Annual Reports

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

 
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Kyocera 20-F 2014
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, 2014

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/or 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, 2014, 366,866,715 shares of common stock were outstanding, comprised of 362,799,729 Shares and 4,066,986 American Depositary Shares (equivalent to 4,066,986 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

     16   

C. Organizational Structure

     23   

D. Property, Plants and Equipment

     26   

Item 4A. Unresolved Staff Comments

     28   

Item 5.    Operating and Financial Review and Prospects

     28   

A. Operating Results

     28   

B. Liquidity and Capital Resources

     51   

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

     56   

D. Trend Information

     58   

E. Off-Balance Sheet Arrangements

     58   

F. Tabular Disclosure of Contractual Obligations

     59   

Item 6.    Directors, Senior Management and Employees

     59   

A. Directors and Senior Management

     59   

B. Compensation

     64   

C. Board Practices

     66   

D. Employees

     66   

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

     73   

E. Dilution

     73   

F. Expenses of the Issue

     73   

Item 10.    Additional Information

     73   

A. Share Capital

     73   

B. Memorandum and Articles of Association

     73   

C. Material Contracts

     83   

D. Exchange Controls

     83   

E. Taxation

     83   

 

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     Page  

F. Dividends and Paying Agents

     88   

G. Statement by Experts

     88   

H. Documents on Display

     88   

I. Subsidiary Information

     88   

Item 11.    Quantitative and Qualitative Disclosures about Market Risk

     88   

Item 12.    Description of Securities Other than Equity Securities

     90   

A. Debt Securities

     90   

B. Warrants and Rights

     90   

C. Other Securities

     90   

D. American Depositary Shares

     90   

PART II

     92   

Item 13.    Defaults, Dividend Arrearages and Delinquencies

     92   

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

     92   

Item 15.    Controls and Procedures

     92   

Item 16.    [Reserved]

     92   

Item 16A. Audit Committee Financial Expert

     92   

Item 16B. Code of Ethics

     93   

Item 16C. Principal Accountant Fees and Services

     93   

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

     94   

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

     95   

Item 16F. Change in Registrant’s Certifying Accountant

     95   

Item 16G. Corporate Governance

     96   

Item 16H. Mine Safety Disclosure

     98   

PART III

     99   

Item 17.    Financial Statements

     99   

Item 18.    Financial Statements

     99   

Item 19.    Exhibits

     99   

 

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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) shortages and rising costs of electricity affecting our production and sales activities;

 

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

 

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

 

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

 

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

 

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

 

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

 

  (14) unintentional conflict with laws and regulations or newly enacted laws and regulations;

 

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

 

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

 

  (17) credit risk on trade receivables;

 

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

 

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

 

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

 

  (21) 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 2014” refers to Kyocera’s fiscal year ended March 31, 2014, 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.

 

     2010      2011      2012      2013      2014  
     (Yen in millions and shares in thousands, except per share amounts)  

For the years ended March 31:

              

Net sales

   ¥ 1,073,805       ¥ 1,266,924       ¥ 1,190,870       ¥ 1,280,054       ¥ 1,447,369   

Profit from operations

     63,860         155,924         97,675         76,926         120,582   

Net income attributable to shareholders of Kyocera Corporation

     40,095         122,448         79,357         66,473         88,756   

Earnings per share:

              

Net income attributable to shareholders of Kyocera Corporation:

              

Basic

   ¥ 109.24       ¥ 333.62       ¥ 216.29       ¥ 181.18       ¥ 241.93   

Diluted

     109.24         333.62         216.29         181.18         241.93   

Weighted average number of shares outstanding:

              

Basic

     367,049         367,034         366,902         366,884         366,872   

Diluted

     367,049         367,034         366,902         366,884         366,872   

Cash dividends declared per share:

              

Per share of common stock

   ¥ 60       ¥ 65       ¥ 60       ¥ 60       ¥ 80   

Per share of common stock*

   $ 0.66       $ 0.79       $ 0.75       $ 0.66       $ 0.78   

At March 31:

              

Total assets

   ¥ 1,848,717       ¥ 1,946,566       ¥ 1,994,103       ¥ 2,282,853       ¥ 2,636,704   

Long-term debt

     29,067         24,538         21,197         20,855         19,466   

Common stock

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

Kyocera Corporation shareholders’ equity

     1,345,235         1,420,263         1,469,505         1,646,157         1,910,083   

Total equity

     1,407,262         1,483,359         1,534,241         1,714,942         1,987,226   

Depreciation

   ¥ 60,602       ¥ 59,794       ¥ 62,374       ¥ 63,119       ¥ 65,760   

Capital expenditures

   ¥ 37,869       ¥ 70,680       ¥ 66,408       ¥ 56,688       ¥ 56,611   

 

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

 

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“Earnings per share” and “Cash dividends declared per share” are calculated under the assumption that the stock split undertaken by Kyocera Corporation on October 1, 2013 had been undertaken at the beginning of the year ended March 31, 2010. For details of the stock split, please refer to “Capital Stock” in Item 10.B. “Memorandum and Articles of Association” of this annual report on Form 20-F on page 75.

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      

2010

     100.71         86.12         92.93         93.40   

2011

     94.68         78.74         85.71         82.76   

2012

     85.26         75.72         79.00         82.41   

2013

     96.16         77.41         82.96         94.16   

2014

     105.25         92.96         100.15         102.98   

For most recent six months

                           

December 2013

     105.25         101.82         103.46         105.25   

January 2014

     104.87         102.20         103.76         102.28   

February 2014

     102.71         101.11         102.13         102.08   

March 2014

     103.38         101.36         102.34         102.98   

April 2014

     103.94         101.43         102.46         102.14   

May 2014

     102.34         101.26         101.77         101.77   

The noon buying rate for Japanese yen on June 20, 2014 was $1.00 = 102.14

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.

Risks Related to Kyocera’s Business

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

Kyocera conducts business not only in Japan but also around the world and provides products for a variety of markets such as the digital consumer equipment, industrial machinery, automotive and environmental and energy-related markets. In the event that stagnation in global economies has an adverse effect on production activities in our principal market and capital investment and consumption fall significantly, the business environment facing Kyocera may worsen, and the performance and financial condition of Kyocera may be adversely affected.

 

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(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 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 have 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 55% of its total revenues in fiscal 2014. 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 Japan, which exposes it to fluctuations in foreign currency exchange rates. Kyocera may enter into mainly short-term forward contract transaction to hedge this risk. 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’s competitive landscape is subject to continuous change, and new and significant competitors may emerge, including competitors based in emerging markets such as China that may have competitive advantages in terms of cost structure or other factors. 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

 

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that its selling prices will continue to be lower than in fiscal 2014 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 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. Moreover, in certain operations of which fixed cost ratio is high, decreases in production volume or capacity utilization may adversely affect Kyocera’s results of operation, financial condition and cash flows.

(7) Shortages and rising costs of electricity may adversely affect Kyocera’s production and sales activities

As all nuclear power plant operation in Japan currently has ceased and remains at rest due to the damage and equipment failure of the nuclear power plant caused by the Great East Japan Earthquake in March 2011, Japan may have shortages and rising costs of electricity. Kyocera secures electric power supplies for emergency through equipment and centers, however Kyocera’s production activity may become diminished if massive blackouts occur in the areas in which Kyocera has facilities and electricity shortages continue. Shortages of electricity in the areas in which Kyocera’s suppliers and customers have main operations may also interrupt Kyocera’s production and sales activities. In addition, significant rising costs of electricity may adversely affect Kyocera’s results of operations, financial condition and cash flows.

(8) 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.

(9) 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

 

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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.

(10) 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.

Risks Related to Legal Restrictions and Litigations

(11) 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 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.

(12) 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. Accordingly, 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.

(13) 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

 

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remediation of hazardous substances, wastes and certain chemicals used or generated in our manufacturing process, health, safety and property preservations of employees and community residents, 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.

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

Kyocera may unintentionally come into conflict with laws and regulations and face legal proceedings, including litigation and regulatory actions, although Kyocera believes that it is substantially in compliance with applicable laws and regulations in the countries and areas in which Kyocera operates. If laws and regulations are unexpectedly changed or introduced, Kyocera’s business operations may be limited and continuance may become difficult. If Kyocera faces enormous legal costs related to litigation and regulatory actions, Kyocera’s business operations may become significantly limited and Kyocera’s results of operations, financial condition and cash flows may be negatively affected.

Risks Related to Disasters or Unpredictable Events

(15) Kyocera’s markets or supply chains may be adversely affected by terrorism, outbreaks of disease, 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 from terrorism, outbreaks of disease, 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.

(16) Kyocera’s headquarters and major facilities as well as its suppliers and customers may suffer 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 or other disasters, as well as manmade disasters such as a major industrial accident affecting one of our facilities. 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 infrastructure suffers 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 shipping its products if its

 

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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

(17) 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.

(18) 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 hold 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, 2014. If there are certain declines in the fair value, 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.

(19) 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.

(20) 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.

 

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(21) 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

(22) 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.

(23) 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 Audit & Supervisory Board and the Companies 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.

(24) 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.

(25) 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

 

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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.

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

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

Item 4.    Information on Kyocera Corporation and its Consolidated Subsidiaries

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

Kyocera Corporation is a joint stock corporation 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 Connector Products 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, printers and multifunctional products to telecommunication carriers, 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

 

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(currently Kyocera Document Solutions Inc.), 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 Document Solutions Inc. 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 (currently Kyocera (China) Sales and Trading Corporation), in January 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 May 2003, and to respond to market needs swiftly.

In August 2003, we made Kinseki, Limited (currently Kyocera Crystal Device Corporation), a major producer of artificial crystal related products, a wholly-owned subsidiary through a share exchange to strengthen our Electronic Device Group.

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 October 2004.

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

For further enhancement of the Information Equipment Group, Kyocera Document Solutions Inc. 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 a voluntary public takeover offer in January 2009. In October 2010, Kyocera Document Solutions Inc. acquired all of the remaining shares of TA. As a result, TA has become a wholly-owned subsidiary of Kyocera Document Solutions Inc. We established a subsidiary, Kyocera Document Technology Vietnam Company Limited, to produce information equipment for expanding our production capacity and reducing manufacturing cost in July 2011.

In July 2011, Kyocera acquired Unimerco Group A/S (currently Kyocera Unimerco A/S), a Danish-based industrial cutting tool manufacturing and sales company to broaden our product lines and markets.

In August 2011, Kyocera established Kyocera Vietnam Management Company Limited (currently Kyocera Vietnam Company Limited), a manufacturing subsidiary, in order to further reduce costs and to meet with growing component demand.

In February 2012, in order to expand its liquid crystal display business, Kyocera acquired Optrex Corporation (currently Kyocera Display Corporation), a specialized manufacturer of liquid crystal displays and related products.

In October 2013, in order to strengthen and expand the Kyocera Group’s organic substrate business, Kyocera acquired NEC Toppan Circuit Solutions Inc. (currently Kyocera Circuit Solutions, Inc.), a printed wiring board (PWB) manufacturing company.

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

 

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B. Business Overview

Overview

Kyocera is engaged in numerous high-tech fields, from fine ceramic components to electronic devices, equipment, services and networks. Our manufacturing and distribution operations are conducted worldwide. As of March 31, 2014, we had 189 subsidiaries and 4 affiliates outside Japan and 29 subsidiaries and 7 affiliates in Japan. Our customers include individuals, corporations, governments and governmental agencies. For information on our sales by category of activity and information on our sales by geographic area and product segment, 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 Flat Panel Display Manufacturing Equipment

Information and Telecommunication Components

General Industrial Machinery Components

Sapphire Substrates

Automotive Components

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

(2) Semiconductor Parts Group

Ceramic Packages and Substrates

Organic Multilayer Packages and Substrates

Kyocera develops, manufactures and sells both inorganic (ceramic) and organic packages and substrates for various electronic components and devices such as crystal components, SAW devices and CMOS/CCD sensors, and for communication infrastructures and computers.

(3) Applied Ceramic Products Group

Solar Power Generating Systems

Cutting Tools, Micro Drills

Medical and Dental Implants

Jewelry and Applied Ceramic Related Products

This reporting segment consists of four product lines through applying fine ceramic technologies: Solar Energy Products, Cutting Tools, Medical and Dental Implants, Jewelry and Applied Ceramic Related Products. Kyocera develops, manufactures and sells solar modules, solar generating system for commercial and residential uses, cutting tools used in metal processing in industrial manufacturing, medical and dental implant products including prosthetic joints and dental prosthetics, and recrystallized jewelry and applied ceramic related products such as kitchen accessories.

 

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(4) Electronic Device Group

Capacitors

SAW Devices

Crystal Components

Connectors

Liquid Crystal Displays

Printing Devices

This reporting segment develops, manufactures and sells electronic components and devices such as capacitors, SAW devices, crystal components, and connectors mainly for information and communication market and liquid crystal displays mainly for industrial machinery and automotive markets.

(5) Telecommunications Equipment Group

Mobile Phones

PHS-Related Products such as PHS Handsets and PHS Base Stations

Kyocera develops, manufactures and sells mobile phones such as smartphones and feature phones for Japan and the U.S. and PHS handsets and base stations for Japan. Our key sales destinations are KDDI Corporation, SoftBank Mobile Corp., eAccess Ltd. in Japan and Sprint Corporation in the U.S.

(6) Information Equipment Group

Monochrome and Color Printers and Multifunctional Products

Wide Format Systems

Document Solutions

Application Software

Supplies

This reporting segment develops, manufactures and sells page printers and multifunctional products. Our equipment is marketed under the “ECOSYS” concept, which focuses on attaining the characteristics of long life cycle and lower running cost, and uses amorphous silicon photoreceptor drums developed by Kyocera Corporation. Kyocera also provides document solution services globally for optimizing customers’ document imaging environments through providing business applications that seamlessly integrate with IT systems, including mobile devices and the cloud computing systems.

(7) Others

Information Systems and Telecommunication Services

Engineering Business

Management Consulting Business

Materials for Semiconductors, Chemical Materials

Realty Development Business

This reporting segment provides the information and communications business and develops, manufactures and sells materials for semiconductors and chemical materials.

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

 

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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 modules and solar power generating systems are sold primarily to global users via sales subsidiaries, distributors and our franchise chains. In addition, power storage systems and energy management systems are sold to users in Japan through Kyocera’s franchise stores and home builders. 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. In the medical and dental implant business, joint prostheses, artificial bones and dental implants are sold to dental clinics and hospitals through distributors.

