Omron Corporation
Annual Report 2002

Plain-text annual report

A Dynamic Commitment to Structural Transformation, Globalization and Unique Value Annual Report 2002 Year ended March 31, 2002 Profile Through its broad range of business operations, Omron Corporation provides innovative solutions for industry, society and daily life. In May 2001, Omron unveiled Grand Design 2010 (GD2010), a long-term management vision that outlines the ideal form of the Omron Group and the basic guidelines for the management strategies to get it there. Since November of the same year, Omron has also been implementing its Group Productivity Improvement Reforms to accelerate the structural reforms in GD2010 in terms of both quality and speed, and to respond to rapid changes in the business environment. Focusing on its core strengths in sensing and control technologies, Omron will continue transforming itself into a global company that contributes to the advancement of society. Contents Financial Highlights To Our Shareholders Interview with CEO Yoshio Tateisi Review of Operations Omron Corporate Citizenship Activities Environmental Activities Board of Directors, Corporate Auditors and Executive Officers Financial Section Global Network Investor Information 1 2 4 9 15 16 18 19 47 49 Statements in this annual report with respect to Omron’s plans, strategies and beliefs, as well as other statements that are not historical facts, are forward-looking statements involving risks and uncertainties. Important factors that could cause actual results to differ materially from such statements include, but are not limited to, general economic conditions in Omron’s markets, which are primarily Japan, North America, Europe, Asia-Pacific and China; demand for, and competitive pricing pressure on, Omron’s products and services in the marketplace; Omron’s ability to continue to win acceptance for its products and services in these highly competitive markets; and movements of currency exchange rates. Financial Highlights Omron Corporation and Subsidiaries Years ended March 31, 2002, 2001 and 2000 Millions of yen (except per share data) Thousands of U.S. dollars (Note 2) (except per share data) 2002 2001 2000 2002 For the Year: Net Sales .................................................................................................. ¥533,964 ¥594,259 ¥555,358 $4,014,767 Income (Loss) before Income Taxes, Minority Interests and Cumulative Effect of Accounting Change................................... (25,373) 40,037 21,036 (190,774) Income (Loss) before Cumulative Effect of Accounting Change .......................................... (16,157) Net Income (Loss).................................................................................... (15,773) 22,297 22,297 11,561 11,561 (121,481) (118,594) Per Share Data (yen and U.S. dollars): Income (Loss) before Cumulative Effect of Accounting Change Basic ........................................................................................... Diluted ........................................................................................ ¥ (65.0) (65.0) ¥ 87.4 85.3 ¥ 45.0 44.5 $ (0.49) (0.49) Net Income (Loss) Basic ........................................................................................... Diluted ........................................................................................ (63.5) (63.5) Cash Dividends (Note 1) .................................................................. 13.0 87.4 85.3 13.0 45.0 44.5 13.0 (0.48) (0.48) 0.10 Capital Expenditures (cash basis) .......................................................... ¥ 38,896 ¥ 37,583 ¥ 31,146 $ 292,451 Research and Development Expenses .................................................. 41,407 42,513 36,605 311,331 At Year End: Total Assets.............................................................................................. ¥549,366 ¥593,144 ¥579,489 $4,130,571 Total Shareholders’ Equity ..................................................................... 298,234 325,958 336,062 2,242,361 Notes: 1. Cash dividends per share represent 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, 2002, of ¥133=$1. Net Sales Income (Loss) before Income Taxes, Minority Interests and Cumulative Effect of Accounting Change Net Income (Loss) Net Income (Loss) per Share (Diluted) (Billions of Yen) (Billions of Yen) (Billions of Yen) 50 40 30 20 10 0 50 40 30 20 10 0 (Yen) 100 80 60 40 20 0 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 -25.4 -15.8 -63.5 Omron Corporation 1 800 700 600 500 400 300 200 100 0 A Dynamic Commitment to Structural Transformation, Globalization and Unique Value To Our Shareholders In May 2001, Omron unveiled Grand Design 2010 (GD2010), a long-term vision for the first decade of the 21st century that expresses where we want the Omron Group to be in the year 2010, and the basic guidelines for the management strategies that will get us there. While accelerating the structural reforms of GD2010 aimed at boosting quality and speed, in November 2001 we announced the start of a new set of structural reforms for raising Group productivity in response to the downturn in our results and the rapidly changing business environment. To succeed in global competition, we are extending reforms to areas we have not previously tackled, and intend to complete these by September 2003. PERFORMANCE: SUBSTANTIAL DECLINE IN EARNINGS For the year ended March 31, 2002, consolidated net sales declined 10.1 percent year-on-year to ¥534.0 billion. In addition to the drop in net sales, Omron posted losses on impairment of nonperforming assets in connection with business restructuring, and on impairment of securities. As a result, the Company recorded a consolidated net loss before income taxes, minority interests and cumulative effect of accounting change of ¥25.4 billion and a net loss of ¥15.8 billion. This decline in earnings reflected the economic downturn due to the slump in the information technology (IT) industry, notably in the United States, which led to investment cutbacks in the semiconductor and IT-related industries and a decline in earnings among electrical equipment and electronics companies. These factors resulted in weaker demand for industrial automation systems and electronic components, Omron’s main products. In addition, restrained investment by financial institutions and railway companies in Japan had a major impact on sales of banking systems and automatic fare collection systems. MANAGEMENT STRATEGY: BUILDING A CORPORATE STRUCTURE THAT DOES NOT DEPEND ON GROWTH In this challenging environment, our paramount task is restoring earnings for the fiscal year ending March 2003 and beyond. To that end, we have established the Value-Added Innovation Committee 21 (VIC21), made up of 2 Omron Corporation managing officers, with me as chairman, to implement structural reforms aimed at raising productivity throughout the Omron Group. During the past fiscal year, we completed virtually all the work required to draft specific measures to build the necessary operating structure for Omron; close and consolidate operating bases, and reallocate the affected businesses and personnel; accelerate the transfer of production to overseas plants, particularly in China; exit low-profit and unprofitable businesses; and raise employee productivity. With the severe business environment projected to continue, we will make strategic investments in future growth, primarily in our core Industrial Automation and Electronic Components businesses. At the same time, we will carry out the measures drawn up by VIC21 and accelerate structural reforms to execute the urgent task of building a solid corporate structure that does not depend on market recovery for its survival. The current fiscal year will clearly be a crucial period for Omron’s structural reforms. By moving ahead with each of these reforms without turning back, we plan to quickly revitalize Group results as well as create a sustainable profit base to maximize the company’s value over the long term, one of the objectives of GD2010. Doing so will enable us to fulfill our commitment to generating steady shareholder returns and justify your continuing support. YOSHIO TATEISI Representative Director and Chief Executive Officer YOSHIO TATEISI Representative Director and Chief Executive Officer Omron Corporation 3 A Dynamic Commitment to Structural Transformation, Globalization and Unique Value Chief Executive Officer Yoshio Tateisi Discusses Omron’s Structural Reforms Q: WHAT DOES THE LONG-TERM MANAGEMENT VISION ANNOUNCED IN MAY 2001 ENTAIL? A: The long-term management plan we began in May 2001, known as Grand Design 2010, or GD2010, expresses where we want the Omron Group to be after the first decade of the twenty-first century and the basic guidelines for the management strategies to get us there. It aims to make Omron a globally successful corporation that contributes to social development worldwide. The first stage in implementing this vision for Omron will cover the period up to March 2005, with the aim of maximizing the strength of our businesses by building our competitiveness as a global company. We have set the medium- term objective of raising return on equity (ROE) to 10 percent as a benchmark for measuring progress in improving our ability to win globally. Q: HOW DO THE STRUCTURAL REFORMS FOR GROUP PRODUCTIVITY INITIATED IN NOVEMBER 2001 RELATE TO GD2010? A: Major changes in our operating environment have been occurring at an unprecedented rate. We recognize that the challenges we face are not temporary, and that Omron must pursue global structural reform. Value- Added Innovation Committee 21, or VIC21, was created to implement the structural reforms for group productivity necessary to create the strong businesses that can be global winners envisioned by GD2010 based on this recognition. In other words, VIC21 was created to accelerate the management policies for raising quality and speed that were established as part of GD2010’s program of maximizing the strength of our businesses. It will accelerate quality initiatives by executing above and beyond the policies determined under GD2010 for improving productivity. Greater speed will be achieved by implementing GD2010 policies one year ahead of schedule. Under GD2010, each Omron company was to have completed its respective company vision by March 2005, but the target for completing various initiatives has been 4 Omron Corporation STRUCTURAL REFORM PRIORITIES Grand Design 2010 Grand Design 2010 Win Globally Changes in Operating Environment > ROE 10% Create Powerful Businesses Accelerate GD Measures for Quality & Speed Group Productivity Group Productivity Improvement Reforms Improvement Reforms Re-examine every management resource to optimize productivity Selection & Focus Optimal Business Units Cost Structure Reform incl. Fixed Costs moved ahead to March 2004 at the latest. Naturally, we will also consider ways to implement measures even earlier, where it is necessary and possible. Q: SO GROUP PRODUCTIVITY IMPROVEMENT REFORMS ARE MEASURES TO ACHIEVE THE OBJECTIVES OF GD2010? A: Exactly. Furthermore, we formulated the VIC21 measures to ensure that we achieve the existing target of ROE of 10 percent by March 2005. Each Omron company has the following three initiatives: 1. Achieve a high level of profitability through selection and focus. 2. Reform the operating and manufacturing structure to create the optimal business management structure. 3. Restructure the fixed cost and expense structure to match the optimum business structure. Head office structure reform will complement the efforts of each company. Q: ASIDE FROM THE GENERAL DIRECTION OF THE GROUP PRODUCTIVITY IMPROVEMENT REFORMS, WHAT ARE SOME SPECIFIC OBJECTIVES? A: When drafting VIC21, we started with the following three benchmarks for structural reform measures: 1. Reduce Group fixed and variable costs by ¥30 billion. 2. Increase the proportion of overseas manufacturing by 50 percent. 3. Withdraw from underperforming and unprofitable businesses. The head office and each company will implement various measures to achieve these objectives. Omron Corporation 5 A Dynamic Commitment to Structural Transformation, Globalization and Unique Value Q: PLEASE COVER THESE MEASURES IN GREATER DETAIL. A: VIC21 will work to implement structural reforms in six areas: business structure reform, manufacturing structure reform, purchasing process reform, management productivity reform, Group head office structure reform, and asset structure reform. There are other measures that are related or under negotiation that would be premature to discuss at this point, but they will be in keeping with the specific structural reforms we have discussed. STRUCTURAL REFORM OBJECTIVES Business Structure Reform Optimize business strength through 1: selection & focus, 2: review of business processes, 　3: switching to optimal business units 　Examples of initiatives: (cid:2) Withdraw from low profit/unprofitable businesses (cid:2) Social Systems Business Company: Divide and restructure (cid:2) Creative Service Company: Assess business independence 　　and review business strategy units Create an optimum global manufacturing network Manufacturing Structure Reform 　Examples of initiatives: (cid:2) Strengthen overseas production, mainly in China (cid:2) Reduce Group production capacity in Japan and convert functions 　　of manufacturing divisions Purchasing Process Reform Pursue best prices by expanding centralized purchasing areas 　Examples of initiatives: (cid:2) Expand centralized purchasing areas (cid:2) Strengthen purchasing and procurement in China Management Productivity Reform Improve human productivity to succeed in global competition 　Examples of initiatives: (cid:2) Impartial evaluation and compensation based on duties and performance (cid:2) Right-size the organization at the managerial level Group Head Office Structure Reform Create a head office that represents and oversees the Omron Group to prepare for holding company structure 　Examples of initiatives: (cid:2) Create organizational groups and examine/sharpen focus 　　on necessary functions Reduce total assets, reallocate resources, reduce asset maintenance costs Asset Structure Reform 　Examples of initiatives: (cid:2) Sell idle and underutilized assets (cid:2) Sell closed or transferred facilities 6 Omron Corporation Q: OMRON IS ALSO IMPLEMENTING AN EARLY RETIREMENT PROGRAM FOR THE FIRST TIME. A: It is one component of progress in structural reform. The Omron Group’s domestic operations will need to reassign approximately 2,000 employees. Of this number, we project that approximately 500 will leave the company through natural attrition. We will reassign the remaining employees as a matter of basic policy, but even so, we project that approximately 1,000 employees will no longer be needed. We will work to keep as many jobs as we can, but we will also implement an early retirement system for a limited time so that we can right-size headcount by eliminating surplus positions without causing hardship for the employees affected. Q: WHAT IS THE TIME FRAME FOR IMPLEMENTING THE STRUCTURAL REFORMS? A: Implementation will be completed by the end of September 2003. During the current fiscal year, Omron is therefore placing the highest management priority on executing the VIC21 measures in order to achieve our goal of completing them in the 18 months from April 2002. Then, after putting the final touches on our structural reforms during the year ending March 2004, we plan to shift from reform to creation and put in place the structure required to reorient operations toward growth strategies in the year to March 2005. GROWTH AFTER STRUCTURAL REFORM GD2010 GD2010 3/02 3/03 Medium-term Objectives 3/05 3/04 VIC21 VIC21 11/15/01: Begin evaluation Accomplish Group productivity structural reform Move from reform to rebuilding Establish a structure for growth 9/03: Complete restructuring 3/04: Assessment 18 months Evaluation Implementation Omron Corporation 7 A Dynamic Commitment to Structural Transformation, Globalization and Unique Value Q: WHAT ARE THE GROWTH SECTORS OF THE FUTURE? A: The Group Productivity Improvement Reforms are designed to increase the profitability of our existing assembly businesses. Concurrently, we will shift human resources made available by structural reform to the growth sectors of high-value-added modules and software, services and solutions. In addition, we intend to develop and strengthen manufacturing capabilities in China, a critical area for Omron. We will also bolster our development and sales organization. 1. High-value-added module devices Electronic Components Company: Optical device business, MEMS business, automotive components business, amusement equipment business Social Systems Business Company: Module business and others 2. Software, services and solutions Industrial Automation Company: High-value-added user business Social Systems Business Company: System solutions and service business Healthcare Company: Lifestyle improvement and support service business Companywide: Safety and security business, M2M business and others Q: THUS STRUCTURAL REFORM WILL MAXIMIZE THE STRENGTH OF OMRON’S BUSINESSES AND CREATE OPPORTUNITIES FOR GROWTH. A: That’s the plan. Thank you, and we’re counting on the continued support of our stakeholders. 