| • ANNUAL REPORT • ARTICLES OF INCORPORATION (ENGLISH TRANSLATION • CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER • CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER • CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER • CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER • CONSENT OF KYOTO AUDIT CORPORATION • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE • XBRL TAXONOMY EXTENSION LABEL LINKBASE • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
FORM 20-F
OR
For the fiscal year ended March 31, 2012 OR
For the transition period from to OR
Date of event requiring this shell company report Commission file number: 1-7952
Kyocera Kabushiki Kaisha (Exact name of Registrant as specified in its charter) Kyocera Corporation (Translation of Registrant’s name into English)
Shoichi Aoki, +81-75-604-3556, kyocera-ir@kyocera.jp, +81-75-604-3557, 6, Takeda Tobadono-cho, Fushimi-ku, Kyoto 612-8501, Japan (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act.
Securities registered or to be registered pursuant to Section 12(g) of the Act. None (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None (Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. As of March 31, 2012, 183,443,920 shares of common stock were outstanding, comprised of 180,561,415 Shares and 2,882,505 American Depositary Shares (equivalent to 2,882,505 Shares). Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP x International Financial Reporting Standards as issued by the International Accounting Standards Board ¨ Other ¨ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨ If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Table of Contents
2
Table of Contents
3
Table of ContentsCautionary Statement Regarding Forward-Looking Statements This annual report on Form 20-F contains “forward-looking statements” within the meaning of Section 21E of the U.S. Securities and Exchange Act of 1934. To the extent that statements in this annual report on Form 20-F do not relate strictly to historical or current facts, they may constitute forward-looking statements. These forward-looking statements are based upon our current assumptions and beliefs in the light of the information currently available to us, but involve known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors may cause our actual actions or results to differ materially from those discussed in or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements after the date of this annual report on Form 20-F, but investors are advised to consult any further disclosures by us in our subsequent filings pursuant to the U.S. Securities Exchange Act of 1934. Important risks, uncertainties and other factors that may cause our actual results to differ materially from our expectations are generally set forth in Item 3.D. “Risk Factors” of this annual report on Form 20-F and include, without limitation:
and other risks discussed under Item 3.D. “Risk Factors” and elsewhere in this annual report on Form 20-F.
4
Table of ContentsPresentation of Certain Information As used in this annual report on Form 20-F, references to “Kyocera,”“we,”“our” and “us” are to Kyocera Corporation and, except as the context otherwise requires, its consolidated subsidiaries. Also, as used in this annual report on Form 20-F:
5
Table of ContentsItem 1. Identity of Directors, Senior Management and Advisers Not applicable. Item 2. Offer Statistics and Expected Timetable Not applicable. The selected consolidated financial data set forth below for each of the five fiscal years ended March 31 have been derived from Kyocera’s consolidated financial statements that are prepared in accordance with accounting principles generally accepted in the United States of America. You should read the U.S. GAAP selected consolidated financial data set forth below together with Item 5. “Operating and Financial Review and Prospects” and Kyocera’s consolidated financial statements included in this annual report on Form 20-F.
6
Table of ContentsThe following table shows the exchange rates for Japanese yen per $1.00 based upon the noon buying rate in New York City for cash transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York:
The noon buying rate for Japanese yen on June 22, 2012 was $1.00 = 80.52 B. Capitalization and Indebtedness Not applicable. C. Reasons for the Offer and Use of Proceeds Not applicable. You should carefully read the risks described below before making an investment decision. Risk Related to Kyocera’s Business (1) The continuing economic slowdown in the Japanese and global economy may significantly reduce demand for Kyocera’s products The outlook for the global economy remains uncertain, and there is concern that the financial problems facing European nations will continue to cause such uncertainty or trigger another downturn in the global economy. With respect to the Asian economy, although a fundamental trend toward Chinese-led expansion is expected, there are signs that growth rates may be slowing. In addition, the growth of the Japanese economy may be affected by an economic slowdown in Europe, the United States or Asia. In the event that stagnation in the Japanese and global economies has an adverse effect on capital investment in and consumption of digital consumer equipment and industrial machinery, which are the principal markets for Kyocera, demand for Kyocera products may fall significantly, the business environment facing Kyocera may worsen, and the performance and financial condition of Kyocera may be adversely affected. (2) A substantial portion of Kyocera’s business activity is conducted outside Japan, exposing Kyocera to the risks of international operations A substantial amount of Kyocera’s investment has been targeted towards expanding manufacturing and sales channels located outside Japan, such as in the United States, Europe and Asia, which includes the developing and
7
Table of Contentsemerging markets in China. Kyocera faces a variety of potential risks in international activities. Kyocera may encounter unexpected legal or regulatory changes due to unfavorable political or economic factors such as control on trade, restriction on investment, restriction on repatriation and transfer pricing issue. Kyocera may also have difficulties in human resources and managing operations at its international locations. As the developing and emerging markets of Asia, which includes China, becomes considerably more important, Kyocera may become even more susceptible to these risks. (3) Since a significant percentage of Kyocera’s revenues has been derived from foreign sales in recent years, various export risks may disproportionately affect its revenues Kyocera’s sales to customers located outside Japan accounted for approximately 55% of its total revenues in fiscal 2012. Kyocera believes that overseas sales will continue to account for a significant percentage of its revenues. Therefore, the following export risks may disproportionately affect Kyocera’s revenues:
(4) Currency exchange rate fluctuations could adversely affect Kyocera’s financial results Kyocera conducts business in countries outside of Japan, which exposes it to fluctuations in foreign currency exchange rates. Kyocera may enter into mainly short-term forward contract transaction to hedge this risk. Nevertheless, fluctuations in foreign currency exchange rates could have an adverse effect on its business. Fluctuations in foreign currency exchange rates may affect Kyocera’s consolidated results of operations, financial condition, cash flows and the value of its foreign assets, which in turn may adversely affect reported earnings and the comparability of period-to-period results of operations. Changes in currency exchange rates may affect the relative prices at which Kyocera and foreign competitors sell products in the same market. In addition, changes in the value of the relevant currencies may affect the cost of imported items required in its operations. (5) Kyocera sells a diverse variety of products, and in each of its businesses Kyocera is subject to intense competitive pressures, including in terms of price, technological change, product development, quality and speed of delivery, and these pressures are likely to increase in the near term Kyocera sells a wide variety of products and, therefore, faces a broad range of competitors from large international companies to relatively small, rapidly growing and highly specialized companies. Kyocera’s competitive landscape is subject to continuous change, and new and significant competitors may emerge, including competitors based in emerging markets such as China that may have competitive advantages in terms of cost structure or other factors. Kyocera has a variety of businesses in different industries while many of its competitors specialize in one or more of these business areas. As a result, Kyocera may not fund or invest in certain of its businesses to the same degree as its competitors, or these competitors may have greater financial, technical, and marketing resources available to them than the portion of its business against which they compete. While some of the factors that drive competition vary by product area, price and speed of delivery are primary factors that impact in all areas of Kyocera’s business. Price pressure has been intense, and thus Kyocera predicts that its selling prices will continue to be lower than in fiscal 2012 depending partly on the demand and competition situation. In production businesses in which Kyocera develops, produces and distributes specialized parts for its customers’ products, its competitive position depends significantly on being involved early in the process of creating a new product that fits its customers’ needs for each business. To maintain these competitive advantages, it is critical to maintain close ties with customers so that Kyocera can ensure that it is able to meet
8
Table of Contentsrequired specifications and be the first supplier to create and deliver the product. Kyocera’s gross margins may be reduced if the business environment changes in a way that Kyocera cannot maintain these important relationships with customers or its market share or if it is forced in the future to further reduce prices in response to the actions of its competitors. (6) Manufacturing delays or defects resulting from outsourcing or internal manufacturing processes can adversely affect Kyocera’s production yields and operating results Kyocera ordinarily outsources the fabrication of certain components and sub-assemblies of its products, often to sole source suppliers or a limited number of suppliers. Several suppliers have manufacturing processes which are very complex and require a long lead-time. Kyocera may be affected by occasional delays in obtaining components and sub-assemblies. Kyocera’s production of these products will also be materially and adversely affected if Kyocera is unable to obtain high quality, reliable and timely supply of these components and sub-assemblies. In addition, any reduction in the precision of these components will cause delays and interruptions in Kyocera’s production cycle. Within Kyocera’s manufacturing facilities, minute impurities, difficulties in the production process or other factors can cause a substantial percentage of its products to be rejected or be non-functional. These factors can result in lower than expected production yields, which delay product shipments and may materially and adversely affect Kyocera’s operating results. Because the majority of Kyocera’s costs of manufacture are relatively fixed, production yield and capacity utilization rate are critical to Kyocera’s consolidated results of operations, financial condition and cash flows. (7) Shortages and rising costs of electricity may adversely affect Kyocera’s production and sales activities As almost all nuclear power plant operation in Japan currently has ceased and remains at rest due to the damage and equipment failure of the nuclear power plant caused by the Great East Japan Earthquake in March 2011, Japan may have shortages and rising costs of electricity. Kyocera secures electric power supplies for emergency through equipment and centers, however Kyocera’s production activity may become diminished if massive blackouts occur in the areas in which Kyocera has facilities and electricity shortages continue. Shortages of electricity in the areas in which Kyocera’s suppliers and customers have main operations may also interrupt Kyocera’s production and sales activities. In addition, significant rising costs of electricity may increase Kyocera’s manufacturing cost as well as sales, general and administrative expenses. (8) Future initiatives and in-process research and development may not produce the desired results Kyocera intends to expand its product lines to satisfy customer demand in its target markets. Unexpected technical delays in completing these initiatives could lengthen development schedules and result in lower revenues based on the products or technologies developed from these initiatives. There can be no assurance that the products derived from Kyocera’s in-process research and development activities will achieve desired results and market acceptance. (9) Companies or assets acquired by Kyocera may require more costs than expected for integration, and may not produce returns or benefits, or bring in anticipated business opportunities In the course of developing its business, from time to time Kyocera considers opportunities to acquire, and undertakes the acquisition of companies or assets through mergers and acquisitions. There can be no assurance that Kyocera will be able to integrate the operations, products and personnel of the acquired companies with its own in an efficient manner. Nor can there be any assurance that Kyocera will be able to achieve operational and financial returns or benefits, or bring in new business opportunities, which it expects from the acquisition. An acquired company may not be able to manufacture products or offer services in the amounts or at the efficiency levels that Kyocera plans, and the demand for such products or services may not be at the levels that Kyocera anticipates. Failure to succeed in acquisitions could have a material adverse effect on Kyocera’s business.
9
Table of Contents(10) Industry demand for skilled employees, particularly engineering and technical personnel, exceeds the number of personnel available and we may not be able to attract and retain key personnel Kyocera’s future success depends, in part, on its ability to attract and retain certain key personnel, including engineering, operational and management personnel. Kyocera anticipates that it will need to hire additional skilled personnel in all areas of its business. The competition for attracting and retaining these employees is intense. Because of recent intense competition for these skilled employees, Kyocera may be unable to retain its existing personnel or attract additional qualified employees in the future. Risk Related to Legal Restrictions and Litigations (11) Insufficient protection of Kyocera’s trade secrets and patents could have a significant adverse impact on its competitive position Kyocera’s success and competitive position depend on protecting its trade secrets and other intellectual property. Kyocera’s strategy is to rely both on trade secrets and patents to protect its manufacturing and sales processes and products, but reliance on trade secrets is only an effective business practice insofar as trade secrets remain undisclosed and a proprietary product or process is not reverse engineered or independently developed. Kyocera takes certain measures to protect its trade secrets, including executing nondisclosure agreements with certain of its employees, joint venture partners, customers and suppliers. If parties breach these agreements or the measures Kyocera takes are not properly implemented, Kyocera may not have an adequate remedy. Disclosure of its trade secrets or reverse engineering of its proprietary products, processes or devices could materially affect Kyocera’s business, consolidated results of operations, financial condition and cash flows. Kyocera is actively pursuing patents on some of its recent inventions, but these patents may not be issued. Even if these patents are issued, they may be challenged, invalidated or circumvented. In addition, the laws of certain other countries may not protect Kyocera’s intellectual property to the same extent as Japanese laws. (12) Kyocera may require licenses to continue to manufacture and sell certain of its products, the expense of which may adversely affect its results of operations From time to time Kyocera has received, and may receive in the future, notice of claims of infringement of other parties’ proprietary rights and licensing offers to commercialize third party’s patent rights. Although Kyocera is not currently involved in any litigations relating to its intellectual property except in the ordinary course of its business, Kyocera cannot assure that:
(13) Changes in our environmental liability and compliance obligations may adversely impact our operations Kyocera is subject to various environmental laws and regulations in Japan and the other countries, which are related to greenhouse gas mitigation, air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals used or generated in our manufacturing process, employee health and safety, labeling or other notifications with respect to the content or other aspects of our processes, products or packaging, restrictions on the use of certain materials in or on design aspects of our products or product packaging, and responsibility for disposal of products or product packaging. As well as our current operations, these laws and regulations can be applied to our past operations and may be applicable to the
10
Table of Contentspast operations of businesses acquired from other companies even if such operations occurred before our acquisitions. In addition, these laws and regulations which are applied to Kyocera can be more stringent or the scope of the laws and regulations can be broadened in the future due to factors including global climate change. With respect to greenhouse gas mitigation in particular, international emissions trading regime may be created based on the result of the intergovernmental dialogue on global climate change. Kyocera establishes reserves for specifically identified potential environmental liabilities when such liabilities are probable and can be reasonably estimated. In case we fail to comply with such laws and regulations, we could be required by the relevant governmental organizations to pay penalty costs or remediation compensation. Furthermore, we may make voluntary payments to compensate for environmental problems if we deem such compensation to be necessary. The cost obligations noted above may adversely affect Kyocera’s results of operations, financial condition and cash flows. (14) Kyocera is subject to various other laws and regulations Kyocera may unintentionally conflict with laws and regulations and face legal proceedings, including litigation and regulatory actions, although Kyocera believes that it is substantially in compliance with applicable laws and regulations in the countries and areas in which Kyocera operates. If laws and regulations are unexpectedly changed or introduced, Kyocera’s business operations may be limited and continuance may become difficult. If Kyocera faces enormous legal costs related to litigation and regulatory actions, Kyocera’s business operations may become significantly limited and Kyocera’s results of operations, financial condition and cash flows may be negatively affected. Risks Related to Disasters or Unpredictable Events (15) Kyocera’s markets or supply chains may be adversely affected by terrorism, outbreaks of disease, wars or similar events Kyocera, as a global company, has been expanding its business worldwide. At the same time, we may be exposed to risks of our getting involved in terrorism, outbreaks of disease, war and other similar events. In the case that those events occur, Kyocera’s operating activities would be suspended. Furthermore, there would be delay, disorder or suspension in Kyocera’s R&D, manufacturing, sales and services. If such delay or disruption occurs and continues for a long period of time, Kyocera’s business, consolidated results of operations, financial condition and cash flows may be adversely affected. (16) Kyocera’s headquarters and major facilities as well as its suppliers and customers may suffer the devastating effects of earthquakes and other disasters Kyocera’s headquarters and major facilities including plants, sales offices and R&D centers are located not only in Japan but also all over the world. It might be inevitable that Kyocera would suffer from natural disasters such as earthquakes, typhoons, tsunamis, floods or other disasters, as well as manmade disasters such as a major industrial accident affecting one of our facilities. For instance, if a strong earthquake affected Kyocera’s employees, R&D or manufacturing facilities, Kyocera’s operating activities would be suspended and manufacturing and shipment would be delayed. Kyocera may also incur a great amount of expenses, such as repair expenses for the damaged machines or facilities. In addition, if the social and economic infrastructure suffer from adverse damages, traffic disturbance and electric power outages could occur and they may affect Kyocera’s supply chains or manufacturing operations. Furthermore, Kyocera may be unable to obtain raw materials if our suppliers sustain damage and Kyocera may also face difficulties shipping its products if its customers sustain damage. Those damages set forth above, as well as any resulting general economic slowdown and lower consumption levels, may have a material adverse effect on Kyocera’s consolidated results of operations, financial condition and cash flows.
11
Table of ContentsRisks Related to Financial and Accounting (17) Kyocera may be exposed to credit risk on trade receivables due to its customers’ worsening financial condition Kyocera maintains allowances for doubtful accounts related to trade receivables for estimated losses resulting from customers’ inability to make timely payments. However, trade receivables in the ordinary operating activity are not covered by collateral or credit insurance. Therefore, if customers with whom Kyocera has substantial accounts receivable face difficulty in making payments due to economic downturn and if Kyocera is forced to write off those receivables, Kyocera’s consolidated results of operations, financial condition and cash flows may be affected. (18) Kyocera may have to incur impairment losses on its investments in debt and equity securities Kyocera holds investments in equity securities of companies not affiliated with us, which we generally hold on a long-term position for business relationship purposes. A substantial portion of these investments consists of shares of common stock of public companies in Japan, such as financial institutions and other companies including KDDI Corporation, a Japanese telecommunication service provider. Kyocera Corporation’s equity interest in KDDI Corporation was 12.76% as of March 31, 2012. If there are certain declines in the fair value, i.e., the market price, of the shares of these companies, and it determines that such declines are other-than-temporary, Kyocera will need to record an impairment loss. For some of the equity securities Kyocera owns, including the shares of KDDI Corporation, Kyocera intends to keep its ownership at the current level in light of the importance of its business relationships with the issuers of these equity securities. For other equity securities in its portfolio, although, with periodical check, Kyocera may dispose of some securities which lack merit for Kyocera, market conditions may not permit us to do so at the time, speed or price we may wish. (19) Kyocera may have to incur impairment losses on long-lived assets, goodwill and intangible assets Kyocera has many long-lived assets, goodwill and intangible assets. Long-lived assets and intangible assets with definite useful lives are tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. 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. In case the above assets are considered to be impaired, a loss on impairment is recognized based on the amount by which the carrying value exceeds the fair value of these assets. Such losses on impairment may materially affect Kyocera’s consolidated results of operations and financial condition. (20) Deferred tax assets may not be realized or additional liabilities for unrecognized tax benefits may be required. Kyocera records valuation allowances against deferred tax assets based on the estimated future taxable income and feasible tax planning strategies to adjust their carrying amounts when we believe it is more likely than not that the assets will not be realized. If future taxable income is lower than expected due to future market conditions or poor operating results, significant adjustments to deferred tax assets may be required. Kyocera records 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. Actual results, such as settlements with tax authorities, may differ from Kyocera’s recognition.
