Consolidated Financial Results Of Kyocera Corporation And Its Subsidiaries For The Three Months Ended June30, 2013


The following excerpt is from the company's SEC filing.

The consolidated financial information included in thisreportis out of scope of review procedure under the Financial Instruments and Exchange Law of Japan. Review procedure under the Financial Instruments and Exchange Law of Japan has not been completed at the date ofdisclosure of this report.

During the three months ended June30, 2013 (the first quarter), the Japanese economy recovered moderately on the back of heightened expectations regarding governmental economic policy and the effect of already adopted financial measures coupled with an improvement in the export environment reflecting the yens depreciati on, aswellassigns of a turnaround in corporate earnings and personal consumption. Overseas, the U.S. economy was characterized by growth in personal consumption, expansion in housing investment and improvement in the employment situation, while the European economy was weak overall. At the same time, growth in the Chinese economy has continued to slow.

In the digital consumer equipment market, which is the principal market for Kyocera Corporation and its consolidated subsidiaries (Kyocera), shipment volume was sluggish overall for conventional mobile phones, PCs and flat-screen TVs, while shipment volume of smartphones and tablet PCs increased significantly compared with the three months ended June30, 2012 (the previous first quarter). The solar energy market in Japan grew significantly compared with the previous first quarter due primarily to growth in demand in the public and commercial sectorsresultingfromthe feed-in tariff for renewable energy.

Consolidated net sales for the first quarter increased by 33,929million, or 11.4%, to 331,655million, compared with 297,726million in the previous first quarter, due in part to increased salesin the Applied Ceramic Products Group and the Information Equipment Group, as well as the effect of the yens depreciation. Profit considerably exceeded thatofthe previous first quarter,reflectingthe impact of sales growth and enhanced productivity in the Components Business, combined with the absence ofan environmental remediation charge of 21,300million at AVX Corporation, a U.S.-based consolidated subsidiary, which was recorded in the previous first quarter (Please refer to(3) Financial Settlement between AVX Corporation, the Environmental Protection Agency and Commonwealth of Massachusetts regarding the New Bedford Harbor Superfund Site on page 8). Profit from operations increased by 27,400million to 25,398million, compared with operating loss of 2,002million in the previous first quarter. Income before income taxes increased by 30,086million, or 636.5%, to 34,813million, compared with 4,727million in the previous first quarter, and net income attributable to shareholders of Kyocera Corporation increased by 16,081million, or 244.8%, to 22,651million, compared with 6,570million in the previous first quarter.

Average exchange rates for the first quarter were 99 to the U.S. dollar, marking depreciation of 19 (approximately 24%) from 80 in the previous first quarter, and 129 to the Euro, marking depreciation of 26 (approximately 25%) from 103 in the previous first quarter. As a result, net sales and income before income taxes were pushed up by approximately 36 billion and 7 billion, respectively, compared with the previous first quarter.
Three monthsendedJune 30, Increase(Decrease)
2012 2013
Amount % Amount % Amount %
(Yen in millions, except per share amounts and exchange rates)

Net sales

297,726 100.0 331,655 100.0 33,929 11.4

Profit(loss)from operations

(2,002 ) (0.7 ) 25,398 7.7 27,400

Income before income taxes

4,727 1.6 34,813 10.5 30,086 636.5

Net income attributable toshareholders of KyoceraCorporation

6,570 2.2 22,651 6.8 16,081 244.8

Diluted earnings per share attributable to shareholders of KyoceraCorporation

35.82 123.48

Average US$ exchange rate

80 99

Average Euro exchange rate

103 129


Sales in this reporting segment decreased slightly compared with the previous first quarter due to a decline in component demand for flat-screen TVs and PCs,which more than off-set an increase in sales of automotive components. However, operating profit increased compared with the previous first quarter due primarily to the effect of a reduction in costs.

Sales and operating profit in this reporting segment increased compared with the previous first quarter due to growth in demand for ceramic packages for digital consumer equipment and communications infrastructure, aswellasan increase in sales of organic packages such as those used in servers.

