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 2017

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

 

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

For the fiscal year ended March 31, 2017

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, 2017, 367,712,383 shares of common stock were outstanding, comprised of 364,496,200 Shares and 3,216,183 American Depositary Shares (equivalent to 3,216,183 Shares).

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    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  ☒

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  ☒    No  ☐

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

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

Large accelerated filer  ☒                Accelerated filer  ☐                Non-accelerated filer  ☐                 Emerging growth company  ☐                

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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

U.S. GAAP  ☒    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  ☒

 

* 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

     26  

Item 4A.  Unresolved Staff Comments

     29  

Item 5.     Operating and Financial Review and Prospects

     29  

A. Operating Results

     29  

B. Liquidity and Capital Resources

     50  

C. Research and Development, Patents and Licenses, etc

     54  

D. Trend Information

     57  

E. Off-Balance Sheet Arrangements

     58  

F. Tabular Disclosure of Contractual Obligations

     59  

Item 6.     Directors, Senior Management and Employees

     60  

A. Directors and Senior Management

     60  

B. Compensation

     64  

C. Board Practices

     66  

D. Employees

     67  

E. Share Ownership

     68  

Item 7.     Major Shareholders and Related Party Transactions

     69  

A. Major Shareholders

     69  

B. Related Party Transactions

     71  

C. Interests of Experts and Counsel

     71  

Item 8.     Financial Information

     71  

A. Consolidated Statements and Other Financial Information

     71  

B. Significant Changes

     72  

Item 9.     The Offer and Listing

     72  

A. Offer and Listing Details

     72  

B. Plan of Distribution

     73  

C. Markets

     73  

D. Selling Shareholders

     73  

E. Dilution

     73  

F. Expenses of the Issue

     73  

Item 10.     Additional Information

     74  

A. Share Capital

     74  

B. Memorandum and Articles of Association

     74  

C. Material Contracts

     84  

D. Exchange Controls

     84  

E. Taxation

     84  

 

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     Page  

F. Dividends and Paying Agents

     90  

G. Statement by Experts

     90  

H. Documents on Display

     90  

I. Subsidiary Information

     90  

Item 11.     Quantitative and Qualitative Disclosures about Market Risk

     90  

Item 12.     Description of Securities Other than Equity Securities

     92  

A. Debt Securities

     92  

B. Warrants and Rights

     92  

C. Other Securities

     92  

D. American Depositary Shares

     92  

PART II

  

Item 13.    Defaults, Dividend Arrearages and Delinquencies

     94  

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

     94  

Item 15.    Controls and Procedures

     94  

Item 16.    [Reserved]

     94  

Item 16A. Audit Committee Financial Expert

     94  

Item 16B. Code of Ethics

     95  

Item 16C. Principal Accountant Fees and Services

     95  

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

     96  

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

     97  

Item 16F. Change in Registrant’s Certifying Accountant

     97  

Item 16G. Corporate Governance

     97  

Item 16H. Mine Safety Disclosure

     100  

PART III

  

Item 17.     Financial Statements

     101  

Item 18.     Financial Statements

     101  

Item 19.     Exhibits

     101  

 

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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;

 

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  (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.

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 generally accepted accounting principles in the United States of America, and “Japanese GAAP” means generally accepted accounting principles 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 2017” refers to Kyocera’s fiscal year ended March 31, 2017, 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.

 

     2013      2014      2015      2016      2017  
     (Yen in millions and shares in thousands, except per share amounts)  

For the years ended March 31:

              

Net sales

   ¥ 1,280,054      ¥ 1,447,369      ¥ 1,526,536      ¥ 1,479,627      ¥ 1,422,754  

Profit from operations

     76,926        120,582        93,428        92,656        104,542  

Net income attributable to shareholders of Kyocera Corporation

     66,473        88,756        115,875        109,047        103,843  

Earnings per share:

              

Net income attributable to shareholders of Kyocera Corporation:

              

Basic

   ¥ 181.18      ¥ 241.93      ¥ 315.85      ¥ 297.24      ¥ 282.62  

Diluted

     181.18        241.93        315.85        297.24        282.62  

Weighted average number of shares outstanding:

              

Basic

     366,884        366,872        366,864        366,859        367,428  

Diluted

     366,884        366,872        366,864        366,859        367,428  

Cash dividends declared per share:

              

Per share of common stock

   ¥ 60      ¥ 80      ¥ 100      ¥ 100      ¥ 110  

Per share of common stock*

   $ 0.66      $ 0.78      $ 0.81      $ 0.88      $ 0.97  

At March 31:

              

Total assets

   ¥ 2,282,853      ¥ 2,636,704      ¥ 3,021,184      ¥ 3,095,049      ¥ 3,110,470  

Long-term debt

     20,855        19,466        17,881        18,115        16,409  

Common stock

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

Kyocera Corporation shareholders’ equity

     1,646,157        1,910,083        2,215,319        2,284,264        2,334,219  

Total equity

     1,714,942        1,987,226        2,303,623        2,373,762        2,418,909  

Depreciation

   ¥ 63,119      ¥ 65,760      ¥ 62,413      ¥ 65,853      ¥ 66,019  

Capital expenditures

   ¥ 56,688      ¥ 56,611      ¥ 56,670      ¥ 68,933      ¥ 67,781  

 

* 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 fiscal 2013. For details of the stock split, please refer to “Capital Stock” in Item 10.B. “Memorandum and Articles of Association” of this annual report on Form 20-F on page 76.

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

 

For the years ended March 31,

       High              Low              Average              Period-end      

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  

2017

     118.32        100.07        108.25        111.41  

For most recent six months

                           

December 2016

     118.32        113.50        116.00        116.78  

January 2017

     117.68        112.72        114.87        112.72  

February 2017

     114.34        111.74        112.91        112.06  

March 2017

     115.02        110.48        112.92        111.41  

April 2017

     111.52        108.40        110.09        111.44  

May 2017

     114.19        110.68        112.24        110.71  

The noon buying rate for Japanese yen on June 16, 2017 was $1.00 = 110.84

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, 2018 (“fiscal 2018”), the Japanese economy is expected to grow 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 58% of its total revenues in fiscal 2017. 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 a few 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.

 

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While some of the factors that drive competition vary by product area, price and speed of delivery are primary factors that impact in all areas of Kyocera’s business. Price pressure has been intense, and thus Kyocera predicts that its selling prices will continue to be lower than in fiscal 2017 depending partly on the demand and competition situation. In 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 or 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 amount based on 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

 

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

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

(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 for equipment and centers, however, Kyocera’s production activity may become diminished if massive blackouts occur and electricity shortages continue in the areas in which Kyocera has facilities. Shortages of electricity in the areas in which Kyocera’s suppliers and customers have main operations may also interrupt Kyocera’s procurement 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 increasing demand and customer requirement 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 and collaborations, partnerships and alliances etc., with outside organizations 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. In addition, Kyocera faces similar risks in connection with its collaborations, partnerships and alliances etc., with outside organizations such as firms, academic institutions and governmental organizations.

(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

 

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

Risks Related to Legal Restrictions and Litigations

(12) Insufficient protection of 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, soil contamination, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals, product recycling, 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

 

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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.

(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 are increasingly 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 devastated 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 adversely affected.

 

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(19) Kyocera may have to incur impairment losses on its investments in 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. If there are certain declines in the fair value, that is, the market price, of the shares of these companies, and we determine that such declines are other-than-temporary, Kyocera will need to record an impairment loss. A substantial portion of Kyocera’s investments in equity securities consists of an investment in shares of KDDI Corporation, a Japanese telecommunication service provider. Kyocera Corporation’s equity interest in KDDI Corporation was 12.78% as of March 31, 2017. Kyocera Corporation’s investment in shares of KDDI Corporation accounts for approximately 30% of Kyocera’s total assets. Accordingly, fluctuations in the market value of the shares of KDDI Corporation may materially affect Kyocera’s financial condition. From the 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 equity securities including strategic investments in its portfolio, with periodical checks for the economic rationality, Kyocera may dispose of some securities which lack merit for Kyocera, although 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.

 

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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 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 year-end 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 a year-end dividend declaration a few weeks before the annual general meeting. If the shareholders’ approval is given, the year-end 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 year-end 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

 

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board of directors are legally bound by such forecast. Therefore, our shareholders of record on the record dates for interim or year-end dividends may not receive the dividend they anticipate.

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

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

(28) We believe that we were a passive foreign investment company (PFIC) for United States federal income tax purposes for the 2016 and 2017 fiscal years 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 and 2017 fiscal years 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 (later, the company changed its name to Kyocera Connector Products Corporation, which was subsequently merged with Kyocera through an absorption-type merger in April 2017).

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

 

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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 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. 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.

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 (later, the company changed its name to Kyocera Crystal Device Corporation, which was subsequently merged with Kyocera through an absorption-type merger in April 2017), a major producer of artificial crystal related products, a wholly-owned subsidiary through a share exchange to strengthen our Electronic Device Group. We also established Kyocera SLC Technologies Corporation, a manufacturing and sales company of surface laminar circuitry, in order to expand organic material components business (later, the company changed its name to Kyocera Circuit Solutions, Inc., which was subsequently merged with Kyocera through an absorption-type merger in April 2016).

In September 2004, Kyocera Corporation and Kobe Steel, Ltd. established Japan Medical Materials Corporation (later, the company changed its name to Kyocera Medical Corporation, which was subsequently merged with Kyocera through an absorption-type merger in April 2017) and Kyocera Corporation transferred its medical materials business to Japan Medical Materials Corporation through corporate splits.

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 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 acquired all of the remaining shares of TA. As a result, TA became a wholly-owned subsidiary of Kyocera. 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.

 

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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, we implemented an absorption-type merger of Kyocera Circuit Solutions, Inc. into Kyocera Corporation 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. In order to further expand our power semiconductor business, we implemented an absorption-type merger of NIEC into Kyocera Corporation in August 2016.