8 Omron Corporation Review of Operations Omron at a Glance Main Products Industrial Automation Company (IAB) CONTROL EQUIPMENT (programmable logic controllers, industrial networking equipment, programmable terminals, application software, etc.) MOTION CONTROLLERS (inverters, servo motors, servo drives, etc.) SENSORS (photoelectric sensors, proximity sensors, displacement sensors, safety light curtains, pressure sensors, ultrasound sensors, measurement sensors, etc.) ADVANCED SENSORS (vision sensors, image sensors, RFID, laser markers, 2-dimensional code readers, etc.) SWITCHES (limit switches, basic switches, manual switches) RELAYS (solid-state relays, I/O relay terminals, etc.) OTHER CONTROL DEVICES (timers, counters, temperature controllers, level devices, protective devices, power supplies, digital panel meters, transmission units, wireless units, energy-saving devices, safety-related devices, etc.) INSPECTION SYSTEMS (printed circuit board solder inspection systems, sheet inspection systems, solder paste printing inspection systems, other inspection systems, etc.) Electronic Components Company (ECB) SWITCHES (basic switches, tactile switches, trigger switches, DIP switches, etc.), RELAYS (general-purpose relays, printed circuit board relays) AUTOMOTIVE DEVICES (keyless entry systems, power window switches, various automotive relays, electric power steering controllers, detection switches, multiplex controllers, power seat switches, buckle switches, laser radar devices, etc.) AMUSEMENT COMPONENTS, UNITS AND SYSTEMS (sensors, keys, IC’s, game controllers) CONNECTORS, SENSORS FOR CONSUMERS, MICRO LENS ARRAYS, COMPONENTS FOR PRINTERS AND PHOTOCOPIERS (counterfeit detectors, etc.) Social Systems Business Company (SSB) ELECTRONIC FUND TRANSFER SYSTEMS (automated teller machines, cash dispensers, automated bill changers, automated loan application machines, POS systems, credit/debit card transaction terminals, etc.) PUBLIC TRANSPORTATION SYSTEMS (automated ticket venders, automated passenger gates, automated fare adjustment systems, commuter ticket issuing machines, etc.) TRAFFIC AND ROAD MANAGEMENT SYSTEMS (traffic management systems, vehicle information and communication systems, travel time measurement systems, public transportation priority systems, etc.) PARKING SYSTEMS, TOTALIZATOR SYSTEMS, SECURITY-RELATED SYSTEMS, MILLIMETER WAVE COMMUNICATION SYSTEMS, CONTENTS-DELIVERY TERMINALS Healthcare Company (HCB) HEALTHCARE EQUIPMENT (digital blood pressure monitors, digital thermometers, electronic pulse massagers, chair massagers, pedometers, body fat analyzers, fitness equipment, etc.) MEDICAL EQUIPMENT (nebulizers, professional digital blood pressure monitors, etc.), HEALTH MANAGEMENT SERVICES (consultations, health promotion programs, etc.) Others CREATIVE SERVICE COMPANY: OUTSOURCING SERVICE (consulting with the aim of increasing the efficiency of the client company’s operations, and contract operations in areas including personnel, accounting, and general affairs) BUSINESS DEVELOPMENT GROUP: PERSONAL COMPUTER PERIPHERALS (terminal adapters, ADSL modems, mobile phone modems, backup power supplies, scanners, fingerprint authentication units) CARD READERS, ROOM ACCESS CONTROL SYSTEMS, RF-ID TAGS, PHOTO-STICKER VENDING MACHINES, SPEECH RECOGNITION AND VOICE AUTHENTICATION SYSTEMS Note: On July 1, 2002 the Social Systems Business Company (SSB) was reorganized and separated into two companies, the Advanced Module Business Company (AMB) and the Social Systems Solutions and Service Business Company (SSB). % of Net Sales ¥186,984 million 35.0% ¥128,193 million 24.0% ¥124,627 million 23.4% ¥40,617 million 7.6% ¥53,543 million 10.0% Omron Corporation 9 Net Sales (Billions of Yen) 2001 2002 250 200 150 100 50 0 IAB Industrial Automation Company For the fiscal year ended March 31, slowdown and a steep decline in The Smart Sensor face recognition system has a revolutionary platform structure that enables easy selection of the optimum sensor head. This 60W block power source offers extra connections for additional capacity, thus saving space and promoting standardization. In addition to transmitting data for on/off control, Smart Slave is the world’s first slave that collects value- added information to improve the equipment utilization rate. 10 Omron Corporation 2002, net sales of the Industrial exports to the United States during the Automation Company (IAB) were second half of the period resulted in ¥187.0 billion, a decline of 17.9 percent lackluster sales. In China, however, our compared to the previous fiscal year, efforts to build our business as a result of restrained capital infrastructure and strengthen sales investment, which was affected by the capabilities supported growth in sales. global economic slowdown, the IAB will increase its competitiveness collapse of the IT bubble, and the by enhancing its ability to respond to terrorist attacks in the United States. changes in the global market and In the domestic market, sales were implementing efficient measures to down substantially, due to lower improve relationships with customers. demand from the electrical and IAB will raise its profitability by machinery industries in the midst of taking the initiative in strengthening sharp cutbacks in private capital product competitiveness and investment, especially among core increasing productivity in every customers such as IT and process. semiconductor-related companies. Furthermore, IAB will establish a firm Although signs of a rebound began to basis for its growth by developing appear during the second half, high-value-added products and manufacturers maintained a cautious business models. stance toward new capital investments. As for overseas markets, the sales decline in North America was accelerated by the terrorist attacks in addition to continued adjustments in capital investment after the collapse of the IT bubble. Sales in Europe were solid despite reduced capital investment, and were aided by the decline in the value of the yen. In Asia, the impact of the global economic The F270 is an advanced vision sensor with top-of-class capture speed. Net Sales (Billions of Yen) 2001 2002 150 120 90 60 30 0 This laser radar sensor for automobiles measures the speed and distance of the vehicle ahead, which are essential data for adaptive cruise control (ACC). Detection sensitivity is extremely high, with significantly improved detection capability for dirty vehicles or during inclement weather. The G6M is a super-slim C&C relay that can be precisely mounted in industrial controllers. It is the first in the world to utilize fine mechanical technology. Made using high- precision processing, the XF2N FPC connector has an exceptionally low profile (height: 0.9mm) and a narrow pitch of 0.3mm. It is used in IT mobile devices and AV equipment. The B-MLA, an LED back light developed with a unique design theory and MLA technology for high efficiency and brightness, is contributing to new advances in cellular phones. Omron Corporation 11 Electronic Components Company ECB The Electronic Components Company appliance manufacturers particularly (ECB) posted net sales of ¥128.2 billion, impacted. In China, sales were a year-on-year decrease of 1.0 percent, comparatively healthy, centered on due to the global impact of the terrorist electrical appliances. However, price attacks during the economic slowdown pressures due to competition from in the United States. local manufacturers and lower sales in Domestic sales of equipment for the communications sector led to an consumer and commerce (C&C) overall decrease in sales. components such as relays and In the automotive electronic switches declined sharply because of a component sector, a difficult drop in capital investment, which environment that included industry reflected rapidly deteriorating restructuring, coupled with concerns conditions in IT-related industries such about a downturn in automobile sales as semiconductors and electronic following the September terrorist components. The introduction of new attacks, resulted in challenging market products such as an LED back light for conditions. However, the decline in mobile terminals was unable to revive sales was less than anticipated due to sales. Sales to the office automation the success of zero-interest-rate industry also showed a steep decline financing and other factors. due to factors such as accelerating ECB plans to grow its overseas overseas production by customers and business by expanding its overseas the trend toward digitalization. sales network and will also expand Outside Japan, in North America, production at the new factory in sales to the manufacturing, electrical Shenzen, China. Other activities will appliance and communications include strengthening business industries were down substantially. In portfolio management, increasing Europe, market conditions were investment of management resources severe, especially for communication in growth fields and developing new devices. In Asia, the ripple effects of products by utilizing its own strengths the U.S. economic downturn resulted while also considering alliances with in a continuation of challenging market other companies. conditions, with sales to electrical Net Sales (Billions of Yen) 2001 2002 150 120 90 60 30 0 SSB Social Systems Business Company Despite a rebound in overseas sales, PassNet, a card system for multiple the Social Systems Business train lines, which fueled demand in Company (SSB) posted net sales of the prior year. Shipments of ¥124.6 billion, a year-on-year decrease equipment to the Japan Railways of 12.2 percent, due to factors Group also declined. As a result, net including the domestic recession and sales in this sector fell sharply. a dropoff in demand in the public In the public works market of the transportation systems sector traffic control and road information following large-scale orders in the systems sector, sales declined previous fiscal year. sharply, as budgetary constraints by In the electronic fund transfer local governments severely impacted systems sector, the business their capital investment. environment was extremely We plan to redefine SSB into three challenging due to reduced capital businesses: the module business, investment among customers, which manufactures and markets core increasing competition, and the modules; the solutions business, absence of demand for machines to which provides equipment and handle the new ¥2,000 note and the system solutions; and the service redesigned ¥500 coin, which boosted business, which provides support sales in the prior fiscal year. However, services such as maintenance as well vigorous marketing of ATMs for as infrastructure services in future convenience stores and new types of growth areas. It will also be ATMs and automated loan application restructured into two companies, each machines for the consumer loan of which will have self-contained business enabled us to maintain sales operations. close to the previous year’s level. In the public transportation systems sector, we worked to expand sales by introducing new automated ticket vending machines and automated ticket gates, but overall demand was down in reaction to the introduction of The V7 is an automated ticket vending machine featuring a universal design. Face Key is a face ID access control system that employs biometrics technology. BTA-Twin is the world’s first BluetoothTM communication device with omnidirectional and directional antennas in a single unit. 12 Omron Corporation HCB Healthcare Company Healthcare Company (HCB) sales drop in prices and cooperation with a increased 3.3 percent year-on-year to major distributor in Germany. ¥40.6 billion, as firm demand overseas Conditions were difficult in Asia as the offset soft consumer spending in downturn in the information Japan. technology industry adversely In the domestic market, market impacted consumer spending. Results conditions continued to be challenging were solid in China, as consumption due to changes in consumption increased strongly and the current patterns and the distribution industry. stage of inventory adjustments at Omron launched several new products, distributors was completed. including the first thermometer in HCB is raising cost competitiveness Japan that measures body temperature on a global basis and applying its from the underarm in five seconds, a development strengths in overseas nebulizer that uses innovative markets. The Company’s new business technology, and a weight scale with a model that integrates hardware and body fat measurement monitor. Sales service operations is expected to were negatively impacted, however, by support strong gains in sales. weak consumer spending and deflationary conditions. In the healthcare services sector, Omron worked to build a new business model centered on the Kenko Tatsujin (Health Master) series. Outside Japan, steady consumption in North America underpinned results, as did successful sales policies tailored to large customers. Results were also firm in Europe, due to efforts to minimize the effects of a short-term Digital blood pressure monitor HEM-637 is the first wrist-type automatic blood pressure monitor in Japan that allows users to view readings obtained over a week in graph form. Net Sales (Billions of Yen) 2001 2002 50 40 30 20 10 0 Digital thermometer Ken-on-kun MC-610 is the first thermometer in Japan able to measure body temperature from the underarm in an average of five seconds. Employing a new nebulizing method, the portable, battery-operated Mesh Nebulizer NE-U22 is the smallest and lightest in the world. Omron Corporation 13 Net Sales (Billions of Yen) 2001 2002 60 50 40 30 20 10 0 Others Others Other businesses posted net sales of ¥53.5 billion, a decrease of 4.2 percent. We will continue seeking ways to Sales of the Creative Service Company develop and cultivate new businesses decreased, reflecting the challenging in line with the strategies of the market environment of the business Omron Group, while strengthening fields to which it provides consulting and assessing businesses that can not and outsourcing services. Orders for be included in any of the core Omron consulting on reform of administrative companies. divisions increased strongly, reflecting the growing number of companies implementing structural reforms. Sales of the Business Development Group remained essentially unchanged from the previous fiscal year. Store sales of ADSL communications equipment, a PC peripheral, fell short of projections. Despite the entry of new competitors, sales of commercial game machines expanded due to an increase in the number of installed units. We also began sales in the “machine-to- machine” business, with products including a tank monitoring system and a vehicle anti-theft system. Sales of subsidiary Omron Alphatech Corporation fell sharply due to the effect of restrained investment. Subsidiary Sanno Consulting Corporation posted solid sales, led by consulting to financial institutions for construction of call centers. The Shiny Shot photo-sticker machine The Tank Watcher TW3100 is used in clients’ inventory control systems. 14 Omron Corporation Omron Corporate Citizenship Activities Omron revolutionized corporate Japan in 1956 when the company adopted a corporate philosophy emphasizing a commitment to fulfilling public responsibilities. Since that time, Omron has worked to contribute to society through its operations as well as its corporate citizenship activities. EXAMPLES OF OMRON’S CORPORATE CITIZENSHIP ACTIVITIES Omron’s corporate citizenship activities revolve around four main areas: science & technology, social welfare, arts & culture, and the global environment. 1. Science & Technology Striving to create greater harmony between people and machines To help create a society in which people and machines can co-exist in harmony, Omron provides assistance to researchers involved in the development of advanced technologies and helps to publicize their findings. Through the Tateisi Science and Technology Foundation, Omron supports joint research and technological exchange not only in Japan but all over the world. In addition, Omron is using its sensing and control technology to contribute to causes around the world such as landmine removal. 2. Social Welfare Creating employment opportunities for the disabled Omron is dedicated to helping physically challenged individuals find employment opportunities and achieve independence. In 1972, Omron established Omron Taiyo Co., Ltd. in Beppu, Oita Prefecture -- the first factory in Japan run by physically challenged people. A similar factory, Omron Kyoto Taiyo Co., Ltd., was built in Kyoto in 1985. In addition, Omron sponsors events such as wheelchair marathon races, art festivals and other events for disabled people. Enriching society by developing arts and culture Omron believes strongly in the importance of culture and the arts, demonstrating its support by co-sponsoring the Omron Kyoto Cultural Forum and organizing concerts and exhibitions of traditional performing arts. 3. Arts & Culture 4. Global Environment Becoming one of the most environmentally conscious companies of the 21st century Omron’s environmental objectives include not only meeting the criteria for ISO 14001 certification, but also minimizing the environmental impact of its operations by developing environmentally friendly products utilizing the company’s sensing and control technology, conserving energy and resources, and reducing industrial waste. In addition, as a responsible corporate citizen, Omron is involved in community service activities such as clean-ups, area beautification projects and planting trees. Omron’s long-term, sustainable approach towards both domestic and international environmental issues is preparing us for the emerging “Optimization Society.” 1. Omron has joined the non-profit organization Japan Alliance for Humanitarian Demining Support, and played a major role in the development of the Mine Eye, an innovative landmine detector that uses electromagnetic waves to detect both metal and non-metal mines. 2. Every year, approximately 50 Omron employees participate as volunteers at the Oita International Wheelchair Marathon, helping to set up for the closing ceremony and passing out beverages to athletes after the race. 3. Omron donated a pipe organ to the Kyoto Concert Hall, which was completed in the fall of 1995. The company also co-sponsors concerts to give residents the opportunity to enjoy pipe organ music. 