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Kyocera 6-K 2010

Documents found in this filing:

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

 

 

FORM 6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

Report of Foreign Private Issuer

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

the Securities Exchange Act of 1934

 

 

For the month of August 2010

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):  ¨

 

 

 


Table of Contents

SIGNATURE

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

KYOCERA CORPORATION

/s/    SHOICHI AOKI        

Shoichi Aoki

Director,

Managing Executive Officer and

General Manager of

Corporate Financial & Accounting Group

Date: August 10, 2010


Table of Contents

Information furnished on this form:

EXHIBITS

 

Exhibit
Number

    
1.   English translation of consolidated financial statements included in the Quarterly Report (“shihanki-houkokusho”) for the three months ended  June 30, 2010 submitted to the Director of the Kanto Local Finance Bureau of the Ministry of Finance pursuant to the Financial Instruments and Exchange Law of Japan


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CONSOLIDATED BALANCE SHEETS (Unaudited)

 

     June 30, 2010     March 31, 2010  
     (Yen in millions)  

Current assets:

    

Cash and cash equivalents (Note 5)

   ¥ 312,775      ¥ 313,126   

Investments in debt securities, current (Notes 4 and 5)

     22,114        11,644   

Other short-term investments (Notes 4 and 5)

     205,524        200,413   

Trade notes receivables (Note 5)

     15,573        16,421   

Trade accounts receivables (Note 5)

     191,721        190,903   

Less allowances for doubtful accounts and sales returns

     (3,943     (3,971

Inventories (Note 6)

     182,792        177,361   

Advance payments

     51,684        52,316   

Deferred income taxes

     41,514        40,872   

Other current assets (Notes 5 and 7)

     35,660        35,370   
                

Total current assets

     1,055,414        1,034,455   
                

Non-current assets:

    

Investments and advances:

    

Investments in and advances to affiliates and unconsolidated subsidiaries

     1,242        1,261   

Investments in debt and equity securities, long-term (Notes 4 and 5)

     314,942        370,124   

Other long-term investments (Notes 4 and 5)

     10,463        10,534   
                

Total investments and advances

     326,647        381,919   
                

Property, plant and equipment:

    

Land

     56,431        56,870   

Buildings

     286,570        290,516   

Machinery and equipment

     683,944        689,608   

Construction in progress

     8,886        8,842   

Less accumulated depreciation

     (798,130     (805,737
                

Total property, plant and equipment

     237,701        240,099   
                

Goodwill

     64,885        67,602   

Intangible assets

     47,568        49,593   

Other assets

     73,331        75,049   
                

Total assets

   ¥   1,805,546      ¥ 1,848,717   
                

The accompanying notes are an integral part of these statements.

 

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CONSOLIDATED BALANCE SHEETS (Unaudited)—(Continued)

 

     June 30, 2010     March 31, 2010  
     (Yen in millions)  

Current liabilities:

    

Short-term borrowings (Note 5)

   ¥ 3,523      ¥ 4,073   

Current portion of long-term debt (Note 5)

     11,145        13,456   

Trade notes and accounts payable (Note 5)

     95,138        89,750   

Other notes and accounts payable (Note 5)

     62,721        63,779   

Accrued payroll and bonus

     55,546        47,131   

Accrued income taxes

     15,288        15,602   

Other accrued liabilities

     23,709        26,800   

Other current liabilities (Notes 5 and 7)

     32,109        28,721   
                

Total current liabilities

     299,179        289,312   
                

Non-current liabilities:

    

Long-term debt (Note 5)

     24,257        29,067   

Accrued pension and severance liabilities (Note 8)

     28,421        31,828   

Deferred income taxes

     59,093        75,619   

Other non-current liabilities

     15,754        15,629   
                

Total non-current liabilities

     127,525        152,143   
                

Total liabilities

     426,704        441,455   
                

Commitments and contingencies (Note 9)

    

Kyocera Corporation shareholders’ equity (Note 10):

    

Common stock

     115,703        115,703   

Additional paid-in capital

     163,073        163,044   

Retained earnings

     1,187,004        1,168,122   

Accumulated other comprehensive income (Note 7)

     (95,961     (51,010

Treasury stock, at cost

     (50,635     (50,624
                

Total Kyocera Corporation shareholders’ equity

     1,319,184        1,345,235   
                

Noncontrolling interests

     59,658        62,027   
                

Total equity

     1,378,842        1,407,262   
                

Total liabilities and equity

   ¥   1,805,546      ¥ 1,848,717   
                

The accompanying notes are an integral part of these statements.

 

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

      Three months ended June 30,  
                 2009                              2010               
     (Yen in millions and
shares in thousands,
except per share amounts)
 

Net sales (Note 7)

   ¥ 225,401      ¥ 313,175   

Cost of sales (Note 7)

     177,624        218,742   
                

Gross profit

     47,777        94,433   

Selling, general and administrative expenses (Note 11)

     53,349        53,830   
                

Profit (loss) from operations

     (5,572     40,603   

Other income (expenses):

    

Interest and dividend income

     5,023        5,293   

Interest expense (Note 7)

     (757     (572

Foreign currency transaction gains (losses), net (Note 7)

     224        (273

Equity in earnings of affiliates and unconsolidated subsidiaries (Note 7)

     1,077        202   

Other, net (Note 5)

     708        1,070   
                

Total other income

     6,275        5,720   
                

Income before income taxes

     703        46,323   

Income taxes

     289        14,749   
                

Net income

     414        31,574   

Net income attributable to noncontrolling interests

     (874     (1,681
                

Net income (loss) attributable to shareholders of Kyocera Corporation

   ¥ (460   ¥ 29,893   
                

Earnings per share (Note 13):

    

Net income (loss) attributable to shareholders of Kyocera Corporation:

    

Basic

   ¥ (2.50   ¥ 162.89   

Diluted

   ¥ (2.50   ¥ 162.89   

Average number of shares of common stock outstanding:

    

Basic

     183,527        183,520   

Diluted

     183,527        183,520   

The accompanying notes are an integral part of these statements.

