Kyocera 20-F 2015
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2015
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
o 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)
(Translation of Registrants name into English)
Shoichi Aoki, +81-75-604-3556, email@example.com, +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.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
(Title of Class)
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.
As of March 31, 2015, 366,861,356 shares of common stock were outstanding, comprised of 363,267,929 Shares and 3,593,427 American Depositary Shares (equivalent to 3,593,427 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 o
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 o 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 o
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 o
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 o Non-accelerated filer o
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 o Other o
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 o Item 18 o
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 o No x
* Not for trading, but only in connection with the registration of the American Depositary Shares, each representing one share of Common Stock.
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:
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 Kyoceras common stock, and ADR means an American Depositary Receipt evidencing ADSs.
· fiscal 2015 refers to Kyoceras fiscal year ended March 31, 2015, and other fiscal years are referred to in a corresponding manner.
The selected consolidated financial data set forth below for each of the five fiscal years ended March 31 have been derived from Kyoceras 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 Kyoceras consolidated financial statements included in this annual report on Form 20-F.
*Translated into the U.S. dollars based on the exchange rates at each payment date in Japan.
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, 2011. 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 76.
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:
The noon buying rate for Japanese yen on June 19, 2015 was $1.00 = 122.70
You should carefully read the risks described below before making an investment decision.
Risks Related to Kyoceras Business
(1) Changes in the Japanese and global economy may significantly reduce demand for Kyoceras 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 year ending March 31, 2016 (fiscal 2016), the Japanese economy is expected to head toward recovery as personal consumption and private capital investment rebound. Overseas, the European economy is expected to continue expanding moderately while the U.S. economy is forecast to continue growing steadily. However, in the event that the economies of respective countries around the world deteriorate beyond expectations, a reduction in private capital investment and a decline in personal consumption may affect production activities in Kyoceras key markets. This may in turn lead to a decline in Kyoceras business environment, consolidated results of operations, financial condition and cash flows.
(2) A substantial portion of Kyoceras business activity is conducted outside Japan, exposing Kyocera to the risks of international operations
A substantial amount of Kyoceras investment has been targeted towards expanding manufacturing and sales channels located outside Japan, such as in the United States, Europe and Asia, which includes China and Vietnam. 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 developing and emerging markets such as Brazil, Russia, India and China, become considerably more important, Kyocera may become even more susceptible to these risks.
(3) Since a significant percentage of Kyoceras revenues have been derived from foreign sales in recent years, various export risks may disproportionately affect its revenues
Kyoceras sales to customers located outside Japan accounted for approximately 58% of its total revenues in fiscal 2015. Kyocera believes that overseas sales will continue to account for a significant percentage of its revenues. Therefore, the following export risks may disproportionately affect Kyoceras revenues:
· a strong yen may make Kyoceras products less attractive to foreign purchasers;
· political and economic instability or significant economic downturns may inhibit exports of Kyoceras products;
· tariffs and other barriers may make Kyoceras products less cost competitive; and
· the laws of certain foreign countries may not adequately protect Kyoceras trade secrets and intellectual property.
(4) Currency exchange rate fluctuations could adversely affect Kyoceras 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 Kyoceras 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. Kyoceras 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 Kyoceras business. Price pressure has been intense, and thus Kyocera predicts that its selling prices will continue to be lower than in fiscal 2015 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. Kyoceras 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) Fluctuations in the price and ability of suppliers to provide the required quantity of raw materials for use in Kyoceras production activities
Raw materials used in the production activities of Kyoceras respective businesses are constantly subject to price fluctuations, and as such, rising raw material prices may lead to an increase in production costs. Kyocera cannot guarantee that it will be able to maintain an appropriate differential between customer prices and Kyoceras raw material and production costs at all times, which could lead to reduced profitability. Under U.S. GAAP, Kyocera has recorded a write down in the carrying value of its raw material inventory to the lower of cost or market price and may be required to undertake further write downs in the future. Such write downs are required when the cost of inventory exceeds its estimated net realizable value, which represents estimated selling prices in the ordinary course of business less reasonably predictable costs of production, disposal and transport.
Kyocera is dependent on specific suppliers for procuring certain raw materials used in Kyoceras production cycle and any excess demand on those suppliers may cause delays and disruptions in the production cycle. If a substantial interruption should occur in the supply of such raw materials, Kyocera may not be able to obtain other sources of supply in a timely fashion or at a reasonable price. A substantial increase in the price or an interruption in the supply of such raw materials may cause reduced demand for Kyoceras products.
In order to attempt to ensure stable procurement and prices for certain raw materials, Kyocera on occasion enters into long-term purchase agreements with the aim of reducing the risk associated with the procurement of such raw materials. However, considerable changes in the business environment and other factors may cause the contract price under a purchase agreement to significantly exceed the market price, or may cause the amount of such raw materials that Kyocera consumes to significantly fall short of the sales demand projections made at the time Kyocera entered into, which are thus underlying, the agreement. Such developments may adversely affect Kyoceras production costs and profitability.
