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Kyocera 6-K 2006

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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 April 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: April 27, 2006


Table of Contents

Information furnished on this form:

EXHIBITS

 

Exhibit
Number
    
1.    Consolidated and Non-consolidated Financial Results for the Year Ended March 31, 2006
2.    Supplemental Information for Consolidated Financial Results for the Year Ended March 31, 2006


Table of Contents

LOGO

April 27, 2006

KYOCERA CORPORATION

Consolidated Financial Highlights

Results for the Year Ended March 31, 2006

 

     (Yen in millions, except per share amounts and exchange rates)
     Years Ended March 31,   

Increase or
Decrease

(%)

     2006    2005   

Net sales

   1,181,489    1,180,655    0.1

Profit from operations

   103,207    100,968    2.2

Income before income taxes

   121,388    107,530    12.9

Net income

   69,696    45,908    51.8

Average exchange rates :

        

US$

   113    108    —  

Euro

   138    135    —  

Earnings per share :

        

Net income

        

Basic

   371.68    244.86    —  

Diluted

   371.43    244.81    —  

Capital expenditures

   90,271    63,176    42.9

Depreciation

   63,018    58,790    7.2

R&D expenses

   57,436    54,398    5.6

Total assets

   1,931,522    1,745,519    10.7

Stockholders’ equity

   1,289,077    1,174,851    9.7

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

   31.3    31.8    —  

 

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Kyocera Corporation and its Consolidated Subsidiaries

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

Date of the board of directors’ meeting for the consolidated results for the year: April 27, 2006

1. Results for the year ended March 31, 2006:

(1) Consolidated results of operations:

 

     Japanese yen  
     Years ended March 31,  
     2006     2005  

Net sales

   ¥ 1,181,489 million     ¥ 1,180,655 million  

% change from the previous year

     0.1 %     3.5 %

Profit from operations

     103,207 million       100,968 million  

% change from the previous year

     2.2 %     (7.3 )%

Income before income taxes

     121,388 million       107,530 million  

% change from the previous year

     12.9 %     (6.5 )%

Net income

     69,696 million       45,908 million  

% change from the previous year

     51.8 %     (32.6 )%
                

Earnings per share:

    

Basic

   ¥ 371.68     ¥ 244.86  

Diluted

     371.43       244.81  
                

Return on equity

     5.7 %     3.9 %

Income before income taxes to total assets

     6.6 %     6.1 %

Income before income taxes to net sales

     10.3 %     9.1 %
                

 

Notes:

  

1. Equity in losses of affiliates and unconsolidated subsidiaries:

  

Year ended March 31, 2006:

   ¥(1,216) million

Year ended March 31, 2005:

   ¥(1,678) million

2. Weighted average number of shares outstanding during the year:

  

Year ended March 31, 2006:

   187,513,918 shares

Year ended March 31, 2005:

   187,488,658 shares

3. Change in accounting policies: None

  

(2) Consolidated financial position:

 

     Japanese yen  
     As of March 31,  
     2006     2005  

Total assets

   ¥ 1,931,522 million     ¥ 1,745,519 million  

Stockholders’ equity

     1,289,077 million       1,174,851 million  

Stockholders’ equity to total assets

     66.7 %     67.3 %

Stockholders’ equity per share

     ¥6,865.75       ¥6,266.50  

 

Note: Total number of shares outstanding as of:

  

  March 31, 2006

   187,754,750 shares

  March 31, 2005

   187,481,084 shares

 

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(3) Consolidated cash flows:

 

     Japanese yen
     Years ended March 31,
     2006    2005

Cash flows from operating activities

   ¥ 171,077 million    ¥ 145,523 million

Cash flows from investing activities

     (165,467) million      (132,494) million

Cash flows from financing activities

     (23,289) million      (67,344) million

Cash and cash equivalents at end of year

     300,809 million      310,592 million

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

Number of consolidated subsidiaries: 168

Number of non-consolidated 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

   5    2

Decrease

   2    4

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

 

     Japanese yen
     Year ending March 31, 2007

Net sales

   ¥1,230,000 million

Income before income taxes

   138,000 million

Net income

   83,000 million

Note:

Forecast of earnings per share: ¥442.34

Net income 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 year ended March 31, 2006.

With regard to forecasts set forth above, please refer to the accompanying “Forward Looking Statements” on page 16.

 

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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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Table of Contents

Management Policies

Kyocera Corporation and its consolidated subsidiaries (Kyocera) aim to be “The Company” respected by society from the perspective of corporate ethics, while maintaining continuous sales growth and high profitability. To achieve this management vision, Kyocera’s management policy is to further drive business expansion to be “a creative company that continues to grow in the 21st century.” Kyocera promotes efficient resource management and emphasizes consolidated group management and intends to increase corporate value (aggregate market value of its shares) through improvement of business performance.

Management Strategies

Kyocera promotes “high-value-added diversification” as its management strategy to realize this management policy. By making each individual business highly profitable and maximizing group synergies, Kyocera seeks to propel continuous corporate growth even in a tough, rapidly changing business environment.

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

(1) Exploit competitive advantages

The “Kyocera Philosophy,” a corporate philosophy of Kyocera that is run with faith in the human spirit, and the so-called “amoeba” management system, which has been a unique management system of Kyocera based on small business units and has been a driving force for corporate growth since Kyocera Corporation was founded, as well as its strong financial basis have been Kyocera’s particular competitive advantages in promoting its diversification strategy. Leveraging off this sturdy base, Kyocera will focus its energies into two high-growth-potential areas going forward, namely the markets for telecommunications and information processing and for environmental preservation. By establishing further competitive advantages in technology, and sales and marketing, Kyocera intends to improve business performance through its diversification strategy.

(2) Strengthen existing businesses

Kyocera will improve profitability of each existing business on a daily basis and improve profitability of each operating segment on a consolidated business by deepening the ties between Kyocera Group companies and each Corporate Business Group of Kyocera Corporation to pursue maximization of synergies. Kyocera will also employ a global strategy in each business and integrate group-wide management resources to establish the structure to undertake R&D, production and sales at optimal localities. As a result, Kyocera can hone the competitive edge of each of its existing businesses. Kyocera also regularly reviews those businesses that have lost market competitiveness or where significant performance improvement is not expected in the future.

(3) Create new businesses

Kyocera will create new core businesses to spur growth over the medium to long term by integrating group-wide management resources and developing new technologies, products and markets. Special emphasis will be placed on generating new business domains in the markets for telecommunications and information processing and for environmental preservation.

Challenges

Kyocera aims to be “a creative company that continues to grow in the 21st century.” To achieve such management policy, Kyocera seeks to improve the profitability of its component and equipment businesses, and is working to rapidly attain a pre-tax income ratio of 15% or more on a group-wide basis. Toward this goal, Kyocera will strive to achieve its financial forecasts set for the year ending March 31, 2007 (fiscal 2007) and to further strengthen its business foundation.

The following outlines specific measures being undertaken to accomplish these goals.

(1) Further strengthen “amoeba” management system

Kyocera’s “amoeba” management system offers a unique competitive advantage over rival companies, and as such, Kyocera aims to further strengthen such management system. Since Kyocera Corporation was founded, this system has been a driving force for growth of Kyocera. Kyocera will further seek to thoroughly implement such management system and invigorate competencies in its development, manufacturing, sales and marketing departments, which in turn will boost the ability to achieve objectives. In particular, Kyocera is working to strengthen its capabilities in manufacturing, which is the profit center of Kyocera.

 

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(2) Translate results of strategic investment and structural reform into improved performance

Kyocera aims to ensure that strategic investment during the year ended March 31, 2006 (fiscal 2006) will translate into improved performance in fiscal 2007 and beyond. Concrete initiatives include launching new businesses and improving profitability in the components business, especially the Fine Ceramic Parts Group (ceramic parts for LCD fabrication equipment), the Semiconductor Parts Group (ceramic packages and organic packages) and the Applied Ceramic Products Group (solar energy products and cutting tools).

Kyocera also expects structural reforms implemented in fiscal 2006 to lead to improved sales and profit.

(3) Promote commercialization of strategic businesses from a medium term perspective

Kyocera will promote the commercialization of new businesses that will be key growth drivers for Kyocera in the medium term. In addition to pursuing business expansion in prospective markets including ceramic parts for diesel engines, Kyocera aims to realize practical application of next-generation solar cells and solid oxide fuel cells (SOFCs), and to make these businesses contribute to our business performance as quickly as possible.

Basic Profit Distribution Policy

Historically, Kyocera has set dividend amounts with the policy of maintaining stable payment of dividends. In order to implement its policy of giving more weight to the interests of shareholders, however, Kyocera decided, commencing with the year end dividend relating to the year ended March 31, 2005 (fiscal 2005), to change this policy to establish a greater linkage between dividend amounts and Kyocera’s 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.

