Kyocera 6-K 2009
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 February 2009
Commission File Number: 1-07952
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- .
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.
Date: February 12, 2009
Information furnished on this form:
English translation of consolidated financial statements included in the Quarterly Report (shihanki-houkokusho) for the three months and the nine months ended December 31, 2008 filed with the Director of the Kanto Local Finance Bureau of the Ministry of Finance pursuant to the Financial Instruments and Exchange Law of Japan
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS(Continued)
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
The accompanying notes are an integral part of these statements.
<NOTES TO THE UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS>
1. Accounting Principles, Procedures and Financial Statements Presentation
In December 1975, Kyocera Corporation filed a registration statement, Form S-1 and a registration form for American Depositary Receipt (ADR), in accordance with the Securities Exchange Act of 1933, with the United States Securities and Exchange Commission (SEC) and made a registration of its common stock and ADR there. In accordance with the mentioned act, Kyocera Corporation again filed Form S-1 and a registration form for ADR with the SEC in February 1980, and listed its ADR on the New York Stock Exchange in May 1980.
Kyocera Corporation has filed Form 20-F as an annual report with the SEC, which includes the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, under the section 13 of the Securities Exchange Act of 1934. Kyocera Corporation has also prepared quarterly consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, however, certain footnotes required by accounting principles generally accepted in the United States of America are omitted. The following are accounting principles and regulations with which Kyocera Corporation is required to comply: Regulations for filing and reporting to the SEC (Regulation S-X, Accounting Series Releases, Staff Accounting Bulletins, etc.), Statements of Financial Accounting Standards Board (SFAS), Accounting Principles Board (APB) Opinions and Accounting Research Bulletin (ARB), among others.
The following paragraphs identify the significant differences between accounting principles generally accepted in the United States of America and accounting principles generally accepted in Japan.
(1) Revenue Recognition
Kyocera Corporation and its consolidated subsidiaries (Kyocera) adopt Staff Accounting Bulletin No. 104 Revenue Recognition in Financial Statements.
(2) Foreign Currency Translation and Forward Exchange Contracts
Assets and liabilities denominated in foreign currencies and financial statements of foreign subsidiaries are translated based on SFAS No. 52 Foreign Currency Translation. Forward exchange contracts are accounted for by SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activitiesan Amendment of SFAS No. 133.
(3) Benefit Plans
Kyocera applies SFAS No. 87 Employers Accounting for Pensions and SFAS No.158 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans.
(4) Minority Interests
Minority interests are presented as a separate category between liabilities and stockholders equity in the consolidated balance sheets.
(5) Comprehensive Income
Kyocera applies SFAS No. 130 Reporting Comprehensive Income, which defines comprehensive income as the change in equity except for capital transaction and it consists of net income and other comprehensive income. Other comprehensive income includes foreign currency translation adjustments and pension adjustments, net unrealized gains (losses) on securities and derivative financial instruments.
(6) Stock Issuance Costs
Stock issuance costs, net of tax are deducted from the additional paid-in capital.
(7) Business Combinations
Kyocera adopts SFAS No. 141 Business Combinations.
(8) Goodwill and Other Intangible Assets
Kyocera adopts SFAS No. 142 Goodwill and Other Intangible Assets.
(9) Derivative Financial Instruments
Kyocera adopts SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activitiesan amendment of SFAS No. 133.
(10) Lease Accounting
Kyocera adopts SFAS No. 13 Accounting for Leases.
(11) Unused Compensated Absence
Kyocera adopts SFAS No. 43 Accounting for Compensated Absences.
(12) Income Taxes
Kyocera adopts FIN No. 18 Accounting for Income Taxes in Interim Periodsan interpretation of APB opinion No. 28 and FIN No. 48 Accounting for Uncertainty in Income Taxesan interpretation of FASB statement No. 109.
2. Summary of Accounting Policies
(1) Basis of Consolidation and Accounting for Investments in Affiliated Companies
The consolidated financial statements include the accounts of Kyocera Corporation, its majority-owned subsidiaries and a variable interest entity for which Kyocera Corporation is the primary beneficiary under Financial Accounting Standard Board (FASB) Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities. All significant inter-company transactions and accounts are eliminated. Investments in 20% to 50% owned companies are accounted for under the equity method, whereby Kyocera includes in net income its equity in the earnings or losses from these companies.
