Omron Corporation
Annual Report 2000

Plain-text annual report

Unique Competencies, Profitable Growth Annual Report 2000 Year ended March 31, 2000 Profile OMRON develops and markets technologies that help customers offer more functional and effective products, which in turn help society function more safely and smoothly. A core area of emphasis is information sensing technology in the fields of vision sensing, light wave sensing, and fuzzy logic and human media. To retain the trust of shareholders, OMRON is improving its management structure, business structure and fixed cost structure, and has innovated its sales approach to make OMRON a customer-oriented solutions-providing business. While working to achieve growth, OMRON is also committed to protecting the environment and contributing to the communities it serves, with representative achievements including ISO 14001 certification of the environmental management systems of all domestic and overseas plants. To realize its corporate motto of “At work for a better life, a better world for all,” OMRON focuses on six management philosophies: (cid:2) Offer maximum satisfaction to customers (cid:2) Consistently accept challenges (cid:2) Focus on gaining shareholders’ trust (cid:2) Respect individuals (cid:2) Become a responsible corporate citizen (cid:2) Maintain corporate ethics while promoting corporate activities Contents Financial Highlights ............................................................................. To Our Shareholders ........................................................................... Objectives of OMRON’s Eighth Medium-Term Management Plan........................................................................ Strengthening Profit Structure ......................................................... Investing in New, High-Growth Areas ............................................ Review of Operations.......................................................................... OMRON’s Environmental Conservation Activities .............................. Board of Directors............................................................................... Financial Section ................................................................................. Six–year Summary........................................................................... 1 2 4 5 7 8 14 16 17 17 Management’s Discussion and Analysis ......................................... Consolidated Balance Sheets ......................................................... Consolidated Statements of Income ............................................... Consolidated Statements of Comprehensive Income..................... Consolidated Statements of Shareholders’ Equity.......................... Consolidated Statements of Cash Flows ........................................ Notes to Consolidated Financial Statements .................................. Independent Auditors’ Report ......................................................... International Network .......................................................................... 18 24 26 27 28 29 30 43 44 Investor Information ............................................................................ 47 Financial Highlights OMRON Corporation and Subsidiaries Years ended March 31, 2000, 1999 and 1998 Millions of yen (except per share data) Thousands of U.S. dollars (Note 2) (except per share data) 2000 1999 1998 2000 For the Year: Net Sales ................................................................................................... ¥555,358 ¥555,280 ¥611,795 $5,239,226 Income before Income Taxes and Minority Interests................................ 21,036 Net Income ................................................................................................ 11,561 8,249 2,174 42,243 18,704 198,452 109,066 Net Income per Share (yen and U.S. dollars): Basic .................................................................................................. Diluted ................................................................................................ ¥ 45.0 44.5 ¥ 8.3 8.3 ¥ 71.4 69.8 $ 0.42 0.42 Cash Dividends per Share (yen and U.S. dollars, Note 1) ........................ 13.0 13.0 13.0 0.12 Capital Expenditures (cash basis) ............................................................. ¥ 31,146 ¥ 36,696 ¥ 35,896 $ 293,830 Research and Development Expenses ..................................................... 36,605 42,383 39,914 345,330 At Year End: Total Assets............................................................................................... ¥579,489 ¥580,586 ¥593,129 $5,466,877 Total Shareholders’ Equity ........................................................................ 336,062 321,258 343,066 3,170,396 Notes: 1. Cash dividends per share are the amounts applicable to the respective year, including dividends to be paid after the end of the year. 2. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at March 31, 2000, of ¥106=$1 Net Sales (Billions of Yen) Income before Income Taxes and Minority Interests (Billions of Yen) Net Income (Billions of Yen) Net Income per Share (Diluted) (Yen) 5 2 5 4 9 5 2 1 6 5 5 5 5 5 5 2 3 9 3 2 4 8 1 2 5 1 6 1 9 1 2 2 1 5 . 4 5 8 . 8 5 8 . 9 6 3 . 8 5 . 4 4 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 OMRON Corporation 1 To Our Shareholders During fiscal 2000 (the fiscal year ended March 31, 2000), OMRON underwent a corporate transformation to raise the Company’s speed and flexibility. In working to achieve sustainable recovery in earnings, we implemented a reform program covering our management structure, business structure and fixed cost structure, and innovated our sales approach to make OMRON a customer-oriented solutions-providing business. As a result of these initiatives, we were able to avoid a second successive year of declining profits, our primary focus for the fiscal year, and to make progress in generating long-term growth. Activities and Results: Major Earnings Improvement Consolidated net sales for the fiscal year of ¥555.4 billion were our business without any major disruptions. Environmental protection has long been a critical management impacted by the transfer of a business division in the previous task. OMRON has already obtained ISO 14001 certification of the fiscal year and the appreciation of the yen. Absent the transfer of environmental management systems of all domestic and overseas the business division, net sales would have increased manufacturing facilities, and we will continue to promote approximately 4 percent year-on-year. Net income before tax environmental protection throughout the OMRON Group. increased 155.0 percent to ¥21.0 billion, and net income rose 431.8 percent to ¥11.6 billion. Reflecting this solid improvement in earnings, return on average total shareholders’ equity (ROE) rose to 3.5 percent from 0.7 percent for the previous fiscal year. The deterioration in OMRON’s performance during fiscal 1999 Management Tasks and Strategies: OMRON’s Corporate Transformation under the Eighth Medium-Term Management Plan (the fiscal year ended March 31, 1999) engendered a sense of The market is undergoing a winnowing process, with a crisis that spurred the Company to successfully implement three challenging operating environment marked by factors such as structural reforms. A restructuring initiated in fiscal 1999 and ongoing globalization, the revolution in information technology success in containing selling, general and administrative (SGA) and changes in the industrial structure. Amid these conditions, expenses were key factors supporting the increase in earnings. OMRON will realize a solid, long-term profit structure. The Moreover, we transformed our approach to sales in emphasizing Company is moving forward with structural reform and the solutions-providing business, particularly at the Industrial implementing strategies for growth in working toward record Automation Company. Private capital investment began to earnings in a second consecutive year of higher sales and recover during the past fiscal year, particularly in the income during the year ending March 2001. The Eighth Medium- semiconductor and information and communication industries. Term Management Plan, begun in April 2000, will guide OMRON OMRON was therefore well positioned to generate strong sales in undertaking the required tasks. Essentially, the Plan calls for growth in the core control systems business. prioritization and focus to raise OMRON's corporate value, with The introduction of the internal company system in April 1999 the primary objectives of raising ROE to 6.0 percent and contributed to earnings that exceeded initial projections. Clearly achieving record earnings. Continued structural reform during the more focused on meeting performance objectives, each year to March 2001 is crucial to achieving our objectives. In company is also quicker and more purposeful, which has raised addition, OMRON will invest in future growth in entering and both responsiveness to customers and earnings. expanding its presence in new businesses, with each company In addition, by positioning the Y2K Problem as a management working to expand earnings by thoroughly serving customer issue and implementing comprehensive countermeasures at all interests. Group companies, we have been able to continuously carry out 2 OMRON Corporation Goals of Eighth Medium–Term Management Plan –Performance Objectives ROE 6%+ Net Income Before Tax (NIBT) ¥45 billion 6% 3.5% 0.7% ROE Net Sales NIBT 555.4 21.0 2000 555.3 8.2 1999 650.0 45.0 2002 Note: Years ended March 31 Performance Objectives Yoshio Tateisi Representative Director and Chief Executive Officer Plan. In improving our profit structure, each company will bolster investment in existing businesses and embrace profit-oriented management. At the same time, we will continue to contain SGA expenses and expand profitable sales while improving the soundness of our financial structure. In entering new businesses and expanding our presence in them, we will focus investment on growth sectors according to clearly defined plans to generate future growth. While implementing these two core strategies, we will promote management that clarifies the functions and responsibilities of each company. Growing the OMRON Group OMRON’s Grand Design 2000 Project is a long-term vision covering the 10 years through 2010 geared toward helping the Company answer the needs of the twenty-first century. The three main points of this vision are raising corporate value, organizational and individual self-reliance, and OMRON Group The Eighth Medium-Term Management Plan emphasizes cohesion. Ultimately, this vision is designed to make the OMRON profitability. In the final year of the plan, the year ending March Group an attractive, innovative corporation that has admirable 2002, OMRON has targeted record net income before tax of ideals and objectives. ¥45.0 billion and ROE above 6.0 percent. Our profit-oriented In addition, we are working to further improve management by approach will help strengthen shareholder trust in the Company, creating a new Group structure during fiscal 2002 in order to a core point of OMRON’s management philosophy, and our enhance the presence of an OMRON Group that is able to objective of ROE exceeding 6.0 percent is the first step toward operate in global markets regardless of economic changes. our next goal of raising it above 10.0 percent. OMRON is maximizing value for shareholders by effectively restoring profitability, and we are counting on your continued Core Strategies support. Improving our profit structure and strengthening investment to enter new businesses and expand our presence in them are primary components of the Eighth Medium-Term Management OMRON Corporation 3 Unique Competencies, Profitable Growth Objectives of OMRON’s Eighth Medium-Term Management Plan Main objective: The main objective of the Eighth Medium-Term Management Plan is to strengthen OMRON’s profit structure, so that it will be able to attain sustainable profit growth. Our ultimate goal in doing so is to enhance OMRON’s corporate value. Specifically, we will actively invest corporate resources for future growth while concentrating on strengthening profitability. In addition, we will continue promoting structural reforms in the three area of management, business and corporate resources that we implemented during fiscal 1999. Key strategies: At the internal company level: Strengthen OMRON’s profit structure for sustainable profit growth At the management level: Invest in new, high-growth areas 4 OMRON Corporation Strengthening Profit Structure Strengthening profit structure is one of the core objectives of the Eighth Medium-Term Management Plan. The following programs covering sales, cost of sales and SGA expenses are contributing to better earnings. Reduce SGA Expenses to 28 Percent of Net Sales SGA expenses accounted for over 32 percent of net sales in the fiscal year ended March 31, 1999 (fiscal 1999). In October 1998, OMRON began a concerted effort to lower this ratio, which stood at 30.7 percent for the fiscal year ended March 2000. The Company intends to continue improving operational efficiency, with the goal of reducing the SGA ratio to 28 percent by the end of March 2002. We are aggressively cutting costs by reducing the number of employees to lower personnel expenses, consolidating offices and raising logistics efficiency, and promoting outsourcing. At the same time, OMRON will continuously spend 7 percent of net sales on R&D expenses, which will lead to future growth through the development of new products and businesses. SGA Expenses Reduce SGA ratio to 28 percent Use personnel efficiently Reduce expenses Maintain R&D expenses at present level 32.3% 30.7% Total SGA expenses (including R&D expenses) 29% 28% 1999 2000 2001 2002 OMRON Corporation 5 Maintain Cost of Sales Ratio at 65 Percent of Net Sales OMRON has reduced the cost of sales ratio from a peak of 67.8 percent of net sales in the fiscal year ended March 31, 1994 to 64.6 percent for fiscal 2000. The Eighth Medium-Term Management Plan calls for maintaining this rate at 65 percent. We will continue to keep the cost of sales ratio at the 65 percent level by minimizing cost-increasing factors such as lower sales prices, exchange rate fluctuations and business mix. OMRON is implementing a number of initiatives to contain cost of sales companywide. We are optimizing and expanding overseas production while concentrating on reducing raw materials costs for component production. Moreover, we are consolidating design and production bases to raise manufacturing efficiency, and are also improving logistics efficiency and reducing inventories in moving forward with supply chain management. Cost of Sales Ratio Keep cost of sales ratio at 65 percent level Expand overseas production e-procurement (centralized procurement) Integrate design and production bases Supply chain management 65.6% 65.2% 65.0% 64.6% 1999 2000 2001 2002 Net Sales of ¥650.0 Billion for Fiscal 2002 Our sales objective for the fiscal year ending March 31, 2002 is ¥650.0 billion. We intend to continue expanding sales internationally to achieve this goal, and are aggressively working to raise sales in Europe, the United States and Asia. In particular, overseas sales account for nearly 50 percent of Industrial Automation Company and Electronic Components Company sales, so we will continue investing corporate resources in the expansion of operations outside Japan. The Industrial Automation Company is emphasizing the safety market with its control components and systems and the Social Systems Business Company is entering and expanding its presence in new markets such as the convenience store sector. OMRON is also rapidly expanding its solutions-providing business, which will innovate the Company’s approach to sales to increase market share. We are strengthening our e-commerce business through subsidiaries as part of our new approach to markets. Net Sales (Billions of yen) 555.3 555.4 594.0 650.0 650 550 450 350 250 0 6 OMRON Corporation 1999 2000 2001 2002 Investing in New, High-Growth Areas In addition to improved earnings, investment to ensure future growth that is guided by the themes of prioritization and focus is a core tenet of the Eighth Medium-Term Management Plan. Information Sensing Technology – A Key to Expansion in New Technology Markets Information sensing technology is a core OMRON competency and a high-potential field in which we are concentrating investment. Our four primary fields of focus are vision sensing, encompassing shapes and written characters; light wave sensing, covering gloss and chromaticity sensing; semiconductor sensing, covering the production of chips that incorporate components such as sensors and relays used in semiconductor processes; and fuzzy logic and human media, encompassing face image and voice recognition. Information technology-related businesses and products will be a primary focus, and we intend to work with Internet companies in business development as well. Information Sensing New Technologies Vision Sensing Micro Machined Sensing Silhouette vision, pattern vision Omron is building on its leadership in allowing machinery to “see,” developing sensing technology that approximates the capabilities of the human eye. MLA/MMS/MMR Micron-miniature machines in chip configuration are are a core focus at OMRON, particularly the uses of sensors, relays and other components. Fuzzy Logic and Human Media Light Wave Sensing Face image, voice recognition Fuzzy logic allows machinery to adjust to the idiosyncrasies of humans, supporting OMRON’s leadership in processing numerals, languages, voices and images. Gloss sensing, chromaticity sensing Emphasis on light