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

     Three months ended June 30,  
     2009     2010  
     (Yen in millions)  

Cash flows from operating activities:

    

Net income

   ¥ 414      ¥ 31,574   

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

    

Depreciation and amortization

     18,254        16,339   

Provision for doubtful accounts

     (123     219   

Write-down of inventories

     5,123        979   

Equity in earnings of affiliates and unconsolidated subsidiaries

     (1,077     (202

Foreign currency adjustments

     654        359   

Change in assets and liabilities:

    

(Increase) decrease in receivables

     3,171        (11,728

(Increase) decrease in inventories

     7,233        (15,021

(Increase) decrease in other current assets

     404        (4,810

Increase (decrease) in notes and accounts payable

     (8,191     24,229   

Increase (decrease) in accrued income taxes

     (2,064     242   

Increase in other current liabilities

     8,108        7,859   

Decrease in other non-current liabilities

     (857     (965

Other, net

     (4,257     (917
                

Net cash provided by operating activities

     26,792        48,157   
                

Cash flows from investing activities:

    

Payments for purchases of available-for-sale securities

     (5,798     (5,715

Payments for purchases of held-to-maturity securities

     (15,736     (12,108

Payments for purchases of other securities

     (4,153     (6

Proceeds from sales and maturities of available-for-sale securities

     6,160        7,000   

Proceeds from maturities of held-to-maturity securities

     14,603        14,246   

Acquisitions of businesses, net of cash acquired (Note 3)

     (202     (1,146

Payments for purchases of property, plant and equipment

     (8,495     (9,499

Payments for purchases of intangible assets

     (747     (879

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

     252        32   

Acquisition of certificate of deposits and time deposits

     (97,957     (59,393

Withdrawal of certificate of deposits and time deposits

     109,221        42,116   

Other, net

     (477     250   
                

Net cash used in investing activities

     (3,329     (25,102
                

Cash flows from financing activities:

    

Decrease in short-term debt, net

     (1,834     (385

Proceeds from issuance of long-term debt

     5,106        2,658   

Payments of long-term debt

     (7,083     (4,679

Dividends paid

     (11,132     (11,174

Purchase of treasury stock

     (13     (12

Reissuance of treasury stock

     3        1   

Other, net

     (352     (307
                

Net cash used in financing activities

     (15,305     (13,898
                

Effect of exchange rate changes on cash and cash equivalents

     (1,220     (9,508
                

Net increase (decrease) in cash and cash equivalents

     6,938        (351

Cash and cash equivalents at beginning of period

     269,247        313,126   
                

Cash and cash equivalents at end of period

   ¥ 276,185      ¥ 312,775   
                

The accompanying notes are an integral part of these statements.

 

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<NOTES TO THE UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS>

(Unaudited)

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

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 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 for interim financial statements. Accounting principles generally accepted in the United States of America consist of the Financial Accounting Standards Board (FASB)’s Accounting Standards Codification (ASC) and the SEC’s regulations for filing and reporting.

The following paragraphs identify the significant differences for Kyocera Corporation and its consolidated subsidiaries (Kyocera) between accounting principles generally accepted in the United States of America and accounting principles generally accepted in Japan.

(1) Revenue Recognition

Kyocera adopts ASC 605, “Revenue Recognition.” Kyocera recognizes revenue when the risks and rewards of ownership have been transferred to the customer and revenue can be reliably measured.

(2) Comprehensive Income

Kyocera adopts ASC 220, “Comprehensive Income.” Comprehensive income is the change in equity except for capital transactions and it consists of net income and other comprehensive income. Other comprehensive income includes changes in foreign currency translation adjustments, pension adjustments and net unrealized gains (losses) on securities and derivative financial instruments during a period.

(3) Business Combinations

Kyocera adopts ASC 805, “Business Combinations.” Kyocera adopts the acquisition method and measures identifiable assets, liabilities and noncontrolling interests at fair value. Kyocera recognizes transaction and restructuring costs as expenses, and recognizes any tax adjustment made after the measurement period as income tax expenses. Kyocera records in-process research and development at fair value on acquisition date as a part of fair value of acquired business. In addition, Kyocera recognizes an asset acquired or a liability assumed in a business combination that arise from a contingency at fair value, at the acquisition date, if the acquisition date fair value of that asset or liability can be determined during the measurement period.

(4) Goodwill and Other Intangible Assets

Kyocera adopts ASC 350, “Intangibles—Goodwill and Other.” Goodwill and intangible assets with indefinite useful lives, rather than being amortized, are tested for impairment at least annually, and also following any events and changes in circumstances that might lead to impairment.

(5) Lease Accounting

Kyocera adopts ASC 840, “Leases.” Kyocera records tangible assets as capital lease for all of rent transactions which rewards of ownership and transfers risk of property substantially.

 

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(6) Benefit Plans

Kyocera adopts ASC 715, “Compensation—Retirement Benefits.” Kyocera recognizes the overfunded or underfunded status of its defined benefit postretirement plans as an asset or liability in the consolidated balance sheet and recognizes changes in that funded status in the year in which the changes occur through comprehensive income. Prior service cost is amortized by the straight-line method over the average remaining service period of employees. Actuarial gain or 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.

(7) Unused Compensated Absence

Kyocera adopts ASC 710, “Compensation—General.” Kyocera records accrued liabilities for compensated absences that employees have earned but have not yet used.

(8) Income Taxes

Kyocera adopts ASC 740, “Income Taxes.” Kyocera records assets and liabilities for unrecognized tax benefits based on the premise of being subject to income tax examination by tax authorities, when it is more likely than not that tax benefits associated with tax positions will not be sustained.

(9) Stock Issuance Costs

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

 

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2. SUMMARY OF ACCOUNTING POLICIES

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

The quarterly 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 ASC 810, “Consolidation.” 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 impact on Kyocera’s consolidated results of operations, financial position and cash flows.

(2) Revenue Recognition

Kyocera generates revenue principally through the sale of industrial components and telecommunications and information equipment. Kyocera’s operations consist of the following 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.

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

For most customer orders, the transfer of ownership and revenue recognition occurs at the time of shipment of the products to the customer. For the remainder of customer orders, the transfer of ownership and revenue recognition occurs at the time of receipt of the products by the customer, with the exception of sales of solar power generating systems in the Applied Ceramic Products Group and information equipment in the Information Equipment Group for which sales are made to end users together with installation services. The transfer of ownership and revenue recognition in these cases occur at the completion of installation and customer acceptance, as we have no further obligations under the contracts and all revenue recognition criteria under ASC 605 are met. When Kyocera provides a combination of products and services, the arrangement is evaluated under ASC 605-25, “Multiple-Element Arrangements.”

In addition, in the Information Equipment Group, Kyocera may enter into sales contracts and lease agreements ranging from one to seven years directly with end users. Sales contracts and lease agreements may include installation service and have customer acceptance clauses. For sales and sales-type lease agreements, revenue is recognized at the completion of installation and customer acceptance which usually occurs on the same business day as delivery. For sales-type leases, unearned income (which represents interest) is amortized over the lease term using the effective interest method in accordance with ASC 840, “Leases.”

For all sales in the above segments, product returns are only accepted if the products are determined to be defective. There are no price protections, stock rotation or returns provisions, except for certain programs in the Electronic Device Group as noted below.

Sales Incentives

In the Electronic Device Group, sales to independent electronic component distributors may be subject to various sale programs for which a provision for incentive programs is recorded as a reduction of revenue at the time of sale, as further described below in accordance with ASC 605-50, “Customer Payments and Incentives” and ASC 605-15, “Products.”

 

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(a) Distributor Stock Rotation Program

Stock rotation is a program whereby distributors are allowed to return for credit, qualified inventory, semi-annually, equal to a certain percentage of the previous six months net sales. In accordance with ASC 605-15, an estimated sales allowance for stock rotation is recorded at the time of sale based on a percentage of distributor sales using historical trends, current pricing and volume information, other market specific information and input from sales, marketing and other key management. These procedures require the exercise of significant judgments. We believe that these procedures enable us to make reliable estimates of future returns under the stock rotation program. Our actual results approximate our estimates. When the products are returned and verified, the distributor is given credit against their accounts receivable.

