Canon 2011 Annual Report Download - page 44

42 F I N A N C I A L S E C T I O N >F I N A N C I A L O V E R V I E W
change of 50 basis points in the expected long-term rate of
return on plan assets would cause a change of approximately
¥3,204 million in net periodic benefit cost. Canon multiplies
management’s expected long-term rate of return on plan
assets by the value of its plan assets, to arrive at the expected
return on plan assets that is included in pension expense.
Canon defers recognition of the difference between this
expected return on plan assets and the actual return on plan
assets. The net deferral affects future pension expense.
Canon recognizes the funded status (i.e., the difference
between the fair value of plan assets and the projected bene-
fit obligations) of its pension plans in its consolidated balance
sheets, with a corresponding adjustment to accumulated
other comprehensive income (loss), net of tax.
CONSOLIDATED RESULTS OF OPERATIONS
Sales
Canon’s consolidated net sales in fiscal 2011 totaled
¥3,557,433 million (U.S.$45,608 million), representing a 4.0%
decrease from the previous fiscal year. This decrease of sales
was owing to the historically high valuation of the yen com-
bined with the effects of the earthquake and floods. All of
Canon’s businesses faced extremely demanding conditions
throughout the year.
Overseas operations are significant to Canon’s operating
results and generated 80.5% of total net sales in fiscal 2011.
Such sales are denominated in the applicable local currency
and are subject to fluctuations in the value of the yen to
those currencies. Despite efforts to reduce the impact of cur-
rency fluctuations on operating results, including
localization of manufacturing in some regions along with
procuring parts and materials from overseas suppliers,
Canon believes such fluctuations have had and will continue
to have a significant effect on its results of operations.
The average value of the yen in fiscal 2011 was ¥79.55 to
the U.S. dollar, and ¥110.72 to the euro, representing a signif-
icant appreciation of about ¥8 or 9% to the U.S. dollar, and an
appreciation of approximately ¥4 or 4% against the euro,
compared with the previous year. The effects of foreign
exchange rate fluctuations negatively affected net sales by
approximately ¥161,900 million in 2011. This unfavorable
impact consisted of approximately ¥111,600 million for U.S.
dollar denominated sales, ¥40,600 million for euro denomi-
nated sales and ¥9,700 million for other foreign currency
denominated sales.
Cost of sales
Cost of sales principally reflects the cost of raw materials,
parts and labor used by Canon in the manufacture of its prod-
ucts. A portion of the raw materials used by Canon is
imported or includes imported materials. Many of these raw
materials are subject to fluctuations in world market prices
accompanied by fluctuations in exchange rates that may
RETURN ON SALES
(%)
12
9
6
3
0
20112010200920082007
10.9
7.6 7.0
6.7
4.1
SUMMARY OF OPERATIONS
Thousands of
Millions of yen U.S. dollars
2011 change 2010 change 2009 2011
Net sales ¥ 3,557,433 -4.0% ¥3,706,901 +15.5% ¥3,209,201 $45,608,115
Operating profit 378,071 -2.4% 387,552 +78.6% 217,055 4,847,064
Income before income taxes 374,524 -4.7% 392,863 +79.1% 219,355 4,801,590
Net income attributable to Canon Inc. 248,630 +0.8% 246,603 +87.3% 131,647 3,187,564
affect Canon’s cost of sales. Other components of cost of sales
include depreciation expenses from plants, maintenance
expenses, light and fuel expenses along with rent expenses.
The ratio of cost of sales to net sales for fiscal 2011 and 2010
was 51.2% and 51.9%, respectively.
Gross profit
Canon’s gross profit in fiscal 2011 decreased by 2.6% to
¥1,736,763 million (U.S.$22,266 million) from fiscal 2010. The
gross profit ratio, however, rose by 0.7 points year on year to
48.8%. Despite the significant negative impact of the strong
yen and the effects of the earthquake and floods, this gross
profit ratio improvement was achieved due to the further
acceleration of production innovation activities.
Operating expenses
The major components of operating expenses are payroll,
R&D, advertising expenses and other marketing expenses.
Owing to thorough spending cuts across the Canon Group
implemented after the earthquake to control expenses more