Kyocera 6-K 2011
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 November 2011
Commission File Number: 1-07952
6 Takeda Tobadono-cho, Fushimi-ku,
Kyoto 612-8501, Japan
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Registration S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Registration S-T Rule 101(b)(7): ¨
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
Date: November 14, 2011
Information furnished on this form:
CONSOLIDATED BALANCE SHEETS (Unaudited)
The accompanying notes are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS (Unaudited)(Continued)
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
The accompanying notes are an integral part of these statements.
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
The accompanying notes are an integral part of these statements.
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 SECs 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) 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.
(3) Goodwill and other intangible assets
Kyocera adopts ASC 350, IntangiblesGoodwill 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.
(4) Lease accounting
Kyocera adopts ASC 840, Leases. Kyocera classifies a lease as an operating or a capital lease, and records all capital leases as an asset and an obligation.
(5) Benefit plans
Kyocera adopts ASC 715, CompensationRetirement 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.
(6) Unused compensated absence
Kyocera adopts ASC 710, CompensationGeneral. Kyocera records accrued liabilities for compensated absences that employees have earned but have not yet used.
(7) 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.
(8) Stock issuance costs
Stock issuance costs, net of taxes are deducted from additional paid-in capital.
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 subsidiaries in which Kyocera has a controlling financial interest 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 Kyoceras 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. Kyoceras 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.
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.
(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. Kyoceras 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 distributors end customers from the distributors 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. Kyoceras actual results approximate its estimates.
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.
Kyocera records an estimated sales returns allowance at the time of sales based on historical return experience.
For after-service costs to be paid during warranty periods, Kyocera accrues a product warranty liability for claims under warranties relating to the products that have been sold. Kyocera records an estimated product warranty liability based on its historical repair experience with consideration given to the expected level of future warranty costs.
In the Information Equipment Group, Kyocera provides a standard one year manufacturers 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 accounted for under ASC 305, Cash and Cash Equivalents.
(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 accounted for under ASC 830, Foreign Currency Matters. Translation adjustments result from the process of translating foreign currency denominated financial statements into Japanese yen. These translation adjustments, which are not included in the determination of net income, are included in other comprehensive income.
Assets and liabilities denominated in foreign currencies are translated at the exchange rates in effect on the respective balance sheet dates, and resulting transaction gains or losses are included in the determination of net income.
(5) Allowance 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. Kyoceras estimates are based on various factors, including the length of past due payments, historical experience and current business environments. In circumstances where it is aware of a specific customers inability to meet its financial obligations, a specific allowance against these amounts is provided, considering the fair value of assets pledged by the customer as collateral. In addition, when Kyocera determines it is unable to collect receivables, Kyocera directly write-off these receivables to expenses in the period incurred.
Inventories are accounted for under ASC 330, Inventory. 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% and 69% at March 31, 2011 and September 30, 2011, respectively, 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 62% at March 31, 2011 and September 30, 2011, 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.
Debt and equity securities are accounted for under ASC 320, InvestmentsDebt 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 in accordance with ASC 325, InvestmentsOther.
Kyocera evaluates whether the declines in fair value of 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 in accordance with ASC 323, InvestmentsEquity Method and Joint Ventures. 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
Property, plant and equipment are accounted for under ASC 360, Property, Plant, and Equipment. Kyocera provides for depreciation of buildings, machinery and equipment over their estimated useful lives primarily on the declining balance method. The principal estimated useful lives used for computing depreciation are as follows:
Major renewals and betterments are capitalized as tangible assets and they are depreciated based on estimated useful lives. The costs of minor renewals, maintenance and repairs are charged to expenses in the period incurred. When assets are sold or otherwise disposed of, the gains 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, IntangiblesGoodwill 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 which are accounted for under ASC 360, Property, Plant, and Equipment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
The principal estimated useful lives for intangible assets are as follows:
(10) Impairment of long-lived assets
Impairment of long-lived assets which include intangible assets with definite useful lives are accounted for under ASC 360, Property, Plant, and Equipment. Kyocera reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
Long-lived assets 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.
(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 and interest rate swaps as cash flow hedges. Most of Kyoceras foreign currency forward contracts are entered into as hedges of existing foreign currency denominated assets and liabilities. Accordingly, Kyocera records changes in fair value of these foreign currency forward contracts 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 hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items. When it is determined that a derivative is not highly effective 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, CompensationStock Compensation, Kyocera recognizes such costs in the quarterly consolidated financial statements by fair value based on measurement method. Under the modified prospective method, Kyocera recognizes compensation costs which include:
(13) Net income attributable to shareholders of Kyocera Corporation
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.
