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Annual Report 2011

Table of contents

  • Page 1
    Annual Report 2011

  • Page 2
    Photograph taken by Mitsuaki Iwago using an Olympus E-3 camera fitted with ZUIKO DIGITAL ED 12-60mm F2.8-4.0 SWD Renewing Our

  • Page 3
    ... and President 4 Interview with the President 6 Special Feature 12 Review of Operations 16 Medical Systems Business 16 Life Science and Industrial Systems Business 18 Imaging Systems Business 20 Information & Communication Business 22 Others 23 Intellectual Property Report 24 Corporate Governance...

  • Page 4
    ... driver of this segment IMAGING SYSTEMS BUSINESS • Focusing on interchangeable lens-type digital cameras based on the Four Thirds and Micro Four Thirds Systems • Boasting product planning capabilities for value-added compact digital cameras INFORMATION & COMMUNICATION BUSINESS 2 OLYMPUS 2011

  • Page 5
    ...)mn OTHER AREAS 3.2% FISCAL 2011 SALES BY GEOGRAPHIC AREA • Conducting sales of mobile phones and other mobile handsets across Japan PERCENT OF NET SALES SEGMENT SALES OPERATING INCOME 24.7% ¥209,520mn ¥5,242mn OTHERS • Established Olympus Business Creation Corp. in May 2010 to handle...

  • Page 6
    Left: President & COO Michael C. Woodford Right: Chairman & CEO Tsuyoshi Kikukawa 4 OLYMPUS 2011

  • Page 7
    ...this end reinforcing the global business foundation and production structure as well as reviewing the cost structure. Also, we added the China/Asia market to our existing three main business areas of North America, Europe and Japan, with the aim of expanding sales in the China/Asia market until they...

  • Page 8
    INTERVIEW WITH THE PRESIDENT Striving towards a Simple yet Determined Olympus Michael C. Woodford 6 OLYMPUS 2011

  • Page 9
    ...and Executive Chairman, KeyMed (Medical & Industrial Equipment) Ltd. (to present) June 2008 Executive Officer April 2011 President and COO (to present) Executive Managing Director and Chairman of the Board, Olympus Europa Holding GmbH (to present) May 2011 Chairman and CEO, Olympus Corporation of...

  • Page 10
    ... Company depends on the improvement of the entire manufacturing process from product planning and development, through to production and distribution. Olympus has the technological engineering resources and corporate culture needed to develop high-quality products that customers want to buy. As part...

  • Page 11
    ... Olympus." We will not look to compete, based on price, in the compact digital camera market; rather, we will target high-end compact digital cameras that take the "Best Picture" as well as developing cameras utilizing the Micro Four-Thirds System. In order to do so, we will change the R&D structure...

  • Page 12
    .... What about the Life Science and Industrial Systems Business? A: We have appointed a new global president to reinforce this business. Particularly in the life science field, we will focus on the development of high-value-added microscopes. Leveraging Olympus's technological assets and market...

  • Page 13
    ... also see growth potential in the area of non-destructive testing and measurement (visual inspection) devices in the industrial systems field. Please explain how you are reinforcing the Olympus Group's financial standing. Looking at Olympus's current financial position, we first need to reduce our...

  • Page 14
    ... targets Endoscopes-Overseas Surgical and endotherapy devices-Overseas Surgical and endotherapy devices-Japan Medical Systems Business Sales by Region (Billions of yen) 450 400 350 300 250 200 150 100 50 Fiscal 2007 2008 2009 2010 2011 North America Others Asia/Oceania Europe Japan 12 OLYMPUS...

  • Page 15
    ... and ¥231.0 billion in the surgical and endotherapy device field, and the Company expects growth in this field to soon outpace growth in the endoscopy business. Olympus's total share of the surgical endoscope markets of Japan, North America and Europe currently stands at 50% in the urology field...

  • Page 16
    ...Management Group in April 2011 to comprehensively support local business activities. Simultaneously, in China's Hong Kong Special Administrative Region, Olympus Corporation of Asia Pacific Limited commenced operations overseeing businesses in Asia and Oceania. The new company will develop management...

