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Kyocera 6-K 2015

Documents found in this filing:

  1. 6-K
  2. 6-K

 

 

 

 

FORM 6-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

Report of Foreign Private Issuer

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

the Securities Exchange Act of 1934

 

For the month of August 2015

 

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  o

 

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):   o

 

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):   o

 

 

 

 



 

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 Accounting Group

 

Date: August 11, 2015

 




 

CONSOLIDATED BALANCE SHEETS (Unaudited)

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

(Yen in millions)

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

¥

351,363

 

¥

319,158

 

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

 

95,237

 

116,108

 

Other short-term investments (Note 4)

 

184,358

 

218,350

 

Trade receivables

 

 

 

 

 

Notes

 

19,130

 

18,963

 

Accounts

 

299,412

 

259,296

 

Less allowances for doubtful accounts and sales returns

 

(5,378

)

(5,812

)

 

 

313,164

 

272,447

 

Inventories (Note 6)

 

354,499

 

367,150

 

Deferred income taxes

 

42,314

 

37,726

 

Other current assets (Notes 5, 7 and 8)

 

116,612

 

110,881

 

Total current assets

 

1,457,547

 

1,441,820

 

 

 

 

 

 

 

Investments and advances:

 

 

 

 

 

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

 

1,051,638

 

1,130,586

 

Other long-term investments (Notes 4, 5, 7 and 10)

 

20,402

 

19,344

 

Total investments and advances

 

1,072,040

 

1,149,930

 

Property, plant and equipment:

 

 

 

 

 

Land

 

59,590

 

60,161

 

Buildings

 

350,354

 

352,374

 

Machinery and equipment

 

846,391

 

856,729

 

Construction in progress

 

11,015

 

9,523

 

Less accumulated depreciation

 

(1,005,859

)

(1,012,820

)

Total property, plant and equipment

 

261,491

 

265,967

 

Goodwill

 

102,167

 

104,340

 

Intangible assets

 

56,615

 

57,326

 

Other assets (Note 7)

 

71,324

 

74,652

 

Total assets

 

¥

3,021,184

 

¥

3,094,035

 

 

The accompanying notes are an integral part of these statements.

 

1



 

CONSOLIDATED BALANCE SHEETS (Unaudited)—(Continued)

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

(Yen in millions)

 

Current liabilities:

 

 

 

 

 

Short-term borrowings

 

¥

4,129

 

¥

2,166

 

Current portion of long-term debt (Note 5)

 

9,441

 

9,744

 

Trade notes and accounts payable

 

119,654

 

112,676

 

Other notes and accounts payable

 

59,613

 

56,453

 

Accrued payroll and bonus

 

59,454

 

49,199

 

Accrued income taxes

 

17,316

 

14,003

 

Other accrued liabilities

 

53,305

 

35,709

 

Other current liabilities (Notes 5 and 8)

 

33,339

 

39,434

 

Total current liabilities

 

356,251

 

319,384

 

Non-current liabilities:

 

 

 

 

 

Long-term debt (Note 5)

 

17,881

 

18,417

 

Accrued pension and severance liabilities (Note 9)

 

34,764

 

34,993

 

Deferred income taxes

 

292,454

 

319,677

 

Other non-current liabilities

 

16,211

 

17,176

 

Total non-current liabilities

 

361,310

 

390,263

 

Total liabilities

 

717,561

 

709,647

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

Kyocera Corporation shareholders’ equity:

 

 

 

 

 

Common stock

 

115,703

 

115,703

 

Additional paid-in capital

 

162,695

 

162,743

 

Retained earnings

 

1,502,310

 

1,511,873

 

Accumulated other comprehensive income (Note 12)

 

469,673

 

539,421

 

Common stock in treasury, at cost

 

(35,062

)

(35,068

)

Total Kyocera Corporation shareholders’ equity

 

2,215,319

 

2,294,672

 

Noncontrolling interests

 

88,304

 

89,716

 

Total equity (Note 11)

 

2,303,623

 

2,384,388

 

 Total liabilities and equity

 

¥

3,021,184

 

¥

3,094,035

 

 

The accompanying notes are an integral part of these statements.

 

2



 

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

 

 

Three months ended June 30,

 

 

 

2014

 

2015

 

 

 

(Yen in millions and shares in thousands,
except per share amounts)

 

Net sales (Note 8)

 

¥

334,714

 

¥

339,247

 

Cost of sales (Notes 8 and 9)

 

246,998

 

248,761

 

Gross profit

 

87,716

 

90,486

 

Selling, general and administrative expenses (Notes 9 and 13)

 

68,934

 

57,903

 

Profit from operations

 

18,782

 

32,583

 

Other income (expenses):

 

 

 

 

 

Interest and dividend income

 

10,011

 

12,674

 

Interest expense

 

(468

)

(381

)

Foreign currency transaction gains, net (Note 8)

 

1,471

 

1,666

 

Other, net (Note 8)

 

884

 

468

 

Total other income (expenses)

 

11,898

 

14,427

 

Income before income taxes

 

30,680

 

47,010

 

Income taxes

 

9,736

 

13,946

 

Net income

 

20,944

 

33,064

 

Net income attributable to noncontrolling interests

 

(1,477

)

(1,489

)

Net income attributable to shareholders of Kyocera Corporation

 

¥

19,467

 

¥

31,575

 

Per share information (Note 15):

 

 

 

 

 

Net income attributable to shareholders of Kyocera Corporation:

 

 

 

 

 

Basic

 

¥

53.06

 

¥

86.07

 

Diluted

 

53.06

 

86.07

 

Average number of shares of common stock outstanding:

 

 

 

 

 

Basic

 

366,866

 

366,861

 

Diluted

 

366,866

 

366,861

 

 

The accompanying notes are an integral part of these statements.