polarization and light wavelengths is supporting OMRON’s drive to lead in the fields of quality control, including gloss and chromaticity sensing. Information Technology ¥93.0 Billion in Capital Investment Over Two Years The Eighth Medium-Term Management Plan calls for capital investment of ¥93.0 billion, which includes expenditures for manufacturing equipment within cash flow allowance. Main investment themes will be raising production efficiency and expanding manufacturing facilities outside Japan. Focus of Planned Capital Investment Allocation of Planned Capital Investment (Billions of yen) 36 38 37 45 35 25 0 45* 30 Strategic investment: ¥12 billion 36* Others (offices, factories, etc.) New business development 17% 13% Streamlining/ upgrading existing facilities 32% 38% Expansion-oriented investments 1997 1998 1999 2000 2001 2002 *Investment in facilities and equipment: ¥81 billion Investment in facilities and equipment: ¥81 billion OMRON Corporation 7 Review of Operations OMRON at a Glance Main Products % of Net Sales Industrial Automation Company Programmable logic controllers, Programmable terminals, Photoelectric sensors, Proximity sensors, Printer circuit board automated solder inspection systems, Switches, Relays, Timers, Counters, Temperature and process controllers, Protective relay, Power supplies ¥243,604 million 43.9% Electronic Components Company Tactile switches, Dip switches, Trigger switches, General purpose relays, Multiplex Controllers, Laser Radars, Actuators, Buckle switches, Detection switches, Components for photocopier and printer (counterfeit detectors, tablets, paper handling machines, controller PCB units, sensors, relays, switches), Amusement components (Sensors, Keys, ICs, Game controllers) ¥68,328 million 12.3% Social Systems Business Company Banking systems, (ATMs, Cash dispensers, POS system, FET terminal), Automatic fare collection systems, Area traffic control systems, Parking systems, Totalizer systems ¥128,534 million 23.1% Healthcare Company Digital blood pressure monitor, Electric digital thermometers, Electronic pulse massagers, Body-fat monitors, Nebulizer, Chair massager, Pedometer, Healthcare services ¥42,640 million 7.7% Peripheral equipment for personal computer (Terminal Adapter, Modem, Cable-type modem for mobile phone, Uninterruptible power supply, Scanner) Card readers, Room access control system, Radio frequency ID systems, Photo- sticker vending machines, Speech recognition and voice authentication software. ¥72,252 million 13.0% Others 8 OMRON Corporation The superior capabilities of the E3Z light wave sensor offer excellent processability and reliability, setting the standard for next-generation environmental protection technologies. Net Sales (Billions of Yen) 246 244 1999 2000 Industrial Automation Company (cid:2) Orientation toward semiconductor industry supports domestic growth (cid:2) Environmentally friendly, measure-of-safety components open new markets The Micro PLC CPM2A/CPM2C is both ultracompact and highly functional, offering added value by allowing manufacturers to add capabilities to various kinds of machinery. The G Compo Series supports miniaturization and reduced footprint by providing enhanced recognition and ease of use in operation. This communication technology contributes to the use of information in manufacturing. In fiscal 2000, demand for control components and systems exchange rate losses that resulted from the appreciation of the for industrial automation leveled off as the economy in Japan yen. Consequently, for fiscal 2000 total Industrial Automation remained sluggish. During the second half of the term, Company sales amounted to ¥243.6 billion, a 1 percent however, manufacturers began to implement more proactive decline from the previous fiscal year. Sales would have capital investment strategies, which resulted in a recovery in increased 3 percent if OMRON had not sold its semiconductor demand for semiconductors and communications-related business. Environmentally-friendly and measure-of-safety products. The Industrial Automation Company moved to components and advanced sensors designed to open new benefit from this trend by strengthening marketing and its markets using innovative technology made notable product lineup for the semiconductor industry. The company contributions to sales. has also been steadily increasing the number of OMRON sales Changes currently taking place in the global market present representatives dispatched to its major distributors since fiscal both opportunities and challenges to OMRON. While 2000. These efforts and the gradual upturn in the domestic accurately accommodating these changes, we will implement economy supported a significant increase in domestic sales. strategies tailored to OMRON’s market positioning for each Sales outside Japan also grew steadily on a local currency region, product category, customer group and application to basis in the Asian, European and U.S. markets. This sales generate sustainable profit growth. Another focus will be growth was offset, however, by OMRON’s sale of its strengthening and improving the efficiency of relationships semiconductor business in the first half of the fiscal year and with customers. OMRON Corporation 9 The ultracompact and high-quality XF2H connector and B3B tactile switch are used in portable multimedia equipment. The compact G6K relay is used in Internet system equipment. Keyless entry systems allow remote locking and unlocking of vehicle doors and trunks. Electronic Components Company (cid:2) Microlens arrays for liquid crystal projectors are a growth area (cid:2) Optimized global operations enhance synergy Net Sales (Billions of Yen) 57 68 1999 2000 In Japan, the market for consumer and commerce (C&C) In line with the company’s mission to become a superior components was difficult due primarily to price cuts brought global electronic components supplier, we are committed to on by intense competition. Despite the challenging establishing a global sales network while simultaneously environment, the Electronic Components Company achieved promoting low-cost operations and the use of standardized solid sales growth because of increasing demand for its tactile parts and materials. In addition, we are working to optimize switches, which effectively support the trend toward reduced global manufacturing and procurement to enhance synergy size and energy consumption in home appliances and among our operating bases worldwide. The Electronic business equipment. Rapid sales expansion of microlens Components Company is also emphasizing the development arrays for liquid crystal projectors also contributed to results. or acquisition of new products, customers and applications to In addition, sales of components for specific industries also strengthen its presence in high-growth component markets increased significantly due to such positive factors as greater such as digital household appliances. demand for sensors in the amusement industry and growing production of compact cars that meet new vehicle regulations. Outside Japan, the automotive electronic component business performed strongly in North America and the Korean economy staged a rapid recovery. Despite the appreciation of the yen, these favorable factors contributed to a 21 percent year-on-year rise in total Electronic Components Company sales to ¥68.3 billion. 10 OMRON Corporation This multifunctional terminal can handle credit, debit and IC cards. This boarding pass reader increases customer convenience at airline boarding gates. The Cyber Gate VQ4511 offers users multiple services, including ATM functions and the ability to reserve and purchase tickets. Net Sales (Billions of Yen) 136 129 Social Systems Business Company (cid:2) New Cyber Gate multimedia service terminal introduced Structural reform and overseas expansion support future growth 1999 2000 The Social Systems Business Company expanded its sales rose due mainly to various new products tailored to the presence in the market for electronic fund transfer systems by airline and amusement markets. These products were created concluding a large-scale OEM contract for financial systems. by utilizing the know-how gained in developing OMRON’s OMRON also launched Cyber Gate, a multimedia service public transportation systems. terminal that features ticket reservation and purchasing, In the traffic control and road information systems market, merchandising functions based on customer relationship OMRON secured an order for its electronic toll collection (ETC) management (CRM), and conventional ATM functions. system. Sales declined, however, because of the increasing Designed primarily for the rapidly growing convenience store unwillingness of municipal offices to invest in new projects. segment in Japan, Cyber Gate allows OMRON to benefit from Consequently, total Social Systems Business Company the increasing accessibility of various services and information sales decreased 5 percent from the previous fiscal year to to the public, and has become a major contributor to the ¥128.5 billion. company’s sales. We will continue promoting concurrent development and The restructuring of the banking industry accelerated, cost engineering to cut manufacturing costs, with a focus on however, and banks and financial institutions continued to strengthening existing businesses and establishing a more restrain investment in anticipation of the need to consolidate profitable business structure. At the same time, we will branches. This adversely affected OMRON’s electronic fund implement structural reforms by improving business transfer system business, causing a year-on-year drop in processes and information systems. Another objective is sales. expanding sales existing products and technologies in In the public transportation systems market, even though overseas markets, particularly Asia. railway companies continued to restrain capital investment, OMRON Corporation 11 (cid:2) This small and lightweight nebulizer is easily portable and excels at relieving throat and nasal irritation. The HEM-630 is the world's smallest and lightest blood pressure monitor, and encompasses advanced sensing and fuzzy control technologies. The MC-509 needs just one second to record and display body temperature. Net Sales (Billions of Yen) 44 43 Healthcare Company (cid:2) OMRON products respond to growing consumer health consciousness in Japan (cid:2) New services will offer greater added value to consumers 1999 2000 Although consumer spending in Japan remained stagnant Europe and the adverse impact of the strong yen. overall, sales of OMRON’s mainstay healthcare products such In healthcare systems and services, we promoted several as blood pressure monitors, digital thermometers, body-fat new service businesses in an effort to respond to the trend in monitors, chair-type massagers and fitness equipment soared. consumer demand toward software and service. The main factors contributing to this performance were the Total Healthcare Company sales amounted to ¥42.6 billion, high level of personal health consciousness among Japanese down 2 percent from the previous fiscal year. consumers and OMRON’s wide range of products that As the reorganization of the retail industry progresses both accurately respond to changing consumer requirements. New domestically and overseas with retail outlets polarizing at the products performed impressively, particularly the ear-type high and low ends of the market, we will concentrate on digital thermometer, the upper-arm automatic inflation type managing our presence at individual outlets using our highly- blood pressure monitor with high-speed measurement trained sales force. Furthermore, we will promote healthcare capability, and the Bio Control Bike with an ergometer that consultation services that can help consumers improve both automatically sets exercise programs optimized for each their diets and overall lifestyles by integrating OMRON’s core individual. Overseas sales as a whole slipped slightly, although vital sensing technology with behavioral science. This will conditions varied considerably by region. Negative factors allow us to offer consumers greater added value and benefits. included unsatisfactory sales during the Christmas season in the United States, increasingly fierce price competition in 12 OMRON Corporation Net Sales (Billions of Yen) 73 72 Fingerprint recognition systems are increasingly useful in raising security efficiency. 1999 2000 The ME64KTIN hyper cable modem can be used with a mobile phone to allow effective mobile computing. Others (cid:2) Creative Service Company meets needs for operations outsourcing (cid:2) Business Development Group makes strides in paper- handling equipment In other categories, sales totaled ¥72.2 billion, down market paper-handling equipment for copy machines and 1 percent from the previous fiscal year. printers as well as bank note recognition units. In the PC The Creative Service Company received new consultation peripheral equipment market, sales of terminal adapters/home orders involving head office administrative reforms from two routers and hyper cable modems for mobile equipment clients. There is a rising need among customers for operations increased in tandem with the expansion of the ISDN network outsourcing and business process redesign. OMRON has and the continuing growth of the cellular phone market. earned strong recognition among customers for its We will continue seeking greater profitability for businesses comprehensive ability to add a competitive advantage through that do not belong to any of the OMRON internal companies outsourcing. In individual service markets as well, our efforts but have high growth potential, while at the same time clearly to promote solutions-based sales in the fields of information identifying strategies for developing each business. The systems, human resource development, accounting, logistics Business Development Group will also work on building the and advertising draw on OMRON’s extensive expertise in structure necessary to develop and strengthen new various service sectors. We also offer highly specialized businesses in line with OMRON’s group-wide growth services in the fields of energy-conservation and food catering strategies. through alliances with leading vendors. In the Business Development Group, office automation equipment sales grew mainly because of concerted efforts to OMRON Corporation 13 OMRON’s Environmental Conservation Activities Environmental Vision System Since its inception, OMRON has consistently remained committed to fulfilling its public responsibilities through its business activities and social contributions. OMRON considers an environmental commitment to be a social contribution of prime importance. Today, we are faced with the adverse effects created by the economy-driven society of the twentieth century. Now we must work to remedy these effects by improving the efficiency of producing and using resources. Therefore, our efforts to improve environmental efficiency along with an environmentally sound management system are more important than ever. Company with high resource productivity Philosophy Guidelines Continual improvement of resource productivity in development, produc- tion and sales activities Strategies and Actions Environmental Declaration Environmental Policy Ecological offices, laboratories and factories * Building an ISO + alpha system * Focus on minimizing major factors that impact the environment * Activities intended to enhance customer and corporate satisfaction and meet societal requirements ISO 14001 Project By May 1999, a total of 30 OMRON Group factories (16 sites in Japan and 14 sites overseas) had achieved ISO 14001 certification for environmental management systems. A newly established Filipino manufacturing company is also scheduled to acquire the certification by August 2000. With this accomplishment, all OMRON Group factories outside Japan will become ISO 14001 certified. In addition, since 1999 OMRON has been working to achieve ISO 14001 certification for its offices and laboratories, aiming for acquisition by the end of the present fiscal year. ISO 14001-certified OMRON Group Factories (Outside Japan) Factory locations are shown in parentheses Germany (Nufringen) Apr. ’99 U.K. (Telford) Feb. ’98 Netherlands (Den Bosch) Nov. ’96 Malaysia (Selangor) Dec. ’98 Indonesia (West Java) Aug. ’97 *3 Philippines (Subic) Aug. ’00 (scheduled) Canada (Toronto) Apr. ’99 Korea (Seoul) Mar. ’99 Taiwan (Tao-yuan) Feb. ’99 China (Shanghai) *1OMP: Nov. ’98 OMC: Dec. ’98 OMR: Feb. ’99 (Dalian) Dec. ’98 U.S.A. (Illinois) *2OED-C: Mar. ’99 OMA: May ’99 *1 OMP: Shanghai OMRON Automation System Co., Ltd. OMC: OMRON (Shanghai) Co., Ltd. OMR: Shanghai OMRON Control Components Co., Ltd. *2 OED-C: OMRON Automation Electronics, Inc. OMA: OMRON Manufacturing America, Inc. *3 Newly established factory in the Philippines Reduction in Impact of Corporate Activities on the Environment Centering around the basic concept of “maximizing those beneficial and minimizing those harmful,” OMRON is currently working to reduce the impact of its business operations on the environment by focusing on enhancing productivity of resources, recycling and reduction of waste, cutting resource consumption, prevention of global warming and energy conservation. 14 OMRON Corporation Environmental Performance Improvements OMRON’s efforts to reduce environmental impact cover virtually all of its business activities from development production to distribution, as well as the entire span of product life from input of materials to output of finished products, and even discarding. Toward this end, OMRON not only integrates its total efforts, but also tries to gain support from concerned public institutes, customers and associates wherever possible. Centering around the concept of “the 4Rs” (see chart), OMRON is committed to developing new technologies and refining existing technologies in order to achieve the goals set for reducing environmental impact. 