In April 2017, we implemented separate absorption-type mergers with each of Kyocera Crystal Device Corporation, Kyocera Connector Products Corporation and Kyocera Medical Corporation, through which each company was merged into Kyocera Corporation, in order to expand the electronic devices business and the business in medical and health care through sharing each company’s respective management resources and maximizing synergy.

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.

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, 2017, we had 197 subsidiaries and 4 affiliates outside Japan and 22 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

For fiscal 2017, Kyocera categorized its operations into six reporting segments: (1)Fine Ceramic Parts Group, (2)Semiconductor Parts Group, (3)Applied Ceramic Products Group, (4)Electronic Device Group, (5)Telecommunications Equipment Group and (6)Information Equipment Group. In addition, separate from its six reporting segments, Kyocera groups other businesses into “Others.”

Starting from fiscal 2018, Kyocera has changed the classification of its reporting segments to “Industrial & Automotive Components Group,” “Semiconductor Components Group,” “Electronic Devices Group,” “Communications Group,” “Document Solutions Group,” and “Life & Environment Group.” For detailed information on the new reporting segment classification, please refer to Note 20 in the Consolidated Financial Statements included in this annual report on Form 20-F.

Our principal products and services offered in each reporting segment and others 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

LED Related Products

Automotive Components

 

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Products in this reporting segment are widely used in the industrial machinery, information and communications equipment, automotive-related markets 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

Organic Multilayer Boards

Organic Packaging Materials

This reporting segment develops, manufactures and sells both inorganic (ceramic) and organic packages, organic multilayer boards and organic packaging materials for various electronic components and devices such as crystal components, SAW devices and CMOS/CCD sensors for communication infrastructures and for the automotive-related markets.

(3) Applied Ceramic Products Group

Solar Power Generating Systems, Battery Energy Storage Systems

Cutting Tools, Micro Drills

Medical Devices

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 Devices, Jewelry and Applied Ceramic Related Products. Kyocera develops, manufactures and sells monocrystalline and multicrystalline silicon solar modules and solar power generating system for commercial and residential uses, cutting tools used in metal processing in industrial manufacturing, medical devices including prosthetic joints and dental prosthetics, and recrystallized jewelry and applied ceramic related products such as kitchen accessories.

(4) Electronic Device Group

Capacitors

Connectors

Crystal Components

SAW Devices

Power Semiconductor Products

Printing Devices

Liquid Crystal Displays

This reporting segment develops, manufactures and sells a wide variety of electronic components and devices for diverse fields that include information and communications equipment, industrial equipment and automotive-related markets.

(5) Telecommunications Equipment Group

Smartphones, Mobile Phones

Communication Modules

This reporting segment develops, manufactures and sells smartphones and mobile phones embedded with our unique functions to telecommunications carriers mainly in Japan and North America as well as develops communication modules with expectations of growing demand in the IoT (Internet of Things) market.

 

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(6) Information Equipment Group

Monochrome and Color Printers and Multifunctional Products

Document Solutions

Application Software

Supplies

This reporting segment supplies printers and multifunctional products (MFPs) that realize long life cycle and low running costs thanks to the use of our amorphous silicon photoreceptor drums. We are also rolling out document solutions worldwide that support the optimization of a customer’s document environment through the provision of application software enabling connection between a customer’s document management system and mobile terminals or cloud environments. We are also strengthening our ECM (Enterprise Contents Management) business that computerizes a company’s data so that it can be managed in a more comprehensive and efficient manner.

Others

Information Systems and Telecommunication Services

Engineering Business

Management Consulting Business

Realty Development Business

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 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 sales in the Fine Ceramic Parts Group and the Semiconductor Parts Group are made directly to device, component and equipment manufacturers in Japan and overseas while the Electronic Device Group makes direct sales to the same kinds of manufacturers as these two businesses as well as through active use of distributors.

In the solar energy business in the Applied Ceramic Products Group, solar modules and solar power generating systems are sold to global users via direct sales, sales subsidiaries and other methods, including through distributors. In addition, Kyocera sells battery storage systems and energy management systems through distributors, franchise stores and home builders in Japan. Cutting tools are sold to users such as automobile parts manufacturers primarily through wholesale dealers and distributors. Jewelry and applied ceramic products such as ceramic knives are sold through direct retail shops and general retailers as well as the internet. In the medical and dental implant business, prosthetic joints, artificial bones and dental implants are sold to hospitals and dental clinics 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 MFPs that boast long life and produce minimal waste as well as application software that resolves customers’ management issues from directly controlled sales companies in 33 countries to more than 140 countries. We also provide document solutions globally through sales distributors. We primarily deal with major customers around the world by way of direct sales.

 

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In the Others, 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 predominantely 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 to ensure stable procurement at a fair price. We may limit the number of suppliers as an exception (1) if the final customer selects the material supplier or (2) to maintain the quality of a final product.

The purchase price of these raw materials and other materials fluctuates depending on the supply-demand situation and the rising cost of certain raw materials and fuel as well as when purchases are made in foreign currencies from suppliers overseas. Kyocera’s businesses are many and varied, and we are working to enhance our price negotiating power when procuring raw materials and other materials through the ties we have inside the Kyocera Group. We are also striving to absorb the rising cost of raw materials and other materials in each business by making internal improvements that include cost reductions. In addition, we have executed long-term agreements with suppliers for certain raw materials in consideration of the future supply-demand balance.

In fiscal 2017, we did not face shortages of raw materials and other materials which were necessary to carry out our production plans.

Kyocera has entered into long-term purchase agreements with a specific supplier 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://global.kyocera.com/ir/financial/cmr170530.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, 2017, with respect to our significant patents and license agreements.

 

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(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 including semiconductor processing equipment market and the 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 and design expertise accumulated since our founding, and in production technology and production capacity that enables us to meet customer requirements. We also promote R&D internally through an integrated system from fundamental research to development of applied products and we are striving to introduce further distinctive products to the market through the advanced application of our technology.

(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, multilayer printed wiring boards (PWBs) and organic packaging materials.

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. 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 medical market.

In the organic multilayer package and multilayer PWB business, our main competitors are Japanese and Asian manufacturers. Kyocera has become a leading supplier of high-end flip-chip packages and advanced multilayer PWBs in the broad-ranging organic substrate market. These products are used for communications infrastructure such as servers and routers demanding sophisticated design rules and exceptional reliability. In addition, we are working to further increase market share by developing new products that leverage our design and technology expertise, amassed over the years, for smartphones and other mobile terminals requiring smaller, thinner design, and expand production capacity as a means to bolster our business competitiveness.

(3) Applied Ceramic Products Group

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

 

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The solar energy industry has a high number of competitors and 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, and in particular, we have an integrated production system for the entire manufacturing process from silicon ingots to solar modules for multicrystalline silicon solar cells, which enables thorough quality control and cost reductions in each process. Through this, we can realize exceptional reliability and enhance cost competitiveness. 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 strengthen development, particularly for power storage batteries and an Energy Management System (EMS), and expand the scope of its business fields by utilizing the Group’s management resources and knowhow with the aim of capturing demand for home electricity generation and self-consumption, an area that continues to grow. We are also striving to enhance added value and bolster competitiveness by providing energy-related solutions that combine each system. A strong financial base enabling the provision of after-sales service and maintenance over a long period serves as a competitive advantage for us.

In the cutting tool business, our cutting tools are employed primarily for metallic processing in the automotive-related market. Although we have many competitors globally, 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 market, including the aviation and energy markets, and are working to increase market share by boosting production capacity. We are also working to further strengthen competitiveness primarily through the establishment of a framework enabling integrated production from materials to finished product for cemented carbide tools and we are actively expanding manufacturing bases, sales channels and design centers via M&A.

(4) Electronic Device Group

Kyocera develops and manufactures a wide variety of capacitors, crystal components, connectors, thermal printheads, inkjet printheads, liquid crystal displays, and power semiconductor products. We develop our business with our extensive product lineup for diverse applications worldwide.

Kyocera is a leading supplier of parts for high-end smartphones by focusing on the development of products in cutting-edge fields that meet needs such as for miniaturization and high performance in capacitors, crystal components and connectors. In particular, even though we already command top global share in temperature compensated crystal oscillators (TCXOs), where demand is growing, we are striving to further boost this share by expanding production capacity.

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. In particular, we are working to further strengthen competitiveness by concentrating on the development of leading-edge liquid crystal displays for automotive use.

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

 

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(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 Japan and overseas such as the United States and Asia. Kyocera is focusing on developing products that provide a level of differentiation such as by adding waterproof and robustness features. Also, we develop a variety of mobile phones, from simple mobile phones and smartphones that can be washed with soap to sophisticated smartphones, to meet diverse needs in Japan. In addition, we are strengthening the development of communication modules, an area of growing demand, for automobiles and the IoT and striving to expand business fields by developing applications for communications technology. In the communication module field, we have been able to release products ahead of the competition by utilizing relationships with major carriers in Japan that we have built up in our terminal business and this has become a strength in terms of response to the increasing sophistication of technology.

(6) Information Equipment Group

In this reporting segment, Kyocera manufactures and sells printers and MFPs, 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 by infusing products with features that realize lower running costs and energy consumption through long-life photoreceptors (amorphous silicon drum and positive-charged single-layer photoconductor drum) uniquely developed by us and low power consumption systems. Kyocera is also increasing efficiency in development through the use of platforms and module-based design for equipment, which has heightened cost competitiveness.

In addition, Kyocera is working to further enhance competitiveness by expanding its document solutions business. We are building up our MDS (Managed Document Services) business to provide the optimal document environment for each customer through unique HyPAS (Hybrid Platform for Advanced Solutions), which enables users to embed various applications and software that meet user needs in document equipment to connect with a cloud computing environment or mobile equipment. In fiscal 2017, we added a company to the Kyocera Group that provides comprehensive services combining MDS business and ICT business with the aim of further strengthening our document solutions business, and this has increased the value we offer to customers.