(b) Distributor Ship-from-Stock and Debit Program

Ship-from-Stock and Debit (ship and debit) is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end customers. Ship and debit programs require a request from the distributor for a pricing adjustment of a specific part for a sale to the distributor’s end customers from the distributor’s stock. Ship and debit authorizations may cover current and future distributor activity for a specific part for a sale to their customers. In accordance with ASC 605, at the time we record the sales to distributors, an allowance for the estimated future distributor activities related to such sales is provided since it is probable that such sales to distributors will result in ship and debit activities. In accordance with ASC 605-15, Kyocera records an estimated sales allowance based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends noted in direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. These procedures require the exercise of significant judgments. We believe that these procedures enable us to make reliable estimates of future credits under the ship and debit program. Our actual results approximate our estimates.

Sales Rebates

In the case of sales to distributors in the Applied Ceramic Products Group and Information Equipment Group, Kyocera provides cash rebates when predetermined sales targets are achieved during a certain period. Provisions for sales rebates are recorded as a reduction of revenue at the time of revenue recognition based on the best estimate of forecasted sales to each distributor in accordance with ASC 605-50.

Sales Returns

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

Products Warranty

For after-service costs to be paid during warranty periods, Kyocera accrues a product warranty liability for claims under warranties relating to the products that have been sold. Kyocera records an estimated product warranty liability based on its historical repair experience.

In the Information Equipment Group, Kyocera provides a standard one year manufacturer’s warranty on its products. For sales directly to end users, Kyocera offers extended warranty plans that may be purchased and that are renewable in one year incremental periods at the end of the warranty term. Service revenues are recognized over the term of the related service maintenance contracts in accordance with ASC 605-20, “Services.”

(3) Cash and Cash Equivalents

Kyocera considers cash, bank deposits and all highly liquid investments purchased with an original maturity of three months or less to be cash and cash equivalents.

 

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(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 exchange rates for the respective periods. Translation adjustments result from the process of translating foreign currency denominated financial statements into Japanese yen. These translation adjustments, which are not included in the determination of net income, are included in other comprehensive income.

Assets and liabilities denominated in foreign currencies are translated at the exchange rates in effect on 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 notes receivables, trade accounts receivables and finance receivables for estimated losses resulting from customers’ inability to make timely payments, including interest on finance receivables. Kyocera’s estimates are based on various factors, including the length of past due payments, historical experience and current business environments. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations, a specific allowance against these amounts is provided, considering the fair value of assets pledged by the customer as collateral. The amounts of allowances for doubtful accounts included in investments in and advances to affiliates and unconsolidated subsidiaries at June 30, 2010 and at March 31, 2010 were ¥0 million and ¥1 million. The amounts of allowances for doubtful accounts included in other long-term investments at June 30, 2010 and at March 31, 2010 were ¥176million and ¥253 million. The amounts of allowances for doubtful accounts included in other assets at June 30, 2010 and at March 31, 2010 were ¥1,953 million and ¥2,001 million, respectively.

(6) Inventories

Inventories are stated at the lower of cost or market. For finished goods and work in process, cost is determined by the average method for approximately 70% at June 30, 2010 and at March 31, 2010, and by other methods including the first-in, first-out method for the others. For raw materials and supplies, cost is determined by the first-in, first-out method for approximately 54% and 57% at June 30, 2010 and at March 31, 2010, respectively, and by other methods, including the average method, for the others. Kyocera recognizes estimated write-down of inventories for excess, slow-moving and obsolete inventories.

(7) Securities

Debt and equity securities are accounted for under ASC 320, “Investments—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. Non-marketable equity securities are accounted by the cost method.

Kyocera evaluates whether the declines in fair value of debt and equity securities 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.

Kyocera also reviews its investments accounted by the equity method for impairment quarterly. Factors considered in assessing whether an indication of other-than-temporary impairment exists include the achievement of business plan objectives and milestones including cash flow projections and the results of planned financing activities, the financial condition and prospects of each investee company, the fair value of the ownership interest relative to the carrying amount of the investment, the period of time during which the fair value of the ownership interest has been below the carrying amount of the investment and other relevant factors. Impairment to be recognized is measured based on the amount by which the carrying amount of the investment exceeds the fair value of the investment. Fair value is determined through the use of various methodologies such as discounted cash flows, valuation of recent financings and comparable valuations of similar companies.

 

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(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:

 

Buildings

   2 to 50 years

Machinery and equipment

   2 to 20 years

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 period 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 period of disposal, and costs and accumulated depreciation are removed from accounts.

(9) Goodwill and Other Intangible Assets

Goodwill and other intangible assets are accounted for under ASC 350, “Intangibles—Goodwill and Other.” Goodwill and intangible assets with indefinite useful lives, rather than being amortized, are tested for impairment at least annually, and also following any events and changes in circumstances that might lead to impairment. Intangible assets with definite useful lives are amortized straight line over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

The principal estimated useful lives for intangible assets are as follows:

 

Software

   2 to 10 years

Patent rights

   2 to 12 years

Customer relationships

   3 to 18 years

(10) Impairment of Long-Lived Assets

Impairment of long-lived assets and intangible assets are accounted for under ASC 360, “Property, Plant, and Equipment.” Kyocera reviews its long-lived assets and intangible assets with definite useful lives for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

Long-lived assets and intangible assets with definite useful lives are considered to be impaired when the expected undiscounted cash 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, interest rate swaps, interest rate caps and currency swaps. Kyocera does not hold or issue such derivative financial instruments for trading purposes.

Derivatives are accounted for under ASC 815, “Derivatives and Hedging.” 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 may qualify for hedge accounting, if the hedging relationship is expected to be highly effective in achieving offsetting cash flows of hedging instruments and hedged items. Under hedge accounting, changes in the fair value of the effective portion of these hedge derivatives are deferred in accumulated other comprehensive income and charged to earnings when the underlying transaction being hedged occurs.

 

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Kyocera designates certain foreign currency forward contracts, interest rate swaps and interest rate caps as cash flow hedges. Most of Kyocera’s 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 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 linking all derivatives designated as cash flow hedge to specific assets and liabilities on the balance sheet or forecasted transactions. Kyocera also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items. When it is determined that a derivative is not highly effective hedge or that it has ceased to be a highly effective hedge, Kyocera discontinues hedge accounting prospectively. When hedge accounting is discontinued, and the hedged transaction is no longer expected to occur, the derivatives 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

Costs resulting from share-based payment transactions are accounted for under ASC 718, “Compensation—Stock Compensation,” Kyocera recognizes such costs in the financial statements by fair value based measurement method. Under the modified prospective method, 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) Net Income Attributable to Shareholders of Kyocera Corporation and Cash Dividends per Share

Earnings per share is accounted for under ASC 260, “Earnings Per Share.” Basic earnings per share attributable to shareholders of Kyocera Corporation is computed based on the average number of shares of common stock outstanding during each period, and diluted earnings per share attributable to shareholders of Kyocera Corporation is computed based on the diluted average number of shares of stock outstanding during each period.

