Epson 2006 Annual Report Download - page 39

Seiko Epson Annual Report 2006 37
Cost of Sales and Gross Profit
Cost of sales increased ¥124,770 million, or 11.7%, to ¥1,194,781 million, rising 4.8 percentage
points to 77.1% of net sales. The increase in the cost of sales tracked the higher sales, while the rise
in the cost of sales ratio reflected the effects of falling prices, particularly in the electronic devices
segment, which outweighed the benefits of cost-cutting.
As a result of these factors, gross profit decreased ¥54,952 million, or 13.4%, to ¥354,787 million.
The gross profit margin ratio declined by 4.8 percentage points to 22.9%.
Selling, General and Administrative Expenses and Operating Income
Selling, general and administrative (SG&A) expenses increased ¥10,257 million, or 3.2%, to ¥329,029
million. While advertising expenses and the provision for doubtful accounts decreased by ¥879
million and ¥46 million, respectively, these decreases were negated by respective increases of ¥1,667
million and ¥1,464 million in research and development costs and salaries and wages. Other expenses
also increased in line with higher sales.
Because of the foregoing factors, operating income was down ¥65,209 million, or 71.7%, to
¥25,758 million, falling 4.4 percentage points to 1.7% of net sales. Operating income for each business
segment was as follows:
In the information-related equipment segment, operating income declined ¥16,534 million, or 26.9%,
to ¥45,021 million. This result was largely attributable to the impact of falling inkjet printer prices.
The electronic devices segment recorded an operating loss of ¥9,759 million, a decline of ¥48,312
million from last year’s profit. This was attributable to a decline in the gross profit margin due to
several factors: lower revenue from HTPS TFT-LCD panels for LCD projectors, higher expenses
associated with operations at the Chitose Plant, and lower revenue from color STN-LCDs for mobile
phones, system LSIs and LCD driver ICs.
In the precision products segment, operating income decreased ¥85 million, or 3.5%, to ¥2,351
million. This was mainly due to higher expenses related to investments for boosting production of
optical devices, which offset the benefit of increased revenue from IC handlers and other products.
In the other segment, there was an operating loss of ¥12,780 million, a decrease of ¥224 million
compared to the prior fiscal year.
Other Income and Expenses
During the year under review, other expenses subtracted from other income resulted in a net expense
of ¥45,805 million, ¥28,485 million more than the net expense of ¥17,320 million in the prior fiscal
year. In the previous year, this net expense was largely due to a charge of ¥4,608 million booked as
reorganization costs related to a review of Epson’s product mix in display operations. In contrast,
Epson booked ¥45,532 million in expenses during the year under review related to the consolidation
and elimination of production bases, and the realignment of production lines, in its semiconductor
and display operations.
Income (Loss) Before Income Taxes and Minority Interest
As a result of the foregoing, Epson booked loss before income taxes and minority interest of ¥20,047
million, down ¥93,694 million from income posted in the previous year.