Apart from the aforementioned strengths in each business, Kyocera also pursues greater synergies within the Group and makes active use of external management resources with the aim of further reinforcing and expanding 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

 

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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 did not conduct any transactions with Iran-related organizations in fiscal 2015, 2016 and 2017.

C. Organizational Structure

We had 230 subsidiaries and affiliates as of March 31, 2017. 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, 2017, with respect to our significant subsidiaries.

 

Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
    

Main Business

(1) Fine Ceramic Parts Group

        

Kyocera Fineceramics GmbH

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

(2) Semiconductor Parts Group

        

Shanghai Kyocera Electronics Co., Ltd.

   China      100.00%      Manufacture of fine ceramic-related products

 

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Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
    

Main Business

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 and electronic devices mainly in Asia

Kyocera Vietnam Co., Ltd.

   Vietnam      100.00%      Manufacture of fine ceramic-related products

(3) Applied Ceramic Products Group

        

Kyocera Solar Corporation

   Japan      100.00%      Construction of solar energy products

Kyocera (Tianjin) Solar Energy Co., Ltd.

   China      90.00%      Manufacture of solar energy products

Dongguan Shilong Kyocera Co., Ltd.

   China      90.00%      Manufacture of cutting tools and electronic devices

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 devices

(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

Kyocera (China) Sales & Trading Corporation

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

AVX Corporation

   United States      72.53%      Development, manufacture and sale of electronic devices

(5) Telecommunications Equipment Group

        

Kyocera Telecom Equipment (Malaysia) Sdn. Bhd.

   Malaysia      100.00%      Manufacture of telecommunications equipment

 

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Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
    

Main Business

Kyocera International, Inc.

   United States      100.00%      Manufacture and sale of fine ceramic-related products and sale of telecommunications equipment mainly in North America

(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

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 Realty Development Co., Ltd.

   Japan      100.00%      Real estate services

In addition to the above consolidated subsidiaries, Kyocera had 189 other consolidated subsidiaries as of March 31, 2017. 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, 2017.

On April 1, 2017, Kyocera Corporation absorbed Kyocera Medical Corporation, Kyocera Connector Products Corporation and Kyocera Crystal Device Corporation, which were wholly-owned subsidiaries.

Kyocera Corporation made a resolution to liquidate Kyocera Telecom Equipment (Malaysia) Sdn. Bhd. at the meeting of Board of Directors held on May 1, 2017.

D. Property, Plants and Equipment

As of March 31, 2017, we had property, plants and equipment with a net book value of ¥266,604 million. During the five years ended March 31, 2017, we invested a total of ¥306,683 million for additions to property, plants and equipment. Our property, plants and equipment are subject to some material encumbrances or environmental issues. See Item 5.A. “Operating Results” of this annual report on Form 20-F.

 

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The following table sets forth information with respect to our principal manufacturing facilities as of March 31, 2017.

 

Name of Plant

 

Location

 

Status

 

Floor Space

 

Principal Products
Manufactured

           

(in thousands

of square feet)

   

Japan

       

Hokkaido Kitami Plant

  Kitami, Hokkaido   Owned   295   Telecommunications equipment, Ceramic packages, Fine ceramic parts

Yamagata Higashine Plant

  Higashine, Yamagata   Owned   379   Electronic components

Niigata Shibata Plant

  Shibata, Niigata   Owned   326   Organic multilayer substrates, Organic multilayer boards

Toyama Nyuzen Plant

  Shimoniikawa, Toyama   Owned   327   Organic multilayer substrates, Organic multilayer boards

Nagano Okaya Plant

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

Tamaki Plant

  Watarai, Mie   Owned   393   Toner

Shiga Gamo Plant

  Higashi-Ohmi, Shiga   Owned   691   Fine ceramic parts, Ceramic packages

Shiga Yokaichi Plant

  Higashi-Ohmi, Shiga   Owned   1,511   Fine ceramic parts, Solar power generating systems, Cutting tools

Shiga Yasu Plant

  Yasu, Shiga   Owned   1,810   Solar power generating systems, Liquid crystal displays

Kyoto Ayabe Plant

  Ayabe, Kyoto   Owned   843   Organic multilayer substrates, Organic multilayer boards

Hirakata Plant

  Hirakata, Osaka   Owned   593   Toner

Kagoshima Sendai Plant

  Satsuma-Sendai, Kagoshima   Owned   2,000   Fine ceramic parts, Ceramic packages Cutting tools

Kagoshima Kokubu Plant

  Kirishima, Kagoshima   Owned   2,471   Fine ceramic parts, Ceramic packages, Electronic components

Kagoshima Hayato Plant

  Kirishima, Kagoshima   Owned   278   Printing devices

 

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Table of Contents

Name of Plant

 

Location

 

Status

 

Floor Space

 

Principal Products
Manufactured

           

(in thousands

of square feet)

   

United States

       

Balboa Plant

  San Diego, California   Owned   300   Ceramic packages

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   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 power generating systems

Shanghai Pudong Plant

  Shanghai   Owned   1,026   Ceramic packages

Zhangjiagang Plant

  Zhangjiagang, Jiangsu   Owned   365   Liquid crystal displays

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   959   Ceramic packages

Hai Phong Plant

  Hai Phong   Owned   794   Information equipment

 

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Item 4A.    Unresolved Staff Comments

Not applicable.

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 and cultivates new markets based on fine ceramic technologies 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.

For fiscal 2017, Kyocera’s operations were categorized into six reporting segments: (1)Fine Ceramic Parts Group, (2)Semiconductor Parts Group, (3)Applied Ceramic Products Group, (4)Electronic Device Group, (5)Telecommunications Equipment Group, and (6)Information Equipment Group. In addition, separate from its six reporting segments, Kyocera groups other businesses into “Others.” For fiscal 2017, Kyocera grouped 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 grouped the Telecommunications Equipment Group and the Information Equipment Group into another main business referred to as the “Equipment Business.”

Starting from fiscal 2018, Kyocera has changed the classification of its reporting segments to “Industrial & Automotive Components Group,” “Semiconductor Components Group,” “Electronic Devices Group,” “Communications Group,” “Document Solutions Group,” and “Life & Environment Group.” For detailed information on the new reporting segment classification, please refer to Note 20 in the Consolidated Financial Statements included in this annual report on Form 20-F.

For fiscal 2017, sales in the Fine Ceramic Parts Group and the Semiconductor Parts Group increased compared with fiscal 2016, supported by increases in automobile sales in Asia and investment in communications infrastructure. By contrast, sales in the solar energy business decreased due primarily to market price erosion. Sales in the Telecommunications Equipment Group also decreased due to a decline in sales volume as a result of a revision in product strategy. In addition, a shift to appreciation of the yen as compared to depreciation in fiscal 2016 adversely affected sales. As a result, consolidated net sales for fiscal 2017 amounted to ¥1,422,754 million, down ¥56,873 million, or 3.8%, compared with fiscal 2016. Profit from operations increased by ¥11,886 million, or 12.8%, to ¥104,542 million as compared with fiscal 2016, due mainly to cost reduction efforts, and to the absence of impairment losses on goodwill and long lived assets recorded in fiscal 2016. Income before income taxes decreased by ¥7,734 million, or 5.3%, to ¥137,849 million as compared with fiscal 2016 due to the absence of a gain on the sale of an asset in the amount of approximately ¥20 billion recorded in fiscal 2016. Net income attributable to shareholders of Kyocera Corporation decreased by ¥5,204 million, or 4.8%, to ¥103,843 million.

 

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Average exchange rates for fiscal 2017 were ¥108 to the U.S. dollar, marking appreciation of ¥12 (10.0%), and ¥119 to the Euro, marking appreciation of ¥14 (10.5%), from fiscal 2016. As a result, net sales and income before income taxes after translation into yen for fiscal 2017 were pushed down by approximately ¥94 billion and approximately ¥26 billion, respectively, compared with fiscal 2016.

Results of Operations

Fiscal 2017 compared with Fiscal 2016

The following table shows a summary of Kyocera’s results of operations for fiscal 2016 and fiscal 2017:

 

     Years ended March 31,     Increase
(Decrease)
 
     2016     2017    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Net sales

   ¥ 1,479,627       100.0     ¥ 1,422,754       100.0     ¥ (56,873     (3.8

Cost of sales

     1,093,467       73.9       1,049,472       73.8       (43,995     (4.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     386,160       26.1       373,282       26.2       (12,878     (3.3

Selling, general and administrative expenses

     279,361       18.9       268,740       18.9       (10,621     (3.8

Loss on impairment of goodwill

     14,143       0.9       —         —         (14,143     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from operations

     92,656       6.3       104,542       7.3       11,886       12.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses):

            

Interest and dividend income

     28,609       1.9       32,364       2.3       3,755       13.1  

Interest expense

     (1,814     (0.1     (901     (0.0     913       —    

Foreign currency transaction gains, net

     3,820       0.2       1,278       0.1       (2,542     (66.5

Gains on sales of securities, net

     20,600       1.4       193       0.0       (20,407     (99.1

Other, net

     1,712       0.1       373       0.0       (1,339     (78.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     52,927       3.5       33,307       2.4       (19,620     (37.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     145,583       9.8       137,849       9.7       (7,734     (5.3

Income taxes

     31,392       2.1       28,442       2.0       (2,950     (9.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     114,191       7.7       109,407       7.7       (4,784     (4.2

Net income attributable to noncontrolling interests

     (5,144     (0.3     (5,564     (0.4     (420     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders of Kyocera Corporation

   ¥ 109,047       7.4     ¥ 103,843       7.3     ¥ (5,204     (4.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Sales

Net sales in fiscal 2017 decreased by ¥56,873 million, or 3.8%, to ¥1,422,754 million, compared with ¥1,479,627 million in fiscal 2016.

Net sales in the Components Business in fiscal 2017 decreased by ¥12,916 million, or 1.5%, to ¥856,859 million, compared with ¥869,775 million in fiscal 2016. Net sales in the Fine Ceramic Parts Group and the Semiconductor Parts Group increased compared with fiscal 2016 supported by increases in automobile sales in Asia and investment in communications infrastructure. By contrast, sales in the solar energy business decreased due primarily to market price erosion.

