Annual Reports

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

 
8-K

 
Other

Kyocera 20-F 2016

Documents found in this filing:

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

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 20-F

 

 

 

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

OR

 

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

For the fiscal year ended March 31, 2016

OR

 

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

For the transition period from                      to                     

OR

 

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

Date of event requiring this shell company report

Commission file number: 1-7952

 

 

Kyocera Kabushiki Kaisha

(Exact name of Registrant as specified in its charter)

Kyocera Corporation

(Translation of Registrant’s name into English)

 

 

 

Japan  

6, Takeda Tobadono-cho, Fushimi-ku,

Kyoto 612-8501, Japan

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

Shoichi Aoki, +81-75-604-3556, kyocera-ir@kyocera.jp, +81-75-604-3557,

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

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

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

 

Title of Each Class

 

Name of Each Exchange On Which Registered

Common Stock (Shares)*   New York Stock Exchange

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

None

(Title of Class)

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

None

(Title of Class)

 

 

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

As of March 31, 2016, 366,857,077 shares of common stock were outstanding, comprised of 363,649,181 Shares and 3,207,896 American Depositary Shares (equivalent to 3,207,896 Shares).

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

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

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

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

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

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

 

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

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  

Cautionary Statement Regarding Forward-Looking Statements

     4   

PART I

  

Item 1.     Identity of Directors, Senior Management and Advisers

     6   

Item 2.     Offer Statistics and Expected Timetable

     6   

Item 3.     Key Information

     6   

A. Selected Financial Data

     6   

B. Capitalization and Indebtedness

     7   

C. Reasons for the Offer and Use of Proceeds

     7   

D. Risk Factors

     7   

Item 4.    Information on Kyocera Corporation and its Consolidated Subsidiaries

     15   

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

     15   

B. Business Overview

     17   

C. Organizational Structure

     24   

D. Property, Plants and Equipment

     27   

Item 4A.    Unresolved Staff Comments

     29   

Item 5.    Operating and Financial Review and Prospects

     29   

A. Operating Results

     29   

B. Liquidity and Capital Resources

     52   

C. Research and Development, Patents and Licenses, etc

     56   

D. Trend Information

     59   

E. Off-Balance Sheet Arrangements

     60   

F. Tabular Disclosure of Contractual Obligations

     60   

Item 6.    Directors, Senior Management and Employees

     62   

A. Directors and Senior Management

     62   

B. Compensation

     66   

C. Board Practices

     68   

D. Employees

     69   

E. Share Ownership

     71   

Item 7.    Major Shareholders and Related Party Transactions

     72   

A. Major Shareholders

     72   

B. Related Party Transactions

     74   

C. Interests of Experts and Counsel

     74   

Item 8.    Financial Information

     74   

A. Consolidated Statements and Other Financial Information

     74   

B. Significant Changes

     75   

Item 9.    The Offer and Listing

     75   

A. Offer and Listing Details

     75   

B. Plan of Distribution

     76   

C. Markets

     76   

D. Selling Shareholders

     76   

E. Dilution

     76   

F. Expenses of the Issue

     76   

Item 10.    Additional Information

     77   

A. Share Capital

     77   

B. Memorandum and Articles of Association

     77   

C. Material Contracts

     87   

D. Exchange Controls

     87   

E. Taxation

     87   

 

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     Page  

F. Dividends and Paying Agents

     93   

G. Statement by Experts

     93   

H. Documents on Display

     93   

I. Subsidiary Information

     93   

Item 11.    Quantitative and Qualitative Disclosures about Market Risk

     94   

Item 12.    Description of Securities Other than Equity Securities

     95   

A. Debt Securities

     95   

B. Warrants and Rights

     95   

C. Other Securities

     95   

D. American Depositary Shares

     95   

PART II

  

Item 13.    Defaults, Dividend Arrearages and Delinquencies

     97   

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

     97   

Item 15.    Controls and Procedures

     97   

Item 16.    [Reserved]

     97   

Item 16A. Audit Committee Financial Expert

     97   

Item 16B. Code of Ethics

     98   

Item 16C. Principal Accountant Fees and Services

     98   

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

     99   

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

     100   

Item 16F. Change in Registrant’s Certifying Accountant

     100   

Item 16G. Corporate Governance

     100   

Item 16H. Mine Safety Disclosure

     103   

PART III

  

Item 17.    Financial Statements

     104   

Item 18.    Financial Statements

     104   

Item 19.    Exhibits

     104   

 

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Cautionary Statement Regarding Forward-Looking Statements

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

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

 

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

 

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

 

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

 

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

 

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

 

  (6) fluctuations in the price and ability of suppliers to provide the required quantity of raw materials for use in Kyocera’s production activities;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  (18) credit risk on trade receivables;

 

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

 

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

 

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

 

  (22) changes in accounting principles;

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

 

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Presentation of Certain Information

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

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

 

   

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

 

   

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

 

   

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

 

   

“fiscal 2016” refers to Kyocera’s fiscal year ended March 31, 2016, and other fiscal years are referred to in a corresponding manner.

 

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PART I

Item 1.    Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.    Offer Statistics and Expected Timetable

Not applicable.

Item 3.    Key Information

A. Selected Financial Data

The selected consolidated financial data set forth below for each of the five fiscal years ended March 31 have been derived from Kyocera’s consolidated financial statements that are prepared in accordance with U.S. GAAP.

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

 

     2012      2013      2014      2015      2016  
     (Yen in millions and shares in thousands, except per share amounts)  

For the years ended March 31:

              

Net sales

   ¥ 1,190,870       ¥ 1,280,054       ¥ 1,447,369       ¥ 1,526,536       ¥ 1,479,627   

Profit from operations

     97,675         76,926         120,582         93,428         92,656   

Net income attributable to shareholders of Kyocera Corporation

     79,357         66,473         88,756         115,875         109,047   

Earnings per share:

              

Net income attributable to shareholders of Kyocera Corporation:

              

Basic

   ¥ 216.29       ¥ 181.18       ¥ 241.93       ¥ 315.85       ¥ 297.24   

Diluted

     216.29         181.18         241.93         315.85         297.24   

Weighted average number of shares outstanding:

              

Basic

     366,902         366,884         366,872         366,864         366,859   

Diluted

     366,902         366,884         366,872         366,864         366,859   

Cash dividends declared per share:

              

Per share of common stock

   ¥ 60       ¥ 60       ¥ 80       ¥ 100       ¥ 100   

Per share of common stock*

   $ 0.75       $ 0.66       $ 0.78       $ 0.81       $ 0.88   

At March 31:

              

Total assets

   ¥ 1,994,103       ¥ 2,282,853       ¥ 2,636,704       ¥ 3,021,184       ¥ 3,095,049   

Long-term debt

     21,197         20,855         19,466         17,881         18,115   

Common stock

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

Kyocera Corporation shareholders’ equity

     1,469,505         1,646,157         1,910,083         2,215,319         2,284,264   

Total equity

     1,534,241         1,714,942         1,987,226         2,303,623         2,373,762   

Depreciation

   ¥ 62,374       ¥ 63,119       ¥ 65,760       ¥ 62,413       ¥ 65,853   

Capital expenditures

   ¥ 66,408       ¥ 56,688       ¥ 56,611       ¥ 56,670       ¥ 68,933   

 

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

 

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“Earnings per share” and “Cash dividends declared per share” are calculated under the assumption that the stock split undertaken by Kyocera Corporation on October 1, 2013 had been undertaken at the beginning of the year ended March 31, 2012. 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 79.

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

 

For the years ended March 31,

       High              Low              Average              Period-end      

2012

     85.26         75.72         79.00         82.41   

2013

     96.16         77.41         82.96         94.16   

2014

     105.25         92.96         100.15         102.98   

2015

     121.50         101.26         109.75         119.96   

2016

     125.58         111.30         120.04         112.42   

For most recent six months

                           

December 2015

     123.52         120.27         121.64         120.27   

January 2016

     121.05         116.38         118.23         121.05   

February 2016

     121.06         111.36         114.62         112.90   

March 2016

     113.94         111.30         112.93         112.42   

April 2016

     112.06         106.90         109.55         106.90   

May 2016

     110.75         106.34         108.85         110.75   

The noon buying rate for Japanese yen on June 17, 2016 was $1.00 = 104.20

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

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

Risks Related to Kyocera’s Business

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

Kyocera conducts business not only in Japan but also around the world and provides products and services 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, 2017 (“fiscal 2017”), the Japanese economy is expected to continue growing at a low rate. Overseas, the U.S. economy is forecast to continue expanding, while persistent low growth is forecast in the European economy and the growth rate in the Chinese economy is projected to decline. 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 Kyocera’s key markets. This may in turn lead to a decline in Kyocera’s business environment, consolidated results of operations, financial condition and cash flows.

 

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

A substantial amount of Kyocera’s investment has been targeted towards expanding manufacturing and sales channels located outside Japan, such as in the United States, Europe and Asia, which includes 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 Kyocera’s revenues have been derived from foreign sales in recent years, various export risks may disproportionately affect its revenues

Kyocera’s sales to customers located outside Japan accounted for approximately 60% of its total revenues in fiscal 2016. Kyocera believes that overseas sales will continue to account for a significant percentage of its revenues. Therefore, the following export risks may disproportionately affect Kyocera’s revenues:

 

   

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

 

   

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

 

   

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

 

   

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

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

Kyocera conducts business in countries outside Japan, which exposes it to fluctuations in foreign currency exchange rates. Kyocera may enter into mainly short-term forward contract transaction to hedge this risk.

Nevertheless, fluctuations in foreign currency exchange rates could have an adverse effect on its business. Fluctuations in foreign currency exchange rates may affect Kyocera’s consolidated results of operations, financial condition, cash flows, the value of its foreign assets and production costs, which in turn may adversely affect reported earnings and the comparability of period-to-period results of operations. Changes in currency exchange rates may affect the relative prices at which Kyocera and foreign competitors sell products in the same market. In addition, changes in the value of the relevant currencies may affect the cost of imported items required in its operations.

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

Kyocera sells a wide variety of products and, therefore, faces a broad range of competitors from large international companies to relatively small, rapidly growing and highly specialized companies. Kyocera’s competitive landscape is subject to continuous change, and new and significant competitors may emerge, including competitors based in emerging markets such as China that may have competitive advantages in terms of cost structure or other factors. Kyocera has a variety of businesses in different industries while many of its competitors specialize in one or more of these business areas. As a result, Kyocera may not fund or invest in certain of its businesses to the same degree as its competitors, or these competitors may have greater financial, technical, and marketing resources available to them than the portion of its business against which they compete. While some of the factors that drive competition vary by product area, price and speed of delivery are primary factors that impact in all areas of Kyocera’s business. Price pressure has been intense, and thus Kyocera predicts

 

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that its selling prices will continue to be lower than in fiscal 2016 depending partly on the demand and competition situation. In production businesses in which Kyocera develops, produces and distributes specialized parts for its customers’ products, its competitive position depends significantly on being involved early in the process of creating a new product that fits its customers’ needs for each business. To maintain these competitive advantages, it is critical to maintain close ties with customers so that Kyocera can ensure that it is able to meet required specifications and be the first supplier to create and deliver the product. Kyocera’s gross margins may be reduced if the business environment changes in a way that Kyocera cannot maintain these important relationships with customers or its market share or if it is forced in the future to further reduce prices in response to the actions of its competitors.

(6) Fluctuations in the price and ability of suppliers to provide the required quantity of raw materials for use in Kyocera’s production activities

Raw materials used in the production activities of Kyocera’s 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 Kyocera’s 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 at the lower of cost and net realizable value 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 Kyocera’s 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 Kyocera’s 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 Kyocera’s production costs and profitability.

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, Kyocera’s commitments have not been impaired, but there is the possibility it will become impaired in the future.

Kyocera has entered into long-term purchase agreements with a few specific suppliers for purchasing polysilicon material used in its solar energy business. For detailed information regarding these purchase agreements, please refer to “Long-term purchase agreements for the supply of raw materials” in Item 5.F.“Tabular Disclosure of Contractual Obligations.”

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

Kyocera ordinarily outsources the fabrication of certain components and sub-assemblies of its products, often to sole source suppliers or a limited number of suppliers. Several suppliers have manufacturing processes which are very complex and require a long lead-time. Kyocera may be affected by occasional delays in obtaining components and sub-assemblies. Kyocera’s production of these products will also be materially and adversely

 

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affected if Kyocera is unable to obtain high quality, reliable and timely supply of these components and sub-assemblies. In addition, any reduction in the precision of these components will cause delays and interruptions in Kyocera’s production cycle.

Within Kyocera’s manufacturing facilities, minute impurities, difficulties in the production process or other factors can cause a substantial percentage of its products to be rejected or be non-functional. These factors can result in lower than expected production yields, which delay product shipments and may materially and adversely affect Kyocera’s operating results. Moreover, in certain operations of which fixed cost ratio is high, decreases in production volume or capacity utilization may adversely affect Kyocera’s results of operation, financial condition and cash flows.

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

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

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

Kyocera intends to expand its product lines and development capacity to satisfy customer demand in its target markets. Unexpected technical delays in completing these initiatives or changes to Kyocera’s 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 Kyocera’s 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 Kyocera’s expectations could have a material adverse effect on Kyocera’s 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

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

 

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Risks Related to Legal Restrictions and Litigations

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

Kyocera’s success and competitive position depend on protecting its trade secrets and other intellectual property. Kyocera’s strategy is to rely both on trade secrets and patents to protect its manufacturing and sales processes and products, but reliance on trade secrets is only an effective business practice insofar as trade secrets remain undisclosed and a proprietary product or process is not reverse engineered or independently developed. Kyocera takes certain measures to protect its trade secrets, including executing nondisclosure agreements with certain of its employees, joint venture partners, customers and suppliers. If parties breach these agreements or the measures Kyocera takes are not properly implemented, Kyocera may not have an adequate remedy. Disclosure of its trade secrets or reverse engineering of its proprietary products, processes or devices could materially affect Kyocera’s business, consolidated results of operations, financial condition and cash flows.

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

(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 party’s patent rights. Accordingly, Kyocera cannot assure that:

 

   

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

 

   

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

 

   

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

(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 Kyocera’s results of operations, financial condition and cash flows.

 

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(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, Kyocera’s business operations may be limited and continuance may become difficult. If Kyocera faces enormous legal costs related to litigation and regulatory actions, Kyocera’s business operations may become significantly limited and Kyocera’s results of operations, financial condition and cash flows may be negatively affected.