Sales in the solar energy business increased substantially in the public and commercial sectors, including mega-solar power projects, and grew solidly in the residential sector as well. Sales in the cutting tool business also increased, and as a result overall sales in this reporting segment were up considerably from the previous first quarter. Operating profit increased significantly over the previous first quarter due primarily to higher sales in the solar energy business.

Sales in this reporting segment increased compared with the previous first quarter due to growth in sales of capacitors and connectors, as well as the effect of the yens depreciation. Operating profit increased markedly due to theabsence ofthe environmental remediation charge at AVX Corporation recorded in the previous first quarter, and the effect of a reduction in costs.

Despite growth in sales of mobile phonesoverseas, sales of conventional mobile phonesdecreased in Japan. As a result, sales in this reporting segment decreased compared with the previous first quarter, and an operating loss was recorded.

Sales in this reporting segment increased compared with the previous first quarter due to an increase in sales volume driven bynew product introductions, as well as vigorous market cultivation and sales expansion activities, in addition to the effect of the yens depreciation. Operating profit increased compared with the previous first quarter despite an increase in costs such as sales promotion costs.

Sales in this reporting segment increased compared with the previous first quarter due mainly to an increase in sales at Kyocera Communication Systems Co. Ltd. Operating profit decreased, however, due to an increase in basic R&D expenses for the development of new technologies and new products.
Three monthsendedJune 30, Increase(Decrease)
2012 2013
Amount % Amount % Amount %
(Yen in millions)

Fine Ceramic Parts Group

19,069 6.4 18,716 5.7 (353 ) (1.9 )

Semiconductor Parts Group

38,400 12.9 41,474 12.5 3,074 8.0

Applied Ceramic Products Group

42,600 14.3 61,496 18.5 18,896 44.4

Electronic Device Group

69,891 23.5 73,315 22.1 3,424 4.9

Total Components Business

169,960 57.1 195,001 58.8 25,041 14.7

Telecommunications Equipment Group

41,521 14.0 38,512 11.6 (3,009 ) (7.2 )

Information Equipment Group

58,483 19.6 70,713 21.3 12,230 20.9

Total Equipment Business

100,004 33.6 109,225 32.9 9,221 9.2

Others

34,689 11.6 38,061 11.5 3,372 9.7

Adjustments and eliminations

(6,927 ) (2.3 ) (10,632 ) (3.2 ) (3,705 )

Net sales

297,726 100.0 331,655 100.0 33,929 11.4

Three monthsendedJune 30, Increase(Decrease)
2012 2013
Amount %* Amount %* Amount %
(Yen in millions)

Fine Ceramic Parts Group

2,334 12.2 2,903 15.5 569 24.4

Semiconductor Parts Group

5,705 14.9 7,923 19.1 2,218 38.9

Applied Ceramic Products Group

1,483 3.5 8,041 13.1 6,558 442.2

Electronic Device Group

(17,503 ) 6,170 8.4 23,673

Total Components Business

(7,981 ) 25,037 12.8 33,018

Telecommunications Equipment Group

(206 ) (1,406 ) (1,200 )

Information Equipment Group

5,702 9.7 6,067 8.6 365 6.4

Total Equipment Business

5,496 5.5 4,661 4.3 (835 ) (15.2 )

Others

1,244 3.6 752 2.0 (492 ) (39.5 )

Operating profit (loss)

(1,241 ) 30,450 9.2 31,691

Corporate gains and equity in earnings of affiliates and anunconsolidatedsubsidiary

6,030 4,645 (1,385 ) (23.0 )

Adjustments and eliminations

(62 ) (282 ) (220 )

Income before income taxes

4,727 1.6 34,813 10.5 30,086 636.5

* % to net sales of each corresponding segment


Sales in Japan for the first quarter increased compared with the previous first quarter due primarily to an increase in sales in the solar energy business, despite a decrease in sales in the Telecommunications Equipment Group.

Sales in Asia for the first quarter increased compared with the previous first quarter due primarily to an increase in sales in the Electronic Device Group including connectors and capacitors, as well as the effect of the yens depreciation.