4R 7Do not use those substances specified as hazardous or those that are suspicious. Total abolition of harmful substances (carcinogenic substances, chronic toxins and specified chemicals whose use is regulated by international treaties) REJECT 7Make more efficient use of resources. REDUCE Reduce the volume of substances that may have an adverse effect on people's health, the environment and its ecological systems 7Reuse resources whenever possible or try to make them reusable. REUSE Promote repeated use of the same materials (for enhanced economy and reduced consumption of resources) 7Recover resources and use them for other applications. RECYCLE Contribute to the creation of a 'recycling-oriented society' (by improving the productivity of resources through recycling and recovery of resources) Eco-Products Certification System In 1998, OMRON introduced an Eco-Products Certification System that meets the requirements of the ISO 14021 Environmental Label Assertion by Self-Declaration standards. This system is intended to award an OMRON eco-label to products that satisfy the Company’s in-house environmental standards. By so doing, OMRON aims to promote the incorporation of energy- and resource-saving features and environmentally friendly functions into OMRON products to enhance their appeal and recognition. At the same time, this system will help to promote OMRON as an environmentally conscious company to both its customers and the public. By March 2000, a total of 36 products had been designated Eco-Products. Product Assessment and LCA With the Eco-Products Certification System and Eco Grand Prix awards, OMRON promotes the development of environmentally friendly products, while simultaneously incorporating the results of product assessment into these developments. Product assessment is linked to the Company’s current development system in order to accommodate the need for inverse manufacturing and to create products that are easy to recycle, save energy and do not use hazardous chemical substances. The product assessment concept implemented for each development process is as follows: Eco-products LCA products High productivity (high yield) Mass production Development of virtually repair-free products Standardization of tools, etc. Factory space-saving Reduce noise, smell, smoke, etc. Prototype Trial production Reclamation Equipment assessment Comparison (with current models/ competitor products/theoretical values) Energy/resource conservation Drafting Reuse Planning Reduce material/product types Minimize use of harmful/toxic/hazardous substances Reduce time required for assembly/dismantling Reduce product weight Promoting redesign/ recycling/reuse OMRON Corporation 15 (cid:2) (cid:2) (cid:2) (cid:2) Board of Directors Seated (left to right): Nobuo Tateisi, Yoshio Tateisi Standing (left to right): Akio Imaizumi, Tatsuro Ichihara, Norio Hirai, Hideki Masuda, Soichi Koshio Board of Directors Corporate Auditors Senior Managing Officers Managing Officers Tomoaki Nishimura Motoki Tamura Takayuki Yamashita Yoshio Nakano Tsunehiko Tokumasu Tsutomu Narita Tadao Tateisi Yoshifumi Kajiya Chairman and Representative Director Nobuo Tateisi Representative Director and Chief Executive Officer Yoshio Tateisi Directors and Executive Vice Presidents Soichi Koshio Hideki Masuda Norio Hirai Tatsuro Ichihara Director and Senior Managing Officer Akio Imaizumi 16 OMRON Corporation Masaaki Sadatomo Shingo Akechi Hisao Sakuta Minoru Tamura Tsukasa Yamashita Fujio Tokita Yutaka Takigawa Keiichiro Akahoshi Fumio Tateisi Shinya Tozawa Kazuo Nomura Yasuhira Minagawa Akihiko Otani Kuniyasu Kihira Tsutomu Ozako Toshio Ochiai Masaki Kobayashi Soichi Yukawa Hiroki Toyama Kojiro Tobita (As of June 27, 2000) Financial Section Six-year Summary OMRON Corporation and Subsidiaries Years ended March 31 Net Sales (Note 2): Industrial Automation ...................................... ¥243,604 ¥245,785 ¥ — ¥ — ¥ — ¥ 2000 1999 1998 1997 1996 1995 Millions of yen (except per share data) Electronic Components ................................... 68,328 Social Systems Business ................................ 128,534 Healthcare ....................................................... 42,640 Open Systems ................................................. Control Components and Systems ................. Specialty Products .......................................... — — — 56,673 135,872 43,729 — — — Others .............................................................. 72,252 73,221 — — — 138,203 145,172 125,623 127,382 40,793 50,131 36,388 50,187 31,618 38,621 28,790 34,672 313,642 291,277 275,149 248,023 47,263 21,763 46,533 24,704 38,687 15,591 42,465 8,368 — — 555,358 555,280 611,795 594,261 525,289 489,700 Costs and Expenses: Cost of sales.................................................... 358,911 364,314 387,445 388,005 342,500 324,666 Selling, general and administrative expenses ................................ 133,662 Research and development expenses ............ 36,605 Interest expenses, net ..................................... Foreign exchange loss, net ............................. Other expenses (income), net.......................... 750 2,841 1,553 136,734 42,383 862 2,766 (28) 138,404 39,914 682 4,419 (1,312) 130,163 35,188 1,591 860 (794) 109,117 34,433 2,044 5,027 (84) 100,333 31,223 5,102 3,657 (229) 534,322 547,031 569,552 555,013 493,037 464,752 Income before Income Taxes and Minority Interests ............................................ 21,036 Income Taxes .................................................... Minority Interests .............................................. 9,048 427 Net Income......................................................... 11,561 Net Income per Share (yen): 8,249 6,044 31 2,174 42,243 23,371 168 18,704 39,248 22,952 557 15,739 32,252 17,039 626 14,587 24,948 12,358 438 12,152 Basic .............................................................. ¥ Diluted............................................................. Cash Dividends per Share (yen, Note 1).......... 45.0 44.5 13.0 ¥ 8.3 8.3 13.0 ¥ 71.4 69.8 13.0 ¥ 60.1 58.8 13.0 ¥ 55.7 54.5 13.0 ¥ 50.8 49.4 13.0 Capital Expenditures (cash basis) ................... ¥ 31,146 ¥ 36,696 ¥ 35,896 ¥ 29,956 ¥ 34,079 ¥ 30,954 Total Assets ....................................................... 579,489 Total Shareholders’ Equity ............................... 336,062 580,586 321,258 593,129 343,066 610,930 333,102 612,929 318,194 587,414 297,035 Value indicators: Gross profit margin (%) ................................... 35.4 Income before tax/Net sales (%) ..................... Return on sales (%) ......................................... Return on assets (%) ....................................... Return on equity (%)........................................ Inventory turnover (times) ................................ Price/earning ratio (times)................................ Assets turnover (times) .................................... Debt/equity ratio (times) .................................. Interest coverage ratio (times) ......................... 3.8 2.1 3.6 3.5 4.56 64.9 0.96 0.724 14.64 34.4 1.5 0.4 1.4 0.7 4.18 175.0 0.95 0.807 5.56 36.7 6.9 3.1 7.0 5.5 4.28 28.3 1.02 0.729 20.05 34.7 6.6 2.6 6.4 4.8 4.66 36.6 0.97 0.834 12.27 34.8 6.1 2.8 5.4 4.7 4.51 42.2 0.88 0.926 8.47 33.7 5.1 2.5 4.4 4.6 4.69 35.4 0.86 0.978 4.37 Notes: 1. Cash dividends per share are the amounts applicable to the respective year, including dividends to be paid after the end of the year. 2. Categories within net sales for 1998 and earlier reflect the categories used at that time, which can not be restated to conform to present categories following reorganization. OMRON Corporation 17 Management’s Discussion and Analysis Financial Strategy During fiscal 2000, the year ended March 31, 2000, OMRON set up a financial policy of implementing and strengthening its financial structure to avoid a second consecutive year of lower earnings. This included improving asset efficiency, maintaining adequate liquidity to counter possible Y2K problems, and securing sufficient capital for operations. In addition, OMRON is investing capital in accordance with its original plan within the scope of cash flow, while concentrating the items and areas of capital expenditure to secure profits. Overview of Operations Although consumer spending remained restrained, the operating environment in Japan seemed to have bottomed out. Signs of recovery began to appear, with a partial rebound in private capital investment as a result of government fiscal policies and the stabilization of the financial system. Outside of Japan, the U.S. economy continued to grow strongly and economic conditions in Europe were favorable, while the economies of Asia recovered from the currency crisis of prior years and began staging a sharp rebound. In this environment, OMRON worked during fiscal 2000 to transform its identity and position while improving earnings to avoid a second consecutive fiscal year of declining profitability. The Company succeeded in improving competitiveness by consistently managing its businesses to build the foundation for improved performance, and focusing resources on optimizing the strengths of each of OMRON’s internal companies. These efforts were supported by a recovery in capital investment in the semiconductor, information and communication sectors, but net sales were essentially unchanged year-on-year. Factors restraining sales growth included the transfer of a business division in the prior fiscal year and the appreciation of the yen. Net sales would have increased 4 percent year-on- year excluding the effect of the transfer. Despite the impact of the disposal of ¥5.3 billion in bad debts at domestic subsidiaries, earnings improved markedly due to the results of restructuring, a lower cost of sales ratio and decreased selling, general and administrative (SGA) expenses. Income before income taxes and minority interests increased 2.6 times year-on- year to ¥21.0 billion, and net income rose 5.3 times to ¥11.6 billion. Sales Consolidated net sales were essentially unchanged from the previous fiscal year at ¥555.4 billion. Private capital investment recovered in the semiconductor, information and communications sectors, which supported solid sales gains in OMRON’s core control components systems business. The transfer of a business division in the prior fiscal year and the appreciation of the yen, however, held back sales growth. Cost of Sales, SGA Expenses and Income Cost of sales decreased ¥5.4 billion, or 1.5 percent, over the previous fiscal year to ¥358.9 billion, and improved to 64.6 percent of net sales, compared to 65.6 percent for the previous fiscal year. Factors in the improvement included reduced raw Gross Profit Margin SGA Expenses/Net Sales R&D Expenses/Net Sales (%) (%) 34.8 34.7 36.7 35.4 34.4 21.9 20.8 22.6 SGA Expenses/Net Sales (excluding R&D expenses) R&D Expenses/Net Sales 24.6 24.1 6.6 5.9 6.5 7.6 6.6 Income Before Tax/Net Sales Net Income/Net Sales (%) Income Before Tax/Net Sales, Net Income/Net Sales 6.9 6.6 6.1 3.1 2.8 2.6 1.5 0.4 3.8 2.1 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 18 OMRON Corporation material prices and efficiencies from restructuring initiatives such as the divestiture. As a result, gross profit increased 2.9 percent to ¥196.4 billion, and the ratio of gross profit to net sales improved by 1 percentage point to 35.4 percent. SGA expenses decreased ¥3.1 billion, or 2.2 percent, year-on-year to ¥133.7 billion, and improved to 24.1 percent of net sales from 24.6 percent for the previous fiscal year. Primary factors included a reduction in advertising expenses and in commissions for outsourcing. Research and development expenses decreased ¥5.8 billion, or 13.6 percent, to ¥36.6 billion, and represented 6.6 percent of net sales, compared to 7.6 percent for the previous fiscal year. OMRON reduced commission expenses for outsourced research and development by conducting it internally. R&D is central to OMRON’s growth strategy and the Company intends to maintain the ratio of R&D expenses at approximately 7 percent of net sales. Main factors in non-operating expenses included a drop in interest expenses due to a reduction in short-term debt, and the disposal of ¥5.3 billion in bad debts at subsidiaries. Income before income taxes and minority interests increased ¥12.8 billion, or 155.0 percent, to ¥21.0 billion. Income taxes increased ¥3.0 billion, or 49.7 percent, to ¥9.0 billion, and the ratio of income taxes to income before income taxes and minority interests improved to 43.0 percent from 73.3 percent for the previous fiscal year. As a result of the above, net income increased ¥9.4 billion, or 431.8 percent, to ¥11.6 billion. The ratio of net income to net sales improved to 2.1 percent from 0.4 percent for the previous fiscal year, and return on average total shareholders’ equity improved to 3.5 percent from 0.7 percent for the previous fiscal year. Net income per share improved from ¥8.3 to ¥45.0, and fully diluted net income per share improved from ¥8.3 to ¥44.5. Costs, expenses and income as percentages of net sales were as follows: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . Research and development expenses . . . . . . . . . . . . . . . Interest expenses, net . . . . . . . . . . . . . . . . . . . . . . Income before income taxes and minority interests . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . Review of Operations by Company Industrial Automation Company 2000 1999 100.0% 100.0% 1998 100.0% 64.6 35.4 24.1 6.6 0.1 3.8 1.6 2.1 65.6 34.4 24.6 7.6 0.1 1.5 1.1 0.4 63.3 36.7 22.6 6.5 0.1 6.9 3.8 3.1 Net sales for the Industrial Automation Company, excluding intracompany transactions, decreased 0.9 percent year-on-year to ¥243.6 billion, and represented 43.9 percent of total net sales. The decrease was attributable to the transfer of OMRON’s Interest Expenses and Interest Coverage (Millions of Yen/Times) Interest Expenses Interest Coverage 5 7 0 , 5 7 5 5 , 3 2 1 4 , 2 8 1 5 , 2 7 9 8 , 1 20.05 14.64 Earnings per Share and Price–Earnings Ratio (Yen/ Times) Net Income per Employee Earnings per Share Price–Earnings Ratio (Millions of Yen) 5 . 4 5 8 . 8 5 8 . 8 6 3 . 8 5 . 4 4 175.0 6 . 0 7 . 0 8 . 0 1 . 0 5 . 0 12.27 8.47 5.56 42.2 36.6 28.3 64.9 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 OMRON Corporation 19 semiconductor business and the appreciation of the yen. Net sales would have increased 3.0 percent absent the transfer of the semiconductor business. A number of factors supported results. Capital investment among manufacturers increased during the second half of the year, particularly among manufacturers of information- and communication-related products, for which demand was strong. Moreover, the introduction of an authorized distributor system and expanded cooperation with authorized distributors strengthened results, supporting a significant expansion in domestic sales. Outside Japan, the rapid and powerful recovery of the Asian economies and stable expansion in the European and U.S markets on a local currency basis also supported results. Electronic Components Company Net sales for the Electronic Components Company, excluding intracompany transactions, increased 20.6 percent year-on- year to ¥68.3 billion, and accounted for 12.3 percent of total net sales. Intense price competition led to lower sales prices in the domestic market, but the shift toward digitalization, miniaturization, reduced footprint and lower energy consumption in the home electronics and office automation markets supported demand for OMRON products. Moreover, sales of components to selected industries grew strongly, including sales of sensors and other components to the amusement industry and sales to the automobile industry to meet demand created by increased production of new models. Overseas, favorable conditions in the U.S. market, the successful launch of the automotive components business in Europe, and the solid recovery in the Republic of Korea helped the Automotive Components Division to increase sales despite the appreciation of the yen. Social Systems Business Company Net sales for the Social Systems Business Company, excluding intracompany transactions, decreased 5.4 percent year-on- year to ¥128.5 billion, and accounted for 23.1 percent of total net sales. The introduction of the multi-functional CyberGate, primarily in the rapidly growing convenience store sector, supported the results of the electronic fund transfer systems business. Continued restraint in investment by financial institutions, however, resulted in the year-on-year decrease in sales. Sales increased in the station management business as sales related to new systems that will be introduced in the Tokyo metropolitan area and the successful application of related technologies for the airport market compensated for continued restraint in investment among railway companies. Sales decreased in the traffic management systems business as orders for electronic toll collection (ETC) systems only partially offset sharply lower investment among local governments. Healthcare Company Net sales for the Healthcare Company, excluding intracompany transactions, decreased 2.5 percent year-on-year to ¥42.6 billion, and accounted for 7.7 percent of total net sales. Although domestic consumption remained slack, increased interest in maintaining and improving health among consumers supported firm growth in sales of relevant Healthcare Company products, including blood pressure monitors, thermometers, body-fat monitors, chair-style massagers and fitness equipment. Overseas, fierce competition in the United States during the Christmas season and intensified price competition in Europe led to a marginal decrease in sales. The appreciation of the yen also negatively affected sales. Sales by Company (%) Industrial Automation Company Electronic Components Company Social Systems Business Company Healthcare Company Others 1999 2000 44.2 43.9 10.2 12.3 24.5 23.1 7.9 7.7 13.2 13.0 20 OMRON Corporation Others Net sales of other divisions decreased 1.3 percent to ¥72.3 billion, and represented 13.0 percent of total net sales. The Creative Service Company expanded its business by working to commercialize new services and by raising competitiveness through improved efficiency. In the copier and printer business, the trend toward digitalization and multi-functional equipment supported performance in the paper sorting equipment sector. In the PC-related equipment business, OMRON is moving to expand sales by swiftly developing communications equipment that incorporates the use of ISDN and mobile phones, and by emphasizing solutions for the open systems business. The increase or decrease in sales of each internal business company was as follows: Industrial Automation . . . . . . . . . . . . . . . . . . . . . . Electronic Components . . . . . . . . . . . . . . . . . . . . . Social Systems Business . . . . . . . . . . . . . . . . . . . . . Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 (0.9)% 20.6 (5.4) (2.5) (1.3) 1999 N/A% N/A N/A N/A N/A 1998 N/A% N/A N/A N/A N/A Note: Due to a restructuring in April 1999, figures for increase or decrease in sales corresponding to current internal companies are not available for 1999 and previous years. The composition of net sales was as follows: Industrial Automation . . . . . . . . . . . . . . . . . . . . . . Electronic Components . . . . . . . . . . . . . . . . . . . . . Social Systems Business . . . . . . . . . . . . . . . . . . . . . Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 43.9% 12.3 23.1 7.7 13.0 1999 44.2% 10.2 24.5 7.9 13.2 1998 N/A% N/A N/A N/A N/A Note: Due to a restructuring in April 1999, figures for net sales corresponding to current internal companies are not available for 1998. Review of Operations by Region Japan Although consumer spending remained restrained, a rebound in private capital investment in some sectors indicated that the economy had bottomed out and was beginning to recover. The Industrial Automation Company, the Electronic Components Company and the Healthcare Company performed solidly, and sales of the Social Systems Business Company decreased. Sales to external customers increased 2.5 percent to ¥397.2 billion. Sales by Region (%) Japan North America Europe Asia and Other 1996 4.9 11.2 7.3 1997 5.5 11.3 8.8 1998 5.9 12.1 10.0 1999 5.8 13.9 10.5 2000 6.7 11.0 10.7 76.6 74.4 72.0 69.8 71.6 OMRON Corporation 21 North America Personal consumption and strong capital investment, centered on information technology (IT), supported continued solid economic growth. The Industrial Automation Company and the Electronic Components Company benefited from favorable demand in the IT, semiconductor and automobile industries. The Healthcare Company’s performance was impacted by intense competition during the Christmas season. As a result, sales to external customers increased 2.1 percent to ¥59.5 billion. Europe The European economy drew support from the depreciation of the Euro and consequent increase in exports and from an increase in personal consumption. Recovery was particularly firm in Germany and the United Kingdom. The Industrial Automation Company and the Electronic Components Company benefited from the positive effect economic recovery had on orders from equipment manufacturers and other customers. Healthcare Company results were impacted by intensified price competition. The depreciation of the Euro, however, was a primary factor resulting in a 20.6 percent year-on-year decrease in sales to external customers to ¥61.3 billion. Asia and Other The economies of Southeast Asia and the Republic of Korea recovered strongly from the recession induced by the currency crisis. The economy of greater China also firmed. In Southeast Asia, the Industrial Automation Company benefited from a strong recovery in demand from semiconductor and electronics manufacturers, and the performance of the Social Systems Business Company also improved. The economy of the Republic of Korea recovered despite instability among the large corporate groups, contributing to strong performance gains by the Industrial Automation Company and the Electronic Components Company. In greater China, the Industrial Automation Company and the Healthcare Company in particular generated performance gains. As a result, sales to external customers increased 16.4 percent to ¥37.4 billion. Assets, Liabilities and Shareholders’ Equity As of March 31, 2000, total assets decreased ¥1.1 billion, or 0.2 percent, from a year earlier to ¥579.5 billion. Current assets decreased ¥5.0 billion, or 1.5 percent, from a year earlier to ¥317.3 billion, with trade notes and accounts receivable, inventories and deferred income taxes lower. Trade notes and accounts receivable decreased ¥3.8 billion, or 2.9 percent, from a year earlier to ¥130.4 billion, mainly because of the appreciation of the yen. Inventories decreased ¥1.7 billion, or 2.2 percent, from a year earlier to ¥77.8 billion, primarily because of progress in improving supply chain management and the appreciation of the yen. Deferred income taxes decreased ¥2.3 billion to ¥9.0 billion. Property, plant and equipment decreased ¥6.9 billion, or 4.2 percent, from a year earlier to ¥156.0 billion due to reductions in machinery and equipment and shortfalls in conversion amounts due to the appreciation of the yen. Investments and other assets increased ¥10.8 billion, or 11.3 percent, to ¥106.2 billion. While leasehold deposits and deferred income taxes Working Capital and Current Ratio Inventory Turnover Return on Tangible Fixed Assets (Millions of Yen/%) Working Capital Current Ratio (Times) (%) 4 0 4 , 7 3 1 9 8 7 , 8 4 1 173 178 , 0 1 6 4 6 1 7 9 7 , 9 6 1 215 204 9 9 7 , 2 5 1 186 4.66 4.56 4.51 4.28 4.18 11.0 9.2 8.6 7.2 1.3 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 22 OMRON Corporation decreased, the market value of investment securities increased ¥15.3 billion from a year earlier. The total of current liabilities, long-term liabilities and minority interests in subsidiaries decreased ¥15.9 billion, or 6.1 percent, from a year earlier to ¥243.4 billion. Current liabilities decreased ¥10.2 billion, or 6.5 percent, from a year earlier to ¥147.5 billion. Short-term bank loans decreased ¥17.7 billion from the previous fiscal year-end to ¥10.2 billion, while trade notes and accounts payable increased. Income taxes payable increased, primarily due to higher parent company earnings. The current ratio improved to 215 percent from 204 percent, and working capital increased 3.2 percent to ¥169.8 million. Long-term debt increased 2.4 percent to ¥58.0 billion, mainly from additional loans from banks and other financial institutions. As a result, interest-bearing liabilities, defined as the sum of bank loans, the current portion of long-term debt and long-term debt, decreased ¥17.3 billion, or 19.9 percent, from a year earlier to ¥69.5 billion. Shareholders’ equity increased ¥14.8 billion, or 4.6 percent, over the previous fiscal year-end to ¥336.1 billion. The ratio of shareholders’ equity to total assets improved to 58.0 percent from 55.3 percent a year earlier. The debt/equity ratio improved to 0.724 times from 0.807 times a year earlier. Return on average total shareholders’ equity rose to 3.5 percent from 0.7 percent for the pervious fiscal year. In addition, net assets per share of stock issued and outstanding rose to ¥1,308.64 from ¥1,250.28 a year earlier. Foreign currency translation adjustments increased to ¥21.0 billion from ¥12.0 billion a year earlier due to the appreciation of the yen, and had the effect of reducing shareholders’ equity and minority interests. Net unrealized gains on available-for-sale securities increased to ¥13.8 billion from ¥5.1 billion a year earlier. No minimum pension liability adjustments were booked on a consolidated basis. Cash Flow At March 31, 2000 cash and cash equivalents and short-term investments increased ¥5.0 billion, or 5.6 percent, from a year earlier to ¥95.0 billion. Fluctuations in the exchange rate had the effect of reducing cash and cash equivalents by ¥2.2 billion for the fiscal year. Cash provided by operating activities increased ¥30.3 billion, or 102.6 percent, to ¥60.0 billion, due mainly to the increase in net income. Depreciation and amortization increased ¥49.0 million, or 0.2 percent, year-on-year to ¥31.4 billion. Cash used in investing activities increased ¥5.2 billion, or 17.8 percent, from the previous fiscal year to ¥34.2 billion, primarily because of a net purchase of short-term investments and investment securities. Capital expenditures decreased ¥5.6 billion, or 15.1 percent, year-on-year to ¥31.1 billion. Free cash flow totaled ¥25.7 billion. While net income increased, lower accounts receivable and inventories reduced working capital and OMRON selectively deployed cash in investments. Cash used in financing activities totaled ¥23.8 billion due to factors including the net repayment of bank loans. Return on Shareholders’ Equity Return on Assets Price/Book Value Ratio (%) (%) 5.5 4.7 4.8 7.0 6.4 3.5 5.4 3.6 1.4 (Times) 1.94 2.23 1.54 1.73 1.18 0.7 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 OMRON Corporation 23 Consolidated Balance Sheets OMRON Corporation and Subsidiaries March 31, 2000 and 1999 ASSETS Current Assets: Millions of yen Thousands of U.S. dollars (Note 2) 2000 1999 2000 Cash and cash equivalents............................................................................ ¥ 88,670 Short-term investments (Note 4) ................................................................... 6,300 Notes and accounts receivable—trade ......................................................... 130,355 Allowance for doubtful receivables................................................................ Inventories (Note 3)........................................................................................ Deferred income taxes (Note 9) ..................................................................... Other current assets ...................................................................................... (2,001) 77,807 9,026 7,116 ¥ 88,900 1,054 134,183 (2,450) 79,535 11,336 9,705 $ 836,509 59,434 1,229,764 (18,877) 734,028 85,151 67,132 Total Current Assets ................................................................................ 317,273 322,263 2,993,141 Property, Plant and Equipment: Land ............................................................................................................... Buildings ........................................................................................................ Machinery and equipment ............................................................................. Construction in progress ............................................................................... 51,082 110,330 129,639 3,933 Total ........................................................................................................... 294,984 50,598 111,263 135,197 4,326 301,384 481,906 1,040,849 1,223,009 37,104 2,782,868 Accumulated depreciation............................................................................. (138,950) (138,489) (1,310,849) Net Property, Plant and Equipment........................................................ 156,034 162,895 1,472,019 Investments and Other Assets: Investments in and advances to associates.................................................. Investment securities (Note 4) ....................................................................... Leasehold deposits........................................................................................ Deferred income taxes (Note 9) ..................................................................... Other .............................................................................................................. 2,013 69,397 10,608 6,415 17,749 Total Investments and Other Assets ...................................................... 106,182 1,770 54,114 12,035 8,834 18,675 95,428 18,991 654,689 100,075 60,519 167,443 1,001,717 Total .................................................................................................................. ¥579,489 ¥580,586 $5,466,877 See notes to consolidated financial statements. 24 OMRON Corporation Millions of yen Thousands of U.S. dollars (Note 2) LIABILITIES AND SHAREHOLDERS’ EQUITY 2000 1999 2000 Current Liabilities: Bank loans (Note 5) ....................................................................................... ¥ 10,242 ¥ 27,946 $ 96,623 Notes and accounts payable—trade ............................................................. Accrued expenses ......................................................................................... Income taxes payable.................................................................................... Other current liabilities (Note 9) ..................................................................... Current portion of long-term debt (Note 5).................................................... 78,467 21,430 11,334 24,741 1,262 70,971 20,924 9,020 26,625 2,167 740,255 202,170 106,924 233,405 11,906 Total Current Liabilities ........................................................................... 147,476 157,653 1,391,283 Long-Term Debt (Note 5)................................................................................. 57,968 56,610 546,868 Deferred Income Taxes (Note 9) ..................................................................... 3,725 908 35,142 Termination and Retirement Benefits (Note 7).............................................. 30,629 40,076 288,953 Other Long-Term Liabilities............................................................................ 1,114 Minority Interests in Subsidiaries .................................................................. 2,515 1,525 2,556 10,509 23,726 Shareholders’ Equity (Note 8): Common stock, ¥50 par value: Authorized: 495,000,000 shares in 2000 and 1999 Issued: 257,109,236 shares in 2000 and 257,107,214 shares in 1999 .......................................................... Additional paid-in capital ............................................................................... Legal reserve ................................................................................................. 64,082 98,705 7,250 Retained earnings .......................................................................................... 173,804 Accumulated other comprehensive income (loss) (Note 13) ......................... (7,168) 64,079 98,702 6,811 166,020 (14,012) 604,547 931,179 68,396 1,639,660 (67,622) Treasury stock, at cost— 307,000 shares in 2000 and 158,000 shares in 1999........................................ (611) (342) (5,764) Total Shareholders’ Equity ...................................................................... 336,062 321,258 Total .................................................................................................................. ¥579,489 ¥580,586 3,170,396 $5,466,877 See notes to consolidated financial statements. OMRON Corporation 25 Consolidated Statements of Income OMRON Corporation and Subsidiaries Years ended March 31, 2000, 1999 and 1998 Millions of yen Thousands of U.S. dollars (Note 2) 2000 1999 1998 2000 Net Sales .................................................................................................. ¥555,358 ¥555,280 ¥611,795 $5,239,226 Costs and Expenses: Cost of sales .......................................................................................... Selling, general and administrative expenses ....................................... Research and development expenses .................................................. Interest expenses, net (Note 5).............................................................. Foreign exchange loss, net.................................................................... Other expenses (income), net................................................................ 358,911 133,662 36,605 750 2,841 1,553 364,314 136,734 42,383 862 2,766 (28) 387,445 138,404 39,914 682 4,419 (1,312) 3,385,953 1,260,962 345,330 7,076 26,802 14,651 Total................................................................................................... 534,322 547,031 569,552 5,040,774 Income before Income Taxes and Minority Interests .......................... Income Taxes (Note 9) ............................................................................. 21,036 9,048 Income before Minority Interests .......................................................... 11,988 Minority Interests .................................................................................... 427 8,249 6,044 2,205 31 42,243 23,371 18,872 168 198,452 85,358 113,094 4,028 Net Income............................................................................................... ¥ 11,561 ¥ 2,174 ¥ 18,704 $ 109,066 Net Income per Share (Note 11): Basic ..................................................................................................... Diluted................................................................................................... Cash Dividends per Share (Note 11) ...................................................... See notes to consolidated financial statements. 