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Kyocera 6-K 2006

Documents found in this filing:

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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 October 2006

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-


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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/ AKIHIKO TOYOTANI

Akihiko Toyotani
General Manager of
Finance Division

Date: October 30, 2006


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Information furnished on this form:

EXHIBITS

 

Exhibit
Number

      

1.

    

Consolidated and Non-Consolidated Financial Results for the Six Months Ended September 30, 2006

2.

    

Supplemental information for Consolidated Financial Results for the Six Months Ended September 30, 2006


Table of Contents

Consolidated Results of Kyocera Corporation and its Subsidiaries

for the Six Months Ended September 30, 2006

The consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America.

Date of the board of directors’ meeting for the interim consolidated results: October 30, 2006

1. Results for the six months ended September 30, 2006

(1) Consolidated results of operations:

 

     Japanese yen
     Six months ended September 30,     Year ended March 31,
     2006     2005     2006

Net sales

   ¥ 615,390 million     ¥ 542,238 million     ¥ 1,173,544 million

% change from the previous period

     13.5 %     (9.2 )%  

Profit from operations

     63,128 million       33,764 million       99,695 million

% change from the previous period

     87.0 %     (44.0 )%  

Income from continuing operations before income taxes

     72,385 million       44,329 million       117,237 million

% change from the previous period

     63.3 %     (32.2 )%  

Net income

     53,493 million       24,214 million       69,696 million

% change from the previous period

     120.9 %     (43.1 )%  
                      

Earnings per share:

      

Basic

   ¥ 284.64     ¥ 129.16     ¥ 371.68

Diluted

     284.14       129.15       371.43
                      

Notes:

1. Equity in earnings (losses) of affiliates and unconsolidated subsidiaries:

        Six months ended September 30, 2006

   ¥ 259 million

        Six months ended September 30, 2005

   ¥ (236) million

        Year ended March 31, 2006

   ¥ (1,216) million

2. Average number of shares outstanding during the period:

        Six months ended September 30, 2006

   187,932,385 shares

        Six months ended September 30, 2005

   187,478,104 shares

        Year ended March 31, 2006

   187,513,918 shares

3. Change in accounting policies: None

4. In accordance with Statement of Financial Accounting Standards No.144, “Accounting for the Impairment of Disposal of Long-Lived Assets,” the consolidated financial statements for the six months ended September 30, 2005 and for the year ended March 31, 2006 have been retrospectively reclassified as for the discontinued operations.

(2) Consolidated financial position:

 

     Japanese yen  
     September 30,     March 31,  
     2006     2005     2006  

Total assets

   ¥1,951,702 million     ¥1,862,928 million     ¥1,931,522 million  

Stockholders’ equity

   1,373,567 million     1,241,695 million     1,289,077 million  

Stockholders’ equity to total assets

   70.4 %   66.6 %   66.7 %

Stockholders’ equity per share

   ¥7,306.02     ¥6,623.25     ¥6,865.75  

Notes: Total number of shares outstanding as of:

  September 30, 2006

   188,004,780 shares

  September 30, 2005

   187,475,323 shares

  March 31, 2006

   187,754,750 shares

 

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(3) Consolidated cash flows:

 

     Japanese yen
     Six months ended September 30,    Year ended March 31,
     2006    2005    2006

Cash flows from operating activities

   ¥ 47,923 million    ¥ 71,772 million    ¥ 171,077 million

Cash flows from investing activities

     (74,084) million      (123,091) million      (165,467) million

Cash flows from financing activities

     (13,079) million      (9,657) million      (23,289) million

Cash and cash equivalents at end of period

     263,751 million      253,885 million      300,809 million

(4) Scope of consolidation and application of the equity method:

Number of consolidated subsidiaries: 168

Number of subsidiaries accounted for by the equity method: 2

Number of affiliates accounted for by the equity method: 12

(5) Changes in scope of consolidation and application of the equity method:

 

     Consolidation    Equity method

Increase

   6    0

Decrease

   6    0

2. Consolidated financial forecast for the year ending March 31, 2007 :

 

     Year ending March 31, 2007

Net sales

   ¥1,250,000 million

Income from continuing operations before income taxes

   ¥148,000 million

Net income

   ¥96,000 million

Note:

Forecast of earnings per share: ¥509.92

Earnings per share amounts is computed based on Statement of Financial Accounting Standards No.128.

Forecast of earnings per share is computed based on the diluted average number of shares outstanding during

the six months ended September 30, 2006.

With regard to forecasts set forth above, please refer to the accompanying “Forward Looking Statements” on page 19.

 

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LOGO

October 30, 2006

KYOCERA CORPORATION

Consolidated Financial Highlights

Results for the Six Months Ended September 30, 2006

 

 

    

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

and the number of employees)

 
   Six Months Ended September 30,   

Increase
(Decrease)

(%)

 
   2005    2006   

Net sales

   542,238    615,390    13.5  

Profit from operations

   33,764    63,128    87.0  

Income from continuing operations before income taxes

   44,329    72,385    63.3  

Net income

   24,214    53,493    120.9  

Average exchange rates :

        

US$

   109    115    —    

Euro

   136    146    —    

Earnings per share :

        

Net income

        

Basic

   129.16    284.64    120.4  

Diluted

   129.15    284.14    120.0  

Capital expenditures

   50,637    37,239    (26.5 )

Depreciation

   28,034    33,682    20.1  

R&D expenses

   29,328    30,257    3.2  

Total assets

   1,862,928    1,951,702    4.8  

Stockholders’ equity

   1,241,695    1,373,567    10.6  

Sales of products manufactured outside Japan to net sales (%)

   29.7    34.9    —    

The number of employees

   59,347    63,235    —    

Note: Kyocera sold Kyocera Leasing Co., Ltd., a subsidiary engaged in financing, and as a result, operating results and gain on sales of Kyocera Leasing Co., Ltd. for the six months ended September 30, 2006 have been recorded as income from discontinued operations in accordance with accounting principles generally accepted in the U.S. Figures for the six months ended September 30, 2005 have been retrospectively reclassified and consolidated statement of income for all prior periods have been adjusted to reflect this presentation. As a result, reclassified consolidated net sales for the six months ended September 30, 2005 decreased by ¥3,020 million compared with the result previously announced, reclassified profit from operations decreased by ¥1,585 million and income from continuing operations before income taxes decreased by ¥1,806 million, respectively.

 

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KYOCERA GROUP

Kyocera group consists of Kyocera Corporation, 170 subsidiaries and 12 affiliates.

(Chart of the group companies)

LOGO

 

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Management Policies

1. Basic Policy

Kyocera Corporation and its consolidated subsidiaries (collectively, “Kyocera Group”, the “Group” or “Kyocera”) aim to be “The Company” respected by society from the perspective of corporate ethics, while maintaining continuous sales growth and high profitability. To realize this management vision, Kyocera’s management policy is “to be a creative company that continues to grow” and “going back to the origin of the ‘Amoeba Management’ system.” Under such policy, Kyocera seeks to raise corporate value through improvement in business performance by putting emphasis on the efficient use of management resources and continuously enhancing consolidated management. In addition, the Kyocera Philosophy, which establishes “doing what is right as a human being” as the principle criterion for all business decisions, is shared and put into practice by all employees.

2. Medium Term Management Strategy

Kyocera promotes “high-value-added diversification” as its management strategy to realize such management policy. This involves ensuring that each business is highly profitable and pursuing synergies within Kyocera with the objective of driving sustainable growth even in an ever-changing business environment.

Specifically, Kyocera aims to: (1) exploit competitive advantages; (2) strengthen existing businesses; and (3) create new businesses.

1) Exploit competitive advantages

The “Kyocera Philosophy,” which places people’s hearts at its core, the “Amoeba Management” system, which is unique to Kyocera and has been a driving force for growth since Kyocera Corporation’s earliest days, and a strong financial structure, are sources of competitive advantage for Kyocera over other companies in implementing its diversification strategy. With these foundations firmly in place, Kyocera endeavors to strengthen competitiveness in technological development, sales and marketing in the high-growth-potential markets for telecommunications and information processing and for environmental protection, and to translate its diversification strategy into improved business performance.

2) Strengthen existing businesses

Kyocera strives to continuously improve profitability in all existing business within Kyocera Group. Elsewhere, by strengthening ties and maximizing synergies between headquarters and Kyocera Group companies, Kyocera seeks to improve profitability in each business segment on a consolidated basis. In promoting a global strategy in each business, Kyocera has created development, manufacturing and sales systems in optimal locations, while the integration of Group-wide resources helps boost the competitiveness of existing businesses. Kyocera regularly reviews those businesses that have lost market competitiveness and that show little promise of expansion going forward.

3) Create new businesses

Kyocera endeavors to create businesses that will become its core going forward in order to improve consolidated performance over the medium term. To achieve this goal, Kyocera integrates Group-wide management resources to develop new technologies and products and create new markets. The focus of Kyocera’s business creation strategy lies in the markets for telecommunications and information processing and for environmental protection.