Based on this policy, Kyocera plans to distribute the year-end dividend in the amount of ¥50 per share for fiscal 2006. As a result, when aggregated with the interim dividend in the amount of ¥50 per share, which has been already paid, the total amount of dividends per share through fiscal 2006 will be ¥100 per share. Accordingly, the dividend payout ratio will be 26.9%.

Policy Encouraging Individual Share Ownership

In February 1997, to make share transactions easier for individuals, Kyocera Corporation revised the number of shares in a minimum trading unit, reducing it from 1,000 to 100 shares. These efforts have proven highly rewarding as the number of stockholders in Kyocera Corporation continues to rise. At present, Kyocera Corporation has secured sufficient liquidity in its shares and so has no further plans to reduce the size of trading units.

 

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Business Results and Financial Condition

1. Business Results for the Year Ended March 31, 2006

(1) Economic Situation and Business Environment

The Japanese economy continued to expand steadily during fiscal 2006 on the back of improved corporate earnings, increased capital investment and robust personal consumption. As to the world economy, the U.S. economy continued to grow through healthy expansion in personal consumption, while in Europe an increase in exports and production actively helped the economy towards a moderate recovery track. The Chinese economy maintained high growth as exports increased due to expanded production of electronic equipment and strong capital investment in the private sector. Other economies in Asia also expanded steadily on the whole.

In the first quarter of fiscal 2006, the business environment was severe in the electronics industry, which is a key market for Kyocera. Recovery in demand was moderate, while components prices declined significantly. Nonetheless, the environment made an about-turn since last summer. Not only has production of core digital consumer products such as mobile phone handsets, PCs and digital home appliances expanded remarkably, but demand for related electronic components also maintained an upward trend until the end of the fourth quarter of fiscal 2006.

(2) Management Initiatives

 

1) In May 2005, Kyocera decided to outsource the manufacture of mobile phone handsets of Kyocera Wireless Corp. (KWC), a U.S. subsidiary, and to sell KWC’s manufacturing equipment and inventories to Flextronics International Ltd., a leading provider of electronics manufacturing services. The production transfer was completed in September 2005. Through this outsourcing, KWC has realized a major reduction in manufacturing costs, thereby driving a significant improvement in profitability in the second half of fiscal 2006 compared with the first half of fiscal 2006.

 

2) In June 2005, Kyocera entered into a purchase 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. The transfer took place in August 2005. Kyocera intends to make the most effective use of the acquired assets to provide meaningful enhancement to the future business of Kyocera.

 

3) Kyocera accepted a tender bid by Square Enix Co., Ltd. for shares of Taito Corporation, an affiliate engaged in the entertainment business, and sold its entire holding of shares of Taito Corporation (133,260 shares or 36.02% of outstanding shares) in September, 2005. The gain on sale of shares of Taito Corporation was ¥6,931 million.

 

4) In November 2005, Kyocera established a Corporate Social Responsibility (CSR) Committee to deliberate upon and decide policy and material matters with regard to CSR, and a Corporate CSR Division to execute these policies and material matters determined by the CSR Committee throughout Kyocera in order to broadly strengthen its CSR activities. Kyocera aims to generate sustainable growth by contributing to the healthy development of society through coordinated activities in Japan and overseas that take into consideration both Japanese and overseas trends in CSR.

 

5) In March, 2006, Kyocera discontinued the use of the titles of Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Chief Operating Officer (COO) under its executive officer system, and shifted to a new management system in which a President and Executive Officer has total responsibility for executing group management and implementing management strategies and management policy. The aim of this change is to enhance the speed of decision-making in Kyocera. The new system has been in effect since April 1, 2006.

 

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Table of Contents

(3) Consolidated Financial Results

 

     (Yen in millions, except per share amounts and exchange rates)
     Years Ended March 31,   

Increase (Decrease)

%

     2006    2005   

Net sales

   1,181,489    1,180,655    0.1

Profit from operations

   103,207    100,968    2.2

Income before income taxes

   121,388    107,530    12.9

Net income

   69,696    45,908    51.8

Diluted earnings per share

   371.43    244.81    —  

Average US$ exchange rate

   113    108    —  

Average Euro exchange rate

   138    135    —  

Overview of Performance for the Year Ended March 31, 2006

Consolidated net sales remained roughly the same as in fiscal 2005, while profits increased due to a substantial improvement in profits from the equipment business as a result of the positive effects of structural reforms.

In the component business, sales and profits in the Applied Ceramic Products Group increased considerably compared with the previous year due to expansion of sales of solar energy products and cutting tools. However, sales and profits in the Fine Ceramic Parts Group and the Electronic Device Group declined due to slumping component demand until the end of the first quarter of fiscal 2006 and to a substantial decline in component prices.

In the equipment business, sales in the Telecommunications Equipment Group and the Optical Equipment Group declined compared with fiscal 2005 due to continued structural reforms at KWC and the material downsizing of the camera equipment business. Despite this, there was a considerable improvement on a profit front as the positive effects of structural reforms in both of these business groups began to emerge, accompanied by and increased sales in Japan of new products in the Telecommunications Equipment Group, namely mobile phone handsets and PHS handsets.

The yen depreciated 5 yen against the U.S. dollar and 3 yen against the Euro compared with the average exchange rates in fiscal 2005. Accordingly, net sales and income before income taxes after translation into yen were pushed up by ¥32.2 billion and ¥8.0 billion, respectively, compared with fiscal 2005.

Besides, the merger of Mitsubishi Tokyo Financial Group, Inc. and UFJ Holdings, Inc., on October 1, 2005, Kyocera Group’s holding shares in UFJ Holdings, Inc. were exchanged for shares of the new company, Mitsubishi UFJ Financial Group. As a result of this share exchange, Kyocera recognized a gain in the amount of ¥5,281million. Furthermore, a subsidiary of Kyocera recognized loss on devaluation of investment in an affiliate of ¥3,492 million in the fourth quarter of fiscal 2006.

 

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(4) Consolidated Sales and Operating Profits by Reporting Segment

 

     (Yen in millions)  
     Years Ended March 31,    

Increase (Decrease)

%

 
     2006     2005    

Fine Ceramic Parts Group

   69,373     73,711     (5.9 )

Semiconductor Parts Group

   135,299     127,960     5.7  

Applied Ceramic Products Group

   117,555     93,879     25.2  

Electronic Device Group

   259,592     262,997     (1.3 )

Total components business

   581,819     558,547     4.2  

Telecommunications Equipment Group

   229,035     250,918     (8.7 )

Information Equipment Group

   249,381     241,145     3.4  

Optical Equipment Group

   14,947     35,776     (58.2 )

Total equipment business

   493,363     527,839     (6.5 )

Others

   124,974     118,040     5.9  

Adjustments and eliminations

   (18,667 )   (23,771 )   —    
                  

Net sales

   1,181,489     1,180,655     0.1  
      

Fine Ceramic Parts Group

   11,014     11,535     (4.5 )

Semiconductor Parts Group

   17,742     17,550     1.1  

Applied Ceramic Products Group

   21,876     17,129     27.7  

Electronic Device Group

   27,170     35,406     (23.3 )

Total components business

   77,802     81,620     (4.7 )

Telecommunications Equipment Group

   (1,706 )   (14,918 )   —    

Information Equipment Group

   26,412     36,186     (27.0 )

Optical Equipment Group

   (5,774 )   (15,387 )   —    

Total equipment business

   18,932     5,881     221.9  

Others

   12,560     13,019     (3.5 )
                  

Operating profit

   109,294     100,520     8.7  

Corporate

   13,358     8,683     53.8  

Equity in losses of affiliates and unconsolidated subsidiaries

   (1,216 )   (1,678 )   —    

Adjustments and eliminations

   (48 )   5     —    
                  

Income before income taxes

   121,388     107,530     12.9  

Notes:

Kyocera previously classified its operations into four reporting segments: “Fine Ceramics Group,” “Electronic Device Group,” “Equipment Group” and “Others.” Kyocera changed its segmentation to clarify the nature of each of its operations and to rationalize its management structure more efficiently. Kyocera currently has the following eight reporting segments: “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.” Consolidated results for the year ended March 31, 2005 have been retroactively reclassified accordingly.

1) Fine Ceramic Parts Group

Sales and operating profit in this segment decreased compared with fiscal 2005. Demand for ceramic parts used in semiconductor fabrication equipment was weaker than fiscal 2005, and sales of sapphire products for LCD projectors decreased by intensifying market competition with other materials.

2) Semiconductor Parts Group

Although demand for ceramic packages for digital consumer products such as mobile phone handsets and digital cameras declined in the first half of fiscal 2006, it recovered in the second half of fiscal 2006. Sales of organic packages for servers and digital consumer products increased. Operating profit was negatively impacted by an increase in depreciation costs in line with aggressive capital expenditures, including those to establish a new plant aimed at future business expansion. As a result, sales and operating profit in this segment increased compared with fiscal 2005.