Kyocera has entered into long-term purchase agreements with a few specific suppliers for purchasing polysilicon material used in its solar energy business. Under those agreements, during the year ended March 31, 2015, Kyocera purchased ¥30,644 million worth of such material and is obligated to purchase ¥209,232 million worth of such material in total by the end of December 2020. Such purchase commitments are evaluated for impairment under a similar methodology to inventory on hand. Based on the levels of reasonably projected demand and pricing, Kyoceras commitments have not been impaired, but there is the possibility it will become impaired in the future.
(7) Manufacturing delays or defects resulting from outsourcing or internal manufacturing processes can adversely affect Kyoceras 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. Kyoceras 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 Kyoceras production cycle.
Within Kyoceras 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 Kyoceras operating results. Moreover, in certain operations of which fixed cost ratio is high, decreases in production volume or capacity utilization may adversely affect Kyoceras results of operation, financial condition and cash flows.
(8) Shortages and rising costs of electricity may adversely affect Kyoceras 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 Kyoceras 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 Kyoceras suppliers and customers have main operations may also interrupt Kyoceras production and sales activities. In addition, significant rising costs of electricity may adversely affect Kyoceras results of operations, financial condition and cash flows.
(9) 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 or changes to Kyoceras customers policies 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 Kyoceras in-process research and development activities will achieve desired results and market acceptance.
(10) Companies or assets acquired by Kyocera may require more costs than expected for integration, and may not produce returns or benefits, or bring in anticipated business opportunities
In the course of developing its business, from time to time Kyocera considers opportunities to acquire, and undertakes the acquisition of companies or assets through mergers and acquisitions. There can be no assurance that Kyocera will be able to integrate the operations, products and personnel of the acquired companies with its own in an efficient manner. Nor can there be any assurance that Kyocera will be able to achieve operational and financial returns or benefits, or bring in new business opportunities, which it expects from the acquisition. An acquired company may not be able to manufacture products or offer services in the amounts or at the efficiency levels that Kyocera plans, and the demand for such products or services may not be at the levels that Kyocera anticipates. Failure to make the most of acquisitions and meet Kyoceras expectations could have a material adverse effect on Kyoceras business.
(11) 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
Kyoceras 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
(12) Insufficient protection of Kyoceras trade secrets and patents could have a significant adverse impact on its competitive position
Kyoceras success and competitive position depend on protecting its trade secrets and other intellectual property. Kyoceras 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 Kyoceras 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 Kyoceras intellectual property to the same extent as Japanese laws.
(13) 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 partys 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.
(14) Changes in our environmental liability and compliance obligations may adversely impact our operations
Kyocera is subject to various environmental laws and regulations in Japan and the other countries, which are related to greenhouse gas mitigation, air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals used or generated in our manufacturing process, 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 Kyoceras results of operations, financial condition and cash flows.
(15) 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, Kyoceras business operations may be limited and continuance may become difficult. If Kyocera faces enormous legal costs related to litigation and regulatory actions, Kyoceras business operations may become significantly limited and Kyoceras results of operations, financial condition and cash flows may be negatively affected.
Risks Related to Disasters or Unpredictable Events
(16) Kyoceras 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, Kyoceras operating activities would be suspended. Furthermore, there would be delay, disorder or suspension in Kyoceras R&D, manufacturing, sales and services. If such delay or disruption occurs and continues for a long period of time, Kyoceras business, consolidated results of operations, financial condition and cash flows may be adversely affected.
(17) Kyoceras headquarters and major facilities as well as its suppliers and customers may suffer the devastating effects of earthquakes and other disasters
Kyoceras 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, heavy rains, floods, heavy snow 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 Kyoceras employees, R&D or manufacturing facilities, Kyoceras 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 Kyoceras 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 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 Kyoceras consolidated results of operations, financial condition and cash flows.
Risks Related to Financial and Accounting
(18) 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, Kyoceras consolidated results of operations, financial condition and cash flows may be affected.
(19) 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 Corporations equity interest in KDDI Corporation was 12.76% as of March 31, 2015. 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.
(20) 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 Kyoceras consolidated results of operations and financial condition.
(21) 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 Kyoceras recognition.
(22) 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 Kyoceras 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.
(23) 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 companys 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.
(24) 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.
(25) 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 days 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.
(26) Our shareholders of record on a record date may not receive the dividend they anticipate
The customary dividend payout practice of publicly listed companies in Japan may significantly differ from the practice widely followed in foreign markets. Our dividend payout practice is no exception. The declaration and payment of annual dividends requires the approval of shareholders of our common stock at the annual general meeting of shareholders held in June of each year. Our board of directors decides and submits a proposal for an annual dividend declaration a few weeks before the annual general meeting. If the shareholders approval is given, the annual dividend payment is made to shareholders of record as of the record date for such payment, which is March 31, whether or not the shareholders are still holding shares after such record date. The declaration and payment of interim dividends is decided by our board of directors and does not require the approval of shareholders. The interim dividend payment is made to shareholders of record as of the record date for such payment, which is September 30, whether or not the shareholders are still holding shares after such record date. Shareholders of record as of the applicable record date may sell shares in the market after the record date with the anticipation of receiving a certain dividend payment. However, the date of declaration of interim dividends is decided by our board, and the declaration of annual dividends is approved by our shareholders only in June, based upon a proposal submitted by our board. As such, we may have announced a dividend forecast before the applicable record date; but, in making a decision on the dividend declaration, neither our shareholders nor our board of directors are legally bound by such forecast. Therefore, our shareholders of record on the record dates for interim or annual dividends may not receive the dividend they anticipate.
