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Annual Report 2004
Year ended March 31, 2004

Table of contents

  • Page 1
    Annual Report 2004 Year ended March 31, 2004

  • Page 2
    ... which are primarily Japan, North America, Europe, Asia-Pacific and China; demand for, and competitive pricing pressure on, Omron's products and services in the marketplace; Omron's ability to continue to win acceptance for its products and services in these highly competitive markets; and movements...

  • Page 3
    ...(unless otherwise specified) 2004/3 For the Year: Net sales ...Gross profit ...Selling, general and administrative expenses (Except research and development expenses) ...Research and development expenses ...Operating income ...Net income (loss) ...At Year-End: Total assets ...Total interest-bearing...

  • Page 4
    ... PUBLIC RESPONSIBILITY Stakeholders are increasingly attentive to the quality of companies' efforts towards corporate social responsibility. Omron's founder, Kazuma Tateisi, established the Group's corporate motto-"At work for a better life, a better world for all"-in 1959. Since then, we have...

  • Page 5
    ...of an internal company system and a managing officer system in 1999 was aimed at separating the roles of corporate management and actual business operations. In an effort to reinforce the management oversight function, Omron increased the number of outside directors and outside corporate auditors as...

  • Page 6
    ... and flat panel display (FPD) industries, and succeeded in substantially expanding sales of such products as base inspection systems, displacement sensors, and high-precision control devices. In addition, sales of backlights used in cellular phones doubled by differentiating our products in respect...

  • Page 7
    ... Phase 1 Target Actual (ROE: %) 10% ROE achieved 1 year ahead of schedule Item 15 10 10.2 6.7 7.5 8.4 9.3 10.0 Reduction in groupwide fixed and variable expenses ...Expansion of overseas production ratio (compared with March 2001) ...Absorption or sale of low-profit or unprofitable businesses...

  • Page 8
    ...'s management is centered on the Board of Directors, Executive Meeting, and Board of Corporate Auditors. The managing officer system and internal company system serve to promote the separation of the roles of corporate management and business execution, Hisao Sakuta President and CEO July 2004 6

  • Page 9
    ... our operating income from the current 8.8% to more than 10% by fiscal 2007. The specific ways in which we will accomplish that goal are to accelerate shifting production to China to reduce our fixed manufacturing cost ratio while promoting efficiency in our sales and related support structures...

  • Page 10
    ...quadruple its sales in China to ¥150.0 billion. At the center of our strategy in China are our Industrial Automation Business (IAB), Electronic Components Business (ECB), and Healthcare Business (HCB). Major manufacturers from Japan, Europe and North America are expanding their output in China, and...

  • Page 11
    ... Quality lifecycle management (QLM) Car Safety Sensing technology Control technology Systems Business (SSB). The Omron Group will, therefore, continue to shift production to China as a means of improving its international competitiveness. Greater levels of capital investment are essential...

  • Page 12
    ... for Electronic Components Business. SSB SOCIAL SYSTEMS BUSINESS Provision of equipment, modules, services, and solutions in financial, station management and transportation areas 23.3% FY01 FY02 FY03 -3.0 1.2 10.4 Net Sales (Billions of yen) 128.1 116.7 136.0 Operating Income HCB HEALTHCARE...

  • Page 13
    ... Systems Software Components, etc.) • Components for Mobile Equipment (Backlights and Flash Lights for Mobile Phones, etc.) -Automotive relays -Switches -Electric control equipment -Other 19% 26% 42% 13% • Various Automotive Relays, Switches, Keyless Entry Systems, Power Window Switches...

  • Page 14
    ... drive parts. Solution Service Business for SMT Process Improvement This solution service promotes minimization of losses caused by mounting errors and introduction of lead-free technology in SMT process through providing the customers with printed circuit board inspection systems, and software...

  • Page 15
    ...the factory floor level for semiconductors, flat panel displays, electronic components, automobiles, food products, machine tools, transportation equipment, and packaging equipment. As a result, sales increased substantially for products such as base inspection systems, displacement sensors, vision...