In the Telecommunications Equipment Group, we primarily sell products directly to telecommunications carriers in the Japanese and overseas markets. Our key sales destinations are KDDI Corporation, SoftBank Mobile Corp. and eAccess Ltd. in Japan and Sprint Corporation, Verizon Communications Inc. and T-Mobile US, Inc. in the United States.

The Information Equipment Group provides document solutions and application software and sells Kyocera brand printers and multifunctional products globally through a sales network of distributors and wholesale dealers that spans over 140 countries. Hardware such as printers and multifunctional products is also sold through OEM (Original Equipment Manufacturing) suppliers.

In the Others reporting segment, Kyocera Communication Systems Group provides Information and Communication Technologies (ICT) business and management consulting business to general companies, public institutions and healthcare corporations as well as engineering business to telecommunications carriers, wireless equipment vendors and solar power generation operators. Chemical materials from Kyocera Chemical Corporation are sold directly to secondary manufacturers who incorporate them into their own products.

Domestic sales are made in the Japanese yen, while overseas sales are made in a variety of currencies, but predominantly in the U.S. dollar 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. The main materials supplied for use as key components are chip sets and liquid crystal displays in the Equipment Business.

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

The purchase price of these raw materials and other materials fluctuates depending on the supply-demand situation, as well as the rising cost of certain raw materials and fuel, among others. We work hard to 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.

 

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In fiscal 2014, we procured a sufficient level of raw materials and other materials to carry out our production plans.

Patents and Licenses

Our success and competitive position depend on a number of significant patents, licenses and trade secrets relating to our manufacturing and sales processes and products. All of Kyocera’s intellectual properties are considered to be important. However, Kyocera believes that neither its expiration nor termination of any specific intellectual properties would have significant impact on Kyocera’s entire operation. The following table sets forth information, as of March 31, 2014, 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, 2012 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 differentiated itself 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 volume. We have also established an internal integrated system from fundamental research to next-generation product development through our R&D efforts, and this differentiates us from competitors.

(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.

In the ceramic package business, our main competitors are Japanese manufacturers. Kyocera has already become a global market leader. We aim to further increase customer satisfaction by utilizing our expertise in development and manufacturing technologies and promote the application of ceramic packages widely in the digital consumer equipment market as well as the automotive market and the optical communications market.

In the organic package and substrate business, Kyocera produces flip-chip packages for servers, routers and game consoles as well as smaller and thinner packages for mobile phones, and has several Japanese and Asian competitors in the market. In the areas of flip-chip packages for servers and routers where advanced design rules and exceptional reliability are required, Kyocera is one of the leading suppliers.

 

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In fiscal 2014, Kyocera made Kyocera Circuit Solutions, Inc. a wholly-owned consolidated subsidiary, which provides products that Kyocera has not been involved with before, namely multi-layer printed wiring boards (PWBs) for high-end telecommunications infrastructure equipment, component-embedded PWBs and PWBs for in-vehicle applications. Kyocera seeks to expand the business scale of organic packages and boards by approximately two-fold compared with before, and going forward, Kyocera aims to strengthen its competitiveness in this business by developing new products through technological synergy and utilizing sales channels through this acquisition.

(3) Applied Ceramic Products Group

The solar energy industry has a high number of competitors worldwide. In addition, many kinds of solar products using various raw materials and production methods have been introduced to the market, and competition on price and technological fronts is intensifying every year. Despite the highly competitive environment, Kyocera has competitive advantages such as high conversion efficiency and long-term product reliability based on nearly 40 years of accumulated experience in the development and production technologies of solar power generation products.

We have manufacturing process from multicrystalline silicon ingots to modules in-house, enabling us to control the quality of products produced in every manufacturing process. Kyocera provides not only solar cells and modules but also the design of solar power generation systems and the construction and maintenance of solar power plants. Through these efforts, Kyocera has generated top-class results in installing solar power generating systems for public and commercial use in Japan.

Kyocera aims to strengthen its competitiveness further by promoting an extensive product line-up, including mass-production of monocrystalline solar modules for residential use capable of higher output even in limited spaces.

In the cutting tool business, 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 materials technology. We are also expanding business in new markets such as the aviation and energy markets and are working to increase our market share by supplying products to a wide variety of markets and increasing our product line-up.

(4) Electronic Device Group

Kyocera develops and manufactures a wide variety of capacitors, crystal components, connectors, liquid crystal displays and thermal printheads, and sells these products globally for different applications. One of our competitive advantages is that we develop an extensive array of products, not just passive components.

Kyocera is a leading supplier of crystal components and connectors for smartphones, while AVX Corporation, our subsidiary, is one of the top suppliers in the tantalum capacitor market.

In the liquid crystal display business, we are focusing on the development of small- and medium-sized products and are seeking to expand business mainly for industrial and automotive applications while also working to increase our market share in both of these markets. In particular, Kyocera is striving to expand our supply of liquid crystal displays for automobiles, one of our areas of competitive strength.

In addition, we have become one of the largest suppliers of thermal printheads that are equipped in various printers, such as barcode printers.

 

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(5) Telecommunications Equipment Group

In the mobile phone business, our competitors are U.S., Asian and Japanese manufacturers both in Japan and overseas. Our production volume ranks in the top class among Japanese manufacturers. Kyocera strives to differentiate itself in this business by releasing distinctive handsets that use in-house unique component technology as well as products with waterproof and robustness features. Through these efforts, sales volumes expanded steadily in North America in fiscal 2014 compared with fiscal 2013.

In the PHS-related products, our main competitors are Japanese manufacturers, and we are a market leader in the PHS handset and base station businesses.

(6) Information Equipment Group

Kyocera sells printers and multifunctional products and provides solution services in the global market. Our competitors are mainly the U.S. and Japanese manufacturers in the printer and multifunctional product businesses. Kyocera’s printers and multifunctional products employ our uniquely developed long-life photoreceptors (amorphous silicon drum and positive-charged single-layer photoconductor drum) and low power consumption systems. As a result, these products have been differentiated from competitors by lowered running costs and energy consumption.

In addition, we provide high-value-added solution services that meet each customer needs through our uniquely-developed solutions platform, “HyPAS” (Hybrid Platform for Advanced Solutions), which enables users to embed various applications in document equipment to connect with a cloud computing environment or mobile equipment. We are also expanding our MDS (Managed Document Services) business to provide the optimal document environment for each customer.

Owing to these strengths, Kyocera has expanded its business in global markets.

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. Kyocera does not believe that such governmental regulations currently have significant effects on its business.

Environmental Regulation

Kyocera is also subject to various regulations concerning the environment of the countries where it operates. These regulations cover air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals used or generated in Kyocera’s 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 its 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, Kyocera believes that it is not involved in any pending or threatened proceedings that would require curtailment of its business, and its 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 to the above environmental regulations, AVX Corporation, a U.S. based subsidiary, 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 certain sites at which remediation is required with respect to prior contamination. Because CERCLA has generally 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 Corporation also are, or have been, involved in site investigation and clean-up activities. AVX Corporation believes that liability resulting from these sites will be apportioned between AVX Corporation and other PRPs.

To resolve its liability at the sites at which AVX Corporation has been named a PRP, AVX Corporation has entered into various administrative orders and consent decrees with federal and state regulatory agencies governing the timing and nature of investigation and remediation. 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.

As to the financial settlement between AVX Corporation and the United States and the Commonwealth of Massachusetts regarding the New Bedford Harbor Superfund Site, and the effects on our financial condition or results of operations with respect to this matter, please refer to “Financial settlement between AVX Corporation and the United States and the Commonwealth of Massachusetts regarding the New Bedford Harbor Superfund Site” in Item 5.A. “Operating Results” of this annual report on Form 20-F on page 29.

Other Regulation

Kyocera’s subsidiary conducted transactions with Iran-related organizations in fiscal 2014, which Kyocera is required to disclose under Section 13(r) of the Securities Exchange Act of 1934, as amended. TA Triumph-Adler Deutschland GmbH (formerly TA Triumph-Adler Norddeutschland GmbH), a wholly-owned subsidiary of TA Triumph-Adler GmbH, which is a wholly-owned German-based subsidiary of Kyocera Document Solutions Inc., had a lease and service maintenance contract for multifunctional peripheral machines and printers with a branch of Bank Saderat Iran in Hamburg, Germany, of which one of the major shareholders is the Government of Iran. This contract began from October 2007 and ended in September 2013. Total sales and interest revenue under this contract were approximately ¥105 thousand and ¥20 thousand, respectively for the six months ended September 30, 2013. The total net profits were substantially less than those amounts. TA Triumph-Adler Deutschland GmbH also had a lease and service maintenance contract for multifunctional peripheral machines with Intra Chem Trading GmbH in Hamburg, Germany, a petrochemical company which is a German-based subsidiary of a petrochemical company in Iran. This contract began from August 2008 and ended in July 2013. Total sales and interest revenue under this contract were approximately ¥21 thousand and ¥5 thousand, respectively for the four months ended July 31, 2013. The total net profits were substantially less than those amounts. Kyocera believes these transactions made by TA Triumph-Adler Deutschland GmbH were conducted in compliance with the applicable laws in Germany.

 

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C. Organizational Structure

We had 229 subsidiaries and affiliates as of March 31, 2014. 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, 2014, 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

Kyocera Circuit Solutions, Inc.

   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 Vietnam Co., Ltd.

   Vietnam      100.00   Manufacture of fine ceramic-related products

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

Kyocera Unimerco A/S

   Denmark      100.00  

Development, manufacture and

sale of cutting tools

Kyocera Medical Corporation

   Japan      77.00   Development, manufacture and sale of medical material

 

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Table of Contents

Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
   

Main Business

(4) Electronic Device Group

       

Kyocera Connector Products Corporation

   Japan      100.00   Development, manufacture and sale of electronic devices

Kyocera Crystal Device Corporation

   Japan      100.00   Development and manufacture of electronic devices

Kyocera Display Corporation

   Japan      100.00   Development, manufacture and sale of electronic devices

Kyocera Display (Zhangjiagang) Co., Ltd.

   China      100.00   Manufacture of electronic devices

Dongguan Shilong Kyocera Co., Ltd.

   China      90.00   Manufacture of cutting tools and thin-film devices

AVX Corporation

   United States      72.41   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 Document Solutions Inc.

   Japan      100.00   Development and manufacture of information equipment

Kyocera Document Solutions Japan Inc.

   Japan      100.00   Sale of information equipment mainly in Japan

Kyocera Document Technology (Dongguan)
Co., Ltd.

  

China

  

 

92.76

 

Manufacture of information equipment

Kyocera Document Technology Vietnam Co., Ltd.

  

Vietnam

  

 

100.00

 

Manufacture of information equipment

Kyocera Document Solutions America, Inc.

   United States      100.00   Sale of information equipment mainly in North America

Kyocera Document Solutions Europe B.V.

   Netherlands      100.00   Sale of information equipment mainly in Europe

Kyocera Document Solutions 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

 

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Table of Contents

Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
   

Main Business

(7) Others

       

Kyocera Communication Systems Co., Ltd.

   Japan      76.30   Information systems and telecommunication 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

(8) Regional Holding or Sales Companies

       

Kyocera (China) Sales & Trading Corporation

   China      90.00   Sale of fine ceramic-related products, cutting tools mainly in China

Kyocera Korea Co., Ltd.

   Korea      100.00   Sale of fine ceramic-related 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 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 179 other consolidated subsidiaries as of March 31, 2014. Kyocera also had interests in one subsidiary accounted for by the equity method and 11 affiliates accounted for by the equity method as of March 31, 2014.

On April 1, 2014, Kyocera Crystal Device Corporation absorbed Kyocera Crystal Device Hokkaido Corporation, which was its wholly owned subsidiary, and succeeded to the crystal device sales department, which was split off from Kyocera Corporation.

On April 1, 2014, Kyocera International, Inc. established Kyocera Precision Tools Inc., which absorbed Kyocera Tycom Corporation, a wholly owned subsidiary of Kyocera International, Inc.

On April 1, 2014, Kyocera Corporation acquired the non-controlling interest of Kyocera Medical Corporation and made it a wholly owned subsidiary.

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. 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

 

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Table of Contents

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 $127,037 thousand in fiscal 2014 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, 2014, we had property, plants and equipment with a net book value of ¥270,557 million. During the five years ended March 31, 2014, we invested a total of ¥288,256 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.

The following table sets forth information with respect to our principal manufacturing facilities as of March 31, 2014.

 

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,
Printing devices,
Cutting tools

Niigata Shibata Plant

  Shibata, Niigata   Owned     323        Organic multilayer

packages and
substrates

Kawaguchi Plant

  Kawaguchi, Saitama   Owned     389        Electrical insulation
materials

Tamaki Plant

  Watarai, Mie   Owned     292        Information
equipment

Shiga Gamo Plant

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

Shiga Yokaichi Plant

  Higashi-Ohmi, Shiga   Owned     1,509        Fine ceramic parts,
Printing devices,
Solar cells, Cutting
tools

Shiga Yasu Plant

  Yasu, Shiga   Owned     1,810        Solar cells, Liquid
crystal displays

 

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Table of Contents

Name of Plant

 

Location

 

Status

  Floor Space     Lease
Expires
    Principal Products
Manufactured
           

(in thousands

of square feet)

           

Toyama Nyuzen Plant

  Shimoniikawa, Toyama   Owned     325        Organic multilayer

packages and
substrates

Kyoto Ayabe Plant

  Ayabe, Kyoto   Owned     450        Organic multilayer

packages and
substrates

Hirakata Plant

  Hirakata, Osaka   Owned     601        Information
equipment

Kagoshima Sendai Plant

  Satsuma-Sendai, Kagoshima   Owned     1,992        Fine ceramic parts,
Semiconductor
parts, Cutting tools

Kagoshima Kokubu Plant

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

Kagoshima Hayato Plant

  Kirishima, Kagoshima   Owned     278        Printing devices

United States

         

Balboa Plant

  San Diego, California   Owned     300        Semiconductor parts

Myrtle Beach Plant

  Myrtle Beach, South Carolina   Owned     308        Electronic
components

Fountain Inn Plant

  Fountain Inn, South Carolina   Owned     300        Electronic
components

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     470        Electronic
components

Kadan Plant

  Kadan   Owned     295        Solar modules

China

         

Tianjin Plant

  Tianjin   Owned     520        Electronic
components

Tianjin Plant

  Tianjin   Owned     308        Solar modules

Shanghai Pudong Plant

  Shanghai   Owned     1,132        Semiconductor
parts, Electronic
components

 

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Table of Contents

Name of Plant

 

Location

 

Status

  Floor Space     Lease
Expires
  Principal Products
Manufactured
           

(in thousands

of square feet)

         

Zhangjiagang Plant

  Zhangjiagang, Jiangsu   Owned     365        Liquid crystal
displays

Shilong Plant

  Dongguan, Guangdong   Owned     2,331        Information
equipment

Shilong Plant

  Dongguan, Guangdong   Owned     696        Cutting tools, Liquid
crystal displays,
Printing devices

Thailand

         

Lamphun Plant

  Lamphun   Owned     264        Electronic
components

Malaysia

         

Johor Plant

  Johor   Owned     315        Telecommunications
equipment

Vietnam

         

Hung Yen Plant

  Hung Yen   Owned     958        Semiconductor parts

Hai Phong Plant

  Hai Phong   Owned     769        Information
equipment

Item 4A.    Unresolved Staff Comments

We are a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934. There are no written comments which have been provided by the staff of the Securities and Exchange Commission regarding our periodic reports under that Act not less than 180 days before the end of the year ended March 31, 2014 and which remain unresolved as of the date of the filing of this annual report on Form 20-F with the Securities and Exchange Commission.