3. Challenges

Kyocera aims to maintain ongoing sales expansion and high profitability in its components and equipment businesses in order to be “a creative company that continues to grow.” In this regard, Kyocera has implemented several initiatives outlined below to quickly achieve its target of a pre-tax profit ratio of 15% or higher.

1) Reinforce the “Amoeba Management” system Kyocera is strengthening its “Amoeba Management” system, which is unique management resource of Kyocera and remains a source of competitive advantage over other companies. It has been a major driving force for growth since its foundation. Kyocera plans to reinforce this system to revitalize operations across development, manufacturing, sales and back office divisions. The aim is to boost ability to achieve targets.

 

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2) Boost profitability in the equipment business

Kyocera has been conducting fundamental structural reforms in the Telecommunications Equipment Group over the past two years as a means of raising profitability. The positive effects of the reform have been reflected in steadily improving business performance in the first half of the year ending March 2007. In the second half of the year ending March 2007 and onward, Kyocera will strive to expand profits by maximizing group-wide synergies to promote business development.

Kyocera also seeks to further improve business performance in the Information Equipment Group. To achieve this, it will expand sales of multifunctional products and printers that are distinctive from the competition through effective utilization of component and device technology within Kyocera. Kyocera will also continue to release new high-value-added products such as color and network-compatible models.

Through the continuous implementation of the aforementioned initiatives, Kyocera pursues further corporate growth.

4. Basic Profit Distribution Policy

Kyocera believes that enhancing its performance into the future will lead to greater corporate value and to meeting shareholders’ expectations. In considering profit distribution, Kyocera aims to establish a strong link between dividend amounts and its performance. In particular, Kyocera will determine dividend amounts based on an overall assessment that will take into consideration capital expenditures necessary for the further development of Kyocera from a medium to long-term perspective, while also aiming for a payout ratio of approximately 20 to 25% on a consolidated basis.

In order to drive ongoing corporate growth, Kyocera will aggressively strive to cultivate new businesses and markets, to develop new technologies and to acquire external management resources, when necessary, to strengthen existing businesses. For such purpose, Kyocera will maintain a sound and stable financial position and increase internal reserves to enable timely investments.

5. Parent Company

Kyocera does not have a parent company.

 

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Business Results and Financial Condition

1. Business Results for the Six Months Ended September 30, 2006

(1) Economic Business Environment

The Japanese economy expanded steadily in the six months ended September 30, 2006 (the first half) on the back of growth in private-sector demand, spurred primarily by increasing private capital investment and personal spending supported by rising corporate earnings. The Chinese economy remained buoyant due to persistent expansion in capital investment activities. Similar to the Japanese economy, the U.S. economy continued to grow amid rising corporate earnings and personal spending. The European economy grew steadily due to increasing exports.

In the electronics industry, which is the principal market for Kyocera, a year-on-year increase in production of mobile phone handsets and digital TVs led to a considerable increase in demand for electronic components for these products.

(2) Consolidated Financial Results

Kyocera achieved an increase in sales and profits in the first half compared with the six months ended September 30, 2005 (the previous first half) in both the components and equipment businesses thanks to active efforts to launch new products in the favorable market environment and to improved productivity. Consolidated net sales for the first half amounted to ¥615,390 million, a 13.5% increase compared with the previous first half. Profit from operations increased by 87.0% to ¥63,128 million and income from continuing operations before income taxes and minority interest increased by 63.3% to ¥72,385 million. Net income increased by 120.9% to ¥53,493 million as tax refunds in the amount of ¥4,356 million accompanying the voidance of a portion of the correction disposition related to transfer pricing adjustment (see (3) Implemented management measures and significant decision 4) below for details).

 

     (Yen in millions, except per share amounts and exchange rates)
     Six months ended September 30,   

Increase (Decrease)

(%)

     2005    2006   
     Amount    % to net sales    Amount    % to net sales   

Net sales

   542,238    100.0    615,390    100.0    13.5

Profit from operations

   33,764    6.2    63,128    10.3    87.0

Income from continuing operations before income taxes

   44,329    8.2    72,385    11.8    63.3

Net income

   24,214    4.5    53,493    8.7    120.9

Diluted earnings per share

   129.15    —      284.14    —      —  

Average US$ exchange rate

   109    —      115    —      —  

Average Euro exchange rate

   136    —      146    —      —  

Note 1. Kyocera has sold its share in Kyocera Leasing Co., Ltd., a subsidiary engaged in financing, and as a result, business results and profit on sales for Kyocera Leasing for the first half have been recorded as income from discontinued operations in conformity with accounting principles generally accepted in the U.S. Figures for the first half have been retrospectively reclassified. As a result, reclassified consolidated net sales for the previous first half decreased by ¥3,020 million compared with the result previously announced, reclassified profit from operations decreased by ¥1,585 million and income from continuing operations before income taxes decreased by ¥1,806 million, respectively.

(3) Implemented management measures and significant decision

1) Effective April 1, 2006, Kyocera shifted to a new management system to speed up its decision making. The executive officer system undertaken by the officers with the titles of Chief Executive Officer, Chief Financial Officer and Chief Operating Officer was abandoned, and a new system was introduced in which the President, Representative Director and Executive Officer undertakes total responsibility for formulation and execution of the Group’s management strategies.

 

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2) In July 2006, Kyocera Kinseki Corporation acquired Hertz Technology Inc. as a wholly-owned subsidiary in order to further enhance its crystal devices business. Through this acquisition, Kyocera will gain new technology for tuning-fork crystal units, demand for which is expected to grow for mobile phone handsets and mobile music players, in particular, and thus expand its business as a total crystal device manufacturer. A wide range of products will be developed in the crystal devices business going forward. Hertz Technology Inc. was renamed Kyocera Kinseki Hertz Corporation on October 1, 2006.

3) As part of its policy of business selection and concentration, Kyocera transferred its shares of Kyocera Leasing Co., Ltd., a subsidiary engaged in financing services, to Diamond Lease Company Limited in August 2006. In line with this, ¥5,175 million was recorded as income from discontinued operations.

4) In the fiscal year ended March 31, 2005, Kyocera recorded ¥12,748 million as additional taxes accompanying the receipt of a tax assessment notice for transfer pricing adjustments from the Osaka Regional Taxation Bureau. On May 24, 2005, Kyocera filed a notice of opposition to such assessment with the Bureau. On September 25, 2006, Kyocera received an opposition decision letter from the Bureau that voided a portion of the original disposition. In accordance with this opposition decision, ¥4,356 million of tax refunds, including local taxes, is recognized as income tax benefits in the first half. Kyocera remains in disagreement with the decision concerning the portion of the original disposition that was not voided, and therefore on October 23, 2006, Kyocera submitted a written claim for examination with the Osaka Board of Tax Appeals. Concurrently, Kyocera is undertaking comprehensive deliberations that include consideration of a motion for mutual agreement procedures with the aim of avoiding double taxation within Kyocera.

 

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(4) Consolidated Sales and Operating Profits by Reporting Segment

 

     (Yen in millions)  
     Six months ended September 30,    

Increase (Decrease)

(%)

 
     2005     2006    
     Amount    

% to

net sales
(segment’s

sales)

    Amount    

% to

net sales

(segment’s
sales)

   

Fine Ceramic Parts Group

   33,258     6.1     38,564     6.3     16.0  

Semiconductor Parts Group

   63,544     11.7     75,843     12.3     19.4  

Applied Ceramic Products Group

   55,752     10.3     64,132     10.4     15.0  

Electronic Device Group

   125,383     23.1     139,984     22.7     11.6  
                              

Total components business

   277,937     51.2     318,523     51.7     14.6  

Telecommunications Equipment Group

   91,084     16.8     117,181     19.0     28.7  

Information Equipment Group

   118,433     21.8     124,619     20.3     5.2  

Optical Equipment Group

   8,256     1.5     5,890     1.0     (28.7 )
                              

Total equipment business

   217,773     40.1     247,690     40.3     13.7  

Others

   56,049     10.3     60,850     9.9     8.6  

Adjustments and eliminations

   (9,521 )   (1.6 )   (11,673 )   (1.9 )   —    
                              

Net sales

   542,238     100.0     615,390     100.0     13.5  
                              

Fine Ceramic Parts Group

   4,805     14.4     7,373     19.1     53.4  

Semiconductor Parts Group

   7,251     11.4     11,887     15.7     63.9  

Applied Ceramic Products Group

   9,337     16.7     8,966     14.0     (4.0 )

Electronic Device Group

   11,171     8.9     21,573     15.4     93.1  
                              

Total components business

   32,564     11.7     49,799     15.6     52.9  

Telecommunications Equipment Group

   (9,355 )   —       (1,016 )   —       —    

Information Equipment Group

   13,244     11.2     15,491     12.4     17.0  

Optical Equipment Group

   (4,049 )   —       (899 )   —       —    
                              

Total equipment business

   (160 )   —       13,576     5.5     —    

Others

   3,186     5.7     3,748     6.2     17.6  
                              

Operating profit

   35,590     6.6     67,123     10.9     88.6  
                              

Corporate

   8,882     —       5,152     —       (42.0 )

Equity in earnings of affiliates and unconsolidated subsidiaries

   (236 )   —       259     —       —    

Adjustments and eliminations

   93     —       (149 )   —       —    
                              

Income from continuing operations before income taxes

   44,329     8.2     72,385     11.8     63.3  
                              

Notes:

2. Commencing in the first half, net sales of the Precision Machine Division of Kyocera Corporation, previously included within “Corporate,” has been reclassified into “Others.” Accordingly, previously reported net sales of these reporting segments for the previous first half have been retrospectively reclassified.

