Epson 2008 Annual Report Download - page 23

40 Seiko Epson Corporation
41Annual Report 2008
Analysis of Operating Results
Net Sales
Consolidated net sales decreased ¥68,190 million, or 4.8%, to
¥1,347,841 million compared with the previous consolidated
fiscal year. This decline was primarily due to a decrease of
¥49,506 million, or 11.1%, in electronic devices segment sales,
and a decrease of ¥13,358 million, or 1.5%, in information-
related equipment segment sales.
Sales in each business segment are discussed below.
In the information-related equipment segment, sales declined
¥13,358 million, or 1.5%, to ¥902,970 million. The decrease was
primarily attributable to the following.
Unit sales of 3LCD projectors, primarily for education
applications in business models, advanced as did those of high-
priced models and models with integrated DVD players for home
theater applications. On the other hand, sales of page printers
(here and in the following, results for printers include those for
related supplies) declined as a result of a focus on sales of high
value-added models. Despite higher sales volumes resulting
from this change in sales strategy and the benefits of yen
depreciation, inkjet printer sales were down because of a decline
in average unit prices. Furthermore, in the wake of declining
average unit prices for terminal modules due to growing
competition from lower-cost products and a shrinkage in sales
volumes as a counter-reaction to spending on major projects in
the previous fiscal year, serial impact dot matrix printer volumes
declined, reflecting European market contraction and wholesaler
inventory adjustments in China.
In the electronic devices segment, sales were down ¥49,506
million, or 11.1%, to ¥395,197 million. The following major
factors contributed to the decrease.
Prices for color STN-LCDs and MD-TFD LCDs, a business
that is to be phased out, fell in the face of declining sales
volumes and intensifying competition. In addition, the
semiconductor business suffered lower sales volumes and
across-the-board price cuts for color LCD drivers for mobile
phones.
In the precision products segment, sales declined ¥3,816
million, or 4.4%, to ¥83,927 million. Despite an increase in the
sales price range for watches, lower sales volumes for industrial-
use inkjet equipment as well as falling prices for plastic corrective
lenses were the main factors behind the decrease.
In the other segment, sales decreased ¥1,185 million, or
3.9%, to ¥29,124 million.
Cost of Sales and Gross Profit
The cost of sales decreased ¥79,867 million, or 7.5%, to
¥979,391 million, while the cost of sales ratio declined 2.1
percentage points, to 72.7%. The decrease in the cost of sales
was due to lower revenue and cost reductions. The decline in
the cost of sales ratio reflects such cost reductions in the
information-related equipment segment as well as reduced fixed
costs accompanying the booking of reorganization costs in the
display business during the previous fiscal year in the electronic
devices segment.
As a result, gross profit climbed ¥11,676 million, or 3.3%, to
¥368,449 million. The gross profit margin ratio rose 2.1
percentage points, to 27.3%.
Selling, General and Administrative Expenses and
Operating Income
Selling, general and administrative (SG&A) expenses edged up
¥4,442 million, or 1.4%, to ¥310,871 million. This was largely
due to a ¥4,033 million increase in labor costs as well as yen
depreciation.
As a result, operating income rose ¥7,234 million, or 14.4%,
to ¥57,577 million. The operating margin ratio rose 0.7
percentage points, to 4.3%.
Operating income in each business segment is analyzed
below:
In the information-related equipment segment, operating
income slipped ¥961 million, or 1.1%, to ¥83,274 million. Despite
the impact of average unit price declines for inkjet printers, gross
profit rose in this segment thanks to yen depreciation, cost
reduction benefits and higher 3LCD projector revenue. Operating
income, on the other hand, fell in the face of SG&A expense
increases due to higher costs associated with expanded inkjet
printer sales and yen depreciation.
The electronic devices segment recorded an operating loss
of ¥17,167 million, an improvement of ¥8,887 million. Higher
gross profit due to lower fixed costs associated with amorphous
silicon TFT LCDs and lower SG&A expenses resulting from
structural reforms in the display business were the primary
factors behind the above-mentioned loss.
In the precision products segment, operating income
declined ¥842 million, or 23.6%, to ¥2,733 million. Falling prices
for plastic corrective lenses and a deteriorating model mix were
the main factors behind the decrease.
In the other segment, while there was an operating loss of
¥11,462 million, the loss was ¥693 million less than that of the
prior fiscal year.
Other Income and Expenses and Special Gains and
Losses
Other income and expenses and special gains and losses
(calculated as the net total of other expenses subtracted from
other income in the previous consolidated accounting fiscal year)
amounted to ¥5,532 million, an improvement of ¥41,335 million
from net other expenses of ¥46,868 million in the previous fiscal
year. This was primarily due to reorganization costs of ¥41,165
million, impairment losses and other factors associated with
structural reforms in the display business in the previous fiscal
year.
In addition, in the year under review the Company registered
special losses amounting to ¥17,279 million primarily due to
impairment losses associated with the idle assets of the Chitose
Plant. This was partially countered by a ¥4,523 million reduction
in net loss on foreign exchange and an increase of ¥3,480 million
in dividend income from the distribution of profits based on a
silent partnership agreement associated with a real estate
liquidation scheme that leveraged a special purpose company in
a subsidiary. Special gains comprised ¥2,392 million from the
reversal of accrued litigation and related expenses and ¥2,006
million from gain on sales of investment securities.
Income (Loss) before Income Taxes and Minority
Interests
Reflecting these factors, Epson booked income before income
taxes and minority interests of ¥52,045 million, an improvement
of ¥48,570 million from the previous fiscal year.
Income Taxes
Income taxes increased ¥12,602 million to ¥30,223 million. The
main factor was the increase in income before income taxes and
minority interests. In addition, the effective tax rate after the
application of deferred tax accounting came to 58.1% as a result
of increasing the valuation allowance due to impairment.
Net Sales by Business Segment
Millions of yen, except percentages
Year ended March 31 2006 2007 2008
Informaton-related equipment ¥ 976,443 60.2% ¥ 916,330 62.0% ¥ 902,970 64.0%
Electronic devices 526,967 32.5 444,703 30.1 395,197 28.0
Precision products 85,778 5.3 87,744 5.9 83,927 5.9
Other 32,977 2.0 30,310 2.0 29,124 2.1
Total 1,622,165 100.0% 1,479,087 100.0% 1,411,219 100.0%
(Eliminations and corporate) (72,597) (63,055) (63,378)
Total net sales ¥1,549,568 ¥1,416,032 ¥1,347,841
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Net Sales
Years ended March 31
(Billions of yen)
2006 2007 2008
1,549.6
1,416.0 1,347.8
Operating income
(Billions of yen)
Operating margin ratio (%)
1.7
3.6
Operating Income/
Operating Margin Ratio
Years ended March 31
2006 2007 2008
25.8
50.3
57.5
4.3