Let’s look at the reasons behind the year-on-year increase in operating income from minus 5.8 billion yen to plus 27.4 billion yen.
The primary factor for the profit upswing was an increase of 26.0 billion yen due to reduction in cost, with gains of 20.6 billion yen at FHI and 5.4 billion yen at SIA. FHI experienced a gain of 11.1 billion yen after recouping losses from the previous year’s price hikes for raw material in addition to a gain of 9.5 billion yen due to a reduction in materials costs. Overall cost reductions at SIA amounted to a gain of 5.4 billion yen. That figure includes materials cost cuts totaling 4.4 billion yen on top of  1.0 billion yen in recouped losses from the previous year’s high raw materials prices.
Decreases in SG&A expenses, etc. resulted in a gain of 23.2 billion yen. This gain was realized as the result of the following three factors. The first includes a decrease in fixed manufacturing costs resulting in a gain of 2.4 billion yen, with 0.8 billion yen  loss at FHI and 3.2 billion yen saved at SIA. FHI generated a gain of 2.4 billion yen due to a reduction in fixed processing costs and a loss of 3.2 billion yen due to increased expenses related to suppliers’ dies. SIA realized an overall gain of 3.2 billion yen, with  a gain of 3.8 billion yen on decreased expenses for suppliers’ dies and a 0.6 billion yen loss due to an increase in processing costs. The second factor includes a decrease in SG&A expenses, etc. that resulted in a gain of 24.2 billion yen. This included a gain of 7.7 billion yen at FHI from reduced advertising as well as SG&A expenses. Efforts by domestic dealers to cut SG&A and other expenses through the integration of distributors resulted in a gain of 5.7 billion yen. SOA generated a gain of 2.0 billion yen. This figure includes a gain of 5.5 billion yen due to an approximate 500 dollar decrease in the per-unit incentives that brought the figure of 1,600 dollars for January through December 2008 down to 1,100 dollars for April 2009 through March 2010. The gain came despite increases in advertising and SG&A expenses, which generated losses of 2.3 billion yen and 1.2 billion yen respectively. Our Canadian subsidiary generated a gain of 1.2 billion yen by slashing the incentives, while other subsidiaries also saw a combined gain of 7.6 billion yen realized through cost reduction efforts. Finally, the third factor includes an increase in costs associated with warranty claims that led to a loss of 3.4 billion yen which we had made an allowance for in overseas markets during the first half of the fiscal year.
We gained 8.7 billion yen due to an improvement in the sales volume & mixture. The factors behind this figure can be broken down into three distinct areas. First, a gain of 7.8 billion yen in the domestic market due to a sales volume and mixture in the domestic market that was better then expected thanks to the positive effect of the new Legacy, despite declining minicar sales. Second, the increased sales volume and improved sales mixture in overseas markets played a major role in delivering a gain of 16.2 billion yen. Finally we lost 15.3 billion yen due to inventory adjustments and other factors.
The 5.7 billion yen gain from cuts in R&D expenses (down from 42.8 billion yen to 37.2 billion yen) explains the temporary lull in new model development and our ongoing efforts toward increasing R&D efficiency.
A major factor for the profit downturn was exchange rate fluctuations generating a loss of 30.4 billion yen. This includes a loss of 27.0 billion yen due to an approximate 9 yen appreciation against the US dollar, a loss of 4.3 billion yen due to an approximate 15 yen appreciation against the euro, and a loss of 2.7 billion yen due to an approximate six yen appreciation against the Canadian dollar. This figure includes a gain of 3.6 billion yen since foreign exchange adjustments for transactions between FHI and its overseas subsidiaries, which used to be classified as “ SG&A expenses and others” are now classified as foreign exchange gains/losses since the beginning of this fiscal year. FHI’s sales rate is based on the average rates applied during the previous month and adjusted for the difference between its subsidiaries’ spot purchase rates.
These factors combined brought operating income up 33.2 billion yen for a total of 27.4 billion yen .