4. Omron supports conservation activities such as the participation of Japanese mountaineer Ken Noguchi in the Qomolangma Cleanup Expedition and the Mt. Fuji Cleanup Expedition. Omron Corporation 15 Environmental Activities Using its sensing and control technologies, Omron contributes to environmental protection through development of products and systems that reduce environmental impact. Major environmental activities during the year ended March 31, 2002 were as follows: THEME RESULTS OF ACTIVITIES Environmental education (cid:2) Conducted environmental education for new employees and internal auditor training (total of 4 times) Promotion of environmental awareness (cid:2) Held Environmental Conservation Month Seminar Eco-Consciousness Environmental accounting system Pollution control/ Environmental risk management Eco-Management (cid:2) Established and presented Eco Grand Prix Award to one winner in each category of Eco-Products and Environmental Contributions (cid:2) Invited and awarded employee suggestions (1,434 entries during Environmental Conservation Month in June 2001) (cid:2) Published first Home-use Environmental Accounting Books, distributed to all Omron Corporation employees (cid:2) Implemented at 15 manufacturing sites (cid:2) No cases of law infringement in year ended March 2002 ISO 14001 certification (cid:2) Omron Kyoto-Ekimae office received ISO 14001 certification in March 2002; all 43 domestic and overseas production facilities, offices and research laboratories now certified. LCA* system (cid:2) Implemented LCA system for 7 products Eco-Products Development and marketing of eco-products Creation of products with less or no hazardous chemical substances Promotion of green procurement (cid:2) Created 18 eco-products (cid:2) Conducted technological evaluation of 42 lead-free products (cid:2) Preliminary evaluations of suppliers were carried out based on green procurement standards. Evaluations have been completed for 543 suppliers. Chemical substance control system (cid:2) Completed development of chemical substance control system Promotion of CO2 emissions reduction (cid:2) Reduced CO2 emissions from energy usage to 11,747 tons-C, a 9.5% reduction from fiscal 1995. Promotion of waste recycling (cid:2) Waste recycling rate 92.0%, final disposal rate 4.9% Promotion of green procurement (cid:2) 74% green product purchase rate** at offices & laboratories (cid:2) OMRON Iida Co., Ltd. achieved zero emissions Eco-Factories/ Laboratories/ Offices (indirect materials) Eco-Logistics CO2 emission reduction/resource conservation for logistics operations Promotion of environmental communication Eco- Communication (cid:2) Implemented green product purchase registration in Strategic Linkage for Intelligent Procurement Management (SLIM) system (cid:2) Reduced number of trucks through distribution reforms; reduction of two 10-ton trucks, replaced one truck with 5-ton railroad container (cid:2) Published environmental report (in Japanese and English) (cid:2) Environmental report and site report included on Omron Web site (cid:2) Site report published for Ayabe Office (cid:2) Participated in external environmental exhibitions in Shiga, Tokyo, Fukuoka, Kyoto and other cities (cid:2) Conducted environmental education programs for teachers and businesses (cid:2) Carried out Omron Day activities at all sites. Performed volunteer forest preservation activities at Kyoto Office * LCA: Life Cycle Assessment. A methodology for identifying and quantifying resource/energy requirements and emissions for a product's entire lifespan (from materials procurement to manufacture, distribution, usage, recycling and disposal) while objectively and quantitatively evaluating its impact on the environment ** Green product purchase rate: Purchase price of green procurement items/purchase price of stationery and office supplies X 100 16 Omron Corporation TOPICS REDUCTION OF ENVIRONMENTAL IMPACT Reduction of CO2 Emissions Omron’s goal is to reduce carbon dioxide emissions 11 percent by 2010, compared with levels in the year ended March 1996. The company also sets CO2 emission targets for each fiscal year. In the year ended March 2002, the target for the total volume of CO2 emissions was 12,430 ton-C, a 4.3 percent reduction compared with the year ended March 1996. The actual result was 11,747 ton-C, a 9.5 percent reduction. However, CO2 emissions per unit of production increased by 10 percent from the previous fiscal year due to lower business volume. Wastes and Recycling In the year ended March 2002, Omron’s targets were a recycling rate of 87.5 percent and a final disposal rate of 9.5 percent. Actual results were a recycling rate of 92.0 percent and a final disposal rate of 4.9 percent, surpassing the original targets for the year ending March 2006. Total emission volume was 4,015 tons, a 22 percent decrease from the previous fiscal year. In addition, OMRON Iida Co., Ltd. became the second site, after the Mishima Office, to achieve zero emissions. Nine domestic manufacturing sites are expected to achieve zero emissions by the end of the current fiscal year. REDUCTION OF HAZARDOUS CHEMICAL SUBSTANCES Construction of Database for Regulated Chemical Substances To reduce hazardous chemical substances contained in products, Omron constructed a system for gauging the chemical substances in purchased components, materials and other items. Lead-Free Technology Centered on lead-free technology projects, we have achieved progress in establishing construction and mass- production technologies for lead-free soldering and plating, standardizing reliability assessments and optimizing our production network. In the year ended March 2002, results proving the validity of lead-free soldering and plating technologies were confirmed for 42 products. INTRODUCTION OF AN ENVIRONMENTAL ACCOUNTING SYSTEM An environmental accounting system is a tool that is intended to monitor and survey the costs (investments and expenses) associated with environmental activities and resulting benefits. It serves as an important tool to support management decision-making in the disclosure of environmental information. Environmental accounting was implemented in the Industrial Automation Company in the previous fiscal year, and was extended to all internal business companies in the year ended March 2002. Evaluation of Environmental Indicators: (cid:2) Return on Investment: 14% (Financial gain/ Environmental costs) (cid:2) Percentage of Eco-Product Sales: 17% (Eco-Product sales/Total new product sales)*** *** New products are newly developed or designed products that have gone on sale within the last three years. CREATION OF ECO-PRODUCTS Omron has been promoting the creation of eco-products since it established the ISO 14021-based “Eco-Product Approval System” in 1998. In the year ended March 2002, 18 products were approved, bringing the total to 72 products since 1998. GREEN PROCUREMENT Purchasing Green Parts and Materials Using Omron’s green procurement standards, we conducted preliminary evaluations of 543 suppliers. From April 2003, we plan to give purchasing preference to suppliers rated high in terms of environmental conservation effort, in addition to such conventional criteria as quality, price and delivery schedule. Purchasing Green Indirect Materials In addition to the procurement of green parts and materials for use in products, Omron is promoting the purchase of green indirect materials such as office supplies, PCs and copy paper. The green product purchase rate** for 10 offices and laboratories reached 74 percent on a value basis. Environmental Performance To reduce the environmental impact of its corporate activities, Omron is committed to eco-friendly product development, energy and resource conservation, reduction of waste, and recycling. Evaluating environmental impact of a product during the design stage. Product Assessment Recycling Procurement Recycling of ATMs and other products. Marketing & Usage Encouraging the sale and use of Eco-Products. Purchasing green parts/materials from environmentally conscious suppliers. Manufacturing Promoting energy and resource conservation along with reduction of waste and chemical emissions. Products Technologies Distribution Enhancing logistic efficiency. Improving packaging materials and containers. Eco-Management Implementing ecologically conscious management practices through environmental commitment in the corporate management system. Omron Corporation 17 Board of Directors, Corporate Auditors and Executive Officers Left to right: Tadao Tateisi, Akio Imaizumi, Norio Hirai, Nobuo Tateisi, Yoshio Tateisi, Tatsuro Ichihara, Shozo Hashimoto Board of Directors Corporate Auditors Executive Vice Presidents Managing Officers Tsutomu Ozako Motoki Tamura Yoshio Nakano Hidero Chimori Soichi Koshio Hideki Masuda Senior Managing Officers Yoshifumi Kajiya Shingo Akechi Hisao Sakuta Fujio Tokita Keiichiro Akahoshi Akihiko Otani Minoru Tamura Tsukasa Yamashita Yutaka Takigawa Fumio Tateisi Shinya Tozawa Kazuo Nomura Yasuhira Minagawa Kuniyasu Kihira Toshio Ochiai Soichi Yukawa Hiroki Toyama Kojiro Tobita Hideo Kawanaka Tadahiko Otsuka Yoshio Kushihashi Susumu Yoshida Keizo Kadono Hiroyuki Nishimura Kuninori Hamaguchi (As of June 25, 2002) Chairman and Representative Director Nobuo Tateisi Representative Director and Chief Executive Officer Yoshio Tateisi Vice President and Directors Norio Hirai Tatsuro Ichihara Senior Managing Directors Akio Imaizumi Tadao Tateisi Director (Non-executive) Shozo Hashimoto 18 Omron Corporation Financial Contents Section 20 21 26 28 29 30 31 32 46 Six–year Summary Management’s Discussion and Analysis Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Shareholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Independent Auditors’ Report Omron Corporation 19 Six-year Summary Omron Corporation and Subsidiaries Years ended March 31 2002 2001 2000 1999 1998 1997 Millions of yen (except per share data) Net Sales (Notes 2 and 3): Industrial Automation ...................................... Electronic Components ................................... Social Systems Business ................................ Healthcare ....................................................... Open Systems ................................................. Control Components and Systems ................. Specialty Products .......................................... Others .............................................................. Costs and Expenses: Cost of sales.................................................... Selling, general and administrative expenses... Research and development expenses ............ Interest expenses, net ..................................... Foreign exchange loss, net ............................. Other expenses (income), net.......................... Income (Loss) before Income Taxes, Minority Interests and Cumulative Effect of Accounting Change.................... Income Taxes .................................................... Minority Interests .............................................. Income (Loss) before Cumulative Effect of Accounting Change ....................... Net Income (Loss) ............................................. Per Share Data (yen): Income (Loss) before Cumulative Effect of Accounting Change ¥186,984 128,193 124,627 40,617 — — — 53,543 533,964 353,429 134,907 41,407 223 1,506 27,865 559,337 (25,373) (9,348) 132 (16,157) (15,773) ¥227,691 129,444 141,928 39,327 — — — 55,869 594,259 376,194 131,203 42,513 111 1,389 2,812 554,222 40,037 17,318 422 22,297 22,297 ¥215,087 109,661 128,534 42,640 — — — 59,436 555,358 358,911 133,662 36,605 750 2,841 1,553 534,322 21,036 9,048 427 11,561 11,561 ¥245,785 56,673 135,872 43,729 — — — 73,221 555,280 364,314 136,734 42,383 862 2,766 (28) 547,031 8,249 6,044 31 2,174 2,174 ¥ — — 138,203 40,793 50,131 313,642 47,263 21,763 611,795 387,445 138,404 39,914 682 4,419 (1,312) 569,552 42,243 23,371 168 18,704 18,704 ¥ — — 145,172 36,388 50,187 291,277 46,533 24,704 594,261 388,005 130,163 35,188 1,591 860 (794) 555,013 39,248 22,952 557 15,739 15,739 Basic ........................................................ Diluted ..................................................... ¥ (65.0) (65.0) ¥ 87.4 85.3 ¥ 45.0 44.5 ¥ 8.3 8.3 ¥ 71.4 69.8 ¥ 60.1 58.8 Net Income (Loss) Basic ........................................................ Diluted ..................................................... Cash Dividends (Note 1) ................................ Capital Expenditures (cash basis) ................... Total Assets ....................................................... Total Shareholders’ Equity ............................... Value indicators: Gross profit margin (%) ................................... Income (loss) 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) ......................... (63.5) (63.5) 13.0 ¥ 38,896 549,366 298,234 87.4 85.3 13.0 ¥ 37,583 593,144 325,958 45.0 44.5 13.0 ¥ 31,146 579,489 336,062 8.3 8.3 13.0 ¥ 36,696 580,586 321,258 71.4 69.8 13.0 ¥ 35,896 593,129 343,066 60.1 58.8 13.0 ¥ 29,956 610,930 333,102 33.8 (4.8) (3.0) (4.4) (5.1) 4.25 — 0.93 0.842 4.36 36.7 6.7 3.8 6.8 6.7 4.44 23.6 1.01 0.820 26.83 35.4 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 Notes: 1. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the year. 2. Certain reclassifications have been made to the net sales amounts previously reported for 2001 in order for them to conform to 2002 categories. The amounts previously reported for 2001 were: Industrial Automation, ¥239,225 million; Electronic Components, ¥117,910 million. These same reclassifications could not be made to net sales amounts previously reported for 2000 and 1999 because the necessary data is not readily available. 3. Categories within net sales for 1998 and earlier reflect the categories at that time, which cannot be restated to conform to present categories following reorganization. 20 Omron Corporation Management’s Discussion and Analysis Financial Strategy Sales The financial policies aimed at strengthening the earn- Consolidated net sales decreased 10.1 percent year-on- ings base of Omron Corporation and the Omron Group of year to ¥534.0 billion. A major factor behind the sales companies include improving asset efficiency, disciplined decline was restrained capital investment in the semicon- liquidity management and efforts to raise competitive- ductor and IT industries and lower earnings in the electri- ness. In addition, Omron invests capital according to spe- cal machinery and electronics industries, which led to cific plans and keeps capital expenditures within the weaker demand for control components. Sales decreased scope of cash flow, while focusing on high-profit busi- both in Japan and overseas. nesses to increase corporate value. Cost of Sales, SGA Expenses and Income General Overview Cost of sales decreased ¥22.8 billion, or 6.1 percent, to During the fiscal year ended March 31, 2002, continued ¥353.4 billion, reflecting the decline in net sales. As a weakness in consumer spending and falling exports and result, gross profit was ¥180.5 billion, a year-on-year production output contributed to a large decline in corpo- decrease of 17.2 percent. The gross profit margin was rate earnings in Japan, prompting companies to sharply 33.8 percent, compared to 36.7 percent in the previous curtail capital investment, particularly in the semiconduc- fiscal year. Selling, general and administrative (SGA) tor and information technology (IT) industries. The U.S. expenses increased 2.8 percent to ¥134.9 billion, and economy experienced a significant downturn due to the increased to 25.3 percent of net sales, compared to 22.1 slump in IT industries, and recovery was delayed by the percent in the previous fiscal year. Research and develop- September 11 terrorist attacks. The impact of this down- ment expenses decreased 2.6 percent to ¥41.4 billion, turn was reflected in the economies of Asia and Europe, representing 7.7 percent of net sales, up from 7.1 percent where growth remained weak. in the previous fiscal year. R&D is essential to the In the markets where Omron conducts business, Company’s future growth, and Omron’s policy is to main- restrained capital investment in the semiconductor and tain R&D expenses close to 7 percent of net sales each IT-related industries and deteriorating results in the elec- year. trical machinery and electronics industries led to lower demand for control system equipment. As a result, sales of Omron’s core Industrial Automation Company and Electronic Components Company declined substantially. Restrained investment by domestic financial institutions and railway companies had a substantial negative impact on the Social Systems Business Company. Weak domes- tic consumer spending limited the Healthcare Company to a small increase in sales. As a result of these factors, consolidated net sales decreased 10.1 percent compared with the previous fiscal year to ¥534.0 billion. Reflecting the decline in net sales, Gross Profit Margin (%) SGA Expenses/Net Sales R&D Expenses/Net Sales (%) (cid:2) SGA Expenses/Net Sales (cid:3) (excluding R&D Expenses) (cid:2) R&D Expenses/Net Sales 36.7 34.4 35.4 36.7 33.8 24.6 24.1 22.6 22.1 25.3 7.6 6.5 6.6 7.1 7.7 operating income, although remaining in the black, 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 declined 90.5 percent year-on-year to ¥4.2 billion. Omron posted losses on impairment of nonperforming assets in connection with business restructuring, and on impair- ment of securities. As a result, the Company recorded a net loss before income taxes, minority interests and cumulative effect of accounting change of ¥25.4 billion and a net loss of ¥15.8 billion. Omron Corporation 21 Costs, Expenses and Income as Percentages of Net Sales 2002 2001 2000 Net sales ................................... 100.0% 100.0% 100.0% Cost of sales ............................. Gross profit .............................. Selling, general and administrative expenses ........ Research and development expenses .......... Interest expenses, net ............. Income (loss) before income taxes, minority interests and cumulative effect of accounting change ................. Income taxes ............................ Income (loss) before cumulative effect of accounting change ...... Cumulative effect of accounting change ................. Net income (loss)..................... 66.2 33.8 63.3 36.7 64.6 35.4 25.3 22.1 24.1 7.7 0.0 (4.8) (1.8) 7.1 0.0 6.7 2.9 (3.0) 3.8 0.0 (3.0) — 3.8 6.6 0.1 3.8 1.6 2.1 — 2.1 Other expenses, net, amounted to ¥27.9 billion. The pri- mary component of this total was a ¥17.2 billion loss on impairment of investment securities and other assets. As a result, loss before income taxes, minority interests and cumulative effect of accounting change was ¥25.4 billion, compared with income of ¥40.0 billion in the previous fis- cal year. However, a deferred income tax benefit of ¥17.7 billion led to a net loss of ¥15.8 billion. The basic net loss per share was ¥63.5, compared to net income per share of ¥87.4 in the previous fiscal year. Interest Expenses and Interest Coverage (Millions of Yen/Times) (cid:3) Interest Expenses (cid:2) Interest Coverage 2 1 4 , 2 8 1 5 , 2 7 9 8 , 1 1 3 7 , 1 1 9 2 , 1 26.83 20.05 Income (Loss) Before Income Taxes, Minority Interests and Cumulative Effect of Accounting Change/Net Sales and Net Income (Loss)/ Net Sales (%) (cid:2) Income (Loss) Before Income Taxes, Minority Interests and Cumulative Effect of Accounting Change/Net Sales (cid:2) Net Income (Loss)/Net Sales 6.9 3.1 6.7 3.8 3.8 2.1 1.5 0.4 -3.0 -4.8 5.56 4.36 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 22 Omron Corporation Earnings per Share and Price/Earning Ratio (Yen/Times) (cid:3) Earnings per Share (cid:2) Price/Earning Ratio* . 