3. By the reasons in notes 1 and 2, net sales of “Others” in the previous first half decreased by ¥2,985 million and “Adjustments and Eliminations” increased by ¥(35) million, compared with those previously announced.

 

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4. Commencing in the first half, operating profit of the Precision Machine Division of Kyocera Corporation, previously included within “Corporate,” have been reclassified into “Others.” Accordingly, previously reported operating profits of these reporting segments for the previous first half have been retrospectively reclassified.

5. By the reasons in notes 1 and 4, operating profit of “Others” in the previous first half decreased by ¥1,518 million and “Corporate” decreased by ¥288 million, compared with those previously announced.

Both sales and operating profit increased in the components business in the first half as compared with the previous first half due to growth in sales volume as components demand for digital consumer equipment expanded and to efforts to raise productivity. As a result, the operating profit ratio in the components business improved markedly from 11.7% in the previous first half to 15.6%.

The consolidated results by reporting segment in the components business are as follows.

1) Fine Ceramic Parts Group

Sales and operating profit in this reporting segment increased significantly compared with the previous first half. This was mainly because a recovery in the semiconductor industry led to a considerable increase in demand for ceramic parts for semiconductor fabrication equipment.

2) Semiconductor Parts Group

Sales and operating profit in this reporting segment increased compared with the previous first half due to active demand for ceramic packages used in digital consumer equipment such as mobile phone handsets.

3) Applied Ceramic Products Group

Sales in this reporting segment increased in the fiscal half compared with the previous fiscal half due to the favorable performance of the solar energy business, amid an expanding global market spurred by rising environmental awareness, and also to increased sales of cutting tools for the automotive industry.

Operating profit from cutting tools and medical materials increased in the first half as compared with the previous first half, while operating profit from solar energy business decreased due to costs for repair of defects in a portion of the products sold overseas up to the year ended March 31, 2004. Kyocera provides long-term warranties for such products, and accordingly set aside a reservation in the amount of ¥3.9 billion in the first half for warranty costs. As a result, operating profit from this reporting segment as a whole decreased as compared with the previous first half.

4) Electronic Device Group

Both sales and operating profit increased substantially in this reporting segment compared with the previous first half. Along with a particularly significant increase of sales at AVX Corporation, a U.S. subsidiary, compared with the previous first half, demand for capacitors, crystal-related components and connectors, etc., expanded due to strong production activity for digital consumer equipment.

Sales and operating profit in the equipment business increased compared with the previous first half due primarily to improved profitability in the Telecommunications Equipment Group and the Information Equipment Group resulting from higher sales, and to a reduction in loss in the Optical Equipment Group. The operating profit ratio in the equipment business stood at 5.5%, marking a significant improvement from the loss recorded in the previous first half.

The consolidated results by reporting segment in the equipment business are as follows

5) Telecommunications Equipment Group

Sales in this reporting segment increased compared with the previous first half due mainly to favorable sales of new models of mobile phone handsets in the domestic market. Operating profit also improved significantly compared with the previous first half, due to the positive effect of increased sales in the domestic mobile phone handset business and to decreased loss at Kyocera Wireless Corp., a U.S. subsidiary.

 

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6) Information Equipment Group

Both sales and operating profit in this reporting segment increased compared with the previous first half due to sales growth of digital multifunctional products and printers overseas and to the positive effect of the yen’s depreciation against the Euro and the U.S. dollar.

7) Optical Equipment Group

Sales in this reporting segment decreased compared with the previous first half due mainly to the downsizing of the camera equipment business, while operating loss was reduced by effects of a decrease in expenses for structural reforms.

Sales in “Others” increased compared with the previous first half due to sales growth in the telecommunications engineering business at Kyocera Communication Systems Co., Ltd. Operating profit also increased due primarily to an increase in profits in the electronic device materials business at Kyocera Chemical Corporation.

 

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(5) Consolidated Orders and Production by Reporting Segment

 

     (Yen in millions)  
     Six months ended September 30,    

Increase (Decrease)

(%)

 
     2005     2006    
     Amount     % to
the total
    Amount     % to
the total
   

Fine Ceramic Parts Group

   33,566     5.9     39,785     6.2     18.5  

Semiconductor Parts Group

   68,971     12.0     76,861     12.0     11.4  

Applied Ceramic Products Group

   58,241     10.1     66,757     10.4     14.6  

Electronic Device Group

   130,768     22.7     147,734     23.1     13.0  
                              

Total components business

   291,546     50.7     331,137     51.7     13.6  

Telecommunications Equipment Group

   110,467     19.2     129,231     20.2     17.0  

Information Equipment Group

   118,275     20.5     124,136     19.4     5.0  

Optical Equipment Group

   7,962     1.4     5,958     0.9     (25.2 )
                              

Total equipment business

   236,704     41.1     259,325     40.5     9.6  

Others

   57,622     10.0     61,745     9.6     7.2  

Adjustments and eliminations

   (10,487 )   (1.8 )   (12,025 )   (1.8 )   —    
                              
Orders    575,385     100.0     640,182     100.0     11.3  
                              
     (Yen in millions)  
     Six months ended September 30,     Increase (Decrease)
(%)
 
     2005     2006    
     Amount    

% to

the total

    Amount    

% to

the total

   

Fine Ceramic Parts Group

   32,963     6.1     38,959     6.1     18.2  

Semiconductor Parts Group

   64,055     11.9     77,929     12.2     21.7  

Applied Ceramic Products Group

   55,164     10.3     65,436     10.2     18.6  

Electronic Device Group

   124,363     23.2     144,236     22.5     16.0  
                              

Total components business

   276,545     51.5     326,560     51.0     18.1  

Telecommunications Equipment Group

   93,910     17.5     126,414     19.8     34.6  

Information Equipment Group

   116,617     21.8     137,311     21.5     17.7  

Optical Equipment Group

   7,616     1.4     5,923     0.9     (22.2 )
                              

Total equipment business

   218,143     40.7     269,648     42.2     23.6  

Others

   41,778     7.8     43,724     6.8     4.7  
                              

Production

   536,466     100.0     639,932     100.0     19.3  
                              

Notes:

6. Commencing in the first half, orders of the Precision Machine Division of Kyocera Corporation, previously included within “Corporate,” have been reclassified into “Others.” Accordingly, previously reported orders and production of these reporting segments in the previous first half have been retrospectively reclassified.

7. By the reasons in notes 1 and 6, order of “Others” in the previous first half decreased by ¥4,308 million and “Adjustments and Eliminations” increased by ¥(133) million, compared with those previously announced.

 

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Table of Contents

(6) Consolidated Sales by Geographic Area

 

     (Yen in millions)
     Six months ended September 30,   

Increase
(Decrease)

(%)

     2005    2006   
     Amount    % to
net sales
   Amount    % to
net sales
  

Japan

   217,171    40.0    236,735    38.5    9.0

USA

   112,642    20.8    130,265    21.2    15.6

Asia

   91,643    16.9    107,111    17.4    16.9

Europe

   87,848    16.2    97,464    15.8    10.9

Others

   32,934    6.1    43,815    7.1    33.0
                        

Net sales

   542,238    100.0    615,390    100.0    13.5
                        

Note 8. By the reasons in note 1, consolidated sales in Japan in the previous first half decreased by ¥3,020 million compared with that previously announced.

1) Japan

Sales increased compared with the previous first half due to burgeoning demand for products in the Fine Ceramic Parts Group and the Semiconductor Parts Group.

2) United States of America

Sales of the Semiconductor Parts Group and the Electronic Device Group increased due to expanded demand for components for digital consumer products. Sales of the Information Equipment Group also increased.

3) Asia

Sales increased compared with the previous first half due to expanded component demand, particularly in the Electronic Device Group.

4) Europe

Increased demand for solar energy products and products in the Electronic Device Group, coupled with sales growth in the Information Equipment Group, resulted in an increase in sales compared with the previous first half.

5) Others

Sales increased due to sales growth in the Telecommunications Equipment Group and the Information Equipment Group.

 

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Table of Contents

2. Cash Flow

Cash and cash equivalent at September 30, 2006 decreased by ¥37,058 million to ¥263,751 million compared with at March 31, 2006.

