Now let’s look at the factors behind the projected year-on-year 54.1 billion yen decrease in operating income that will take us from 84.1 billion yen to 30.0 billion yen.
The primary reason for the increase in operating income will be
a gain of 9.7 billion yen due to reduced SG&A expenses. This gain can be broken down into the following three areas: The first is an overall gain of 0.1 billion yen in fixed manufacturing costs that will come from a loss of 0.6 billion yen at FHI and a gain of 0.7 billion yen at SIA. FHI will generate a gain of 3.2 billion yen due to cost cuts for suppliers’ dies and a loss of 3.8 billion yen due to lower fixed processing costs. SIA will see a loss of 0.3 billion yen due to increased costs for suppliers' dies while reduced processing costs will lead to a gain of 1.0 billion yen. Next we expect to see an overall gain of 6.4 billion yen from reductions in SG&A expenses. This overall gain will include a gain of 4.1 billion yen at FHI, a gain of 0.3 billion yen at domestic dealers, a loss of 0.6 billion yen at SOA, a loss of 0.5 billion yen (6 million dollars) at our Canadian subsidiaries, and a gain of 3.1 billion yen from other operations. SOA will lose 1.2 billion yen due to advertising and SG&A expenses but gain 0.6 billion yen from the projected 100 dollar decrease in the per-unit cash-back rebate, which will bring this year's rebate figure down from last year's 1,000 dollars to 900 dollars. Finally, the third factor includes a decrease in costs associated with warranty claims that will result in a gain of 3.2 billion yen.
The main factor that will lead to a decrease in operating income will be
a foreign exchange loss of 45.6 billion yen. This includes a loss of 42.0 billion yen due to an approximate 8 yen appreciation against the U.S. dollar, a loss of 1.4 billion yen due to an approximate 5 yen appreciation against the euro, and a loss of 2.4 billion yen due to an approximate 7 yen appreciation against the Canadian dollar. This figure also includes a gain of 0.2 billion yen due to foreign exchange adjustments for transactions between FHI and its overseas subsidiaries.
Despite efforts to lower material costs, we expect to see an overall loss of 10.5 billion yen. FHI will experience a loss of 8.6 billion yen while SIA will lose 1.9 billion yen. FHI is expected to generate a loss of 1.0 billion yen from implementing cost cutting measures and another loss of 7.6 billion yen due to increased materials costs and other adverse market factors. SIA is expected to generate a gain of 3.3 billion yen due to cost cuts and a loss of 5.2 billion yen related to rising material prices.
An increase in R&D expenses is expected to result in a loss of 5.1 billion yen.
Sales mix variances will lead to a loss of 2.7 billion yen. This loss can be broken down into the following three areas. First, we will see a loss of 0.5 billion yen in domestic operations. Next, a loss of 13.8 billion yen in overseas operations. We expect that the declined sales volumes in overseas markets that occurred in the wake of the earthquake will lead to a poorer sales volume and mix. Finally, there will be an estimated gain of 11.6 billion yen related to inventory adjustments.
These factors combined will bring operating income for the fiscal year ending March 2012 down 54.1 billion yen to total 30.0 billion yen.