Sales in Europe for the first quarter increased compared with the previous first quarter due primarily to an increase in sales in the Information Equipment Group affected by growth in sales volume of printers and multifunctional products and the yens depreciation.

Sales in the United States of America for the first quarter increased compared with the previous first quarter due to sales growth in the Information Equipment Group and the Telecommunications Equipment Group resulting from increased sales volume of mobile phones, as well as the effect of the yens depreciation.

Sales in Others for the first quarter increased compared with the previous first quarter due primarily to an increase in sales in the Information Equipment Group and the Telecommunications Equipment Group.
Three monthsendedJune 30, Increase
(Decrease)
2012 2013
Amount % Amount % Amount %
(Yen in millions)

Japan

133,111 44.7 139,118 41.9 6,007 4.5

Asia

55,527 18.7 68,243 20.6 12,716 22.9

Europe

47,166 15.8 56,282 17.0 9,116 19.3

United States of America

49,498 16.6 52,189 15.7 2,691 5.4

Others

12,424 4.2 15,823 4.8 3,399 27.4

Net sales

297,726 100.0 331,655 100.0 33,929 11.4



Net cash provided by operating activitiesfor thefirst quarterdecreased by 902million to 27,785million from 28,687 millionfor the previous first quarter.This was due mainly to that increases in cash outflow adjustments related to certain liabilities, including notes and accounting payables, accrued income taxes as well as other current and non-current liabilities, exceeded increases in net income and cash inflow adjustments related to receivables.

Net cash used in investing activitiesfor thefirst quarterincreased by 29,756million to 47,380million from 17,624 millionfor the previousfirst quarter.This was mainly because increases in acquisition of time deposits and certificate of deposits and in payment for purchase of held-to-maturitysecurities exceeded an increase in withdrawal of time deposits and certificate of deposits.

Net cash used in financing activitiesfor thefirst quarterincreased by 1,855million to 11,579million from 9,724 millionfor the previousfirst quarter. This was due mainly to a decrease in proceeds from issuance of short-term debt.
ThreemonthsendedJune30,
2012 2013
(Yen in millions)

Cash flows from operating activities

28,687 27,785

Cash flows from investing activities

(17,624 ) (47,380 )

Cash flows from financing activities

(9,724 ) (11,579 )

Effect of exchange rate changes on cash and cash equivalents

(5,981 ) 6,606

Net decrease in cash and cash equivalents

(4,642 ) (24,568 )

Cash and cash equivalents at beginning of period

273,288 305,454

Cash and cash equivalents at end of period

268,646 280,886


On October10, 2012, AVX Corporation (AVX), a consolidated subsidiary of Kyocera Corporation in the United States, and the Environmental Protection Agency (EPA) announced that they had reached a financial settlement with respect to the EPAs ongoing clean up of the New Bedford Harbor Superfund site in New Bedford, Massachusetts.

AVXs involvement in this site arose from the operations of an alleged legal predecessor, Aerovox Corporation, which produced liquid filled capacitors adjacent to the harbor from the late 1930s through the early 1970s. Subsequent owners of the facility are dissolved or in bankruptcy. AVX itself never produced this type of capacitor, nor does it do so today.

Following legal action brought in 1983, AVX reached a settlement agreement with the United States and the Commonwealth of Massachusetts with respect to their claims relating to harbor clean up and alleged natural resource damages in 1992. That agreement was contained in a Consent Decree whereby AVX paid $72 million, including interest, toward the harbor clean up and natural resource damages. That agreement included reopener provisions allowing the EPA to institute new proceedings against AVX, including the right to seek to have AVX perform or pay for additional clean up under certain circumstances.

On April18, 2012, the EPA issued to AVX a Unilateral Administrative Order directing AVX to perform the remainder of the harbor clean up, invoking the clean up reopeners described above.

After settlement negotiations, including mediation, between the parties, the current proposed agreement with the EPA and the Commonwealth of Massachusetts was reached whereby AVX will pay $366 million, plus interest computed from August1, 2012, in three installments over a two-year period for use by the EPA and the Commonwealth to complete the clean up of the harbor, and the EPA will withdraw the Unilateral Administrative Order.