Risks Related to Disasters or Unpredictable Events

(16) Kyocera’s markets or supply chains may be adversely affected by terrorism, outbreaks of disease, wars or similar events

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

(17) Kyocera’s headquarters and major facilities as well as its suppliers and customers may suffer the devastating effects of earthquakes and other disasters

Kyocera’s headquarters and major facilities including plants, sales offices and R&D centers are located not only in Japan but also all over the world. It might be inevitable that Kyocera would suffer from natural disasters such as earthquakes, typhoons, tsunamis, 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 Kyocera’s employees, R&D or manufacturing facilities, Kyocera’s operating activities would be suspended and manufacturing and shipment would be delayed. Kyocera may also incur a great amount of expenses, such as repair expenses for the damaged machines or facilities. In addition, if the social and economic infrastructure suffers from adverse damages, traffic disturbance and electric power outages could occur and they may affect Kyocera’s supply chains or manufacturing operations. Furthermore, Kyocera may be unable to obtain raw materials if our suppliers sustain damage and Kyocera may also face difficulties shipping its products if its customers sustain damage. Those damages set forth above, as well as any resulting general economic slowdown and lower consumption levels, may have a material adverse effect on Kyocera’s consolidated results of operations, financial condition and cash flows.

Risks Related to Financial and Accounting

(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, Kyocera’s consolidated results of operations, financial condition and cash flows may be affected.

 

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(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 Corporation’s equity interest in KDDI Corporation was 12.45% as of March 31, 2016. 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. In a perspective of enhancing the corporate value of Kyocera on a mid- to long-term basis, Kyocera intends to keep its ownership of some of the equity securities as strategic investments including KDDI shares in light of attaining growth of business through strengthening, maintaining and developing trade relationship and securing profits from shareholding and consideration for the social significance of Kyocera. For other equity securities including strategic investments in its portfolio, although, with periodical check for the economic rationality, 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 Kyocera’s 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 Kyocera’s 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 Kyocera’s consolidated results of operations and financial condition. In addition, if Kyocera modifies its accounting software or information systems to introduce changes in accounting standards, certain investments or expenses may be required.

Other Risks

(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 company’s accounting books and records and exercising appraisal rights, are available only to holders of record. Because the depositary, through its custodian agents, is the record holder of the shares underlying the ADSs, only the depositary can exercise those

 

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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 day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.

(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.

 

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(28) We believe that we were a passive foreign investment company (PFIC) for United States federal income tax purposes for the 2016 taxable year and that we may be treated as a PFIC in the current or future taxable years.

Because of the passive nature of our assets and income, we believe that we were a PFIC for United States federal income tax purposes for the 2016 taxable year and that we may be treated as a PFIC in the current or future taxable years. Assuming that we are a PFIC, U.S. holders of our shares and ADSs may be subject to special adverse United States federal income tax consequences. See Item 10 “Additional Information—Taxation—United States Taxation” of this annual report on Form 20-F. We do not intend to provide investors with any information to assist them in determining whether we are a PFIC. In addition, the information we are required to disclose by applicable securities laws may not be sufficient to determine whether we are a PFIC. We also do not intend to provide United States holders of our shares and ADRs with the information that is required to make an election to have us treated as a “qualified electing fund” for United States federal income tax purposes. For a more comprehensive discussion of the United States federal income tax consequences of owning shares and ADSs and the application of the PFIC rules to you, see Item 10 “Additional Information—Taxation—United States Taxation.”

Item 4.    Information on Kyocera Corporation and its Consolidated Subsidiaries

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

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

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

In the 1980s, we diversified into new strategic fields. In 1982, we merged with Cybernet Electronics Corporation, a telecommunications equipment manufacturer in which we had made an equity investment three years earlier. We also played a leading role in the establishment of DDI Corporation (currently KDDI Corporation), which has become one of Japan’s leading providers of telecommunications services. In 1989, we gained a presence in the electronic connector market through our acquisition of Elco International Corporation (currently Kyocera Connector Products Corporation).

In the 1990s, we strengthened our position as a globally integrated electronic components manufacturer through our acquisition of AVX Corporation, a maker of capacitors and other passive electronic components. In 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 such as mobile phones and PHS-related products to telecommunication carriers and information equipment such as printers and multifunctional products to 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 Corporation’s printer business to Kyocera Document Solutions Inc. to further enhance our information equipment business by pursuing group synergies.

 

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

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

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

In October 2013, Kyocera acquired NEC Toppan Circuit Solutions, Inc., a printed wiring board manufacturing company, and changed its name to Kyocera Circuit Solutions, Inc. in order to strengthen and expand its organic substrate business. In October 2014, Kyocera integrated Kyocera SLC Technologies Corporation and Kyocera Circuit Solutions, Inc., both of which engaged in organic substrate business, into Kyocera Circuit Solutions, Inc. In April 2016, Kyocera Corporation implemented an absorption-type merger with Kyocera Circuit Solutions, Inc. in order to enhance the development of new products and to expand its business further.

In September 2015, Kyocera acquired Nihon Inter Electronics Corporation (NIEC), a manufacturer of power semiconductors, in order to expand into a new business area with a combination of their respective products and made it a consolidated subsidiary. Kyocera Corporation and NIEC made a resolution at each of their respective board of directors’ meetings held in May 2016 to merge under an absorption-type merger in which Kyocera Corporation will be the surviving company and NIEC will be the merged company and entered into a Merger Agreement by and between them.

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

 

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B. Business Overview

Overview

Kyocera is engaged in numerous high-tech fields, from fine ceramic components to electronic devices, equipment, services and networks. Our manufacturing and distribution operations are conducted worldwide. As of March 31, 2016, we had 197 subsidiaries and 4 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.

Operations

Kyocera categorizes its operations into seven reporting segments: (1) Fine Ceramic Parts Group,

(2) Semiconductor Parts Group, (3) Applied Ceramic Products Group, (4) Electronic Device Group,

(5) Telecommunications Equipment Group, (6) Information Equipment Group, and (7) Others.

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

(1) Fine Ceramic Parts Group

Components for Semiconductor Processing Equipment and Flat Panel Display Manufacturing Equipment

Information and Telecommunication Components

General Industrial Machinery Components

Sapphire Substrates

Automotive Components

Products in this reporting segment are widely used in the industrial machinery, information and communications equipment, 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, wear and corrosion resistance.

(2) Semiconductor Parts Group

Ceramic Packages

Organic Multilayer Substrates

Multilayer Printed Wiring Boards

This reporting segment 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.

(3) Applied Ceramic Products Group

Solar Power Generating Systems, Battery Energy 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.

 

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(4) Electronic Device Group

Capacitors

SAW Devices

Connectors

Crystal Components

Liquid Crystal Displays

Printing Devices

Power Semiconductor Products (Discrete Products, Power Modules)

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

(5) Telecommunications Equipment Group

Smartphones, Mobile Phones

PHS related Products

M2M Modules

This reporting segment develops, manufactures and sells smartphones and mobile phones incorporating unique functions mainly for telecommunications carriers in Japan and the U.S. Kyocera also develops the business such as M2M modules for mainly automotive market.

(6) Information Equipment Group

Monochrome and Color Printers and Multifunctional Products

Wide Format Systems

Document Solutions

Application Software

Supplies

This reporting segment develops, manufactures and sells page printers and multifunctional products 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.

(7) Others

Information Systems and Telecommunication Services

Engineering Business

Management Consulting Business

Materials for Semiconductors, Chemical Materials

Realty Development Business

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

Sales and Distributions

Kyocera products are marketed worldwide by our sales personnel, as well as by sales companies within our group, and by independent distributors. We have regional sales and design application personnel in strategic

 

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locations to provide technical and sales support for customers and distributors. We believe that this combination of distribution channels leads to a high level of market penetration and efficient coverage of services for our customers.

Most of sales in the Fine Ceramic Parts Group, the Semiconductor Parts Group and the Electronic Device Group are made directly to component and equipment manufacturers in Japan and overseas.

In the solar energy business in the Applied Ceramic Products Group, solar modules and solar power generating systems are sold primarily to global users via sales subsidiaries and distributors. In addition, Kyocera sells battery energy storage systems through distributors, franchise stores and home builders in Japan and distributors in Europe. Energy management systems are sold primarily to the housing market in Japan through the distributor route, franchise stores and home builders. Cutting tools are sold to users such as automobile parts manufactures through wholesale dealers and distributors. Jewelry and applied ceramic products such as ceramic knives are sold through direct retail shops and general retailers. In the medical and dental implant business, joint prostheses, artificial bones and dental implants are sold to dental clinics and hospitals through distributors.

In the Telecommunications Equipment Group, we supply smartphones and mobile phones primarily to telecommunications carriers in the Japanese and overseas markets. Our key supply destinations include KDDI Corporation, Softbank Group Corp., Verizon Communications Inc., T-Mobile US, Inc., Sprint Corporation 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.

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 business activities.

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 in consideration of future circumstances of supply and demand volume.

 

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In fiscal 2016, we procured a sufficient level of raw materials and other materials to carry out our production plans.

Kyocera has entered into long-term purchase agreements with a few specific suppliers for purchasing polysilicon material used in its solar energy business. For detailed information regarding these purchase agreements, please refer to “Long-term purchase agreements for the supply of raw materials” in Item 5.F. “Tabular Disclosure of Contractual Obligations.”

For details on Kyocera’s supply chain management and dealing with conflict minerals, please refer to the following websites, respectively.

“Kyocera Supply-Chain CSR Deployment Guideline”

http://global.kyocera.com/ecology/social/images/csr_guide.pdf

“Conflict Minerals Report”

http://www.kyocera.co.jp/ir/financial/cmr160527.pdf

Patents and Licenses

Our success and competitive position depend on a number of significant patents, licenses and trade secrets relating to our manufacturing and sales processes and products. All of Kyocera’s intellectual properties are considered to be important. However, Kyocera believes that neither its expiration nor termination of any specific intellectual properties would have significant impact on Kyocera’s entire operation. The following table sets forth information, as of March 31, 2016, with respect to our significant patents and license agreements.

(a) License permitted to produce products

 

Counterparty

  

Country

  

Contents

  

Period

Qualcomm Incorporated

  

United States

   License under patents regarding mobile phone    From August 31, 1996 to patent expiration

(b) License—cross agreements

 

Counterparty

  

Country

  

Contents

  

Period

Canon Inc.

   Japan    License under patents regarding electric photo printer    From April 1, 2012 to patent expiration

Competitive Position

(1) Fine Ceramic Parts Group

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

Although competing companies in this reporting segment differ by region and market, our competition mainly comprises large ceramic manufacturers. Kyocera’s strength comes from establishing a position as a global leading manufacturer by differentiating our products from those of our rivals. This is achieved through the ceramic materials technology accumulated since our founding, and in production technology and capability that enables us to meet customer requirements, particularly in terms of product dimension, size and volume. We also promote R&D internally through an integrated system from fundamental research to next-generation product development and we are striving to introduce further distinctive products to the market through the advanced application of our core technology.

 

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(2) Semiconductor Parts Group

In this reporting segment, we are working to strengthen global competitiveness by developing business for ceramic material components such as ceramic packages, and business for organic multilayer packages and multilayer printed wiring boards (PWBs).

In the ceramic material components business, our main competitors are Japanese manufacturers. Kyocera has already become a global market leader through sophisticated development, production technology and supply capabilities in addition to having sales sites and design centers positioned in regions of the world. We will maximize use of these outstanding management resources and work to broadly expand the application of ceramic material components for the digital consumer equipment market as well as the automotive-related market, optical communications market, and environment and energy market.

In the organic multilayer package and multilayer PWB business, our main competitors are Japanese and Asian manufacturers. Kyocera produces flip-chip packages and multilayer PWBs requiring sophisticated technology for 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 are strengthening the competitiveness of our business by developing packages requiring smaller, thinner design for smartphones and mobile terminals, developing new products with component-embedded boards and expanding production capacity and sales channels.

(3) Applied Ceramic Products Group

In this reporting segment, Kyocera mainly provides solar cells, modules and power generating systems as well as cutting tools.

The solar energy industry has a high number of competitors engaged in producing solar energy products that differ in terms of material and production method, while competition is becoming increasingly severe from the perspectives of price and technology. Despite this, Kyocera is working to expand business by leveraging competitive advantages in products that realize high conversion efficiency and long-term reliability based on technology backed up by experience accumulated over more than 40 years as one of the pioneering companies in the industry.

Kyocera manufactures crystalline silicon solar cells. In particular, we handle integrated production from silicon ingots to solar modules for multicrystalline silicon solar cells, which has led to outstanding reliability based on top-level quality control in each manufacturing process. In addition, Kyocera has generated top-class results in installing solar power generating systems for public and commercial use in Japan by providing system design, construction and maintenance. Kyocera is also working to expand the scope of its business fields and strengthen competitiveness by creating high-value-added products through the strengthening of development, particularly for batteries used to store electricity and an Energy Management System (EMS), by utilizing the Group’s management resources and knowhow. These products are used for power supply and demand systems, which are becoming increasingly complex and sophisticated. In addition, since these products can be used over a long period of time, Kyocera’s strong financial base provides a competitive advantage for this business.

In the cutting tool business, our cutting tools are employed primarily for metallic processing in automotive-related markets. Although we have many competitors, we provide a diverse array of cutting tools for processing machinery based on advanced materials technology that contribute to enhanced productivity for our customers. We are also developing products for a wide range of markets in addition to the automotive-related industry, including the aviation and energy markets, and are working to increase market share by boosting production capacity. During fiscal 2016, we established a framework enabling integrated production from materials to production for cemented carbide tools following the founding of a joint venture, and we are working to further strengthen competitiveness.

 

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(4) Electronic Device Group

Kyocera develops and manufactures a wide variety of capacitors, small SAW devices, crystal components, connectors, thermal printheads, inkjet printheads, liquid crystal displays, and power semiconductors (discrete and power modules). We develop numerous products for diverse applications worldwide and one of our competitive advantages is our extensive product lineup.

Kyocera is a leading supplier of capacitors, crystal components and connectors for smartphones, and we are expanding our market share by developing products that meet needs such as for miniaturization and high performance. AVX Corporation, our subsidiary, is a world-class supplier in the tantalum capacitor market that develops products for a broad array of fields, including general industry, automotive-related and communications infrastructure.

In liquid crystal displays, we are focusing on the development of small- and medium-sized products and are seeking to expand business mainly for industrial and automotive applications. We are also working to further strengthen competitiveness by concentrating on the development of cutting-edge high-value-added products utilizing LTPS technology.

In addition, we command high market share in thermal printheads used for barcode printing such as POS and in inkjet printheads used in industries such as the textile printing industry. We are striving to further boost our market share by actively releasing new products and cultivating the market.

(5) Telecommunications Equipment Group

The main business in this reporting segment is the mobile phone business, and we supply products mainly to Japan and the United States. Our main competitors are mobile phone manufacturers in the United States and Asia, particularly Japan, Korea and China. Kyocera is focusing on developing products that provide a level of differentiation such as by adding waterproof and robustness features in addition to unique functions using our own component technology. Also, we develop mobile phones that meet diverse needs, from simple mobile phones to sophisticated smartphones, and are working to expand our business domain by introducing M2M communications modules through application of our technology.

(6) Information Equipment Group

In this reporting segment, Kyocera manufactures and sells MFPs (multifunctional products) and printers, and provides solution services in the global market. Our competitors are mainly leading Japanese and U.S. manufacturers of document equipment.

