20-F 1 d472121d20f.htm ANNUAL REPORT Annual Report
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 20-F

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2018

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)

 

 

 

Japan  

6, Takeda Tobadono-cho, Fushimi-ku,

Kyoto 612-8501, Japan

(Jurisdiction of incorporation or organization)   (Address of principal executive offices)

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.

 

Title of each class

 

Name of each exchange on which registered

Common Stock (Shares)*   New York Stock Exchange

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, 2018, 367,707,758 shares of common stock were outstanding, comprised of 362,637,512 Shares and 5,070,246 American Depositary Shares (equivalent to 5,070,246 Shares).

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ☒    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  ☐

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  ☒    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  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer     ☒                Accelerated filer  ☐                Non-accelerated filer  ☐                Emerging growth company  ☐                

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP   ☒    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  ☒

 

* Not for trading, but only in connection with the registration of the American Depositary Shares, each representing one share of Common Stock.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  

Cautionary Statement Regarding Forward-Looking Statements

     4  

PART I

  

Item 1.      Identity of Directors, Senior Management and Advisers

     6  

Item 2.     Offer Statistics and Expected Timetable

     6  

Item 3.     Key Information

     6  

A. Selected Financial Data

     6  

B. Capitalization and Indebtedness

     7  

C. Reasons for the Offer and Use of Proceeds

     7  

D. Risk Factors

     7  

Item 4.      Information on Kyocera Corporation and its Consolidated Subsidiaries

     16  

A. History and Development of Kyocera Corporation and its Consolidated Subsidiaries

     16  

B. Business Overview

     18  

C. Organizational Structure

     25  

D. Property, Plants and Equipment

     28  

Item 4A.  Unresolved Staff Comments

     30  

Item 5.      Operating and Financial Review and Prospects

     30  

A. Operating Results

     30  

B. Liquidity and Capital Resources

     49  

C. Research and Development, Patents and Licenses, etc..

     53  

D. Trend Information

     57  

E. Off-Balance Sheet Arrangements

     58  

F. Tabular Disclosure of Contractual Obligations

     58  

Item 6.      Directors, Senior Management and Employees

     59  

A. Directors and Senior Management

     59  

B. Compensation

     63  

C. Board Practices

     65  

D. Employees

     66  

E. Share Ownership

     67  

Item 7.      Major Shareholders and Related Party Transactions

     67  

A. Major Shareholders

     67  

B. Related Party Transactions

     69  

C. Interests of Experts and Counsel

     69  

Item 8.     Financial Information

     70  

A. Consolidated Statements and Other Financial Information

     70  

B. Significant Changes

     70  

Item 9.     The Offer and Listing

     70  

A. Offer and Listing Details

     70  

B. Plan of Distribution

     72  

C. Markets

     72  

D. Selling Shareholders

     72  

E. Dilution

     72  

F. Expenses of the Issue

     72  

Item 10.     Additional Information

     73  

A. Share Capital

     73  

B. Memorandum and Articles of Association

     73  

C. Material Contracts

     82  

D. Exchange Controls

     83  

E. Taxation

     83  

 

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     Page  

F. Dividends and Paying Agents

     89  

G. Statement by Experts

     89  

H. Documents on Display

     89  

I. Subsidiary Information

     89  

Item 11.      Quantitative and Qualitative Disclosures about Market Risk

     89  

Item 12.      Description of Securities Other than Equity Securities

     90  

A. Debt Securities

     90  

B. Warrants and Rights

     91  

C. Other Securities

     91  

D. American Depositary Shares

     91  

PART II

  

Item 13.     Defaults, Dividend Arrearages and Delinquencies

     93  

Item 14.     Material Modification to the Rights of Security Holders and Use of Proceeds

     93  

Item 15.    Controls and Procedures

     93  

Item 16.    [Reserved]

     93  

Item 16A. Audit Committee Financial Expert

     93  

Item 16B. Code of Ethics

     94  

Item 16C. Principal Accountant Fees and Services

     94  

Item 16D. Exemptions from the Listing Standards for Audit Committees

     95  

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     96  

Item 16F. Change in Registrant’s Certifying Accountant

     96  

Item 16G. Corporate Governance

     96  

Item 16H. Mine Safety Disclosure

     99  

PART III

  

Item 17.     Financial Statements

     100  

Item 18.     Financial Statements

     100  

Item 19.     Exhibits

     100  

 

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Cautionary 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:

 

  (1) general conditions in the Japanese or global economy;

 

  (2) unexpected changes in economic, political and legal conditions in countries where we operate;

 

  (3) various export risks which may affect the significant percentage of our revenues derived from overseas sales;

 

  (4) the effect of foreign exchange fluctuations on our results of operations;

 

  (5) intense competitive pressures to which our products are subject;

 

  (6) fluctuations in the price and ability of suppliers to provide the required quantity of raw materials for use in our production activities;

 

  (7) manufacturing delays or defects resulting from outsourcing or internal manufacturing processes;

 

  (8) shortages and rising costs of electricity affecting our production and sales activities;

 

  (9) the possibility that future initiatives and in-process research and development may not produce the desired results;

 

  (10) companies or assets acquired by us not produce the returns or benefits, or bring in business opportunities;

 

  (11) inability to secure skilled employees, particularly engineering and technical personnel;

 

  (12) insufficient protection of our trade secrets and intellectual property rights including patents;

 

  (13) expenses associated with licenses we require to continue to manufacture and sell products;

 

  (14) environmental liability and compliance obligations by tightening of environmental laws and regulations;

 

  (15) unintentional conflict with laws and regulations or newly enacted laws and regulations;

 

  (16) our market or supply chains being affected by terrorism, plague, wars or similar events;

 

  (17) earthquakes and other natural disasters affecting our headquarters and major facilities as well as our suppliers and customers;

 

  (18) credit risk on trade receivables;

 

  (19) fluctuations in the value of, and impairment losses on, securities and other assets held by us;

 

  (20) impairment losses on long-lived assets, goodwill and intangible assets;

 

  (21) unrealized deferred tax assets and additional liabilities for unrecognized tax benefits;

 

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  (22) changes in accounting principles;

and other risks discussed under Item 3.D. “Risk Factors” and elsewhere in this annual report on Form 20-F.

Voluntary Delisting of American Depositary Shares from the New York Stock Exchange

On February 26, 2018, our Board of Directors resolved to apply for the voluntary delisting of our ADSs from the New York Stock Exchange. In connection with the delisting, we filed a Form 25 on June 15, 2018 with the Securities and Exchange Commission for such voluntary delisting and the related deregistration with the Securities and Exchange Commission, which delisting became effective on June 26, 2018. In addition, on June 26, 2018, we filed a Form 15F with the Securities and Exchange Commission to terminate our ongoing reporting obligations under the U.S. Securities Exchange Act of 1934.

While we are thus no longer subject to ongoing reporting obligations under the U.S. Securities Exchange Act of 1934, we have been making and will continue to make periodic filings thereunder on a voluntary basis, including this annual report. We plan to discontinue such voluntary filings after September 24, 2018, which is 90 days from the time of our filing of Form 15F.

Although our ADSs have been delisted from the New York Stock Exchange, we intend to maintain our ADR program in the United States and therefore anticipate that our ADSs will continue to be traded in the United States on the over-the-counter market.

Presentation 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:

 

    “U.S. dollar” or “$” means the lawful currency of the United States of America, “yen” or “¥” means the lawful currency of Japan and “Euro” means the lawful currency of the European Union.

 

    “U.S. GAAP” means generally accepted accounting principles in the United States of America, and “Japanese GAAP” means generally accepted accounting principles in Japan.

 

    “ADS” means an America Depositary Share, each representing one share of Kyocera’s common stock, and “ADR” means an American Depositary Receipt evidencing ADSs.

 

    “fiscal 2018” refers to Kyocera’s fiscal year ended March 31, 2018, and other fiscal years are referred to in a corresponding manner.

 

    “IFRS” means International Financial Reporting Standards.

 

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PART I

Item 1.    Identity of Directors, Senior Management and Advisers

Not Applicable.

Item 2.    Offer Statistics and Expected Timetable

Not Applicable.

Item 3.    Key Information

A. Selected Financial Data

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 U.S. GAAP.

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.

 

     2014      2015      2016      2017      2018  
     (Yen in millions and shares in thousands, except per share amounts)  

For the years ended March 31:

              

Net sales

   ¥ 1,447,369      ¥ 1,526,536      ¥ 1,479,627      ¥ 1,422,754      ¥ 1,577,039  

Profit from operations

     120,582        93,428        92,656        104,542        95,575  

Net income attributable to Kyocera Corporation’s shareholders

     88,756        115,875        109,047        103,843        81,789  

Earnings per share:

              

Net income attributable to Kyocera Corporation’s shareholders:

              

Basic

   ¥ 241.93      ¥ 315.85      ¥ 297.24      ¥ 282.62      ¥ 222.43  

Diluted

     241.93        315.85        297.24        282.62        222.43  

Weighted average number of shares outstanding:

              

Basic

     366,872        366,864        366,859        367,428        367,709  

Diluted

     366,872        366,864        366,859        367,428        367,709  

Cash dividends declared per share:

              

Per share of common stock

   ¥ 80      ¥ 100      ¥ 100      ¥ 110      ¥ 120  

Per share of common stock*

   $ 0.78      $ 0.81      $ 0.88      $ 0.97      $ 1.07  

At March 31:

              

Total assets

   ¥ 2,636,704      ¥ 3,021,184      ¥ 3,095,049      ¥ 3,110,470      ¥ 3,157,077  

Long-term debt

     19,466        17,881        18,115        16,409        20,237  

Common stock

     115,703        115,703        115,703        115,703        115,703  

Kyocera Corporation’s shareholders’ equity

     1,910,083        2,215,319        2,284,264        2,334,219        2,336,246  

Total equity

     1,987,226        2,303,623        2,373,762        2,418,909        2,424,506  

Depreciation

   ¥ 65,760      ¥ 62,413      ¥ 65,853      ¥ 66,019      ¥ 70,137  

Capital expenditures

   ¥ 56,611      ¥ 56,670      ¥ 68,933      ¥ 67,781      ¥ 86,519  

 

* Translated into the U.S. dollars based on the exchange rates at each payment date in Japan.

“Earnings per share” and “Cash dividends declared per share” are calculated under the assumption that the stock split undertaken by Kyocera Corporation on October 1, 2013 had been undertaken at the beginning of fiscal

 

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2014. For details of the stock split, please refer to “Capital Stock” in Item 10.B. “Memorandum and Articles of Association” of this annual report on Form 20-F on page 75.

The 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:

 

For the years ended March 31,

       High              Low              Average              Period-end      

2014

     105.25        92.96        100.15        102.98  

2015

     121.50        101.26        109.75        119.96  

2016

     125.58        111.30        120.04        112.42  

2017

     118.32        100.07        108.25        111.41  

2018

     114.25        104.83        110.80        106.20  

For most recent six months

                           

December 2017

     113.62        111.88        112.94        112.69  

January 2018

     113.18        108.38        110.87        109.31  

February 2018

     110.40        106.10        107.97        106.62  

March 2018

     106.91        104.83        106.05        106.20  

April 2018

     109.33        105.99        107.66        109.28  

May 2018

     111.08        108.62        109.69        108.73  

The noon buying rate for Japanese yen on June 15, 2018 was $1.00 =110.58

B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.

D. Risk Factors

You should carefully read the risks described below before making an investment decision.

Risks Related to Kyocera’s Business

(1) Changes in the Japanese and global economy may significantly reduce demand for Kyocera’s products

Kyocera conducts business not only in Japan but also around the world and provides products and services for a variety of markets such as the digital consumer equipment, industrial machinery, automotive and environmental and energy-related markets. In fiscal 2019, the Japanese economy is expected to maintain moderate growth. For overseas, the U.S. economy is expected to continue expanding firmly, and European economy is projected to continue recovering. The Chinese economy is likely to broadly follow a stable growth path, although its growth rate is expected to decelerate. In the event that the economies of respective countries around the world deteriorate beyond expectations, a reduction in private capital investment and a decline in personal consumption may affect production activities in Kyocera’s key markets. This may in turn lead to a decline in Kyocera’s business environment, consolidated results of operations, financial condition and cash flows.

(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 China and

 

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Vietnam. 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 developing and emerging markets such as Brazil, Russia, India and China, become considerably more important, Kyocera may become even more susceptible to these risks.

(3) Since a significant percentage of Kyocera’s revenues have 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 60% of its total revenues in fiscal 2018. 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:

 

    a strong yen may make Kyocera’s products less attractive to foreign purchasers;

 

    political and economic instability, significant economic downturns or economic sanctions may inhibit exports of Kyocera’s products;

 

    tariffs and other barriers may make Kyocera’s products less cost competitive; and

 

    the laws of certain foreign countries may not adequately protect Kyocera’s trade secrets and intellectual property.

(4) Currency exchange rate fluctuations could adversely affect Kyocera’s financial results

Kyocera conducts business in countries outside 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, the value of its foreign assets and production costs, 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 a few 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 2018 depending partly on the demand and competition situation. In 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,

 

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it is critical to maintain close ties with customers so that Kyocera can ensure that it is able to meet required 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) Fluctuations in the price and ability of suppliers to provide the required quantity of raw materials for use in Kyocera’s production activities

Raw materials used in the production activities of Kyocera’s respective businesses are constantly subject to price fluctuations, and as such, rising raw material prices may lead to an increase in production costs. Kyocera cannot guarantee that it will be able to maintain an appropriate differential between customer prices and Kyocera’s raw material and production costs at all times, which could lead to reduced profitability. Based on an approach that evaluates the lower of cost and net realizable value (the estimated selling price in the ordinary course of business less any estimated costs of completion and estimated variable selling expenses), Kyocera recognizes a write-down when the net realizable value of the raw material is estimated to be less than its carrying amount, and further loss may be required in the future.

Kyocera is dependent on specific suppliers for procuring certain raw materials used in Kyocera’s production cycle and any excess demand on those suppliers may cause delays and disruptions in the production cycle. If a substantial interruption should occur in the supply of such raw materials, Kyocera may not be able to obtain other sources of supply in a timely fashion or at a reasonable price. An increase in the price or an interruption in the supply of such raw materials may cause reduced demand for Kyocera’s products.

In order to attempt to ensure stable procurement and prices for certain raw materials, Kyocera on occasion enters into long-term purchase agreements with the aim of reducing the risk associated with the procurement of such raw materials. However, considerable changes in the business environment and other factors may cause the contract price under a purchase agreement to significantly exceed the market price, or may cause the amount of such raw materials that Kyocera consumes to significantly fall short of the amount based on the sales demand projections made at the time Kyocera entered into, which are thus underlying, the agreement. Such developments may adversely affect Kyocera’s production costs and profitability. In addition, Kyocera evaluates the future material purchase commitments under long-term purchase agreements at the lower of cost and net realizable value, and when the net realizable value of the material is less than the purchase prices under the agreements, Kyocera recognizes a write-down in an amount equivalent to the difference between net realizable value and purchase price.

For fiscal 2018, Kyocera recognized a write-down relating to long-term purchase agreements for procurement of polysilicon material used in its solar energy business. For detailed information regarding to this write-down, please refer to Note 5 to Kyocera’s consolidated financial statements included in this annual report on Form 20-F.

(7) 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 certain 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.

 

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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. Moreover, in certain operations of which fixed cost ratio is high, decreases in production volume or capacity utilization may adversely affect Kyocera’s results of operation, financial condition and cash flows.

(8) Shortages and rising costs of electricity may adversely affect Kyocera’s production and sales activities

As many nuclear power plant operations 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 for equipment and centers, however, Kyocera’s production activity may become diminished if massive blackouts occur and electricity shortages continue in the areas in which Kyocera has facilities. Shortages of electricity in the areas in which Kyocera’s suppliers and customers have main operations may also interrupt Kyocera’s procurement and sales activities. In addition, significant rising costs of electricity may adversely affect Kyocera’s results of operations, financial condition and cash flows.

(9) Future initiatives and in-process research and development may not produce the desired results

Kyocera intends to expand its product lines and development capacity to satisfy increasing demand and customer requirement in its target markets. Unexpected technical delays in completing these initiatives or changes to Kyocera’s customers’ policies 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.

(10) Companies or assets acquired by Kyocera and collaborations, partnerships and alliances etc., with outside organizations 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 make the most of acquisitions and meet Kyocera’s expectations could have a material adverse effect on Kyocera’s business. In addition, Kyocera faces similar risks in connection with its collaborations, partnerships and alliances etc., with outside organizations such as firms, academic institutions and governmental organizations.

(11) 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. 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.

 

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(12) Risk related to information security

Kyocera holds important information in the ordinary course of business including personal and confidential information obtained from our customers. However, security measures we implement for our networks, IT assets and other information technology systems are susceptible to damage, disruptions, or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, data corruption, computer viruses, cyberattacks by computer hackers, network security breaches, telecommunication failures, user errors, or catastrophic events. If our information technology systems suffer severe damage, disruption, shutdown or other issues, there is a risk of information leakage. If such situation occurs, Kyocera could incur additional costs in connection with remediating such issues and with compensating adversely affected parties as well as reputational damages, each of which in turn may adversely affect Kyocera’s results of operations, financial condition and cash flows. Furthermore, we may incur additional costs in connection with maintaining adequate information security to prevent unauthorized access to our systems in light of continuous technological advances, and such costs could also adversely affect our financial condition and operations.

Risks Related to Legal Restrictions and Litigations

(13) 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 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.

(14) 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. Accordingly, Kyocera cannot assure that:

 

    infringement claims (or claims for indemnification resulting from infringement claims) will not be asserted against Kyocera,

 

    future assertions against Kyocera will not result in an injunction against the sale of infringing or allegedly infringing products or otherwise significantly impair its business and results of operations; or

 

    Kyocera will not be required to obtain licenses, the expense of which may adversely affect its results of operations.

(15) 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, soil contamination, wastewater discharges, the handling,

 

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disposal and remediation of hazardous substances, wastes and certain chemicals, product recycling, health, safety and property preservations of employees and community residents, 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 past 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.

(16) Kyocera is subject to various other laws and regulations

Kyocera may unintentionally come into 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

(17) 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 are increasingly exposed to risks from 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.

(18) 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, heavy rains, floods, heavy snow 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 devastated 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 suffers 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

 

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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.

Risks Related to Financial and Accounting

(19) 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 adversely affected.

(20) Kyocera may have to incur impairment losses on its investments in 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. If there are certain declines in the fair value, that is, the market price, of the shares of these companies, and we determine that such declines are other-than-temporary, Kyocera will need to record an impairment loss. A substantial portion of Kyocera’s investments in equity securities consists of an investment in shares of KDDI Corporation, a Japanese telecommunication service provider. Kyocera Corporation’s equity interest in KDDI Corporation was 12.95% as of March 31, 2018. Kyocera Corporation’s investment in shares of KDDI Corporation accounts for approximately 30% of Kyocera’s total assets. Accordingly, fluctuations in the market value of the shares of KDDI Corporation may materially affect Kyocera’s financial condition. From the perspective of enhancing the corporate value of Kyocera on a mid- to long-term basis, Kyocera intends to keep its ownership of some of the equity securities as strategic investments including KDDI shares in light of attaining growth of business through strengthening, maintaining and developing trade relationship and securing profits from shareholding and consideration for the social significance of Kyocera. For equity securities including strategic investments in its portfolio, with periodical checks for the economic rationality, Kyocera may dispose of some securities, which lack merit for Kyocera, although market conditions may not permit us to do so at the time, speed or price we may wish.

(21) 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.

(22) 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.

 

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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.

(23) 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

(24) 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.

(25) 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 Audit & Supervisory Board and the Companies 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.

(26) We have voluntarily delisted our ADSs from the New York Stock Exchange and have filed for deregistration and termination of our ongoing reporting obligations under the U.S. Securities Exchange Act of 1934

On February 26, 2018, we announced that our Board of Directors had resolved to apply for voluntary delisting of our ADSs from the New York Stock Exchange. In connection with the delisting, we filed a Form 25 on June 15, 2018 with the Securities and Exchange Commission for such voluntary delisting and the related deregistration with the Securities and Exchange Commission. In addition, on June 26, 2018, we filed a Form 15F with the Securities and Exchange Commission to terminate our ongoing reporting obligations under the U.S. Securities Exchange Act of 1934.

While we are thus no longer subject to ongoing reporting obligations under the U.S. Securities Exchange Act of 1934, we have been making and will continue to make periodic filings thereunder on a voluntary basis, including this annual report. We plan to discontinue such voluntary filings after September 24, 2018, which is 90 days from the time of our filing of Form 15F.

 

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Although our ADSs have been delisted from the New York Stock Exchange, we intend to maintain our ADR program in the United States and therefore anticipate that our ADSs will continue to be traded in the United States on the over-the-counter market. The market for our ADSs may be significantly less liquid as a result of our delisting of our ADSs from the New York Stock Exchange.

Furthermore, while we currently prepare and disclose our financial statements in accordance with U.S. GAAP, we have resolved to prepare and disclose our financial statements in accordance with IFRS beginning with the three months ending June 30, 2018. As a result, there may be significant differences in the presentation of financial data in our income statements and balance sheets as well as in the notes to our financial statements prepared under IFRS as compared to those prepared under U.S. GAAP.

(27) 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.

(28) 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 year-end 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 a year-end dividend declaration a few weeks before the annual general meeting. If the shareholders’ approval is given, the year-end 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 shareholders. 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 year-end 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 year-end dividends may not receive the dividend they anticipate.

(29) 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.

 

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(30) We believe that we were a passive foreign investment company (PFIC) for United States federal income tax purposes for the 2016, 2017 and 2018 fiscal years and that we may be treated as a PFIC in the current or future taxable years.

Because of the passive nature of our assets and income, we believe that we were a PFIC for United States federal income tax purposes for the 2016, 2017 and 2018 fiscal years and that we may be treated as a PFIC in the current or future taxable years. Assuming that we are a PFIC, U.S. holders of our shares and ADSs may be subject to special adverse United States federal income tax consequences. See Item 10 “Additional Information—Taxation—United States Taxation” of this annual report on Form 20-F. We do not intend to provide investors with any information to assist them in determining whether we are a PFIC. In addition, the information we are required to disclose by applicable securities laws may not be sufficient to determine whether we are a PFIC. We also do not intend to provide United States holders of our shares and ADRs with the information that is required to make an election to have us treated as a “qualified electing fund” for United States federal income tax purposes. For a more comprehensive discussion of the United States federal income tax consequences of owning shares and ADSs and the application of the PFIC rules to you, see Item 10 “Additional Information—Taxation—United States Taxation.”

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 (later, the company changed its name to Kyocera Connector Products Corporation, which was subsequently merged with Kyocera through an absorption-type merger in April 2017).

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 the middle of the 1990s, Kyocera developed two main business categories, the “Components Business,” in which Kyocera provides parts and devices such as fine ceramic parts, semiconductor parts and electronic components and devices to mainly electronic equipment manufacturers in information and communications fields, and the “Equipment & Systems Business,” in which Kyocera manufactures and sells telecommunications equipment such as mobile phones to telecommunication carriers, information equipment such as printers and multifunctional products and products for the life and environment market, such as solar energy related products, to distributors or directly to customers.

Since 2000, we have further enhanced our position in telecommunications and information equipment market. In February 2000, we acquired the code division multiple access (CDMA) mobile phone handset business from Qualcomm Inc. 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

 

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subsidiary. In April 2002, we transferred Kyocera Corporation’s printer business to Kyocera Document Solutions Inc. to further enhance our information equipment business by pursuing group synergies.

With 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 (currently Kyocera (China) Sales and Trading Corporation), in January 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 May 2003, and to reduce manufacturing costs.

In August 2003, we made Kinseki, Limited (later, the company changed its name to Kyocera Crystal Device Corporation, which was subsequently merged with Kyocera through an absorption-type merger in April 2017), a major producer of artificial crystal related products, a wholly-owned subsidiary through a share exchange to strengthen our Electronic Devices Group. We also established Kyocera SLC Technologies Corporation, a manufacturing and sales company of surface laminar circuitry, in order to expand organic material components business (later, the company changed its name to Kyocera Circuit Solutions, Inc., which was subsequently merged with Kyocera through an absorption-type merger in April 2016).

In September 2004, Kyocera Corporation and Kobe Steel, Ltd. established Japan Medical Materials Corporation (later, the company changed its name to Kyocera Medical Corporation, which was subsequently merged with Kyocera through an absorption-type merger in April 2017) and Kyocera Corporation transferred its medical materials business to Japan Medical Materials Corporation through corporate splits.

In April 2008, Kyocera acquired the mobile phone related business of SANYO Electric Co., Ltd. (currently Panasonic Corporation) to strengthen the Telecommunications Equipment Group.

For further enhancement of the Information Equipment Group, Kyocera 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 products in Germany, a subsidiary through a voluntary public takeover offer in January 2009. In October 2010, Kyocera acquired all of the remaining shares of TA. As a result, TA became a wholly-owned subsidiary of Kyocera. In July 2011, we established a subsidiary, Kyocera Document Technology Vietnam Company Limited, to produce information equipment for expanding our production capacity and reducing manufacturing cost.

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 broaden our product lines and markets.

In August 2011, Kyocera established Kyocera Vietnam Management Company Limited (currently Kyocera Vietnam Company Limited), a manufacturing subsidiary, in order to further reduce costs and to meet with growing component demand.

In February 2012, in order to expand its liquid crystal display business, Kyocera acquired Optrex Corporation (currently Kyocera Display Corporation), a specialized manufacturer of liquid crystal displays and related products.

In October 2013, Kyocera acquired NEC Toppan Circuit Solutions, Inc., a printed wiring board manufacturing company, and changed its name to Kyocera Circuit Solutions, Inc. in order to strengthen and expand its organic substrate business. In October 2014, Kyocera integrated Kyocera SLC Technologies Corporation and Kyocera Circuit Solutions, Inc., both of which engaged in organic substrate business, into Kyocera Circuit Solutions, Inc. In April 2016, we implemented an absorption-type merger of Kyocera Circuit Solutions, Inc. into Kyocera Corporation in order to enhance the development of new products and to expand its business further.