(27) 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.
(28) We believe Kyocera Corporation was not a passive foreign investment company (PFIC) in fiscal 2015. However this conclusion is a factual determination that is not free from doubt, and accordingly, there can be no assurances in this regard. Moreover this is a factual determination that is made annually, and thus may be subject to change. If Kyocera Corporation were to be classified as a PFIC, that could result in adverse United States federal income tax consequences to U.S. holders of Kyocera Corporation's shares and ADSs, and may result in adverse United States federal income tax consequences to such holders in subsequent years as well.
Kyocera Corporation has substantial passive assets in the form of cash and cash equivalents, and investments in debt and equity securities. While we believe that Kyocera was not a PFIC in fiscal 2015, we can provide no assurances in this regard. Nor can we guarantee that Kyocera Corporation will not be classified as a PFIC in future taxable years. The determination of whether Kyocera Corporation a PFIC is principally based upon:
· the composition of Kyocera Corporations assets, including goodwill, the amount of which will depend, in part, on its total net assets and the market value of its shares and ADSs, which are subject to change; and
· the amount and nature of Kyocera Corporations income from time to time.
We have limited control over these variables. U.S. investors that hold Kyocera Corporations shares and ADSs during any taxable year in which Kyocera Corporation is a PFIC may be subject to adverse U.S. federal income tax consequences (and may be subject to adverse U.S. Federal income tax consequences in subsequent years as well). For further discussion of the PFIC rules, please see Item 10 Additional InformationTaxationUnited States TaxationPFIC Rules of this annual report on Form 20-F. U.S. investors are urged to consult their own tax advisors regarding the application of the PFIC rules to their particular circumstances.
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 Japans 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 ceramic 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 in telecommunications and information equipment market. 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 (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 Corporations 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.
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 became 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 order to strengthen and expand the Kyocera Groups organic substrate business, Kyocera acquired NEC Toppan Circuit Solutions Inc., a printed wiring board (PWB) manufacturing company, and changed its name to Kyocera Circuit Solutions, Inc. in October 2013. Kyocera consolidated Kyocera SLC Technologies Corporation and Kyocera Circuit Solutions, Inc., which develop organic substrate business into Kyocera Circuit Solutions Inc. in October 2014.
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.
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, 2015, we had 189 subsidiaries and 3 affiliates outside Japan and 26 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.
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
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
Organic Multilayer Substrates
Multilayer Printed Wiring Boards
Kyocera develops, manufactures and sells both inorganic (ceramic) and organic packages and multilayer printed wiring boards 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, Power Storage 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 monocrystalline and multicrystalline silicon solar modules and 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.
(4) Electronic Device Group
Liquid Crystal Displays
This reporting segment develops, manufactures and sells electronic components and devices such as capacitors, SAW devices, crystal components, and connectors mainly for information and communications market and liquid crystal displays mainly for industrial machinery and automotive markets.
(5) Telecommunications Equipment Group
PHS Handsets, PHS Base Stations
Kyocera develops, manufactures and sells mobile phones such as smartphones, feature phones mainly for telecommunications carriers in Japan and the U.S. Kyocera also develops, manufactures and sells PHS handsets and base stations mainly for a telecommunications carrier in Japan.
(6) Information Equipment Group
Monochrome and Color Printers and Multifunctional Products
Wide Format Systems
This reporting segment develops, manufactures and sells page printers and multifunctional products which focus on attaining the characteristics of long life cycle and lower running cost by using 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.
Information Systems and Telecommunication Services
Management Consulting Business
Materials for Semiconductors, Chemical Materials
Realty Development Business
This reporting segment provides the information and communications service 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 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 in Japan and overseas. In addition, Kyocera sells power storage systems through distributors, franchise chains and home builders in Japan, and has commenced sales through distributors in Europe. Energy management systems are sold to users in Japan through the distributor route and franchise stores of our sales subsidiary in Japan as well as through commercial distribution to housing market participants such as 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 supply mobile phones and smartphones primarily to telecommunications carriers in the Japanese and overseas markets. Our key supply destinations include KDDI Corporation, Softbank Mobile Corp., Sprint Corporation, Verizon Communications Inc., T-Mobile US, Inc. and AT&T Inc.
The Information Equipment Group provides Kyocera brand printers and multifunctional products that boast long life and produce minimal waste, from directly controlled sales companies in 32 countries and globally through sales distributors in more than 140 countries as well as document solutions and business application software that resolves customers management issues. We are also strengthening our direct sales system which enables us to respond to major customers around the world.
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 our anticipated requirements for a fixed purchase price.
In fiscal 2015, we procured a sufficient level of raw materials and other materials to carry out our production plans.