The consolidated variable interest entity for which Kyocera Corporation is the primary beneficiary does not have a material effect on Kyoceras financial position and results of operations.
(2) Revenue Recognition
Kyocera sells various types of products, including fine ceramic parts, semiconductor parts, and telecommunications equipment. Kyocera recognizes revenue upon completion of the earnings process, which occurs when products are shipped or delivered to customers in accordance with the terms of an agreement of sale, there is a fixed or determinable selling price, title and risk of loss have been transferred, and collectibility is reasonably assured. Most of these conditions are satisfied at the time of delivery to customers in domestic sales (FOB destination) and at the time of shipment (FOB shipping) for export sales.
Kyocera records an estimated sales return allowance at the time of sales based on its historical returns experience.
For after-service costs to be paid during warranty periods, Kyocera accrues a product warranty liability for claims under warranties relating to the products that have been sold. Kyocera records an estimated product warranty based on its historical repair experience.
(3) Cash and Cash Equivalents
Cash and cash equivalents include time deposits and certificates of deposit with original maturities of three months or less.
(4) Translation of Foreign Currencies
Assets and liabilities of consolidated foreign subsidiaries and affiliates accounted for by the equity method are translated into Japanese yen at the exchange rates in effect on the respective balance sheet dates. Operating accounts are translated at the average rates of exchange for the respective years. Translation adjustments result from the process of translating foreign currency financial statements into Japanese yen. These translation adjustments, which are not included in the determination of net income, are reported in other comprehensive income.
Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates in effect at the respective balance sheet dates, and resulting transaction gains or losses are included in the determination of net income.
(5) Allowances for Doubtful Accounts
Kyocera maintains allowances for doubtful accounts related to trade note receivables, trade accounts receivables and finance receivables for estimated losses resulting from customers inability to make timely payments. Kyoceras estimates are based on various factors including the length of past due payments, historical experience and current business environments. In circumstances where it is aware of a specific customers inability to meet its financial obligations, a specific allowance against these amounts is provided considering the fair value of assets pledged by the customer as collateral. The amounts of allowances for doubtful accounts included in other assets at December 31, 2008 and at March 31, 2008 were ¥2,359 million and ¥1,962 million, respectively.
Inventories are stated at the lower of cost or market. Cost is determined by the average method for approximately 71% and 66% of finished goods and work in process as well as approximately 50% and 55% of raw material and supplies at December 31, 2008 and at March 31, 2008, respectively. The first-in, first-out method is applied to the other inventories. Kyocera recognizes estimated write-down of inventories for excess, slow-moving and obsolete inventories.
Certain investments in debt and equity securities are accounted for under SFAS No. 115 Accounting for Certain Investments in Debt and Equity Securities. Securities classified as available-for-sale securities are recorded at fair value, with unrealized gains and losses excluded from income and reported in other comprehensive income, net of taxes. Securities classified as held-to-maturity securities are recorded at amortized cost.
Kyocera evaluates whether the declines in fair value of debt and equity securities with readily determinable fair values are other-than-temporary. Other-than-temporary declines in fair value are recorded as a realized loss with a new cost basis. This evaluation is based mainly on the duration and the extent to which the fair value is less than cost, and the anticipated recoverability in fair value.
(8) Property, Plant and Equipment and Depreciation
Kyocera provides for depreciation of buildings, machinery and equipment over their estimated useful lives primarily on the declining balance method. The principal estimated useful lives used for computing depreciation are as follows:
Major renewals and betterments are capitalized as tangible assets and they are depreciated based on estimated useful lives. The costs of minor renewals, maintenance and repairs are charged to expense in the year incurred. When assets are sold or otherwise disposed of, the profits or losses thereon, computed on the basis of the difference between depreciated costs and proceeds, are credited or charged to income in the year of disposal, and costs and accumulated depreciation are removed from accounts.
(9) Goodwill and Other Intangible Assets
Kyocera applies SFAS No. 142, Goodwill and Other Intangible Assets. This requires that, rather than being amortized, goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually, and also following any events and changes in circumstances that might lead to impairment. Intangible assets with definite useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
The principal estimated useful lives for intangible assets are as follows:
(10) Impairment of long-lived assets
Pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Kyocera reviews its long-lived assets and intangible assets with definite useful lives for impairment periodically. Long-lived assets and intangible assets with definite useful lives are considered to be impaired when the expected undiscounted cash flow from the asset group is less than its carrying value. A loss on impairment is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets and intangible assets with definite useful lives.