 

 

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In September 2015, Kyocera acquired Nihon Inter Electronics Corporation (NIEC), a manufacturer of power semiconductors, in order to expand into a new business area with a combination of their respective products and made it a consolidated subsidiary. In order to further expand our power semiconductor business, we implemented an absorption-type merger of NIEC into Kyocera Corporation in August 2016.

In April 2017, we implemented separate absorption-type mergers with each of Kyocera Crystal Device Corporation, Kyocera Connector Products Corporation and Kyocera Medical Corporation, through which each company was merged into Kyocera Corporation, in order to expand the electronic devices business and the business in medical and health care through sharing each company’s respective management resources and maximizing synergy.

We acquired Senco Holdings, Inc., a U.S.-based pneumatic tools manufacturing company (currently Kyocera Senco Industrial Tools, Inc.), in August 2017 and we acquired 80% of shares in Kyocera Industrial Tools Corporation, which was established from the company split of Ryobi Limited’s power tool business under a share transfer agreement in January 2018, in order to promote diversification and expand our industrial tool business.

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 are any significant divestitures currently being made.

In addition, for a discussion of our voluntary delisting of our ADSs from the New York Stock Exchange, which became effective on June 26, 2018, please see Item 9.A. “Offer and Listing Details—Price Range of Shares” of this annual report on Form 20-F.

B. Business Overview

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, 2018, we had 230 subsidiaries, 4 affiliates outside Japan, 23 subsidiaries and 7 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.

Operations

Starting from fiscal 2018, Kyocera has changed the classification of its reporting segments. The new six reporting segments are (1) Industrial & Automotive Components Group, (2) Semiconductor Components Group, (3) Electronic Devices Group, (4) Communications Group, (5) Document Solutions Group, and (6) Life & Environment Group.

Our principal products and services offered in each reporting segment are shown below.

(1) Industrial & Automotive Components Group

Fine Ceramic Components

Automotive Components

Liquid Crystal Displays

Industrial Tools

In this reporting segment, Kyocera provides fine ceramic parts made from a variety of ceramic materials such as alumina and zirconia, utilizing the characteristics of heat, wear and corrosion resistance as well as camera

 

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modules infused with optical lens and sensing technology, and liquid crystal displays, primarily in the small- to mid-size range. These products are supplied mainly to the industrial machinery and automotive markets. We also provide industrial tools such as cutting tools for metallic processing and pneumatic and power tools to the automotive, general industrial and construction markets.

(2) Semiconductor Components Group

Ceramic Packages

Organic Multilayer Substrates and Boards

This reporting segment develops, manufactures and sells both inorganic (ceramic) and organic packages and multilayer printed wiring boards for various electronic components and devices such as crystal components, SAW devices and CMOS/CCD sensors for communication infrastructures and for the automotive-related markets.

(3) Electronic Devices Group

Electronic Components (Capacitors, Crystal Devices, Connectors, Power Semiconductor Devices, etc.)

Printing Devices

This reporting segment develops, manufactures and sells a wide variety of electronic components and devices for diverse fields that include information and communications equipment, industrial equipment and automotive-related markets.

(4) Communications Group

Mobile Phones

M2M Modules

Information Systems and Telecommunication Services

This reporting segment develops, manufactures and sells smartphones and mobile phones embedded with our unique functions as well as develops communication modules with expectations of growing demand in the IoT (Internet of Things) society as well as information systems and telecommunication services such as ICT (Information and Communication Technology) solutions, engineering services businesses and so on.

(5) Document Solutions Group

Printers

Multifunctional Products

Document Solutions

Supplies

This reporting segment supplies printers and multifunctional products (MFPs) that realize long life cycle and low running costs thanks to the use of our amorphous silicon photoreceptor drums. We are also rolling out document solutions worldwide that support the optimization of a customer’s document environment through the provision of application software enabling connection between a customer’s document management system and mobile terminals or cloud environments. We are also strengthening our ECM (Enterprise Contents Management) business that computerizes a company’s data so that it can be controlled and managed in a more comprehensive and efficient manner as well as Document BPO that provides outsourcing services for document-related business.

 

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(6) Life & Environment Group

Solar Power Generating System related Products

Medical Devices

Jewelry and Ceramic Knives

This reporting segment develops, manufactures and sells products related life and environment such as solar modules for commercial and residential uses, solar energy related products including storage batteries and energy management systems, medical devices including prosthetic joints and dental prosthetics, jewelry, and kitchen accessories including ceramic knives.

Sales and Distributions

Kyocera’s products and services are supplied worldwide through our sales personnel as well as by sales companies within our group and by third-party 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.

A wide range of component, device and equipment products in the Industrial & Automotive Components Group are sold to various industrial equipment and automotive-related industries worldwide that include the semiconductor industry through our distributors in addition to direct sales.

Most sales in the Semiconductor Components Group are made directly to device, component and equipment manufacturers in Japan and overseas.

Sales in the Electronic Devices Group are made directly to device and equipment manufacturers in Japan and overseas as well as through active use of distributors.

In the Communications Group, we supply smartphones and mobile phones to telecommunications carriers in Japan and North America in the mobile handset business. In the communication modules (M2M modules) business, we supply products mainly through telecommunications carriers to automobile manufacturers and power companies. In the information and communication services business, we provide ICT and management consulting businesses primarily to general companies and public institutions centered on Japan, as well as engineering business to telecommunications carriers, wireless equipment vendors and solar power generation operators.

In the Document Solutions Group, we provide document solutions that resolve customers’ management issues, including Kyocera brand printers and MFPs that boast long life and produce minimal waste, mainly via 35 sales companies in over 140 countries. We primarily deal with major customers around the world by way of direct sales.

In the solar energy business in the Life & Environment Group, solar modules and solar power generating systems are sold to global users via direct sales, sales subsidiaries and other methods, including through distributors. In addition, we sell power storage systems and energy management systems through distributors, franchises and home builders in Japan.

In the medical and dental implant business, prosthetic joints, artificial bones and dental implants are sold to hospitals and dental clinics through distributors.

Jewelry and applied ceramic products such as ceramic knives are sold through direct retail shops and general retailers as well as the internet.

 

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Domestic sales are made predominantly in the Japanese yen, while overseas sales are made in a variety of currencies, but predominantly in the U.S. dollar and the Euro.

Sources and Availability of Raw Materials and Supplies

We purchase a variety of raw materials and other materials for our business activities.

The principal raw materials include alumina, zirconia, silicon nitride, polycrystalline silicon, nickel powder and epoxy resins. These raw materials are used mainly in the manufacturing of products for the Components Business. The main materials supplied for use as key components are chip sets and liquid crystal displays in the Equipment & Systems Business. The Kyocera Group procures some of the materials and components that it uses in its respective businesses from within the Group since it develops a wide range of products spanning from materials to systems and services. The internally manufactured components also include core components that contribute to the differentiation of parts and equipment.

Our basic policy is to procure raw materials and other materials from several companies to ensure stable procurement at a fair price. We may limit the number of suppliers as an exception (1) if the final customer selects the material supplier or (2) to maintain the quality of a final product.

The purchase price of these raw materials and other materials fluctuates depending on the supply-demand situation, the impact of such things as the rising cost of raw materials and fuel, and foreign currency exchange rates in the case purchases are made in foreign currencies from suppliers overseas. Kyocera’s businesses are many and varied, and we are working to enhance our price negotiating power when procuring raw materials and other materials through the ties we have inside the Group. We are also striving to absorb the rising cost of raw materials and other materials in each business by making internal improvements that include cost reductions.

In addition, we may also conclude long-term agreements with suppliers for certain raw materials in consideration of the future supply-demand balance.

In fiscal 2018, we were able to procure raw materials and other materials in line with our production plans.

Kyocera has entered into long-term purchase agreements with a specific supplier for purchasing polysilicon material used in its solar energy business. For detailed information regarding these purchase agreements, please refer to “Long-term purchase agreements for the supply of raw materials” in Item 5.F. “Tabular Disclosure of Contractual Obligations.”

For details on Kyocera’s supply chain management and dealing with conflict minerals, please refer to the following websites, respectively.

“Kyocera Supply-Chain CSR Deployment Guideline”

https://global.kyocera.com/ecology/social/images/csr_guide.pdf

“Conflict Minerals Report”

https://global.kyocera.com/ir/financial/cmr.html

 

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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, 2018, with respect to our significant patents and license agreements.

(a) License permitted to produce products

 

Counterparty

  

Country

  

Contents

  

Period

Qualcomm Incorporated

  

United States

   License under patents regarding mobile phone    From August 31, 1996 to patent expiration

(b) License—cross agreements

 

Counterparty

  

Country

  

Contents

  

Period

Canon Inc.

  

Japan

   License under patents regarding electric photo printer    From April 1, 2012 to patent expiration

Competitive Position

(1) Industrial & Automotive Components Group

Kyocera has continued to cultivate new markets since our founding through the development of fine ceramic materials and products. At present, we supply fine ceramic parts to a wide array of markets such as the information and communications market and the industrial machinery market, which includes semiconductors. We boast production technology and production capacity for these products that enable us to meet customer requirements, which include ceramic materials technology and design expertise accumulated in the process of cultivating new markets. This is one of the key reasons that we have been able to differentiate our products from those of our rivals, and through this, we have established a position as a global leading manufacturer.

In automotive components, we have products that boast the top market share in powertrain parts that utilize fine ceramic technology. In addition, we are striving to increase our share of automotive cameras, an area on the rise to boost automotive safety, by developing new products and technologies.

In liquid crystal displays, we are focusing on the development of small- and medium-sized products and are seeking to expand business mainly for automotive and industrial applications. In particular, we are working to further strengthen our competitiveness by concentrating on the development of new liquid crystal displays for automotive use.

In the industrial tool business, Kyocera’s products are used primarily for metallic processing in automotive-related markets. Although we have many competitors globally, we provide a diverse array of cutting tools for processing machinery based on advanced materials technology that contribute to enhanced productivity for our customers. We are also developing products for a wide range of markets in addition to the automotive industry, including the aviation and energy markets, and are expanding our lineup of pneumatic tools and power tools, for example, through aggressive merger and acquisition activity, in an effort to expand business as a comprehensive tool manufacturer.

(2) Semiconductor Components Group

In this reporting segment, we are working to strengthen global competitiveness by developing business for ceramic material components such as ceramic packages, and business for organic multilayer packages, multilayer printed wiring boards (PWBs) and organic packaging materials.

 

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In the ceramic material components business, Kyocera has established its position as a leader in the global market through sophisticated development, production technology and supply capabilities. We will maximize use of these outstanding management resources and work to broadly expand the application of ceramic material components for the digital consumer equipment market as well as the automotive-related markets, optical communications market, medical market, IoT-related markets and other areas. We are also working to maintain and improve our high market position by actively expanding production capacity in response to growing market needs. Our main competitors in this domain are Japanese manufacturers.

In the organic multilayer package and multilayer PWB business, our main competitors are Japanese and Asian manufacturers. Kyocera has become a leading supplier of high-end flip-chip packages and advanced multilayer PWBs used in communications infrastructure such as servers and routers demanding exceptional electrical properties and reliability. In addition, we are working to develop new products that leverage our capabilities in thin substrate technology amassed over the years, for smartphones and other mobile terminals requiring smaller, thinner packages, to bolster our business competitiveness.

(3) Electronic Devices Group

Kyocera develops and manufactures a wide variety of capacitors, crystal components, connectors, thermal printheads, inkjet printheads, power semiconductors, sensors, and wireless communications antennas. We develop our business with our extensive product lineup for diverse applications worldwide.

Kyocera is a leading supplier of parts for high-end smartphones by focusing on the development of products in cutting-edge fields that meet needs such as for miniaturization and high performance in capacitors, crystal components and connectors. In particular, we are striving to expand our market share in multilayer ceramic capacitors (MLCCs), where demand is growing, by actively introducing new products and increasing production capacity. AVX Corporation (AVX), our subsidiary, is a world-class supplier in the tantalum capacitor market that develops products for a broad array of fields, including general industry, automotive-related and communications infrastructure. AVX is seeking to expand its product lineup and market share through aggressive merger and acquisition activity.

In addition, we boast high market share in thermal printheads used for barcode printing and in inkjet printheads used in industries such as the textile printing market. We are striving to further boost our market share by actively releasing new products and expanding applications.

(4) Communications Group

Kyocera supplies smartphones and feature phones in Japan and overseas. Our main competitors are mobile phone manufacturers in the United States, Asia and Japan. Kyocera is focusing on developing products that provide a level of differentiation such as by adding waterproof and robustness features. In particular, we are developing an array of products, from simple mobile phones to sophisticated smartphones, for the Japanese market, and by doing so, we are meeting diverse user needs. Additionally, we are developing communication modules (M2M modules), an area of growing demand, for automobiles and the IoT and thus striving to expand business fields by developing applications for communications technology. In the communication module field, we have been able to release products ahead of the competition by utilizing relationships with major carriers in Japan that we have built up in our mobile phone business and this has become a strength in terms of enabling response to the increasing sophistication of technology.

In the information and communications services business, Kyocera develops business mainly in Japan. In the ICT business, which primarily involves the development of application-related software and security-related software, we are developing and supplying products that meet user needs in line with the proliferation of the IoT. We have also become a leading company in the LPWA (Low Power Wide Area) communications services field in Japan by securing license as the only operator in Japan that can deploy Sigfox, an LPWA network where there are growing needs.

 

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(5) Document Solutions Group

In this reporting segment, Kyocera manufactures and sells printers and MFPs, and provides solution services in the global market. Our competitors are mainly leading Japanese and U.S. manufacturers of document equipment.

Kyocera develops environmentally friendly products through unique, long-life photoreceptor drums, including amorphous silicon drums and a positive single layer photoconductor (PLSP) drums, and low-power-consumption systems. Our products have been differentiated from the competition by realizing lower running costs. Kyocera is also increasing efficiency in development through the use of platforms and module-based design for equipment, which has heightened cost competitiveness. In addition, we have expanded our product lineup through broad-reaching product development, from high-end to low-end products, and are meeting customer needs.

In addition to expanding equipment development, Kyocera is working to further enhance competitiveness by bolstering our document solutions business. We are building up our MDS (Managed Document Services) business to provide the optimal document environment for each customer through unique HyPAS (Hybrid Platform for Advanced Solutions), which enables users to embed various applications and software that meet user needs in document equipment to connect with a cloud computing environment or mobile terminals. Aside from this, we are further heightening the value we provide to customers in our document solutions business by adding companies that handle ECM (Enterprise Contents Management) and document BPO (Business Process Outsourcing) via merger and acquisition activity.

(6) Life & Environment Group

In this reporting segment, Kyocera mainly provides solar modules and power generating systems. The solar energy industry has a high number of competitors and competition is becoming increasingly severe from the perspectives of price and technology. Despite this, Kyocera is working to expand business by leveraging competitive advantages in products that realize high conversion efficiency and long-term reliability based on technology backed up by experience accumulated over more than 40 years as one of the pioneering companies in the industry.

Kyocera manufactures crystalline silicon solar cells and, in particular, we have an integrated production system for the entire manufacturing process from silicon ingots to solar modules for multicrystalline silicon solar cells, thus allowing thorough quality control and cost reductions in each process. As a result, we can realize exceptional reliability and enhance cost competitiveness. In addition, Kyocera has generated top-class results in installing solar power generating systems for public and commercial use in Japan by providing system design, construction and maintenance. Kyocera is actively seeking to expand its energy solutions business by strengthening development, particularly for power storage batteries and an Energy Management System (EMS), by utilizing the Group’s management resources and knowhow with the aim of capturing demand for home electricity self-consumption, an area that continues to grow. Further, a strong financial base enabling the provision of after-sales service and maintenance over a long period serves as a competitive advantage for us.

In the medical device business, our main products are prosthetic joints and dental implants, and we deal primarily with the Japanese market. Kyocera commands top-class competitiveness as a manufacturer in Japan. In prosthetic joints, we are working to further strengthen competitiveness by leveraging the properties of fine ceramics, which feature high biocompatibility, and developing products with longer life and enhanced antibacterial characteristics. We are also striving to expand business scale as we eye foray into overseas markets.

Apart from the aforementioned strengths in each business, Kyocera also pursues greater synergies within the Group to further strengthen business. In particular, we are promoting the use of artificial intelligence (AI) and robots with the aim of increasing productivity. In addition, we are working to strengthen our competitiveness by aggressively utilizing external management resources, which includes merger and acquisition activity and collaborations.

 

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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. Kyocera does not believe that such governmental regulations currently have significant effects on its business.

Environmental Regulation

Kyocera is also subject to various regulations concerning the environment of the countries where it operates. These regulations cover air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals used or generated in Kyocera’s 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 its 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, Kyocera believes that it is not involved in any pending or threatened proceedings that would require curtailment of its business, and its 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 to the above environmental regulations, AVX Corporation, a U.S. based subsidiary, has been identified by the United States Environmental Protection Agency (EPA), state governmental agencies or other private parties as a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or equivalent state or local laws for clean-up and response costs associated with certain sites at which remediation is required with respect to prior contamination. Because CERCLA 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.

Other Regulation

Kyocera did not conduct any transactions with Iran-related organizations within the scope of Section 13(r) of the U.S. Securities Exchange Act of 1934 in fiscal 2016, 2017 and 2018.

C. Organizational Structure

We had 264 subsidiaries and affiliates as of March 31, 2018. 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.

 

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The following table sets forth information, as of March 31, 2018, with respect to our significant subsidiaries.

 

Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
    

Main Business

(1) Industrial & Automotive Components Group

        

Kyocera Display Corporation

   Japan      100.00%      Development, manufacture and sale of Liquid Crystal Displays

Kyocera Industrial Tools Corporation

   Japan      80.00%      Development, manufacture and sale of Industrial Tools

Dongguan Shilong Kyocera Co.,Ltd.

   China      90.00%      Manufacture of Liquid Crystal Displays and Industrial Tools

Kyocera Precision Tools Korea Co.,Ltd.

   Korea      90.00%      Manufacture and sale of Industrial Tools

Kyocera Senco Industrial Tools, Inc.

   United States      100.00%      Development, manufacture and sale of Industrial Tools

Kyocera Fineceramics GmbH

   Germany      100.00%      Sale of Fine Ceramic Components, Semiconductor Components and Printing Devices mainly in Europe

Kyocera Unimerco A/S

   Denmark      100.00%      Development, manufacture and sale of Industrial Tools

(2) Semiconductor Components Group

        

Shanghai Kyocera Electronics Co.,Ltd.

   China      100.00%      Manufacture of Ceramic Packages

Kyocera Korea Co.,Ltd.

   Korea      100.00%      Sale of Semiconductor Components mainly in Korea

Kyocera Asia Pacific Pte. Ltd.

   Singapore      100.00%      Sale of Industrial Tools and Semiconductor Components mainly in Asia

Kyocera Vietnam Co.,Ltd.

   Vietnam      100.00%      Manufacture of Ceramic Packages

(3) Electronic Devices Group

        

Kyocera (China) Sales & Trading Corporation

   China      90.00%      Sale of Industrial Tools, Ceramic Packages and Electronic Components mainly in China

AVX Corporation

   United States      72.31%      Development, Manufacture and sale of Electronic Components

(4) Communications Group

        

Kyocera Communication Systems Co.,Ltd.

   Japan      76.30%      Information Systems and Telecommunication Services

Kyocera International, Inc.

   United States      100.00%      Manufacture and sale of Fine Ceramic Components and Semiconductor Components, and sale of Mobile Phones

 

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Name

  

Country of
Incorporation

   Percentage
held by
Kyocera
    

Main Business

(5) Document Solutions Group

        

Kyocera Document Solutions Inc.

   Japan      100.00%      Development, manufacture and sale of Printers and Multifunctional Products

Kyocera Document Solutions Japan Inc.

   Japan      100.00%      Sale of Printers and Multifunctional Products mainly in Japan

Kyocera Document Technology (Dongguan) Co.,Ltd.

  

China

  

 

92.76%

 

  

Manufacture of Printers and Multifunctional Products

Kyocera Document Technology Vietnam Co.,Ltd.

  

Vietnam

  

 

100.00%

 

  

Manufacture of Printers and Multifunctional Products

Kyocera Document Solutions America, Inc.

   United States      100.00%      Sale of Printers and Multifunctional Products mainly in North America

Kyocera Document Solutions Europe B.V.

   Netherlands      100.00%      Sale of Printers and Multifunctional Products mainly in Europe

Kyocera Document Solutions Deutschland GmbH

  

Germany

  

 

100.00%

 

  

Sale of Printers and Multifunctional Products mainly in Europe

TA Triumph-Adler GmbH

   Germany      100.00%      Sale of Printers and Multifunctional Products mainly in Europe

(6) Life & Environment Group

        

Kyocera Solar Corporation

   Japan      100.00%      Construction of Solar Power Generating System related Products

Kyocera (Tianjin) Solar Energy Co.,Ltd.

   China      90.00%      Manufacture of Solar Power Generating System related Products

In addition to the above consolidated subsidiaries, Kyocera had 227 other consolidated subsidiaries as of March 31, 2018. Kyocera also had interests in one subsidiary accounted for by the equity method and 11 affiliates accounted for by the equity method as of March 31, 2018.

At a meeting of Board of Directors held on May 25, 2018, Kyocera Corporation made a resolution to conduct an absorption-type merger with Kyocera Display Corporation.

 

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D. Property, Plants and Equipment

As of March 31, 2018, we had property, plants and equipment with a net book value of ¥300,924 million. During the five years ended March 31, 2018, we invested a total of ¥336,514 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.

The following table sets forth information with respect to our principal manufacturing facilities as of March 31, 2018.

 

Name of Plant

 

Location

 

Status

 

Floor Space

 

Principal Products
Manufactured

           

(in thousands

of square feet)

   

Japan

       

Hokkaido Kitami Plant

  Kitami, Hokkaido   Owned   295   Mobile Phones, M2M Modules, Ceramic Packages, Fine Ceramic Components

Yamagata Higashine Plant

  Higashine, Yamagata   Owned   388   Electronic Components

Niigata Shibata Plant

  Shibata, Niigata   Owned   330   Organic Multilayer Substrates and Boards

Toyama Nyuzen Plant

  Shimoniikawa, Toyama   Owned   327   Organic Multilayer Substrates and Boards

Nagano Okaya Plant

  Okaya, Nagano   Owned   386   Fine Ceramic Components, Industrial Tools, Printing Devices

Tamaki Plant

  Watarai, Mie   Owned   393   Toner

Shiga Gamo Plant

  Higashi-Ohmi, Shiga   Owned   692   Fine Ceramic Components, Ceramic Packages

Shiga Yokaichi Plant

  Higashi-Ohmi, Shiga   Owned   1,511   Fine Ceramic Components, Industrial Tools, Solar Power Generating System related Products

Shiga Yasu Plant

  Yasu, Shiga   Owned   1,810   Solar Power Generating System related Products, Liquid Crystal Displays

Kyoto Ayabe Plant

  Ayabe, Kyoto   Owned   843   Organic Multilayer Substrates and Boards

Hirakata Plant

  Hirakata, Osaka   Owned   593   Toner

Kagoshima Sendai Plant

  Satsuma-Sendai, Kagoshima   Owned   2,006   Fine Ceramic Components, Industrial Tools, Semiconductor Components

 

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Name of Plant

 

Location

 

Status

 

Floor Space

 

Principal Products
Manufactured

           

(in thousands

of square feet)

   

Kagoshima Kokubu Plant

  Kirishima, Kagoshima   Owned   2,462   Fine Ceramic Components, Automotive Components Ceramic Packages, Electronic Components, Printing Devices

Kagoshima Hayato Plant

  Kirishima, Kagoshima   Owned   278   Printing Devices

United States

       

Balboa Plant

  San Diego, California   Owned   258   Ceramic Packages

Fountain Inn Plant

  Fountain Inn, South Carolina   Owned   370   Electronic Components

Broadwell Plant

  Cincinnati, Ohio   Owned   541   Industrial Tools

Mexico

       

Tijuana Plant

  Tijuana   Owned   362   Semiconductor Components

El Salvador

       

San Salvador Plant

  San Salvador   Owned   420   Electronic Components

France

       

Saint-Apollinaire Plant

  Saint-Apollinaire   Leased   322   Electronic Components

Czech Republic

       

Lanskroun Plant

  Lanskroun   Owned   542   Electronic Components

Uherske Hradiste Plant

  Uherske Hradiste   Owned   336   Electronic Components

China

       

Tianjin Plant

  Tianjin   Owned   520   Electronic Components

Tianjin Plant

  Tianjin   Owned   308   Solar Power Generating System related Products

Shanghai Pudong Plant

  Shanghai   Owned   1,026   Ceramic Packages

Zhangjiagang Plant

  Zhangjiagang, Jiangsu   Owned   365   Liquid Crystal Displays

Shilong Plant

  Dongguan, Guangdong   Owned   2,331   Printers, Multifunctional Products

Shilong Plant

  Dongguan, Guangdong   Owned   697   Industrial Tools, Liquid Crystal Displays, Printing Devices

Dalian Plant

  Dalian   Owned   518   Industrial Tools

Thailand

       

Lamphun Plant

  Lamphun   Owned   264   Electronic Components

Vietnam

       

Hung Yen Plant

  Hung Yen   Owned   959   Ceramic Packages

Hai Phong Plant

  Hai Phong   Owned   794   Printers, Multifunctional Products

 

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Item 4A.    Unresolved Staff Comments

None.

Item 5.    Operating and Financial Review and Prospects

A. Operating Results

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 Factors” and elsewhere in this annual report on Form 20-F.