Kyocera’s products have been differentiated from competitors thanks to the development of our unique long-life photoreceptors (amorphous silicon drum and positive-charged single-layer photoconductor drum) and low power consumption systems, which realize lower running costs and energy consumption. Kyocera also efficiently develops a wide range of products from low-speed to high-speed machines through the use of platforms that helps enhance cost competitiveness. Another strength is our ability to develop products that meet needs in each market in both industrialized nations and emerging nations.

In addition, Kyocera is working to expand its MDS (Managed Document Services) business to provide the optimal document environment for each customer through HyPAS (Hybrid Platform for Advanced Solutions), which is a unique solution platform that enables users to embed various applications in document equipment to connect with a cloud computing environment or mobile equipment. We are also striving to boost market share by strengthening our sales and support system, which includes expanding our distributor network and direct sales stores globally.

 

 

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Apart from these strengths, Kyocera also makes active use of external management resources with the aim of further reinforcing and expanding its business in the various markets of the world.

Government Regulation

There are various governmental regulations specifically applicable to industries in which Kyocera operates, including regulations relating to business and investment approvals, export regulations, tariffs, intellectual properties, consumer and business taxation, exchange controls, and material procurement in public works. Kyocera does not believe that such governmental regulations currently have significant effects on its business.

Environmental Regulation

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

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.

Other Regulation

Kyocera’s subsidiary conducted transactions with Iran-related organizations in fiscal 2014, which Kyocera is required to disclose under Section 13(r) of the Securities Exchange Act of 1934, as amended. TA Triumph-Adler Deutschland GmbH (formerly TA Triumph-Adler Norddeutschland GmbH), a wholly-owned subsidiary of TA

 

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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 and 2016.

C. Organizational Structure

We had 234 subsidiaries and affiliates as of March 31, 2016. 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, 2016, with respect to our significant subsidiaries.

 

Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
    

Main Business

(1) Fine Ceramic Parts Group

        

Kyocera Industrial Ceramics Corporation

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

(2) Semiconductor Parts Group

        

Kyocera Circuit Solutions, Inc.

   Japan      100.00%       Development, manufacture and sale of organic multilayer packages and multilayer printed wiring substrates

Shanghai Kyocera Electronics Co., Ltd.

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

Kyocera Vietnam Co., Ltd.

   Vietnam      100.00%       Manufacture of fine ceramic-related products

Kyocera America, Inc.

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

(3) Applied Ceramic Products Group

        

Kyocera Solar Corporation

   Japan      100.00%       Sale of solar energy products

Kyocera (Tianjin) Solar Energy Co., Ltd.

   China      90.00%       Manufacture of solar energy products

 

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Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
    

Main Business

Kyocera Solar, Inc.

   United States      100.00%       Manufacture and sale of solar energy products

Kyocera Precision Tools Korea Co., Ltd.

   Korea      90.00%       Manufacture and sale of cutting tools

Kyocera Precision Tools, Inc.

   United States      100.00%       Manufacture and sale of cutting tools

Kyocera Unimerco A/S

   Denmark      100.00%       Development, manufacture and sale of cutting tools

Kyocera Medical Corporation

   Japan      100.00%       Development, manufacture and sale of medical material

(4) Electronic Device Group

        

Kyocera Connector Products Corporation

   Japan      100.00%       Development, manufacture and sale of electronic devices

Kyocera Crystal Device Corporation

   Japan      100.00%       Development, manufacture and sale of electronic devices

Kyocera Display Corporation

   Japan      100.00%       Development, manufacture and sale of electronic devices

Nihon Inter Electronics Corporation

   Japan      70.23%       Development, manufacture and sale of electronic devices

Dongguan Shilong Kyocera Co., Ltd.

   China      90.00%       Manufacture of cutting tools and electronic devices

AVX Corporation

   United States      72.72%       Development, manufacture and sale of electronic devices

(5) Telecommunications Equipment Group

        

Kyocera Telecom Equipment (Malaysia) Sdn. Bhd.

  

Malaysia

  

 

100.00%

  

  

Manufacture of telecommunications equipment

Kyocera Communications, Inc.

   United States      100.00%       Sale of telecommunications equipment

(6) Information Equipment Group

        

Kyocera Document Solutions Inc.

   Japan      100.00%       Development, manufacture and sale of information equipment

Kyocera Document Solutions Japan Inc.

   Japan      100.00%       Sale of information equipment mainly in Japan

Kyocera Document Technology (Dongguan) Co., Ltd.

  

China

  

 

92.76%

  

  

Manufacture of information equipment

Kyocera Document Technology Vietnam Co., Ltd.

  

Vietnam

  

 

100.00%

  

  

Manufacture of information equipment

Kyocera Document Solutions America, Inc.

   United States      100.00%       Sale of information equipment mainly in North America

 

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Table of Contents

Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
    

Main Business

Kyocera Document Solutions Europe B.V.

   Netherlands      100.00%       Sale of information equipment mainly in Europe

Kyocera Document Solutions Deutschland GmbH

  

Germany

  

 

100.00%

  

  

Sale of information equipment mainly in Europe

TA Triumph-Adler GmbH

   Germany      100.00%       Sale of information equipment mainly in Europe

(7) Others

        

Kyocera Communication Systems Co., Ltd.

   Japan      76.30%       Information systems and telecommunication services

Kyocera Chemical Corporation

   Japan      100.00%       Development, manufacture and sale of materials for semiconductors

Kyocera Realty Development Co., Ltd.

   Japan      100.00%       Real estate services

(8) Regional Holding or Sales Companies

        

Kyocera (China) Sales & Trading Corporation

   China      90.00%       Sale of fine ceramic-related products, electronic devices mainly in China

Kyocera Korea Co., Ltd.

   Korea      100.00%       Sale of fine ceramic-related products mainly in Korea

Kyocera Asia Pacific Pte. Ltd.

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

Kyocera International, Inc.

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

Kyocera Fineceramics GmbH

   Germany      100.00%       Sale of fine ceramic-related products and electronic devices mainly in Europe

In addition to the above consolidated subsidiaries, Kyocera had 186 other consolidated subsidiaries as of March 31, 2016. Kyocera also had interests in one subsidiary accounted for by the equity method and 11 affiliates accounted for by the equity method as of March 31, 2016.

On April 1, 2016, Kyocera Corporation absorbed Kyocera Circuit Solutions, Inc. and Kyocera Chemical Corporation, which were wholly owned subsidiaries, and succeeded to the business unit engaged in the sale of photovoltaic power generation equipment, which was split off from Kyocera Solar Corporation.

AVX Corporation, in our Electronic Device Group, is one of our most significant subsidiaries. Most of the electronic devices we produce for overseas sales are distributed through AVX Corporation by utilizing AVX Corporation’s wide range of marketing channels. We market passive components produced by AVX Corporation in the Japanese market. We also utilize AVX Corporation’s manufacturing process for ceramic capacitors to improve productivity and to enhance our competitiveness. In addition, AVX Corporation introduced our materials technologies into its ceramic capacitor production. We have been seeking better ways to cooperate in

 

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expanding our electronic device businesses. Currently, four of our directors are members of AVX Corporation’s board of directors and one director of AVX Corporation is a member of Kyocera Corporation’s 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 $101,535 thousand in fiscal 2016 and its performance contributed significantly to Kyocera’s results of operations and financial condition. See Item 5.A. “Operating Results” of this annual report on Form 20-F.

D. Property, Plants and Equipment

As of March 31, 2016, we had property, plants and equipment with a net book value of ¥264,487 million. During the five years ended March 31, 2016, we invested a total of ¥305,310 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, 2016.

 

Name of Plant

 

Location

 

Status

 

Floor Space

 

Lease
Expires

 

Principal Products
Manufactured

            (in thousands
of square feet)
       

Japan

         

Hokkaido Kitami Plant

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

Yamagata Higashine Plant

  Higashine, Yamagata   Owned   379     Electronic components

Nagano Okaya Plant

  Okaya, Nagano   Owned   386     Fine ceramic parts, Printing devices, Cutting tools

Niigata Shibata Plant

  Shibata, Niigata   Owned   324     Organic multilayer substrates, Multilayer printed wiring boards

Tamaki Plant

  Watarai, Mie   Owned   341     Information equipment

Shiga Gamo Plant

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

Shiga Yokaichi Plant

  Higashi-Ohmi, Shiga   Owned   1,510     Fine ceramic parts, Printing devices, Solar cells, Cutting tools

Shiga Yasu Plant

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

 

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Name of Plant

 

Location

 

Status

 

Floor Space

 

Lease
Expires

 

Principal Products
Manufactured

            (in thousands
of square feet)
       

Toyama Nyuzen Plant

  Shimoniikawa, Toyama   Owned   327     Organic multilayer substrates, Multilayer printed wiring boards

Kyoto Ayabe Plant

  Ayabe, Kyoto   Owned   480     Organic multilayer substrates, Multilayer printed wiring boards

Hirakata Plant

  Hirakata, Osaka   Owned   593     Information equipment

Kagoshima Sendai Plant

  Satsuma-Sendai, Kagoshima   Owned   1,986     Fine ceramic parts, Semiconductor parts, Cutting tools

Kagoshima Kokubu Plant

  Kirishima, Kagoshima   Owned   2,467     Fine ceramic parts, Semiconductor parts, Electronic components

Kagoshima Hayato Plant

  Kirishima, Kagoshima   Owned   278     Printing devices

United States

         

Balboa Plant

  San Diego, California   Owned   300     Semiconductor parts

Fountain Inn Plant

  Fountain Inn, South Carolina   Owned   370     Electronic components

El Salvador

         

San Salvador Plant

  San Salvador   Owned   420     Electronic components

France

         

Saint-Apollinaire Plant

  Saint-Apollinaire   Leased   322   2016   Electronic components

Czech Republic

         

Lanskroun Plant

  Lanskroun   Owned   542     Electronic components

Uherske Hradiste Plant

  Uherske Hradiste   Owned   336     Electronic components

China

         

Tianjin Plant

  Tianjin   Owned   520     Electronic components

Tianjin Plant

  Tianjin   Owned   308     Solar modules

Shanghai Pudong Plant

  Shanghai   Owned   1,026     Semiconductor parts

Zhangjiagang Plant

  Zhangjiagang, Jiangsu   Owned   365     Liquid crystal displays

 

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Name of Plant

 

Location

 

Status

 

Floor Space

 

Lease
Expires

 

Principal Products
Manufactured

            (in thousands
of square feet)
       

Shilong Plant

  Dongguan, Guangdong   Owned   2,331     Information equipment

Shilong Plant

  Dongguan, Guangdong   Owned   701     Cutting tools, Liquid crystal displays, Printing devices

Thailand

         

Lamphun Plant

  Lamphun   Owned   264     Electronic components

Malaysia

         

Johor Plant

  Johor   Owned   315     Telecommunications equipment

Vietnam

         

Hung Yen Plant

  Hung Yen   Owned   958     Semiconductor parts

Hai Phong Plant

  Hai Phong   Owned   794     Information equipment

Item 4A.    Unresolved Staff Comments

None.

Item 5.    Operating and Financial Review and Prospects

A. Operating Results

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

Overview

Kyocera develops new technologies and new products based on fine ceramic technologies and cultivates new markets since establishment. Kyocera also promotes 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, industrial machinery, automotive-related and environment and energy.

Kyocera’s operations are categorized into seven reporting segments: (1) Fine Ceramic Parts Group,

(2) Semiconductor Parts Group, (3) Applied Ceramic Products Group, (4) Electronic Device Group,

(5) Telecommunications Equipment Group, (6) Information Equipment Group, and (7) Others. Kyocera groups the Fine Ceramic Parts Group, the Semiconductor Parts Group, the Applied Ceramic Products Group and the Electronic Device Group into one main business referred to as the “Components Business” and groups the Telecommunications Equipment Group and the Information Equipment Group into another main business referred to as the “Equipment Business.”

 

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During fiscal 2016, the Japanese economy recorded low growth due mainly to a decline in personal consumption, despite improved corporate earnings and an increase in private capital investment. The U.S. economy expanded primarily on the back of improvement in the employment situation and growth in personal consumption, while the European economy continued to show a low level of growth and the slowdown in the Chinese economy became clearer.

With regard to the principal markets for Kyocera, shipment volume of smartphones grew in the digital consumer equipment market and sales volume increased in automotive markets in China and the United States.

During fiscal 2016, sales in the Electronic Device Group and the Fine Ceramic Parts Group increased, particularly in the smartphone and automotive-related markets. However, sales declined in the Telecommunications Equipment Group and the Applied Ceramic Products Group, including the solar energy business. As a result, consolidated net sales for fiscal 2016 amounted to ¥1,479,627 million, down ¥46,909 million, or 3.1%, compared with fiscal 2015.

Profit from operations decreased by ¥772 million, or 0.8%, to ¥92,656 million, compared with ¥93,428 million for fiscal 2015, due primarily to improvement in profitability in the Applied Ceramic Products Group on the back of cost reductions, offset by the recording of losses in the amount of approximately ¥23,000 million, including an impairment of goodwill in the Electronic Device Group. Income before income taxes increased by ¥23,721 million, or 19.5%, to ¥145,583 million, compared with ¥121,862 million for fiscal 2015, due primarily to the recording of gain on the sale of an asset in the amount of approximately ¥20,000 million. On the other hand, net income attributable to shareholders of Kyocera Corporation decreased by ¥6,828 million, or 5.9%, to ¥109,047 million, due to the decrease as compared with fiscal 2015 in the amount of income derived from revaluation of deferred tax assets and liabilities in line with a revision of the tax system in Japan.

Average foreign currency exchange rates for the fiscal 2016 were ¥120 to the U.S. dollar, marking depreciation of ¥10 (approximately 9%), and ¥133 to the Euro, marking appreciation of ¥6 (approximately 4%) in comparison with fiscal 2015. As a result of yen’s depreciation mainly to the U.S. dollar, net sales and income before income taxes for fiscal 2016 were pushed up by approximately ¥29,000 million and ¥4,000 million, respectively, compared with fiscal 2015.

 

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Results of Operations

Fiscal 2016 compared with Fiscal 2015

The following table shows a summary of Kyocera’s results of operations for fiscal 2015 and fiscal 2016:

 

     Years ended March 31,     Increase
(Decrease)
 
     2015     2016    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)        

Net sales

   ¥ 1,526,536        100.0      ¥ 1,479,627        100.0      ¥ (46,909     (3.1

Cost of sales

     1,137,137        74.5        1,093,467        73.9        (43,670     (3.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     389,399        25.5        386,160        26.1        (3,239     (0.8

Selling, general and administrative expenses

     277,515        18.2        279,361        18.9        1,846        0.7   

Loss on impairment of goodwill

     18,456        1.2        14,143        0.9        (4,313     (23.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from operations

     93,428        6.1        92,656        6.3        (772     (0.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses):

            

Interest and dividend income

     22,783        1.5        28,609        1.9        5,826        25.6   

Interest expense

     (1,718     (0.1     (1,814     (0.1     (96     —     

Foreign currency transaction gains, net

     4,499        0.3        3,820        0.2        (679     (15.1

Gains on sales of securities, net

     505        0.0        20,600        1.4        20,095        —     

Other, net

     2,365        0.2        1,712        0.1        (653     (27.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     28,434        1.9        52,927        3.5        24,493        86.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     121,862        8.0        145,583        9.8        23,721        19.5   

Income taxes

     (3,441     (0.2     31,392        2.1        34,833        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     125,303        8.2        114,191        7.7        (11,112     (8.9

Net income attributable to noncontrolling interests

     (9,428     (0.6     (5,144     (0.3     4,284        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Kyocera Corporation

   ¥ 115,875        7.6      ¥ 109,047        7.4      ¥ (6,828     (5.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Sales

Net sales in fiscal 2016 decreased by ¥46,909 million, or 3.1%, to ¥1,479,627 million, compared with ¥1,526,536 million in fiscal 2015. Net sales in the Electronic Device Group and Fine Ceramic Parts Group increased, particularly in the smartphone and automotive-related markets. However, sales declined in the Telecommunications Equipment Group and the Applied Ceramic Products Group, including the solar energy business.