 

3



 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

 

 

Three months ended June 30,

 

 

 

2014

 

2015

 

 

 

(Yen in millions)

 

Net income

 

¥

20,944

 

¥

33,064

 

Other comprehensive income—net of taxes

 

 

 

 

 

Net unrealized gains on securities (Notes 4, 11 and 12)

 

17,671

 

59,739

 

Net unrealized losses on derivative financial instruments (Notes 8, 11 and 12)

 

(59

)

(52

)

Pension adjustments (Notes 9, 11 and 12)

 

673

 

(820

)

Foreign currency translation adjustments (Notes 11 and 12)

 

(8,229

)

12,297

 

Total other comprehensive income

 

10,056

 

71,164

 

Comprehensive income

 

31,000

 

104,228

 

Comprehensive income attributable to noncontrolling interests

 

(378

)

(2,906

)

Comprehensive income attributable to shareholders of Kyocera Corporation

 

¥

30,622

 

¥

101,322

 

 

The accompanying notes are an integral part of these statements.

 

4



 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

Three months ended June 30,

 

 

 

2014

 

2015

 

 

 

(Yen in millions)

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

¥

20,944

 

¥

33,064

 

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

 

 

 

 

 

Depreciation and amortization

 

16,098

 

17,168

 

Provision for doubtful accounts and loss on bad debts

 

123

 

279

 

Write-down of inventories

 

3,769

 

2,161

 

Deferred income taxes

 

(1,040

)

(1,204

)

Gains on sales of property, plant and equipment, net

 

(518

)

(12,210

)

Foreign currency adjustments

 

490

 

(636

)

Change in assets and liabilities:

 

 

 

 

 

Decrease in receivables

 

18,670

 

53,114

 

Increase in inventories

 

(23,486

)

(11,150

)

(Increase) decrease in other current assets

 

(2,799

)

377

 

Increase (decrease) in notes and accounts payable

 

3,367

 

(23,383

)

Decrease in accrued income taxes

 

(13,316

)

(3,618

)

Decrease in other current liabilities

 

(1,246

)

(20,461

)

Decrease in other non-current liabilities

 

(547

)

(35

)

Other, net

 

(789

)

(774

)

Net cash provided by operating activities

 

19,720

 

32,692

 

Cash flows from investing activities:

 

 

 

 

 

Payments for purchases of available-for-sale securities

 

(11,002

)

(1

)

Payments for purchases of held-to-maturity securities

 

(82,902

)

(35,721

)

Payments for purchases of other securities

 

(285

)

(2,033

)

Proceeds from maturities of available-for-sale securities

 

12,167

 

12,500

 

Proceeds from maturities of held-to-maturity securities

 

30,919

 

14,106

 

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

 

 

(1,199

)

Payments for purchases of property, plant and equipment

 

(16,578

)

(13,842

)

Payments for purchases of intangible assets

 

(1,470

)

(2,105

)

Proceeds from sales of property, plant and equipment

 

1,482

 

13,965

 

Acquisition of time deposits and certificate of deposits

 

(45,974

)

(94,904

)

Withdrawal of time deposits and certificate of deposits

 

57,657

 

65,081

 

Other, net

 

(449

)

(257

)

Net cash used in investing activities

 

(56,435

)

(44,410

)

Cash flows from financing activities:

 

 

 

 

 

Increase (decrease) in short-term debt, net

 

210

 

(1,936

)

Proceeds from issuance of long-term debt

 

3,059

 

2,417

 

Payments of long-term debt

 

(4,233

)

(3,059

)

Dividends paid

 

(14,162

)

(21,319

)

Purchases of noncontrolling interests

 

(3,364

)

(864

)

Other, net

 

(216

)

175

 

Net cash used in financing activities

 

(18,706

)

(24,586

)

Effect of exchange rate changes on cash and cash equivalents

 

(2,644

)

4,099

 

Net decrease in cash and cash equivalents

 

(58,065

)

(32,205

)

Cash and cash equivalents at beginning of period

 

335,174

 

351,363

 

Cash and cash equivalents at end of period

 

¥

277,109

 

¥

319,158

 

 

The accompanying notes are an integral part of these statements.

 

5



 

NOTES TO THE UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

1. ACCOUNTING PRINCIPLES, PROCEDURES AND FINANCIAL STATEMENTS’ PRESENTATION

 

In December 1975, Kyocera Corporation registered its common stock and American Depository Receipts (ADRs) with the United States Securities and Exchange Commission (SEC). In May 1980, Kyocera listed its ADRs 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.

 

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 the Financial Accounting Standards Board (FASB)’s Accounting Standards Codification (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 arises 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.