12
Table of Contents(21) Changes in accounting standards may adversely impact our results of operations and financial condition. Adoptions of new accounting standards, or changes in accounting standards may have an effect on Kyocera’s consolidated results of operations and financial condition. In addition, if Kyocera modifies its accounting software or information systems to introduce changes in accounting standards, certain investments or expenses may be required. Other Risks (22) As a holder of ADSs, you will have fewer rights than a shareholder has and you will have to act through the depositary to exercise those rights The rights of shareholders under Japanese law to take various actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining a company’s accounting books and records and exercising appraisal rights, are available only to holders of record. Because the depositary, through its custodian agents, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying your ADSs as instructed by you and will pay to you the dividends and distributions collected from us. However, in your capacity as an ADS holder, you will not be able to bring a derivative action, examine our accounting books and records or exercise appraisal rights through the depositary. (23) Rights of shareholders under Japanese law may be more limited than under the law of other jurisdictions Our Articles of Incorporation, Regulations of the Board of Directors, Regulations of the Board of Corporate Auditors and the Corporation Act of Japan govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from those that would apply if we were a U.S. company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of the United States. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a U.S. corporation. In addition, Japanese courts may not be willing to enforce liabilities against us in actions brought in Japan which are based upon the securities laws of the United States or any U.S. state. (24) Because of daily price range limitations under Japanese stock exchange rules, you may not be able to sell your shares of our Common Stock at a particular price on any particular trading day, or at all Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all. (25) Our shareholders of record on a record date may not receive the dividend they anticipate The customary dividend payout practice of publicly listed companies in Japan may significantly differ from the practice widely followed in foreign markets. Our dividend payout practice is no exception. The declaration and payment of annual dividends requires the approval of shareholders of our common stock at the annual general meeting of shareholders held in June of each year. Our board of directors decides and submits a proposal for an annual dividend declaration a few weeks before the annual general meeting. If the shareholders’ approval is given, the annual dividend payment is made to shareholders of record as of the record date for such payment, which is March 31, whether or not the shareholders are still holding shares after such record date. The declaration and payment of interim dividends is decided by our board of directors and does not require the approval of
13
Table of Contentsshareholders. The interim dividend payment is made to shareholders of record as of the record date for such payment, which is September 30, whether or not the shareholders are still holding shares after such record date. Shareholders of record as of the applicable record date may sell shares in the market after the record date with the anticipation of receiving a certain dividend payment. However, the date of declaration of interim dividends is decided by our board, and the declaration of annual dividends is approved by our shareholders only in June, based upon a proposal submitted by our board. As such, we may have announced a dividend forecast before the applicable record date; but, in making a decision on the dividend declaration, neither our shareholders nor our board of directors are legally bound by such forecast. Therefore, our shareholders of record on the record dates for interim or annual dividends may not receive the dividend they anticipate. (26) Foreign exchange fluctuations may affect the dollar value of our ADSs and dividends payable to holders of our ADSs Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar. Item 4. Information on Kyocera Corporation and its Consolidated Subsidiaries A. History and Development of Kyocera Corporation and its Consolidated Subsidiaries Kyocera Corporation is a joint stock corporation incorporated under the laws of Japan in 1959 with the name Kyoto Ceramic Kabushiki Kaisha. Its name was changed to Kyocera Kabushiki Kaisha (or Kyocera Corporation) in 1982. Our corporate headquarters is at 6 Takeda Tobadono-cho, Fushimi-ku, Kyoto 612-8501, Japan. Our telephone number is +81-75-604-3500. Our business originally consisted of the manufacture of ceramic parts for electronic equipment. In the 1960s, we expanded our business and technology horizontally into the design and production of fine ceramic parts, ceramic integrated circuit (IC) packages and electronic components. In the 1970s, we began to produce applied ceramic products, including cutting tools, ceramic parts for medical and dental uses, jewelry and solar energy products. In the 1980s, we diversified into new strategic fields. In 1982, we merged with Cybernet Electronics Corporation, a telecommunications equipment manufacturer in which we had made an equity investment three years earlier. We also played a leading role in the establishment of DDI Corporation (currently KDDI Corporation), which has become one of Japan’s leading providers of telecommunications services. In 1989, we gained a presence in the electronic connector market through our acquisition of Elco International Corporation (currently Kyocera Connector Products Corporation). In the 1990s, we strengthened our position as a globally integrated electronic components manufacturer through our acquisition of AVX Corporation, a maker of capacitors and other passive electronic components, in January 1990. In the middle of the 1990s, Kyocera developed two main business categories, the “Components Business,” in which Kyocera provides parts and devices such as fine ceramics parts, semiconductor parts, applied ceramic products and electronic components and devices to mainly electronic equipment manufacturers in information and communications fields, and the “Equipment Business,” in which Kyocera manufactures and sells telecommunications equipment and information equipment, such as mobile phone handsets, PHS-related products, copier machines, multifunctional peripherals and ECOSYS printers to distributors or directly to customers. Since 2000, we have further enhanced our position as a market leader in telecommunications and information equipment. In February 2000, we acquired the code division multiple access (CDMA) mobile phone handset business from Qualcomm Inc. and established our U.S. subsidiary, Kyocera Wireless Corp., which was merged into Kyocera Communications, Inc. in April 2010. In April 2000, we invested in Kyocera Mita Corporation (currently Kyocera Document Solutions Inc.), a manufacturer of copier machines and other document solutions equipment, and made it a wholly-owned subsidiary. In April 2002, we transferred Kyocera Corporation’s printer business to Kyocera Mita Corporation to further enhance our information equipment business by pursuing group synergies.
14
Table of ContentsWith the aim of becoming a more global enterprise and enhancing our profitability, we have been expanding our production in China located in Shanghai and Dongguan since the middle of the 1990s. Kyocera also established a sales company, Kyocera (Tianjin) Sales & Trading Corporation, in March 2003 to cultivate the Chinese market through enhancing our marketing ability for both our products manufactured in China as well as our products imported into China. In addition, we established a subsidiary, Kyocera (Tianjin) Solar Energy Co., Ltd., to assemble solar modules, production of which commenced in November 2003, and to respond to market needs swiftly. In August 2003, we made Kinseki, Limited (currently Kyocera Crystal Device Corporation), a major producer of artificial crystal related products, a wholly-owned subsidiary through a share exchange to strengthen our Electronic Device Group. In April 2004, Kyocera integrated the marketing division of Kyocera Kinseki Corporation into the marketing division of the electronic components of Kyocera Corporation and the manufacturing division of crystal related components of Kyocera Corporation was transferred to Kyocera Kinseki Corporation through corporate splits. To meet with strong demand for solar energy products in Europe, Kyocera established Kyocera Solar Europe S.R.O. for the assembling of solar modules in the Czech Republic in April 2005. In April 2008, Kyocera acquired the mobile phone related business of SANYO Electric Co., Ltd. (currently Panasonic Corporation) to strengthen and improve the profitability of the Telecommunications Equipment Group. For further enhancement of sales channel of the Information Equipment Group, Kyocera Mita Corporation made TA Triumph-Adler AG (currently TA Triumph-Adler GmbH, TA), a leading specialist in the information technology business and a distributor of printers and multifunctional peripherals in Germany, a subsidiary through the voluntary public takeover offer in January 2009. In October 2010, Kyocera Mita Corporation acquired all of the remaining shares of TA. As a result, TA has become a wholly-owned subsidiary of Kyocera Mita Corporation. In July 2011, Kyocera acquired Unimerco Group A/S (currently Kyocera Unimerco A/S), a Danish-based industrial cutting tool manufacturing and sales company to expand cutting tool business. In February 2012, in order to expand its Liquid Crystal Displays (LCDs) business, Kyocera acquired Optrex Corporation (currently Kyocera Display Corporation), a specialized manufacturer of LCDs and related products. For a discussion of recent and current capital expenditures, please see Item 5. “Operating and Financial Review and Prospects” of this annual report on Form 20-F. We have had no recent significant divestitures nor any significant divestitures currently being made. Overview Kyocera is engaged in numerous high-tech fields, from fine ceramic components to electronic devices, equipment, services and networks. Our manufacturing and distribution operations are conducted worldwide. As of March 31, 2012, we had 196 subsidiaries and 4 affiliates outside Japan and 28 subsidiaries and 6 affiliates in Japan. Our customers include individuals, corporations, governments and governmental agencies. For information on our sales by category of activity and information on our sales by geographic area and product segment, please see Item 5.A. “Operating Results” of this annual report on Form 20-F.
15
Table of ContentsOperations 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. Our principal products and services offered in each reporting segment are shown below. (1) Fine Ceramic Parts Group Components for Semiconductor Processing Equipment and LCD Manufacturing Equipment, Information & Telecommunication Components, General Industrial Ceramic Components, Sapphire Substrates, Automotive Components (2) Semiconductor Parts Group Ceramic Packages for Crystal and SAW Devices, CMOS/CCD Image Sensor Ceramic Packages, 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, SAW Devices, RF Modules, EMI Filters, Clock Oscillators, Crystal Units, Ceramic Resonators, Optical Low Pass Filters, Connectors, Thermal Printheads, Inkjet Printheads, Amorphous Silicon Photoreceptor Drums, LCDs, Touch Panels (5) Telecommunications Equipment Group Mobile Phone Handsets, PHS related Products such as PHS Mobile Phone Handsets and PHS Base Stations
16
Table of Contents(6) Information Equipment Group Color and Black & White Office Equipment such as ECOSYS Printers and Multifunctional Peripherals, Wide Format Multifunctional Systems, Printer and Multifunction Peripherals Supplies, Business Solution Services such as Managed Print Service (7) Others Information Systems & Telecommunication Services, Engineering Business, Management Consulting Business, Epoxy Molding Compounds for Semiconductor Encapsulation, Electrical Insulators, Flexible Printed Circuit Sheet Materials, Synthetic Resin Molded Parts, Realty Development, LED Lighting Systems (1) Fine Ceramic Parts Group Products in this reporting segment are widely used in the industrial machinery, information and communications equipment, computing, automotive and various other industrial sectors. These products are made from a variety of ceramic materials, such as alumina, silicon carbide and silicon nitrides as well as zirconia, utilizing their characteristics of heat resistance, corrosion resistance and wear resistance. Products Kyocera develops, manufactures and sells in this reporting segment include substrates, which are thin ceramic bases used by manufacturers for hybrid IC foundations. Kyocera also develops, manufactures and sells substrates for thermal printheads, thin-film ceramic/alumina tape substrates for chip resistors, substrate for HDD thin-film magnetic heads, sapphire substrates for LCD projectors and Light Emitting Diodes (LEDs), components for semiconductor processing equipment, components for LCD manufacturing equipment, engine components for the automobiles, mechanical seals for pumps, friction tight discs and thread guides for yarn texturing machines in the textile industry, rings for fishing rods, and nozzles and parts for papermaking machinery. (2) Semiconductor Parts Group Kyocera develops, manufactures and sells both inorganic (ceramic) and organic packages and substrates in this reporting segment. Ceramic packages have the characteristic of being extremely air tight, exceptional heat resistance and heat dissipation. In addition, they can be small and thin and have good high frequency properties as well as facilitate the embedding of passive components. Kyocera supplies various ceramic packages and components capitalized on material’s characteristics. Major products in this reporting segment are ceramic packages for crystal and SAW devices, ceramic packages for CMOS/CCD sensors, LSI ceramic packages such as ball grid array packages and optical communication device packages and ceramic parts for fiber-optic communications connectors. Ceramic packages for crystal and SAW devices are used for clock oscillators, Crystal Units and SAW filters, which are mostly inserted into mobile phone handsets. Ceramic packages for CMOS/CCD sensors are mainly used in image sensor equipped in camera-equipped mobile phone handsets and digital cameras. Ball grid array packages are used in MPUs and other logic ICs, which are mainly inserted into high-end servers. In the organic package business, Kyocera develops, manufactures and sells organic flip-chip packages for high-end application specific integrated circuits (ASICs) and system in package (SiP) substrates used in mobile phone handsets.
17
Table of Contents(3) Applied Ceramic Products Group This reporting segment consists of four product lines: 1) Solar Energy Products, 2) Cutting Tools, 3) Medical and Dental Implants, 4) Jewelry and Applied Ceramic Related Products. 1) Solar Energy Products Kyocera develops, manufactures and sells solar cells and modules as well as solar power generating systems. We concentrate the manufacturing of the solar cells in Japan, and assemble modules in Japan, China, Europe and North America. 2) Cutting Tools Kyocera develops, manufactures and sells cutting tools, which are parts used in metal processing in industrial manufacturing that are made from composite materials based on ceramics and metal. These products are used mainly in the automotive industry. In addition, with the aim of strengthening this business, Kyocera made Unimerco Group A/S (currently Kyocera Unimerco A/S), which is a Danish-based industrial cutting tool manufacturing and sales company, a wholly-owned subsidiary in July 2011. Through this acquisition, Kyocera has added custom-made solid-type cutting tools for automobile engine processing as well as aviation and wind-power generation industries to its line-up. 3) Medical and Dental Implants Kyocera produces medical and dental implants products, which include prosthetic joints and dental prosthetics that use ceramic materials and titanium alloys. In addition to these products, Kyocera supplies a wide range of medical materials such as cardiovascular type medical equipment and advanced X-ray computer tomography diagnosis equipment. 4) Jewelry and Applied Ceramic Related Products Kyocera develops, manufactures and sells recrystallized jewelry comprised mainly of synthetic emeralds, alexandrines and rubies. These stones are manufactured using a single crystal growth technology developed by us, and are chemically and physically equivalent to natural stones. Kyocera also develops, produces and sells applied ceramic related products such as kitchen accessories utilizing ceramic characteristics of wear resistance and corrosion resistance against acidity and alkalinity. (4) Electronic Device Group Kyocera develops, manufactures and sells high quality and cost competitive electronic components and devices for the information and communication market. This field creates demand for high functionality, miniaturization, high frequency and low energy consumption. We develop, manufacture and sell high-value-added products such as miniature ceramic capacitors with high capacitance, tantalum capacitors, RF modules, miniature crystal related products like clock oscillators and connectors mainly for digital consumer equipment such as mobile phone handsets and PCs. For our electronic components and devices business, Kyocera is working to expand sales by strengthening cost competitiveness through overseas production and by collaborating with consolidated subsidiaries. We are utilizing production sites in China and Southeast Asia to further reduce costs for such products as ceramic capacitors and clock oscillators. U.S. based AVX Corporation, our consolidated subsidiary, develops, manufactures and sells ceramic capacitors, tantalum capacitors and other passive components mainly used for information and communication equipment. We are strengthening ties between our ceramic capacitor business and AVX Corporation in terms of development and production fronts and are expanding sales of Kyocera
18
Table of ContentsGroup’s electronic devices overseas by leveraging AVX Corporation’s global manufacturing and sales network. In the crystal related products business, Kyocera Kinseki Corporation (currently Kyocera Crystal Device Corporation) develops and manufactures these products while Kyocera Corporation and AVX Corporation handles the sales. We deliver thin-film products such as thermal printheads, amorphous silicon photoreceptor drums, and LCDs, mainly for office automation equipment and industrial equipment. In addition, Kyocera expanded our LCDs business in the automotive market through making Optrex Corporation (currently Kyocera Display Corporation), a specialized manufacturer of LCDs and related products, a consolidated subsidiary in February 2012. (5) Telecommunications Equipment Group This reporting segment includes mobile phone handsets business such as feature phones and smartphones and PHS mobile phone handsets and base stations. Mobile phone handsets are distributed mainly for KDDI Corporation and SOFTBANK MOBILE Corp. in Japan, as well as for U.S. telecommunication service providers such as Sprint Nextel Corporation in the overseas market. We also develop, manufacture and sell base stations, terminals and handsets for WILLCOM, Inc., which provides PHS services in Japan. (6) Information Equipment Group The major products in this reporting segment comprise page printers, copying machines and multifunctional peripherals. Our page printers are marketed under the “ECOSYS” concept, a focus on the characteristic of long life cycle, ecology and economy, which use our in-house amorphous silicon photoreceptor drums. Kyocera Mita Corporation (currently Kyocera Document Solutions Inc.) develops, manufactures and sells the products in this reporting segment. This company manufactures printers and digital multifunctional peripherals in China and develops and manufactures consumables in Japan. We currently have sales sites in approximately 30 countries and are working to increase sales of information equipment not only to industrialized countries but also to emerging countries. (7) Others This reporting segment includes revenues from information and communications service business. This segment also develops, manufactures and sells electrical insulators and synthetic resin molded parts. In addition, this segment includes revenues from environment and energy related products such as LED lighting systems. Kyocera Communication Systems Co., Ltd. operates a total telecommunications engineering business, from system development to design, construction and maintenance services in wireless base stations. This company provides various services in the information and communications market such as content distribution for smart devices and mobile phones through a data center and IT solutions business for corporations through cloud computing systems as well as system integration services. It also conducts a management consulting business based on implementation and operation of the “Amoeba Management System,” which is Kyocera’s unique management method. Kyocera Chemical Corporation develops new products by pursuing synergies with fine chemical technologies and our components technologies such as those employed by the Electronic Device Group. In addition, we are working to expand sales of LED lighting systems and related products for stores, an area of growing demand that contributes to reduced energy consumption.