Net sales in the Components Business in fiscal 2016 decreased by ¥20,574 million, or 2.4%, to ¥849,773 million, compared with ¥870,347 million in fiscal 2015. Net sales in the Equipment Business in fiscal 2016 decreased by ¥29,595 million, or 5.5%, to ¥507,291 million, compared with ¥536,886 million in fiscal 2015.

Due mainly to the impact of the yen’s depreciation against the U.S. dollar, net sales after translation into the yen in fiscal 2016 were pushed up by approximately ¥29,000 million, compared with fiscal 2015.

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

 

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Net Sales by Geographic Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2015 and fiscal 2016, distinguishing between domestic and overseas sales and, with respect to overseas sales, showing the geographical areas in which such sales were made:

 

     Years ended March 31,      Increase
(Decrease)
 
     2015      2016     
     Amount      %      Amount      %      Amount     %  
     (Yen in millions)  

Japan

   ¥ 643,577         42.2       ¥ 607,642         41.1       ¥ (35,935     (5.6

Asia

     301,278         19.7         307,744         20.8         6,466        2.1   

Europe

     265,323         17.4         253,382         17.1         (11,941     (4.5

United States of America

     248,145         16.2         250,203         16.9         2,058        0.8   

Others

     68,213         4.5         60,656         4.1         (7,557     (11.1
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net sales

   ¥ 1,526,536         100.0       ¥ 1,479,627         100.0       ¥ (46,909     (3.1
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Sales in Japan decreased compared with fiscal 2015 due mainly to a decline in sales in the solar energy business.

Sales in Asia increased compared with fiscal 2015 due primarily to an increase in sales in the Semiconductor Parts Group and to the effect of the yen’s depreciation.

Sales in Europe decreased compared with fiscal 2015 due to a decline in sales in the Information Equipment Group and to the effect of the yen’s appreciation against the Euro.

Sales in the United States of America increased compared with fiscal 2015 due to an increase in sales in the solar energy business and the Information Equipment Group as well as to the effect of the yen’s depreciation against the U.S. dollar.

Sales in Others decreased compared with fiscal 2015 due mainly to a decrease in sales in the solar energy business and the Information Equipment Group.

Cost of Sales and Gross Profit

In fiscal 2016, cost of sales decreased by ¥43,670 million, or 3.8%, to ¥1,093,467 million from ¥1,137,137 million in fiscal 2015.

Raw material costs of ¥450,654 million accounted for 41.2% of total cost of sales in fiscal 2016, which increased by ¥9,814 million, or 2.2%, from ¥440,840 million in fiscal 2015. Labor costs of ¥219,311 million accounted for 20.1% of total cost of sales in fiscal 2016, which increased by ¥12,135 million, or 5.9%, from ¥207,176 million in fiscal 2015. Depreciation expense of ¥54,266 million accounted for 5.0% of total cost of sales in fiscal 2016, which increased by ¥1,179 million, or 2.2%, from ¥53,087 million in fiscal 2015.

As a result, gross profit in fiscal 2016 decreased by ¥3,239 million, or 0.8%, to ¥386,160 million from ¥389,399 million in fiscal 2015. The gross profit ratio to net sales increased by 0.6 percentage points from 25.5% to 26.1%.

 

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Selling, General & Administrative Expenses, Losses on Impairment of Goodwill and Profit from Operations

In fiscal 2016, selling, general and administrative expenses increased by ¥1,846 million, or 0.7%, to ¥279,361 million from ¥277,515 million in fiscal 2015. In fiscal 2016, the increase was caused primarily by an increase in miscellaneous expenses due to the effect of the yen’s depreciation, the recording of ¥4,575 million of patent litigation cost at AVX Corporation and an impairment loss on non-current assets in the amount of ¥3,814 million recognized in the liquid crystal displays (LCD) business, despite the recording of gains on sales of property, plant and equipment, net in the amount of ¥12,039 million.

The ratio of selling, general and administrative expenses to net sales was 18.9% in fiscal 2016, an increase of 0.7 percentage points as compared with 18.2% in fiscal 2015.

Labor costs of ¥156,623 million accounted for 56.1% of total selling, general and administrative expenses in fiscal 2016, an increase of ¥4,257 million, or 2.8%, from ¥152,366 million in fiscal 2015. Sales promotion and advertising costs of ¥46,634 million accounted for 16.7% of total selling, general and administrative expenses in fiscal 2016, a decrease of ¥49 million, or 0.1%, from ¥46,683 million in fiscal 2015. Depreciation expense of ¥13,595 million accounted for 4.9% of total selling, general and administrative expenses in fiscal 2016, an increase of ¥619 million, or 4.8%, from ¥12,976 million in fiscal 2015.

In fiscal 2016, impairment loss on goodwill in the amount of ¥14,143 million was recognized in the liquid crystal displays (LCD) business included in the Electronic Device Group. In fiscal 2015, impairment loss on goodwill in the amount of ¥18,456 million was recognized in the Telecommunications Equipment Group.

As a result, profit from operations in fiscal 2016 decreased by ¥772 million, or 0.8%, to ¥92,656 million, compared with ¥93,428 million in fiscal 2015. The operating margin increased by 0.2 percentage points to 6.3% in fiscal 2016, compared with 6.1% in fiscal 2015.

Interest and Dividend Income

Interest and dividend income in fiscal 2016 increased by ¥5,826 million, or 25.6%, to ¥28,609 million, compared with ¥22,783 million in fiscal 2015. This was due mainly to an increase in dividend income from KDDI Corporation.

Interest Expense

Interest expense in fiscal 2016 increased by ¥96 million, or 5.6%, to ¥1,814 million, compared with ¥1,718 million in fiscal 2015.

Foreign Currency Transaction

During fiscal 2016, the average exchange rate for the yen depreciated by ¥10, or 9.1%, against the U.S. dollar and appreciated by ¥6, or 4.3%, against the Euro, as compared with fiscal 2015. At March 31, 2016, the yen appreciated by ¥7, or 5.8%, against the U.S. dollar, and appreciated by ¥2, or 1.5%, against the Euro, as compared with March 31, 2015. Kyocera recorded foreign currency transaction gains of ¥3,820 million in fiscal 2016.

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.

 

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Gains and Losses from Investments

Gains on sales of securities in fiscal 2016 increased by ¥20,095 million to ¥20,600 million, compared with ¥505 million in fiscal 2015. This was due mainly to the gain of ¥20,000 million on a sale of a part of shares issued by KDDI Corporation that Kyocera had held.

Income before Income Taxes

Income before income taxes in fiscal 2016 increased by ¥23,721 million, or 19.5%, to ¥145,583 million compared with ¥121,862 million in fiscal 2015. Margin of income before income taxes against net sales increased by 1.8 percentage points to 9.8% compared with 8.0% in fiscal 2015.

Profit from operations decreased by ¥772 million, or 0.8%, to ¥92,656 million, compared with ¥93,428 million for fiscal 2015, due primarily to a decline in net sales, which was offset by improvement of profitability in the Applied Ceramic Products Group based on cost reductions. Income before income taxes increased due mainly to an increase of dividend income and the gain of ¥20,000 million from a sale of a part of shares issued by KDDI Corporation that Kyocera had held. Income before income taxes after translation into the yen for fiscal 2016 was pushed up by approximately ¥4,000 million due to the impact of depreciation of the yen against the U.S. dollar compared with fiscal 2015.

Operating profit in the Components Business in fiscal 2016 decreased by ¥15,597 million, or 17.8%, to ¥72,039 million, compared with ¥87,636 million in fiscal 2015. Operating profit in the Equipment Business in fiscal 2016 increased by ¥8,191 million, or 57.1%, to ¥22,548 million, compared with ¥14,357 million in fiscal 2015.

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

Income Taxes

Current and deferred income taxes in fiscal 2016 increased by ¥34,833 million to ¥31,392 million, of which the effective tax rate was 21.6%, compared with ¥(3,441) million, of which the effective tax rate was (2.8)% in fiscal 2015. This was due mainly to the fact that reversal income taxes decreased by ¥14,065 million, or 44.4% to ¥17,638 million in fiscal 2016, compared with ¥31,703 million in fiscal 2015, after revaluating deferred tax assets and liabilities in line with the revision of the tax system in Japan in addition to an increase in income before income taxes.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests in fiscal 2016 decreased by ¥4,284 million, or 45.4%, to ¥5,144 million compared with ¥9,428 million in fiscal 2015. This was due mainly to a decrease in net income of AVX Corporation, for which there is a noncontrolling interest of approximate 30% in fiscal 2016.

 

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Business Overview by Reporting Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2015 and fiscal 2016 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2015     2016    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 90,694        5.9      ¥ 95,092        6.4      ¥ 4,398        4.8   

Semiconductor Parts Group

     217,879        14.3        216,263        14.6        (1,616     (0.7

Applied Ceramic Products Group

     277,629        18.2        247,516        16.7        (30,113     (10.8

Electronic Device Group

     284,145        18.6        290,902        19.7        6,757        2.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     870,347        57.0        849,773        57.4        (20,574     (2.4

Telecommunications Equipment Group

     204,290        13.4        170,983        11.6        (33,307     (16.3

Information Equipment Group

     332,596        21.8        336,308        22.7        3,712        1.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     536,886        35.2        507,291        34.3        (29,595     (5.5

Others

     172,925        11.3        167,793        11.3        (5,132     (3.0

Adjustments and eliminations

     (53,622     (3.5     (45,230     (3.0     8,392        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   ¥ 1,526,536        100.0      ¥ 1,479,627        100.0      ¥ (46,909     (3.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2015 and fiscal 2016 by the seven reporting segments:

 

     Years ended March 31,      Increase
(Decrease)
 
     2015      2016     
     Amount     %*      Amount     %*      Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 16,134        17.8       ¥ 15,745        16.6       ¥ (389     (2.4

Semiconductor Parts Group

     33,971        15.6         28,934        13.4         (5,037     (14.8

Applied Ceramic Products Group

     3,159        1.1         16,386        6.6         13,227        418.7   

Electronic Device Group

     34,372        12.1         10,974        3.8         (23,398     (68.1
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Components Business

     87,636        10.1         72,039        8.5         (15,597     (17.8

Telecommunications Equipment Group

     (20,212     —           (4,558     —           15,654        —     

Information Equipment Group

     34,569        10.4         27,106        8.1         (7,463     (21.6
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Equipment Business

     14,357        2.7         22,548        4.4         8,191        57.1   

Others

     6,848        4.0         11,575        6.9         4,727        69.0   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating profit

     108,841        7.1         106,162        7.2         (2,679     (2.5

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

     13,744        —           39,534        —           25,790        187.6   

Adjustments and eliminations

     (723     —           (113     —           610        —     
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes

   ¥    121,862            8.0       ¥    145,583            9.8       ¥   23,721        19.5   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

* % to net sales of each corresponding segment

(1) Fine Ceramic Parts Group

Sales in the Fine Ceramic Parts Group for fiscal 2016 increased by ¥4,398 million, or 4.8%, to ¥95,092 million, compared with ¥90,694 million for fiscal 2015, due primarily to increased sales of components for industrial machinery such as semiconductor processing equipment and of automotive components such as camera modules. The yen’s depreciation also pushed up sales by approximately ¥2,000 million compared with fiscal 2015.

 

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Operating profit for fiscal 2016 decreased by ¥389 million, or 2.4%, to ¥15,745 million, compared with ¥16,134 million for fiscal 2015, due mainly to the impact of a change in product mix coupled with increases in depreciation and R&D expenses in the amount of approximately ¥1,000 million, despite the yen’s depreciation pushing up operating profit by approximately ¥1,000 million.

(2) Semiconductor Parts Group

Sales in the Semiconductor Parts Group for fiscal 2016 decreased by ¥1,616 million, or 0.7%, to ¥216,263 million, compared with ¥217,879 million for fiscal 2015. Although the yen’s depreciation pushed up sales by approximately ¥7,500 million compared with fiscal 2015, the decrease was caused primarily by a decline in sales of ceramic packages for digital consumer equipment, which are core products, and the impact of a decline in product prices.

Operating profit for fiscal 2016 decreased by ¥5,037 million, or 14.8%, to ¥28,934 million, compared with ¥33,971 million for fiscal 2015. Although the yen’s depreciation pushed up operating profit by approximately ¥6,000 million, the major reason for the decrease was an increase in the cost of sales ratio caused by the impact of decreased sales and a decline in product prices.

(3) Applied Ceramic Products Group

Sales in the Applied Ceramic Products Group for fiscal 2016 decreased by ¥30,113 million, or 10.8%, to ¥247,516 million, compared with ¥277,629 million for fiscal 2015. Despite an increase in sales in the cutting tool business, particularly for automotive-related markets, and the yen’s depreciation pushing up the amount by approximately ¥4,000 million, sales in the solar energy business decreased due mainly to a sales decline by approximately 25% in Japan, the core market in this business, caused by a decline of solar module shipment in Japan by approximately 10% in spite of the same level in total shipment compared with fiscal 2015, and the impact of a decline in product prices.

Operating profit for fiscal 2016 increased by ¥13,227 million, or 418.7%, to ¥16,386 million, compared with ¥3,159 million for fiscal 2015. This increase was due primarily to an improvement in the cost of sales ratio owing to the effect of efforts to reduce costs and to the recording of costs of approximately ¥8,500 million including the write-down of inventory in fiscal 2015. The yen’s depreciation also pushed up sales by approximately ¥1,000 million compared with fiscal 2015.

(4) Electronic Device Group

Sales in the Electronic Device Group for fiscal 2016 increased by ¥6,757 million, or 2.4%, to ¥290,902 million, compared with ¥284,145 million for fiscal 2015. The increase in this reporting segment was due primarily to an increase in sales of capacitors for smartphones and printing devices for industrial equipment and sales contribution in the amount of approximately ¥10,000 million from Nihon Inter Electronics Corporation, which joined Kyocera Group in September 2015 despite the impact of a decline in sales at certain subsidiaries, including AVX Corporation. The yen’s depreciation also pushed up the amount by approximately ¥15,000 million.

