Group

In this reporting segment, we are working to develop new products in a wide range of industrial fields by leveraging fine ceramics materials technology, processing technology and design technology that we have accumulated since our earliest days. Of these products, we are focusing on the development of materials for next-generation semiconductor fabrication equipment parts and large sapphire substrates for LEDs, where demand growth is forecast.

In the automotive market, efforts are being undertaken to develop products that meet the need for environment preservation, energy-saving and safety. In terms of response to the environment and energy conservation, we are concentrating development on ceramic parts that contribute to enhanced fuel efficiency in diesel engines, which are becoming more widespread in Europe due to stricter regulations concerning reduction of carbon dioxide and exhaust gas. In terms of safety, we are working on the development of camera modules for rearview detection and to help prevent accidents. Demand in this sector is expected to grow going forward on account of new legislation regarding safety regulations in the United States.

(2) Semiconductor Parts Group

In the digital consumer equipment market, needs are continuing to grow for products that are more multifunctional, smaller and thinner, and in line with this, miniaturization of electronic components and refinement of semiconductors is expected. In response to these market trends, Kyocera is promoting the development of high-strength, high-rigidity ultra-small and thin ceramic packages as well as fine-pitch organic packages, both of which employ micro wiring.

Kyocera anticipates the creation of faster, larger-capacity communications infrastructure in emerging markets in addition to industrialized nations. As such, in the information and communications network market, we are focusing on the development of ceramic packages for optical communications that are capable of higher frequency, and of highly precise flip chip packages that use organic materials.

(3) Applied Ceramic Products Group

In the solar energy business, we are working to further improve conversion efficiency, increase module size and reduce costs to enhance the performance of multicrystalline silicon solar cells and strengthen cost competitiveness. In addition, we are pushing forward with the development of thin-film solar cells with the aim of expanding our range of products that meet various applications and needs.

In the cutting tool business, we are working on the development of alternative materials for cemented carbide to reduce consumption of rare metals used as raw materials, and of cutting tools suitable for forming complex shapes.

 

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(4) Electronic Device Group

Kyocera is developing small, thin ceramic capacitors and modules, small, advanced timing devices and fine-pitch, low-profile connectors for use in digital consumer equipment such as mobile phone handsets and personal computers, which are getting more multifunctional and smaller. Additionally, we are developing high-voltage, high-capacity ceramic capacitors for the audio-visual market such as LCD panels, and various sensors and actuators that apply piezoelectric ceramics for the industrial equipment and information equipment markets.

In thin-film components, Kyocera is developing inkjet printheads capable of high-speed, high-resolution printing as well as high-luminance, wide-viewing-angle TFT LCDs specifically for the industrial equipment market.

(5) Telecommunications Equipment Group

Kyocera is working to expand its product line-up, mainly of smartphones, for the mobile phone handset market, where products offer an increasing range of functions. We are also developing high-value-added products with slim design and waterproofing technology amassed in-house, based on the Android operating system, as with the smartphone released in the United States in fiscal 2011.

In addition, Kyocera is strengthening the development of terminals capable of high-speed, high-capacity telecommunications services for the next-generation high-speed wireless communications market such as Long Term Evolution (LTE). We are working toward product launch.

(6) Information Equipment Group

In the information equipment market, besides lowering product price, we are making efforts to provide hardware and software best suited to each user through functional design matching customer needs.

Kyocera is developing hardware based on the “ECOSYS” concept, which realizes longer engine life, reduced running costs and minimal waste by employing an amorphous silicon photoreceptor drum with excellent abrasion resistance. On a software front, we are developing products befitting the specific requirements of each user by promoting solutions business. We are also integrating hardware and software to expand our range of product offerings. In emerging markets, we are striving to augment our line-up of ultra-low-priced products fitted with only the basic necessary functions rather than seeking to make them more advanced.

(7) Others

Kyocera Communication Systems Co., Ltd. is developing security systems for cloud computing, the popularity of which has skyrocketed in recent times, and conducting R&D into the convergence of broadcasting and telecommunications, including the practical application of data transmission via one-segment broadcasting.

Kyocera Chemical Corporation is developing epoxy material for semiconductor encapsulation and high thermal adhesive conductive paste for electronic components, which are suitable for compression and molding.