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 year 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 quarterly 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 quarterly consolidated financial statements and accompanying notes. However, actual results could differ from those estimates and assumptions.

 

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(16) Recently Adopted Accounting Standards

Kyocera adopted the FASB’s Accounting Standards Update (ASU) No. 2009-16, “Accounting for Transfers of Financial Assets” on April 1, 2010. This accounting standard codified former Statement of Financial Accounting Standards (SFAS) No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140” issued in June 2009 in the ASC 860, “Transfers and Servicing.” This accounting standard removes the concept of a qualifying special purpose entity from former SFAS No. 140 and removes the exception from applying former FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to qualifying special purpose entities and establishes specific conditions for reporting a transfer of a portion of a financial asset as a sale. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial position and cash flows.

Kyocera adopted the ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” on April 1, 2010. This accounting standard codified former SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” issued in June 2009 in the ASC 810, “Consolidation.” This accounting standard requires an enterprise to perform an analysis to identify the primary beneficiary of a variable interest entity and also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial position and cash flows.

(17) Recently Issued Accounting Standards

In July 2010, the FASB issued ASU No. 2010-20, “Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This accounting standard requires an entity to provide certain existing disclosures and new disclosures, on a disaggregated basis, about its financing receivables and related allowance for credit losses. For public entities, the disclosure as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. As this accounting standard is a provision for disclosure, the adoption of this accounting standard will not have an impact on Kyocera’s consolidated results of operations, financial position and cash flows.

3. BUSINESS COMBINATION

On June 1, 2010, Kyocera Corporation acquired part of Thin Film Transistor Liquid Crystal Display business from Sony Mobile Display Corporation. The results of operations of the acquired business were included into Kyocera’s quarterly consolidated financial statements since the acquisition date and for segment reporting, it is reported in the Electronic Device Group.

This acquisition did not have a material impact on Kyocera’s consolidated results of operations, financial position and cash flows.

 

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4. DEBT SECURITIES, EQUITY SECURITIES AND OTHER INVESTMENTS

(1) Debt and equity securities with readily determinable fair values

Investments in debt and equity securities at June 30, 2010 and March 31, 2010, included in investments in debt securities, current (current assets) and in investments in debt and equity securities, long-term (non-current assets) are summarized as follows:

 

     June 30, 2010    March 31, 2010
     Cost*    Aggregate
Fair Value
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Cost*    Aggregate
Fair Value
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
     (Yen in millions)

Available-for-sale securities:

                       

Marketable equity securities

   ¥ 268,527    ¥ 268,848    ¥ 7,592    ¥ 7,271    ¥ 270,494    ¥ 310,654    ¥ 40,329    ¥ 169

Investment trusts

     3,018      2,989      173      202      3,346      3,809      463      —  
                                                       

Total equity securities

     271,545      271,837      7,765      7,473      273,840      314,463      40,792      169
                                                       

Corporate bonds

     5,149      4,404      18      763      6,659      6,221      66      504

Hybrid financial instruments

     11,896      11,896      —        —        9,867      9,867      —        —  

Government bonds and public bonds

     3,037      2,525      1      513      2,230      1,999      8      239

Other debt securities

     859      827      1      33      1,166      1,131      35      70
                                                       

Total debt securities

     20,941      19,652      20      1,309      19,922      19,218      109      813
                                                       

Total available-for-sale securities

     292,486      291,489      7,785      8,782      293,762      333,681      40,901      982
                                                       

Held-to-maturity securities:

                       

Corporate bonds

     25,324      25,495      209      38      23,904      24,018      194      80

Government bonds and public bonds

     20,243      20,286      43      —        24,183      24,173      35      45
                                                       

Total held-to-maturity securities

     45,567      45,781      252      38      48,087      48,191      229      125
                                                       

Total

   ¥ 338,053    ¥ 337,270    ¥ 8,037    ¥ 8,820    ¥ 341,849    ¥ 381,872    ¥ 41,130    ¥ 1,107
                                                       

 

  * 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.

At June 30, 2010, Kyocera held available-for-sale securities in unrealized loss positions of ¥8,782 million. Kyocera considered the impairments of equity securities were not other-than-temporary as the extent to which fair value was below the cost was minor and the duration of the impairments was within a year. Kyocera considered the impairments of debt securities were not other-than-temporary because the impairment was not caused by credit loss and Kyocera would receive the full cost amount.

 

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(2) Other investments

Kyocera held time deposits and certificates of deposits which were due over three months to original maturity, non-marketable equity securities and long-term loans. Carrying amounts of these investments at June 30, 2010 and March 31, 2010, included in other short-term investments (current assets) and in other long-term investments (non-current assets), are summarized as follows:

 

     June 30, 2010    March 31, 2010
     (Yen in millions)

Time deposits and certificates of deposits (due over 3 months)

   ¥ 205,581    ¥ 200,482

Non-marketable equity securities

     10,200      10,263

Long-term loans

     206      202
             

Total

   ¥ 215,987    ¥ 210,947
             

 

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5. FAIR VALUE

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of inputs that may be used to measure fair value are as follows:

 

  Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

 

  Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

 

  Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

(1) Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

     June 30, 2010    March 31, 2010
     Level 1    Level 2    Level 3    Total    Level 1    Level 2    Level 3    Total
     (Yen in millions)

Current Assets:

                       

Corporate bonds

   ¥ —      ¥ 11    ¥ 12    ¥ 23    ¥ 721    ¥ 158    ¥ 19    ¥ 898

Hybrid financial instruments

     —        9,932      —        9,932      —        —        —        —  

Government bonds and public bonds

     165      —        —        165      195      —        —        195

Other debt securities

     —        352      1      353      —        729      2      731
                                                       

Total debt securities

     165      10,295      13      10,473      916      887      21      1,824
                                                       

Foreign currency forward contracts

     —        5,474      —        5,474      —        760      —        760
                                                       

Total derivatives

     —        5,474      —        5,474      —        760      —        760
                                                       

Total current assets

     165      15,769      13      15,947      916      1,647      21      2,584
                                                       

Non-Current Assets:

                       

Marketable equity securities

     268,848      —        —        268,848      310,654      —        —        310,654

Investment trusts

     318      2,671      —        2,989      1,100      2,709      —        3,809
                                                       

Total equity securities

     269,166      2,671      —        271,837      311,754      2,709      —        314,463
                                                       

Corporate bonds

     4,350      15      16      4,381      5,225      87      11      5,323

Hybrid financial instruments

     —        1,964      —        1,964      —        9,867      —        9,867

Government bonds and public bonds

     2,360      —        —        2,360      1,804      —        —        1,804

Other debt securities

     —        473      1      474      —        399      1      400
                                                       

Total debt securities

     6,710      2,452      17      9,179      7,029      10,353      12      17,394
                                                       

Total non-current assets

     275,876      5,123      17      281,016      318,783      13,062      12      331,857
                                                       

Total assets

   ¥ 276,041    ¥ 20,892    ¥ 30    ¥ 296,963    ¥ 319,699    ¥ 14,709    ¥ 33    ¥ 334,441
                                                       

Current Liabilities:

                       

Foreign currency forward contracts

   ¥ —      ¥ 500    ¥ —      ¥ 500    ¥ —      ¥ 984    ¥ —      ¥ 984

Interest rate swaps

     —        35      —        35      —        44      —        44

Currency swaps

     —        10      —        10      —        9      —        9
                                                       

Total derivatives

     —        545      —        545      —        1,037      —        1,037
                                                       

Total current liabilities

   ¥ —      ¥ 545    ¥ —      ¥ 545    ¥ —      ¥ 1,037    ¥ —      ¥ 1,037
                                                       

 

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The fair value of Level 1 investments is quoted price in an active market with sufficient volume and frequency of transactions.