3) Applied Ceramic Products Group

Both sales and operating profit in this segment increased significantly compared with fiscal 2005. Strong sales growth was recorded in the solar system business amid an expanding global market spurred by rising environmental awareness. Sales of cutting tools also grew due to healthy production activity in the automobile industry.

 

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4) Electronic Device Group

Sales in this segment for fiscal 2006 declined slightly, and operating profit decreased compared with fiscal 2005. Although business environment in the first quarter of fiscal 2006 was stagnant, components demand for digital consumer products such as mobile handsets increased since last summer. However, this was insufficient to absorb a decline in sales and profits in the first half of fiscal 2006 because of slow sales of crystal related components for digital still cameras and mobile handsets and so on.

5) Telecommunications Equipment Group

Sales of mobile phone handsets decreased at KWC because it was in the process of executing structural reforms in the first half of fiscal 2006. In addition, sales of PHS-related products for the overseas market decreased. As a result, sales in this segment decreased compared with fiscal 2005. Nonetheless, operating loss was greatly reduced compared to fiscal 2005 due to increased sales of mobile phone handsets and PHS handsets in Japan combined with the positive effects of structural reforms at KWC.

6) Information Equipment Group

Sales in this segment increased compared with fiscal 2005 due to the introduction of a series of new machines and encouraged sales activities despite intensifying global competition and a severe market environment. Operating profit decreased compared with fiscal 2005, however, due to the impact of a decline in unit prices and increasing development costs for color printers and digital multifunction products equipped with solution functions.

7) Optical Equipment Group

Sales of camera equipment decreased in line with the execution of structural reforms. Operating loss in this segment, however, decreased considerably as a result of the positive effects of structural reforms.

8) Others

Kyocera Communication Systems Co., Ltd. (KCCS) posted solid sales growth due to an increase in sales by its telecommunications engineering business and to the contribution of a new subsidiary of KCCS, which was consolidated in fiscal 2005. Consequently, sales in this segment increased compared with fiscal 2005. Operating profit decreased slightly, however, due mainly to the impact of a decline in profits at Kyocera Chemical Corporation (KCC).

 

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(5) Consolidated Orders and Production

 

     (Yen in millions)  
     Years Ended March 31,    

Increase (Decrease)

%

 
     2006     2005    

Fine Ceramic Parts Group

   70,039     74,026     (5.4 )

Semiconductor Parts Group

   142,827     124,193     15.0  

Applied Ceramic Products Group

   119,494     95,823     24.7  

Electronic Device Group

   269,329     265,628     1.4  

Total components business

   601,689     559,670     7.5  

Telecommunications Equipment Group

   235,022     223,365     5.2  

Information Equipment Group

   248,504     240,254     3.4  

Optical Equipment Group

   14,233     34,133     (58.3 )

Total equipment business

   497,759     497,752     0.0  

Others

   127,282     120,005     6.1  

Adjustments and eliminations

   (19,395 )   (22,641 )   —    

Orders

   1,207,335     1,154,786     4.6  
      

Fine Ceramic Parts Group

   68,630     74,063     (7.3 )

Semiconductor Parts Group

   136,757     127,908     6.9  

Applied Ceramic Products Group

   119,122     99,381     19.9  

Electronic Device Group

   257,558     268,950     (4.2 )

Total components business

   582,067     570,302     2.1  

Telecommunications Equipment Group

   224,687     248,144     (9.5 )

Information Equipment Group

   244,291     245,066     (0.3 )

Optical Equipment Group

   13,759     29,291     (53.0 )

Total equipment business

   482,737     522,501     (7.6 )

Others

   85,849     77,509     10.8  

Production

   1,150,653     1,170,312     (1.7 )

(6) Consolidated Sales by Geographic Area

 

     (Yen in millions)  
     Years Ended March 31,   

Increase (Decrease)

%

 
     2006    2005   

Japan

   474,980    472,417    0.5  

United States of America

   253,696    248,333    2.2  

Asia

   198,731    203,848    (2.5 )

Europe

   184,351    175,850    4.8  

Others

   69,731    80,207    (13.1 )

Net Sales

   1,181,489    1,180,655    0.1  

 

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1) Japan

Sales increased compared with fiscal 2005 due to steady growth in sales of solar energy products, mobile phone handsets and PHS-related products in the Telecommunications Equipment Group, as well as telecommunications engineering and other businesses at KCCS.

2) USA

Although sales of the Telecommunications Equipment Group declined, sales of the Electronic Device Group, the solar energy business and the Information Equipment Group increased. Consequently, sales increased compared with fiscal 2005.

3) Asia

Sales decreased due to slumping sales of the Telecommunications Equipment Group, even though sales of solar energy products and cutting tools in the Applied Ceramic Products Group and of the Electronic Device Group grew.

4) Europe

Sales increased compared with fiscal 2005 due mainly to increased sales of solar energy products.

5) Others

Sales decreased compared with fiscal 2005 due to lower sales of the Telecommunications Equipment Group in Latin America.

2. Cash Flow

Cash and cash equivalents at the end of fiscal 2006 decreased by ¥9,783 million to ¥300,809 million compared with the end of fiscal 2005.

 

     (Yen in millions)  
     Years Ended March 31,    

Increase

(Decrease)

 
     2006     2005    

Cash flow from operating activities

   171,077     145,523     25,554  

Cash flow from investing activities

   (165,467 )   (132,494 )   (32,973 )

Cash flow from financing activities

   (23,289 )   (67,344 )   44,055  

Effect of exchange rate changes on cash and cash equivalents

   7,896     3,775     4,121  

Net decrease in cash and cash equivalents

   (9,783 )   (50,540 )   40,757  

Cash and cash equivalents at beginning of year

   310,592     361,132     (50,540 )

Cash and cash equivalents at end of year

   300,809     310,592     (9,783 )

(1) Cash flow from operating activities

Net cash provided by operating activities in fiscal 2006 was ¥171,077 million. Cash flow from receivables decreased by ¥77,795 million compared with fiscal 2005, although due to an increase in cash flows from inventories and notes and accounts payable by ¥93,165 million compared with fiscal 2005, in addition, net income in fiscal 2006 increased by ¥23,788 million compared with fiscal 2005. As a result net cash provided by operating activities increased by ¥25,554 million compared with fiscal 2005 of ¥145,523 million.

(2) Cash flow from investing activities

Net cash used in investing activities in fiscal 2006 increased by ¥32,973 million to ¥165,467 million from net cash used in fiscal 2005 of ¥132,494 million. This was due to proceeds from sales of investment in an affiliate to ¥24,133 million, in addition decrease in payments for purchases of investments and advances by ¥11,634 million, on the other hand, an increase in payments for purchase of securities and payments for purchases of property, plant and equipment, and intangible assets, also deposit of negotiable certificate of deposits and time deposits increased by ¥74,409 million compared with fiscal 2005.

 

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(3) Cash flow from financing activities

Net cash used in investing activities in fiscal 2006 decreased by ¥44,055 million to ¥23,289 million from fiscal 2005 of ¥67,344 million. This was due mainly to an increase in short-term debt.

<Cash Flows Indexes (Consolidated)>

 

      Years Ended March 31,  
     2006     2005     2004     2003     2002  

Stockholders’ equity to total assets

   66.7 %   67.3 %   64.3 %   61.4 %   63.2 %

Market capitalization to total assets

   101.3 %   82.2 %   91.3 %   66.5 %   101.2 %

Interest bearing debts per operating cash flows (years)

   0.8     1.0     3.2     1.2     1.5  

Operating cash flows per interest paid (ratio)

   88.5     62.4     20.6     49.8     26.6  

All indexes are computed on a consolidated basis.

Interest bearing debts represent all debts with interest expense included in consolidated balance sheets.

3. Capital Expenditures and Depreciation (Consolidated)

 

     Years Ended March 31,     Increase (Decrease)
(%)
   2006     2005    

Capital expenditures

   90,271     63,176     42.9

(% to net sales)

   7.6 %   5.4 %   —  

Depreciation expenses

   63,018     58,790     7.2

(% to net sales)

   5.3 %   5.0 %   —  

During fiscal 2006, Kyocera made aggressive capital expenditures in its organic packages business and solar energy business including the establishment of new production bases and the expansion of production capacity. Due mainly to these factors, capital expenditures for fiscal 2006 increased significantly compared with fiscal 2005.

4. Non-Consolidated Results for the Year Ended March 31, 2006

 

     (Yen in millions)  
     Years Ended March 31,    Increase (Decrease)
(%)
 
   2006    2005   

Net sales

   477,379    493,271    (3.2 )

Profit from operations

   39,937    33,822    18.1  

Recurring profit

   68,182    66,434    2.6  

Net income

   68,712    34,327    100.2  

5. Business Risk

Please see “Forward-Looking Statements” on page 16 for details of business risk.