 

     (Yen in millions)  
     Six Months Ended September 30,  
     2005     2006  

Cash flow from operating activities

   71,772     47,923  

Cash flow from investing activities

   (123,091 )   (74,084 )

Cash flow from financing activities

   (9,657 )   (13,079 )

Effect of exchange rate changes on cash and cash equivalent

   4,269     2,182  

Net decrease in cash and cash equivalent

   (56,707 )   (37,058 )

Cash and cash equivalent at beginning of period

   310,592     300,809  

Cash and cash equivalent at end of period

   253,885     263,751  

(1) Cash flow from operating activities

Net cash provided by operating activities for the first half decreased by ¥ 23,849 million to ¥ 47,923 million from the previous first half of ¥71,772 million. Although net income increased by ¥29,279 million, cash and cash equivalent in connection with receivables and inventories decreased compared with the previous first half.

(2) Cash flow from investing activities

Net cash used in investing activities in the first half decreased by ¥49,007 million to ¥74,084 million from the previous first half of ¥123,091 million. This was due to decreases in cash and cash equivalent used in payment for purchases of securities and property, plant, equipment and intangible assets, which exceeded decreases in cash and cash equivalent provided by sales and maturities of securities.

(3) Cash flow from financing activities

Net cash used in financing activities for the first half increased by ¥3,422 million to ¥13,079 million from the previous first half of ¥9,657 million. This was due to a decrease in proceeds from issuance of long-term debt and an increase in payments of long-term debt, which exceeded an increase in short-term debt.

 

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Table of Contents

3. Capital Expenditures and Depreciation

 

     (Yen in millions)  
     Six months ended September 30,    Increase (Decrease)
(%)
 
     2005    2006   
     Amount   

% to

net sales

   Amount    % to
net sales
  

Capital expenditures

   50,637    9.3    37,239    6.1    (26.5 )

Depreciation

   28,034    5.2    33,682    5.5    20.1  

Note 9. By the reasons in note 1, capital expenditures in the previous first half decreased by ¥1,384 million and the depreciation decreased by ¥48 million, compared with those previously announced.

In the first half, Kyocera made capital expenditures particularly to increase production capacity in the Electronic Device Group. However, capital expenditures in the first half decreased compared with the previous first half, which included large-scale expenditures such as the establishment of new production bases in the organic package business and the solar energy business. Depreciation increased compared with the previous first half.

4. Non-Consolidated Financial Results

 

     (Yen in millions)
     Six months ended September 30,   

Increase (Decrease)

(%)

     2005    2006   
     Amount    % to
net sales
   Amount    % to
net sales
  

Net sales

   220,901    100.0    259,738    100.0    17.6

Profit from operations

   12,383    5.6    21,284    8.2    71.9

Recurring profit

   26,903    12.2    32,844    12.6    22.1

Net income

   31,865    14.4    33,655    13.0    5.6

5. Business Risk

Please see “Forward-Looking Statements” on page 19 for details of business risk.

 

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Table of Contents

Business Outlook

1. Consolidated Forecasts for the Year Ending March 31, 2007 (Announced on October 30, 2006)

Business performance in the first half was solid, especially in the components business, while Kyocera projects continuing favorable business environment in the second half. Accordingly, the following revisions have been made to forecasts for the year ending March 31, 2007 (fiscal 2007), which were announced on April 27, 2006.

 

     (Yen in millions, except per share amounts and exchange rates)
          Forecast for FY2007 announced on    Increase (Decrease)
to the result for
FY2006 (%)
     Result for FY2006    April 27, 2006    October 30, 2006   
     Amount   

% to

net sales

   Amount   

% to

net sales

   Amount    % to
net sales
  

Net sales

   1,173,544    100.0    1,230,000    100.0    1,250,000    100.0    6.5

Profit from operations

   99,695    8.5    123,000    10.0    133,000    10.6    33.4

Income from continuing operations before income taxes

   117,237    10.0    138,000    11.2    148,000    11.8    26.2

Net income

   69,696    5.9    83,000    6.7    96,000    7.7    37.7

Diluted earnings per share

   371.43    —      440.83    —      509.92    —      —  

Average US$ exchange rate

   113    —      109    —      114    —      —  

Average Euro exchange rate

   138    —      140    —      145    —      —  

Notes:

10. By the reasons in note 1, net sales of the year ended March 31, 2006 (fiscal 2006) decreased by ¥7,945 million, the operating profit decreased by ¥3,512 million and the income from continuing operations before income taxes decreased by ¥4,151 million, compared with those previously announced.

11. The forecast of diluted earnings per share announced previously was revised on July 27, 2006 based on the diluted average number of shares outstanding during the three months ended June 30, 2006.

12. Although Kyocera changed its previously announced forecast of average exchange rates for fiscal 2007 based on the actual exchange rates for the first quarter, it has not changed its forecast of sales and profits for fiscal 2007 released on July 27, 2006 because the impact of this change in the forecast of average exchange rates is not considered material.

 

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Table of Contents

< Consolidated Forecasts by Reporting Segments >

Consolidated forecasts by reporting segments are revised, accordingly, as follows.

 

     (Yen in millions)  
                 Forecast for FY2007 announced on     Increase (Decrease)
to the result for
FY2006 (%)
 
     Result for FY2006     April 27, 2006     October 30, 2006    
     Amount     % to
net sales
    Amount     % to
net sales
    Amount    

% to

net sales

   

Fine Ceramic Parts Group

   69,373     5.9     71,000     5.8     78,000     6.2     12.4  

Semiconductor Parts Group

   135,299     11.6     145,000     11.8     150,000     12.0     10.9  

Applied Ceramic Products Group

   117,555     10.0     122,000     9.9     129,000     10.3     9.7  

Electronic Device Group

   259,592     22.1     263,000     21.4     276,000     22.1     6.3  
                                          

Total components business

   581,819     49.6     601,000     48.9     633,000     50.6     8.8  

Telecommunications Equipment Group

   229,035     19.5     245,000     19.9     245,000     19.6     7.0  

Information Equipment Group

   249,381     21.2     260,000     21.1     260,000     20.8     4.3  

Optical Equipment Group

   14,947     1.3     11,000     0.9     11,000     0.9     (26.4 )
                                          

Total equipment business

   493,363     42.0     516,000     41.9     516,000     41.3     4.6  

Others

   117,409     10.0     133,000     10.8     125,000     10.0     6.5  

Adjustments and eliminations

   (19,047 )   (1.6 )   (20,000 )   (1.6 )   (24,000 )   (1.9 )   —    
                                          

Net sales

   1,173,544     100.0     1,230,000     100.0     1,250,000     100.0     6.5  
                                          

Notes:

13. Commencing in the first half, net sales of the Precision Machine Division of Kyocera Corporation, previously included within “Corporate,” have been reclassified into “Others.” Accordingly, previously reported net sales of these reporting segments for fiscal 2006 have been retrospectively reclassified.

14. By the reasons in notes 1 and 13, net sales of “Others” in fiscal 2006 decreased by ¥7,565 million and “Adjustments and Eliminations” increased by ¥(380) million, compared with those previously announced.

 

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Table of Contents
     (Yen in millions)  
          Forecast for FY2007 announced on    Increase (Decrease)
to the result for
FY2006 (%)
 
     Result for FY2006    April 27, 2006    October 30, 2006   
     Amount     % to
segment’s
sales
   Amount    % to
segment’s
sales
   Amount     % to
segment’s
sales
  

Fine Ceramic Parts Group

   11,014     15.9    11,500    16.2    14,500     18.6    31.7  

Semiconductor Parts Group

   17,742     13.1    21,000    14.5    23,500     15.7    32.5  

Applied Ceramic Products Group

   21,876     18.6    21,500    17.6    20,000     15.5    (8.6 )

Electronic Device Group

   27,170     10.5    28,500    10.8    42,000     15.2    54.6  
                                      

Total components business

   77,802     13.4    82,500    13.7    100,000     15.8    28.5  

Telecommunications Equipment Group

   (1,706 )   —      9,000    3.7    4,000     1.6    —    

Information Equipment Group

   26,412     10.6    28,500    11.0    30,000     11.5    13.6  

Optical Equipment Group

   (5,774 )   —      0    —      (1,000 )   —      —    
                                      

Total equipment business

   18,932     3.8    37,500    7.3    33,000     6.4    74.3  

Others

   8,983     7.7    14,000    10.5    9,000     7.2    0.2  
                                      

Operating profit

   105,717     9.0    134,000    10.9    142,000     11.4    34.3  
                                      

Corporate and others

   11,520     —      4,000    —      6,000     —      (47.9 )
                                      

Income from continuing operations before income taxes

   117,237     10.0    138,000    11.2    148,000     11.8    26.2  
                                      

Notes:

15. Commencing in the first half, operating profits of the Precision Machine Division of Kyocera Corporation, previously included within “Corporate,” have been reclassified into “Others.” Accordingly, previously reported operating profits of these reporting segments for fiscal 2006 have been retrospectively reclassified.