Overview

Kyocera develops new technologies and new products and cultivates new markets based on fine ceramic technologies since establishment. Kyocera also promotes growth through the diversified management resources from components technologies to electronic devices, equipment, systems and services. Kyocera develops, produces and distributes worldwide various kinds of products primarily for the following markets: information and communications, industrial machinery, automotive-related and environment and energy.

For fiscal 2017, Kyocera’s operations were categorized into six reporting segments: (1) Fine Ceramic Parts Group, (2) Semiconductor Parts Group, (3) Applied Ceramic Products Group, (4) Electronic Device Group, (5) Telecommunications Equipment Group, and (6) Information Equipment Group. In addition, separate from its six reporting segments, Kyocera groups other businesses into “Others.” For fiscal 2017, Kyocera grouped 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 grouped the Telecommunications Equipment Group and the Information Equipment Group into another main business referred to as the “Equipment Business.”

Starting from fiscal 2018, Kyocera has changed the classification of its reporting segments to “Industrial & Automotive Components Group,” “Semiconductor Components Group,” “Electronic Devices Group,” “Communications Group,” “Document Solutions Group,” and “Life & Environment Group.” For detailed information on the new reporting segment classification, please refer to Note 17 in Kyocera’s consolidated financial statements included in this annual report on Form 20-F.

For fiscal 2018, sales increased in the Components Business due to strong component demand in information and communications, automotive-related and industrial machinery markets, coupled with vigorous expansion of production capacity. Sales in the Document Solutions Group also increased due to the launch of new products and aggressive sales promotion activities. Merger and acquisition activities also contributed. As a result, consolidated net sales for fiscal 2018 increased by ¥154,285 million, or 10.8%, compared with fiscal 2017, to ¥1,577,039 million. This result is a record high for fiscal year sales.

Profit from operations decreased by ¥8,967 million, or 8.6%, to ¥95,575 million, income before income taxes decreased by ¥5,983 million, or 4.3%, to ¥131,866 million and net income attributable to Kyocera Corporation’s shareholders decreased by ¥22,054 million, or 21.2%, to ¥81,789 million, compared with fiscal 2017. These results were due to the recording of a write-down in the amount of ¥50,165 million relating to long-term purchase agreements for procurement of polysilicon material in the solar energy business, included within the Life & Environment Group, which more than offset improvements in profitability in the Components Business and the Document Solutions Group resulting from the sales growth and efforts to reduce costs and raise productivity. Tax expenses primarily resulting from amendments to U.S. tax law and incurred by subsidiaries such as our U.S. subsidiary AVX Corporation pushed down net income attributable to Kyocera Corporation’s shareholders by approximately ¥11 billion.

 

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Average exchange rates for fiscal 2018 were ¥111 to the U.S. dollar, marking depreciation of ¥3 (2.8%), and ¥130 to the Euro, marking depreciation of ¥11 (9.2%), from fiscal 2017. As a result, net sales and income before income taxes after translation into yen for fiscal 2018 were pushed up by approximately ¥39 billion and ¥16 billion, respectively, compared with fiscal 2017.

Adoption of IFRS and Voluntary Delisting of ADSs from the New York Stock Exchange

On February 26, 2018, we decided to adopt IFRS for our consolidated financial statements in place of the current U.S. GAAP following a resolution at a meeting of the Board of Directors on that same date to further strengthen and improve the efficiency of our financial reporting. We plan to begin disclosing our consolidated financial statements according to IFRS from the three months ending June 30, 2018.

On June 15, 2018, we filed a Form 25 with the Securities and Exchange Commission for the voluntary delisting of our ADSs from the New York Stock Exchange and the related deregistration with the Securities and Exchange Commission. In addition, on June 26, 2018, we also filed a Form 15F with the Securities and Exchange Commission to terminate our reporting obligations under the U.S. Securities Exchange Act of 1934.

Results of Operations

Fiscal 2018 compared with Fiscal 2017

The following table shows a summary of Kyocera’s results of operations for fiscal 2017 and fiscal 2018:

 

     Years ended March 31,     Increase
(Decrease)
 
     2017     2018    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Net sales

   ¥ 1,422,754       100.0     ¥ 1,577,039       100.0     ¥ 154,285       10.8  

Cost of sales

     1,049,472       73.8       1,200,911       76.1       151,439       14.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     373,282       26.2       376,128       23.9       2,846       0.8  

Selling, general and administrative expenses

     268,740       18.9       280,553       17.8       11,813       4.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from operations

     104,542       7.3       95,575       6.1       (8,967     (8.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses):

            

Interest and dividend income

     32,364       2.3       40,498       2.6       8,134       25.1  

Interest expense

     (901     (0.0     (1,395     (0.1     (494     —    

Foreign currency transaction gains (losses), net

     1,278       0.1       (827     (0.1     (2,105     —    

Gains on sales of securities, net

     193       0.0       1,629       0.1       1,436       744.0  

Other, net

     373       0.0       (3,614     (0.2     (3,987     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expenses)

     33,307       2.4       36,291       2.3       2,984       9.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     137,849       9.7       131,866       8.4       (5,983     (4.3

Income taxes

     28,442       2.0       46,881       3.0       18,439       64.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     109,407       7.7       84,985       5.4       (24,422     (22.3

Net income attributable to noncontrolling interests

     (5,564     (0.4     (3,196     (0.2     2,368       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Kyocera Corporation’s shareholders

   ¥ 103,843       7.3     ¥ 81,789       5.2     ¥ (22,054     (21.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Sales

Net sales in fiscal 2018 increased by ¥154,285 million, or 10.8%, to ¥1,577,039 million, compared with ¥1,422,754 million in fiscal 2017.

 

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Net sales in the Components Business in fiscal 2018 increased by ¥133,248 million, or 18.6%, to ¥850,002 million, compared with ¥716,754 million in fiscal 2017. Sales of industrial tools and display products for automotive markets as well as sales of capacitors and crystal components used in smartphones increased due to strong demand, and M&As also contributed.

Net sales in the Equipment & Systems Business increased by ¥12,945 million, or 1.8%, to ¥738,805 million, compared with ¥725,860 million in fiscal 2017. Sales increased due mainly to the expansion of sales volume by successful launching of new products in the Document Solutions Group and a contribution of increased sales of information and communications services business in spite of a negative impact caused by the downsizing of the solar energy business in the United States and the decline in sales of the U.S. market in the telecommunications equipment business.

Due mainly to the impact of the yen’s depreciation against the U.S. dollar and Euro, net sales after translation into the yen in fiscal 2018 were pushed up by approximately ¥39 billion, compared with fiscal 2017.

For details regarding net sales, please refer to page 35, “Business Overview by Reporting Segment.”

Net Sales by Geographic Segment

(1) Japan

Sales in Japan in fiscal 2018 increased by ¥15,404 million, or 2.6%, to ¥614,043 million, compared with ¥598,639 million in fiscal 2017. This was due mainly to an increase in sales of the Communications Group.

(2) Asia

Sales in Asia in fiscal 2018 increased by ¥59,636 million, or 19.6%, to ¥363,649 million, compared with ¥304,013 million in fiscal 2017. This was due mainly to an increase in sales of the Electronic Devices Group and the Semiconductor Components Group.

(3) Europe

Sales in Europe in fiscal 2018 increased by ¥77,314 million, or 32.8%, to ¥312,669 million, compared with ¥235,355 million in fiscal 2017. This was due mainly to an increase in sales of the Document Solutions Group and the Electronic Devices Group, which were affected by M&As.

(4) United States of America

Sales in the United States of America in fiscal 2018 decreased by ¥4,177 million, or 1.8%, to ¥224,791 million, compared with ¥228,968 million in fiscal 2017. This was due mainly to the downsizing of the solar energy business and the decline in sales of the Communications Group.

(5) Others

Sales in Others in fiscal 2018 increased by ¥6,108 million, or 11.0%, to ¥61,887 million, compared with ¥55,779 million in fiscal 2017. This was due mainly to an increase in sales of the Document Solutions Group.

Cost of Sales and Gross Profit

In fiscal 2018, cost of sales increased by ¥151,439 million, or 14.4%, to ¥1,200,911 million from ¥1,049,472 million in fiscal 2017. The increase was caused primarily by the recording of a write-down in the amount of ¥50,165 million relating to long-term purchase agreements for procurement of polysilicon material in the solar energy business, in addition to the higher sales and the effect of M&As.

 

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Raw material costs of ¥477,299 million accounted for 39.7% of total cost of sales in fiscal 2018, which increased by ¥73,224 million, or 18.1%, from ¥404,075 million in fiscal 2017. Labor costs of ¥235,454 million accounted for 19.6% of total cost of sales in fiscal 2018, which increased by ¥16,463 million, or 7.5%, from ¥218,991 million in fiscal 2017. Depreciation expense of ¥62,220 million accounted for 5.2% of total cost of sales in fiscal 2018, which increased by ¥6,205 million, or 11.1%, from ¥56,015 million in fiscal 2017.

As a result, gross profit in fiscal 2018 increased by ¥2,846 million, or 0.8%, to ¥376,128 million from ¥373,282 million in fiscal 2017. The gross profit ratio to net sales decreased by 2.3 percentage points from 26.2% to 23.9%.

With respect to the recording of a write-down relating to long-term purchase agreements for procurement of polysilicon material in the solar energy business, please refer to “Write-down of Long-term Purchase Agreements” in Item 5.F. “Tabular Disclosure of Contractual Obligations.”

Selling, General & Administrative Expenses and Profit from Operations

In fiscal 2018, selling, general and administrative expenses increased by ¥11,813 million, or 4.4%, to ¥280,553 million from ¥268,740 million in fiscal 2017.

Labor costs of ¥159,981 million accounted for 57.0% of total selling, general and administrative expenses in fiscal 2018, an increase of ¥10,295 million, or 6.9%, from ¥149,686 million in fiscal 2017. Sales promotion and advertising costs of ¥44,835 million accounted for 16.0% of total selling, general and administrative expenses in fiscal 2018, an increase of ¥621 million, or 1.4%, from ¥44,214 million in fiscal 2017. Depreciation expense of ¥14,763 million accounted for 5.3% of total selling, general and administrative expenses in fiscal 2018, an increase of ¥1,786 million, or 13.8%, from ¥12,977 million in fiscal 2017.

As a result, profit from operations in fiscal 2018 decreased by ¥8,967 million, or 8.6%, to ¥95,575 million, compared with ¥104,542 million in fiscal 2017. The operating margin decreased by 1.2 percentage points to 6.1% in fiscal 2018, compared with 7.3% in fiscal 2017.

Interest and Dividend Income

Interest and dividend income in fiscal 2018 increased by ¥8,134 million, or 25.1%, to ¥40,498 million, compared with ¥32,364 million in fiscal 2017. This was due mainly to an increase in dividend income from KDDI Corporation.

Interest Expense

Interest expense in fiscal 2018 increased by ¥494 million, or 54.8%, to ¥1,395 million, compared with ¥901 million in fiscal 2017.

Foreign Currency Transaction

The average exchange rates for fiscal 2018 were ¥111 to the U.S. dollar, marking depreciation of ¥3 (2.8%), and ¥130 to the Euro, marking depreciation of ¥11 (9.2%), from fiscal 2017. The exchange rates at March 31, 2018 were ¥106 to the U.S. dollar, marking appreciation of ¥6 (5.4%), and ¥131 to the Euro, marking depreciation of ¥11 (9.2%), from March 31, 2017. Kyocera recorded foreign currency transaction losses of ¥827 million in fiscal 2018.

Kyocera typically enters into forward exchange contracts to reduce currency exchange risks on foreign currency denominated receivables and payables. Kyocera confines its use of forward exchange contracts for hedging its foreign exchange rate exposures, and does not utilize forward exchange contracts for trading purposes.

 

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Gains and Losses from Investments

Gains on sales of securities in fiscal 2018 increased by ¥1,436 million, or 744.0%, to ¥1,629 million, compared with ¥193 million in fiscal 2017.

Income before Income Taxes

Income before income taxes in fiscal 2018 decreased by ¥5,983 million, or 4.3%, to ¥131,866 million compared with ¥137,849 million in fiscal 2017. Margin of income before income taxes against net sales decreased by 1.3 percentage points to 8.4% compared with 9.7% in fiscal 2017.

Operating profit in the Components Business in fiscal 2018 increased by ¥34,008 million, or 43.4%, to ¥112,318 million, compared with ¥78,310 million in fiscal 2017. The significant increase was caused by the increase in sales and cost reductions.

Operating profit in the Equipment & Systems Business for fiscal 2018 decreased by ¥46,761 million, compared with profit of ¥37,953 million posted in fiscal 2017 and operating loss of ¥8,808 million was posted. This was due mainly to the recording of a write-down relating to long-term purchase agreements for procurement of polysilicon material in the solar energy business, which was partly offset by significant increases in profits of the Document Solutions Group and the information and communications services business.

Due mainly to the impact of the yen’s depreciation against the U.S. dollar and Euro, income before income taxes after translation into the yen in fiscal 2018 were pushed up by approximately ¥16 billion, compared with fiscal 2017.

For a detail of income before income taxes, please refer to “Business Overview by Reporting Segment” below.

Income Taxes

Current and deferred income taxes in fiscal 2018 increased by ¥18,439 million, or 64.8% to ¥46,881 million, of which the effective tax rate was 35.6%, compared with ¥28,442 million in fiscal 2017, of which the effective tax rate was 20.6%. This was due mainly to recording one-time tax expenses of ¥13,860 million in our U.S. subsidiaries such as AVX Corporation, caused by the tax reform in U.S.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests in fiscal 2018 decreased by ¥2,368 million, or 42.6%, to ¥3,196 million compared with ¥5,564 million in fiscal 2017. This was due mainly to a decrease in net income of AVX Corporation, for which there is a noncontrolling interest of approximate 30% in fiscal 2018.

 

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Business Overview by Reporting Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2017 and fiscal 2018 by the six reporting segments:

 

    Years ended March 31,     Increase
(Decrease)
 
    2017     2018    
    Amount     %     Amount     %     Amount     %  
                                     
    (Yen in millions)  

Industrial & Automotive Components Group

  ¥ 230,229       16.2     ¥ 287,620           18.2     ¥     57,391       24.9  

Semiconductor Components Group

    245,727       17.3       257,237       16.3       11,510       4.7  

Electronic Devices Group

    240,798       16.9       305,145       19.4       64,347       26.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

    716,754       50.4       850,002       53.9       133,248       18.6  

Communications Group

    252,641       17.7       255,535       16.2       2,894       1.1  

Document Solutions Group

    324,012       22.8       371,058       23.5       47,046       14.5  

Life & Environment Group

    149,207       10.5       112,212       7.1       (36,995     (24.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment & Systems Business

    725,860       51.0       738,805       46.8       12,945       1.8  

Others

    22,066       1.5       18,827       1.2       (3,239     (14.7

Adjustments and eliminations

    (41,926     (2.9     (30,595     (1.9     11,331       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

  ¥ 1,422,754       100.0     ¥ 1,577,039       100.0     ¥ 154,285       10.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2017 and fiscal 2018 by the six reporting segments:

 

    Years ended March 31,     Increase
(Decrease)
 
    2017     2018    
    Amount     %*     Amount     %*     Amount     %  
                                     
    (Yen in millions)  

Industrial & Automotive Components Group

  ¥ 22,442       9.7     ¥ 32,557           11.3     ¥     10,115       45.1  

Semiconductor Components Group

    25,310       10.3       32,476       12.6       7,166       28.3  

Electronic Devices Group

    30,558       12.7       47,285       15.5       16,727       54.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

    78,310       10.9       112,318       13.2       34,008       43.4  

Communications Group

    8,528       3.4       5,061       2.0       (3,467     (40.7

Document Solutions Group

    28,080       8.7       41,141       11.1       13,061       46.5  

Life & Environment Group

    1,345       0.9        (55,010     —         (56,355     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment & Systems Business

    37,953       5.2       (8,808     —         (46,761     —    

Others

    (1,759     —         1,621       8.6       3,380       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

    114,504       8.0       105,131       6.7        (9,373     (8.2

Corporate gains and equity in earnings of affiliates and an unconsolidated subsidiary

    24,636       —         28,460       —         3,824       15.5  

Adjustments and eliminations

    (1,291     —         (1,725     —         (434     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

  ¥    137,849           9.7     ¥    131,866       8.4     ¥ (5,983     (4.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* % to net sales of each corresponding segment

Kyocera has changed the classification of its reporting segments from fiscal 2018. Business results for fiscal 2017 have been reclassified in line with the change to reporting segment classifications.

 

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(1) Industrial & Automotive Components Group

Sales in the Industrial & Automotive Components Group for fiscal 2018 increased by ¥57,391 million, or 24.9%, to ¥287,620 million, compared with ¥230,229 million for fiscal 2017. Sales of industrial tools increased due to growing demand in automotive-related markets and merger and acquisition activities. Sales of automotive displays and fine ceramic parts also increased steadily. Sales in this reporting segment were buoyed by merger and acquisition activities, which increased sales by approximately ¥21 billion, and the yen’s depreciation, which added approximately ¥8 billion.

Operating profit for fiscal 2018 increased by ¥10,115 million, or 45.1%, to ¥32,557 million, compared with ¥22,442 million for fiscal 2017. The operating profit ratio improved from 9.7% in fiscal 2017 to 11.3% in fiscal 2018. The significant increase in operating profit can be attributed to several factors, namely sales growth, enhanced profitability and improved profit margins due primarily to cost reductions, and the addition of approximately ¥1.5 billion owing to the yen’s depreciation.

(2) Semiconductor Components Group

Sales in the Semiconductor Components Group for fiscal 2018 increased by ¥11,510 million, or 4.7%, to ¥257,237 million, compared with ¥245,727 million for fiscal 2017. This increase was due to an increase in sales of ceramic packages for smartphones and organic packages for automotive applications as well as the addition of approximately ¥5 billion owing to the yen’s depreciation.

Operating profit increased by ¥7,166 million, or 28.3%, to ¥32,476 million, compared with ¥25,310 million for fiscal 2017. The operating profit ratio improved to 12.6% from 10.3% in fiscal 2017. The increase in profit was due to sales growth, enhanced profitability and improved profit margins owing mainly to cost reductions, and the addition of approximately ¥3 billion owing to the yen’s depreciation.

(3) Electronic Devices Group

Sales in the Electronic Devices Group for fiscal 2018 increased by ¥64,347 million, or 26.7%, to ¥305,145 million, compared with ¥240,798 million for fiscal 2017. Sales of capacitors and crystal components increased due to the launch of new products and expansion of production capacity on the back of solid demand for smartphone parts. In addition, increased demand for printing devices for industrial equipment also contributed to this result. Sales in this reporting segment were buoyed by merger and acquisition activities at AVX Corporation, which increased sales by approximately ¥23 billion compared with fiscal 2017, as well as the addition of approximately ¥6 billion owing to the yen’s depreciation.

Operating profit increased by ¥16,727 million, or 54.7%, to ¥47,285 million, compared with ¥30,558 million for fiscal 2017. The operating profit ratio improved to 15.5% from 12.7% in fiscal 2017. The significant increase in operating profit can be attributed to several factors, namely sales growth, the effect of new products, increased sales of highly profitable components, and enhanced profitability due mainly to cost reductions, coupled with the addition of approximately ¥2 billion owing to the yen’s depreciation.

(4) Communications Group

Sales in the Communications Group for fiscal 2018 increased by ¥2,894 million, or 1.1%, to ¥255,535 million, compared with ¥252,641 million for fiscal 2017. Despite sales growth in the information and communications services business, primarily in the engineering business, sales decreased in the telecommunications equipment business due mainly to a decline in sales volume of mobile phones through a reduction of production ratio for low-end handsets for the U.S. market. Additionally, total sales volume of mobile phones in fiscal 2018 decreased by approximately 20% compared with fiscal 2017.

 

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Operating profit decreased by ¥3,467 million, or 40.7%, to ¥5,061 million, compared with ¥8,528 million for fiscal 2017. Despite an increase in profit in the information and communications services business due to sales growth, operating profit was down due to the impact of lower sales in the telecommunications equipment business combined with a total increase of around ¥1 billion in depreciation and R&D expenses in this reporting segment.

(5) Document Solutions Group

Sales in the Document Solutions Group for fiscal 2018 increased by ¥47,046 million, or 14.5%, to ¥371,058 million, compared with ¥324,012 million for fiscal 2017. Sales volume increased by approximately 10% due to the introduction of new products and aggressive sales promotion activities. In addition, merger and acquisition activities conducted in the fiscal 2018 lifted sales by around ¥12 billion compared with fiscal 2017, while the yen’s depreciation added approximately ¥19 billion to the total.

Operating profit increased by ¥13,061 million, or 46.5%, to ¥41,141 million, compared with ¥28,080 million for fiscal 2017. The operating profit ratio improved to 11.1% from 8.7% in fiscal 2017. The considerable increase in operating profit can be attributed to cost reductions and enhanced productivity coupled with the addition of approximately ¥10 billion owing to the yen’s depreciation.

(6) Life & Environment Group

Sales in the Life & Environment Group for fiscal 2018 decreased by ¥36,995 million, or 24.8%, to ¥112,212 million, compared with ¥149,207 million for fiscal 2017. This decrease was due to the downsizing of the solar energy business in the United States and lower sales in the key solar energy market of Japan.

In addition to the impact of the decrease in sales in the solar energy business, operating loss of ¥55,010 million was recorded due primarily to a write-down relating to the long-term purchase agreements for the procurement of polysilicon material in the solar energy business.

As a result of a decline in the profitability of the solar energy business, the net realizable value of polysilicon material was less than the purchase price under the agreements and pursuant to the lower of cost or net realizable value approach, Kyocera recorded a write-down in an amount equivalent to the difference between net realizable value and purchase price. The total amount of the write-down was ¥50,165 million, including a write-down of future material purchase commitments and the current polysilicon materials already purchased pursuant to the agreements, and the write-down was included in “cost of sales” in Kyocera’s consolidated income statements for fiscal 2018.

(7) Corporate gains and equity in earnings of affiliates and an unconsolidated subsidiary

Corporate gains 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. Such income increased by ¥3,824 million, or 15.5%, to ¥28,460 million, compared with ¥24,636 million in fiscal 2017. This was due mainly to an increase in dividends received from KDDI Corporation, despite recording loss relating liquidation of a subsidiary.

 

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Results of Operations

Fiscal 2017 compared with Fiscal 2016

The following table shows a summary of Kyocera’s results of operations for fiscal 2016 and fiscal 2017:

 

     Years ended March 31,     Increase
(Decrease)
 
     2016     2017    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Net sales

   ¥ 1,479,627       100.0     ¥ 1,422,754       100.0     ¥ (56,873     (3.8

Cost of sales

     1,093,467       73.9       1,049,472       73.8       (43,995     (4.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     386,160       26.1       373,282       26.2       (12,878     (3.3

Selling, general and administrative expenses

     279,361       18.9       268,740       18.9       (10,621     (3.8

Loss on impairment of goodwill

     14,143       0.9       —         —         (14,143     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from operations

     92,656       6.3       104,542       7.3       11,886       12.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses):

            

Interest and dividend income

     28,609       1.9       32,364       2.3       3,755       13.1  

Interest expense

     (1,814     (0.1     (901     (0.0     913       —    

Foreign currency transaction gains, net

     3,820       0.2       1,278       0.1       (2,542     (66.5

Gains on sales of securities, net

     20,600       1.4       193       0.0       (20,407     (99.1

Other, net

     1,712       0.1       373       0.0       (1,339     (78.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expenses)

     52,927       3.5       33,307       2.4       (19,620     (37.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     145,583       9.8       137,849       9.7       (7,734     (5.3

Income taxes

     31,392       2.1       28,442       2.0       (2,950     (9.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     114,191       7.7       109,407       7.7       (4,784     (4.2

Net income attributable to noncontrolling interests

     (5,144     (0.3     (5,564     (0.4     (420     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Kyocera Corporation’s shareholders

   ¥ 109,047       7.4     ¥ 103,843       7.3     ¥ (5,204     (4.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Sales

Net sales in fiscal 2017 decreased by ¥56,873 million, or 3.8%, to ¥1,422,754 million, compared with ¥1,479,627 million in fiscal 2016.

Net sales in the Components Business in fiscal 2017 increased by ¥12,526 million, or 1.8%, to ¥716,754 million, compared with ¥704,228 million in fiscal 2016. Net sales in the Industrial & Automotive Components Group and the Semiconductor Components Group increased compared with the fiscal 2016 supported by increases in automobile sales in Asia and investment in communications infrastructure.

Net sales in the Equipment & Systems Business in fiscal 2017 decreased by ¥70,132 million, or 8.8%, to ¥725,860 million, compared with ¥795,992 million in fiscal 2016. Net sales in the Communications Group decreased due to a decline in sales volume as a result of a revision in product strategy. And sales in the solar energy business decreased due primarily to market price erosion.

Due mainly to the impact of the yen’s appreciation against the U.S. dollar and Euro, net sales after translation into the yen in fiscal 2017 were pushed down by approximately ¥94 billion, compared with fiscal 2016.

For details regarding net sales, please refer to page 41, “Business Overview by Reporting Segment.”

 

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Net Sales by Geographic Segment

(1) Japan

Sales in Japan in fiscal 2017 decreased by ¥9,003 million, or 1.5%, to ¥598,639 million, compared with ¥607,642 million in fiscal 2016. This was due mainly to a decline in sales in the Communications Group.

(2) Asia

Sales in Asia in fiscal 2017 decreased by ¥3,731 million, or 1.2%, to ¥304,013 million, compared with ¥307,744 million in fiscal 2016. This was due primarily to the declines in sales in the Industrial & Automotive Components Group and the Semiconductor Components Group, which were affected by the negative impact of the yen’s appreciation.

(3) Europe

Sales in Europe in fiscal 2017 decreased by ¥18,027 million, or 7.1%, to ¥235,355 million, compared with ¥253,382 million in fiscal 2016. This was due mainly to a decline in sales in the Electronic Devices Group and the Document Solutions Group, which were affected by the negative impact of the yen’s appreciation.