  • Page 17
    ... health care reform bill covering preventive services. Sales in North America account for the largest percentage-more than 35%-of Olympus's Medical Systems Business. Aiming to gain further profitability, Olympus is addressing such issues as cost structure reform. As part of such efforts, the Company...

  • Page 18
    ...markets of the Americas, Europe and Asia including Japan. Furthermore, the Group is focusing on strengthening its business foundation through such measures as M&A and the development of new products, specifically, it is expanding the scale of its surgical and endotherapy device operations aiming for...

  • Page 19
    ... a thinner scope. Cleaning and Disinfection History Recording System for Gastrointestinal Endoscopes STORIA A simple pass of the tag affixed to the endoscope over the Olympus-made cleaning and disinfection device for endoscopes enables this system to input, record, manage and utilize detailed data...

  • Page 20
    ... its global production structure in order to realize a solid business base unaffected by foreign exchange rate and demand fluctuations and rebuilding its earnings structure. In the industrial inspection field, which includes industrial endoscopes, and the non-destructive testing equipment, which...

  • Page 21
    ... at production sites. This product boasts various enhanced features, such as high image quality and durability and helps reduce downtime in the event of accidents. > R&D Activities of Fiscal 2011 Silicon Immersion Objective Lens Non-Destructive Testing Device/Ultrasonic...

  • Page 22
    ... Olympus camera lineup and incorporates such new functions as HD movie and Art Filter functions. IMAGING SYSTEMS BUSINESS > Business Overview In the Imaging Systems Business, Olympus offers various products for general consumers, including the E series interchangeable lens type digital single-lens...

  • Page 23
    ... of Fiscal 2011 Interchangeable Lens Type Digital SLR Camera Interchangeable Lenses E-5 The E-5 is a flagship camera that can maximize the superior imaging potential of ZUIKO DIGITAL lenses. Equipped with an image processing engine employing new "Fine Detail Processing" technology, the E-5 boasts...

  • Page 24
    ... its solution business to offer unique, higher-value-added services. ITX Corporation remains committed to further business development. Moreover, the company is expanding its sales channels through M&A in order to secure sustainable growth. Taking maximum advantage of Olympus's management resources...

  • Page 25
    ...and replaced with real bone inside the body, the OSferion series also offers a product lineup with enhanced mechanical strength and is easily implanted by press-fitting when necessary. > Business Overview With the aim of strengthening the Group's overall position, Olympus engages in the creation of...

  • Page 26
    ..., the Company continues to create new levels of value for its Medical Systems, Life Science and Industrial Systems and Imaging Systems businesses. Olympus's R&D expenditure in fiscal 2011 amounted to approximately ¥67.3 billion, accounting for roughly 7.9% of net sales. During fiscal 2011, although...

  • Page 27
    ... Systems and Imaging Systems businesses account for 69% of all patents held. The number of patents held by the Life Science and Industrial Systems Business edged down due to the sale of Olympus's high-speed inkjet printer business in March 2011. Breakdown of Domestic Patents Held in Core Competence...

  • Page 28
    ... missions is to build and operate an optimal and appropriate corporate governance structure from a global perspective. Management Structure Olympus adopted a corporate structure with an auditor system based on Japan's Corporation Law. Our corporate governance system consists of a Board of Directors...

  • Page 29
    ... of contact for any employee inquiries about compliance. Should compliance-related problems arise, Olympus has in place a system that enables the directors responsible to report problems to the Board of Directors and the Board of Auditors. Risk Control Structure As part of its risk management rules...

  • Page 30
    BOARD OF DIRECTORS, CORPORATE AUDITORS AND EXECUTIVE OFFICERS (As of June 29, 2011) Board of Directors Chairman & CEO Tsuyoshi Kikukawa President & COO Michael C. Woodford Directors, Executive Vice Presidents Haruhito Morishima Hisashi Mori Directors, Senior Executive Managing Officers Masataka ...