16. By the reasons in notes 1 and 15, operating profit of “Others” in fiscal 2006 decreased by ¥3,577 million compared with that previously announced.

The business environment in the second half remains uncertain on account of rising material prices, particularly crude oil and precious metals, coupled with concerns over a slowdown in the U.S. economy. Nonetheless, in the electronics industry, demand for components for digital consumer equipment is projected to remain high. In addition to the sale of next-generation game consoles and new digital consumer products for the Christmas selling season, the introduction of Mobile Number Portability in Japan in October this year is expected to be another positive factor.

To make the most of such business opportunities, Kyocera intends to improve performance in the components business by boosting market share through the introduction of new high-value-added products and by cultivating new markets. In the equipment business, Kyocera will improve profitability through the timely launch of new products to assure capture of business opportunities. Specifically, Kyocera aims to increase profitability by releasing highly sophisticated mobile phone handsets in the Telecommunications Equipment Group and by expanding sales of new high-value-added multifunctional products and printers including color models in the Information Equipment Group.

 

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Table of Contents

2. Non-Consolidated Forecasts for the Year Ending March 31, 2007 (Announced on October 30, 2006)

 

     (Yen in millions)  
               Forecast for FY2007 announced on    Increase (Decrease)
to the result for
FY2006 (%)
 
     Result for FY2006    April 27, 2006    October 30, 2006   
     Amount    % to
net sales
   Amount    % to
net sales
   Amount    % to
net sales
  

Net sales

   477,379    100.0    510,000    100.0    520,000    100.0    8.9  

Profit from operations

   39,937    8.4    44,000    8.6    45,000    8.7    12.7  

Recurring profit

   68,182    14.3    74,000    14.5    75,000    14.4    10.0  

Net income

   68,712    14.4    53,000    10.4    61,000    11.7    (11.2 )

Note: Forward-Looking Statements

Certain of the statements made in this document are forward-looking statements (within the meaning of Section 21E of the U.S. Securities and Exchange Act of 1934), which are based on our current assumptions and beliefs in light of the information currently available to us. These forward-looking statements involve known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors include, but are not limited to: general economic conditions in our markets, which are primarily Japan, North America, Europe, and Asia, particularly including China; changes in exchange rates, particularly between the yen and the U.S. dollar and euro, respectively, in which we make significant sales; our ability to launch innovative products and otherwise meet the advancing technical requirements of our customers, particularly in the highly competitive markets for ceramics, semiconductor parts and electronic components; and the extent and pace of future growth or contraction in information technology-related markets around the world, including those for communications and personal computers; fluctuations in the value of securities and other assets held by us and changes in accounting principles; business performance of other companies with which we maintain business alliances; laws and regulations relating to the taxation, and to manufacturing and trade; events that may impact negatively on our markets or supply chain, including terrorist acts and outbreaks of diseases; and the occurrence of natural disasters, such as earthquakes, in locations where our manufacturing and other key business facilities are located. Such risks, uncertainties and other factors may cause our actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements included in this document.

 

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Table of Contents

CONSOLIDATED BALANCE SHEETS

 

     Yen in millions
     September 30, 2006    March 31, 2006    September 30, 2005
     Amount     %    Amount     %    Amount     %

Current assets :

              

Cash and cash equivalents

   ¥ 263,751        ¥ 300,809        ¥ 253,885    

Short-term investments

     128,747          87,942          94,526    

Trade notes receivable

     25,181          24,597          25,439    

Trade accounts receivable

     228,198          210,393          196,743    

Short-term finance receivables

     —            39,505          42,194    

Less allowances for doubtful accounts and sales returns

     (7,384 )        (7,425 )        (7,919 )  

Inventories

     220,879          190,564          200,607    

Deferred income taxes

     45,609          40,411          38,985    

Other current assets

     46,151          33,872          29,136    
                                      

Total current assets

     951,132     48.7      920,668     47.7      873,596     46.9
                                      

Non-current assets :

              

Investments in and advances to affiliates and unconsolidated subsidiaries

     7,499          7,355          12,037    

Securities and other investments

     622,344          553,377          539,423    
                                      

Total investments and advances

     629,843     32.3      560,732     29.0      551,460     29.6

Long-term finance receivables

     —       —        80,970     4.2      74,247     4.0

Property, plant and equipment, at cost :

              

Land

     56,969          58,286          58,553    

Buildings

     253,643          249,506          241,692    

Machinery and equipment

     717,718          697,383          680,879    

Construction in progress

     11,817          13,473          13,679    

Less accumulated depreciation

     (752,878 )        (733,302 )        (713,078 )  
                                      
     287,269     14.7      285,346     14.8      281,725     15.1

Goodwill

     31,615     1.6      31,351     1.6      30,727     1.7

Intangible assets

     29,516     1.5      31,227     1.6      30,124     1.6

Other assets

     22,327     1.2      21,228     1.1      21,049     1.1
                                      

Total non-current assets

     1,000,570     51.3      1,010,854     52.3      989,332     53.1
                                      

Total assets

   ¥ 1,951,702     100.0    ¥ 1,931,522     100.0    ¥ 1,862,928     100.0
                                      

 

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Table of Contents
     Yen in millions
     September 30, 2006    March 31, 2006    September 30, 2005
     Amount     %    Amount     %    Amount     %

Current liabilities :

              

Short-term borrowings

   ¥ 12,929        ¥ 90,865        ¥ 67,422    

Current portion of long-term debt

     6,643          16,347          53,123    

Trade notes and accounts payable

     111,059          103,503          90,713    

Other notes and accounts payable

     52,365          51,997          50,208    

Accrued payroll and bonus

     39,417          37,998          36,769    

Accrued income taxes

     31,343          27,658          25,137    

Other accrued liabilities

     36,230          31,414          31,143    

Other current liabilities

     24,217          18,841          17,595    
                                      

Total current liabilities

     314,203     16.1      378,623     19.6      372,110     20.0
                                      

Non-current liabilities :

              

Long-term debt

     9,243          33,360          25,920    

Accrued pension and severance liabilities

     23,541          27,092          27,397    

Deferred income taxes

     149,097          125,686          123,151    

Other non-current liabilities

     12,992          12,742          11,595    
                                      

Total non-current liabilities

     194,873     10.0      198,880     10.3      188,063     10.1
                                      

Total liabilities

     509,076     26.1      577,503     29.9      560,173     30.1
                                      

Minority interests in subsidiaries

     69,059     3.5      64,942     3.4      61,060     3.3

Stockholders’ equity :

              

Common stock

     115,703          115,703          115,703    

Additional paid-in capital

     162,080          161,994          162,060    

Retained earnings

     1,011,682          967,576          931,468    

Accumulated other comprehensive income

     111,211          72,947          63,890    

Treasury stock, at cost

     (27,109 )        (29,143 )        (31,426 )  
                                      

Total stockholders’ equity

     1,373,567     70.4      1,289,077     66.7      1,241,695     66.6
                                      

Total liabilities, minority interests and stockholders’ equity

   ¥ 1,951,702     100.0    ¥ 1,931,522     100.0    ¥ 1,862,928     100.0
                                      

Note: Accumulated other comprehensive income is as follows:

 

     Yen in millions  
     September 30, 2006     March 31, 2006     September 30, 2005  

Net unrealized gains on securities

   ¥ 114,808     ¥ 82,649     ¥ 84,536  

Net unrealized losses on derivative financial instruments

   ¥ (58 )   ¥ (75 )   ¥ (13 )

Minimum pension liability adjustments

   ¥ (2,057 )   ¥ (2,057 )   ¥ (1,629 )

Foreign currency translation adjustments

   ¥ (1,482 )   ¥ (7,570 )   ¥ (19,004 )

 

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Table of Contents

CONSOLIDATED STATEMENTS OF INCOME

 

     Yen in millions, except per share amounts  
     Six months ended September 30,    

Increase

(Dearease)

%

   

Year ended March 31,

2006

 
     2006     2005      
     Amount     %     Amount     %       Amount     %  

Net sales

   ¥ 615,390     100.0     ¥ 542,238     100.0     13.5     ¥ 1,173,544     100.0  

Cost of sales

     429,681     69.8       390,902     72.1     9.9       835,042     71.2  
                                                

Gross profit

     185,709     30.2       151,336     27.9     22.7       338,502     28.8  

Selling, general and administrative expenses

     122,581     19.9       117,572     21.7     4.3       238,807     20.3  
                                                

Profit from operations

     63,128     10.3       33,764     6.2     87.0       99,695     8.5  

Other income or expenses :

              

Interest and dividend income

     6,790     1.1       3,896     0.7     74.3       8,990     0.8  

Interest expense

     (782 )   (0.1 )     (633 )   (0.1 )   —         (1,301 )   (0.1 )