(4) United States of America

Sales in the United States of America in fiscal 2017 decreased by ¥21,235 million, or 8.5%, to ¥228,968 million, compared with ¥250,203 million in fiscal 2016. This was due mainly to the negative impact of the yen’s appreciation as well as to a decline in sales in the solar energy business.

(5) Others

Sales in Others in fiscal 2017 decreased by ¥4,877 million, or 8.0%, to ¥55,779 million, compared with ¥60,656 million in fiscal 2016. This was due mainly to a decline in sales in the Semiconductor Components Group and the Document Solutions Group, which were affected by the negative impact of the yen’s appreciation.

Cost of Sales and Gross Profit

In fiscal 2017, cost of sales decreased by ¥43,995 million, or 4.0%, to ¥1,049,472 million from ¥1,093,467 million in fiscal 2016.

Raw material costs of ¥404,075 million accounted for 38.5% of total cost of sales in fiscal 2017, which decreased by ¥46,579 million, or 10.3%, from ¥450,654 million in fiscal 2016. Labor costs of ¥218,991 million accounted for 20.9% of total cost of sales in fiscal 2017, which decreased by ¥320 million, or 0.1%, from ¥219,311 million in fiscal 2016. Depreciation expense of ¥56,015 million accounted for 5.3% of total cost of sales in fiscal 2017, which increased by ¥1,749 million, or 3.2%, from ¥54,266 million in fiscal 2016.

As a result, gross profit in fiscal 2017 decreased by ¥12,878 million, or 3.3%, to ¥373,282 million from ¥386,160 million in fiscal 2016. The gross profit ratio to net sales increased by 0.1 percentage points from 26.1% to 26.2%.

Selling, General & Administrative Expenses, Loss on Impairment of Goodwill and Profit from Operations

In fiscal 2017, selling, general and administrative expenses decreased by ¥10,621 million, or 3.8%, to ¥268,740 million from ¥279,361 million in fiscal 2016. The decrease was caused primarily by the recording of ¥4,575 million of patent litigation cost at AVX Corporation and an impairment loss on non-current assets in the amount of ¥3,814 million recognized in the liquid crystal displays business in fiscal 2016, despite the recording of gains on sales of property, plant and equipment, net in the amount of ¥12,039 million in fiscal 2016, and a decrease in miscellaneous expenses due to the effect of the yen’s appreciation.

 

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The ratio of selling, general and administrative expenses to net sales was 18.9% in fiscal 2017, as the same as it was in fiscal 2016.

Labor costs of ¥149,686 million accounted for 55.7% of total selling, general and administrative expenses in fiscal 2017, a decrease of ¥6,937 million, or 4.4%, from ¥156,623 million in fiscal 2016. Sales promotion and advertising costs of ¥44,214 million accounted for 16.5% of total selling, general and administrative expenses in fiscal 2017, a decrease of ¥2,420 million, or 5.2%, from ¥46,634 million in fiscal 2016. Depreciation expense of ¥12,977 million accounted for 4.8% of total selling, general and administrative expenses in fiscal 2017, a decrease of ¥618 million, or 4.5%, from ¥13,595 million in fiscal 2016.

In fiscal 2016, impairment loss on goodwill in the amount of ¥14,143 million was recognized in the liquid crystal displays business included in the Industrial & Automotive Components Group.

As a result, profit from operations in fiscal 2017 increased by ¥11,886 million, or 12.8%, to ¥104,542 million, compared with ¥92,656 million in fiscal 2016. The operating margin increased by 1.0 percentage points to 7.3% in fiscal 2017, compared with 6.3% in fiscal 2016.

Interest and Dividend Income

Interest and dividend income in fiscal 2017 increased by ¥3,755 million, or 13.1%, to ¥32,364 million, compared with ¥28,609 million in fiscal 2016. This was due mainly to an increase in dividend income from KDDI Corporation.

Interest Expense

Interest expense in fiscal 2017 decreased by ¥913 million, or 50.3%, to ¥901 million, compared with ¥1,814 million in fiscal 2016.

Foreign Currency Transaction

During fiscal 2017, the average exchange rate for the yen appreciated by ¥12, or 10.0%, against the U.S. dollar and appreciated by ¥14, or 10.5%, against the Euro, as compared with fiscal 2016. At March 31, 2017, the yen appreciated by ¥1, or 0.9%, against the U.S. dollar, and appreciated by ¥8, or 6.3%, against the Euro, as compared with March 31, 2016. Kyocera recorded foreign currency transaction gains of ¥1,278 million in fiscal 2017.

Kyocera typically enters into forward exchange contracts to reduce currency exchange risks on foreign currency denominated receivables and payables. Kyocera confines its use of forward exchange contracts for hedging its foreign exchange rate exposures, and does not utilize forward exchange contracts for trading purposes.

Gains and Losses from Investments

Gains on sales of securities in fiscal 2017 decreased by ¥20,407 million, or 99.1%, to ¥193 million, compared with ¥20,600 million in fiscal 2016. This was due mainly to the gain of ¥20,000 million on a sale of a part of shares issued by KDDI Corporation in fiscal 2016.

Income before Income Taxes

Income before income taxes in fiscal 2017 decreased by ¥7,734 million, or 5.3%, to ¥137,849 million compared with ¥145,583 million in fiscal 2016. Margin of income before income taxes against net sales decreased by 0.1 percentage points to 9.7% compared with 9.8% in fiscal 2016.

 

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Despite an increase of profit from operations, income before income taxes decreased due primarily to the gain of ¥20,000 million from a sale of a part of shares issued by KDDI Corporation in fiscal 2016. Income before income taxes after translation into the yen for fiscal 2017 was pushed down by approximately ¥26 billion due to the impact of appreciation of the yen against the U.S. dollar and Euro compared with fiscal 2016.

Operating profit in the Components Business in fiscal 2017 decreased by ¥449 million, or 0.6%, to ¥78,310 million, compared with ¥78,759 million in fiscal 2016. Operating profit in the Equipment & Systems Business in fiscal 2017 increased by ¥7,825 million, or 26.0%, to ¥37,953 million, compared with ¥30,128 million in fiscal 2016.

For a detail of income before income taxes, please refer to “Business Overview by Reporting Segment” below.

Income Taxes

Current and deferred income taxes in fiscal 2017 decreased by ¥2,950 million, or 9.4% to ¥28,442 million, of which the effective tax rate was 20.6%, compared with ¥31,392 million, of which the effective tax rate was 21.6% in fiscal 2016. This was due mainly to the fact that income before income taxes decreased in fiscal 2017 compared with fiscal 2016.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests in fiscal 2017 increased by ¥420 million, or 8.2%, to ¥5,564 million compared with ¥5,144 million in fiscal 2016. This was due mainly to an increase in net income of AVX Corporation, for which there is a noncontrolling interest of approximate 30% in fiscal 2017.

Business Overview by Reporting Segment

The following table shows a breakdown of Kyocera’s total consolidated net sales in fiscal 2016 and fiscal 2017 by the six reporting segments:

 

                                                                                               
     Years ended March 31,     Increase
(Decrease)
 
     2016     2017    
     Amount     %     Amount     %     Amount     %  
     (Yen in millions)  

Industrial & Automotive Components Group

   ¥ 221,978       15.0     ¥ 230,229       16.2     ¥ 8,251           3.7  

Semiconductor Components Group

     236,265       16.0       245,727       17.3       9,462       4.0  

Electronic Devices Group

     245,985       16.6       240,798       16.9       (5,187     (2.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     704,228       47.6       716,754       50.4       12,526       1.8  

Communications Group

     285,608       19.3       252,641       17.7       (32,967     (11.5

Document Solutions Group

     336,308       22.7       324,012       22.8       (12,296     (3.7

Life & Environment Group

     174,076       11.8       149,207       10.5       (24,869     (14.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment & Systems Business

     795,992       53.8       725,860       51.0       (70,132     (8.8

Others

     23,374       1.6       22,066       1.5       (1,308     (5.6

Adjustments and eliminations

     (43,967     (3.0     (41,926     (2.9     2,041       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   ¥ 1,479,627       100.0     ¥ 1,422,754       100.0     ¥ (56,873     (3.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table shows a breakdown of Kyocera’s total consolidated income before income taxes, and operating profit for fiscal 2016 and fiscal 2017 by the six reporting segments:

 

                                                                                                     
     Years ended March 31,      Increase
(Decrease)
 
     2016      2017     
     Amount     %*      Amount     %*      Amount     %  
     (Yen in millions)  

Industrial & Automotive Components Group

   ¥ 3,684       1.7      ¥ 22,442       9.7      ¥ 18,758       509.2  

Semiconductor Components Group

     41,707       17.7        25,310       10.3        (16,397     (39.3

Electronic Devices Group

     33,368       13.6        30,558       12.7        (2,810     (8.4
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Components Business

     78,759       11.2        78,310       10.9        (449     (0.6

Communications Group

     3,065       1.1        8,528       3.4        5,463       178.2  

Document Solutions Group

     27,106       8.1        28,080       8.7        974       3.6  

Life & Environment Group

     (43     —          1,345       0.9        1,388       —    
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Equipment & Systems Business

     30,128       3.8        37,953       5.2        7,825       26.0  

Others

     (2,729     —          (1,759     —          970       —    
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating profit

     106,158       7.2        114,504       8.0        8,346       7.9  

Corporate gains and equity in earnings of affiliates and an unconsolidated subsidiary

     39,534       —          24,636       —          (14,898     (37.7

Adjustments and eliminations

     (109     —          (1,291     —          (1,182     —    
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes

   ¥    145,583           9.8      ¥    137,849           9.7      ¥ (7,734     (5.3
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

* % to net sales of each corresponding segment

Kyocera has changed the classification of its reporting segments from fiscal 2018. Business results for fiscal 2016 and 2017 have been reclassified in line with the change to reporting segment classifications.

(1) Industrial & Automotive Components Group

Sales in the Industrial & Automotive Components Group with fiscal 2017 increased compared for fiscal 2016, due to an increase in sales of automotive components, automotive displays and industrial tools, despite the negative impact of yen’s appreciation.

Operating profit for fiscal 2017 has increased compared with fiscal 2016, due mainly to the absence of impairment loss on goodwill in the amount of ¥14,143 million and non-current assets in the amount of ¥3,814 million in the display business recorded in fiscal 2016.

(2) Semiconductor Components Group

Sales in the Semiconductor Components Group for fiscal 2017 increased compared with fiscal 2016, due to an increase in sales of ceramic packages for optical communications and other applications, despite the negative impact of the yen’s appreciation and sluggish demand for organic multilayer boards for communications infrastructure.

Operating profit for fiscal 2017 decreased compared with fiscal 2016 due to the absence of a gain on the sale of an asset in the amount of approximately ¥12 billion recorded in fiscal 2016, as well as to the negative impact of the yen’s appreciation and a decline in profit from the organic materials business.

(3) Electronic Devices Group

Sales in Electronic Devices Group for fiscal 2017 decreased compared with fiscal 2016. The decrease in this reporting segment was due to a decline in sales for printing devices and connectors, and price erosion in

 

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capacitors and other products, despite sales contribution of crystal components and display business. The yen’s appreciation also pushed down the amount of sales in the Electronic Devices Group.

(4) Communications Group

Sales in the Communications Group for fiscal 2017 decreased compared with fiscal 2016. The decrease in sales in this reporting segment was due to a decline in sales volume of a reduction in the production ratio of low-end mobile phones for the overseas market, which was pursuant to Kyocera’s product strategy to specialize in distinctive mobile phones with unique features, such as high durability.

On the other hand, operating profit for fiscal 2017 improved compared with fiscal 2016 due to the effect of the product strategy and the improvement in the cost of sales ratio as results of structural reforms such as consolidation of production sites.

(5) Document Solutions Group

Sales in the Document Solutions Group for fiscal 2017 decreased compared with fiscal 2016 due to the negative impact of the yen’s appreciation, which was more than enough to offset solid sales volume for equipment supported by aggressive sales activities for new products.

Operating profit for fiscal 2017 increased compared with fiscal 2016 due to the effect of cost reduction and improvement in operating profit ratio through an increase in sales volume of new products, despite the negative impact of the yen’s appreciation.

(6) Life & Environment Group

Sales in the Life & Environment Group for fiscal 2017 decreased compared with fiscal 2016 as a result of the decline in sales from the solar energy business due to a reduction in product prices worldwide and a decline in purchase price under the feed-in tariff system in Japan.

However, operating profit for fiscal 2017 increased compared with fiscal 2016, as results of structural reforms.

(7) Corporate gains and equity in earnings of affiliates and an unconsolidated subsidiary

Corporate gains 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. Such income decreased by ¥14,898 million, or 37.7%, to ¥24,636 million, compared with ¥39,534 million in fiscal 2016. This was due mainly to the absence of the gain of ¥20,000 million on a sale of a part of shares issued by KDDI Corporation in fiscal 2016, despite an increase in dividends received from KDDI Corporation.

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.

An 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.

 

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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. Inventories aged over certain holding periods are considered to be slow-moving or obsolete, for which write-downs are accrued as well as valuation losses required to adjust recorded cost to its net realizable value. Kyocera also records inventory write-downs based on its projections of future demand, market conditions and related management’s judgment even though the age of corresponding inventory is shorter than certain holding periods.

Kyocera recognized inventory write-downs of ¥9,215 million in fiscal 2017 and ¥28,721 million in fiscal 2018. The write-downs in fiscal 2018 included ¥19,280 million of the write-down of current polysilicon materials already purchased pursuant to the long-term purchase agreements in the solar energy business.

Kyocera also evaluated the future material purchase commitments under the agreements at the lower of cost and net realizable value, and recognized the write-down in the amount of ¥30,885 million in fiscal 2018.

For detailed information regarding the write-down, please refer to Note 5 in Kyocera’s 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 mainly recorded as corporate losses.

Kyocera recognized losses on impairment of debt and equity securities of ¥31 million and ¥873 million in fiscal 2017 and 2018.

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, 2018 had decreased by ¥68,863 million, or 9.4%, to ¥667,420 million compared with ¥736,283 million at March 31, 2017, 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 Kyocera’s consolidated financial statements in this annual report on Form 20-F.

Impairment 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.

 

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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 recognized an impairment loss on goodwill in the amount of ¥14,143 million which was included in loss on impairment of goodwill in the consolidated statement of income for fiscal 2016 in the liquid crystal displays business included in the Industrial & Automotive Components Group due to a decline in the fair value of its business based on its updated future estimated cash flows, reflecting the deterioration of the profitability.

For detailed information of these acquisitions, see Note 9 to Kyocera’s 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 deferred tax assets may be required. At March 31, 2018, deferred tax assets amounted to ¥111,585 million, which Kyocera considers will more likely than not be realized in the future. Kyocera considers the reasonableness of the recoverability of the deferred tax assets in the future, considering the comparison between the amounts of income from continuing operations before income taxes and income taxes in fiscal 2018.

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. 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 be increased.

 

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Sensitivity Analysis of Benefit Plans

The following table illustrates the effect of assumed changes in discount rates and the expected long-term 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.

 

     Effect on projected benefit obligations
as of March 31, 2018
 
     (Yen in millions)  

Discount rates:

  

0.1% decrease

   ¥ 2,329  

0.1% increase

     (2,296
     Effect on income before income taxes
for the year ending March 31, 2019
 
     (Yen in millions)  

Discount rates:

  

0.1% decrease

   ¥ 15  

0.1% increase

     (13

Expected long-term rate of return on plan assets:

  

0.1% decrease

     (180

0.1% increase

     180  

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 can 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.

Revenue Recognition

Kyocera generates revenue principally through the sale of the following markets: information and communications, industrial machinery, automotive-related and environment and energy. Kyocera’s operations consisted of the following reporting segments: (1) Industrial & Automotive Components Group, (2) Semiconductor Components Group, (3) Electronic Devices Group, (4) Communications Group, (5) Document Solutions Group and (6) Life & Environment Group.

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

For most customer orders, the transfer of ownership and revenue recognition occurs at the time of shipment of the products to the customer. For the remainder of customer orders, the transfer of ownership and revenue recognition occurs at the time of receipt of the products by the customer, with the exception of sales of printers and multifunctional products in the Document Solutions Group and solar power generating system related products in the Life & Environment Group for which sales are made to end users together with installation

 

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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, “Revenue Recognition,” are met. When Kyocera provides a combination of products and services, the arrangement is evaluated under ASC 605-25, “Multiple-Element Arrangements.”

In addition, in the Document Solutions 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 Devices Group as noted below.

Sales Incentives

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

(a) Distributor Stock Rotation Program

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

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

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

 

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Sales Rebates

In the case of sales to distributors in the Industrial & Automotive Components Group and Document Solutions Group, Kyocera provides cash rebates when predetermined sales targets are achieved during a certain period. Provisions for sales rebates are recorded as a reduction of revenue at the time of revenue recognition based on the best estimate of forecasted sales to each distributor in accordance with ASC 605-50, “Customer Payments and Incentives.”

Sales Returns

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

Products Warranty

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

In the Document Solutions 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.”

Uncertainty 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, “Income Taxes.”

At March 31, 2018, gross unrecognized tax benefits amounted to ¥1,407 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, 2017, Kyocera adopted Accounting Standards Update (“ASU”) No. 2016-07, “Investments—Simplifying the Transition to the Equity Method of Accounting.” The accounting standard eliminates the requirement to retroactively adopt the equity method of accounting when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The adoption of this accounting standard did not have a material impact on Kyocera’s consolidated results of operations, financial condition and cash flows.

 

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New standards and interpretations not yet adopted

Kyocera plans to voluntary adoption of IFRS to its consolidated financial statements in place of the current U.S. GAAP from the fiscal year ending March 31, 2019. As of March 31, 2018, the following list is newly established or amended IFRS standards and interpretations that are mandatory adopted by Kyocera from the fiscal year ending March 31, 2019 and 2020.

 

IFRS

  Mandatory adoption
(From the year
beginning)
 

To be adopted by
Kyocera

 

Outline of the new / revised
standards

IFRS 9

  Financial Instruments   January 1, 2018  

From the fiscal year ending

March 31, 2019

  Revised accounting standard for financial instruments

IFRS 15

  Revenue from contracts with customers   January 1, 2018  

From the fiscal year ending

March 31, 2019

  Revised accounting standard for revenue recognition

IFRS 16

  Leases   January 1, 2019  

From the fiscal year ending

March 31, 2020

  Revised accounting standard for leases

Kyocera is currently assessing the possible impacts that these applications will have on Kyocera’s consolidated financial statements.

B. Liquidity and Capital Resources

Capital Resources

Kyocera’s net cash provided by operating activities in fiscal 2018 was ¥158,953 million, and cash and cash equivalents at March 31, 2018 were ¥424,938 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 funds for capital expenditures, R&D activities and payments of dividends to shareholders in addition to working capital of operational activities. 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, 2018, Kyocera’s short-term borrowings and long-term debt including current portion totaled ¥29,675 million. The ratio to total assets of 0.9% continues to reflect a low level of dependence. Most borrowings were denominated in the Euro and certain borrowings were denominated in other 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 2018 increased by ¥18,738 million, or 27.6%, to ¥86,519 million, compared with ¥67,781 million in fiscal 2017. In fiscal 2018, capital expenditures in the Industrial & Automotive Components Group and the Electronic Devices Group increased due mainly to capital expenditures in the products for the industrial machinery and to expand its production capacity compared with fiscal 2017. R&D expenses in fiscal 2018 increased by ¥2,862 million, or 5.2%, to ¥58,273 million, compared with ¥55,411 million in fiscal 2017. Almost all capital and R&D expenditures were funded by using cash at hand.

During fiscal 2019, Kyocera expects total capital expenditures to be approximately ¥110,000 million and R&D expenses to be approximately ¥70,000 million. Kyocera expects that total capital expenditures will increase due mainly to capital expenditures in the products for the industrial machinery and to expand its production capacity. Kyocera also expects that R&D expenses will increase compared with fiscal 2018. Kyocera will promote R&D activities of new products and technologies in order to expand the business. Nearly all capital and R&D expenditures will be funded by using cash on hand. Kyocera intends to increase the proportion of capital and

 

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R&D expenditures to sales in fiscal 2019 as compared with fiscal 2018. Kyocera believes that it needs to invest its resources continuously in the development of new business areas and enhancement of technology in order to create new products and commercialize advanced technologies, and thereby secure future earnings streams.

During fiscal 2018, Kyocera made several acquisitions of businesses to develop existing businesses and to advance into new businesses. The total acquisition costs in fiscal 2018, net cash acquired, were ¥75,322 million and were all funded by using cash in hand.

Kyocera contributed ¥12,321 million to its benefit pension plans in fiscal 2018 and Kyocera expects to contribute ¥12,025 million to its benefit pension plans in fiscal 2019. At March 31, 2018, 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 on hand.

In fiscal 2018, Kyocera Corporation paid cash dividends totaling ¥44,125 million, at ¥120 per share. Kyocera Corporation received approval at the general meeting of shareholders held on June 26, 2018 for the payment of year-end dividends totaling ¥22,062 million, or ¥60 per share, on June 27, 2018 to all shareholders of record on March 31, 2018.

At March 31, 2018, Kyocera’s working capital totaled ¥1,056,630 million, a decrease of ¥17,406 million, or 1.6%, compared with ¥1,074,036 million at March 31, 2017. This was mainly due to an increase in trade payables. Our working capital requirements, capital expenditures, debt repayments and other obligations were funded by using cash on hand.

Undistributed earnings of foreign subsidiaries which are intended to be reinvested indefinitely amounted to ¥311,877 million as of March 31, 2018. Accordingly, cash and cash equivalents and investments in securities amounts held by Kyocera’s foreign subsidiaries, totaling ¥245,622 million as of March 31, 2018, are not intended to be used as dividend distributions to Kyocera for use in Japan at present. Kyocera currently believes it does not need the cash and investments held by its foreign subsidiaries to be repatriated back to Japan at least in fiscal 2019 as it has adequate liquidity within Japan to support its Japanese operations.

Kyocera believes cash on hand will be sufficient to fund all cash requirements outlined above during fiscal 2019. 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 74.0% at March 31, 2018, 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.

Any 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.

 

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Cash flows

Fiscal 2018 compared with Fiscal 2017

The following table shows a summary of Kyocera’s cash flows for fiscal 2017 and fiscal 2018:

 

                                               
     Years ended March 31,     Increase
(Decrease)
 
     2017     2018    
     Amount     Amount     Amount  
                    
     (Yen in millions)  

Cash flows from operating activities

   ¥ 164,231     ¥ 158,953     ¥ (5,278

Cash flows from investing activities

     (112,089     (53,128     58,961  

Cash flows from financing activities

     (47,972     (51,620     (3,648

Effect of exchange rate changes on cash and cash equivalents

     (1,995     (5,462     (3,467

Net increase in cash and cash equivalents

     2,175          48,743       46,568  

Cash and cash equivalents at beginning of year

     374,020       376,195       2,175  

Cash and cash equivalents at end of year

   ¥ 376,195     ¥ 424,938     ¥ 48,743  

Net cash provided by operating activities for fiscal 2018 decreased by ¥5,278 million, or 3.2%, to ¥158,953 million from ¥164,231 million for fiscal 2017. This was due mainly to a decrease in net income, which exceeded cash flow adjustments related to an increase in accrued income taxes.

Net cash used in investing activities for fiscal 2018 decreased by ¥58,961 million, or 52.6%, to ¥53,128 million from ¥112,089 million for fiscal 2017. This was due mainly to a decrease in purchases of held-to-maturity securities, which was partly offset by an increase in payments for acquisitions of businesses.

Net cash used in financing activities for fiscal 2018 increased by ¥3,648 million, or 7.6%, to ¥51,620 million from ¥47,972 million for fiscal 2017. This was due mainly to an increase in dividends paid.

A decrease in cash and cash equivalents due to the effect of exchange rate changes of ¥5,462 million for fiscal 2018 was caused mainly by the yen’s appreciation against the U.S. dollar between March 31, 2017 and March 31, 2018.

Cash and cash equivalents at March 31, 2018 totaled ¥424,938 million, an increase of ¥48,743 million, or 13.0%, from ¥376,195 million at March 31, 2017. 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.

Fiscal 2017 compared with Fiscal 2016

The following table shows a summary of Kyocera’s cash flows for fiscal 2016 and fiscal 2017:

 

                                               
     Years ended March 31,     Increase
(Decrease)
 
     2016     2017    
     Amount     Amount     Amount  
                    
     (Yen in millions)  

Cash flows from operating activities

   ¥ 194,040     ¥ 164,231     ¥ (29,809

Cash flows from investing activities

     (106,809     (112,089     (5,280

Cash flows from financing activities

     (50,608     (47,972     2,636  

Effect of exchange rate changes on cash and cash equivalents

     (13,966     (1,995     11,971  

Net increase in cash and cash equivalents

     22,657       2,175       (20,482

Cash and cash equivalents at beginning of year

     351,363       374,020       22,657  

Cash and cash equivalents at end of year

   ¥ 374,020     ¥ 376,195     ¥ 2,175  

 

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Net cash provided by operating activities for fiscal 2017 decreased by ¥29,809 million, or 15.4%, to ¥164,231 million from ¥194,040 million for fiscal 2016. This was mainly because receivables, which decreased for fiscal 2016, increased for fiscal 2017.

Net cash used in investing activities for fiscal 2017 increased by ¥5,280 million, or 4.9%, to ¥112,089 million from ¥106,809 million for fiscal 2016. This was due mainly to decreases in proceeds from sales of available-for-sale securities and sales of property, plant and equipment.

Net cash used in financing activities for fiscal 2017 decreased by ¥2,636 million, or 5.2%, to ¥47,972 million from ¥50,608 million for fiscal 2016. This was due mainly to a decrease in year-end dividends paid.

