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Kyocera 6-K 2011

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 February 2011

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 and Business Systems Administration Group

Date: February 14, 2011


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 and nine months ended December 31, 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)

 

     December 31, 2010     March 31, 2010  
     (Yen in millions)  

Current assets:

    

Cash and cash equivalents (Note 5)

   ¥ 228,207      ¥ 313,126   

Short-term investments in debt securities (Notes 4 and 5)

     34,293        11,644   

Other short-term investments (Notes 4 and 5)

     221,511        200,413   

Trade notes receivables (Note 5)

     19,302        16,421   

Trade accounts receivables (Note 5)

     209,827        190,903   

Less allowances for doubtful accounts and sales returns

     (4,059     (3,971

Inventories (Note 6)

     210,349        177,361   

Advance payments

     70,019        52,316   

Deferred income taxes (Note 9)

     44,233        40,872   

Other current assets (Notes 5 and 7)

     35,302        35,370   
                

Total current assets

     1,068,984        1,034,455   
                

Non-current assets:

    

Investments and advances:

    

Investments in and advances to affiliates and unconsolidated subsidiaries

     1,510        1,261   

Long-term investments in debt and equity securities (Notes 4 and 5)

     357,132        370,124   

Other long-term investments (Notes 4 and 5)

     10,474        10,534   
                

Total investments and advances

     369,116        381,919   
                

Property, plant and equipment:

    

Land

     57,783        56,870   

Buildings

     284,539        290,516   

Machinery and equipment

     692,723        689,608   

Construction in progress

     8,665        8,842   

Less accumulated depreciation

     (799,119     (805,737
                

Total property, plant and equipment

     244,591        240,099   
                

Goodwill

     63,326        67,602   

Intangible assets

     42,859        49,593   

Other assets (Note 9)

     71,999        75,049   
                

Total assets

   ¥ 1,860,875      ¥ 1,848,717   
                

The accompanying notes are an integral part of these statements.

 

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CONSOLIDATED BALANCE SHEETS (Unaudited)—(Continued)

 

     December 31, 2010     March 31, 2010  
     (Yen in millions)  

Current liabilities:

    

Short-term borrowings (Note 5)

   ¥ 3,341      ¥ 4,073   

Current portion of long-term debt (Note 5)

     9,935        13,456   

Trade notes and accounts payable (Note 5)

     100,497        89,750   

Other notes and accounts payable (Note 5)

     63,552        63,779   

Accrued payroll and bonus

     37,826        47,131   

Accrued income taxes

     21,703        15,602   

Other accrued liabilities

     23,978        26,800   

Other current liabilities (Notes 5 and 7)

     36,097        28,721   
                

Total current liabilities

     296,929        289,312   
                

Non-current liabilities:

    

Long-term debt (Note 5)

     23,464        29,067   

Accrued pension and severance liabilities (Note 8)

     27,487        31,828   

Deferred income taxes

     70,585        75,619   

Other non-current liabilities (Note 9)

     13,568        15,629   
                

Total non-current liabilities

     135,104        152,143   
                

Total liabilities

     432,033        441,455   
                

Commitments and contingencies (Note 10)

    

Kyocera Corporation shareholders’ equity:

    

Common stock

     115,703        115,703   

Additional paid-in capital

     162,421        163,044   

Retained earnings

     1,239,817        1,168,122   

Accumulated other comprehensive income (Note 7)

     (98,297     (51,010

Treasury stock, at cost

     (50,678     (50,624
                

Total Kyocera Corporation shareholders’ equity

     1,368,966        1,345,235   
                

Noncontrolling interests

     59,876        62,027   
                

Total equity (Note 11)

     1,428,842        1,407,262   
                

Total liabilities and equity

   ¥ 1,860,875      ¥ 1,848,717   
                

The accompanying notes are an integral part of these statements.

 

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

     Nine months ended December 31,  
             2009                     2010          
     (Yen in millions and
shares in thousands,
except per share amounts)
 

Net sales (Note 7)

   ¥ 768,920      ¥ 956,914   

Cost of sales (Note 7)

     572,776        672,363   
                

Gross profit

     196,144        284,551   

Selling, general and administrative expenses (Notes 12 and 15)

     158,131        164,782   
                

Profit from operations

     38,013        119,769   

Other income (expenses):

    

Interest and dividend income

     11,821        11,687   

Interest expense (Note 7)

     (2,188     (1,673

Foreign currency transaction gains, net (Note 7)

     1,871        2,053   

Equity in earnings (losses) of affiliates and unconsolidated
subsidiaries (Notes 5, 7 and 15)

     (18,195     128   

Other, net (Note 5)

     1,417        1,172   
                

Total other income (expenses)

     (5,274     13,367   
                

Income before income taxes

     32,739        133,136   

Income taxes (Note 9)

     10,747        33,713   
                

Net income

     21,992        99,423   

Net income attributable to noncontrolling interests

     (3,511     (5,706
                

Net income attributable to shareholders of Kyocera Corporation

   ¥ 18,481      ¥ 93,717   
                

Earnings per share (Note 14):

    

Net income attributable to shareholders of Kyocera Corporation:

    

Basic

   ¥ 100.70      ¥ 510.67   

Diluted

   ¥ 100.70      ¥ 510.67   

Average number of shares of common stock outstanding:

    

Basic

     183,526        183,518   

Diluted

     183,526        183,518   

The accompanying notes are an integral part of these statements.

 

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

     Three months ended December 31,  
             2009                     2010          
     (Yen in millions and
shares in thousands,
except per share amounts)
 

Net sales (Note 7)

   ¥ 285,017      ¥ 319,522   

Cost of sales (Note 7)

     203,130        224,244   
                

Gross profit

     81,887        95,278   

Selling, general and administrative expenses (Note 12)

     52,732        57,267   
                

Profit from operations

     29,155        38,011   

Other income (expenses):

    

Interest and dividend income

     5,281        5,176   

Interest expense (Note 7)

     (688     (548

Foreign currency transaction gains, net (Note 7)

     1,019        984   

Equity in losses of affiliates and unconsolidated subsidiaries (Notes 5, 7 and 15)

     (19,692     (93

Other, net (Note 5)

     516        113   
                

Total other income (expenses)

     (13,564     5,632   
                

Income before income taxes

     15,591        43,643   

Income taxes (Note 9)

     4,474        10,043   
                

Net income

     11,117        33,600   

Net income attributable to noncontrolling interests

     (1,364     (1,843
                

Net income attributable to shareholders of Kyocera Corporation

   ¥ 9,753      ¥ 31,757   
                

Earnings per share (Note 14):

    

Net income attributable to shareholders of Kyocera Corporation:

    

Basic

   ¥ 53.14      ¥ 173.05   

Diluted

   ¥ 53.14      ¥ 173.05   

Average number of shares of common stock outstanding:

    

Basic

     183,524        183,516   

Diluted

     183,524        183,516   

The accompanying notes are an integral part of these statements.

