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Kyocera 6-K 2005

Documents found in this filing:

  1. 6-K
  2. 6-K
Form 6-K
Table of Contents

FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

For the month of December 2005

 

Commission File Number: 1-07952

 

KYOCERA CORPORATION

 

6 Takeda Tobadono-cho, Fushimi-ku,

Kyoto 612-8501, Japan

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F     X        Form 40-F

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Registration S-T Rule 101(b)(1):     

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Registration S-T Rule 101(b)(7):     

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes             No     X    

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b); 82-


Table of Contents

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

 

KYOCERA CORPORATION

/S/    SHOICHI AOKI


Shoichi Aoki
Executive Officer
General Manager of
Corporate Financial & Accounting Group

 

Date: December 19, 2005


Table of Contents

Information furnished on this form:

 

EXHIBITS

 

Exhibit
Number


   
1.   1. English summary and translation of Semiannual Report (“hanki-houkokusho”) for the six months ended September 30, 2005 filed with the Japanese government pursuant to the Securities and Exchange Law of Japan


Table of Contents

Information on Kyocera Corporation and its Consolidated Subsidiaries

 

Item 1. Summary of Kyocera Corporation and its Consolidated Subsidiaries

 

1. Selected Financial Data

 

     Yen in millions, except per share amounts, and number of shares outstanding and employees.

 

Kyocera Corporation’s Terms


   50th interim

    51st interim

    52nd interim

    50th

    51st

 

Fiscal Periods


  

Apr.1, 2003 -

Sep.30, 2003


   

Apr.1, 2004 -

Sep.30, 2004


   

Apr.1, 2005 -

Sep.30, 2005


   

Apr.1, 2003 -

Mar.31, 2004


   

Apr.1, 2004 -

Mar.31, 2005


 

(1) Consolidated Financial Data

                              

Net sales

   518,378     600,562     545,258     1,140,814     1,180,655  

Income before income taxes

   25,127     67,253     46,135     115,040     107,530  

Net income

   15,754     42,549     24,214     68,086     45,908  

Stockholders’ equity

   1,089,109     1,177,648     1,241,695     1,150,453     1,174,851  

Total assets

   1,771,550     1,785,505     1,862,928     1,794,758     1,745,519  

Stockholders’ equity per share

   5,809.13     6,281.06     6,623.25     6,136.26     6,266.50  

Earnings per share – Basic

   84.79     226.94     129.16     364.79     244.86  

Earnings per share – Diluted

   84.79     226.85     129.15     364.78     244.81  

Stockholders’ equity to total assets (%)

   61.5     66.0     66.6     64.1     67.3  

Cash flows from operating activities

   28,510     88,891     71,772     62,575     145,523  

Cash flows from investing activities

   (5,163 )   (144,177 )   (123,091 )   29,581     (132,494 )

Cash flows from financing activities

   (16,112 )   (53,582 )   (9,657 )   (20,422 )   (67,344 )

Cash and cash equivalents at the end of period

   299,160     256,965     253,885     361,132     310,592  

Number of employees

   54,740     60,163     59,347     57,870     58,559  

(2) Non-Consolidated Financial Data

                              

Net sales

   237,808     250,463     220,901     494,035     493,271  

Recurring profit

   26,176     34,937     26,903     61,788     66,434  

Net income

   16,159     20,512     31,865     60,663     34,327  

Common stock

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

Number of shares outstanding

   191,309,290     191,309,290     191,309,290     191,309,290     191,309,290  

Stockholders’ equity

   980,458     1,025,776     1,100,768     1,029,738     1,036,744  

Total assets

   1,251,420     1,233,908     1,343,060     1,241,012     1,232,069  

Interim (Annual) dividends per share

   30.00     30.00     50.00     60.00     80.00  

Stockholders’ equity to total assets (%)

   78.3     83.1     82.0     83.0     84.1  

Number of employees

   13,678     12,656     12,522     13,604     12,682  

 

 

(Notes)
1. The interim consolidated financial statements and the consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America.

The interim consolidated financial statements and the consolidated financial statements are expressed rounding off to millions of yen.

2. Earnings per share amounts in the consolidated financial data are computed based on Statement of Financial Accounting Standards No.128, “Earnings per Share.”
3. As a result of an increase in an affiliated company accounted for by the equity method, the financial data of the six months ended September 30, 2003 and 2004, the years ended March 31, 2004 have been restated as if the equity method had been applied at inception in accordance with Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.”
4. The interim non-consolidated financial statements and the non-consolidated financial statements are expressed rounding off to millions of yen.
5. Consumption taxes and local consumption taxes are not included in net sales.

 

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Table of Contents

2. Business

 

There is no material change in the business of Kyocera Corporation and its consolidated subsidiaries (Kyocera) for the six months ended September 30, 2005 (“the first half”).

 

3. Scope of Consolidation and Application of the Equity Method

 

The following table sets forth information on subsidiaries that were newly consolidated during the six months ended September 30, 2005.

 

Name


  

Country of

incorporation


   Percentage held by
Kyocera Corporation


 

Main business


KYOCERA MITA BRAZIL DISTRIBUIDORA DE EQUIPAMENTOS DE IMAGEM LTDA.    Brazil    100.00%   Sale of information equipment
KYOCERA ASIA PACIFIC (THAILAND) CO., LTD.    Thailand    100.00%   Sale of fine ceramic products and electronic devices

 

Kyocera Corporation sold its entire holding of shares of Taito Corporation (36.02% of outstanding shares of Taito Corporation), to Square Enix Co., Ltd. in the first half. As a result of this sale, Kyocera Corporation discontinued to apply equity-method to Taito Corporation.

 

4. Employees

 

As of September 30, 2005, Kyocera had 59,347 employees, of whom 2,642 work in the Fine Ceramic Parts Group, 8,956 work in the Semiconductor Parts Group, 4,710 work in the Applied Ceramic Products Group, 21,502 work in the Electronic Device Group, 3,465 work in the Telecommunications Equipment Group, 11,098 work in the Information Equipment Group, 2,101 work in the Optical Equipment Group, 3,681 work in Others and 1,192 work in Corporate. Kyocera Corporation had 12,522 employees.

 

Kyocera Corporation’s labor union does not belong to labor unions organized by industry. The labor unions of several subsidiaries belong to labor unions organized by industry. There is no material item to be specifically addressed regarding relationship between labor and management.

 

- 2 -


Table of Contents

Item 2. Business Results and Financial Condition

 

1. Summary of Financial Results

 

(1) Consolidated Financial Results

 

     (Yen in millions, except per share amounts and exchange rates)

 
     Six months ended September 30,

   

Increase

(Decrease)

      (%)      


 
     2004

    2005

   

Net sales

   600,562     545,258     (9.2 )

Profit from operations

   62,092     35,349     (43.1 )

Income before income taxes

   67,253     46,135     (31.4 )

Net income

   42,549     24,214     (43.1 )

Diluted earnings per share

   226.85     129.15     —    

Average exchange rate:

                  

US$

   110     109     —    

Euro

   133     136     —    

[Reporting Segments]

                  
     (Yen in millions)

 
     Six months ended September 30,

   

Increase
(Decrease)

(%)


 
     2004

    2005

   

Orders:

   614,813     579,826     (5.7 )

Total components business

   298,416     291,546     (2.3 )

Fine Ceramic Parts Group

   40,696     33,566     (17.5 )

Semiconductor Parts Group

   67,274     68,971     2.5  

Applied Ceramic Products Group

   46,956     58,241     24.0  

Electronic Device Group

   143,490     130,768     (8.9 )

Total equipment business

   271,453     236,704     (12.8 )

Telecommunications Equipment Group

   137,457     110,467     (19.6 )

Information Equipment Group

   116,560     118,275     1.5  

Optical Equipment Group

   17,436     7,962     (54.3 )

Others

   58,267     61,930     6.3  

Adjustments and eliminations

   (13,323 )   (10,354 )   —    

 

- 3 -


Table of Contents
     (Yen in millions)

 
     Six months ended September 30,

  

Increase

(Decrease)

(%)


 
     2004

   2005

  

Production (Sales price base):

   617,958    536,466    (13.2 )

Total components business

   302,222    276,545    (8.5 )

Fine Ceramic Parts Group

   39,694    32,963    (17.0 )

Semiconductor Parts Group

   69,860    64,055    (8.3 )

Applied Ceramic Products Group

   46,165    55,164    19.5  

Electronic Device Group

   146,503    124,363    (15.1 )

Total equipment business

   277,007    218,143    (21.3 )

Telecommunications Equipment Group

   137,319    93,910    (31.6 )

Information Equipment Group

   124,522    116,617    (6.3 )

Optical Equipment Group

   15,166    7,616    (49.8 )

Others

   38,729    41,778    7.9  

 

     (Yen in millions)

 
     Six months ended September 30,

   

Increase

(Decrease)

(%)


 
     2004

    2005

   

Net sales:

   600,562     545,258     (9.2 )

Total components business

   291,849     277,937     (4.8 )

Fine Ceramic Parts Group

   38,920     33,258     (14.5 )

Semiconductor Parts Group

   68,148     63,544     (6.8 )

Applied Ceramic Products Group

   44,991     55,752     23.9  

Electronic Device Group

   139,790     125,383     (10.3 )

Total equipment business

   265,873     217,773     (18.1 )

Telecommunications Equipment Group

   132,357     91,084     (31.2 )

Information Equipment Group

   116,800     118,433     1.4  

Optical Equipment Group

   16,716     8,256     (50.6 )

Others

   56,193     59,034     5.1  

Adjustments and eliminations

   (13,353 )   (9,486 )   —    

 

     (Yen in millions)

 
     Six months ended September 30,

   

Increase

(Decrease)

(%)


 
     2004

    2005

   

Operating profit

   59,948     37,108     (38.1 )

Total components business

   46,640     32,564     (30.2 )

Fine Ceramic Parts Group

   6,224     4,805     (22.8 )

Semiconductor Parts Group

   10,612     7,251     (31.7 )

Applied Ceramic Products Group

   7,563     9,337     23.5  

Electronic Device Group

   22,241     11,171     (49.8 )

Total equipment business

   7,148     (160 )   —    

Telecommunications Equipment Group

   (4,899 )   (9,355 )   —    

Information Equipment Group

   19,404     13,244     (31.7 )

Optical Equipment Group

   (7,357 )   (4,049 )   —    

Others

   6,160     4,704     (23.6 )

Corporate

   6,683     9,170     37.2  

Equity in earnings of affiliates and unconsolidated subsidiaries

   582     (236 )   —    

Adjustments and eliminations

   40     93     132.5  

Income before income taxes

   67,253     46,135     (31.4 )

 

- 4 -


Table of Contents

Kyocera produces and distributes various kinds of products for the telecommunications and information processing and environmental protection markets. Kyocera Corporation was established in 1959 as a manufacturer of ceramic parts for electronic equipment and has been expanding and diversifying its business, mainly through active merger and acquisition activities, as well as by applying its ceramic technologies to the areas of semiconductor parts, electronic components, metal processing, medical and dental implants and the solar energy fields. Kyocera develops, produces and distributes a variety of parts and devices for electronic equipment such as computers, automobiles, printers and copiers as well as consumer electronic products such as mobile phone handsets and digital still cameras. Kyocera earns revenue and income and generates cash from sales of these products.