Please refer to the Kyocera Supply-Chain CSR Deployment Guideline (http://global.kyocera.com/ecology/social/images/csr_guide.pdf) for details on Kyoceras supply chain management and to the Conflict Minerals Report (http://www.kyocera.co.jp/ir/financial/cmr150529.pdf) for details on our stance toward conflict minerals.
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 Kyoceras 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 Kyoceras entire operation. The following table sets forth information, as of March 31, 2015, with respect to our significant patents and license agreements.
(a) License permitted to produce products
(b) Licensecross agreements
(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 competing companies in this reporting segment differ by region and market, our competition comprises the large ceramic manufacturers in various countries that have strong operations. 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 aim is to strengthen global competitiveness in business for ceramic packages, organic packages and multilayer printed wiring boards (PWBs).
In the ceramic package business, our main competitors are Japanese manufacturers. Kyocera has already become a global market leader. We will strive to further increase customer satisfaction by utilizing our advanced expertise in developing and manufacturing technologies, and promote the application of ceramic packages broadly in the digital consumer equipment market as well as the automotive market, optical communications market, and environment and energy market.
In the organic package and multilayer PWB business, Kyocera produces flip-chip packages and multilayer PWBs with a technically high degree of complexity for high-end communications infrastructure such as servers and routers, and we have become a leading supplier in fields demanding advanced design rules and exceptional reliability. In addition, we will strengthen business competitiveness by developing packages requiring smaller, thinner design for smartphones and mobile terminals, developing new products with component-embedded boards and expanding sales channels.
(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 in realizing high conversion efficiency and long-term product reliability based on technology backed up by experience accumulated for 40 years in the development of solar power generating products.
Kyocera manufactures monocrystalline and multicrystalline silicon solar cells. Kyocera handles the integrated in-house production of multicrystalline silicon solar cells from silicon ingots to solar modules, which has led to outstanding reliability based on top-level quality control in each manufacturing process. Kyocera not only produces solar cells but also provides from design to construction and after-sales maintenance and has generated top-class results in installing solar power generating systems for public and commercial use in Japan.
Kyocera is also working to expand the scope of the business field in which it does business and strengthen competitiveness by developing a wide range of businesses that include batteries for storing electricity produced in solar power generating systems and an Energy Management System (EMS) that contributes to energy savings by increasing the visibility of power consumption.
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.
Our main competitors are Japanese manufacturers in this reporting segment. Kyocera is a leading supplier of capacitors, 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 automotives, 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 and inkjet printheads for the textile printing industry, and have expanded our share in these markets.
(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 through products incorporating unique functions using our in-house component technology as well as waterproof and robustness features, which have helped us to expand sales volumes. A key feature of our operation is the development of a wide array of products in the mobile communications field, from simple mobile phones to advanced smartphones and from PHS-related products to Machine-to-Machine (M2M) communications modules.
(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. Kyoceras 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. Kyocera utilizes a global distributor network to provide these distinctive products not only to industrialized nations but also to emerging nations, and our various models, from low-speed to high-speed machines, gain market share in each country.
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.
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.
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 Kyoceras 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 Unions 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.
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.
Kyoceras 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.
Kyocera, including the above German subsidiary, did not conduct any transactions with Iran-related organizations in fiscal 2015.
We had 225 subsidiaries and affiliates as of March 31, 2015. 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, 2015, with respect to our significant subsidiaries.
In addition to the above consolidated subsidiaries, Kyocera had 179 other consolidated subsidiaries as of March 31, 2015. Kyocera also had interests in one subsidiary accounted for by the equity method and 10 affiliates accounted for by the equity method as of March 31, 2015.
* On October 1, 2014, Kyocera SLC Technologies Corporation absorbed former Kyocera Circuit Solutions, Inc. and changed the company name to Kyocera Circuit Solutions, Inc.
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 Corporations wide range of marketing channels. We market passive components produced by AVX Corporation in the Japanese market. We also utilize AVX Corporations manufacturing process for ceramic capacitors to improve productivity and to enhance our competitiveness. In addition, AVX Corporation introduced our materials technologies into its ceramic capacitor production. We have been seeking better ways to cooperate in expanding our electronic device businesses. Currently, four of our directors are members of AVX Corporations board of 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 $225,871 thousand in fiscal 2015 and its performance contributed significantly to Kyoceras results of operations and financial condition. See Item 5.A. Operating Results of this annual report on Form 20-F.
As of March 31, 2015, we had property, plants and equipment with a net book value of ¥261,491 million. During the five years ended March 31, 2015, we invested a total of ¥307,057 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, 2015.
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 Factors and elsewhere in this annual report on Form 20-F.
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.
Kyoceras operations are categorized into seven reporting segments: (1) Fine Ceramic Parts Group, (2) Semiconductor Parts Group, (3) Applied Ceramic Products Group, (4) Electronic Device Group, (5) Telecommunications Equipment Group, (6) Information Equipment Group, and (7) Others. Kyocera groups the Fine Ceramic Parts Group, the Semiconductor Parts Group, the Applied Ceramic Products Group and the Electronic Device Group into one main business referred to as the Components Business and groups the Telecommunications Equipment Group and the Information Equipment Group into another main business referred to as the Equipment Business.