 

6



 

(5) Benefit plans

 

Kyocera adopts ASC 715, “CompensationRetirement Benefits.” 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. Kyocera records the effect of a change in tax law or rates as a component of income tax provision, including the changes in the deferred tax assets and liabilities related to accumulated other comprehensive income (loss).

 

(8) Stock issuance costs

 

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

 

7



 

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 variable interest entities for which Kyocera is the primary beneficiary under ASC 810, “Consolidation.” All significant inter-company transactions and accounts are eliminated. Investments in 20% to 50% owned companies and an investment in a variable interest entity, for which Kyocera is not the primary beneficiary but has a significant influence to, are accounted for by the equity method, whereby Kyocera includes in net income its equity in the earnings or losses from these companies. These variable interest entities do not have material impacts on Kyocera’s consolidated result 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 has no further obligations under the contracts and all revenue recognition criteria under ASC 605, “Revenue Recognition” 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.”

 

8



 

(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, “Products” 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 personnel. 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 have historically approximated 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, “Revenue Recognition” 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, “Products” 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 personnel. 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 have historically approximated 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, “Customer Payments and Incentives.”

 

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 with consideration given to the expected level of future warranty costs.

 

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.”

 

9



 

(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. Kyocera’s estimates are based on various factors, including the length of past due payments, historical experience and current business environments. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations, a specific allowance against these amounts is provided, considering the fair value of assets pledged by the customer as collateral. In addition, when Kyocera determines it is unable to collect receivables, Kyocera will directly write-off these receivables to expenses in the period incurred.

 

(6) Inventories

 

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 mainly determined by the average method. For raw materials and supplies, cost is mainly determined by the first-in, first-out method. 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, “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 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.

 

10



 

(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:

 

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 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:

 

Customer relationships

 

3 to 20 years

 

Software

 

2 to 10 years

 

Trademarks

 

10 to 20 years

 

Non-patent technology

 

5 to 20 years

 

 

(10) Impairment of long-lived assets

 

Impairment of long-lived assets which include intangible assets with definite useful lives is 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



 

(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 cash flow 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. However, changes in fair value of most of the foreign currency forward contracts are recorded in income without applying hedge accounting as it is expected that such changes will be offset by corresponding gains or losses of the underlying hedged assets and liabilities. Kyocera’s affiliate accounted for by the equity method designates certain interest rate swaps with applying hedge accounting to this transaction.

 

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 hedges 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 a 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) Commitments and contingencies

 

Commitments and contingencies are accounted for under ASC 450, “Contingencies.” Liabilities for loss contingencies are recorded when analysis indicates that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. When a range of loss can be estimated, we accrue the most likely amount. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. Amounts recorded are reviewed periodically and adjusted to reflect additional legal and technical information that becomes available. Legal costs are accrued as incurred.

 

(13) 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 based on the grant date fair value over the measurement method.

 

(14) 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.

 

(15) Research and development expenses and advertising expenses

 

Research and development expenses are accounted for under ASC 730, “Research and Development,” and charged to expense as incurred. Advertising expenses are accounted for under ASC 720-35, “Other ExpensesAdvertising Costs,” and charged to expense as incurred.

 

12



 

(16) 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.

 

(17) Recently adopted accounting standards

 

On April 1, 2015, Kyocera adopted Accounting Standards Update (ASU) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This accounting standard changes the requirements for reporting discontinued operations in ASC 205-20, “Presentation of Financial StatementsDiscontinued Operations.” A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This accounting standard also requires an entity to provide disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

13



 

(18) Recently issued accounting standards

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This accounting standard requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This accounting standard also requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about:

 

1. Contracts with customers—including revenue and impairments recognized, disaggregation of revenue, and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations)

 

2. Significant judgments and changes in judgments—determining the timing of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts allocated to performance obligations

3. Assets recognized from the costs to obtain or fulfill a contract.

 

In July 2015, the FASB decided to delay the effective date of this accounting standard. As a result, this accounting standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Kyocera is currently evaluating the impact that this accounting standard will have on Kyocera’s consolidated results of operations, financial position and cash flows.

 

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” This accounting standard requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This accounting standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Kyocera is currently evaluating the impact that this accounting standard will have on Kyocera’s consolidated results of operations, financial position and cash flows.

 

(19) Reclassifications

 

Certain reclassifications and format changes have been made to the consolidated statements of cash flows for the three months ended June 30, 2014 to conform to the current presentation.

 

14



 

3. BUSINESS COMBINATION

 

On April 27, 2015, Kyocera Unimerco A/S, a Danish subsidiary, acquired 100% of the common stock of Garsdalo Medienos Technologija UAB, a Lithuanian company, to strengthen its woodworking tool business in northern Europe.