(14) Research and development expenses and advertising expenses
Research and development expenses, are accounted for under ASC 730, Research and Development, are charged to operations as incurred. Advertising expenses, are accounted for under ASC 720-35, Other ExpensesAdvertising Costs, 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
On April 1, 2011, Kyocera adopted the FASBs Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue Arrangementsa consensus of the FASB Emerging Issues Task Force which addressed the accounting for multiple-deliverable arrangements to enable vender to account for products or services separately rather than as a combined unit. This accounting standard addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The adoption of this accounting standard did not have a material impact on Kyoceras consolidated results of operations, financial condition and cash flows.
On April 1, 2011, Kyocera adopted the FASBs 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 Step 1 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. The adoption of this accounting standard did not have a material impact on Kyoceras consolidated results of operations, financial condition and cash flows.
On April 1, 2011, Kyocera adopted the FASBs 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. As this accounting standard is a provision for disclosure, the adoption of this accounting standard did not have an impact on Kyoceras consolidated results of operations, financial condition and cash flows.
(17) Recently issued accounting standards
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This accounting standard amends current U.S. GAAP to create more commonality with IFRSs by harmonizing definitions and disclosure requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. This accounting standard will be effective during interim and annual periods beginning after December 15, 2011. The adoption of this accounting standard is not expected to have material impact on Kyoceras consolidated results of operations, financial condition and cash flows.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. In presenting other comprehensive income and its components in financial statement, this accounting standard eliminates the current option which is to present the components of other comprehensive income as part of the statement of equity. This standard also requires reclassifications between other comprehensive income and net income to be disclosed on the face of financial statements. This accounting standard will be effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. As this accounting standard is a provision for presentation, the adoption of this accounting standard will not have an impact on Kyoceras consolidated results of operations, financial condition and cash flows.
In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. This accounting standard permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. An entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This accounting standard will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. As this accounting standard does not actually change how the impairment would be calculated, the adoption of this accounting standard will not have an impact on Kyoceras consolidated results of operations, financial condition and cash flows.
Certain reclassifications and format changes have been made to the consolidated balance sheets at March 31, 2011, the consolidated statements of income for six and three months ended September 30, 2010 and the consolidated statements of cash flows for six months ended September 30, 2010 to conform to the current presentation.
3. BUSINESS COMBINATION
On July 11, 2011, Kyocera Fineceramics GmbH, a consolidated German subsidiary of Kyocera Corporation, acquired 100% of the outstanding common stock of Unimerco Group A/S, a Denmark-based industrial cutting tool manufacturing and sales company and made it a consolidated subsidiary with the aim of strengthening its cutting tool business. Unimerco Group A/S has changed its name to Kyocera Unimerco A/S on July 21, 2011.
Through this acquisition, Kyocera has expanded its sales sites throughout the principle parts of the European market and intends to increase sales of its product lines going forward. Furthermore, by adding Kyocera Unimerco A/Ss line of high-quality, high-precision, custom-made solid-type cutting tools to the Kyocera Group lineup, Kyocera will also be able to fully engage in the growing fields of cutting tools for aviation and wind power generation, as well as enter the woodworking market, thus expanding its business through the pursuit of synergies between the two companies.
The result of operation of the acquired business was included into Kyoceras quarterly consolidated financial statements since the acquisition date. For segment reporting, it is reported in the Applied Ceramic Products Group.
Kyocera has used the acquisition method of accounting to record assets acquired and liabilities assumed in accordance with ASC 805, Business Combinations.
The allocation of fair value to the acquired assets and assumed liabilities in this business combination was completed during the three months ended September 30, 2011. The related assets and liabilities were recorded based upon their estimated fair values at the date of acquisition with the excess being allocated to goodwill as shown in the following table. Acquisition-related costs of ¥160 million were included in selling, general and administrative expenses in the consolidated statement of income for the six months ended September 30, 2011.
The total amount of goodwill is not expected to be deductible for tax purposes.
The pro forma results are not presented as the amounts were immaterial.