The Japanese economy in fiscal 2015 stagnated on the whole due to a decline in personal consumption as a result of an increase in the consumption tax rate, despite an upward trend in exports and public investment. The European economy posted only moderate growth due to stagnation in capital investment, despite increasing personal consumption. The U.S. economy expanded due mainly to steady growth in personal consumption and housing investment while the Chinese economy also continued to post stable growth.
With regard to the principal markets for Kyocera, demand for smartphones grew in the digital consumer equipment market, and demand expanded in automotive market, mainly in the United States and China. Growth in the solar energy market in Japan slowed, however, due to the end of a government subsidy for introducing solar power generating systems for residential use and the impact of a halt in grid access applications by electric power companies.
During fiscal 2015, Kyocera worked to strengthen production capabilities in Japan and overseas as well as cultivate new markets with the aim of boosting sales in existing businesses. In the Components Business, sales increased mainly in automotive related markets, smartphones, communications infrastructures and various industrial machinery markets. In the Equipment Business, sales increased in overseas markets in particular due to the launch of new products and efforts to secure new customers. As a result, consolidated net sales for fiscal 2015 amounted to ¥1,526,536 million, an increase of ¥79,167 million, or 5.5%, compared with fiscal 2014. This result marked another record high following the record high posted in fiscal 2014.
Profit increased in the Fine Ceramic Parts Group, Semiconductor Parts Group, Electronic Device Group and Information Equipment Group due to higher sales and the effect of cost reductions. Nonetheless, profit from operations decreased by ¥27,154 million, or 22.5%, to ¥93,428 million compared with ¥120,582 million in fiscal 2014 and income before income taxes decreased by ¥24,406 million, or 16.7%, to ¥121,862 million compared with ¥146,268 million in fiscal 2014 due mainly to the write-down of inventories in the Applied Ceramic Products Group and the impairment loss of goodwill in the Telecommunications Equipment Group. Net income attributable to shareholders of Kyocera Corporation increased by ¥27,119 million, or 30.6%, to ¥115,875 million compared with ¥88,756 million in fiscal 2014 due primarily to revaluation of deferred tax assets and liabilities in line with a revision of the tax system in Japan resulting in an increase of approximately ¥36,300 million in net income attributable to shareholders of Kyocera Corporation.
For a detail of the revision of the tax system in Japan, please refer to page 32, Income Taxes under Item 5. Operating and Financial Review and Prospects.
Average exchange rates for fiscal 2015 were ¥110 to the U.S. dollar, marking depreciation of ¥10 (10.0%) from ¥100 for fiscal 2014, and ¥139 to the Euro, marking depreciation of ¥5 ( 3.7%) from ¥134 for fiscal 2014. As a result of yens depreciation mainly to the U.S. dollar and the Euro, net sales and income before income taxes for fiscal 2015 were pushed up by approximately ¥58,000 million and ¥7,000 million, respectively, compared with fiscal 2014.
Results of Operations
Fiscal 2015 compared with Fiscal 2014
The following table shows a summary of Kyoceras results of operations for fiscal 2014 and fiscal 2015:
Net sales in fiscal 2015 increased by ¥79,167 million, or 5.5%, to ¥1,526,536 million, compared with ¥1,447,369 million in fiscal 2014.
Net sales in the Components Business in fiscal 2015 increased by ¥45,319 million, or 5.5%, to ¥870,347 million, compared with ¥825,028 million in fiscal 2014. In the Components Business, sales increased mainly in automotive related markets, smartphones, communications infrastructures and various industrial markets. Net sales in the Equipment Business in fiscal 2015 increased by ¥42,289 million, or 8.6%, to ¥536,886 million, compared with ¥494,597 million in fiscal 2014. In the Equipment Business, sales increased in overseas markets in particular due to the launch of new products and efforts to secure new customers.
Due to the impact of the yens depreciation against the U.S. dollar and the Euro, net sales after translation into the yen in fiscal 2015 were pushed up by approximately ¥58,000 million, compared with fiscal 2014.
For details regarding net sales, please refer to page 33, Business Overview by Reporting Segment.
Net Sales by Geographic Segment
The following table shows a breakdown of Kyoceras total consolidated net sales in fiscal 2014 and fiscal 2015, distinguishing between domestic and overseas sales and, with respect to overseas sales, showing the geographical areas in which such sales were made:
Sales in Japan remained on par with fiscal 2014. Sales increased in the Semiconductor Parts Group and Telecommunications Equipment Group despite a decrease in sales in the Electronic Device Group and solar energy business.
Sales in Asia increased compared with fiscal 2014 due to an increase in sales in the Components Business especially in the Semiconductor Parts Group and Electronic Device Group on the back of an increase in demand in the fields of smartphones, communications infrastructures and automotive related markets, in addition to sales growth in the Information Equipment Group.
Sales in Europe increased compared with fiscal 2014 due to an increase in sales in the Information Equipment Group and in the Electric Device Group.