Operating profit for fiscal 2016 decreased by ¥23,398 million, or 68.1%, to ¥10,974 million, compared with ¥34,372 million for fiscal 2015 despite the yen’s depreciation pushing up the amount by approximately ¥4,000 million. The main factors behind this decrease were the recording of impairment losses on goodwill in the amount of ¥14,143 million and on non-current assets in the amount of ¥3,814 million in the display business as well as the recording of ¥4,575 million of patent litigation cost at AVX Corporation.

 

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Table of Contents

(5) Telecommunications Equipment Group

Sales in the Telecommunications Equipment Group for fiscal 2016 decreased by ¥33,307 million, or 16.3%, to ¥170,983 million, compared with ¥204,290 million for fiscal 2015. The decrease in sales in this reporting segment was due to a decline in total mobile phone shipment by approximately 30% primarily of PHS related products and low-end handsets, despite the yen’s depreciation pushing up the amount by approximately ¥5,000 million compared with fiscal 2015.

Operating loss amounted to ¥4,558 million, reduced by ¥15,654 million compared with a loss of ¥20,212 million for fiscal 2015. Despite the decline in sales, this reduction was due to the impact in fiscal 2015 of recording of ¥18,456 million in impairment loss on goodwill.

(6) Information Equipment Group

Sales in the Information Equipment Group for fiscal 2016 increased by ¥3,712 million, or 1.1%, to ¥336,308 million, compared with ¥332,596 million for fiscal 2015. Despite the amount being pushed down by approximately ¥5,000 million compared with fiscal 2015 due mainly to the yen’s appreciation against the euro, the increase in sales was attributable to an increase of 10% in sales volume of MFPs and printers, particularly overseas, on the back of active sales promotion activities.

Operating profit for fiscal 2016 decreased by ¥7,463 million, or 21.6%, to ¥27,106 million, compared with ¥34,569 million for fiscal 2015. Despite the contribution to profit from the increase in sales, operating profit was pushed down by approximately ¥8,000 million due to the impact of exchange rate fluctuation, and the cost of sales ratio rose as a result. The decrease in profit was also due to an increase in depreciation and R&D expenses in the amount of approximately ¥4,000 million.

(7) Others

Sales in Others for fiscal 2016 decreased by ¥5,132 million, or 3.0%, to ¥167,793 million, compared with ¥172,925 million for fiscal 2015. This decrease was due to a decline in sales at subsidiaries such as Kyocera Chemical Corporation.

Operating profit for fiscal 2016 increased by ¥4,727 million, or 69.0%, to ¥11,575 million, compared with ¥6,848 million for fiscal 2015. This increase was due to the recording of approximately ¥12,000 million in gain on sale of assets, despite the lower sales and the impact of an increase in R&D expenses in the amount of approximately ¥2,500 million.

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

Corporate gains and losses mainly constitute gains or losses related to financial assets, and income related to management supporting service provided by Kyocera’s head office to each reporting segment. The income increased by ¥25,790 million, or 187.6%, to ¥39,534 million, compared with ¥13,744 million in fiscal 2015. This was due mainly to an increase in dividend received from KDDI Corporation as well as the gain of ¥20,000 million on a sale of a part of shares issued by KDDI Corporation that Kyocera had held.

 

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Results of Operations

Fiscal 2015 compared with Fiscal 2014

The following table shows a summary of Kyocera’s results of operations for fiscal 2014 and fiscal 2015:

 

     Years ended March 31,     Increase
(Decrease)
 
     2014     2015    
     Amount     %     Amount     %     Amount     %  
                 (Yen in millions)              

Net sales

   ¥ 1,447,369        100.0      ¥ 1,526,536        100.0      ¥ 79,167        5.5   

Cost of sales

     1,068,465        73.8        1,137,137        74.5        68,672        6.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     378,904        26.2        389,399        25.5        10,495        2.8   

Selling, general and administrative expenses

     257,593        17.8        277,515        18.2        19,922        7.7   

Losses on impairment of goodwill

     729        0.1        18,456        1.2        17,727        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from operations

     120,582        8.3        93,428        6.1        (27,154     (22.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses):

            

Interest and dividend income

     18,172        1.3        22,783        1.5        4,611        25.4   

Interest expense

     (1,945     (0.1     (1,718     (0.1     227        —     

Foreign currency transaction gains, net

     5,108        0.3        4,499        0.3        (609     (11.9

Gains on sales of securities, net

     2,875        0.2        505        0.0        (2,370     (82.4

Other, net

     1,476        0.1        2,365        0.2        889        60.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     25,686        1.8        28,434        1.9        2,748        10.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     146,268        10.1        121,862        8.0        (24,406     (16.7

Income taxes

     51,254        3.5        (3,441     (0.2     (54,695     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     95,014        6.6        125,303        8.2        30,289        31.9   

Net income attributable to noncontrolling interests

     (6,258     (0.5     (9,428     (0.6     (3,170     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Kyocera Corporation

   ¥ 88,756        6.1      ¥ 115,875        7.6      ¥ 27,119        30.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Sales

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 yen’s 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 42, “Business Overview by Reporting Segment.”

 

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Table of Contents

Net Sales by Geographic Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 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:

 

     Years ended March 31,      Increase
(Decrease)
 
     2014      2015     
     Amount      %      Amount      %      Amount      %  
     (Yen in millions)  

Japan

   ¥ 643,423         44.4       ¥ 643,577         42.2       ¥ 154         0.0   

Asia

     274,512         19.0         301,278         19.7         26,766         9.8   

Europe

     247,700         17.1         265,323         17.4         17,623         7.1   

United States of America

     217,230         15.0         248,145         16.2         30,915         14.2   

Others

     64,504         4.5         68,213         4.5         3,709         5.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net sales

   ¥  1,447,369         100.0       ¥  1,526,536         100.0       ¥  79,167         5.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 yen’s 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%.

 

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Table of Contents

Selling, General & Administrative Expenses, Losses on Impairment of Goodwill and Profit from Operations

In fiscal 2015, selling, general and administrative expenses increased by ¥19,922 million, or 7.7%, to ¥277,515 million from ¥257,593 million in fiscal 2014. The miscellaneous expenses increased due mainly to in addition to higher sales, the effect of the yen’s depreciation.

The ratio of selling, general and administrative expenses to net sales was 18.2% in fiscal 2015, an increase of 0.4 percentage points as compared with 17.8% in fiscal 2014.

Labor costs of ¥152,366 million accounted for 54.9% 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 16.8% 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 ¥12,976 million accounted for 4.7% of total selling, general and administrative expenses in fiscal 2015, a decrease of ¥657 million, or 4.8%, from ¥13,633 million in fiscal 2014.

In fiscal 2015, the impairment loss on goodwill in amount of ¥18,456 million was recognized in the Telecommunications Equipment Group.

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.

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

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.

 

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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 yen’s 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 42, “Business Overview by Reporting Segment.”

Income Taxes

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.

 

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Business Overview by Reporting Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2014 and fiscal 2015 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2014     2015    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 80,020        5.5      ¥ 90,694        5.9      ¥ 10,674        13.3   

Semiconductor Parts Group

     187,891        13.0        217,879        14.3        29,988        16.0   

Applied Ceramic Products Group

     272,795        18.9        277,629        18.2        4,834        1.8   

Electronic Device Group

     284,322        19.6        284,145        18.6        (177     (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     825,028        57.0        870,347        57.0        45,319        5.5   

Telecommunications Equipment Group

     186,749        12.9        204,290        13.4        17,541         9.4   

Information Equipment Group

     307,848        21.3        332,596        21.8        24,748        8.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     494,597        34.2        536,886        35.2        42,289        8.6   

Others

     173,137        11.9        172,925        11.3        (212     (0.1

Adjustments and eliminations

     (45,393     (3.1     (53,622     (3.5     (8,229     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   ¥ 1,447,369        100.0      ¥ 1,526,536        100.0      ¥  79,167           5.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2014 and fiscal 2015 by the seven reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2014     2015    
     Amount     %*     Amount     %*     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 11,836        14.8      ¥ 16,134        17.8      ¥ 4,298        36.3   

Semiconductor Parts Group

     31,889        17.0        33,971        15.6        2,082        6.5   

Applied Ceramic Products Group

     33,501        12.3        3,159         1.1        (30,342     (90.6

Electronic Device Group

      21,160        7.4        34,372        12.1        13,212        62.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     98,386        11.9        87,636        10.1        (10,750     (10.9

Telecommunications Equipment Group

     1,437         0.8        (20,212     —          (21,649     —     

Information Equipment Group

     28,193        9.2        34,569        10.4        6,376        22.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     29,630        6.0        14,357        2.7        (15,273     (51.5

Others

     6,276        3.6        6,848        4.0        572        9.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     134,292        9.3        108,841        7.1        (25,451     (19.0

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

     11,889        —          13,744        —          1,855        15.6   

Adjustments and eliminations

     87        —          (723     —          (810     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   ¥    146,268          10.1      ¥    121,862            8.0      ¥ (24,406     (16.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* % to net sales of each corresponding segment

 

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(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 yen’s 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 yen’s 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 yen’s 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 yen’s 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 yen’s 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.

 

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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 yen’s 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 yen’s 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 yen’s depreciation by approximately ¥1,000 million.

(7) Others

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 gains and losses mainly constitute gains or losses related to financial assets, and income related to management supporting service provided by Kyocera’s head office to each reporting segment. The income increased by ¥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.

 

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

AVX corporation, a U.S.-based subsidiary, has been identified by the United States Environmental Protection Agency (EPA), state governmental agencies or other private parties as a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or equivalent state or local laws for clean-up and response costs associated with certain sites at which remediation is required with respect to prior contamination. Because CERCLA or such state statutes authorize joint and several liability, the EPA or state regulatory authorities could seek to recover all clean-up costs from any one of the PRPs at a site despite the involvement of other PRPs. At certain sites, financially responsible PRPs other than AVX Corporation also are, or have been, involved in site investigation and clean-up activities. AVX Corporation believes that 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.

On October 10, 2012, the EPA, the United States, and the Commonwealth of Massachusetts and AVX Corporation announced that they had reached a financial settlement with respect to the EPA’s ongoing clean-up of the New Bedford Harbor in the Commonwealth (the harbor). That agreement is contained in a Supplemental Consent Decree that modifies certain provisions of prior agreements related to clean-up of the harbor, including elimination of the governments’ right to invoke certain reopener provisions in the future. Under the terms of the settlement, AVX Corporation was obligated to pay ¥39,643 million ($366.25 million), plus interest computed from August 1, 2012, in three installments over a two-year period for use by the EPA and the Commonwealth to complete the clean-up of the harbor. On May 26, 2015, AVX prepaid the third and final settlement installment of ¥14,894 million ($122.08 million), plus interest of ¥135 million ($1.11 million).

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

Critical Accounting Policies and Estimates

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

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

 

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Allowances for Doubtful Accounts

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

Inventory Valuation

Kyocera estimates the amount of write-downs required to properly value inventory. Inventories aged over certain holding periods are considered to be slow-moving or obsolete, for which write-downs are accrued as well as valuation losses required to adjust recorded cost to its net realizable value. Kyocera also records inventory write-downs based on its projections of future demand, market conditions and related management’s judgment even though the age of corresponding inventory is shorter than certain holding periods.

Kyocera recognized inventory write-downs of ¥17,361 million in fiscal 2015 and ¥12,238 million in fiscal 2016, which were due mainly to the Telecommunications Equipment Group and the Applied Ceramic Products Group. Kyocera recorded these write-downs to adjust the carrying amount to net realizable value due to decreases in sales price arising from short lives of products or rapidly worsening market conditions. If the market conditions or demand for the products are less favorable than Kyocera’s projections, additional write-downs may be required. The amounts of inventory write-downs by reporting segments appear in Note 17 to the Consolidated Financial Statements included in this annual report on Form 20-F.

Kyocera also evaluates the remaining balance of raw materials to be purchased under the long term purchase agreements at the lower of cost and net realizable value.

Kyocera has entered into long-term purchase agreements with a few specific suppliers for purchasing polysilicon material used in its solar energy business. For detailed information regarding these purchase agreements, please refer to “Long-term purchase agreements for the supply of raw materials” in Item 5.F. “Tabular Disclosure of Contractual Obligations.”

Impairment of Securities and Investments

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

Kyocera recognized losses on impairment of debt and equity securities of ¥2 million in fiscal 2015.

Kyocera is currently a major shareholder of KDDI Corporation. The price fluctuation of the shares of KDDI Corporation may affect Kyocera’s financial conditions. The unrealized gain on the shares of KDDI Corporation held by Kyocera at March 31, 2016 had increased by ¥78,686 million, or 11.5%, to ¥764,431 million compared with that of ¥685,745 million at March 31, 2015, due mainly to a fluctuation of the market price of the shares of KDDI Corporation. For detailed information on the gross unrealized gain or loss, see Note 3 to the Consolidated Financial Statements in this annual report on Form 20-F.

 

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Impairment of Long-Lived Assets

Kyocera reviews its long-lived assets and intangible assets with definite useful lives for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Long-lived assets and intangible assets with definite useful lives are considered to be impaired when the expected undiscounted cash flows from the asset group is less than its carrying value. A loss on impairment is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets and intangible assets with definite useful lives.

Goodwill and Other Intangible Assets

Goodwill and intangible assets with indefinite useful lives, rather than being amortized, are tested for impairment at least annually, and also following any events and changes in circumstances that might lead to impairment. Intangible assets with definite useful lives are amortized straight line over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Kyocera recognized an impairment loss on goodwill in the amount of ¥18,456 million in the Telecommunications Equipment Group, which was included in losses on impairment of goodwill in the consolidated statement of income for fiscal 2015. The loss was recorded due to a 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 fiscal 2015 in the midst of the market condition with low profitability.

Kyocera recognized an impairment loss on goodwill in the amount of ¥14,143 million which was included in losses on impairment of goodwill in the consolidated statement of income for fiscal 2016 in the liquid crystal displays business included in the Electronic Devices Group due to a decline in the fair value of its business based on its updated future estimated cash flows, reflecting the deterioration of the profitability.

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

Deferred Tax Assets

Kyocera records deferred tax assets with valuation allowances to adjust their carrying amounts when it believes that it is more likely than not that the assets will not be realized. The valuation of deferred tax assets principally depends on the estimation of future taxable income and feasible tax planning strategies. If future taxable income is lower than expected due to future market conditions or poor operating results, significant adjustments to deferred tax assets may be required. At March 31, 2016, deferred tax assets amounted to ¥97,427 million, which Kyocera considers will more likely than not be realized in the future. Kyocera considers the reasonableness of the recoverability of the deferred tax assets in the future, considering the comparison between the amounts of income from continuing operations before income taxes and income taxes in fiscal 2016.

Benefit Plans

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

 

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

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

Sensitivity Analysis of Benefit Plans

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

 

     Effect on projected benefit obligations
as of March 31, 2016
 
     (Yen in millions)  

Discount rates:

  

0.1% decrease

   ¥  4,597   

0.1% increase

     (505
     Effect on income before income taxes
for the year ending March 31, 2017
 
     (Yen in millions)  

Discount rates:

  

0.1% decrease

   ¥ 0   

0.1% increase

     (7

Expected rate of return on plan assets:

  

0.1% decrease

     (170

0.1% increase

     170   

Contingencies

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

Revenue Recognition

Kyocera generates revenue principally through the sale of industrial components and telecommunications and information equipment. Kyocera’s operations consist of the following seven reporting segments: 1) Fine Ceramic 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.