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

    Nine months ended December 31,  
            2009                     2010          
    (Yen in millions)  

Cash flows from operating activities:

   

Net income

  ¥ 21,992      ¥ 99,423   

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

   

Depreciation and amortization

    54,077        51,674   

Provision for doubtful accounts and loss on bad debts (Note 15)

    361        1,367   

Write-down of inventories

    10,817        3,014   

Deferred income taxes

    (7,997     (4,731

Equity in (earnings) losses of affiliates and unconsolidated
subsidiaries (Notes 5, 7 and 15)

    18,195        (128

Foreign currency adjustments

    727        709   

Change in assets and liabilities:

   

Increase in receivables

    (32,417     (44,325

(Increase) decrease in inventories

    5,598        (49,522

Increase in advance payment

    (22,946     (17,862

(Increase) decrease in other current assets

    339        (3,020

Increase in notes and accounts payable

    27,114        40,283   

Increase in accrued income taxes

    23        6,864   

Increase (decrease) in other current liabilities

    1,666        (4,160

Decrease in other non-current liabilities

    (4,057     (4,725

Other, net

    (4,502     (1,401
               

Net cash provided by operating activities

    68,990        73,460   
               

Cash flows from investing activities:

   

Payments for purchases of available-for-sale securities

    (20,184     (10,854

Payments for purchases of held-to-maturity securities

    (41,914     (56,881

Payments for purchases of other securities

    (4,207     (78

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

    13,567        7,857   

Proceeds from maturities of held-to-maturity securities

    29,279        35,583   

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

    (4,231     (1,550

Payments for purchases of property, plant and equipment

    (22,276     (45,471

Payments for purchases of intangible assets

    (2,691     (5,598

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

    2,899        476   

Acquisition of certificate of deposits and time deposits

    (212,625     (220,315

Withdrawal of certificate of deposits and time deposits

    265,475        183,660   

Other, net

    527        395   
               

Net cash provided by (used in) investing activities

    3,619        (112,776
               

Cash flows from financing activities:

   

Decrease in short-term borrowings, net

    (6,577     (371

Proceeds from issuance of long-term debt

    11,642        8,165   

Payments of long-term debt

    (16,591     (12,136

Dividends paid (Note 11)

    (23,247     (23,287

Purchase of treasury stock

    (38     (56

Reissuance of treasury stock

    3        2   

Other, net

    (1,893     (1,636
               

Net cash used in financing activities

    (36,701     (29,319
               

Effect of exchange rate changes on cash and cash equivalents

    (6,522     (16,284
               

Net increase (decrease) in cash and cash equivalents

    29,386        (84,919

Cash and cash equivalents at beginning of period

    269,247        313,126   
               

Cash and cash equivalents at end of period

  ¥ 298,633      ¥ 228,207   
               

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,” which is applied in order to determine whether a lease should be classified as an operating or a capital lease. This accounting standard requires the lessee to record all capital leases as an asset and an obligation.

 

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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 by 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 condition 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 Kyocera 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 services 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. Kyocera believes that these procedures enable Kyocera to make reliable estimates of future returns under the stock rotation program. Kyocera’s actual results approximate its estimates. When the products are returned and verified, the distributor is given credit against their accounts receivables.

(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 Kyocera records 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. Kyocera believes that these procedures enable Kyocera to make reliable estimates of future credits under the ship and debit program. Kyocera’s actual results approximate its 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 the 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, including the consideration of the fair value of assets pledged by the customer as collateral. In addition, when Kyocera determines it is unable to collect receivables, Kyocera directly write-off these receivables to expenses in the period incurred.

The amounts of allowances for doubtful accounts included in investments in and advances to affiliates and unconsolidated subsidiaries at December 31, 2010 and at March 31, 2010 were ¥1 million and ¥1 million, respectively. The amounts of allowances for doubtful accounts included in other long-term investments at December 31, 2010 and at March 31, 2010 were ¥107 million and ¥253 million, respectively. The amounts of allowances for doubtful accounts included in other assets at December 31, 2010 and at March 31, 2010 were ¥1,860 million and ¥2,001 million, respectively.

The amounts of allowances for doubtful accounts related to lease receivables included in other current assets at December 31, 2010 and at March 31, 2010 were ¥667 million and ¥571 million, respectively. The amounts of lease receivables less allowance for doubtful accounts at December 31, 2010 and at March 31, 2010 were ¥31,424 million and ¥37,033 million, respectively, which are included in other current assets and other assets in the consolidated balance sheets. Most of the lease receivables are recognized at TA Triumph-Adler AG, a subsidiary of Kyocera Mita Corporation. TA Triumph-Adler AG estimates allowances for doubtful accounts related to lease receivables at the portfolio level.

(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 December 31, 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 59% and 57% at December 31, 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 for by the cost method.

 

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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 for 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 and comparable valuations of similar companies.

(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 expenses 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.

 

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Long-lived assets and intangible assets with definite useful lives are considered to be impaired when the expected undiscounted cash flows 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

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 to income. 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 income when the underlying transaction being hedged occurs.

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 income. 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 a cash flow hedge is discontinued, the net derivative gains or losses remain in accumulated other comprehensive income, unless it is probable that the forecasted transaction will not occur at which point the derivative gains or losses are reclassified into income immediately.

(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 on measurement method. Under the modified prospective method, Kyocera recognizes compensation costs which include:

 

  (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.

 

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(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.

(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 condition 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 condition and cash flows.

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. Kyocera adopted the disclosure as of the end of a reporting period for the nine months ended December 31, 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 did not have an impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

(17) Recently Issued Accounting Standards

In December 2010, the FASB issued ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” This accounting standard modifies Step1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. This accounting standard will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The adoption of this accounting standard is expected to have no material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

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In December 2010, the FASB issued ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.” The amendments in this Update require a public entity that enters into business combination(s) to disclose revenue and earnings of the combined entity in the comparative financial statements as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This accounting standard will be effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period 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 condition and cash flows.