 

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Basic Outlook and Future Management and Business Strategies

1. Economic Situation and Business Environment for the Year Ending March 31, 2007

The economy in Japan is expected to continue expanding in fiscal 2007 due to continued improvement in corporate earnings. As for overseas economy, although the U.S., Asian and European economies are forecasted to grow steadily, there are concerns over the impact of crude oil price trends on material prices and world economies.

In the electronics industry, Kyocera projects an increase in demand for digital TVs and next-generation game consoles, and for mobile phone handsets in the BRICs (Brazil, Russia, India, China) markets, and therefore an increase in demand of components for these digital consumer products. In the semiconductor industry, Kyocera expects an increase in capital investment from equipment manufacturers and a generally favorable business environment in the electronics market in fiscal 2007.

2. Consolidated Forecasts for the Year Ending March 31, 2007

In light of the aforementioned outlook for the business environment, Kyocera forecasts year-on-year increases in both consolidated sales and profits on a basis for fiscal 2007.

 

     (Yen in millions, except per share amounts and exchange rate)
     Years Ending (Ended) March 31,   

Increase
(Decrease)

%

     2007 (Forecast)    2006 (Results)   

Net sales

   1,230,000    1,181,489    4.1

Profit from operations

   123,000    103,207    19.2

Income before income taxes

   138,000    121,388    13.7

Net income

   83,000    69,696    19.1

Diluted earnings per share

   442.34    371.43    —  

Average US$ exchange rate

   108    113    —  

Average Euro exchange rate

   134    138    —  

 

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3. Consolidated Outlook and Future Business Strategies by Reporting Segment

 

     (Yen in millions)  
     Years Ending (Ended) March 31,    

Increase (Decrease)

%

 
     2007 (Forecast)     2006 (Results)    

Fine Ceramic Parts Group

   71,000     69,373     2.3  

Semiconductor Parts Group

   145,000     135,299     7.2  

Applied Ceramic Products Group

   122,000     117,555     3.8  

Electronic Device Group

   263,000     259,592     1.3  

Total components business

   601,000     581,819     3.3  

Telecommunications Equipment Group

   245,000     229,035     7.0  

Information Equipment Group

   260,000     249,381     4.3  

Optical Equipment Group

   11,000     14,947     (26.4 )

Total equipment business

   516,000     493,363     4.6  

Others

   133,000     124,974     6.4  

Adjustments and eliminations

   (20,000 )   (18,667 )   —    

Net sales

   1,230,000     1,181,489     4.1  

Fine Ceramic Parts Group

   11,500     11,014     4.4  

Semiconductor Parts Group

   21,000     17,742     18.4  

Applied Ceramic Products Group

   21,500     21,876     (1.7 )

Electronic Device Group

   28,500     27,170     4.9  

Total components business

   82,500     77,802     6.0  

Telecommunications Equipment Group

   9,000     (1,706 )   —    

Information Equipment Group

   28,500     26,412     7.9  

Optical Equipment Group

   0     (5,774 )   —    

Total equipment business

   37,500     18,932     98.1  

Others

   14,000     12,560     11.5  

Operating profit

   134,000     109,294     22.6  
                  

Corporate

   4,000     12,094     (66.9 )

Income before income taxes

   138,000     121,388     13.7  

Kyocera aims to be “a creative company that continues to grow in the 21st century.” To this end, Kyocera intends to confidently seize opportunities for growth in each of its businesses under the expected favorable business conditions and to strengthen its business foundations with a view towards attaining a pre-tax income ratio of over 15%.

In the components business, Kyocera expects that strategic investments during the year will translate into improved performance from the next fiscal year onward. Specifically, Kyocera seeks to create sound business foundations in ceramic parts for LCD fabrication equipment, ceramic packages, organic packages, solar energy products and cutting tools aimed at improving profitability and driving future growth.

In the equipment business, Kyocera expects the positive effects of structural reforms implemented in during the year to emerge in the form of higher sales and profits. In the Telecommunications Equipment Group, Kyocera will increase sales through the timely launch of new products and by cultivating new markets. Efforts will be made to expand mobile phone handset sales and boost profitability at KWC. Elsewhere, Kyocera will work to expand market share of PHS handsets in Japan and to develop the PHS market overseas. In the Information Equipment Group, Kyocera will strengthen its lineup of models with color capability and solution functionality in order to expand sales.

 

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4. Non-Consolidated Forecasts for the Year Ending March 31, 2007

 

     (Yen in millions)  
     Years Ending (Ended) March 31,   

Increase
(Decrease)

%

 
     2007 (Forecast)    2006 (Results)   

Net sales

   510,000    477,379    6.8  

Profit from operations

   44,000    39,937    10.2  

Recurring profit

   74,000    68,182    8.5  

Net income

   53,000    68,712    (22.9 )

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, including in particular 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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CONSOLIDATED BALANCE SHEETS

 

     Yen in millions  
     March 31,       
     2006    2005    Increase
(Decrease)
 
     Amount     %    Amount     %   

Current assets :

            

Cash and cash equivalents

   ¥ 300,809        ¥ 310,592        ¥ (9,783 )

Short-term investments

     87,942          34,938          53,004  

Trade notes receivable

     24,597          29,552          (4,955 )

Trade accounts receivable

     210,393          201,374          9,019  

Short-term finance receivables

     39,505          40,801          (1,296 )

Less allowances for doubtful accounts and sales returns

     (7,425 )        (7,981 )        556  

Inventories

     190,564          213,411          (22,847 )

Deferred income taxes

     40,411          38,659          1,752  

Other current assets

     33,872          34,229          (357 )
                                  

Total current assets

     920,668     47.7      895,575     51.3      25,093  
                                  

Non-current assets :

            

Investments and advances :

            

Investments in and advances to affiliates and unconsolidated subsidiaries

     7,355          30,623          (23,268 )

Securities and other investments

     553,377          430,437          122,940  
                                  

Total investments and advances

     560,732     29.0      461,060     26.4      99,672  

Long-term finance receivables

     80,970     4.2      66,427     3.8      14,543  

Property, plant and equipment, at cost :

            

Land

     58,286          55,210          3,076  

Buildings

     249,506          225,964          23,542  

Machinery and equipment

     697,383          656,780          40,603  

Construction in progress

     13,473          14,384          (911 )

Less accumulated depreciation

     (733,302 )        (693,341 )        (39,961 )
                                  
     285,346     14.8      258,997     14.9      26,349  

Goodwill

     31,351     1.6      28,110     1.6      3,241  

Intangible assets

     31,227     1.6      15,847     0.9      15,380  

Other assets

     21,228     1.1      19,503     1.1      1,725  
                                  

Total non-current assets

     1,010,854     52.3      849,944     48.7      160,910  
                                  

Total assets

   ¥ 1,931,522     100.0    ¥ 1,745,519     100.0    ¥ 186,003  
                                  

 

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     Yen in millions  
     March 31,       
     2006    2005    Increase
(Decrease)
 
     Amount     %    Amount     %   

Current liabilities :

            

Short-term borrowings

   ¥ 90,865        ¥ 66,556        ¥ 24,309  

Current portion of long-term debt

     16,347          44,051          (27,704 )

Trade notes and accounts payable

     103,503          86,872          16,631  

Other notes and accounts payable

     51,997          34,690          17,307  

Accrued payroll and bonus

     37,998          34,821          3,177  

Accrued income taxes

     27,658          31,180          (3,522 )

Other accrued expenses

     31,414          28,849          2,565  

Other current liabilities

     18,841          17,338          1,503  
                                  

Total current liabilities

     378,623     19.6      344,357     19.7      34,266  

Non-current liabilities :

            

Long-term debt

     33,360          33,557          (197 )

Accrued pension and severance costs

     27,092          31,166          (4,074 )

Deferred income taxes

     125,686          96,345          29,341  

Other non-current liabilities

     12,742          4,761          7,981  
                                  

Total non-current liabilities

     198,880     10.3      165,829     9.5      33,051  
                                  

Total liabilities

     577,503     29.9      510,186     29.2      67,317  
                                  

Minority interests in subsidiaries

     64,942     3.4      60,482     3.5      4,460  

Stockholders’ equity :

            

Common stock

     115,703          115,703          —    

Additional paid-in capital

     161,994          162,061          (67 )

Retained earnings

     967,576          916,628          50,948  

Accumulated other comprehensive income

     72,947          11,839          61,108  

Treasury stock, at cost

     (29,143 )        (31,380 )        2,237  
                                  

Total stockholders’ equity

     1,289,077     66.7      1,174,851     67.3      114,226  
                                  

Total liabilities, minority interests and stockholders’ equity

   ¥ 1,931,522     100.0    ¥ 1,745,519     100.0    ¥ 186,003  
                                  

Note : Accumulated other comprehensive income is as follows:

 