  • Page 31
    ... Sheets 34 Consolidated Statements of Operations 36 Consolidated Statement of Comprehensive Income 37 Consolidated Statements of Changes in Net Assets 38 Consolidated Statements of Cash Flows 39 Notes to the Consolidated Financial Statements 40 Report of Independent Auditors 64 OLYMPUS 2011 29

  • Page 32
    ... lens-type digital cameras and compact digital cameras as well as technologies for smaller and lighter products. At the same time, the Group strengthened its sales structure in the imaging systems markets of China and India. Viewing the rapidly changing business environment as a growth opportunity...

  • Page 33
    ...endotherapy devices, while accelerating business development in emerging markets. In the Life Science and Industrial Systems Business, the Company will strengthen its earnings foundation by improving the sales structure and product development process in the life science field. In the Imaging System...

  • Page 34
    ... 4, "Implementation Guidance for Accounting Standard for Earnings Per Shares," issued by the Accounting Standards Board of Japan on September 25, 2002). 7. 2007-2011: Equity = Total net assets - Minority interests 2001-2006: Equity = Total Shareholders' equity Net Sales (Millions of yen) Operating...

  • Page 35
    ...yen (except per share amounts) 2008 2007...32.9 124,287 264,473 19,865 Capital Expenditures / Depreciation and Amortization (Millions of yen) R&D Expenditures (Millions of yen) Return on Equity (%) 25.8 55,632 50,070 44... Capital expenditures Depreciation and amortization -44.4 OLYMPUS 2011 33

  • Page 36
    CONSOLIDATED BALANCE SHEETS Olympus Corporation and Consolidated Subsidiaries March 31, 2011 and 2010 Millions of yen Thousands of U.S. dollars (Note 1) 2011 2010 2011 ASSETS Current Assets: Cash and time deposits (Notes 4, 16 and 20) ...Notes and accounts receivable (Notes 4, 6 and 16) ......

  • Page 37
    ...,608 shares as of March 31, 2011 and 2010 ...Capital surplus...Retained earnings ...Treasury stock, at cost ...Total shareholders' equity ...Net unrealized holding gains (losses) on available-for-sale securities, net of taxes .. Net unrealized losses on hedging derivatives, net of taxes ...Foreign...

  • Page 38
    ...-for-sale securities, net ...Foreign currency exchange gain (loss), net ...Net gain (loss) of investment in affiliated companies accounted for by the equity method ...Gain (loss) on sales of investments securities in subsidiaries and affiliates, net ...Gain on transfer of business ...Amortization...

  • Page 39
    ... holding gains (losses) on available-for-sale securities, net of taxes ...Net unrealized losses on hedging derivatives, net of taxes ...Foreign currency translation adjustments ...Pension liabilities adjustment of foreign subsidiaries ...Share of other comprehensive income of companies accounted...

  • Page 40
    ... OF CHANGES IN NET ASSETS Olympus Corporation and Consolidated Subsidiaries For the years ended March 31, 2011, 2010 and 2009 Millions of yen Net unrealized holding gains (losses) on availablefor-sale Total shareholders' securities, net of taxes equity Net unrealized gains (losses) on hedging...

  • Page 41
    ... for product warranties ...Interest income...Interest expense ...Net loss (gain) of investment in affiliated companies accounted for by the equity method ...Gain on transfer of business (Notes 22)...Loss on prior period adjustment (Note 19)...Loss (gain) on available-for-sale securities, net...

  • Page 42
    ... FINANCIAL STATEMENTS The accompanying consolidated financial statements of Olympus Corporation (the "Company") and its consolidated subsidiaries have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting...

  • Page 43
    ... of write-offs. (i) PENSION AND RETIREMENT ALLOWANCE PLANS Employees of the Company, certain domestic consolidated subsidiaries and foreign consolidated subsidiaries are covered by funded pension plans. Employees of other domestic consolidated subsidiaries, directors and corporate auditors of...