The proposed agreement is contained in a Supplemental Consent Decree that modifies certain provisions of the 1992 Consent Decree, including elimination of the governments right to invoke the clean up reopener provisions in the future. The EPA filed the Supplemental Consent Decree in the United States District Court for the District of Massachusetts on October10, 2012. The settlement, which is currently being reviewed, requires approval by the United States District Court before becoming final.

AVX and Kyocera recorded a charge with respect to this matter of 7,900million ($100 million) for the year ended March31, 2012, and 21,300million ($266 million) for the three months ended June30, 2012, which were included in selling general and administrative expenses in the consolidated statements of income.

While uncertainty remains regardingthetrends of the European and Chinese economies going forward, the Japanese and the U.S. economies are expected to continue expanding from the second quarter (the three months from July1 to September30, 2013). The business environment is projected to improve in the digital consumer equipment and industrial machinery markets from the second quarter. In addition, demand for solar power generating systems is projected to continue rising in Japan.

Based on this outlook for the business environment, there is no change to the sales and profit forecasts for fiscal 2014 that were announced on April25, 2013.Kyocera forecasts the average exchange rates of 95 to the U.S. dollar and 123 to the Euro from the second quarter to the fourth quarter (from July1,2013toMarch31, 2014). As a result, Kyocera has revised full-year exchange rate forecasts for fiscal 2014 to 96 to the U.S. dollar from 95 and 124 to the Euro from 123, reflecting the results of the first quarter.
Results for
the year
ended
March31, 2013
Forecasts for the yearendingMarch31,2014announcedonApril25,2013 Increase(Decrease)
to
Results
Amount % Amount % Amount %
(Yen in millions, exceptexchange rates)

Net sales

1,280,054 100.0 1,400,000 100.0 119,946 9.4

Profit from operations

76,926 6.0 140,000 10.0 63,074 82.0

Income before income taxes

101,363 7.9 150,000 10.7 48,637 48.0

Net income attributable to shareholders of Kyocera Corporation

66,473 5.2 96,000 6.9 29,527 44.4
Note: Forward-Looking Statements
(1) General economic conditions in our markets, which are primarily Japan, North America, Europe and Asia;
(2) Economic, political and legal conditions and unexpected changes therein in countries or areas where we operate;
(3) Factors that may affect our exports, includingthe yens appreciation, political and economic instability, customs, and inadequate protection of our intellectual property;


Factors that may affect our exports, includingthe yens appreciation, political and economic instability, customs, and inadequate protection of our intellectual property;
(4) Fluctuation in exchange rates that may affect the value of our foreign assets or the prices of our products;
(5) Intensified competition in product pricing, technological innovation, R&D activities, product quality and speed of delivery;
(6) Manufacturing delays or defects resulting from outsourcing or internal manufacturing processes;
(7) Shortages and rising costs of electricity affecting our production and sales activities;
(8) The possibility that expansion of production capacity and in-process R&D activities may not produce the desired results;
(9) The possibility that companies or assets acquired by us may not produce the returns or benefits, or bring in business opportunities, which we expect;
(10) Inability to secure skilled employees, particularly engineering and technical personnel;
(11) The possibility of divulgence of our trade secrets and infringement of our intellectual property rights;
(12) The possibility that we may receive notice of claims of infringement of other parties intellectual property rights and claims for royalty payments;
(13) Increases in our environmental liability and in costs and expenses required to observe obligations imposed by environmental laws and regulations in Japan and other countries;


Increases in our environmental liability and in costs and expenses required to observe obligations imposed by environmental laws and regulations in Japan and other countries;
(14) Unintentional conflict with laws and regulations, or the possibility thatnewly enacted laws and regulations may limit our business operations;
(15) Events that may negatively impact our markets or supply chain, including terrorist acts, plague, war and similar events;
(16) Earthquakes and other related natural disasters affecting our operational facilities and our markets or supply chain, as well as social and economic infrastructure;
(17) Exposure to difficulties in collection of trade receivables due to customers worsening financial condition;
(18) The possibility of recognition of impairment losses on investment securities held by us due to declines in their value;
(19) The possibility that we may record impairment losses on long-lived assets, goodwill and intangible assets;
(20) The possibility that deferred tax assets may not be realized or additional liabilities for unrecognized tax benefits may be incurred; and
(21) Changes in accounting principles.
March31, 2013 June 30, 2013 Increase
(Decrease)
Amount % Amount %
(Yen in millions)