     Yen in millions  
     March 31,  
     2006     2005  

Net unrealized gains on securities

   ¥ 82,649     ¥ 42,461  

Net unrealized losses on derivative financial instruments

   ¥ (75 )   ¥ (27 )

Minimum pension liability adjustments

   ¥ (2,057 )   ¥ (1,629 )

Foreign currency translation adjustments

   ¥ (7,570 )   ¥ (28,966 )

 

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CONSOLIDATED STATEMENTS OF INCOME

 

     Yen in millions and shares in thousands, except per share amounts  
     Years ended March 31,    

Increase

(Decrease)

 
     2006     2005    
     Amount     %     Amount     %     Amount     %  

Net sales

   ¥ 1,181,489     100.0     ¥ 1,180,655     100.0     ¥ 834     0.1  

Cost of sales

     838,295     71.0       855,067     72.4       (16,772 )   (2.0 )
                                          

Gross profit

     343,194     29.0       325,588     27.6       17,606     5.4  

Selling, general and administrative expenses

     239,987     20.3       224,620     19.0       15,367     6.8  
                                          

Profit from operations

     103,207     8.7       100,968     8.6       2,239     2.2  

Other income (expenses) :

            

Interest and dividend income

     8,968     0.8       6,396     0.5       2,572     40.2  

Interest expense

     (1,301 )   (0.1 )     (1,275 )   (0.1 )     (26 )   —    

Foreign currency transaction (losses) gains, net

     (316 )   (0.0 )     2,618     0.2       (2,934 )   —    

Equity in losses of affiliates and unconsolidated subsidiaries

     (1,216 )   (0.1 )     (1,678 )   (0.1 )     462     —    

Gain on sale of investment in an affiliate

     6,931     0.6       —       —         6,931     —    

Gains on exchange for the shares

     5,294     0.4       —       —         5,294     —    

Loss on devaluation of investment in an affiliate

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

Other, net

     3,313     0.3       501     0.0       2,812     561.3  
                                          

Total other income (expenses)

     18,181     1.6       6,562     0.5       11,619     177.1  
                                          

Income before income taxes and minority interests

     121,388     10.3       107,530     9.1       13,858     12.9  

Income taxes

     47,303     4.0       58,480     4.9       (11,177 )   (19.1 )
                                          

Income before minority interests

     74,085     6.3       49,050     4.2       25,035     51.0  

Minority interests

     (4,389 )   (0.4 )     (3,142 )   (0.3 )     (1,247 )   —    
                                          

Net income

   ¥ 69,696     5.9     ¥ 45,908     3.9     ¥ 23,788     51.8  
                                          

Earnings per share:

            

Net income:

            

Basic

   ¥ 371.68       ¥ 244.86        

Diluted

   ¥ 371.43       ¥ 244.81        

Weighted average number of shares of common stock outstanding :

            

Basic

     187,514         187,489        

Diluted

     187,640         187,528        

 

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Notes:

1. Kyocera applies Statement of Financial Accounting Standards No.130, “Financial Reporting of Comprehensive Income.” Based on this standard, comprehensive income for years ended March 31, 2006 and 2005 was an increase of 130,804 million yen and 35,701 million yen, respectively.
2. Earnings per share amounts were computed based on Statement of Financial Accounting Standards No.128, “Earnings per Share.” Under Statement of Financial Accounting Standards 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 exercised or converted into common stock or resulted in the issuance of common stock.
3. On March 28, 2005, Kyocera Corporation received a notice of tax assessment based on tax on transfer pricing adjustments from the Osaka Regional Tax Bureau stating that, in the Bureau's judgment, allocation of profit earned from transfers of products between Kyocera Corporation and its overseas subsidiaries was less than appropriate for the five years from the year ended March 31, 1999 through the year ended March 31, 2003. Based on this notice of tax assessment, Kyocera Corporation recorded 12,748 million yen in income taxes for years ended March 31, 2005 as tax expenses of previous years.

 

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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,
at cost
    Comprehensive
income
 

Balance, March 31, 2004 (187,484)

   ¥ 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 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 )  
                                         

 

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Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Yen in millions  
     Years ended March 31,  
     2006     2005  

Cash flows from operating activities:

    

Net income

   ¥ 69,696     ¥ 45,908  

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

    

Depreciation and amortization

     73,186       65,909  

Write-down of inventories

     8,446       10,405  

Gain on sale of investment in an affiliate

     (6,931 )     —    

Gains on exchange for the shares

     (5,294 )     —    

Minority interests

     4,389       3,142  

Loss on devaluation of investment in an affiliate

     3,492       —    

(Increase) decrease in receivables

     (9,237 )     68,558  

Decrease (increase) in inventories

     21,263       (25,598 )

Increase (decrease) in notes and accounts payable

     14,390       (31,914 )

Other, net

     (2,323 )     9,113  
                

Net cash provided by operating activities

     171,077       145,523  
                

Cash flows from investing activities :

    

Payments for purchases of securities

     (109,289 )     (92,087 )

Payments for purchases of investments and advances

     (224 )     (11,858 )

Sales and maturities of securities

     52,430       49,674  

Proceeds from sales of investment in an affiliate

     24,133       —    

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

     (102,025 )     (64,201 )

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

     3,350       2,920  

Acquisitions of businesses, net of cash acquired

     3       (2,794 )

Acquisitions of minority interests

     (3,575 )     (5 )

Deposit of negotiable certificate of deposits and time deposits

     (132,286 )     (112,903 )

Withdrawal of negotiable certificate of deposits and time deposits

     100,923       95,220  

Other, net

     1,093       3,540  
                

Net cash used in investing activities

     (165,467 )     (132,494 )
                

Cash flows from financing activities :

    

Increase (decrease) in short-term debt

     23,363       (18,490 )

Proceeds from issuance of long-term debt

     19,876       21,077  

Payments of long-term debt

     (48,458 )     (58,720 )

Dividends paid

     (20,473 )     (12,614 )

Net sales (purchases) of treasury stock

     2,169       (28 )

Other, net

     234       1,431  
                

Net cash used in financing activities

     (23,289 )     (67,344 )
                

Effect of exchange rate changes on cash and cash equivalents

     7,896       3,775  
                

Net decrease in cash and cash equivalents

     (9,783 )     (50,540 )

Cash and cash equivalents at beginning of year

     310,592       361,132  
                

Cash and cash equivalents at end of year

   ¥ 300,809     ¥ 310,592  
                

 

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SUPPLEMENTAL CASH FLOW INFORMATION

 

     Yen in millions  
     Years ended March 31,  
     2006     2005  

Cash paid during the year for :

    

Interest

   ¥ 1,933     ¥ 2,331  

Income taxes

     53,037       40,055  

Acquisitions of businesses :

    

Fair value of assets acquired

   ¥ 65     ¥ 8,478  

Fair value of liabilities assumed

     (45 )     (2,683 )

Minority interests

     (8 )     (2,440 )

Cash acquired

     (15 )     (561 )
                
   ¥ (3 )   ¥ 2,794  
                

 

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SEGMENT INFORMATION

1. Reporting segments:

 

     Yen in millions  
     Years ended March 31,    

Increase

(Decrease)

 
     2006     2005    
     Amount     Amount     Amount     %  

Net sales :

        

Fine Ceramic Parts Group

   ¥ 69,373     ¥ 73,711     ¥ (4,338 )   (5.9 )

Semiconductor Parts Group

     135,299       127,960       7,339     5.7  

Applied Ceramic Products Group

     117,555       93,879       23,676     25.2  

Electronic Device Group

     259,592       262,997       (3,405 )   (1.3 )

Telecommunications Equipment Group

     229,035       250,918       (21,883 )   (8.7 )

Information Equipment Group

     249,381       241,145       8,236     3.4  

Optical Equipment Group

     14,947       35,776       (20,829 )   (58.2 )

Others

     124,974       118,040       6,934     5.9  

Adjustments and eliminations

     (18,667 )     (23,771 )     5,104     —    
                              
   ¥ 1,181,489     ¥ 1,180,655     ¥ 834     0.1  
                              

Operating profit :

        

Fine Ceramic Parts Group

   ¥ 11,014     ¥ 11,535     ¥ (521 )   (4.5 )

Semiconductor Parts Group

     17,742       17,550       192     1.1  

Applied Ceramic Products Group

     21,876       17,129       4,747     27.7  

Electronic Device Group

     27,170       35,406       (8,236 )   (23.3 )

Telecommunications Equipment Group

     (1,706 )     (14,918 )     13,212     —    

Information Equipment Group

     26,412       36,186       (9,774 )   (27.0 )

Optical Equipment Group

     (5,774 )     (15,387 )     9,613     —    

Others

     12,560       13,019       (459 )   (3.5 )
                              