(11) Derivative Financial Instruments
Kyocera utilizes derivative financial instruments to manage its exposure resulting from fluctuations of foreign currencies and interest rates. These derivative financial instruments include foreign currency forward contracts and interest rate swaps. Kyocera does not hold or issue such derivative financial instruments for trading purposes.
Kyocera applies SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities an Amendment of SFAS No. 133. All derivatives are recorded as either assets or liabilities on the balance sheet and measured at fair value. Changes in the fair value of derivatives are charged in current earnings. However cash flow hedges which meet the criteria of SFAS No. 133 may qualify for hedge accounting treatment. Changes in the fair value of the effective portion of these hedge derivatives are deferred in other comprehensive income and charged to earnings when the underlying transaction being hedged occurs.
Kyocera designates certain foreign currency forward contracts and interest rate swaps as cash flow hedges under SFAS No. 133. Most of Kyoceras foreign currency forward contracts are entered into as hedges of existing foreign currency denominated assets and liabilities. Accordingly, Kyocera records changes in fair value of these foreign currency forward contracts currently in earnings. It is expected that such changes will be offset by corresponding gains or losses on the underlying assets and liabilities.
Kyocera formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes all derivatives designated as cash flow hedge are linked to specific assets and liabilities on the balance sheet or forecasted transactions. Kyocera also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, Kyocera discontinues hedge accounting prospectively. When hedge accounting is discontinued, the derivative will continue to be carried on the balance sheet at its fair value, with deferred unrealized gains or losses charged immediately in current earnings.
(12) Stock-Based Compensation
Kyocera applies SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment and recognized the cost resulting from share-based payment transactions in financial statements by adopting fair-value based measurement method in accordance with SFAS No. 123R. Under the modified prospective method of adoption for SFAS No. 123R, Kyocera recognized compensation cost which includes: (a) compensation cost for all stock options granted prior to, but not yet vested as of April 1, 2006, and (b) compensation cost for all stock options granted or modified subsequent to April 1, 2006.
(13) Earnings and Cash Dividends per Share
Kyocera applies SFAS No. 128, Earnings per Share. Basic earnings per share is computed based on the weighted average number of shares outstanding during each period. Diluted earnings per share assumes the dilution that could occur if all stock options were exercised and resulted in the issuance of common stock.
Cash dividends per share are those declared with respect to the earnings for the respective periods for which dividends are proposed by the Board of Directors. Dividends are charged to retained earnings in the period in which they are paid.
(14) Research and Development Expenses and Advertising Expenses
Research and development expenses and advertising expenses are charged to operations as incurred.
(15) Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. However, actual results could differ from those estimates.
(16) Recently Adopted Accounting Standards
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. The purpose of SFAS No. 157 is to define fair value, establish a framework for measuring fair value and enhance disclosures about fair value measurements. The measurement and disclosure requirements related to financial assets and financial liabilities were effective for fiscal years beginning April 1, 2008. The adoption of SFAS No. 157 for financial assets and financial liabilities has no material impact on Kyoceras consolidated results of operations and financial position.
In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 and FSP No. 157-2, Effective Date of FASB Statement No. 157. FSP No. 157-1 amended SFAS No. 157 to remove certain leasing transactions from its scope and was effective for fiscal years beginning April 1, 2008. FSP No. 157-2 postponed one year the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities. FSP No. 157-2 is effective for fiscal years beginning after November 15, 2008. The adoption of FSP No. 157-1 and FSP No. 157-2 has no material impact on Kyoceras consolidated financial statements or the fair values of Kyoceras financial assets and liabilities.
In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active (FSP No. 157-3). FSP No. 157-3 clarifies the application of SFAS No. 157 in a market that is not active, and addresses application issues such as the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. FSP No. 157-3 is effective for all periods presented in accordance with SFAS No. 157. SFAS No. 157 is effective beginning for the three months ended December 31, 2008. The adoption of FSP 157-3 has no material impact on Kyoceras consolidated financial statements or the fair values of Kyoceras financial assets and liabilities.