Current assets:

Cash and cash equivalents

305,454 280,886 (24,568 )

Short-term investments in debt securities

43,893 71,745 27,852

Other short-term investments

179,843 186,156 6,313

Trade notes receivables

27,061 29,260 2,199

Trade accounts receivables

268,927 245,257 (23,670 )

Less allowances for doubtful accounts and sales returns

(4,705 ) (4,835 ) (130 )

Inventories

296,450 312,858 16,408

Advance payments

65,812 65,342 (470 )

Deferred income taxes

47,349 40,082 (7,267 )

Other current assets

38,299 39,897 1,598

Total current assets

1,268,383 55.6 1,266,648 51.9 (1,735 )

Non-current assets:

Investments and advances:

Long-term investments in debt and equity securities

506,490 661,258 154,768

Other long-term investments

12,661 12,396 (265 )

Total investments and advances

519,151 22.7 673,654 27.6 154,503

Property, plant and equipment:

Land

61,808 62,596 788

Buildings

323,014 331,067 8,053

Machinery and equipment

788,692 803,783 15,091

Construction in progress

13,546 13,406 (140 )

Less accumulated depreciation

(918,236 ) (938,680 ) (20,444 )

Total property, plant and equipment

268,824 11.8 272,172 11.1 3,348

Goodwill

103,425 4.5 106,960 4.4 3,535

Intangible assets

54,583 2.4 55,655 2.3 1,072

Other assets

68,487 3.0 67,743 2.7 (744 )

Total non-current assets

1,014,470 44.4 1,176,184 48.1 161,714

Total assets

2,282,853 100.0 2,442,832 100.0 159,979

March31, 2013 June 30, 2013 Increase
(Decrease)
Amount % Amount %
(Yen in millions)

Current liabilities:

Short-term borrowings

3,135 2,813 (322 )

Current portion of long-term debt

9,817 10,564 747

Trade notes and accounts payable

111,249 114,763 3,514

Other notes and accounts payable

52,018 45,956 (6,062 )

Accrued payroll and bonus

52,420 43,828 (8,592 )

Accrued income taxes

22,214 8,129 (14,085 )

Other accrued liabilities

39,135 37,623 (1,512 )

Other current liabilities

36,642 36,852 210

Total current liabilities

326,630 14.3 300,528 12.3 (26,102 )

Non-current liabilities:

Long-term debt

20,855 22,261 1,406

Accrued pension and severance liabilities

36,322 35,924 (398 )

Deferred income taxes

146,229 197,906 51,677

Other non-current liabilities

37,875 39,483 1,608

Total non-current liabilities

241,281 10.6 295,574 12.1 54,293

Total liabilities

567,911 24.9 596,102 24.4 28,191

Kyocera Corporation shareholders equity:

Common stock

115,703 115,703

Additional paid-in capital

163,062 163,079 17

Retained earnings

1,368,512 1,380,157 11,645

Accumulated other comprehensive income

50,138 166,887 116,749

Common stock in treasury, at cost

(51,258 ) (51,275 ) (17 )

Total Kyocera Corporation shareholders equity

1,646,157 72.1 1,774,551 72.6 128,394

Noncontrolling interests

68,785 3.0 72,179 3.0 3,394

Total equity

1,714,942 75.1 1,846,730 75.6 131,788

Total liabilities and equity

2,282,853 100.0 2,442,832 100.0 159,979

March31,2013 June30,2013 Increase(Decrease)
(Yen in millions)

Net unrealized gains onsecurities

135,248 232,565 97,317

Net unrealized losses on derivativefinancial instruments

(68 ) (119 ) (51 )

Pension adjustments

(23,415 ) (23,713 ) (298 )