2000 ¥45.0 44.5 13.0 Yen 1999 ¥ 8.3 8.3 13.0 U.S. dollars (Note 2) 1998 2000 ¥71.4 69.8 13.0 $0.42 0.42 0.12 26 OMRON Corporation Consolidated Statements of Comprehensive Income OMRON Corporation and Subsidiaries Years ended March 31, 2000, 1999 and 1998 Millions of yen Thousands of U.S. dollars (Note 2) 2000 1999 1998 2000 Net Income............................................................................................... ¥11,561 ¥ 2,174 ¥18,704 $109,066 Other Comprehensive Income (Loss), Net of Tax (Note 13): Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year............................................... (9,044) (6,082) (2,592) (85,321) Reclassification adjustment for the portion realized upon sale or liquidation of investments in foreign entities ........................ — 40 — — Net change in foreign currency translation adjustments during the year ................................................................................. (9,044) Minimum pension liability adjustments.................................................. 7,138 (6,042) (5,737) (2,592) 745 Unrealized gains on available-for-sale securities: Unrealized holding gains (losses) arising during the year .................. 9,050 (620) (3,481) Reclassification adjustment for losses on impairment realized in net income ...................................................................... 1,202 — Reclassification adjustment for gains realized in net income ...................................................................... (1,502) Net unrealized gains (losses) ................................................................. Other Comprehensive Income (Loss).................................................... 8,750 6,844 (898) (1,518) (13,297) — (4) (3,485) (5,332) (85,321) 67,340 85,377 11,340 (14,170) 82,547 64,566 Comprehensive Income (Loss) .............................................................. ¥18,405 ¥(11,123) ¥13,372 $173,632 See notes to consolidated financial statements. OMRON Corporation 27 Consolidated Statements of Shareholders’ Equity OMRON Corporation and Subsidiaries Years ended March 31, 2000, 1999 and 1998 Number of common shares issued Common stock Additional paid-in capital Legal reserve Retained earnings Accumulated other comprehensive income (loss) Treasury stock Millions of yen Balance, April 1, 1997 ........................ 262,107,214 ¥64,079 ¥98,702 ¥5,963 ¥159,741 ¥ 4,617 ¥ — Net income....................................... Cash dividends, ¥13 per share .......... Transfer to legal reserve .................. Other comprehensive loss ............... 18,704 (3,408) (351) 351 Balance, March 31, 1998 ................... 262,107,214 64,079 98,702 6,314 174,686 Net income....................................... Cash dividends, ¥13 per share .......... Transfer to legal reserve .................. Other comprehensive loss ............... Treasury stock ................................. Share buyback and retirement......... (5,000,000) 497 2,174 (3,372) (497) (6,971) (5,332) (715) — (13,297) (342) Balance, March 31, 1999 ................... 257,107,214 64,079 98,702 6,811 166,020 (14,012) (342) Net income....................................... Cash dividends, ¥13 per share .......... Transfer to legal reserve .................. Other comprehensive income.......... Treasury stock ................................. Exercise of stock options................. 11,561 (3,338) (439) 439 6,844 (288) 19 Conversion of convertible bonds ..... 2,022 3 3 Balance, March 31, 2000 ................... 257,109,236 ¥64,082 ¥98,705 ¥7,250 ¥173,804 ¥ (7,168) ¥(611) Thousands of U.S. dollars (Note 2) Common stock Additional paid-in capital Legal reserve Retained earnings Accumulated other comprehensive income (loss) Treasury stock Balance, March 31, 1999 ............................................ $604,519 $931,151 $64,255 $1,566,226 $(132,188) $(3,226) Net income ................................................................ Cash dividends, $0.12 per share............................... Transfer to legal reserve............................................ Other comprehensive income ................................... Treasury stock........................................................... Exercise of stock options .......................................... 109,066 (31,491) (4,141) 4,141 64,566 (2,717) 179 Conversion of convertible bonds .............................. 28 28 Balance, March 31, 2000 ............................................ $604,547 $931,179 $68,396 $1,639,660 $ (67,622) $(5,764) See notes to consolidated financial statements. 28 OMRON Corporation Consolidated Statements of Cash Flows OMRON Corporation and Subsidiaries Years ended March 31, 2000, 1999 and 1998 Millions of yen Thousands of U.S. dollars (Note 2) 2000 1999 1998 2000 ¥11,561 ¥ 2,174 ¥18,704 $109,066 31,445 412 31,396 458 31,129 268 Operating Activities: Net income ............................................................................................. Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................................ Loss on sale of property, plant and equipment .................................. Net gain on sale of short-term investments and investment securities ................................................................. Loss on impairment of investment securities ..................................... Bad debt expenses ............................................................................. Termination and retirement benefits ................................................... Deferred income taxes ........................................................................ Minority interests................................................................................. Loss on sale of business entities ........................................................ Changes in assets and liabilities, net of effects of business entities sold: Notes and accounts receivable — trade, net .................................. Inventories ....................................................................................... Other assets .................................................................................... Notes and accounts payable — trade ............................................ Income taxes payable ..................................................................... Accrued expenses and other .......................................................... Other, net ............................................................................................ (2,783) 2,072 5,638 5,778 (5,809) 427 — 2,507 (534) (3,030) 10,062 2,633 (585) 132 Total adjustments ............................................................................ 48,365 Net cash provided by operating activities ................................... 59,926 Investing Activities: Proceeds from sales or maturities of short-term investments and investment securities ..................................................................... Purchase of short-term investments and investment securities ............ Capital expenditures............................................................................... Decrease (increase) in leasehold deposits ............................................. Proceeds from sales of property, plant and equipment ......................... Acquisition of minority interests ............................................................. Proceeds from sale of business entities................................................. 32,289 (37,413) (31,146) 1,456 1,081 (447) — (1,725) — — 4,178 (6,358) 31 286 2,025 10,529 5,306 (11,969) (5,967) (970) 189 27,409 29,583 26,780 (22,275) (36,696) (527) 1,895 (186) 1,998 (1) — — 2,004 (634) 168 — (3,537) (8,412) (7,004) (4,315) (1,998) 4,425 1,289 13,382 32,086 21,285 (1,427) (35,896) 5 1,335 (2,933) — Net cash used in investing activities............................................ (34,180) (29,011) (17,631) Financing Activities: Net borrowings (repayments) of short-term bank loans......................... Proceeds from issuance of long-term debt ............................................ Repayments of long-term debt............................................................... Dividends paid ........................................................................................ Share buyback........................................................................................ (18,087) 775 (3,102) (3,371) — Net cash provided by (used in) financing activities ..................... (23,785) 15,515 25,413 (8,956) (3,372) (6,971) 21,629 (2,864) 648 (18,013) (3,408) — (23,637) Effect of Exchange Rate Changes on Cash and Cash Equivalents ............................................................................ (2,191) (1,666) (1,741) Net Increase (Decrease) in Cash and Cash Equivalents ...................... (230) Cash and Cash Equivalents at Beginning of the Year .......................... 88,900 20,535 68,365 (10,923) 79,288 Cash and Cash Equivalents at End of the Year ..................................... ¥88,670 ¥88,900 ¥68,365 See notes to consolidated financial statements. 296,651 3,887 (26,255) 19,547 53,189 54,510 (54,802) 4,028 — 23,651 (5,038) (28,585) 94,925 24,840 (5,519) 1,245 456,274 565,340 304,613 (352,953) (293,830) 13,736 10,198 (4,217) — (322,453) (170,632) 7,311 (29,264) (31,802) — (224,387) (20,670) (2,170) 838,679 $836,509 OMRON Corporation 29 Notes to Consolidated Financial Statements OMRON Corporation and Subsidiaries 1. Summary of Significant Accounting Policies 30 OMRON Corporation Basis of Financial Statements The accompanying consolidated financial statements, stated in Japanese yen, include certain adjustments, not recorded on the books of account, to present these statements in accordance with accounting principles as gen- erally accepted in the United States, except for the omission of segment information as required by the Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The principal adjustments include accrual of certain expenses, accounting for termina- tion and retirement benefits, accrual of deferred income taxes relating to these adjustments and accounting for prior years’ stock dividends at market value. Certain reclassifications have been made to amounts previously reported in order to conform to 2000 classifi- cations. Principles of Consolidation The consolidated financial statements include the accounts of OMRON Corporation (the “Company”) and its sub- sidiaries (together the “Companies”). All significant intercompany accounts and transactions have been eliminat- ed. Costs in excess of the fair value of net assets acquired are amortized on a straight-line basis over five years. The Companies’ investments in companies in which ownership is from 20% to 50% (associates) are stated at cost plus equity in undistributed net income or loss. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabili- ties and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents Cash equivalents consist of highly liquid investments with original maturities of three months or less, including time deposits, commercial paper, securities purchased with resale agreements and money market instruments. Short-Term Investments and Investment Securities The Companies classify all their marketable debt and equity securities as available-for-sale and carry them at market value with a corresponding recognition of the net unrealized holding gains or losses as a separate com- ponent of other comprehensive income, net of related taxes, until recognized. Other investments are stated at the lower of cost or estimated net realizable value. The cost of securities sold is determined on the average cost basis. Inventories Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment has been com- puted principally on a declining-balance method based upon the estimated useful lives of the assets. Advertising Costs Advertising costs are charged to earnings as incurred. Advertising expense was ¥8,428 million ($79,509 thou- sand), ¥9,822 million and ¥10,329 million for the years ended March 31, 2000, 1999 and 1998, respectively. Termination and Retirement Benefits Termination and retirement benefits are accounted for in accordance with SFAS No. 87, “Employers’ Accounting for Pensions” and are disclosed in accordance with SFAS No. 132, “Employers’ Disclosures about Pensions and Other Post-retirement Benefits.” Provision for termination and retirement benefits includes those for directors and corporate auditors of the Company. Stock Purchase Plan In June 1998, the Company introduced stock-based compensation plans. Stock options are granted to directors and certain employees to purchase shares of common stock at a price not less than market price at the date of grant. Pursuant to SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company has elected to account for its stock option plan under APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, no compensation cost has been recognized for this plan. Compensation cost for the plan deter- mined based on the fair value of the options at the grant date consistent with SFAS No. 123 was immaterial. Income Taxes Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. Future tax benefits, such as net operating loss carry- forwards and tax credit carryforwards, are recognized to the extent that such benefits are more likely than not to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Derivatives Currency derivatives (foreign exchange forward contracts and currency option contracts) are used to manage currency risk. Gains and losses on hedges of existing assets or liabilities denominated in foreign currencies are recognized in income currently, as are the offsetting foreign exchange losses and gains on the items hedged. Gains and losses related to qualifying hedges of firm commitments denominated in foreign currencies are deferred and are recognized as adjustments to the hedged transaction when such transaction occurs. Derivative contracts that do not qualify as hedges are marked to market with the related gains and losses included in Foreign exchange loss, net in the consolidated statements of income. Interest rate swaps are used to manage exposure to fluctuations in interest rates arising from the Companies’ existing debt. The amounts receivable or payable under interest rate swap agreements are recognized as adjust- ments to interest expenses. Cash Dividends Cash dividends are reflected in the consolidated financial statements at proposed amounts in the years to which they are applicable, even though payment is not approved by shareholders until the annual general meeting of shareholders held early in the following fiscal year. Resulting dividends payable are included in Other current lia- bilities in the consolidated balance sheets. Comprehensive Income Comprehensive income consists of net income, foreign currency translation adjustments, minimum pension liability adjustments and unrealized gains and losses on available-for-sale securities, and is presented in the consolidated statements of comprehensive income. Nature of Operations The Company is a multinational manufacturer of automation components, equipment and systems with advanced computer, communications and control technologies. The Company conducts business in over 30 countries around the world and strategically manages its worldwide operations through five regional manage- ment centers: Japan, North America, Europe, Asia-Pacific and China. Products, classified by type and market, are organized into five internal companies and one business development group, as described below. Industrial Automation manufactures and sells control components and systems including programmable logic controllers, sensors and switches used in automatic systems in industries. In the global market, the compa- ny offers many services, such as those involving labor saving automation, environmental protection, safety improvement, and inspection-automization solutions for highly developed production systems. Electronic Components manufactures and sells electric and electronic components found in such consumer goods as home appliances and automobiles as well as such business equipment as telephone systems, vending machines, and office equipment. Social Systems Business encompasses the production and sale of automated teller machines, card autho- rization terminals and point of sales systems for both domestic and overseas markets. Passing gates and auto- mated ticket machines and electronic panels and terminal displays for traffic information and monitoring purpos- es are also produced for the domestic market. Healthcare sells blood pressure monitors, digital thermometers, body-fat monitors, nebulizers and infra-red therapy devices aimed at both the consumer and institutional markets. Creative Service provides such outsourcing services as distribution, advertising and public relations, person- nel, information systems, administration, employee benefit schemes and accounting. Business Development Group consists of businesses with high growth potential. The group provides the peripheral equipment loaded in office automation equipment, card readers, modems, terminal adapters, scanners and uninterrupted power supplies. New Accounting Standards In June 1998, the FASB issued SFAS No.133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No.133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No.133 requires that an entity recognizes all derivatives as either assets or liabilities in the balance sheet and measures these instruments at fair market value. Changes in the fair market value of derivatives are recorded each period. The Companies expect to adopt SFAS No.133 for the year beginning April 1, 2001. The effect on the Companies’ consolidated financial statements of adopting SFAS No.133 has not been determined. OMRON Corporation 31 2. Translation into United States Dollars The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for convenience of the readers and have been made at the rate of ¥106 to $1, the approximate free rate of exchange at March 31, 2000. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at the above or any other rate. 3. Inventories Inventories at March 31 consisted of: Finished products ........................................................................................... Work-in-process ............................................................................................. Materials and supplies .................................................................................... ¥44,080 15,242 18,485 ¥47,653 14,107 17,775 $415,849 143,792 174,387 Total ........................................................................................................ ¥77,807 ¥79,535 $734,028 Millions of yen Thousands of U.S. dollars 2000 1999 2000 4. Short-Term Investments and Investment Securities Cost, gross unrealized holding gains and losses and fair value of securities, excluding equity securities with no public market value, by major security type at March 31 were as follows: 2000 1999 Millions of yen Gross unrealized gains Gross unrealized losses Cost Fair value Cost Gross unrealized gains Gross unrealized losses Fair value Short-term investments: Debt securities ............... ¥ 5,008 410 Equity securities............. Total short-term ¥ — ¥ — ¥ 5,008 1,292 (14) 896 investments ..................... 5,418 896 (14) 6,300 Marketable investment securities: ¥ 20 722 742 ¥ — ¥ — ¥ 20 1,034 (87) 399 399 (87) 1,054 Debt securities ............... Equity securities............. 8 39,244 — 27,449 — (2,698) 8 63,995 11 39,070 — 16,562 — (6,328) 11 49,304 Total marketable investment securities ....... 39,252 27,449 (2,698) 64,003 39,081 16,562 (6,328) 49,315 Total ........................... ¥44,670 ¥28,345 ¥(2,712) ¥70,303 ¥39,823 ¥16,961 ¥(6,415) ¥50,369 32 OMRON Corporation Thousands of U.S. dollars 2000 Gross unrealized gains Gross unrealized losses Fair value Cost Short-term investments: Debt securities............ $ 47,245 3,868 Equity securities ......... Total short-term $ — $ — $ 47,245 12,189 8,453 (132) investments .................. 51,113 8,453 (132) 59,434 Marketable investment securities: 76 Debt securities............ Equity securities ......... 370,226 — 258,953 — (25,453) 76 603,726 Total marketable investment securities.... 370,302 258,953 (25,453) 603,802 Total ........................ $421,415 $267,406 $(25,585) $663,236 Net unrealized holding gains on available-for-sale securities, net of related taxes, increased by ¥8,750 million ($82,547 thousand) for the year ended March 31, 2000 and decreased by ¥1,518 million for the year ended March 31, 1999. Debt securities classified as available-for-sale investment securities mature in various amounts through 2001. Proceeds from sales of available-for-sale securities were ¥31,964 million ($301,547 thousand), ¥26,478 million and ¥21,160 million for the years ended March 31, 2000, 1999 and 1998, respectively. Gross realized gains on those sales were ¥3,456 million ($32,604 thousand) and ¥3,001 million for the years ended March 31, 2000 and 1999, respectively, and were not material for the year ended March 31, 1998. Gross realized losses were ¥867 million ($8,179 thousand) and ¥1,275 million for the years ended March 31, 2000 and 1999, respectively, and were not material for the year ended March 31, 1998. 5. Bank Loans and Long-Term Debt The weighted average annual interest rates of short-term bank loans at March 31, 2000 and 1999 were 3.5% and 2.5%, respectively. Long-term debt at March 31 consisted of the following: Millions of yen Thousands of U.S. dollars 2000 1999 2000 Unsecured debt: Convertible bonds at 1.7%, due in 2004 .................................................... ¥29,735 ¥29,741 $280,519 Notes: Loans from banks and other financial institutions, generally at 0.6% to 6.0%, due serially through 2005.............................. Other ............................................................................................................... Total ........................................................................................................ Less portion due within one year.................................................................... 29,199 296 59,230 1,262 28,794 242 58,777 2,167 275,462 2,793 558,774 11,906 Long-term debt, less current portion.............................................................. ¥57,968 ¥56,610 $546,868 The annual maturities of long-term debt outstanding at March 31, 2000 were as follows: Years ending March 31 Millions of yen 2001 ......................................................................................................................... 2002 ......................................................................................................................... 2003 ......................................................................................................................... 2004 ......................................................................................................................... 2005 ......................................................................................................................... 2006 and thereafter ................................................................................................. ¥ 1,262 26,053 357 24 29,745 1,789 Total ..................................................................................................................... ¥59,230 Thousands of U.S. dollars $ 11,906 245,783 3,368 227 280,613 16,877 $558,774 OMRON Corporation 33 The convertible bonds may be purchased at any time by the Company or its subsidiaries principally at any price in the open market or otherwise, and may be redeemed at the Company’s option prior to maturity. The con- vertible bonds are redeemable, in whole or in part, beginning October 1997 at 106% of face value, decreasing 1% per year. The number of contingently issuable shares of common stock related to the convertible bonds as of March 31, 2000 was 10,026,639 shares. The conversion price per share at March 31, 2000 was ¥2,965 ($27.97), subject to anti-dilutive provisions. As is customary in Japan, additional security must be given if requested by a lending bank, and banks have the right to offset cash deposited with them against any debt or obligation that becomes due and, in case of default and certain other specified events, against all debt payable to the banks. The Companies have never received any such requests. As is customary in Japan, the Company and domestic subsidiaries maintain deposit balances with banks with which they have short- or long-term borrowings. Such deposit balances are not legally or contractually restricted as to withdrawal. Total interest cost incurred and charged to expense for the years ended March 31, 2000, 1999 and 1998 amounted to ¥1,897 million ($17,896 thousand), ¥2,518 million and ¥2,412 million, respectively. The Companies have operating lease agreements primarily involving offices and equipment for varying periods. Leases that expire generally are expected to be renewed or replaced by other leases. At March 31, 2000, future minimum rental payments applicable to non-cancelable leases having initial or remaining non-cancelable lease terms in excess of one year were as follows: Years ending March 31 Millions of yen Thousands of U.S. dollars 2001 ......................................................................................................................... 2002 ......................................................................................................................... 2003 ......................................................................................................................... 2004 ......................................................................................................................... 2005 ......................................................................................................................... 2006 and thereafter ................................................................................................. ¥1,546 682 662 637 631 2,447 Total ......................................................................................................................... ¥6,605 $14,585 6,434 6,245 6,009 5,953 23,085 $62,311 Rental expense amounted to ¥11,120 million ($104,906 thousand), ¥15,193 million and ¥13,917 million for the years ended March 31, 2000, 1999 and 1998, respectively. The Company has a contract with an outside service organization for outsourcing computer services. The con- tract requires an annual service fee of ¥5,076 million ($47,887 thousand) for the year ending March 31, 2001. The annual service fee will gradually decrease each year during the contract term to ¥4,518 million ($42,623 thou- sand) for 2008. The contract is cancelable subject to a penalty of 15% of aggregate service fees payable for the remaining term of the contract. The Company and its domestic subsidiaries sponsor termination and retirement benefit plans which cover sub- stantially all domestic employees. Benefits are based on the employee’s years of service, with some plans con- sidering compensation and certain other factors. If the termination is involuntary, the employee is usually entitled to greater payments than in the case of voluntary termination. The Company and its domestic subsidiaries fund a portion of the obligations under these plans. The general funding policy is to contribute amounts computed in accordance with actuarial methods acceptable under Japanese tax law. The Company and substantially all domestic subsidiaries have a contributory termination and retirement plan which is interrelated with the Japanese government social welfare program and consists of a basic portion requiring employee and employer contributions plus an additional portion established by the employers. Periodic pension benefits required under the basic portions are prescribed by the Japanese Ministry of Health and Welfare, commence at age 60 and continue until the death of the surviving spouse. Benefits under the addi- tional portion are usually paid in a lump sum at the earlier of termination or retirement, although periodic pay- ments are available under certain conditions. 6. Leases 7. Termination and Retirement Benefits 34 OMRON Corporation The following table is the reconciliation of beginning and ending balances of the benefit obligation and the fair value of the plan assets at March 31: Millions of yen 2000 1999 Change in benefit obligation: Benefit obligation at beginning of year ......................................... Service cost .................................................................................. Interest cost .................................................................................. Plan amendments ......................................................................... Actuarial (gains) and losses .......................................................... Benefits paid (including benefits paid by the Companies) .................... ¥180,467 10,147 6,316 — (4,012) (3,655) ¥154,614 10,227 5,411 1,030 13,366 (4,181) Thousands of U.S. dollars 2000 $1,702,519 95,726 59,585 — (37,849) (34,481) Benefit obligation at end of year ............................................... ¥189,263 ¥180,467 $1,785,500 Change in plan assets: Fair value of plan assets at beginning of year .............................. Actual return on plan assets ......................................................... Employers’ contributions .............................................................. Employees’ contributions ............................................................. Benefits paid ................................................................................. 97,884 25,555 6,504 1,000 (1,806) 92,927 (1,035) 6,448 1,012 (1,468) 923,434 241,085 61,359 9,434 (17,038) Fair value of plan assets at end of year .................................... ¥129,137 ¥ 97,884 $1,218,274 Funded status ................................................................................... Unrecognized net actuarial loss ....................................................... Unrecognized transition obligation ................................................... (60,126) 30,232 1,078 (82,583) 58,095 1,348 (567,226) 285,207 10,170 Net amount recognized............................................................. ¥ (28,816) ¥ (23,140) $ (271,849) Amounts recognized in the consolidated balance sheets: Accrued liability............................................................................. Intangible assets ........................................................................... Accumulated other comprehensive income (gross of tax) ........... ¥ (28,816) — — ¥ (38,379) 1,348 13,891 $ (271,849) — — Net amount recognized............................................................. ¥ (28,816) ¥ (23,140) $ (271,849) Accumulated benefit obligation at end of year ............................ ¥146,248 ¥136,263 $1,379,698 The provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” require the recognition of an additional minimum pension liability for each defined benefit plan to the extent that a plan’s accumulated benefit obligation exceeds the fair value of plan assets and accrued pension liabilities. The net change in the minimum pension lia- bility is reflected as other comprehensive income, net of related deferred tax benefits. The unrecognized transi- tion obligation and the unrecognized net actuarial loss are being amortized over 15 years. Key assumptions utilized in calculating the actuarial present value of benefit obligation are as follows: Discount rate ............................................................................................................ 3.5% Compensation increase rate .................................................................................... 3.6 Expected long-term rate of return on plan assets.................................................... 4.0 2000 1999 3.5% 3.6 3.5 1998 4.0% 3.8 3.5 OMRON Corporation 35 The expense recorded for the contributory termination and retirement plan included the following components for the years ended March 31: Millions of yen Thousands of U.S. dollars 2000 1999 2000 Service cost .................................................................................................... Interest cost on projected benefit obligation .................................................. Expected return on plan assets ...................................................................... Net amortization and deferral ......................................................................... Employees’ contributions ............................................................................... ¥10,147 6,316 (4,088) 2,652 (1,000) ¥10,227 5,411 (3,252) 1,982 (1,012) $ 95,726 59,585 (38,566) 25,019 (9,434) Net expense ............................................................................................ ¥14,027 ¥13,356 $132,330 The Companies also have unfunded noncontributory termination plans administered by the Companies. These plans provide lump-sum termination benefits and are paid at the earlier of the employee’s termination or manda- tory retirement age, except for payments to directors and corporate auditors which require approval by the shareholders before payment. The Companies record provisions for termination benefits sufficient to state the lia- bility equal to the plans’ vested benefits, which exceed the plans’ accumulated benefit obligation. The consolidated liability for the noncontributory termination plans as of March 31, 2000 and 1999 was ¥1,813 million ($17,104 thousand) and ¥1,697 million, respectively. The consolidated expense for the noncontributory termination and retirement plans for the years ended March 31, 2000, 1999 and 1998 was ¥1,041 million ($9,821 thousand), ¥84 million and ¥146 million, respectively. The Japanese Commercial Code (the “Code”) requires at least 50% of the issue price of new shares, with the minimum of the par value thereof, to be recorded as common stock. The portion which is to be recorded as com- mon stock is determined by resolution of the Board of Directors. Proceeds in excess of the amounts designated as common stock have been credited to additional paid-in capital. Under the Code, the Company is required to record an amount at least equal to 10% of the amounts paid as an appropriation of retained earnings, including dividends and other distributions, to be appropriated and set aside as a legal reserve until such reserve equals 25% of the common stock. This reserve is not available for divi- dends but may be used to eliminate or reduce a deficit by resolution of the shareholders or may be transferred to common stock by resolution of the Board of Directors. The Company may transfer portions of additional paid-in capital and legal reserve to common stock by resolu- tion of the Board of Directors. The Company may also transfer portions of unappropriated retained earnings, available for dividends, to common stock by resolution of the shareholders. Under the Code, the amount legally available for dividends is based on retained earnings as recorded in the books of the Company for Japanese financial reporting purposes. At March 31, 2000, retained earnings amount- ing to ¥91,132 million ($859,736 thousand) were available for future dividends, subject to legal reserve require- ments. 