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132 (R). SFAS No. 158 requires an employer to measure the funded status of a benefit plan as of the date of its fiscal year-end statement of financial position for the years ending after December 15, 2008. Kyocera adopted this measurement date provision for fiscal years beginning April 1, 2008 and started to measure the funded status of its benefit plans at the date of its fiscal year-end statement of financial position. As a result of applying the transition method of this provision, retained earnings and other comprehensive income at April 1, 2008 decreased by ¥522 million and ¥418 million, respectively.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of FASB Statement No. 115. SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings. SFAS No. 159 is effective for fiscal years beginning April 1, 2008. The adoption of SFAS No. 159 has no material impact on Kyoceras consolidated results of operations or financial position.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States of America. The sources of accounting principles that are generally accepted are categorized in descending order as follows:
SFAS No. 162 was effective on November 15, 2008. The adoption of SFAS No. 162 is not expected to have any impact on Kyoceras financial position, financial performance and cash flows.
(17) Recently Issued Accounting Standards
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS No. 141R), Business Combinations, which requires assets, liabilities and noncontrolling interests be measured at fair value. Under SFAS No. 141R, transaction costs are required to be generally expensed, as well as contingent consideration and in-process research and development be recorded at fair value on acquisition date as a part of fair value of the acquired business. In addition, any adjustments made after the measurement period impacts net income in the period which such adjustments occurs. SFAS No. 141R is effective for fiscal years beginning on or after December 15, 2008. Kyocera will assess the impact of SFAS No. 141R on any future acquisition.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statement an Amendment of Accounting Research Bulletin No. 51. SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parents ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Kyocera is currently evaluating the impact that SFAS No. 160 will have on Kyoceras consolidated results of operations and financial position.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative instruments and Hedging Activities an Amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures regarding an entitys derivative and hedging activities to provide adequate information about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. As SFAS No. 161 does not impact the measurement or recognition of derivative instruments, the adoption of the SFAS No. 161 will not have any impact on Kyoceras financial position, financial performance and cash flows.
In December 2008, the FASB issued FSP No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets, which provides guidance on employers disclosures of a defined benefit pension or other postretirement plan. Specifically, employers are required to disclose information about fair value measurements of plan assets. FSP No. 132(R)-1 will be effective for fiscal years ending after December 15, 2009. As FSP No. 132(R)-1 is a provision for disclosure, the adoption of FSP No. 132(R)-1 will not have any impact on Kyoceras financial position, financial performance and cash flows.
3. Business Combination
On April 1, 2008, Kyocera acquired the mobile phone handsets related business and its related assets and liabilities from SANYO Electronics Co., Ltd. (SANYO) through corporate split. The results of operations of the acquired business was included into Kyoceras consolidated financial statement since the acquisition date and for the segment reporting, it is reported in the Telecommunications Equipment Group. The acquired business consists of the development, manufacturing and sales of mobile phones, PHS Mobile Phone Handsets and wireless communication systems in Japan and overseas. The acquired business has sales offices and research and development facilities in Japan, sales locations in North America and manufacturing facilities in Malaysia and China. Kyocera pursues synergies between distribution channels in North America, development activities and design technologies of the acquired business and its existing management resources.
Kyocera has used the purchase method of accounting to record assets acquired and liabilities assumed in accordance with SFAS No. 141, Business Combinations.
The related assets and liabilities were recorded based upon their estimated fair values at the date of acquisition with the excess being allocated to goodwill as shown in the following table.
In the three months ended December 31, 2008, Kyocera completed an acquisition of Sanyos manufacturing subsidiary in China. Accordingly, the purchase price of entire acquired business and the allocation of purchase price have been adjusted. The amounts in the following table were revised compared with those described in the quarterly financial statement in the Form 6-K submitted on November 14, 2008.
Current liabilities in the following table include an amount of payables as of the purchase date that were not individually stated within the purchase agreement which were collectively assumed from SANYO. As such these payables have been included in the allocation of purchase price.
On June 30, 2008, Kyocera Industrial Ceramics Corporation acquired all of the outstanding capital stock of On Time Machining Company, a manufacturing and sales company of cutting tools.
On April 30, 2008, Kyocera Mita Corporation (Kyocera Mita) acquired the development operations related to digital multi-function devices for printers and copy machines from Peerless Systems Corporation.
Kyocera Mita America, Inc., a subsidiary of Kyocera Mita, acquired all operations and related assets, or all of the capital stock of the following five sales companies of information equipment for the purpose of expanding sales channels in the United States of America.