A decrease in cash and cash equivalents due to the effect of exchange rate changes of ¥1,995 million for fiscal 2017 was caused mainly by the yen’s appreciation against the Euro and the U.S. dollar between March 31, 2016 and March 31, 2017.

Cash and cash equivalents at March 31, 2017 totaled ¥376,195 million, an increase of ¥2,175 million, or 0.6%, from ¥374,020 million at March 31, 2016. 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, 2018 increased by ¥46,607 million, or 1.5%, to ¥3,157,077 million, compared with ¥3,110,470 million at March 31, 2017.

Cash and cash equivalents increased by ¥48,743 million, or 13.0%, to ¥424,938 million, due mainly to withdrawal of certificate deposits, redemption from maturities of held-to-maturity investments and increases from net cash gained by operating activities.

Short-term investments in debt securities decreased by ¥46,680 million, or 55.1%, to ¥38,023 million, due mainly to redemption from maturities of held-to-maturity investments.

Other short-term investments decreased by ¥53,889 million, or 25.3%, to ¥158,779 million, due mainly to withdrawal of time deposits.

Trade accounts receivables increased by ¥40,085 million, or 13.8%, to ¥331,570 million, due mainly to the effect of M&As in fiscal 2018 and increase in sales for the three months ended March, 2018 compared with the three months ended March, 2017.

Inventories increased by ¥33,720 million, or 10.2%, to ¥364,875 million due mainly to the effect of M&As in fiscal 2018 as well as increases in demand, despite recording of a write-down in the amount of ¥19,280 million relating to the current polysilicon material already purchased pursuant to long-term purchase agreements.

Long-term investments in debt and equity securities decreased by ¥80,219 million, or 7.1%, to ¥1,050,537 million, due mainly to declines in market value of shares of KDDI Corporation and other equity securities at March 31, 2018 compared with March 31, 2017.

Total property, plant and equipment at cost, net of accumulated depreciation, at March 31, 2018 increased by ¥34,320 million, or 12.9%, to ¥300,924 million compared with March 31, 2017. Capital expenditure was ¥86,519 million and depreciation was ¥70,137 million in fiscal 2018.

Goodwill increased by ¥33,798 million, or 30.6%, to ¥144,268 million, and intangible assets increased by ¥18,951 million, or 30.9%, to ¥80,186 million, due mainly to the effect of M&As in fiscal 2018.

 

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Kyocera’s total liabilities at March 31, 2018 increased by ¥41,010 million, or 5.9%, to ¥732,571 million, compared with ¥691,561 million at March 31, 2017.

Trade notes and accounts payable increased by ¥20,274 million, or 15.7%, to ¥149,734 million, due mainly to the effect of M&As in fiscal 2018 and increase in purchases in line with an increase in sales compared with March 31, 2017.

Other current liabilities increased by ¥18,760 million, or 51.7%, to ¥55,017 million, due mainly to the provision of a reserve of ¥18,340 million relating to long-term purchase agreements for procurement of polysilicon material in the solar energy business.

Deferred tax liabilities decreased by ¥35,329 million, or 13.6%, to ¥223,530 million, due mainly to decreases in market value of shares of KDDI Corporation and other equity securities at March 31, 2018 compared with March 31, 2017.

Other non-current liabilities increased by ¥20,183 million, or 101.4%, to ¥40,095 million, due mainly to the provision of a reserve of ¥12,545 million relating to long-term purchase agreements for procurement of polysilicon material in the solar energy business and accounting for taxation on overseas retained earnings due to incurred by subsidiaries such as our U.S. subsidiary AVX Corporation.

Total equity at March 31, 2018 increased by ¥5,597 million, or 0.2%, to ¥2,424,506 million, compared with ¥2,418,909 million at March 31, 2017.

Retained earnings at March 31, 2018 increased by ¥37,664 million, or 2.3%, to ¥1,675,780 million, compared with ¥1,638,116 million at March 31, 2017 due to net income attributable to Kyocera Corporation’s shareholders for fiscal 2018 of ¥81,789 million offset in cash dividend payments of ¥44,125 million.

Accumulated other comprehensive income decreased by ¥35,499 million, or 7.9%, to ¥411,980 million. Net unrealized gains on securities decreased by ¥40,091 million, or 8.0%, due to decreases in market values of the shares of KDDI Corporation and other equity securities at March 31, 2018 compared with March 31, 2017. Foreign currency translation adjustments decreased by ¥1,551 million to ¥(17,911) million, due mainly to the effect of the yen’s appreciation.

Kyocera Corporation’s shareholders’ equity ratio at March 31, 2018 was 74.0%, decreased by 1.1 percentage points compared with 75.1% at March 31, 2017.

Noncontrolling interests in subsidiaries increased by ¥3,570 million, or 4.2%, to ¥88,260 million, due mainly to the acquisition of Ryobi Limited’s power tool business, compared with ¥84,690 million at March 31, 2017.

C. Research and Development, Patents and Licenses, etc.

Kyocera seeks to create businesses that will become core to the group in the future by developing new technologies and products in each business and integrating group-wide management resources. In particular, we are focusing on R&D of new high-value-added technologies and products in the information and communications market, the automotive-related markets, the environment and energy market and the medical and healthcare market, where there is high growth potential.

Kyocera is strengthening the development of new products that leverage communications technology and of other technologies with the aim of taking advantage of all new business opportunities in respective fields alongside the proliferation of the IoT. In addition, we are working to strengthen R&D toward the greater use of AI (Artificial intelligence) and robots that contribute to enhanced productivity, among other benefits.

 

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An outline of R&D activities in the reporting segments follows.

(1) Industrial & Automotive Components Group

In this reporting segment, Kyocera is engaged in the R&D of various products and systems mainly for the industrial machinery and automotive-related markets.

Kyocera is engaged in fundamental research to further enhance our fine ceramic materials technology, processing technology and design technology that we have accumulated since our earliest days. We are working to develop new products in a wide range of markets by leveraging these core technologies. In addition, we are working on the development of components and materials for next-generation equipment, which is characterized by advanced integration that includes micro wiring and 3D structures, for the buoyant semiconductor processing equipment market. We also actively utilize external resources, which includes starting development of nitride ceramics boasting exceptional heat conductivity and mechanical properties enabling use in higher temperatures, in conjunction with an outside company.

Further, we are working to enhance the efficiency of cell stacks for SOFC (Solid Oxide Fuel Cell) systems for residential use where there are expectations for proliferation as new clean energy supply systems in the environment and energy market, by leveraging fine ceramics technology. We are also strengthening the development of an SOFC system for industrial use and parts for various next-generation high-efficiency devices.

In automotive-related markets, business opportunity is expected to increase along with the progress in areas such as ADAS (Advanced Driving Assistant System). We are developing high-value-added products for this market. This includes strengthening development of software aimed at achieving more sophisticated image recognition technology for automotive camera systems.

We are also developing TFT liquid crystal displays, differentiated particularly with ultra-low-power-consumption products and high-permeability products, as well as products that apply TFT deposition technology, for various industrial markets in addition to automotive-related markets.

In industrial tools, we are working to expand business domain to the industrial machinery and construction markets in addition to automotive-related markets, and our products are used for metallic processing in a wide array of markets such as the automotive, energy and infrastructure, and aircraft business fields. Kyocera is strengthening the development of high-quality and high-precision cutting tools from the materials technology stage that contribute to increased productivity for users as well as developing new products in power and pneumatic tools with increased product appeal by leveraging various technologies held within the Kyocera Group.

(2) Semiconductor Components Group

In the digital consumer equipment market, which is typified by smartphones and tablet terminals, needs are growing for equipment that is more sophisticated as well as smaller and thinner. In line with this, electronic components used in such equipment are getting smaller while semiconductors are becoming more refined.

In the information and communications network market, there is demand for the creation of fast, large-capacity communications infrastructure partly spurred by progress in the IoT. In the automotive market, there is a need to further respond to advancements in electrifications and lower power consumption. Demand for various sensors is also increasing, for use in these core markets. In order to respond to these market trends and expand the business, Kyocera is working to develop new high-value-added products that leverage our own unique material, design and processing technologies.

In the ceramic package business, we are working on the development of high-strength, high-rigidity, ultra-small and thin ceramic packages for electronic devices that employ micro wiring as well as ceramic packages for

 

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optical communications that are capable of even higher frequency and ceramic packages for LEDs boasting thermal dissipation and exceptional durability.

In the organic multilayer package business, we are strengthening the development of fine-pitch, thin, highly precise flip-chip packages and module substrates capable of high-speed signal and high bandwidth memory. In addition, we are working on the development of products that employ new materials that respond to high frequency in the organic multilayer board business.

In the chemical business, which supports these businesses through material technology, we are working on the synthesis of new materials and strengthening the development of new material compounding technologies to meet needs for enhanced functionality for information and communications market and automotive-related markets in addition to improving electrical properties such as insulating reliability. This functionality includes thermal hardening, photo-reactivity, and shape and stress stability.

(3) Electronic Devices Group

Along with the increasing demand for device sophistication and the shift to multi-bands for communications terminals such as smartphones, it is necessary to make components smaller and more reliable for those terminals.

To meet these market needs, Kyocera is developing such products as small, high-capacitance ceramic capacitors with enhanced reliability relative to temperature and humidity, as well as small, low-loss and highly reliable SAW devices, small, high-performance crystal components, fine-pitch, low-profile connectors enabling high-speed transmission, and high-efficiency antennas.

In the automotive and industrial equipment markets, we are developing ceramic capacitors and connectors with enhanced high-temperature reliability and pressure resistance, power semiconductors including discrete products and power modules, and various control devices.

In addition to further enhancing the properties of each component, we are pushing ahead with the development of high-value-added modules that combine various components.

Additionally, in inkjet printheads mainly for the commercial printing market, we are working on the development of products with enhanced durability on top of enabling higher speed and higher image quality required in digital printing.

Further, we are developing products that apply piezoelectric and other technologies for the medical and healthcare market, which includes digital healthcare.

(4) Communications Group

In the mobile phone business, Kyocera is strengthening the development of communications terminals with exceptional waterproof, dust prevention and shock-resistant features. We are also working to shorten development time of such distinctive terminals by promoting the standardization of platforms and modules for terminals.

In the information and communication services business, we are actively working on the development of products that support the proliferation of the IoT. We are striving to develop platforms and security-related software related to the collection, management and use of data taken from diverse terminals and networks in line with increasingly complex and sophisticated customer needs alongside use of the IoT. We are also strengthening the development of platforms and software that leverage deep learning for services that utilize AI (Artificial Intelligence) in image and text analysis as use of AI grows in corporate and other business fields.

 

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In addition, we are strengthening the development of communications modules (M2M modules) for telematics as well as the IoT market, which includes LPWA (Low Power Wide Area) technology enabling wireless communications over a wide area yet with low power consumption, through the integration of Kyocera’s component, terminal and system technology. We are also vigorously pushing ahead with development to expand and boost the convenience of wireless network systems through LPWA technology, efforts that include tie-ups with outside organizations.

(5) Document Solutions Group

Kyocera is developing printers and MFPs that have exceptional environmental performance and economic efficiency, which are key features of Kyocera, in order to ensure differentiation from competitors. In terms of equipment, we are focusing on the development of printers and MFPs with long life and minimal waste and are working to provide products that feature reduced running costs and excellent environmental friendliness by minimizing consumable components that lead to waste. We also continue to work on improving toner in the pursuit of high image quality and more energy savings in an effort to increase added value.

In terms of document solution services, we are pushing ahead with the development of products including application software that contributes to information sharing and business efficiency by connecting with mobile equipment, the cloud environment and document management systems owned by customers. By way of merger and acquisition activity, we are also strengthening our ECM (Enterprise Contents Management) business that computerizes a company’s data so that it can be managed and run in a more comprehensive and efficient manner together with document BPO (Business Process Outsourcing) business, an outsourcing service for document-related operations. We are striving to develop new services by integrating these acquired businesses with existing businesses.

(6) Life & Environment Group

In the solar energy business, we are working to improve product performance and quality as well as enhance the degree of freedom in installation, which includes efforts to enhance the conversion efficiency of monocrystalline and multicrystalline silicon solar cells, boost the output and durability of modules, and develop products that enable installation on roofs, the surface of the water and agricultural land of varying shapes and sizes, for instance.

We are also focusing on the development of efficient energy management systems that enable the use of power generated from solar power systems as well as peripheral solar energy equipment and systems, which includes increasing the capacity and decreasing the size of battery storage systems, amid changing needs in power usage from bought power to self-consumption. We are also strengthening development aimed at expanding our business into the total energy solution field by pushing ahead with the development of technology for the purpose of increasing business in the demand response and virtual power plant markets in line with the deregulation of electric power.

In the medical equipment business, we mainly deal with prosthetic joints and dental implants, and are actively developing products that reduce burden on the user based on fine ceramics, which boast exceptional biocompatibility. Specifically, we are working on the development of surface treatment technology realizing long life by minimizing wear to the prosthetic joints, as well as products with enhanced antibacterial properties, in collaboration with external institutions.

 

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The following table shows a break down of Kyocera’s total R&D expenses in fiscal 2016, 2017 and 2018 by the six reporting segments:

 

     Years ended March 31,     Increase
(Decrease)
 
     2016     2017     2018    
     Amount     Amount     Amount     %  
                          
     (Yen in millions)  

Industrial & Automotive Components Group

   ¥ 9,416     ¥ 10,728     ¥ 10,571       (1.5

Semiconductor Components Group

     3,557       3,743       3,550       (5.2

Electronic Devices Group

     9,015       9,297       10,898       17.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Components Business

     21,988       23,768       25,019       5.3  

Communications Group

     4,289       2,953       3,849       30.3  

Document Solutions Group

     24,021       21,674       22,259       2.7  

Life & Environment Group

     3,923       3,157       4,268       35.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equipment & Systems Business

     32,233       27,784       30,376       9.3  

Others

     4,534       3,859       2,878       (25.4
  

 

 

   

 

 

   

 

 

   

 

 

 

R&D expenses

   ¥ 58,755     ¥ 55,411     ¥ 58,273       5.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

% to net sales

     4.0     3.9     3.7  

 

Note: Kyocera has changed the classification of its reporting segments from fiscal 2018. R&D expenses for fiscal 2016 and for fiscal 2017 have been reclassified in line with the change to reporting segment classifications.

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.

D. Trend Information

Kyocera is working to expand sales in the four key markets of “information and communications,” “automotive-related,” “environment and energy” and “medical and healthcare” with the aim of generating further growth.

In the information and communications market, there was solid demand for components embedded in smartphones in the context of device proliferation and increased sophistication. Despite a softening in growth rate in the smartphone market, there is expected to be ongoing need in the 2018 calendar year for smaller and more sophisticated components for smartphones alongside the enhanced performance of these devices. As a result of these trends, we project an increase in sales of Kyocera’s high-value-added components in the next fiscal year as well. In addition, we expect an increase in business opportunities for Kyocera’s components, systems and services for various communications infrastructure that includes optical communications and LPWA (Low Power Wide Area) on the back of a forecast increase in wireless communication needs such as for higher speeds following proliferation and expansion of the IoT.

In automotive-related markets, automobile sales volume in the 2018 calendar year is projected to be solid due to growing needs for automated driving, safety and enhanced environmental performance. In line with this, we forecast continued growth in demand for our camera modules, displays, communication modules, electronic components and parts for LED headlights.

Kyocera’s main products in the environment and energy market are solar cells and modules. The core Japanese market is projected to slump due to the impact of a decline in purchase price in the feed-in tariff system. In contrast, demand is increasing for power storage batteries and EMS in the context of movement toward self-consumption of electricity, and as such, we are forecasting an increase in demand for the equipment that Kyocera handles. Overseas, demand is expected to increase in the Thai market for solar power generation systems on the back of measures to encourage investment aimed at reducing environmental burden.

 

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Kyocera is developing an actual SOFC system in addition to the system’s core components following expectations of proliferation and expansion as new clean energy supply systems. Kyocera projects demand to increase for these growth-potential products over the medium term.

In addition, we are witnessing a trend to build ADR (Automated Demand Response) systems enabling the efficient use of energy, particularly renewable energy, and we forecast needs in this field to grow going forward.

Kyocera’s main products in the medical and healthcare market are prosthetic joints. We command the top market share in the market for prosthetic joints in Japan among Japanese manufacturers and have gained a high degree of trust from medical personnel. Going forward, we will strive to expand business in overseas markets with large market volume. We will also continue striving to increase sales of dental implants and other products. Moreover, Kyocera participates in projects related to regenerative medicine based on collaboration with external organizations and is working to create new businesses for the future in such fields as digital healthcare.

E. Off-Balance Sheet Arrangements

Refer to Note 13 in Kyocera’s 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.

F. 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, 2018. Kyocera anticipates that the funds required to fulfill these debt obligations and commitments will be cash at hand.

 

Contractual obligations

   Less than
1 year
     2-3 years      4-5 years      Thereafter      Total  
     (Yen in millions)  

Short-term borrowings

   ¥ 145      ¥ —        ¥ —        ¥ —        ¥ 145  

Interest payments for short-term borrowings*

     12        —          —          —          12  

Long-term debt (including due within one year)

     9,293        14,927        4,963        347        29,530  

Interest payments for long-term debt*

     966        905        183        7        2,061  

Long-term purchase agreements for the supply of raw material**

     60,100        54,305        —          —          114,405  

Operating leases

     6,753        7,851        3,140        2,981        20,725  

Obligations for the acquisition or construction of property, plant and equipment

     34,524        200        7        —          34,731  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   ¥ 111,793      ¥ 78,188      ¥ 8,293      ¥ 3,335      ¥ 201,609  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* For Kyocera’s variable interest rate of borrowings and debt, Kyocera utilized the rates in effect as of March 31, 2018 when estimating schedule of interest payments.
** Kyocera recorded a write-down relating to the long-term purchase agreements for the procurement of polysilicon material in the solar energy business in fiscal 2018. For detailed information regarding the write-down, please refer to Note 5 in Kyocera’s consolidated financial statements included in this annual report on Form 20-F.

In addition to contractual obligations shown in the above tables, Kyocera forecasts to contribute ¥12,025 million to its defined benefit pension plans in fiscal 2019. Kyocera recorded liabilities of ¥1,407 million for gross unrecognized tax benefits in accordance with FASB’s ASC 740, “Income Taxes” at March 31, 2018, 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 15 to Kyocera’s consolidated financial statements in this annual report on Form 20-F.

 

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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 and the president. 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 and the president can provide diverse perspectives on critical issues.

The following table shows Kyocera’s Directors and Audit & Supervisory Board Members as of June 26, 2018.

 

Name

  

Date of Birth

  

Position

   Since   Term  

Goro Yamaguchi

   January 21, 1956   

Representative Director and Chairman

   2009

(Chairman 2017)

    *1  

Hideo Tanimoto

   March 18, 1960   

Representative Director and President

   2016

(President 2017)

    *1  

Ken Ishii

   October 6, 1953   

Director

   2012     *1  

Hiroshi Fure

   February 24, 1960   

Director

   2013     *1  

Yoji Date

   September 20, 1956   

Director

   2013     *1  

Norihiko Ina

   September 16, 1963   

Director

   2017     *1  

Keiji Itsukushima

   May 3, 1958   

Director

   2017     *1  

Koichi Kano

   September 21, 1961   

Director

   2016     *1  

Shoichi Aoki

   September 19, 1959   

Director

   2009     *1  

Takashi Sato

   September 22, 1960   

Director

   2017     *1  

Junichi Jinno

   May 7, 1955   

Director

   2018     *2  

John Sarvis

   March 4, 1950   

Director

   2016     *1  

Robert Whisler

   February 17, 1953   

Director

   2016     *1  

Tadashi Onodera

   February 3, 1948   

Outside Director

   2013     *1  

Hiroto Mizobata

   July 31, 1963   

Outside Director

   2015     *1  

Atushi Aoyama

   August 2, 1960   

Outside Director

   2016     *1  

Itsuki Harada

   August 5, 1955   

Full-time Audit & Supervisory Board Member

   2016     *3  

Osamu Nishieda

   January 10, 1943   

Audit & Supervisory Board Member

   1993     *3  

Hitoshi Sakata

   January 22, 1953   

Outside Audit & Supervisory Board Member

   2016     *3  

Masaaki Akiyama

   January 4, 1945   

Outside Audit & Supervisory Board Member

   2016     *3  

 

*1 The term of office of a Director is two years after his election at the close of the ordinary general meeting of shareholders held on June 27, 2017.
*2 The term of office of a Director is one year after his election at the close of the ordinary general meeting of shareholders held on June 26, 2018.
*3 The term of office of an Audit & Supervisory Board Member is four years after his election at the close of the ordinary general meeting of shareholders held on June 24, 2016.

Goro Yamaguchi has served as the Representative Director and Chairman of Kyocera Corporation since 2017. He became an Executive Officer in 2003, a Senior Executive Officer in 2005, a Managing Executive Officer in 2009 and the Representative Director and President in 2013. He joined Kyocera Corporation in 1978 and has served as the Representative Director and Chairman of Kyoto Purple Sanga Co., Ltd., the Representative Director and Chairman of Kyocera Communication Systems Co., Ltd., the Representative Director and Chairman of Kyocera

 

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Document Solutions Inc. and the Representative Director and Chairman of Kyocera Realty Development Co., Ltd.

Hideo Tanimoto has served as the Representative Director and President of Kyocera Corporation since 2017. He became an Executive Officer in 2015 and a Managing Executive Officer in 2016. He joined Kyocera Corporation in 1982 and has served as the Representative Director and Chairman of Kyocera Display Corporation, the Representative Director and Chairman of Kyocera Optec Co., Ltd., the Chairman of the Board of Directors of Kyocera (China) Sales & Trading Corporation, the Chairman of the Board of Directors of Dongguan Shilong Kyocera Co., Ltd., the Chairman of the Board of Directors of Shanghai Kyocera Electronics Co., Ltd., the Chairman of the Board of Directors of Kyocera Management Consulting Service (Shanghai) Co., Ltd., the Authorized Representative and Chairman of Kyocera Vietnam Co., Ltd. and the Representative Director and Chairman of Kyocera Korea Co., Ltd.

Ken Ishii has served as a Director of Kyocera Corporation since 2012. He became an Executive Officer in 2009, a Senior Executive Officer in 2011 and a Managing Executive Officer in 2012. He joined Kyocera Corporation in 1977 and has served as a Senior Managing Executive Officer, the General Manager of Corporate Industrial Tool Group, the Representative Director and Chairman of Kyocera Precision Tools Korea Co., Ltd., the Chairman of the Board of Directors of Kyocera Precision Tools (Zhuhai) Co., Ltd., the Chairman of the Board of Directors of Kyocera Precision Tools (Ganzhou) Co., Ltd. and the Representative Director and Chairman of Kyocera Industrial Tools Corporation.

Hiroshi Fure has served as a Director of Kyocera Corporation since 2013. He became an Executive Officer in 2011 and a Managing Executive Officer in 2013. He joined Kyocera Corporation in 1984 and has served as a Senior Managing Executive Officer and the General Manager of Corporate Organic Materials Semiconductor Components Group.

Yoji Date has served as a Director of Kyocera Corporation since 2013. He became an Executive Officer in 2012 and a Managing Executive Officer in 2013. He joined Kyocera Corporation in 1979 and has served as a Senior Managing Executive Officer, the General Manager of Corporate Electronic Components Group and the Chairman of the Board of Directors of Kyocera International Electronics Co., Ltd.

Norihiko Ina has served as a Director of Kyocera Corporation since 2017. He joined Mita Industrial Co., Ltd. (now known as Kyocera Document Solutions Inc.) in 1987 and has served as a Managing Executive Officer and the Representative Director and President of Kyocera Document Solutions Inc.

Keiji Itsukushima has served as a Director of Kyocera Corporation since 2017. He became a Senior Executive Officer in 2016. He joined Kyocera Corporation in 1982 and has served as a Managing Executive Officer and the General Manager of Corporate Communication Equipment Group.

Koichi Kano has served as a Director of Kyocera Corporation since 2016. He became an Executive Officer in 2013 and a Senior Executive Officer in 2015. He joined Kyocera Corporation in 1985 and has served as a Managing Executive Officer and the General Manager of Corporate Development Group.

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 Management Control Group.

Takashi Sato has served as a Director of Kyocera Corporation since 2017. He became an Executive Officer in 2013 and a Senior Executive Officer in 2016. He joined Kyocera Corporation in 1983 and has served as a Managing Executive Officer and the General Manager of Corporate General Affairs Human Resources Group.

Junichi Jinno has served as a Director of Kyocera Corporation since 2018. He became an Executive Officer in 2003 and a Senior Executive Officer in 2013. He joined Kyocera Corporation in 1983 and has served as a Managing Executive Officer and the General Manager of Corporate Legal and Intellectual Property Group.

 

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John Sarvis has served as a Director of Kyocera Corporation since 2016. He joined AVX Corporation in 1973 and has served as the Chairman of the Board, Chief Executive Officer and President of AVX Corporation.

Robert Whisler has served as a Director of Kyocera Corporation since 2016. He became an Executive Officer in 2005. He joined Kyocera America, Inc. (now known as Kyocera International, Inc.) in 1981 and has served as the President and Director of Kyocera International, Inc.

Tadashi Onodera has served as an Outside Director of Kyocera Corporation since 2013. He joined DDI Corporation (currently KDDI Corporation) in 1989 and has served as the Senior Advisor of KDDI Corporation.

KDDI Corporation provides telecommunication services, and Kyocera sells mainly telecommunication equipment to KDDI Corporation. Kyocera serves KDDI Corporation as an independent vendor in terms of price determination, remittance condition and product distribution. All of the agreements and ongoing contractual commitments between Kyocera and KDDI Corporation have been made on an arm’s-length basis. In fiscal 2018, Kyocera’s sales to KDDI Corporation amounted to ¥113,027 million, or 7.2% of consolidated net sales.