8. Shareholders’ Equity 9. Income Taxes The provision for income taxes for the years ended March 31, 2000, 1999 and 1998 consisted of the following: Current income tax expense ........................................... Deferred income tax expense (benefit), Millions of yen Thousands of U.S. dollars 2000 1999 1998 2000 ¥14,857 ¥12,426 ¥24,579 $140,160 exclusive of the following .............................................. (5,809) (8,591) (1,305) (54,802) Change in the beginning of the year balance of the valuation allowance for deferred tax assets ............ Adjustments of deferred tax assets and liabilities for enacted changes in tax rates ................................... — — (142) 2,351 (176) 273 — — Total ......................................................................... ¥ 9,048 ¥ 6,044 ¥23,371 $ 85,358 36 OMRON Corporation The effective income tax rates of the Companies differ from the normal Japanese statutory rates as follows for the years ended March 31: Normal Japanese statutory rates......................................................................... Increase (decrease) in taxes resulting from: 2000 42.0% 1999 1998 48.0% 51.0% Permanently non-deductible items .................................................................. Losses of subsidiaries for which no tax benefit was provided ........................ Difference in subsidiaries’ tax rates ................................................................. Change in the beginning of the year balance of the valuation allowance for deferred tax assets ............................................ Effects of enacted change in tax rates ............................................................ Recognition of tax credit carryforward of an overseas subsidiary................... Other, net ......................................................................................................... 2.8 2.9 (3.0) — — — (1.7) 30.2 10.1 (18.1) (1.7) 28.5 (28.5) 4.8 6.0 1.0 (6.0) (0.4) 0.6 — 3.1 Effective tax rates......................................................................................... 43.0% 73.3% 55.3% The Company and its domestic subsidiaries are subject to a number of taxes based on income, which in the aggregate resulted in a normal tax rate of approximately 42.0% in 2000, 48.0% in 1999 and 51.0% in 1998. Amendments to Japanese tax regulations were enacted into law on March 31, 1998 and 1999. As a result of these amendments, the normal income tax rates were reduced from 51.0% to 48.0% effective April 1, 1998 and from 48.0% to 42.0% effective April 1, 1999, respectively. Deferred income tax assets and liabilities as of March 31, 1999 and 1998 were measured at the respective newly enacted tax rates. The approximate effects of temporary differences and tax credit and loss carryforwards that gave rise to deferred tax balances at March 31, 2000 and 1999 were as follows: Millions of yen Thousands of U.S. dollars 2000 1999 2000 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities ¥ Inventory valuation ............................................ ¥ 1,477 3,224 Accrued bonuses and vacations ....................... 9,312 Termination and retirement benefits.................. 896 Enterprise taxes................................................. 2,208 Intercompany profits ......................................... Marketable securities ........................................ Allowance for doubtful receivables ................... Bad debt expenses ........................................... Gain on sale of land........................................... Minimum pension liability adjustment ............... Other temporary differences ............................. Tax credit carryforwards.................................... Subsidiaries’ operating loss carryforwards ....... 879 2,368 — — 5,464 3,245 5,104 ¥ — ¥ 1,676 2,152 6,266 568 2,522 — 407 — — 5,834 4,709 5,954 4,311 — — — — — 10,766 308 — 1,076 — 4,416 — — 30,415 87,849 8,453 20,830 — $ 13,934 $ — — — — — — — — — — 101,566 4,429 2,906 209 — — — 10,151 1,076 — — — 41,660 51,547 5,169 — 30,613 — — 48,151 — 8,292 22,340 Subtotal ............................................................. Valuation allowance........................................... 34,177 (6,485) 16,566 — 34,399 (4,804) 10,883 — 322,424 (61,179) 156,283 — Total ........................................................... ¥27,692 ¥16,566 ¥29,595 ¥10,883 $261,245 $156,283 OMRON Corporation 37 The total valuation allowance increased by ¥1,681 million ($15,858 thousand) and ¥2,162 million in 2000 and 1999, respectively, and decreased by ¥1,689 million in 1998. As of March 31, 2000, certain subsidiaries had operating loss carryforwards approximating ¥13,320 million ($125,660 thousand) available for reduction of future taxable income, most of which expire in various amounts through 2005. The Company has not provided for Japanese income taxes on unremitted earnings of subsidiaries to the extent that they are believed to be indefinitely reinvested. The unremitted earnings of the foreign subsidiaries which are considered to be indefinitely reinvested and for which Japanese income taxes have not been provided were ¥41,900 million ($395,283 thousand) and ¥37,175 million at March 31, 2000 and 1999, respectively. It is not practicable to estimate the amount of unrecognized deferred Japanese income taxes on these unremitted earn- ings. Dividends received from domestic subsidiaries are expected to be substantially free of tax. 10. Foreign Operations Net sales and total assets of foreign subsidiaries for the years ended March 31, 2000, 1999 and 1998 were as fol- lows: Net sales ................................................................. Total assets ............................................................ ¥158,122 ¥115,532 ¥167,546 ¥122,039 ¥171,181 ¥143,247 Millions of yen 2000 1999 1998 Thousands of U.S. dollars 2000 $1,491,717 $1,089,925 11. Amounts per Share Basic net income per share has been computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each year. Diluted net income per share reflects the potential dilution of convertible bonds and stock options, and has been computed by the if-converted method for convertible bonds and by the treasury stock method for stock options. A reconciliation of the numerators and denominators of the basic and diluted net income per share computa- tions is as follows: Millions of yen Thousands of U.S. dollars 2000 1999 1998 2000 Net income............................................................................. ¥11,561 Effect of dilutive securities: ¥2,174 ¥18,704 $109,066 Convertible bonds, due 2004............................................. 325 — 292 3,066 Diluted net income ................................................................. ¥11,886 ¥2,174 ¥18,996 $112,132 Number of shares 2000 1999 1998 Weighted average common shares outstanding ................. 256,841,987 Dilutive effect of: Convertible bonds, due 2004 ........................................... 10,028,349 Stock Options................................................................... 28,106 260,649,752 262,107,214 — — 10,028,661 — Diluted common shares outstanding ................................... 266,898,442 260,649,752 272,135,875 For the year ended March 31, 1999, the assumed conversion of convertible bonds, giving effect to the incre- mental shares and the adjustment to reduce interest expenses, was anti-dilutive and has, therefore, been exclud- ed from the computation. For the year ended March 31, 1999, the assumed exercise of stock options, giving effect to the incremental shares, was anti-dilutive and has been excluded from the computation. Cash dividends per share are the amounts applicable to the respective year, including dividends to be paid after the end of the year. 38 OMRON Corporation 12. Supplemental Information for Cash Flows 13. Other Comprehensive Income (Loss) Supplemental cash flow information for the years ended March 31, 2000, 1999 and 1998 was as follows: Interest paid..................................................................... Income taxes paid ........................................................... Non-cash investing and financing activities: Liabilities assumed in connection with capital Millions of yen Thousands of U.S. dollars 2000 1999 1998 2000 ¥ 1,980 12,543 ¥ 2,450 18,417 ¥ 2,347 25,804 $ 18,679 118,330 expenditures .............................................................. 3,467 5,559 4,547 32,708 The change in each component of accumulated other comprehensive income (loss) for the years ended March 31, 2000, 1999 and 1998 was as follows: Millions of yen Thousands of U.S. dollars 2000 1999 1998 2000 Foreign currency translation adjustments: Beginning balances ..................................................... ¥(11,954) (9,044) Change for the year ..................................................... ¥ (5,912) (6,042) Ending balances................................................... (20,998) (11,954) Minimum pension liability adjustments: Beginning balances ..................................................... Change for the year ..................................................... Ending balances................................................... (7,138) 7,138 — Unrealized gains on available-for-sale securities: Beginning balances ..................................................... Change for the year ..................................................... 5,080 8,750 Ending balances................................................... 13,830 (1,401) (5,737) (7,138) 6,598 (1,518) 5,080 ¥(3,320) (2,592) (5,912) (2,146) 745 (1,401) 10,083 (3,485) 6,598 $(112,773) (85,321) (198,094) (67,340) 67,340 — 47,925 82,547 130,472 Total accumulated other comprehensive income (loss): Beginning balances ..................................................... Change for the year ..................................................... (14,012) 6,844 (715) (13,297) 4,617 (5,332) (132,188) 64,566 Ending balances .............................................................. ¥ (7,168) ¥(14,012) ¥ (715) $ (67,622) Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended March 31, 2000, 1999 and 1998 were as follows: 2000 Tax Millions of yen 1999 Tax 1998 Tax Before-tax amount (expense) Net-of-tax benefit amount Before-tax amount (expense) Net-of-tax benefit amount Before-tax amount (expense) Net-of-tax benefit amount Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year ...................... ¥ (9,044) ¥ — ¥(9,044) ¥ (6,082) ¥ — ¥ (6,082) ¥(2,592) ¥ — ¥(2,592) Reclassification adjustment for the portion realized upon sale or liquidation of investments in foreign entities ..................................................... Net change in foreign currency translation — — — 40 — 40 — — — adjustments during the year.................................... (9,044) — (9,044) (6,042) — (6,042) (2,592) — (2,592) Minimum pension liability adjustments .................... 13,891 (6,753) 7,138 (11,032) 5,295 (5,737) 1,520 (775) 745 Unrealized gains on available-for-sale securities: Unrealized holding gains arising during period......... 15,604 (6,554) 9,050 (1,194) 574 (620) (7,104) 3,623 (3,481) Reclassification adjustment for losses on impairment realized in net income .......................... 2,072 (870) 1,202 — — — Reclassification adjustment for gains realized in net income........................................................... (2,589) 1,087 (1,502) (1,726) 828 (898) — (7) — 3 — (4) Net unrealized gains.................................................. 15,087 (6,337) 8,750 (2,920) 1,402 (1,518) (7,111) 3,626 (3,485) Other comprehensive income (loss) .................. ¥19,934 ¥(13,090) ¥ 6,844 ¥(19,994) ¥6,697 ¥(13,297) ¥(8,183) ¥2,851 ¥(5,332) OMRON Corporation 39 Thousands of U.S. dollars 2000 Before-tax amount Tax (expense) benefit Net-of-tax amount Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year ...................................................................................... $(85,321) $ — $(85,321) Reclassification adjustment for the portion realized upon sale or liquidation of investments in foreign entities................................................................ — Net change in foreign currency translation adjustments during the year .................................................................................................... (85,321) — — Minimum pension liability adjustments....................................................................................... 131,047 (63,707) — (85,321) 67,340 Unrealized gains on available-for-sale securities: Unrealized holding gains arising during period ........................................................................... Reclassification adjustment for losses on 147,207 (61,830) 85,377 impairment realized in net income........................................................................................... 19,547 (8,207) 11,340 Reclassification adjustment for gains realized in net income ........................................................................................................................... (24,425) 10,255 Net unrealized gains .................................................................................................................... 142,329 (59,782) (14,170) 82,547 Other comprehensive income (loss) .................................................................................... $188,055 $(123,489) $ 64,566 14. Financial Instruments and Risk Management Financial Instruments The following table presents the carrying amounts and estimated fair values as of March 31, 2000 and 1999 of the Companies’ financial instruments, both on and off the balance sheet. Millions of yen 2000 1999 Thousands of U.S. dollars 2000 Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Nonderivatives: Long-term debt, including current portion ........................................ ¥(59,230) ¥(68,213) ¥(58,777) ¥(59,301) $(558,774) $(643,519) Derivatives: Included in Other current assets (Other current liabilities): Forward exchange contracts ................ Interest rate swaps ............................... 269 — 269 (45) 16 — 16 (172) 2,538 — 2,538 (425) The following methods and assumptions were used to estimate the fair value of each class of financial instru- ments for which it is practicable to estimate that value: Nonderivatives (1) Cash and cash equivalents, notes and accounts receivable, bank loans and notes and accounts payable: The carrying amounts approximate fair values. (2) Short-term investments and investment securities (see Note 4): The fair values are estimated based on quoted market prices or dealer quotes for marketable securities or similar instruments. Certain equity securities included in investments have no public market value, for which it is not practicable to estimate their fair values. (3) Long-term debt: For convertible bonds, the fair values are estimated based on quoted market prices. For other, the fair values are estimated using the present value of discounted future cash flow analysis, based on the Companies’ cur- rent incremental issuing rates for similar types of arrangements. 40 OMRON Corporation Derivatives The fair value of derivatives generally reflects the estimated amounts that the Companies would receive or pay to terminate the contracts at the reporting date, thereby taking into account the current unrealized gains or losses of open contracts. Dealer quotes are available for most of the Companies’ derivatives; otherwise, pricing or valua- tion models are applied to current market information to estimate fair value. The Companies do not use deriva- tives for trading purposes. (1) Interest rate swap contracts: The Companies enter into interest rate swap agreements to manage exposure to fluctuations in interest rates. These agreements involve the exchange of interest obligations on fixed and floating interest rate debt without exchange of the underlying principal amounts. The agreements generally mature at the time the related debt matures. The differential paid or received on interest rate swap agreements is recognized as an adjustment to interest expense. Notional amounts are used to express the volume of interest rate swap agreements. The notional amounts do not represent cash flows and are not subject to risk of loss. In the unlikely event that the counterparty fails to meet the terms of an interest rate swap agreement, the Companies’ exposure is limited to the interest rate differential. Management considers the exposure to credit risk to be minimal since the counterparties are major financial institutions. At March 31, 2000 and 1999, the notional amounts on which the Companies had interest rate swap agree- ments outstanding aggregated ¥4,000 million ($37,736 thousand) and ¥12,000 million, respectively. The estimated fair values of interest rate swap contracts are based on the present value of discounted future cash flow analysis. (2) Foreign exchange forward contracts: The Companies enter into foreign exchange forward contracts to hedge foreign currency transactions (primar- ily the U.S. dollar and the EURO), on a continuing basis for periods consistent with their committed exposure. Some of the contracts involve the exchange of two foreign currencies, according to local needs in foreign subsidiaries. The terms of the currency derivatives are rarely more than 10 months. The credit exposure of foreign exchange contracts are represented by the fair value of the contracts at the reporting date. Management considers the exposure to credit risk to be minimal since the counterparties are major financial institutions. The notional amounts of contracts to exchange foreign currency (forward contracts) outstanding at March 31, 2000 and 1999 were as follows: Millions of yen Thousands of U.S. dollars 2000 1999 2000 Related to receivables and future sales: Forward contracts ................................................................................. ¥15,374 ¥13,974 $145,038 The notional amounts do not represent the amounts exchanged by the parties to derivatives and are not a measure of the Companies’ exposure through its use of derivatives. The amounts exchanged are determined by reference to the notional amounts and the other terms of the derivatives. The Companies hedge certain exposures to fluctuations in foreign currency exchange rates that occur prior to conversion of foreign currency denominated monetary assets and liabilities into the functional currency. Prior to conversion to the functional currency, these assets and liabilities are translated at the spot rates in effect on the balance sheet date. The effects of changes in spot rates are reported in earnings and included in Foreign exchange loss, net in the consolidated statements of income. Because monetary assets and liabili ties are marked to spot and recorded in earnings, forward contracts designated as hedges of the monetary assets and liabilities are also marked to spot with the resulting gains and losses similarly recognized in earn ings. Gains and losses on forward contracts are included in Foreign exchange loss, net in the consolidated statements of income and offset losses and gains on the net monetary assets and liabilities hedged. Gains or losses on forward exchange contracts and currency options purchased and written that do not qualify for deferral for accounting purposes are recognized in income on a current basis and recorded in Foreign exchange loss, net in the consolidated statements of income. OMRON Corporation 41 Concentration of Credit Risk Financial instruments which potentially subject the Companies to concentrations of credit risk consist principally of short-term cash investments and trade receivables. 