19
Table of ContentsSales and Distribution Kyocera products are marketed worldwide by our sales personnel, as well as by sales companies within our group, and by independent distributors. We have regional sales and design application personnel in strategic locations to provide technical and sales support for customers and distributors. We believe that this combination of distribution channels leads to a high level of market penetration and efficient coverage of services for our customers. Most of sales in the Fine Ceramic Parts Group, the Semiconductor Parts Group and the Electronic Device Group are made directly to component and equipment manufacturers in Japan and overseas. In the solar energy business in the Applied Ceramic Products Group, solar energy modules and solar power generating systems are sold primarily to users via sales subsidiaries, distributors and their franchise chains. Cutting tools are sold to users such as automobile parts manufactures through wholesale dealers and distributors. Jewelry and applied ceramic products such as ceramic knives are sold through direct retail shops and general retailers. Dental implants, artificial bones and joint prostheses are sold mainly to dental clinics and hospitals through distributors. In the Telecommunications Equipment Group, we primarily sell products directly to telecommunications carriers in the Japanese and overseas markets. Our key sales destinations are KDDI Corporation, SOFTBANK MOBILE Corp., Sprint Nextel Corporation and WILLCOM, Inc. The Information Equipment Group sells Kyocera brand products such as ECOSYS printers, copier machines and multifunctional peripherals through distributors and wholesalers worldwide or directly to original equipment manufacturers. In the Others reporting segment, the Kyocera Communication Systems Group provides Information and Communication Technologies (ICT) business and management consulting business to general companies, public institutions and healthcare corporations as well as telecommunications engineering business to telecommunications carriers and wireless equipment vendors. Chemical materials from Kyocera Chemical Corporation are sold directly to secondary manufacturers who incorporate them into their own products. Domestic sales are made in the yen, while overseas sales are made in a variety of currencies, but predominantly in the U.S. dollars and the Euro. Sources and Availability of Raw Materials and Supplies We purchase a variety of raw materials and other materials for our businesses. The principal raw materials include alumina, zirconia, silicon nitride, silicon particles, nickel powder and epoxy resins. These raw materials are used mainly in the manufacturing of products for the Components Business. They are also the main materials supplied for use in key components such as chip sets and LCDs in the Equipment Business. Our basic policy is to procure raw materials and other materials from several companies, though we may use a single supplier if (1) the final customer selects the material supplier; or (2) the number of suppliers who can deliver high-quality raw materials or other materials to ensure the high quality of final products is limited. The purchase price of these raw materials and other materials fluctuates depending on the supply-demand situation, as well as the rising cost of certain raw materials and fuel, among others. We work hard to reduce the effect of these fluctuations and to absorb rising costs by making continuous internal improvements, including cost reductions. We have also executed long-term agreements with suppliers for certain raw materials to ensure that we have stable supply to meet plans to increase production, and a fair purchase price.
20
Table of ContentsIn fiscal 2012, we procured a sufficient level of raw materials and other materials to carry out our production plans. Patents and Licenses Our success and competitive position depend on a number of significant patents, licenses and trade secrets relating to our manufacturing and sales processes and products. All of Kyocera’s intellectual properties are considered to be important. However, Kyocera believes that neither its expiration nor termination of any specific intellectual properties would have significant impact on Kyocera’s entire operation. The following table sets forth information, as of March 31, 2012, with respect to our significant patents and license agreements.
Competitive Position (1) Fine Ceramic Parts Group Since our founding, Kyocera has worked continuously to develop fine ceramic materials and products to cultivate new markets. At present, we provide fine ceramic products to a wide range of industries, notably the information and communication market, the industrial machinery market and the automotive market. Although competitors in this reporting segment are mainly Japanese manufacturers and differ in each market, Kyocera has differentiated ourselves to become a global market leader through a competitive advantage in materials technology accumulated since our founding, and in outstanding production technology and capability, which enables us to meet customer requirements, particularly in terms of product dimension, size and volume. We have also established an internal integrated system from fundamental research to next-generation product development through our R&D efforts, and this differentiates us from competitors. (2) Semiconductor Parts Group In this reporting segment, our goal is to further strengthen our competitive position in both ceramic and organic package businesses in the global market. To achieve this, we strive to provide high-value-added products and to develop new applications such as in the digital consumer equipment market, optical and wireless communications markets, and in the automotive and medical industries, etc. In the ceramic package business, Kyocera has already become a global market leader. We aim to further increase customer satisfaction by utilizing our expertise in development and manufacturing technologies. In the organic package field, Kyocera SLC Technologies Corporation (KST) produces flip-chip packages for servers, routers and game consoles. KST also produces system in package substrates for mobile phone handsets.
21
Table of ContentsIn the flip-chip package market, fine design and high reliability are required, and we aim to become a leading company on a global technology front. In this market, we have several competitors which are Japanese and Asian manufactures. In pursuit of excellence in engineering and production technology for finer pitch, smaller and thinner packages, we aim to expand our market share. (3) Applied Ceramic Products Group The solar energy industry has a high number of competitors worldwide. In addition, many kinds of solar products using various raw materials and production methods have been introduced to the market, and competition on price and technological fronts is intensifying every year. Most recently, Chinese manufacturers have emerged as competitors for solar power products, including solar cells and modules, and the competitive cost structure of these new entrants has been putting further downward pressure on prices. Despite the highly competitive environment, Kyocera has established a competitive advantage based on more than 35 years of experience in the development of solar power generation products. Our products realize high conversion efficiency and long-term product reliability based on accumulated development and production technologies, and this is one of Kyocera’s strengths. We also manufacture multicrystalline silicon solar cells and modules in-house, from silicon ingots to modules, enabling us to reduce costs and enhance productivity in every manufacturing process. Through these efforts, Kyocera has generated top-class results in installing solar power generation systems for public and industrial use in Japan. Going forward, Kyocera will promote the proliferation of high-value-added products through the sale of systems such as the Home Energy Management System (HEMS), which combines solar power generation systems with battery storage units. Kyocera is one of the largest suppliers of cutting tools in Japan. Our cutting tools are employed primarily in automotive related markets. Although we have many competitors, we provide a diverse array of cutting tools for machine tools based on advanced ceramic materials technology. By making Kyocera Unimerco A/S a consolidated subsidiary, we aim to increase sales in the European market and expand business in new markets such as the aviation and wind-power generation markets. (4) Electronic Device Group Kyocera develops, manufactures and sells a wide variety of capacitors, crystal related products, connectors and thin-film products. One of our competitive advantages is that we can supply a wide variety of components. AVX Corporation and Kyocera Kinseki Corporation (currently Kyocera Crystal Device Corporation), our subsidiaries, are global suppliers in the tantalum capacitor market and the market for small-size crystal related products, respectively. In thin-film products such as thermal printheads and LCDs, we are expanding business with a focus on industrial applications. We are also a major supplier of thermal printheads equipped in printers such as barcode printers. In the LCD business, we added Optrex Corporation (currently Kyocera Display Corporation), which commands a high share in LCDs for automotive applications, to the Kyocera Group, and aim to expand business by further strengthening our competitiveness. (5) Telecommunications Equipment Group In the Japanese market, our main competitors for mobile phone handsets are Japanese and overseas manufacturers. In the mobile phone handset market outside Japan, Kyocera competes with U.S., Asian and European manufacturers. Our production volume ranks in the top class among Japanese manufacturers, even though our global market share is not large. In terms of PHS related products, our main competitors are Japanese manufacturers, and we are a market leader in the PHS handset and base station businesses.
22
Table of Contents(6) Information Equipment Group We have many competitors in Japan and abroad in the information equipment business, which includes printers, copying machines and multifunctional peripherals. Although the scale of sales in this reporting segment is relatively small compared with our competitors, and our global market share is not high, our major strength is our ability to differentiate our products from those of the competitors. Kyocera’s information equipment is based on the “ECOSYS” concept, which realizes environmental friendliness through longer life and reduced running costs for users by equipping printers and other information equipment with an amorphous silicon photoreceptor drum that was developed in-house and has exceptional resistance to wear. Our ECOSYS concept is used in the majority of our printers, copying machines and multifunctional peripherals in both black & white and color, and from low-speed to high-speed models. These products are recognized as green products for office equipment, particularly in Europe, where environmental awareness is particularly high. We also have been increasing the coverage of our dealers through proactive mergers and acquisitions overseas. Government Regulation There are various governmental regulations specifically applicable to industries in which Kyocera operates, including regulations relating to business and investment approvals, export regulations, tariffs, intellectual properties, consumer and business taxation, exchange controls, and material procurement in public works. We do not believe that such governmental regulations currently have significant effects on Kyocera’s business. Kyocera is also subject to various regulations concerning the environment of the countries where we operate. These regulations cover air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals used or generated in our manufacturing process, employee health and safety, labeling or other notifications with respect to the content or other aspects of our processes, products or packaging, restrictions on the use of certain materials in or on design aspects of our products or product packaging, and responsibility for disposal of products or product packaging. They also include several regulations for chemical substance in products, such as the European Union Directive on the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS Directive), the European Union Directive on Waste Electrical and Electronic Equipment (WEEE Directive), the European Union’s Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), and similar regulations required in other countries and areas including China. Based on our periodic reviews of the operating policies and practices at all of our facilities, we believe that we are not involved in any pending or threatened proceedings that would require curtailment of our business, and our operations are currently in substantial compliance, in all material respects, with all applicable environmental laws and regulations. Accordingly, the cost of continuing compliance will not be considered to have a material effect on our financial condition or results of operations. In addition, AVX Corporation, a subsidiary in the United States, is subject to federal, state and local laws and regulations concerning the environment in the United States. Specifically, AVX Corporation 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 has generally been construed to authorize 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 Corporation also are, or have been, involved in site investigation and clean-up activities. AVX Corporation believes that liability resulting from these sites will be apportioned between AVX Corporation and other PRPs.
23
Table of ContentsTo resolve its liability at the sites at which AVX Corporation has been named a PRP, AVX Corporation 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. In 1991, in connection with a consent decree, AVX Corporation paid ¥8,878 million ($66 million), plus interest, toward the environmental conditions at, and remediation of, New Bedford Harbor in the Commonwealth of Massachusetts (the harbor) in settlement with the United States and the Commonwealth of Massachusetts, subject to reopener provisions, including a reopener if certain remediation costs for the site exceed ¥10,701 million ($130.5 million). In 2007, AVX Corporation received notification from the EPA and the Department of Justice indicating that the United States was preparing to exercise the cost reopener. In March 2011, the EPA issued the Fourth Explanation of Significant Differences (ESD #4) that explains the planned changes to the existing remedial action plan for the harbor to include the use of a confined aquatic disposal (CAD) cell, along with interim off-site transportation and disposal of certain contaminated dredge spoils, and the continued use of long-term on-site storage for other contaminated dredge spoils. ESD #4 provides future cost estimates under the new remedial action plan (in addition to costs incurred to date) ranging from ¥29,684 million ($362 million) to ¥32,882 million ($401 million), net present value, based on certain criteria included in the ESD #4. The EPA has indicated that remediation costs through December 31, 2011 were approximately ¥37,392 million (approximately $456 million), not all of which are subject to the reopener provisions. On April 18, 2012, the EPA issued to AVX Corporation a Unilateral Administrative Order (UAO) directing AVX Corporation to perform the Remedial Design, the Remedial Action and Operation and Maintenance for the harbor clean-up. The effective date set forth in the UAO is June 18, 2012, but, while the parties are in mediation discussions, AVX Corporation has until July 23, 2012 to inform the EPA if it intends to comply with the UAO. AVX Corporation has not received complete documentation of past response costs from the EPA and therefore has not yet completed an investigation of the monies spent or available defenses in light of these notifications and indications. AVX Corporation has also not yet determined whether AVX Corporation 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 apportioned to parties other than AVX Corporation. AVX Corporation anticipates further discussions with the U.S. Department of Justice, the EPA, and the Commonwealth of Massachusetts in the first half of the year ending March 31, 2013. AVX Corporation is continuing to assess the UAO as well as potential defenses and other actions with respect to the site. However, in light of the foregoing, AVX Corporation considers it to be probable and reasonably estimable that AVX Corporation will incur cost within a range of approximately ¥7,900 million (approximately $100 million) to ¥59,860 million ($730 million), with no amount within that range representing a more likely outcome until such time as AVX Corporation completes an investigation with regard to monies spent, available defenses and other matters. AVX Corporation recognizes liabilities for environmental exposures when analysis indicates that 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, AVX Corporation accrues 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. Accordingly, AVX Corporation has recorded a charge for the year ended March 31, 2012 of ¥7,900 million ($100 million) with respect to this matter. Kyocera included this charge in selling, general and administrative expenses in the consolidated statements of income for the year ended March 31, 2012.
24
Table of ContentsWe had 234 subsidiaries and affiliates as of March 31, 2012. Our management structure is based on a business segment structure. Therefore, the management of each segment is conducted uniformly regardless of whether our operations are conducted by the parent company or by one of our subsidiaries. The following table sets forth information, as of March 31, 2012, with respect to our significant subsidiaries.
25
Table of Contents
26
Table of Contents
In addition to the above consolidated subsidiaries, Kyocera had 188 other consolidated subsidiaries as of March 31, 2012. Kyocera also had interests in one subsidiary accounted for by the equity method and 10 affiliates accounted for by the equity method as of March 31, 2012.
27
Table of ContentsNames of the consolidated subsidiaries described below were changed on April 1, 2012, respectively and the following table sets forth their former and current names.
A name of the consolidated subsidiary described below will be changed on July 1, 2012 and the following table sets forth its current and new names.
AVX Corporation, in our Electronic Device Group, is one of our most significant subsidiaries. Most of the electronic devices we produce for overseas sales are distributed through AVX Corporation by utilizing AVX Corporation’s wide range of marketing channels. In addition, we market passive components produced by AVX Corporation in the Japanese market. We also utilize AVX Corporation’s manufacturing process for ceramic capacitors to improve productivity and to enhance our competitiveness. In addition, AVX Corporation introduced our materials technologies into its ceramic capacitor production. We have been seeking better ways to cooperate in expanding our electronic device businesses. Currently, four of our directors are members of AVX Corporation’s board of directors and AVX Corporation’s chief executive officer is one of our directors. Within the Electronic Device Group, we have a close relationship with AVX Corporation in marketing, manufacturing, and research and development, and we are seeking and pursuing synergies to be a leading passive component manufacturer. AVX Corporation posted net income of $152,805 thousand in fiscal 2012 and its performance contributed significantly to Kyocera’s results of operations and financial condition. See Item 5.A. “Operating Results” of this annual report on Form 20-F. D. Property, Plants and Equipment As of March 31, 2012, we had property, plants and equipment with a net book value of ¥260,537 million. During the five years ended March 31, 2012, we invested a total of ¥323,113 million for additions to property, plants and equipment. Our property, plants and equipment are subject to some material encumbrances or environmental issues. See Item 5.A. “Operating Results” of this annual report on Form 20-F.
28
Table of ContentsThe following table sets forth information, as of March 31, 2012, with respect to our manufacturing facilities with floor space of more than 250,000 square feet.
29
Table of Contents
30
Table of Contents
Item 4A. Unresolved Staff Comments We are a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934. There are no written comments which have been provided by the staff of the Securities and Exchange Commission regarding our periodic reports under that Act not less than 180 days before the end of the fiscal year ended March 31, 2012 and which remain unresolved as of the date of the filing of this annual report on Form 20-F with the Commission. Item 5. Operating and Financial Review and Prospects You should read the discussion of our financial condition and results of operations together with our consolidated financial statements and information included in this annual report on Form 20-F. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Item 3.D. “Risk Factor” and elsewhere in this annual report on Form 20-F. Overview Kyocera develops, produces and distributes various kinds of products primarily for the information and communications market and environment and energy market worldwide. Kyocera Corporation was established in 1959 as a manufacturer of ceramic parts for electronic equipment and has been expanding its business mainly through mergers and acquisitions, as well as applying its fine ceramic technologies to the areas of semiconductor parts, electronic devices, telecommunication, metal processing, medical and dental implants and solar energy fields. Kyocera develops, produces and distributes equipment such as printers and multifunctional peripherals as well as mobile phone handsets. Kyocera earns revenue and income and generates cash through sales of these products. Kyocera’s operations are categorized 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. Kyocera groups the Fine Ceramic Parts Group, the Semiconductor Parts Group, the Applied Ceramic Products Group and the Electronic Device Group into one main business referred to as the “Components Business” and groups the Telecommunications Equipment Group and the Information Equipment Group into another main business referred to as the “Equipment Business.”