Net sales in the Equipment Business in fiscal 2017 decreased by ¥37,597 million, or 7.4%, to ¥469,694 million, compared with ¥507,291 million in fiscal 2016. Net sales in the Telecommunications Equipment Group decreased due to a decline in sales volume as a result of a revision in product strategy.

 

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Due mainly to the impact of the yen’s appreciation against the U.S. dollar and Euro, net sales after translation into the yen in fiscal 2017 were pushed down by approximately ¥94 billion, compared with fiscal 2016.

For details regarding net sales, please refer to page 33, “Business Overview by Reporting Segment.”

Net Sales by Geographic Segment

(1) Japan

Sales in Japan in fiscal 2017 decreased by ¥9,003 million, or 1.5%, to ¥598,639 million, compared with ¥607,642 million in fiscal 2016. This was due mainly to a decline in sales in the Telecommunications Equipment Group.

(2) Asia

Sales in Asia in fiscal 2017 decreased by ¥3,731 million, or 1.2%, to ¥304,013 million, compared with ¥307,744 million in fiscal 2016. This was due primarily to the declines in sales in the Semiconductor Parts Group and the Fine Ceramic Parts Group, which were affected by the negative impact of the yen’s appreciation.

(3) Europe

Sales in Europe in fiscal 2017 decreased by ¥18,027 million, or 7.1%, to ¥235,355 million, compared with ¥253,382 million in fiscal 2016. This was due mainly to a decline in sales in the Information Equipment Group and the Electronic Device Group, which were affected by the negative impact of the yen’s appreciation.

(4) United States of America

Sales in the United States of America in fiscal 2017 decreased by ¥21,235 million, or 8.5%, to ¥228,968 million, compared with ¥250,203 million in fiscal 2016. This was due mainly to the negative impact of the yen’s appreciation as well as to a decline in sales in the solar energy business.

(5) Others

Sales in Others in fiscal 2017 decreased by ¥4,877 million, or 8.0%, to ¥55,779 million, compared with ¥60,656 million in fiscal 2016. This was due mainly to a decline in sales in the Information Equipment Group and the Semiconductor Parts Group, which were affected by the negative impact of the yen’s appreciation.

Cost of Sales and Gross Profit

In fiscal 2017, cost of sales decreased by ¥43,995 million, or 4.0%, to ¥1,049,472 million from ¥1,093,467 million in fiscal 2016.

Raw material costs of ¥404,075 million accounted for 38.5% of total cost of sales in fiscal 2017, which decreased by ¥46,579 million, or 10.3%, from ¥450,654 million in fiscal 2016. Labor costs of ¥218,991 million accounted for 20.9% of total cost of sales in fiscal 2017, which decreased by ¥320 million, or 0.1%, from ¥219,311 million in fiscal 2016. Depreciation expense of ¥56,015 million accounted for 5.3% of total cost of sales in fiscal 2017, which increased by ¥1,749 million, or 3.2%, from ¥54,266 million in fiscal 2016.

As a result, gross profit in fiscal 2017 decreased by ¥12,878 million, or 3.3%, to ¥373,282 million from ¥386,160 million in fiscal 2016. The gross profit ratio to net sales increased by 0.1 percentage points from 26.1% to 26.2%.

 

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

In fiscal 2017, selling, general and administrative expenses decreased by ¥10,621 million, or 3.8%, to ¥268,740 million from ¥279,361 million in fiscal 2016. The decrease was caused primarily by 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 business in fiscal 2016, despite the recording of gains on sales of property, plant and equipment, net in the amount of ¥12,039 million in fiscal 2016, and a decrease in miscellaneous expenses due to the effect of the yen’s appreciation.

The ratio of selling, general and administrative expenses to net sales was 18.9% in fiscal 2017, as the same as it was in fiscal 2016.

Labor costs of ¥149,686 million accounted for 55.7% of total selling, general and administrative expenses in fiscal 2017, a decrease of ¥6,937 million, or 4.4%, from ¥156,623 million in fiscal 2016. Sales promotion and advertising costs of ¥44,214 million accounted for 16.5% of total selling, general and administrative expenses in fiscal 2017, a decrease of ¥2,420 million, or 5.2%, from ¥46,634 million in fiscal 2016. Depreciation expense of ¥12,977 million accounted for 4.8% of total selling, general and administrative expenses in fiscal 2017, a decrease of ¥618 million, or 4.5%, from ¥13,595 million in fiscal 2016.

In fiscal 2016, impairment loss on goodwill in the amount of ¥14,143 million was recognized in the liquid crystal displays business included in the Electronic Device Group.

As a result, profit from operations in fiscal 2017 increased by ¥11,886 million, or 12.8%, to ¥104,542 million, compared with ¥92,656 million in fiscal 2016. The operating margin increased by 1.0 percentage points to 7.3% in fiscal 2017, compared with 6.3% in fiscal 2016.

Interest and Dividend Income

Interest and dividend income in fiscal 2017 increased by ¥3,755 million, or 13.1%, to ¥32,364 million, compared with ¥28,609 million in fiscal 2016. This was due mainly to an increase in dividend income from KDDI Corporation.

Interest Expense

Interest expense in fiscal 2017 decreased by ¥913 million, or 50.3%, to ¥901 million, compared with ¥1,814 million in fiscal 2016.

Foreign Currency Transaction

During fiscal 2017, the average exchange rate for the yen appreciated by ¥12, or 10.0%, against the U.S. dollar and appreciated by ¥14, or 10.5%, against the Euro, as compared with fiscal 2016. At March 31, 2017, the yen appreciated by ¥1, or 0.9%, against the U.S. dollar, and appreciated by ¥8, or 6.3%, against the Euro, as compared with March 31, 2016. Kyocera recorded foreign currency transaction gains of ¥1,278 million in fiscal 2017.

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

Gains and Losses from Investments

Gains on sales of securities in fiscal 2017 decreased by ¥20,407 million, or 99.1%, to ¥193 million, compared with ¥20,600 million in fiscal 2016. This was due mainly to the gain of ¥20,000 million on a sale of a part of shares issued by KDDI Corporation in fiscal 2016.

 

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Income before Income Taxes

Income before income taxes in fiscal 2017 decreased by ¥7,734 million, or 5.3%, to ¥137,849 million compared with ¥145,583 million in fiscal 2016. Margin of income before income taxes against net sales decreased by 0.1 percentage points to 9.7% compared with 9.8% in fiscal 2016.

Despite an increase of profit from operations, income before income taxes decreased due primarily to the gain of ¥20,000 million from a sale of a part of shares issued by KDDI Corporation in fiscal 2016. Income before income taxes after translation into the yen for fiscal 2017 was pushed down by approximately ¥26 billion due to the impact of appreciation of the yen against the U.S. dollar and Euro compared with fiscal 2016.

Operating profit in the Components Business in fiscal 2017 increased by ¥537 million, or 0.6%, to ¥85,874 million, compared with ¥85,337 million in fiscal 2016. Operating profit in the Equipment Business in fiscal 2017 increased by ¥6,616 million, or 29.3%, to ¥29,164 million, compared with ¥22,548 million in fiscal 2016.

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

Income Taxes

Current and deferred income taxes in fiscal 2017 decreased by ¥2,950 million, or 9.4% to ¥28,442 million, of which the effective tax rate was 20.6%, compared with ¥31,392 million, of which the effective tax rate was 21.6% in fiscal 2016. This was due mainly to the fact that income before income taxes decreased in fiscal 2017 compared with fiscal 2016.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests in fiscal 2017 increased by ¥420 million, or 8.2%, to ¥5,564 million compared with ¥5,144 million in fiscal 2016. This was due mainly to an increase in net income of AVX Corporation, for which there is a noncontrolling interest of approximate 30% in fiscal 2017.

Business Overview by Reporting Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2016 and fiscal 2017 by the six reporting segments and Others:

 

     Years ended March 31,     Increase
(Decrease)
 
     2016     2017    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 95,092       6.4     ¥ 97,445       6.8     ¥ 2,353       2.5  

Semiconductor Parts Group

     236,265       16.0       245,727       17.3       9,462       4.0  

Applied Ceramic Products Group

     247,516       16.7       225,176       15.8       (22,340     (9.0

Electronic Device Group

     290,902       19.7       288,511       20.3       (2,391     (0.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     869,775       58.8       856,859       60.2       (12,916     (1.5

Telecommunications Equipment Group

     170,983       11.6       145,682       10.2         (25,301     (14.8

Information Equipment Group

     336,308       22.7       324,012       22.8       (12,296     (3.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     507,291       34.3       469,694       33.0       (37,597     (7.4

Others

     146,897       9.9       138,362       9.7       (8,535     (5.8

Adjustments and eliminations

     (44,336     (3.0     (42,161     (2.9     2,175       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   ¥ 1,479,627       100.0     ¥ 1,422,754       100.0     ¥ (56,873     (3.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2016 and fiscal 2017 by the six reporting segments and Others:

 

     Years ended March 31,     Increase
(Decrease)
 
     2016     2017    
     Amount     %*     Amount     %*     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 15,745       16.6     ¥ 14,512       14.9     ¥ (1,233     (7.8

Semiconductor Parts Group

     42,232       17.9       25,662       10.4       (16,570     (39.2

Applied Ceramic Products Group

     16,386       6.6       15,639       6.9       (747     (4.6

Electronic Device Group

     10,974       3.8       30,061       10.4       19,087       173.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     85,337       9.8       85,874       10.0       537       0.6  

Telecommunications Equipment Group

     (4,558     —         1,084       0.7       5,642       —    

Information Equipment Group

     27,106       8.1       28,080       8.7       974       3.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     22,548       4.4       29,164       6.2       6,616       29.3  

Others

     (1,722     —         (544     —         1,178       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     106,163       7.2       114,494       8.0       8,331       7.8  

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

     39,534       —         24,636       —         (14,898     (37.7

Adjustments and eliminations

     (114     —         (1,281     —         (1,167     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   ¥    145,583            9.8      ¥    137,849            9.7      ¥ (7,734     (5.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* % to net sales of each corresponding segment

Former Kyocera Chemical Group, which was included in “Others” until fiscal 2016, has been reclassified and included in the “Semiconductor Parts Group” commencing from fiscal 2017. Due to this change, results for fiscal 2016 have been reclassified to conform to the current presentation. As a result of this reclassification, a gain of approximately ¥12 billion from the sale of an asset was included in the operating profit of the “Semiconductor Parts Group” for the fiscal 2016.