Kyocera Corporation made an equity investment in KDDI Corporation when it was founded, and Kyocera Corporation’s equity interest in KDDI Corporation was 12.95% at March 31, 2018. Currently a Director of Kyocera Corporation is an Outside Director of KDDI Corporation, and a Senior Advisor of KDDI Corporation is an Outside Director of Kyocera Corporation.

Hiroto Mizobata has served as an Outside Director of Kyocera Corporation since 2015. He joined KPMG Asahi Shinwa Accounting, Inc. (now known as KPMG AZSA LLC) in 1986. He was registered as a certified public accountant in 1988 and licensed a tax accountant in 1991. He has served as the Representative of Mizobata Certified Public Accountant Office.

Atushi Aoyama has served as an Outside Director of Kyocera Corporation since 2016. He has served as a Professor of Graduate School of Technology Management, Ritsumeikan University.

Atsushi Aoyama has two relatives within the second degree who used to be employees of Kyocera in the past. However, more than 30 years have passed after the retirement of the relative who retired later and currently no relative works in Kyocera.

Itsuki Harada has served as a Full-time Audit & Supervisory Board Member of Kyocera Corporation since 2016. He became the General Manager of Accounting Division of Dongguan Shilong Kyocera Optics Co., Ltd. (currently Dongguan Shilong Kyocera Co., Ltd.) in 1996 and the General Manager of Corporate Global Audit Division of Kyocera Corporation in 2010. He joined Kyocera Corporation in 1980.

Osamu Nishieda has served as an Audit & Supervisory Board Member of Kyocera Corporation since 1993. He has served as a Legal Counsel to Kyocera Corporation.

Hitoshi Sakata has served as an Outside Audit & Supervisory Board Member of Kyocera Corporation since 2016. He has served as a Partner of the Oike Law Office and an Outside Director of Nippon Shinyaku Co., Ltd.

Masaaki Akiyama has served as an Outside Audit & Supervisory Board Member of Kyocera Corporation since 2016. He joined Tomishima Audit Corporation (now known as Ernst & Young ShinNihon LLC) in 1968. He was registered as a certified public accountant in 1973. He has served as an Outside Audit & Supervisory Board Member of Joyful Honda Co., Ltd. and a Supervisory Officer of United Urban Investment Corporation.

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.

 

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The following table shows Kyocera’s Executive Officers as of June 27, 2018.

 

Name

  

Position

Hideo Tanimoto

   Executive Officer and President

Ken Ishii

  

Senior Managing Executive Officer

(General Manager of Corporate Industrial Tool Group)

Hiroshi Fure

  

Senior Managing Executive Officer

(General Manager of Corporate Organic Materials Semiconductor Components Group)

Yoji Date

  

Senior Managing Executive Officer

(General Manager of Corporate Electronic Components Group)

Norihiko Ina

  

Managing Executive Officer

(Representative Director and President of Kyocera Document Solutions Inc.)

Keiji Itsukushima

  

Managing Executive Officer

(General Manager of Corporate Communication Equipment Group)

Koichi Kano

  

Managing Executive Officer

(General Manager of Corporate Development Group)

Shoichi Aoki

  

Managing Executive Officer

(General Manager of Corporate Management Control Group)

Takashi Sato

  

Managing Executive Officer

(General Manager of Corporate General Affairs Human Resources Group)

Junichi Jinno

  

Managing Executive Officer

(General Manager of Corporate Legal and Intellectual Property Group)

Shigeru Koyama

  

Senior Executive Officer

(Representative Director and President of Kyocera Fineceramics GmbH)

Masahiro Inagaki

  

Senior Executive Officer

(General Manager of Corporate R&D Group)

Takashi Okunosono

  

Executive Officer

(General Manager of Corporate Ceramic Materials Semiconductor Components Group)

Masaaki Itoh

  

Executive Officer

(Deputy General Manager of Corporate General Affairs Human Resources Group)

Hironao Kudo

  

Executive Officer

(Deputy General Manager of Corporate R&D Group)

Masaki Iida

  

Executive Officer

(General Manager of Corporate Purchasing Group)

Hisamitsu Sakai

  

Executive Officer

(General Manager of Corporate Printing Device Group)

Yusuke Mizukami

  

Executive Officer

(Deputy General Manager of Corporate Ceramic Materials Semiconductor Components Group)

Tayo Hamano

  

Executive Officer

(General Manager of Corporate Management Promotion Group)

Masaaki Ozawa

  

Executive Officer

(Deputy General Manager of Corporate Organic Materials Semiconductor Components Group)

 

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Name

  

Position

Yoshihito Kurose

  

Executive Officer

(Representative Director and President of Kyocera Communication Systems Co., Ltd.)

Masaki Hayashi

  

Executive Officer

(General Manager of Corporate Fine Ceramics Group)

Shigeaki Kinori

  

Executive Officer

(Deputy General Manager of Corporate Electronic Components Group)

Akihito Kubota

  

Executive Officer

(General Manager of Corporate Solar Energy Group)

Tadashi Shinagawa

  

Executive Officer

(Deputy General Manager of Corporate Fine Ceramics Group)

Senri Nagashima

  

Executive Officer

(Deputy General Manager of Corporate Industrial Tool Group)

B. Compensation

The aggregate amount of compensation provided by Kyocera Corporation and its certain subsidiaries in fiscal 2018 to all Directors, Audit & Supervisory Board Members and Executive Officers of Kyocera Corporation was ¥1,760 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 disclose an individual basis for each Director or Audit & Supervisory Board Member who receives aggregate compensation equal to or exceeding ¥100 million from the relevant company and its subsidiaries. In accordance with this requirement, we disclose compensation on an individual basis as follows.

 

Name

  

Position

  Amounts of compensation by types   Total  
     Basic
remuneration
   

Bonus
and
others

 

Stock

awards

 

Others

 
         (Yen in millions)  

Goro Yamaguchi

   Representative Director and Chairman of Kyocera Corporation         54     60   —     —     ¥ 121  
  

 

 

 

 

   

 

 

 

 

 

 
   Director of AVX Corporation     2     —     5   —    

 

  

 

 

 

 

   

 

 

 

 

 

 

 

 

 

Hideo Tanimoto

   Representative Director and President of Kyocera Corporation     60     66   —     —     ¥ 132  
  

 

 

 

 

   

 

 

 

 

 

 
   Director of AVX Corporation     1     —     5   —    

 

  

 

 

 

 

   

 

 

 

 

 

 

 

 

 

John Sarvis

   Director of Kyocera Corporation     6     5   —     —     ¥ 134  
  

 

 

 

 

   

 

 

 

 

 

 
   Chairman of the Board, Chief Executive Officer and President of AVX Corporation     54     4   22   43  

 

  

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

Notes:

1. The positions of Goro Yamaguchi, Hideo Tanimoto and John Sarvis represent their positions as of March 31, 2018.

 

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2. AVX Corporation is Kyocera’s consolidated subsidiary in the United States and the determination of compensation for directors and officers of AVX Corporation was made by AVX Corporation’s Compensation Committee pursuant to the U.S. regulations and based on its consideration for general and customary levels of compensation in the United States.

3. The amounts of compensation provided originally in the U.S. dollars at AVX Corporation was translated into the yen at a rate of ¥111 per $1.00, which was the average rate during fiscal 2018.

In addition to the above, Japanese regulations require public companies to disclose details of compensation paid to Directors and Audit & Supervisory Board Members by such company and also to disclose the policy applied in determining such compensation. In accordance with this requirement, we disclose certain information regarding compensation for Directors and Audit & Supervisory Board Members as follows.

The total amount of compensation paid to Directors and Audit & Supervisory Board Members, the amounts of compensation by types, and the number of Directors and Audit & Supervisory Board Members were as follows.

 

     Total
amount of
compensation
     Amounts of
compensation by types
     Number of
Directors and
Audit &
Supervisory
Board Members
 
        Basic
remuneration
     Bonus     
            (Yen in millions)                

Director (excluding Outside Directors)

   ¥ 316      ¥ 158      ¥ 158        14  
  

 

 

    

 

 

    

 

 

    

 

 

 

Outside Director

     36        36        —          3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Full-time Audit & Supervisory Board Member (excluding Outside Audit & Supervisory Board Members)

     34        34        —          2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Outside Audit & Supervisory Board Member

     20        20        —          2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 406      ¥ 248      ¥ 158        21  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Note: Amount of remuneration to Directors does not include salaries for services as employees or Executive Officers for Directors who serve as such.

Policy 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 consists 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.

 

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Kyocera Corporation’s compensation paid to Audit & Supervisory Board Members 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 Audit & Supervisory Board Members shall be no more than ¥100 million annually.

C. Board Practices

For information regarding the terms of office of Directors and Audit & Supervisory Board Members, see Item 6.A. “Directors and Senior Management” of this annual report on Form 20-F.

In accordance with the requirements of the Companies Act of Japan (the Companies Act), our Articles of Incorporation provide for not more than six Audit & Supervisory Board Members. Audit & Supervisory Board Members are elected at a general meeting of shareholders, and their normal term of office is four years. However, Audit & Supervisory Board Members may serve any number of consecutive terms. At least half of the Audit & Supervisory Board Members must be persons who, among other things, (i) have not been directors or employees of Kyocera Corporation or its subsidiaries within 10 years prior to assuming the position of Audit & Supervisory Board Members, (ii) (in case of persons who have formerly served as audit & supervisory board members of Kyocera Corporation or its subsidiaries within 10 years prior to assuming the position of Audit & Supervisory Board Members) have not been directors or employees of Kyocera Corporation or its subsidiaries within 10 years prior to assuming such former position of audit & supervisory board members and (iii) are not currently spouses or relatives within two degrees of Directors or important employees of Kyocera Corporation (Outside Audit & Supervisory Board Members). Audit & Supervisory Board Members form the Audit & Supervisory Board. Audit & Supervisory Board Members 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. Audit & Supervisory Board Members also have a statutory duty to provide their report on the audit report prepared by our independent certified public accountants to the Audit & Supervisory Board, which must submit its audit report to the Board of Directors. The Audit & Supervisory Board will also determine matters relating to the duties of the Audit & Supervisory Board Members, such as audit policy and methods of investigation of our affairs.

Under the Companies Act, the Directors and Audit & Supervisory Board Members 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 Directors and the Outside Audit & Supervisory Board Members 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 us and each Outside Director or each Outside Audit & Supervisory Board Member, as the case may be, up to an amount to be calculated in accordance with the relevant provisions of the Companies Act with reference to annual remuneration, retirement allowance and profits received upon exercise or transfer of stock options, if any.

Kyocera 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 Audit & Supervisory Board Member and any other person pursuant to which he was elected as a Director or an Audit & Supervisory Board Member. There is no family relationship between any Director or Audit & Supervisory Board Member and any other Director or Audit & Supervisory Board Member.

 

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D. Employees

The number of Kyocera’s employees by reporting segment at March 31, 2018 was as follows:

 

Industrial & Automotive Components Group

     15,866  

Semiconductor Components Group

     9,080  

Electronic Devices Group

     20,739  

Communications Group

     4,463  

Document Solutions Group

     19,750  

Life & Environment Group

     3,014  

Others

     1,376  

Corporate

     1,652  
  

 

 

 

Total

     75,940  
  

 

 

 

Kyocera Corporation had 18,451 employees, and their average age and average service years were 41.6 and 17.9 respectively.

The number of Kyocera Corporation’s employees by reporting segments at March 31, 2018 was as follows:

 

Industrial & Automotive Components Group

     4,315  

Semiconductor Components Group

     5,916  

Electronic Devices Group

     3,266  

Communications Group

     1,387  

Document Solutions Group

     —    

Life & Environment Group

     1,988  

Others

     902  

Corporate

     677  
  

 

 

 

Total

     18,451  
  

 

 

 

The numbers of Kyocera Corporation’s employees increased for fiscal 2018 as compared with the last fiscal year due mainly to the fact that Kyocera Corporation conducted absorption-type mergers through which certain subsidiaries were merged with Kyocera Corporation.

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.

 

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E. Share Ownership

Kyocera’s Directors, Audit & Supervisory Board Members and Executive Officers as of June 27, 2018 owned 456,336 shares of Kyocera Corporation in total (452,350 shares of common stock of Kyocera Corporation and 3,986 ADRs of Kyocera Corporation), or 0.1% of the outstanding shares of Kyocera Corporation at March 31, 2018. The numbers of shares owned by each Director, Audit & Supervisory Member and Executive Officer are shown in the following table.

 

Name

  

Title

  

Number of Shares

Goro Yamaguchi

  

Representative Director and Chairman

   26,243

Hideo Tanimoto

  

Representative Director and President

   4,481

Ken Ishii

  

Director

   10,559

Hiroshi Fure

  

Director

   5,040

Yoji Date

  

Director

   8,819

Norihiko Ina

  

Director

   600

Keiji Itsukushima

  

Director

   4,337

Koichi Kano

  

Director

   3,481

Shoichi Aoki

  

Director

   10,159

Takashi Sato

  

Director

   5,215

Junichi Jinno

  

Director

   2,714

John Sarvis

  

Director

   —  

Robert Whisler

  

Director

   3,986 (ADR)

Tadashi Onodera

  

Outside Director

   2,452

Hiroto Mizobata

  

Outside Director

   1,666

Atsushi Aoyama

  

Outside Director

   300

Itsuki Harada

  

Full-time Audit & Supervisory Board Member

   582

Osamu Nishieda

  

Audit & Supervisory Board Member

   329,608

Hitoshi Sakata

  

Outside Audit & Supervisory Board Member

   300

Masaaki Akiyama

  

Outside Audit & Supervisory Board Member

   300

Shigeru Koyama

  

Senior Executive Officer

   3,939

Masahiro Inagaki

  

Senior Executive Officer

   3,513

Takashi Okunosono

  

Executive Officer

   3,149

Masaaki Itoh

  

Executive Officer

   5,605

Hironao Kudo

  

Executive Officer

   855

Masaki Iida

  

Executive Officer

   3,982

Hisamitsu Sakai

  

Executive Officer

   1,131

Yusuke Mizukami

  

Executive Officer

   626

Tayo Hamano

  

Executive Officer

   1,541

Masaaki Ozawa

  

Executive Officer

   1,128

Yoshihito Kurose

  

Executive Officer

   1,346

Masaki Hayashi

  

Executive Officer

   693

Shigeaki Kinori

  

Executive Officer

   5,203

Akihito Kubota

  

Executive Officer

   1,099

Tadashi Shinagawa

  

Executive Officer

   901

Senri Nagashima

  

Executive Officer

   783

Item 7.    Major Shareholders and Related Party Transactions

A. Major Shareholders

As far as is known to us, Kyocera is not, directly or indirectly, owned or controlled by any other corporation or by the Japanese or any foreign government, and there is no arrangement which may at a subsequent date result in a change in control of Kyocera.

 

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The following table shows the ten largest shareholders of record of Kyocera Corporation at March 31, 2018.

 

Name

   Shares owned      Ownership  
     (in thousands)      (%)  

The Master Trust Bank of Japan, Ltd.
(Trust Account)

     48,054        13.07  

Japan Trustee Services Bank, Ltd.
(Trust Account)

     26,538        7.22  

State Street Bank and Trust Company
(Standing proxy: The Hongkong and Shanghai Banking Corporation Limited)

     16,466        4.48  

The Bank of Kyoto, Ltd.

     14,436        3.93  

Kazuo Inamori

     10,212        2.78  

Inamori Foundation

     9,360        2.55  

KI Enterprise Co., Ltd.

     7,099        1.93  

Japan Trustee Services Bank, Ltd.
(Trust Account 5)

     6,273        1.71  

State Street Bank West Client-Treaty 505234
(Standing proxy: Mizuho Bank, Ltd)

     6,147        1.67  

Trust & Custody Services Bank, Ltd.
(Stock Investment Trust Account)

     5,877        1.60  
  

 

 

    

 

 

 

Total

     150,463        40.92  
  

 

 

    

 

 

 

Kyocera excludes treasury stocks from the list of major shareholders above. Ownership are calculated excluding treasury stocks.

None of the above shareholders has voting rights that are different from those of other shareholders.

Under the Financial Instruments and Exchange Law of Japan, any person that becomes a holder (together with its related persons) of more than 5% of the total issued voting shares of a company listed on any Japanese stock exchange (including ADSs representing such shares) must file a report with the Director of the relevant Local Finance Bureau. A similar report must also be filed if the percentage holding of a holder of more than 5% of the total issued voting shares of a company increases or decreases by 1% or more. Reports are required to be filed through the Electronic Disclosure for Investors’ NETwork, known as the EDINET system.

According to the report filed with the EDINET system on October 16, 2017, Mitsubishi UFJ Financial Group, Inc. and its related partners held shares as of October 9, 2017, as shown in the following table. Despite this report, they are not included in the above list of major shareholders because we are not able to confirm the number of shares beneficially owned by them from our shareholders records as of March 31, 2018.

 

Name

   Shares owner      Ownership  
     (in thousands)      (%)  

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

     5,077        1.34  

Mitsubishi UFJ Trust and Banking Corporation

       10,287        2.72  

Mitsubishi UFJ Kokusai Asset Management Co., Ltd.

     5,987        1.59  

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

     2,659        0.70  
  

 

 

    

 

 

 

Total

     24,010          6.36  
  

 

 

    

 

 

 

 

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According to the report filed with EDINET system on October 20, 2017, Mizuho Securities Co., Ltd. and its related partners held shares as of October 13, 2017, as shown in the following table. Despite this report, they are not included in the above list of major shareholders because we are not able to confirm the number of shares beneficially owned by them from our shareholders records as of March 31, 2018.

 

Name

   Shares owner      Ownership  
     (in thousands)      (%)  

Mizuho Securities Co., Ltd.

     2,051        0.54  

Asset Management One Co., Ltd.

       16,911        4.48  
  

 

 

    

 

 

 

Total

     18,962          5.02  
  

 

 

    

 

 

 

According to the report filed with EDINET system on April 5, 2018, Nomura Securities Co., Ltd. and its related partners held shares as of March 30, 2018, as shown in the following table. Despite this report, they are not included in the above list of major shareholders because we are not able to confirm the number of shares beneficially owned by them from our shareholders records as of March 31, 2018.

 

Name

   Shares owner      Ownership  
     (in thousands)      (%)  

Nomura Securities Co., Ltd.

     474        0.13  

NOMURA INTERNATIONAL PLC

     85        0.02  

Nomura Asset Management Co., Ltd.

       28,916          7.66  
  

 

 

    

 

 

 

Total

     29,475        7.81  
  

 

 

    

 

 

 

According to Citibank N.A., the Depositary for Kyocera’s ADSs, as of March 31, 2018, 5,067,472 shares of Kyocera’s common stock were held in the form of ADSs and there were 573 ADS holders of record in the United States. According to Kyocera’s register of shareholders, as of March 31, 2018, there were 59,753 holders of Kyocera’s common stock of record worldwide. As of March 31, 2018, there were 175 record holders of Kyocera’s common stock with addresses in the United States, holding 61,648,950 shares of the outstanding common stock on that date. Because some of these shares were held by brokers or other nominees, the number of record holders with addresses in the United States might not fully show the number of beneficial owners in the United States.

B. Related Party Transactions

Significant Customer

Kyocera Corporation made an equity investment in KDDI Corporation when it was founded, and Kyocera Corporation’s equity interest in KDDI Corporation was 12.95% at March 31, 2018. In addition, currently a Director of Kyocera Corporation is an Outside Director of KDDI Corporation, and a Director of KDDI Corporation is an Outside Director of Kyocera Corporation. KDDI Corporation provides telecommunication services, and Kyocera sells mainly telecommunication equipment to KDDI Corporation. In fiscal 2018, Kyocera’s sales to KDDI Corporation amounted to ¥113027, million, or 7.2% of consolidated net sales. Kyocera serves KDDI Corporation as an independent vendor in terms of price determination, remittance condition and product distribution. All of the agreements and ongoing contractual commitments between Kyocera and KDDI Corporation have been made on an arm’s-length basis.

Kyocera expects that KDDI Corporation will remain a significant customer in the future.

C. Interests of Experts and Counsel

Not Applicable.

 

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Item 8.    Financial Information

A. Consolidated Statements and Other Financial Information

Consolidated Financial Statements

The information required by this item is set forth beginning on page F-1 of this annual report on Form 20-F.

Dividend Policy

Kyocera normally pays cash dividends twice per year as an interim and a year-end dividend. Year-end dividend must be approved by shareholders at the ordinary general shareholders’ meeting. In addition to a year-end dividend, Kyocera may pay an interim dividend by resolution of its board of directors without shareholder approval.

Kyocera Corporation believes that the best way to increase corporate value and meet shareholders’ expectations is to improve future consolidated performance on an ongoing basis.

Kyocera Corporation therefore has adopted a principal guideline that dividend amounts be within a range based on net income attributable to shareholders of Kyocera Corporation on a consolidated basis, and has set its dividend policy to maintain a payout ratio of around 40% of consolidated net income attributable to shareholders of Kyocera Corporation. In addition, Kyocera Corporation determines dividend amounts based on an overall assessment, taking into account various factors including the amount of capital expenditures necessary for medium-to-long-term corporate growth.

Kyocera Corporation also has adopted policies to ensure a sound financial basis, and, for such purpose, it sets aside other general reserves in preparation for the creation of new businesses, cultivation of new markets, development of new technologies and acquisition, as necessary, of outside management resources to achieve sustainable corporate growth.

Pursuant to the basic policy set forth above and based on full-year performance for fiscal 2018, Kyocera Corporation will distribute a year-end dividend for fiscal 2018 in the amount of 60 yen per share. When aggregated with the interim dividend in the amount of 60 yen per share, the total annual dividend will be 120 yen per share, 10 yen increase as compared with fiscal 2017.

We held a board of directors meeting for the interim dividend on October 30, 2017.

B. Significant Changes

Except as disclosed in this annual report on Form 20-F, there have been no significant changes since March 31, 2018.

Item 9.    The Offer and Listing

A. Offer and Listing Details

Price Range of Shares

We issued our ADSs in February 1976 and listed them on the New York Stock Exchange in May 1980. Since then, we have made efforts to enhance disclosures for shareholders and investors for deepen their understanding of us, in addition to complying with the disclosure requirements of U.S. securities laws and regulations, providing consolidated financial statements in accordance with U.S. GAAP and establishing internal controls in accordance with the Sarbanes-Oxley Act of 2002.

 

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Meanwhile, the external environment has significantly changed as indicated by the increases in trading volume of Japanese stocks through stock exchanges in Japan by overseas investors due to the internationalization of the Japanese financial and capital markets, as well as the narrowing of the gap between U.S. and Japanese disclosure standards with respect to financial reporting due to a series of amendments to Japanese laws and regulations and accounting standards.

In addition to these changes to the environment, as the trading volume of our ADSs on the New York Stock Exchange has been on a decreasing trend in recent years, we believe that the economic rationality of maintaining a listing on the New York Stock Exchange has declined.

As a result, on February 26, 2018, our Board of Directors resolved to apply for voluntary delisting of our ADSs from the New York Stock Exchange. Our ADS, each representing one share of Common Stock of Kyocera Corporation, were delisted from the New York Stock Exchange as of June 26, 2018. Although our ADSs have been delisted from the New York Stock Exchange, we intend to maintain our ADR program in the United States and therefore anticipate that our ADSs will continue to be traded in the United States on the over-the-counter market. Citibank, N.A. acts as the Depositary in respect of our ADSs. On June 26, 2018, we entered into amendments to the Deposit Agreement with Citibank, N.A. in connection with the delisting and deregistration. See Item 12.D. “Description of Securities Other Than Equity Securities—American Depositary Shares.”

 

     Tokyo Stock Exchange      New York Stock Exchange  
     Price per Share of
Common Stock
     Price per American
Depositary Share*
 

Years ended March 31,

       High              Low              High              Low      

2014

   ¥ 5,880      ¥ 4,175      $ 57.78      $ 42.85  

2015

     6,905        4,352        57.44        41.29  

2016

     7,207        4,415        59.69        38.01  

2017

     6,462        4,559        61.50        41.23  

2018

     8,345        5,613        71.92        53.79  

Most Recent 6 months

   High      Low      High      Low  

December 2017

   ¥ 8,005      ¥ 7,366      $ 70.14      $ 65.36  

January 2018

     7,877        7,232        69.98        65.56  

February 2018

     7,514        5,863        67.94        53.86  

March 2018

     6,363        5,613        59.00        53.79  

April 2018

     7,028        5,836        63.99        54.53  

May 2018

     6,916        6,447        62.07        58.90  

 

* The prices of American Depositary Shares are based upon reports by the New York Stock Exchange, with all fractional figures rounded up to the nearest two decimal points.

“Price per Share of Common Stock” and “Price per American Depositary Share” are calculated under the assumption that the stock split undertaken by Kyocera Corporation on October 1, 2013 had been undertaken at the beginning of fiscal 2014. For details of the stock split, please refer to “Capital Stock” in Item 10.B. “Memorandum and Articles of Association” of this annual report on Form 20-F on page 75.

On June 15, 2018, the closing price of our shares of Common Stock on the Tokyo Stock Exchange was ¥6,540 per share.

 

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The following table shows the information about high and low sales prices for each quarterly period in fiscal 2017 and 2018 in respect of the shares of Common Stock of Kyocera Corporation on the Tokyo Stock Exchange, and the American Depositary Shares on the New York Stock Exchange.