(18) Reclassifications

Certain reclassifications and format changes have been made to the consolidated statements of income for nine and three months ended December 31, 2009 and the consolidated statements of cash flows for the nine months ended December 31, 2009 to conform to the current presentation.

3. BUSINESS COMBINATION

On June 1, 2010, Kyocera Corporation acquired thin film transistor (TFT) liquid crystal display (LCD) business of Yasu facility 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.

Kyocera Tycom Corp. has owned a 33.33% interest in Tycom Ltd., a sales company of cutting tools, and accounted for its investment by the equity method. On August 31, 2010, Kyocera Tycom Corp. acquired all of the remaining shares of Tycom Ltd. As a result, Tycom Ltd. has become a wholly-owned subsidiary of Kyocera and has been consolidated by Kyocera from that date. 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 Applied Ceramic Products Group.

On October 29, 2010, Kyocera Mita Corporation acquired 100% of shares of Epson Software Engineering (Philippines), Inc. which is a software developer related to information equipment. Epson Software Engineering (Philippines), Inc. has been consolidated by Kyocera from that date and has changed its name to Kyocera Mita Technology Development Philippines, Inc. as of November 1, 2010. 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 Information Equipment Group.

These acquisitions did not have material impacts on Kyocera’s consolidated results of operations, financial condition 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 December 31, 2010 and March 31, 2010, included in short-term investments in debt securities and in long-term investments in debt and equity securities are summarized as follows:

 

    December 31, 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

  ¥ 272,314      ¥ 302,090      ¥ 30,508      ¥ 732      ¥ 270,494      ¥ 310,654      ¥ 40,329      ¥ 169   

Investment trusts

    3,401        3,496        185        90        3,346        3,809        463        —     
                                                               

Total equity securities

    275,715        305,586        30,693        822        273,840        314,463        40,792        169   
                                                               

Corporate bonds

    5,114        4,244        23        893        6,659        6,221        66        504   

Hybrid financial instruments

    11,967        11,967        —          —          9,867        9,867        —          —     

Government bonds and public bonds

    3,037        2,500        4        541        2,230        1,999        8        239   

Other debt securities

    585        576        3        12        1,166        1,131        35        70   
                                                               

Total debt securities

    20,703        19,287        30        1,446        19,922        19,218        109        813   
                                                               

Total available-for-sale securities

    296,418        324,873        30,723        2,268        293,762        333,681        40,901        982   
                                                               

Held-to-maturity securities:

               

Corporate bonds

    47,919        48,105        241        55        23,904        24,018        194        80   

Government bonds and public bonds

    18,633        18,597        14        50        24,183        24,173        35        45   
                                                               

Total held-to-maturity securities

    66,552        66,702        255        105        48,087        48,191        229        125   
                                                               

Total

  ¥ 362,970      ¥ 391,575      ¥ 30,978      ¥ 2,373      ¥ 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.

(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 December 31, 2010 and March 31, 2010, included in other short-term investments and in other long-term investments, are summarized as follows:

 

    December 31, 2010     March 31, 2010  
    (Yen in millions)  

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

  ¥ 221,567      ¥ 200,482   

Non-marketable equity securities

    10,263        10,263   

Long-term loans

    155        202   
               

Total

  ¥ 231,985      ¥ 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

 

    December 31, 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

  ¥ 168      ¥ 13      ¥ 1      ¥ 182      ¥ 721      ¥ 158      ¥ 19      ¥ 898   

Hybrid financial instruments

    —          9,980        —          9,980        —          —          —          —     

Government bonds and public bonds

    163        —          —          163        195        —          —          195   

Other debt securities

    —          269        6        275        —          729        2        731   
                                                               

Total debt securities

    331        10,262        7        10,600        916        887        21        1,824   
                                                               

Foreign currency forward contracts

    —          2,848        —          2,848        —          760        —          760   
                                                               

Total derivatives

    —          2,848        —          2,848        —          760        —          760   
                                                               

Total current assets

    331        13,110        7        13,448        916        1,647        21        2,584   
                                                               

Non-Current Assets:

               

Marketable equity securities

    302,090        —          —          302,090        310,654        —          —          310,654   

Investment trusts

    336        3,160        —          3,496        1,100        2,709        —          3,809   
                                                               

Total equity securities

    302,426        3,160        —          305,586        311,754        2,709        —          314,463   
                                                               

Corporate bonds

    4,046        15        1        4,062        5,225        87        11        5,323   

Hybrid financial instruments

    —          1,987        —          1,987        —          9,867        —          9,867   

Government bonds and public bonds

    2,337        —          —          2,337        1,804        —          —          1,804   

Other debt securities

    —          294        7        301        —          399        1        400   
                                                               

Total debt securities

    6,383        2,296        8        8,687        7,029        10,353        12        17,394   
                                                               

Total non-current assets

    308,809        5,456        8        314,273        318,783        13,062        12        331,857   
                                                               

Total assets

  ¥ 309,140      ¥ 18,566      ¥ 15      ¥ 327,721      ¥ 319,699      ¥ 14,709      ¥ 33      ¥ 334,441   
                                                               

Current Liabilities:

               

Foreign currency forward contracts

  ¥ —        ¥ 789      ¥ —        ¥ 789      ¥ —        ¥ 984      ¥ —        ¥ 984   

Interest rate swaps

    —          26        —          26        —          44        —          44   

Currency swaps

    —          4        —          4        —          9        —          9   
                                                               

Total derivatives

    —          819        —          819        —          1,037        —          1,037   
                                                               

Total current liabilities

  ¥ —        ¥ 819      ¥ —        ¥ 819      ¥ —        ¥ 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 between Levels 1 and 2 for the nine and three months ended December 31, 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 ¥196 million and ¥100 million were recorded in other, net on the consolidated statements of income for the nine months ended December 31, 2009 and 2010, respectively. Gains (losses) on hybrid financial instruments in the amount of ¥(15) million and ¥15 million were recorded in other, net on the consolidated statements of income for the three months ended December 31, 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 Statements.

The following table presents additional information about Level 3 corporate bonds and other debt securities measured at fair value on recurring basis for the nine months ended December 31, 2009 and 2010, and the three months ended December 31, 2009 and 2010.