(1) Fine Ceramic Parts Group

Sales in the Fine Ceramic Parts Group for fiscal 2017 increased by ¥2,353 million, or 2.5%, to ¥97,445 million, compared with ¥95,092 million for fiscal 2016, due to an increase in sales of automotive components and components for semiconductor processing equipment, despite the negative impact of the yen’s appreciation in the amount of approximately ¥4 billion.

Operating profit for fiscal 2017 decreased by ¥1,233 million, or 7.8%, to ¥14,512 million, compared with ¥15,745 million for fiscal 2016, due mainly to the negative impact of the yen’s appreciation in the amount of approximately ¥1.5 billion, despite the contribution in profit from sales growth.

(2) Semiconductor Parts Group

Sales in the Semiconductor Parts Group for fiscal 2017 increased by ¥9,462 million, or 4.0%, to ¥245,727 million, compared with ¥236,265 million for fiscal 2016, due to an increase in sales of ceramic packages for optical communications and other applications, despite the negative impact of the yen’s appreciation in the amount of approximately ¥15.5 billion and sluggish demand for organic multilayer boards for communications infrastructure.

Operating profit for fiscal 2017 decreased by ¥16,570 million, or 39.2%, to ¥25,662 million, compared with ¥42,232 million for fiscal 2016, due to the absence of a gain on the sale of an asset in the amount of

 

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approximately ¥12 billion recorded in fiscal 2016, as well as to the negative impact of the yen’s appreciation in the amount of approximately ¥9.5 billion and a decline in profit from the organic materials business, despite the contribution in profit from sales growth of ceramic packages.

(3) Applied Ceramic Products Group

Sales in the Applied Ceramic Products Group for fiscal 2017 decreased by ¥22,340 million, or 9.0%, to ¥225,176 million, compared with ¥247,516 million for fiscal 2016 as a result of the negative impact of the yen’s appreciation in the amount of approximately ¥9 billion and the decline in sales from the solar energy business by approximately 15% due to a reduction in product prices worldwide and a decline in purchase price under the feed-in tariff system in Japan.

Operating profit for fiscal 2017 decreased by ¥747 million, or 4.6%, to ¥15,639 million, compared with ¥16,386 million for fiscal 2016, due mainly to the impact of lower sales, despite the effect of cost reduction and the positive impact of fluctuations in currency exchange in the amount of approximately ¥0.5 billion.

(4) Electronic Device Group

Sales in the Electronic Device Group for fiscal 2017 slightly decreased by ¥2,391 million, or 0.8%, to ¥288,511 million, compared with ¥290,902 million for fiscal 2016. The decrease in this reporting segment was due to a decline in sales for printing devices and connectors, and price erosion in capacitors and other products, despite sales contribution from Nihon Inter Electronics Corporation, which joined Kyocera Group in September 2015, as well as an increase in sales of crystal components and in the display business. The yen’s appreciation also pushed down the amount of sales in the Electronic Device Group by approximately ¥27 billion.

Operating profit for fiscal 2017 increased by ¥19,087 million, or 173.9%, to ¥30,061 million, compared with ¥10,974 million for fiscal 2016 due to the effect of cost reduction and the absence of impairment losses on goodwill in the amount of ¥14,143 million and non-current assets in the amount of ¥3,814 million in the display business recorded in fiscal 2016, despite the negative impact of the yen’s appreciation in the amount of approximately ¥5.5 billion.

(5) Telecommunications Equipment Group

Sales in the Telecommunications Equipment Group for fiscal 2017 decreased by ¥25,301 million, or 14.8%, to ¥145,682 million, compared with ¥170,983 million for fiscal 2016. The decrease in sales in this reporting segment was due to the negative impact of the yen’s appreciation in the amount of approximately ¥5.5 billion as well as a decline in sales volume by approximately 20% as a result of a reduction in the production ratio of low-end mobile phones for the overseas market, which was pursuant to Kyocera’s product strategy to specialize in distinctive mobile phones with unique features, such as high durability.

Operating profit for fiscal 2017 amounted to ¥1,084 million, improved by ¥5,642 million compared with a loss of ¥4,558 million for fiscal 2016 due to the effect of the product strategy and the improvement by approximately 4% in the cost of sales ratio as results of structural reforms such as consolidation of production sites.

(6) Information Equipment Group

Sales in the Information Equipment Group for fiscal 2017 decreased by ¥12,296 million, or 3.7%, to ¥324,012 million, compared with ¥336,308 million for fiscal 2016 due to the negative impact of the yen’s appreciation in the amount of approximately ¥33 billion, which was more than enough to offset solid sales volume for equipment supported by aggressive sales activities for new products.

Operating profit for fiscal 2017 increased by ¥974 million, or 3.6%, to ¥28,080 million, compared with ¥27,106 million for fiscal 2016 due to the effect of cost reduction and improvement in operating profit ratio

 

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through an increase in sales volume of new products by approximately 2.5 times compared with fiscal 2016, despite the negative impact of the yen’s appreciation in the amount of approximately ¥10 billion.

(7) 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. Such income decreased by ¥14,898 million, or 37.7%, to ¥24,636 million, compared with ¥39,534 million in fiscal 2016. This was due mainly to the absence of the gain of ¥20,000 million on a sale of a part of shares issued by KDDI Corporation in fiscal 2016, despite an increase in dividends received from KDDI Corporation.

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.

 

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Net sales in the Components Business in fiscal 2016 decreased by ¥22,137 million, or 2.5%, to ¥869,775 million, compared with ¥891,912 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 40, “Business Overview by Reporting Segment.”

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.

 

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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%.

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 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 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 ¥4,110 million, or 4.6%, to ¥85,337 million, compared with ¥89,447 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 40, “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 six reporting segments and Others:

 

     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

     239,444       15.7       236,265       16.0       (3,179     (1.3

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

     891,912       58.4       869,775       58.8       (22,137     (2.5

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

     150,296       9.8       146,897       9.9       (3,399     (2.3

Adjustments and eliminations

     (52,558     (3.4     (44,336     (3.0     8,222       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 six reporting segments and Others:

 

     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

     35,782       14.9       42,232       17.9       6,450       18.0  

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

     89,447       10.0       85,337       9.8       (4,110     (4.6

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

     5,029       3.3       (1,722     —         (6,751     (134.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     108,833       7.1       106,163       7.2       (2,670     (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

     (715     —         (114     —         601       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* % to net sales of each corresponding segment

Former Kyocera Chemical Group, which was included in “Others” until fiscal 2016, has been reclassified and included in the “Semiconductor Parts Group” commencing from fiscal 2017. Due to this change, results for fiscal 2015 and 2016 have been reclassified to conform to the current presentation. As a result of this reclassification, a gain of approximately ¥12 billion from the sale of an asset was included in the operating profit of the “Semiconductor Parts Group” for the fiscal 2016.

 

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(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 billion compared with fiscal 2015.

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 billion.

(2) Semiconductor Parts Group

Sales in the Semiconductor Parts Group for fiscal 2016 decreased by ¥3,179 million, or 1.3%, to ¥236,265 million, compared with ¥239,444 million for fiscal 2015. Although the yen’s depreciation pushed up sales by approximately ¥7.5 billion compared with fiscal 2015, the decrease was caused primarily by a decline in sales of ceramic packages for digital consumer equipment, which were core products, and the impact of a decline in product prices.

Operating profit for fiscal 2016 increased by ¥6,450 million, or 18.0%, to ¥42,232 million, compared with ¥35,782 million for fiscal 2015. This was due mainly to approximately ¥6 billion of the positive impact of the yen’s depreciation and approximately ¥12 billion of a gain on sale of assets, which were offset by 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 the automotive-related market, and the yen’s depreciation pushing up the amount by approximately ¥4 billion, 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 ¥8.5 billion including the write-down of inventory in fiscal 2015. The yen’s depreciation also pushed up sales by approximately ¥1 billion 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 billion 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 billion.

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

 

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¥4 billion. 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.

(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 billion 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 billion 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, due to 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 billion 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 billion.

(7) 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. Such 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 dividends 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.

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

 

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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 fiscal 2012, and ¥21,300 million ($266.25 million) for fiscal 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.

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 ¥12,238 million in fiscal 2016 and ¥9,215 million in fiscal 2017, which were due mainly to the Telecommunications Equipment Group and the Applied Ceramic Products Group.

 

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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 and ¥31 million in fiscal 2015 and 2017.

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, 2017 had decreased by ¥28,148 million, or 3.7%, to ¥736,283 million compared with ¥764,431 million at March 31, 2016, 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.

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 loss on impairment of goodwill in the

 

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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 loss 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, 2017, deferred tax assets amounted to ¥99,710 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 2017.

Benefit Plans

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

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

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

 

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Sensitivity Analysis of Benefit Plans

The following table illustrates the effect of assumed changes in discount rates and the expected long-term 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, 2017
 
     (Yen in millions)  

Discount rates:

  

0.1% decrease

   ¥ 2,376  

0.1% increase

     (2,323
     Effect on income before income taxes
for the year ending March 31, 2018
 
     (Yen in millions)  

Discount rates:

  

0.1% decrease

   ¥ 10  

0.1% increase

     (9

Expected long-term rate of return on plan assets:

  

0.1% decrease

     (174

0.1% increase

     174  

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. For fiscal 2017, Kyocera’s operations consisted of the following six reporting segments: (1) Fine Ceramic Parts Group, (2) Semiconductor Parts Group, (3) Applied Ceramic Products Group, (4) Electronic Device Group, (5) Telecommunications Equipment Group, and (6) Information Equipment Group. In addition, separate from its six reporting segments, Kyocera groups other businesses into “Others.”