8 9 6 3 8 . . 5 4 4 . 3 5 8 . 5 3 6 - 175.0 Net Income (Loss) per Employee (Millions of Yen) 8 . 0 1 . 0 5 . 0 9 . 0 6 . 0 - 64.9 28.3 23.6 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 * Not calculated in 2002 due to net loss Review of Operations by Company Due to divisional restructuring in the year ended March 31, 2002, prior-year net sales of internal business compa- nies have been restated in order to show a more realistic comparison. Composition of Net Sales 2002 2001 2000 Industrial Automation ............. 35.0% 38.3% 38.7% Electronic Components ........... Social Systems Business ........ Healthcare ................................ Others ....................................... 24.0 23.4 7.6 10.0 21.8 23.9 6.6 9.4 19.8 23.1 7.7 10.7 Note: The composition of net sales is based on the classifications reported in the Six-year Summary. Industrial Automation Company Net sales for the Industrial Automation Company, excluding intercompany transactions, declined 17.9 per- cent year-on-year to ¥187.0 billion, and accounted for 35.0 percent of total net sales. In Japan, the decrease in sales was mainly attributable to a sharp decline in private-sector capital investment, especially in the semiconductor and IT- related industries, which resulted in lower demand for Omron’s control components and systems. Outside Japan, sales declined because of reduced capital investment among customer industries in North America and a large industry. However, sales increased in Europe, due in part to the favorable effect of exchange rate changes, and in China, boosted by Omron’s efforts to strengthen its sales capabilities and investment in business infrastructure. 14.64 drop in sales in Asia due to worsening conditions in the IT Electronic Components Company efforts and introduced innovative new products. Net sales for the Electronic Components Company, However, weak consumer spending and a deflationary excluding intercompany transactions, declined 1.0 per- trend resulted in a decrease in domestic sales. Overseas, cent year-on-year to ¥128.2 billion, and accounted for 24.0 the depreciation of the yen had a positive effect, and percent of net sales. In Japan, deterioration in IT indus- sales were generally solid in Europe, North America and tries resulted in lower demand for Omron’s consumer Asia. In the healthcare services sector, a new business, and commerce (C&C) components. This decline was par- Omron worked to create a new business model centered tially offset by growth in sales of amusement compo- around the Kenko Tatsujin series. nents and automotive electronic components. In North America, the economic slowdown and the effects from Others the September 11 terrorist attacks resulted in a large Net sales of other divisions decreased 4.2 percent year- decline in sales to manufacturers as well as the electrical on-year to ¥53.5 billion, and accounted for 10.0 percent of appliance and telecommunications industries. In total net sales. Demand for the consulting and outsourc- Southeast Asia, the impact from the slowdown in the U.S. ing businesses of the Creative Service Company benefit- economy, intensifying price competition with manufac- ed from structural reforms by corporations. turers in China and lower sales to the telecommunica- Sales of photo-sticker machines increased substantially, tions industry resulted in an overall decline in sales. while demand in the automated answering system busi- ness expanded in areas such as call centers for financial Social Systems Business Company institutions. However, sales of PC peripheral equipment Net sales for the Social Systems Business Company, declined due to the market slump and falling prices, as excluding intercompany transactions, declined 12.2 per- well as lower-than-expected store sales of ADSL cent year-on-year to ¥124.6 billion, and accounted for 23.4 modems. percent of net sales. In the electronic fund transfer sys- tems sector, the absence of special demand for equip- Increase (Decrease) in Sales of Internal Business Companies ment to handle a new currency note and coin, which con- 2002 2001 2000 tributed to sales in the previous fiscal year, resulted in a Industrial Automation ............. (17.9)% 11.2% (0.9)% decrease in equipment investment among customers, Electronic Components ........... (1.0) particularly financial institutions. The bankruptcies of Social Systems Business ........ (12.2) major retailers also contributed to a challenging business Healthcare ................................ environment. However, Omron maintained stable sales Others ....................................... 3.3 (4.2) 7.5 10.4 (7.8) (6.0) 20.6 (5.4) (2.5) (1.3) by meeting current market needs such as ATMs for con- venience stores and conducting aggressive marketing for Note: The increase or decrease in sales for 2000 and 2001 is based on the amounts previously reported for the respective years, prior to the reclassifications made in the following year. new types of ATMs, automated loan application machines and other products. In the public transportation systems sector, sales of equipment to railway companies declined substantially, reflecting the large-scale demand in the previous year due to implementation of the PassNet System in the Kanto region. Sales in the traffic control and road information systems business decreased because of budget tightening by local governments. Healthcare Company Net sales for the Healthcare Company, excluding inter- company transactions, increased 3.3 percent year-on-year to ¥40.6 billion, and accounted for 7.6 percent of net sales. In Japan, Omron strengthened sales expansion Review of Operations by Region Japan Japanese companies substantially reduced capital expenditures following rapidly declining profits due to slow growth in production and exports and weak person- al consumption. Added to an increasingly difficult employment situation, Japan’s economy remained mired in recession. In the markets where Omron conducts business, demand for the Company’s products fell significantly, due to restrained capital expenditures in the semiconductor and IT-related industries, lower profits in the electrical machinery and electronics industries and reduced spend- Omron Corporation 23 ing by domestic financial institutions and railway compa- nies. Sales of the Industrial Automation Company, the Electronic Components Company and the Social Systems Business Company decreased substantially. The weak personal consumption also negatively impacted sales of the Healthcare Company. Total sales to external cus- tomers decreased 15.6 percent year-on-year to ¥357.9 bil- lion. North America The economy of the United States, which had been a driver of global economic growth until the previous fiscal year, slowed considerably due to the slump in IT-related industries. The terrorist attacks on September 11 served to further delay economic recovery. Amid these conditions, sales of the Industrial Automation Company were sluggish, although the Electronic Components Company and the Healthcare Company both posted relatively strong growth. As a result, factoring in the positive effect of the weaker yen against the U.S. dollar, sales to external customers increased 1.8 percent year-on-year to ¥65.6 billion. Europe The economies of Europe were weak throughout the year, affected by the slowdown in the United States. However, the Industrial Automation Company, the Electronic Components Company and the Healthcare Company all posted solid results. Total sales to external customers increased 7.0 percent year-on-year to ¥65.3 bil- lion. Asia and Other A ripple effect from the slowdown in the U.S. affected most Asian economies, particularly in Southeast Asia, although the Chinese economy continued to grow. In South Korea and Southeast Asia, the slump in IT-related markets affected the Industrial Automation Company, although the Electronic Components Company and the Healthcare Company both performed well. In China, sales of the Industrial Automation Company and the Electronic Components Company were solid, while high growth in personal consumption supported strong growth in Healthcare Company sales. As a result, total sales to external customers were ¥45.2 billion, essentially unchanged from the previous fiscal year. 24 Omron Corporation Sales by Region (%) (cid:3) Japan (cid:3) North America (cid:3) Europe (cid:3) Asia and Other 1998 1999 2000 2001 2002 72.0 69.8 71.6 71.3 67.0 10.0 12.1 10.5 13.9 5.9 5.8 10.7 11.0 6.7 10.8 10.3 7.6 12.3 12.2 8.5 Assets, Liabilities and Shareholders’ Equity As of March 31, 2002, total assets were ¥549.4 billion, a decrease of ¥43.8 billion, or 7.4 percent, from March 31, 2001. Current assets decreased ¥51.4 billion, or 15.6 per- cent, to ¥277.5 billion. This was mainly a result of signifi- cant decreases in trade notes and accounts receivable and inventories, which reflected the decline in net sales and orders received. Trade notes and accounts receivable decreased 14.1 percent to ¥114.9 billion. Inventories decreased 18.5 percent to ¥74.6 billion. In addition, cash and cash equivalents decreased 17.3 percent to ¥70.8 bil- lion. Net property, plant and equipment decreased ¥6.8 bil- lion, or 4.3 percent, to ¥152.3 billion. Investments and other assets increased ¥14.4 billion, or 13.7 percent, to ¥119.6 billion, as deferred income taxes increased ¥25.9 billion to ¥43.9 billion. The total of current liabilities, long-term liabilities and minority interests in subsidiaries decreased ¥16.1 billion, or 6.0 percent, to ¥251.1 billion. Current liabilities decreased ¥53.9 billion, or 29.4 percent, to ¥129.4 billion, due to decreases in trade notes and accounts payable, income taxes payable and the current portion of long- term debt. Bank loans increased ¥5.8 billion to ¥14.7 bil- lion. Working capital at the balance sheet date increased ¥2.6 billion to ¥148.1 billion, and the current ratio was 214 percent, compared to 179 percent a year earlier. Long- term debt increased ¥10.8 billion, or 33.9 percent, to ¥42.8 billion, due to new long-term bank loans. 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 ¥8.5 billion, or 12.6 percent, to ¥58.7 billion. Shareholders’ equity decreased ¥27.7 billion, or 8.5 per- cent, to ¥298.2 billion, mainly due to lower retained earn- ings and an increase in accumulated other comprehen- Net cash provided by operating activities decreased sive loss, reflecting an increase in the minimum pension 33.7 percent to ¥33.7 billion, compared to ¥50.8 billion in liability. The ratio of shareholders’ equity to total assets the previous fiscal year. Although the Company posted a was 54.3 percent, compared to 55.0 percent a year earlier. net loss for the year, a large portion of this consisted of The debt/equity ratio, defined as total liabilities divided by losses that do not detract from cash flow, such as a ¥17.2 shareholders’ equity, was 0.842 times, compared to 0.820 billion loss on impairment of investment securities and times a year earlier. Shareholders’ equity per share was other assets. Decreases in trade notes and receivables ¥1,201.23, down from ¥1,311.12 a year earlier. Foreign and inventories also contributed to cash flow. currency translation adjustment was negative ¥7.4 billion, Net cash used in investing activities increased 23.9 per- compared to negative ¥13.7 billion a year earlier, due to cent to ¥40.1 billion, compared to ¥32.4 billion in the pre- the effect of the weakening of the yen. Net unrealized vious fiscal year. The primary factor in this change was gains on securities and derivative instruments was ¥3.3 lower proceeds from sales of short-term investments and billion, compared to ¥3.6 billion a year earlier. investment securities. Capital expenditures increased ¥1.3 Working Capital and Current Ratio (Millions of Yen/%) (cid:3) Working Capital (cid:2) Current Ratio 9 9 7 , 2 5 1 0 1 6 , 4 6 1 7 9 7 , 9 6 1 9 8 4 , 5 4 1 3 5 0 , 8 4 1 Inventory Turnover (Times) 4.56 215 204 186 179 214 4.28 4.18 4.44 4.25 billion, or 3.5 percent, to ¥38.9 billion, as expenditures for the construction of the new Keihanna R&D Laboratory were offset by restrained investment in other property, plant and equipment. Net cash used in financing activities decreased 51.0 per- cent to ¥12.1 billion, absent ¥18.3 billion in share buyback expenditure incurred in the previous fiscal year. Repayments of long-term debt were ¥27.0 billion, while proceeds from issuance of long-term debt totaled ¥13.1 billion. Return on Assets (%) Price/Book Value Ratio (Times) 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 Return on Tangible Fixed Assets (%) Return on Shareholders’ Equity (%) 7.0 6.8 2.23 14.1 11.0 5.5 7.2 1.3 6.7 3.5 0.7 -10.1 -5.1 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 Cash Flow Cash and cash equivalents at March 31, 2002 decreased ¥14.8 billion from a year earlier to ¥70.8 billion. The effect of exchange rate changes increased cash and cash equiv- alents by ¥3.6 billion. 1.54 1.18 1.62 1.60 3.6 1.4 -4.4 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 Omron Corporation 25 Consolidated Balance Sheets Omron Corporation and Subsidiaries March 31, 2002 and 2001 ASSETS Current Assets: Millions of yen Thousands of U.S. dollars (Note 2) 2002 2001 2002 Cash and cash equivalents............................................................................ ¥ 70,779 ¥ 85,621 $ 532,173 Notes and accounts receivable — trade ....................................................... 114,906 133,798 Allowance for doubtful receivables................................................................ (2,755) Inventories (Note 3)........................................................................................ Deferred income taxes (Note 10) ................................................................... Other current assets ...................................................................................... 74,617 13,001 6,950 (2,194) 91,593 12,186 7,875 863,955 (20,714) 561,030 97,752 52,255 Total Current Assets ................................................................................ 277,498 328,879 2,086,451 Property, Plant and Equipment: Land ............................................................................................................... Buildings ........................................................................................................ Machinery and equipment ............................................................................. Construction in progress ............................................................................... 46,979 108,547 133,672 8,642 Total ........................................................................................................... 297,840 50,479 113,414 132,945 5,680 302,518 353,226 816,143 1,005,053 64,977 2,239,399 Accumulated depreciation............................................................................. (145,546) Net Property, Plant and Equipment........................................................ 152,294 (143,399) 159,119 (1,094,331) 1,145,068 Investments and Other Assets: Investments in and advances to associates.................................................. Investment securities (Note 4) ....................................................................... Leasehold deposits........................................................................................ Deferred income taxes (Note 10) ................................................................... Other .............................................................................................................. 785 43,431 10,653 43,901 20,804 853 57,500 11,159 17,986 17,648 Total Investments and Other Assets ...................................................... 119,574 105,146 5,902 326,549 80,098 330,082 156,421 899,052 Total .................................................................................................................. ¥ 549,366 ¥ 593,144 $ 4,130,571 See notes to consolidated financial statements. 26 Omron Corporation Millions of yen Thousands of U.S. dollars (Note 2) LIABILITIES AND SHAREHOLDERS’ EQUITY 2002 2001 2002 Current Liabilities: Bank loans (Note 5) ....................................................................................... ¥ 14,723 ¥ 8,916 $ 110,699 Notes and accounts payable — trade ........................................................... Accrued expenses ......................................................................................... Income taxes payable.................................................................................... Other current liabilities (Note 10) ................................................................... Current portion of long-term debt (Note 5).................................................... 60,000 22,748 3,832 26,950 1,192 82,225 24,484 14,797 26,628 26,340 Total Current Liabilities ........................................................................... 129,445 183,390 451,128 171,038 28,812 202,632 8,962 973,271 Long-Term Debt (Note 5)................................................................................. 42,796 31,957 321,774 Deferred Income Taxes (Note 10) ................................................................... 436 23 3,278 Termination and Retirement Benefits (Note 7).............................................. 75,367 48,929 566,669 Other Long-Term Liabilities............................................................................ 291 370 2,188 Minority Interests in Subsidiaries .................................................................. 