 

The result of operation of acquired business was included into Kyocera’s consolidated financial statements since the acquisition date. For segment reporting, it is reported in the Applied Ceramic Products Group. This acquisition did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

15



 

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, 2015 and June 30, 2015, included in short-term investments in debt and equity securities and in long-term investments in debt and equity securities are summarized as follows:

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

Cost*1

 

Aggregate
Fair Value

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Cost*1

 

Aggregate
Fair Value

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

 

 

(Yen in millions)

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities*2

 

¥

273,271

 

¥

1,007,629

 

¥

734,358

 

¥

0

 

¥

273,274

 

¥

1,095,430

 

¥

822,156

 

¥

0

 

Investment trusts

 

12,500

 

12,500

 

 

 

 

 

 

 

Total equity securities

 

285,771

 

1,020,129

 

734,358

 

0

 

273,274

 

1,095,430

 

822,156

 

0

 

Total available-for-sale securities

 

285,771

 

1,020,129

 

734,358

 

0

 

273,274

 

1,095,430

 

822,156

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

126,739

 

126,692

 

67

 

114

 

151,258

 

151,178

 

78

 

158

 

Government bonds and public bonds

 

7

 

7

 

 

 

6

 

6

 

 

 

Total held-to-maturity securities

 

126,746

 

126,699

 

67

 

114

 

151,264

 

151,184

 

78

 

158

 

Total

 

¥

412,517

 

¥

1,146,828

 

¥

734,425

 

¥

114

 

¥

424,538

 

¥

1,246,614

 

¥

822,234

 

¥

158

 

 

*1               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               Marketable equity securities mainly consist of the shares of KDDI Corporation, which is a telecommunications carrier in Japan. At June 30, 2015, Kyocera Corporation’s equity interest in KDDI Corporation was 12.76%. Cost, aggregate fair value and gross unrealized gain of the shares of KDDI Corporation held by Kyocera are as follows:

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

Cost

 

Aggregate
Fair Value

 

Gross
Unrealized
Gain

 

Gross
Unrealized
Loss

 

Cost

 

Aggregate
Fair Value

 

Gross
Unrealized
Gain

 

Gross
Unrealized
Loss

 

 

 

(Yen in millions)

 

Shares of KDDI Corporation

 

¥

249,036

 

¥

934,781

 

¥

685,745

 

¥

 

¥

249,036

 

¥

1,015,013

 

¥

765,977

 

¥

 

 

16



 

Short-term investments in debt and equity securities and long-term investments in debt and equity securities at March 31, 2015 and June 30, 2015 are as follows:

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

Available-
for-Sale

 

Held-to-
Maturity

 

Total

 

Available-
for-Sale

 

Held-to-
Maturity

 

Total

 

 

 

(Yen in millions)

 

Short-term investment in debt and equity securities

 

¥

12,500

 

¥

82,737

 

¥

95,237

 

¥

 

¥

116,108

 

¥

116,108

 

Long-term investment in debt and equity securities

 

1,007,629

 

44,009

 

1,051,638

 

1,095,430

 

35,156

 

1,130,586

 

Total

 

¥

1,020,129

 

¥

126,746

 

¥

1,146,875

 

¥

1,095,430

 

¥

151,264

 

¥

1,246,694

 

 

(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 an unconsolidated subsidiary. Carrying amounts of these investments at March 31, 2015 and June 30, 2015, included in other short-term investments and in other long-term investments, are summarized as follows:

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

(Yen in millions)

 

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

 

¥

186,953

 

¥

218,345

 

Non-marketable equity securities

 

13,664

 

15,037

 

Long-term loans

 

4

 

2

 

Investments in affiliates and an unconsolidated subsidiary

 

4,139

 

4,310

 

Total

 

¥

204,760

 

¥

237,694

 

 

17



 

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

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(Yen in millions)

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment trusts

 

¥

 

¥

12,500

 

¥

 

¥

12,500

 

¥

 

¥

 

¥

 

¥

 

Total equity securities

 

 

12,500

 

 

12,500

 

 

 

 

 

Foreign currency forward contracts

 

 

4,058

 

 

4,058

 

 

985

 

 

985

 

Total derivatives

 

 

4,058

 

 

4,058

 

 

985

 

 

985

 

Total current assets

 

 

16,558

 

 

16,558

 

 

985

 

 

985

 

Non-Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

1,007,629

 

 

 

1,007,629

 

1,095,430

 

 

 

1,095,430

 

Total equity securities

 

1,007,629

 

 

 

1,007,629

 

1,095,430

 

 

 

1,095,430

 

Total non-current assets

 

1,007,629

 

 

 

1,007,629

 

1,095,430

 

 

 

1,095,430

 

Total assets

 

¥

1,007,629

 

¥

16,558

 

¥

 

¥

1,024,187

 

¥

1,095,430

 

¥

985

 

¥

 

¥

1,096,415

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

¥

 

¥

2,933

 

¥

 

¥

2,933

 

¥

 

¥

3,349

 

¥

 

¥

3,349

 

Total derivatives

 

 

2,933

 

 

2,933

 

 

3,349

 

 

3,349

 

Total current liabilities

 

¥

 

¥

2,933

 

¥

 

¥

2,933

 

¥

 

¥

3,349

 

¥

 

¥

3,349

 

 

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 three months ended June 30, 2015.

 

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.