 

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

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

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

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

Sales Incentives

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

(a) Distributor Stock Rotation Program

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

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

Ship-from-Stock and Debit (ship and debit) is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end customers. Ship and debit programs require a request from the distributor for a pricing adjustment of a specific part for a sale to the distributor’s end customers from the distributor’s stock. Ship and debit authorizations may cover current and future distributor activity for a specific

 

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part for a sale to their customers. In accordance with ASC 605, at the time Kyocera records the sales to distributors, an allowance for the estimated future distributor activities related to such sales is provided since it is probable that such sales to distributors will result in ship and debit activities. In accordance with ASC 605-15, Kyocera records an estimated sales allowance based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends noted in direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management personnel. These procedures require the exercise of significant judgments. Kyocera believes that these procedures enable Kyocera to make reliable estimates of future credits under the ship and debit program. Kyocera’s actual results have historically approximated its estimates.

Sales Rebates

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

Sales Returns

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

Products Warranty

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

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

Uncertainty in Income Taxes

Kyocera records liabilities for unrecognized tax benefits based on the premise of being subject to income tax examination by tax authorities, when it is more likely than not that tax benefits associated with tax positions will not be sustained. Actual results such as settlements with taxing authorities may differ from the recognition accounted for under ASC 740, “Income Taxes.”

At March 31, 2016, gross unrecognized tax benefits amounted to ¥4,668 million. Kyocera does not anticipate the final resolution of procedures to have a material impact on the consolidated statements of income in the future.

Recently Adopted Accounting Standards

On April 1, 2015, Kyocera adopted Accounting Standards Update (ASU) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This accounting standard changes the requirements for reporting discontinued operations in ASC 205-20, “Presentation of Financial Statements—Discontinued Operations.” A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This accounting standard also requires an entity to provide disclosures about a disposal of an individually significant component of an entity that does not qualify

 

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for discontinued operations presentation in the financial statements. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” This accounting standard requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. On December 31, 2015, Kyocera early adopted this accounting standard. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

In December 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” To simplify the presentation of deferred income taxes, this accounting standard changes require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. On December 31, 2015, Kyocera early adopted this accounting standard. For the adoption of this accounting standard, Kyocera did not retrospectively adjust its financial statements for prior periods.

Recently Issued Accounting Standards

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

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

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

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

Furthermore, in August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers—Deferral of the Effective Date.” This accounting standard defers the effective date of ASU No. 2014-09 for all entities by one year. As a result, ASU No. 2014-09 will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Kyocera is currently evaluating the impact that these accounting standards will have on Kyocera’s consolidated results of operations, financial position and cash flows.

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations—Simplifying the Accounting for Measurement-Period Adjustments.” This accounting standard eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a business combination. This accounting standard requires the acquirer to record, in the financial statements of the reporting period in which the adjustment amounts are determined, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This accounting standard will be effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The adoption of this accounting standard is not expected to have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

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In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this accounting standard address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This accounting standard includes the requirement that equity securities be measured at fair value with changes in the fair value recognized through net income. This accounting standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Kyocera currently has equity securities that will need to be measured at fair value through earnings as opposed to being measured through other comprehensive income when this accounting standard is adopted, therefore, Kyocera is evaluating the impact that this accounting standard will have on Kyocera’s consolidated results of operations, financial position and cash flows.

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” This accounting standard requires a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. This accounting standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Kyocera is currently evaluating the impact that this accounting standard will have on Kyocera’s consolidated results of operations, financial position and cash flows.

In March 2016, the FASB issued ASU No. 2016-07, “Investments—Simplifying the Transition to the Equity Method of Accounting.” The accounting standard eliminates the requirement to retroactively adopt the equity method of accounting when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. This accounting standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of this accounting standard is not expected to have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

B. Liquidity and Capital Resources

Capital Resources

Kyocera’s net cash provided by operating activities in fiscal 2016 was ¥194,040 million, and cash and cash equivalents at March 31, 2016 were ¥374,020 million. In addition, Kyocera also held significant amount of highly-liquid financial assets. Based on those facts, Kyocera does not expect to face any liquidity issue in the foreseeable future. In the short term, Kyocera expects cash demands for funds for capital expenditures, R&D activities and payments of dividends to shareholders in addition to working capital of operational activities. Kyocera’s primary source of short-term liquidity is cash generated by operations. Certain subsidiaries also generate capital in the form of loans from financial institutions. At March 31, 2016, Kyocera’s short-term borrowings and long-term debt including current portion totaled ¥32,750 million. The ratio to total assets of 1.1% continues to reflect a low level of dependence. Most borrowings were denominated in the Euro, but certain borrowings were denominated in other currencies. Details of these borrowings are described in “Tabular Disclosure of Contractual Obligations,” which also includes the information regarding obligations for the acquisition or construction of property, plant and equipment.

Capital expenditures in fiscal 2016 increased by ¥12,263 million, or 21.6%, to ¥68,933 million, compared with ¥56,670 million in fiscal 2015. In fiscal 2016, capital expenditures in the Electronic Device Group, the Semiconductor Parts Group and the Applied Ceramic Products Group increased compared with fiscal 2015. R&D expenses in fiscal 2016 increased by ¥3,470 million, or 6.3%, to ¥58,755 million, compared with ¥55,285 million in fiscal 2015. Almost all capital and R&D expenditures were funded by using cash at hand.

During fiscal 2017, Kyocera expects total capital expenditures to be approximately ¥87,000 million and total R&D expenses to be approximately ¥64,000 million. Kyocera expects that total capital expenditures will increase due mainly to capital expenditures in the Semiconductor Parts Group conducted in order to expand its production capacity. Kyocera also expects that R&D expenses will increase compared with fiscal 2016. Kyocera will

 

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promote R&D of new products in order to expand the business. Nearly all capital and R&D expenditures will be funded by using cash on hand. Kyocera intends to maintain the proportion of capital and R&D expenditures to sales in fiscal 2017 at almost as same level as in fiscal 2016. Kyocera believes that it needs to invest its resources continuously in the development of new business areas and enhancement of technology in order to create new products and commercialize advanced technologies, and thereby secure future earnings streams.

Kyocera contributed ¥14,273 million to its benefit pension plans in fiscal 2016 and Kyocera expects to contribute ¥13,208 million to its benefit pension plans in fiscal 2017. At March 31, 2016, Kyocera’s funded status of its benefit pension plans ensured the sources of funds sufficient to cover the pension benefits paid to participants and beneficiaries, and large amounts of additional contributions are not considered to be necessary. Kyocera expects contributions to pension plan assets will be made by using cash on hand.

In accordance with the terms of the financial settlement with the U.S. governments regarding the environmental remedial actions at New Bedford Harbor in the Commonwealth of Massachusetts, AVX Corporation, a U.S.-based subsidiary, paid ¥14,894 million of environmental remediation charges plus accrued interest to the U.S. governments by using its cash at hand during the year ended March 31, 2016.

In fiscal 2016, Kyocera Corporation paid cash dividends totaling ¥40,355 million, at ¥110 per share. Kyocera Corporation received approval at the general meeting of shareholders held on June 24, 2016 for the payment of year-end dividends totaling ¥18,343 million, or ¥50 per share, on June 27, 2016 to all shareholders of record on March 31, 2016.

As described in Note 2 to the Consolidated Financial Statements, Kyocera made several acquisitions of businesses, of which costs, net cash acquired, were ¥22,676 million in fiscal 2016. Such acquisition costs were all funded by using cash in hand.

At March 31, 2016, Kyocera’s working capital totaled ¥1,066,929 million, a decrease of ¥34,367 million, or 3.1%, compared with ¥1,101,296 million at March 31, 2015. This was mainly due to decreases of trade receivables and inventories. Our working capital requirements, capital expenditures, debt repayments and other obligations were funded by using cash on hand.

Undistributed earnings of foreign subsidiaries which are intended to be reinvested indefinitely amounted to ¥315,499 million as of March 31, 2016. Accordingly, cash and cash equivalents and investments in securities amounts held by Kyocera’s foreign subsidiaries, totaling ¥266,687 million as of March 31, 2016, are not intended to be used as dividend distributions to Kyocera for use in Japan at present. Kyocera currently believes it does not need the cash and investments held by its foreign subsidiaries to be repatriated back to Japan at least in fiscal 2017 as it has adequate liquidity within Japan to support its Japanese operations.

Kyocera believes cash on hand will be sufficient to fund all cash requirements outlined above during fiscal 2017. Consequently, Kyocera does not currently intend to use any other external financing sources that might affect its credit agency ratings. If cash generated by operations are insufficient for funding purposes, Kyocera retains other financing options, including external sources, such as short-term borrowings or long-term debts, as well as financing directly in the capital markets through issuances of debt or equity securities. As evidenced by equity to assets ratio of 73.8% at March 31, 2016, Kyocera maintains a strong financial position, which leads Kyocera to believe that any capital requirements could be secured from external sources at a relatively low cost. Kyocera also maintains good business relationships with several major financial institutions.

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

 

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Cash flows

Fiscal 2016 compared with Fiscal 2015

The following table shows a summary of Kyocera’s cash flows for fiscal 2015 and fiscal 2016:

 

     Years ended March 31,  
     2015     2016  
     Amount     Amount  
     (Yen in millions)  

Cash flows from operating activities

   ¥ 130,767      ¥ 194,040   

Cash flows from investing activities

     (93,608     (106,809

Cash flows from financing activities

     (39,992     (50,608

Effect of exchange rate changes on cash and cash equivalents

     19,022        (13,966

Net increase in cash and cash equivalents

     16,189        22,657   

Cash and cash equivalents at beginning of year

     335,174        351,363   

Cash and cash equivalents at end of year

   ¥ 351,363      ¥ 374,020   

Net cash provided by operating activities for fiscal 2016 increased by ¥63,273 million, or 48.4%, to ¥194,040 million from ¥130,767 million for fiscal 2015. This was mainly because receivables and inventories, which increased for fiscal 2015, decreased for fiscal 2016 although net income decreased.

Net cash used in investing activities for fiscal increased by ¥13,201 million, or 14.1%, to ¥106,809 million from ¥93,608 million for fiscal 2015. This mainly reflected that a decrease in proceeds from maturities of held-to-maturity securities exceeded a decrease in payments for purchases of held-to-maturity securities.

Net cash used in financing activities for fiscal 2016 increased by ¥10,616 million, or 26.5%, to ¥50,608 million from ¥39,992 million for fiscal 2015. This was due mainly to increases in dividends paid.

A decrease in cash and cash equivalents due to the effect of exchange rate changes of ¥13,966 million for fiscal 2016 was caused mainly by the yen’s appreciation against the Euro and the U.S. dollar between March 31, 2015 and March 31, 2016.

Cash and cash equivalents at March 31, 2016 totaled ¥374,020 million, an increase of ¥22,657 million, or 6.4%, from ¥351,363 million at March 31, 2015. Most of Kyocera’s cash and cash equivalents were denominated in the yen but certain cash and cash equivalents, mainly in overseas subsidiaries, were denominated in foreign currencies, such as the U.S. dollar.

Fiscal 2015 compared with Fiscal 2014

The following table shows a summary of Kyocera’s cash flows for fiscal 2014 and fiscal 2015:

 

     Years ended March 31,  
     2014     2015  
     Amount     Amount  
     (Yen in millions)  

Cash flows from operating activities

   ¥ 149,141      ¥ 130,767   

Cash flows from investing activities

     (101,141     (93,608

Cash flows from financing activities

     (32,805     (39,992

Effect of exchange rate changes on cash and cash equivalents

     14,525        19,022   

Net increase in cash and cash equivalents

     29,720        16,189   

Cash and cash equivalents at beginning of year

     305,454        335,174   

Cash and cash equivalents at end of year

   ¥ 335,174      ¥ 351,363   

 

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Net cash provided by operating activities for fiscal 2015 decreased by ¥18,374 million, or 12.3%, to ¥130,767 million from ¥149,141 million for fiscal 2014. Although net income increased, the change was mainly due to the recording of ¥49,745 million of deferred tax expense in fiscal 2015 associated with the revision of the tax system in Japan and the increase in receivables from fiscal 2014 to fiscal 2015. These were partly offset by a decrease in notes and accounts payable as well as an increase in other current liabilities including accrued expenses and derivative liabilities.

Net cash used in investing activities for fiscal 2015 decreased by ¥7,533 million, or 7.4%, to ¥93,608 million from ¥101,141 million for fiscal 2014. This mainly reflected that an increase in proceeds from maturities of held-to-maturity securities exceeded an increase in payments for purchases of held-to-maturity securities.

Net cash used in financing activities for fiscal 2015 increased by ¥7,187 million, or 21.9%, to ¥39,992 million from ¥32,805 million for fiscal 2014. This was due mainly to increases in dividends paid and in purchases of noncontrolling interests.

An increase in cash and cash equivalents due to the effect of exchange rate changes of ¥19,022 million for fiscal 2015 was caused mainly by the yen’s depreciation against the Euro and the U.S. dollar between March 31, 2014 and March 31, 2015.

Cash and cash equivalents at March 31, 2015 totaled ¥351,363 million, an increase of ¥16,189 million, or 4.8%, from ¥335,174 million at March 31, 2014. Most of Kyocera’s cash and cash equivalents were denominated in the yen but certain cash and cash equivalents, mainly in overseas subsidiaries, were denominated in foreign currencies, such as the U.S. dollar.

Assets, Liabilities and Equity

Kyocera’s total assets at March 31, 2016 increased by ¥73,865 million, or 2.4% to ¥3,095,049 million, compared with ¥3,021,184 million at March 31, 2015.

Cash and cash equivalents increased by ¥22,657 million, or 6.4%, to ¥374,020 million, due mainly to increases from net cash gained by operating activities and a decrease of receivables and inventories, which increased for fiscal 2015.

Other short-term investments increased by ¥29,255 million, or 15.9%, to ¥213,613 million, due mainly to acquisitions of time deposits.

Trade accounts receivables decreased by ¥32,950 million, or 11.0%, to ¥266,462 million, due mainly to decreases in sales.

Inventories decreased by ¥26,624 million, or 7.5%, to ¥327,875 million, due mainly to decreases in orders.

Other current assets decreased by ¥25,255 million, or 15.9%, to ¥133,671 million, due mainly to that deferred tax assets included in current assets in the prior period was presented in other assets as a result of the adoption of ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.”

Long-term investments in debt and equity securities increased by ¥79,765 million, or 7.6%, to ¥1,131,403 million, due mainly to increases in the market value of the shares of KDDI Corporation and other equity securities at March 31, 2016 compared with March 31, 2015.