Item 5.    Operating and Financial Review and Prospects

A. Operating Results

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

Overview

Kyocera develops new technologies and new products based on fine ceramic technologies and cultivates new markets since the establishment. Kyocera also promotes our growth through the diversified management resources from components technologies to electronic devices, equipment, systems and services. Kyocera develops, produces and distributes worldwide various kinds of products primarily for the following markets: information and communications equipment, industrial machinery, automotive and environment and energy.

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,

 

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Table of Contents

(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.”

The Japanese economy displayed a recovery trend in fiscal 2014, supported by an increase in public investment and solid growth in personal consumption. Overseas, the U.S. economy expanded on the back of increases in personal consumption, private investment and exports. The Chinese economy also continued to grow steadily. On the other hand, the European economy remained weak despite signs of recovery.

In the digital consumer equipment market, which is the principal market for Kyocera, the shipment volume of conventional mobile phone handsets and PCs declined compared with fiscal 2013. In contrast, the shipment volume of smartphones and tablet PCs increased. In the automotive market, sales volume increased steadily, particularly in China and the United States, while the solar energy market in Japan expanded significantly compared with fiscal 2013 due to remarkable growth in demand in the public and commercial sectors.

Sales and profit increased in fiscal 2014 compared with fiscal 2013 as Kyocera decisively took advantage of increased demand in key markets and worked to obtain orders and reduce costs by leveraging the collective strength of Kyocera. Consolidated net sales for fiscal 2014 increased by 13.1%, or ¥167,315 million, to ¥1,447,369 million, compared with ¥1,280,054 million for fiscal 2013, on the back of increased sales in all reporting segments. This result was a new record high.

Profit increased significantly compared with fiscal 2013 in both the Components Business and the Equipment Business due to the effect of higher sales and efforts to enhance productivity. In addition, in fiscal 2013 an environmental remediation charge was recorded at AVX Corporation, a U.S.-based consolidated subsidiary. As a result, profit from operations increased by 56.8%, or ¥43,656 million, to ¥120,582 million, compared with ¥76,926 million for fiscal 2013. Income before income taxes increased by 44.3%, or ¥44,905 million, to ¥146,268 million, compared with ¥101,363 million for fiscal 2013. Net income attributable to shareholders of Kyocera Corporation for fiscal 2014 increased by 33.5%, or ¥22,283 million, to ¥88,756 million, compared with ¥66,473 million for fiscal 2013.

Average exchange rates for fiscal 2014 were ¥100 to the U. S. dollar, marking depreciation of ¥17 (approximately 20%) from ¥83 for fiscal 2013, and ¥134 to the Euro, marking depreciation of ¥27 (approximately 25%) from ¥107 for fiscal 2013. As a result, net sales and income before income taxes for fiscal 2014 were pushed up by approximately ¥140 billion and ¥29 billion, respectively, compared with fiscal 2013.

Financial settlement between AVX Corporation and the United States and the Commonwealth of Massachusetts regarding the New Bedford Harbor Superfund Site

AVX Corporation, a U.S. based subsidiary, 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 certain sites at which remediation is required with respect to prior contamination. Because CERCLA or such state statutes authorize joint and several liability, the EPA or state regulatory authorities 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 Corporation also are, or have been, involved in site investigation and clean-up activities. AVX Corporation believes that any liability resulting from these sites will be apportioned between AVX Corporation and other PRPs.

 

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Table of Contents

To resolve its liability at the sites at which AVX Corporation has been named a PRP, AVX Corporation has entered into various administrative orders and consent decrees with federal and state regulatory agencies governing the timing and nature of investigation and remediation. 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.

In 1991, in connection with a consent decree finally approved in 1992 (1992 Consent Decree), AVX Corporation paid ¥8,878 million ($66 million), plus interest, toward the environmental conditions at, and remediation of, New Bedford Harbor in the Commonwealth of Massachusetts (the harbor) in a settlement with the United States, the EPA and the Commonwealth of Massachusetts (the Governments), subject to reopener provisions, including a reopener if certain remediation costs for the site exceed ¥13,442 million ($130.5 million).On April 18, 2012, the EPA issued a Unilateral Administrative Order (UAO) directing AVX Corporation to perform certain remedial actions for the harbor clean-up pursuant to the reopener provisions.

On October 10, 2012, the Governments and AVX Corporation announced that they had reached a settlement with respect to the EPA’s ongoing clean-up of the harbor. That agreement is set forth in a Supplemental Consent Decree (Supplemental CD) that modifies certain provisions of the 1992 Consent Decree, including elimination of the Governments’ right to invoke any clean-up reopener provisions in the future. Under the terms of the settlement, AVX Corporation was obligated to pay ¥37,324 million ($366.25 million), plus interest computed from August 1, 2012, in three installments over a two-year period for use by the EPA and the Commonwealth to complete the clean-up of the harbor. The settlement also required the EPA to withdraw the UAO. The United States District Court approved the settlement and entered the Supplemental CD on September 19, 2013.

On October 18, 2013, AVX Corporation paid the initial settlement installment of ¥13,335 million ($133.35 million), plus accrued interest of ¥395 million ($3.95 million). On March 26, 2014, AVX Corporation prepaid a second settlement installment of ¥11,414 million ($110.82 million), plus accrued interest of ¥85 million ($0.82 million) on the remaining settlement amount through that date. In accordance with the terms of the Supplemental CD, AVX Corporation is obligated to pay ¥12,575 million ($122.08 million), plus interest on September 21, 2015. AVX Corporation has the option to prepay any portion of the remaining settlement balance at any time prior to the due date of the remaining installment.

AVX Corporation and Kyocera recorded a charge with respect to this matter in the amount of ¥7,900 million ($100 million) for the year ended March 31, 2012, and ¥21,300 million ($266.25 million) for the year ended March 31, 2013, which were included in selling, general and administrative expenses in the consolidated statements of income. As of March 31, 2014, AVX Corporation and Kyocera have recorded a liability of the amount of the third payment in accordance with the Supplemental CD.

 

30


Table of Contents

Results of Operations

Fiscal 2014 compared with Fiscal 2013

The following table shows a summary of Kyocera’s results of operations for fiscal 2013 and fiscal 2014:

 

     Years ended March 31,     Increase
(Decrease)
 
     2013     2014    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Net sales

   ¥ 1,280,054        100.0      ¥ 1,447,369        100.0      ¥ 167,315        13.1   

Cost of sales

     952,350        74.4        1,068,465        73.8        116,115        12.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     327,704        25.6        378,904        26.2        51,200        15.6   

Selling, general and administrative expenses

     250,778        19.6        258,322        17.9        7,544        3.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from operations

     76,926        6.0        120,582        8.3        43,656        56.8   

Interest and dividend income

     14,666        1.1        18,172        1.3        3,506        23.9   

Interest expense

     (1,890     (0.2     (1,945     (0.1     (55     —     

Foreign currency transaction gains, net

     5,136        0.4        5,108        0.3        (28     (0.5

Gains on sales of securities, net

     4,542        0.4        2,875        0.2        (1,667     (36.7

Other, net

     1,983        0.2        1,476        0.1        (507     (25.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     24,437        1.9        25,686        1.8        1,249        5.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     101,363        7.9        146,268        10.1        44,905        44.3   

Income taxes

     34,012        2.6        51,254        3.5        17,242        50.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     67,351        5.3        95,014        6.6        27,663        41.1   

Net income attributable to noncontrolling interests

     (878     (0.1     (6,258     (0.5     (5,380     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Kyocera Corporation

   ¥ 66,473        5.2      ¥ 88,756        6.1      ¥ 22,283        33.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Sales

Net sales in fiscal 2014 increased by ¥167,315 million, or 13.1%, to ¥1,447,369 million, compared with ¥1,280,054 million in fiscal 2013.

In fiscal 2014, net sales increased compared with fiscal 2013 due primarily to Kyocera’s effort to take advantage of increased demand in key markets and work to obtain orders by leveraging the collective strength of Kyocera. Due to the impact of the yen’s depreciation against the U.S. dollar and the Euro, net sales after translation into the yen in fiscal 2014 were pushed up by approximately ¥140,000 million, compared with fiscal 2013.

Net sales in the Components Business in fiscal 2014 increased by ¥99,926 million, or 13.8%, to ¥825,028 million, compared with ¥725,102 million in fiscal 2013. Net sales in the Equipment Business in fiscal 2014 increased by ¥66,749 million, or 15.6%, to ¥494,597 million, compared with ¥427,848 million in fiscal 2013.

For details regarding net sales, please refer to page 35, “Business Overview by Reporting Segment.”

 

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Table of Contents

Net Sales by Geographic Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2013 and fiscal 2014, 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)
 
     2013      2014     
     Amount      %      Amount      %      Amount      %  
     (Yen in millions)  

Japan

   ¥ 574,202         44.9       ¥ 643,423         44.4       ¥ 69,221         12.1   

Asia

     235,520         18.4         274,512         19.0         38,992         16.6   

Europe

     198,868         15.5         247,700         17.1         48,832         24.6   

United States of America

     215,032         16.8         217,230         15.0         2,198         1.0   

Others

     56,432         4.4         64,504         4.5         8,072         14.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net sales

   ¥ 1,280,054         100.0       ¥ 1,447,369         100.0       ¥ 167,315         13.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Sales in Japan increased compared with fiscal 2013 due to an increase in the solar energy business primarily in the public and commercial sectors, as well as to the new contributions of Kyocera Circuit Solutions, Inc., which became a consolidated subsidiary of Kyocera.

Sales in Asia increased compared with fiscal 2013 due to an increase in sales in the Information Equipment Group and in the Electronic Device Group of products such as connectors and capacitors, as well as due to the effect of the yen’s depreciation.

Sales in Europe increased compared with fiscal 2013 due to an increase in sales in the Information Equipment Group and in the Electric Device Group and to the effect of the yen’s depreciation.

Sales in the United States of America increased slightly compared with fiscal 2013 due mainly to sales growth in the Information Equipment Group, despite a decline in sales of the Electric Device Group.

Sales in Others increased compared with fiscal 2013 due to an increase in sales in the Information Equipment Group and the Telecommunications Equipment Group.

Cost of Sales and Gross Profit

In fiscal 2014, cost of sales increased by ¥116,115 million, or 12.2%, to ¥1,068,465 million from ¥952,350 million in fiscal 2013. This is due mainly to the impact from the production activity of Kyocera Circuit Solutions, Inc., which became a consolidated subsidiary in October 2013, and in addition, due to the effect of the yen’s depreciation.

Raw material costs of ¥426,472 million accounted for 39.9% of total cost of sales in fiscal 2014, which increased by ¥41,963 million, or 10.9%, from ¥384,509 million in fiscal 2013. Labor costs of ¥196,244 million accounted for 18.4% of total cost of sales in fiscal 2014, which increased by ¥17,204 million, or 9.6%, from ¥179,040 million in fiscal 2013. Depreciation expense of ¥56,055 million accounted for 5.2% of total cost of sales in fiscal 2014, which increased by ¥1,841 million, or 3.4%, from ¥54,214 million in fiscal 2013.

As a result, gross profit in fiscal 2014 increased by ¥51,200 million, or 15.6%, to ¥378,904 million from ¥327,704 million in fiscal 2013. The gross profit ratio to net sales increased by 0.6 percentage points from 25.6% to 26.2%.

 

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Selling, General & Administrative Expenses and Profit from Operations

In fiscal 2014, selling, general and administrative expenses increased by ¥7,544 million, or 3.0%, to ¥258,322 million from ¥250,778 million in fiscal 2013. The miscellaneous expenses increased due mainly to higher sales and the effect of the yen’s depreciation, on the other hand, ¥21,300 million of the environmental remediation charge at AVX Corporation was included in fiscal 2013.

The ratio of selling, general and administrative expenses to net sales was 17.9% in fiscal 2014, a decrease of 1.7 percentage points as compared with 19.6% in fiscal 2013.

Labor costs of ¥141,935 million accounted for 54.9% of total selling, general and administrative expenses in fiscal 2014, an increase of ¥15,244 million, or 12.0%, from ¥126,691 million in fiscal 2013. Sales promotion and advertising costs of ¥45,894 million accounted for 17.8% of total selling, general and administrative expenses in fiscal 2014, an increase of ¥7,648 million, or 20.0%, from ¥38,246 million in fiscal 2013. Depreciation expense of ¥13,633 million accounted for 5.3% of total selling, general and administrative expenses in fiscal 2014, a decrease of ¥253 million, or 1.8%, from ¥13,886 million in fiscal 2013.

As a result, profit from operations in fiscal 2014 decreased by ¥43,656 million, or 56.8%, to ¥120,582 million, compared with ¥76,926 million in fiscal 2013. The operating margin increased by 2.3 percentage points to 8.3% in fiscal 2014, compared with 6.0% in fiscal 2013.

Interest and Dividend Income

Interest and dividend income in fiscal 2014 increased by ¥3,506 million, or 23.9%, to ¥18,172 million, compared with ¥14,666 million in fiscal 2013. This was due mainly to an increase in dividend income from KDDI Corporation.