On October 1, 2008, Kyocera Mita Australia Pty. Ltd., a subsidiary of Kyocera Mita, acquired all operations and related assets of Action Copies Pty. Ltd., a sales company of information equipment in Australia. Impacts of these acquisitions on Kyoceras consolidated results of operations and financial position were not material.
On November 18, 2008, Kyocera Mita announced that it submitted a voluntary public takeover offer (takeover offer) to the shareholders of TA Triumph-Adler AG (TAAG), a German based sales company of information equipment which was accounted for by the equity method, and from December 16, 2008, Kyocera Mita started to accept the takeover offer. From December 8, 2008 to December 31, 2008, Kyocera Mita acquired 20,711,396 shares of the outstanding common stock of TAAG directly from its shareholders or through the stock market. As the settlements of the takeover offer and the approval from authorities on such acquisition has been completed subsequent to December 31, 2008, detailed information is set forth in Note 15 Subsequent Events.
4. Investment in Debt and Equity Securities
Investments in debt and equity securities as of December 31, 2008 and March 31, 2008, included in short-term investments (current assets) and in securities and other investments (non-current assets) are summarized as follows:
Inventories at December 31, 2008 and March 31, 2008 are as follows:
6. Assets Pledged as Collateral and Liabilities with Assets Pledged
The value of the property and equipment, net of accumulated depreciation that was pledged as collateral at December 31, 2008 and March 31, 2008 was ¥4,946 million and ¥5,145 million, respectively.
At December 31, 2008 and March 31, 2008 Kyocera had a current portion of long term debt of ¥439 million and ¥691 million, respectively, and a non-current portion of long term debt of ¥1,601 million and ¥1,894 million, respectively, which had assets pledged as collateral.
7. Derivative Financial Instruments and Hedging Activities
Kyoceras activities are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. Approximately 60% of Kyoceras revenue is generated from overseas customers, which exposes Kyocera to foreign currency exchange rates fluctuations. These financial exposures are monitored and managed by Kyocera as an integral part of its overall risk management program. Kyoceras risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.
Kyocera maintains a foreign currency risk management strategy that uses derivative financial instruments, such as foreign currency forward contracts, to minimize the volatility in its cash flows caused by changes in foreign currency exchange rates. Movements in foreign currency exchange rates pose a risk to Kyoceras operations and competitive position, since exchange rates changes may affect the profitability, cash flows, and business and/or pricing strategies of non Japan-based competitors. These movements affect cross-border transactions that involve, but are not limited to, direct export sales made in foreign currencies and raw material purchases incurred in foreign currencies.
Kyocera maintains an interest rate risk management strategy that may use derivative financial instruments, such as interest rate swaps, to minimize significant, unanticipated cash flow fluctuations caused by interest rate volatility.
By using derivative financial instruments to hedge exposures to changes in exchange rates and interest rates, Kyocera became exposed itself to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contracts. When the fair value of a derivative contract is positive, the counterparty owes Kyocera, which creates repayment risk for Kyocera. When the fair value of a derivative contract is negative, Kyocera owes the counterparty and, therefore, it does not possess repayment risk. Kyocera minimizes the credit (or repayment) risk in derivative financial instruments by (1) entering into transactions with creditworthy counterparties, (2) limiting the amount of exposure to each counterparty, and (3) monitoring the financial condition of its counterparties.
Cash Flow Hedges
Kyocera uses certain foreign currency forward contracts designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in its forecasted transactions related to purchase commitments and sales. During the nine months ended December 31, 2008, Kyocera recorded ¥32 million of foreign currency transaction gains, net in the consolidated statements of income, which was charged from deferred net gains in accumulated other comprehensive income. During the three months ended December 31, 2008, Kyocera recorded ¥70 million of foreign currency transaction losses, net in the consolidated statements of income, which was charged from deferred net losses in accumulated other comprehensive income.
Kyocera also uses interest rate swaps mainly to convert a portion of its variable rate debt to fixed rates. Kyocera recognized deferred net losses of ¥32 million and deferred net gains of ¥196 million in accumulated other comprehensive income at December 31, 2008 and at March 31, 2008, respectively.