31
Table of ContentsIn fiscal 2012, the Japanese economy stagnated overall, due to continued appreciation of the yen against the Euro and the U.S. dollar and a decrease in exports, despite the resolution of disruptions in production activities and the supply chain following the Great East Japan Earthquake. The European economy experienced a continued economic downturn, due to reduced personal consumption and investment as the financial crisis in Europe worsened. In contrast, the U.S. economy continued to recover moderately, due mainly to growth in personal consumption and private capital investment. The Chinese economy continued to expand, primarily supported by strong domestic demand in spite of signs of a slowdown in export growth. In the information and communications market, which is the principal market for Kyocera, demand for items such as mobile phone handsets, personal computers and flat-screen TVs was sluggish. In addition, component inventory adjustments at equipment manufacturers persisted due to stagnation in production activity for products including digital cameras resulting from the prolonged impact of severe flooding in Thailand. As a result, component demand, mainly for digital consumer equipment, fell below the level recorded in fiscal 2011. Average exchange rates for fiscal 2012 were ¥79 to the U.S. dollar, marking appreciation of ¥7 (approximately 8%) from ¥86 for fiscal 2011, and ¥109 to the Euro, marking appreciation of ¥4 (approximately 4%) from ¥113 for fiscal 2011. As a result, net sales and income before income taxes for fiscal 2012 were adversely affected by approximately ¥40 billion and ¥10 billion, respectively, compared with fiscal 2011. Consolidated net sales for fiscal 2012 decreased by ¥76,054 million, or 6.0%, to ¥1,190,870 million, compared with ¥1,266,924 million for fiscal 2011, due primarily to a decline in component demand for digital consumer equipment and a decrease in sales in the Telecommunications Equipment Group in addition to the impact of the yen’s appreciation. Profit from operations decreased by ¥58,249 million, or 37.4%, to ¥97,675 million, compared with ¥155,924 million for fiscal 2011. In addition, income before income taxes decreased by ¥57,439 million, or 33.3%, to ¥114,893 million, compared with ¥172,332 million for fiscal 2011. Net income attributable to shareholders of Kyocera Corporation for fiscal 2012 decreased by ¥43,091 million, or 35.2%, to ¥79,357 million, compared with ¥122,448 million for fiscal 2011.
32
Table of ContentsResults of Operations Fiscal 2012 compared with Fiscal 2011 The following table shows a summary of Kyocera’s results of operations for fiscal 2011 and fiscal 2012:
Net Sales Net sales in fiscal 2012 decreased by ¥76,054 million, or 6.0%, to ¥1,190,870 million, compared with ¥1,266,924 million in fiscal 2011. In fiscal 2012, net sales decreased compared with fiscal 2011 due primarily to a decline in component demand for digital consumer equipment and a decrease in sales in the Telecommunications Equipment Group in addition to the impact of the yen’s appreciation. Due to the impact of the yen appreciation against the U.S. dollar and the Euro, net sales after translation into the yen in fiscal 2012 were down by approximately ¥40,000 million, compared with fiscal 2011. Net sales in the Components Business in fiscal 2012 decreased by ¥48,942 million, or 7.1%, to ¥642,297 million, compared with ¥691,239 million in fiscal 2011. Net sales in the Equipment Business in fiscal 2012 decreased by ¥42,958 million, or 9.2%, to ¥422,126 million, compared with ¥465,084 million in fiscal 2011. For details regarding net sales, please refer to page 37, “Business Overview by Reporting Segment.”
33
Table of ContentsNet Sales by Geographic Segment The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2011 and fiscal 2012, distinguishing between domestic and overseas sales and, with respect to overseas sales, showing the geographical areas in which such sales were made:
Sales in Japan were flat compared with fiscal 2011. Despite an increase in sales at Kyocera Communication Systems Co., Ltd., sales in Japan in the solar energy business decreased resulting from decreased product prices, as well as sluggish demand for components used in digital consumer equipment. Sales in Asia decreased compared with fiscal 2011. Sales in the Electronic Device Group and the Semiconductor Parts Group decreased due to a decrease in demand for components used in digital consumer equipment, as well as the yen’s appreciation. Sales in Europe decreased compared with fiscal 2011 due to a decrease in sales in the Applied Ceramic Products Group resulting primarily from slowed market growth in Europe and a steep decline in product prices in solar energy business. Sales in the U.S. decreased compared with fiscal 2011 due to a decline in sales volume of mobile phone handsets in the Telecommunications Equipment Group and to the yen’s appreciation against the U.S. dollar. Sales for Others decreased compared with fiscal 2011 due mainly to decreased sales in the Semiconductor Parts Group and the Electronic Device Group resulting from sluggish demand for components. Cost of Sales and Gross Profit In fiscal 2012, cost of sales decreased by ¥18,726 million, or 2.1%, to ¥870,143 million from ¥888,869 million in fiscal 2011. This is due to decreases in raw material costs and production supplies costs resulting from a decrease in production volume. Raw material costs of ¥333,171 million accounted for 38.3% of total cost of sales in fiscal 2012, which decreased by ¥8,271 million, or 2.4%, from ¥341,442 million in fiscal 2011. Labor costs of ¥170,995 million accounted for 19.7% of total cost of sales in fiscal 2012, which decreased by ¥312 million, or 0.2%, from ¥171,307 million in fiscal 2011. Depreciation expense of ¥52,238 million accounted for 6.0% of total cost of sales in fiscal 2012, which increased by ¥2,034 million, or 4.1%, from ¥50,204 million in fiscal 2011 due to increased capital expenditures in fiscal 2011. As a result, gross profit in fiscal 2012 decreased by ¥57,328 million, or 15.2%, to ¥320,727 million from ¥378,055 million in fiscal 2011. The gross profit ratio to net sales decreased by 2.9 percentage points from 29.8% to 26.9%.
34
Table of ContentsSelling, General & Administrative Expenses and Profit from Operations Selling, general and administrative expenses of ¥223,052 million in fiscal 2012 remained roughly constant compared with ¥222,131 million in fiscal 2011. This is due to the recording of ¥7,900 million of an environmental charge at AVX Corporation, a consolidated subsidiary of Kyocera Corporation, which was offset by decreases in labor costs and other expenses. The ratio of selling, general and administrative expenses to net sales was 18.7% in fiscal 2012, an increase of 1.2 percentage points as compared with 17.5% in fiscal 2011. Labor costs of ¥115,258 million accounted for 51.7% of total selling, general and administrative expenses in fiscal 2012, which decreased by ¥1,501 million, or 1.3%, from ¥116,759 million in fiscal 2011. Sales promotion and advertising costs of ¥34,772 million accounted for 15.6% in fiscal 2012, which increased by ¥242 million, or 0.7%, from ¥34,530 million in fiscal 2011. Depreciation expense of ¥13,790 million accounted for 6.2% in fiscal 2012, which increased by ¥116 million, or 0.8%, from ¥13,674 million in fiscal 2011. Profit from operations in fiscal 2012 decreased by ¥58,249 million, or 37.4%, to ¥97,675 million, compared with ¥155,924 million in fiscal 2011. The operating margin decreased by 4.1 percentage points to 8.2% in fiscal 2012, compared with 12.3% in fiscal 2011. Interest and Dividend Income Interest and dividend income in fiscal 2012 increased by ¥1,003 million, or 7.7 %, to ¥13,966 million, compared with ¥12,963 million in fiscal 2011. This was due mainly to an increase in dividend income from KDDI Corporation. Interest Expense Interest expense in fiscal 2012 decreased by ¥217 million, or 9.6%, to ¥2,042 million, compared with ¥2,259 million in fiscal 2011. This was due mainly to a decrease in long-term debt at TA Triumph-Adler GmbH. Foreign Currency Translation During fiscal 2012, the average exchange rate for the yen appreciated by ¥7, or 8.1%, against the U.S. dollar, and by ¥4, or 3.5%, against the Euro, as compared with fiscal 2011. At March 31, 2012, the yen appreciated by ¥1, or 1.2%, against the U.S. dollar, and by ¥8, or 6.8%, against the Euro, as compared with March 31, 2011. Kyocera recorded foreign currency transaction gains of ¥4,533 million in fiscal 2012. Kyocera typically enters into forward exchange contracts to minimize currency exchange risks on foreign currency denominated receivables and payables. Kyocera confines its use of derivative financial instruments for hedging its foreign exchange exposures, and does not utilize derivative transactions for trading purposes. Gains and Losses from Investments Kyocera’s losses on equity method investments in fiscal 2012 resulted in ¥36 million, a decrease of ¥124 million, or 77.5%, compared with ¥160 million in fiscal 2011. Gains on sales of securities in fiscal 2012 increased by ¥285 million, or 548.1%, to ¥337 million, compared with ¥52 million in fiscal 2011. Losses on impairment of securities in fiscal 2012 increased by ¥919 million, or 269.5%, to ¥1,260 million, compared with ¥341 million in fiscal 2011.
35
Table of ContentsIncome before Income Taxes Income before income taxes in fiscal 2012 decreased by ¥57,439 million, or 33.3%, to ¥114,893 million compared with ¥172,332 million in fiscal 2011. Margin of income before income taxes against net sales decreased by 4.0 percentage points to 9.6% compared with 13.6% in fiscal 2011. A decline in income before income taxes was less than a decline in profit from operations due to increases in dividend income and foreign currency transaction gains, despite an increase in losses on impairment of securities. Affected by the yen appreciation against the U.S. dollar and the Euro, income before income taxes after translation into the yen for fiscal 2012 was down by approximately ¥10,000 million compared with fiscal 2011. Operating profit in the Components Business in fiscal 2012 decreased by ¥57,124 million, or 47.6%, to ¥62,871 million, compared with ¥119,995 million in fiscal 2011. Operating profit in the Equipment Business in fiscal 2012 increased by ¥2,954 million, or 10.6%, to ¥30,920 million, compared with ¥27,966 million in fiscal 2011. For a detail of income before taxes, please refer to page 37, “Business Overview by Reporting Segment.” Income Taxes Current and deferred income taxes in fiscal 2012 decreased by ¥12,079 million, or 28.6%, to ¥30,135 million compared with ¥42,214 million in fiscal 2011. The effective tax rate of 26.2% in fiscal 2012 was 1.7 percentage points higher than the effective rate of 24.5% in fiscal 2011. Despite a reversal of deferred tax liabilities due to a revision of Japanese tax laws in fiscal 2012, the effective tax rate increased due to decreased reversals of valuation allowance against deferred tax assets compared to fiscal 2011. The effective tax rate in fiscal 2012 was lower than the Japanese statutory tax rate of 41.0% by 14.8 percentage points. This was mainly due to a decrease related to reversal of deferred tax liabilities regarding the revision of Japanese tax laws by 7.2 percentage points and a decrease related to the difference in statutory tax rates of foreign subsidiaries by 6.4 percentage points. Net Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests in fiscal 2012 amounted to ¥5,401 million and noncontrolling interests related to AVX Corporation, which accounted for approximately 30% of noncontrolling ownership interests, amounted to ¥3,494 million. Net income attributable to noncontrolling interests in fiscal 2012 decreased by ¥2,269 million, or 29.6%, compared with ¥7,670 million in fiscal 2011. This was due mainly to a decrease in net income at AVX Corporation.
36
Table of ContentsBusiness Overview by Reporting Segment The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2011 and fiscal 2012 by the seven reporting segments:
The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2011 and fiscal 2012 by the seven reporting segments:
(1) Fine Ceramic Parts Group Sales in this reporting segment for fiscal 2012 increased by ¥4,103 million, or 5.4%, to ¥80,372 million, compared with ¥76,269 million in fiscal 2011. The increase in sales was due mainly to higher sales of automotive parts in Europe and growing component demand in the LED related markets.
37
Table of ContentsOperating profit in this reporting segment for fiscal 2012 increased by ¥653 million, or 5.5%, to ¥12,622 million, compared with ¥11,969 million in fiscal 2011. Despite an increase of approximately ¥2,200 million in depreciation and R&D expenses, higher sales and cost reduction measures pushed operating profit up by around ¥3,500 million. Sales and operating profit were adversely affected by approximately ¥2,000 million and ¥500 million, respectively, compared with fiscal 2011, due to the yen’s appreciation. (2) Semiconductor Parts Group Sales in this reporting segment for fiscal 2012 decreased by ¥21,267 million, or 12.2%, to ¥153,420 million, compared with ¥174,687 million in fiscal 2011. Sales for fiscal 2012 were down due to sluggish demand for components used in digital consumer equipment coupled with prolonged component inventory adjustments by equipment makers, primarily as a result of stagnant production activity for such items as digital cameras caused by severe flooding in Thailand. In addition, major product prices declined by approximately 10% compared with the end of fiscal 2011 in line with the miniaturization of components. Operating profit in this reporting segment for fiscal 2012 decreased by ¥9,577 million, or 25.7%, to ¥27,754 million, compared with ¥37,331 million in fiscal 2011. This included a decrease of approximately ¥4,500 million due to lower sales, and of approximately ¥1,000 million due to an increase in depreciation. Sales and operating profit were adversely affected by approximately ¥5,000 million and ¥2,500 million, respectively, compared with fiscal 2011, due to the yen’s appreciation. (3) Applied Ceramic Products Group Sales in this reporting segment for fiscal 2012 decreased by ¥17,858 million, or 9.0%, to ¥179,784 million, compared with ¥197,642 million in fiscal 2011. Sales in the cutting tool business increased due to growth in sales mainly for the automotive market as well as the contribution from Kyocera Unimerco A/S, which became a consolidated subsidiary in July 2011. Overall segment sales were down, however, due to a decline in sales for the solar energy business, the core business in this reporting segment. Total shipment volume in the solar energy business slightly decreased compared with fiscal 2011 due to a decline in shipments for the European market in particular despite growth in demand in Japan. Nevertheless, sales in the solar energy business decreased as product prices dropped by approximately 30% compared with fiscal 2011 due to intensifying competition. Operating profit in this reporting segment for fiscal 2012 decreased by ¥22,590 million, or 77.8%, to ¥6,459 million, compared with ¥29,049 million in fiscal 2011. Gross profit decreased by approximately ¥20,000 million compared with fiscal 2011 due mainly to lower sales and unit price declines in the solar energy business and the recognition of impairment loss on inventories. Sales and operating profit were adversely affected by approximately ¥4,000 million and ¥500 million, respectively, compared with fiscal 2011, due to the yen’s appreciation. (4) Electronic Device Group Sales in this reporting segment for fiscal 2012 decreased by ¥13,920 million, or 5.7%, to ¥228,721 million, compared with ¥242,641 million in fiscal 2011. A decline in demand of components for digital consumer equipment such as mobile phone handsets and PCs and the yen’s appreciation caused a negative impact of
38
Table of Contentsapproximately ¥27,000 million on sales, despite the new sales contribution from Optrex Corporation (currently Kyocera Display Corporation), which was made a consolidated subsidiary in February 2012. As a result, sales in this segment decreased compared with fiscal 2011. Operating profit in this reporting segment for fiscal 2012 decreased by ¥25,610 million, or 61.5%, to ¥16,036 million, compared with ¥41,646 million in fiscal 2011. This included a decrease of approximately ¥14,000 million due to lower sales and a lower capacity utilization rate. In addition, AVX Corporation recorded an environmental remediation charge of ¥7,900 million in fiscal 2012. Sales and operating profit were adversely affected by approximately ¥13,000 million and ¥3,000 million, respectively, compared with fiscal 2011, due to the yen’s appreciation. (5) Telecommunications Equipment Group Sales in this reporting segment for fiscal 2012 decreased by ¥46,499 million, or 20.7%, to ¥178,669 million, compared with ¥225,168 million in fiscal 2011. The decrease in sales was due mainly to an approximately 30% decline in sales volume of mobile phone handsets affected by inventory adjustments at key customers overseas. Operating profit decreased by ¥652 million, or 30.7%, to ¥1,469 million, compared with ¥2,121 million in fiscal 2011. A decline in sales caused a negative impact of ¥4,500 million on operating profit. However, operating profit in this reporting segment decreased by only ¥652 million due to our various cost reduction efforts amounting to ¥5,500 million including a reduction in R&D expenses through selecting and centralizing R&D themes. Sales and operating profit were adversely affected by approximately ¥6,000 million and ¥1,500 million, respectively, compared with fiscal 2011, due to the yen’s appreciation. (6) Information Equipment Group Sales in this reporting segment for fiscal 2012 increased by ¥3,541 million, or 1.5%, to ¥243,457 million, compared with ¥239,916 million in fiscal 2011. Despite sales were adversely affected by approximately ¥10,000 million compared with fiscal 2011 due to the yen’s appreciation, an increase in sales of color-capable multifunctional peripherals led to an overall increase in segment sales. Operating profit in this reporting segment for fiscal 2012 increased by ¥3,606 million, or 14.0%, to ¥29,451 million, compared with ¥25,845 million in fiscal 2011. Operating profit was adversely affected by approximately ¥2,000 million compared with fiscal 2011 due to the yen’s appreciation as well as increasing in advertising cost for promotion by approximately ¥1,000 million. However, an increase in sales and decreases in R&D expenses and depreciation pushed operating profit up by approximately ¥7,000 million. As a result, total operating profit increased compared with fiscal 2011. Sales and operating profit were adversely affected by approximately ¥10,000 million and ¥2,000 million, respectively, compared with fiscal 2011, due to the yen’s appreciation. (7) Others Sales in this reporting segment for fiscal 2012 increased by ¥12,604 million, or 9.0%, to ¥151,987 million, compared with ¥139,383 million in fiscal 2011. Sales contribution of new products such as LED lighting systems produced a positive impact of approximately ¥10,000 million. However, operating profit in this reporting segment for fiscal 2012 decreased by ¥1,597 million, or 16.5%, to ¥8,054 million, compared with ¥9,651 million in fiscal 2011. This decrease in operating profit was due mainly to an increase of approximately ¥1,000 million in R&D expenses particularly for the development of new businesses.