The fair value of Level 2 investments is other than quoted price included within Level 1 that is observable for the asset or liability, either directly or indirectly through corroboration with observable market data. Kyocera did not recognize any transfers in and out of Levels 1 and 2 for the three months ended June 30, 2009 and 2010. In accordance with the provisions of ASC 815-15, “Embedded Derivatives”, Kyocera elects the fair value option for all hybrid financial instruments. Gains on hybrid financial instruments in the amount of ¥190 million and ¥29 million were recorded in other, net on the consolidated statement of income for the three months ended June 30, 2009 and 2010, respectively.

The fair value of Level 3 investments is determined using input that is both unobservable and significant to the values of instruments being measured.

The fair value of Level 2 derivatives is estimated based on quotes from financial institutions. With respect to the detail information of derivatives, please refer to the Note 7 to the Quarterly Consolidated Financial Statement on this Form 6-K.

The following table presents additional information about Level 3 corporate bonds and other debt securities measured at fair value on recurring basis for the three months ended June 30, 2009 and 2010.

 

     Three months ended June 30,  
     2009     2010  
     (Yen in millions)  

Balance at beginning of period

   ¥ 696      ¥ 33   

Total gains or losses (realized / unrealized)

    

Included in earnings

     5        —     

Included in other comprehensive income

     (7     (3

Purchase, issuance, and settlements

     (310     —     

Transfer in and/or out of Level 3

     (3     —     
                

Balance at end of period

   ¥ 381      ¥ 30   
                

 

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(2) Fair Value of Financial Instruments

The fair values of financial instruments and the methods and assumptions used to estimate the fair value are as follows:

 

     June 30, 2010    March 31, 2010
     Carrying
Amount
   Fair Value    Carrying
Amount
   Fair Value
     (Yen in millions)

Assets (a):

           

Investments in debt securities, current

   ¥ 22,114    ¥ 22,127    ¥ 11,644    ¥ 11,662

Investments in debt and equity securities, long term

     314,942      315,143      370,124      370,210

Other long-term investments

     10,463      10,463      10,534      10,534
                           

Total

   ¥ 347,519    ¥ 347,733    ¥ 392,302    ¥ 392,406
                           

Liabilities (b):

           

Long-term debt (including due within one year)

   ¥ 35,402    ¥ 35,565    ¥ 42,523    ¥ 42,710
                           

Total

   ¥ 35,402    ¥ 35,565    ¥ 42,523    ¥ 42,710
                           

 

(a) The fair value is based on quoted market prices. It was not practicable to estimate the fair value of non-marketable equity securities because of the lack of the market price and difficulty in estimating fair value without incurring excessive cost. In addition, Kyocera did not identify any events or changes in circumstances that may have had a significant adverse effect on these investments. The aggregated carrying amounts of these investments included in the above table at June 30, 2010 and March 31, 2010 were ¥10,200 million and ¥10,252 million, respectively.
(b) The fair value is estimated by discounting cash flows, using current interest rates for instruments with similar terms and remaining maturities.

Cash and cash equivalents, other short-term investments, trade notes receivable, trade accounts receivable, short-term borrowings, trade notes and accounts payable, and other notes and accounts payable approximate fair value because of the short maturity of these instruments.

6. INVENTORIES

Inventories at June 30, 2010 and March 31, 2010 are as follows:

 

     June 30, 2010    March 31, 2010
     (Yen in millions)

Finished goods

   ¥ 84,089    ¥ 83,444

Work in process

     43,429      41,409

Raw materials and supplies

     55,274      52,508
             

Total

   ¥ 182,792    ¥ 177,361
             

 

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7. DERIVATIVES AND HEDGING

Kyocera’s activities are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, interest rates and stock prices. Approximately 60% of Kyocera’s revenues are 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. Kyocera’s risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.

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

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

By using derivative financial instruments to hedge exposures to changes in exchange rates and interest rates, Kyocera became exposed 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 (a) entering into transactions with creditworthy counterparties, (b) limiting the amount of exposure to each counterparty, and (c) 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. Kyocera also uses interest rate swaps and interest rate caps mainly to convert a portion of its variable rates debt to fixed rates debt.

Other Derivatives:

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

 

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The aggregate contract amounts of derivative financial instruments at June 30, 2010 and March 31, 2010 are as follows:

 

     June 30, 2010    March 31, 2010
     (Yen in millions)

Derivatives designated as hedging instruments:

     

Foreign currency forward contracts

   ¥ 12,972    ¥ 11,961

Interest rate swaps

     540      625

Interest rate caps

     —        3,125
             

Total

   ¥ 13,512    ¥ 15,711
             

Derivatives not designated as hedging instruments:

     

Foreign currency forward contracts

   ¥ 89,719    ¥ 95,758

Currency swaps

     262      279
             

Total

   ¥ 89,981    ¥ 96,037
             

Total derivatives

   ¥ 103,493    ¥ 111,748
             

The location and fair value of derivative financial instruments in the consolidated balance sheets at June 30, 2010 and March 31, 2010 are as follows:

 

     Location    June 30, 2010    March 31, 2010
          (Yen in millions)

Derivative Assets:

        

Derivatives designated as hedging instruments:

        

Foreign currency forward contracts

   Other current assets    ¥ 236    ¥ 79

Interest rate caps

   Other current assets      —        —  
                

Total

      ¥ 236    ¥ 79
                

Derivatives not designated as hedging instruments:

        

Foreign currency forward contracts

   Other current assets    ¥ 5,238    ¥ 681
                

Total

      ¥ 5,238    ¥ 681
                

Total derivatives

      ¥ 5,474    ¥ 760
                

Derivative Liabilities:

        

Derivatives designated as hedging instruments:

        

Foreign currency forward contracts

   Other current liabilities    ¥ 148    ¥ 167

Interest rate swaps

   Other current liabilities      35      44
                

Total

      ¥ 183    ¥ 211
                

Derivatives not designated as hedging instruments:

        