Kyocera is also eagerly developing cell stacks toward the mass production of SOFCs, which are expected to be the next-generation distributed power generation system for small-scale power sources.

 

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R&D expenses by reporting segment are as follows.

 

     Years ended March 31,     Increase
(Decrease)
 
     2009     2010     2011    
     Amount     Amount     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 3,346      ¥ 2,594      ¥ 2,363        (8.9

Semiconductor Parts Group

     3,227        3,126        3,026        (3.2

Applied Ceramic Products Group

     4,992        4,947        5,794        17.1   

Electronic Device Group

     12,690        8,444        5,742        (32.0
                                

Total Components Business

     24,255        19,111        16,925        (11.4

Telecommunications Equipment Group

     15,864        8,853        8,310        (6.1

Information Equipment Group

     20,127        17,400        18,369        5.6   
                                

Total Equipment Business

     35,991        26,253        26,679        1.6   

Others

     5,686        4,547        5,870        29.1   
                                

R&D expenses

   ¥ 65,932      ¥ 49,911      ¥ 49,474        (0.9
                                

% to net sales

     5.8     4.6     3.9  

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

D. Trend Information

In fiscal 2011, demand for components was solid in the digital consumer equipment market, which is a principal market for Kyocera. Sales in the solar energy business also increased due to rising environmental awareness worldwide. Kyocera forecasts further growth in demand in fiscal 2012 in the information and communications market, which includes digital consumer equipment, and in the environment and energy market.

We expect temporary stagnation in corporate production and consumer demand activities in the Japanese market in the early part of fiscal 2012 due to the impact of the Great East Japan Earthquake and the still unresolved incident at the Fukushima Dai-ichi Nuclear Power Plant in Fukushima Prefecture which resulted in the release of radioactive material. The production activities are, however, expected to recover, as problems are overcome and restoration efforts are more clearly defined and the incident at the Fukushima Dai-ichi Nuclear Power Plant is brought under control.

In the information and communications market, we anticipate the continued proliferation of smaller, more multifunctional digital consumer equipment such as smartphones. Along with this progress in development, we expect components fitted in the digital consumer equipment to also become smaller, more advanced and modularized.

In emerging markets, we forecast the proliferation of digital consumer equipment and expansion of information and communications networks. We anticipate business opportunities in particular through an increase in investment for public infrastructure as well as in the creation of information and communications systems.

In the environment and energy market, Kyocera recognizes enhanced efforts around the world to prevent global warming, conserve energy and preserve the environment. In particular, we expect demand to rise for alternative energies such as solar energy systems backed by broader governmental subsidy systems in each country. We also forecast an increase in demand for LED related products that contribute to energy conservation.

 

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E. Off-Balance Sheet Arrangements

Refer to Note 14 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 table provides 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, 2011. Kyocera anticipates that the funds required to fulfill these debt obligations and commitments will be cash at hand.

 

Contractual obligations

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

Short-term borrowings

   ¥ 7,852       ¥ —         ¥ —         ¥ —         ¥ 7,852   

Interest payments for short-term borrowings*

     52         —           —           —           52   

Long-term debt (including due within one year)

     10,687         17,696         6,179         663         35,225   

Interest payments for long-term debt*

     1,634         1,581         310         19         3,544   

Supply agreement material used in operation

     21,011         44,236         49,785         115,049         230,081   

Operating leases

     4,866         4,888         1,680         959         12,393   

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

     13,111         —           —           —           13,111   
                                            

Total contractual obligations

   ¥ 59,213       ¥ 68,401       ¥ 57,954       ¥ 116,690       ¥ 302,258   
                                            

 

* For Kyocera’s variable interest rate of borrowings and debt, Kyocera utilized the rates in effect as of March 31, 2011 when estimating schedule of interest payments.

In addition to contractual obligations shown in the above tables, Kyocera forecasts to contribute ¥9,954 million to its defined benefit pension plans in fiscal 2012. Kyocera recorded liabilities of ¥6,874 million for gross unrecognized tax benefits in accordance with FASB’s ASC 740, “Income Taxes” at March 31, 2011, which are not included in the above table because we are unable to make reasonable estimates of the period of settlements. For detailed information, see Note 16 to the Consolidated Financial Statements in this annual report on Form 20-F.