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

For most customer orders, the transfer of ownership and revenue recognition occurs at the time of shipment of the products to the customer. For the remainder of customer orders, the transfer of ownership and revenue recognition occurs at the time of receipt of the products by the customer, with the exception of sales of solar power generating systems in the Applied Ceramic Products Group and information equipment in the Information

 

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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, “Revenue Recognition,” 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, “Products,” 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 part for a sale to their customers. In accordance with ASC 605, “Revenue Recognition,” 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, “Products,” 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.

 

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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, “Customer Payments and Incentives.”

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, 2017, gross unrecognized tax benefits amounted to ¥4,482 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, 2016, Kyocera adopted Accounting Standards Update (ASU) No. 2015-02, “Amendments to the Consolidation Analysis.” This accounting standard changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. All legal entities are subject to reevaluation under the revised consolidation model. This accounting standard affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

On April 1, 2016, Kyocera adopted 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. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

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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 in the assessment phase of implementing these standards. Kyocera has reviewed, and is continuing to review, Kyocera’s contracts with customers to identify performance obligations and the associated transaction price and timing of revenue recognition in accordance with ASU 2014-09. As Kyocera continues the analysis of the impact on Kyocera’s consolidated financial statements and related disclosures, Kyocera will evaluate and determine the appropriate adoption methodology. Kyocera has not yet quantified and, accordingly, is evaluating the impact that these accounting standards will have on Kyocera’s consolidated results of operations, financial position and cash flows.

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 June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses.” This accounting standard replaces a methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This accounting standard will be effective for fiscal years beginning after December 15, 2019, 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 August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments.” This accounting standard provides guidance on the eight specific cash flow classification issues with the objective of reducing the existing diversity in practice. This accounting standard will be effective for fiscal years beginning after December 15, 2017, and 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.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes—Intra-Entity Transfers of Assets Other Than Inventory.” This accounting standard requires that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This accounting standard will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The adoption of this accounting standard is not expected to have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows—Restricted Cash.” This accounting standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This accounting standard will be effective for fiscal years beginning after December 15, 2017, and 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.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other—Simplifying the Test for Goodwill Impairment.” This accounting standard eliminated Step 2 which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Instead, this accounting standard requires that an entity should perform goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This accounting standard will be effective for fiscal years beginning after December 15, 2019, and 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.

In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits—Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This accounting standard requires that an entity disaggregates the service cost component from the other components of net benefit cost and reports the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component, such as in other income (expenses). This accounting standard also allows only the service cost component to be eligible for capitalization (for example, as a cost of internally manufactured inventory). This accounting standard will be effective for fiscal years beginning after December 15, 2017, and 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.

B. Liquidity and Capital Resources

Capital Resources

Kyocera’s net cash provided by operating activities in fiscal 2017 was ¥164,231 million, and cash and cash equivalents at March 31, 2017 were ¥376,195 million. In addition, Kyocera also held significant amount of

 

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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, 2017, Kyocera’s short-term borrowings and long-term debt including current portion totaled ¥24,835 million. The ratio to total assets of 0.8% continues to reflect a low level of dependence. Most borrowings were denominated in the Euro and 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 2017 decreased by ¥1,152 million, or 1.7%, to ¥67,781 million, compared with ¥68,933 million in fiscal 2016. In fiscal 2017, although capital expenditures in the Semiconductor Parts Group and the Electronic Device Group increased, capital expenditures in the Equipment Business decreased compared with fiscal 2016. R&D expenses in fiscal 2017 decreased by ¥3,344 million, or 5.7%, to ¥55,411 million, compared with ¥58,755 million in fiscal 2016. Almost all capital and R&D expenditures were funded by using cash at hand.

During fiscal 2018, Kyocera expects total capital expenditures to be approximately ¥80,000 million and R&D expenses to be approximately ¥60,000 million. Kyocera expects that total capital expenditures will increase due mainly to capital expenditures in the products for the industrial machinery and automotive-related markets conducted in order to expand its production capacity. Kyocera also expects that R&D expenses will increase compared with fiscal 2017. Kyocera will promote R&D activities of new products and technologies 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 2018 at almost as same level as in fiscal 2017. 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.

During fiscal 2017, Kyocera made several acquisitions of businesses to develop existing businesses and to advance into new businesses. The total acquisition costs in fiscal 2017, net cash acquired, were ¥19,673 million and were all funded by using cash in hand.

Kyocera contributed ¥13,495 million to its benefit pension plans in fiscal 2017 and Kyocera expects to contribute ¥11,837 million to its benefit pension plans in fiscal 2018. At March 31, 2017, 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 fiscal 2017, Kyocera Corporation paid cash dividends totaling ¥36,729 million, at ¥100 per share. Kyocera Corporation received approval at the general meeting of shareholders held on June 27, 2017 for the payment of year-end dividends totaling ¥22,063 million, or ¥60 per share, on June 28, 2017 to all shareholders of record on March 31, 2017.

At March 31, 2017, Kyocera’s working capital totaled ¥1,074,036 million, an increase of ¥7,107 million, or 0.7%, compared with ¥1,066,929 million at March 31, 2016. This was mainly due to an increase in trade receivables exceeded an increase in accounts payable. 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 ¥327,182 million as of March 31, 2017. Accordingly, cash and cash equivalents and investments in securities amounts held by Kyocera’s foreign subsidiaries, totaling ¥287,553 million as of March 31, 2017, are not intended

 

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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 2018 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 2018. 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 75.1% at March 31, 2017, Kyocera maintains a strong financial position, which leads Kyocera to believe that any capital requirements could be secured from external sources at a relatively low cost. Kyocera also maintains good business relationships with several major financial institutions.

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

Cash flows

Fiscal 2017 compared with Fiscal 2016

The following table shows a summary of Kyocera’s cash flows for fiscal 2016 and fiscal 2017:

 

     Years ended March 31,     Increase
(Decrease)
 
     2016     2017    
     Amount     Amount     Amount  
     (Yen in millions)  

Cash flows from operating activities

   ¥ 194,040     ¥ 164,231     ¥ (29,809

Cash flows from investing activities

     (106,809     (112,089     (5,280

Cash flows from financing activities

     (50,608     (47,972     2,636  

Effect of exchange rate changes on cash and cash equivalents

     (13,966     (1,995     11,971  

Net increase in cash and cash equivalents

     22,657       2,175       (20,482

Cash and cash equivalents at beginning of year

     351,363       374,020       22,657  

Cash and cash equivalents at end of year

   ¥ 374,020     ¥ 376,195     ¥ 2,175  

Net cash provided by operating activities for fiscal 2017 decreased by ¥29,809 million, or 15.4%, to ¥164,231 million from ¥194,040 million for fiscal 2016. This was mainly because receivables, which decreased for fiscal 2016, increased for fiscal 2017.

Net cash used in investing activities for fiscal 2017 increased by ¥5,280 million, or 4.9%, to ¥112,089 million from ¥106,809 million for fiscal 2016. This was due mainly to decreases in proceeds from sales of available-for-sale securities and sales of property, plant and equipment.

Net cash used in financing activities for fiscal 2017 decreased by ¥2,636 million, or 5.2%, to ¥47,972 million from ¥50,608 million for fiscal 2016. This was due mainly to a decrease in year-end dividends paid.

A decrease in cash and cash equivalents due to the effect of exchange rate changes of ¥1,995 million for fiscal 2017 was caused mainly by the yen’s appreciation against the Euro and the U.S. dollar between March 31, 2016 and March 31, 2017.

Cash and cash equivalents at March 31, 2017 totaled ¥376,195 million, an increase of ¥2,175 million, or 0.6%, from ¥374,020 million at March 31, 2016. Most of Kyocera’s cash and cash equivalents were denominated in the yen but certain cash and cash equivalents, mainly in overseas subsidiaries, were denominated in foreign currencies, such as the U.S. dollar.

 

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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,     Increase
(Decrease)
 
     2015     2016    
     Amount     Amount     Amount  
     (Yen in millions)  

Cash flows from operating activities

   ¥ 130,767     ¥ 194,040     ¥ 63,273  

Cash flows from investing activities

     (93,608     (106,809     (13,201

Cash flows from financing activities

     (39,992     (50,608     (10,616

Effect of exchange rate changes on cash and cash equivalents

     19,022       (13,966     (32,988

Net increase in cash and cash equivalents

     16,189       22,657       6,468  

Cash and cash equivalents at beginning of year

     335,174       351,363       16,189  

Cash and cash equivalents at end of year

   ¥ 351,363     ¥ 374,020     ¥ 22,657  

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 2016 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.

Assets, Liabilities and Equity

Kyocera’s total assets at March 31, 2017 increased by ¥15,421 million, or 0.5% to ¥3,110,470 million, compared with ¥3,095,049 million at March 31, 2016.

Short-term investments in debt securities decreased by ¥16,863 million, or 16.6%, to ¥84,703 million, due mainly to redemptions at maturity of held-to-maturity investments.

Trade accounts receivables increased by ¥25,023 million, or 9.4%, to ¥291,485 million, due mainly to an increase in sales for the three months ended March, 2017 compared with the three months ended March, 2016.

Other current assets decreased by ¥13,957 million, or 10.4%, to ¥119,714 million, due mainly to a decrease related to the purchase obligations of polysilicon material under the long-term purchase agreements in the solar energy business.

Total property, plant and equipment at cost, net of accumulated depreciation, increased by ¥2,117 million, or 0.8%, to ¥266,604 million. Capital expenditure in fiscal 2017 was ¥67,781 million and depreciation was ¥66,019 million.