Foreign currency forward contracts

   Other current liabilities    ¥ 352    ¥ 817

Currency swaps

   Other current liabilities      10      9
                

Total

      ¥ 362    ¥ 826
                

Total derivatives

      ¥ 545    ¥ 1,037
                

 

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The location and amount of derivative financial instruments in the comprehensive income for the three months ended June 30, 2009 and 2010 are as follows:

Derivatives designated as cash flow hedge:

Gains (losses) recognized in accumulated other comprehensive income

 

         Three months ended June 30,    
     2009    2010
     (Yen in millions)

Foreign currency forward contracts

   ¥ 170    ¥ 101

Interest rate swaps

     12      8

Interest rate caps

     0      —  
             

Total

   ¥ 182    ¥ 109
             

Gains (losses) reclassified from accumulated other comprehensive income into income (effective portion)

 

              Three months ended June 30,      
    

Location

           2009                     2010          
          (Yen in millions)  

Foreign currency forward contracts

   Net sales and Cost of sales    ¥ 43      ¥ (32

Interest rate swaps

   Interest expense      4        5   

Interest rate swaps

  

Equity in earnings of affiliates and unconsolidated subsidiaries

     (4       

Interest rate caps

   Interest expense      0          
                   

Total

      ¥ 43      ¥ (27
                   

Gains (losses) recognized in income (ineffective portion and amount excluded from effectiveness testing)

 

              Three months ended June 30,      
    

Location

           2009                     2010          
          (Yen in millions)  

Foreign currency forward contracts

   Foreign currency transaction gains (losses), net    ¥ (15   ¥ (0

Interest rate caps

   Interest expense      —          —     
                   

Total

      ¥ (15   ¥ (0
                   

Derivatives not designated as hedging instruments:

Gains (losses) recognized in income

 

              Three months ended June 30,      
    

Location

           2009                    2010          
          (Yen in millions)  

Foreign currency forward contracts

   Foreign currency transaction gains (losses), net    ¥ 1,137    ¥ 5,022   

Currency swaps

   Foreign currency transaction gains (losses), net      5      (1
                  

Total

      ¥ 1,142    ¥ 5,021   
                  

 

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8. BENEFIT PLANS

Domestic:

Net periodic pension costs at Kyocera Corporation and its major domestic subsidiaries in the three months ended June 30, 2009 and 2010 include the following components:

 

      Three months ended June 30,  
     2009     2010  
     (Yen in millions)  

Service cost

   ¥ 2,201      ¥ 2,154   

Interest cost

     575        659   

Expected return on plan assets

     (763     (814

Amortization of prior service cost

     (1,082     (1,082

Recognized actuarial loss

     293        193   
                

Net periodic pension costs

   ¥ 1,224      ¥ 1,110   
                

Foreign:

Net periodic pension costs at Kyocera International, Inc. and its consolidated subsidiaries, AVX Corporation and its consolidated subsidiaries and TA Triumph-Adler AG and its consolidated subsidiaries, in the three months ended June 30, 2009 and 2010 include the following components:

 

      Three months ended June 30,  
     2009     2010  
     (Yen in millions)  

Service cost

   ¥ 85      ¥ 83   

Interest cost

     557        490   

Expected return on plan assets

     (295     (295

Amortization of prior service cost

     3        3   

Recognized actuarial loss

     58        63   
                

Net periodic pension costs

   ¥ 408      ¥ 344   
                

 

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9. COMMITMENTS AND CONTINGENCIES

As of June 30, 2010, Kyocera had contractual obligations for the acquisition or construction of property, plant and equipment aggregating ¥12,291 million principally due within one year.

Kyocera is a lessee under long-term operating leases primarily for office space and equipment. Future minimum lease commitments under non-cancelable operating leases at June 30, 2010 are as follows:

 

     June 30, 2010
     (Yen in millions)

Due within 1 year

   ¥ 4,761

Due after 1 year but within 2 years

     3,307

Due after 2 years but within 3 years

     1,860

Due after 3 years but within 4 years

     1,133

Due after 4 years but within 5 years

     791

Thereafter

     1,092
      

Total

   ¥ 12,944
      

Kyocera has entered into purchase agreements for a certain portion of an anticipated quantity of materials used in its operations. Under those agreements, during the three months ended June 30, 2010, Kyocera purchased ¥3,747 million and is obligated to purchase ¥250,595 million in total by the end of December 2020.

Kyocera guarantees the debt of employees, an investee and an unconsolidated subsidiary. At June 30, 2010, the total amount of these guarantees was ¥710 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) 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 disposals 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 ¥28,028 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 EPA indicated that the future work to be performed at the harbor is expected to exceed hundreds of millions of dollars under current estimates. 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 Kyocera’s consolidated results of operations, financial position 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 can be reasonably estimated. However, based on the information available, management believes that damages, if any, resulting from these actions will not have a significant impact on Kyocera’s consolidated results of operations, financial position and cash flows.

 

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10. EQUITY

Based on the resolution for the payment of year-end dividends at the ordinary general shareholders’ meeting held on June 25, 2010, Kyocera paid cash dividends totaling ¥11,011 million, ¥60 per share of common stock on June 28, 2010 to shareholders of record on March 31, 2010.

Changes in Kyocera Corporation shareholders’ equity, noncontrolling interests and total equity for the three months ended June 30, 2009 and 2010 are as follows:

 

      Three months ended June 30,  
     2009     2010  
     Kyocera
Corporation
shareholders’
equity
    Noncontrolling
interests
    Total equity     Kyocera
Corporation
shareholders’
equity
    Noncontrolling
interests
    Total equity  
     (Yen in millions)  

Balance at beginning of period

   ¥ 1,323,663      ¥ 59,425      ¥ 1,383,088      ¥ 1,345,235      ¥ 62,027      ¥ 1,407,262   

Comprehensive income (loss)

     19,099        541        19,640        (15,058     (1,789     (16,847

Cash dividends paid to Kyocera Corporation’s shareholders

     (11,012     —          (11,012     (11,011     —          (11,011

Cash dividends paid to noncontrolling interests

     —          (685     (685     —          (644     (644

Other

     (37     9        (28     18        64        82   
                                                

Balance at end of period

   ¥ 1,331,713      ¥ 59,290      ¥ 1,391,003      ¥ 1,319,184      ¥ 59,658      ¥ 1,378,842   
                                                

Changes in comprehensive income (loss) for the three months ended June 30, 2009 and 2010 are as follows:

 

      Three months ended June 30,  
     2009     2010  
     Kyocera
Corporation
shareholders’
equity
    Noncontrolling
interests
    Total equity     Kyocera
Corporation
shareholders’
equity
    Noncontrolling
interests
    Total equity  
     (Yen in millions)  

Net income (loss)

   ¥ (460   ¥ 874      ¥ 414      ¥ 29,893      ¥ 1,681      ¥ 31,574   

Net unrealized gains (losses) on securities

     19,810        51        19,861        (24,081     9        (24,072

Net unrealized gains on derivative financial instruments

     182        69        251        109        40        149   

Pension adjustments

     (250     (119     (369     (399     (68     (467

Foreign currency translation adjustments

     (183     (334     (517     (20,580     (3,451     (24,031
                                                

Comprehensive income (loss)