Interest Expense

Interest expense in fiscal 2014 increased by ¥55 million, or 2.9%, to ¥1,945 million, compared with ¥1,890 million in fiscal 2013. This was due mainly to the recording of the interest expense of the charge for an environmental remediation at AVX Corporation.

Foreign Currency Transaction

During fiscal 2014, the average exchange rate for the yen depreciated by ¥17, or 20.5%, against the U.S. dollar and by ¥27, or 25.2%, against the Euro, as compared with fiscal 2013. At March 31, 2014, the yen depreciated by ¥9, or 9.6%, against the U.S. dollar, and by ¥21, or 17.4%, against the Euro, as compared with March 31, 2013. Kyocera recorded foreign currency transaction gains of ¥5,108 million in fiscal 2014.

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

Gains and Losses from Investments

Gains on sales of securities in fiscal 2014 decreased by ¥1,667 million, or 36.7%, to ¥2,875 million, compared with ¥4,542 million in fiscal 2013.

Losses on impairment of securities in fiscal 2014 decreased by ¥620 million, or 85.0%, to ¥109 million, compared with ¥729 million in fiscal 2013.

 

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Income before Income Taxes

Income before income taxes in fiscal 2014 increased by ¥44,905 million, or 44.3%, to ¥146,268 million compared with ¥101,363 million in fiscal 2013. Margin of income before income taxes against net sales increased by 2.2 percentage points to 10.1% compared with 7.9% in fiscal 2013.

Profit from operations increased significantly due to the effect of higher sales and efforts to enhance productivity. In addition, in fiscal 2013 an environmental remediation charge of ¥21,300 million was recorded at AVX Corporation. Income before income taxes increased due mainly to an increase of dividend income, in addition to an increase of profit from operations, compared with fiscal 2013. Income before income taxes after translation into the yen for fiscal 2014 was pushed up by approximately ¥29,000 million due to the impact of the yen’s depreciation against the U.S. dollar and the Euro compared with fiscal 2013.

Operating profit in the Components Business in fiscal 2014 increased by ¥46,483 million, or 89.6%, to ¥98,386 million, compared with ¥51,903 million in fiscal 2013. Operating profit in the Equipment Business in fiscal 2014 increased by ¥6,540 million, or 28.3%, to ¥29,630 million, compared with ¥23,090 million in fiscal 2013.

For a detail of income before income taxes, please refer to page 35, “Business Overview by Reporting Segment.”

Income Taxes

Current and deferred income taxes in fiscal 2014 increased by ¥17,242 million, or 50.7%, to ¥51,254 million, compared with ¥34,012 million in fiscal 2013.

The effective tax rate of 35.0% in fiscal 2014 was 1.4 percentage points higher than the effective rate of 33.6% in fiscal 2013. The increases were due mainly to the enactment of new Japanese tax rates in fiscal 2013, which decreased the statutory tax rates for temporary difference expected to be realized in fiscal 2015. The enactment resulted in the increase of income tax in fiscal 2014 due to the amounts of reversal related to deferred tax assets exceeding the amounts of reversal related to deferred tax liabilities. The effective tax rate of 35.0% in fiscal 2014 is lower than the Japanese statutory tax rate of 38.0% by 3.0 percentage points, due mainly to a decrease related to the difference in statutory tax rates of foreign subsidiaries.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests in fiscal 2014 amounted to ¥6,258 million. Net income attributable to noncontrolling interests in fiscal 2014 increased by ¥5,380 million, or 612.8%, compared with ¥878 million in fiscal 2013. This mainly reflected that in fiscal 2013, AVX Corporation, which accounted for approximately 30% of noncontrolling ownership interests, posted net loss due mainly to the recording of an environmental remediation charge.

 

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Business Overview by Reporting Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2013 and fiscal 2014 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2013     2014    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 74,852        5.9      ¥ 80,020        5.5      ¥ 5,168        6.9   

Semiconductor Parts Group

     167,241        13.1        187,891        13.0        20,650        12.3   

Applied Ceramic Products Group

     211,439        16.5        272,795        18.9        61,356        29.0   

Electronic Device Group

     271,570        21.2        284,322        19.6        12,752        4.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     725,102        56.7        825,028        57.0        99,926        13.8   

Telecommunications Equipment Group

     177,314        13.8        186,749        12.9        9,435        5.3   

Information Equipment Group

     250,534        19.6        307,848        21.3        57,314        22.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     427,848        33.4        494,597        34.2        66,749        15.6   

Others

     159,902        12.5        173,137        11.9        13,235        8.3   

Adjustments and eliminations

     (32,798     (2.6     (45,393     (3.1     (12,595     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   ¥ 1,280,054        100.0      ¥ 1,447,369        100.0      ¥ 167,315        13.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2013 and fiscal 2014 by the seven reporting segments:

 

     Years ended March 31,      Increase
(Decrease)
 
     2013      2014     
     Amount     %*      Amount      %*      Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 7,614        10.2       ¥ 11,836         14.8       ¥ 4,222        55.5   

Semiconductor Parts Group

     30,379        18.2         31,889         17.0         1,510        5.0   

Applied Ceramic Products Group

     17,924        8.5         33,501         12.3         15,577        86.9   

Electronic Device Group

     (4,014     —           21,160         7.4         25,174        —     
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Components Business

     51,903        7.2         98,386         11.9         46,483        89.6   

Telecommunications Equipment Group

     1,340        0.8         1,437         0.8         97        7.2   

Information Equipment Group

     21,750        8.7         28,193         9.2         6,443        29.6   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Equipment Business

     23,090        5.4         29,630         6.0         6,540        28.3   

Others

     10,542        6.6         6,276         3.6         (4,266     (40.5
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Operating profit

     85,535        6.7         134,292         9.3         48,757        57.0   

Corporate gains and equity in losses of affiliates and an unconsolidated subsidiary

     17,248        —           11,889         —           (5,359     (31.1

Adjustments and eliminations

     (1,420     —           87         —           1,507        —     
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Income before income taxes

   ¥ 101,363        7.9       ¥ 146,268         10.1       ¥ 44,905        44.3   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

* % to net sales of each corresponding segment

(1) Fine Ceramic Parts Group

Sales in this reporting segment for fiscal 2014 increased by ¥5,168 million, or 6.9%, to ¥80,020 million, compared with ¥74,852 million in fiscal 2013. Despite a slump in demand for certain components used in digital consumer equipment, component demand grew steadily in the automotive related market and the industrial

 

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machinery market, including components for semiconductor processing equipment. The yen’s depreciation pushed up sales by approximately ¥6,500 million compared with fiscal 2013. These factors led to the overall increase in segment sales.

Operating profit for fiscal 2014 increased by ¥4,222 million, or 55.5%, to ¥11,836 million, compared with ¥7,614 million in fiscal 2013. The significant increase was due primarily to the effect of sales growth in core products, despite a decline in price, and cost reductions, while operating profit was also pushed up by approximately ¥2,500 million as a result of the yen’s depreciation and by approximately ¥1,500 million as a result of a decline in depreciation and R&D expenses.

(2) Semiconductor Parts Group

Sales in this reporting segment for fiscal 2014 increased by ¥20,650 million, or 12.3%, to ¥187,891 million, compared with ¥167,241 million in fiscal 2013. Demand increased for ceramic packages for smartphones, despite a decline in demand for packages used in digital cameras. Demand for organic packages for information and communications infrastructures increased, and sales from Kyocera Circuit Solutions, Inc., which became a consolidated subsidiary in October 2013, were newly included for a six-month period. The yen’s depreciation pushed up sales by approximately ¥20,000 million compared with fiscal 2013.

Operating profit for fiscal 2014 increased by ¥1,510 million, or 5.0%, to ¥31,889 million, compared with ¥30,379 million in fiscal 2013. Operating profit was pushed up by approximately ¥11,000 million due to sales growth and the effect of the yen’s depreciation, despite increased operating expenses resulting from a consolidation of Kyocera Circuit Solutions, Inc. and increased depreciation cost due to the start of operations at a new plant in Vietnam pushed operating profit down by approximately ¥10,000 million.

(3) Applied Ceramic Products Group

Sales in this reporting segment for fiscal 2014 increased by ¥61,356 million, or 29.0%, to ¥272,795 million, compared with ¥211,439 million in fiscal 2013, due to a significant increase in sales mainly in the solar energy business in the public and commercial sectors in Japan and cutting tool business in the automotive market. The yen’s depreciation pushed up sales by approximately ¥12,000 million compared with fiscal 2013.

Operating profit for fiscal 2014 increased by ¥15,577 million, or 86.9%, to ¥33,501 million, compared with ¥17,924 million in fiscal 2013. The significant increase was attributable to the fact that operating profit was pushed up by approximately ¥13,000 million due to the effect of sales growth, approximately ¥7,000 million due to cost reductions and other efforts, and approximately ¥3,000 million due to a decline in depreciation and R&D expenses, despite an increase of approximately ¥7,500 million in costs related primarily to the overseas procurement of raw materials caused by the yen’s depreciation.

(4) Electronic Device Group

Sales in this reporting segment for fiscal 2014 increased by ¥12,752 million, or 4.7%, to ¥284,322 million, compared with ¥271,570 million in fiscal 2013. Kyocera recorded a decline in sales of approximately ¥25,000 million due to the execution of structural reforms, predominantly to downsize the touch panel business for consumer equipment, and a decline in demand for components for digital cameras. Nonetheless, sales were pushed up by approximately ¥40,000 million compared with fiscal 2013 due to the yen’s depreciation and to a sales growth of capacitors and connectors for automobiles and smartphones.

Operating profit for fiscal 2014 improved by ¥25,174 million, to ¥21,160 million, compared with a loss of ¥4,014 million in fiscal 2013. In fiscal 2014. Kyocera recorded approximately ¥5,000 million in structural reform costs for the crystal component business, capacitor business and the downsizing of the touch panel business for consumer equipment, while operating profit increased due to the fact that ¥21,300 million was recorded in fiscal

 

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2013 for an environmental remediation charge at AVX Corporation, a U.S. subsidiary. Operating profit was pushed up by approximately ¥8,000 million due to the effect of sales growth and the yen’s depreciation.

(5) Telecommunications Equipment Group

Sales in this reporting segment for fiscal 2014 increased by ¥9,435 million, or 5.3%, to ¥186,749 million, compared with ¥177,314 million in fiscal 2013. Sales volumes in Japan and overseas increased by approximately 15% compared with fiscal 2013 due to the vigorous introduction of new mobile phones in Japan and overseas coupled with efforts to acquire new large customers in the overseas market in fiscal 2014. The yen’s depreciation pushed up sales by approximately ¥13,000 million compared with fiscal 2013.

Operating profit for fiscal 2014 increased by ¥97 million, or 7.2%, to ¥1,437 million, compared with ¥1,340 million in fiscal 2013. Operating profit increased by approximately ¥2,500 million due to the effect of sales growth combined with a decline in depreciation and amortization costs, despite operating profit was pushed down by approximately ¥2,000 million due to an increase in costs mainly for materials procured overseas following the yen’s depreciation.

(6) Information Equipment Group

Sales in this reporting segment for fiscal 2014 increased by ¥57,314 million, or 22.9%, to ¥307,848 million, compared with ¥250,534 million in fiscal 2013. Sales increased due to an increase in sales volumes of multifunctional products in emerging countries and Europe through the launch of new products and marketing efforts aggressively. The yen’s depreciation pushed up sales by approximately ¥47,000 million compared with fiscal 2013.

Operating profit for fiscal 2014 increased by ¥6,443 million, or 29.6%, to ¥28,193 million, compared with ¥21,750 million in fiscal 2013. Although operating profit was pushed down by approximately ¥14,500 million due primarily to a decline in prices, an increase of sales promotion costs for the sales expansion activities, an increase in depreciation cost for the investment in capacity expansion and an increase in R&D expenses for the development of new products, operating profit was pushed up by approximately ¥16,000 million due to the effect of the yen’s depreciation and by approximately ¥5,000 million due to the sales growth. These factors resulted in an overall increase in operating profit.

(7) Others

Sales in this reporting segment for fiscal 2014 increased by ¥13,235 million, or 8.3%, to ¥173,137 million, compared with ¥159,902 million in fiscal 2013. Sales at Kyocera Communication Systems Co., Ltd. grew by approximately ¥5,500 million due mainly to an increase in demand for the construction of solar power plants. In addition, sales at Kyocera Chemical Corporation and other subsidiaries increased compared with fiscal 2013. The yen’s depreciation pushed up sales by approximately ¥1,500 million compared with fiscal 2013.

Operating profit for fiscal 2014 decreased by ¥4,266 million, or 40.5%, to ¥6,276 million, compared with ¥10,542 million in fiscal 2013. The decrease was due mainly to an increase by approximately ¥5,500 million in R&D expenses for developing new key technologies and products and to an increase by approximately ¥1,000 million in depreciation and amortization costs compared with fiscal 2013, despite operating profit was pushed up by ¥2,000 million due to the sales growth and by ¥500 million due to the effect of the yen’s depreciation.

(8) Corporate gains and equity in losses of affiliates and an unconsolidated subsidiary

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. The income

 

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decreased by ¥5,359 million, or 31.1%, to ¥11,889 million compared with ¥17,248 million in fiscal 2013. This was mainly due to a decrease of income related to management supporting service by ¥8,105 million, which was partially offset by an increase of ¥2,577 million in dividend income from KDDI Corporation, compared with fiscal 2013.

Results of Operations

Fiscal 2013 compared with Fiscal 2012

The following table shows a summary of Kyocera’s results of operations for fiscal 2012 and fiscal 2013:

 

     Years ended March 31,     Increase
(Decrease)
 
     2012     2013    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Net sales

   ¥ 1,190,870        100.0      ¥ 1,280,054        100.0      ¥ 89,184        7.5   

Cost of sales

     870,143        73.1        952,350        74.4        82,207        9.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     320,727        26.9        327,704        25.6        6,977        2.2   

Selling, general and administrative expenses

     223,052        18.7        250,778        19.6        27,726        12.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from operations

     97,675        8.2        76,926        6.0        (20,749     (21.2

Interest and dividend income

     13,966        1.2        14,666        1.1        700        5.0   

Interest expense

     (2,042     (0.2     (1,890     (0.2     152        —     

Foreign currency transaction gains, net

     4,533        0.4        5,136        0.4        603        13.3   

Gains on sales of securities, net

     337        0.0        4,542        0.4        4,205        —     

Other, net

     424        0.0        1,983        0.2        1,559        367.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     17,218        1.4        24,437        1.9        7,219        41.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     114,893        9.6        101,363        7.9        (13,530     (11.8

Income taxes

     30,135        2.5        34,012        2.6        3,877        12.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     84,758        7.1        67,351        5.3        (17,407     (20.5

Net income attributable to noncontrolling interests

     (5,401     (0.4     (878     (0.1     4,523        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Kyocera Corporation

   ¥ 79,357        6.7      ¥ 66,473        5.2      ¥ (12,884     (16.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Sales

Net sales in fiscal 2013 increased by ¥89,184 million, or 7.5%, to ¥1,280,054 million, compared with ¥1,190,870 million in fiscal 2012.