 

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Kyocera’s total liabilities at March 31, 2017 decreased by ¥29,726 million, or 4.1%, to ¥691,561 million, compared with ¥721,287 million at March 31, 2016.

Trade note and accounts payable increased by ¥13,816 million, or 11.9%, to ¥129,460 million, due mainly to a change of payment method.

Other notes and accounts payable decreased by ¥21,877 million, or 26.4%, to ¥60,881 million, due mainly to a change of payment method.

Accrued pension and severance liabilities decreased by ¥14,381 million, or 31.2%, to ¥31,720 million. Projected Benefit Obligation decreased due mainly to an increase in discount rates because of increase of the market interest rates in fiscal 2017.

Deferred taxes liabilities decreased by ¥12,361 million, or 4.6%, to ¥258,859 million, due mainly to decreases in the market value of the shares of KDDI Corporation and other equity securities at March 31, 2017 compared with March 31, 2016.

Total equity at March 31, 2017 increased by ¥45,147 million, or 1.9%, to ¥2,418,909 million, compared with ¥2,373,762 million at March 31, 2016.

Retained earnings at March 31, 2017 increased by ¥67,114 million, or 4.3%, to ¥1,638,116 million, compared with ¥1,571,002 million at March 31, 2016 due to net income attributable to shareholders of Kyocera Corporation for fiscal 2017 of ¥103,843 million offset by cash dividend payments of ¥36,729 million.

Accumulated other comprehensive income decreased by ¥22,324 million, or 4.8%, to ¥447,479 million. Net unrealized gains on securities decreased by ¥17,540 million, or 3.4%, due to decreases in market values of the shares of KDDI Corporation and other equity securities at March 31, 2017 compared with March 31, 2016. Foreign currency translation adjustments decreased by ¥12,109 million to ¥(16,360) million, due mainly to the effect of the yen’s appreciation.

Kyocera Corporation shareholders’ equity ratio at March 31, 2017 was 75.1%, increased by 1.3 percentage points compared with 73.8% at March 31, 2016.

Noncontrolling interests in subsidiaries decreased by ¥4,808 million, or 5.4%, to ¥84,690 million, due mainly to that Kyocera conducted a stock exchange with Nihon Inter Electronics Corporation’s minority shareholders, compared with ¥89,498 million at March 31, 2016.

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 business 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 automotive-related market, the environment and energy 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.

 

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An outline of R&D activities in the six reporting segments and “Others” 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.

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 the automotive-related market, we are strengthening the development of automotive camera modules as key products for ADAS (Advanced Driving Assistant System) and automated driving where demand is expected to continue increasing. At the same time, we are reinforcing software development aimed at achieving more sophisticated image recognition technology for automotive camera systems. 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 working to enhance the efficiency of cell stacks for SOFC (Solid Oxide Fuel Cell) systems for residential use where there are expectations for proliferation as new clean energy supply systems as well as develop an SOFC system for industrial use. We are also strengthening the development of parts for various next-generation high-efficiency devices.

(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 processing technologies.

Specifically, in the ceramic package business we are working on the development of high-strength, high-rigidity ultra-small and thin ceramic packages for electronic devices that employ micro wiring as well as ceramic packages for optical communications that are capable of even higher frequency.

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

In the chemical business, which supports these businesses through material technology, we are 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.

(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

 

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the output and durability of modules. We are also 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 peripheral solar energy devices and systems such as energy management systems that enhance the efficient use of energy. We are also working on expanding our business to the total energy solution business by pushing ahead with the development of technology aimed at increasing business in demand response and virtual power plant markets in line with the deregulation of electric power.

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

(4) Electronic Device Group

For communications terminals such as smartphones, it is necessary to make components smaller and more reliable while increasing device sophistication and facilitating the shift to multi-bands. To meet these market needs, Kyocera is developing such products as small, high-capacitance ceramic capacitors with enhanced reliability relative to temperature and humidity, as well as small, low-loss and highly reliable SAW devices, small, high-performance crystal components and fine-pitch, low-profile connectors.

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 semiconductor products, including discrete products and power modules. We are also developing high-value-added liquid crystal display related products such as TFT liquid crystal displays, liquid crystal displays that use LTPS (Low-Temperature Polycrystalline Silicon) technology and center information displays, including up to systemization.

Additionally, in inkjet printheads mainly for the commercial printing market, we are working on the development of products with enhanced durability on top of enabling higher speed and higher image quality required in digital printing as well as the development of other applications.

(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 on the development of distinctive terminals and to shorten development time by promoting the standardization of platforms and modules for terminals being sold in Japan and overseas. Additionally, we are strengthening the development of communication modules for automobiles and for the IoT market that can handle wireless communications over a broad area with low power consumption, through the integration of Kyocera’s terminals with our component and system technology.

(6) Information Equipment Group

Kyocera is developing printers and MFPs that have exceptional environmental performance and economic efficiency, greatest 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, we are working to reduce running costs for customers and provide products that are kind to the environment. We are also working on the development of new toner in the pursuit of high image quality and more energy savings.

In terms of document solution services, we are pushing ahead with the development of application software that contribute to information sharing and business efficiency by connecting with mobile equipment, the cloud

 

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environment and document management systems owned by customers. We are also strengthening our ECM (Enterprise Contents Management) business that computerizes a company’s data so that it can be managed in a more comprehensive and efficient manner.

Others

Kyocera Communication Systems Co., Ltd. (KCCS) is working on the development of platform and software needed for application of services that uses AI (Artificial Intelligence) in image and text analysis as well as security-related software for daily risks and for various terminals in response to customer needs that are becoming more complex and sophisticated alongside proliferation of IoT. In the IoT market, KCCS is supporting development of products such as sensors for its partner companies with the aim of further development of wireless network based on LPWA (Low Power Wide Area) technology.

 

     Years ended March 31,     Increase
(Decrease)
 
     2015     2016     2017    
     Amount     Amount     Amount     %  
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 3,302     ¥ 3,731     ¥ 4,531       21.4  

Semiconductor Parts Group

     3,163       3,078       3,398       10.4  

Applied Ceramic Products Group

     4,428       4,348       3,795       (12.7

Electronic Device Group

     8,557       7,686       8,129       5.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     19,450       18,843       19,853       5.4  

Telecommunications Equipment Group

     3,935       3,868       2,348       (39.3

Information Equipment Group

     22,555       24,021       21,674       (9.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment Business

     26,490       27,889       24,022       (13.9

Others

     9,345       12,023       11,536       (4.1
  

 

 

   

 

 

   

 

 

   

 

 

 

R&D expenses

   ¥ 55,285     ¥ 58,755     ¥ 55,411       (5.7
  

 

 

   

 

 

   

 

 

   

 

 

 

% to net sales

     3.6     4.0     3.9  

 

Note: Former Kyocera Chemical Group, which was included in “Others” until fiscal 2016, has been reclassified and included in the “Semiconductor Parts Group” commencing from fiscal 2017. Due to this change, results for fiscal 2015 and fiscal 2016 have been reclassified to conform to the current presentation.

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.

In the information and communications market, there was solid demand for cutting-edge components embedded in smartphones in the context of increased device sophistication, despite weakening growth in the smartphone market, which had previously been a growth driver. The market for smartphones is forecast to keep growing moderately, by around 5%, in the 2017 calendar year. In addition, there is ongoing need for smaller and more sophisticated components for smartphones alongside the enhanced performance of these devices. As a result, we project an increase in sales of Kyocera’s high-value-added components. In this market, continued creation of optical communications infrastructure that can handle large volume data transmission and higher speeds has led to a forecast of increased demand for Kyocera’s components for this market.

 

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Kyocera’s main business in the environment and energy market is solar power generating system related products. The core Japanese market has shrunk in year-on-year terms due to a decline in purchase price in the feed-in tariff system. However, demand is expanding for power storage batteries and EMS in the context of movement toward home electricity generation and self-consumption, and as such, sales are projected to increase for these systems and equipment that Kyocera handles. Overseas, demand is expected to increase in the Thai market in the context of measures to encourage investment aimed at reducing environmental burden while in other Southeast Asian countries and regions the solar energy market is projected to expand due to increasing demand for power and escalating electricity prices. Kyocera is developing an actual SOFC system in addition to the system’s core components following expectations for proliferation as new clean energy supply systems. Kyocera projects demand to increase for these growth-potential products over the medium term.

In the automotive-related market, automobile sales volume in the 2017 calendar year is projected to increase moderately, by around 2%, particularly in China and Europe. We forecast growth in components for this market that exceeds automobile sales volume. Kyocera forecasts an increase in demand for its view cameras, sensor cameras, leading-edge displays and various electronic components in line with increased application of ADAS toward enhanced safety in automobiles. We also forecast an increase in components that contribute to improved fuel efficiency and curb exhaust gas aimed at boosting environmental responsiveness as well as in parts for LED headlights and other components.

In the medical and healthcare market, Kyocera commands high share in the market for prosthetic joints in Japan among Japanese manufacturers and we will continue striving to expand sales of these products, which include dental implants. Moreover, we are working to create new businesses for the future, which includes participation in projects related to regenerative medicine based on collaboration with external organizations.

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 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.

 

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F. Tabular Disclosure of Contractual Obligations

The following table provides information about Kyocera’s contractual obligations and other commercial commitments that will affect Kyocera’s liquidity for the next several years, as of March 31, 2017. 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

   ¥ 191      ¥ —        ¥ —        ¥ —        ¥ 191  

Interest payments for short-term borrowings*

     17        —          —          —          17  

Long-term debt (including due within one year)

     8,235        11,705        4,430        274        24,644  

Interest payments for long-term debt*

     872        859        177        6        1,914  

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

     61,493        59,678        27,381        —          148,552  

Operating leases

     5,761        6,349        2,476        853        15,439  

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

     13,588        4        7        —          13,599  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   ¥ 90,157      ¥ 78,595      ¥ 34,471      ¥ 1,133      ¥ 204,356  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* For Kyocera’s variable interest rate of borrowings and debt, Kyocera utilized the rates in effect as of March 31, 2017 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 ¥11,837 million to its defined benefit pension plans in fiscal 2018. Kyocera recorded liabilities of ¥4,482 million for gross unrecognized tax benefits in accordance with FASB’s ASC 740, “Income Taxes” at March 31, 2017, 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.

