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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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