In fiscal 2013, net sales increased compared with fiscal 2012 due primarily to sales growth in the Applied Ceramic Products Group and the Semiconductor Parts Group and the full-year contribution from Kyocera Display Corporation, which became a consolidated subsidiary in February 2012. Mainly as a result of the effect of the yen’s depreciation against the U.S. dollar, net sales after translation into the yen in fiscal 2013 were pushed up by approximately ¥21,000 million, compared with fiscal 2012.

Net sales in the Components Business in fiscal 2013 increased by ¥82,805 million, or 12.9%, to ¥725,102 million, compared with ¥642,297 million in fiscal 2012. Net sales in the Equipment Business in fiscal 2013 increased by ¥5,722 million, or 1.4%, to ¥427,848 million, compared with ¥422,126 million in fiscal 2012.

For details regarding 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 2012 and fiscal 2013, 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)
 
     2012      2013     
     Amount      %      Amount      %      Amount     %  
     (Yen in millions)  

Japan

   ¥ 559,344         47.0       ¥ 574,202         44.9       ¥ 14,858        2.7   

Asia

     205,469         17.2         235,520         18.4         30,051        14.6   

United States of America

     166,706         14.0         215,032         16.8         48,326        29.0   

Europe

     204,887         17.2         198,868         15.5         (6,019     (2.9

Others

     54,464         4.6         56,432         4.4         1,968        3.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net sales

   ¥ 1,190,870         100.0       ¥ 1,280,054         100.0       ¥ 89,184        7.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Sales in Japan increased compared with fiscal 2012 due mainly to sales growth in the solar energy business, despite a decrease in sales in the Telecommunications Equipment Group affected by a decline in sales volume of mobile phone handsets.

Sales in Asia increased compared with fiscal 2012 due primarily to an increase in sales in component for digital consumer equipment and in the solar energy business.

Sales in the United States of America increased compared with fiscal 2012 due to the full-year contribution from Kyocera Display Corporation, which became a consolidated subsidiary in February 2012, and increased sales in the Telecommunications Equipment Group resulting from increased sales of mobile phone handsets.

Sales in Europe decreased compared with fiscal 2012 affected by a decline in demand in the solar energy business and the yen’s appreciation against the Euro.

Sales in Others increased compared with fiscal 2012 due mainly to an increase in sales in the Information Equipment Group.

Cost of Sales and Gross Profit

In fiscal 2013, cost of sales increased by ¥82,207 million, or 9.4%, to ¥952,350 million from ¥870,143 million in fiscal 2012. This is due mainly to the full-year impact from the production activity of Kyocera Display Corporation, which became a consolidated subsidiary in February 2012, as well as the expansion of production volume in the solar energy business.

Raw material costs of ¥384,509 million accounted for 40.4% of total cost of sales in fiscal 2013, which increased by ¥51,338 million, or 15.4%, from ¥333,171 million in fiscal 2012. Labor costs of ¥179,040 million accounted for 18.8% of total cost of sales in fiscal 2013, which increased by ¥8,045 million, or 4.7%, from ¥170,995 million in fiscal 2012. Depreciation expense of ¥54,214 million accounted for 5.7% of total cost of sales in fiscal 2013, which increased by ¥1,976 million, or 3.8%, from ¥52,238 million in fiscal 2012.

As a result, gross profit in fiscal 2013 increased by ¥6,977 million, or 2.2%, to ¥327,704 million from ¥320,727 million in fiscal 2012. The gross profit ratio to net sales decreased by 1.3 percentage points from 26.9% to 25.6%.

 

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Selling, General & Administrative Expenses and Profit from Operations

In fiscal 2013, selling, general and administrative expenses increased by ¥27,726 million, or 12.4%, to ¥250,778 million from ¥223,052 million in fiscal 2012. This is due to an increase by ¥13,400 million of the environmental remediation charge at AVX Corporation as well as the full-year impact from the sales activity of Kyocera Display Corporation, which became a consolidated subsidiary in February 2012. The ratio of selling, general and administrative expenses to net sales was 19.6% in fiscal 2013, an increase of 0.9 percentage points as compared with 18.7% in fiscal 2012.

Labor costs of ¥126,691 million accounted for 50.5% of total selling, general and administrative expenses in fiscal 2013, an increase of ¥11,433 million, or 9.9%, from ¥115,258 million in fiscal 2012. Sales promotion and advertising costs of ¥38,246 million accounted for 15.3% of total selling, general and administrative expenses in fiscal 2013, an increase of ¥3,474 million, or 10.0%, from ¥34,772 million in fiscal 2012. Depreciation expense of ¥13,886 million accounted for 5.5% of total selling, general and administrative expenses in fiscal 2013, an increase of ¥96 million, or 0.7%, from ¥13,790 million in fiscal 2012.

As a result, profit from operations in fiscal 2013 decreased by ¥20,749 million, or 21.2%, to ¥76,926 million, compared with ¥97,675 million in fiscal 2012. The operating margin decreased by 2.2 percentage points to 6.0% in fiscal 2013, compared with 8.2% in fiscal 2012.

Interest and Dividend Income

Interest and dividend income in fiscal 2013 increased by ¥700 million, or 5.0 %, to ¥14,666 million, compared with ¥13,966 million in fiscal 2012. This was due mainly to an increase in dividend income from KDDI Corporation.

Interest Expense

Interest expense in fiscal 2013 decreased by ¥152 million, or 7.4%, to ¥1,890 million, compared with ¥2,042 million in fiscal 2012. This was due mainly to a decrease in short-term and long-term debts at TA Triumph-Adler GmbH, a German subsidiary of Kyocera Document Solutions Inc.

Foreign Currency Transaction

During fiscal 2013, the average exchange rate for the yen depreciated by ¥4, or 5.1%, against the U.S. dollar and appreciated by ¥2, or 1.8%, against the Euro, as compared with fiscal 2012. At March 31, 2013, the yen depreciated by ¥12, or 14.6%, against the U.S. dollar, and by ¥11, or 10.0%, against the Euro, as compared with March 31, 2012. Kyocera recorded foreign currency transaction gains of ¥5,136 million in fiscal 2013.

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

Gains and Losses from Investments

Losses on equity method investments in fiscal 2013 resulted in ¥155 million, an increase of ¥119 million, or 330.6%, compared with ¥36 million in fiscal 2012.

Gains on sales of securities in fiscal 2013 increased by ¥4,205 million to ¥4,542 million, compared with ¥337 million in fiscal 2012.

Losses on impairment of securities in fiscal 2013 decreased by ¥531 million, or 42.1%, to ¥729 million, compared with ¥1,260 million in fiscal 2012.

 

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Income before Income Taxes

Income before income taxes in fiscal 2013 decreased by ¥13,530 million, or 11.8%, to ¥101,363 million compared with ¥114,893 million in fiscal 2012. Margin of income before income taxes against net sales decreased by 1.7 percentage points to 7.9% compared with 9.6% in fiscal 2012.

Profit from operations decreased due to the recording of the charge of ¥21,300 million for an environmental remediation at AVX Corporation. Income before income taxes decreased due to the decrease of profit from operations, despite of an increase in other income, such as gains on sales of securities, dividend income and foreign currency transaction gains. Income before income taxes after translation into the yen for fiscal 2013 was pushed up by approximately ¥2,500 million due to the impact of the yen’s depreciation against the U.S. dollar compared with fiscal 2012.

Operating profit in the Components Business in fiscal 2013 decreased by ¥10,968 million, or 17.4%, to ¥51,903 million, compared with ¥62,871 million in fiscal 2012. Operating profit in the Equipment Business in fiscal 2013 decreased by ¥7,830 million, or 25.3%, to ¥23,090 million, compared with ¥30,920 million in fiscal 2012.

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 2013 increased by ¥3,877 million, or 12.9%, to ¥34,012 million compared with ¥30,135 million in fiscal 2012.

The effective tax rate of 33.6% in fiscal 2013 was 7.4 percentage points higher than the effective rate of 26.2% in fiscal 2012. The increases were due mainly to the enactment of new Japanese tax rates in fiscal 2012, which decreased the statutory tax rates for temporary difference expected to be realized in the subsequent periods. The enactment resulted in the reduction of income tax in fiscal 2012 due to the amounts of reversal related to deferred tax liabilities exceeded the amounts of reversal related to deferred tax assets. The effective tax rate in fiscal 2013 is lower than the Japanese statutory tax rate of 38.0% by 4.4 percentage points, due mainly to a decrease related to the difference in statutory tax rates of foreign subsidiaries.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests in fiscal 2013 amounted to ¥878 million. Net income attributable to noncontrolling interests in fiscal 2013 decreased by ¥4,523 million, or 83.7%, compared with ¥5,401 million in fiscal 2012. This mainly reflected that AVX Corporation, which accounted for approximately 30% of noncontrolling ownership interests, posted net loss due mainly to the recording of an environmental remediation charge.

 

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Business Overview by Reporting Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2012 and fiscal 2013 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2012     2013    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 80,372        6.7      ¥ 74,852        5.9      ¥ (5,520     (6.9

Semiconductor Parts Group

     153,420        12.9        167,241        13.1        13,821        9.0   

Applied Ceramic Products Group

     179,784        15.1        211,439        16.5        31,655        17.6   

Electronic Device Group

     228,721        19.2        271,570        21.2        42,849        18.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     642,297        53.9        725,102        56.7        82,805        12.9   

Telecommunications Equipment Group

     178,669        15.0        177,314        13.8        (1,355     (0.8

Information Equipment Group

     243,457        20.4        250,534        19.6        7,077        2.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     422,126        35.4        427,848        33.4        5,722        1.4   

Others

     151,987        12.8        159,902        12.5        7,915        5.2   

Adjustments and eliminations

     (25,540     (2.1     (32,798     (2.6     (7,258     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   ¥ 1,190,870        100.0      ¥ 1,280,054        100.0      ¥ 89,184        7.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2012 and fiscal 2013 by the seven reporting segments:

 

     Years ended March 31,      Increase
(Decrease)
 
     2012      2013     
     Amount     %*      Amount     %*      Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 12,622        15.7       ¥ 7,614        10.2       ¥ (5,008     (39.7

Semiconductor Parts Group

     27,754        18.1         30,379        18.2         2,625        9.5   

Applied Ceramic Products Group

     6,459        3.6         17,924        8.5         11,465        177.5   

Electronic Device Group

     16,036        7.0         (4,014     —           (20,050     —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Components Business

     62,871        9.8         51,903        7.2         (10,968     (17.4

Telecommunications Equipment Group

     1,469        0.8         1,340        0.8         (129     (8.8

Information Equipment Group

     29,451        12.1         21,750        8.7         (7,701     (26.1
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Equipment Business

     30,920        7.3         23,090        5.4         (7,830     (25.3

Others

     8,054        5.3         10,542        6.6         2,488        30.9   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating profit

     101,845        8.6         85,535        6.7         (16,310     (16.0

Corporate gains and equity in losses of affiliates and unconsolidated subsidiaries

     13,840        —           17,248        —           3,408        24.6   

Adjustments and eliminations

     (792     —           (1,420     —           (628     —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes

   ¥ 114,893        9.6       ¥ 101,363        7.9       ¥ (13,530     (11.8
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

* % to net sales of each corresponding segment

 

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(1) Fine Ceramic Parts Group

Sales in this reporting segment for fiscal 2013 decreased by ¥5,520 million, or 6.9%, to ¥74,852 million, compared with ¥80,372 million in fiscal 2012. The decrease in sales was due to stagnation in component demand in the industrial machinery market, including for semiconductor fabrication equipment, and in the digital consumer equipment market, despite sales being pushed up by approximately ¥500 million compared with fiscal 2012 due to the yen’s depreciation.

Operating profit in this reporting segment for fiscal 2013 decreased by ¥5,008 million, or 39.7%, to ¥7,614 million, compared with ¥12,622 million in fiscal 2012. The main reasons for this decrease were a decline in capacity utilization ratio in line with the decline in sales as well as product price erosion.

(2) Semiconductor Parts Group

Sales in this reporting segment for fiscal 2013 increased by ¥13,821 million, or 9.0%, to ¥167,241 million, compared with ¥153,420 million in fiscal 2012. The increase in sales was due to growth in demand for ceramic packages mainly for smartphones and the effects of the yen’s depreciation, which pushed up sales by approximately ¥4,500 million compared with fiscal 2012.

Operating profit in this reporting segment for fiscal 2013 increased by ¥2,625 million, or 9.5%, to ¥30,379 million, compared with ¥27,754 million in fiscal 2012. The main reasons for this were an increase of approximately ¥2,000 million due to sales growth and the effects of the yen’s depreciation, which also pushed up profit by approximately ¥2,000 million, despite an increase of approximately ¥1,000 million in depreciation due to an increase in capital expenditures.

(3) Applied Ceramic Products Group

Sales in this reporting segment for fiscal 2013 increased by ¥31,655 million, or 17.6%, to ¥211,439 million, compared with ¥179,784 million in fiscal 2012. This increase was due to growth in the solar energy business as well as the yen’s depreciation, which pushed up sales by approximately ¥2,500 million compared with fiscal 2012.

Sales in the solar energy business increased significantly due to increased shipment volume of around 50% on a global basis compared with fiscal 2012 on the back of considerable growth in demand in the Japanese market, despite a decline of around 20% in product prices compared with fiscal 2012, affected by intensifying competition.

Operating profit in this reporting segment for fiscal 2013 increased by ¥11,465 million, or 177.5%, to ¥17,924 million, compared with ¥6,459 million in fiscal 2012. Despite an increase of approximately ¥1,000 million as the combined total for depreciation and R&D expenses compared with fiscal 2012, the surge in operating profit was due to the effects of higher sales, which pushed up profit by approximately ¥6,500 million, an increase of approximately ¥4,500 million as a result of a decrease in write-down of inventories, and promoting cost reductions by approximately ¥1,000 million, as well as an increase of approximately ¥500 million as a result of the yen’s depreciation.