2,797 2,517 21,030 Shareholders’ Equity (Note 8): Common stock, no par value: Authorized: 487,000,000 shares Issued: 249,109,236 shares ....................................................................... Additional paid-in capital ............................................................................... Legal reserve ................................................................................................. 64,082 98,705 7,660 Retained earnings .......................................................................................... 155,069 Accumulated other comprehensive loss (Note 14)........................................ (25,363) 64,082 98,705 7,652 174,077 (17,346) Treasury stock, at cost — 836,289 shares in 2002 and 498,000 shares in 2001 ....................................... (1,919) (1,212) Total Shareholders’ Equity ...................................................................... 298,234 Total .................................................................................................................. ¥549,366 325,958 ¥593,144 481,820 742,143 57,594 1,165,932 (190,699) (14,429) 2,242,361 $4,130,571 See notes to consolidated financial statements. Omron Corporation 27 Consolidated Statements of Operations Omron Corporation and Subsidiaries Years ended March 31, 2002, 2001 and 2000 Millions of yen Thousands of U.S. dollars (Note 2) 2002 2001 2000 2002 Net Sales ................................................................................................. ¥533,964 ¥594,259 ¥555,358 $4,014,767 Costs and Expenses: Cost of sales ......................................................................................... 353,429 Selling, general and administrative expenses ...................................... 134,907 Research and development expenses ................................................. 41,407 Interest expense, net (Note 5)............................................................... Foreign exchange loss, net................................................................... 223 1,506 Other expenses, net (Note 9) ................................................................ 27,865 376,194 131,203 42,513 111 1,389 2,812 358,911 133,662 36,605 750 2,841 1,553 2,657,361 1,014,338 311,331 1,677 11,323 209,511 Total.................................................................................................. 559,337 554,222 534,322 4,205,541 Income (Loss) before Income Taxes, Minority Interests and Cumulative Effect of Accounting Change ........................................ (25,373) Income Taxes (Note 10) .......................................................................... (9,348) 40,037 17,318 21,036 9,048 (190,774) (70,286) Income (Loss) before Minority Interests and Cumulative Effect of Accounting Change ........................................ (16,025) 22,719 11,988 (120,488) Minority Interests ................................................................................... 132 422 427 993 Income (Loss) before Cumulative Effect of Accounting Change....... (16,157) 22,297 11,561 (121,481) Cumulative Effect of Accounting Change............................................ 384 — — 2,887 Net Income (Loss) .................................................................................. ¥ (15,773) ¥ 22,297 ¥ 11,561 $ (118,594) 2002 Per Share Data (Note 12): Income (Loss) before Cumulative Effect of Accounting Change Basic................................................................................................. ¥(65.0) Diluted .............................................................................................. (65.0) Net Income (Loss) Basic................................................................................................. Diluted .............................................................................................. Cash Dividends....................................................................................... (63.5) (63.5) 13.0 See notes to consolidated financial statements. Yen 2001 ¥87.4 85.3 87.4 85.3 13.0 U.S. dollars (Note 2) 2000 2002 ¥45.0 44.5 45.0 44.5 13.0 $(0.49) (0.49) (0.48) (0.48) 0.10 28 Omron Corporation Consolidated Statements of Comprehensive Income (Loss) Omron Corporation and Subsidiaries Years ended March 31, 2002, 2001 and 2000 Millions of yen Thousands of U.S. dollars (Note 2) 2002 2001 2000 2002 Net Income (Loss) .................................................................................. ¥(15,773) ¥ 22,297 ¥11,561 $(118,594) Other Comprehensive Income (Loss), Net of Tax (Note 14): Foreign currency translation adjustments arising during the year....................................................................... 6,310 Minimum pension liability adjustments................................................. (13,973) 7,286 (7,251) (9,044) 7,138 47,444 (105,061) Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during the year ................. (7,570) (8,532) 9,050 (56,918) Reclassification adjustment for losses on impairment realized in net income (loss) ............................................................ 8,030 Reclassification adjustment for net gains realized in net income (loss) .. Net unrealized gains (losses)............................................................. (746) (286) 391 (2,072) (10,213) 1,202 (1,502) 8,750 Net gains (losses) on derivative instruments: Net losses on derivative instruments designated as cash flow hedges during the year.................................................................. (1,673) Reclassification adjustment for net losses realized in net loss......... 1,605 Net losses ...................................................................................... (68) — — — — — — Other Comprehensive Income (Loss)................................................... (8,017) (10,178) 6,844 60,376 (5,609) (2,151) (12,579) 12,068 (511) (60,279) Comprehensive Income (Loss) ............................................................. ¥(23,790) ¥ 12,119 ¥18,405 $(178,873) See notes to consolidated financial statements. Omron Corporation 29 Consolidated Statements of Shareholders’ Equity Omron Corporation and Subsidiaries Years ended March 31, 2002, 2001 and 2000 Number of common shares issued Common stock Additional paid-in capital Accumulated other Legal reserve Retained earnings comprehensive Treasury income (loss) stock Millions of yen Balance, April 1, 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) Net income....................................... Cash dividends, ¥13 per share ........ Transfer to legal reserve .................. Other comprehensive loss ............... Treasury stock ................................. Exercise of stock options................. 22,297 (3,284) (402) 402 (10,178) (749) 148 Share buyback and retirement......... (8,000,000) (18,338) Balance, March 31, 2001 ................... 249,109,236 64,082 98,705 7,652 174,077 (17,346) (1,212) Net loss ............................................ Cash dividends, ¥13 per share ........ Transfer to legal reserve .................. Other comprehensive loss ............... Treasury stock ................................. Exercise of stock options................. (15,773) (3,227) (8) 8 (8,017) (725) 18 Balance, March 31, 2002 ................... 249,109,236 ¥64,082 ¥98,705 ¥7,660 ¥155,069 ¥(25,363) ¥(1,919) 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, 2001 ............................................ $481,820 $742,143 $57,534 $1,308,850 $(130,420) $ (9,113) Net loss ..................................................................... Cash dividends, $0.10 per share............................... Transfer to legal reserve............................................ Other comprehensive loss ........................................ Treasury stock........................................................... Exercise of stock options .......................................... (118,594) (24,264) 60 (60) (60,279) (5,451) 135 Balance, March 31, 2002 ............................................ $481,820 $742,143 $57,594 $1,165,932 $(190,699) $(14,429) See notes to consolidated financial statements. 30 Omron Corporation Consolidated Statements of Cash Flows Omron Corporation and Subsidiaries Years ended March 31, 2002, 2001 and 2000 Operating Activities: Net income (loss) .................................................................................... ¥(15,773) Adjustments to reconcile net income (loss) to net ¥ 22,297 ¥ 11,561 $(118,594) Millions of yen Thousands of U.S. dollars (Note 2) 2002 2001 2000 2002 cash provided by operating activities: Depreciation and amortization ............................................................ Net loss on sales and disposals of property, plant and equipment.... Loss on impairment of property, plant and equipment....................... Net gain on sales of short-term investments and investment securities ................................................................. Loss on impairment of investment securities and other assets.......... Bad debt expenses ............................................................................. Termination and retirement benefits ................................................... Deferred income taxes ........................................................................ Minority interests................................................................................. Cumulative effect of accounting change ............................................ Changes in assets and liabilities: Notes and accounts receivable — trade, net .................................. Inventories ....................................................................................... Other assets .................................................................................... Notes and accounts payable — trade ............................................ Income taxes payable ..................................................................... Accrued expenses and other .......................................................... Other, net ............................................................................................ Total adjustments ............................................................................ Net cash provided by operating activities ................................... 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 ............................................................. Net cash used in investing activities............................................ Financing Activities: 33,569 1,314 6,815 (1,008) 17,199 520 2,616 (16,131) 132 (384) 19,402 17,403 2,279 (22,291) (10,992) (1,082) 99 49,460 33,687 3,111 (6,181) (38,896) 506 1,450 (111) (40,121) 32,217 760 — (3,703) 2,460 3,810 4,990 (5,402) 422 — (5,593) (13,320) 875 3,620 3,438 4,140 (215) 28,499 50,796 9,746 (5,761) (37,583) (538) 1,953 (182) (32,365) 5,786 Net borrowings (repayments) of short-term bank loans......................... 13,102 Proceeds from issuance of long-term debt ............................................ (26,970) Repayments of long-term debt............................................................... (3,267) Dividends paid ........................................................................................ — Share buyback........................................................................................ (725) Treasury stock ........................................................................................ 18 Exercise of stock options ....................................................................... (12,056) Net cash used in financing activities ........................................... 3,648 Effect of Exchange Rate Changes on Cash and Cash Equivalents..... (14,842) Net Decrease in Cash and Cash Equivalents ........................................ Cash and Cash Equivalents at Beginning of the Year .......................... 85,621 Cash and Cash Equivalents at End of the Year ..................................... ¥ 70,779 (1,371) 715 (1,650) (3,337) (18,338) (749) 148 (24,582) 3,102 (3,049) 88,670 ¥ 85,621 See notes to consolidated financial statements. 31,445 412 — (2,783) 2,072 5,638 5,778 (5,809) 427 — 2,507 (534) (3,030) 10,062 2,633 (585) 132 48,365 59,926 32,289 (37,413) (31,146) 1,456 1,081 (447) (34,180) (18,087) 775 (3,102) (3,371) — — — (23,785) (2,191) (230) 88,900 ¥ 88,670 252,398 9,880 51,241 (7,579) 129,316 3,910 19,669 (121,286) 993 (2,887) 145,880 130,850 17,135 (167,602) (82,647) (8,135) 744 371,880 253,286 23,391 (46,474) (292,451) 3,805 10,902 (835) (301,662) 43,504 98,511 (202,782) (24,564) — (5,451) 135 (90,647) 27,429 (111,594) 643,767 $ 532,173 Omron Corporation 31 Notes to Consolidated Financial Statements Omron Corporation and Subsidiaries 1. Summary of Significant Accounting Policies 32 Omron Corporation Nature of Operations Omron Corporation (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 5 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 company offers many services, such as those involving laborsaving 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 authoriza- tion terminals and point of sales systems for both domestic and overseas markets. Passing gates and automated ticket machines and electronic panels and terminal displays for traffic information and monitoring purposes are also produced for the domestic market. Healthcare sells blood pressure monitors, digital thermometers, body-fat monitors, nebulizers and infra-red ther- apy devices aimed at both the consumer and institutional markets. Creative Service provides such outsourcing services as distribution, advertising and public relations, personnel, 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. 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 generally accepted in the United States of America, except for the omission of segment information required by Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Certain reclassifications have been made to amounts previously reported in order to conform to 2002 classifications. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries (together the “Companies”). All significant intercompany accounts and transactions have been eliminated. 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 liabilities and 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 esti- mates. 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. Allowance for Doubtful Receivables An allowance for doubtful receivables is established in amounts considered to be appropriate based primarily upon the Companies’ past credit loss experience and an evaluation of potential losses in the receivables outstanding. Short-Term Investments and Investment Securities The Companies classify all of their marketable debt and equity securities as available-for-sale. Available-for-sale securities are carried at market value with the corresponding recognition of net unrealized holding gains and losses as a separate component of accumulated other comprehensive income, net of related taxes, until recognized. Individual securities classified as available-for-sale are reduced to net realizable value by a charge to income in the period in which the decline is deemed to be other than temporary. Other investments are stated at the lower of cost or estimated net realizable value. The cost of securities sold is deter- mined 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 computed principally on a declining balance method based upon the estimated useful lives of the assets. The estimated useful lives primarily range from 3 to 50 years for buildings and from 2 to 15 years for machinery and equipment. Long-Lived Assets Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undis- counted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Advertising Costs Advertising costs are charged to earnings as incurred. Advertising expense was ¥7,931 million ($59,632 thou- sand), ¥8,796 million and ¥8,428 million for the years ended March 31, 2002, 2001 and 2000, 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 Postretirement Benefits.” The provision for termination and retirement benefits includes those for directors and corporate auditors of the Company. 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 carryfor- wards 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 peri- od that includes the enactment date. Derivatives On April 1, 2001 the Companies adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133.” Both standards establish accounting and reporting standards for deriva- tive instruments and for hedging activities, and require that an entity recognize all derivatives as either assets or lia- bilities in the balance sheet and measure those instruments at fair value. For foreign exchange forward contracts and foreign currency options, on that date the derivative contract is entered into, the Companies designate the derivative as a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge or “foreign currency” hedge). The Companies formally document all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow or foreign currency hedges to specific assets and liabilities on the consolidated balance sheet or to specific firm commitments or forecasted transactions. Based on the Company policy, all foreign exchange forward contracts and foreign currency options entered into must be highly effective in offsetting changes in cash flows of hedged items. Changes in fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow or foreign currency hedge are recorded in other comprehensive income (loss), until earnings are affected by the vari- ability in cash flows of the designated hedged item. The cumulative effect adjustment upon the adoption of SFAS No. 133 and No. 138, net of the related income tax effect resulted in a decrease to net loss of approximately ¥384 million ($2,887 thousand). Prior to the adoption of SFAS No. 133 and No. 138, derivative financial instruments that were designated and effective as hedges of forecasted transactions for which there was no firm commitment were marked to market, and gains and losses on such derivatives were recorded in Foreign exchange loss, as were the offsetting foreign exchange losses and gains on the hedged items. Gains and losses on the derivative financial instruments that were Omron Corporation 33 designated and effective as hedges of firm commitments were deferred and recognized in income upon maturity of the hedged transaction. Amounts receivable or payable under derivative financial instruments used to manage interest rate risks arising from financial assets and liabilities were recognized as a component of the interest income or expense of such related underlying assets or liabilities. Cash Dividends Cash dividends are reflected in the consolidated financial statements at proposed amounts in the year 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 liabili- ties in the consolidated balance sheets. Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss), foreign currency translation adjustments, minimum pension liability adjustments, unrealized gains and losses on available-for-sale securities and net gains and losses on derivative instruments, and is presented in the consolidated statements of comprehensive income (loss). Revenue Recognition The Companies recognize revenue when persuasive evidence of an arrangement including title transfer exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is probable. These criteria are met when products are shipped or services are performed. New Accounting Standards On July 20, 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” The statements will change the account- ing for business combinations and goodwill in two significant ways. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of that statement, which for the Companies, will be April 1, 2002. The Companies expect that the adoption of SFAS No. 142 will not be material. On August 16, 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligation,” which is effec- tive for financial statements issued for fiscal years beginning after June 15, 2002. The pronouncement addresses the recognition and remeasurement of obligations associated with the retirement of a tangible long-lived asset. On October 3, 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which is effective for financial statements issued for fiscal years beginning after December 15, 2001. SFAS No. 144 applies to all long-lived assets (including discontinued operations) and it develops one accounting model for long-lived assets that are to be disposed of by sale. The Companies are currently reviewing these statements to determine their impact on future financial statements. 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 ¥133 to $1, the approximate free rate of exchange at March 31, 2002. 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..................................................................................... Total............................................................................................................. Millions of yen 2002 ¥39,772 14,923 19,922 ¥74,617 2001 ¥52,188 15,114 24,291 ¥91,593 Thousands of U.S. dollars 2002 $299,038 112,203 149,789 $561,030 34 Omron Corporation 4. Short-Term Investments and Investment Securities Available-for-sale securities are recorded at fair value, with unrealized gains and losses excluded from income and reported in other comprehensive income (loss), net of tax. 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: 2002 2001 Millions of yen Gross unrealized gains Gross unrealized losses Fair value Gross unrealized gains Gross unrealized losses Fair value Cost (*) Cost (*) Available-for-sale securities: Debt securities ............... ¥ 33 31,185 Equity securities............. ¥ — 8,346 Total available- for-sale ¥ — ¥ (815) 33 38,716 ¥ 20 43,392 ¥ — ¥ — ¥ 20 51,416 (7,622) 15,646 securities......................... ¥31,218 ¥8,346 ¥(815) ¥38,749 ¥43,412 ¥15,646 ¥(7,622) ¥51,436 Thousands of U.S. dollars 2002 Gross unrealized gains Gross unrealized losses Fair value Cost (*) Available-for-sale securities: Debt securities ........................................................................ $ 248 234,474 Equity securities ...................................................................... $ — 62,752 $ — $ 248 (6,128) 291,098 Total available-for-sale securities ............................................... $234,722 $62,752 $(6,128) $291,346 *Cost represents amortized cost for debt securities and acquisition cost for equity securities. Losses on impairment of available-for-sale securities recognized to reflect the decline in market value considered to be other than temporary were ¥13,845 million ($104,098 thousand), ¥674 million and ¥2,072 million for the years ended March 31, 2002, 2001 and 2000, respectively. Net unrealized holding gains on available-for-sale securities, net of related taxes, decreased by ¥286 million ($2,151 thousand) and ¥10,213 million for the years ended March 31, 2002 and 2001, respectively. Debt securities classified as available-for-sale investment securities mature in various amounts through 2004. Proceeds from sales of available-for-sale securities were ¥2,750 million ($20,677 thousand), ¥9,372 million and ¥31,964 million for the years ended March 31, 2002, 2001 and 2000, respectively. Gross realized gains on those sales were ¥1,608 million ($12,090 thousand), ¥3,579 million and ¥3,456 million for the years ended March 31, 2002, 2001 and 2000, respectively. Gross realized losses on those sales were ¥321 million ($2,413 thousand), ¥8 million and ¥867 million for the years ended March 31, 2002, 2001 and 2000, respectively. 5. Bank Loans and Long-Term Debt The weighted average annual interest rates of short-term bank loans at March 31, 2002 and 2001 were 1.7% and 2.9%, respectively. Long-term debt at March 31 consisted of the following: Millions of yen 2002 2001 Thousands of U.S. dollars 2002 Unsecured debt: Convertible bonds at 1.7%, due in 2004..................................................... ¥29,735 ¥29,735 $223,571 Loans from banks and other financial institutions, generally at 0.5% to 4.2%, due serially through 2005 ............................ Other................................................................................................................ Total............................................................................................................. Less portion due within one year .................................................................... 12,541 1,712 43,988 1,192 26,415 2,147 58,297 26,340 94,293 12,872 330,736 8,962 Long-term debt, less current portion .............................................................. ¥42,796 ¥31,957 $321,774 Omron Corporation 35 The annual maturities of long-term debt outstanding at March 31, 2002 were as follows: Years ending March 31 2003 ................................................................................................................................ 2004 ................................................................................................................................ 2005 ................................................................................................................................ 2006 ................................................................................................................................ 2007 ................................................................................................................................ Total ................................................................................................................................ Millions of yen ¥ 1,192 12,625 29,998 141 32 ¥43,988 Thousands of U.S. dollars $ 8,962 94,925 225,549 1,060 240 $330,736 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 convertible bonds are redeemable, in whole or in part, beginning October 1997 at 106% of face value, decreasing 1% per year. At March 31, 2002 the convertible bonds were redeemable, in whole or in part, at 102%. The number of contingently issuable shares of common stock related to the convertible bonds as of March 31, 2002 was 10,026,639 shares. The conversion price per share at March 31, 2002 was ¥2,965 ($22.29), 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, 2002, 2001 and 2000 amount- ed to ¥1,291 million ($9,707 thousand), ¥1,731 million and ¥1,897 million, respectively. 6. Leases 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, 2002, 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 2003 ................................................................................................................................ 2004 ................................................................................................................................ 2005 ................................................................................................................................ 2006 ................................................................................................................................ 2007 ................................................................................................................................ 2008 and thereafter ........................................................................................................ Total ................................................................................................................................ Millions of yen ¥ 2,635 2,449 2,235 2,093 2,050 19,071 ¥30,533 Thousands of U.S. dollars $ 19,812 18,413 16,804 15,737 15,414 143,391 $229,571 Rental expense amounted to ¥11,322 million ($85,128 thousand), ¥11,232 million and ¥11,120 million for the years ended March 31, 2002, 2001 and 2000, respectively. The Company has a contract with an outside service organization for outsourcing computer services. The con- tract requires an annual service fee of ¥4,922 million ($37,008 thousand) for the year ending March 31, 2003. The annual service fee will gradually decrease each year during the contract term to ¥4,518 million ($ 33,970 thousand) for 2008. The contract is cancelable subject to a penalty of 15% of aggregate service fees payable for the remain- ing 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 consid- ering 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 portion are prescribed by the Japanese Ministry of Health, Labour and Welfare, commence at age 65 and continue until the death of the surviving spouse. Benefits under the additional portion are usually paid in a lump sum at the earlier of termination or retirement although periodic pay- ments are available under certain conditions. 7. Termination and Retirement Benefits 36 Omron Corporation The following table is the reconciliation of beginning and ending balances of the benefit obligations and the fair value of the plan assets at March 31: Millions of yen 2002 2001 Thousands of U.S. dollars 2002 Change in benefit obligation: Benefit obligation at beginning of year........................................................ Service cost, less employees’ contributions ............................................... Interest cost................................................................................................. Employees’ contributions ............................................................................ Plan amendments........................................................................................ Actuarial losses............................................................................................ Benefits paid (including benefits paid by the Companies) .......................... ¥205,907 8,401 6,042 1,053 (4,504) 20,138 (4,859) Benefit obligation at end of year.............................................................. ¥232,178 ¥189,263 $1,548,173 63,165 45,429 7,917 (33,865) 151,414 (36,534) ¥205,907 $1,745,699 8,846 6,624 1,010 — 4,022 (3,858) Change in plan assets: Fair value of plan assets at beginning of year ............................................. Actual return on plan assets ........................................................................ Employers’ contributions............................................................................. Employees’ contributions ............................................................................ Benefits paid................................................................................................ 121,875 (7,974) 6,922 1,053 (2,389) Fair value of plan assets at end of year ................................................... ¥119,487 Funded status.................................................................................................. Unrecognized net actuarial loss ...................................................................... Unrecognized prior service credit ................................................................... Unrecognized transition obligation.................................................................. (112,691) 81,051 (4,204) 538 Net amount recognized ........................................................................... ¥ (35,306) 129,137 (12,879) 6,528 1,010 (1,921) 916,353 (59,955) 52,045 7,917 (17,962) ¥121,875 $ 898,398 (84,032) 49,639 — 808 (847,301) 609,406 (31,609) 4,045 ¥ (33,585) $ (265,459) Amounts recognized in the consolidated balance sheets: Accrued liability ........................................................................................... Intangible assets.......................................................................................... Accumulated other comprehensive loss (gross of tax) ............................... Net amount recognized ........................................................................... ¥ (71,899) — 36,593 ¥ (35,306) ¥ (46,895) $ (540,594) — 275,135 ¥ (33,585) $ (265,459) 808 12,502 Accumulated benefit obligation at end of year........................................... ¥191,386 ¥168,769 $1,438,992 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 liabili- ty is reflected as other comprehensive income, net of related tax effect. The unrecognized transition obligation, the unrecognized net actuarial loss and the prior service credit are being amortized over 15 years. Key assumptions utilized in calculating the actuarial present value of benefit obligations are as follows: Discount rate ................................................................................................................ 2.5% Compensation increase rate ........................................................................................ 3.0 Expected long-term rate of return on plan assets ....................................................... 4.0 2002 2001 3.0% 3.0 4.0 2000 3.5% 3.6 4.0 The expense recorded for the contributory termination and retirement plans included the following components for the years ended March 31: Service cost, less employees’ contributions ................................................... Interest cost on projected benefit obligation................................................... Expected return on plan assets....................................................................... Amortization .................................................................................................... Net expense................................................................................................. Millions of yen 2002 ¥ 8,401 6,042 (5,010) 1,681 ¥11,114 2001 ¥ 8,846 6,624 (4,451) 2,215 ¥13,234 Thousands of U.S. dollars 2002 $ 63,165 45,429 (37,669) 12,639 $ 83,564 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 mandatory Omron Corporation 37 8. Shareholders’ Equity 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 liability equal to the plans’ vested benefits, which exceed the plans’ accumulated benefit obligations. The consolidated liability for the noncontributory termination plans as of March 31, 2002 and 2001 was ¥3,468 mil- lion ($26,075 thousand) and ¥2,034 million, respectively. The consolidated expense for the noncontributory termination and retirement plans for the years ended March 31, 2002, 2001 and 2000 was ¥2,385 million ($17,932 thousand), ¥1,015 million and ¥1,041 million, respectively. In June 2001, the Japanese Government issued a new law that regulates retirement benefit plans. Under the new law, effective April 1, 2002, the Company can transfer the obligation for the basic portion and corresponding plan assets to the social welfare plan subject to approval by the government. The Company has not yet decided if they will apply for the transfer of the basic portion but if such an application is made and accepted, it may result in a settlement or curtailment under SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits.” The Company has also not determined the amount of any gain or loss that would result under such circumstances. Japanese companies are subject to the Japanese Commercial Code (the “Code”) to which certain amendments became effective as from October 1, 2001. Prior to October 1, 2001, the Code required at least 50% of the issue price of new shares, with a minimum of the par value thereof, to be designated as stated capital as determined by resolution of the Board of Directors. Proceeds in excess of amounts designated as stated capital were credited to additional paid-in capital. Effective October 1, 2001, the Code was revised and common stock par values were eliminated result- ing in all shares being recorded with no par value. Prior to October 1, 2001, the Code also provided that an amount at least equal to 10% of the aggregate amount of cash dividends and certain other cash payments which are made as an appropriation of retained earnings applicable to each fiscal period shall be appropriated and set aside as a legal reserve until such reserve equals 25% of stated capital. Effective October 1, 2001, the revised Code allows for such appropriations to be set aside as a legal reserve until the total additional paid-in capital and legal reserve equals 25% of stated capital. The amount of total additional paid-in capital and legal reserve which exceeds 25% of stated capital can be transferred to retained earnings by reso- lution of the shareholders, which may be available for dividends. Under the Code, companies may issue new common shares to existing shareholders without consideration as a stock split pursuant to a resolution of the Board of Directors. Prior to October 1, 2001, the amount calculated by divid- ing the total amount of shareholders’ equity by the number of outstanding shares after the stock split could not be less than ¥50. The revised Code eliminated this restriction. Prior to October 1, 2001, the Code imposed certain restrictions on the repurchase and use of treasury stock. Effective October 1, 2001, the Code eliminated these restrictions allowing companies to repurchase treasury stock by a resolution of the shareholders at the general shareholders’ meeting and dispose of such treasury stock by resolution of the Board of Directors after March 31, 2002. The repurchased amount of treasury stock cannot exceed the amount available for future dividend plus amount of stated capital, additional paid-in capital or legal reserve to be reduced in the case where such reduction was resolved at the general shareholders’ meeting. The Code permits companies to transfer a portion of additional paid-in capital and legal reserve to stated capital by resolution of the Board of Directors. The Code also permits companies to transfer a portion of unappropriated retained earnings, available for dividends, to stated capital by resolution of the shareholders. Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividends are applicable. Semiannual interim dividends may also be paid upon resolution of the Board of Directors, subject to certain limitations imposed by the Code. 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, 2002, retained earnings amounting to ¥62,621 million ($470,835 thousand) were available for future dividends subject to legal reserve requirements. Stock Options In June 1998, the Company introduced stock-based compensation plans. Stock options are granted to directors and certain officers to purchase shares of common stock at a price not less than market price at the date of grant. Options are granted with vesting periods of 1-2 years. As of March 31, 2002, options outstanding are summarized as follows: Grant date June 25, 1998 Authorized and granted shares 158,000 Option exercise price ¥2,162 June 25, 1999 158,000 ¥1,839 July 1, 1999 - June 30, 2001 July 1, 2001 - June 30, 2004 Exercisable term Exercised and (forfeited or expired) shares 73,000 (85,000) 10,000 (5,000) — — June 27, 2000 June 26, 2001 260,000 292,000 ¥2,936 ¥2,306 July 1, 2002 - June 30, 2005 July 1, 2003 - June 30, 2006 38 Omron Corporation 9. Other Expenses, net 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 determined based on the fair value of the options at the grant date consistent with SFAS No.123 would have been insignificant. Other expenses (income), net for the years ended March 31, 2002, 2001 and 2000 consisted of the following: 2002 Millions of yen 2001 2000 Thousands of U.S. dollars 2002 Loss on relocation ........................................................... ¥ — ¥ 2,312 ¥ — $ — Loss on impairment of investment securities and other assets.......................................... 17,199 2,460 2,072 129,316 Net loss (gain) on sales and disposals of property, plant and equipment, excluding loss on relocation ........................................ Loss on impairment of property, plant and equipment ... Net gain on sales of short-term investments and investment securities ............................................ Other, net......................................................................... 1,314 6,815 (1,008) 3,545 (43) — (3,703) 1,786 412 — (2,783) 1,852 9,880 51,241 (7,579) 26,653 Total ............................................................................. ¥27,865 ¥ 2,812 ¥ 1,553 $209,511 During the year ended March 31, 2001 the Company recognized a net loss of ¥2,312 million ($17,383 thousand) as a result of an office relocation plan, primarily consisting of the relocation of the headquarters within Kyoto, Japan. In 2002, the Companies assessed the potential impairment of certain long-lived assets in consideration of future alternate uses, including potential disposal. As a result, certain land and buildings, principally dormitories for employees were deemed to be impaired and written down to fair value because the assets are not expected to recover their entire carrying value through future cash flows. The estimated fair value of these assets was primarily determined by independent real estate appraisals of land and buildings. The resulting loss on impairment of land and buildings was ¥6,815 million ($51,241 thousand) for the year ended March 31, 2002. There were no such losses for the years ended March 31, 2001 and 2000. 10. Income Taxes The provision for income taxes for the years ended March 31, 2002, 2001 and 2000 consisted of the following: 2002 Millions of yen 2001 2000 Thousands of U.S. dollars 2002 Current income tax expense ........................................... ¥ 6,783 ¥22,720 ¥14,857 $ 51,000 Deferred income tax benefit, exclusive of the following .............................................. (17,679) (5,367) (5,809) (132,925) Change in the beginning of the year balance of the valuation allowance for deferred tax assets ............ 1,548 (35) — 11,639 Total ............................................................................. ¥ (9,348) ¥17,318 ¥ 9,048 $ (70,286) The effective income tax rates of the Companies differ from the normal Japanese statutory rates as follows for the years ended March 31: 2002 2001 2000 Normal Japanese statutory rates ............................................................................. 42.0% 42.0% 42.0% Increase (decrease) in taxes resulting from: 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 ............................................... Other, net.............................................................................................................. (1.9) (3.3) 1.3 (0.4) (0.9) 2.4 2.6 (2.5) (0.1) (1.1) 2.8 2.9 (3.0) — (1.7) Effective tax rates ............................................................................................. 36.8% 43.3% 43.0% Omron Corporation 39 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 2002, 2001 and 2000. The approximate effect of temporary differences and tax credit and loss carryforwards that gave rise to deferred tax balances at March 31, 2002 and 2001 were as follows: Millions of yen 2002 2001 Thousands of U.S. dollars 2002 Inventory valuation ............................................ Accrued bonuses and vacations ....................... Termination and retirement benefits.................. Enterprise taxes................................................. Intercompany profits ......................................... Marketable securities ........................................ Property, plant and equipment.......................... Allowance for doubtful receivables ................... Bad debt expenses ........................................... Gain on sale of land........................................... Minimum pension liability adjustment ............... Other temporary differences ............................. Tax credit carryforwards.................................... Operating loss carryforwards ............................ Subtotal ........................................................... Valuation allowance........................................... Total ........................................................... Deferred tax assets ¥ 3,521 3,492 12,912 164 2,540 — 2,789 2,711 — — 15,369 11,871 3,689 12,961 72,019 (9,574) ¥62,445 Deferred Deferred tax tax liabilities assets ¥ — ¥ 1,882 — 4,067 — 10,809 — 1,094 — 2,270 3,164 — — — 180 611 — 4,118 1,311 — — 5,251 1,639 8,596 — 3,473 — 4,415 6,294 46,586 — (7,795) ¥6,294 ¥38,791 3,370 — 26,254 — 97,082 1,230 — — 19,097 Deferred Deferred Deferred tax tax tax liabilities assets liabilities ¥ — $ 26,470 $ — — — — — — 23,786 — 1,357 — 9,857 — 12,321 — — 47,321 — $47,321 — 20,971 20,383 — — — 115,558 89,259 — 27,738 — 97,449 541,491 — (71,983) ¥9,221 $469,508 116 — 1,311 9,221 4,424 The total valuation allowance increased by ¥1,779 million ($13,376 thousand), ¥1,310 million and ¥1,681 million in 2002, 2001 and 2000, respectively. As of March 31, 2002, the Company and certain subsidiaries had operating loss carryforwards approximating ¥30,566 million ($229,820 thousand) available for reduction of future taxable income, the majority of which expire in 2007. 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 ¥53,928 million ($405,474 thousand) and ¥50,052 million at March 31, 2002 and 2001, respectively. It is not practi- cable to estimate the amount of unrecognized deferred Japanese income taxes on these unremitted earnings. Dividends received from domestic subsidiaries are expected to be substantially free of tax. Net sales and total assets of foreign subsidiaries for the years ended March 31, 2002, 2001 and 2000 were as follows: 2002 Net sales ............................................................................ ¥176,096 Total assets ........................................................................ ¥146,734 Millions of yen 2001 ¥170,434 ¥141,966 2000 ¥158,122 ¥115,532 Thousands of U.S. dollars 2002 $1,324,030 $1,103,263 The Company accounts for its earnings per share in accordance with SFAS No. 128, “Earnings per Share.” Basic net income (loss) per share has been computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during each year. Diluted net income (loss) 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 (loss) per share computa- tions is as follows: 2002 Millions of yen 2001 2000 Thousands of U.S. dollars 2002 Income (loss) before cumulative effect of accounting change........................................... ¥(16,157) ¥22,297 ¥11,561 $(121,481) Effect of dilutive securities: Convertible bonds, due 2004 ..................................... — Diluted net income (loss).................................................... ¥(16,157) 325 ¥22,622 325 ¥11,886 — $(121,481) 11. Foreign Operations 12. Per Share Data 40 Omron Corporation 13. Supplemental Information for Cash Flows 14. Other Comprehensive Income (Loss) Net income (loss)................................................................ ¥(15,773) Effect of dilutive securities: 2002 Millions of yen 2001 ¥22,297 2000 ¥11,561 Thousands of U.S. dollars 2002 $(118,594) Convertible bonds, due 2004 ..................................... — Diluted net income (loss).................................................... ¥(15,773) 325 ¥22,622 325 ¥11,886 — $(118,594) Weighted average common shares outstanding ................. 248,401,803 Dilutive effect of: Convertible bonds, due 2004 ....................................... Stock options................................................................ — — Diluted common shares outstanding ................................... 248,401,803 2002 Number of shares 2001 255,031,698 10,026,639 62,449 265,120,786 2000 256,841,987 10,028,349 28,106 266,898,442 For the year ended March 31, 2002, the assumed conversion of convertible bonds, giving effect to the incremen- tal shares and the adjustment to reduce interest expenses, was anti-dilutive and has, therefore, been excluded from the computation. For the year ended March 31, 2002, 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 represent the amounts applicable to the respective year, including dividends to be paid after the end of the year. Supplemental cash flow information for the years ended March 31, 2002, 2001 and 2000 was as follows: Interest paid ....................................................................... Income taxes paid.............................................................. Non-cash investing and financing activities: 2002 ¥ 1,264 17,748 Millions of yen 2001 ¥ 1,765 19,257 2000 ¥ 1,980 12,543 Thousands of U.S. dollars 2002 $ 9,504 133,444 Liabilities assumed in connection with capital expenditures .... 1,516 1,803 3,467 11,398 The change in each component of accumulated other comprehensive income (loss) for the years ended March 31, 2002, 2001 and 2000 was as follows: 2002 Millions of yen 2001 2000 Thousands of U.S. dollars 2002 Foreign currency translation adjustments: Beginning balance.......................................................... ¥(13,712) 6,310 Change for the year........................................................ (7,402) Ending balance............................................................... ¥(20,998) 7,286 (13,712) ¥(11,954) (9,044) (20,998) $(103,098) 47,444 (55,654) Minimum pension liability adjustments: Beginning balance.......................................................... Change for the year........................................................ Ending balance............................................................... (7,251) (13,973) (21,224) Unrealized gains on available-for-sale securities: Beginning balance.......................................................... Change for the year........................................................ Ending balance............................................................... Net gains (losses) on derivative instruments: Beginning balance.......................................................... Change for the year........................................................ Ending balance............................................................... Total accumulated other comprehensive income (loss): 3,617 (286) 3,331 — (68) (68) — (7,251) (7,251) 13,830 (10,213) 3,617 — — — (7,138) 7,138 — 5,080 8,750 13,830 — — — (54,518) (105,061) (159,579) 27,196 (2,151) 25,045 — (511) (511) (17,346) Beginning balance.......................................................... (8,017) Change for the year........................................................ Ending balance............................................................... ¥(25,363) (7,168) (10,178) ¥(17,346) (14,012) 6,844 ¥ (7,168) (130,420) (60,279) $(190,699) Omron Corporation 41 Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended March 31, 2002, 2001 and 2000 were as follows: 2002 Tax Millions of yen 2001 Tax 2000 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 arising during the year ............................................ ¥ 6,310 ¥ Minimum pension liability adjustments .................... Unrealized gains (losses) on available-for-sale securities: (24,091) — ¥ 6,310 ¥ 7,286 ¥ — ¥ 7,286 ¥ (9,044)¥ — ¥(9,044) 7,138 13,891 (6,753) (12,502) (7,251) 5,251 10,118 (13,973) Unrealized holding gains (losses) arising during period... (13,052) 5,482 (7,570) (14,711) 6,179 (8,532) 15,604 (6,554) 9,050 Reclassification adjustment for losses on impairment realized in net income (loss) ............... 13,845 (5,815) 8,030 674 (283) 391 2,072 (870) 1,202 Reclassification adjustment for net gains realized in net income (loss)................................................ (1,287) Net unrealized gains (losses)..................................... (494) 541 208 (746) (3,571) 1,499 (2,072) (2,589) 1,087 (1,502) (286) (17,608) 7,395 (10,213) 15,087 (6,337) 8,750 Net gains (losses) on derivative instruments: Net losses on derivative instruments designated as cash flow hedges during the year.. (2,884) 1,211 (1,673) Reclassification adjustment for net losses realized in net loss................................................. 2,767 (1,162) 1,605 — — — — — — — — — — — — Net losses.................................................................. — Other comprehensive income (loss) .................. ¥(18,392) ¥10,375 ¥ (8,017)¥(22,824) ¥12,646 ¥(10,178) ¥19,934¥(13,090) ¥ 6,844 (117) (68) 49 — — — — — Foreign currency translation adjustments arising during the year ................................................. Minimum pension liability adjustments............................................................................................... Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during period...................................................................... Reclassification adjustment for losses on impairment realized in net income (loss) ......................... Reclassification adjustment for net gains realized in net income (loss) ............................................ Net unrealized gains (losses) ............................................................................................................... Net gains (losses) on derivative instruments: Net losses on derivative instruments designated as cash flow hedges during the year ................... Reclassification adjustment for net losses realized in net loss.......................................................... Net losses ............................................................................................................................................ Thousands of U.S. dollars 2002 Before-tax amount $ 47,444 (181,143) Tax (expense) benefit $ — 76,082 Net-of-tax amount $ 47,444 (105,061) (98,135) 104,098 (9,677) (3,714) (21,684) 20,805 (879) 41,217 (43,722) 4,068 1,563 9,105 (8,737) 368 (56,918) 60,376 (5,609) (2,151) (12,579) 12,068 (511) Other comprehensive income (loss)................................................................................................ $(138,292) $ 78,013 $ (60,279) 42 Omron Corporation 15. Financial Financial Instruments Instruments and Risk Management The following table presents the carrying amounts and estimated fair values as of March 31, 2002 and 2001, of the Companies’ financial instruments. Millions of yen 2002 2001 Thousands of U.S. dollars 2002 Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Nonderivatives: Long-term debt, including current portion .... ¥(43,988) ¥(46,307) ¥(58,297) ¥(62,460) $(330,736) $(348,173) Derivatives: Included in Other current liabilities: Forward exchange contracts ............. Foreign currency options ................... Interest rate swaps............................. (540) (65) (15) (540) (65) (15) (377) (334) — (377) (334) (49) (4,060) (489) (113) (4,060) (489) (113) The following methods and assumptions were used to estimate the fair values 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 simi- lar instruments. Certain equity securities included in investments have no public market value, and it is not prac- ticable 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 present value of discounted future cash flow analysis, based on the Companies’ current incremental issuing rates for similar types of arrangements. 