 

18



 

(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:

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

Carrying 
Amount

 

Fair Value

 

Carrying 
Amount

 

Fair Value

 

 

 

(Yen in millions)

 

Assets (a):

 

 

 

 

 

 

 

 

 

Short-term investments in debt and equity securities

 

¥

95,237

 

¥

95,281

 

¥

116,108

 

¥

116,163

 

Long-term investments in debt and equity securities

 

1,051,638

 

1,051,547

 

1,130,586

 

1,130,451

 

Other long-term investments (excluding investments in affiliates and an unconsolidated subsidiary)

 

16,263

 

16,263

 

15,034

 

15,034

 

Total

 

¥

1,163,138

 

¥

1,163,091

 

¥

1,261,728

 

¥

1,261,648

 

Liabilities (b):

 

 

 

 

 

 

 

 

 

Long-term debt (including due within one year)

 

¥

27,322

 

¥

27,322

 

¥

28,161

 

¥

28,161

 

Total

 

¥

27,322

 

¥

27,322

 

¥

28,161

 

¥

28,161

 

 

(a)              For investments with active markets, fair value is based on quoted market prices. For non-marketable equity securities, it is not practicable to estimate the fair value 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 March 31, 2015 and June 30, 2015 were ¥13,651 million and ¥15,025 million, respectively. Fair value of held-to-maturity investments in debt securities is mainly classified as Level 1 and Level 2.

 

(b)              The fair value is estimated by discounting cash flows, using current interest rates for instruments with similar terms and remaining maturities, and classified as Level 2.

 

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.

 

19



 

6. INVENTORIES

 

Inventories at March 31, 2015 and June 30, 2015 are as follows:

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

(Yen in millions)

 

Finished goods

 

¥

149,737

 

¥

160,317

 

Work in process

 

62,784

 

66,032

 

Raw materials and supplies

 

141,978

 

140,801

 

Total

 

¥

354,499

 

¥

367,150

 

 

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, 2015 and June 30, 2015 are as follows:

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

(Yen in millions)

 

Other current assets

 

¥

232

 

¥

262

 

Other long-term investments

 

76

 

77

 

Other assets

 

2,028

 

2,066

 

 

(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, a consolidated German subsidiary of Kyocera Document Solutions Inc. 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 Triumph-Adler GmbH estimates allowance for doubtful accounts related to lease receivables at the portfolio level.

 

 

 

Three months ended June 30,

 

 

 

2014

 

2015

 

 

 

(Yen in millions)

 

Balance at beginning of period

 

¥

283

 

¥

203

 

Charged to costs or expenses, or charge-offs

 

13

 

19

 

Foreign currency translation

 

(8

)

11

 

Balance at end of period

 

¥

288

 

¥

233

 

 

The amounts of lease receivables less allowances for doubtful accounts at March 31, 2015 and June 30, 2015 were ¥32,437 million and ¥33,615 million, respectively, which are included in other current assets and other assets in the consolidated balance sheets.

 

20



 

8. DERIVATIVES AND HEDGING

 

Kyocera’s activities are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, interest rates and stock prices. Approximately 63% of Kyocera’s net sales are generated from overseas customers, which expose Kyocera to foreign currency exchange rate fluctuations. These financial exposures to market risks are monitored and managed by Kyocera as an integral part of its overall risk management program. Kyocera’s risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.

 

Kyocera maintains a foreign currency risk management strategy that uses derivative financial instruments, such as foreign currency forward contracts to minimize the volatility in its cash flows caused by changes in foreign currency exchange rates. Movements in foreign currency exchange rates pose a risk to Kyocera’s operations and competitive position, since exchange rate 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.

 

By using derivative financial instruments to hedge exposures to changes in exchange 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.

 

Kyocera’s affiliate accounted for by the equity method uses interest rate swaps to minimize significant, unanticipated cash flow fluctuations caused by interest rate volatility. The affiliate also reduces credit risks by entering into transactions with certain creditworthy counterparty and limiting the amount of exposure to the counterparty.

 

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’s affiliate accounted for by the equity method uses interest rate swaps mainly to convert a portion of its variable rate debt to fixed rate debt.

 

Other Derivatives:

 

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

 

21



 

The aggregate contractual amounts of derivative financial instruments at March 31, 2015 and June 30, 2015 are as follows:

 

 

 

March 31, 2015

 

June 30, 2015

 

 

 

(Yen in millions)

 

Derivatives designated as hedging instruments:

 

 

 

 

 

Foreign currency forward contracts

 

¥

12,797

 

¥

13,380

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

Foreign currency forward contracts

 

182,761

 

166,492

 

Total derivatives

 

¥

195,558

 

¥

179,872

 

 

The fair value and location of derivative financial instruments in the consolidated balance sheets at March 31, 2015 and June 30, 2015 are as follows:

 

 

 

Location

 

March 31, 2015

 

June 30, 2015

 

 

 

 

 

(Yen in millions)

 

Derivative assets:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

Other current assets

 

¥

131

 

¥

105

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

Other current assets

 

3,927

 

880

 

Total derivative assets

 

 

 

¥

4,058

 

¥

985

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

Other current liabilities

 

¥

104

 

¥

145

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

Foreign currency forward contracts

 

Other current liabilities

 

2,829

 

3,204

 

Total derivative liabilities

 

 

 

¥

2,933

 

¥

3,349

 

 

22



 