Intangible assets that Kyocera recorded due to this acquisition are summarized as follows:
The weighted average amortization periods for customer relationships, unpatented technology and trademark are 20 years, 20 years and 10 years, respectively.
On August 31, 2011, Kyocera Mita India Pte. Ltd., a subsidiary of Kyocera Mita Corporation, acquired information equipment sales business, related assets and liabilities from Kilburn Office Automation Ltd. to expand its sales channels in India. The result of operation of the acquired business was included into Kyoceras quarterly consolidated financial statements since the acquisition date. For reporting segment, it is reported in the Information Equipment Group. The acquisition did not have a material impact on Kyoceras consolidated results of operations, financial condition and cash flows.
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 March 31, 2011 and September 30, 2011, included in short-term investments in debt securities and in long-term investments in debt and equity securities are summarized as follows:
(2) Other investments
Kyocera holds time deposits and certificates of deposits which are due over three months to original maturity, non-marketable equity securities, long-term loans and investments in affiliates and unconsolidated subsidiaries. Carrying amounts of these investments at March 31, 2011 and September 30, 2011, included in other short-term investments and in other long-term investments, are summarized as follows:
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:
(1) Assets and liabilities measured at fair value on a recurring basis
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 six months ended September 30, 2010 and 2011.
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 8 to the Quarterly Consolidated Financial Statements.
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 ¥85 million and ¥16 million were recorded in other, net on the consolidated statements of income for the six months ended September 30, 2010 and 2011, respectively. Gains on hybrid financial instruments in the amount of ¥56 million and ¥2 million were recorded in other, net on the consolidated statements of income for the three months ended September 30, 2010 and 2011, respectively.
The following table presents additional information about Level 3 corporate bonds and other debt securities measured at fair value on recurring basis for the six months ended September 30, 2010 and 2011, and the three months ended September 30, 2010 and 2011.
(2) Fair value of financial instruments
The fair values of financial instruments and the methods and assumptions used to estimate the fair value are as follows:
Carrying amounts of 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 values because of the short maturity of these instruments.
Inventories at March 31, 2011 and September 30, 2011 are as follows:
7. ALLOWANCE FOR DOUBTFUL ACCOUNTS
(1) Allowance for doubtful accounts that are deducted from the related receivables
Allowance for doubtful accounts that are deducted from the related receivables at March 31, 2011 and September 30, 2011 are as follows:
(2) Allowance for doubtful accounts related to lease receivables
Lease receivables represent capital leases which consist of sales-type leases. Most of the lease receivables are recognized at TA Triumph-Adler GmbH and its consolidated subsidiaries (TA), consolidated German subsidiaries of Kyocera Mita Corporation. These receivables typically have terms ranging from one year to seven years.
A reconciliation of the beginning and end amounts of allowance for doubtful accounts related to lease receivables are as follows:
TA estimates allowance for doubtful accounts related to lease receivables at the portfolio level.
The amounts of lease receivables less allowances for doubtful accounts at March 31, 2011 and September 30, 2011 were ¥34,369 million and ¥29,497 million, respectively, which are included in other current assets and other assets in the consolidated balance sheets.
8. DERIVATIVES AND HEDGING
Kyoceras activities are exposed to varieties of market risks, including the effects of changes in foreign currency exchange rates, interest rates and stock prices. Approximately 55% of Kyoceras net sales are generated from overseas customers, which expose Kyocera to foreign currency exchange rates fluctuations. These financial exposures are monitored and managed by Kyocera as an integral part of its overall risk management program. Kyoceras risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.
Kyocera maintains a foreign currency risk management strategy that uses derivative financial instruments, such as foreign currency forward contracts 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 Kyoceras operations and competitive position, since exchange rates changes may affect the profitability, cash flows, and business and/or pricing strategies of non Japan-based competitors. These movements affect cross-border transactions that involve, but not limited to, direct export sales made in foreign currencies and raw material purchases incurred in foreign currencies.
Kyocera maintains an interest rate risk management strategy that uses derivative financial instruments, such as interest rate swaps to minimize significant, unanticipated cash flow fluctuations caused by interest rate volatility.
By using derivative financial instruments to hedge exposures to changes in exchange rates and interest rates, Kyocera became exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contracts. When the fair value of a derivative contract is positive, the counterparty owes Kyocera, which creates repayment risk for Kyocera. When the fair value of a derivative contract is negative, Kyocera owes the counterparty and, therefore, it does not possess repayment risk. Kyocera minimizes the credit (or repayment) risk in derivative financial instruments by (a) entering into transactions with creditworthy counterparties, (b) limiting the amount of exposure to each counterparty, and (c) monitoring the financial condition of its counterparties.
