Canon 2004 Annual Report Download - page 38

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of cost of sales to net sales for fiscal 2004, 2003 and 2002
was 50.6%, 49.7% and 52.4%, respectively.
Gross profit
Canon’s gross profit in fiscal 2004 increased by 6.5% to
¥1,713,343 million (U.S.$16,474 million) from fiscal 2003.
Despite ongoing efficiency enhancements in production during
fiscal 2004 and the timely launch of competitive new products,
the gross profit ratio decreased 0.9% from the previous year to
49.4%, mainly due to severe price competition and the
appreciation of the yen against the U.S. dollar.
Selling, general and administrative expenses
The major components of selling, general and administrative
expenses are payroll, R&D, advertising expenses and other
marketing expenses. Although R&D expenditures grew 6.2%
from the previous year to ¥275,300 million (U.S.$2,647
million) along with increased advertising and sales-promotion
spending, selling, general and administrative expenses for the
year increased by just 1.3% year on year, mainly due to other
selling, general and administrative expenses remaining at a
lower level than the year-ago period, coupled with a ¥17,141
million (U.S.$165 million) gain realized from the return to the
Japanese Government of the substitutional portion of the
Employees’ Pension Funds (EPF) that the company and certain
of its subsidiaries in Japan had operated. In general, Canon
maintains a high level of R&D expenditure to strengthen its
R&D capabilities. R&D expenditures grew in fiscal 2004 from
the previous year, resulting from increased R&D activities.
Advertising and other marketing expenses increased by 11.5%
from the previous year to ¥111,770 million (U.S.$1,075
million), reflecting management’s policy to strengthen
Canon’s corporate and brand image.
Operating profit
Operating profit in fiscal 2004 increased by 19.7% to
¥543,793 million (U.S.$5,229 million) from fiscal 2003.
Operating profit in fiscal 2004 was 15.7% of net sales,
compared with 14.2% in fiscal 2003.
Other income (deductions)
Other income (deductions) improved by ¥14,577 million
(U.S.$140 million), attributable to gains from sales of
subsidiary companies’ shares which totaled ¥9,082 million
(U.S.$87 million), along with a decrease in currency exchange
losses and improved equity gains (losses) of affiliated
companies.
Income before income taxes and minority
interests
Income before income taxes and minority interests in fiscal
2004 was ¥552,116 million (U.S.$5,309 million), a 23.2%
increase from fiscal 2003, and constituted 15.9% of net sales.
Income taxes
Provision for income taxes increased by ¥31,361 million
(U.S.$302 million) from fiscal 2003, primarily as a result of the
increase in income before income taxes and minority interests.
The effective tax rate during fiscal 2004 declined by 1.2%
compared with fiscal 2003.
Net income
Net income in fiscal 2004 increased by 24.5% to ¥343,344
million (U.S.$3,301 million), which exceeds the growth rate of
income before income taxes and minority interests. This
represents a 9.9% return on net sales.
Product information
Canon divides its businesses into three product groups:
business machines, cameras and optical and other products.
•The business machines product group includes office
imaging products, computer peripherals and business
information products.
Office imaging products include office network digital
MFDs, color network digital MFDs, office copying
machines, personal-use copying machines and full-color
copying machines.
Computer peripherals include laser beam printers, inkjet
printers, inkjet multifunction peripherals and image
scanners.
Business information products include micrographic
equipment, personal computers and calculators.
•The cameras product group includes single lens reflex
(“SLR”) cameras, compact cameras, digital cameras and
digital video camcorders.
•The optical and other products product group
includes steppers for semiconductor chip production,
mirror projection mask aligners used in the production of
LCDs, television broadcasting lenses and medical
equipment.
Effective January 2004, Canon has changed classification
of product categories with regards to information system
business, which had been classified in “Optical and other
products,” to
“ Business machines (Office imaging products)”
in order to better reflect current relation with those products.
Accordingly, information for previous fiscal years has been
reclassified to conform with the current classification.