Sales in the United States of America increased compared with fiscal 2014 due to sales growth in the Telecommunications Equipment Group and Information Equipment Group through efforts to secure new customers and activities to expand sales of new products.
Sales in Others increased compared with fiscal 2014 due to an increase in sales in the Information Equipment Group.
Cost of Sales and Gross Profit
In fiscal 2015, cost of sales increased by ¥68,672 million, or 6.4%, to ¥1,137,137 million from ¥1,068,465 million in fiscal 2014. This is due mainly to in addition to the costs and expenses increased due to the higher sales and the effect of the yens depreciation, the impact from the production activity since the beginning of fiscal 2015 from Kyocera Circuit Solutions, Inc., that joined the Kyocera Group in October 2013, and the recording of the loss for inventories and the structural reforms cost in the Solar Energy Business.
Raw material costs of ¥440,840 million accounted for 38.8% of total cost of sales in fiscal 2015, which increased by ¥14,368 million, or 3.4%, from ¥426,472 million in fiscal 2014. Labor costs of ¥207,176 million accounted for 18.2% of total cost of sales in fiscal 2015, which increased by ¥10,932 million, or 5.6%, from ¥196,244 million in fiscal 2014. Depreciation expense of ¥53,087 million accounted for 4.7% of total cost of sales in fiscal 2015, which decreased by ¥2,968 million, or 5.3%, from ¥56,055 million in fiscal 2014.
As a result, gross profit in fiscal 2015 increased by ¥10,495 million, or 2.8%, to ¥389,399 million from ¥378,904 million in fiscal 2014. The gross profit ratio to net sales decreased by 0.7 percentage points from 26.2% to 25.5%.
Selling, General & Administrative Expenses and Profit from Operations
In fiscal 2015, selling, general and administrative expenses increased by ¥37,649 million, or 14.6%, to ¥295,971 million from ¥258,322 million in fiscal 2014. The miscellaneous expenses increased due mainly to in addition to higher sales, the effect of the yens depreciation and the impairment loss on goodwill in amount of ¥18,456 million was recognized in the Telecommunications Equipment Group (Reporting Unit).
The impairment loss was due to decline in the fair value of the Reporting Unit determined based on its updated future estimated cash flows, reflecting the slow improvement of profitability in the overseas market, especially in the U.S. market, as well as the operating loss before the impairment loss recorded in the fiscal 2015 in the midst of the market condition with low profitability.
The ratio of selling, general and administrative expenses to net sales was 19.4% in fiscal 2015, an increase of 1.5 percentage points as compared with 17.9% in fiscal 2014.
Labor costs of ¥152,366 million accounted for 51.5% of total selling, general and administrative expenses in fiscal 2015, an increase of ¥10,431 million, or 7.3%, from ¥141,935 million in fiscal 2014. Sales promotion and advertising costs of ¥46,683 million accounted for 15.8% of total selling, general and administrative expenses in fiscal 2015, an increase of ¥789 million, or 1.7%, from ¥45,894 million in fiscal 2014. Depreciation expense of ¥12,975 million accounted for 4.4% of total selling, general and administrative expenses in fiscal 2015, a decrease of ¥658 million, or 4.8%, from ¥13,633 million in fiscal 2014.
As a result, profit from operations in fiscal 2015 decreased by ¥27,154 million, or 22.5%, to ¥93,428 million, compared with ¥120,582 million in fiscal 2014. The operating margin decreased by 2.2 percentage points to 6.1% in fiscal 2015, compared with 8.3% in fiscal 2014.
Interest and Dividend Income
Interest and dividend income in fiscal 2015 increased by ¥4,611 million, or 25.4%, to ¥22,783 million, compared with ¥18,172 million in fiscal 2014. This was due mainly to an increase in dividend income from KDDI Corporation.
Interest expense in fiscal 2015 decreased by ¥227 million, or 11.7%, to ¥1,718 million, compared with ¥1,945 million in fiscal 2014. This was due mainly to a decrease of the interest expense of the charge for an environmental remediation at AVX Corporation.
Foreign Currency Transaction
During fiscal 2015, the average exchange rate for the yen depreciated by ¥10, or 10.0%, against the U.S. dollar and by ¥5, or 3.7%, against the Euro, as compared with fiscal 2014. At March 31, 2015, the yen depreciated by ¥17, or 16.5%, against the U.S. dollar, and appreciated by ¥12, or 8.5%, against the Euro, as compared with March 31, 2014. Kyocera recorded foreign currency transaction gains of ¥4,499 million in fiscal 2015.
Kyocera typically enters into forward exchange contracts to reduce currency exchange risks on foreign currency denominated receivables and payables. Kyocera confines its use of forward exchange contracts for hedging its foreign exchange rate exposures, and does not utilize forward exchange contracts for trading purposes.
Gains and Losses from Investments
Gains on sales of securities in fiscal 2015 decreased by ¥2,370 million, or 82.4%, to ¥505 million, compared with ¥2,875 million in fiscal 2014.
Losses on impairment of securities in fiscal 2015 decreased by ¥107 million, or 98.2%, to ¥2 million, compared with ¥109 million in fiscal 2014.