(4) Electronic Device Group

Sales in this reporting segment for fiscal 2013 increased by ¥42,849 million, or 18.7%, to ¥271,570 million, compared with ¥228,721 million in fiscal 2012. The increase in sales was due to the full-year contribution from Kyocera Display Corporation, which became a consolidated subsidiary in February 2012, despite a decrease in sales of components for the digital consumer equipment and industrial machinery markets due primarily to stagnant demand and price declines. In addition, sales were pushed up by approximately ¥9,500 million compared with fiscal 2012 due to the yen’s depreciation.

 

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Operating loss of ¥4,014 million was recorded in this reporting segment for fiscal 2013, marking a decrease of ¥20,050 million compared with operating profit of ¥16,036 million in fiscal 2012. This decline was due to an increase by ¥13,400 million of the environmental remediation charge at AVX Corporation coupled with the impact of a decrease in sales of major components in this reporting segment, despite profit being pushed up by approximately ¥2,000 million due to the yen’s depreciation.

(5) Telecommunications Equipment Group

Sales in this reporting segment for fiscal 2013 decreased by ¥1,355 million, or 0.8%, to ¥177,314 million, compared with ¥178,669 million in fiscal 2012. The decrease in sales was due to a decline in sales volume of mobile phone handsets in Japan resulting from deceleration of growth and intensifying competition, despite growth in sales overseas on a local currency basis and the yen’s depreciation, which pushed up sales by approximately ¥4,000 million compared with fiscal 2012.

Operating profit in this reporting segment for fiscal 2013 decreased slightly by ¥129 million, or 8.8%, to ¥1,340 million, compared with ¥1,469 million in fiscal 2012. The year-on-year decline in operating profit was due to an increase of approximately ¥5,000 million in write-down of inventories, despite an increase of approximately ¥2,500 million due primarily to improved profitability in the overseas business, an increase of approximately ¥1,500 million due to lower depreciation and amortization costs, and the yen’s depreciation, which pushed up profit by approximately ¥1,000 million.

(6) Information Equipment Group

Sales in this reporting segment for fiscal 2013 increased by ¥7,077 million, or 2.9%, to ¥250,534 million, compared with ¥243,457 million in fiscal 2012. This increase was due mainly to an increase of approximately 20% in sales in developing countries mainly Asia and Russia compared with fiscal 2012 on the back of efforts to actively introduce new products and cultivate new markets amid a tough business environment characterized by sluggish growth in the global market and fierce price competition.

Operating profit in this reporting segment for fiscal 2013 decreased by ¥7,701 million, or 26.1%, to ¥21,750 million, compared with ¥29,451 million in fiscal 2012. Although profit was pushed up by approximately ¥3,000 million due to the effects of higher sales, the main reasons for the decrease were an increase of approximately ¥7,000 million in selling, general and administrative expenses, primarily consisting of sales promotion costs, and the impact of the yen’s appreciation against Euro, which pushed down profit by approximately ¥3,000 million.

(7) Others

Sales in this reporting segment for fiscal 2013 increased by ¥7,915 million, or 5.2%, to ¥159,902 million, compared with ¥151,987 million in fiscal 2012. The increase in sales was due to growth in sales of approximately ¥10,000 million at Kyocera Communication Systems Co., Ltd., led by the engineering business.

Operating profit in this reporting segment for fiscal 2013 increased by ¥2,488 million, or 30.9%, to ¥10,542 million, compared with ¥8,054 million in fiscal 2012. This was due to an increase of approximately ¥1,500 million as a result of higher sales coupled with a decrease of approximately ¥1,500 million in R&D expenses for new businesses.

(8) Corporate gains and equity in losses of affiliates and unconsolidated subsidiaries

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. The income increased by ¥3,408 million, or 24.6%, to ¥17,248 million, due mainly to an increase in gains on sales of securities, compared with ¥13,840 million in fiscal 2012.

 

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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, 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.

Kyocera recognized inventory write-downs of ¥11,507 million in fiscal 2013 and ¥7,256 million in fiscal 2014, which were due mainly to the Telecommunications Equipment Group. Kyocera recorded these write-downs to adjust the carrying amount to market value due to decreases in sales price arising from short lives of products or rapidly worsening market conditions. If the market conditions or demand for the products are less favorable than Kyocera’s projections, additional write-downs may be required.

The amounts of these inventory write-downs by reporting segments appear in Note 17 to the Consolidated Financial Statements included in this annual report on Form 20-F.

Impairment of Securities and Investments

Kyocera records impairment charges for debt and equity securities when it believes that the decline in 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 ¥729 million and ¥109 million in fiscal 2013 and 2014, respectively.

 

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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, 2014 had increased by ¥241,212 million, or 124.2%, to ¥435,428 million compared with that of ¥194,216 million at March 31, 2013, 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.

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.

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, 2014) exceeded its carrying amount by 17.9% as of January 1, 2014. However, 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 ¥5,706 million which Kyocera acquired during the year ended March 31, 2014 was mainly based on the acquisition of the common stock of Kyocera Circuit Solutions, Inc., included in the Semiconductor Parts Group.

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, 2014, deferred tax assets amounted to ¥102,327 million, which Kyocera considers will more likely than not 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 2014.

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

 

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occur. Projected benefit obligations are determined on an actuarial basis and are significantly affected by the assumptions used in their calculation, such as the discount rates, the rate of increase in compensation levels and other assumptions. The expected long-term rate of return on plan assets is also used as an assumption.

Kyocera determines the discount rate by referencing the yield on high quality fixed income securities such as Japanese Government Bonds. The rate of increase in compensation levels is determined based mainly on results of operations and inflation. The expected return on plan assets is determined based on the rate of historical earnings and Kyocera’s expectation of future performance of the funds in which plan assets are invested. Kyocera annually reviews the assumptions underlying its actuarial calculations, making adjustments based on current market conditions, if necessary.

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

Sensitivity Analysis of Benefit Plans

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

 

     Effect on projected benefit obligations
as of March 31, 2014
 
     (Yen in millions)  

Discount rates:

  

0.25% decrease

   ¥ 5,455   

0.25% increase

     (5,148
     Effect on income before income taxes
for the year ending March 31, 2015
 
     (Yen in millions)  

Discount rates:

  

0.25% decrease

   ¥ (61

0.25% increase

     59   

Expected rate of return on plan assets:

  

0.25% decrease

     (383

0.25% increase

     383   

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 can be reasonably estimated. 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.

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

 

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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 Accounting Standards Codification (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.

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 personnel. 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 have historically approximated 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

 

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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 personnel. 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 have historically approximated 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.”

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, “Income Taxes.”

At March 31, 2014, gross unrecognized tax benefits amounted to ¥4,804 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

On April 1, 2013, Kyocera adopted the Financial Accounting Standard Board (FASB)‘s Accounting Standards Update (ASU) No. 2011-10, “Derecognition of in Substance Real Estate—a Scope Clarification.” This accounting standard requires the reporting entity to apply the guidance in ASC 360-20, “Property, Plant, and Equipment—Real Estate Sales” to determine whether it should derecognize the in substance real estate when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

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On April 1, 2013, Kyocera adopted the FASB’s ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities” and ASU 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” ASU No. 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. ASU 2013-01 clarifies that the scope of ASU No. 2011-11 applies to derivatives accounted for in accordance with ASC 815, “Derivatives and Hedging” including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with ASC 210-20-45, “Balance Sheet—Offsetting—Other Presentation Matters” or ASC 815-10-45, “Derivatives and Hedging—Overall—Other Presentation Matters” or subject to an enforceable master netting arrangement or similar agreement. As these accounting standards are provisions for disclosure, the adoption of these accounting standards did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

On April 1, 2013, Kyocera adopted the FASB’s ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” This accounting standard permits an entity to first assess qualitative factors to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the impairment test. An entity is not required to calculate the fair value of the indefinite-lived intangible asset unless the entity determines that it is more likely than not that the indefinite-lived intangible asset is impaired. As this accounting standard did not actually change how the impairment would be calculated, the adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

On April 1, 2013, Kyocera adopted the FASB’s ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This accounting standard requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, this accounting standard requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, this accounting standard required an entity to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. As this accounting standard is a provision for disclosure, the adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

On July 17, 2013, Kyocera adopted the FASB’s ASU No. 2013-10, “Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.” This accounting standard permits an entity to use the Fed Funds Effective Swap Rate (Overnight Index Swap Rate) as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815, “Derivatives and Hedging,” in addition to the interest rates on direct Treasury obligations of the U.S. government and the London Interbank Offered Rate. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

Recently Issued Accounting Standards

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This accounting standard requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward in the financial statements. This accounting standard will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this accounting standard is not expected to have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

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In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This accounting standard changes the requirements for reporting discontinued operations in ASC 205-20, “Presentation of Financial Statements—Discontinued Operations.” A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This accounting standard also requires an entity to provide disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. This accounting standard will be effective for All disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. As this accounting standard is a provision for disclosure, the adoption of this accounting standard is not expected to have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This accounting standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This accounting standard also requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about:

1. Contracts with customers—including revenue and impairments recognized, disaggregation of revenue, and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations)

2. Significant judgments and changes in judgments—determining the timing of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts allocated to performance obligations

3. Assets recognized from the costs to obtain or fulfill a contract.

This accounting standard will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Kyocera is currently evaluating the impact that this accounting standard will have on Kyocera’s consolidated results of operations, financial position and cash flows.

In June 2014, the FASB issued ASU No. 2014-10, “Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.” This accounting standard removes the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. This accounting standard also eliminates an exception provided to development stage entities in ASC 810, “Consolidation,” for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. This accounting standard will be effective retrospectively for annual reporting periods beginning after December 15, 2015, and interim periods therein. The adoption of this accounting standard is not expected to have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

B. Liquidity and Capital Resources

Capital Resources

Kyocera’s net cash provided by operating activities in fiscal 2014 was ¥149,141 million, and cash and cash equivalents at March 31, 2014 were ¥335,174 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

 

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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, 2014, Kyocera’s short-term borrowings and long-term debt including current portion totaled ¥35,890 million. The ratio to total assets of 1.4% continues to reflect a low level of dependence. Most borrowings were denominated in the Euro, the Japanese yen 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 2014 decreased by ¥77 million, or 0.1%, to ¥56,611 million compared with ¥56,688 million in fiscal 2013. In fiscal 2014, although Kyocera constructed new production bases both domestically and internationally and capital expenditures were increased to enforce our production capacity in the Semiconductor Parts Group, capital expenditures were reduced in the Electronic Device Group. As a result, capital expenditures in fiscal 2014 were almost the same as in fiscal 2013. R&D expenses in fiscal 2014 increased by ¥1,311 million, or 2.8%, to ¥48,830 million compared with ¥47,519 million in fiscal 2013. Almost all capital and R&D expenditures were funded by using cash at hand.

During fiscal 2015, Kyocera expects total capital expenditures to be approximately ¥64,000 million and total R&D expenses to be approximately ¥54,000 million. Kyocera expects that total capital expenditures will increase due mainly to capital expenditures in the Semiconductor Parts Group and the Information Equipment Group conducted in order to expand their production capacity. Kyocera also expects that R&D expenses will increase compared with fiscal 2014. Kyocera will promote R&D of new products in order to expand the business. Nearly all capital and R&D expenditures will be funded by using cash on hand. Kyocera intends to maintain the proportion of capital and R&D expenditures to sales in fiscal 2015 at almost as same level as in fiscal 2014. Kyocera believes that it needs to invest its resources continuously in the development of new business areas and enhancement of technology in order to create new products and commercialize advanced technologies, and thereby secure future earnings streams.

Kyocera contributed ¥15,733 million to its benefit pension plans in fiscal 2014 and Kyocera expects to contribute ¥12,045 million to its benefit pension plans in fiscal 2015. At March 31, 2014, 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.

As described in Item 5.A. “Operating Results” of this annual report on Form 20-F, in accordance with the terms of the financial settlement with the U.S. governments regarding the environmental remedial actions at New Bedford Harbor in the Commonwealth of Massachusetts, AVX Corporation, a U.S. based subsidiary, paid ¥24,749 million of environmental remediation charges plus accrued interest to the U.S. governments by using its cash at hand during the year ended March 31, 2014, and it is obligated to pay ¥12,575 million plus accrued interest on or before September 21, 2015.

In fiscal 2014, Kyocera Corporation paid cash dividends totaling ¥25,681 million, at ¥140 per share. Kyocera Corporation received approval at the general meeting of shareholders held on June 26, 2014 for the payment of year-end dividends totaling ¥14,675 million, or ¥40 per share, on June 27, 2014 to all shareholders of record on March 31, 2014.

As described in Note 2 to the Consolidated Financial Statements, Kyocera made several acquisitions of businesses, of which costs, net cash aquired, were ¥15,975 million in fiscal 2014. Such acquisition costs were all funded by using cash in hand.

At March 31, 2014, Kyocera’s working capital totaled ¥1,039,984 million, an increase of ¥98,231 million, or 10.4%, compared with ¥941,753 million at March 31, 2013. Our working capital requirements, capital expenditures, debt repayments and other obligations were funded by using cash at hand.

 

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Undistributed earnings of foreign subsidiaries which are intended to be reinvested indefinitely amounted to ¥282,556 million as of March 31, 2014. Accordingly, cash and cash equivalents and investments in securities amounts held by Kyocera’s foreign subsidiaries, totaling ¥232,649 million as of March 31, 2014, are not intended to be used as dividend distributions to Kyocera for use in Japan at present. Kyocera currently believes it does not need the cash and investments held by its foreign subsidiaries to be repatriated back to Japan at least in fiscal 2015 as it has adequate liquidity within Japan to support its Japanese operations.

