Canon 2008 Annual Report Download - page 55

53
Operatin
g
profi t b
y
produc
t
Operatin
g
pro
fi
t
f
or business machine
s
in
fi
scal 2008
decreased b
y
¥105,617 million (U.S.
$
1,161 million) to ¥544,644
million (U.S.$5,985 million). This decrease resulted primarily
fr
o
m
t
h
e
r
educt
i
o
n in
sa
l
es.
Operating pro
fi
t
f
or camera
s
in
fi
scal 2008 decreased b
y
¥119,639 million (U.S.$1,315 million) to ¥187,787 million
(U.S.$2,064 million) as a result of the dro
p
in sales value, cou
p
led
with the signifi cant decline in the gross profi t ratio stemming
f
rom
f
allin
g
prices and the e
ff
ects o
f
the stron
g
y
en
.
Operating profi t for optical and other product
s
in fi
sca
l 2008
decreased by ¥66,570 million (U.S.$732 million) to a loss of
¥45,490 million (U.S.
$
500 million) as a result of a signifi cant
increase in cost o
f
sales and outla
y
s due to such
f
actors as the
dis
p
osal of inventories, which was carried out in res
p
onse to
rising concerns t
h
at wea
k
mar
k
et sentiment may continue, t
h
e
appreciation of the yen, along with an impairment charge for
fi
xed assets equipped with current technolo
g
ies
.
FOREIGN OPERATIONS AND FOREIGN CURRENCY
TRANSACTIONS
Canon’s marketing activities are per
f
ormed by subsidiaries in
various re
g
ions in local currencies, while the cost o
f
sales is
g
enera
lly
in
y
en. Given Canon’s current operatin
g
structure,
appreciation of the yen has a negative impact on net sales and
the gross profi t ratio. To reduce the fi nancial risks from changes
in
f
orei
g
n exchan
g
e rates, Canon utilizes derivative
fi
nancial
instruments, which are comprised principall
y
o
f
f
orward currenc
y
exc
h
ange contracts
.
The return on foreign operation sales is usually lower than
that
f
rom domestic operations because
f
oreign operations consist
mainl
y
o
f
marketin
g
activities. Return on
f
orei
g
n operation sales
is calculated b
y
dividin
g
net income of forei
g
n subsidiaries,
after factoring in consolidation adjustments between foreign
subsidiaries, by net sales of foreign subsidiaries. Marketing
activities are
g
enerall
y
less pro
fi
table than production activities,
w
h
ic
h
are main
ly
con
d
ucte
d
by
t
h
e Compan
y
an
d
its
d
omestic
subsidiaries. The returns on foreign operation sales in fi scal
2008, 2007 and 2006 were 2.3%, 4.0% and 3.7%, respectively.
This compares with returns o
f
7.6%, 10.9% and 11.0% on
consolidated operations
f
or the respective
y
ears
.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalent
s
in
fi
scal 2008 decreased b
y
¥265,267 million (U.S.
$
2,915 million) to ¥679,196 million
(U.S.$7,464 million), com
p
ared with ¥944,463 million in fi scal
2007 and ¥1,155,626 million in fi scal 2006. Canon’s cash and
cash equivalents are typically denominated both in Japanese yen
and in U.S. dollar, with the remainder denominated in
f
orei
g
n
cu
rr
e
n
cies.
Net cash provided by operating activities in fi scal 2008
decreased by ¥222,585 million (U.S.$2,446 million) from the
previous
y
ear to ¥616,684 million (U.S.
$
6,777 million), refl ectin
g
the decrease in sales and decreased cash proceeds
f
rom sales,
co
m
b
in
ed
wi
t
h
a
dec
r
ease
in n
et
in
co
m
e
.
Cas
h fl
o
w fr
o
m
operating activities consisted of the following key components:
the major component o
f
Canon’s cash in
fl
ow is cash received
f
rom customers, and the ma
j
or components o
f
Canon’s cash
outfl ow are pa
y
ments for parts and materials, sellin
g
,
g
eneral
an
d
a
d
ministrative ex
p
enses, an
d
income taxes.
For fi scal 2008, cash infl ow from cash received from customers
decreased
,
due to the decrease in net sales. There were no
si
g
ni
fi
cant chan
g
es in Canon’s collection rates. Cash out
fl
ow
f
or
payments for parts and materials also decreased, as a result of a
dec
r
ease
in n
et
sa
l
es
a
n
d
cost
r
educt
i
o
n
s
.
Cost
r
educt
i
o
n
s
r
e
fl
ect
a decline in unit prices o
f
parts and raw materials, as well as a
streamlinin
g
o
f
the process o
f
usin
g
these parts and materials
throu
g
h promotin
g
effi cienc
y
in operations. Cash outfl ow for
payments for selling, general and administrative expenses
increased despite cost-cutting efforts. Cash outfl ow for payments
o
f
income taxes decreased
,
due to the decrease in taxable income.
Net cash used in investin
g
activities in
fi
scal 2008 was
¥472,480 million (U.S.$5,192 million), com
p
ared with ¥432,485
million in fi scal 2007 and ¥460,805 million in fi scal 2006,
consisting primarily o
f
purchases o
f
fi
xed assets. The purchases
of fi xed assets which totaled ¥428,168 million (U.S.
$
4,705 mil-
lion) in fi scal 2008 were mainl
y
concentrated to items relevant
to reinforcing production and achieving cost reduction, along
with the acquisition of shares of Hitachi Displays, Ltd. toward
the launch o
f
Canon’s displa
y
business
.
Canon de
fi
nes “
f
ree cash
fl
ow” b
y
deductin
g
the cash
fl ows from investing activities from the cash fl ows of operating
activities. For fi scal 2008, free cash fl ow totaled ¥144,204 million
(U.S.
$
1,585 million) as compared to ¥406,784 million for fi scal
2007. Canon’s mana
g
ement reco
g
nizes that constant and