Income before Income Taxes
Income before income taxes in fiscal 2015 decreased by ¥24,406 million, or 16.7%, to ¥121,862 million compared with ¥146,268 million in fiscal 2014. Margin of income before income taxes against net sales decreased by 2.1 percentage points to 8.0% compared with 10.1% in fiscal 2014.
Profit from operations decreased by ¥27,154 million, or 22.5%, to ¥93,428 million due to the recording of the loss for inventories and the structural reforms cost in the Solar Energy Business, and the recording of the impairment for goodwill, ¥18,456 million in the Telecommunication Business, compared with ¥120,582 million in fiscal 2014. Income before income taxes decreased due to a decrease of profit from operations despite an increase of dividend income. Income before income taxes after translation into the yen for fiscal 2015 was pushed up by approximately ¥7,000 million due to the impact of the yens depreciation against the U.S. dollar and the Euro compared with fiscal 2014.
Operating profit in the Components Business in fiscal 2015 decreased by ¥10,750 million, or 10.9%, to ¥87,636 million, compared with ¥98,386 million in fiscal 2014. Operating profit in the Equipment Business in fiscal 2015 decreased by ¥15,273 million, or 51.5%, to ¥14,357 million, compared with ¥29,630 million in fiscal 2014.
For a detail of income before income taxes, please refer to page 33, Business Overview by Reporting Segment.
Current and deferred income taxes in fiscal 2015 decreased by ¥54,695 million to ¥(3,441) million, compared with ¥51,254 million in fiscal 2014. The effective tax rate of (2.8)% in fiscal 2015 was 37.8 percentage points lower than the effective rate of 35.0% in fiscal 2014.
In accordance with the law Partial Amendment of the Income Tax Act, etc. (Law No.9 of 2015) enacted in Japan on March 31, 2015, a revised corporation tax rate will be imposed from the annual reporting periods commencing on and after April 1, 2015. As a result of such amendments, the effective Japanese statutory corporate tax rate of 36% previously applied for calculation of the amount of deferred tax assets and deferred tax liabilities has been reduced to 33% with respect to temporary differences to be realized during the annual reporting periods commencing on April 1, 2015, and 32% with respect to temporary differences to be realized during the annual reporting periods commencing on and after April 1, 2016. Due mainly to the fact that Kyocera recognized reversal income taxes in the amount of ¥31,703 million after revaluating deferred tax assets and liabilities in line with the revision of the corporate tax rate, the effective tax rate decreased.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests in fiscal 2015 increased by ¥3,170 million, or 50.7%, to ¥9,428 million compared with ¥6,258 million in fiscal 2014. This was due mainly to an increase in net income of AVX Corporation, which accounted for approximately 30% of noncontrolling ownership interests in fiscal 2015.
Business Overview by Reporting Segment
The following table shows a breakdown of Kyoceras total consolidated net sales in fiscal 2014 and fiscal 2015 by the seven reporting segments:
The following table shows a breakdown of Kyoceras total consolidated income before income taxes, and operating profit for fiscal 2014 and fiscal 2015 by the seven reporting segments:
* % to net sales of each corresponding segment
(1) Fine Ceramic Parts Group
Sales in this reporting segment for fiscal 2015 increased by ¥10,674 million, or 13.3%, to ¥90,694 million compared with ¥80,020 million in fiscal 2014 due to growth in sales of components for industrial machinery such as semiconductor processing equipment, sapphire substrates for LEDs and automotive parts, particularly automotive camera modules. The yens depreciation also pushed up sales by approximately ¥3,000 million compared with fiscal 2014.
Operating profit for fiscal 2015 increased significantly by ¥4,298 million, or 36.3%, to ¥16,134 million compared with ¥11,836 million in fiscal 2014 due to the effect of higher sales of core products and efforts to comprehensively reduce costs resulted in increase in gross profit. In addition, the yens depreciation pushed up operating profit by approximately ¥1,000 million.
(2) Semiconductor Parts Group
Sales in this reporting segment for fiscal 2015 increased by ¥29,988 million, or 16.0%, to ¥217,879 million compared with ¥187,891 million in fiscal 2014 due to an increase in sales of ceramic packages mainly for smartphones, communications infrastructures and LEDs, along with market expansion coupled with contribution of approximately ¥12,000 million from a consolidated subsidiary since the beginning of fiscal 2015 that joined the Kyocera Group in October 2013. The yens depreciation also pushed up sales by approximately ¥11,000 million compared with fiscal 2014.
Operating profit for fiscal 2015 increased by ¥2,082 million, or 6.5%, to ¥33,971 million compared with ¥31,889 million in fiscal 2014. The year-on-year increase was attributable to the fact that operating profit was pushed up by approximately ¥6,000 million due to weak yen, and to higher sales of ceramic packages and the effect of cost reductions, despite a decrease in gross profit ratio due to an increase in expenses associated with the launch of a new factory in Japan and the impact of product price erosion in organic package business.