Total property, plant and equipment at cost, net of accumulated depreciation, increased by ¥2,996 million, or 1.1%, to ¥264,487 million. Capital expenditure in fiscal 2016 was ¥68,933 million and depreciation was ¥65,853 million.

 

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Kyocera’s total liabilities at March 31, 2016 increased by ¥3,726 million, or 0.5%, to ¥721,287 million, compared with ¥717,561 million at March 31, 2015.

Other notes and accounts payable increased by ¥23,145 million, or 38.8%, to ¥82,758 million, due mainly to recording of accounts payable related to the purchase obligations of polysilicon material for the year ended December 31, 2015 under the long-term purchase agreements in the solar energy business. For detailed information regarding these purchase agreements, please refer to “Long-term purchase agreements for the supply of raw materials” in Item 5.F. “Tabular Disclosure of Contractual Obligations.”

Accrued pension and severance liabilities increased by ¥11,337 million, or 32.6%, to ¥46,101 million. Projected Benefit Obligation increased due mainly to a decrease in discount rates because of reduction of the market interest rates in fiscal 2016.

Deferred taxes liabilities decreased by ¥21,234 million, or 7.3%, to ¥271,220 million, due mainly to an increase in the offset of deferred taxes liabilities with deferred taxes assets as a result of the adoption of ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.”

Total equity at March 31, 2016 increased by ¥70,139 million, or 3.0%, to ¥2,373,762 million, compared with ¥2,303,623 million at March 31, 2015.

Retained earnings at March 31, 2016 increased by ¥68,692 million, or 4.6%, due to net income attributable to shareholders of Kyocera Corporation for fiscal 2016 of ¥109,047 million offset by cash dividend payments of ¥40,355 million.

Accumulated other comprehensive income increased by ¥130 million, or 0.0%, to ¥469,803 million. Net unrealized gains on securities increased by ¥49,349 million, or 10.5%, due to increases in market values of the shares of KDDI Corporation and other equity securities at March 31, 2016 compared with March 31, 2015. Foreign currency translation adjustments decreased by ¥34,907 million to ¥(4,251) million, due mainly to the appreciation of the yen against the U.S. dollar during the three months ended March 31, 2016 despite the yen’s depreciation during the nine months ended December 31, 2015.

Kyocera Corporation shareholders’ equity ratio at March 31, 2016 was 73.8%, increased by 0.5 percentage points compared with 73.3% at March 31, 2015.

Noncontrolling interests in subsidiaries, principally AVX Corporation, increased by ¥1,194 million, or 1.4%, to ¥89,498 million, compared with ¥88,304 million at March 31, 2015.

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

Kyocera seeks to create businesses that will become core to the group in the future by developing new technologies and products in each reporting segment and integrating group-wide management resources. In particular, we are focusing on R&D of new high-value-added technologies and products in the information and communications market, the environment and energy market, the automotive-related market and the medical and healthcare market, where there is high growth potential. In addition, we are striving to strengthen software development in order to integrate software in existing hardware-based businesses as we forecast creation of new business opportunities alongside expansion of the IoT (Internet of Things).

An outline of R&D activities in each reporting segment follows.

(1) Fine Ceramic Parts Group

Kyocera is engaged in fundamental research and process development to further enhance our fine ceramic materials technology, processing technology and design technology that we have accumulated since our earliest days. We are working to develop new products in a wide range of markets by leveraging these core technologies.

 

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We are working on the development of components and materials for next-generation equipment, which is characterized by advanced integration that includes micro wiring and 3D structures, for the core semiconductor processing equipment market.

In addition, we are strengthening the development of view camera and sensor camera modules and systems where demand is expected to increase in automotive-related markets as we move toward the realization of ADAS (Advanced Driving Assistant Systems) and automated driving. At the same time, we are reinforcing software development aimed at achieving more sophisticated image recognition for these automotive cameras. We are also focusing on the development of ceramic parts that contribute to improvement in environmental performance of diesel cars by reducing carbon dioxide and suppressing exhaust gas.

In the environment and energy market, we are developing ceramic parts for a SOFC (solid oxide fuel cell) system for residential use as well as a SOFC system for industrial use, where there are expectations for proliferation as new clean energy supply systems. We are also strengthening the development of LED related products amid growing demand in lighting applications.

(2) Semiconductor Parts Group

In the digital consumer equipment market, which is typified by smartphones and tablet terminals, needs are growing for equipment that is more multifunctional as well as smaller and thinner. In line with this, electronic components used in such equipment are getting smaller while semiconductors are becoming more refined. In the information and communications network market, there is demand for the creation of fast, large-capacity communications infrastructure. In order to respond to these market trends and expand the business, Kyocera is working to develop new high-value-added products that leverage our own unique material, design and layering technologies.

Specifically, in the ceramic package business we are working on the development of high-strength, high-rigidity ultra-small and thin ceramic packages that employ micro wiring as well as ceramic packages for optical communications that are capable of higher frequency. We are also striving to cultivate new domains, which includes developing a sensor that is capable of detecting soot contained in the exhaust gas of diesel cars even at high temperatures by leveraging our materials technology for metallic conductors that we have amassed in the development of ceramic packages. This product complies with new exhaust gas regulations in Europe and we aim to have it built into diesel engines as a core component.

In the organic multilayer package business, we are strengthening the development of fine-pitch, thin, highly precise flip-chip packages and module substrates as well as component-embedded boards. In addition, we are working on the development of products that employ new materials that respond to high frequency in the printed circuit board business.

(3) Applied Ceramic Products Group

In the solar energy business, we are working to improve product performance and quality, which includes efforts to enhance the conversion efficiency of monocrystalline and multicrystalline silicon solar cells as well as boost the output and durability of modules. At the same time, we are striving to develop products that can be applied to untapped domains such as floating solar power plants. In peripheral solar energy devices, in addition to power conditioners, we are focusing on increasing the capacity and decreasing the size of power storage systems that meet needs for self-consumption of power generated through solar energy as well as the development of energy management systems, which control energy efficiently. We are also working on expanding our business domain to the total energy solution business.

In the cutting tool business, we are strengthening the development of high-quality and high-precision cutting tools from materials technology that contribute to increased productivity for users, which are employed in metallic processing in a wide array of markets such as the industrial machinery market and automotive-related market.

 

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(4) Electronic Device Group

Kyocera is developing small, high-capacitance, noise-canceling ceramic capacitors, small SAW devices, crystal components and fine-pitch low-profile connectors for mobile equipment such as smartphones to meet demand for smaller and more sophisticated components in line with higher speeds in data transmission and the shift to multi-bands.

In the automotive and industrial equipment markets, we are pushing ahead with the development of ceramic capacitors and connectors with enhanced high-temperature reliability and pressure resistance as well as power semiconductors, including discrete and modules. In liquid crystal display related products, we are developing high-value-added products that use LTPS (Low-temperature polycrystalline silicon) technology, including TFT liquid crystal displays combined with a touch panel and cover glass, for use in the automotive-related and industrial equipment markets.

Additionally, in inkjet printheads mainly for the commercial printing market, we are working on the development of high-reliability products ideal for the high-speed, high-image quality printing required in digital printing.

(5) Telecommunications Equipment Group

Kyocera is strengthening the development of communications terminals with exceptional waterproof, dust prevention and shock-resistant features. We are also working to shorten development time by promoting the standardization of platforms for terminals being sold in Japan and overseas. Additionally, we are strengthening the development of Machine-to-Machine (M2M) communications modules with outstanding durability and responding to high-speed, high-capacitance communications through the integration of terminals and Kyocera’s component and system technology.

(6) Information Equipment Group

Kyocera is developing printers and multifunctional products that have exceptional environmental performance and economic efficiency, features of Kyocera, in order to ensure differentiation from competitors. We are also working on our unique long-life technology so that machines can be used for longer only by replacing the toner container, a consumable product, thanks to our pursuit of durability in components. By minimizing the number of components that need replacing and optimizing the cost of using products, we are working to reduce running costs for customers and provide products that are kind to the environment. We are also focusing on strengthening the development of new toner in the pursuit of high image quality.

In terms of document solution services, we are pushing ahead with the development of business applications that contribute to information sharing and business efficiency by connecting with mobile equipment and cloud systems. We are also expanding MDS (Managed Document Services) that optimize and provide continuous support to users’ document environments.

(7) Others

Kyocera Communication Systems Co., Ltd. is working on the development of security-related software for various terminals as well as infrastructure and software needed for the application of new services such as marketing that use big data. This is in response to customer needs that are becoming more complex and sophisticated alongside proliferation of IoT (Internet of Things).

 

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Kyocera Chemical Corporation (absorbed by Kyocera Corporation on April 1, 2016) is working on the synthesis of new materials and strengthening the development of new material compounding technologies to meet needs for enhanced functionality for semiconductor and automotive-related markets in addition to improving electrical properties such as insulating reliability. This functionality includes thermal hardening, photo-reactivity, and shape and stress stability. R&D expenses by reporting segment are as follows.

 

     Years ended March 31,     Increase
(Decrease)
 
     2014     2015     2016    
     Amount     Amount     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 2,553      ¥ 3,302      ¥ 3,731        13.0   

Semiconductor Parts Group

     2,206        2,308        2,198        (4.8

Applied Ceramic Products Group

     4,292        4,428        4,348        (1.8

Electronic Device Group

     6,351        8,557        7,686        (10.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     15,402        18,595        17,963        (3.4

Telecommunications Equipment Group

     4,294        3,935        3,868        (1.7

Information Equipment Group

     20,357        22,555        24,021        6.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     24,651        26,490        27,889        5.3   

Others

     8,777        10,200        12,903        26.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

R&D expenses

   ¥ 48,830      ¥ 55,285      ¥ 58,755        6.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

% to net sales

     3.4     3.6     4.0  

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

D. Trend Information

Kyocera is working to expand sales in the four key markets of “information and communications,” “automotive-related,” “environment and energy” and “medical and healthcare” with the aim of generating further growth.

The information and communications market was once again driven by growth in the market for smartphones in fiscal 2016. Despite continuing maturation in the mobile phone market, the market for smartphones is forecast to keep growing by approximately 7% in the 2016 calendar year. In addition, the components embedded in smartphones are required to be smaller and more sophisticated along with the enhanced performance and thinner profiles of smartphones. As a result, we project an increase in sales of Kyocera’s high-value-added components. We also expect solid growth in the communications infrastructure market.

In the automotive-related market, automobile sales volume in the 2016 calendar year is projected to increase by approximately 3% compared with the 2015 calendar year, particularly in China and the U. S. We also forecast growth in components for this market at a rate that exceeds automobile sales volume on the back of electrification of automobiles, with a view in particular to automated driving and of the pursuit of safety. Kyocera forecasts an increase in its electronic components, camera modules and leading-edge displays for automobiles in line with increased application of ADAS (Advanced Driving Assistant Systems) in automobiles. In addition to automated driving, we forecast an increase in components that contribute to improved fuel efficiency and curb exhaust gas following stricter exhaust gas regulations in certain regions aimed at boosting environmental responsiveness.

Kyocera’s key initiative in the environment and energy market concerns business development centered on solar power generating systems. In the core Japanese market, demand has weakened due to the impact primarily of a decline in purchase price in the feed-in-tariff system. Despite this, in the residential market, demand is expanding for power storage batteries and HEMS (Home Energy Management Systems) on the back of movement toward

 

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home electricity generation and self-consumption, and as such, sales are projected to increase for these systems and equipment. Overseas, the U.S. market is expected to remain buoyant due to expansion on the back of a tax credit system in the U.S. market and an extended applicable period for this system.

In the medical and healthcare market, demand exists for the provision of products and services alongside rising interest in longevity and health management. Kyocera commands high share in the market for artificial joints in Japan among Japanese manufacturers and we will continue striving to expand sales of these products, which include dental implants. Moreover, in line with advancements in digitalization and networking in this market, demand is expected to increase for the various components supporting these advancements.

Kyocera has a competitive advantage in terms of possessing management resources across diverse fields, up to and including components, devices, equipment, systems and services. With expectations of expansion in the IoT (Internet of Things) over the medium term, Kyocera will strive to create new value and actively grasp business opportunities by organically combining the products and technologies it has amassed over a long period of time.

E. Off-Balance Sheet Arrangements

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

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

F. Tabular Disclosure of Contractual Obligations

The following table provides information about Kyocera’s contractual obligations and other commercial commitments that will affect Kyocera’s liquidity for the next several years, as of March 31, 2016. Kyocera anticipates that the funds required to fulfill these debt obligations and commitments will be cash at hand.

 

Contractual obligations

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

Short-term borrowings

   ¥ 5,119       ¥ —         ¥ —         ¥ —         ¥ 5,119   

Interest payments for short-term borrowings*

     24         —           —           —           24   

Long-term debt (including due within one year)

     9,516         13,293         4,593         229         27,631   

Interest payments for long-term debt*

     956         922         179         5         2,062   

Long-term purchase agreements for the supply of raw material**

     69,460         61,984         49,294         —           180,738   

Operating leases

     6,121         6,782         2,979         1,506         17,388   

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

     12,586         69         7         —           12,662   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   ¥ 103,782       ¥ 83,050       ¥ 57,052       ¥ 1,740       ¥ 245,624   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* For Kyocera’s variable interest rate of borrowings and debt, Kyocera utilized the rates in effect as of March 31, 2016 when estimating schedule of interest payments.
** For detailed information regarding these Long-term purchase agreements, see “Long-term purchase agreements for the supply of raw materials” which is described below.

In addition to contractual obligations shown in the above tables, Kyocera forecasts to contribute ¥13,208 million to its defined benefit pension plans in fiscal 2017. Kyocera recorded liabilities of ¥4,668 million for gross unrecognized tax benefits in accordance with FASB’s ASC 740, “Income Taxes” at March 31, 2016, which are not included in the above table because we are unable to make reasonable estimates of the period of settlements. For detailed information, see Note 15 to the Consolidated Financial Statements in this annual report on Form 20-F.

 

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Long-term purchase agreements for the supply of raw materials

Between 2005 and 2008, Kyocera entered into four long term purchase agreements (the “LTAs”), principally governed by Michigan law, with Hemlock Semiconductor Corporation and its subsidiary Hemlock Semiconductor, LLC (collectively, “Hemlock”) for the supply of polysilicon material for use in its solar energy business. As of March 31, 2016, there is a remaining balance of ¥175,677 million of polysilicon material to be purchased under the LTAs by December 31, 2020, of which ¥47,694 million is prepaid.

A significant divergence between the market price of polysilicon material and the fixed contract price arose after the LTAs were signed. Because the Chinese government provided subsidies to Chinese polysilicon and solar panel producers, Chinese companies produced polysilicon material and solar panels at a significantly lower price compared to other market participants. As a result, other polysilicon producers reduced their prices, resulting in a significant decrease in polysilicon material and the distortion of the world market for polysilicon. The U.S. government also placed anti-dumping duties on solar panels imported from China. This situation has been prolonged and has had an adverse effect on Kyocera’s solar energy business. In light of these unprecedented circumstances, Kyocera entered into discussions with Hemlock to modify the contract terms including its price and quantity.