     109,294       100,520       8,774     8.7  

Corporate

     13,358       8,683       4,675     53.8  

Equity in losses of affiliates and unconsolidated subsidiaries

     (1,216 )     (1,678 )     462     —    

Adjustments and eliminations

     (48 )     5       (53 )   —    
                              

Income before income taxes

   ¥ 121,388     ¥ 107,530     ¥ 13,858     12.9  
                              

Segment assets :

        

Fine Ceramic Parts Group

   ¥ 43,822     ¥ 43,414     ¥ 408     0.9  

Semiconductor Parts Group

     103,302       79,711       23,591     29.6  

Applied Ceramic Products Group

     112,422       85,595       26,827     31.3  

Electronic Device Group

     383,150       357,797       25,353     7.1  

Telecommunications Equipment Group

     87,343       98,877       (11,534 )   (11.7 )

Information Equipment Group

     185,362       178,596       6,766     3.8  

Optical Equipment Group

     16,211       31,338       (15,127 )   (48.3 )

Others

     241,142       216,178       24,964     11.5  
                              
     1,172,754       1,091,506       81,248     7.4  

Corporate

     817,857       684,970       132,887     19.4  

Investments in and advances to affiliates and unconsolidated subsidiaries

     7,355       30,623       (23,268 )   (76.0 )

Adjustments and eliminations

     (66,444 )     (61,580 )     (4,864 )   —    
                              

Total assets

   ¥ 1,931,522     ¥ 1,745,519     ¥ 186,003     10.7  
                              

Depreciation and amortization :

        

Fine Ceramic Parts Group

   ¥ 4,126     ¥ 4,320     ¥ (194 )   (4.5 )

Semiconductor Parts Group

     10,623       8,922       1,701     19.1  

Applied Ceramic Products Group

     7,167       4,645       2,522     54.3  

Electronic Device Group

     21,202       21,723       (521 )   (2.4 )

Telecommunications Equipment Group

     8,692       8,101       591     7.3  

Information Equipment Group

     12,641       8,953       3,688     41.2  

Optical Equipment Group

     1,635       2,909       (1,274 )   (43.8 )

Others

     3,794       4,070       (276 )   (6.8 )

Corporate

     3,306       2,266       1,040     45.9  
                              

Total

   ¥ 73,186     ¥ 65,909     ¥ 7,277     11.0  
                              

Capital expenditures :

        

Fine Ceramic Parts Group

   ¥ 4,182     ¥ 4,394     ¥ (212 )   (4.8 )

Semiconductor Parts Group

     24,136       7,111       17,025     239.4  

Applied Ceramic Products Group

     14,545       7,584       6,961     91.8  

Electronic Device Group

     21,562       19,453       2,109     10.8  

Telecommunications Equipment Group

     2,639       5,170       (2,531 )   (49.0 )

Information Equipment Group

     12,389       11,751       638     5.4  

Optical Equipment Group

     199       2,248       (2,049 )   (91.1 )

Others

     6,576       2,279       4,297     188.5  

Corporate

     4,043       3,186       857     26.9  
                              

Total

   ¥ 90,271     ¥ 63,176     ¥ 27,095     42.9  
                              

 

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Table of Contents

2. Geographic segments (Sales and operating profit by geographic area):

 

     Yen in millions  
   Years ended March 31,    

Increase

(Decrease)

 
   2006     2005    
   Amount     Amount     Amount     %  

Net sales:

        

Japan

   ¥ 505,703     ¥ 525,432     ¥ (19,729 )   (3.8 )

Intra-group sales and transfer between geographic areas

     327,786       314,149       13,637     4.3  
                              
     833,489       839,581       (6,092 )   (0.7 )
                              

United States of America

     288,746       307,490       (18,744 )   (6.1 )

Intra-group sales and transfer between geographic areas

     26,246       25,299       947     3.7  
                              
     314,992       332,789       (17,797 )   (5.3 )
                              

Asia

     171,015       147,654       23,361     15.8  

Intra-group sales and transfer between geographic areas

     125,586       118,877       6,709     5.6  
                              
     296,601       266,531       30,070     11.3  
                              

Europe

     189,750       180,604       9,146     5.1  

Intra-group sales and transfer between geographic areas

     33,764       30,475       3,289     10.8  
                              
     223,514       211,079       12,435     5.9  
                              

Others

     26,275       19,475       6,800     34.9  

Intra-group sales and transfer between geographic areas

     8,274       7,559       715     9.5  
                              
     34,549       27,034       7,515     27.8  
                              

Adjustments and eliminations

     (521,656 )     (496,359 )     (25,297 )   —    
                              
   ¥ 1,181,489     ¥ 1,180,655     ¥ 834     0.1  
                              

Operating profit:

        

Japan

   ¥ 82,856     ¥ 91,760     ¥ (8,904 )   (9.7 )

United States of America

     3,317       2,091       1,226     58.6  

Asia

     14,880       13,055       1,825     14.0  

Europe

     4,748       (1,482 )     6,230     —    

Others

     757       1,245       (488 )   (39.2 )
                              
     106,558       106,669       (111 )   (0.1 )

Adjustments and eliminations

     2,688       (6,144 )     8,832     —    
                              
     109,246       100,525       8,721     8.7  

Corporate

     13,358       8,683       4,675     53.8  

Equity in losses of affiliates and unconsolidated subsidiaries

     (1,216 )     (1,678 )     462     —    
                              

Income before income taxes

   ¥ 121,388     ¥ 107,530     ¥ 13,858     12.9  
                              

 

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Table of Contents

3. Geographic segments (Sales by region):

 

     Yen in millions  
     Years ended March 31,    Increase
(Decrease)
 
     2006    2005   
     Amount     %    Amount     %    Amount     %  

Japan

   ¥ 474,980     40.2    ¥ 472,417     40.0    ¥ 2,563     0.5  

United States of America

     253,696     21.5      248,333     21.0      5,363     2.2  

Asia

     198,731     16.8      203,848     17.3      (5,117 )   (2.5 )

Europe

     184,351     15.6      175,850     14.9      8,501     4.8  

Others

     69,731     5.9      80,207     6.8      (10,476 )   (13.1 )
                                        

Net sales

   ¥ 1,181,489     100.0    ¥ 1,180,655     100.0    ¥ 834     0.1  
                                        

Sales outside Japan

   ¥ 706,509        ¥ 708,238        ¥ (1,729 )   (0.2 )

Sales outside Japan ratio to net sales

     59.8 %        60.0 %       

 

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INVESTMENTS IN DEBT AND EQUITY SECURITIES

Investments in debt and equity securities at March 31, 2006 and 2005, included in short-term investments (current assets) and securities and other investments (non-current assets) are summarized as follows:

 

     Yen in millions
     March 31,
     2006    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

   ¥ 3,645    ¥ 3,808    ¥ 183    ¥ 20    ¥ 2,024    ¥ 2,029    ¥ 13    ¥ 8

Other debt securities

     133,858      132,760      29      1,127      73,886      73,773      199      312

Equity securities

     275,076      415,950      141,007      133      272,006      343,208      71,448      246
                                                       

Total available-for-sale securities

     412,579      552,518      141,219      1,280      347,916      419,010      71,660      566
                                                       

Held-to-maturity securities :

                       

Other debt securities

     34,398      34,026      —        372      22,900      22,545      —        355
                                                       

Total held-to-maturity securities

     34,398      34,026      —        372      22,900      22,545      —        355
                                                       

Total investments in debt and equity securities

   ¥ 446,977    ¥ 586,544    ¥ 141,219    ¥ 1,652    ¥ 370,816    ¥ 441,555    ¥ 71,660    ¥ 921
                                                       

 

Note: Cost represents amortized cost for held-to-maturity securities and acquisition cost for available-for-sale 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)    5                KYOCERA KOREA CO., LTD. and others
    (Decrease)    2                KYOCERA CHEMICAL TAIWAN CO., LTD. and another
Equity method      
    (Increase)    2               
    (Decrease)    4                TAITO CORPORATION and others

 

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 cost of market, the cost being determined by the average method. All other inventories are mainly stated at the lower 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 estimated useful lives.