   ¥ 19,099      ¥ 541      ¥ 19,640      ¥ (15,058   ¥ (1,789   ¥ (16,847
                                                

 

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11. SUPPLEMENTAL EXPENSE INFORMATION

Supplemental expense information is as follows:

 

     Three months ended June 30,
     2009    2010
     (Yen in millions)

Research and development expenses

   ¥ 13,123    ¥ 11,387

Advertising expenses

   ¥ 1,553    ¥ 1,429

Shipping and handling cost included in selling, general and administrative expenses

   ¥ 3,030    ¥ 4,019

 

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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

Sapphire Substrates

Components for Semiconductor Processing Equipment

Components for LCD Manufacturing Equipment

Automotive Components

General Industrial Ceramic Components

(Semiconductor Parts Group)

Ceramic Packages for Crystal and SAW Devices

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

Cutting Tools, Micro Drills

Medical and Dental Implants

Jewelry and Fine Ceramic Application Products

(Electronic Device Group)

Ceramic Capacitors, Tantalum Capacitors

SAW Devices, RF Modules, EMI Filters

Timing Devices such as TCXOs, Crystal Units, Clock Oscillators and Ceramic Resonators

Connectors

Thermal Printheads, Inkjet Printheads

Amorphous Silicon Photoreceptor Drums

Liquid Crystal Displays

(Telecommunications Equipment Group)

CDMA Mobile Phone Handsets

Personal Handy Phone System (PHS) related Products such as PHS Mobile Phone Handsets and PHS Base Stations

Wireless Broadband Systems such as WiMAX associated products

(Information Equipment Group)

Color and Black & White Office Equipment such as ECOSYS Printers, Multifunction Peripherals

Wide Format Multifunctional Systems

Printer and Multifunction Peripherals Supplies

Business Solution Services such as Managed Print Service

(Others)

Telecommunication Engineering Business

Integrated Business of Information Systems and Network Infrastructure

Data Center Business

Management Consulting Business

Chemical Materials for Electronic Components

Electrical Insulators, Molded Products

Real Estate Business

 

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Inter-segment sales, operating revenue and transfers are made with reference to prevailing market prices. Transactions between reportable segments are immaterial and not shown separately.

Operating profit for each reporting segment represents net sales, less related costs and operating expenses, excluding corporate revenue and expenses, equity in earnings, income taxes and net income attributable to noncontrolling interests.

Kyocera’s sales to KDDI Corporation and its consolidated subsidiaries (KDDI) which are mainly recorded in the Telecommunications Equipment Group are as follows:

 

      Three months ended June 30,
     2009    2010

Amount of sales to KDDI (Yen in millions)

   ¥ 18,226    ¥ 41,119

Ratio of amount of sale to KDDI to consolidated net sales (%)

     8.1      13.1

 

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Table of Contents

Information by reporting segments for the three months ended June 30, 2009 and 2010 is summarized as follows:

(Reporting Segments)

 

     Three months ended
June 30,
 
     2009     2010  
     (Yen in millions)  

Net sales:

    

Fine Ceramic Parts Group

   ¥ 9,267      ¥ 17,233   

Semiconductor Parts Group

     28,078        42,808   

Applied Ceramic Products Group

     29,871        44,847   

Electronic Device Group

     45,372        59,549   

Telecommunications Equipment Group

     36,803        64,756   

Information Equipment Group

     53,756        58,465   

Others

     26,819        32,640   

Adjustments and eliminations

     (4,565     (7,123
                

Net sales

   ¥ 225,401      ¥ 313,175   
                

Income before income taxes:

    

Fine Ceramic Parts Group

   ¥ (2,800   ¥ 2,322   

Semiconductor Parts Group

     1,685        8,984   

Applied Ceramic Products Group

     1,125        7,432   

Electronic Device Group

     (2,263     9,480   

Telecommunications Equipment Group

     (5,358     5,132   

Information Equipment Group

     2,098        5,503   

Others

     (26     1,873   
                

Total operating profit (loss)

     (5,539     40,726   

Corporate

     5,111        5,865   

Equity in earnings of affiliates and unconsolidated subsidiaries

     1,077        202   

Adjustments and eliminations

     54        (470
                

Income before income taxes

   ¥ 703      ¥ 46,323   
                

Depreciation and amortization:

    

Fine Ceramic Parts Group

   ¥ 1,374      ¥ 1,041   

Semiconductor Parts Group

     2,175        2,186   

Applied Ceramic Products Group

     2,452        2,709   

Electronic Device Group

     4,308        3,145   

Telecommunications Equipment Group

     2,661        3,080   

Information Equipment Group

     3,477        2,524   

Others

     1,165        1,135   

Corporate

     642        519   
                

Total

   ¥ 18,254      ¥ 16,339   
                

Capital expenditures:

    

Fine Ceramic Parts Group

   ¥ 249      ¥ 1,579   

Semiconductor Parts Group

     1,108        2,959   

Applied Ceramic Products Group

     1,316        2,634   

Electronic Device Group

     950        1,710   

Telecommunications Equipment Group

     718        716   

Information Equipment Group

     625        1,427   

Others

     338        656   

Corporate

     294        316   
                

Total

   ¥ 5,598      ¥ 11,997   
                

 

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Table of Contents

Geographic segments (Net sales by region)

 

     Three months ended June 30,
             2009                    2010        
     (Yen in millions)

Net sales:

     

Japan

   ¥ 88,014    ¥  138,756

United States of America

     42,800      56,040

Europe

     44,143      52,898

Asia

     38,941      50,940

Others

     11,503      14,541
             

Net sales

   ¥ 225,401    ¥  313,175
             

There are no individually material countries with respect to revenue from external customers in Europe, Asia and Others.

Geographic Segments (Net sales and Income before income taxes by Geographic area)

 

     Three months ended June 30,  
     2009     2010  
     (Yen in millions)  

Net sales:

    

Japan

   ¥ 91,772      ¥ 142,355   

Intra-group sales and transfer between geographic areas

     64,238        109,952   
                
     156,010        252,307   
                

United States of America

     50,600        66,560   

Intra-group sales and transfer between geographic areas

     4,735        8,486   
                
     55,335        75,046   
                

Europe

     45,756        55,055   

Intra-group sales and transfer between geographic areas

     5,844        7,683   
                
     51,600        62,738   
                

Asia

     33,055        43,480   

Intra-group sales and transfer between geographic areas

     31,557        47,828   
                
     64,612        91,308   
                

Others

     4,218        5,725   

Intra-group sales and transfer between geographic areas

     3,109        3,505   
                
     7,327        9,230   
                

Adjustments and eliminations

     (109,483     (177,454
                

Net sales

   ¥ 225,401      ¥ 313,175   
                

Income before income taxes:

    