39
Table of ContentsSales and operating profit were adversely affected by approximately ¥500 million and ¥100 million, respectively, compared with fiscal 2011, due to the yen’s appreciation. (8) Corporate Corporate income and losses mainly constitute gains or losses related to financial assets, and income related to management supporting service provided by Kyocera’s head office to each reporting segment. Corporate income decreased by ¥3,006 million, or 17.8%, to ¥13,876 million, compared with ¥16,882 million in fiscal 2011. This was mainly due to an increase in losses on impairment of securities. Results of Operations Fiscal 2011 compared with Fiscal 2010 The following table shows a summary of Kyocera’s results of operations for fiscal 2010 and fiscal 2011:
The Corporate Reorganization Procedure for WILLCOM, Inc. Since October 2004, Kyocera Corporation owned a 30% interest in WILLCOM, Inc., which is engaged in the personal handy phone system (PHS) business. Kyocera sells PHS handsets and PHS base stations to WILLCOM, Inc. Kyocera accounted for its investment in WILLCOM, Inc. as an equity method investment. On September 24, 2009, WILLCOM, Inc. applied and was accepted to undergo Alternative Dispute Resolution with the Japanese Association of Turnaround Professionals (JATP), a process for corporate revitalization
40
Table of Contentsprescribed in the Act on Special Measures for Industrial Revitalization. The process of Alternative Dispute Resolution is not a legal procedure like a bankruptcy or a corporate reorganization procedure, but rather constitutes a flexible private settlement mechanism that allows the subject company to continue its daily commercial operations, while securing fairness through the involvement of the JATP. The JATP has been authorized by the Minister of Economy, Trade and Industry to act as an unbiased intermediary to achieve resolution among relevant parties. During the three months ended December 31, 2009, Kyocera recognized an impairment loss of ¥19,987 million on its investment in WILLCOM, Inc., recorded as equity in losses of affiliates, reflecting management’s belief that the investment might not be recoverable. On February 18, 2010, WILLCOM, Inc. filed a petition with the Tokyo District Court for commencement of corporate reorganization procedures and applied to the Enterprise Turnaround Initiative Corporation of Japan (ETIC) for support, after terminating the process of Alternative Dispute Resolution. On March 12, 2010, the Tokyo District Court agreed to commence the corporate reorganization procedures. Upon such decision, most of the directors of WILLCOM, Inc., including all of those simultaneously serving as directors of Kyocera, resigned, and trustees and acting trustees were appointed by the Tokyo District Court. On the same day, the ETIC agreed to provide support to WILLCOM, Inc. Due to the commencement of the corporate reorganization procedures, Kyocera lost significant influence over WILLCOM, Inc. and therefore discontinued its application of equity method accounting. Taking into consideration the decision to commence corporate reorganization procedures, Kyocera recognized a bad debt loss of ¥8,961 million on receivables from WILLCOM, Inc., recorded as selling, general and administrative expenses in the Telecommunications Equipment Group for the year ended March 31, 2010, based on publicly disclosed information such as the outline of the business revitalization plan of WILLCOM, Inc., etc. On August 2, 2010, WILLCOM, Inc. entered into a sponsor agreement with SOFTBANK CORP. SOFTBANK CORP. agreed to dispatch a business trustee to WILLCOM, Inc. and to provide necessary support for business operations and execution of the reorganization plan. On October 14, 2010, the trustees of WILLCOM, Inc. filed the reorganization plan with the Tokyo District Court. Based on the filed reorganization plan, during the three months ended September 30, 2010, Kyocera recognized an additional bad debt loss of ¥708 million on receivables from WILLCOM, Inc., in selling, general and administrative expenses in the Telecommunications Equipment Group. On November 30, 2010, the filed reorganization plan was approved by the creditors’ committees in written vote and subsequently by the Tokyo District Court. As Kyocera has continued to sell PHS handsets and PHS base stations to WILLCOM, Inc, the implementation of the corporate reorganization plan and WILLCOM, Inc.’s business performance may still have a significant effect on Kyocera’s consolidated results of operations, financial condition and cash flows. Net Sales Net sales in fiscal 2011 increased by ¥193,119 million, or 18.0%, to ¥1,266,924 million, compared with ¥1,073,805 million in fiscal 2010. In fiscal 2011, the Japanese economy as well as the U.S. and the European economy recovered and the Asian economy led by China continued to expand strongly. Under these circumstances, net sales increased in spite of the yen appreciation compared with fiscal 2010. Affected by the yen appreciation against the U.S. dollar and the Euro, net sales after translation into the yen in fiscal 2011 were down by approximately ¥68,000 million, compared with fiscal 2010.
41
Table of ContentsNet sales in the Components Business in fiscal 2011 increased by ¥140,704 million, or 25.6%, to ¥691,239 million, compared with ¥550,535 million in fiscal 2010. Net sales in the Equipment Business in fiscal 2011 increased by ¥43,601 million, or 10.3%, to ¥465,084 million, compared with ¥421,483 million in fiscal 2010. For detail of net sales, please refer to page 45, “Business Overview by Reporting Segment.” Net Sales by Geographic Segment The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2010 and fiscal 2011, distinguishing between domestic and overseas sales and, with respect to overseas sales, showing the geographical areas in which such sales were made:
Sales in Japan for fiscal 2011 increased compared with fiscal 2010. Sales in the solar energy business in the Applied Ceramic Products Group increased. Sales in the Telecommunications Equipment Group also increased due to an increase in sales volume of mobile phone handsets and PHS handsets. Furthermore, sales in the Electronic Device Group grew mainly for digital consumer equipment. Overseas sales, which comprised 55.8% of consolidated net sales, increased by ¥103,879 million, or 17.2%, to ¥707,041 million, compared with ¥603,162 million in fiscal 2010. Sales in the United States for fiscal 2011 increased compared with fiscal 2010. This was due to sales increase in the Telecommunications Equipment Group led by an increase in sales volume of mobile phone handsets through launches of new products as well as sales increase in the Semiconductor Parts Group and the Electronic Device Group. Sales in Asia for fiscal 2011 increased compared with fiscal 2010. This was due to sales increase in the Electronic Device Group and the Semiconductor Parts Group increased led by an increase in component demand, reflecting expanded production of digital consumer equipment. Sales in Europe for fiscal 2011 increased compared with fiscal 2010. This was due to sales increase in the Electronic Device Group and the Fine Ceramic Parts Group led by an increase in component demand for digital consumer equipment and for automotive related markets, etc. Sales for Others for fiscal 2011 increased compared with fiscal 2010. This was due to sales increase in the Information Equipment Group, the Electronic Device Group and the Semiconductor Parts Group.
42
Table of ContentsCost of Sales and Gross Profit In fiscal 2011, cost of sales increased by ¥100,899 million, or 12.8%, to ¥888,869 million from ¥787,970 million in fiscal 2010. Although raw material costs increased in line with an increase in sales volume, the ratio of cost of sales to net sales in fiscal 2011 decreased 3.2 percentage points to 70.2% from 73.4% in fiscal 2010 due to our continuing cost-cutting measures and improvement of productivity. Raw material costs of ¥341,442 million accounted for 38.4% of total cost of sales in fiscal 2011, which increased by ¥51,876 million, or 17.9%, from ¥289,566 million in fiscal 2010. Labor costs of ¥171,307 million accounted for 19.3% of total cost of sales in fiscal 2011, which increased by ¥16,367 million, or 10.6%, from ¥154,940 million in fiscal 2010. Depreciation expense of ¥50,204 million accounted for 5.6% of total cost of sales in fiscal 2011, which decreased by ¥1,017 million, or 2.0%, from ¥51,221 million in fiscal 2010 due to reduced capital expenditures. As a result, gross profit in fiscal 2011 increased by ¥92,220 million, or 32.3%, to ¥378,055 million from ¥285,835 million in fiscal 2010. The gross profit ratio to net sales increased by 3.2 percentage points from 26.6% to 29.8%. Selling, General & Administrative Expenses and Profit from Operations Selling, general and administrative expenses in fiscal 2011 increased by ¥156 million, or 0.1%, to ¥222,131 million compared with ¥221,975 million in fiscal 2010. The ratio of selling, general & administrative expenses to net sales was 17.5% in fiscal 2011, a decrease of 3.2 percentage points as compared with 20.7% in fiscal 2010 due primarily to a recognition of a bad debt loss of ¥8,961 million on receivables from WILLCOM, Inc. in fiscal 2010. As a result, selling, general & administrative expenses remained roughly constant compared with fiscal 2010. Labor costs of ¥116,759 million accounted for 52.6% of total selling, general & administrative expenses in fiscal 2011, which decreased by ¥1,554 million, or 1.3%, from ¥118,313 million in fiscal 2010. Sales promotion and advertising costs of ¥34,530 million accounted for 15.5% in fiscal 2011, which increased by ¥4,177 million, or 13.8%, from ¥30,353 million in fiscal 2010. Depreciation expense of ¥13,674 million accounted for 6.2% in fiscal 2011, which decreased by ¥1,700 million, or 11.1%, from ¥15,374 million in fiscal 2010. As a result, profit from operations in fiscal 2011 increased by ¥92,064 million, or 144.2%, to ¥155,924 million, compared with ¥63,860 million in fiscal 2010. The operating margin increased by 6.4 percentage points to 12.3% in fiscal 2011, compared with 5.9% in fiscal 2010. Interest and Dividend Income Interest and dividend income in fiscal 2011 decreased by ¥239 million, or 1.8%, to ¥12,963 million, compared with ¥13,202 million in fiscal 2010. This was due mainly to a decrease in interest income resulting from lower interest rates. Interest Expense Interest expense in fiscal 2011 decreased by ¥667 million, or 22.8%, to ¥2,259 million, compared with ¥2,926 million in fiscal 2010. This was due mainly to a decrease in long-term debt at TA Triumph-Adler GmbH. Foreign Currency Translation During fiscal 2011, the average exchange rate for the yen appreciated by ¥7, or 7.5%, against the U.S. dollar, and by ¥18, or 13.7%, against the Euro, as compared with fiscal 2010. At March 31, 2011, the yen appreciated by ¥10, or 10.8%, against the U.S. dollar, and by ¥7, or 5.6%, against the Euro, as compared with March 31, 2010. Kyocera recorded foreign currency transaction gains of ¥3,824 million in fiscal 2011.
43
Table of ContentsKyocera typically enters into forward exchange contracts to minimize currency exchange risks on foreign currency denominated receivables and payables. Kyocera confines its use of derivative financial instruments for hedging its foreign exchange exposures, and does not utilize derivative transactions for trading purposes. Gains and Losses from Investments Kyocera’s earnings (losses) on equity method investments in fiscal 2011 resulted in losses of ¥160 million, a decrease of ¥18,137 million, or 99.1%, compared with losses of ¥18,297 million in fiscal 2010. The decrease in fiscal 2010 was primarily due to the fact that Kyocera recognized an impairment loss of ¥19,987 million on its investment in WILLCOM, Inc. Gains (losses) on sales of securities, net turned from losses of ¥93 million in fiscal 2010 to gains of ¥52 million in fiscal 2011. Losses on impairment of securities in fiscal 2011 increased by ¥124 million, or 57.1%, to ¥341 million, compared with ¥217 million in fiscal 2010. Income before Income Taxes Income before income taxes in fiscal 2011 increased by ¥111,534 million, or 183.5%, to ¥172,332 million compared with ¥60,798 million in fiscal 2010. Margin of income before income taxes against net sales increased by 7.9 percentage points to 13.6% compared with 5.7% in fiscal 2010. Despite an effect of the yen appreciation against the U.S. dollar and the Euro, income before income taxes in fiscal 2011 increased substantially compared with fiscal 2010. Profit margin improved with effects of an increase in net sales and continuous improvement of productivity and profitability from fiscal 2010 by promoting cost-cutting measures including manufacturing cost reductions. In fiscal 2010, Kyocera recorded a one-time loss of ¥28,948 million relating to WILLCOM, Inc. Affected by the yen appreciation against the U.S. dollar and the Euro, income before income taxes after translation into the yen for fiscal 2011 were down by approximately ¥28,000 million compared with fiscal 2010. Operating profit in the Components Business in fiscal 2011 increased by ¥70,460 million, or 142.2%, to ¥119,995 million, compared with ¥49,535 million in fiscal 2010. Operating profit in the Equipment Business in fiscal 2011 increased by ¥20,601 million, or 279.7%, to ¥27,966 million, compared with ¥7,365 million in fiscal 2010. For a detail of income before taxes, please refer to page 45, “Business Overview by Reporting Segment.” Income Taxes Current and deferred income taxes in fiscal 2011 increased by ¥26,849 million, or 174.7%, to ¥42,214 million compared with ¥15,365 million in fiscal 2010. The effective tax rate of 24.5% in fiscal 2011 was 0.8 percentage points less than the effective rate in fiscal 2010 of 25.3%. This was due mainly to a reversal of valuation allowance against deferred tax assets at certain subsidiaries with increasing realization of deferred tax assets triggered by a significantly improved operating results. For detailed information, see Note 16 to the Consolidated Financial Statements in this annual report on Form 20-F.
44
Table of ContentsNet Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests in fiscal 2011 amounted to ¥7,670 million and noncontrolling interests related to AVX Corporation, which accounted for approximately 30% of noncontrolling ownership interests, amounted to ¥5,915 million. Net income attributable to noncontrolling interests in fiscal 2011 increased by ¥2,332 million, or 43.7%, compared with ¥5,338 million in fiscal 2010. This was due mainly to an increase in net income at AVX Corporation. Business Overview by Reporting Segment The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2010 and fiscal 2011 by the seven reporting segments:
The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2010 and fiscal 2011 by the seven reporting segments:
45
Table of Contents(1) Fine Ceramic Parts Group Sales in this reporting segment for fiscal 2011 increased by ¥23,213 million, or 43.8%, to ¥76,269 million, compared with ¥53,056 million in fiscal 2010. The increase in sales was mainly due to rising demand overall in line with recovered production activities in various industrial machinery and automotive markets. In particular, total sales of main products such as semiconductor fabrication equipment parts, components for information and communications devices and automotive parts increased by approximately ¥18,000 million compared with fiscal 2010. Operating profit in this reporting segment for fiscal 2011 amounted to ¥11,969 million, an improvement of ¥12,757 million from a loss of ¥788 million in fiscal 2010. The increase in operating profit was mainly due to an increase in gross profit by sales growth, reduced manufacturing costs and enhanced productivity. Gross profit increased by approximately ¥3,000 million due to the increase in sales and by approximately ¥10,000 million mainly due to a reduction in manufacturing costs. Sales and operating profit were down by approximately ¥3,000 million and ¥1,000 million, respectively, in fiscal 2011 due to the yen’s appreciation. (2) Semiconductor Parts Group Sales in this reporting segment for fiscal 2011 increased by ¥34,180 million, or 24.3%, to ¥174,687 million, compared with ¥140,507 million in fiscal 2010. In addition to increasing demand for such products as mobile phone handsets, digital cameras and servers, popularity grew for multifunctional products such as smartphones that are fitted with an even higher number of components. This resulted in growth in sales as demand for ceramic packages and organic packages for these products rose. In response to this vigorous demand growth, Kyocera expanded production capacity of ceramic packages, especially for crystal and SAW devices and for CMOS/CCD image sensors by approximately 30%, respectively, compared with fiscal 2010. As a result, total sales of ceramic packages increased by approximately ¥28,000 million compared with fiscal 2010 despite a decline of approximately 10% in selling prices for fiscal 2011. Operating profit in this reporting segment for fiscal 2011 increased by ¥20,096 million, or 116.6%, to ¥37,331 million, compared with ¥17,235 million in fiscal 2010. The increase in operating profit was mainly due to the increase in gross profit by sales growth, reduced manufacturing costs and enhanced productivity. Gross profit increased by approximately ¥7,000 million due to the increase in sales and by approximately ¥13,000 million mainly due to a reduction in manufacturing costs. Sales and operating profit were down by approximately ¥8,000 million and ¥2,000 million, respectively, in fiscal 2011 due to the yen’s appreciation. (3) Applied Ceramic Products Group Sales in this reporting segment for fiscal 2011 increased by ¥40,609 million, or 25.9%, to ¥197,642 million, compared with ¥157,033 million in fiscal 2010. In particular, the increase in sales was due to sales increase in the solar energy business and the cutting tool business, the core businesses in this reporting segment. In the solar energy business, demand grew steadily in the key markets of Japan, Europe and the United States, spurred by the subsidy policies of each country. Production volume of solar cells in fiscal 2011 increased by approximately 60% to 650MW compared with fiscal 2010. On the other hand, selling prices dropped by approximately 20% for the year due to fierce competition. In the cutting tool business, demand grew considerably in line with expanded production in automotive related markets, which are main markets for this business. As a result, total sales from both the solar energy business and the cutting tool business increased by approximately ¥40,000 million compared with fiscal 2010.