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 mainly to convert a portion of its variable rates debt to fixed rates debt.
Kyoceras 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 (losses), net in the consolidated statement of income. Kyocera does not adopt hedge accounting for such derivatives.
The aggregate contractual amounts of derivative financial instruments at March 31, 2011 and September 30, 2011 are as follows:
The location and fair value of derivative financial instruments in the consolidated balance sheets at March 31, 2011 and September 30, 2011 are as follows:
The location and amount of derivative financial instruments in the comprehensive income for the six months ended September 30, 2010 and 2011 are as follows:
Derivatives designated as cash flow hedge:
Gains (losses) recognized in other comprehensive income
The location and amount of derivative financial instruments in the comprehensive income for the three months ended September 30, 2010 and 2011 are as follows:
Derivatives designated as cash flow hedge:
Gains (losses) recognized in other comprehensive income
9. BENEFIT PLANS
Net periodic pension costs at Kyocera Corporation and its major domestic subsidiaries for the six months ended September 30, 2010 and 2011 include the following components:
Net periodic pension costs at Kyocera Corporation and its major domestic subsidiaries for the three months ended September 30, 2010 and 2011 include the following components:
Kyoceras foreign consolidated subsidiaries, such as Kyocera International, Inc. and its consolidated subsidiaries (KII), AVX Corporation and its consolidated subsidiaries (AVX), and TA Triumph-Adler GmbH maintain non-contributory defined benefit pension plans in the U.S., Germany and other countries.
Net periodic pension costs at KII, AVX and TA Triumph-Adler GmbH for the six months ended September 30, 2010 and 2011 include the following components:
Net periodic pension costs at KII, AVX and TA Triumph-Adler GmbH for the three months ended September 30, 2010 and 2011 include the following components:
10. INCOME TAXES
The effective tax rates for the six and three months ended September 30, 2011 of 32.9% and 32.7% were higher than for the six and three months ended September 30, 2010 of 26.4% and 20.7%. The upward difference is mainly due to a reversal of valuation allowance against deferred tax assets at a certain overseas subsidiary for the three months ended September 30, 2010.
11. COMMITMENTS AND CONTINGENCIES
As of September 30, 2011, Kyocera had contractual obligations for the acquisition or construction of property, plant and equipment aggregating ¥14,750 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 as of September 30, 2011 are as follows:
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 six months ended September 30, 2011 and during the three months ended September 30, 2011, Kyocera purchased ¥9,193 million and ¥4,755 million, respectively and is obligated to purchase ¥204,213 million in total by the end of December 2020.
Kyocera guarantees the debt of employees, an investee and an unconsolidated subsidiary. As of September 30, 2011, the total amount of these guarantees was ¥616 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 identified by the United States Environmental Protection Agency (EPA), state governmental agencies or other private parties as a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or equivalent state or local laws for clean-up and response costs associated with sites at which remediation is required. Because CERCLA imposes joint and several liability, the EPA could seek to recover all clean-up costs from any one of the PRPs at a site despite the involvement of other PRPs. At certain sites, financially responsible PRPs other than AVX also are, or have been, involved in site investigation and clean-up activities. We believe that any liability resulting from these sites will be apportioned among AVX and other PRPs.
To resolve AVXs liability at each of the sites at which AVX has been named a PRP, AVX has entered into various administrative orders and consent decrees with federal and state regulatory agencies governing the timing and nature of investigation and remediation. AVX has paid, or reserved for, all estimated amounts required under the terms of these orders and decrees corresponding to its apportioned share of the liabilities. As is customary, the orders and decrees regarding sites where the PRPs are not themselves implementing the chosen remedy contain provisions allowing the EPA to reopen the agreement and seek additional amounts from settling PRPs in the event that certain contingencies occur, such as the discovery of significant new information about site conditions during clean-up or substantial cost overruns for the chosen remedy.