 

    Nine months ended December 31,  
    2009     2010  
    (Yen in millions)  

Balance at beginning of period

  ¥ 696      ¥ 33   

Total gains or losses (realized/unrealized)

   

Included in earnings (losses)

    (30     —     

Included in other comprehensive income (losses)

    61        (9

Purchase, issuance and settlements

    (378     —     

Transfer in and/or out of Level 3

    (149     (9
               

Balance at end of period

  ¥ 200      ¥ 15   
               
    Three months ended December 31,  
    2009     2010  
    (Yen in millions)  

Balance at beginning of period

  ¥ 299      ¥ 21   

Total gains or losses (realized/unrealized)

   

Included in earnings (losses)

    1        —     

Included in other comprehensive income (losses)

    8        (6

Purchase, issuance and settlements

    (15     —     

Transfer in and/or out of Level 3

    (93     —     
               

Balance at end of period

  ¥ 200      ¥ 15   
               

 

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(2) Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

 

    Balance at
December 31,
2009
    Level 1     Level 2         Level 3         Total gains
(losses) for
the nine months
ended December 31,
2009
    Total gains
(losses) for
the three months
ended December 31,
2009
 
    (Yen in millions)  

Investments in WILLCOM, Inc.

  ¥ —            ¥ —        ¥ (19,987   ¥ (19,987

During the nine and three months ended December 31, 2009, Kyocera measured the fair value and recognized an other-than-temporary impairment loss of ¥19,987 million on its investment in WILLCOM, Inc. which at the time accounted for by the equity method. The impairment loss was included in equity in earnings (losses) of affiliates and unconsolidated subsidiaries in the consolidated statement of income. The fair value of this investment was based on valuation techniques using the best information available, and included market comparables, analysis of financial condition and estimated future cash flow. The investment was classified as a Level 3 asset because unobservable inputs were used to determine the fair value, which included assumptions market participants would use to value this investment due to the absence of quoted market prices.

(3) 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:

 

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

Assets (a):

           

Short-term investments in debt securities

   ¥ 34,293       ¥ 34,340       ¥ 11,644       ¥ 11,662   

Long-term investments in debt and equity securities

     357,132         357,235         370,124         370,210   

Other long-term investments

     10,474         10,474         10,534         10,534   
                                   

Total

   ¥ 401,899       ¥ 402,049       ¥ 392,302       ¥ 392,406   
                                   

Liabilities (b):

           

Long-term debt (including due within one year)

   ¥ 33,399       ¥ 33,525       ¥ 42,523       ¥ 42,710   
                                   

Total

   ¥ 33,399       ¥ 33,525       ¥ 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 December 31, 2010 and March 31, 2010 were ¥10,263 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 receivables, trade accounts receivables, 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.

 

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6. INVENTORIES

Inventories at December 31, 2010 and March 31, 2010 are as follows:

 

     December 31, 2010      March 31, 2010  
     (Yen in millions)  

Finished goods

   ¥ 97,787       ¥ 83,444   

Work in process

     44,121         41,409   

Raw materials and supplies

     68,441         52,508   
                 

Total

   ¥ 210,349       ¥ 177,361   
                 

7. DERIVATIVES AND HEDGING

Kyocera’s activities are exposed to varieties 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 and currency swaps, 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 and interest rate caps, 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.

Kyocera does not hold or issue such derivative financial instruments for trading purposes.

Cash Flow Hedges:

Kyocera uses certain foreign currency forward contracts with terms normally lasting for less than four months 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.

 

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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 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, net in the consolidated statement of income. Kyocera does not adopt hedge accounting for such derivatives.

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

 

     December 31, 2010      March 31, 2010  
     (Yen in millions)  

Derivatives designated as hedging instruments:

     

Foreign currency forward contracts

   ¥ 12,356       ¥ 11,961   

Interest rate swaps

     540         625   

Interest rate caps

     —           3,125   
                 

Total

   ¥ 12,896       ¥ 15,711   
                 

Derivatives not designated as hedging instruments:

     

Foreign currency forward contracts

   ¥ 126,862       ¥ 95,758   

Currency swaps

     239         279   
                 

Total

   ¥ 127,101       ¥ 96,037   
                 

Total derivatives

   ¥ 139,997       ¥ 111,748   
                 

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

 

     Location      December 31, 2010      March 31, 2010  
            (Yen in millions)  

Derivative Assets:

        

Derivatives designated as hedging instruments:

        

Foreign currency forward contracts

     Other current assets       ¥ 181       ¥ 79   

Interest rate caps

     Other current assets         —           —     
                    

Total

      ¥ 181       ¥ 79   
                    

Derivatives not designated as hedging instruments:

        

Foreign currency forward contracts

     Other current assets       ¥ 2,667       ¥ 681   
                    

Total

      ¥ 2,667       ¥ 681   
                    

Total derivatives

      ¥ 2,848       ¥ 760   
                    

Derivative Liabilities:

        

Derivatives designated as hedging instruments:

        

Foreign currency forward contracts

     Other current liabilities       ¥ 159       ¥ 167   

Interest rate swaps

     Other current liabilities         26         44   
                    

Total

      ¥ 185       ¥ 211   
                    

Derivatives not designated as hedging instruments:

        

Foreign currency forward contracts

     Other current liabilities       ¥ 630       ¥ 817   

Currency swaps

     Other current liabilities         4         9   
                    

Total

      ¥ 634       ¥ 826   
                    

Total derivatives

      ¥ 819       ¥ 1,037   
                    

 

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The location and amount of derivative financial instruments in the comprehensive income for the nine months ended December 31, 2009 and 2010 are as follows:

Derivatives designated as cash flow hedge:

Gains (losses) recognized in other comprehensive income

 

     Nine months ended December 31,  
             2009                     2010          
     (Yen in millions)  

Foreign currency forward contracts

   ¥ (5   ¥ 65   

Interest rate swaps

     51        18   

Interest rate caps

     0        —     
                

Total

   ¥ 46      ¥ 83   
                

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

 

    

Location

   Nine months ended December 31,  
                2009                     2010          
          (Yen in millions)  

Foreign currency forward contracts

   Net sales and Cost of sales    ¥ (169   ¥ 65   

Interest rate swaps

   Interest expense      15        15   

Interest rate swaps

  

Equity in losses of affiliates and unconsolidated subsidiaries

     (36     —     

Interest rate caps

   Interest expense      0        —     
                   

Total

      ¥ (190   ¥ 80   
                   

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

 

    

Location

   Nine months ended December 31,  
                2009                     2010          
          (Yen in millions)  

Foreign currency forward contracts

   Foreign currency transaction gains, net    ¥ (6   ¥ 9   

Interest rate caps

   Interest expense      0        —     
                   

Total

      ¥ (6   ¥ 9   
                   

Derivatives not designated as hedging instruments:

Gains (losses) recognized in income

 

    

Location

   Nine months ended December 31,  
                2009                      2010          
          (Yen in millions)  

Foreign currency forward contracts

   Foreign currency transaction gains, net    ¥ 3,155       ¥ 2,173   

Currency swaps

   Foreign currency transaction gains, net      6         5   
                    

Total

      ¥ 3,161       ¥ 2,178   
                    

 

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The location and amount of derivative financial instruments in the comprehensive income for the three months ended December 31, 2009 and 2010 are as follows:

Derivatives designated as cash flow hedge:

Gains (losses) recognized in other comprehensive income

 

         Three months ended December 31,  
                 2009                      2010          
         (Yen in millions)  

Foreign currency forward contracts

   ¥ 55       ¥ 106   

Interest rate swaps

     36         7   

Interest rate caps

     0         —     
                   

Total

   ¥ 91       ¥ 113   
                   

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

 

          Three months ended December 31,  
    

Location

           2009                     2010          
          (Yen in millions)  

Foreign currency forward contracts

   Net sales and Cost of sales    ¥ (244   ¥ (62

Interest rate swaps

   Interest expense      6        5   

Interest rate swaps

  

Equity in losses of affiliates and unconsolidated subsidiaries

     (26     —     

Interest rate caps

   Interest expense      0        —     
                   

Total

      ¥ (264   ¥ (57
                   

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

 

          Three months ended December 31,  
    

Location

           2009                      2010          
          (Yen in millions)  

Foreign currency forward contracts

   Foreign currency transaction gains, net    ¥ 8       ¥ 4   

Interest rate caps

   Interest expense      0         —     
                    

Total

      ¥ 8       ¥ 4   
                    

Derivatives not designated as hedging instruments:

Gains (losses) recognized in income

 

          Three months ended December 31,  
    

Location

           2009                     2010          
          (Yen in millions)  

Foreign currency forward contracts

   Foreign currency transaction gains, net    ¥ (1,800   ¥ 2,174   

Currency swaps

   Foreign currency transaction gains, net      (3     4   
                   

Total

      ¥ (1,803   ¥ 2,178   
                   

 

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8. BENEFIT PLANS

Domestic:

Net periodic pension costs at Kyocera Corporation and its major domestic subsidiaries for the nine months ended December 31, 2009 and 2010 include the following components:

 

     Nine months ended December 31,  
             2009                     2010          
     (Yen in millions)  

Service cost

   ¥ 6,605      ¥ 6,493   

Interest cost

     1,726        1,978   

Expected return on plan assets

     (2,291     (2,441

Amortization of prior service cost

     (3,244     (3,247

Recognized actuarial loss

     881        579   
                

Net periodic pension costs

   ¥ 3,677      ¥ 3,362   
                

Net periodic pension costs at Kyocera Corporation and its major domestic subsidiaries for the three months ended December 31, 2009 and 2010 include the following components:

     Three months ended December 31,  
             2009                     2010          
     (Yen in millions)  

Service cost

   ¥ 2,203      ¥ 2,169   

Interest cost

     576        660   

Expected return on plan assets

     (764     (813

Amortization of prior service cost

     (1,080     (1,083

Recognized actuarial loss

     294        193   
                

Net periodic pension costs

   ¥ 1,229      ¥ 1,126   
                

 

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Foreign:

Net periodic pension costs at Kyocera International, Inc. and its consolidated subsidiaries, AVX Corporation and its consolidated subsidiaries (AVX) and TA Triumph-Adler AG and its consolidated subsidiaries, for the nine months ended December 31, 2009 and 2010 include the following components:

 

        Nine months ended December 31,    
             2009                     2010          
     (Yen in millions)  

Service cost

   ¥ 250      ¥ 236   

Interest cost

     1,659        1,403   

Expected return on plan assets

     (856     (837

Amortization of prior service cost

     7        7   

Recognized actuarial loss

     169        178   
                

Net periodic pension costs

   ¥ 1,229      ¥ 987   
                

Net periodic pension costs at Kyocera International, Inc. and its consolidated subsidiaries, AVX and TA Triumph-Adler AG and its consolidated subsidiaries, for the three months ended December 31, 2009 and 2010 include the following components:

        Three months ended December 31,    
             2009                     2010          
     (Yen in millions)  

Service cost

   ¥ 82      ¥ 76   

Interest cost

     540        452   

Expected return on plan assets

     (274     (266

Amortization of prior service cost

     2        2   

Recognized actuarial loss

     54        56   
                

Net periodic pension costs

   ¥ 404      ¥ 320   
                

 

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9. INCOME TAXES

The effective income tax rates for the nine and three months ended December 31, 2010 were 25.3% and 23.0%, respectively. The downward difference in the effective income tax rate from 41.0 %, which is the Japanese statutory income tax rate, is mainly due to a reversal of valuation allowance against deferred tax assets at a certain overseas subsidiary with increasing realization of deferred tax assets for the three months ended September 30, 2010, triggered by a significantly improved operating results, and change in estimates for uncertainty in income taxes for the three months ended December 31, 2010.

Kyocera filed Advance Pricing Agreements (APAs) for Kyocera Corporation’s transaction with certain overseas subsidiaries to avoid potential income tax risk relating to transfer pricing. Kyocera expects that significant change in unrecognized tax benefits may occur within the next 12 months according to progress in these APAs procedures. Such change is not expected to have a significant impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

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10. COMMITMENTS AND CONTINGENCIES

As of December 31, 2010, Kyocera had contractual obligations for the acquisition or construction of property, plant and equipment aggregating ¥11,226 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 December 31, 2010 are as follows:

 

     December 31, 2010  
     (Yen in millions)  

Due within 1 year

   ¥ 4,682   

Due after 1 year but within 2 years

     3,217   

Due after 2 years but within 3 years

     1,993   

Due after 3 years but within 4 years

     1,246   

Due after 4 years but within 5 years

     817   

Thereafter

     1,021   
        

Total

   ¥ 12,976   
        

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 nine months ended December 31, 2010 and during the three months ended December 31, 2010, Kyocera purchased ¥12,110 million and ¥3,909 million, respectively and is obligated to purchase ¥226,146 million in total by the end of December 2020.

Kyocera guarantees the debt of employees, an investee and an unconsolidated subsidiary. At December 31, 2010, the total amount of these guarantees was ¥668 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 has been named as a Potentially Responsible Party 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 Massachusetts. The Commonwealth of Massachusetts has adopted the same position. EPA has indicated that remediation costs through October 22, 2010 were approximately ¥34,646 million.