 

Kyocera divides its worldwide operations into eight reporting segments for its financial reporting purposes: the Fine Ceramic Parts Group, the Semiconductor Parts Group, the Applied Ceramic Products Group, the Electronic Device Group, the Telecommunications Equipment Group, the Information Equipment Group, the Optical Equipment Group and Others. The net sales of these segments (including inter-segment net sales) accounted for 6.1%, 11.7%, 10.2%, 23.0%, 16.7%, 21.7%, 1.5% and 10.8%, respectively, of Kyocera’s total net sales in the first half. Also, net sales in the first half to Japan, the United States, Asia, Europe and Other accounted for 40.4%, 20.7%, 16.8%, 16.1% and 6.0%, respectively.

 

Kyocera derives a substantial portion of its revenue from sales of products and services in electronic equipment industries, including IT industries. During the first half, in the electronics industry, which is a key market for Kyocera, despite a moderate rebound in production activities, which had slowed since last summer, the decreasing market price for digital consumer equipment caused component prices to fall in the components business. As a result, the business situation continues to be tough.

 

Component prices dropped significantly while component demand for electronic equipment did not recovered rapidly. Consequently, overall orders, productions and sales in the components business fell short of levels recorded in the previous first half. Orders, productions and sales in the equipment business also declined compared with the previous first half mainly because Kyocera Wireless Corp. (KWC) was in the process of executing structural reforms, in the Telecommunications Equipment Group.

 

However, the Applied Ceramic Products Group, which includes solar energy products and cutting tools, posted an increase in sales and profits compared with the previous first half due to burgeoning demand.

 

Kyocera’s sales in overseas markets decreased by 12.8% compared with the previous first half. Overseas sales are predominantly made in U.S. dollars and the Euro. The yen appreciated 1 yen against the U.S. dollar and depreciated 3 yen against the Euro compared with the average exchange rates in the previous half, respectively. In terms of net sales, the effects of the rising yen against the dollar outweighed the positive impact of the weak yen against the Euro. Accordingly, net sales after translation into yen were pushed down by approximately ¥1.9 billion compared with the previous first half.

 

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Table of Contents

1) Fine Ceramic Parts Group

 

There was a drop in demand in the key product area of ceramic parts for semiconductor fabrication equipment due to delayed recovery of demand. In addition, sapphire products for LCD projectors were negatively impacted by a decline in unit prices caused by intensifying market competition. As a result, sales and operating profit in this reporting segment decreased compared with the previous first half.

 

2) Semiconductor Parts Group

 

Slower recovery of demand for components for digital consumer equipment led to lower revenue from the ceramic package business, and consequently, sales and operating profit in this reporting segment decreased compared with the previous first half. Nonetheless, in the organic package business, demand of packages and substrates for servers and digital consumer equipment grew steadily.

 

3) Applied Ceramic Products Group

 

Sales and profits in this reporting segment increased compared with the previous first half. Sales of solar energy products increased significantly due to rising demand, particularly in Europe. Meanwhile, sales of cutting tools also grew due to healthy production activity in the automobile industry. In the medical materials business, Japan Medical Materials Corporation, established in the year ended March 31, 2005, has fully contributed to sales in this reporting segment since the start of the year ending March 31, 2006.

 

4) Electronic Device Group

 

Despite steady growth in sales of thermal printheads, sales of other core products such as crystal-related components, ceramic capacitors and connectors were severely impacted by falling component prices. As a result, sales and profits in this reporting segment decreased compared with the previous first half, when performance was strong.

 

5) Telecommunications Equipment Group

 

Sales and profits in this reporting segment decreased compared with the previous first half. Although sales of mobile phone handsets in the domestic market increased due to the launch of new models, revenues were down overseas as KWC was in the process of executing structural reforms. In the PHS-related business, sales of PHS handsets and base stations for the Chinese market decreased. The introduction of flat rate voice charges in Japan, however, has driven steady growth in subscriber numbers, and as a result, sales of PHS handsets and base stations in the domestic market increased.

 

6) Information Equipment Group

 

Sales in this reporting segment increased compared with the previous first half as Kyocera enjoyed steady growth in sales of page printers and digital multifunctional products in Europe and the United States. Operating profit declined, however, due to the impact of a decline in unit prices and increasing development costs for new products, notably color models scheduled for release from the second half of the year ending March 31, 2006 (the second half).

 

7) Optical Equipment Group

 

Sales in this reporting segment decreased compared with the previous first half owing to the downsizing of the camera equipment business. With regard to operating profit, loss from the camera equipment business was kept to a minimum owing to the positive effects of structural reforms.

 

8) Others

 

Kyocera Communication Systems Co., Ltd. (KCCS) posted solid growth from its telecommunications engineering business. And sales of one of KCCS’s subsidiaries which were newly consolidated into Kyocera Group during the year ended March 31, 2005, were included from the start of the year ending March 31, 2006. Consequently, sales in this reporting segment increased. Operating profit in this reporting segment decreased compared with the previous first half due mainly to the impact of a decline in sales and profits at Kyocera Chemical Corporation.

 

- 6 -


Table of Contents

[Geographic Segments]

 

     (Yen in millions)

 
     Six months ended September 30,

  

Increase

(Decrease)

(%)


 
     2004

   2005

  

Net sales:

   600,562    545,258    (9.2 )

Japan

   227,772    220,191    (3.3 )

USA

   130,505    112,642    (13.7 )

Asia

   116,357    91,643    (21.2 )

Europe

   83,906    87,848    4.7  

Others

   42,022    32,934    (21.6 )

 

1) Japan

 

Sales in Japan decreased compared with the previous first half, because sales in components business for digital consumer equipment stayed low. In addition, sales of the Optical Equipment Group decreased due to the reduction of camera equipment business. On the other hand, sales of telecommunications engineering business and solar energy business increased.

 

2) USA

 

Although sales of the Information Equipment Group increased, sales of mobile handsets declined. Consequently, the sales decreased compared with the previous first half.

 

3) Asia

 

Sales in the components business and the Telecommunications Equipment Group decreased.

 

4) Europe

 

Sales increased compared with the previous first half because demand for solar energy products was strong.

 

5) Others

 

Sales decreased compared with the previous first half due mainly to decreased sales of mobile phone handsets in Latin America.

 

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Table of Contents

(2) Cash flow

 

Cash and cash equivalent at September 30, 2005 decreased by ¥56,707 million to ¥253,885 million compared with at March 31, 2005.

 

1) Cash flow from operating activities

 

Net cash provided by operating activities for the first half decreased by ¥17,119 million to ¥71,772 million from the previous first half of ¥88,891 million. This was due mainly to a decrease in net income by ¥18,335 million to ¥24,214 million compared with the previous first half.

 

2) Cash flow from investing activities

 

Net cash used in investing activities in the first half decreased by ¥21,086 million to ¥123,091 million from the previous first half of ¥144,177 million. This was due mainly to increases in proceeds from sales of investment securities and an investment in an affiliate, which exceeded increases in payments for purchases of investment securities and property, plant, equipment and intangible assets.

 

3) Cash flow from financing activities

 

Net cash used in financing activities for the first half decreased by ¥43,925 million to ¥9,657 million from the previous first half of ¥53,582 million. This was due mainly to a significant decrease in payments of long-term debt.

 

2. Production, Orders and Distribution

 

Production, Orders and distribution of Kyocera are disclosed related to each reporting segment in “1. Summary of Financial Results.”

 

3. Management Challenges

 

Kyocera aims to be a “creative company that continues to grow in the 21st century” by promoting “high-value-added diversification” as its core management strategy. To achieve this goal, Kyocera seeks to make its component and equipment businesses highly profitable, and has set the target of a pre-tax profit ratio of over 15% in the medium to long term. In the components business, Kyocera will conduct strategic investments aimed at boosting profitability through a strengthened business basis. Specifically, investments will be aggressively channeled into businesses focused on large ceramic parts for LCD fabrication equipment, ceramic packages, organic packages, solar energy products, cutting tools and organic light emitting diode (OLED).

 

In the equipment business, Kyocera seeks to swiftly raise profitability in the two business areas of telecommunications equipment and optical equipment. In the Telecommunications Equipment Group, Kyocera completed structural reforms that saw it outsource the manufacture of mobile phone handsets at KWC in the first half in order to considerably transform cost structure and reduce manufacturing costs. In the Optical Equipment Group, Kyocera preceded its structural reforms and began concentrating on the optical components business, in particular, on camera modules for mobile phone handsets. From the second half onward, Kyocera will strive to expand sales and profits by maximizing the positive effects of structural reforms implemented in recent times.

 

- 8 -


Table of Contents

4. Significant Patents and Licenses

 

The following table shows new significant license agreements concluded in the first half.

 

1) Technical assistance agreement

 

Counter Party


 

Country


 

Contents


 

Period


Lucent Technologies International sales Limited   United States   License under patents regarding mobile phone handsets   From September 26, 2005 to December 31, 2009
Interdigital Group   United States   License under patents regarding CDMA   From July 1, 2004 to June 30, 2009

 

2) Assets purchase agreement

 

Kyocera Corporation made an agreement with IBM Japan, Ltd. to purchase the land, building and other assets of the Yasu Office (Yasu-City, Shiga Prefecture) owned by IBM Japan, Ltd on June 29, 2005.

 

Assets acquired are as follows:

 

(1) Location: Ichimiyake Oaza, Yasu-City, Shiga Prefecture

 

(2) Assets acquired: Land (approximately 195,464 square meters), building, related facilities and other assets

 

5. Research and Development Activities

 

Kyocera aims to continuously increase sales and boost profitability in each component and equipment business by promoting a management strategy of “high-value-added diversification.” In order to achieve this goal, Kyocera aggressively develops new technologies and new products by pursuing sophisticated and specialized technical expertise through the integration of component and equipment technologies.

 

(1) Fine Ceramic Parts Group

 

Kyocera is strengthening the development of large fine ceramic components and inexpensive sapphire substrates with high quality for next-generation semiconductor and LCD fabrication equipment and LEDs by leveraging materials, processing and design technologies for fine ceramics. Moving forward, Kyocera views the automotive market as one area of prospective growth in the coming years. To this end, Kyocera has placed emphasis on the development of products that meet demand for more environmentally-friendly and safer vehicles with advanced electronics. One specific area Kyocera is working on is fuel-injection systems components for diesel engines.

 

(2) Semiconductor Parts Group

 

Kyocera is working to develop smaller, thinner ceramic packages with enhanced internal functional elements for semiconductors and electronic components used in digital consumer products in response to the rising demand for more sophisticated equipment. In addition, we are developing organic packages for next-generation MPUs and their peripheral devices.

 

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Table of Contents

(3) Applied Ceramic Products Group

 

In the environmental protection market, Kyocera is seeking to develop thinner silicon substrates and to boost the conversion efficiency of solar cells, which are increasing in popularity, and to make effective use of resources. In addition, Kyocera is stepping up efforts to enable the practical home-use of Solid Oxide Fuel Cells (SOFCs), expected to be the next-generation distributed power generation system for residential small-scale power sources.

 

(4) Electronic Device Group

 

Kyocera promotes the development of various electronic devices for digital consumer products that feature high performance and consume less power. Capacitors are gradually getting smaller, while being able to hold greater capacity. Kyocera is endeavoring to improve both the size and capacity of its capacitors by exploiting the material characteristics of ceramics, tantalum and niobium oxide. Kyocera is also increasing the development of high-value-added products such as low-inductance capacitors. In addition, Kyocera is concentrating efforts into the development of functional components such as high frequency modules for next-generation telecommunications and information terminals. In thin-film devices, Kyocera is developing thermal printheads capable of enhanced resolution for the consumer use color printer market related to enhanced resolution of digital still cameras, as well as eco-friendly LCDs with LED backlight for industrial equipment to expand product lineups.