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

 

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The following table shows Kyocera’s Directors and Corporate Auditors as of June 28, 2011.

 

Name

  

Date of Birth

  

Position

  

Since

   Term  

Makoto Kawamura

   August 13, 1949   

Representative Director and Chairman

  

2005

(Chairman 2009)

     *1   

Tetsuo Kuba

   February 2, 1954   

Representative Director and President

  

2008

(President 2009)

     *1   

Tatsumi Maeda

   January 1, 1953   

Representative Director and Vice President

   2008      *1   

Hisao Hisaki

   July 2, 1946   

Representative Director and Vice President

   1991      *1   

Yasuyuki Yamamoto

   April 2, 1951    Director    2009      *1   

Goro Yamaguchi

   January 21, 1956    Director    2009      *1   

Shoichi Aoki

   September 19, 1959    Director    2009      *1   

Katsumi Komaguchi

   March 5, 1951    Director    2009      *1   

Tsutomu Yamori

   September 25, 1949    Director    2010      *1   

Yoshihito Ohta

   June 26, 1954    Director    2010      *1   

Rodney N. Lanthorne

   February 5, 1945    Director    1989      *1   

John S. Gilbertson

   December 4, 1943    Director    1995      *1   

Yoshihiko Nishikawa

   September 11, 1945    Full-time Corporate Auditor    2005      *2   

Yoshihiro Kano

   April 5, 1953    Full-time Corporate Auditor    2011      *3   

Osamu Nishieda

   January 10, 1943    Corporate Auditor    1993      *4   

Kazuo Yoshida

   January 10, 1948    Corporate Auditor    2008      *4   

Yoshinari Hara

   April 3, 1943    Corporate Auditor    2009      *2   

 

*1 The term of office of a Director is two years after his election at the close of the ordinary general meeting of shareholders held on June 28, 2011.
*2 The term of office of a Corporate Auditor is four years after his election at the close of the ordinary general meeting of shareholders held on June 25, 2009.
*3 The term of office of a Corporate Auditor is four years after his election at the close of the ordinary general meeting of shareholders held on June 28, 2011.
*4 The term of office of a Corporate Auditor is four years after his election at the close of the ordinary general meeting of shareholders held on June 26, 2008.

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 Representative Director and Chairman of Kyocera Mita Corporation, Representative Director and Chairman of Kyocera SLC Technologies Corporation, Representative Director and Chairman of Kyocera Realty Development, Representative Director and Chairman of Kyocera Kinseki Corporation, Representative Director and Chairman of Kyocera Optec Co., Ltd., Representative Director and Chairman of Kyocera Chemical Corporation and Representative Director and Chairman of Kyoto Purple Sanga Co., Ltd.

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 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. and Chairman of the Board of Directors of Dongguan Shilong Kyocera Optics 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

 

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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 the General Manager of Corporate R&D Group and Corporate Solar Energy Group.

Hisao Hisaki has served as a Representative Director and Vice President of Kyocera Corporation since 2010. He became a Director in 1991. He became a Managing Executive Officer in 2003, retired in 2005, and rejoined as a Senior Managing Executive Officer in 2009. He joined Kyocera Corporation in 1969 and has served as Chairman of the Board of Directors of Kyocera Tianjin Sales and Trading Corporation, Chairman of the Board of Directors of Kyocera Management Consulting Service (Shanghai) Co., Ltd. and the General Manager of Corporate Development Group.

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 General Manager of Corporate Communication Equipment 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 Business Systems Administration 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.

Tsutomu Yamori has served as a Director of Kyocera Corporation since 2010. He became a Director in 1997 and retired in 2003. He joined Kyocera Corporation in 1972 and has served as a Managing Executive Officer and the General Manager of Corporate General Affairs Human Resources Group.

Yoshihito Ohta has served as a Director of Kyocera Corporation since 2010. He became an Executive Officer in 2003 and a Senior Executive Officer in 2007. He joined Kyocera Corporation in 1978 and has served as a Managing Executive Officer and the General Manager of Corporate Office of the Chief Executives.

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 Vice Chairman 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.