46
Table of ContentsOperating profit in this reporting segment for fiscal 2011 increased by ¥9,191 million, or 46.3%, to ¥29,049 million, compared with ¥19,858 million in fiscal 2010. In addition to the effect of sales growth in the solar energy business and the cutting tool business, the positive results of efforts to enhance profitability, mainly by reducing costs, emerged significantly as sales increased in the cutting tool business. As a result, operating profit in both businesses increased by approximately ¥10,000 million compared with fiscal 2010, which led to the overall operating profit increase in this reporting segment. Sales and operating profit were down by approximately ¥10,000 million and ¥6,000 million, respectively, in fiscal 2011 due to the yen’s appreciation. (4) Electronic Device Group Sales in this reporting segment for fiscal 2011 increased by ¥42,702 million, or 21.4%, to ¥242,641 million, compared with ¥199,939 million in fiscal 2010. The increase in sales was mainly due to growth in component demand for digital consumer equipment such as mobile phone handsets and for various industrial equipment. In addition to an increase in demand for such products as ceramic capacitors, timing devices and connectors, sales of thin-film components also rose substantially owing to the acquisition of the TFT LCD business at the Yasu facility from Sony Mobile Display Corporation. As a result, sales of these components increased by approximately ¥22,000 million compared with fiscal 2010. Sales at AVX Corporation, a key consolidated subsidiary in this reporting segment, also grew by approximately ¥20,000 million after translation into the yen, compared with fiscal 2010. Operating profit in this reporting segment for fiscal 2011 increased by ¥28,416 million, or 214.8%, to ¥41,646 million, compared with ¥13,230 million in fiscal 2010. The increase in operating profit was mainly due to an increase in gross profit as a result of reduced manufacturing costs, etc. Gross profit increased by approximately ¥9,000 million due to an increase in sales and by approximately ¥19,000 million mainly due to a reduction in manufacturing costs. Sales and operating profit were down by approximately ¥15,000 million and ¥5,000 million, respectively, in fiscal 2011 due to the yen’s appreciation. (5) Telecommunications Equipment Group Sales in this reporting segment for fiscal 2011 increased by ¥36,050 million, or 19.1%, to ¥225,168 million, compared with ¥189,118 million in fiscal 2010. The increase in sales was mainly due to growing sales of mobile phone handsets in Japan and overseas. Sales volume of handsets including basic mobile phone and PHS handsets for the Japanese market increased by approximately 50% compared with fiscal 2010 and sales in Japan grew by approximately ¥20,000 million, or 20%, compared with fiscal 2010. In the mobile phone handset business for the overseas market, Kyocera augmented its line-up by releasing new products, including smartphones, while marketing efforts mostly made on low-end models. As a result, sales volume outside Japan increased by approximately 20%, and overseas sales increased by approximately ¥16,000 million, or 20%, compared with fiscal 2010. Operating profit in this reporting segment for fiscal 2011 amounted to ¥2,121 million, an improvement of ¥16,847 million from an operating loss of ¥14,726 million in fiscal 2010. Operating profit increased substantially, as a result of the significant improvement in gross profit by sales growth and the effect of structural reforms implemented in fiscal 2010 aimed at strengthening development and marketing systems. Gross profit increased by approximately ¥3,500 million due to an increase in sales and by approximately ¥4,000 million due to the effect of structural reforms. Furthermore, Kyocera recorded an impairment loss of ¥8,961 million on account receivables from WILLCOM, Inc. in fiscal 2010, although there was an additional loss of ¥708 million in fiscal 2011, a decrease of ¥8,253 million, compared with fiscal 2010.
47
Table of ContentsSales and operating profit were down by approximately ¥9,000 million and ¥4,000 million, respectively, in fiscal 2011 due to the yen’s appreciation. (6) Information Equipment Group Sales in this reporting segment for fiscal 2011 increased by ¥7,551 million, or 3.2%, to ¥239,916 million, compared with ¥232,365 million in fiscal 2010. Kyocera aggressively launched new products amid moderate recovery in information technology investment by customers in line with global economic resurgence. As a result, although average selling prices decreased by 10% to 15% compared with fiscal 2010, sales volume increased approximately 30% compared with fiscal 2010, which led to the increase in sales. Operating profit in this reporting segment for fiscal 2011 increased by ¥3,754 million, or 17.0%, to ¥25,845 million, compared with ¥22,091 million in fiscal 2010. Kyocera recognized a one-time gain of ¥1,521 million related to the sale of real estate in fiscal 2010, while there was no such one-time gain in fiscal 2011. R&D expenses increased by ¥969 million compared with fiscal 2010 in line with a reinforcement of new product development. Due primarily to these factors, selling, general & administrative expenses increased by approximately ¥3,500 million compared with fiscal 2010. However, operating profit increased due to an increase in gross profit as a result of an increase in sales, sales growth in highly profitable consumables such as color toners and cost reductions. Gross profit increased by approximately ¥4,000 million due to an increase in sales and by approximately ¥3,000 million mainly due to sales growth in consumables and cost reductions. Sales and operating profit were down by approximately ¥23,000 million and ¥10,000 million, respectively, in fiscal 2011 due to the yen’s appreciation. (7) Others Sales in this reporting segment for fiscal 2011 increased by ¥14,806 million, or 11.9%, to ¥139,383 million, compared with ¥124,577 million in fiscal 2010. The increase in sales was mainly due to a gain of approximately ¥12,000 million in aggregate sales from Kyocera Communication Systems Co., Ltd., which deploys information and communication services, and Kyocera Chemical Corporation, which manufactures and sells products such as molding compounds for semiconductor encapsulation, in line with recovery in information technology investment in the corporate sector and in production activities in the semiconductor industry. Operating profit in this reporting segment for fiscal 2011 increased by ¥2,882 million, or 42.6%, to ¥9,651 million, compared with ¥6,769 million in fiscal 2010. In addition to the increase in sales at Kyocera Communications Systems Co, Ltd. and Kyocera Chemical Corporation, operating profit increased due primarily to enhanced profitability at Kyocera Chemical, mainly through cost reductions. (8) Corporate Corporate income and losses mainly constitute gains or losses related to financial assets, and income related to management supporting service provided by Kyocera’s head office to each reporting segment. Corporate income increased by ¥1,217 million, or 7.8%, to ¥16,882 million, compared with ¥15,665 million in fiscal 2010. This was mainly due to an increase in dividend income. Critical Accounting Policies and Estimates Kyocera’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results may differ from these estimates, judgments and assumptions.
48
Table of ContentsAn accounting estimate in Kyocera’s consolidated financial statements is a critical accounting estimate if it requires Kyocera to make assumptions about matters that are highly uncertain at the time the accounting estimate is made and if either different estimates that Kyocera reasonably could have used in the current period or changes in the accounting estimate that are reasonably likely to occur from period to period would have a material impact on the presentation of Kyocera’s financial condition, changes in financial condition or results of operations. Kyocera has identified the following critical accounting policies. Allowances for Doubtful Accounts Kyocera maintains allowances for doubtful accounts related to trade notes receivables, trade accounts receivables and finance receivables for estimated losses resulting from customers’ inability to make timely payments, including interest on finance receivables. Kyocera’s estimates are based on various factors, including the length of past due payments, historical experience and current business environments. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations, a specific allowance against these amounts is provided considering the fair value of assets pledged by the customer as collateral. Inventory Valuation Kyocera estimates the amount of write-downs required to properly value inventory. Write-downs are provided for excess, slow-moving and obsolete inventory as well as valuation losses required to adjust recorded cost to its market value. Kyocera generally considers all inventory aged over certain holding periods to be slow-moving or obsolete. Kyocera also records inventory write-downs based on its projections of future demand, market conditions and related management-led initiatives even though the age of corresponding inventory is shorter than certain holding periods. In fiscal 2011, Kyocera recognized inventory write-downs of ¥5,291 million mainly in the Telecommunications Equipment Group, and in fiscal 2012, recognized inventory write-downs of ¥11,486 million mainly in the Applied Ceramic Products Group and the Telecommunications Equipment Group. Kyocera recorded these write-downs to adjust the carrying amount to market value due to decreases in sales price arising from short lives of products or rapidly worsening market conditions. If the market conditions or demand for the products are less favorable than Kyocera’s projections, additional write-downs may be required. The amounts of these inventory write-downs by reporting segments appear in Note 18 to the Consolidated Financial Statements included in this annual report on Form 20-F. Impairment of Securities and Investments Kyocera records impairment charges for debt and equity securities when it believes that the decline in fair value is other-than-temporary. Kyocera regularly reviews each security and investment for impairment based on the extent to which the fair value is less than cost, the duration of the decline, the anticipated recoverability of fair value in the future and the financial conditions of the issuer. Poor operating results of the issuers of these securities or adverse changes in the market may cause impairment losses in future periods. The impairment losses are recorded as Corporate losses. Kyocera recognized losses on impairment of debt and equity securities of ¥341 million and ¥1,260 million in fiscal 2011 and 2012, respectively. Kyocera is currently a major shareholder of KDDI Corporation. The price fluctuation of the shares of KDDI Corporation may affect Kyocera’s financial conditions. The unrealized gain on the shares of KDDI Corporation held by Kyocera at March 31, 2012 had increased by ¥12,026 million, or 26.2%, to ¥57,919 million compared with that of ¥45,893 million at March 31, 2011, due to a fluctuation of the market price of the shares of KDDI Corporation. For detailed information on the gross unrealized gain or loss, see Note 3 to the Consolidated Financial Statements in this annual report on Form 20-F.
49
Table of ContentsImpairment of Long-Lived Assets Kyocera reviews its long-lived assets and intangible assets with definite useful lives for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Long-lived assets and intangible assets with definite useful lives are considered to be impaired when the expected undiscounted cash flows from the asset group is less than its carrying value. A loss on impairment is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets and intangible assets with definite useful lives. Goodwill and Other Intangible Assets Goodwill and intangible assets with indefinite useful lives, rather than being amortized, are tested for impairment at least annually, and also following any events and changes in circumstances that might lead to impairment. Intangible assets with definite useful lives are amortized straight line over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Kyocera concluded that there was no goodwill impairment at any reporting unit as of January 1, 2012. The fair value of the Telecommunications Equipment Group reporting unit determined by using a discounted cash flows model slightly exceeded its carrying amount by 0.2% at the annual impairment test as of January 1, 2011. In fiscal 2012, both sales and operating profit in the Telecommunications Equipment Group reporting unit decreased compared with fiscal 2011, however, in the second half of fiscal 2012, profitability in this reporting unit improved as a result of various cost reduction efforts including a reduction in R&D expenses through selecting and centralizing R&D themes. Actual results to January 1, 2012 exceeded the forecasted cash flows used in the impairment test as of January 1, 2011. Kyocera expects the continued benefits of cost reduction efforts along with the acquisition of new customers and increases in sales of high-valued products, such as smart phones, will improve cash flows and profitability and lead to an increase in operating profit in fiscal 2013. Based on these forecasts for this reporting unit, as of January 1, 2012, Kyocera evaluated that the fair value of this reporting unit substantially exceeded its carrying amount (which includes goodwill of ¥18,456 million in its carrying amount as of March 31, 2012). These forecasts include assumptions which are subject to uncertainty, including forecasted cash flows, changes in technology, customer demand and the pace of economic recovery from natural disasters which could materially impact actual performance. The goodwill of ¥25,854 million which Kyocera acquired during the year ended March 31, 2012 was based on the acquisition of the common stock of Optrex Corporation by Kyocera Corporation included in the Electronic Device Group and based on the acquisition of the common stock of Kyocera Unimerco A/S by Kyocera Fineceramics GmbH, a consolidated German subsidiary of Kyocera Corporation, included in Applied Ceramic Products Group. For detailed information of these acquisitions, see Note 2 and 9 to the Consolidated Financial Statements in this annual report on Form 20-F. Deferred Tax Assets Kyocera records deferred tax assets with valuation allowances to adjust their carrying amounts when it believes that it is more likely than not that the assets will not be realized. The valuation of deferred tax assets principally depends on the estimation of future taxable income and feasible tax planning strategies. If future taxable income is lower than expected due to future market conditions or poor operating results, significant adjustments to
50
Table of Contentsdeferred tax assets may be required. At March 31, 2012, deferred tax assets amounted to ¥93,890 million, which Kyocera considers will reasonably be realized in the future. This estimate is reasonable when compared with the amounts of income from continuing operations before income taxes and income taxes in fiscal 2012. Benefit Plans The over funded or under funded status of defined benefit postretirement plans, which depends on projected benefit obligations and plan assets, are recognized as an asset or liability in our consolidated balance sheets and changes in that funded status are recognized through comprehensive income in the year in which the changes occur. Projected benefit obligations are determined on an actuarial basis and are significantly affected by the assumptions used in their calculation, such as the discount rates, the rate of increase in compensation levels and other assumptions. The expected long-term rate of return on plan assets is also used as an assumption. Kyocera determines the discount rate by referencing the yield on high quality fixed income securities such as Japanese Government Bonds. The rate of increase in compensation levels is determined based mainly on results of operations and inflation. The expected return on plan assets is determined based on the rate of historical earnings and Kyocera’s expectation of future performance of the funds in which plan assets are invested. Kyocera annually reviews the assumptions underlying its actuarial calculations, making adjustments based on current market conditions, if necessary. If Kyocera is required to decrease its assumptions of the discount rate and the expected long-term rate of return on plan assets because of a stagnation of Japanese and global economies, projected benefit obligations and net periodic pension costs will increased. Sensitivity Analysis of Benefit Plans The following table illustrates the effect of assumed changes in discount rates and the expected rate of return on plan assets, while holding assuming all other assumptions consistent, for the benefit plan at Kyocera Corporation and its major domestic subsidiaries which accounts for a significant portion of Kyocera’s projected benefit obligations and net periodic pension costs.
Contingencies 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 outcomes of these contingencies. Kyocera records liabilities for these contingencies when the likelihood of an adverse outcome is probable and the amount
51
Table of Contentscan be reasonably estimated. In making these estimates, Kyocera considers the progress of the lawsuits, the situations of other companies that are subject to similar lawsuits and other relevant factors. The amounts of liabilities accrued are based on estimates and may be significantly affected by further developments or the resolution of these contingencies in the future. AVX Corporation, a subsidiary in the United States, 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 has generally been construed to authorize 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 Corporation also are, or have been, involved in site investigation and clean-up activities. AVX Corporation believes that liability resulting from these sites will be apportioned between AVX Corporation and other PRPs. To resolve its liability at the sites at which AVX Corporation has been named a PRP, AVX Corporation 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. In 1991, in connection with a consent decree, AVX Corporation paid ¥8,878 million ($66 million), plus interest, toward the environmental conditions at, and remediation of, New Bedford Harbor in the Commonwealth of Massachusetts (the harbor) in settlement with the United States and the Commonwealth of Massachusetts, subject to reopener provisions, including a reopener if certain remediation costs for the site exceed ¥10,701 million ($130.5 million). In 2007, AVX Corporation received notification from the EPA and the Department of Justice indicating that the United States was preparing to exercise the cost reopener. In March 2011, the EPA issued the Fourth Explanation of Significant Differences (ESD #4) that explains the planned changes to the existing remedial action plan for the harbor to include the use of a confined aquatic disposal (CAD) cell, along with interim off-site transportation and disposal of certain contaminated dredge spoils, and the continued use of long-term on-site storage for other contaminated dredge spoils. ESD #4 provides future cost estimates under the new remedial action plan (in addition to costs incurred to date) ranging from ¥29,684 million ($362 million) to ¥32,882 million ($401 million), net present value, based on certain criteria included in the ESD #4. The EPA has indicated that remediation costs through December 31, 2011 were approximately ¥37,392 million (approximately $456 million), not all of which are subject to the reopener provisions. On April 18, 2012, the EPA issued to AVX Corporation a Unilateral Administrative Order (UAO) directing AVX Corporation to perform the Remedial Design, the Remedial Action and Operation and Maintenance for the harbor clean-up. The effective date set forth in the UAO is June 18, 2012, but, while the parties are in mediation discussions, AVX Corporation has until July 23, 2012 to inform the EPA if it intends to comply with the UAO. AVX Corporation has not received complete documentation of past response costs from the EPA and therefore has not yet completed an investigation of the monies spent or available defenses in light of these notifications and indications. AVX Corporation has also not yet determined whether AVX Corporation 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 apportioned to parties other than AVX Corporation. AVX Corporation anticipates further discussions with the U.S. Department of Justice, the EPA, and the Commonwealth of Massachusetts in the first half of the year ending March 31, 2013. AVX Corporation is continuing to assess the UAO as well as potential defenses and other actions with respect to the site. However, in light of the foregoing, AVX Corporation considers it to be probable and reasonably
52
Table of Contentsestimable that AVX Corporation will incur cost within a range of approximately ¥7,900 million (approximately $100 million) to ¥59,860 million ($730 million), with no amount within that range representing a more likely outcome until such time as AVX Corporation completes an investigation with regard to monies spent, available defenses and other matters. AVX Corporation recognizes liabilities for environmental exposures when analysis indicates that 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, AVX Corporation accrues 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. Accordingly, AVX Corporation has recorded a charge for the year ended March 31, 2012 of ¥7,900 million ($100 million) with respect to this matter. Kyocera included this charge in selling, general and administrative expenses in the consolidated statements of income for the year ended March 31, 2012. 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 Accounting Standards Codification (ASC) 605, “Revenue Recognition.” Sales to customers in each of the above segments are based on the specific terms and conditions contained in basic contracts with customers and firm customer orders which detail the price, quantity and timing of the transfer of ownership (such as risk of loss and title) of the products. For most customer orders, the transfer of ownership and revenue recognition occurs at the time of shipment of the products to the customer. For the remainder of customer orders, the transfer of ownership and revenue recognition occurs at the time of receipt of the products by the customer, with the exception of sales of solar power generating systems in the Applied Ceramic Products Group and information equipment in the Information Equipment Group for which sales are made to end users together with installation services. The transfer of ownership and revenue recognition in these cases occur at the completion of installation and customer acceptance, as Kyocera have no further obligations under the contracts and all revenue recognition criteria under ASC 605 are met. When Kyocera provides a combination of products and services, the arrangement is evaluated under ASC 605-25, “Multiple-Element Arrangements.” In addition, in the Information Equipment Group, Kyocera may enter into sales contracts and lease agreements ranging from one to seven years directly with end users. Sales contracts and lease agreements may include installation services and have customer acceptance clauses. For sales and sales-type lease agreements, revenue is recognized at the completion of installation and customer acceptance which usually occurs on the same business day as delivery. For sales-type leases, unearned income (which represents interest) is amortized over the lease term using the effective interest method in accordance with ASC 840, “Leases.” For all sales in the above segments, product returns are only accepted if the products are determined to be defective. There are no price protections, stock rotation or returns provisions, except for certain programs in the Electronic Device Group as noted below. Sales Incentives In the Electronic Device Group, sales to independent electronic component distributors may be subject to various sale programs for which a provision for incentive programs is recorded as a reduction of revenue at the time of sale, as further described below in accordance with ASC 605-50, “Customer Payments and Incentives” and ASC 605-15, “Products.”