However, on April 1, 2015, Hemlock filed a lawsuit against Kyocera in the United States District Court Eastern District of Michigan claiming damages for the alleged anticipatory repudiation of the LTAs by Kyocera. On April 3, 2015, Kyocera sued Hemlock before the Tokyo District Court contending that the LTAs are illegal and unenforceable because of Hemlock’s alleged abuse of a superior position which is prohibited under Japanese Antitrust Law.

The legal proceedings in Michigan and Japan are in process, and accordingly, Kyocera has not ordered the polysilicon material for the amount stated under the LTAs during the year ended December 31, 2015 (“the 2015 amount”), which is ¥26,934 million in total. As the LTAs contain take-or-pay provisions which purport to require Kyocera to pay for quantities of polysilicon material even if they do not take immediate delivery, Hemlock issued an invoice for the amount equal to the difference between the 2015 amount and applicable advanced payment on January 1, 2016. Kyocera did not purchase before February 15, 2016, the due date for payment of this invoice; therefore, Hemlock issued the default notice on February 16, 2016. Kyocera contends that the LTAs are illegal and unenforceable under Japanese Antitrust Law and even if they are enforceable, Kyocera has the right to cure a default by purchasing the 2015 amount within a certain period from the issuance of the default notice. The cure period expires on August 14, 2016. Taking into consideration these conditions, Kyocera has accounted for its rights and obligations under the LTAs, and has recorded ¥26,934 million as other current asset for the 2015 amount and ¥20,639 million as other account payable for the amount equal to the difference between the 2015 amount and applicable advanced payment.

Kyocera subsequently placed an order for purchasing the 2015 amount on June 27, 2016 in order to secure the right to cure the default.

Kyocera considered the polysilicon material of the 2015 amount in its analysis based on lower of cost and net realizable value approach taking into consideration the anticipated selling price of the applicable solar products and concluded no loss was incurred as of March 31, 2016. In addition, Kyocera evaluated whether the obligation to purchase polysilicon material through 2020, assuming delivery, was an adverse obligation or not, and concluded that no loss was incurred as of March 31, 2016.

Kyocera has entered into purchase agreements with a specific supplier other than Hemlock for purchasing polysilicon material used in its solar energy business. Under those agreements, during the year ended March 31, 2016, Kyocera purchased ¥5,906 million and is obligated to purchase ¥5,061 million in total by December 31, 2016.

 

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Item 6.    Directors, Senior Management and Employees

A. Directors and Senior Management

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

The following table shows Kyocera’s Directors and Audit & Supervisory Board Members as of June 24, 2016.

 

Name

  

Date of Birth

  

Position

   Since    Term  

Tetsuo Kuba

   February 2, 1954   

Representative Director and Chairman

   2008

(Chairman 2013)

     *1   

Tatsumi Maeda

   January 1, 1953   

Representative Director and Vice Chairman

   2008      *1   

Goro Yamaguchi

   January 21, 1956   

Representative Director and President

   2009

(President 2013)

     *1   

Ken Ishii

   October 6, 1953   

Director

   2012      *1   

Hiroshi Fure

   February 24, 1960   

Director

   2013      *1   

Yoji Date

   September 20, 1956   

Director

   2013      *1   

Takashi Kuki

   May 15, 1957   

Director

   2016      *2   

Hideo Tanimoto

   March 18, 1960   

Director

   2016      *2   

Koichi Kano

   September 21, 1961   

Director

   2016      *2   

Shoichi Aoki

   September 19, 1959   

Director

   2009      *1   

Yoshihito Ohta

   June 26, 1954   

Director

   2010      *1   

John Sarvis

   March 4, 1950   

Director

   2016      *2   

Robert Wisler

   February 17, 1953   

Director

   2016      *2   

Tadashi Onodera

   February 3, 1948   

Outside Director

   2013      *1   

Hiroto Mizobata

   July 31, 1963   

Outside Director

   2015      *1   

Atushi Aoyama

   August 2, 1960   

Outside Director

   2016      *2   

Itsuki Harada

   August 5, 1955   

Full-time Audit & Supervisory Board Member

   2016      *3   

Osamu Nishieda

   January 10, 1943   

Audit & Supervisory Board Member

   1993      *3   

Hitoshi Sakata

   January 22, 1953   

Audit & Supervisory Board Member

   2016      *3   

Masaaki Akiyama

   January 4, 1945   

Audit & Supervisory Board Member

   2016      *3   

 

*1 The term of office of a Director is two years after his election at the close of the ordinary general meeting of shareholders held on June 24, 2015.
*2 The term of office of a Director is one year after his election at the close of the ordinary general meeting of shareholders held on June 24, 2016.
*3 The term of office of an Audit & Supervisory Board Member is four years after his election at the close of the ordinary general meeting of shareholders held on June 24, 2016.

Tetsuo Kuba has served as the Representative Director and Chairman of Kyocera Corporation since 2013. He became an Executive Officer in 2003, a Managing Executive Officer in 2005, a Senior Managing Executive Officer in 2007, a Director in 2008 and the Representative Director and President in 2009. He joined Kyocera Corporation in 1982 and has served as the Representative Director and Chairman of Kyoto Purple Sanga Co.,

 

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Ltd., the Representative Director and Chairman of Kyocera Crystal Device Corporation, the Representative Director and Chairman of Kyocera Document Solutions Inc., the Representative Director and Chairman of Kyocera Optec Co., Ltd., the Representative Director and Chairman of Kyocera Realty Development Co., Ltd., the Representative Director and Chairman of Kyocera Connector Products Corporation and the Chairman of the Board of AVX Corporation.

Tatsumi Maeda has served as the Representative Director and Vice Chairman of Kyocera Corporation since 2013. He became a Director in 2001 and retired in 2003. He became a Managing Executive officer in 2003, a Senior Managing Executive Officer in 2007 and rejoined as a Director in 2008. He became the Representative Director and Vice President in 2009. He joined Kyocera Corporation in 1975 and has served as a Charge of Engineering and Technology.

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

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

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

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

Takashi Kuki has served as a Director of Kyocera Corporation since 2016. He became an Executive Officer in 2015. He joined Kyocera Corporation in 1982 and has served as a Managing Executive Officer and the Representative Director and President of Kyocera Document Solutions Inc.

Hideo Tanimoto has served as a Director of Kyocera Corporation since 2016. He became an Executive Officer in 2015. He joined Kyocera Corporation in 1982 and has served as a Managing Executive Officer and the General Manager of Corporate Fine Ceramic Group.

Koichi Kano has served as a Director of Kyocera Corporation since 2016. He became an Executive Officer in 2013 and a Senior Executive Officer in 2015. He joined Kyocera Corporation in 1985 and has served as a Managing Executive Officer and the General Manager of Corporate Development Group.

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

 

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Yoshihito Ohta has served as a Director of Kyocera Corporation since 2010. He became an Executive Officer in 2003 and a Senior Executive Officer in 2007. He joined Kyocera Corporation in 1978 and has served as a Managing Executive Officer and the Representative Director and Chairman of Kyocera Communication Systems Co., Ltd.

John Sarvis has served as a Director of Kyocera Corporation since 2016. He joined AVX Corporation in 1973 and has served as the President, Chief Executive Officer and a Director of AVX Corporation.

Robert Whisler has served as a Director of Kyocera Corporation since 2016. He became an Executive Officer in 2005. He joined Kyocera America, Inc. in 1981 and has served as the President and Director of Kyocera America, Inc. and Kyocera International, Inc.

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

KDDI Corporation provides telecommunication services, and Kyocera sells mainly telecommunication equipment to KDDI Corporation. Kyocera serves KDDI Corporation as an independent vendor in terms of price determination, remittance condition and product distribution. All of the agreements and ongoing contractual commitments between Kyocera and KDDI Corporation have been made on an arm’s-length basis. In fiscal 2016, Kyocera’s sales to KDDI Corporation amounted to ¥120,895 million, or 8.2% of consolidated net sales.

Kyocera Corporation made an equity investment in KDDI Corporation when it was founded, and Kyocera Corporation’s equity interest in KDDI Corporation was 12.45% at March 31, 2016. Currently a Director of Kyocera Corporation is an Outside Director of KDDI Corporation, and a Director of KDDI Corporation is an Outside Director of Kyocera Corporation.

Hiroto Mizobata has served as an Outside Director of Kyocera Corporation since 2015. He joined KPMG Asahi Shinwa Accounting, Inc. (now known as KPMG AZSA LLC) in 1986. He was registered as a certified public accountant in 1988 and licensed a tax accountant in 1991. He has served as the Representative of Mizobata Certified Public Accountant Office.

Atushi Aoyama has served as an Outside Director of Kyocera Corporation since 2016. He has served as a Professor of Graduate School of Technology Management, Ritsumeikan University.

Atsushi Aoyama has two relatives within the second degree who used to be employees of Kyocera in the past. However, 29 years have passed after the retirement of the relative who retired later and currently no relative works in Kyocera.

Itsuki Harada has served as a Full-time Audit & Supervisory Board Member of Kyocera Corporation since 2016. He became the General Manager of Accounting Division of Dongguan Shilong Kyocera Optics Co., Ltd. (currently Dongguan Shilong Kyocera Co., Ltd.) in 1996 and the General Manager of Corporate Global Audit Division of Kyocera Corporation in 2010. He joined Kyocera Corporation in 1980.

Osamu Nishieda has served as an Audit & Supervisory Board Member of Kyocera Corporation since 1993. He has served as a Legal Counsel to Kyocera Corporation.

Hitoshi Sakata has served as an Audit & Supervisory Board Member of Kyocera Corporation since 2016. He has served as a Partner of the Oike Law Office and an Outside Director of Nippon Shinyaku Co., Ltd.

Masaaki Akiyama has served as an Audit & Supervisory Board Member of Kyocera Corporation since 2016. He joined Tomishima Audit Corporation (now known as Ernst & Young ShinNihon LLC) in 1968. He was

 

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registered as a certified public accountant in 1973. He has served as an Outside Audit & Supervisory Board Member of Joyful Honda Co., Ltd. and a Supervisory Officer of United Urban Investment Corporation.

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

The following table shows Kyocera’s Executive Officers as of June 24, 2016.

 

Name

  

Position

Goro Yamaguchi

   Executive Officer and President

Ken Ishii

  

Senior Managing Executive Officer

(General Manager of Corporate Cutting Tool Group)

Hiroshi Fure

  

Senior Managing Executive Officer

(General Manager of Corporate Automotive Components Group)

Yoji Date

  

Senior Managing Executive Officer

(Representative Director and President of Kyocera Connector Products Corporation)

Takashi Kuki

  

Managing Executive Officer

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

Hideo Tanimoto

  

Managing Executive Officer

(General Manager of Corporate Fine Ceramic Group)

Koichi Kano

  

Managing Executive Officer

(General Manager of Corporate Development Group)

Shoichi Aoki

  

Managing Executive Officer

(General Manager of Corporate Financial and Accounting Group)

Yoshihito Ohta

  

Managing Executive Officer

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

Junichi Jinno

  

Senior Executive Officer

(General Manager of Corporate Legal and Intellectual Property Group)

Shigeru Koyama

  

Senior Executive Officer

(Representative Director and President of Kyocera Fineceramics GmbH)

Takashi Sato

  

Senior Executive Officer

(General Manager of Corporate General Affairs Human Resources Group)

Keiji Itsukushima

  

Senior Executive Officer

(General Manager of Corporate Communication Equipment Group)

Kazuyuki Nada

  

Executive Officer

(General Manager of Corporate Organic Materials Semiconductor Components Group)

Takashi Okunosono

  

Executive Officer

(General Manager of Corporate Ceramic Materials Semiconductor Components Group)

Masahiro Inagaki

  

Executive Officer

(General Manager of Corporate R&D Group)

Masaaki Itoh

  

Executive Officer

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

 

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Name

  

Position

Yuji Goto

  

Executive Officer

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

Hironao Kudo

  

Executive Officer

(General Manager of Corporate Electronic Components Group)

Masaki Iida

  

Executive Officer

(General Manager of Corporate Purchasing Group)

Hisamitsu Sakai

  

Executive Officer

(General Manager of Corporate Printing Device Group)

Akihito Kubota

  

Executive Officer

(General Manager of Corporate Solar Energy Group)

Yusuke Mizukami

  

Executive Officer

(Deputy General Manager of Corporate Ceramic Materials Semiconductor Components Group)

Tayo Hamano

  

Executive Officer

(Deputy General Manager of Corporate Automotive Components Group)

Masaaki Ozawa

  

Executive Officer

(Deputy General Manager of Corporate Electronic Components Group)

Yoshihito Kurose

  

Executive Officer

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

B. Compensation

The aggregate amount of compensation provided by Kyocera Corporation and its certain subsidiaries in fiscal 2016 to all Directors, Audit & Supervisory Board Members and Executive Officers of Kyocera Corporation was ¥1,738 million. The compensation is mainly comprised of basic remuneration, bonus, stock option, incentive compensation plan and retirement allowance.

 

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In Japan, regulations require public companies to disclose an individual basis for each Director or Audit & Supervisory Board Member who receives aggregate compensation equal to or exceeding ¥100 million from the relevant company and its subsidiaries. In accordance with this requirement, we disclose compensation on an individual basis as follows.

 

Name

  

Position

  Amounts of compensation by types   Total  
     Basic
remuneration
   

Bonus
and
others

 

Stock

option

 

Retirment
compensation
and others

 
         (Yen in millions)  

Tetsuo Kuba

   Representative Director and Chairman of Kyocera Corporation         54      45   —     —    

 

 

 

¥105

 

  

  

 

 

 

 

   

 

 

 

 

 

 
   Director and Chairman of the Board of AVX Corporation     2      —     4   —    

 

  

 

 

 

 

   

 

 

 

 

 

 

 

 

 

Goro Yamaguchi

   Representative Director and President of Kyocera Corporation     60      50   —     —       ¥112   
  

 

 

 

 

   

 

 

 

 

 

 
   Director of AVX Corporation     2      —     —     —    

 

  

 

 

 

 

   

 

 

 

 

 

 

 

 

 

John S. Rigby

   Director of Kyocera Corporation     6      —     —     1     ¥179   
  

 

 

 

 

   

 

 

 

 

 

 
   Director and President of Kyocera International, Inc.     35      —     —     137  

 

  

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

Notes:

1. The positions of Tetsuo Kuba and Goro Yamaguchi represent their current positions as of the filing date of this annual report on Form 20-F.

2. Kyocera International, Inc. and AVX Corporation are Kyocera’s consolidated subsidiaries in the United States and the determinations of compensation were made by KII’s and AVX’s Compensation Committee pursuant to the U.S. regulations and based on its consideration for general and customary levels of compensation in the United States.

3. The compensation provided originally in the U.S. dollars at Kyocera International, Inc. and AVX Corporation were translated into the yen at a rate of ¥120 per $1.00, which was the average rate during fiscal 2016.

4. The position of John S. Rigby represents the positions as of March 21, 2016 as he resigned Director of Kyocera Corporation, Director and President of Kyocera International, Inc. as of March 21, 2016.

 

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