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 Operations LLC 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, 2017, there was a remaining balance of ¥148,552 million of polysilicon material to be purchased under the LTAs by December 31, 2020, of which ¥41,398 million is prepaid.

After the LTAs were signed, the price of polysilicon material in the world market significantly declined, causing a significant divergence between the market price of polysilicon material and the fixed contract price in the LTAs. In light of these circumstances, Kyocera requested Hemlock to modify the contract terms including its price and quantity, and Kyocera sued Hemlock 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. Taking into consideration these condition, Kyocera withheld to order the polysilicon material for the amount stated under the LTAs during the year ended December 31, 2016 (“the 2016 amount”), which is ¥29,660 million in total.

As a result, Hemlock issued an invoice for the amount equal to the difference between the 2016 amount and applicable advanced payment, which was due for payment by Kyocera on February 15, 2017. As Kyocera contends that it has the right to cure a default by purchasing the 2016 amount within a certain period from the

 

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issuance of the default notice, Kyocera has accounted for its rights and obligations under the LTAs, and has recorded ¥29,660 million as other current asset for the 2016 amount and ¥21,793 million as other account payable for the amount equal to the difference between the 2016 amount and applicable advanced payment in the consolidated balance sheet as of March 31, 2017.

Kyocera also placed an order for purchasing the 2016 amount on February 15, 2017, in order to secure the right to cure the default.

In addition, Kyocera considered the obligation to purchase polysilicon material through 2020 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, 2017.

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 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 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 27, 2017.

 

Name

  

Date of Birth

  

Position

   Since   Term  

Goro Yamaguchi

   January 21, 1956   

Representative Director and Chairman

   2009

(Chairman 2017)

    *1  

Hideo Tanimoto

   March 18, 1960   

Representative Director and President

   2016

(President 2017)

    *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  

Keiji Itsukushima

   May 3, 1958   

Director

   2017     *1  

Norihiko Ina

   September 16, 1963   

Director

   2017     *1  

Koichi Kano

   September 21, 1961   

Director

   2016     *1  

Shoichi Aoki

   September 19, 1959   

Director

   2009     *1  

Takashi Sato

   September 22, 1960   

Director

   2017     *1  

John Sarvis

   March 4, 1950   

Director

   2016     *1  

Robert Wisler

   February 17, 1953   

Director

   2016     *1  

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     *1  

Itsuki Harada

   August 5, 1955   

Full-time Audit & Supervisory Board Member

   2016     *2  

Osamu Nishieda

   January 10, 1943   

Audit & Supervisory Board Member

   1993     *2  

Hitoshi Sakata

   January 22, 1953   

Outside Audit & Supervisory Board Member

   2016     *2  

Masaaki Akiyama

   January 4, 1945   

Outside Audit & Supervisory Board Member

   2016     *2  

 

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*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 27, 2017.
*2 The term of office of an Audit & Supervisory Board Member is four years after his election at the close of the ordinary general meeting of shareholders held on June 24, 2016.

Goro Yamaguchi has served as the Representative Director and Chairman of Kyocera Corporation since 2017. He became an Executive Officer in 2003, a Senior Executive Officer in 2005, a Managing Executive Officer in 2009 and the Representative Director and President in 2013. He joined Kyocera Corporation in 1978 and has served as the Representative Director and Chairman of Kyoto Purple Sanga Co., Ltd., the Representative Director and Chairman of Kyocera Document Solutions Inc., the Representative Director and Chairman of Kyocera Communication Systems Co., Ltd. and the Representative Director and Chairman of Kyocera Realty Development Co., Ltd.

Hideo Tanimoto has served as the Representative Director and President of Kyocera Corporation since 2017. He became an Executive Officer in 2015 and a Managing Executive Officer in 2016. He joined Kyocera Corporation in 1982 and has served as the Representative Director and Chairman of Kyocera Display Corporation, the Representative Director and Chairman of Kyocera Optec Co., Ltd., 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 Chairman of the Board of Directors of Kyocera (China) Sales & Trading Corporation, the Chairman of the Board of Directors of Kyocera Management Consulting Service (Shanghai) Co., Ltd., the Authorized Representative and Chairman of Kyocera Vietnam Co., Ltd. and the Representative Director and Chairman of Kyocera Korea 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 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 and the General Manager of Corporate Organic Materials Semiconductor Components Group.

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, the General Manager of Corporate Electronic Components Group and the Chairman of the Board of Directors of Kyocera International Electronics Co., Ltd.

Keiji Itsukushima has served as a Director of Kyocera Corporation since 2017. He became a Senior Executive Officer in 2016. He joined Kyocera Corporation in 1982 and has served as a Managing Executive Officer and the General Manager of Corporate Communication Equipment Group.

Norihiko Ina has served as a Director of Kyocera Corporation since 2017. He joined Mita Industrial Co., Ltd. (now known as Kyocera Document Solutions Inc.) in 1987 and has served as a Managing Executive Officer and the Representative Director and President of Kyocera Document Solutions Inc.

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.

 

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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.

Takashi Sato has served as a Director of Kyocera Corporation since 2017. He became an Executive Officer in 2013 and a Senior Executive Officer in 2016. He joined Kyocera Corporation in 1983 and has served as a Managing Executive Officer and the General Manager of Corporate General Affairs Human Resources Group.

John Sarvis has served as a Director of Kyocera Corporation since 2016. He joined AVX Corporation in 1973 and has served as the Chairman of the Board, Chief Executive Officer and President 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. (now known as Kyocera International, Inc.) in 1981 and has served as the President and Director of 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 2017, Kyocera’s sales to KDDI Corporation amounted to ¥96,653 million, or 6.8% 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 12.78% at March 31, 2017. 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, 30 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 Outside 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.

 

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Masaaki Akiyama has served as an Outside 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 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 27, 2017.

 

Name

  

Position

Hideo Tanimoto

   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 Organic Materials Semiconductor Components Group)

Yoji Date

  

Senior Managing Executive Officer

(General Manager of Corporate Electronic Components Group)

Keiji Itsukushima

  

Managing Executive Officer

(General Manager of Corporate Communication Equipment Group)

Norihiko Ina

  

Managing Executive Officer

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

Koichi Kano

  

Managing Executive Officer

(General Manager of Corporate Development Group)

Shoichi Aoki

  

Managing Executive Officer

(General Manager of Corporate Financial and Accounting Group)

Takashi Sato

  

Managing Executive Officer

(General Manager of Corporate General Affairs Human Resources Group)

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 Okunosono

  

Senior Executive Officer

(General Manager of Corporate Ceramic Materials Semiconductor Components Group)

Masahiro Inagaki

  

Senior Executive Officer

(General Manager of Corporate R&D Group)

Masaaki Itoh

  

Executive Officer

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

Yuji Goto

  

Executive Officer

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

Hironao Kudo

  

Executive Officer

(Deputy General Manager of Corporate Electronic Components Group)

Masaki Iida

  

Executive Officer

(General Manager of Corporate Purchasing Group)

 

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Name

  

Position

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

(General Manager of Corporate Automotive Components Group)

Masaaki Ozawa

  

Executive Officer

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

Yoshihito Kurose

  

Executive Officer

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

Masaki Hayashi

  

Executive Officer

(General Manager of Corporate Fine Ceramics Group)

Shigeaki Kinori

  

Executive Officer

(Deputy General Manager of Corporate Electronic Components Group)

B. Compensation

The aggregate amount of compensation provided by Kyocera Corporation and its certain subsidiaries in fiscal 2017 to all Directors, Audit & Supervisory Board Members and Executive Officers of Kyocera Corporation was ¥1,739 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

 

Others

 
         (Yen in millions)  

Tetsuo Kuba

   Representative Director and Chairman of Kyocera Corporation         54     53   —     —     ¥ 113  
  

 

 

 

 

   

 

 

 

 

 

 
   Director of AVX Corporation     2     —     4   —    

 

  

 

 

 

 

   

 

 

 

 

 

 

 

 

 

Goro Yamaguchi

   Representative Director and President of Kyocera Corporation     60     59   —     —     ¥ 125  
  

 

 

 

 

   

 

 

 

 

 

 
   Director of AVX Corporation     2     —     4   —    

 

  

 

 

 

 

   

 

 

 

 

 

 

 

 

 

John Sarvis

   Director of Kyocera Corporation     5     5   —     —     ¥ 120  
  

 

 

 

 

   

 

 

 

 

 

 
   Chairman of the Board, Chief Executive Officer and President of AVX Corporation     50     3   17   40  

 

  

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

Notes:

1. The positions of Tetsuo Kuba, Goro Yamaguchi and John Sarvis represent their positions as of March 31, 2017.

2. AVX Corporation is Kyocera’s consolidated subsidiary in the United States and the determination of compensation for directors and officers of AVX Corporation was made by AVX Corporation’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 amounts of compensation provided originally in the U.S. dollars at AVX Corporation was translated into the yen at a rate of ¥108 per $1.00, which was the average rate during fiscal 2017.

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.

 

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

 

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

Director (excluding Outside Directors)

   ¥ 357      ¥ 182      ¥ 175        13  
  

 

 

    

 

 

    

 

 

    

 

 

 

Outside Director

     33        33        —          3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Full-time Audit & Supervisory Board Member (excluding Outside Audit & Supervisory Board Members)

     40        40        —          4  
  

 

 

    

 

 

    

 

 

    

 

 

 

Outside Audit & Supervisory Board Member

     21        21        —          5  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 451      ¥ 276      ¥ 175        25  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Note: Amount of remuneration to Directors does not include salaries for services as employees or Executive Officers for Directors who serve as such.

Policy to determine the amount of compensation