The amounts of derivative financial instruments included in comprehensive income and the locations in the consolidated statements of income for the three months ended June 30, 2014 and 2015 are as follows:

 

Derivatives designated as cash flow hedge:

 

Gains (losses) recognized in net unrealized gains (losses) on derivative financial instruments

 

 

 

Three months ended June 30,

 

Type of derivatives

 

 

2014

 

2015

 

 

 

(Yen in millions)

 

Foreign currency forward contracts

 

¥

7

 

¥

(42

)

Interest rate swaps

 

(69

)

6

 

Total

 

¥

(62

)

¥

(36

)

 

Gains (losses) recognized in income, which are reclassified from net unrealized gains (losses) on derivative financial instruments (effective portion)

 

 

 

 

 

Three months ended June 30,

 

Type of derivatives

 

 

Location

 

2014

 

2015

 

 

 

 

 

(Yen in millions)

 

Foreign currency forward contracts

 

Net sales

 

¥

0

 

¥

42

 

Foreign currency forward contracts

 

Cost of sales

 

17

 

(43

)

Interest rate swaps

 

Other, net

 

(14

)

(15

)

Total

 

 

 

¥

3

 

¥

(16

)

 

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

 

 

 

 

 

Three months ended June 30,

 

Type of derivatives

 

 

Location

 

2014

 

2015

 

 

 

 

 

(Yen in millions)

 

Foreign currency forward contracts

 

Foreign currency transaction gains, net

 

¥

0

 

¥

(1

)

 

Derivatives not designated as hedging instruments:

 

Gains (losses) recognized in income

 

 

 

 

 

Three months ended June 30,

 

Type of derivatives

 

 

Location

 

2014

 

2015

 

 

 

 

 

(Yen in millions)

 

Foreign currency forward contracts

 

Foreign currency transaction gains, net

 

¥

2,934

 

¥

(3,422

)

 

23



 

9. BENEFIT PLANS

 

Domestic:

 

Kyocera Corporation and its major domestic subsidiaries sponsor funded defined benefit pension plans or unfunded retirement and severance plans for their employees.

 

Net periodic pension costs at Kyocera Corporation and its major domestic subsidiaries for the three months ended June 30, 2014 and 2015 include the following components and were recorded in cost of sales, and selling general and administrative expenses in the consolidated statements of income.

 

 

 

Three months ended June 30,

 

 

 

2014

 

2015

 

 

 

(Yen in millions)

 

Service cost

 

¥

2,919

 

¥

3,050

 

Interest cost

 

452

 

350

 

Expected return on plan assets

 

(902

)

(958

)

Amortization of prior service cost

 

(1,083

)

(1,098

)

Recognized actuarial loss

 

405

 

423

 

Net periodic pension costs

 

¥

1,791

 

¥

1,767

 

 

Foreign:

 

Kyocera’s foreign consolidated subsidiaries, such as Kyocera International, Inc. and its consolidated subsidiaries, AVX Corporation and its consolidated subsidiaries, 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 these foreign subsidiaries for the three months ended June 30, 2014 and 2015 include the following components and were recorded in cost of sales, and selling general and administrative expenses in the consolidated statements of income.

 

 

 

Three months ended June 30,

 

 

 

2014

 

2015

 

 

 

(Yen in millions)

 

Service cost

 

¥

134

 

¥

183

 

Interest cost

 

501

 

446

 

Expected return on plan assets

 

(481

)

(516

)

Amortization of prior service cost

 

2

 

2

 

Recognized actuarial loss

 

155

 

335

 

Net periodic pension costs

 

¥

311

 

¥

450

 

 

24



 

10. COMMITMENTS AND CONTINGENCIES

 

As of June 30, 2015, Kyocera had contractual obligations for the acquisition or construction of property, plant and equipment aggregating ¥11,628 million principally due within one year.

 

Kyocera is a lessee under long-term operating leases primarily for office space and equipment. The future minimum lease commitments under non-cancelable leases as of June 30, 2015 are as follows:

 

 

 

June 30, 2015

 

 

 

(Yen in millions)

 

Due within 1 year

 

¥

6,019

 

Due after 1 year but within 2 years

 

4,362

 

Due after 2 years but within 3 years

 

2,933

 

Due after 3 years but within 4 years

 

1,798

 

Due after 4 years but within 5 years

 

1,414

 

Thereafter

 

1,956

 

Total

 

¥

18,482

 

 

Kyocera has entered into purchase agreements with a few specific suppliers for purchasing polysilicon material used in its solar energy business. Under those agreements, during the three months ended June 30, 2015, Kyocera purchased ¥1,501 million and is obligated to purchase ¥211,648 million in total by the end of December 2020.

 

Kyocera guarantees the debt of employees, an investee and an unconsolidated subsidiary. As of June 30, 2015, the total amount of these guarantees was ¥429 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.

 

Kyocera’s investment in Kagoshima Mega Solar Power Corporation, which was ¥1,747 million at June 30, 2015 accounted for by the equity method, is pledged as collateral for loans of ¥20,870 million from financial institutions of Kagoshima Mega Solar Power Corporation.

 

AVX corporation (AVX), a U.S. based subsidiary, 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 certain sites at which remediation is required with respect to prior contamination. Because CERCLA or such state statutes authorize joint and several liability, the EPA or state regulatory authorities 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. AVX believes that any liability resulting from these sites will be apportioned between AVX and other PRPs.