 

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Table of Contents
  (5) Accounting for allowance and accruals

Allowance for doubtful accounts:

Kyocera provided based on the past actual ratio of losses on bad debt in addition to 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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Table of Contents

Kyocera Corporation

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

Date of the board of directors’ meeting for the results for the year: April 27, 2006

Date of the general meeting of shareholders: June 23, 2006

1. Results for the year ended March 31, 2006:

(1) Results of operations:

 

     Years ended March 31,  
     2006     2005  

Net sales

   ¥ 477,379 million     ¥ 493,271 million  

% change from the previous year

     (3.2 )%     (0.2 )%

Profit from operations

     39,937 million       33,822 million  

% change from the previous year

     18.1 %     (18.0 )%

Recurring profit

     68,182 million       66,434 million  

% change from the previous year

     2.6 %     7.5 %

Net income

     68,712 million       34,327 million  

% change from the previous year

     100.2 %     (43.4 )%
                

Earnings per share:

    

Basic

   ¥ 366.07     ¥ 182.77  

Diluted

   ¥ 365.83     ¥ 182.73  
                

Return on equity

     6.3 %     3.3 %

Recurring profit to total assets

     5.2 %     5.4 %

Recurring profit to net sales

     14.3 %     13.5 %

Notes:

1. Average number of common stock outstanding during the year

 

Year ended March 31, 2006:

   187,513,918 shares

Year ended March 31, 2005:

   187,488,658 shares

2. Change in accounting policies: None except for the adoption of new accounting standard described in page 37.

(2) Dividend information:

 

     Years ended March 31,  
     2006     2005  

Year-end dividends per share

   ¥ 50.00     ¥ 50.00  

Interim dividends per share

     50.00       30.00  

Annual dividends per share

     100.00       80.00  

Annual aggregate amount of dividends paid

     18,760 million       14,999 million  

Dividends to net income

     27.3 %     43.8 %

Dividends to stockholders’ equity

     1.7 %     1.4 %

 

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Table of Contents

(3) Financial Position:

 

     March 31,  
     2006     2005  

Total assets

   ¥ 1,389,396 million     ¥ 1,232,069 million  

Stockholders’ equity

     1,132,261 million       1,036,744 million  
                

Stockholders’ equity to total assets

     81.5 %     84.1 %
                

Stockholders’ equity per share

   ¥ 6,030.17     ¥ 5,529.54  

Notes: Total number of shares outstanding as of:

    

March 31, 2006

                 187,754,750 shares  

March 31, 2005

                 187,481,084 shares  

  Total number of treasury stock as of:

    

March 31, 2006

                     3,554,540 shares  

March 31, 2005

                     3,828,206 shares  

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

 

     Year ending March 31, 2007

Net sales

   ¥ 510,000 million

Recurring profit

     74,000 million

Net income

     53,000 million

Annual dividends per share

   ¥ 100.00             

Note: Forecast of earnings per share: ¥ 282.28

With regard to the forecasts set forth above, please refer to the accompanying “Forward Looking Statements” on page 16.

 

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Table of Contents

BALANCE SHEETS

 

     Yen in millions  
     March 31,    Increase
(Decrease)
 
     2006    2005   
     Amount     %    Amount     %   

Current assets:

            

Cash and bank deposits

   ¥ 136,870        ¥ 154,347        ¥ (17,477 )

Trade notes receivable

     43,325          40,249          3,076  

Trade accounts receivable

     90,073          90,666          (593 )

Marketable securities

     19,331          12,606          6,725  

Finished goods and merchandise

     17,588          15,483          2,105  

Raw materials

     14,152          21,663          (7,511 )

Work in process

     17,104          20,217          (3,113 )

Supplies

     751          625          126  

Advanced payments

     2,967          676          2,291  

Deferred income taxes

     15,375          12,525          2,850  

Short-term loans to subsidiaries

     1,316          3,766          (2,450 )

Other accounts receivable

     9,012          5,413          3,599  

Other current assets

     434          328          106  

Allowances for doubtful accounts

     (142 )        (139 )        (3 )
                                  

Total current assets

     368,156     26.5      378,425     30.7      (10,269 )
                                  

Fixed assets:

            

Tangible fixed assets:

            

Buildings

     36,978          33,378          3,600  

Structures

     2,268          2,131          137  

Machinery and equipment

     44,113          36,706          7,407  

Vehicles

     25          27          (2 )

Tools, furniture and fixtures

     7,477          7,652          (175 )

Land

     33,323          32,277          1,046  

Construction in progress

     4,533          1,958          2,575  
                                  

Total tangible fixed assets

     128,717     9.3      114,129     9.3      14,588  
                                  

Intangible assets:

            

Patent rights and others

     14,298          2,192          12,106  
                                  

Total intangible assets

     14,298     1.0      2,192     0.2      12,106  
                                  

Investments and other assets:

            

Investments in securities

     536,019          407,221          128,798  

Investments in subsidiaries and affiliates

     278,817          284,996          (6,179 )

Investments in subsidiaries and affiliates

            

other than equity securities

     27,033          23,254          3,779  

Long-term loans to subsidiaries

     30,428          19,744          10,684  

Bankruptcy and Rehabilitation claims

     256          5,336          (5,080 )

Long-term prepaid expenses

     3,785          5,035          (1,250 )

Security deposits

     1,918          2,173          (255 )

Other investments

     336          364          (28 )

Allowances for doubtful accounts

     (367 )        (4,850 )        4,483  

Allowances for impairment loss on securities

     —            (5,950 )        5,950  
                                  

Total investments and other assets

     878,225     63.2      737,323     59.8      140,902  
                                  

Total fixed assets

     1,021,240     73.5      853,644     69.3      167,596  
                                  

Total assets

   ¥ 1,389,396     100.0    ¥ 1,232,069     100.0    ¥ 157,327  
                                  

 

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Table of Contents
     Yen in millions  
     March 31,        
     2006     2005    

Increase

(Decrease)

 
     Amount     %     Amount     %    

Current liabilities :

          

Trade accounts payable

   ¥ 49,570       ¥ 42,602       ¥ 6,968  

Other payables

     29,659         13,737         15,922  

Accrued expenses

     7,610         6,165         1,445  

Income taxes payables

     14,200         13,800         400  

Advance received

     340         109         231  

Deposits received

     2,315         2,845         (530 )

Unearned income

     4         3         1  

Accrued bonuses

     10,109         9,215         894  

Provision for warranties

     521         493         28  

Provision for sales returns

     163         232         (69 )

Other current liabilities

     369         568         (199 )
                                    

Total current liabilities

     114,860     8.3       89,769     7.3       25,091  
                                    

Non-current liabilities :

          

Long-term debt

     5,309         —           5,309  

Deferred income taxes

     118,557         83,376         35,181  

Accrued pension and severance costs

     17,236         20,789         (3,553 )

Directors’ retirement allowance

     889         1,078         (189 )

Other non-current liabilities

     284         313         (29 )
                                    

Total non-current liabilities

     142,275     10.2       105,556     8.6       36,719  
                                    

Total liabilities

     257,135     18.5       195,325     15.9       61,810  
                                    

Stockholder’s equity

          

Common stock

     115,703     8.3       115,703     9.4       —    

Additional paid-in capital

     192,555     13.9       192,555     15.6       —    

Retained earnings:

          

Legal reserves

     17,207     1.2       17,207     1.4       —    

General reserves

     558,721     40.2       541,139     43.9       17,582  

Reserve for special depreciation

     1,584         2,003         (419 )

Reserve for research and development

     1,000         1,000         —    

Reserve for dividends

     1,000         1,000         —    

Reserve for retirement benefits

     300         300         —    

Reserve for overseas investments

     1,000         1,000         —    

Other general reserve

     553,837         535,836         18,001  

Unappropriated retained earnings

     69,245     5.0       36,990     3.0       32,255  
                                    

Total retained earnings

     645,173     46.4       595,336     48.3       49,837  
                                    

Net unrealized gain on other securities

     207,973     15.0       164,530     13.3       43,443  

Treasury stock, at cost

     (29,143 )   (2.1 )     (31,380 )   (2.5 )     2,237  
                                    

Total stockholders’ equity

     1,132,261     (81.5 )     1,036,744     (84.1 )     95,517  
                                    

Total liabilities and stockholders’ equity

   ¥ 1,389,396     100.0     ¥ 1,232,069     100.0     ¥ 157,327  
                                    

 

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STATEMENTS OF INCOME

 

     Yen in millions  
     Years ended March 31,              
     2006    2005     Increase (Decrease)  
     Amount    %    Amount     %     Amount     %  

Net sales

   ¥ 477,379    100.0    ¥ 493,271     100.0     ¥ (15,892 )   (3.2 )

Cost of sales

     367,835    77.1      390,348     79.1       (22,513 )   (5.8 )
                                        

Gross profit

     109,544    22.9      102,923     20.9       6,621     6.4  

Selling, general and administrative expenses

     69,607    14.5      69,101     14.0       506     0.7  
                                        

Profit from operations

     39,937    8.4      33,822     6.9       6,115     18.1  
                                        

Non-operating income :

              

Interest and dividend income

     26,441    5.5      28,083     5.7       (1,642 )   (5.8 )

Foreign currency transaction gains, net

     437    0.1      1,445     0.3       (1,008 )   (69.8 )

Other non-operating income

     6,652    1.4      8,510     1.7       (1,858 )   (21.8 )
                                        

Total non-operating income

     33,530    7.0      38,038     7.7       (4,508 )   (11.9 )
                                        

Non-operating expenses :

              

Interest expense

     14    0.0      15     0.0       (1 )   (8.0 )

Loss on disposal of inventories

     2,779    0.6      3,863     0.8       (1,084 )   (28.1 )