  • Page 16
    .... Sales Breakdown, by Product (Fiscal 2003 Actual) STRENGTHS AND POSITIONING IN THE INDUSTRY Since we started working on the development of pressure sensors and acceleration sensors using MEMS* technology about 15 years ago, we have been expanding our presence in the area of "Sensing & Control...

  • Page 17
    ... gas velocity and direction at extremely low flow rates, using newly developed MEMS device. With this sensor, it is possible to detect even such slight movements as butterfly's flutter. DC Power Relay This DC power relay allows quickly-interrupting high voltage current loads safely and silently...

  • Page 18
    ...Automotive Relays: PCB relays, Power relays Switches: Power window switches, Power seat switches etc. Electric Control Equipment: Keyless remote controllers etc. Other: Laser radar devices, Sensors etc. closing, keyless remote entry systems using wireless communications technology, and laser radar...

  • Page 19
    ... in sales for the segment during fiscal 2004. Keyless Entry System This system is to lock or unlock doors by remote control in conjunction with hazard lamp. The maximum distance between transmitter and receiver is expanding, and the sensitivity of the sensor is increasing. Automotive Relay High...

  • Page 20
    ... of the world's first cash dispenser using a magnetic card, leading position in business areas essential to modern life, such as traffic management systems and card reader modules. Across diverse fields that include train station management, financial service, traffic control, and retail, the Group...

  • Page 21
    ... joint venture. Based on collaboration between Omron and Hitachi, the new company will aim to reach the number one position in three business areas: (1) the domestic financial terminal machine business; (2) the currency recycling ATM busi- ness in China, where the financial infrastructure is being...

  • Page 22
    ...sensing technology, the segment's core products include digital blood pressure monitors and digital thermometers, with a wide range of other healthcare and medical equipment, including pedometers and chair massagers. In this segment, we also promote various services such as health management systems...

  • Page 23
    ... of patients with high blood pressure and accelerated popularization of blood-pressure taking at home spurred the sales growth of digital monitors, and the introduction of new products and aggressive advertising investment resulted in rapid expansion in market share for body composition monitors. In...

  • Page 24
    ... services for cellular phones. Other Businesses Results and Projections Billions of yen (unless otherwise specified) FY2004 Projected Net Sales ...Domestic ...Overseas ...North America ...Europe ...Asia ...China ...Direct exports ...Operating income ...Operating income margin ...Capital...

  • Page 25
    ... net sales). INVESTMENT IN PROPRIETARY TECHNOLOGICAL DOMAINS Proprietary technological domains that the Group is designating for ongoing attention include ultra-precision 3D fabrication and replication technology and MEMS; lightwave control; vision, optical, and radio wave sensing; and knowledge and...

  • Page 26
    ... Community Support The Omron Group supports various efforts to improve social welfare and the general living environment, centered on Kyoto, home of Omron's Group Headquarters. Also, each year on the Founder's Day, what we call Omron Day, employees at all Omron Group facilities make personal efforts...

  • Page 27
    ..., a support system for the design of environmentally-guaranteed products, for the use of product design and information disclosure on products. These systems began functioning in part from April 2004, and are now being used for abolishing totally the use of hazardous chemicals designated by RoHS...

  • Page 28
    ...fiscal 2004. Although the total volume of emissions was 220 tons greater than for fiscal 2002, our 97.2% recycling rate surpassed the goal of 96%. The Omron Group aims to reach a recycling rate of 100% also at Japanese non-production sites and overseas production sites by fiscal 2006, and is working...

  • Page 29
    ... GOVERNANCE Implementation of Accountability Since Omron introduced the Managing Officers System and the Internal Company System in 1999, we have been promoting the separation of the roles of corporate We are working for accurate and timely disclosure, using fair, unbiased, and appropriate means...

  • Page 30
    DIRECTORS, CORPORATE AUDITORS AND CORPORATE OFFICERS (As of March 31, 2004) 3 4 5 6 7 1 2 1. Yoshio Tateisi Chairman ...Corporate Officers Executive Vice President Fumio Tateisi Senior Managing Officers Fujio Tokita Akihiko Otani Soichi Yukawa Tsukasa Yamashita Yutaka Takigawa Managing Officers...