In June 2010, EPA issued a proposal providing future cost estimates under the existing remedial action plan ranging from ¥33,453 million to ¥37,584 million, net present value. Furthermore, the proposal provided alternative remedial action plan to the existing plan for which the future cost estimates ranging from ¥29,322 million to ¥31,833 million, net present value. AVX anticipates further discussions with the U.S. Department of Justice, EPA, and the Commonwealth of Massachusetts.

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 it can avoid responsibility for all, or some portion, of these costs because the remediation method has changed over time and costs can be appropriately allocated to parties other than AVX.

 

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The potential impact of this matter on Kyocera’s consolidated results of operations, financial condition 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 condition and cash flows.

11. 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.

Based on the resolution for the payment of interim dividends at the board of directors meeting held on October 28, 2010, Kyocera paid cash dividends totaling ¥11,011 million, ¥60 per share of common stock on December 6, 2010 to shareholders of record on September 30, 2010.

Changes in Kyocera Corporation shareholders’ equity, noncontrolling interests and total equity for the nine months ended December 31, 2009 and 2010 are as follows:

 

     Nine months ended December 31,  
     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)

     19,689        1,276        20,965        46,513        (1,093     45,420   

Cash dividends paid to Kyocera Corporation’s shareholders

     (22,023     —          (22,023     (22,022     —          (22,022

Cash dividends paid to noncontrolling interests

     —          (1,308     (1,308     —          (1,353     (1,353

Other

     (135     1,008        873        (760     295        (465
                                                

Balance at end of period

   ¥ 1,321,194      ¥ 60,401      ¥ 1,381,595      ¥ 1,368,966      ¥ 59,876      ¥ 1,428,842   
                                                

 

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Comprehensive income (loss) for the nine months ended December 31, 2009 and 2010 are as follows:

 

     Nine months ended December 31,  
     2009     2010  
     Kyocera
Corporation
shareholders’
equity
    Noncontrolling
interests
    Total equity     Kyocera
Corporation
shareholders’
equity
    Noncontrolling
interests
    Total equity  
     (Yen in millions)  

Net income

   ¥ 18,481      ¥ 3,511      ¥ 21,992      ¥ 93,717      ¥ 5,706      ¥ 99,423   

Net unrealized gains (losses) on securities

     12,881        97        12,978        (6,776     66        (6,710

Net unrealized gains (losses) on derivative financial instruments

     46        (1     45        83        26        109   

Pension adjustments

     (1,257     (75     (1,332     (1,090     (3     (1,093

Foreign currency translation adjustments

     (10,462     (2,256     (12,718     (39,421     (6,888     (46,309
                                                

Comprehensive income (loss)

   ¥ 19,689      ¥ 1,276      ¥ 20,965      ¥ 46,513      ¥ (1,093   ¥ 45,420   
                                                

Comprehensive income (loss) for the three months ended December 31, 2009 and 2010 are as follows:

 

     Three months ended December 31,  
     2009     2010  
     Kyocera
Corporation
shareholders’
equity
    Noncontrolling
interests
    Total equity     Kyocera
Corporation
shareholders’
equity
    Noncontrolling
interests
    Total equity  
     (Yen in millions)  

Net income

   ¥ 9,753      ¥ 1,364      ¥ 11,117      ¥ 31,757      ¥ 1,843      ¥ 33,600   

Net unrealized gains (losses) on securities

     (4,398     14        (4,384     25,665        16        25,681   

Net unrealized gains (losses) on derivative financial instruments

     91        (66     25        113        (18     95   

Pension adjustments

     (823     (8     (831     (279     37        (242

Foreign currency translation adjustments

     5,087        783        5,870        (10,714     (2,008     (12,722
                                                

Comprehensive income (loss)

   ¥ 9,710      ¥ 2,087      ¥ 11,797      ¥ 46,542      ¥ (130   ¥ 46,412   
                                                

 

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12. SUPPLEMENTAL EXPENSE INFORMATION

Supplemental expense information is as follows:

 

     Nine months ended December 31,  
             2009                      2010          
     (Yen in millions)  

Research and development expenses

   ¥  38,098       ¥ 36,694   

Advertising expenses

   ¥ 5,390       ¥ 4,965   

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

   ¥ 9,951       ¥  12,518   
     Three months ended December 31,  
             2009                      2010          
     (Yen in millions)  

Research and development expenses

   ¥ 12,083       ¥ 13,231   

Advertising expenses

   ¥ 1,812       ¥ 1,846   

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

   ¥ 3,635       ¥ 4,345   

 

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13. 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)

Components for Semiconductor Processing Equipment and LCD Manufacturing Equipment

Information and Telecommunication Components

General Industrial Ceramic Components

Sapphire Substrates

Automotive Components

(Semiconductor Parts Group)

Ceramic Packages for Crystal and SAW Devices

CMOS / CCD 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

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

SAW Devices, RF Modules, EMI Filters

Connectors

Thermal Printheads, Inkjet Printheads

Amorphous Silicon Photoreceptor Drums

Liquid Crystal Displays, Touch Panel

(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

Molding Compounds for Semiconductor Encapsulation

Electrical Insulators, Molded Products

Optical Components

 

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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 December 31,  
             2009                      2010          

Amount of sales to KDDI (Yen in millions)

   ¥ 34,732       ¥ 26,426   

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

     12.2         8.3   
     Nine months ended December 31,  
     2009      2010  

Amount of sales to KDDI (Yen in millions)

   ¥ 78,366       ¥ 104,652   

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

     10.2         10.9   

 

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Information by reporting segments for the three and nine months ended December 31, 2009 and 2010 is summarized as follows:

(Reporting Segments)

 

     Three months ended
December 31,
 
     2009     2010  
     (Yen in millions)  

Net sales:

    

Fine Ceramic Parts Group

   ¥ 14,866      ¥ 19,577   

Semiconductor Parts Group

     37,425        44,515   

Applied Ceramic Products Group

     44,627        54,880   

Electronic Device Group

     51,076        60,286   

Telecommunications Equipment Group

     51,659        53,486   

Information Equipment Group

     59,509        59,544   

Others

     31,928        34,362   

Adjustments and eliminations

     (6,073     (7,128
                

Net sales

   ¥ 285,017      ¥ 319,522   
                

Income before income taxes:

    