For Voting Securities by Fiscal Quarter

 

           2017  
           1st      2nd      3rd      4th  

Common Stock:

             

Market price per share (A)

    —High      ¥ 5,884      ¥ 5,260      ¥ 6,000      ¥ 6,462  
    —Low        4,559        4,600        4,731        5,637  

Cash dividends paid per share

       50        —          50        —    

American Depositary Share:

             

Market price per share (B)

    —High      $ 50.93      $ 50.36      $ 50.61      $ 61.50  
    —Low        41.23        46.36        47.08        49.53  

Cash dividends paid per share (C)

       0.48        —          0.44        —    
           2018  
           1st      2nd      3rd      4th  

Common Stock:

             

Market price per share (A)

    —High      ¥ 6,707      ¥ 7,131      ¥ 8,345      ¥ 7,877  
    —Low        5,837        6,261        6,915        5,613  

Cash dividends paid per share

       60        —          60        —    

American Depositary Share:

             

Market price per share (B)

    —High      $ 59.87      $ 63.43      $ 71.92      $ 69.98  
    —Low        53.91        56.43        61.86        53.79  

Cash dividends paid per share (C)

       0.53        —          0.53        —    

 

(A) Price on the Tokyo Stock Exchange
(B) Price on the New York Stock Exchange
(C) Translated into the U.S. dollars based on the exchange rates at each payment date

B. Plan of Distribution

Not Applicable.

C. Markets

Please refer to Item 9.A. “Offer and Listing Details” of this annual report on Form 20-F for information on the markets on which our common stock is listed or quoted.

D. Selling Shareholders

Not Applicable.

E. Dilution

Not Applicable.

F. Expenses of the Issue

Not Applicable.

 

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Item 10.    Additional Information

A. Share Capital

Not Applicable.

B. Memorandum and Articles of Association

General

Set out below is certain information regarding the organization and shares of Kyocera Corporation, including brief summaries of certain provisions of the Articles of Incorporation, the Share Handling Regulations and the Regulations of the Board of Directors of Kyocera Corporation and of the Companies Act relating to joint stock corporations (kabushiki kaisha) and certain related legislation, all as currently in effect.

Organization

Kyocera Corporation is a joint stock corporation (kabushiki kaisha) incorporated in Japan under the Companies Act of Japan. It is registered in the Commercial Register maintained by the Kyoto Local Registry Office of the Ministry of Justice.

Objects and Purposes

The objects of Kyocera Corporation are set forth in Article 2 of its Articles of Incorporation, as follows:

 

(1) Manufacture and sale of and research on fine ceramics and various kinds of products utilizing fine ceramics;

 

(2) Manufacture and sale of and research on single crystal materials and various kinds of products utilizing single crystal materials;

 

(3) Manufacture and sale of and research on composite materials;

 

(4) Manufacture and sale of and research on specialty plastics;

 

(5) Manufacture and sale of and research on measurement instruments for electronics;

 

(6) Manufacture and sale of and research on electronic and electric instruments and parts thereof;

 

(7) Manufacture and sale of and research on component parts of automobiles;

 

(8) Manufacture and sale of and research on precious metals, precious stones and semiprecious stones and various kinds of products utilizing precious metals, precious stones and semiprecious stones;

 

(9) Manufacture and sale of and research on accessories and interior and exterior decorations and ornaments;

 

(10) Wholesale and retail sale of health foods;

 

(11) Manufacture and sale of and research on material and equipment for medical use;

 

(12) Manufacture and sale of and research on equipment utilizing solar energy;

 

(13) Construction and sale of power plants, and power generation business and management and operation thereof;

 

(14) Manufacture and sale of and research on optical machinery and instruments and precision machinery and instruments and parts hereof;

 

(15) Manufacture and sale of and research on machinery and equipment for business use and machinery and equipment for industrial use and parts thereof;

 

(16) Manufacture and sale of and research on photosensitive materials for photographic use;

 

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(17) Design, control and contract of construction relating to public works, building, electric equipment and piping construction;

 

(18) Sale, purchase, lease, maintenance and brokerage of real estate;

 

(19) Lease, maintenance and management of facilities relating to sports, recreation, medical care, hotels and restaurants, and the travel agency business;

 

(20) Road freight handling and warehousing;

 

(21) Business relating to non-life insurance agency and life insurance canvassing, and general leasing, factoring and finance business;

 

(22) Sale and purchase of various kinds of plants and technology related thereto;

 

(23) Design and sale of software relating to computers;

 

(24) Disposition through sale and the like and acquisition through purchase and the like of patents and other industrial property rights and know-how appertaining to the preceding items and acting as intermediary in such transactions;

 

(25) Businesses relating to import and export of any of the foregoing items; and

 

(26) All commercial activities relating or incidental to any of the foregoing.

Directors

Under the Companies Act, the Board of Directors has the ultimate responsibility for the management of Kyocera Corporation and each Representative Director, who is elected from among the members of the Board of Directors, has the statutory authority to represent Kyocera Corporation in all respects. Under both the Companies Act and the Regulations of the Board of Directors of Kyocera Corporation, the Directors must refrain from engaging in any business competing with Kyocera Corporation unless approved by the Board of Directors and any Director who has a material interest in the subject matter of a resolution to be adopted by the Board of Directors cannot vote in such resolution. The Companies Act and the Articles of Incorporation of Kyocera Corporation provide that remuneration of Directors and Audit & Supervisory Board Members shall be determined at a general meeting of shareholders.

Except as stated below, neither the Companies Act nor Kyocera Corporation’s Articles of Incorporation include any special provision as to a Director’s or Audit & Supervisory Board Member’s power to vote in connection with their compensation; or the borrowing powers exercisable by a Representative Director (or a Director who is given power by a Representative Director to exercise such powers), their retirement age or requirement to hold any shares of capital stock of Kyocera Corporation.

The Companies Act specifically requires a resolution of the Board of Directors for a joint stock corporation, among other things, to acquire or dispose of material assets; to borrow substantial amounts of money; to employ or discharge from employment important employees, such as executive officers; to establish, change or abolish a material corporate organization such as a branch office; or to issue bonds. A resolution of the Board of Directors is also specifically required for the establishment of a control system to ensure adequacy of the affairs of Kyocera Corporation and its subsidiaries, such as a control system to ensure the exercise of Directors’ duty to comply with laws and regulations and the Articles of Incorporation of Kyocera Corporation. The Regulations of the Board of Directors of Kyocera Corporation require a resolution of the Board of Directors for Kyocera Corporation, among other things, to issue bonds or bonds with stock acquisition rights; to borrow, lend or contribute a significant amount of money; to give a guarantee of a significant amount of debt; or to waive the right to receive a significant amount of money. The Regulations of the Board of Directors of Kyocera Corporation defines a “significant amount” as five billion yen or more with respect to borrowing and one hundred million yen or more with respect to other matters. The Regulations of the Board of Directors of

 

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Kyocera Corporation also require a resolution of the Board of Directors to approve any transaction between a Director and Kyocera Corporation; or allocate remuneration and bonuses of Directors as previously determined or approved by the general meeting of shareholders.

Capital Stock

General

On January 5, 2009, a central clearing system for shares of Japanese listed companies was established pursuant to the Law Concerning Book-Entry Transfer of Corporate Bonds, Shares, etc. (together with regulations promulgated thereunder, the Book-Entry Law), and the shares of all Japanese companies listed on any Japanese stock exchange, including Kyocera Corporation’s shares, became subject to this system.

On the same day, all existing share certificates for such shares became null and void. At present, Japan Securities Depository Center, Inc. (JASDEC) is the only institution that is designated by the relevant authorities as a clearing house which is permitted to engage in the clearing operations of shares of Japanese listed companies under the Book-Entry Law. Under the clearing system, in order for any person to hold, sell or otherwise dispose of shares of Japanese listed companies, it must have an account at an account management institution unless such person has an account at JASDEC. “Account management institutions” are financial instruments traders (i.e., securities companies), banks, trust companies and certain other financial institutions which meet the requirements prescribed by the Book-Entry Law, and only those financial institutions that meet further stringent requirements of the Book-Entry Law can open accounts directly at JASDEC.

Under the Book-Entry Law, any transfer of shares is effected through book entry, and title to the shares passes to the transferee at the time when the transferred number of the shares is recorded at the transferee’s account at an account management institution. The holder of an account at an account management institution is presumed to be the legal owner of the shares held in such account.

Under the Companies Act and the Book-Entry Law, in order to assert shareholders’ rights against Kyocera Corporation, a shareholder must have its name and address registered in the register of shareholders of Kyocera Corporation, except under limited circumstances.

Non-resident shareholders are required to appoint a standing proxy in Japan or provide a mailing address in Japan. Each such shareholder must give notice of such standing proxy or mailing address to the relevant account management institution. Such notice will be forwarded to us through JASDEC. Japanese securities companies and commercial banks customarily act as standing proxies and provide related services for standard fees. Notices from us to non-resident shareholders are delivered to such standing proxies or mailing addresses.

The registered holder of deposited shares underlying the ADSs is the depositary for the ADSs. Accordingly, holders of ADSs will not be able to directly assert shareholders’ rights.

Authorized capital

Article 6 of the Articles of Incorporation of Kyocera Corporation provides that the total number of shares authorized for issuance by Kyocera Corporation is 600,000,000 shares.

Stock split

Based on a resolution to undertake a stock split at the meeting of the Board of Directors held on August 28, 2013, Kyocera Corporation undertook a stock split at the ratio of two-for-one of all common stock on October 1, 2013. The purpose of this stock split is to increase the liquidity of the stock of Kyocera Corporation and to expand its investor base through a reduction in the price of share-trading units.

 

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Retirement of treasury stock

Based on a resolution at the meeting of the Board of Directors held on January 29, 2014 to retire treasury stock pursuant to Article 178 of the Companies Act of Japan, Kyocera Corporation retired 5,000,000 shares of its common stock held as treasury stock on February 12, 2014 in order to enhance shareholders value by reducing the total number of outstanding shares.

Distributions of Surplus

General

Under the Companies Act, distributions of cash or other assets by joint stock corporations to their shareholders, so-called “dividends,” are referred to as “distributions of Surplus” (“Surplus” is defined in “Restriction on distributions of Surplus”). Kyocera Corporation may make distributions of Surplus to its shareholders any number of times per fiscal year, subject to certain limitations described in “Restriction on distributions of Surplus” below. Distributions of Surplus are required in principle to be authorized by a resolution of a general meeting of shareholders, but may also be made pursuant to a resolution of the Board of Directors if all the requirements described in (a) through (c) below are met:

 

  (a) Kyocera Corporation’s Articles of Incorporation provide that the Board of Directors has the authority to decide to make distributions of Surplus;

 

  (b) the normal term of office of Kyocera Corporation’s Directors is not longer than one year; and

 

  (c) Kyocera Corporation’s non-consolidated annual financial statements and certain documents for the latest fiscal year present fairly its assets and profit or loss, as required by ordinances of the Ministry of Justice.

In the case of Kyocera Corporation, at present, the requirements in (a) and (b) above are not met. Nevertheless, Kyocera Corporation may make distributions of Surplus in cash as an interim dividend (an “interim dividend”) to its shareholders by resolutions of the Board of Directors once per fiscal year under Kyocera Corporation’s Articles of Incorporation and the Companies Act.

Under Kyocera Corporation’s Articles of Incorporation, a year-end dividend may be distributed to shareholders of record as of March 31 of each year pursuant to a resolution of a general meeting of shareholders, and an interim dividend may be distributed to shareholders of record as of September 30 of each year pursuant to a resolution of the Board of Directors. In addition, under the Companies Act, Kyocera Corporation may make further distributions of Surplus by resolution of general meetings of shareholders. Kyocera Corporation is not obliged to pay any dividends unclaimed for a period of three years after the date on which they first became payable.

Distributions of Surplus, other than interim dividends, may be made in cash or in kind in proportion to the number of shares held by each shareholder. A resolution of a general meeting of shareholders or the Board of Directors authorizing a distribution of Surplus must specify the kind and aggregate book value of the assets to be distributed, the manner of allocation of such assets to shareholders, and the effective date of the distribution. If a distribution of Surplus is to be made in kind, Kyocera Corporation may, pursuant to a resolution of a general meeting of shareholders or (as the case may be) the Board of Directors, grant a right to its shareholders to require Kyocera Corporation to make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution of Surplus must be approved by a special resolution of a general meeting of shareholders (see “Voting rights” with respect to a “special resolution”).

In Japan, the “ex-dividend” date and the record date for dividends precede the date of determination of the amount of the dividend to be paid. The market price of shares generally goes ex-dividend on the second business day prior to the record date.

 

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Restriction on distributions of Surplus

When Kyocera Corporation makes a distribution of Surplus, it must, until the sum of its additional paid-in capital and legal reserve reaches one-quarter of its stated capital, set aside in its additional paid-in capital and/or legal reserve an amount equal to one-tenth of the amount of Surplus so distributed.

The amount of Surplus at any given time must be calculated in accordance with the following formula:

A + B + C + D - (E + F + G)

In the above formula:

 

  “A” = the total amount of other capital surplus and other retained earnings, each such amount being that appearing on Kyocera Corporation’s non-consolidated balance sheet as of the end of the last fiscal year

 

  “B” = (if Kyocera Corporation has disposed of its treasury stock after the end of the last fiscal year) the amount of the consideration for such treasury stock received by Kyocera Corporation less the book value thereof

 

  “C” = (if Kyocera Corporation has reduced its stated capital after the end of the last fiscal year) the amount of such reduction less the portion thereof that has been transferred to additional paid-in capital or legal reserve (if any)

 

  “D” = (if Kyocera Corporation has reduced its additional paid-in capital or legal reserve after the end of the last fiscal year) the amount of such reduction less the portion thereof that has been transferred to stated capital (if any)

 

  “E” = (if Kyocera Corporation has cancelled its treasury stock after the end of the last fiscal year) the book value of such treasury stock

 

  “F” = (if Kyocera Corporation has distributed Surplus to its shareholders after the end of the last fiscal year) the total book value of the Surplus so distributed

 

  “G” = certain other amounts set forth in ordinances of the Ministry of Justice, including (if Kyocera Corporation has reduced Surplus and increased its stated capital, additional paid-in capital or legal reserve after the end of the last fiscal year) the amount of such reduction and (if Kyocera Corporation has distributed Surplus to its shareholders after the end of the last fiscal year) the amount set aside in its additional paid-in capital or legal reserve (if any) as required by ordinances of the Ministry of Justice

The aggregate book value of Surplus distributed by Kyocera Corporation may not exceed a prescribed distributable amount (the Distributable Amount), as calculated on the effective date of such distribution. The Distributable Amount at any given time shall be equal to the amount of Surplus less the aggregate of (a) the book value of its treasury stock, (b) the amount of consideration for any of its treasury stock disposed of by it after the end of the last fiscal year and (c) certain other amounts set forth in ordinances of the Ministry of Justice, including (if the sum of one-half of goodwill and the deferred assets exceeds the total of stated capital, additional paid-in capital and legal reserve, each such amount being that appearing on Kyocera Corporation’s non-consolidated balance sheet as of the end of the last fiscal year) all or certain part of such exceeding amount as calculated in accordance with the ordinances of the Ministry of Justice.

If Kyocera Corporation has become at its option a company with respect to which consolidated balance sheets should also be taken into consideration in the calculation of the Distributable Amount (renketsu haito kisei tekiyo kaisha), it will be required to further deduct from the amount of Surplus the excess amount, if any, of (x) the total amount of shareholders’ equity appearing on its non-consolidated balance sheet as of the end of the last fiscal year and certain other amounts set forth by an ordinance of the Ministry of Justice over (y) the total amount of shareholders’ equity and certain other amounts set forth by an ordinance of the Ministry of Justice appearing on its consolidated balance sheet as of the end of the last fiscal year.

 

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If Kyocera Corporation has prepared interim financial statements as described below, and if such interim financial statements have been approved by the Board of Directors or (if so required by the Companies Act) by a general meeting of shareholders, then the Distributable Amount must be adjusted to take into account the amount of profit or loss, and the amount of consideration for any of its treasury stock disposed of by it, during the period in respect of which such interim financial statements have been prepared. Kyocera Corporation may prepare non-consolidated interim financial statements consisting of a balance sheet as of any date subsequent to the end of the last fiscal year and an income statement for the period from the first day of the current fiscal year to the date of such balance sheet. Interim financial statements so prepared by Kyocera Corporation must be audited by its Audit & Supervisory Board Members and independent certified public accountants, as required by ordinances of the Ministry of Justice.

General Meeting of Shareholders

Pursuant to the Articles of Incorporation of Kyocera Corporation, an ordinary general meeting of shareholders of Kyocera Corporation shall be convened within three months after the last day of each fiscal year. In addition, Kyocera Corporation may hold an extraordinary general meeting of shareholders whenever necessary.

Notice of a general meeting of shareholders, setting forth the place, time and purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a non-resident shareholder, to the standing proxy or mailing address thereof in Japan) at least two weeks prior to the date set for the meeting. Under the Companies Act, such notice may be given to shareholders by electronic means, subject to the consent of the relevant shareholders.

Any shareholder or group of shareholders holding at least 300 voting rights or one percent of the total number of voting rights for six months or more may propose a matter to be considered at a general meeting of shareholders by submitting a request to a Representative Director at least eight weeks prior to the date set for such meeting. If Kyocera Corporation’s Articles of Incorporation so provide, any of the minimum percentages, time periods and number of voting rights necessary for exercising the minority shareholder rights described above may be decreased or shortened.

Voting rights

A holder of shares constituting one or more whole units (see “Unit share system” below) is entitled to one vote for each whole unit of shares. However, in general, neither Kyocera Corporation nor any corporate shareholder or certain other entity one-quarter or more of the total voting rights of which are directly or indirectly held by Kyocera Corporation, has voting rights in respect of the shares held by Kyocera Corporation or such entity.

Except as otherwise provided by law or by the Articles of Incorporation of Kyocera Corporation, a resolution can be adopted at a general meeting of shareholders by a majority of the total number of voting rights represented at the meeting. Under the Companies Act and Kyocera Corporation’s Articles of Incorporation, however, the quorum for the election of Directors and Audit & Supervisory Board Members is one-third of the total number of voting rights. Kyocera Corporation’s shareholders are not entitled to cumulative voting in the election of Directors. Shareholders may exercise their voting rights through proxies, provided that the proxies are also shareholders holding voting rights. Kyocera Corporation’s shareholders also may cast their votes in writing. Holders of shares who do not attend a general meeting of shareholders may also exercise their voting rights by electronic means if the Board of Directors approves such method of exercising voting rights.

 

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The Companies Act provides that certain important matters shall be approved by a “special resolution” of a general meeting of shareholders. Under Kyocera Corporation’s Articles of Incorporation, the quorum for a special resolution is one-third of the total number of voting rights and the approval of at least two-thirds of the voting rights represented at the meeting is required for adopting a special resolution. Such important matters include:

 

  (i) purchase of shares by Kyocera Corporation from a specific shareholder other than a Kyocera Corporation subsidiary;

 

  (ii) consolidation of shares;

 

  (iii) issuance or transfer of new shares or existing shares held by Kyocera Corporation as treasury stock to persons other than the shareholders at a “specially favorable” price;

 

  (iv) issuance of stock acquisition rights (including those incorporated in bonds with stock acquisition rights) to persons other than the shareholders under “specially favorable” conditions;

 

  (v) removal of Kyocera Corporation’s Audit & Supervisory Board Members;

 

  (vi) exemption from a portion of liability of Kyocera Corporation’s Directors, Audit & Supervisory Board Members or independent auditors;

 

  (vii) reduction of stated capital (subject to certain exceptions);

 

  (viii) distribution of Surplus in kind with respect to which shareholders are not granted the right to require Kyocera Corporation to make distribution in cash instead of in kind;

 

  (ix) any amendment to Kyocera Corporation’s Articles of Incorporation (except for such amendments that may be made without approval by shareholders under the Companies Act);

 

  (x) transfer of the whole or a substantial part of Kyocera Corporation’s business;

 

  (xi) the transfer of the whole or a part of equity interests in any of Kyocera Corporation’s subsidiaries, which meets certain requirements;

 

  (xii) taking over of the whole of the business of another company requiring shareholders’ approval;

 

  (xiii) dissolution, merger or consolidation requiring shareholders’ approval;

 

  (xiv) corporate split requiring shareholders’ approval; and

 

  (xv) establishment of a parent and wholly-owned subsidiary relationship by way of a share transfer (kabushiki-iten) or share exchange (kabushiki-kokan) requiring shareholders’ approval.

Under the Companies Act, Kyocera Corporation’s shareholders will possess various rights, such as the right to review and make copies of its Articles of Incorporation and the register of shareholders, to require the convocation of a general meeting of shareholders, to propose a matter to be considered at a general meeting of shareholders, and to bring derivative actions, depending upon the number of shares held by them and the duration of their shareholding.

Subscription rights

Holders of Kyocera Corporation’s shares of capital stock have no pre-emptive rights under its Articles of Incorporation. Authorized but unissued shares may be issued at such times and upon such terms as the Board of Directors determines, subject to the limitations as to the offering of new shares at a “specially favorable” price mentioned under “Voting rights” above. The Board of Directors may, however, determine that shareholders of a particular class of stock shall be given subscription rights regarding a particular issue of new shares of that class, in which case such rights must be given on uniform terms to all shareholders of that class of stock as at a record date of which not less than two weeks’ prior public notice must be given. Each of the shareholders to whom such rights are given must also be given notice of the expiry thereof at least two weeks’ prior to the date on which such rights expire.

 

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Liquidation rights

In the event of a liquidation of Kyocera Corporation, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed among the holders of our shares of common stock in proportion to the respective numbers of shares held by each holder.

Transfer agent

Kyocera Corporation’s transfer agent is Mitsubishi UFJ Trust and Banking Corporation. Mitsubishi UFJ Trust and Banking Corporation maintains Kyocera Corporation’s register of shareholders and registers the names and addresses of Kyocera Corporation’s shareholders and other relevant information in Kyocera Corporation’s register of shareholders upon notice thereof from JASDEC, as described in “Record date” below.

Record date

March 31 is the record date for the determination of shareholders entitled to receive Kyocera Corporation’s year-end dividends and to vote at the ordinary general meeting of shareholders with respect to the fiscal year ending on such March 31. September 30 is the record date for interim dividends. In addition, Kyocera Corporation may set a record date for determining the shareholders and/or beneficial shareholders entitled to other rights and for other purposes by giving at least two weeks’ prior public notice.

Under the Book-Entry Law, Kyocera Corporation is required to give notice of each record date to JASDEC at least two weeks prior to such record date. JASDEC is required to promptly give Kyocera Corporation notice of the names and addresses of Kyocera Corporation’s shareholders, the numbers of shares held by them and other relevant information as of such record date. Kyocera Corporation, upon receipt of each such notice, will update through the transfer agent its register of shareholders to reflect the information such notice contains.

Acquisition by Kyocera Corporation of its capital stock

Kyocera Corporation may acquire shares (i) by soliciting all its shareholders to offer to sell shares held by them (in this case, certain terms of such acquisition, such as the total number of shares to be purchased and the total amount of consideration, shall be set by an ordinary resolution of a general meeting of shareholders in advance, and acquisition shall be effected pursuant to a resolution of the Board of Directors), (ii) from a specific shareholder other than any of Kyocera Corporation’s subsidiaries (pursuant to a special resolution of a general meeting of shareholders), (iii) from any of Kyocera Corporation’s subsidiaries (pursuant to a resolution of the Board of Directors), or (iv) by way of purchase on any Japanese stock exchange on which the shares are listed or by way of tender offer (in either case pursuant to an ordinary resolution of a general meeting of shareholders or a resolution of the Board of Directors). In the case of (ii) above, any other shareholder may make a request to Kyocera Corporation’s Representative Director that such other shareholder be included as a seller in the proposed purchase, provided that no such right will be available if the purchase price or any other consideration to be received by the relevant specific shareholder will not exceed the higher of (x) the last trading price of the shares on the relevant stock exchange on the day immediately preceding the date on which the resolution mentioned in (ii) above was adopted (or, if there is no trading in the shares on the stock exchange or if the stock exchange is not open on such day, the price at which the shares are first traded on such stock exchange thereafter) and (y) if the shares are subject to a tender offer on the day immediately preceding the date on which the resolution mentioned in (ii) above was adopted, the price of the shares under the agreement with respect to such tender offer on such day.

The total amount of the purchase price of shares may not exceed the Distributable Amount, as described in “Distributions of Surplus-Restriction on distributions of Surplus” above.

The Companies Act permits Kyocera Corporation to hold shares acquired by it as treasury stock. Treasury stock may be held by Kyocera Corporation for any time period and may be cancelled by resolution of its Board of

 

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Directors. Kyocera Corporation may also transfer to any person shares held by it as treasury stock, subject to a resolution of its Board of Directors, and subject also to other requirements similar to those applicable to the issuance of new shares. Kyocera Corporation may also utilize its treasury stock for the purpose of transfer to any person upon exercise of stock acquisition rights or for the purpose of acquiring another company by way of merger, share exchange or corporate split through exchange of treasury stock for shares or assets of the acquired company. No specific approval by the Board of Directors or shareholders at a shareholders meeting is required for this utilization of treasury stock, although the grant of the relevant stock acquisition rights or the relevant merger, share exchange or corporate split must be approved, as the case may be, by the Board of Directors or shareholders at Kyocera Corporation’s general meeting of shareholders.

“Unit” share system

Under Kyocera Corporation’s Articles of Incorporation, 100 shares constitute one “unit.” The Board of Directors is permitted to reduce the number of shares constituting a unit or to abolish the unit share system in its entirety by amending Kyocera Corporation’s Articles of Incorporation without approval by shareholders. The number of shares constituting one unit may not exceed the lesser of 1,000 and one-two hundredth of the total number of issued shares.

Under the clearing system, shares constituting less than one unit are transferable. However, because shares constituting less than one unit do not comprise a trading unit, except under limited circumstances, such shares may not be sold on the Japanese stock exchanges under the rules of the Japanese stock exchanges.

Under the unit share system, a shareholder has one vote for each unit of shares held by it. Shares constituting less than one unit will carry no voting rights and be excluded for the purposes of calculating the quorum for voting purposes. Moreover, holders of shares constituting less than one unit will have no other shareholder rights if Kyocera Corporation’s Articles of Incorporation so provide, except that such holders may not be deprived of certain rights specified in the Companies Act or an ordinance of the Ministry of Justice, including the right to receive distribution of Surplus.