 

To resolve its liability at 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. 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.

 

On October 10, 2012, the EPA, the United States, and the Commonwealth of Massachusetts and AVX announced that they had reached a settlement with respect to the EPA’s ongoing clean-up of the New Bedford Harbor in the Commonwealth of Massachusetts (the harbor). Under the terms of the settlement, AVX was obligated to pay ¥39,643 million ($366.25 million), plus interest computed from August 1, 2012, in three installments over a two-year period for use by the EPA and the Commonwealth to complete the clean-up of the harbor. On May 26, 2015, AVX prepaid the third and final settlement installment of ¥14,894 million ($122.08 million), plus interest of ¥135 million ($1.11 million).

 

25



 

In addition to the above matter, Kyocera is involved in various environmental matters and Kyocera currently has a certain amount of reserves related to such environmental matters. The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional legal and technical information that becomes available. Also, uncertainties about the status of laws, regulations, regulatory actions, technology and information related to individual sites make it difficult to develop an estimate of the reasonably possible aggregate environmental remediation exposure. Accordingly, these costs could differ from our current estimates.

 

Kyocera is also 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 material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

26



 

11. EQUITY

 

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 at the Ordinary General Shareholders’ Meeting held on June 24, 2015, Kyocera Corporation declared year-end cash dividends totaling ¥22,012 million, ¥60 per share of common stock effective June 25, 2015 to shareholders of record on March 31, 2015.

 

27



 

Changes in Kyocera Corporation shareholders’ equity, noncontrolling interests and total equity for the three months ended June 30, 2014 and 2015 are as follows:

 

 

 

Three months ended June 30, 2014

 

 

 

Kyocera
Corporation
Shareholders’
Equity

 

Noncontrolling
Interests

 

Equity

 

 

 

(Yen in millions)

 

Balance at beginning of period

 

¥

1,910,083

 

¥

77,143

 

¥

1,987,226

 

Comprehensive income

 

 

 

 

 

 

 

Net income

 

19,467

 

1,477

 

20,944

 

Other comprehensive income (loss) —net of taxes

 

 

 

 

 

 

 

Net unrealized gains (losses) on securities

 

17,674

 

(3

)

17,671

 

Net unrealized gains (losses) on derivative financial instruments

 

(62

)

3

 

(59

)

Pension adjustments

 

522

 

151

 

673

 

Foreign currency translation adjustments

 

(6,979

)

(1,250

)

(8,229

)

Total other comprehensive income (loss)

 

11,155

 

(1,099

)

10,056

 

Total comprehensive income

 

30,622

 

378

 

31,000

 

Cash dividends paid to Kyocera Corporation’s shareholders

 

(14,675

)

 

(14,675

)

Cash dividends paid to noncontrolling interests

 

 

(937

)

(937

)

Equity transactions with noncontrolling interests and others

 

(54

)

(3,284

)

(3,338

)

Balance at end of period

 

¥

1,925,976

 

¥

73,300

 

¥

1,999,276

 

 

 

 

 

 

 

Three months ended June 30, 2015

 

 

 

Kyocera
Corporation
Shareholders’
Equity

 

Noncontrolling
Interests

 

Equity

 

 

 

(Yen in millions)

 

Balance at beginning of period

 

¥

2,215,319

 

¥

88,304

 

¥

2,303,623

 

Comprehensive income

 

 

 

 

 

 

 

Net income

 

31,575

 

1,489

 

33,064

 

Other comprehensive income—net of taxes

 

 

 

 

 

 

 

Net unrealized gains (losses) on securities

 

59,785

 

(46

)

59,739

 

Net unrealized losses on derivative financial instruments

 

(36

)

(16

)

(52

)

Pension adjustments

 

(789

)

(31

)

(820

)

Foreign currency translation adjustments

 

10,787

 

1,510

 

12,297

 

Total other comprehensive income

 

69,747

 

1,417

 

71,164

 

Total comprehensive income

 

101,322

 

2,906

 

104,228

 

Cash dividends paid to Kyocera Corporation’s shareholders

 

(22,012

)

 

(22,012

)

Cash dividends paid to noncontrolling interests

 

 

(1,075

)

(1,075

)

Equity transactions with noncontrolling interests and others

 

43

 

(419

)

(376

)

Balance at end of period

 

¥

2,294,672

 

¥

89,716

 

¥

2,384,388

 

 

28



 

12. ACCUMULATED OTHER COMPREHENSIVE INCOME

 

Changes in accumulated other comprehensive income for the three months ended June 30, 2014 and 2015 are as follows:

 

 

 

Three months ended June 30, 2014

 

 

 

Net
Unrealized
Gains on
Securities

 

Net
Unrealized
Losses
on Derivative
Financial
Instruments

 

Pension
Adjustments

 

Foreign
Currency
Translation
Adjustments

 

Total
Accumulated
Other
Comprehensive
Income

 

 

 

(Yen in millions)

 

Balance at beginning of period

 

¥

293,783

 

¥

(260

)

¥

(21,101

)

¥

(21,459

)