  • Page 44
    ... securities are composed of mainly the shares of common stock of other companies with which the Group has business relationships or affiliated companies and the investment trust fund. The Group has also loans receivable from affiliated companies accounted for by the equity method. 42 OLYMPUS 2011

  • Page 45
    Substantially all trade payables-notes and accounts payable-have payment due dates within one year. Although the Group is exposed to foreign currency exchange risk arising from those payables denominated in foreign currencies, forward foreign exchange contracts are arranged to reduce the risk. Short...

  • Page 46
    ... is based on either quoted market prices or prices provided by the financial institutions making markets in these securities. For information on securities classified by holding purpose, please refer to Note 5 "Securities". Notes and accounts payable and Short-term borrowings Since these items...

  • Page 47
    ...2011 1) Non-listed equity securities...2) Non-listed foreign bonds ...3) Others ...Total... ¥2,449 - 2,067 ¥4,516 ¥19,281 1,303 1,671 ¥22,255 $ 30,613 - 25,838 $ 56,451 Because no quoted market price is available and it is extremely difficult to determine the fair value, the above financial...

  • Page 48
    ...: Book value Millions of yen Thousands of U.S. dollars 2011 2010 2011 Investment securities ...Total ...Note : Figures for 2010 include the cost of investment in jointly-controlled companies, amounting to ¥475 million. ¥2,947 ¥2,947 ¥10,100 ¥10,100 $36,838 $36,838 6. NOTES AND ACCOUNTS...

  • Page 49
    ... bank, due September 2019 ...Other bonds ...Others from foreign banks ...Others from Japanese banks ...(Secured long-term debt) Others from foreign banks ...Others from Japanese banks ...Less-current maturities ... 2011 2010 2011 ¥ 25,000 - 20,000 20,000 20,000 15,000 10,000 35,000 33,100...

  • Page 50
    ...2010 2011 Projected benefit obligation ...Unrecognized prior service costs ...Unrecognized actuarial difference...Fair value of pension assets ...Prepaid pension expenses ...Allowance for employees' severance and retirement benefits ...Severance and retirement allowance for directors and corporate...

  • Page 51
    ...1 corporate auditor 91 employees 6 directors of subsidiaries of ITX Corporation Common stock 5,795 From October 6, 2005 to April 28, 2006 From June 24, 2007 to June 23, 2010 - - - - - 3,485 - - 3,485 Class and number of shares of common stock for which new subscription rights were offered ...Date...

  • Page 52
    ... to be designated as common stock. However, a company may, by a resolution of its board of directors, designate an amount not exceeding one-half of the prices of the new shares as additional paid-in capital, which is included in capital surplus. Under the Japanese Corporate Law (the "Law"), in cases...

  • Page 53
    ... of information regarding the Consolidated Statement of Changes in Net Assets for the year ended March 31, 2011 was as follows: Total number and class of shares issued and treasury stock Class of Shares As of the end of the previous consolidated fiscal year (Number of shares) Increase in the current...

  • Page 54
    ... of information regarding the Consolidated Statement of Changes in Net Assets for the year ended March 31, 2009 was as follows: Total number and class of shares issued and treasury stock Class of Shares As of the end of the previous consolidated fiscal year (Number of shares) Increase in the current...

  • Page 55
    ... 31, 2009 Use New York, U.S. Nagano ¥1,353 Type of assets Location Millions of yen Assets used for Other Business Assets used for Information and Communication Business Total Goodwill Land Goodwill Software Tokyo and others Tokyo and others ¥ 721 252 365 477 ¥ 1,815 The Company and its...

  • Page 56
    ...of the Company for the year ended March 31, 2010 were follows: Millions of yen Current assets...Noncurrent assets...Current liabilities ...Noncurrent liabilities ...Foreign currency translation adjustment...Gain on transfer of business ...Price for transfer of business ...Proceeds from sale not yet...

  • Page 57
    ... payments and pro forma information) 2011 2010 2011 Lease payments ...Equivalent of...non-cancelable operating leases having remaining terms in excess of one year as of March 31, 2011 and 2010 were as follows: (As of March 31, 2011...U.S. dollars Current Assets 2011 2010 2011 Lease receivables...