A holder of shares constituting less than one unit may require Kyocera Corporation to purchase such shares at their market value through the relevant account management institutions and JASDEC. The Articles of Incorporation and the Share Handling Regulations of Kyocera Corporation provide that a holder of shares constituting less than one unit has the right to require Kyocera Corporation to sell to such holder shares constituting less than one unit which, when added to shares constituting less than one unit currently owned by such holder, shall constitute a full one unit. Under the clearing system, such request must be made through the relevant account management institutions and JASDEC. The request of such purchase or sale may not be withdrawn without Kyocera Corporation’s consent.

A holder who owns ADRs evidencing less than 100 ADSs will indirectly own less than a whole unit. Although, as discussed above, under the unit share system holders of less than one unit have the right to require Kyocera Corporation to purchase their shares, holders of ADRs evidencing ADSs that represent other than integral multiples of whole units are unable to withdraw the underlying shares of capital stock representing less than one unit and, therefore, are unable, as a practical matter, to exercise the right to require Kyocera Corporation to purchase such underlying shares. As a result, access to the Japanese markets by holders of ADRs through the withdrawal mechanism will not be available for dispositions of shares in lots of less than one unit. The unit share system does not affect the transferability of ADSs, which may be transferred in lots of any size.

Miscellaneous

The Financial Instruments and Exchange Law of Japan and related regulations require any person who has become, beneficially and solely or jointly, a holder of more than five percent of the total issued voting shares of Kyocera Corporation to file a report concerning such shareholdings with the Director of the relevant Local Finance Bureau of the Ministry of Finance within five business days.

 

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For this purpose, shares to be issued or transferred to these persons upon the exercise of stock acquisition rights are included in determining both the size of the holding and Kyocera Corporation’s total issued voting share capital, with certain exceptions.

A similar report must also be filed in respect of any subsequent change of one percent or more in any such holding, with certain exceptions. (For this purpose, any shares of Kyocera Corporation to be issued or transferred to these persons upon the exercise of stock acquisition rights, of which none are currently outstanding, would be taken into account in determining both the number of shares held by such holder and Kyocera Corporation’s total issued share capital.) Reports are required to be filed through the EDINET system.

Except for the general limitation under Japanese anti-trust and anti-monopoly regulations against holding of shares of capital stock of a Japanese corporation which leads or may lead to a restraint of trade or monopoly, and except for general limitations under the Companies Act or Kyocera Corporation’s Articles of Incorporation on the rights of shareholders applicable regardless of residence or nationality, there is no limitation under Japanese laws and regulations applicable to Kyocera Corporation or under its Articles of Incorporation on the rights of non-resident or foreign shareholders to hold or exercise voting rights on the shares of capital stock of Kyocera Corporation.

There is no provision in Kyocera Corporation’s Articles of Incorporation that would have an effect of delaying, deferring or preventing a change in control of Kyocera Corporation and that would operate only with respect to merger, acquisition or corporate restructuring involving Kyocera Corporation.

Daily Price Fluctuation Limits under Japanese Stock Exchange Rules

Share prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges set daily price limits, which limit the maximum range of fluctuation within a single trading day. Daily price limits are set according to the previous day’s closing price or special quote. 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.

The closing price of our shares of Common Stock on the Tokyo Stock Exchange on the latest available date is set forth at Price Range of Shares in Item 9. The following table shows the daily price limits for stocks on the Tokyo Stock Exchange with closing prices of between ¥3,000 and ¥5,000 per share, ¥5,000 and ¥7,000 per share, ¥7,000 and ¥10,000 per share and ¥10,000 and ¥15,000 per share. Other daily price limits would apply if our per share price moved to other ranges.

Selected Daily Price Limits

 

Previous Day’s Closing Price or Special Quote

   Maximum Daily
Price Movement
 

Over      ¥3,000          Less than      ¥5,000

   ¥ 700  

Over      ¥5,000          Less than      ¥7,000

   ¥ 1,000  

Over      ¥7,000          Less than      ¥10,000

   ¥ 1,500  

Over      ¥10,000        Less than      ¥15,000

   ¥ 3,000  

For a history of the trading price of our shares of Common Stock on the Tokyo Stock Exchange, see Item 9.A.  “Offering and Listing Details” of this annual report on Form 20-F.

C. Material Contracts

During the preceding two years we have not entered into any material contracts, other than in the ordinary course of business.

 

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D. Exchange Controls

There is no foreign exchange control in Japan that may materially affect the import or export of capital, including the availability of cash and cash equivalents for use by Kyocera Corporation, or the remittance of dividends or other payments to nonresident holders of Kyocera Corporation’s shares or of ADRs evidencing ADSs.

E. Taxation

Japanese Taxation

The following is a discussion summarizing material Japanese tax consequences to an owner of shares or ADSs who is a non-resident of Japan or a non-Japanese corporation without a permanent establishment in Japan to which the relevant income is attributable. The statements regarding Japanese tax laws set forth below are based on the laws in force and as interpreted by the Japanese taxation authorities as at the date hereof. This summary is not exhaustive of all possible tax considerations which may apply to a particular investor. Potential investors should satisfy themselves as to:

 

    the overall tax consequences of the ownership and disposition of shares or ADSs, including specifically the tax consequences under Japanese law,

 

    the laws of the jurisdiction of which they are a resident, and

 

    any tax treaty between Japan and their country of residence, by consulting their own tax advisers.

Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese withholding tax on dividends paid by Japanese corporations. Stock splits, subject to the following, are not subject to Japanese income tax.

 

    The Convention Between the United States of America and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “Treaty”), establishes the maximum rate of Japanese withholding tax which may be imposed on dividends paid to a United States resident or corporation (within the meaning of the Treaty) not having a “permanent establishment” in Japan. A “permanent establishment” in Japan is generally a fixed place of business for industrial or commercial activity in Japan. Under the Treaty, the maximum withholding rate for most qualified portfolio shareholders is limited to 10% of the gross amount of the dividends and 5% of the gross amount of the dividends if the beneficial owner is a qualified company that owns, directly or indirectly, on the date on which entitlement to the dividend is determined, at least 10% (or 0% in the case of certain owners of more than 50%, to be amended to at least 50% when the Protocol Amending the Convention between the United States of America and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Tax on Income signed on January 24, 2013 becomes effective (effective date to be determined)) of the voting stock of the issuing company. The Treaty provides that no Japanese tax will be imposed on dividends paid to a qualified pension fund that is a United States resident, if such dividends are not derived from the carrying on of a business, directly or indirectly, by such pension fund.

For purposes of the Treaty and Japanese tax law, U.S. holders of ADRs will be treated as the owners of the shares underlying the ADSs evidenced by the ADRs.

Japan has income tax treaties, conventions or agreements, which generally provide that the rate of withholding tax may not exceed 15% for portfolio investors, with, among others, Belgium, Canada, Denmark, Finland, Germany, Ireland, Italy, Luxembourg, New Zealand, Norway, Singapore and Spain. Japan’s income tax treaties with Australia, France, the Netherlands, Sweden, Switzerland and the United Kingdom have been amended to generally reduce the maximum withholding tax rate to 10%. In the absence of any applicable tax treaty, convention or agreement reducing the maximum rate of withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Kyocera Corporation to

 

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non-residents or non-Japanese corporations is 20%. However, with respect to dividends paid by Kyocera Corporation to any corporate or individual shareholders who are non-residents of Japan or non-Japanese corporations, except for any individual shareholder who holds 3% or more of the outstanding total of the shares issued by Kyocera Corporation, the said 20% withholding tax rate is reduced to 15% for dividends due and payable on or after January 1, 2014. A special reconstruction surtax (2.1% multiplied by the original applicable tax rate) is added to the withholding tax rates from and including January 1, 2013 to and including December 31, 2037. Under Japanese tax law, whichever is the lower of the maximum rate provided in the relevant tax treaty, convention or agreement and the Japanese statutory rate will be applicable. Gains derived from the sale outside Japan of the shares or ADSs by a non-resident of Japan or a non-Japanese corporation are in general not subject to Japanese income or corporation taxes. In addition, gains derived from the sale of shares or ADSs within Japan by a non-resident of Japan or non-Japanese corporation not having a permanent establishment in Japan are in general not subject to Japanese income or corporation taxes.

Kyocera Corporation has paid or will pay any stamp, registration or similar tax imposed by Japan in connection with the issue of the shares, except that Kyocera Corporation will not pay any tax payable in connection with the transfer or sale of the shares by a holder thereof.

Japanese inheritance and gift taxes at progressive rates may be payable by an investor who has acquired shares or ADRs as legatee, heir or donee.

United States Taxation

The following discusses the material United States federal income tax consequences of the ownership of shares or ADSs. It only applies to “U.S. holders” (as defined below) of shares or ADSs who hold their shares or ADSs as capital assets for tax purposes. This section does not address special classes of holders, some of whom may be subject to special rules including:

 

    a dealer in securities,

 

    a trader in securities that elects to use a mark-to-market method of accounting for securities holdings,

 

    a tax-exempt organization,

 

    certain insurance companies,

 

    a person liable for alternative minimum tax,

 

    a person that actually or constructively owns 10% or more of the combined voting power of our voting stock or of the total value of our stock,

 

    a person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction,

 

    a person that purchases or sells shares or ADSs as part of a wash sale for tax purposes, or

 

    a person whose functional currency is not the U.S. dollar.

This discussion is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations and administrative and judicial interpretations, as currently in effect, as well as on the Treaty. These laws are subject to change, possibly on a retroactive basis. In addition, this discussion is based upon the assumption that each obligation in the deposit agreement relating to the ADRs and any related agreement will be performed in accordance with its terms.

If a partnership holds the shares or ADSs, the United States federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the shares or ADSs should consult its tax advisor with regard to the United States federal income tax treatment of an investment in the shares or ADSs.

 

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For purposes of this discussion, a “U.S. holder” is a beneficial owner of shares or ADSs that is:

 

    a citizen or resident of the United States,

 

    a domestic corporation,

 

    an estate whose income is subject to United States federal income tax regardless of its source, or

 

    a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

This discussion addresses only United States federal income taxation. An investor should consult its own tax advisor regarding the United States federal, state and local and other tax consequences of owning and disposing of shares or ADSs in its particular circumstances.

In general, and taking into account the earlier assumptions, for United States federal income tax purposes, if the investor holds ADRs evidencing ADSs, the investor will be treated as the owner of the shares represented by those ADSs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to United States federal income tax.

The tax consequences of holding and disposing of shares or ADSs depends upon whether we are a passive foreign investment company, or “PFIC,” for United States federal income tax purposes. We believe that we were a PFIC for the 2016, 2017 and 2018 fiscal years, but that we were not a PFIC in any previous taxable years, and the discussion herein assumes the accuracy of this belief. The determination of whether we are a PFIC is a factual determination that is made annually and thus may be subject to change. Accordingly, we cannot predict whether we will be a PFIC in future taxable years.

In general, we will be a PFIC for a taxable year if:

 

    at least 75% of our gross income for the taxable year is passive income or

 

    at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income.

Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income. Under these rules, all of the assets of our wholly-owned subsidiaries are treated as held by us, and all of the income of our wholly-owned subsidiaries is treated as recognized by us, for purposes of the PFIC asset and income tests described above. Most of our assets are passive for PFIC purposes and we therefore believe that we are currently a PFIC. Except as otherwise noted below, the discussion herein assumes that we will be a PFIC in future taxable years.

The tax consequences to you of holding our shares or ADSs depends upon whether you make a mark-to-market election with respect to your shares or ADSs. Accordingly, the discussion below separately addresses the tax consequences if you do not make such an election and the tax consequences if you do make such an election.

Because we do not intend to provide certain required information, you will not be able to make an election to have us treated as a “qualified electing fund” for United States federal income tax purposes.

If you own shares or ADSs during any year that we are a PFIC with respect to you, you will generally be required to file Internal Revenue Service (“IRS”) Form 8621, subject to a de minimis exception.

 

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Tax Consequences If You Do Not Make a Mark-to-Market Election

This section describes the tax consequences if you do not make the mark-to-market election described below under “Mark-to-Market Election.

Dividends. The tax treatment of distributions with respect to the shares and ADSs depends upon whether the distribution is an “excess distribution” under the rules described below. The discussion in this subsection only applies to distributions that are not excess distributions under the rules described below.

The gross amount of any distribution we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation as ordinary dividend income. The dividend is taxable to you when you receive the dividend, actually or constructively, and will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. In addition, the dividend will not be eligible for the preferential tax rates that apply to qualified dividend income received by non-corporate U.S. holders. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of your tax basis in the shares or ADSs and thereafter as gain from the sale or disposition of shares or ADSs. However, we do not maintain calculations of our earnings and profits in accordance with United States federal income tax accounting principles. You should therefore assume that any distribution with respect to our shares and ADSs will be reported as ordinary dividend income.

You must include in your income any Japanese tax withheld from a dividend payment even though you do not in fact receive the withheld amounts. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the Japanese Yen payments made, determined at the spot Japanese Yen/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.

Dividends will be income from sources outside the United States and will generally be “passive” income for purposes of computing the foreign tax credit allowable to you. Subject to generally applicable limitations, the Japanese tax withheld in accordance with the Treaty and paid over to Japan will be creditable or deductible against your United States federal income tax liability. If the withholding tax could have been reduced under the Treaty or a refund of the tax withheld is available to you under Japanese law, the amount of tax that could have been reduced or that is refundable will not be eligible for credit against your United States federal income tax liability.

Sale or Other Disposition of Shares or ADSs. If you sell or otherwise dispose of your shares or ADSs, you will generally recognize gain or loss equal to the difference between the U.S. dollar value of the amount you realize and your tax basis, determined in U.S. dollars, in your shares or ADSs. Any such gain will be subject to the rules with respect to excess distributions described below and thus will be subject to tax at the rates applicable to ordinary income, while any such loss will be a capital loss. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. For purposes of the excess distribution rules described below, you will generally be treated as having disposed of your shares or ADSs if you pledge your shares or ADSs as security for a loan, unless you would recognize a loss for United States federal income purposes upon a disposition of your shares or ADSs.

Excess Distributions. Any distributions to you during a single taxable year (other than any amounts you receive during the first year of your holding period in the shares or ADSs) that are greater than 125% of the average annual distributions received by you in respect of the shares or ADSs during the three preceding taxable years or, if shorter, your holding period for the shares or ADSs, will be treated as excess distributions. This rule will apply

 

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irrespective of whether the distribution exceeds our current and accumulated earnings and profits. Additionally, any gain you realize on the sale or other disposition of your shares or ADSs will be treated as an excess distribution. Excess distributions are subject to the following special rules:

 

    the gain or excess distribution will be allocated ratably over your holding period for the shares or ADSs,

 

    the amount allocated to the taxable year in which you received the excess distribution, or to a prior year in which we were not a PFIC with respect to you, will be taxed as ordinary income based on the rates applicable in the year of distribution,

 

    the amount allocated to each prior year in which we were a PFIC with respect to you will be taxed at the highest tax rate in effect for that year,

 

    the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year, and

 

    special rules apply in determining the foreign tax credit limitation for any foreign taxes that are imposed with respect to any excess distributions that you realize with respect to your shares or ADSs.

Except to the extent inconsistent with the rules described above, the discussion under “Dividends” above will apply to distributions that are treated as excess distributions.

If we are a PFIC for any taxable year, to the extent any of our subsidiaries are also PFICs, you will generally be deemed to own shares in such lower-tier PFICs that are directly or indirectly owned by us in the proportion which the value of the shares you own bears to the value of all of our shares, and you will generally be subject to the tax consequences described above (including the Form 8621 reporting requirement described above) with respect to the shares of such lower-tier PFIC you would be deemed to own. As a result, if we receive a distribution from any lower-tier PFIC or sell shares in a lower-tier PFIC, you will generally be subject to tax under the excess distribution rules described above in the same manner as if you had held your proportionate share of the lower-tier PFIC stock directly, even if we do not distribute such amounts to you. However, if you are treated as receiving an excess distribution in respect of a lower-tier PFIC, you would increase your tax basis in your shares by the amount of such distribution. In addition, if we distribute such amount to you with respect to your shares, you would not include the distribution in income but you would rather reduce your tax basis in your shares by the amount of the distribution. The application of the PFIC rules to your indirect ownership of any lower-tier PFICs that we hold is complex and uncertain, and you should therefore consult your tax advisor regarding the application of such rules to your ownership of our shares and ADSs.

Mark-to-Market Election

If we are a PFIC and our shares and ADSs are “regularly traded” on a “qualified exchange,” you would be eligible to make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described above. Our shares or ADSs will be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of the shares or ADSs are traded on a “qualified exchange” for at least 15 days during each calendar quarter. A “qualified exchange” includes the New York Stock Exchange and a foreign exchange that is regulated by a governmental authority in which the exchange is located and with respect to which certain other requirements are met.

Because the ADSs were regularly traded on the New York Stock Exchange during the 2017 calendar year, we believe that a mark-to-market election could be made for the ADSs in such year. It is not clear, however, whether the Tokyo Stock Exchange is treated as a “qualified exchange,” and it is therefore unclear whether a holder of shares can make a mark-to-market election in respect of the shares. In addition, because the ADSs are no longer listed on the New York Stock Exchange and the OTC market on which the ADSs currently trade is not a “qualified exchange,” the ADSs will not be eligible for mark-to-market treatment in the 2018 calendar year based

 

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on the domestic trading of the ADSs. However, although the law is not clear, it is possible that the ADSs could nevertheless be eligible for mark-to-market treatment if the shares are treated as regularly traded on a “qualified exchange” because the ADSs represent an interest in the underlying shares. Under this approach, the ADSs may be treated as “marketable securities” in the 2018 calendar year if the Tokyo Stock Exchange is treated as a “qualified exchange” for purposes of the mark-to-market rules. Holder of ADSs and shares should consult their tax advisor as to whether they are eligible to make a mark-to-market election in respect of their ADSs or shares.

You can make a mark-to-market election with respect to your shares or ADSs (assuming the requirements described above for making an election are satisfied) by filing an IRS Form 8621 with your federal income tax return for the first taxable year in which you make the election. The election will continue to be in effect for all taxable years in which we are a PFIC and our shares and ADSs are treated as “marketable stock,” and you may not revoke the mark-to-market election without the consent of the IRS.

Consequences of Making a Mark-to-Market Election. If you make a mark-to-market election with respect to your shares or ADSs, distributions and gain from the sale or disposition of shares or ADSs will generally be treated as described above under “Tax Consequences If You Do Not Make a Mark-to-Market Election,” except that such distributions or gain will not be subject to the excess distribution rules described above. However, you will include as ordinary income in each year that we are a PFIC the excess, if any, of the fair market value of your shares or ADSs at the end of the taxable year over your adjusted tax basis in your shares or ADSs. These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in each year that we are a PFIC in respect of the excess, if any, of the adjusted tax basis of your shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your tax basis in the shares or ADSs will be adjusted to reflect any such income or loss amounts.

In each year that we are a PFIC any gain you recognize on the sale of other disposition of your shares or ADSs will be treated as ordinary income and any loss will be ordinary loss to the extent of the net amount of previously included income as a result of the mark-to-market-election, and thereafter will be capital loss.

Tax Consequences for Years in Which We Are Not a PFIC

If we are not a PFIC in a future taxable year, the tax treatment of your shares or ADSs will depend upon whether the “once a PFIC, always a PFIC” rule applies to your shares or ADSs. Specifically, under the “once a PFIC, always a PFIC” rule, your shares or ADSs will be treated as stock in a PFIC in a taxable year even if we are not a PFIC in such taxable year, as long as we were a PFIC at any time during your holding period of the shares or ADSs unless (a) you had a valid mark-to-market election in effect during all taxable years in which you held our shares or ADSs and we were a PFIC or (b) you made a special “purging election” with respect to your shares or ADSs that effectively removes the PFIC taint from your shares or ADSs. U.S. holders are urged to consult their tax advisors regarding the application of the “once a PFIC, always a PFIC” rule to their shares or ADSs and the mechanics and tax consequences of making the purging election described above.

This paragraph addresses the tax treatment of distributions on, and gain from the sale of, shares or ADSs in taxable years in which we are not a PFIC and the “once a PFIC, always a PFIC” rules does not apply to your shares or ADSs. Such distributions and gain will generally be treated as described above under “Tax Consequences If You Do Not Make a Mark-to-Market Election” above, except that such distributions and gain will not be subject to the excess distribution rules described above. In addition, subject to the following sentence, if you are a noncorporate U.S. holder, we expect that dividends on shares or ADSs will generally be qualified dividend income and will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold the shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. However, if we are a PFIC (or are treated as a PIFC with respect to you) in the previous year, the dividend will not be qualified dividend income eligible for the preferential tax rates.

 

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In addition, if you sell or otherwise dispose of shares or ADSs, the gain you recognize will be capital gain or loss for United States federal income tax purposes. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The deductibility of capital losses is subject to limitations.

F. Dividends and Paying Agents

Not Applicable.

G. Statement by Experts

Not Applicable.

H. Documents on Display

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, we will file annual reports on Form 20-F within four months of our fiscal year-end and other reports and information on Form 6-K with the Securities and Exchange Commission. These reports and other information can be inspected at the public reference room at the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. You can also obtain copies of such material by mail from the public reference room of the Securities and Exchange Commission at prescribed fees. You may obtain information on the operation of the Securities and Exchange public reference room by calling the Securities and Exchange Commission in the United States at 1-800-SEC-0330. The Securities and Exchange Commission also maintains a web site (https://www.sec.gov/) that contains reports, proxy statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. As a foreign private issuer, we are exempt from the rules under the Securities Exchange Act of 1934, as amended, prescribing the furnishing and content of proxy statements to shareholders.

I. Subsidiary Information

Not Applicable.

Item 11.    Quantitative and Qualitative Disclosures about Market Risk

Kyocera is exposed to market risk, including changes in foreign currency exchange rates, interest rates and equity prices. In order to hedge against these risks, Kyocera uses derivative financial instruments. Kyocera does not hold or issue derivative financial instruments for trading purposes. Kyocera regularly assesses these market risks based on policies and procedures established to protect against the adverse effects of these risks and other potential exposures, primarily by reference to the market value of financial instruments. Although Kyocera may be exposed to losses in the event of non-performance by counterparties, Kyocera believes that its counterparties are creditworthy and does not expect such losses, if any, to be significant.

In the normal course of business, Kyocera also faces other risks such as country risk, credit risk, or legal risk, but they are not represented in the following tables.

Foreign Currency Exchange Risk

Kyocera enters into foreign currency forward contracts to hedge certain existing assets and liabilities denominated in foreign currencies, principally the U.S. dollar and the Euro. All such contracts in effect at March 31, 2018 will generally mature within four months. The following tables provide information about Kyocera’s major foreign currency forward contracts existing at March 31, 2018, which include hedge accounting

 

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setting forth the contract amounts, fair value, weighted average exchange rates. The contract amounts are generally used to calculate the contractual payments to be exchanged under the contracts.

 

     (Pay/Receive)  

Forward exchange contracts to sell foreign currencies

       Euro/Yen         US$/Yen          Euro/US$      
     (Yen in millions except contractual rates)  

Contract amounts

   ¥ 200,948     ¥ 167,093      ¥ 4,866  

Fair value

     1,161       3,595        (12

Weighted average contractual rates

     0.008       0.009        0.806  
     (Receive/Pay)  

Forward exchange contracts to purchase foreign currencies

   CZK/US$     US$/Yen      Yen/US$  
     (Yen in millions except contractual rates)  

Contract amounts

   ¥ 5,280     ¥ 3,311      ¥ 2,805  

Fair value

     (7     10        3  

Weighted average contractual rates

     20.477       0.009        105.749  

Interest Rate Risk

The tables below provide information about Kyocera’s financial instruments that are sensitive to changes in interest rates.

 

Long-term debt (including due within one year)

 
     Average
pay rate
    Expected maturity date      Total      Fair value  
       during the year ending March 31,        
       2019      2020      2021      2022      2023      Thereafter        
                                                               
           (Yen in millions)  

Loans from banks and others

     3.88   ¥ 9,293        9,732        5,195        3,419        1,544        347      ¥ 29,530      ¥ 29,530  

Equity Price Risk

Kyocera has marketable equity and debt securities that are classified as available-for-sale and are carried in the consolidated balance sheets at fair value. Changes in fair value are recognized as other comprehensive income, net of taxes, as a separate component of shareholders’ equity. Gross unrealized gains on marketable equity securities, which were ¥723,309 million, included ¥667,420 million derived from unrealized gain of KDDI Corporation held by Kyocera. Detailed information appears in Note 3 to Kyocera’s consolidated financial statements included in this annual report on Form 20-F. Kyocera evaluates whether declines in fair value of debt and equity securities are other-than-temporary. Other-than-temporary declines in fair value are recorded as a realized loss with a new cost basis. This evaluation is based mainly on the duration and the extent to which the fair value is less than cost and the anticipated recoverability of fair value in the future. At March 31, 2018, Kyocera held the following available-for-sale marketable equity securities.

 

     March 31, 2018  
     Cost      Fair Value  
               
     (Yen in millions)  

Equity securities

   ¥ 270,403      ¥ 993,707  

Item 12.    Description of Securities Other than Equity Securities

A. Debt Securities

Not Applicable.

 

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B. Warrants and Rights

Not Applicable.

C. Other Securities

Not Applicable.

D. American Depositary Shares

Fee Schedule

Kyocera’s ADR program is administered by Citibank, N. A., as depositary.

The holder of an ADR has to pay the following fees and charges related to services in connection with the ownership of the ADR to the depositary bank.

 

Service

  

Rate

  

By Whom Paid

(1)   Issuance of ADSs upon deposit of Stock (excluding issuances contemplated by paragraphs (3)(b) and (5) below).