Fine Ceramic Parts Group

   ¥ 1,016      ¥ 3,152   

Semiconductor Parts Group

     5,977        9,953   

Applied Ceramic Products Group

     6,545        7,502   

Electronic Device Group

     6,187        11,023   

Telecommunications Equipment Group

     1,077        (2,858

Information Equipment Group

     6,364        5,928   

Others

     2,109        2,934   
                

Total operating profit

     29,275        37,634   

Corporate

     6,113        6,725   

Equity in losses of affiliates and unconsolidated subsidiaries

     (19,692     (93

Adjustments and eliminations

     (105     (623
                

Income before income taxes

   ¥ 15,591      ¥ 43,643   
                

Depreciation and amortization:

    

Fine Ceramic Parts Group

   ¥ 1,451      ¥ 1,334   

Semiconductor Parts Group

     2,451        2,909   

Applied Ceramic Products Group

     2,739        3,760   

Electronic Device Group

     4,084        3,569   

Telecommunications Equipment Group

     2,308        2,344   

Information Equipment Group

     3,291        2,859   

Others

     1,265        1,172   

Corporate

     594        536   
                

Total

   ¥ 18,183      ¥ 18,483   
                

Capital expenditures:

    

Fine Ceramic Parts Group

   ¥ 688      ¥ 3,788   

Semiconductor Parts Group

     1,417        2,880   

Applied Ceramic Products Group

     2,254        4,878   

Electronic Device Group

     2,058        2,155   

Telecommunications Equipment Group

     630        1,196   

Information Equipment Group

     632        2,080   

Others

     371        836   

Corporate

     542        570   
                

Total

   ¥ 8,592      ¥ 18,383   
                

 

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Table of Contents

(Reporting Segments)

 

     Nine months ended
December 31,
 
             2009                     2010          
     (Yen in millions)  

Net sales:

    

Fine Ceramic Parts Group

   ¥ 36,387      ¥ 56,251   

Semiconductor Parts Group

     99,641        132,640   

Applied Ceramic Products Group

     111,510        150,500   

Electronic Device Group

     145,537        183,840   

Telecommunications Equipment Group

     131,408        175,768   

Information Equipment Group

     170,660        176,553   

Others

     89,753        102,433   

Adjustments and eliminations

     (15,976     (21,071
                

Net sales

   ¥ 768,920      ¥ 956,914   
                

Income before income taxes:

    

Fine Ceramic Parts Group

   ¥ (2,567   ¥ 8,466   

Semiconductor Parts Group

     10,447        28,405   

Applied Ceramic Products Group

     10,909        23,194   

Electronic Device Group

     6,515        33,271   

Telecommunications Equipment Group

     (6,426     (954

Information Equipment Group

     14,724        20,333   

Others

     3,907        7,567   
                

Total operating profit

     37,509        120,282   

Corporate

     13,425        14,118   

Equity in earnings (losses) of affiliates and unconsolidated subsidiaries

     (18,195     128   

Adjustments and eliminations

     0        (1,392
                

Income before income taxes

   ¥ 32,739      ¥ 133,136   
                

Depreciation and amortization:

    

Fine Ceramic Parts Group

   ¥ 4,261      ¥ 3,513   

Semiconductor Parts Group

     7,008        7,670   

Applied Ceramic Products Group

     7,703        9,605   

Electronic Device Group

     12,621        10,139   

Telecommunications Equipment Group

     7,292        7,739   

Information Equipment Group

     9,797        8,023   

Others

     3,564        3,465   

Corporate

     1,831        1,520   
                

Total

   ¥ 54,077      ¥ 51,674   
                

Capital expenditures:

    

Fine Ceramic Parts Group

   ¥ 1,399      ¥ 8,090   

Semiconductor Parts Group

     3,754        9,562   

Applied Ceramic Products Group

     5,700        13,227   

Electronic Device Group

     4,140        8,052   

Telecommunications Equipment Group

     2,179        2,935   

Information Equipment Group

     2,522        5,890   

Others

     1,400        1,959   

Corporate

     1,060        1,355   
                

Total

   ¥ 22,154      ¥ 51,070   
                

 

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Table of Contents

Geographic segments (Net sales by region)

 

         Three months ended December 31,      
             2009                      2010          
     (Yen in millions)  

Net sales:

     

Japan

   ¥ 130,451       ¥ 139,805   

United States of America

     43,409         55,737   

Asia

     44,514         54,883   

Europe

     53,318         53,761   

Others

     13,325         15,336   
                 

Net sales

   ¥ 285,017       ¥ 319,522   
                 
         Nine months ended December 31,      
             2009                      2010          
     (Yen in millions)  

Net sales:

     

Japan

   ¥ 330,167       ¥ 424,512   

United States of America

     128,159         166,428   

Asia

     126,670         161,641   

Europe

     147,068         158,843   

Others

     36,856         45,490   
                 

Net sales

   ¥ 768,920       ¥ 956,914   
                 

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

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

 

         Three months ended December 31,      
             2009                     2010          
     (Yen in millions)  

Net sales:

    

Japan

   ¥ 132,469      ¥ 143,869   

Intra-group sales and transfer between geographic areas

     83,558        112,932   
                
     216,027        256,801   
                

United States of America

     53,539        66,593   

Intra-group sales and transfer between geographic areas

     6,316        6,009   
                
     59,855        72,602   
                

Asia

     37,593        46,197   

Intra-group sales and transfer between geographic areas

     42,269        42,687   
                
     79,862        88,884   
                

Europe

     56,829        56,539   

Intra-group sales and transfer between geographic areas

     6,630        8,626   
                
     63,459        65,165   
                

Others

     4,587        6,324   

Intra-group sales and transfer between geographic areas

     3,156        3,249   
                
     7,743        9,573   
                

Adjustments and eliminations

     (141,929     (173,503
                

Net sales

   ¥ 285,017      ¥ 319,522   
                

Income before income taxes:

    

Japan

   ¥ 18,703      ¥ 22,122   

United States of America

     2,657        5,022   

Asia

     3,717        4,774   

Europe

     3,010        4,299   

Others

     689        770   
                
     28,776        36,987   

Corporate

     6,113        6,725   

Equity in losses of affiliates and unconsolidated subsidiaries

     (19,692     (93

Adjustments and eliminations

     394        24   
                

Income before income taxes

   ¥ 15,591      ¥ 43,643   
                

 

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Table of Contents
         Nine months ended December 31,      
             2009                     2010          
     (Yen in millions)  

Net sales:

    