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-estab- lished customers and their dispersion across many industries. The Company normally requires customers to deposit with them funds to serve as security for ongoing credit sales. Guarantees Contingent liabilities at March 31, 2000 with respect to loans guaranteed were ¥2,502 million ($23,604 thousand), of which ¥1,400 million ($13,208 thousand) are jointly and severally guaranteed with other unrelated companies. 42 OMRON Corporation Independent Auditors’ Report To the Board of Directors and Shareholders of OMRON Corporation We have audited the accompanying consolidated balance sheets of OMRON Corporation and subsidiaries as of March 31, 2000 and 1999, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2000, all expressed in Japanese yen. These financial state- ments are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by man- agement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Certain information required by Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” has not been presented in the accompanying consolidated financial statements. In our opinion, presentation concerning operating segments and other information is required for a complete presentation of the Company’s consolidated financial statements. In our opinion, except for the omission of segment information as discussed in the third paragraph, the consolidated finan- cial statements referred to above present fairly, in all material respects, the financial position of OMRON Corporation and sub- sidiaries as of March 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States. Our audits also comprehended the translation of Japanese yen amounts into United States dollar amounts and, in our opin- ion, such translation has been made in conformity with the basis stated in Note 2 to the consolidated financial statements. Such United States dollar amounts are presented solely for convenience. Osaka, Japan May 11, 2000 OMRON Corporation 43 International Network A S I A - P A C I F I C REGIONAL HEADQUARTERS OMRON Asiapacific Pte. Ltd. 83, Clemenceau Avenue, #11-01, UE Square, Singapore 239920, Singapore Phone: 65-835-3011 Fax: 65-835-2711 MARKETING AND/OR MANUFACTURING OF CONTROL COMPONENTS AND SYSTEMS OMRON Asiapacific Pte. Ltd. 83, Clemenceau Avenue, #11-01, UE Square, Singapore 239920, Singapore Phone: 65-835-3011 Fax: 65-835-2711 — Indonesia Representative Office W; isma Danamon Aetna Life Tower, Suite 1602, JI Jend. Sudirman Kav. 45-46, Jakarta 12930, Indonesia Phone: 62-21-5770838 Fax: 62-21-5770840 — Hanoi Representative Office 6F, Vinaconex Bldg., 2 Lang Ha, Hanoi, Socialist Republic of Vietnam Phone: 84-4-8313121 Fax: 84-4-8313122 — Manila Representative Office 2F, Kings Court II Bldg., 2129 Pasong Tamo St. 1231, Makati City, Metro Manila, Philippines Phone: 63-2811-2831 Fax: 63-2811-2582 — India Representative Office 59 Hemkunt, Opp. Nehru Place, New Delhi -110048, India Phone: 91-11-623-8431 Fax: 91-11-623-8434 OMRON Electronics Sales and Service (M) Sdn. Bhd. 2. 01, Level 2, Wisma Academy 4A, Jalan 19/1 46300 Petaling Jaya, Selangor, Malaysia Phone: 60-3-7954-7323 Fax: 60-3-7954-6618 C H I N E S E E C O N O M I C A R E A REGIONAL HEADQUARTERS OMRON (China) Group Co., Ltd. 601-9, Tower 2, The Gateway No. 25, Canton Road, Tsimshatsui, Kowloon, Hong Kong Phone: 852-2375-3827 Fax: 852-2375-1475 OMRON (China) Co., Ltd. Rm 1028, Office Building, Beijing Capital Times Square, No. 88 West Chang’an Ave., Beijing 100031 China Phone: 8610-8391-3005 Fax: 8610-8391-3688 44 OMRON Corporation OMRON Electronics Co., Ltd. 20F, Rasa Tower, 555 Phaholyothin Road, Ladyao, Chatuchak, Bangkok 10900, Thailand Phone: 66-2-937-0500 Fax: 66-2-937-0501 OMRON Electronics Pty. Ltd. 71 Epping Road, North Ryde, NSW 2113, Australia Phone: 61-2-9878-6377 Fax: 61-2-9878-6981 OMRON Electronics Ltd. 65 Boston Road, Mt. Eden, Auckland, New Zealand Phone: 64-9-358-4400 Fax: 64-9-358-4411 FS Automation Pte. Ltd. 83, Clemenceau Avenue, #11-01, UE Square, Singapore 239920, Singapore Phone: 65-839-8518 Fax: 65-839-8435 OMRON Korea Co., Ltd. 3F, New Seoul Bldg., #618-3 Sinsa-Dong Kang Nam-ku, Seoul, South Korea Phone: 82-2-549-2766 Fax: 82-2-517-9033 OMRON Malaysia Sdn. Bhd. Lot 15, Jalan SS 8/4 Sungei Way, Free Trade Zone, 47300 Petaling Jaya, Selangor, Darul Ehsan, Malaysia Phone: 603-7876-1411 Fax: 603-7876-1954 PT OMRON Manufacturing of Indonesia Ejip Industrial Park Plot 5C, Lemahabang, Bekasi 17550, West Java, Indonesia Phone: 62-21-8970111 Fax: 62-21-8970120 MARKETING AND MANUFACTURING OF AUTOMOTIVE COMPONENTS OMRON Automotive Electronics Korea Co., Ltd. 272-2 Kyerukri, Miyangmyon, Ansong-gun, Kyonggi-Do, 456-840, South Korea Phone: 82-334-677-4262 Fax: 82-334-677-4268 MARKETING AND MANUFACTURING OF SOCIAL BUSINESS SYSTEMS OMRON Business Systems Singapore (Pte.) Ltd. 83, Clemenceau Avenue, #11-02, UE Square, Singapore 239920, Singapore Phone: 65-736-3900 Fax: 65-736-2736 OMRON Business Systems Malaysia Sdn. Bhd. 501, Block D. Pusat Perdagangan Philoe Damansara 1, No. 9, Jalan 16/11, Off Jalan Damansara, 46350 Petaling Jaya, Selangor, Malaysia Phone: 60-3-460-9119 Fax: 60-3-460-9559 OMRON Mechatronics of the Philippines Corporation Subic Techno Park Boton Area, Subic Bay Freeport Zone, 2222, Philippines Phone: 63-47-252-1490 Fax: 63-47-252-1491 MARKETING OF HEALTHCARE EQUIPMENT OMRON Healthcare Singapore PTE Ltd. 83, Clemenceau Avenue, #11-02, UE Square, Singapore 298135, Singapore Phone: 65-736-2345 Fax: 65-736-2500 MARKETING AND/OR MANUFACTURING OF CONTROL COMPONENTS AND SYSTEMS OMRON Electronics Asia Ltd. 601-9, Tower 2, The Gateway No. 25, Canton Road, Tsimshatsui, Kowloon, Hong Kong Phone: 852-2375-3827 Fax: 852-2375-1475 OMRON Taiwan Electronics Inc. 6F, Home Young Bldg., No. 363, Fu-Shing North Road, Taipei, Taiwan, R.O.C. Phone: 886-22-715-3331 Fax: 886-22-712-6712 Shanghai OMRON Automation System Co., Ltd. No. 1600 Jinsui Road, Jinqiao Export Processing Zone, Pudong, Shanghai 201206, China Phone: 86-21-5854-2080 Fax: 86-21-5854-2658 Shanghai OMRON Control Components Co., Ltd. 1500 Jinsui Road, Jinqiao Export Processing Zone, Pudong, Shanghai 201206, China Phone: 86-21-5854-0012 Fax: 86-21-5854-8413 OMRON (Shanghai) Co., Ltd. NO. 789 Jinji Road, Jinqiao Export Processing Zone, Pudong, Shanghai 201206, China Phone: 86-21-5854-0055 Fax: 86-21-5854-0614 OTE ENGINEERING INC. No. 9, Lane 201, Sec. 2, Nankan Road, Lu-Chu Villege, Tao-Yuan, Taiwan, R.O.C. Phone: 886-3-352-4442 Fax: 886-3-352-4239 YAMRON Co., Ltd. 5Fl.-1, No. 70, Min Chuan West Road, Taipei, Taiwan, R.O.C. Phone: 886-22-523-6158 Fax: 886-22-523-6642 MARKETING OF SOCIAL BUSINESS SYSTEMS Beijing GOT Business Computer System Co., Ltd. 8F, Yujing Building, Xueqing Road, Haidian District, Beijing 10083, China Phone: 86-10-6231-1985 Fax: 86-10-6231-2177 T H E A M E R I C A S North America REGIONAL HEADQUARTERS OMRON Management Center of America, Inc. 1300 Basswood, Suite 100, Schaumburg, IL 60173, U.S.A. Phone: 1-847-884-0322 Fax: 1-847-884-1866 OMRON Management Center of America, Inc. — Information Technology Center 3945 Freedom Circle, Suite 700, Santa Clara, CA 95054, U.S.A. Phone: 1-408-919-2828 Fax: 1-408-919-2829 OMRON Finance Canada, Inc. 885 Milner Avenue, Scarborough, Ontario, M1B 5V8 Canada Phone: 1-416-286-6465 Fax: 1-416-286-6648 MARKETING AND/OR MANUFACTURING OF CONTROL COMPONENTS AND SYSTEMS OMRON Electronics Inc. 1 East Commerce Drive, Schaumburg, IL 60173, U.S.A. Phone: 1-847-843-7900 Fax: 1-847-843-7787 OMRON Idm Controls, Inc. 9510 N.Houston-Rosslyn Rd., Houston, TX 77088 Phone: 1-713-849-1900 Fax: 1-713-849-4666 OMRON Canada Inc. 885 Milner Avenue, Scarborough, Ontario, M1B 5V8 Canada Phone: 1-416-286-6465 Fax: 1-416-286-6648 OMRON Manufacturing of America, Inc. 3705 Ohio Avenue, St. Charles, IL 60174, U.S.A. Phone: 1-630-513-0400 Fax: 1-630-513-1027 LOGISTICS OMRON Trading (Shanghai) Co., Ltd. Rui Jin Office Rm 2211, Bank of China Tower, 200 Yin Cheng Zhong Road, Pu Dong New Area, Shanghai, 200120, China Phone: 86-21-5037-2222 Fax: 86-21-5037-2200 OMRON (Tianjin) International Trade Co., Ltd. No. 77 Tianbao Road, Tianjin Port Free Trade Zone, 300456 China Phone: 86-22-2576-0295 Fax: 86-22-2576-3032 MANUFACTURING OF HEALTHCARE EQUIPMENT OMRON (Dalian) Co., Ltd. Song Jiang Lu, 3-hao, Dalian Economic and Technical Development Zone, Dalian, 116600, China Phone: 86-411-761-4222 Fax: 86-411-761-6602 RESEARCH AND DEVELOPMENT OMRON Shanghai Computer Corporation 14F, Meike Building, 1 Tianyaoqiao Road, Shanghai 200030, China Phone: 86-21-6468-9626 Fax: 86-21-6468-9489 Nanjing Southeast Omron Traffic Information Systems Co., Ltd. 6F Huihong Building, 91 Baixia Road Nanjing, 210001, China Phone: 86-25-469-1665 Fax: 86-25-469-1650 MARKETING AND/OR MANUFACTURING OF AUTOMOTIVE COMPONENTS MARKETING OF OFFICE AUTOMATION EQUIPMENT OMRON Automotive Electronics Inc. (MARKETING) 30600 Northwestern Hwy., Suite 250, Farmington Hills, MI 48334, U.S.A. Phone: 1-248-539-4700 Fax: 1-248-539-4710 (MANUFACTURING) 3709 Ohio Avenue, St. Charles, IL 60174, U.S.A. Phone: 1-630-443-6800 Fax: 1-630-443-6898 OMRON Dualtec Automotive Electronics, Inc. 2270 Bristol Circle, Oakville, Ontario, L6H 5S3 Canada Phone: 1-905-829-0136 Fax: 1-905-829-0432 MARKETING OF SOCIAL BUSINESS SYSTEMS OMRON Systems, Inc. 55 East Commerce Drive, Schaumburg, IL 60173, U.S.A. Phone: 1-847-843-0515 Fax: 1-847-843-7686 OMRON Transaction Systems, Inc. 55 East Commerce Drive, Schaumburg, IL 60173, U.S.A. Phone: 1-847-843-0515 Fax: 1-847-843-7686 MARKETING OF HEALTHCARE EQUIPMENT OMRON Healthcare, Inc. 300 Lakeview Parkway, Vernon Hills, IL 60061, U.S.A. Phone: 1-847-680-6200 Fax: 1-847-680-6269 OMRON Office Automation Products, Inc. 3945 Freedom Circle, Suite 700, Santa Clara, CA 95054, U.S.A. Phone: 1-408-727-1444 Fax: 1-408-970-1149 RESEARCH AND DEVELOPMENT OMRON Advanced Systems, Inc. 3945 Freedom Circle, Suite 700, Santa Clara, CA 95054, U.S.A. Phone: 1-408-727-6644 Fax: 1-408-727-5540 LOGISTICS OMRON Logistics of America, Inc. 3705 Ohio Avenue, St. Charles, Illinois 60174 U.S.A. Phone: 1-630-513-6750 Fax: 1-630-513-1382 South America MARKETING AND MANUFACTURING OF CONTROL COMPONENTS AND SYSTEMS OMRON Eletrõnica do Brasil Ltda. Av. Santa Catarina, 935/939 04378-300, São Paulo-SP-Brazil Phone: 55-11-5564-6488 Fax: 55-11-5564-7751 MARKETING OF RETAIL SYSTEMS EQUIPMENT OMRON Business Sistemas Eletrônicos da América Latina, Ltda. Av. Paulista 949 12-Andar, conj. 122, CEP 01311-100, São Paulo, Brazil Phone: 55-11-251-0073 Fax: 55-11-251-1053 OMRON Corporation 45 OMRON Manufacturing of the Netherlands B.V. Zilvernberg 2, 5234 GM Den Bosch, The Netherlands Phone: 31-73-6481811 Fax: 31-73-6420195 OMRON Electronics Manufacturing of Germany G.m.b.H. Robert-Bosch Strasse 1, P.O. Box 1165, D-71154 Nufringen, Germany Phone: 49-70-32-8110 Fax: 49-70-32-81199 OMRON Electronics G.m.b.H. Postfach 40 04 42 40244 Langenfeld Phone: 49-2173-6800-0 Fax: 49-2173-6800-400 MARKETING AND MANUFACTURING OF AUTOMOTIVE COMPONENTS OMRON Electronic Components Ltd. Vantage Point, The Pensnett Estate, Kingswinford, West Midlands DY6 7FP, United Kingdom Phone: 44-1384-405500 Fax: 44-1384-405508 MARKETING OF HEALTHCARE EQUIPMENT OMRON Healthcare Europe B.V. Wegalaan 57, 2132, JD Hoofddorp, The Netherlands Phone: 31-23-5681-200 Fax: 31-23-5681-201 OMRON Medizintechnik Handelsgesellschaft G.m.b.H. Windeckstrasse, 81, 68163 Mannheim, Germany Phone: 49-0621-83348-8 Fax: 49-0621-8334820 OMRON Healthcare UK Limited Rede House, New Barn Lane, Henfield, West Sussex BN5 9SJ Phone: 44-1-273-495033 Fax: 44-1-273-495123 E U R O P E REGIONAL HEADQUARTERS OMRON Europe B.V. Wegalaan 67, NL-2132 JD Hoofddorp, The Netherlands Phone: 31-23-5681-300 Fax: 31-23-5681-391 MARKETING AND/OR MANUFACTURING OF CONTROL COMPONENTS AND SYSTEMS OMRON Europe B.V. Wegalaan 67-69, 2132 JD Hoofddorp, The Netherlands Phone: 31-23-5681-300 Fax: 31-23-5681-388 OMRON Electronics Ges.m.b.H. Altmannsdorfer Strasse 142, P.O. Box 323, A-1231, Vienna, Austria Phone: 43-1-80190-0 Fax: 43-1-804-48-46 OMRON Electronics N.V./S.A. Stationsstraat 24, B-1702 Groot-Bijgaarden, Belgium Phone: 32-2-4662480 Fax: 32-2-4660687 OMRON Electronics A.G. Sennweidstrasse 44, CH-6312 Steinhausen, Switzerland Phone: 41-41-748-1313 Fax: 41-41-748-1345 OMRON Electronics SPOL S.R.O. Srobarova 6, Prague 10, 101 00, Czech Republic-CZECH Phone: 420-2-6731-1254 Fax: 420-2-7173-5613 OMRON Fabrikautomation G.m.b.H. P.O. 10 10 20, 40710 Hilden, Germany Phone: 49-2103-203-3 Fax: 49-2103-203-400 Schoenbuch Elektronik Hanesch G.m.b.H. & Co., KG Daimlerstrabe 13, D-71083, Hervenberg, Germany Phone: 49-7032-946810 Fax: 49-7032-946849 OMRON Electronics A/S Odinsvej 15, DK-2600 Glostrup, Denmark Phone: 45-43-44-00-11 Fax: 45-43-44-02-11 OMRON Electronics S.A. C/Arturo Soria 95, E-28027 Madrid, Spain Phone: 34-91-37-77-9-00 Fax: 34-91-37-77-9-56 OMRON Electronics S.a.r.l. BP33, 19, Rue du Bois-Galon 94121 Fontenay-Sous-Bois, Cedex, France Phone: 33-1-49747000 Fax: 33-1-48760930 OMRON Electronics S.r.l. Viale Certosa 49, 20149 Milano, Italy Phone: 39-2-32681 Fax: 39-2-325154 OMRON Immobiliare S.r.l. Viale Certosa 49, 20149 Milano, Italy Phone: 39-02-32681 Fax: 39-02-325154 OMRON Electronics Sp. z.o.o. UL Jana Sengera Cichego 1, 02-790 Warsaw, Poland Phone: 48-22-645-7860 Fax: 48-22-645-7863 OMRON Electronics, kft Kiss Erno u. 1-3, H-1046 Budapest, Hungary Phone: 36-1-399-3050 Fax: 36-1-399-3060 OMRON Electronics Norway A/S Ole Deviks Vei 4, P.O. Box 109, Bryn, N-0611 Oslo, Norway Phone: 47-22-657500 Fax: 47-22-658300 OMRON Electronics B.V. Wegalaan 61/Postbus 5822132, JD/2130 AN Hoofddorp, The Netherlands Phone: 31-23-5681100 Fax: 31-23-5681188 OMRON Electronics Lda. Edificio OMRON, Rua de Sao Tomé, Lote 131, Prior Velho-2685 Prior Velho, Portugal Phone: 351-1-942-9400 Fax: 351-1-941-7899 OMRON Administracao De Imovels Ltda. Rua De Sao Tome, Lote 131 2685 Sacavem Portugal Phone: 351-1-941-7599 Fax: 351-1-941-7899 OMRON Electronics A.B. Norgegatan 1, P.O. Box 1275, S-164 28 Kista, Sweden Phone: 46-8-632-3500 Fax: 46-8-632-3510 OMRON Electronics O.Y. Metsänpojankuja 5, Fin 02130 Espoo, Finland Phone: 358-9-5495-800 Fax: 358-9-5495-8150 OMRON Electronics Ltd. 1 Apsley Way, Staples Corner, London NW2 7HF, U.K. Phone: 44-181-450-4646 Fax: 44-181-450-8087 OMRON Electronics Ltd. Acibadem Caddesi, Palmiye Sokak 12, TR-81020 Kadikoy, Istanbul, Turkey Phone: 90-216-326-2980 Fax: 90-216-326-2979 46 OMRON Corporation Investor Information Head Office Date of Establishment Stock Listings Osaka Securities Exchange Tokyo Stock Exchange Kyoto Stock Exchange Nagoya Stock Exchange Frankfurt Stock Exchange Ticker Symbol Number 6645 Transfer Agent The Mitsubishi Trust and Banking Corporation 2-11-1, Nagatacho, Chiyoda-ku, Tokyo 100-8212, Japan (As of March 31, 2000) Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530, Japan Phone: 81-75-344-7000 Fax: 81-75-344-7001 Tokyo Head Office 3-4-10, Toranomon, Minato-ku, Tokyo 105-0001, Japan Phone: 81-3-3436-7227 Fax: 81-3-3436-7165 Osaka Office Osaka Center Bldg., 4-1-3, Kyutaro-cho, Chuo-ku, Osaka 541-0056, Japan Phone: 81-6-6282-2511 Fax: 81-6-6282-2789 Kyoto R&D Laboratory 20, Igadera, Shimo-kaiinji, Nagaokakyo-shi, Kyoto 617-8510, Japan Phone: 81-75-951-5111 Fax: 81-75-957-2871 May 10, 1933 Industrial Property Rights Number of patents: 2,514 (Japan) 1,385 (Overseas) Number of patents pending: 6,493 (Japan) 593 (Overseas) Number of Employees 24,915 Paid–in Capital ¥64,079 million Common Stock Authorized: 495,000,000 shares Issued: 257,109,236 shares Number of shareholders: 25,058 Stock Price Range/Trading Volume (Osaka Securities Exchange) Monthly Stock Price Range (¥) 3,500 3,000 2,500 2,000 1,500 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Monthly Trading Volume (shares) High price= ¥3,450 Low price= ¥1,500 4/99 5 6 7 8 9 10 11 12 1/00 2 3 Month OMRON Corporation 47 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) This annual report is printed on recycled paper. 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