 

Furthermore, Kyocera is working to develop the commercial viability of OLED displays as small to mid-size displays for mobile and industrial equipment.

 

(5) Telecommunications Equipment Group

 

Kyocera promotes the development of high functional camera or display equipped CDMA mobile phone handsets by making full use of components and devices throughout Kyocera Group. Kyocera is also developing high-performance PHS base stations and handsets in line with the commencement of new high-speed data communication services in Japan. In addition, we aggressively develop the wireless Voice over Internet Protocol (VoIP) related equipment.

 

(6) Information Equipment Group

 

Kyocera intends to swiftly enhance its range of color models based on the “ECOSYS” concept of long life design and economy, by incorporating a photoreceptor amorphous silicon drum with outstanding resistance to wear.

 

(7) Optical Equipment Group

 

Kyocera is developing optical modules for mobile phone handsets with high pixel cameras, small size, low profile and zoom capability as well as optical components for projectors and rear-projection TVs, by utilizing its technologies of optical, electronic devices and semiconductor parts throughout Kyocera Group.

 

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Table of Contents

(8) Others

 

Kyocera Chemical Corporation is working to develop precision molding products using magnesium alloys to enable faster recording speeds in image pickup devices. It also seeks to create synergistic effects with Kyocera’s capacitor and solar energy business through the development of materials.

 

KCCS is focusing on the development of authentication and security technologies suitable for the infrastructure of expanding next-generation networks as well as new services for positioning systems and VoIP.

 

Research and development expenses for the first half increased by ¥1,896 million, or 6.9%, to ¥29,328 million, compared with the previous first half, which accounted for 5.4% of Kyocera’s total net sales. Research and development expenses by reporting segment were as follows; the Fine Ceramic Parts Group: ¥1,538 million (decreased by ¥587 million, or 27.6% compared with the previous first half), the Semiconductor Parts Group: ¥1,797 million (increased by ¥356 million, or 24.7%); the Applied Ceramic Products Group: ¥2,050 million (increased by ¥686 million, or 50.3%); the Electronic Device Group: ¥5,300 million (decreased by ¥515 million, or 8.9%); the Telecommunications Equipment Group: ¥8,097 million (increased by ¥88 million, or 1.1%); the Information Equipment Group; ¥8,499 million (increased by ¥2,421 million, or 39.8%); the Optical Equipment Group: ¥601 million (decreased by ¥949 million, or 61.2%); and Others: ¥1,446 million (increased by ¥396 million, or 37.7%).

 

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Table of Contents

Item 3. Equipment and Facilities

 

1. Information on Equipment and Facilities

 

There was no material change in equipment and facilities in the first half.

 

2. Plan for new additions or disposal

 

(1) New Additions

 

Kyocera conducts a diverse range of operations in each of eight reporting segments. Plans to construct or enhance facilities are not determined on a project-by-project basis. Accordingly, planned investment is shown on a reporting segment basis.

 

     (Yen in millions)

Reporting segment


   Planned capital expenditures
for the year ending
March 31, 2006


  

Details and objective


  

Investment method


Fine Ceramics Parts Group    4,700    Install equipment to expand production of fine ceramic components for LCD fabrication equipment    Internal funding
Semiconductor Parts Group    25,000    Construct a new facility and install equipment to expand production of organic packages    As above
Applied Ceramic Products Group    17,000    Construct a new facility and install equipment to expand production of solar cells and modules    As above
Electronic Device Group    25,000    Install equipment to expand production of LCDs and OLED displays    As above
Telecommunications Equipment Group    3,000    Install equipment to develop new products of mobile phone handsets and PHS-related products    As above
Information Equipment Group    10,000    Extend facilities and install equipment to expand production at domestic and foreign locations    As above
Optical Equipment Group    300    Install equipment to expand production of optical modules    As above
Others    7,000    Renew IT related equipment and purchase business facilities    As above
Corporate    4,000    Develop facilities of R&D center in Japan    As above

Total

   96,000      

 

 

(Notes) National and regional consumption taxes are not included in the above amounts.

As a result of reviewing recent market trends, Kyocera changed its plan of capital expenditures and decreased its amounts from ¥100,000 million, which was originally announced at the beginning of the first half, to ¥96,000 million.

 

(2) Material Sale and Disposal of Equipment and Facilities

 

Kyocera does not plan to sell or dispose equipment or facilities that significantly affect its production capability, except for its sale and disposal of ordinary renewal of equipment and facilities.

 

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Table of Contents

Item 4. Information on Kyocera Corporation

 

1. Authorized Capital and Common Stock

 

(1) Number of Authorized Capital and Common Stock

 

<Authorized Capital>

 

Article 5 of the Articles of Incorporation of Kyocera Corporation provides that the total number of shares authorized for issuance by Kyocera Corporation is 600,000,000 shares.

 

<Number of Shares of Common Stock Issued>

 

As of September 30, 2005, and December 16, 2005, 191,309,290 shares of common stock were issued, registered on Tokyo Stock Exchange, Osaka Securities Exchange in Japan and New York Stock Exchange in the United States as follows:

 

    Title of Each Class    


 

        Name of Each Exchange on Which Registered        


Common Stock

Common Stock

American Depositary Share

 

Tokyo Stock Exchange

Osaka Securities Exchange

New York Stock Exchange

 

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Table of Contents

(2) Stock Acquisition Rights

 

The following table shows stock acquisition rights issued pursuant to Articles 280-20 and 280-21 of the Commercial Code of Japan.

 

<Stock acquisition rights approved at the stockholders’ meeting held on June 25, 2003>

 

Date


  

As of September 30, 2005


 

        As of November 30, 2005        


Number of stock acquisition rights    9,634   9,598
Class of shares issued for stock acquisition rights    Common Stock   Same as on the left
Number of shares issued for stock acquisition rights    963,400   959,800
Amount to be paid in upon exercise of stock acquisition rights    7,900   Same as on the left
Exercise period for stock acquisition rights    From October 1, 2003 to September 30, 2008   Same as on the left
Issue price of the shares to be issued upon exercise of stock acquisition rights    7,900   Same as on the left
Amount out of issue price of new shares to be accounted as paid-in capital of the Company    3,950   Same as on the left
Conditions for exercise of stock acquisition rights   

(i)In order to exercise stock acquisition rights, the person who has been allocated such stock acquisition rights (the “Acquisition Rights Holder”) must be a Director, Corporate Auditor, Executive Officer or employee of Kyocera Corporation or a subsidiary thereof at the time of exercise.

(ii)In the event of the death of the Acquisition Rights Holder, the heir(s) thereof may exercise inherited stock acquisition rights for a period of 6 months (or until the date of expiration of the exercise period thereof, if such date comes earlier), up to the maximum number of stock acquisition rights the deceased could have exercised at the time of death.

(iii) Upon approval by the Bonus Committee of Kyocera Corporation, the exercise of stock acquisition rights may be permitted under conditions different from those described in (i) and (ii) above.

(iv)Other terms and conditions shall be provided for in an agreement between Kyocera Corporation and each Acquisition Rights Holder, pursuant to resolutions of this Ordinary General Meeting of Shareholders and the Board of Directors of Kyocera Corporation.

  Same as on the left
Restriction on transfer of the stock acquisition rights    Transfer and pawn are prohibited.   Same as on the left

 

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Table of Contents

<Stock acquisition rights approved at the stockholders’ meeting held on June 25, 2004>

 

Date


  

As of September 30, 2005


 

        As of November 30, 2005        


Number of stock acquisition rights    11,837   11,789
Class of shares issued for stock acquisition rights    Common Stock   Same as on the left
Number of shares issued for stock acquisition rights    1,183,700   1,178,900
Amount to be paid in upon exercise of stock acquisition rights    8,725   Same as on the left
Exercise period for stock acquisition rights    From October 1, 2004 to September 30, 2008   Same as on the left
Issue price of the shares to be issued upon exercise of stock acquisition rights    8,725   Same as on the left
Amount out of issue price of new shares to be accounted as paid-in capital of the Company    4,363   Same as on the left
Conditions for exercise of stock acquisition rights   

(i)In order to exercise stock acquisition rights, the person who has been allocated such stock acquisition rights (the “Acquisition Rights Holder”) must be a Director, Corporate Auditor, Executive Officer or employee of Kyocera Corporation or a subsidiary thereof at the time of exercise.

(ii)In the event of the death of the Acquisition Rights Holder, the heir(s) thereof may exercise inherited stock acquisition rights for a period of 6 months (or until the date of expiration of the exercise period thereof, if such date comes earlier), up to the maximum number of stock acquisition rights the deceased could have exercised at the time of death.

(iii) Upon approval by the Bonus Committee of Kyocera Corporation, the exercise of stock acquisition rights may be permitted under conditions different from those described in (i) and (ii) above.

(iv)Other terms and conditions shall be provided for in an agreement between Kyocera Corporation and each Acquisition Rights Holder, pursuant to resolutions of this Ordinary General Meeting of Shareholders and the Board of Directors of Kyocera Corporation.

  Same as on the left
Restriction on transfer of the stock acquisition rights    Transfer and pawn are prohibited.   Same as on the left

 

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Table of Contents

<Stock acquisition rights approved at the stockholders’ meeting held on June 28, 2005>

 

Date


 

As of September 30, 2005


 

As of November 30, 2005


Number of stock acquisition rights   12,944   12,902
Class of shares issued for stock acquisition rights   Common Stock   Same as on the left
Number of shares issued for stock acquisition rights   1,294,400   1,290,200
Amount to be paid in upon exercise of stock acquisition rights   8,619   Same as on the left
Exercise period for stock acquisition rights   From October 1, 2005 to September 30, 2008   Same as on the left
Issue price of the shares to be issued upon exercise of stock acquisition rights   8,619   Same as on the left
Amount out of issue price of new shares to be accounted as paid-in capital of the Company   4,310   Same as on the left
Conditions for exercise of stock acquisition rights  

(i)In order to exercise stock acquisition rights, the person who has been allocated such stock acquisition rights (the “Acquisition Rights Holder”) must be a Director, Corporate Auditor, Executive Officer or employee of Kyocera Corporation or a subsidiary thereof at the time of exercise.

(ii)In the event of the death of the Acquisition Rights Holder, the heir(s) thereof may exercise inherited stock acquisition rights for a period of 6 months (or until the date of expiration of the exercise period thereof, if such date comes earlier), up to the maximum number of stock acquisition rights the deceased could have exercised at the time of death.

(iii) Upon approval by the Bonus Committee of Kyocera Corporation, the exercise of stock acquisition rights may be permitted under conditions different from those described in (i) and (ii) above.

(iv) Other terms and conditions shall be provided for in an agreement between Kyocera Corporation and each Acquisition Rights Holder, pursuant to resolutions of this Ordinary General Meeting of Shareholders and the Board of Directors of Kyocera Corporation.

  Same as on the left
Restriction on transfer of the stock acquisition rights   Transfer and pawn are prohibited.   Same as on the left

 

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Table of Contents

(3) Status of Common Stock and Capital

 

     (Yen in millions except number of shares)

Date


   Increased
number of
shares issued


  

Number

of

shares issued


   Increased
amount of
capital


   Total
amount of
capital


  

Increased amount of

additional

paid-in capital


  

Total amount of
additional

paid-in capital


September 30, 2005

   —      191,309,290    —      115,703    —      192,555

 

(4) Major Shareholders

 

The following table shows the ten largest shareholders of record of Kyocera Corporation as of September 30, 2005.