Japan

   ¥ 339,761      ¥ 435,870   

Intra-group sales and transfer between geographic areas

     226,700        338,628   
                
     566,461        774,498   
                

United States of America

     154,048        199,667   

Intra-group sales and transfer between geographic areas

     17,768        22,618   
                
     171,816        222,285   
                

Asia

     107,753        137,227   

Intra-group sales and transfer between geographic areas

     108,817        136,018   
                
     216,570        273,245   
                

Europe

     153,829        166,172   

Intra-group sales and transfer between geographic areas

     19,381        25,028   
                
     173,210        191,200   
                

Others

     13,529        17,978   

Intra-group sales and transfer between geographic areas

     9,410        10,146   
                
     22,939        28,124   
                

Adjustments and eliminations

     (382,076     (532,438
                

Net sales

   ¥ 768,920      ¥ 956,914   
                
    

Income before income taxes:

    

Japan

   ¥ 17,424      ¥ 74,244   

United States of America

     4,811        15,589   

Asia

     9,884        14,473   

Europe

     1,968        13,507   

Others

     1,964        2,228   
                
     36,051        120,041   

Corporate

     13,425        14,118   

Equity in earnings (losses) of affiliates and unconsolidated subsidiaries

     (18,195     128   

Adjustments and eliminations

     1,458        (1,151
                

Income before income taxes

   ¥ 32,739      ¥ 133,136   
                

 

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Table of Contents

14. PER SHARE INFORMATION

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

 

             Nine months ended December 31,           
     2009      2010  
     (Yen in millions and shares in thousands,
except per share amounts)
 

Net income attributable to shareholders of Kyocera Corporation

   ¥ 18,481       ¥ 93,717   
                 

Basic earnings per share:

     

Net income attributable to shareholders of Kyocera Corporation

   ¥ 100.70       ¥ 510.67   

Diluted earnings per share:

     

Net income attributable to shareholders of Kyocera Corporation

   ¥ 100.70       ¥ 510.67   
                 

Basic weighted average number of shares outstanding

     183,526         183,518   

Diluted weighted average number of shares outstanding

     183,526         183,518   
                 
             Three months ended December 31,          
     2009      2010  
     (Yen in millions and shares in thousands,
except per share amounts)
 

Net income attributable to shareholders of Kyocera Corporation

   ¥ 9,753       ¥ 31,757   
                 

Basic earnings per share:

     

Net income attributable to shareholders of Kyocera Corporation

   ¥ 53.14       ¥ 173.05   

Diluted earnings per share:

     

Net income attributable to shareholders of Kyocera Corporation

   ¥ 53.14       ¥ 173.05   
                 

Basic weighted average number of shares outstanding

     183,524         183,516   

Diluted weighted average number of shares outstanding

     183,524         183,516   
                 

 

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Table of Contents

15. 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 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 with the Japanese Association of Turnaround Professionals (JATP), a process for corporate revitalization prescribed in the Act on Special Measures for Industrial Revitalization. The process of Alternative Dispute Resolution 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, after terminating the process of Alternative Dispute Resolution. 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 for the year ended March 31, 2010, based on publicly disclosed information such as the outline of the business revitalization plan of WILLCOM, Inc., etc.

On August 2, 2010, WILLCOM, Inc. entered into a sponsor agreement with SOFTBANK CORP. 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.

On October 14, 2010, the trustees of WILLCOM, Inc. filed the reorganization plan with the Tokyo District Court.

Based on the filed reorganization plan, during the three months ended September 30, 2010, Kyocera recognized an additional bad debt loss of ¥708 million on receivables from WILLCOM, Inc., in selling, general and administrative expenses.

On November 30, 2010, the filed reorganization plan was approved by the creditors’ committees in written vote and subsequently by the Tokyo District Court. The implementation of the corporate reorganization plan and Willcom Inc.’s business performance may have a significant effect on Kyocera’s consolidated results of operations, financial condition and cash flows. Kyocera has continued to sell PHS handsets and PHS base stations to WILLCOM, Inc.

 

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Table of Contents

16. SUBSEQUENT EVENT

Kyocera has evaluated subsequent events requiring recognition or disclosure in the quarterly consolidated financial statements during the period from January 1, 2011 through the date of issuance of this Quarterly Report in Japan. During the period, no material subsequent events were identified.

 

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Table of Contents

Reference Information (Unaudited)

1. Production (Sales price)

 

     Three months ended December 31,      Increase
(Decrease)
%
 
     2009      2010     
     Amount      % to
the total
     Amount      % to
the total
    
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 15,166         5.3       ¥ 19,422         6.1         28.1   

Semiconductor Parts Group

     39,140         13.6         47,156         14.7         20.5   

Applied Ceramic Products Group

     44,983         15.7         52,976         16.5         17.8   

Electronic Device Group

     55,143         19.2         60,186         18.8         9.1   
                                            

Total Components Business

     154,432         53.8         179,740         56.1         16.4   

Telecommunications Equipment Group

     52,466         18.2         54,443         17.0         3.8   

Information Equipment Group

     57,099         19.9         60,488         18.9         5.9   
                                            

Total Equipment Business

     109,565         38.1         114,931         35.9         4.9   

Others

     23,317         8.1         25,549         8.0         9.6   
                                            

Production

   ¥ 287,314         100.0       ¥ 320,220         100.0         11.5   
                                            

 

39


Table of Contents

2. Orders

 

     Three months ended December 31,     Increase
(Decrease)
%
 
     2009     2010    
     Amount     % to
the total
    Amount     % to
the total
   
     (Yen in millions)  

Fine Ceramic Parts Group

   ¥ 15,276        5.1      ¥ 19,507        6.0        27.7   

Semiconductor Parts Group

     39,079        13.1        44,975        13.7        15.1   

Applied Ceramic Products Group

     46,712        15.7        55,118        16.9        18.0   

Electronic Device Group

     56,142        18.8        60,424        18.5        7.6   
                                        

Total Components Business

     157,209        52.7        180,024        55.1        14.5   

Telecommunications Equipment Group

     54,238        18.2        57,425        17.6        5.9   

Information Equipment Group

     59,280        19.9        59,350        18.1        0.1   
                                        

Total Equipment Business

     113,518        38.1        116,775        35.7        2.9   

Others

     33,565        11.3        37,189        11.4        10.8   

Adjustments and eliminations

     (6,197     (2.1     (7,192     (2.2     —     
                                        

Orders

   ¥ 298,095        100.0      ¥ 326,796        100.0        9.6   
                                        

 

40

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