Kyocera believes cash at hand will be sufficient to fund all cash requirements outlined above during fiscal 2015. 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 72.5% at March 31, 2014, 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 2014 compared with Fiscal 2013

The following table shows a summary of Kyocera’s cash flows for fiscal 2013 and fiscal 2014:

 

     Years ended March 31,  
     2013     2014  
     Amount     Amount  
     (Yen in millions)  

Cash flows from operating activities

   ¥ 109,489      ¥ 149,141   

Cash flows from investing activities

     (66,142     (101,141

Cash flows from financing activities

     (31,431     (32,805

Effect of exchange rate changes on cash and cash equivalents

     20,250        14,525   

Net increase in cash and cash equivalents

     32,166        29,720   

Cash and cash equivalents at beginning of year

     273,288        305,454   

Cash and cash equivalents at end of year

   ¥ 305,454      ¥ 335,174   

Net cash provided by operating activities for fiscal 2014 increased by ¥39,652 million, or 36.2%, to ¥149,141 million from ¥109,489 million for fiscal 2013. This was due mainly because an increase in net income and cash flow adjustment related to receivables exceeded cash flow adjustments related to other current and non-current liabilities.

Net cash used in investing activities for fiscal 2014 increased by ¥34,999 million, or 52.9%, to ¥101,141 million from ¥66,142 million for fiscal 2013. This was due mainly because increases in cash used in purchases of held-to-maturity securities exceeded decreases in cash used in acquisitions of time deposits and certificate of deposits.

Net cash used in financing activities for fiscal 2014 increased by ¥1,374 million, or 4.4%, to ¥32,805 million from ¥31,431 million for fiscal 2013. This was due mainly to increases in dividend paid, which exceeded decreases in payments of short-term borrowings and increases in proceeds from issuance of long-term debt.

An increase in the effect of exchange rate changes on cash and cash equivalents of ¥14,525 million was due mainly to the yen’s depreciation against the Euro and the U.S. dollar between March 31, 2013 and March 31, 2014.

 

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Cash and cash equivalents at March 31, 2014 totaled ¥335,174 million, an increase of ¥29,720 million, or 9.7%, from those of ¥305,454 million at March 31, 2013. 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 2013 compared with Fiscal 2012

The following table shows a summary of Kyocera’s cash flows for fiscal 2012 and fiscal 2013:

 

     Years ended March 31,  
     2012     2013  
     Amount     Amount  
     (Yen in millions)  

Cash flows from operating activities

   ¥ 109,065      ¥ 109,489   

Cash flows from investing activities

     (56,051     (66,142

Cash flows from financing activities

     (50,769     (31,431

Effect of exchange rate changes on cash and cash equivalents

     (2,428     20,250   

Net increase (decrease) in cash and cash equivalents

     (183     32,166   

Cash and cash equivalents at beginning of year

     273,471        273,288   

Cash and cash equivalents at end of year

   ¥ 273,288      ¥ 305,454   

Net cash provided by operating activities for fiscal 2013 was ¥109,489 million, which was almost flat compared to ¥109,065 million for fiscal 2012. This was mainly because a decrease in net income and cash flow adjustment related to notes and accounts payable were offset by cash flow adjustments related to inventories and other non-current liabilities.

Net cash used in investing activities for fiscal 2013 increased by ¥10,091 million, or 18.0%, to ¥66,142 million from ¥56,051 million for fiscal 2012. This was mainly because an increase in acquisition and a decrease in withdrawal of time deposits and certificate of deposits exceeded decreases in acquisitions of business and in payments for purchases of held-to-maturity securities.

Net cash used in financing activities for fiscal 2013 decreased by ¥19,338 million, or 38.1%, to ¥31,431 million from ¥50,769 million for fiscal 2012. This was due mainly to decreases in payments of short-term borrowings and long-term debts as well as a decrease in dividend paid.

An increase in the effect of exchange rate changes on cash and cash equivalents of ¥20,250 million was due mainly to the yen’s depreciation against the Euro and the U.S. dollar between March 31, 2012 and March 31, 2013.

Cash and cash equivalents at March 31, 2013 totaled ¥305,454 million, an increase of ¥32,166 million, or 11.8%, from those of ¥273,288 million at March 31, 2012. Most of Kyocera’s cash and cash equivalents were denominated in the yen but certain cash and cash equivalents, mainly in overseas subsidiaries, were denominated in foreign currencies, such as the U.S. dollar.

Assets, Liabilities and Equity

Kyocera’s total assets at March 31, 2014 increased by ¥353,851 million, or 15.5% to ¥2,636,704 million, compared with ¥2,282,853 million at March 31, 2013.

Cash and cash equivalents increased by ¥29,720 million, or 9.7%, to ¥335,174 million, due mainly to withdrawal of certificate deposits and increases from net cash gained by operating activities.

 

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Short-term investments in debt and equity securities increased by ¥72,007 million, or 164.1%, to ¥115,900 million due mainly to the purchases of securities.

Other short-term investments decreased by ¥19,512 million, or 10.8%, to ¥160,331 million, due mainly to withdrawal of time deposits at Kyocera Corporation.

Inventories increased by ¥39,352 million, or 13.3%, to ¥335,802 million, due mainly to increases in orders in solar energy business.

Long-term investments in debt and equity securities increased by ¥231,722 million or, 45.8%, to ¥738,212 million, due mainly to increases in the market value of the shares of KDDI Corporation and other equity securities at March 31, 2014 compared with March 31, 2013.

Total property, plant and equipment at cost, net of accumulated depreciation, increased by ¥1,733 million, or 0.6%, to ¥270,557 million. Capital expenditure in fiscal 2014 was ¥56,611 million, and depreciation was ¥65,760 million.

Goodwill increased by ¥13,207 million, or 12.8%, to ¥116,632 million, due mainly to the acquisition of common stock of Kyocera Circuit Solutions, Inc., and the effect of the yen’s depreciation.

Kyocera’s total liabilities at March 31, 2014 increased by ¥81,567 million, or 14.4%, to ¥649,478 million, compared with ¥567,911 million at March 31, 2013.

Trade notes and accounts payable increased by ¥11,175 million, or 10.0%, to ¥122,424 million, due mainly to an increase in purchases in line with an increase in sales compared with March 31, 2013.

Deferred taxes liabilities increased by ¥89,725 million or, 61.4%, to ¥235,954 million, due mainly to increases in the market value of the shares of KDDI Corporation and other equity securities at March 31, 2014 compared with March 31, 2013.

Total equity at March 31, 2014 increased by ¥272,284 million, or 15.9%, to ¥1,987,226 million, compared with ¥1,714,942 million at March 31, 2013.

Retained earnings at March 31, 2014 increased by ¥47,272 million, or 3.5%, due to a net income for fiscal 2014 of ¥88,756 million offset by cash dividend payments of ¥25,681 million and retirement of treasury stock of ¥15,803 million.

Accumulated other comprehensive income increased by ¥200,825 million, or 400.5%, to ¥250,963 million. Net unrealized gains on securities increased by ¥158,535 million, or 117.2%, due mainly to increases in market values of the shares of KDDI Corporation and other equity securities at March 31, 2014 compared with March 31, 2013.

Foreign currency translation adjustments increased by ¥40,168 million to a loss of ¥(21,459) million, due mainly to the effect of the yen’s depreciation.

Kyocera Corporation shareholders’ equity ratio at March 31, 2014 was 72.5%, increased by 0.4 percentage points compared with 72.1% at March 31, 2013.

Noncontrolling interests in subsidiaries, principally AVX Corporation, increased by ¥8,358 million, or 12.2%, to ¥77,143 million, compared with ¥68,785 million at March 31, 2013.

 

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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 businesses 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 the 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 markets by leveraging fine ceramic materials technology, processing technology and design technology that we have accumulated since our earliest days. In the industrial machinery market, we are strengthening the development of parts for next-generation semiconductor fabrication equipment, which includes increasing the size of silicon wafers, parts for the environment and energy market such as fuel cells and LED-related products, which have increased demand for lighting systems.

In the automotive market, efforts are being undertaken for camera modules for rearview detection and for preventing collision, an area where demand is forecast to increase due to new legislation concerning safety regulations in the United States. At the same time, we are concentrating development on ceramic parts for diesel engines that contribute to a reduction of carbon dioxide and exhaust gas.

In the digital consumer equipment market, including smartphones and TVs, we are strengthening the development in particular of Smart Sonic Receiver and Smart Sonic Sound technologies that make maximum use of the exceptional piezoelectric properties of ceramics, and are progressing with market cultivation.

(2) Semiconductor Parts Group

In the digital consumer equipment market, needs are continuing to grow for products such as smartphones that are more multifunctional as well as smaller and thinner. In line with this, electronic components used in such equipment are getting smaller while semiconductors are becoming more refined. In the information and communications network market, there is demand for the creation of fast, large-capacity infrastructure. In order to respond to these market trends and to expand the business, Kyocera is working to develop new high-value-added products that leverage our own unique material, design and layering technologies. Specifically, in the ceramic packages and substrates business we are working on the development of high-strength, high-rigidity ultra-small and thin ceramic packages that employ micro wiring as well as ceramic packages for optical communications that are capable of higher frequency.

In the organic multilayer package and board business, we are strengthening the development of fine-pitch, thin, highly precise flip-chip packages and module substrates as well as a board that can handle high frequencies and component-embedded boards.

(3) Applied Ceramic Products Group

In the solar energy business, we are working to further improve the conversion efficiency of multicrytalline and monocrystalline silicon solar cells as well as the output of modules. We are also striving to develop other types of solar cells. In addition, we are focusing on the development of peripheral equipment for solar cells, including a power conditioner that converts generated electricity for use in the home and the office, a power storage system that can store generated electricity, and energy management systems, which control energy efficiently.

 

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In the cutting tool business, we are pushing ahead with the development of high-quality and high-precision products that contribute to increased productivity for users and that are employed in a wide array of markets such as the automotive and industrial machinery markets.

(4) Electronic Device Group

Kyocera is developing various components and devices, including small, thin ceramic capacitors and modules, crystal related products, and fine-pitch, low-profile connectors for use in mobile equipment such as smartphones and tablet PCs, which are getting more multifunctional and require smaller components. In addition, we are pushing ahead with the development of high-voltage ceramic capacitors for the industrial equipment market and high-voltage and high-current connectors for the automotive market.

In liquid crystal display related products, we are developing high-value-added products that include TFT liquid crystal displays, which feature a touch panel and cover glass, for use in the automotive and industrial equipment markets. Additionally, we are developing high-speed, high-image quality inkjet printheads mainly for the commercial printing market.

(5) Telecommunications Equipment Group

Kyocera is strengthening the development of high-value-added terminals that realize differentiation in user interface for equipment by leveraging our unique component technology in addition to slim design, dust prevention design and shock-resistant design that we have amassed in-house. We are also working to reduce development time and increase efficiency by promoting the use of platforms for terminal development. Additionally, we are developing Machine-to-Machine (M2M) modules, where we expect demand to increase in various fields that include telematics and smart grids in addition to the terminal business.

(6) Information Equipment Group

In the hardware business, we are developing printers and multifunctional products that have exceptional economic efficiency and environmental performance. We are also conducting research and development to extend the life of the photoconductor drum and into a processing system that maintains high image quality over a long period, while striving to develop equipment that realizes low power consumption. In addition, we are pushing ahead with the development of products that meet diverse needs and with the standardization of core components in order to further lower costs.

In the solution services field, where demand is growing, we are accelerating the development of various applications capable of connecting with the outside environment such as mobile equipment and cloud systems as well as the development of new technologies that include the creation of a system for the global development of management document services that optimize and provide continuous support to users’ document environments.

(7) Others

Kyocera Communication Systems Co., Ltd. is working on development in a wide range of areas from infrastructure to software in various industries, including energy management systems and information security software, in addition to meeting needs for the collection, storage and analysis of big data, a field with growing demand on account of the expansion of the market in cloud computing and mobile telecommunications.

Kyocera Chemical Corporation is working on the synthesis of new materials and the development of new material compounding technologies to meet needs for a large variety of enhanced functionality in digital-component-related materials and automotive-related materials, mainly semiconductors. Such functionality includes electrical properties such as insulating reliability, thermal hardening, photo-reactivity, and shape and stress stability.

 

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R&D expenses by reporting segment are as follows.

 

     Years ended March 31,     Increase
(Decrease)
 
     2012     2013     2014    
     Amount     Amount     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 2,943      ¥ 2,878      ¥ 2,553        (11.3

Semiconductor Parts Group

     2,551        2,353        2,206        (6.2

Applied Ceramic Products Group

     5,010        5,778        4,292        (25.7

Electronic Device Group

     5,852        8,058        6,351        (21.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     16,356        19,067        15,402        (19.2

Telecommunications Equipment Group

     4,431        4,445        4,294        (3.4

Information Equipment Group

     17,813        18,373        20,357        10.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     22,244        22,818        24,651        8.0   

Others

     6,959        5,634        8,777        55.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

R&D expenses

   ¥ 45,559      ¥ 47,519      ¥ 48,830        2.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

% to net sales

     3.8     3.7     3.4  

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 2014, demand for conventional mobile phone handsets, PCs and digital cameras declined, however, the shipment volume of smartphones and tablet PCs increased significantly compared with fiscal 2013.

In the automotive market, sales volume increased steadily, particularly in China and the United States. In the solar energy market, global demand expanded more than 30% compared with fiscal 2013 due to remarkable growth in Japan, the United States and China, despite of shrinking of the European market.

Information equipment market including printers and multifunctional products expanded steadily.

In fiscal 2015, we expect production activities to expand in the digital consumer equipment market primarily on the back of new product introductions of smartphones and tablet PCs.

In the automotive market, the production volume of automobiles is projected to expand primarily in Asia. In addition, component demand is expected to increase due to growing demand for enhanced safety and environmental preservation resulting from various laws and regulations coupled with the increased use of electrical equipment inside vehicles.

The global solar energy market in fiscal 2015 is forecasted to achieve double-digit growth compared with fiscal 2014, supported by growth in the U.S. and the Asian markets, despite slowing growth in Japan.

In the information equipment market, the sales volume of printers and multifunctional products is expected to expand steadily due to an increase in demand in emerging countries.

E. Off-Balance Sheet Arrangements

Refer to Note 13 in the Consolidated Financial Statements included in this annual report on Form 20-F.

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

 

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F. Tabular Disclosure of Contractual Obligations

The following 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, 2014. 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

   ¥ 4,064       ¥ —         ¥ —         ¥ —         ¥ 4,064   

Interest payments for short-term borrowings*

     48         —           —           —           48   

Long-term debt (including due within one year)

     12,360         14,324         4,793         349         31,826   

Interest payments for long-term debt*

     1,116         1,038         199         7         2,360   

Supply agreement material used in operation

     7,050         61,121         63,862         78,766         210,799   

Operating leases

     5,991         6,015         2,892         2,273         17,171   

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

     6,483         19         0         —           6,502   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   ¥ 37,112       ¥ 82,517       ¥ 71,746       ¥ 81,395       ¥ 272,770   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* For Kyocera’s variable interest rate of borrowings and debt, Kyocera utilized the rates in effect as of March 31, 2014 when estimating schedule of interest payments.

