Canon 2002 Annual Report Download - page 34

32
Earnings
Operating profit in fiscal 2002 totaled ¥346,359 million
(U.S.$2,886 million), an increase of 22.9% from the previous
year. Operating profit in fiscal 2002 was 11.8% of net sales,
compared with 9.7% in fiscal 2001.
In fiscal 2002, the depreciation of the yen increased net
sales by approximately ¥93,300 million (U.S.$778 million) and
increased cost of sales by approximately ¥15,300 million
(U.S.$128 million). Canon’s gross profit ratio during the year
improved 3.6% to 47.6%. This improvement in gross profit
margins reflects the positive effects of research and
development (“R&D”) reformation activities, such as 3D
computer-aided design (“3D-CAD”). These activities have
significantly shortened product-development lead times and
thus made it possible to launch competitive new products in
succession, which has supported favorable pricing. Gross profit
margins have also benefited from reductions achieved through
continued production-reformation activities, and the lower value
of the yen.
Selling, general and administrative expenses rose 5.5% from
the previous year and amounted to ¥1,053,672 million
(U.S.$8,781 million). An increase in R&D expenditures and
advertising and marketing costs, largely accounted for this rise.
Canon maintains a high level of R&D expenditure to strengthen
its R&D capabilities. R&D expenditures rose 6.9% from the
previous year to ¥233,669 million (U.S.$1,947 million),
resulting from increased R&D activities of cameras and optical
and other products.
The disclosures of segment information by product as
required in Japan for the years ended December 31, 2002 are
provided on page 33, and fiscal 2001 and of segment
information by geographic area as required in Japan for the
years ended December 31, 2002 and fiscal 2001 are shown
on page 34.
Operating profit for business machines in fiscal 2002
increased ¥76,098 million (U.S.$634 million) to ¥411,016
million (U.S.$3,425 million). Operating profit ratio also improved
by 3.4% to 18.5%. Sales of business machines overall
remained at approximately the same level as for the previous
year, increasing by 0.1% to ¥2,226,195 million (U.S.$18,552
million). Cost-cutting measures, however, along with healthy
sales of price-competitive mid-range and high-end copying
machines and bubble jet printers favorably affected the
operating profit ratio. As a result, operating profit for the
business machine segment increased by 22.7%.
Operating profit for cameras increased ¥34,146 million
(U.S.$285 million) to ¥70,290 million (U.S.$586 million).
Greatly improved profitability for camera products, realized
through the rapid rise in sales of digital cameras and digital
video camcorders coupled with effective cost-cutting measures
and a decline in the price of electronic components, boosted
operating profit in the camera segment by 94.5%.
Optical and other products, which recorded an operating
profit of ¥23,850 million in 2001, suffered operating losses of
¥11,652 million (U.S.$97 million) in 2002 mainly due to a
24.6% decrease sales of semiconductor production equipment,
reflecting restrained capital spending by memory device
manufacturers.
Income before income taxes in fiscal 2002 was ¥330,017
million (U.S.$2,750 million), a 17.2% increase from fiscal 2001,
and constituted 11.2% of net sales.
In the area of other income and expenses, the promotion of
cash flow management has bolstered Canon’s financial strength,
evidenced by an improvement in net interest income of ¥3,551
million (U.S.$30 million) compared with the previous year,
achieving a positive figure in this category for the first time.
Currency exchange losses, however, increased by ¥8,667
million (U.S.$72 million) to ¥23,468 million (U.S.$196 million)
while securities contributed to the Company’s retirement benefit
trust in the previous year contributed to a ¥15,536 million gain.
Consequently, non-operating income and expenses worsened
by ¥16,069 million (U.S.$134 million) from the previous year.
Net income in fiscal 2002 totaled ¥190,737 million
(U.S.$1,589 million), an increase of 13.8% from the previous
year. This amount represents a 6.5% return on net sales.
Income taxes as a percent of income before income taxes
remained at approximately the same level as for the previous
year, decreasing by 0.1% to 40.8%.
FOREIGN OPERATIONS AND FOREIGN CURRENCY
TRANSACTIONS
Canon’s marketing activities are performed by subsidiaries in
each region in local currencies, while the cost of goods sold is
generally in yen. Given Canon’s current operating structure,
appreciation of the yen has a negative impact on net sales and
the gross profit ratio. To reduce the financial risks from changes
in foreign exchange rates, Canon utilizes derivative financial
instruments, which are comprised principally of forward currency
exchange contracts.
The return on foreign operation sales is usually lower than
domestic operations because foreign operations consist mainly
of marketing activities. Marketing activities are generally less
profitable than production activities, which are mainly conducted
by the Company and its domestic subsidiaries. The returns on
foreign operation sales in fiscal 2002, 2001 and 2000 were
2.7%, 1.6% and 2.0%, respectively. This compares with return
of 6.5%, 5.8% and 5.0% on total operations for the respective
years.