53
Table of Contents(a) Distributor Stock Rotation Program Stock rotation is a program whereby distributors are allowed to return for credit, qualified inventory, semi-annually, equal to a certain percentage of the previous six months net sales. In accordance with ASC 605-15, an estimated sales allowance for stock rotation is recorded at the time of sale based on a percentage of distributor sales using historical trends, current pricing and volume information, other market specific information and input from sales, marketing and other key management. These procedures require the exercise of significant judgments. Kyocera believes that these procedures enable Kyocera to make reliable estimates of future returns under the stock rotation program. Kyocera’s actual results approximate its estimates. When the products are returned and verified, the distributor is given credit against their accounts receivables. (b) Distributor Ship-from-Stock and Debit Program Ship-from-Stock and Debit (ship and debit) is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end customers. Ship and debit programs require a request from the distributor for a pricing adjustment of a specific part for a sale to the distributor’s end customers from the distributor’s stock. Ship and debit authorizations may cover current and future distributor activity for a specific part for a sale to their customers. In accordance with ASC 605, at the time Kyocera records the sales to distributors, an allowance for the estimated future distributor activities related to such sales is provided since it is probable that such sales to distributors will result in ship and debit activities. In accordance with ASC 605-15, Kyocera records an estimated sales allowance based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends noted in direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. These procedures require the exercise of significant judgments. Kyocera believes that these procedures enable Kyocera to make reliable estimates of future credits under the ship and debit program. Kyocera’s actual results approximate its estimates. Sales Rebates In the case of sales to distributors in the Applied Ceramic Products Group and Information Equipment Group, Kyocera provides cash rebates when predetermined sales targets are achieved during a certain period. Provisions for sales rebates are recorded as a reduction of revenue at the time of revenue recognition based on the best estimate of forecasted sales to each distributor in accordance with ASC 605-50. Sales Returns Kyocera records an estimated sales returns allowance at the time of sales based on historical return experience. Products Warranty For after-service costs to be paid during warranty periods, Kyocera accrues a product warranty liability for claims under warranties relating to the products that have been sold. Kyocera records an estimated product warranty liability based on its historical repair experience 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.”
54
Table of ContentsUncertainty in Income Taxes Kyocera records 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. Actual results such as settlements with taxing authorities may differ from the recognition accounted for under ASC 740. At March 31, 2012, gross unrecognized tax benefits amounted to ¥3,050 million. Kyocera does not anticipate the final resolution of procedures to have a material impact on the consolidated statements of income in the future. Recently Adopted Accounting Standards On April 1, 2011, Kyocera adopted the Financial Accounting Standard Board (FASB)’s Accounting Standards Update (ASU) No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” which addressed the accounting for multiple-deliverable arrangements to enable vendor 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 Kyocera’s consolidated results of operations, financial condition and cash flows. On April 1, 2011, Kyocera adopted the FASB’s 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. As this accounting standard does not actually change how the impairment would be calculated, the adoption of this accounting standard did not have an impact on Kyocera’s consolidated results of operations, financial condition and cash flows. On April 1, 2011, Kyocera adopted the FASB’s 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 Kyocera’s consolidated results of operations, financial condition and cash flows. On January 1, 2012, Kyocera adopted the FASB’s 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. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows. Recently Issued Accounting Standards 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.
55
Table of ContentsFurthermore, in December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This accounting standard supersedes certain pending paragraphs in Update No. 2011-05. These accounting standards will be effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. As these accounting standards are a provision for presentation, the adoption of these accounting standards will not have an impact on Kyocera’s 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 Kyocera’s consolidated results of operations, financial condition and cash flows. In December 2011, the FASB issued ASU No. 2011-10, “Derecognition of in Substance Real Estate—a Scope Clarification.” This accounting standard requires the reporting entity to apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. This accounting standard will be effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. The adoption of this accounting standard is not expected to have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows. In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities.” This accounting standard requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This accounting standard will be effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. As this accounting standard is a provision for disclosure, the adoption of this accounting standard will not have an impact on Kyocera’s consolidated results of operations, financial condition and cash flows. B. Liquidity and Capital Resources Capital Resources In fiscal 2012, net sales and profit decreased compared with fiscal 2011 due primarily to a decline in component demand for digital consumer equipment and a decrease in sales in the Telecommunications Equipment Group in addition to the impact of the yen’s appreciation. Kyocera’s net cash provided by operating activities in fiscal 2012 was ¥109,065 million, and cash and cash equivalents at March 31, 2012 were ¥273,288 million. In addition, Kyocera also held significant amount of highly-liquid financial assets. Based on those facts, Kyocera does not expect to face any liquidity issue in the foreseeable future. In the short term, Kyocera expects cash demands for working capital and funds for capital expenditures required for the expansion of operations, contribution to pension plans and payments of dividends to shareholders. Kyocera’s primary source of short-term liquidity is cash generated by operations. Certain subsidiaries also generate capital in the form of loans from financial institutions. At March 31, 2012, Kyocera’s short-term borrowings and long-term debt including current portion totaled ¥35,869 million. The ratio to total
56
Table of Contentsassets of 1.8% continues to reflect a low level of dependence. Most borrowings were denominated in the Euro, the U.S. dollar and the Japanese yen, but certain borrowings were denominated in other foreign currencies. Details of these borrowings are described in “Tabular Disclosure of Contractual Obligations,” which also includes the information regarding obligations for the acquisition or construction of property, plant and equipment. Capital expenditures in fiscal 2012 decreased by ¥4,272 million, or 6.0%, to ¥66,408 million compared with ¥70,680 million in fiscal 2011. In fiscal 2011, Kyocera constructed new plants to expand production capacity in the solar energy business included in the Applied Ceramic Products Group. In addition, Kyocera actively introduced LED sapphire substrates in the Fine Ceramic Parts Group and made capital expenditures to expand production capacity of ceramic packages and organic packages in the Semiconductor Parts Group, but Kyocera reduced capital expenditures due to the trend in demand in fiscal 2012. R&D expenses in fiscal 2012 decreased by ¥3,915 million, or 7.9%, to ¥45,559 million compared with ¥49,474 million in fiscal 2011. Almost all capital and R&D expenditures were funded by using cash at hand. During fiscal 2013, Kyocera expects total capital expenditures to be approximately ¥70,000 million and total R&D expenses to be approximately ¥55,000 million. Kyocera expects that total capital expenditures will increase due to recovery of the business environment compared with fiscal 2012 for expanding production capacity in the Semiconductor Parts Group and the solar energy business included in the Applied Ceramic Products Group and construction of a plant and introduction of production equipment for Vietnam. Kyocera also expects that R&D expenses will increase compared with fiscal 2012. Kyocera will promote R&D of new products in order to expand the business in each reporting segment. Nearly all capital and R&D expenditures will be funded by using cash on hand. Kyocera believes that Kyocera needs to invest its resources continuously in the development of new business areas and enhancement of technology in order to create new products, commercialize advanced technologies and thereby secure future earnings streams. Kyocera contributed ¥10,229 million to its benefit pension plans in fiscal 2012 and Kyocera expects to contribute ¥10,580 million to its benefit pension plans in fiscal 2013. At March 31, 2012, Kyocera’s funded status of its benefit pension plans ensured the sources of funds sufficient to cover the pension benefits paid to participants and beneficiaries, and large amounts of additional contributions are not considered to be necessary. Kyocera expects contributions to pension plan assets will be made by using cash at hand. In fiscal 2012, Kyocera Corporation paid cash dividends totaling ¥23,853 million, at ¥130 per share. Kyocera Corporation received approval at the general meeting of shareholders held on June 27, 2012 for the payment of year-end dividends totaling ¥11,007 million, or ¥60 per share, on June 28, 2012 to all shareholders of record on March 31, 2012. As described in Note 2 to the Consolidated Financial Statements, Kyocera acquired several businesses. In fiscal 2012, these acquisition costs, net of cash acquired were ¥35,454 million, and all acquisitions were funded by using cash at hand. At March 31, 2012, Kyocera’s working capital totaled ¥843,555 million, an increase of ¥14,669 million, or 1.8%, compared with ¥828,886 million at March 31, 2011. Our working capital requirements, capital expenditures, debt repayments and other obligations were funded by using cash at hand. Kyocera believes cash at hand will be sufficient to fund all cash requirements outlined above at least during fiscal 2013. Consequently, Kyocera does not currently intend to use any other external financing sources that might affect its credit agency ratings. If cash generated by operations are insufficient for funding purposes, Kyocera retains other financing options, including external sources, such as short-term borrowings or long-term debts, as well as financing directly in the capital markets through issuances of debt or equity securities. As evidenced by equity to assets ratio of 73.7% at March 31, 2012, Kyocera maintains a strong financial position, which leads Kyocera to believe that any capital requirements could be secured from external sources at a relatively low cost. Kyocera also maintains good business relationships with several major financial institutions.
57
Table of ContentsAny future significant deterioration in market demand for Kyocera’s products, or a slump in product prices to levels substantially below those projected by Kyocera, could adversely affect Kyocera’s operating results and financial condition, possibly resulting in reduced liquidity. Cash flows Fiscal 2012 compared with Fiscal 2011 The following table shows a summary of Kyocera’s cash flows for fiscal 2011 and fiscal 2012:
Net cash provided by operating activities in fiscal 2012 decreased by ¥10,622 million, or 8.9%, to ¥109,065 million from ¥119,687 million in fiscal 2011. This was due mainly to a decrease in net income and a decrease in notes and accounts payable in fiscal 2012. Those were partly offset by decreases in cash outflows related to changes in receivables and inventories. Net cash used in investing activities for fiscal 2012 decreased by ¥65,313 million, or 53.8%, to ¥56,051 million from ¥121,364 million for fiscal 2011. This was due mainly to increases in proceeds from sales and maturities of available-for-sales and held-to-maturity securities and a decrease in acquisition of time deposits and certificate of deposits which exceeded an increase in acquisitions of businesses. Net cash used in financing activities for fiscal 2012 increased by ¥23,949 million, or 89.3%, to ¥50,769 million from ¥26,820 million for fiscal 2011. This was due mainly to increases in payments of short-term borrowings and long-term debts. Decreases in the effect of exchange rate changes on cash and cash equivalents of ¥2,428 million were due mainly to the yen’s appreciation against the Euro and the U.S. dollar between March 31, 2011 and March 31, 2012. At March 31, 2012, cash and cash equivalents totaled ¥273,288 million. This represented a decrease of ¥183 million, or 0.1%, from ¥273,471 million at March 31, 2011. Most of Kyocera’s cash and cash equivalents were denominated in the yen but certain cash and cash equivalents, mainly in overseas subsidiaries, were denominated in foreign currencies, such as the U.S. dollar.
58
Table of ContentsFiscal 2011 compared with Fiscal 2010 The following table shows a summary of Kyocera’s cash flows for fiscal 2010 and fiscal 2011:
Net cash provided by operating activities in fiscal 2011 decreased by ¥17,896 million, or 13.0%, to ¥119,687 million from ¥137,583 million in fiscal 2010. This was due mainly to a significant increase in net income of ¥84,685 million when compared with fiscal 2010. The amount was offset by cash outflows from an increase in inventories. As a result, net cash provided by operating activities decreased in fiscal 2011. Net cash used in investing activities for fiscal 2011 increased by ¥72,046 million, or 146.1%, to ¥121,364 million from ¥49,318 million for fiscal 2010. This was due mainly to an increase in purchases of property, plant and equipment as well as a decrease in withdrawals of certificate deposits and time deposits. Net cash used in financing activities for fiscal 2011 decreased by ¥11,227 million, or 29.5%, to ¥26,820 million from ¥38,047 million for fiscal 2010. This was due mainly to decreases in payments of short-term borrowings and long-term debts. Decreases in the effect of exchange rate changes on cash and cash equivalents of ¥11,158 million were due mainly to the yen’s appreciation against the Euro and the U.S. dollar between March 31, 2010 and March 31, 2011. At March 31, 2011, cash and cash equivalents totaled ¥273,471 million. This represented a decrease of ¥39,655 million, or 12.7%, from ¥313,126 million at March 31, 2010. Most of Kyocera’s cash and cash equivalents were denominated in the yen but certain cash and cash equivalents, mainly in overseas subsidiaries, were denominated in foreign currencies, such as the U.S. dollar. Assets, Liabilities and Equity Kyocera’s total assets at March 31, 2012 increased by ¥47,537 million, or 2.4% to ¥1,994,103 million, compared with ¥1,946,566 million at March 31, 2011. Other short-term investments in debt securities decreased by ¥43,052 million, or 21.3%, to ¥158,765 million, due mainly to withdrawal of time deposits at Kyocera Corporation. Trade receivables-accounts increased by ¥17,174 million, or 8.2%, to ¥225,578 million, due mainly to an acquisition of the common stock of Optrex Corporation (currently Kyocera Display Corporation). Inventories increased by ¥37,437 million, or 16.1%, to ¥270,336 million, due mainly to procurement of inventories of rare metals in preparation for future business expansion and to an acquisition of the common stock of Optrex Corporation.
59
Table of ContentsTotal property, plant and equipment at cost, net of accumulated depreciation, increased by ¥12,783 million, or 5.2%, to ¥260,537 million. Capital expenditure in fiscal 2012 was ¥66,408 million, and depreciation was ¥62,374 million. Goodwill increased by ¥24,338 million, or 37.6%, to ¥89,039 million, and intangible assets increased by ¥7,493 million, or 17.8%, to ¥49,653 million, due mainly to the acquisition of the common stock of Optrex Corporation and Kyocera Unimerco A/S. Other assets decreased by ¥10,177 million, or 14.8%, to ¥58,394 million, due mainly to the weak performance of benefit plan assets affected by instabilities of financial markets and an increase in projected benefit obligations resulting from a change in discount rates applied to actuarial calculation. Kyocera’s total liabilities at March 31, 2012 decreased by ¥3,345 million, or 0.7%, to ¥459,862 million, compared with ¥463,207 million at March 31, 2011. Short-term borrowings decreased by ¥3,790 million, or 48.3%, to ¥4,062 million, due mainly to a repayment of debt. Accrued income taxes decreased by ¥4,573 million, or 25.3%, to ¥13,496 million, due mainly to decreases of taxable income. Total equity at March 31, 2012 increased by ¥50,882 million, or 3.4%, to ¥1,534,241 million, compared with ¥1,483,359 million at March 31, 2011. Retained earnings at March 31, 2012 increased by ¥55,504 million, or 4.4%, due to a net income for fiscal 2012 of ¥79,357 million offset by cash dividend payments of ¥23,853 million. Accumulated other comprehensive income decreased by ¥6,006 million, to a loss of ¥(81,639) million. Net unrealized gains on securities increased by ¥8,500 million, or 26.4%, due mainly to increases in market values of the shares of KDDI Corporation and other equity securities at March 31, 2012 compared with March 31, 2011. Foreign currency translation adjustments decreased by ¥5,709 million to a loss of ¥(110,014) million, due mainly to the appreciation of the yen against the U.S. dollar. Pension adjustment decreased by ¥8,756 million to a loss of ¥(12,290) million. Unamortized actuarial losses increased due mainly to the weak performance of benefit plan assets affected by instabilities of financial markets and an increase in projected benefit obligations resulting from a decrease in discount rates applied to actuarial calculation. Kyocera Corporation shareholders’ equity ratio at March 31, 2012 was 73.7%, increased by 0.7 percentage points compared with 73.0% at March 31, 2011. Noncontrolling interests in subsidiaries, principally AVX Corporation, increased by ¥1,640 million, or 2.6%, to ¥64,736 million, compared with ¥63,096 million at March 31, 2011. C. Research and Development, Patents and Licenses, etc. Kyocera seeks to create new technologies, products and markets by integrating group-wide management resources and thereby generate businesses that will become core to the group in the future. In particular, we are focusing on R&D in the information and communications market and the environment and energy market that have high-growth potential in the future.
60
Table of ContentsAn outline of R&D activities in each reporting segment follows. (1) Fine Ceramic Parts Group In this reporting segment, we are working to develop new products in a wide range of industrial fields by leveraging fine ceramics materials technology, processing technology and design technology that we have accumulated since our earliest days. In particular, we are focusing on the development of larger-size sapphire substrates for LEDs and next generation semiconductor fabrication equipment parts, where future growth in demand is forecast. In the automotive market, efforts are being undertaken for safety related products with the development of camera modules for rearview detection and for preventing crack-up accidents, an area where global demand growth is forecast due in part to new legislation concerning safety regulations in the United States. In line with stricter regulations concerning reduction of carbon dioxide and exhaust gas, we are also concentrating development on ceramic parts that contribute to enhanced fuel efficiency in diesel engines. (2) Semiconductor Parts Group In the digital consumer equipment market, needs are continuing to further grow for products such as smartphones that are more multifunctional, smaller and thinner, and in line with this, miniaturization of electronic components and refinement of semiconductors is expected. In response to these market trends, Kyocera is promoting the development of high-strength, high-rigidity ultra-small and thin ceramic packages that employ micro wiring as well as fine-pitch organic packages. In the information and communications network market, Kyocera anticipates the creation of faster, larger-capacity infrastructure and greater sophistication worldwide. We are focusing on the development of ceramic packages for optical communications that are capable of higher frequency, and of highly precise flip-chip organic packages. In addition, Kyocera is also focusing on the development of new module substrates and module mounting technologies. (3) Applied Ceramic Products Group In the solar energy business, we are working to further improve conversion efficiency of solar cells, increase module size and reduce costs to enhance the performance of multicrystalline silicon solar cells and strengthen cost competitiveness. We are also pushing forward with the development of thin-film solar cells with the aim of expanding our range of products that meet various applications and needs. In addition, we are strengthening development of home energy management systems for the efficient use of energy by combing solar generating systems and storage systems. In the cutting tool business, we are working on the development of alternative materials to reduce consumption of rare metals used as raw materials, and of high-quality, high-precision products suitable for forming complex shapes. (4) Electronic Device Group Kyocera is developing various components and devices, including small, thin ceramic capacitors and modules, crystal related products, and fine-pitch, low-profile connectors for use in digital consumer equipment such as smartphones and tablet PCs, which are getting more multifunctional and smaller. Additionally, we are developing high-voltage, high-capacity ceramic capacitors for the audio-visual market such as LCD panels, and high-voltage ceramic capacitors for the industrial equipment market.