Kyoceras main direct foreign export sales and some import purchases are denominated in the customers and suppliers local currency, principally the U.S. dollar, Euro and Pound Sterling (STG). Kyocera purchases foreign currency forward contracts with terms normally lasting less than four months to protect against the adverse effects that exchange-rate fluctuations may have on foreign-currency-denominated trade receivables and payables. The gains and losses on both the derivatives and the foreign currency-denominated trade receivable and payable are recorded as foreign currency transaction gains (losses), net in the consolidated statement of income. Kyocera does not adopt hedge accounting for such derivatives.
The aggregate contract amounts of derivative financial instruments to which hedge accounting is not applied are as follows:
8. Commitments and Contingencies
As of December 31, 2008, Kyocera had contractual obligations for the acquisition or construction of property, plant and equipment aggregating ¥5,422 million due within one year.
Kyocera is lessee under long-term operating leases primarily for office space and equipment. Future minimum lease commitments under non-cancelable operating leases at December 31, 2008 are as follows:
Kyocera has entered into purchase agreements for a certain portion of anticipated quantity of materials used in its operations. Under those agreements, during the nine months ended December 31, 2008 and during the three months ended December 31, 2008, Kyocera purchased ¥5,796 million and ¥1,683 million, respectively and is obligated to purchase ¥280,967 million in total by the end of December 2020.
Kyocera guarantees the debt of employees, an investee and an unconsolidated subsidiary. At December 31, 2008, the total amount of these guarantees was ¥829 million. The financial guarantees are made in the form of commitments and letters of awareness issued to financial institutions and generally obligate Kyocera to make payments in the event of default by the borrowers.
AVX Corporation (AVX), a subsidiary in the U.S., has been named as a potentially responsible party (PRP) in state and federal administrative proceedings seeking contribution for costs associated with the correction and remediation of environmental conditions at various waste disposal and operating sites. AVX continues to monitor these actions and proceedings and to vigorously defend its interests. AVX currently has reserves for current remediation, compliance and legal cost related to these matters.
In July 2007, AVX received oral notification from the Environmental Protection Agency (EPA), and in December 2007, written notification from the U.S. Department of Justice indicating that the United States is preparing to exercise the reopener provision under a 1991 consent decree relating to the environmental conditions at, and remediation of, New Bedford Harbor in the Commonwealth of Massachusetts. The EPA has indicated that remediation costs through December 6, 2007 (which remediation is ongoing) are approximately ¥28,984 million. AVX has not yet completed an investigation of the monies spent or its available defenses in light of the notification. AVX has also not yet determined whether or to what extent other parties may bear responsibility for these costs.
On April 1, 2008, the U.S. Department of Justice indicated that the future work to be performed at the harbor is expected to exceed hundreds of millions of dollars under current estimates. AVX met with the U.S. Department of Justice, the EPA, and the Commonwealth of Massachusetts most recently in June 2008, and toured the harbor area in July 2008. At those meetings, the EPA described the ongoing remediation activity, and potential changes to such remediation. The EPA indicated that the timing and ultimate cost of the remediation depends on the level of annual funding available, and the effectiveness of various remediation methods. AVX anticipates further discussions with the U.S. Department of Justice, the EPA and the Commonwealth of Massachusetts.
The potential impact of this matter on Kyoceras financial position, results of operations and cash flows cannot be determined at this time.
Kyocera is subject to various lawsuits and claims which arise, in the ordinary course of business. Kyocera consults with legal counsel and assesses the likelihood of adverse outcome of these contingencies. Kyocera records liabilities for these contingencies when the likelihood of an adverse outcome is probable and the amount is reasonably estimated. However, based on the information available, management believes that damages, if any, resulting from these actions will not have a significant effect on Kyoceras consolidated results of operations and financial position.
9. Stockholders Equity
As of December 31, 2008, Kyocera issued 191,309,290 shares of common stock and held 7,778,734 shares of treasury stock.
Based on the resolution at the meeting of the board of directors held on November 27, 2008, Kyocera acquired 6,256,000 shares of its own shares in the market as its treasury stock through market purchase from November 28, 2008 to December 22, 2008. Due mainly to this acquisition, the number of treasury stock as of December 31, 2008 increased 5,923,615 shares compared with 1,855,119 shares as of March 31, 2008.
As of December 31, 2008, Kyoceras equity in retained earnings or deficits of affiliates and unconsolidated subsidiaries accounted for by the equity method of accounting amounted to ¥(2,363 million) and was included in its consolidated retained earnings.