Japan

   ¥ (8,289)      ¥ 25,738   

United States of America

     784        5,083   

Europe

     (1,593     3,835   

Asia

     2,205        4,878   

Others

     469        691   
                
     (6,424     40,225   

Corporate

     5,111        5,865   

Equity in earnings of affiliates and unconsolidated subsidiaries

     1,077        202   

Adjustments and eliminations

     939        31   
                

Income before income taxes

   ¥ 703      ¥ 46,323   
                

 

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Table of Contents

13. PER SHARE INFORMATION

A reconciliation of the numerators and the denominators of basic and diluted earnings per share computations are as follows:

 

             Three months ended June 30,         
     2009     2010
     (Yen in millions and shares in thousands,
except per share amounts)

Net income (loss) attributable to shareholders of Kyocera Corporation

   ¥ (460   ¥ 29,893
              

Basic earnings per share:

    

Net income (loss) attributable to shareholders of Kyocera Corporation

   ¥ (2.50   ¥ 162.89

Diluted earnings per share:

    

Net income (loss) attributable to shareholders of Kyocera Corporation

   ¥ (2.50   ¥ 162.89
              

Basic weighted average number of shares outstanding

     183,527        183,520

Diluted weighted average number of shares outstanding

     183,527        183,520
              

 

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14. THE CORPORATE REORGANIZATION PROCEDURE FOR WILLCOM, INC.

Since October 2004, Kyocera Corporation owned a 30% interest in WILLCOM, Inc., which is engaged in the personal handy phone system (PHS) business. Kyocera sells PHS handsets and PHS base stations to WILLCOM, Inc. Kyocera has accounted for its investment in WILLCOM, Inc. as an equity method investment.

On September 24, 2009, WILLCOM, Inc. applied and was accepted to undergo Alternative Dispute Resolution (ADR) with the Japanese Association of Turnaround Professionals (JATP), a process for corporate revitalization prescribed in the Act on Special Measures for Industrial Revitalization. The ADR process is not a legal procedure like a bankruptcy or a corporate reorganization procedure, but rather constitutes a flexible private settlement mechanism that allows the subject company to continue its daily commercial operations, while securing fairness through the involvement of the JATP. The JATP has been authorized by the Minister of Economy, Trade and Industry to act as an unbiased intermediary to achieve resolution among relevant parties.

During the three months ended December 31, 2009, Kyocera recognized an impairment loss of ¥19,987 million on its investment in WILLCOM, Inc., recorded as equity in losses of affiliates, reflecting management’s belief that the investment might not be recoverable.

On February 18, 2010, WILLCOM, Inc. filed a petition with the Tokyo District Court for commencement of corporate reorganization procedures and applied to the Enterprise Turnaround Initiative Corporation of Japan (ETIC) for support, and terminated the ADR process. On March 12, 2010, the Tokyo District Court agreed to commence the corporate reorganization procedures. Upon such decision, most of the directors of WILLCOM, Inc., including all of those simultaneously serving as directors of Kyocera, resigned, and trustees and acting trustees were appointed by the Tokyo District Court. On the same day, the ETIC agreed to provide support to WILLCOM, Inc. Due to the commencement of the corporate reorganization procedures, Kyocera lost significant influence over WILLCOM, Inc. and therefore discontinued its application of equity method accounting.

Taking into consideration the decision to commence corporate reorganization procedures, Kyocera recognized a bad debt loss of ¥8,961 million on receivables from WILLCOM, Inc., recorded as selling, general and administrative expenses, based on publicly disclosed information such as the outline of the business revitalization plan of WILLCOM, Inc., etc.

On June 24, 2010, WILLCOM, Inc. requested the Tokyo District Court to extend the filing deadline for their reorganization plan, which was accepted. The new filing deadline is October 14, 2010.

On August 2, 2010, WILLCOM, Inc. entered into a sponsor agreement with SOFTBANK CORP. And SOFTBANK CORP. agreed to dispatch a business trustee to WILLCOM, Inc. and to provide necessary support for business operations and execution of the reorganization plan.

The final recovery rate and repayment schedule will be determined in a reorganization plan to be approved in the course of corporate reorganization procedures. The deduction of ¥8,961 million remains Kyocera’s best estimate of the recovery of the receivables outstanding when WILLCOM, Inc. entered the reorganization procedures. Following WILLCOM, Inc.’s filing for reorganization procedures, Kyocera has continued to sell PHS handsets and PHS base stations to WILLCOM, Inc. The final resolution of the reorganization plan may have a significant effect on the valuation of Kyocera’s receivables from WILLCOM, Inc. and Kyocera’s consolidated results of operations, financial position and cash flows.

 

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Table of Contents

15. SUBSEQUENT EVENT

Kyocera has evaluated subsequent events requiring recognition or disclosure in the quarterly consolidated financial statements during the period from July 1, 2010 through the date of issuance of this Quarterly Report in Japan. During the period, no material subsequent events were identified.

 

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Reference Information (Unaudited)

1. Production (Sales price)

 

      Three months ended June 30,    Increase
(Decrease)
%
     2009    2010   
     Amount    % to
the total
   Amount    % to
the total
  
     (Yen in millions)

Fine Ceramic Parts Group

   ¥ 8,422    3.9    ¥ 17,768    5.6    111.0

Semiconductor Parts Group

     27,841    12.7      44,328    14.1    59.2

Applied Ceramic Products Group

     31,417    14.4      45,653    14.5    45.3

Electronic Device Group

     42,028    19.2      60,841    19.3    44.8
                            

Total Components Business

     109,708    50.2      168,590    53.5    53.7

Telecommunications Equipment Group

     37,050    16.9      65,711    20.8    77.4

Information Equipment Group

     53,297    24.4      57,131    18.1    7.2
                            

Total Equipment Business

     90,347    41.3      122,842    38.9    36.0

Others

     18,638    8.5      23,867    7.6    28.1
                            

Production

   ¥ 218,693    100.0    ¥ 315,299    100.0    44.2
                            

 

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2. Orders

 

      Three months ended June 30,     Increase
(Decrease)
%
     2009     2010    
     Amount     % to
the total
    Amount     % to
the total
   
     (Yen in millions)

Fine Ceramic Parts Group

   ¥ 9,424      4.1      ¥ 19,317      5.9      105.0

Semiconductor Parts Group

     30,221      13.1        45,761      14.0      51.4

Applied Ceramic Products Group

     29,702      12.9        48,120      14.8      62.0

Electronic Device Group

     48,012      20.8        68,947      21.2      43.6
                                

Total Components Business

     117,359      50.9        182,145      55.9      55.2

Telecommunications Equipment Group

     36,183      15.7        59,286      18.2      63.9

Information Equipment Group

     53,795      23.3        57,686      17.7      7.2
                                

Total Equipment Business

     89,978      39.0        116,972      35.9      30.0

Others

     27,852      12.1        33,436      10.3      20.0

Adjustments and eliminations

     (4,466   (2.0     (6,818   (2.1   —  
                                

Orders

   ¥ 230,723      100.0      ¥ 325,735      100.0      41.2
                                

 

33

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