 

Name


   Shares owned
(in thousands)


   Ownership (%)

 

Japan Trustee Services Bank, Ltd. (Trust Account)

   12,290    6.42 %

The Master Trust Bank of Japan, Ltd. (Trust Account)

   10,909    5.70 %

The Bank of Kyoto, Ltd.

   7,218    3.77 %

Kazuo Inamori

   6,806    3.56 %

The Inamori Foundation

   4,680    2.45 %

State Street Bank and Trust Company (Standing proxy: The Mizuho Corporate Bank, Limited)

   4,363    2.28 %

UFJ Bank Limited

   4,185    2.19 %

Keiai Kosan K.K.

   3,550    1.86 %

BNP Paribas Securities (Japan) Limited

   3,172    1.66 %

Barclays Bank PLC custody account (Standing proxy: Standard Chartered Bank)

   3,123    1.63 %
    
  

Total

   60,296    31.52 %

(Note 1) 3,834 thousand shares of treasury stock without voting rights were excluded from the list of major shareholders above.

 

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Table of Contents

(Note 2) On October 7, 2005, in accordance with the Securities and Exchange Law of Japan, Morgan Stanley Japan Limited informed Kyocera Corporation that Morgan Stanley Japan Limited and its related partners became a holder of over 5% of the total issued voting shares of Kyocera Corporation, and they held shares of Kyocera Corporation as show in the following table as of September 30, 2005. However, they were not included in the above major shareholders as a single major holder because all of certain partners of Morgan Stanley Japan Limited were not the shareholders of record as of September 30, 2005.

 

Name of Holders


   Shares owned
in thousands


Morgan Stanley Japan Limited

   1,160

Morgan Stanley & Co. Incorporated

   250

Morgan Stanley & Co. International Limited

   858

MSDW Equity Financing Services I (Cayman) Limited

   199

Morgan Stanley Capital (Luxembourg) SA

   246

MSDW Equity Financing Services (Luxembourg) S.a.r.l

   256

Morgan Stanley Investment Management Limited

   2,582

Morgan Stanley Asset & Investment Trust Management Co., Limited

   368

Morgan Stanley Investment Management Inc.

   4,484

Van Kampen Asset Management

   4

Morgan Stanley Investment Management Advisors Inc.

   159
    

Total

   10,564

 

(5) Voting Rights

 

The following table shows voting rights of common stock of Kyocera Corporation as of September 30, 2005.

 

     Number of shares

   Number of voting rights

Shares without voting rights

   —      —  

Shares with limited voting rights

   —      —  

Shares with full voting rights (treasury stock)

   3,833,900 shares of
common stock
   —  

Shares with full voting rights (other)

   186,964,400 shares of
common stock
   1,869,644

Shares constituting less than one unit

   510,990 shares of
common stock
   —  

Total number of shares issued

   191,309,290 shares of
common stock
   —  

Total voting rights of all shareholders

   —      1,869,644

 

Kyocera Corporation held treasury stocks of 3,833,900 shares, and its ownership to total number of shares issued was 2.00% as of September 30, 2005.

 

- 18 -


Table of Contents

2. Price Range of Shares

 

The following table shows price range of shares of Kyocera Corporation for the six months ended September 30, 2005.

 

     Tokyo Stock Exchange

     Price per share of
common stock
(yen)


     High

   Low

April 2005

   7,820    7,090

May 2005

   8,420    7,540

June 2005

   8,500    8,140

July 2005

   8,670    7,820

August 2005

   8,040    7,640

September 2005

   8,020    7,660

 

3. Directors and Senior Management

 

There has been no change in a member of Directors and senior management since Kyocera Corporation filed its Annual Report (“Yuukashouken-houkokusho”) for the year ended March 31, 2005 with the Director of the Kanto Local Finance Bureau of the Ministry of Finance pursuant to the Securities and Exchange Law of Japan on June 29, 2005.

 

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Table of Contents

Item 5. Accounting Information

 

1. Interim Consolidated Financial Statements and Interim Non-consolidated Financial Statements

 

(1) Pursuant to the article 81 of “Regulations Concerning the Terminology, Forms and Preparation Methods of Interim Consolidated Financial Statements” (Ministry of Finance Ordinance No. 24, 1999), the interim consolidated financial statements are prepared in conformity with the accounting principles generally accepted in the United States of America (U.S. GAAP).

 

(2) Pursuant to “Regulations Concerning the Terminology, Forms and Preparation Methods of Interim Financial Statements” (Ministry of Finance Ordinance No. 38, 1977, “Regulation for Interim Financial Statements”), the interim non-consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Japan (Japanese GAAP).

 

Pursuant to provision of additional rule 3 of “Cabinet order to partly revise Regulations Concerning the Terminology, Forms and Preparation Methods of Financial Statements” (Cabinet order No.5, January 30, 2004), the interim non-consolidated financial statements for the six months ended September 30, 2004 are prepared in conformity with pre-amendment of Regulation for Interim Financial Statements.

 

2. Independent Accountants Report

 

In accordance with the article 193-2 of the Securities Exchange Law, the interim consolidated financial statements and the interim non-consolidated financial statements for the six months ended September 30, 2004 and 2005 are reviewed by ChuoAoyama PricewaterhouseCoopers.

 

- 20 -


Table of Contents

1. CONSOLIDATED FINANCIAL STATEMENTS

    < CONSOLIDATED BALANCE SHEETS >

 

          Yen in millions

          September 30,

   September 30,

   March 31,

          2004

   2005

   2005

          Amount

    %

   Amount

    %

   Amount

    %

I     Current assets :

                                           

Cash and cash equivalents

        ¥ 256,965          ¥ 253,885          ¥ 310,592      

Short-term investments

   Note 3      74,262            94,526            34,938      

Trade notes receivable

          33,549            25,439            29,552      

Trade accounts receivable

          211,504            196,743            201,374      

Short-term finance receivables

   Note 4      42,820            42,194            40,801      
         


      


      


   
            287,873            264,376            271,727      

Less allowances for doubtful accounts and sales returns

          (7,569 )          (7,919 )          (7,981 )    
         


      


      


   
            280,304            256,457            263,746      

Inventories

          239,612            200,607            213,411      

Deferred income taxes

          39,408            38,985            38,659      

Other current assets

          31,207            29,136            34,229      
         


 
  


 
  


 

Total current assets

          921,758     51.6      873,596     46.9      895,575     51.3
         


 
  


 
  


 

II   Investments and advances

                                           

Investments in and advances to affiliates and unconsolidated subsidiaries

   Note 4      24,240            12,037            30,623      

Securities and other investments

   Note 3      440,844            539,423            430,437      
         


 
  


 
  


 
            465,084     26.0      551,460     29.6      461,060     26.4

III   Long-term finance receivables

   Note 4      73,477     4.1      74,247     4.0      66,427     3.8

IV   Property, plant and equipment, at cost :

   Note 4                                       

Land

          55,021            58,553            55,210      

Buildings

          223,956            241,692            225,964      

Machinery and equipment

          642,657            680,879            656,780      

Construction in progress

          9,815            13,679            14,384      
         


      


      


   
            931,449            994,803            952,338      

Less accumulated depreciation

          (675,190 )          (713,078 )          (693,341 )    
         


 
  


 
  


 
            256,259     14.4      281,725     15.1      258,997     14.9

V    Goodwill

          28,589     1.6      30,727     1.7      28,110     1.6

VI   Intangible assets

          17,495     1.0      30,124     1.6      15,847     0.9

VII  Other assets

          22,843     1.3      21,049     1.1      19,503     1.1
         


 
  


 
  


 

Total assets

        ¥ 1,785,505     100.0    ¥ 1,862,928     100.0    ¥ 1,745,519     100.0
         


 
  


 
  


 

 

- 21 -


Table of Contents
          Yen in millions

 
          September 30,

    September 30,

    March 31,

 
          2004

    2005

    2005

 
          Amount

    %

    Amount

    %

    Amount

    %

 

I Current liabilities :

                                               

Short-term borrowings

        ¥ 78,044           ¥ 67,422           ¥ 66,556        

Current portion of long-term debt

   Note 4      4,406             53,123             44,051        

Trade notes and accounts payable

          120,646             90,713             86,872        

Other notes and accounts payable

          36,232             50,208             34,690        

Accrued payroll and bonus

          35,725             36,769             34,821        

Accrued income taxes

          23,641             25,137             31,180        

Other accrued liabilities

          30,029             31,143             28,849        

Other current liabilities

          17,223             17,595             17,338        
         


 

 


 

 


 

Total current liabilities

          345,946     19.4       372,110     20.0       344,357     19.7  
         


 

 


 

 


 

II Non-current liabilities :

                                               

Long-term debt

   Note 4      70,743             25,920             33,557        

Accrued pension and severance liabilities

          36,929             27,397             31,166        

Deferred income taxes

          89,680             123,151             96,345        

Other non-current liabilities

          5,386             11,595             4,761        
         


 

 


 

 


 

Total non-current liabilities

          202,738     11.3       188,063     10.1       165,829     9.5  
         


 

 


 

 


 

Total liabilities

          548,684     30.7       560,173     30.1       510,186     29.2  
         


 

 


 

 


 

Minority interests in subsidiaries

          59,173     3.3       61,060     3.3       60,482     3.5  

Commitments and Contingencies

   Note 6                             

Stockholders’ equity :

                                 

I        Common stock

          115,703     6.5       115,703     6.2       115,703     6.6  

II      Additional paid-in capital

          162,087     9.1       162,060     8.7       162,061     9.3  

III     Retained earnings

          918,894     51.5       931,468     50.0       916,628     52.5  

IV    Accumulated other comprehensive income

   Note 7      12,262     0.7       63,890     3.4       11,839     0.7  

V      Common stock in treasury, at cost

          (31,298 )   (1.8 )     (31,426 )   (1.7 )     (31,380 )   (1.8 )
         


 

 


 

 


 

Total stockholders’ equity

          1,177,648     66.0       1,241,695     66.6       1,174,851     67.3  
         


 

 


 

 


 

Total liabilities, minority interests and stockholder’s equity

        ¥ 1,785,505     100.0     ¥ 1,862,928     100.0     ¥ 1,745,519     100.0  
         


 

 


 

 


 

 

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Table of Contents

< CONSOLIDATED STATEMENTS OF INCOME >

 

          Yen in millions

 
          Six months ended September 30,

    Year ended March 31,

 
          2004

    2005

    2005

 
          Amount

    %

    Amount

    %

    Amount

    %

 

I      Net sales

        ¥ 600,562     100.0     ¥ 545,258     100.0     ¥ 1,180,655     100.0  

II    Cost of sales

          429,643     71.5       391,867     71.9       855,067     72.4  
         


 

 


 

 


 

Gross profit

          170,919     28.5       153,391     28.1       325,588     27.6  

III  Selling, general and administrative expenses

   Note 8      108,827     18.2       118,042     21.6       224,620     19.0  
         


 

 


 

 


 

Profit from operations

          62,092             35,349             100,968        

IV  Other income (expenses) :

                                               

Interest and dividend income

          2,728             3,886             6,396        

Interest expense

   Note 5      (613 )           (633 )           (1,275 )      

Foreign currency transaction gains (losses), net

   Note 5      2,096             (91 )           2,618        

Equity in earnings (losses) of affiliates and unconsolidated subsidiaries

          582             (236 )           (1,678 )      

Gain on sales of investment in an affiliate

   Note 12      —               6,931             —          

Other, net

          368             929             501        
         


 

 


 

 


 

Total other income (expenses)

          5,161     0.9       10,786     2.0       6,562     0.5  
         


 

 


 

 


 

Income before income taxes and minority interests

          67,253     11.2       46,135     8.5       107,530     9.1  

Income taxes:

                                               

Current

          23,955             24,282             52,872        

Deferred

          (1,207 )           (3,833 )           5,608        
         


 

 


 

 


 

            22,748     3.8       20,449     3.8       58,480     4.9  

Income before minority interests

          44,505     7.4       25,686     4.7       49,050     4.2  

Minority interests

          (1,956 )   (0.3 )     (1,472 )   (0.3 )     (3,142 )   (0.3 )
         


 

 


 

 


 

Net income

        ¥ 42,549     7.1     ¥ 24,214     4.4     ¥ 45,908     3.9  
         


 

 


 

 


 

Earnings per share:

   Note 10                                           

Net income (yen) :

                                               

Basic

          226.94             129.16             244.86        

Diluted

          226.85             129.15             244.81        

Cash dividends declared per share (yen) :

                                               

Per share of common stock

          30.00             50.00             80.00        

Weighted average number of shares of common stock outstanding (shares in thousands) :

                                               

Basic

          187,492             187,478             187,489        

Diluted

          187,569             187,497             187,528        

 

- 23 -


Table of Contents

< CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY >

 

     ( Yen in millions and shares in thousands)

 

(Number of shares of common stock)


   Common
stock


   Additional
paid-in
capital


    Retained
earnings


   

Accumulated other
comprehensive
income

(Note 7)


    Treasury stock,
at cost


    Comprehensive
income


 

Balance at March 31, 2004 (187,484) as previously reported

   ¥ 115,703    ¥ 162,091     ¥ 885,262     ¥ 22,046     ¥ (31,356 )        

Adjustment prior to March 31, 2004

                    (3,293 )                        

Balance at March 31, 2004 (187,484) as adjusted

     115,703      162,091       881,969       22,046       (31,356 )        
    

  


 


 


 


       

Net income for the year

                    45,908                     ¥ 45,908  

Other comprehensive income

                            (10,207 )             (10,207 )
                                           


Total comprehensive income for the year

                                          ¥ 35,701  
                                           


Cash dividends

                    (11,249 )                        

Purchase of treasury stock (21)

                                    (170 )        

Reissuance of treasury stock (18)

            (5 )                     146          

Stock option plan of a subsidiary

            (25 )                                
    

  


 


 


 


       

Balance, March 31, 2005 (187,481)

     115,703      162,061       916,628       11,839       (31,380 )        
    

  


 


 


 


       

Net income for the period

                    24,214                     ¥ 24,214  

Other comprehensive income

                            52,051               52,051  
                                           


Total comprehensive income for the period

                                          ¥ 76,265  
                                           


Cash dividends

                    (9,374 )                        

Purchase of treasury stock (10)

                                    (77 )        

Reissuance of treasury stock (4)

            (1 )                     31          
    

  


 


 


 


       

Balance, September 30, 2005 (187,475)

   ¥ 115,703    ¥ 162,060     ¥ 931,468     ¥ 63,890     ¥ (31,426 )        
    

  


 


 


 


       
     (Yen in millions and shares in thousands)

 

(Number of shares of common stock)


   Common
stock


   Additional
paid-in
capital


    Retained
earnings


   

Accumulated other
comprehensive
income

(Note 7)


    Treasury stock,
at cost


    Comprehensive
income


 

Balance at March 31, 2004 (187,484) as previously reported

   ¥ 115,703    ¥ 162,091     ¥ 885,262     ¥ 22,046     ¥ (31,356 )        

Adjustment prior to March 31, 2004

                    (3,293 )                        

Balance at March 31, 2004 (187,484) as adjusted

     115,703      162,091       881,969       22,046       (31,356 )        
    

  


 


 


 


       

Net income for the period

                    42,549                     ¥ 42,549  

Other comprehensive income

                            (9,784 )             (9,784 )
                                           


Total comprehensive income for the period

                                          ¥ 32,765  
                                           


Cash dividends

                    (5,624 )                        

Purchase of treasury stock (8)

                                    (74 )        

Reissuance of treasury stock (16)

            (4 )                     132          
    

  


 


 


 


       

Balance, September 30, 2004 (187,492) as adjusted

   ¥ 115,703    ¥ 162,087     ¥ 918,894     ¥ 12,262     ¥ (31,298 )        
    

  


 


 


 


       

 

- 24 -


Table of Contents

< CONSOLIDATED STATEMENTS OF CASH FLOWS >

 

          Yen in millions

 
          Six months ended
September 30,


    Year ended
March 31,


 
          2004

    2005

    2005

 

Cash flows from operating activities:

                             

Net income

        ¥ 42,549     ¥ 24,214     ¥ 45,908  

Adjustments to reconcile net income to net cash provided by operating activities :

                             

Depreciation and amortization

          31,089       31,763       65,909  

Provision for doubtful accounts

          (667 )     99       (18 )

Write-down of inventories

          7,493       4,303       10,405  

Deferred income taxes

          (1,207 )     (3,833 )     5,608  

Minority interests

          1,956       1,472       3,142  

Equity in (earnings) losses of affiliates and unconsolidated subsidiaries

          (582 )     236       1,678  

Gain on sales of investment in an affiliate

   Note 12      —         (6,931 )     —    

Foreign currency adjustments

          (1,849 )     761       (2,391 )

Change in assets and liabilities :

                             

Decrease in receivables

          50,272       7,771       68,558  

(Increase) decrease in inventories

          (44,324 )     10,417       (25,598 )

(Increase) decrease in other current assets

          (389 )     (1,016 )     14  

Increase (decrease) in notes and accounts payable

          3,222       5,317       (31,914 )

Increase (decrease) in accrued income taxes

          5,789       (6,859 )     13,566  

(Decrease) increase in other current liabilities

          (370 )     2,847       (1,744 )

(Decrease) increase in other non-current liabilities

          (5,261 )     163       (11,464 )

Other, net

          1,170       1,048       3,864  
         


 


 


Net cash provided by operating activities

          88,891       71,772       145,523  
         


 


 


Cash flows from investing activities :

                             

Payments for purchases of available-for-sale securities

          (58,140 )     (68,013 )     (81,946 )

Payments for purchases of held-to-maturity securities

          (2,200 )     (8,730 )     (10,141 )

Payments for purchases of investments and advances

          (452 )     (127 )     (11,858 )

Sales and maturities of available-for-sale securities

          13,330       38,539       40,955  

Maturities of held-to-maturity securities

          6,599       —         8,719  

Proceeds from sales of investment in an affiliate

          —         24,133       —    

Payments for purchases of property, plant and equipment

          (27,813 )     (45,222 )     (59,381 )

Payments for purchases of intangible assets

          (2,761 )     (4,433 )     (4,820 )

Proceeds from sales of property, plant and equipment and intangible assets

          1,982       1,933       2,920  

Acquisitions of businesses, net of cash acquired

   Note 11      (2,794 )     —         (2,794 )

Acquisitions of minority interests

          (5 )     (3,575 )     (5 )

Deposit of negotiable certificate of deposits and time deposits

          (72,600 )     (77,056 )     (112,903 )

Withdrawal of negotiable certificate of deposits and time deposits

          516       18,121       95,220  

Other, net

          161       1,339       3,540  
         


 


 


Net cash used in investing activities

          (144,177 )     (123,091 )     (132,494 )
         


 


 


Cash flows from financing activities :

                             

(Decrease) increase in short-term debt

          (7,047 )     367       (18,490 )

Proceeds from issuance of long-term debt

          8,662       4,783       21,077  

Payments of long-term debt

          (48,847 )     (3,756 )     (58,720 )

Dividends paid

          (6,409 )     (10,447 )     (12,614 )

Net purchases of treasury stock

          55       (47 )     (28 )

Other, net

          4       (557 )     1,431  
         


 


 


Net cash used in financing activities

          (53,582 )     (9,657 )     (67,344 )
         


 


 


Effect of exchange rate changes on cash and cash equivalents

          4,701       4,269       3,775  
         


 


 


Net decrease in cash and cash equivalents

          (104,167 )     (56,707 )     (50,540 )

Cash and cash equivalents at beginning of period

          361,132       310,592       361,132  
         


 


 


Cash and cash equivalents at end of period

        ¥ 256,965     ¥ 253,885     ¥ 310,592  
         


 


 


 

- 25 -


Table of Contents

<Notes to the Interim Consolidated Financial Statements>

 

1. Accounting Principles, Procedures and Financial Statements’ Presentation

 

In December 1975, Kyocera Corporation filed a registration statement, Form S-1 and a registration form for American Depositary Receipt (ADR), in accordance with the Securities Exchange Act of 1933, with the United States Securities and Exchange Commission (SEC) and made a registration of its common stock and ADR there. In accordance with the mentioned act, Kyocera Corporation again filed Form S-1 and a registration form for ADR with SEC in February 1980, and listed its ADR on the New York Stock Exchange in May 1980.

 

Kyocera Corporation has filed Form 20-F as an annual report, which is prepared in accordance with U.S. GAAP with SEC once a year in order to conform to the section 13 of the Securities Exchange Act of 1934. Kyocera Corporation and its consolidated subsidiaries (Kyocera) have also prepared interim consolidated financial statements in accordance with U.S. GAAP. The followings are accounting principles and regulations with which Kyocera is required to comply: Regulations for filing and reporting to SEC (Regulation S-X, Accounting Series Releases, Staff Accounting Bulletins, and etc.), Statements of Financial Accounting Standards Board (SFAS), Accounting Principles Board (APB) Opinions and Accounting Research Bulletin (ARB), and etc.

 

The following paragraphs describe the major differences between U.S. GAAP and Japanese GAAP, and where the significant differences exist, the amount of effect to income before income taxes pursuant to Japanese GAAP are also disclosed.

 

(1) Stockholders’ Equity

 

Kyocera prepares the interim consolidated statement of stockholders’ equity.

 

(2) Revenue Recognition

 

Kyocera adopts Staff Accounting Bulletin (SAB) No. 104”Revenue Recognition in Financial Statements.”

 

(3) Remuneration for Directors

 

Remuneration for directors is charged to general and administrative expenses.

 

(4) Securities

 

Certain investments in debt and equity securities are accounted for by SFAS No. 115. Securities classified as available-for-sale are recorded at the fair value, with unrealized gains and losses excluded from income and reported in other comprehensive income, net of tax. Securities classified as held-to-maturity securities are recorded at amortized cost.

 

(5) Foreign Currency Translation and Forward Exchange Contracts

 

Assets and liabilities denominated in foreign currencies and financial statements of foreign subsidiaries are translated based on SFAS No. 52. Forward exchange contracts are accounted for by SFAS No. 133, as amended by SFAS No. 138.

 

(6) Accrued Pension and Severance Costs

 

Accrued pension and severance costs are computed based on SFAS No. 87. This effect for the six months ended September 30, 2004, 2005 and for the year ended March 31, 2005 amounted to ¥350 million, ¥416 million and ¥700 million, respectively.

 

- 26 -


Table of Contents

(7) Comprehensive Income

 

Kyocera applies SFAS No. 130 and discloses comprehensive income in stockholders’ equity. According to this standard, comprehensive income is defined as the change in equity except for capital transaction and it consists of net income and other comprehensive income. Other comprehensive income includes net unrealized gains (losses) on securities, net unrealized gains (losses) on derivative financial instruments, minimum pension liability adjustments and foreign currency translation adjustments.

 

(8) Stock Issuance Costs

 

Stock issuance costs, net of tax are deducted from the additional paid-in capital.

 

(9) Business Combinations

 

Kyocera adopts SFAS No. 141.