Based on the resolution for the payment of year-end dividends at the general meeting of shareholders held on June 26, 2008, Kyocera paid cash dividends totaling ¥11,367 million, ¥60 per share of common stock on June 27, 2008 to stockholders of record on March 31, 2008.
Based on the resolution for the payment of interim dividends at the meeting of the board of directors held on October 30, 2008, Kyocera paid cash dividends totaling ¥11,387 million, ¥60 per share of common stock on December 5, 2008 to stockholders of record on September 30, 2008.
Changes in accumulated other comprehensive income are as follows:
10. Impairment of Long-Lived Assets
During the three months ended September 30, 2008, pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, Kyocera recognized ¥2,309 million of an impairment loss on long-lived assets which were used for a production of Organic Light-Emitting Diode (OLED) Displays in the Electronic Device Group and included such loss in selling, general and administrative expenses.
Since qualities and characteristics of OLED Displays requested by the users heightened recently and Kyocera changed the target of production in which they are used, Kyocera transferred such business from a manufacturing department to a research and development department. In accordance with this transfer, Kyocera reviewed the future plan of OLED Displays business, and recorded an impairment loss as a result that the fair value, using its future discounted cash flow, will not cover the carrying value of those long-lived assets.
11. Supplemental Expense Information
Supplemental expense information is as follows:
During the nine months ended December 31, 2008, Kyocera recorded ¥10,557 million of gains on sales of certain properties which were located in Japan and overseas. Such gains were included as deductions of selling, general and administrative expenses.
12. Segment Reporting
Kyocera manufactures and sells a highly diversified range of products, including components involving fine ceramic technologies and applied ceramic products, telecommunications and information equipment etc.
Kyocera categorizes its operations into seven reporting segments: (1) Fine Ceramic Parts Group, (2) Semiconductor Parts Group, (3) Applied Ceramic Products Group, (4) Electronic Device Group, (5) Telecommunications Equipment Group, (6) Information Equipment Group, and (7) Others.
Main products or businesses of each reporting segment are as follows:
(Fine Ceramic Parts Group)
Information & Telecommunication Components
Components for Semiconductor Processing Equipment
Components for LCD Manufacturing Equipment
General Industrial Ceramic Components
(Semiconductor Parts Group)
Crystal and SAW Devises
CCD / CMOS Sensor Ceramic Packages
LSI Ceramic Packages
Wireless Communication Device Packages
Optical Communication Device Packages and Components
Organic Multilayer Packages and Substrates
(Applied Ceramic Products Group)
Residential and Industrial Solar Power Generating Systems
Solar Cells and Modules
Medical and Dental Implants
Jewelry and Application Products
(Electronic Device Group)
Timing Devices [Temperature Compensated Crystal Oscillators (TCXOs), Crystal Units, Ceramic Resonators]
Surface Acoustic Wave (SAW) filters
Amorphous Silicon Photoreceptor Drums
Liquid Crystal Displays
(Telecommunications Equipment Group)
CDMA Mobile Phone Handsets
Personal Handy Phone System (PHS) Related Products [PHS Mobile Phone Handsets, PHS Base Stations]
Wireless Broadband Systems such as iBurst
(Information Equipment Group)
Telecommunication Engineering Business
Information and Communication Technology Business
Data Center Business
Management Consulting Business
Chemical Materials for Electronic Components
Commencing the three months ended June 30, 2008, the mobile phone related business acquired from SANYO has been reported in Telecommunications Equipment Group.
Inter-segment sales, operating revenue and transfers are made with reference to prevailing market prices. Transactions between reportable segments are immaterial and not shown separately.
Operating profit for each reporting segment represents net sales, less related costs and operating expenses, excluding corporate revenue and expenses, equity in earnings, income taxes and minority interest.
Kyoceras sales to KDDI Corporation Group, which are mainly recorded in the Telecommunications Equipment Group, for the three months ended December 31, 2008 and for the nine months ended December 31, 2008 was ¥18,361 million and ¥100,239 million, and comprised of 7.5% and 11.1% of consolidated net sales, respectively.
Information by reporting segments for the three months ended December 31, 2008 and for the nine months ended December 31, 2008 is summarized as follows:
Geographic segments (Sales by region)
In Europe, Asia, and Others, there are no individual countries in which sales were a material portion of Kyoceras net sales.