(3) Applied Ceramic Products Group
Sales in this reporting segment for fiscal 2015 increased by ¥4,834 million, or 1.8%, including approximately ¥5,500 million push up effect of yens depreciation, to ¥277,629 million compared with ¥272,795 million in fiscal 2014. Sales in the solar energy business for fiscal 2015 remained roughly on par with fiscal 2014 due to efforts to expand and enhance the product lineup with the introduction of monocrystalline solar modules and proactive sales promotion despite a decline in the price of solar modules and the impact of a halt in grid access applications by electric power companies. In contrast, sales in the cutting tool business increased in line with expanded production activities in automotive related markets.
Operating profit decreased by ¥30,342 million, or 90.6%, to ¥3,159 million, however, compared with ¥33,501 million in fiscal 2014. This decrease was due primarily to the impact of around a 20% decline in prices year on year in the solar energy business, and the fact that operating profit in this reporting segment was pushed down by approximately ¥5,000 million due mainly to an increase in procurement costs from overseas as a result of the weak yen, and by approximately ¥8,500 million compared with fiscal 2014 following an increase in costs including the write-down of inventory.
(4) Electronic Device Group
Sales in this reporting segment for fiscal 2015 decreased by ¥177 million, or 0.1%, to ¥284,145 million compared with ¥284,322 million in fiscal 2014, despite the weak yens push up effect of approximately ¥19,000 million. This was due to a decline in sales of display related products as a result of structural reforms implemented in fiscal 2014 despite steady increases in sales mainly of capacitors and connectors for smartphones and printing devices for industrial equipment.
Operating profit for fiscal 2015 increased significantly by ¥13,212 million, or 62.4%, to ¥34.372 million, however, compared with ¥21,160 million in fiscal 2014. This increase was due in part to an improvement in gross profit on the back of structural reforms implemented in fiscal 2014 and cost reductions and to the fact that operating profit was pushed up by approximately ¥5,000 million as a result of the weak yen.
(5) Telecommunications Equipment Group
Sales in this reporting segment for fiscal 2015 increased by ¥17,541 million, or 9.4%, to ¥204,290 million compared with ¥186,749 million in fiscal 2014. This increase was due mainly to an increase in sales in the overseas market due to improvement in the product mix following the introduction of new smartphone models and efforts to secure new customers. The yens depreciation also pushed up sales by approximately ¥7,500 million compared with fiscal 2014.
Operating profit for fiscal 2015 decreased by ¥21,649 million, however, compared with profit of ¥1,437 million posted in fiscal 2014 and operating loss of ¥20,212 million was posted. This decrease was due primarily to the recording of ¥18,456 million in impairment loss on goodwill from when Kyocera acquired the mobile phone business of Sanyo Electric Co., Ltd. (company name at time) in April 2008 coupled with the fact that operating profit was pushed down by approximately ¥1,000 million, which included an increase in procurement costs from overseas due to the weak yen.
(6) Information Equipment Group
Sales in this reporting segment increased by ¥24,748 million, or 8.0%, to ¥332,596 million compared with ¥307,848 million in fiscal 2014. This increase was due to around a 10% rise in sales volume of equipment, mainly overseas, as a result of sales promotion activities for new products, in addition to an increase in sales of related products, including consumables in line with this. The yens depreciation also pushed up sales by approximately ¥11,000 million.
Operating profit increased significantly by ¥6,376 million, or 22.6%, to ¥34,569 million compared with ¥28,193 million in fiscal 2014. This increase was due to the effects of sales growth and cost reductions despite an increase of approximately ¥2,700 million in sales promotion costs in line with sales promotion activities and the fact that operating profit was pushed down by approximately ¥2,200 million as a result of an increase in R&D expenses. Operating profit also pushed up by the yens depreciation by approximately ¥1,000 million.
Sales in this reporting segment for fiscal 2015 decreased by ¥212 million, or 0.1%, to ¥172,925 million compared with ¥173,137 million in fiscal 2014 due mainly to a decrease in sales by approximately ¥1,000 million at Kyocera Communication Systems Co., Ltd. owing to a decline in demand in the telecommunications engineering business.
Operating profit increased for fiscal 2015 by ¥572 million, or 9.1%, to ¥6,848 million compared with ¥6,276 million in fiscal 2014, however, due to the effect of cost reductions at respective subsidiaries despite a decline in sales.
(8) Corporate gains and equity in earnings (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 Kyoceras head office to each reporting segment. The income increased by ¥1,855 million, or 15.6%, to ¥13,744 million compared with ¥11,889 million in fiscal 2014. This was mainly due to an increase of dividend income from KDDI Corporation, which was partially offset by a decrease of gains from sales of securities.
Results of Operations
Fiscal 2014 compared with Fiscal 2013
The following table shows a summary of Kyoceras results of operations for fiscal 2013 and fiscal 2014:
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 Kyoceras 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 yens 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 40, Business Overview by Reporting Segment.
Net Sales by Geographic Segment
The following table shows a breakdown of Kyoceras 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:
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 yens 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 yens 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 yens 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%.
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 yens 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 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.
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 yens 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 40, Business Overview by Reporting Segment.
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 percent