  • Page 31
    ... Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Independent Auditors' Report Global Network Corporate and Stock Information

  • Page 32
    ... Components Business ...Automotive Electronic Components Business ...Social Systems Business ...Healthcare Business ...Other Businesses ...Cost of sales ...Gross profit ...SG&A expenses (excluding R&D expenses) ...R&D expenses ...Operating income...EBITDA (Note 2) ...Net income (loss) ...Cash Flows...

  • Page 33
    ...: Net sales ...Industrial Automation Business...Electronic Components Business . Automotive Electronic Components Business ...Social Systems Business ...Healthcare Business...Other Businesses ...Operating income (loss) ...Cash Flows: Net cash provided by operating activities ...Net cash used in...

  • Page 34
    ... for all regions except North America, and for all business segments except Automotive Electronic Components Business (AEC) and Other Businesses. GENERAL OVERVIEW OF FISCAL 2003 RESULTS Although consolidated net sales increased 9.3 percent compared to fiscal 2002, operating income rose 59.1 percent...

  • Page 35
    ... using ultra-precision 3D fabrication and replication technology, also showed consistent sales growth, as did cellular phone LED light modules. Sales of base station relays also increased substantially, due to rapid expansion of the telecommunications infrastructure markets in China and Europe...

  • Page 36
    ... upgrading main equipments to conform to an improvement in passenger services such as the acceptance of IC cards. In traffic control and road management system fields, on the other hand, demands for urban highways-related were robust in the year under review. • Health Care Business (HCB) Sales of...

  • Page 37
    ... an increase of ¥3,851 million. The main factor responsible was ¥3,661 million increase in capital investment (for a total of ¥38,115 million) accompanying Omron's growth strategy. Net cash used in financing activities was ¥28,119 million in outflow, compared to outflow of ¥1,996 million in the...

  • Page 38
    ... Conditions The primary business of the Omron Group is electronic components used in the manufacture of control system equipment and other electrical/electronic equipment by the manufacturing sector and in capital investment related areas. Accordingly, demand for Omron Group products is affected by...

  • Page 39
    ...while proceeding its business operation centered on technology, based on a management policy of securing a balance between growth and profits. As a result, R&D expenditures as a percentage of sales rose from 7.5 percent for fiscal 2002 to 7.9 percent for fiscal 2003. The Omron Group concentrates its...

  • Page 40
    CONSOLIDATED BALANCE SHEETS OMRON Corporation and Subsidiaries March 31, 2004 and 2003 Millions of yen Thousands of U.S. dollars (Note 2) ASSETS Current Assets: Cash and cash equivalents ...Notes and accounts receivable - trade ...Allowance for doubtful receivables ...Inventories (Note 3) ......

  • Page 41
    ...,481 Additional paid-in capital ...Legal reserve ...Retained earnings ...Accumulated other comprehensive loss (Note 15) ...Treasury stock, at cost - 9,884,413 shares in 2004 and 6,245,053 shares in 2003 ...Total Shareholders' Equity ...Total ... See notes to consolidated financial statements. 39

  • Page 42
    CONSOLIDATED STATEMENTS OF OPERATIONS OMRON Corporation and Subsidiaries Years ended March 31, 2004, 2003 and 2002 Millions of yen Thousands of U.S. dollars (Note 2) 2004 Net Sales Costs and Expenses: ...Cost of sales ...Selling, general and administrative expenses ...Research and development ...

  • Page 43
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) OMRON Corporation and Subsidiaries Years ended March 31, 2004, 2003 and 2002 Millions of yen Thousands of U.S. dollars (Note 2) 2004 Net Income (Loss) ...Other Comprehensive Income (Loss), Net of Tax (Note 15): Foreign currency translation ...

  • Page 44
    ... STATEMENTS OF SHAREHOLDERS' EQUITY OMRON Corporation and Subsidiaries Years ended March 31, 2004, 2003 and 2002 Millions of yen Number of common shares issued Common stock Additional paid-in capital Legal reserve Retained earnings Accumulated other comprehensive income (loss) Treasury stock...