 

(10) Goodwill and Other Intangible Assets

 

Kyocera adopts SFAS No. 142.

 

(11) Derivative Financial Instruments

 

Kyocera adopts SFAS No. 133, as amended by SFAS No. 138.

 

2. Summary of Accounting Policies

 

The accounts of Kyocera Corporation and its Japanese subsidiaries are generally maintained to conform to Japanese accounting practices. Adjustments, including the applicable income tax effects, which are not recorded in Kyocera Corporation’s books of account, have been made to the accompanying interim consolidated financial statements in order to present them in conformity with accounting principles generally accepted in the United States of America.

 

(1) Basis of Consolidation and Accounting for Investments in Affiliated Companies

 

The interim consolidated financial statements include the accounts of Kyocera Corporation, its majority-owned subsidiaries and a variable interest entity for which Kyocera Corporation is a primarily beneficiary under the Financial Accounting Standard Board Interpretation No. 46 (revised December 2003), “ Consolidation of Variable Interest Entities”. The consolidated variable interest entity for which Kyocera Corporation is the primary beneficiary does not have a material effect on Kyocera’s financial position and result of operations.

 

All significant inter-company transactions and accounts are eliminated. Investments in 20% to 50% owned companies and insignificant subsidiaries are accounted for by the equity method, whereby Kyocera includes in net income its equity in the earnings or losses of these companies.

 

     (Number of companies)

  

(Major companies)


Consolidated subsidiaries:

   167    AVX CORPORATION
          KYOCERA WIRELESS CORP.
          KYOCERA MITA CORPORATION
          KYOCERA ELCO CORPORATION

Affiliates and unconsolidated subsidiaries:

   14    WILLCOM, INC.

 

- 27 -


Table of Contents

(2) Revenue Recognition

 

Kyocera sells various types of products, including fine ceramic parts, semiconductor parts, and telecommunications equipment. Kyocera recognizes revenue upon completion of the earnings process, which occurs when products are shipped and delivered to the customer in accordance with the terms of an agreement of sale, there is a fixed or determinable selling price, title and risk of loss have been transferred, and collectibility is reasonably assured. These conditions are satisfied at the time of delivery to customers in domestic sales (FOB destination) and at the time of shipment (FOB shipping) for export sales.

 

Sales returns

 

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

 

Products warranty

 

At the time of sale, Kyocera accrues a product warranty liability for claims under warranties relating to the products that have been sold. Kyocera records an estimated based on its historical repair experience.

 

Revenue from services, rental and others

 

In addition to the tangible products as discussed above, Kyocera also provides certain services, primarily financial services provided by Kyocera Leasing Co., Ltd., a wholly-owned subsidiary of Kyocera Corporation. Revenue from direct financing leases is recognized over the term of the lease, and amortization of unearned lease income is recognized using the interest method. Interest income on installment loans is recognized on an accrual basis. Interest income is no longer accrued at the time the collection of the interest is past due 1 year or more, or the collection of the principal is past due 6 months or more. The interest received from cash payments on impaired loans is recorded as income, unless the collectibility of the remaining investments is doubtful, in which case the cash receipt is recorded as collection of the principal.

 

(3) Cash and Cash Equivalents

 

Cash and cash equivalents include time deposits and certificates of deposit with original maturities of three months or less.

 

(4) Translation of Foreign Currencies

 

Assets and liabilities of consolidated foreign subsidiaries and affiliates accounted for by the equity method are translated into Japanese yen at the exchange rates in effect on the respective balance sheet dates. Operating accounts are translated at the average rates of exchange for the respective years. Translation adjustments result from the process of translating foreign currency financial statements into Japanese yen. These translation adjustments, which are not included in the determination of net income, are reported in other comprehensive income.

 

Assets and liabilities denominated in foreign currencies are translated at the exchange rates in effect at the respective balance sheet dates, and resulting transaction gains or losses are included in the determination of net income.

 

(5) Allowances for Doubtful Accounts

 

Kyocera maintains allowances for doubtful accounts related to both trade 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 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.

 

- 28 -


Table of Contents

(6) Inventories

 

Inventories are stated at the lower of cost or market. Cost is determined by the average method for approximately 53% and 55% and 52% of finished goods and work in process at September 30, 2004, 2005 and March 31, 2005, respectively, and by the first-in, first-out method for all other inventories. Kyocera recognizes estimated write-down of inventories for excess, slow-moving and obsolete inventories.

 

(7) Property, Plant and Equipment and Depreciation

 

Property, Plant and Equipment are recorded at cost less accumulated depreciation. Kyocera provides for depreciation of buildings, machinery and equipment over their estimated useful lives primarily on the declining balance method. The principal estimated useful lives used for computing depreciation are as follows:

 

Buildings

   2 to 50 years

Machinery and equipment

   2 to 20 years

 

The cost of maintenance, repairs and minor renewals is charged to expense in the year incurred; major renewals and betterments are capitalized.

 

When assets are sold or otherwise disposed of, the profits or losses thereon, computed on the basis of the difference between depreciated costs and proceeds, are credited or charged to income in the year of disposal, and costs and accumulated depreciation are removed from accounts.

 

(8) Goodwill and Other Intangible Assets

 

Kyocera adopted SFAS No. 142. Goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances.

 

The principal estimated amortization for intangible assets are as follows:

 

Patent rights

   2 to 8 years

Software

   2 to 5 years

 

(9) Impairment of long-lived assets

 

Kyocera has adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This requires Kyocera to review its long-lived assets and intangible assets with definite useful lives for impairment periodically. Long-lived assets and intangible assets with definite useful lives are considered to be impaired when the expected undiscounted cash flow from the asset 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.

 

- 29 -


Table of Contents

(10) Derivative Financial Instruments

 

Kyocera utilizes derivative financial instruments to manage its exposure resulting from fluctuations of foreign currencies and interest rates. These derivative financial instruments include foreign currency forward contracts and interest rate swaps. Kyocera does not hold or issue such derivative financial instruments for trading purposes.

 

Kyocera applies SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities- ”an Amendment of SFAS No. 133.” All derivatives are recorded as either assets or liabilities on the balance sheet and measured at fair value.

 

Changes in the fair value of derivatives are charged in current earnings. However cash flow hedges which meet the criteria of SFAS No. 133 may qualify for hedge accounting treatment. Changes in the fair value of the effective portion of these hedge derivatives are deferred in other comprehensive income and charged to earnings when the underlying transaction being hedged occurs.

 

Kyocera designated certain interest rate swaps and foreign currency forward contracts as cash flow hedges under SFAS No. 133 to hedge cash inflow or outflow related with existing assets, liabilities or forecasted transactions such as purchase commitments and sales. Most of foreign currency forward contracts are entered into as hedges of existing foreign currency denominated assets and liabilities and as such do not qualify for special hedge accounting. Accordingly, Kyocera records changes in fair value of these foreign currency forward contracts currently in earnings. It is expected that such changes will be offset by corresponding gains or losses on the underlying assets and liabilities.

 

Kyocera formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes all derivatives designated as cash flow hedge are linked to specific assets and liabilities on the balance sheet or forecasted transactions. Kyocera also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, Kyocera discontinues hedge accounting prospectively. When hedge accounting is discontinued, the derivative will continue to be carried on the balance sheet at its fair value, with deferred unrealized gains or losses charged immediately in current earnings.

 

(11) Stock Option Plans

 

In December 2002, the Financial Accounting Standard Board issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” which amends SFAS No.123, “Accounting for Stock-Based Compensation,” and provides alternative methods to transition for a voluntary change to the fair value based method of accounting for stock options. As allowed by SFAS 148, Kyocera measures stock-based compensation expense using the intrinsic value method in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employee and its related interpretations.”

 

(12) Earnings and Cash Dividends per Share

 

Basic earnings per share is computed based on the weighted average number of shares outstanding during each period. Diluted earnings per share assumes the dilution that could occur if all stock options were exercised and resulted in the issuance of common stock.

 

Cash dividends per share are those declared with respect to the earnings for the respective periods for which dividends are proposed by the Board of Directors. Dividends are charged to retained earnings in the period in which they are paid.

 

(13) Research and Development Expenses and Advertising Expenses

 

Research and development expenses and advertising expenses are charged to operations as incurred.

 

- 30 -


Table of Contents

(14) Use of Estimates

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

(15) Reclassification

 

Certain reclassifications of previously reported amounts have been made to the consolidated statements of income and cash flows for the six months ended September 30, 2004 and for the year ended March 31, 2005 to conform to the current period presentation. Such reclassifications have no effect on Kyocera’s stockholders’ equity, net income and cash flows.

 

(16) Adjustment

 

As a result of an increase in an affiliated company accounted for by the equity method in the year ended March 31, 2005, the financial data prior to March 31, 2005 have been adjusted as if the equity method had been applied at inception in accordance with APB Opinion No.18, “The Equity Method of Accounting for Investments in Common Stock.”

 

- 31 -


Table of Contents

3. Investment in Debt and Equity Securities

 

Investments in debt and equity securities as of September 30, 2004, 2005 and March 31, 2005, included in short-term investments (current assets) and in securities and other investments (non-current assets) are summarized as follows:

 

     Yen in millions

     September 30, 2004

   September 30, 2005

     Cost*

  

Aggregate
fair

values


   Gross
unrealized
gains


   Gross
unrealized
losses


   Cost*

  

Aggregate
fair

values


   Gross
unrealized
gains


   Gross
unrealized
losses


Available-for-sale securities:

                                                       

Corporate debt securities

   ¥ 1,728    ¥ 1,723    ¥ 6    ¥ 11    ¥ 2,724    ¥ 2,769    ¥ 55    ¥ 10

Other debt securities

     71,134      70,999      84      219      101,653      101,490      87      250

Equity securities

     281,560      347,671      69,556      3,445      272,147      414,354      142,264      57
    

  

  

  

  

  

  

  

Total available-for-sale securities

     354,422      420,393      69,646      3,675      376,524      518,613      142,406      317
    

  

  

  

  

  

  

  

Held-to-maturity securities:

                                                       

Other debt securities

     17,650      17,598      —        52      33,224      32,834      —        390
    

  

  

  

  

  

  

  

Total held-to-maturity securities

     17,650      17,598      —        52      33,224      32,834      —        390
    

  

  

  

  

  

  

  

Total investments in debt and equity securities

   ¥ 372,072    ¥ 437,991    ¥ 69,646    ¥ 3,727    ¥ 409,748    ¥ 551,447    ¥ 142,406    ¥ 707
    

  

  

  

  

  

  

  

                         Yen in millions

                         March 31, 2005

                         Cost*

  

Aggregate
fair

values


   Gross
unrealized
gains


   Gross
unrealized
losses


Available-for-sale securities:

                                                       

Corporate debt securities

                               ¥ 2,024    ¥ 2,029    ¥ 13    ¥ 8

Other debt securities

                                 73,886      73,773      199      312

Equity securities

                                 272,006      343,208      71,448      246
                                

  

  

  

Total available-for-sale securities

                                 347,916      419,010      71,660      566
                                

  

  

  

Held-to-maturity securities:

                                                       

Other debt securities

                                 22,900      22,545      —        355
                                

  

  

  

Total held-to-maturity securities

                                 22,900      22,545      —        355
                                

  

  

  

Total investments in debt and equity securities

                               ¥ 370,816    ¥ 441,555    ¥ 71,660    ¥ 921
                                

  

  

  

* Cost represents amortized cost for held-to-maturity securities and acquisition cost for available-for-sales securities. The cost basis of the individual securities is written down to fair value as a new cost basis when other-than-temporary impairment is recognized.