Foreign currency transaction gains (losses), net

     273     0.1       (91 )   (0.0 )   —         (316 )   (0.0 )

Equity in earnings (losses) of affiliates and unconsolidated subsidiaries

     259     0.0       (236 )   (0.0 )   —         (1,216 )   (0.1 )

Gains on sale of securities, net of losses

     3,252     0.5       478     0.1     580.3       1,472     0.1  

Gains on exchange for the shares

     24     0.0       13     0.0     84.6       5,294     0.4  

Gain on sale of investment in an affiliate

     —       —         6,931     1.3     —         6,931     0.6  

Loss on impairment of investment in an affiliate

     —       —         —       —       —         (3,492 )   (0.3 )

Other, net

     (559 )   (0.1 )     207     0.0     —         1,180     0.1  
                                                

Total other income

     9,257     1.5       10,565     2.0     (12.4 )     17,542     1.5  
                                                

Income from continuing operations before income taxes and minority interests

     72,385     11.8       44,329     8.2     63.3       117,237     10.0  

Income taxes

     20,954     3.4       19,924     3.7     5.2       46,760     4.0  
                                                

Income from continuing operations before minority interests

     51,431     8.4       24,405     4.5     110.7       70,477     6.0  

Minority interests

     (3,113 )   (0.5 )     (1,472 )   (0.3 )   —         (4,389 )   (0.4 )
                                                

Income from continuing operations

     48,318     7.9       22,933     4.2     110.7       66,088     5.6  

Income from discontinued operations

     5,175     0.8       1,281     0.3     304.0       3,608     0.3  
                                                

Net income

   ¥ 53,493     8.7     ¥ 24,214     4.5     120.9     ¥ 69,696     5.9  
                                                

Earnings per share:

              

Income from continuing operations

              

Basic

   ¥ 257.10       ¥ 122.32         ¥ 352.44    

Diluted

   ¥ 256.65       ¥ 122.31         ¥ 352.21    

Income from discontinued operations

              

Basic

   ¥ 27.54       ¥ 6.84         ¥ 19.24    

Diluted

   ¥ 27.49       ¥ 6.84         ¥ 19.22    

Net income

              

Basic

   ¥ 284.64       ¥ 129.16         ¥ 371.68    

Diluted

   ¥ 284.14       ¥ 129.15         ¥ 371.43    

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

              

Basic

     187,932         187,478           187,514    

Diluted

     188,266         187,497           187,640    

 

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Notes:

1. Kyocera applies the Statement of Financial Accounting Standards Board (SFAS) No.130, “Reporting Comprehensive Income” Based on this standard, comprehensive income for the six months ended September 30, 2006 and 2005 were an increase of ¥91,757 million and an increase of ¥76,265 million, respectively.
2. Earnings per share amounts were computed based on SFAS No.128, “Earnings per Share.” Under SFAS No.128, basic earnings per share was computed based on the average number of shares of common stock outstanding during each period and diluted earnings per share assumed the dilution that could occur if securities or other contracts to issue common stock were converted into common stock, exercised or resulted in the issuance of common stock.
3. Against the Correction Disposition with regard to transfer pricing taxation, which was rendered by the Osaka Regional Taxation Bureau in March 2005, Kyocera filed the Request for Reinvestigation in May 2005. Kyocera then received the Decision on the Request for Reinvestigation in September 2006. Based on the Decision, ¥(4,356) million is included in income taxes shown above, as refunds for the previous years.
4. In accordance with the SFAS No.144, “Accounting for the Impairment of Disposal of Long-Lived Assets,” the consolidated financial statements for the six months ended September 30, 2005 and for the year ended March 31, 2006 have been retrospectively reclassified as for the discontinued operations.

 

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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

   Treasury
stock
    Comprehensive
income

Balance, March 31, 2005 (187,481)

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

Net income for the year

          69,696          ¥ 69,696

Other comprehensive income

            61,108        61,108
                  

Total comprehensive income for the year

               ¥ 130,804
                  

Cash dividends

          (18,748 )       

Purchase of treasury stock (20)

               (170 )  

Reissuance of treasury stock (294)

        (67 )          2,407    
                                        

Balance, March 31, 2006 (187,755)

     115,703      161,994       967,576       72,947      (29,143 )  

Net income for the period

          53,493          ¥ 53,493

Other comprehensive income

            38,264        38,264
                  

Total comprehensive income for the period

               ¥ 91,757
                  

Cash dividends

          (9,387 )       

Purchase of treasury stock (11)

               (104 )  

Reissuance of treasury stock (261)

        (23 )          2,138    

Stock option plan of a subsidiary

        109           
                                        

Balance, September 30, 2006 (188,005)

   ¥ 115,703    ¥ 162,080     ¥ 1,011,682     ¥ 111,211    ¥ (27,109 )  
                                        
     (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

   Treasury
stock
   

Comprehensive

income

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 )  
                                        

 

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Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Yen in millions  
     Six months ended
September 30,
   

Year ended

March 31,

2006

 
     2006     2005    

Cash flows from operating activities :

      

Net income

   ¥ 53,493     ¥ 24,214     ¥ 69,696  

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

      

Depreciation and amortization

     38,836       31,763       73,186  

Write-down of inventories

     3,829       4,303       8,446  

Minority interests

     3,113       1,472       4,389  

Gains on sales of securities, net of losses

     (3,252 )     (478 )     (1,652 )

Gain on sale of investment in an affiliate

     —         (6,931 )     (6,931 )

Loss on impairment of investment in an affiliate

     —         —         3,492  

Gain on sale of investment in a subsidiary

     (8,228 )     —         —    

Gains on exchange for the shares

     (24 )     (13 )     (5,294 )

(Increase) decrease in receivables

     (31,595 )     7,771       (9,237 )

(Increase) decrease in inventories

     (31,174 )     10,417       21,263  

Increase in notes and accounts payable

     18,915       5,317       14,390  

Other, net

     4,010       (6,063 )     (671 )
                        

Net cash provided by operating activities

     47,923       71,772       171,077  
                        

Cash flows from investing activities :

      

Payments for purchases of securities

     (31,521 )     (76,743 )     (109,289 )

Payments for purchases of investments and advances

     (87 )     (127 )     (224 )

Sales and maturities of securities

     30,712       38,539       52,430  

Proceeds from sale of investment in an affiliate

     —         24,133       24,133  

Proceeds from sale of investment in a subsidiary

     24,553       —         —    

Payments for purchases of property, plant and equipment, and intangible assets

     (35,509 )     (49,655 )     (102,025 )

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

     785       1,933       3,350  

Acquisition of business, net of cash acquired

     (756 )     —         3  

Acquisitions of minority interests

     (8 )     (3,575 )     (3,575 )

Deposit of negotiable certificate of deposits and time deposits

     (147,457 )     (77,056 )     (132,286 )

Withdrawal of negotiable certificate of deposits and time deposits

     85,081       18,121       100,923  

Other, net

     123       1,339       1,093  
                        

Net cash used in investing activities

     (74,084 )     (123,091 )     (165,467 )
                        

Cash flows from financing activities :

      

Increase in short-term debt

     7,316       367       23,363  

Proceeds from issuance of long-term debt

     1,928       4,783       19,876  

Payments of long-term debt

     (10,713 )     (3,756 )     (48,458 )

Dividends paid

     (10,385 )     (10,447 )     (20,473 )

Net sales (purchases) of treasury stock

     2,011       (47 )     2,169  

Other, net

     (3,236 )     (557 )     234  
                        

Net cash used in financing activities

     (13,079 )     (9,657 )     (23,289 )
                        

Effect of exchange rate changes on cash and cash equivalents

     2,182       4,269       7,896  
                        

Net decrease in cash and cash equivalents

     (37,058 )     (56,707 )     (9,783 )

Cash and cash equivalents at beginning of period

     300,809       310,592       310,592  
                        

Cash and cash equivalents at end of period

   ¥ 263,751     ¥ 253,885     ¥ 300,809  
                        

 

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Table of Contents

SUPPLEMENTAL CASH FLOW INFORMATION

 

     Yen in millions  
     Six months ended
September 30,
  

Year ended
March 31,

2006

 
     2006     2005   

Cash paid during the period for :

       

Interest

   ¥ 979     ¥ 917    ¥ 1,933  

Income taxes

     30,045       31,586      53,037  

Acquisition of business :

       

Fair value of assets acquired

   ¥ 1,151       —      ¥ 65  

Fair value of liabilities assumed

     (333 )     —        (45 )

Minority interests

     —         —        (8 )

Cash acquired

     (62 )     —        (15 )
                       
   ¥ 756       —      ¥ (3 )
                       

 

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Table of Contents

SEGMENT INFORMATION

1. Reporting segments :

 

     Yen in millions  
     Six months ended September 30,    

Increase

(Decrease)

    Year ended March 31,  
     2006     2005       2006  
     Amount     Amount     %     Amount  

Net sales :

        