  • Page 45
    CONSOLIDATED STATEMENTS OF CASH FLOWS OMRON Corporation and Subsidiaries Years ended March 31, 2004, 2003 and 2002 Millions of yen Thousands of U.S. dollars (Note 2) 2004 Operating Activities: Net income (loss) ...Adjustments to reconcile net income (loss) to net cash provided by operating ...

  • Page 46
    ... advanced computer, communications and control technologies. The Company conducts business in over 30 countries around the world and strategically manages its worldwide operations through 5 regional management centers in Japan, North America, Europe, Asia-Pacific and China. Products, classified by...

  • Page 47
    ... million for the years ended March 31, 2004, 2003 and 2002, respectively, and are included in selling, general and administrative expenses in the consolidated statements of operations. Termination and Retirement Benefits Termination and retirement benefits are accounted for in accordance with SFAS...

  • Page 48
    ... has transferred, the sales price is fixed or determinable, and collectibility is probable. These criteria are met when products are received by customers or services are performed. Stock-Based Compensation The Companies account for stock-based awards to employees using the intrinsic value method...

  • Page 49
    ... (except per share data) Thousands of U.S. dollars (except per share data) 2004 Net income (loss), as reported ...Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards ...Pro forma net income (loss) ...Net income (loss) per share (yen and...

  • Page 50
    ... ASSETS The components of acquired intangible assets excluding goodwill at March 31, 2004 and 2003 were as follows: Millions of yen 2004 Gross Amount Accumulated Amortization 2003 Gross Amount Accumulated Amortization Intangible assets subject to amortization: Software ...Other ...Total ...Â¥24...

  • Page 51
    ... bonds at 1.7%, due in September 2004 ...Loans from banks and other financial institutions, generally at 0.4% to 3.8%, due on various dates through the years ended March 31,2006 . . Other ...Total ...Less portion due within one year ...Long-term debt, less current portion...10,986 522 41,243...

  • Page 52
    ... ended March 31, 2004, 2003 and 2002, respectively. 8. TERMINATION AND RETIREMENT BENEFITS The Company and its domestic subsidiaries sponsor termination and retirement benefit plans which cover substantially all domestic employees. Benefits are based on the employee's years of service, with some...

  • Page 53
    ... should be accounted for as a subsidy from the government. On April 26, 2004, the Company received the Japanese government's approval of exemption from the obligation for benefits related to future employee service under the substitutional portion of its pension plan. The effect on the consolidated...

  • Page 54
    ... for the contributory termination and retirement plans included the following components for the years ended March 31: Millions of yen Thousands of U.S. dollars 2004 Service cost, less employees' contributions ...Interest cost on projected benefit obligation ...Expected return on plan assets...

  • Page 55
    ... (0.11% of total domestic plan assets) at December 31,2003 and 2002, respectively. Cash Flows The Company expects to contribute ¥5,712 million ($53,887 thousand) to its domestic termination and retirement benefit plans in the year ending March 31, 2005. Certain employees of European subsidiaries...

  • Page 56
    ...shares reissued on the effective date of acquisition. The loss was charged directly to retained earnings. Stock Options The Company has authorized the grant of options to purchase common stock of the Company to certain directors and officers of the Company under a fixed stock option plan. All of the...

  • Page 57
    ...531 U.S. dollars Shares Weightedaverage exercise price Options exercisable at March 31, 2004 ... 609,000 $23.88 The following summarizes information about fixed stock options at March 31, 2004: Options outstanding Yen Range of exercise prices Shares Weighted-average remaining contractual life...

  • Page 58
    ...Company was developed for use in estimating the fair value of fully tradable options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. It is management...

  • Page 59
    ...Companies differ from the normal Japanese statutory rates as follows for the years ended March 31: 2004 Normal Japanese statutory rates ...Increase (decrease) in taxes resulting from: Permanently non-deductible items ...Losses of subsidiaries for which no tax benefit was provided ...Tax loss on sale...