61
Table of ContentsWe are also focusing on the development of TFT color LCDs with high luminance, high contrast and wide viewing angles for the industrial equipment market and automotive market. In addition, we are strengthening development of touch panels, where demand growth is forecast in various domains, and of items such as inkjet printheads capable of high-speed, high-resolution printing. (5) Telecommunications Equipment Group Kyocera is concentrating on the development of smartphones based on the Android operating system. We are also expanding our line-up of products with slim design and waterproofing technology amassed in-house, and developing high-value-added terminals that leverage our unique component technology. In addition, Kyocera is strengthening the development of terminals capable of high-speed, high capacity telecommunications services for the next-generation high-speed wireless communications market such as Long Term Evolution (LTE), and is working toward product launch. (6) Information Equipment Group Kyocera developing printers based on the “ECOSYS” concept, and multifunctional peripherals based on the “TASKalfa” brand which realizes longer engine life, reduced running costs and minimal waste by employing an amorphous silicon photoreceptor drum with excellent abrasion resistance. We are also developing optimum products and services for specific users by strengthening our solutions business with the aim of expanding document management services, an area of growing demand. In emerging markets, where high growth is forecast, we are working to expand our line-up of ultra-low-priced products fitted with only the basic necessary functions. (7) Others Kyocera Communication Systems Co., Ltd. is developing systems related to cloud computing and information security systems, the popularity of which has skyrocketed. We are also conducting R&D toward the practical application of broadcasting services for information terminals through the convergence of radio waves for broadcasting and IP communications (packets). Kyocera Chemical Corporation is developing environmentally friendly halogen-free sheet-type resin as well as epoxy material for semiconductor encapsulation and high thermal adhesive conductive paste for electronic components, which are suitable for compression and molding. Kyocera is also working to develop advanced ceramic cell stacks for residential-use Solid Oxide Fuel Cells (SOFCs) that contribute to improve the power generation efficiency.
62
Table of ContentsR&D expenses by reporting segment are as follows.
We have a variety of patents in Japan and other countries, and we hold licenses for the use of patents from others. Details are set forth in “Patents and Licenses” included in Item 4.B “Business Overview” in this annual report on Form 20-F. In fiscal 2012, inventory adjustments for components used in digital consumer equipment were prolonged due to sluggish growth in such items as mobile phone handsets, personal computers and flat-screen TVs and to declined production activities at equipment makers caused by the Great East Japan Earthquake and flooding in Thailand. In fiscal 2013, we expect recovery in production activities for digital consumer equipment as the impact of the Thailand floods dissipates. In particular, we project component demand to increase in the mobile phone handset market as the number of smartphones continues to increase. With an increase in sales of smartphones and enhanced sophistication in these products, the number of components used in each handset will increase. In the environment and energy market, which is expected to continue expanding going forward, we forecast demand for energy-creating and energy-saving products to rise. In the solar power generation system market, despite projected weak demand in Europe, demand is forecast to increase for industrial application in Japan in line with the enforcement of the Renewable Energy Law planned to be introduced in July 2012. Kyocera also expects growth in energy-saving LED lighting and demand for the Home Energy Management System (HEMS), which combines solar power generating systems with battery storage units, mainly in Japan, as well as rising demand for residential-use fuel systems. E. Off-Balance Sheet Arrangements Refer to Note 14 in the Consolidated Financial Statements included in this annual report on Form 20-F. As a part of our ongoing business, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent obligations.
63
Table of ContentsF. Tabular Disclosure of Contractual Obligations The following table provides information about Kyocera’s contractual obligations and other commercial commitments that will affect Kyocera’s liquidity for the next several years, as of March 31, 2012. Kyocera anticipates that the funds required to fulfill these debt obligations and commitments will be cash at hand.
In addition to contractual obligations shown in the above tables, Kyocera forecasts to contribute ¥10,580 million to its defined benefit pension plans in fiscal 2013. Kyocera recorded liabilities of ¥3,050 million for gross unrecognized tax benefits in accordance with FASB’s ASC 740, “Income Taxes” at March 31, 2012, which are not included in the above table because we are unable to make reasonable estimates of the period of settlements. For detailed information, see Note 16 to the Consolidated Financial Statements in this annual report on Form 20-F. Item 6. Directors, Senior Management and Employees A. Directors and Senior Management Kyocera believes that its current management system enables faster decision-making across the board through the use of a top management system comprising the chairman, the president and the vice presidents. With this setup, the chairman takes on the position as the head of the board of directors, providing guidance to the president, while the president has total responsibility for daily business execution. It is also believed that more accurate management decisions can be made with this management system, as the chairman, the president and the vice presidents can provide diverse perspectives on critical issues.
64
Table of ContentsThe following table shows Kyocera’s Directors and Corporate Auditors as of June 27, 2012.
Makoto Kawamura has served as a Representative Director and Chairman of Kyocera Corporation since 2009. He became a Director in 2001 and retired in 2003. He rejoined as a Representative Director and President in 2005. He joined Kyocera Corporation in 1973 and has served as Representative Director and Chairman of Kyocera Document Solutions, Representative Director and Chairman of Kyocera SLC Technologies Corporation, Representative Director and Chairman of Kyocera Realty Development, Representative Director and Chairman of Kyocera Crystal Device Corporation, Representative Director and Chairman of Kyocera Optec Co., Ltd., Representative Director and Chairman of Kyocera Chemical Corporation, Representative Director and Chairman of Kyoto Purple Sanga Co., Ltd. and Representative Director and Chairman of Kyocera Display Corporation. Tetsuo Kuba has served as a Representative Director and President of Kyocera Corporation since 2009. He became an Executive Officer in 2003, a Managing Executive Officer in 2005, a Senior Managing Executive Officer in 2007 and a Director in 2008. He joined Kyocera Corporation in 1982 and has served as the Chairman of the Board of Directors of Shanghai Kyocera Electronics Co., Ltd., Chairman of the Board of Directors of Dongguan Shilong Kyocera Co., Ltd., Chairman of the Board of Directors of Kyocera Management Consulting Service (Shanghai) Co., Ltd. and Chairman of the Board of Directors of Kyocera (Tianjin) Sales & Trading Corporation.
65
Table of ContentsTatsumi Maeda has served as a Representative Director and Vice President of Kyocera Corporation since 2009. He became a Director in 2001 and retired in 2003. He became a Managing Executive officer in 2003, a Senior Managing Executive Officer in 2007 and rejoined as a Director in 2008. He joined Kyocera Corporation in 1975 and has served as the Chairman of the Board of Kyocera (Tianjin) Solar Energy Co., Ltd., Representative Director and Chairman of Kyocera Solar Corporation and the General Manager of Corporate R&D Group and Corporate Solar Energy Group. Katsumi Komaguchi has served as a Director of Kyocera Corporation since 2009. He became an Executive Officer in 2008. He joined Kyocera Corporation in 1986 and has served as a Managing Executive Officer and the Representative Director and President of Kyocera Document Solutions Inc. Yasuyuki Yamamoto has served as a Director of Kyocera Corporation since 2009. He became an Executive Officer in 2003 and a Senior Executive Officer in 2008. He joined Kyocera Corporation in 1976 and has served as a Managing Executive Officer and the General Manager of Corporate Communication Equipment Group. Goro Yamaguchi has served as a Director of Kyocera Corporation since 2009. He became an Executive Officer in 2003 and a Senior Executive Officer in 2005. He joined Kyocera Corporation in 1978 and has served as a Managing Executive Officer, the General Manager of Corporate Semiconductor Components Group and the Representative Director and Chairman and President in Kyocera Korea Co., Ltd. Ken Ishii has served as a Director of Kyocera Corporation since 2012. He became an Executive Officer in 2009 and a Senior Executive Officer in 2011. He joined Kyocera Corporation in 1977 and has served as a Managing Executive Officer, the General Manager of Corporate Cutting Tool Group, and the Representative Director and Chairman and President in Kyocera Precision Tools Korea Co., Ltd. Shoichi Aoki has served as a Director of Kyocera Corporation since 2009. He became an Executive Officer in 2005. He joined Kyocera Corporation in 1983 and has served as a Managing Executive Officer and the General Manager of Corporate Financial and Business Systems Administration Group. Tsutomu Yamori has served as a Director of Kyocera Corporation since 2010. He became a Director in 1997 and retired in 2003. He joined Kyocera Corporation in 1972 and has served as a Managing Executive Officer and the General Manager of Corporate General Affairs Human Resources Group. Yoshihito Ohta has served as a Director of Kyocera Corporation since 2010. He became an Executive Officer in 2003 and a Senior Executive Officer in 2007. He joined Kyocera Corporation in 1978 and has served as a Managing Executive Officer and the General Manager of Corporate Office of the Chief Executives. John S. Gilbertson has served as a Director of Kyocera Corporation since 1995. He became a Director in 1995 and a Managing Director in 1999. He joined AVX Corporation in 1981 and has served as Director, President and Chief Executive Officer of AVX Corporation. John S. Rigby has served as a Director of Kyocera Corporation since 2012. He became an Executive Officer in 2005. He joined Kyocera International, Inc. in 1981 and has served as Director and President of Kyocera International, Inc. Yoshihiro Kano has served as a Full-time Corporate Auditor of Kyocera Corporation since 2011. He became an Executive Officer in 2005 and a Managing Executive Officer and a Director in 2009. He joined Kyocera International, Inc. in 1980 and transferred to Kyocera Corporation in 1991. Yoshihiko Nishikawa has served as a Full-time Corporate Auditor of Kyocera Corporation since 2005. He became a Director in 1995 and retired in 2003. He joined Kyocera Corporation in 1970. Osamu Nishieda has served as a Corporate Auditor of Kyocera Corporation since 1993. He has served as an In-House Council of Kyocera Corporation.
66
Table of ContentsYoshinari Hara has served as a Corporate Auditor of Kyocera Corporation since 2009. He has served as Honorary Advisor of Daiwa Securities Group Inc. Yoshinori Yasuda has served as a Corporate Auditor of Kyocera Corporation since 2012. He has served as Visiting Professor at Reitaku University, Member of the Royal Swedish Academy of Sciences, Senior Fellow at The Tokyo Foundation, Professor Emiritus at International Research Center for Japanese Studies, Professor at Graduate School of Environmental Studies, Tohoku University and Professor Emeritus at Graduate University for Advanced Studies. Nichimu Inada has served as a Corporate Auditor of Kyocera Corporation since 2012. He has served as Representative Director and President of Family Co., Ltd., Executive Director of The Japan Federation of Medical Devices Associations and Chairman of The Japan Home-Health Apparatus Industrial Association. Kyocera adopts an “executive officer system,” which aims to establish corporate governance appropriate for a global corporation together with a decision making system responsive to the business environment and to train the next generation of senior executives. The following table shows Kyocera’s Executive Officers as of June 27, 2012.
67
Table of Contents
68
Table of ContentsThe aggregate amount of compensation provided by Kyocera Corporation and its certain subsidiaries in fiscal 2012 to all Directors, Corporate Auditors and Executive Officers of Kyocera Corporation was ¥1,809 million. The compensation is mainly comprised of basic remuneration, bonus, stock option, incentive compensation plan and retirement allowance. In Japan, regulations require public companies to provide disclosure on an individual basis for each Director or Corporate Auditor who receives aggregate compensation exceeding ¥100 million from the relevant company and its subsidiaries. In accordance with this requirement, we provide disclosure of compensation on an individual basis as follows.
Notes: 1. AVX Corporation is Kyocera’s consolidated subsidiary in the United States and the determination of compensation is made by AVX’s Compensation Committee pursuant to U.S. regulations and based on its consideration for general and customary levels of compensation in the United States. 2. The compensation provided originally in the U.S. dollar at AVX Corporation was translated into the yen by ¥79 per $1.00, which was the average rate during fiscal 2012. In addition to the above, Japanese regulations require public companies to disclose details of compensation paid to Directors and Corporate Auditors by the parent company and also to disclose the policy applied in determining such compensation. In accordance with this requirement, we provide disclosure regarding compensation for Directors and Corporate Auditors as follows. The total amount of compensation paid to Directors and Corporate Auditors, the amounts of compensation by types, and the number of Directors and Corporate Auditors were as follows.
69
Table of ContentsPolicy to determine the amount of compensation Kyocera Corporation’s compensation paid to Directors consists of “Basic remuneration” and “Bonuses to Directors.” 1) Basic remuneration Basic remuneration constitutes of remuneration to be paid in compensation for the exercise of responsibility by each Director, and the amount of basic remuneration is determined in accordance with each Director’s materiality of their role. The individual amount paid to each Director is determined taking into consideration the level of payment at similar public manufacturing companies and the aggregate amount to be paid to all Directors shall be no more than ¥400 million annually. 2) Bonuses to Directors The aggregate amount payable to all Directors shall not exceed 0.2% of net income attributable to shareholders of Kyocera Corporation for the relevant fiscal year, provided that such amount shall in no case exceed ¥300 million annually, and such aggregate amount shall be distributed among the Directors in accordance with their respective levels of contribution to the performance of Kyocera. Kyocera Corporation’s compensation paid to Corporate Auditors consists of “Basic remuneration” only, which is not linked to the performance of Kyocera, in order to maintain the impartiality of audit. The aggregate amount payable to all Corporate Auditors shall be no more than ¥100 million annually. For information regarding the terms of office of Directors and Corporate Auditors, see Item 6.A. “Directors and Senior Management” of this annual report on Form 20-F. In accordance with the requirements of the Corporation Act of Japan (the Corporation Act), our Articles of Incorporation provide for not more than six Corporate Auditors. Corporate Auditors are elected at a general meeting of shareholders, and their normal term of office is four years. However, Corporate Auditors may serve any number of consecutive terms. At least half of the Corporate Auditors must be persons who have not been Directors or employees of Kyocera Corporation or its subsidiaries (Outside Corporate Auditors). Corporate Auditors form the Board of Corporate Auditors. Corporate Auditors are under a statutory duty to oversee the administration of our affairs by the Directors, to examine our financial statements and business reports to be submitted by the Board of Directors to the general meetings of shareholders and to report their opinions thereon to the shareholders. They are obliged to attend meetings of the Board of Directors and to express their opinions, but they are not entitled to vote. Corporate Auditors also have a statutory duty to provide their report on the audit report prepared by our independent certified public accountants to the Board of Corporate Auditors, which must submit its audit report to the Board of Directors. The Board of Corporate Auditors will also determine matters relating to the duties of the Corporate Auditors, such as audit policy and methods of investigation of our affairs. Under the Corporation Act, the Directors and Corporate Auditors are liable for any damages suffered by us as a result of their violation of laws or regulations or any failure to perform their duties. Under our Articles of Incorporation, any such liabilities incurred by the Outside Corporate Auditors may, except in the case of willful misconduct or gross negligence or in certain other cases, be limited by a liability limitation agreement entered into between the Outside Corporate Auditors and us, up to an amount to be calculated in accordance with the relevant provisions of the Corporation Act with reference to annual remuneration, retirement allowance and profits received upon exercise or transfer of stock options, if any.
70
Table of ContentsKyocera Corporation has no remuneration committee. Matters of remuneration are decided by top management as a group. None of our Directors have contracts with us providing for benefits upon termination. There is no arrangement or understanding between any Director or Corporate Auditor and any other person pursuant to which he was elected as a Director or a Corporate Auditor. There is no family relationship between any Director or Corporate Auditor and any other Director or Corporate Auditor. The numbers of Kyocera’s employees by reporting segments at March 31, 2012 are as follows:
Kyocera Corporation had 14,773 employees, and their average age and average service years were 39.5 and 15.8 respectively. The numbers of Kyocera Corporation’s employees by reporting segments at March 31, 2012 are as follows:
Most regular employees of Kyocera Corporation, other than management, are members of the Kyocera Union. Over 90% of Kyocera Corporation’s regular employees are members of this union. The Kyocera Union is only open to Kyocera Corporation employees, not to our Japanese or overseas subsidiaries. The employees at some of our subsidiaries in Japan are unionized. Employees at our Japanese subsidiaries are not otherwise unionized. Employees at some of our foreign subsidiaries are unionized. Our relationship with our employee union groups is generally good. However, no assurance can be given that, in response to changing economic conditions and our actions, labor unrest or strikes will not occur.
71
Table of ContentsKyocera’s Directors, Corporate Auditors and Executive Officers as of June 27, 2012 owned 402,154 shares of Kyocera Corporation in total (386,627 shares of common stock of Kyocera Corporation and 15,527 ADRs of Kyocera Corporation), or 0.2% of the outstanding shares of Kyocera Corporation at March 31, 2012. The numbers of shares owned by each Directors, Corporate Auditors and Executive Officers are shown in the following table.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||