Fine Ceramic Parts Group

   ¥ 38,564     ¥ 33,258     16.0     ¥ 69,373  

Semiconductor Parts Group

     75,843       63,544     19.4       135,299  

Applied Ceramic Products Group

     64,132       55,752     15.0       117,555  

Electronic Device Group

     139,984       125,383     11.6       259,592  

Telecommunications Equipment Group

     117,181       91,084     28.7       229,035  

Information Equipment Group

     124,619       118,433     5.2       249,381  

Optical Equipment Group

     5,890       8,256     (28.7 )     14,947  

Others

     60,850       56,049     8.6       117,409  

Adjustments and eliminations

     (11,673 )     (9,521 )   —         (19,047 )
                              
   ¥ 615,390     ¥ 542,238     13.5     ¥ 1,173,544  
                              

Operating profit :

        

Fine Ceramic Parts Group

   ¥ 7,373     ¥ 4,805     53.4     ¥ 11,014  

Semiconductor Parts Group

     11,887       7,251     63.9       17,742  

Applied Ceramic Products Group

     8,966       9,337     (4.0 )     21,876  

Electronic Device Group

     21,573       11,171     93.1       27,170  

Telecommunications Equipment Group

     (1,016 )     (9,355 )   —         (1,706 )

Information Equipment Group

     15,491       13,244     17.0       26,412  

Optical Equipment Group

     (899 )     (4,049 )   —         (5,774 )

Others

     3,748       3,186     17.6       8,983  
                              
     67,123       35,590     88.6       105,717  

Corporate

     5,152       8,882     (42.0 )     12,785  

Equity in earnings (losses) of affiliates and unconsolidated subsidiaries

     259       (236 )   —         (1,216 )

Adjustments and eliminations

     (149 )     93     —         (49 )
                              

Income from continuing operations before income taxes

   ¥ 72,385     ¥ 44,329     63.3     ¥ 117,237  
                              

Depreciation and amortization :

        

Fine Ceramic Parts Group

   ¥ 1,943     ¥ 1,937     0.3     ¥ 4,126  

Semiconductor Parts Group

     5,853       4,349     34.6       10,623  

Applied Ceramic Products Group

     3,791       2,830     34.0       7,167  

Electronic Device Group

     9,598       10,144     (5.4 )     21,202  

Telecommunications Equipment Group

     3,201       3,049     5.0       8,692  

Information Equipment Group

     8,239       5,245     57.1       12,641  

Optical Equipment Group

     343       944     (63.7 )     1,635  

Others

     4,241       1,856     128.5       3,989  

Corporate

     1,507       1,353     11.4       2,996  
                              

Total

   ¥ 38,716     ¥ 31,707     22.1     ¥ 73,071  
                              

Capital expenditures :

        

Fine Ceramic Parts Group

   ¥ 2,900     ¥ 2,442     18.8     ¥ 4,182  

Semiconductor Parts Group

     5,721       15,484     (63.1 )     24,136  

Applied Ceramic Products Group

     2,510       9,698     (74.1 )     14,545  

Electronic Device Group

     10,893       8,884     22.6       21,562  

Telecommunications Equipment Group

     1,745       1,015     71.9       2,639  

Information Equipment Group

     8,061       6,633     21.5       12,389  

Optical Equipment Group

     134       111     20.7       199  

Others

     4,195       4,375     (4.1 )     5,654  

Corporate

     1,080       1,995     (45.9 )     3,554  
                              

Total

   ¥ 37,239     ¥ 50,637     (26.5 )   ¥ 88,860  
                              

 

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Table of Contents

2. Geographic segments (Sales and Operating profits by geographic area) :

 

     Yen in millions  
     Six months ended September 30,    

Increase

(Decrease)

%

   

Year ended March 31,

2006

 
     2006     2005      
     Amount     Amount       Amount  

Net sales:

        

Japan

   ¥ 250,962     ¥ 231,633     8.3     ¥ 497,758  

Intra-group sales and transfer between geographic areas

     199,385       153,233     30.1       327,786  
                              
     450,347       384,866     17.0       825,544  
                              

United States of America

     155,355       127,527     21.8       288,746  

Intra-group sales and transfer between geographic areas

     17,783       11,007     61.6       26,246  
                              
     173,138       138,534     25.0       314,992  
                              

Asia

     95,265       81,144     17.4       171,015  

Intra-group sales and transfer between geographic areas

     78,505       55,529     41.4       125,586  
                              
     173,770       136,673     27.1       296,601  
                              

Europe

     101,494       89,666     13.2       189,750  

Intra-group sales and transfer between geographic areas

     19,784       16,593     19.2       33,764  
                              
     121,278       106,259     14.1       223,514  
                              

Others

     12,314       12,268     0.4       26,275  

Intra-group sales and transfer between geographic areas

     5,534       3,783     46.3       8,274  
                              
     17,848       16,051     11.2       34,549  
                              

Adjustments and eliminations

     (320,991 )     (240,145 )   —         (521,656 )
                              

Net sales

   ¥ 615,390     ¥ 542,238     13.5     ¥ 1,173,544  
                              

Operating Profits :

        

Japan

   ¥ 49,773     ¥ 28,805     72.8     ¥ 79,278  

United States of America

     9,947       (3,054 )   —         3,317  

Asia

     11,068       5,864     88.7       14,880  

Europe

     3,825       533     617.6       4,748  

Others

     852       69     1,134.8       757  
                              
     75,465       32,217     134.2       102,980  

Adjustments and eliminations

     (8,491 )     3,466     —         2,688  
                              
     66,974       35,683     87.7       105,668  

Corporate

     5,152       8,882     (42.0 )     12,785  

Equity in earnings (losses) of affiliates and unconsolidated subsidiaries

     259       (236 )   —         (1,216 )
                              

Income from continuing operations before income taxes

   ¥ 72,385     ¥ 44,329     63.3     ¥ 117,237  
                              

 

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Table of Contents

3. Geographic segments (Sales by region) :

 

     Yen in millions
     Six months ended September 30,    Increase
(Decrease)
   Year ended March 31, 2006
     2006    2005      
     Amount     %    Amount     %    Amount    %    Amount     %

Japan

   ¥ 236,735     38.5    ¥ 217,171     40.0    ¥ 19,564    9.0    ¥ 467,035     39.8

United States of America

     130,265     21.2      112,642     20.8      17,623    15.6      253,696     21.6

Asia

     107,111     17.4      91,643     16.9      15,468    16.9      198,731     16.9

Europe

     97,464     15.8      87,848     16.2      9,616    10.9      184,351     15.7

Others

     43,815     7.1      32,934     6.1      10,881    33.0      69,731     6.0
                                                  

Net sales

   ¥ 615,390     100.0    ¥ 542,238     100.0    ¥ 73,152    13.5    ¥ 1,173,544     100.0
                                                  

Sales outside Japan

   ¥ 378,655        ¥ 325,067        ¥ 53,588    16.5    ¥ 706,509    

Sales outside Japan to net sales

     61.5 %        60.0 %              60.2 %  

 

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Table of Contents

INVESTMENTS IN DEBT AND EQUITY SECURITIES

Available-for-sale securities are recorded at fair value, with unrealized gains and losses excluded from income and reported in other comprehensive income, net of tax. Held-to-maturity securities are recorded at amortized cost. Investments in debt and equity securities as of September 30, 2006, March 31, 2006 and September 30, 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, 2006    March 31, 2006
     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

   ¥ 3,008    ¥ 3,143    ¥ 150    ¥ 15    ¥ 3,745    ¥ 3,908    ¥ 184    ¥ 21

Other debt securities

     137,668      137,960      316      24      133,758      132,660      29      1,127

Equity securities

     272,054      466,156      194,335      233      274,985      415,950      141,059      94
                                                       

Total available-for-sale securities

     412,730      607,259      194,801      272      412,488      552,518      141,272      1,242
                                                       

Held-to-maturity securities :

                       

Other debt securities

     27,726      27,574      —        152      34,398      34,015      —        383
                                                       

Total held-to-maturity securities

     27,726      27,574      —        152      34,398      34,015      —        383
                                                       

Total investments in debt and equity securities

   ¥ 440,456    ¥ 634,833    ¥ 194,801    ¥ 424    ¥ 446,886    ¥ 586,533    ¥ 141,272    ¥ 1,625
                                                       

 

     September 30, 2005
     Cost    Aggregate
fair values
   Gross
unrealized
gains
   Gross
unrealized
losses

Available-for-sale securities :

           

Corporate debt securities

   ¥ 2,724    ¥ 2,769    ¥ 55    ¥ 10

Other debt securities

     101,653      101,490      87      250

Equity securities

     272,147      414,354      142,264      57
                           

Total available-for-sale securities

     376,524      518,613      142,406      317
                           

Held-to-maturity securities :

           

Other debt securities

     33,224      32,834      —        390
                           

Total held-to-maturity securities

     33,224      32,834      —        390
                           

Total investments in debt and equity securities

   ¥ 409,748    ¥ 551,447    ¥ 142,406    ¥ 707
                           

 

Note:    Cost represents amortized cost for debt securities and acquisition cost for equity 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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BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

 

1. Scope of consolidation and application of the equity method :

Major consolidated subsidiaries :

AVX CORPORATION

KYOCERA WIRELESS CORPORATION

KYOCERA MITA CORPORATION

KYOCERA ELCO CORPORATION

Major affiliates accounted for by the equity method :

WILLCOM, INC.