In 2007, AVX received notification from the EPA and the U.S. Department of Justice indicating that the United States is preparing to exercise the reopener provision under a 1991 consent decree relating to the environmental conditions at, and remediation of, New Bedford Harbor in the Commonwealth of Massachusetts. In 1991, in connection with that consent decree, AVX paid ¥5,082 million, plus interest, toward the environmental conditions at, and remediation of, the harbor in settlement with the EPA and the Commonwealth of Massachusetts, subject to reopener provisions, including a reopener if certain remediation costs for the site exceed ¥10,049 million. The EPA has indicated that remediation costs through October 22, 2010 were approximately ¥32,933 million, not all of which is subject to the reopener provisions. In March 2011, EPA issued a proposal providing alternative remedial action plan to the existing plan for which the future cost estimates ranging from ¥27,874 million to ¥30,877 million, net present value.
AVX has not received complete documentation of past response cost from EPA and therefore 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 past or future costs because the remediation method has changed over time and costs can be appropriately allocated to parties other than AVX. AVX anticipates further discussions with the U.S. Department of Justice, the EPA, and the Commonwealth of Massachusetts. AVX is continuing to investigate the claim as well as potential defenses and other actions with respect to the site. In light of the foregoing, it is not reasonably possible to estimate a range of loss and accordingly, no accrual for costs has been recorded at AVX. Therefore, the potential impact of this matter on Kyoceras 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. Based on the information available, management believes that damages, if any, resulting from these actions will not have a significant impact on Kyoceras consolidated results of operations, financial condition and cash flows.
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 declared.
Based on the resolution for the payment of year-end dividends at the ordinary general shareholders meeting held on June 28, 2011, Kyocera declared cash dividends totaling ¥12,846 million, ¥70 per share of common stock effective June 29, 2011 to shareholders of record on March 31, 2011.
Based on the resolution for the payment of interim dividends at the board of directors held on October 27, 2011, Kyocera declared cash dividends totaling ¥11,007 million, ¥60 per share of common stock effective December 5, 2011 to shareholders of record on September 30, 2011.
Changes in Kyocera Corporation shareholders equity, noncontrolling interests and total equity for the six months ended September 30, 2010 and 2011 are as follows:
Comprehensive income (loss) for the six months ended September 30, 2010 and 2011 are as follows:
Comprehensive income (loss) for the three months ended September 30, 2010 and 2011 are as follows:
13. SUPPLEMENTAL EXPENSE INFORMATION
Supplemental expense information is as follows:
14. 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:
(1) Fine Ceramic Parts Group
Components for Semiconductor Processing Equipment and LCD Manufacturing Equipment,
Information & Telecommunication Components,
General Industrial Ceramic Components,
(2) Semiconductor Parts Group
Ceramic Packages for Crystal and SAW Devices,
Ceramic Packages for CMOS/CCD Sensors,
LSI Ceramic Packages,
Wireless Communication Device Packages,
Optical Communication Device Packages and Components,
Organic Multilayer Packages and Substrates
(3) 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
(4) Electronic Device Group
Ceramic Capacitors, Tantalum Capacitors,
Surface Acoustic Wave (SAW) Devices, RF Modules, Electro Magnetic Interference (EMI) Filters,
Timing Devices such as Temperature Compensated Crystal Oscillators (TCXOs), Crystal Units, Clock Oscillators and Ceramic Resonators,
Amorphous Silicon Photoreceptor Drums,
Liquid Crystal Displays (LCDs),
(5) Telecommunications Equipment Group
Mobile Phone Handsets,
Personal Handy Phone System (PHS) Related Products such as PHS Mobile Phone Handsets and PHS Base Stations
(6) Information Equipment Group
Color and Black & White Office Equipment such as ECOSYS Printers and Multifunction Peripherals,
Wide Format Multifunctional Systems,
Printer and Multifunction Peripherals Supplies,
Business Solution Services such as Managed Print Service
Information Systems & Telecommunication Services,
Electrical Insulation and Sheet Materials, Synthetic Resin Molded Parts,
Real Estate Business
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 gains, equity in earnings, income taxes and net income attributable to noncontrolling interests.
Kyoceras sales to KDDI Corporation and its consolidated subsidiaries (KDDI group) which are mainly recorded in the Telecommunications Equipment Group are as follows:
Information by reporting segments for the six and three months ended September 30, 2010 and 2011 is summarized as follows:
Geographic segments (Net sales by region)
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)
15. PER SHARE INFORMATION
A reconciliation of the numerators and the denominators of basic and diluted earnings per share computations are as follows:
Reference Information (Unaudited)
1. Production (Sales price)