 

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4. Assets Pledged as Collateral and Liabilities with Assets Pledged

 

Kyocera’s assets pledged as collateral for long-term debt were ¥65 million of finance receivables and ¥5,013 million of property and equipment, net of accumulated depreciation at September 30, 2004, ¥5,876 million of property and equipment, net of accumulated depreciation at September 30, 2005, and ¥4,920 million of property and equipment, net of accumulated depreciation at March 31, 2005, respectively.

 

Kyocera’s current portion of long-term debt with assets pledged at September 30, 2004, 2005 and at March 31, 2005 amounted to ¥547 million, ¥527 million and ¥701 million, respectively. And Kyocera’s long-term debt (excluding current portion) with assets pledged at September 30, 2004, 2005 and at March 31, 2005 amounted to ¥4,248 million, ¥3,783 million and ¥4,149 million, respectively.

 

Kyocera’s investment in WILLCOM, INC., which was ¥4,618 million at September 30, 2005 and ¥5,696 million at March 31, 2005 accounted for by the equity method, is pledged as collateral for loans from financial institutions of WILLCOM, INC.

 

5. Derivative Financial Instruments and Hedging Activities

 

Kyocera’s activities expose it to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. Approximately 60% of Kyocera’s revenues are generated from overseas customers, which exposes to foreign currency exchange rates. These financial exposures are monitored and managed by Kyocera as an integral part of its overall risk management program. Kyocera’s risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.

 

Kyocera maintains a foreign currency risk management strategy that uses derivative financial instruments, such as foreign currency forward contracts, to minimize the volatility in its cash flows caused by changes in foreign currency exchange rates. Movements in foreign currency exchange rates pose a risk to Kyocera’s operations and competitive position, since exchange rates changes may affect the profitability, cash flows, and business and or pricing strategies of non Japan-based competitors. These movements affect cross-border transactions that involve, but not limited to, direct export sales made in foreign currencies and raw material purchases incurred in foreign currencies.

 

Kyocera maintains an interest rate risk management strategy that uses derivative financial instruments, such as interest rate swaps, to minimize significant, unanticipated cash flow fluctuations caused by interest rate volatility.

 

By using derivative financial instruments to hedge exposures to changes in exchange rates and interest rates, Kyocera exposes itself to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes Kyocera, which creates repayment risk for Kyocera. When the fair value of a derivative contract is negative, Kyocera owes the counterparty and, therefore, it does not possess repayment risk. Kyocera minimizes the credit (or repayment) risk in derivative financial instruments by (1) entering into transactions with creditworthy counterparties, (2) limiting the amount of exposure to each counterparty, and (3) monitoring the financial condition of its counterparties.

 

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Cash Flow Hedges

 

Kyocera uses interest rate swaps mainly to convert a portion of its variable rate debt to fixed rates. Kyocera charged deferred net loss of ¥78 million from accumulated other comprehensive income to interest expense in the consolidated statement of income, for the six months ended September 30, 2004 and for the year ended March 31, 2005.

 

Also, Kyocera uses certain foreign currency forward contracts designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in its forecasted transactions related to purchase commitments and sales. Kyocera charged deferred net gains (losses) of ¥30 million, ¥(27) million and ¥30 million from accumulated other comprehensive income to foreign currency transaction gains (losses) in the consolidated statement of income, for the six months ended September 30, 2004, 2005 and for the year ended March 31, 2005, respectively.

 

Other Derivatives

 

Kyocera’s main direct foreign export sales and some import purchases are denominated in the customers’ and suppliers’ local currency, principally the U.S. dollar, Euro and STG. Kyocera purchases foreign currency forward contracts with terms normally lasting less than three months to protect against the adverse effects that exchange-rate fluctuations may have on foreign-currency-denominated trade receivables and payables. Kyocera does not adopt hedge accounting for such derivatives. The gain and losses on both the derivatives and the foreign currency-denominated trade receivable and payables are recorded as foreign currency transaction gains (losses) in the consolidated statements of income.

 

The aggregate contract amounts of derivative financial instruments to which hedge accounting is not applied are as follows:

 

     Yen in millions

     September 30,
2004


   September 30,
2005


   March 31,
2005


Currency swaps

   ¥ 541    ¥ —      ¥ —  

Foreign currency forward contracts to sell

     104,126      115,515      99,159

Foreign currency forward contracts to purchase

     8,253      12,777      2,487

Interest rate swaps

     23,720      15,770      19,496

 

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6. Commitments and Contingencies

 

At September 30, 2005, Kyocera had contractual obligations for the acquisition or construction of property, plant and equipment aggregating ¥20,391 million principally due within one year.

 

Kyocera is lessee under long-term operating leases primarily for office space and equipment. Future minimum lease commitments under non-cancelable operating leases at September 30, 2005 are as follows:

 

     Yen in millions

Due within 1 year

   ¥ 7,037

Due after 1 year within 2 years

     5,936

Due after 2 year within 3 years

     4,122

Due after 3 year within 4 years

     2,130

Due after 4 year within 5 years

     1,283

Thereafter

     5,127
    

     ¥ 25,635

 

Kyocera Corporation and AVX Corporation have material supply agreements for a significant portion of their anticipated material used in their operations. Under the agreements, Kyocera Corporation is obligated to purchase ¥4,082 million by the end of December 2015. AVX Corporation is obligated to purchase ¥2,095 million by the end of December 2005.

 

Kyocera guarantees the debt of employees, customers and an unconsolidated subsidiary. At September 30, 2005, each amount of these guarantees was ¥211 million, ¥396 million and ¥550 million. The financial guarantees are made in the form of commitments and letters of awareness issued to financial institutions and generally obligate Kyocera to make payments in the event of default by the borrowers. Kyocera also guarantees the leasing debts of customers of the Information Equipment Group. At September 30, 2005, the amount of such guarantee was ¥675 million.

 

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 outcome of these contingencies. Kyocera records liabilities for these contingencies when the likelihood of an adverse outcome is probable and amount is reasonably estimate. However, based on the information available, management believes that damages, if any, resulting from these actions will not have a significant effect on Kyocera’s consolidated results of operations and financial position.

 

7. Reporting Comprehensive Income

 

Kyocera’s accumulated other comprehensive income is as follows:

 

     Yen in millions

 
     September 30,
2004


    September 30,
2005


    March 31,
2005


 

Net unrealized gains on securities

   ¥ 39,996     ¥ 84,536     ¥ 42,461  

Net unrealized losses on derivative financial instruments

     (22 )     (13 )     (27 )

Minimum pension liability adjustments

     (1,477 )     (1,629 )     (1,629 )

Foreign currency translation adjustments

     (26,235 )     (19,004 )     (28,966 )
    


 


 


     ¥ 12,262     ¥ 63,890     ¥ 11,839  
    


 


 


 

8. Supplemental Expense Information

 

Research and development expenses for the six months ended September 30, 2004, 2005 and for the year ended March 31, 2005 amounted to ¥27,432 million, ¥29,328 million and ¥54,398 million, respectively.

 

Advertising expenses for the six months ended September 30, 2004, 2005 and for the year ended March 31, 2005 amounted to ¥6,090 million, ¥5,010 million and ¥13,915 million, respectively.

 

Shipping and handling costs for the six months ended September 30, 2004, 2005 and for the year ended March 31, 2005 amounted to ¥6,311 million, ¥6,475 million and ¥12,919 million, respectively, and were included in selling, general and administrative expenses in the consolidated statements of income.

 

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9. Segment Reporting

 

Kyocera had previously classified its operations into four reporting segments, namely, “Fine Ceramics Group”, “Electronic Device Group”, “Equipment Group” and “Others”. However, taking into consideration of changes in the size of operations of each business division of Kyocera and changes in its management structure, the management has changed its reporting segments for the year ended March 31, 2005. Kyocera now has eight reporting segments as follows: “Fine Ceramic Parts Group”, “Semiconductor Parts Group”, “Applied Ceramic Products Group”, “Electronic Device Group”, “Telecommunications Equipment Group”, “Information Equipment Group”, “Optical Equipment Group” and “Others.”

 

Segment information for the six months ended September 30, 2004 has been restated to conform to the current year presentation.

 

Main products or businesses of each reporting segment are as follows;

 

(Fine Ceramic Parts Group)

Semiconductor Process Equipment Components

LCD Process Equipment Components

Sapphire Substrates

Automotive & ITS related Components

 

(Semiconductor Parts Group)

 

Ceramic Packages for Surface Mount Devices (SMD)

Ceramic Multilayer Packages/Multilayer Substrates

Metallized Products

Organic Packages/Substrates

 

(Applied Ceramic Products Group)

 

Solar Cells & Modules

Cutting Tools

Dental & Orthopedic Implants

Jewelry

 

(Electronic Device Group)

 

Passive Components (Ceramic Chip Capacitors, Tantalum Capacitors)

Timing Devices (Temperature Compensated Crystal Oscillators (TCXO)

Connectors

Thin-Film Products (Thermal Printheads, Liquid Crystal Displays)

 

(Telecommunications Equipment Group)

 

CDMA Mobile Handsets

PDC Mobile Handsets

PHS Related Products

 

(Information Equipment Group)

 

ECOSYS Non-cartridge Printers

Copiers

Digital Network Multifunction Products

 

(Optical Equipment Group)

 

Digital Still Cameras

Optical Modules

 

(Others)

 

Telecommunications Network Systems Business

Chemical Materials for Electronic Components

Leasing Business

Realty Develop Business

 

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Inter-segment sales, operating revenue and transfers are made with reference to prevailing market prices. Transactions between reportable segments are immaterial and not shown separately. Operating profit for each reporting segment represents net sales, less related costs and operating expenses, excluding corporate revenue and expenses, equity in earnings (losses), income taxes and minority interest.

 

Kyocera’s sales to KDDI Corporation and its consolidated subsidiaries, which is mainly recorded at Telecommunications Equipment group, for the six months ended September 30, 2004 and 2005, and for the year ended March 31, 2005 comprised of 6.5%, 7.2% and 7.6% of consolidated net sales, respectively.