In addition to contractual obligations shown in the above tables, Kyocera forecasts to contribute ¥12,045 million to its defined benefit pension plans in fiscal 2015. Kyocera recorded liabilities of ¥4,804 million for gross unrecognized tax benefits in accordance with FASB’s ASC 740, “Income Taxes” at March 31, 2014, 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 15 to the Consolidated Financial Statements in this annual report on Form 20-F.

As to the liability recorded by AVX Corporation for environmental remediation in New Bedford Harbor, Massachusetts in the U.S., please refer to “Financial settlement between AVX Corporation and the United States and the Commonwealth of Massachusetts regarding the New Bedford Harbor Superfund Site” in Item 5.A. “Operating Results” of this annual report on Form 20-F on page 29.

Item 6.    Directors, Senior Management and Employees

A. Directors and Senior Management

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

 

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The following table shows Kyocera’s Directors and Audit & Supervisory Board Members as of June 26, 2014.

 

Name

  

Date of Birth

  

Position

   Since   Term  

Tetsuo Kuba

   February 2, 1954   

Representative Director and Chairman

   2008

(Chairman 2013)

    *1   

Tatsumi Maeda

   January 1, 1953   

Representative Director and Vice Chairman

   2008     *1   

Goro Yamaguchi

   January 21, 1956   

Representative Director and President

   2009

(President 2013)

    *1   

Katsumi Komaguchi

   March 5, 1951   

Senior Managing Director

   2009     *1   

Yasuyuki Yamamoto

   April 2, 1951   

Senior Managing Director

   2009     *1   

Ken Ishii

   October 6, 1953   

Director

   2012     *1   

Yoshihito Ohta

   June 26, 1954   

Director

   2010     *1   

Shoichi Aoki

   September 19, 1959   

Director

   2009     *1   

Hiroshi Fure

   February 24, 1960   

Director

   2013     *1   

Yoji Date

   September 20, 1956   

Director

   2013     *1   

John S. Gilbertson

   December 4, 1943   

Director

   1995     *1   

John S. Rigby

   May 13, 1955   

Director

   2012     *1   

Tadashi Onodera

   February 3, 1948   

Outside Director

   2013     *1   

Yoshihiro Kano

   April 5, 1953   

Full-time Audit & Supervisory Board Member

   2011     *2   

Kouji Mae

   January 19, 1949   

Full-time Audit & Supervisory Board Member

   2013     *3   

Osamu Nishieda

   January 10, 1943   

Audit & Supervisory Board Member

   1993     *4   

Yoshinori Yasuda

   November 24, 1946   

Audit & Supervisory Board Member

   2012     *4   

Nichimu Inada

   November 24, 1940   

Audit & Supervisory Board Member

   2012     *4   

Yasunari Koyano

   December 6, 1942   

Audit & Supervisory Board Member

   2013     *3   

 

*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 26, 2013.
*2 The term of office of an Audit & Supervisory Board Member is four years after his election at the close of the ordinary general meeting of shareholders held on June 28, 2011.
*3 The term of office of an Audit & Supervisory Board Member is four years after his election at the close of the ordinary general meeting of shareholders held on June 26, 2013.
*4 The term of office of an Audit & Supervisory Board Member is four years after his election at the close of the ordinary general meeting of shareholders held on June 27, 2012.

Tetsuo Kuba has served as a Representative Director and Chairman of Kyocera Corporation since 2013. He became an Executive Officer in 2003, a Managing Executive Officer in 2005, a Senior Managing Executive Officer in 2007, a Director in 2008 and a Representative Director and President in 2009. He joined Kyocera Corporation in 1982 and has served as the Chairman of the Board of Directors of Kyocera Management Consulting Service (Shanghai) Co., Ltd., the Representative Director and Chairman of Kyoto Purple Sanga Co., Ltd., the Representative Director and Chairman of Kyocera SLC Technologies Corporation, the Representative Director and Chairman of Kyocera Crystal Device Corporation, the Representative Director and Chairman of Kyocera Display Corporation, the Representative Director and Chairman of Kyocera Document Solutions Inc, the Representative Director and Chairman of Kyocera Chemical Corporation, the Representative Director and Chairman of Kyocera Optec Co., Ltd., the Representative Director and Chairman of Kyocera Realty Development Co., Ltd. and the Representative Director and Chairman of Kyocera Circuit Solutions, Inc.

 

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Tatsumi Maeda has served as a Representative Director and Vice Chairman of Kyocera Corporation since 2013. 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 became a Representative Director and Vice President in 2009. He joined Kyocera Corporation in 1975 and has served as a Charge of Engineering and Technology.

Goro Yamaguchi has served as a Representative Director and President of Kyocera Corporation since 2013. He became an Executive Officer in 2003, a Senior Executive Officer in 2005 and a Managing Executive Officer in 2009. He joined Kyocera Corporation in 1978 and has served as the Representative Director and Chairman and President in Kyocera Korea Co., Ltd., the Chairman of the Board of Directors of Kyocera (China) Sales & Trading Corporation, the Chairman of the Board of Directors of Shanghai Kyocera Electronics Co., Ltd., the Chairman of the Board of Directors of Dongguan Shilong Kyocera Co., Ltd. and the Authorized Representative and Chairman of Kyocera Vietnam Co., Ltd.

Katsumi Komaguchi has served as a Senior Managing Director of Kyocera Corporation since 2013. He became an Executive Officer in 2008, a Managing Executive Officer and a Director in 2009. He joined Kyocera Corporation in 1986 and has served as a Senior Managing Executive Officer, and the Representative Director and President of Kyocera Document Solutions Inc.

Yasuyuki Yamamoto has served as a Senior Managing Director of Kyocera Corporation since 2013. He became an Executive Officer in 2003, a Senior Executive Officer in 2008, a Managing Executive Officer and a Director in 2009. He joined Kyocera Corporation in 1976 and has served as a Senior Managing Executive Officer and the General Manager of Corporate Communication Equipment Group.

Ken Ishii has served as a Director of Kyocera Corporation since 2012. He became an Executive Officer in 2009 and a Senior Executive Officer in 2011. He joined Kyocera Corporation in 1977 and has served as a Managing Executive Officer, the General Manager of Corporate Cutting Tool Group, the Representative Director and Chairman and President of Kyocera Precision Tools Korea Co., Ltd. and the Chairman of the Board of Directors of Kyocera Precision Tools (ZHUHAI) Co., Ltd.

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 General Affairs Group.

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

Hiroshi Fure has served as a Director of Kyocera Corporation since 2013. He became an Executive Officer in 2011. He joined Kyocera Corporation in 1984 and has served as a Managing Executive Officer and the General Manager of Corporate Automotive Components Group.

Yoji Date has served as a Director of Kyocera Corporation since 2013. He became an Executive Officer in 2012. He joined Kyocera Corporation in 1979 and has served as a Managing Executive Officer, and the Representative Director and President of Kyocera Connector Products Corporation.

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 a Director, the Chairman and Chief Executive Officer of AVX Corporation.

John S. Rigby has served as a Director of Kyocera Corporation since 2012. He became an Executive Officer in 2005. He joined Kyocera International, Inc. in 1981 and has served as the Director and President of Kyocera International, Inc.

 

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Tadashi Onodera has served as an Outside Director of Kyocera Corporation since 2013. He joined DDI Corporation (currently KDDI Corporation) in 1989 and has served as the Chairman of the Board and Representative Director of KDDI Corporation.

Yoshihiro Kano has served as a Full-time Audit & Supervisory Board Member 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.

Kouji Mae has served as a Full-time Audit & Supervisory Board Member of Kyocera Corporation since 2013. He became a Director in 2001 and retired in 2003. He became a Senior Executive Officer in 2003 and retired in 2004. He became an Executive Officer in 2009 and retired in 2013. He joined Kyocera Corporation in 1972.

Osamu Nishieda has served as an Audit & Supervisory Board Member of Kyocera Corporation since 1993. He has served as an In-House Counsel of Kyocera Corporation.

Yoshinori Yasuda has served as an Audit & Supervisory Board Member of Kyocera Corporation since 2012. He has served as a Visiting Professor at Reitaku University, a Member of the Royal Swedish Academy of Sciences, a Senior Fellow at the Tokyo Foundation, a Professor Emiritus at International Research Center for Japanese Studies, a Professor Emeritus at Graduate University for Advanced Studies and the Director of Research Center for Pan-Pacific Civilizations, Ritsumeikan University.

Nichimu Inada has served as an Audit & Supervisory Board Member of Kyocera Corporation since 2012. He has served as the Representative Director and President of Family Inada Co., Ltd., the Chairman of the Japan Home-Health Apparatus Industrial Association and the Executive Director of the Japan Federation of Medical Devices Associations.

Yasunari Koyano has served as an Audit & Supervisory Board Member of Kyocera Corporation since 2013. He has served as the Representative Lawyer of Koyano LPC.

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 26, 2014.

 

Name

  

Position

Goro Yamaguchi

   Executive Officer and President

Katsumi Komaguchi

  

Senior Managing Executive Officer

(Representative Director and President of Kyocera Document Solutions Inc.)

Yasuyuki Yamamoto

  

Senior Managing Executive Officer

(General Manager of Corporate Communication Equipment Group)

Ken Ishii

  

Managing Executive Officer

(General Manager of Corporate Cutting Tool Group)

Yoshihito Ohta

  

Managing Executive Officer

(General Manager of Corporate General Affairs Group)

Shoichi Aoki

  

Managing Executive Officer

(General Manager of Corporate Financial and Accounting Group)

Hiroshi Fure

  

Managing Executive Officer

(General Manager of Corporate Automotive Components Group)

 

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Name

  

Position

Yoji Date

  

Managing Executive Officer

(Representative Director and President of Kyocera Connector Products Corporation)

Nobuo Kitamura

  

Senior Executive Officer

(General Manager of Corporate Solar Energy Group)

Yoshiharu Nakamura

  

Senior Executive Officer

(President of Dongguan Shilong Kyocera Co., Ltd.)

Junichi Jinno

  

Senior Executive Officer

(General Manager of Corporate Legal and Intellectual Property Group)

Setsuo Sasaki

  

Executive Officer

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

Kazuyuki Nada

  

Executive Officer

(Representative Director and President of Kyocera SLC Technologies Corporation)

Shigeaki Kinori

  

Executive Officer

(Representative Director and President of Kyocera Crystal Device Corporation)

Masaaki Itoh

  

Executive Officer

(Deputy General Manager of Corporate General Affairs Group)

Masaki Iida

  

Executive Officer

(General Manager of Corporate Purchasing Group)

Yuji Goto

  

Executive Officer

(President of Kyocera (China) Sales & Trading Corporation)

Yoichi Yamashita

  

Executive Officer

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

Shigeru Koyama

  

Executive Officer

(Representative Director and President of Kyocera Fineceramics GmbH)

Koichi Kano

  

Executive Officer

(General Manager of Corporate Development Group)

Masaharu Goto

  

Executive Officer

(Representative Director and President of Kyocera Solar Corporation)

Hideo Yoshida

  

Executive Officer

(Deputy General Manager of Corporate Semiconductor Components Group)

Toshihide Koyano

  

Executive Officer

(Deputy General Manager of Corporate Solar Energy Group)

Masahiro Inagaki

  

Executive Officer

(General Manager of Corporate R&D Group)

Hironao Kudo

  

Executive Officer

(General Manager of Corporate Electronic Components Group)

Takashi Sato

  

Executive Officer

(General Manager of Corporate Human Resources Group)

Robert E. Whisler

  

Executive Officer

(Director and President of Kyocera America, Inc.)

Hiroyuki Yamashita

  

Executive Officer

(General Manager of Corporate Semiconductor Components Group)

Hiroshi Funatogawa

  

Executive Officer

(Deputy General Manager of Corporate Communication Equipment Group)

 

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B. Compensation

The aggregate amount of compensation provided by Kyocera Corporation and its certain subsidiaries in fiscal 2014 to all Directors, Audit & Supervisory Board Members and Executive Officers of Kyocera Corporation was ¥1,920 million. The compensation is mainly comprised of basic remuneration, bonus, stock option, incentive compensation plan and retirement allowance.

In Japan, regulations require public companies to provide disclosure on an individual basis for each Director or Audit & Supervisory Board Member who receives aggregate compensation equal to or 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)  

Goro Yamaguchi

  

Representative Director and President of Kyocera

Corporation

        60        49            —              —          —       

 

¥

 

114

 

  

  

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
   Director of AVX Corporation     1        —          4        —          —       

 

  

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

John S. Gilbertson

  

Director of Kyocera

Corporation

    11        5        —          —          —       

 

¥

 

188

 

  

  

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
  

Director, Chairman of

the Board and

Chief Executive Officer of AVX Corporation

    90        6        21        42        13     

 

  

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:

1. AVX Corporation is Kyocera’s consolidated subsidiary in the United States and the determination of compensation is made by AVX’s Compensation Committee pursuant to the U.S. regulations and based on its consideration for general and customary levels of compensation in the United States.

2. The compensation provided originally in the U.S. dollars at AVX Corporation was translated into the yen at a rate of ¥100 per $1.00, which was the average rate during fiscal 2014.

3. The above position shows the current position of each Director as of the filing date of this annual report on Form 20-F.

 

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In addition to the above, Japanese regulations require public companies to disclose details of compensation paid to Directors and Audit & Supervisory Board Members by the parent company and also to disclose the policy applied in determining such compensation. In accordance with this requirement, we provide disclosure regarding compensation for Directors and Audit & Supervisory Board Members as follows.

The total amount of compensation paid to Directors and Audit & Supervisory Board Members, the amounts of compensation by types, and the number of Directors and Audit & Supervisory Board Members were as follows.

 

     Total
amount of
compensation
     Amounts of
compensation by types
     Number of
Directors and
Audit &
Supervisory
Board Members
 
        Basic
remuneration
     Bonus     
            (Yen in millions)                

Director

   ¥ 410       ¥ 248       ¥ 162         14   
  

 

 

    

 

 

    

 

 

    

 

 

 

Outside Director

     8         8         —           1