Geographic Segments, Sales and Operating Profit by Geographic area
13. Per Share Information
(1) Stockholders equity per share
Kyoceras stockholders equity per share at December 31, 2008 and at March 31, 2008 was ¥7,631.43 and ¥7,659.72, respectively. Number of shares, which were used for the calculation of stockholders equity per share, at December 31, 2008 and at March 31, 2008, was 183,531 thousand and 189,454 thousand, respectively.
(2) Earnings per Share
A reconciliation of the numerators and the denominators of basic and diluted earnings per share computations is as follows:
14. Supplemental Cash Flow Information
Supplemental information related to the Consolidated Statement of Cash Flows is as follows:
15. Subsequent Event
On November 18, 2008, Kyocera Mita, a subsidiary of Kyocera, announced that it submitted takeover offer (the takeover offer) to the shareholders of TAAG, a German based sales company of information equipment which was accounted for by the equity method and on December 15, 2008, this takeover offer was approved by German Federal Supervisory Authority.
During December 16, 2008 to February 2, 2009, a total of 14,184,810 shares of TAAG were tendered and Kyocera Mita acquired them in the amount of ¥3,419 million by February 10, 2009. In addition from December 8, 2008 to December 31, 2008, Kyocera Mita acquired 20,711,396 shares of TAAG in the amount of ¥4,724 million directly from its shareholders or through the stock market. A certain part of fees related to the takeover offer or the acquisitions has not yet fixed as of February 12, 2009. Such amount of fees will be added on the purchase prices as their calculations are completed. As a result of these acquisitions, together with shares which Kyocera Mita had already secured before the announcement of the takeover offer on November 18, 2008, Kyocera Mita secured a total shareholding of 93.84% in TAAG as of February 10, 2009.
As the Europeans Commission approved the purchase of shares in TAAG by Kyocera Mita on January 21, 2009, TAAG has stated to be consolidated by Kyocera since then.
Reference Information (Unaudited)
Quarterly Review Report of Independent Auditors
February 10, 2009
To the Board of Directors
Kyoto Audit Corporation
Hirokaze Hanai, Partner and CPA
Keiichiro Kagi, Partner and CPA
We have reviewed the accompanying quarterly consolidated financial statements of Kyocera Corporation and its consolidated subsidiaries, namely the quarterly consolidated balance sheet at December 31, 2008, quarterly consolidated statement of income for the three-month period then ended (from October 1, 2008 to December 31, 2008) and the nine-month period then ended (from April 1, 2008 to December 31, 2008) of the fiscal year from April 1, 2008 to March 31, 2009 and the quarterly consolidated statement of cash flow for the nine-month period then ended (from April 1, 2008 to December 31, 2008) of the fiscal year from April 1, 2008 to March 31, 2009, included in Accounting Information section, to provide our opinion in accordance with the section 193-2, Article 1 of the Financial Instruments and Exchange Law of Japan. The quarterly consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the quarterly consolidated financial statements based on our review.
We conducted our review in accordance with Quarterly Review Standards generally accepted in Japan. A review consists principally of making inquiries of management and persons responsible for finance and accounting matters, applying analytical procedures applied to financial data and certain additional review procedures. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards.
Based on our quarterly review, we are not aware of any material modifications that should be made to the financial position of Kyocera Corporation and its consolidated subsidiaries as of December 31, 2008, their result of operation for the three-month period then ended (from October 1, 2008 to December 31, 2008) and the nine-month period then ended (from April 1, 2008 to December 31, 2008) of the fiscal year from April 1, 2008 to March 31, 2009 and the quarterly consolidated statement of cash flow for the nine-month period then ended (from April 1, 2008 to December 31, 2008) of the fiscal year from April 1, 2008 to March 31, 2009 of quarterly consolidated financial statements referred to above in order for them to be in conformity with accounting principles generally accepted in the United States of America (refer to note 1 of the quarterly consolidated financial statements).
Emphasis of matter
As explained in Note 15, TA Triumph-Adler AG has become a consolidated subsidiary of Kyocera Corporation as of January 21, 2009, as a result of acquisitions of outstanding shares of TA Triumph-Adler AG by Kyocera Mita Corporation, a subsidiary of Kyocera Corporation.
We have no relationships with the Company to be disclosed pursuant to the provision of the Certified Public Accountants Law of Japan.