 

Information by reporting segments for the six months ended September 30, 2004 and 2005 and for the year ended March 31, 2005 is summarized as follows:

 

Reporting Segments

        
     Yen in millions

 
     Six months ended
September 30,


    Year ended
March 31,


 
     2004

    2005

    2005

 
     Amount

    Amount

    Amount

 

Net sales:

                        

Fine Ceramic Parts Group

   ¥ 38,920     ¥ 33,258     ¥ 73,711  

Semiconductor Parts Group

     68,148       63,544       127,960  

Applied Ceramic Products Group

     44,991       55,752       93,879  

Electronic Device Group

     139,790       125,383       262,997  

Telecommunications Equipment Group

     132,357       91,084       250,918  

Information Equipment Group

     116,800       118,433       241,145  

Optical Equipment Group

     16,716       8,256       35,776  

Others

     56,193       59,034       118,040  

Adjustments and eliminations

     (13,353 )     (9,486 )     (23,771 )
    


 


 


     ¥ 600,562     ¥ 545,258     ¥ 1,180,655  
    


 


 


Operating profit:

                        

Fine Ceramic Parts Group

   ¥ 6,224     ¥ 4,805     ¥ 11,535  

Semiconductor Parts Group

     10,612       7,251       17,550  

Applied Ceramic Products Group

     7,563       9,337       17,129  

Electronic Device Group

     22,241       11,171       35,406  

Telecommunications Equipment Group

     (4,899 )     (9,355 )     (14,918 )

Information Equipment Group

     19,404       13,244       36,186  

Optical Equipment Group

     (7,357 )     (4,049 )     (15,387 )

Others

     6,160       4,704       13,019  
    


 


 


       59,948       37,108       100,520  

Corporate

     6,683       9,170       8,683  

Equity in earnings (losses) of affiliates and unconsolidated subsidiaries

     582       (236 )     (1,678 )

Adjustments and eliminations

     40       93       5  
    


 


 


Income before income taxes

   ¥ 67,253     ¥ 46,135     ¥ 107,530  
    


 


 


 

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Depreciation and amortization:

                    

Fine Ceramic Parts Group

   ¥ 2,023    ¥ 1,937    ¥ 4,320

Semiconductor Parts Group

     3,869      4,349      8,922

Applied Ceramic Products Group

     1,992      2,830      4,645

Electronic Device Group

     10,134      10,144      21,723

Telecommunications Equipment Group

     4,019      3,049      8,101

Information Equipment Group

     4,195      5,245      8,953

Optical Equipment Group

     1,245      944      2,909

Others

     2,363      1,793      4,070

Corporate

     1,249      1,472      2,266
    

  

  

     ¥ 31,089    ¥ 31,763    ¥ 65,909
    

  

  

Capital expenditures:

                    

Fine Ceramic Parts Group

   ¥ 1,851    ¥ 2,442    ¥ 4,394

Semiconductor Parts Group

     3,365      15,484      7,111

Applied Ceramic Products Group

     2,113      9,698      7,584

Electronic Device Group

     10,320      8,884      19,453

Telecommunications Equipment Group

     3,620      1,015      5,170

Information Equipment Group

     3,539      6,633      11,751

Optical Equipment Group

     1,799      111      2,248

Others

     914      5,738      2,279

Corporate

     1,110      2,016      3,186
    

  

  

     ¥ 28,631    ¥ 52,021    ¥ 63,176
    

  

  

 

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Table of Contents

Geographic Segments (Sales by Region)

 

     Yen in millions

     Six months ended
September 30,


   Year ended
March 31,


     2004

   2005

   2005

     Amount

   Amount

   Amount

Japan

   ¥ 227,772    ¥ 220,191    ¥ 472,417

United States of America

     130,505      112,642      248,333

Asia

     116,357      91,643      203,848

Europe

     83,906      87,848      175,850

Others

     42,022      32,934      80,207
    

  

  

Net sales

   ¥ 600,562    ¥ 545,258    ¥ 1,180,655
    

  

  

 

There are no individual countries of which proportion of sales to Kyocera’s consolidated net sales is material in “Asia”, “Europe” and “Others”.

 

Geographic Segments (Sales and Operating Profit by Geographic area)

 

     Yen in millions

 
     Six months ended
September 30,


    Year ended
March 31,


 
     2004

    2005

    2005

 
     Amount

    Amount

    Amount

 

Net sales:

                        

Japan

   ¥ 259,600     ¥ 234,653     ¥ 525,432  

Intra-group sales and transfer between geographic areas

     164,220       153,233       314,149  
    


 


 


       423,820       387,886       839,581  
    


 


 


United States of America

     166,827       127,527       307,490  

Intra-group sales and transfer between geographic areas

     13,711       11,007       25,299  
    


 


 


       180,538       138,534       332,789  
    


 


 


Asia

     78,674       81,144       147,654  

Intra-group sales and transfer between geographic areas

     59,642       55,529       118,877  
    


 


 


       138,316       136,673       266,531  
    


 


 


Europe

     86,288       89,666       180,604  

Intra-group sales and transfer between geographic areas

     15,313       16,593       30,475  
    


 


 


       101,601       106,259       211,079  
    


 


 


Others

     9,173       12,268       19,475  

Intra-group sales and transfer between geographic areas

     3,921       3,783       7,559  
    


 


 


       13,094       16,051       27,034  
    


 


 


Adjustments and eliminations

     (256,807 )     (240,145 )     (496,359 )
    


 


 


     ¥ 600,562     ¥ 545,258     ¥ 1,180,655  
    


 


 


 

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Table of Contents

Operating profit:

                        

Japan

   ¥ 54,484     ¥ 30,323     ¥ 91,760  

United States of America

     5,793       (3,054 )     2,091  

Asia

     8,636       5,864       13,055  

Europe

     (698 )     533       (1,482 )

Others

     740       69       1,245  
    


 


 


       68,955       33,735       106,669  

Adjustments and eliminations

     (8,967 )     3,466       (6,144 )
    


 


 


       59,988       37,201       100,525  

Corporate

     6,683       9,170       8,683  

Equity in earnings of affiliates and unconsolidated subsidiaries

     582       (236 )     (1,678 )
    


 


 


Income before income taxes

   ¥ 67,253     ¥ 46,135     ¥ 107,530  
    


 


 


 

10. Earnings Per Share

 

A reconciliation of the numerators and the denominators of basic and diluted earnings per share (EPS) computations is as follows:

 

    Yen in millions and shares in thousands,
except per share amounts


   

Six months ended
September 30,


   Year ended
March 31,


    2004

   2005

   2005

Net income

  ¥ 42,549    ¥ 24,214    ¥ 45,908

Basic earnings per share:

                   

Net income

    226.94      129.16      244.86

Diluted earnings per share:

                   

Net income

    226.85      129.15      244.81
   

  

  

Basic weighted average number of shares outstanding

    187,492      187,478      187,489

Dilutive effect of stock options

    77      19      39

Diluted weighted average number of shares outstanding

    187,569      187,497      187,528
   

  

  

 

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Table of Contents

11. Supplemental Cash Flow Information

 

Supplemental information related to the consolidated statements of cash flows is as follows:

 

     Yen in millions

 
     Six months ended
September 30,


   Year ended
March 31,


 
     2004

    2005

   2005

 

Cash paid during the period for:

                       

Interest

   ¥ 1,277     ¥ 917    ¥ 2,331  

Income taxes

     18,165       31,586      40,055  

Acquisitions of business:

                       

Fair value of assets acquired

   ¥ 8,478       —      ¥ 8,478  

Fair value of liabilities assumed

     (2,683 )     —        (2,683 )

Minority interests

     (2,440 )     —        (2,440 )

Cash acquired

     (561 )     —        (561 )
    


 

  


     ¥ 2,794       —      ¥ 2,794  
    


 

  


 

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Table of Contents

12. Sale of Share of Taito Corporation

 

On September 28, 2005, Kyocera Corporation sold its entire holding of shares of Taito Corporation (Taito) (133,260 shares, 36.02% of outstanding shares), an equity-method affiliate, engaged in the amusement business, in a tender offer bid for Taito shares by Square Enix Co., Ltd., one of the leading companies in the game software industry. As a result of this sale of Taito shares, Kyocera Corporation recorded a gain of ¥6,931 million.

 

13. Subsequent Events

 

Following the merger of Mitsubishi Tokyo Financial Group, Inc. and UFJ Holdings, Inc., on October 1, 2005, Kyocera’s shares of UFJ Holdings, Inc. were exchanged for the shares of the new company, Mitsubishi UFJ Financial Group. As a result of this share exchange, Kyocera plans to record a gain of ¥5,284 million in the third quarter of the year ending March 31, 2006.

 

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Non-Consolidated Results of Kyocera Corporation (parent company)

for the Six Months Ended September 30, 2005

 

The interim non-consolidated financial statements are in conformity with accounting principles generally accepted in Japan.

 

Date of the board of directors’ meeting for the interim results : October 27, 2005

Payment date of interim dividends : December 5, 2005

 

1. Results for the six months ended September 30, 2005 :

 

(1) Results of operations :

 

     Japanese yen

     Six months ended September 30,

    Year ended March 31,

     2005

    2004

    2005

Net sales

   ¥ 220,901 million     ¥ 250,463 million     ¥ 493,271 million

% change from the previous period

     (11.8 )%     5.3 %      

Profit from operations

     12,383 million       21,297 million       33,822 million

% change from the previous period

     (41.9 )%     21.2 %      

Recurring profit

     26,903 million       34,937 million       66,434 million

% change from the previous period

     (23.0 )%     33.5 %      

Net income

     31,865 million       20,512 million       34,327 million

% change from the previous period

     55.3 %     26.9 %      
    


 


 

Earnings per share

   ¥ 169.97     ¥ 109.40     ¥ 182.77
    


 


 

 

Notes :

    

1. Average number of common stock outstanding during the period :

    

Six months ended September 30, 2005

   187,478,104 shares

Six months ended September 30, 2004

   187,492,144 shares

Year ended March 31, 2005

   187,488,658 shares

2. Change in accounting policies :

   None

 

(2) Dividend information :

 

     Japanese yen

     Six months ended September 30,

   Year ended March 31,

     2005

   2004

   2005

Interim dividends per share

   ¥ 50.00    ¥ 30.00      —  

Annual dividends per share

     —        —      ¥ 80.00

 

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Table of Contents

(3) Financial Condition :

 

     Japanese yen

 
     September 30,

    March 31,

 
     2005

    2004

    2005

 

Total assets

   ¥ 1,343,060 million     ¥ 1,233,908 million     ¥ 1,232,069 million  

Stockholders’ equity

     1,100,768 million       1,025,776 million       1,036,744 million  
    


 


 


Stockholders’ equity to total assets

     82.0 %     83.1 %     84.1 %
    


 


 


Stockholders’ equity per share

   ¥ 5,871.53     ¥ 5,471.05     ¥ 5,529.54  

 

 

Notes : Total number of shares outstanding as of :

    

September 30, 2005

   187,475,323 shares

September 30, 2004

   187,491,883 shares

March 31, 2005

   187,481,084 shares

Total number of treasury stock as of :

    

September 30, 2005

   3,833,967 shares

September 30, 2004

   3,817,407 shares

March 31, 2005

   3,828,206 shares

 

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Table of Contents

BALANCE SHEETS

 

     Yen in millions

     September 30, 2005

   March 31, 2005

   September 30, 2004

     Amount

    %

   Amount

    %

   Amount

    %

Current assets :

                                      

Cash and bank deposits

   ¥ 142,633          ¥ 154,347          ¥ 158,313      

Trade notes receivable

     39,963            40,249            45,630      

Trade accounts receivable

     84,134            90,666            88,650      

Marketable securities

     208            12,606            1,517      

Finished goods and merchandise

     17,450            15,483            23,840      

Raw materials

     18,353            21,663            24,128      

Work in process

     18,710            20,217            19,676      

Supplies

     553            625            532      

Deferred income taxes

     15,144            12,525            10,879      

Short-term loans to subsidiaries

     2,191            3,766            3,343      

Other accounts receivable

     7,302            5,413            5,884      

Other current assets

     1,913            1,004            831      

Allowances for doubtful accounts

     (133 )          (139 )          (140 )    
    


 
  


 
  


 

Total current assets

     348,421     25.9      378,425     30.7      383,083     31.0
    


 
  


 
  


 

Non-current assets :

                                      

Tangible fixed assets :

                                      

Buildings

     36,411            33,378            34,569      

Structures

     2,165            2,131            2,185      

Machinery and equipment

     40,804            36,706            35,250      

Vehicles

     30            27            31      

Tools, furniture and fixtures

     7,578            7,652            8,677      

Land

     33,323            32,277            31,972      

Construction in progress

     5,783            1,958            985      
    


 
  


 
  


 

Total tangible fixed assets

     126,094     9.4      114,129     9.3      113,669     9.2
    


 
  


 
  


 

Intangible assets :

                                      

Patent rights and others

     11,234            2,192            2,651      
    


 
  


 
  


 

Total intangible assets

     11,234     0.8      2,192     0.2      2,651     0.2