  • Page 58
    ...-for-sale securities Unrealized loss on hedging derivatives Foreign currency translation adjustments Share of other comprehensive income of companies accounted for by the equity-method Total other comprehensive income Total comprehensive income attributable to: Shareholders of Olympus Corporation...

  • Page 59
    ... obtaining quotes from financial institutions. The fair value of foreign exchange forward contracts is estimated based on market prices for contracts with similar terms. Derivatives for which the hedge accounting is applied (As of March 31, 2011) Millions of yen Notional amount Book value Fair value...

  • Page 60
    ... biological microscopes, industrial microscopes, industrial endoscopes, non-destructive testing equipment, printers, and other products. The "Imaging Systems Business" manufactures and sells digital cameras, voice recorders and other products. The "Information & Communication Business" sells mobile...

  • Page 61
    ... 304,138 5,103 - ¥ 2,316 Thousands of U.S. dollars 2011 Medical Systems Life Science and Industrial Systems Imaging Systems Information and Communication Consolidated Total Others Total Adjustment Net sales: Unaffiliated customers ...Intersegment ...Total ...Operating income (loss) ...Assets...

  • Page 62
    ...adjacency. North America includes the United States, Canada, Mexico and Brazil. Europe includes Germany, the United Kingdom, France and other countries. Asia includes Singapore, Hong Kong, China, South Korea, Australia and other countries. (c) Sales by major customer Sales by major customer for the...

  • Page 63
    ..., Mobile content services, Network infrastructure systems, Development and sales of business package software, Semiconductor devices, Electric equipment, Software development, etc. (7) Information by geographic location Millions of yen 2010 Japan America Europe Asia Total Elimination and Corporate...

  • Page 64
    ... the United States and Canada. Europe includes Germany, the United Kingdom, France and other countries. Asia includes Singapore, Hong Kong, China, South Korea, Australia and other countries. Other areas include Central and South America, Africa and others. 27. BUSINESS COMBINATION BY ACQUISITION...

  • Page 65
    ... audited by the independent auditor. 28. SUBSEQUENT EVENT The Company borrowed as follows: (a) Contract date May 25, 2011 and May 27, 2011 (b) Application of fund Long-term working capital (c) Name of Lender Sumitomo Mitsui Banking Corporation and other 9 financial institutions (d) Borrowing amount...

  • Page 66
    REPORT OF INDEPENDENT AUDITORS The Board of Directors Olympus Corporation We have audited the accompanying consolidated balance sheets of Olympus Corporation and consolidated subsidiaries as of March 31, 2011 and 2010, and the related consolidated statements of income, changes in net assets, and ...

  • Page 67
    ... equipment and other medical devices Olympus Imaging Corp. (Tokyo) Manufacture and sale of digital cameras and voice recorders Aizu Olympus Co., Ltd. (Fukushima) Manufacturing of medical and industrial endoscopes Aomori Olympus Co., Ltd. 3500 Corporate Parkway, P. O. Box 610, Center Valley, PA...

  • Page 68
    ...instruments and systems Olympus (Beijing) Sales & Service Co., Ltd. (Beijing, China) Sales service of medical equipment in China Olympus Europa Holding GmbH (Hamburg, Germany) Regional business center, marketing and sales of all product lines in Europe Olympus Trading (Shanghai) Limited (Shanghai...

  • Page 69
    ...271,283,608 NUMBER OF SHAREHOLDERS 22,072 PRINCIPAL SHAREHOLDERS Number of shares held (thousands)* Percentage of shares outstanding (%) Nippon Life Insurance Company ...The Bank of Tokyo-Mitsubishi UFJ, Ltd...The Master Trust Bank of Japan, Ltd. (trust accounts) ...Japan Trustee Services Bank, Ltd...

  • Page 70
    AN-0811D Printed in Japan This report uses environment-friendly ink, and its financial section is printed on environment-friendly paper.