Foreign currency translation adjustments

(61,627 ) (41,846 ) 19,781

Total

50,138 166,887 116,749

Threemonths endedJune 30, Increase
(Decrease)
2012 2013
Amount % Amount % Amount %
(Yeninmillionsandsharesinthousands,exceptpershareamounts)

Net sales

297,726 100.0 331,655 100.0 33,929 11.4

Cost of sales

222,925 74.9 245,298 74.0 22,373 10.0

Gross profit

74,801 25.1 86,357 26.0 11,556 15.4

Selling, general and administrative expenses

76,803 25.8 60,959 18.3 (15,844 ) (20.6 )

Profit(loss) from operations

(2,002 ) (0.7 ) 25,398 7.7 27,400

Other income (expenses):

Interest and dividend income

6,230 2.1 7,539 2.3 1,309 21.0

Interest expense

(433 ) (0.1 ) (492 ) (0.2 ) (59 )

Foreign currency transaction gains,net

1,099 0.4 1,721 0.5 622 56.6

Other, net

(167 ) (0.1 ) 647 0.2 814

Total other income (expenses)

6,729 2.3 9,415 2.8 2,686 39.9

Income before income taxes

4,727 1.6 34,813 10.5 30,086 636.5

Income taxes

950 0.3 10,892 3.3 9,942

Net income

3,777 1.3 23,921 7.2 20,144 533.3

Net income attributable to noncontrolling interests

2,793 0.9 (1,270 ) (0.4 ) (4,063 )

Net income attributable to shareholders of Kyocera Corporation

6,570 2.2 22,651 6.8 16,081 244.8

Earnings per share:

Net incomeattributable to shareholders of KyoceraCorporation:

Basic

35.82 123.48

Diluted

35.82 123.48

Average number of shares of common stock outstanding:

Basic

183,444 183,439

Diluted

183,444 183,439


Basic earnings per share attributable to shareholders of Kyocera Corporation was computed based on the average number of shares of common stock outstanding during each period, and diluted earnings per share attributable to shareholders of Kyocera Corporation was computed based on the diluted average number of shares of stock outstanding during each period.
ThreemonthsendedJune30, Increase(Decrease)
2012 2013
Amount Amount Amount
(Yen in millions)

Net income

3,777 23,921 20,144

Other comprehensive income (loss)net of taxes

Net unrealized gains (losses) on securities

(10,840 ) 97,283 108,123

Net unrealizedgains (losses) on derivative financial instruments

67 (30 ) (97 )

Pension adjustments

(94 ) (341 ) (247 )

Foreign currency translation adjustments

(18,675 ) 22,854 41,529

Total other comprehensive income (loss)

(29,542 ) 119,766 149,308

Comprehensive income (loss)

(25,765 ) 143,687 169,452

Comprehensiveincome (loss) attributable to noncontrolling interests

5,079 (4,287 ) (9,366 )

Comprehensive income (loss) attributable to shareholders of KyoceraCorporation

(20,686 ) 139,400 160,086



On April1, 2013, Kyocera adopted the Financial Accounting Standards Board (FASB)s Accounting Standards Update (ASU) No.2011-10, Derecognition of in Substance Real Estatea Scope Clarification. This accounting standard requires the reporting entity to apply the guidance inAccounting Standards Codification (ASC) 360-20, Property, Plant, and EquipmentReal Estate Sales to determine whether it should derecognize the in substance real estate when a parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiarys nonrecourse debt. Theadoption of this accounting standarddid not have amaterialimpact on Kyoceras consolidated results of operations, financial condition and cash flows.

On April1, 2013, Kyocera adopted the FASBs ASU No.2012-02, Testing Indefinite-Lived Intangible Assets for Impairment.This accounting standard permits an entity to first assess qualitative factors to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determiningwhether it is necessary to performtheimpairment test. An entity is not required to calculate the fair value of the indefinite-lived intangible asset unless the entity determines that it is more likely than not that the indefinite-lived intangible asset is impaired. As thisaccountingstandard did not actually change how the impairment would be calculated, theadoption of this accounting standarddid not have an impact on Kyoceras consolidated results of operations, financial condition and cash flows.

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.

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