 

2. Changes in scope of consolidation and application of the equity method :

 

    Consolidation

          (Increase)

   6   

          HERTZ TECHNOLOGY INC. and others

          (Decrease)    6   

          KYOCERA LEASING CO., LTD. and others

    Equity method      
          (Increase)    None   
          (Decrease)    None   

 

3. Summary of significant accounting policies

Kyocera’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.

 

  (1) Valuation of inventories

Finished goods and work in process are mainly stated at the lower or cost of market, the cost being determined by the average method. All other inventories are mainly stated at the lower or cost of market, the cost being determined by the first-in, first-out method.

 

  (2) Valuation of securities

Kyocera adopts Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

Held-to-maturity securities are recorded at amortized cost.

Available-for-sales securities are recorded at fair value, with unrealized gains and losses excluded from income and recorded in other comprehensive income, net of tax.

 

  (3) Depreciation method of Property, Plant and Equipment

Depreciation is computed at rates based on the estimated useful lives of assets mainly using the declining balance method.

 

  (4) Goodwill and other intangible assets

Kyocera adopts Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

Goodwill and intangible assets with indefinite useful lives are not amortized, but instead are tested for impairment at least annually.

Intangible assets with definite useful lives are amortized over their respective estimate useful lives.

 

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  (5) Accounting for allowance and accruals

Allowance for doubtful accounts :

Kyocera provides the allowance for doubtful accounts based on the past actual ratio of losses on bad debt in addition to the estimation of uncollectible amount based on the analysis of certain individual receivables.

Accrued pension and severance cost :

Kyocera adopts Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions”, pension and severance cost is accrued based on the projected benefit obligations and the fair value of plan assets at the balance sheet date. If the accumulated benefit obligation (i.e., obligations deducting an effect of future compensation levels from projected benefit obligations) exceeds the fair value of plan assets, a minimum pension liability equal to this difference is reflected in the consolidated balance sheets by recognizing an additional minimum pension liability. Unrecognized prior service cost is amortized by the straight-line method over the average remaining service period of employees. Unrecognized actuarial loss is recognized by amortizing a portion in excess of 10% of the greater of the projected benefit obligations or the market-related value of plan assets by the straight-line method over the average remaining service period of employees.

 

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Non-Consolidated Results of Kyocera Corporation (parent company)

for the Six Months Ended September 30, 2006

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 30, 2006
Payment date of interim dividends : December 5, 2006

1. Results for the six months ended September 30, 2006 :

(1) Results of operations :

 

     Japanese yen
     Six months ended September 30,    

Year ended March 31,

2006

     2006     2005    

Net sales

   ¥ 259,738 million     ¥ 220,901 million     ¥ 477,379 million

% change from the previous period

     17.6 %     (11.8 )%  

Profit from operations

     21,284 million       12,383 million       39,937 million

% change from the previous period

     71.9 %     (41.9 )%  

Recurring profit

     32,844 million       26,903 million       68,182 million

% change from the previous period

     22.1 %     (23.0 )%  

Net income

     33,655 million       31,865 million       68,712 million

% change from the previous period

     5.6 %     55.3 %  
                      

Earnings per share

   ¥ 179.08     ¥ 169.97     ¥ 366.07
                      

Notes :

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

 

Six months ended September 30, 2006

   187,932,385 shares

Six months ended September 30, 2005

   187,478,104 shares

Year ended March 31, 2006

   187,513,918 shares

2. Change in accounting policies : None

 

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(2) Financial position :

 

     Japanese yen  
     September 30,    

March 31,

2006

 
     2006     2005    

Total assets

   ¥ 1,471,385 million     ¥ 1,343,060 million     ¥ 1,389,396 million  

Net assets

     1,191,940 million       1,100,768 million       1,132,261 million  
                        

Net assets to total assets

     81.0 %     82.0 %     81.5 %
                        

Net assets per share

   ¥ 6,339.95     ¥ 5,871.53     ¥ 6,030.17  

Notes : Total number of shares outstanding as of:

      

 

September 30, 2006    188,004,780 shares
September 30, 2005    187,475,323 shares
March 31, 2006    187,754,750 shares
Total number of treasury stock as of :   
September 30, 2006    3,304,510 shares
September 30, 2005    3,833,967 shares
March 31, 2006    3,554,540 shares

2. Forecast for the year ending March 31, 2007 :

 

     Japanese yen
     Year ending March 31, 2007

Net sales

   ¥ 520,000 million

Recurring profit

     75,000 million

Net income

     61,000 million
      

Earnings per share

   ¥ 324.46              

3. Dividends:

Cash dividends per share

 

     Japanese yen
     Interim
dividends
   Year-end
dividends
   Total

Year ended March 31, 2006

   50.00    50.00    100.00
              

Year ended March 31, 2007 (result)

   50.00    —      100.00

Year ended March 31, 2007 (forecast)

   —      50.00   
              

Note : With regard to forecasts set forth above, please refer to the accompanying “Forward Looking Statements” on page 19.

 

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BALANCE SHEETS

 

     Yen in millions
    

September 30,

2006

  

March 31,

2006

  

September 30,

2005

     Amount     %    Amount     %    Amount     %

Current assets :

              

Cash and bank deposits

   ¥ 119,336        ¥ 136,870        ¥ 142,633    

Trade notes receivable

     46,376          43,325          39,963    

Trade accounts receivable

     96,306          90,073          84,134    

Marketable securities

     37,997          19,331          208    

Finished goods and merchandise

     17,818          17,588          17,450    

Raw materials

     16,546          14,152          18,353    

Work in process

     20,416          17,104          18,710    

Supplies

     745          751          553    

Deferred income taxes

     16,590          15,375          15,144    

Short-term loans to subsidiaries

     14,372          1,316          2,191    

Other accounts receivable

     8,048          9,012          7,302    

Other current assets

     6,904          3,401          1,913    

Allowances for doubtful accounts

     (164 )        (142 )        (133 )  
                                      

Total current assets

     401,290     27.3      368,156     26.5      348,421     25.9
                                      

Non-current assets :

              

Tangible fixed assets :

              

Buildings

     35,770          36,978          36,411    

Structures

     2,197          2,268          2,165    

Machinery and equipment

     47,358          44,113          40,804    

Vehicles

     26          25          30    

Tools, furniture and fixtures

     7,679          7,477          7,578    

Land

     33,381          33,323          33,323    

Construction in progress

     947          4,533          5,783    
                                      

Total tangible fixed assets

     127,358     8.6      128,717     9.3      126,094     9.4
                                      

Intangible assets :

              

Patent rights and others

     13,365          14,298          11,234    
                                      

Total intangible assets

     13,365     0.9      14,298     1.0      11,234     0.8
                                      

Investments and other assets :

              

Investments in securities

     577,884          536,019          519,536    

Investments in subsidiaries and affiliates

     262,627          278,817          278,675    

Investments in subsidiaries and affiliates other than equity securities

     27,054          27,033          27,033    

Long-term loans

     22,659          30,428          31,581    

Long-term prepaid expenses

     3,051          3,785          4,296    

Long-term deposits

     34,000          —            —      

Security deposits

     1,880          1,918          1,922    

Other investments

     571          592          569    

Allowances for doubtful accounts

     (354 )        (367 )        (351 )  

Allowances for impairment loss on investments

     —            —            (5,950 )  
                                      

Total investments and other assets

     929,372     63.2      878,225     63.2      857,311     63.9
                                      

Total non-current assets

     1,070,095     72.7      1,021,240     73.5      994,639     74.1
                                      

Total assets

   ¥ 1,471,385     100.0    ¥ 1,389,396     100.0    ¥ 1,343,060     100.0
                                      

 

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     Yen in millions  
    

September 30,

2006

   

March 31,

2006

   

September 30,

2005

 
     Amount     %     Amount     %     Amount     %  

Current liabilities :

            

Trade accounts payable

   ¥ 56,667       ¥ 49,570       ¥ 45,926    

Other payables

     20,763         29,659         25,250    

Accrued expenses

     8,014         7,610         5,799    

Income taxes payables

     13,052         14,200         10,700    

Deposits received

     2,738         2,315         2,519    

Accrued bonuses

     10,447         10,109         9,849    

Accrued bonuses for directors

     34         —           —      

Warranty reserves

     4,596         521         332    

Allowances for sales returns

     143         163         208    

Other current liabilities

     1,066         713         669    
                                          

Total current liabilities

     117,520     8.0       114,860     8.3