¥

250,963

 

Other comprehensive income (loss), net

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before reclassifications

 

17,674

 

(59

)

817

 

(6,979

)

11,453

 

Amounts reclassified from accumulated other comprehensive income

 

 

(3

)

(295

)

 

(298

)

Other comprehensive income (loss), net

 

17,674

 

(62

)

522

 

(6,979

)

11,155

 

Equity transactions with noncontrolling interests

 

 

0

 

(69

)

(15

)

(84

)

Balance at end of period

 

¥

311,457

 

¥

(322

)

¥

(20,648

)

¥

(28,453

)

¥

262,034

 

 

 

 

Three months ended June 30, 2015

 

 

 

Net
Unrealized
Gains on
Securities

 

Net
Unrealized
Losses
on Derivative
Financial
Instruments

 

Pension
Adjustments

 

Foreign
Currency
Translation
Adjustments

 

Total
Accumulated
Other
Comprehensive
Income

 

 

 

(Yen in millions)

 

Balance at beginning of period

 

¥

467,841

 

¥

(372

)

¥

(28,452

)

¥

30,656

 

¥

469,673

 

Other comprehensive income (loss), net

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before reclassifications

 

59,785

 

(53

)

(563

)

10,833

 

70,002

 

Amounts reclassified from accumulated other comprehensive income

 

 

17

 

(226

)

(46

)

(255

)

Other comprehensive income (loss), net

 

59,785

 

(36

)

(789

)

10,787

 

69,747

 

Equity transactions with noncontrolling interests

 

 

0

 

(5

)

6

 

1

 

Balance at end of period

 

¥

527,626

 

¥

(408

)

¥

(29,246

)

¥

41,449

 

¥

539,421

 

 

29



 

The amounts reclassified out of accumulated other comprehensive income and the affected line items in the consolidated statements of income for the three months ended June 30, 2014 and 2015 are as follows:

 

Amounts in parentheses indicate gains in the consolidated statements of income.

 

Details about accumulated other
comprehensive income components

 

 

Affected line items

 

Three months ended
June 30, 2014

 

 

 

 

 

(Yen in millions)

 

Net unrealized gains (losses) on derivative financial Instruments:

 

 

 

 

 

Foreign currency forward contracts and interest rate swaps

 

Net sales

 

¥

0

 

 

 

Cost of sales

 

(33

)

 

 

Foreign currency transaction gains, net

 

0

 

 

 

Other, net

 

22

 

 

 

Income before income taxes

 

(11

)

 

 

Income taxes

 

2

 

 

 

Net income

 

(9

)

 

 

Net income attributable to noncontrolling interests

 

6

 

 

 

Net income attributable to shareholders of Kyocera Corporation

 

(3

)

Pension adjustments:

 

 

 

 

 

Amortization of prior service cost and recognized actuarial loss

 

*

 

(521

)

 

 

Income before income taxes

 

(521

)

 

 

Income taxes

 

244

 

 

 

Net income

 

(277

)

 

 

Net income attributable to noncontrolling interests

 

(18

)

 

 

Net income attributable to shareholders of Kyocera Corporation

 

(295

)

Total reclassifications for the period

 

 

 

¥

(298

)

 

30



 

Details about accumulated other
comprehensive income components

 

 

Affected line items

 

Three months ended
June 30, 2015

 

 

 

 

 

(Yen in millions)

 

Net unrealized gains (losses) on derivative financial instruments :

 

 

 

 

 

Foreign currency forward contracts and interest rate swaps

 

Net sales

 

¥

(68

)

 

 

Cost of sales

 

69

 

 

 

Foreign currency transaction gains, net

 

1

 

 

 

Other, net

 

22

 

 

 

Income before income taxes

 

24

 

 

 

Income taxes

 

(7

)

 

 

Net income

 

17

 

 

 

Net income attributable to noncontrolling interests

 

0

 

 

 

Net income attributable to shareholders of Kyocera Corporation

 

17

 

Pension adjustments :

 

 

 

 

 

Amortization of prior service cost and recognized actuarial loss

 

*

 

(338

)

 

 

Income before income taxes

 

(338

)

 

 

Income taxes

 

141

 

 

 

Net income

 

(197

)

 

 

Net income attributable to noncontrolling interests

 

(29

)

 

 

Net income attributable to shareholders of Kyocera Corporation

 

(226

)

Foreign currency translation adjustments :

 

 

 

 

 

Liquidation of a subsidiary

 

Other, net

 

(46

)

 

 

Income before income taxes

 

(46

)

 

 

Income taxes

 

 

 

 

Net income

 

(46

)

 

 

Net income attributable to noncontrolling interests

 

 

 

 

Net income attributable to shareholders of Kyocera Corporation

 

(46

)

Total reclassifications for the period

 

 

 

¥

(255

)

 

*                 As for the affected line items in the consolidated statements of income by reclassification of pension adjustments, please refer to the Note 9 to the Quarterly Consolidated Financial Statements.

 

31



 

Tax effect allocated to each components of other comprehensive income (loss) for the three months ended June 30, 2014 and 2015 are as follows:

 

 

 

Before-tax
amount

 

Tax (expense)
or benefit

 

Net-of-tax
amount