Yoshihiro Kano has served as a Full-time Corporate Auditor of Kyocera Corporation since 2011. He became an Executive Officer in 2005 and a Managing Executive Officer and a Director in 2009. He joined Kyocera International, Inc. in 1980 and transferred to Kyocera Corporation in 1991.

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 Graduate School of Economics.

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 28, 2011.

 

Name

  

Position

Tetsuo Kuba

   Executive Officer and President

Tatsumi Maeda

  

Executive Officer and Vice President

(General Manager of Corporate R&D Group and Corporate Solar Energy Group)

Hisao Hisaki

  

Executive Officer and Vice President

(General Manager of Corporate Development Group)

Yasuyuki Yamamoto

  

Managing Executive Officer

(General Manager of Corporate Communication Equipment Group)

Goro Yamaguchi

  

Managing Executive Officer

(General Manager of Corporate Semiconductor Components Group)

Shoichi Aoki

  

Managing Executive Officer

(General Manager of Corporate Financial and Business Systems Administration Group)

Katsumi Komaguchi

  

Managing Executive Officer

(Representative Director and President of Kyocera Mita Corporation)

Tsutomu Yamori

  

Managing Executive Officer

(General Manager of Corporate General Affairs Human Resources Group)

Yoshihito Ohta

  

Managing Executive Officer

(General Manager of Corporate Office of the Chief Executives)

Keijiro Minami

  

Senior Executive Officer

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

Gen Takayasu

  

Senior Executive Officer

(General Manager of Corporate Electronic Components Group)

Junzo Katsuki

  

Senior Executive Officer

(Deputy General Manager of Corporate Communication Equipment Group)

Nobuo Kitamura

  

Senior Executive Officer

(Deputy General Manager of Corporate Solar Energy Group)

Ken Ishii

  

Senior Executive Officer

(General Manager of Corporate Cutting Tool Group)

Junichi Jinno

  

Executive Officer

(General Manager of Corporate Legal and Intellectual Property Group)

Toshimi Gejima

  

Executive Officer

(General Manager of R&D Center Kagoshima, Corporate R&D Group)

Michiaki Furuhashi

  

Executive Officer

(Deputy General Manager of Corporate Office of the Chief Executives)

 

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Name

  

Position

Yoichi Yamashita

  

Executive Officer

(General Manager of Corporate Production Technology & Development Division, Corporate R&D Group)

John S. Rigby

  

Executive Officer

(Director and President of Kyocera International, Inc.)

Robert E. Whisler

  

Executive Officer

(Director and President of Kyocera America, Inc.)

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

(General Manager of Dongguan Shilong Kyocera Optics 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

(Deputy General Manager of Corporate General Affairs Human Resources Group)

Tsuyoshi Egami

  

Executive Officer

(General Manager of Corporate Communication Product Development Division, Corporate Communication Equipment Group)

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.)

Kazuyuki Nada

  

Executive Officer

(Deputy General Manager of Corporate Semiconductor Components Group)

Yuji Goto

  

Executive Officer

(General Manager of Kyocera (Tianjin) Sales & Trading Corporation)

Shigeaki Kinori

   Executive Officer
(General Manager of Corporate Fine Ceramics Group)

Masaki Iida

   Executive Officer
(General Manager of Corporate Purchasing Group)

Hiroshi Fure

   Executive Officer
(General Manager of Corporate Automotive Components Group)

B. Compensation

The aggregate amount of compensation provided by Kyocera Corporation and its certain subsidiaries in fiscal 2011 to all Directors, Corporate Auditors and Executive Officers of Kyocera Corporation was ¥ 2,202 million. The compensation is mainly comprised of basic remuneration, bonus, stock option, incentive compensation plan and provisions for retirement allowance.

 

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In Japan, regulations require public companies to provide disclosure on an individual basis for each Director or Corporate Auditor who receives aggregate compensation exceeding ¥100 million from the relevant company and its subsidiaries. In accordance with this requirement, we provide disclosure of compensation on an individual basis as follows.

 

Name

  

Position

  Amounts of compensation by types     Total  
     Basic
remuneration
    Bonus     Stock
option
    Incentive
plan
compensation
    Others    
         (Yen in millions)  

Tetsuo Kuba

   Representative Director and President of Kyocera Corporation   ¥ 60      ¥ 50      ¥ —