  • Page 60
    ... and equipment ...Allowance for doubtful receivables ...Gain on sale of land ...Minimum pension liability adjustment...Other temporary differences ...Tax credit carry forwards...Operating loss carry forwards ...Subtotal ...Valuation allowance...Total ... ¥ 3,215 5,432 14,942 676 2,349 - 1,683 1,249...

  • Page 61
    ... free of tax. 12. FOREIGN OPERATIONS Net sales and total assets of foreign subsidiaries for the years ended March 31, 2004,...773) 2004 $252,934 3,085 $256,019 Number of shares 2004 Weighted average common shares outstanding ...Dilutive effect of: Convertible bonds, due 2004 ...Stock options ......

  • Page 62
    ...2003 and 2002, the assumed exercise of stock options, giving effect to the incremental shares, was anti-dilutive and has been excluded from the computation. 14. SUPPLEMENTAL INFORMATION FOR CASH FLOWS Supplemental cash flow information for the years ended March 31, 2004, 2003 and 2002 was as follows...

  • Page 63
    ......Reclassification adjustment for net losses (gains) on sales realized in net income (loss) ...Net unrealized gains (losses)...Net gains (losses) on derivative instruments: Net gains (losses) on derivative instruments designated as cash flow hedges during the year ...Reclassification adjustment for...

  • Page 64
    ... 88,208 16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Financial Instruments The following table presents the carrying amounts and estimated fair values as of March 31, 2004 and 2003, of the Companies' financial instruments. Millions of yen 2004 Carrying amount Fair value Carrying amount 2003 Fair...

  • Page 65
    ..., pricing or valuation models are applied to current market information to estimate fair value. The Companies do not use derivatives for trading purposes. Changes in the fair value of foreign exchange forward contracts and foreign currency options designated and qualifying as cash flow hedges...

  • Page 66
    ...The Companies place their short-term cash investments with high-credit-quality financial institutions. Concentrations of credit risk with respect to trade receivables, as approximately 75% of total sales are concentrated in Japan, are limited due to the large number of well-established customers and...

  • Page 67
    ... to be held on June 24, 2004. The new company, if approved, will start operations on October 1, 2004, and will be called Hitachi-Omron Terminal Solutions Corp. ("HOTS"). HOTS will strive for a globally competitive position in the information equipment market. The Company will be given a 45% interest...

  • Page 68
    ... financial position of OMRON Corporation and subsidiaries as of March 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2004 in conformity with accounting principles generally accepted in the United States of America...

  • Page 69
    ...1-847-843-7686 ASIA-PACIFIC Regional Headquarters OMRON Asia Pacific Pte. Ltd. (Singapore) Phone: 65-6835-3011 Fax: 65-6835-2711 Electronic Components Business OMRON Malaysia Sdn. Bhd. (Malaysia) Phone: 603-7620-0036 Fax: 603-7620-0049 P.T. OMRON Manufacturing of Indonesia (Indonesia) Phone: 62-21...

  • Page 70
    ...-3-5489-9310 Automotive Electronic Components Business OMRON Iida Co., Ltd. Phone: 81-265-26-6000 Fax: 81-265-26-6030 Research and Development Keihanna Technology Innovation Center Phone: 81-774-74-2000 Fax: 81-774-74-2001 Social Systems Business OMRON Field Engineering Co., Ltd. Phone: 81-3-3448...

  • Page 71
    ... Park Avenue, New York, NY 10017-2070, U. S. A. ADR Holder Contact: JPMorgan Service Center P. O. Box 43013 Providence, RI 02940-3013 Phone : 781-575-5328 Fax : 781-575-4082 General E-mail: [email protected] Homepage http://www.omron.co.jp (Japanese) http://www.omron.com (English) Common Stock Price...

  • Page 72
    Printed in Japan 100% Recycled-content level Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530, Japan Phone: 81-75-344-7000 Fax: 81-75-344-7001 Home page: http://www.omron.co.jp (Japanese) http://www.omron.com (English)