Loss on long-term purchase commitment

     1,240    0.2      —       —         1,240     —    

Compensation expense for defective goods

     —      —        696     0.1       (696 )   —    

Other non-operating expenses

     1,252    0.3      852     0.2       400     47.1  
                                        

Total non-operating expenses

     5,285    1.1      5,426     1.1       (141 )   (2.6 )
                                        

Recurring profit

     68,182    14.3      66,434     13.5       1,748     2.6  
                                        

Non-recurring gain

     28,889    6.1      2,187     0.4       26,702     —    

Non-recurring loss

     5,992    1.3      12,738     2.6       (6,746 )   (53.0 )
                                        

Income before income taxes

     91,079    19.1      55,883     11.3       35,196     63.0  

Income taxes – current

     20,233    4.2      9,320     1.9       10,913     117.1  

Income taxes – previous years

     —      —        12,748     2.5       (12,748 )   —    

Income taxes – deferred

     2,134    0.5      (512 )   (0.1 )     2,646     —    
                                        

Net income

     68,712    14.4      34,327     7.0       34,385     100.2  
                                        

Unappropriated retained earnings brought forward from the previous year

     9,974         8,293        

Net realized loss on treasury stock, at cost

     67         5        

Interim dividends

     9,374         5,625        
                        

Unappropriated retained earnings at the end of the year

   ¥ 69,245       ¥ 36,990        
                        

 

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Table of Contents

PROPOSED APPROPRIATION OF RETAINED EARNINGS

 

     Yen in millions  
     Years ended March 31,   

Increase

(Decrease)

 
     2006    2005   

Unappropriated retained earnings

   ¥ 69,245    ¥ 36,990    ¥ 32,255  

Reversal of reserves:

        

Reversal of reserve for special depreciation

     595      740      (145 )
                      

Total

     69,840      37,730      32,110  
                      

To be appropriated as follows:

        

Dividends (50 yen per share)

     9,387      9,374      13  

Directors’ bonuses (Note)

     68      60      8  

Reserve for special depreciation

     623      322      301  

Other general reserve

     50,000      18,000      32,000  
                      

Unappropriated retained earnings carried forward to the next year

   ¥ 9,762    ¥ 9,974    ¥ (212 )
                      

Note:

 

1. Corporate auditors’ bonuses of 6 million yen and 5 million yen are included in directors’ bonuses in the years ended March 31, 2006 and 2005, respectively.
2. The appropriation of retained earnings for the year ended March 31, 2005 was approved at the shareholders’ meeting held on June 28, 2005. The proposed appropriation of retained earnings for the year ended March 31, 2006 is subject to the approval at the shareholders’ meeting scheduled to be held on June 23, 2006.

 

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1. Summary of significant accounting policies:

    

(1)     Securities:

    

Held-to-maturity securities:

    

Amortized cost method

Investments in subsidiaries and affiliates:

    

Cost determined by the moving average method

Other securities

    

Marketable:

  Based on market price of the balance sheet date (Unrealized gains and losses on those securities are reported in the stockholders’ equity and cost is determined by the moving average method.)

Non-marketable:

 

Cost determined by the moving average method

 

(2) Derivatives instruments: Mark-to-market method

 

(3) Inventories:

Finished good, merchandise and work in process:

Finished goods and work in process are stated at the lower of cost or market, the cost being determined by the average method. Merchandise are stated at the lower of cost or market, the cost being determined by the last purchase method.

Raw materials and supplies:

Raw materials and supplies, except those for telecommunications equipment, are valued at cost, the cost being determined by the last purchase method.

Raw materials for telecommunications equipment are valued at cost, the cost being determined by the first-in, first-out method.

 

(4) Depreciation of fixed assets:

Tangible fixed assets:

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

  

The principal estimated useful lives are as follows:

    

Building and structures

 

2 to 25 years

Machinery and equipment, and Tools, furniture and fixtures

 

2 to 10 years

Intangible fixed assets and long-term prepaid expenses:

Amortization is computed at rates based on the estimated useful lives of assets using the straight-line method.

 

(5) Accounting for allowances and accruals:

Allowances for doubtful accounts:

Allowances for doubtful accounts are provided at an estimated amount of the past actual ratio of losses on bad debts.

Certain allowances are provided for estimated uncollectible receivables.

Allowances for impairment losses on investments:

Allowances for impairment losses on investments are provided at an estimated uncollectible amount of investments in subsidiaries or affiliates.

Accrued bonuses:

Accrued bonuses are provided based upon the amounts expected to be paid which is determined by actual payment of previous year.

Warranty reserves

Warranty reserves are provided based upon the estimated after-service costs to be paid during warranty periods, which is determined by actual payment of past years, for communication equipments.

Allowances for sales return

Allowances for sales return are provided based upon the estimated loss on returned products, which is determined by the historical experience of sales returns.

Accrued pension and severance costs:

Pension and severance costs are recognized based on projected benefit obligation and plan assets at the year end.

Past service liability is amortized over estimated average remaining service period of employees by using the straight-line method.

Actuarial gains or losses are amortized over estimated average remaining service period of employees by using the straight-line method following the year incurred.

Retirement allowance for Directors and Corporate Auditors

Retirement allowances for Directors and Corporate Auditors are provided at an estimated amount in accordance with Kyocera Corporation’s internal regulation.

 

(6) Lease transactions:

Finance lease other than those which are deemed to transfer the ownership of leased assets to lessees are accounted for by the method similar to that applicable to an ordinary operating lease.

 

(7) Consumption taxes:

The consumption taxes withheld upon sale and the consumption taxes paid for purchases of goods and services are not included in the amounts of respective revenue and cost or expense items in the accompanying statements of income.

 

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2. New Accounting Standard

 

(1) Accounting policy for the impairment of fixed assets

The accounting standard for an impairment of tangible and intangible fixed assets was effective for the years beginning on or after April 1, 2005. As a result of adopting the new accounting standard there was no impact on the non-consolidated result of operation and financial condition.

3. Reclassification

 

(1) As the amount of compensation expense for defective goods for the year ended March 31, 2006 was below 10 percent of total non-operating expenses, it was included in the other non-operating expenses on the Statement of Income. For reference, compensation expense for defective goods for the year ended March 31, 2006 was 362 million yen.

 

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Notes to the balance sheets:

 

     Yen in millions
     March 31,
     2006    2005

(1) Accumulated depreciation of tangible fixed assets

   ¥ 311,516    ¥ 308,347

(2) Assets pledged as collateral

     

 Investments in WILLCOM, INC.

   ¥ 17,812    ¥ 17,812

 Corresponding liability

     

 WILLCOM, INC.’s long-term debt from financial institutions *

   ¥ 113,752    ¥ 166,815

*  All capital investors of WILLCOM INC. pledge their investment in equity security as collateral for this long-term debt.

(3) Guarantees:

     

Guarantee in the form of commitment

   ¥ 1,198    ¥ 1,390

Guarantee in the form of letters of awareness

   ¥ 6,407    ¥ 6,976

Notes to the statements of income:

(1) Major items in non-recurring gain and loss:

 

     Yen in millions
     Years ended March 31,
     2006    2005

1) Non-recurring gain:

     

Gain on sale of investment in an affiliate

   ¥ 17,593      —  

Reversal of allowance for loss on investment in a subsidiary

   ¥ 5,950      —  

Reversal of allowance for doubtful accounts for a subsidiary

   ¥ 4,505      —  

Gain on disposal of tangible fixed assets

   ¥ 779    ¥ 170

Gain on sale of investment in securities

   ¥ 30      —  

Liquidation gain for investments in securities

   ¥ 8    ¥ 1,994

2) Non-recurring loss:

     

Loss on devaluation of investment in a subsidiary

   ¥ 4,437    ¥ 4,141

Loss on disposal of tangible fixed assets

   ¥ 1,189    ¥ 1,222

Loss on devaluation of investment in securities

   ¥ 282    ¥ 2,817

Loss on devaluation of investment in securities Loss on transfer of investment in securities

   ¥ 67      —  

Allowance for doubtful accounts for a subsidiary

     —      ¥ 4,503

(2) Depreciation and amortization:

     Yen in millions
     Years ended March 31,
     2006    2005

Tangible fixed assets

   ¥ 24,328    ¥ 23,987

Intangible assets

   ¥ 2,079    ¥ 1,438

Note for marketable securities:

Market value for investment in subsidiaries and affiliates:

 

     Yen in millions
     March 31, 2006
     Carrying amount    Market value    Increase (Decrease)

Investment in subsidiary

   ¥ 65,904    ¥ 251,093    ¥ 185,189

 

     Yen in millions
     March 31, 2005
     Carrying amount    Market value    Increase (Decrease)

Investment in subsidiary

   ¥ 65,904    ¥ 158,739    ¥ 92,835

Investment in affiliates

   ¥ 6,541    ¥ 18,257    ¥ 11,716