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 valuation models are applied to current market information to estimate fair value. The Companies do not use derivatives for trading purposes. Changes in the fair value of foreign exchange forward contracts and foreign currency options designated and qualifying as cash flow hedges are reported in accumulated other comprehensive income (loss). These amounts are subsequently reclassified into earnings through Foreign exchange loss, net in the same period as the hedged items affect earnings. Substantially all of the accumulated other comprehensive income (loss) in relation to foreign exchange forward contracts and foreign currency options at March 31, 2002 is expected to be reclassified into earnings within twelve months. The effective portions of changes in the fair value of foreign exchange forward contracts and foreign currency options designated as cash flow hedges and reported in accumulated other comprehensive income (loss), net of the related tax effect, are losses of ¥1,673 million ($12,579 thousand) for the year ended March 31, 2002. The amounts, which were reclassified out of accumulated other comprehensive income (loss) into Foreign exchange loss, net or Interest expense, net, depending on their nature, net of the related tax effect, are net losses of ¥1,605 million ($12,068 thousand) for the year ended March 31, 2002. The amount of the hedging ineffectiveness is not material for the year ended March 31, 2002. The Companies enter into interest rate swap agreements, which do not meet the hedging criteria of SFAS No. 133. These interest rate swap agreements are recorded at fair value in the consolidated balance sheets. The changes in fair values are recorded in current period earnings. (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 the coun- terparty fails to meet the terms of an interest rate swap agreement, the Companies’ exposure is limited to the Omron Corporation 43 interest rate differential. Management considers the exposure to credit risk to be minimal since the counterpar- ties are major financial institutions. At March 31, 2002 and 2001, the notional amounts on which the Companies had interest rate swap agreements outstanding aggregated ¥2,500 million ($18,797 thousand) and ¥4,500 million, respectively. The estimated fair values of interest rate swap contracts are based on present value of discounted future cash flow analysis. (2) Foreign exchange forward contracts and foreign currency options: The Companies enter into foreign exchange forward contracts and combined purchased and written foreign currency option contracts to hedge foreign currency transactions (primarily the U.S. dollar and the EURO) on a continuing basis for periods consistent with their committed exposure. 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, 2002 and 2001 were as follows: Forward exchange contracts ................................................................... Foreign currency options ......................................................................... Millions of yen 2002 ¥16,328 8,049 2001 ¥17,130 10,445 Thousands of U.S. dollars 2002 $122,767 60,519 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 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 operations. Currency forward contracts and options designated as hedges of the monetary assets and liabilities are also marked to spot rates with the resulting gains and losses reported in the consolidated statements of operations. Concentration of Credit Risk Financial instruments that 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 approxi- mately 75% of total sales are concentrated in Japan, are limited due to the large number of well-established cus- tomers and their dispersion across many industries. The Company normally requires customers to deposit with them funds to serve as security for ongoing credit sales. In August 2000, the Company entered into an operating lease agreement for a new head office, including land and a building, with a company owned by the family of the Company’s founder, including the Company’s chairman and representative director, representative director and chief executive officer, and certain managing officers at that time. This lease agreement has an initial non-cancelable lease term of 20 years and requires a monthly rental pay- ment of ¥106 million ($797 thousand) and a security deposit of ¥2,600 million ($19,549 thousand) which is refund- able when the agreement expires. During the years ended March 31, 2002 and 2001, the Company paid ¥1,272 mil- lion ($9,564 thousand) and ¥954 million, respectively, for monthly rentals and the balance of the security deposit at March 31, 2002 and 2001 was ¥2,600 million ($19,549 thousand). 16. Related Party Transaction 17. Commitments and Contingent Liabilities The Company has commitments at March 31, 2002 of approximately ¥6,170 million ($46,391 thousand) related to contracts for the construction of a new research and development laboratory building in Kyoto. The Company and certain of its subsidiaries are defendants in several pending lawsuits. However, based upon the information currently available to both the Company and its legal counsel, the Company management believes that damages from such lawsuits, if any, would not have a material effect on the consolidated financial statements. Guarantees Contingent liabilities at March 31, 2002 with respect to loans guaranteed were ¥1,912 million ($14,376 thousand), of which ¥1,099 million ($8,263 thousand) were jointly and severally guaranteed with six other unrelated companies. According to an agreement between the seven companies, any losses on these guarantees are to be equally borne among the companies. 44 Omron Corporation 18. Subsequent Events On May 8, 2002 the Company management declared a plan to purchase the Company’s shares, subject to approval at the general meeting of shareholders. The execution of the plan is at the Company’s discretion with a maximum limit of ¥10,000 million ($75,188 thousand), or 5,000,000 shares, for the period up to the date of the June 2003 general meeting of shareholders. On May 29, 2002 the Company management authorized a voluntary early retirement program to all employees between the ages 30 and 59, with over ten years employment at the Company. This program is entirely optional and will be available to those employees from July 1, 2002 through August 30, 2002. Employees accepting this offer will receive an additional lump sum payment, along with their already earned pension benefits, determined by such factors as age, years of employment and salary. Due to the voluntary nature of the program the Company has not recorded a liability for this additional lump sum payment. Omron Corporation 45 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, 2002 and 2001, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2002, all expressed in Japanese yen. These financial statements 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 of America. 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 disclo- sures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, 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, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2002 in conformity with accounting principles generally accepted in the United States of America. 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 June 17, 2002 46 Omron Corporation Global Network EUROPE Regional Headquarters OMRON Europe B.V. (The Netherlands) Phone: 31-23-5681300 Fax: 31-23-5681391 [Industrial Automation Company] OMRON Electronics Ges.m.b.H. (Austria) Phone: 43-1-80190-0 Fax: 43-1-804-48-46 OMRON Electronics N.V./S.A. (Belgium) Phone: 32-2-4662480 Fax: 32-2-4660687 OMRON Electronics AG (Switzerland) Phone: 41-41-748-13-13 Fax: 41-41-748-13-45 OMRON Electronics, Spol. S.r.o. (Czech Rep.) Phone: 420-2-6731-1254 Fax: 420-2-7173-5613 OMRON Electronics G.m.b.H. (Germany) Phone: 49-2173-6800-0 Fax: 49-2173-6800-400 OMRON Fabrikautomation G.m.b.H. (Germany) Phone: 49-2103-203-3 Fax: 49-2103-203-400 OMRON Electronics A.S. (Denmark) Phone: 45-4344-0011 Fax: 45-4344-0211 OMRON Electronics S.A. (Spain) Phone: 34-91-37-77-9-00 Fax: 34-91-37-77-9-56 OMRON Electronics S.a.r.l. (France) Phone: 33-1-49747000 Fax: 33-1-48760930 THE AMERICAS Regional Headquarters OMRON Management Center of America, Inc. (U.S.A.) Phone: 1-847-884-0322 Fax: 1-847-884-1866 — Information Technology Center (U.S.A.) Phone: 1-408-919-2828 Fax: 1-408-919-2829 [Industrial Automation Company] OMRON Electronics Llc. (U.S.A.) Phone: 1-847-843-7900 Fax: 1-847-843-7787 OMRON Manufacturing of America, Inc. (U.S.A.) Phone: 1-630-513-0400 Fax: 1-630-513-1027 OMRON Canada Inc. (Canada) Phone: 1-416-286-6465 Fax: 1-416-286-6648 OMRON IDM Controls, Inc. (U.S.A.) Phone: 1-713-849-1900 Fax: 1-713-849-4666 OMRON Eletrõnica do Brasil Ltda. (Brazil) Phone: 55-11-5564-6488 Fax: 55-11-5564-7751 ASIA–PACIFIC Regional Headquarters OMRON Asiapacific Pte. Ltd. (Singapore) Phone: 65-835-3011 Fax: 65-835-2711 [Industrial Automation Company] OMRON Electronics Pte. Ltd. (Singapore) Phone: 65-835-3011 Fax: 65-835-2711 OMRON Electronics Sdn. Bhd. (Malaysia) Phone: 603-79547323 Fax: 603-79546618 OMRON Electronics Pty. Ltd. (Australia) Phone: 61-2-9878-6377 Fax: 61-2-9878-6981 OMRON Electronics Ltd. (New Zealand) Phone: 64-9-358-4400 Fax: 64-9-358-4411 OMRON Electronics Co., Ltd. (Thailand) Phone: 66-2-937-0500 Fax: 66-2-937-0501 OMRON Korea Co., Ltd. (Korea) Phone: 82-2-549-2766 Fax: 82-2-517-9033 OMRON Electronics O.Y. (Finland) Phone: 358-9-5495-800 Fax: 358-9-5495-8150 OMRON Electronics Manufacturing of Germany G.m.b.H. (Germany) OMRON Electronics KFT (Hungary) Phone: 36-1-399-3050 Fax: 36-1-399-3060 OMRON Electronics S.r.l. (Italy) Phone: 39-02-32681 Fax: 39-02-325154 OMRON Immobiliare S.r.l. (Italy) Phone: 39-02-32681 Fax: 39-02-325154 OMRON Electronics Norway A.S. (Norway) Phone: 47-22-657500 Fax: 47-22-658300 OMRON Electronics B.V. (The Netherlands) Phone: 31-23-5681100 Fax: 31-23-5681188 OMRON Electronics Lda. (Portugal) Phone: 351-21-942-9400 Fax: 351-21-941-7899 OMRON Administracao de Imoveis Ltda. (Portugal) Phone: 351-1-941-7599 Fax: 351-1-941-7899 OMRON Electronics Sp. Z.o.o. (Poland) Phone: 48-22-645-7860 Fax: 48-22-645-7863 OMRON Electronics A.B. (Sweden) Phone: 46-8-632-3500 Fax: 46-8-632-3510 OMRON Electronics Ltd. (Turkey) Phone: 90-216-326-2980 Fax: 90-216-326-2979 OMRON Electronics Ltd. (U.K.) Phone: 44-20-8450-4646 Fax: 44-20-8450-8087 Phone: 49-7032-811-111 Fax: 49-7032-811-199 OMRON Manufacturing of The Netherlands B.V. (The Netherlands) Phone: 31-73-6481811 Fax: 31-73-6420195 [Electronic Components Company] OMRON Electronic Components Ltd. (U.K.) Phone: 44-1384-405500 Fax: 44-1384-405508 OMRON Electronic Components Europe B.V. (The Netherlands) Phone: 31-23-5681200 Fax: 31-23-5681212 [Healthcare Company] OMRON Medizintechnik Handelsgesellschaft G.m.b.H. Phone: 49-621-83348-8 Fax: 49-621-8334820 (Germany) OMRON Healthcare Europe B.V. (The Netherlands) Phone: 31-20-354-8200 Fax: 31-20-354-8201 OMRON Healthcare UK Ltd. (U.K.) Phone: 44-1-273-495033 Fax: 44-1-273-495123 [Electronic Components Company] OMRON Automotive Electronics, Inc. (U.S.A.) Phone: 1-248-893-0200 Fax: 1-248-488-5430 [Healthcare Company] OMRON Healthcare, Inc. (U.S.A.) Phone: 1-847-680-6200 Fax: 1-847-680-6269 OMRON Dualtec Automotive Electronics Inc. (Canada) Phone: 1-905-829-0136 Fax: 1-905-829-0432 [Social Systems Business Company] OMRON Systems Llc. (U.S.A.) Phone: 1-847-843-0515 Fax: 1-847-843-7686 OMRON Transaction Systems, Inc. (U.S.A.) Phone: 1-847-843-0515 Fax: 1-847-843-7686 OMRON Business Systemas Eletrônicos da América Latina Ltda. (Brazil) Phone: 55-11-251-0073 Fax: 55-11-251-1053 [Other] OMRON Finance Canada, Inc. (Canada) Phone: 1-416-286-6465 Fax: 1-416-286-6648 OMRON Advanced Systems, Inc. (U.S.A.) Phone: 1-408-727-6644 Fax: 1-408-727-5540 OMRON Logistics of America, Inc. (U.S.A.) Phone: 1-630-513-6750 Fax: 1-630-513-1382 [Electronic Components Company] OMRON Malaysia Sdn. Bhd. (Malaysia) Phone: 603-7876-1411 Fax: 603-7876-1954 P.T. OMRON Manufacturing of Indonesia (Indonesia) Phone: 62-21-8970111 Fax: 62-21-8970120 OMRON Electronic Components Pte. Ltd. (Singapore) Phone: 65-244-3939 Fax: 65-244-3938 OMRON Electronic Components Co., Ltd. (Thailand) Phone: 66-2-619-0292 Fax: 66-2-619-0624 OMRON Automotive Electronics Korea, Co., Ltd. (Korea) Phone: 82-2-850-5700 Fax: 82-2-859-1687 [Social Systems Business Company] OMRON Business Systems Singapore (Pte.) Ltd. (Singapore) Phone: 65-736-3900 Fax: 65-736-2736 OMRON Business Systems (Malaysia) Sdn. Bhd. (Malaysia) Phone: 603-7880-9119 Fax: 603-7880-9559 OMRON Mechatronics of The Philippines Corp. (Philippines) Phone: 63-47-252-1490 Fax: 63-47-252-1491 [Healthcare Company] OMRON Healthcare Singapore Pte. Ltd. (Singapore) Phone: 65-0736-2345 Fax: 65-0736-2500 Omron Corporation 47 CHINESE ECONOMIC AREA Regional Headquarters OMRON (China) Group Co., Ltd. (Hong Kong) Phone: 852-2375-3827 Fax: 852-2375-1475 OMRON (China) Co., Ltd. (China) Phone: 86-10-8391-3005 Fax: 86-10-8391-3688 — Shanghai Office Phone: 86-21-5037-2222 Fax: 86-21-5037-2200 [Industrial Automation Company] OMRON Electronics Asia Ltd. (Hong Kong) Phone: 852-2375-3827 Fax: 852-2375-1475 OMRON Trading (Shenzhen) Co., Ltd. (China) Phone: 86-755-359-9028 Fax: 86-755-359-9628 OTE Engineering Inc. (Taiwan) Phone: 886-3-352-4442 Fax: 886-3-352-4239 OMRON Taiwan Electronics Inc. (Taiwan) Phone: 886-2-2715-3331 Fax: 886-2-2712-6712 Shanghai OMRON Automation System Co., Ltd. (China) Phone: 86-21-5854-2080 Fax: 86-21-5854-2658 OMRON (Shanghai) Co., Ltd. (China) Phone: 86-21-5854-0055 Fax: 86-21-5854-0614 OMRON Trading (Tianjin) Co., Ltd. (China) Phone: 86-22-2576-0295 Fax: 86-22-2576-3032 OMRON Taiwan System Inc. (Taiwan) Phone: 886-2-2375-2200 Fax: 886-2-2375-2233 [Electronic Components Company] Shanghai OMRON Control Components Co., Ltd. (China) Phone: 86-21-5854-0012 Fax: 86-21-5854-8413 OMRON Electronic Components (Hong Kong) Ltd. (Hong Kong) Phone: 852-2375-3827 Fax: 852-2375-1475 OMRON Electronic Components (Shenzhen) Ltd. (China) Phone: 86-755-462-0000 Fax: 86-755-462-1111 [Healthcare Company] OMRON Dalian Co., Ltd. (China) Phone: 86-411-761-4222 Fax: 86-411-761-6602 OMRON Industry & Trade (Dalian) Co., Ltd. (China) Phone: 86-411-7317201 Fax: 86-411-7317191 [Other] OMRON Shanghai Computer Corp. (China) Phone: 86-21-6468-9626 Fax: 86-21-6468-9489 OMRON Trading (Shanghai) Co., Ltd. (China) Phone: 86-21-5037-2222 Fax: 86-21-5037-2200 Nanjing Southeast-OMRON Traffic Information Systems Co., Ltd. (China) Phone: 86-25-469-1665 Fax: 86-25-469-1650 JAPAN Manufacturing Mishima Systems Factory Phone: 81-559-77-9000 Fax: 81-559-77-9198 Kusatsu Plant Phone: 81-77-563-2181 Fax: 81-77-565-5588 Ayabe Office Phone: 81-773-42-6611 Fax: 81-773-43-0661 Minakuchi Factory Phone: 81-748-62-6851 Fax: 81-748-62-6854 Marketing Osaki Office Phone: 81-3-5435-2000 Fax: 81-3-5435-2030 Nagoya Office Phone: 81-52-571-6461 Fax: 81-52-565-1910 Osaka Office Phone: 81-6-6282-2511 Fax: 81-6-6282-2782 Fukuoka Office Phone: 81-92-414-3200 Fax: 81-92-414-3220 Research and Development Kyoto R&D Laboratory Phone: 81-75-951-5111 Fax: 81-75-955-0156 Tsukuba R&D Laboratory Phone: 81-298-64-4100 Fax: 81-298-64-4105 Kumamoto R&D Laboratory Phone: 81-96-289-2222 Fax: 81-96-289-2234 Okayama R&D Laboratory Phone: 81-86-276-8778 Fax: 81-86-276-8779 [Industrial Automation Company] OMRON Okayama Co., Ltd. Phone: 81-86-277-6111 Fax: 81-86-276-6013 OMRON Izumo Co., Ltd. Phone: 81-853-22-2212 Fax: 81-853-22-2396 OMRON Takeo Co., Ltd. Phone: 81-954-23-4151 Fax: 81-954-23-4159 OMRON Aso Co., Ltd. Phone: 81-967-22-1311 Fax: 81-967-22-3526 Settsu Denki Phone: 81-6-6443-8008 Fax: 81-6-6443-5233 48 Omron Corporation Gyoden Corporation Phone: 81-29-302-1211 Fax: 81-29-302-1222 OMRON Kyoto Taiyo Co., Ltd. Phone: 81-75-672-0911 Fax: 81-75-681-4700 OMRON Technocult Co., Ltd. Phone: 81-45-321-0471 Fax: 81-45-321-0473 OMRON Two Four Service Co., Ltd. Phone: 81-3-3253-9241 Fax: 81-3-3253-9247 [Electronic Components Company] OMRON Iida Co., Ltd. Phone: 81-265-26-6000 Fax: 81-265-26-6030 OMRON Kurayoshi Co., Ltd. Phone: 81-858-23-2121 Fax: 81-858-22-1355 OMRON Ichinomiya Co., Ltd. Phone: 81-586-62-7211 Fax: 81-586-62-7291 OMRON Sanyo Co., Ltd. Phone: 81-8695-5-1355 Fax: 81-8695-5-1359 OMRON Kumamoto Co., Ltd. Phone: 81-968-44-4101 Fax: 81-968-44-4161 OMRON Taiyo Co., Ltd. Phone: 81-977-66-4447 Fax: 81-977-67-5112 [Social Systems Business Company] OMRON Nohgata Co., Ltd. Phone: 81-949-22-2811 Fax: 81-949-28-3046 OMRON Field Engineering Co., Ltd. Phone: 81-3-3448-8111 Fax: 81-3-3448-8485 OMRON Software Co., Ltd. Phone: 81-75-352-7400 Fax: 81-75-352-7210 OMRON Systems Kyushu Co., Ltd. Phone: 81-92-452-2123 Fax: 81-92-452-2124 [Healthcare Company] OMRON Matsusaka Co., Ltd. Phone: 81-598-29-2715 Fax: 81-598-29-1207 OMRON Institute of Life Science Co., Ltd. Phone: 81-75-344-7178 Fax: 81-75-344-7134 [Other] OMRON Finance Co., Ltd. Phone: 81-3-3436-7160 Fax: 81-3-3436-7165 OMRON Network Applications Co., Ltd. Phone: 81-75-361-2160 Fax: 81-75-361-7329 Shiga Creative Delica Co., Ltd. Phone: 81-77-569-1271 Fax: 81-77-561-7160 F&E Service Co., Ltd. Phone: 81-75-344-7148 Fax: 81-75-344-7962 E-Koto Co., Ltd. Phone: 81-75-254-6777 Fax: 81-75-211-0974 OMRON Creative Marketing Co., Ltd. Phone: 81-75-341-5587 Fax: 81-75-361-2768 OMRON Logistic Create Co., Ltd. Phone: 81-6-6282-2530 Fax: 81-6-6282-2786 Gyoden Service Incorporation Phone: 81-48-431-0897 Fax: 81-48-431-0924 OMRON Credit Service Co., Ltd. Phone: 81-75-344-7796 Fax: 81-75-344-7783 OMRON General Service Co., Ltd. Phone: 81-75-344-7359 Fax: 81-75-344-7265 Human Renaissance Institute Co., Ltd. Phone: 81-3-3438-0920 Fax: 81-3-3438-0921 OMRON Creative Facilities Co., Ltd. Phone: 81-75-344-7193 Fax: 81-75-344-7962 OMRON Creative Delica Co., Ltd. Phone: 81-75-344-7883 Fax: 81-75-353-9026 OMRON Alphatec Corporation Phone: 81-3-3438-3611 Fax: 81-3-3438-0037 OMRON Personnel Creative Service Co., Ltd. Phone: 81-75-344-0901 Fax: 81-75-344-0902 Sanno Consulting Corp. Phone: 81-3-5350-9291 Fax: 81-3-5350-9283 OMRON Cellport Telematics Incorporated Phone: 81-3-3438-9821 Fax: 81-3-3438-9824 Investor Information Head Office 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: 81-3-3436-7170 Fax: 81-3-3436-7180 Osaka Office Osaka Center Bldg., 4-1-3, Kyutaro-cho, Chuo-ku, Osaka 541-0056, Japan Phone: 81-6-6282-2511 Fax: 81-6-6282-2782 Kyoto R&D Laboratory 20, Igadera, Shimo-kaiinji, Nagaokakyo-shi, Kyoto 617-8510, Japan Phone: 81-75-951-5111 Fax: 81-75-957-9846 Date of Establishment May 10, 1933 Industrial Property Rights Number of patents: 2,313 (Japan) 1,481 (Overseas) Number of patents pending: 6,138 (Japan) 809 (Overseas) Number of Employees 25,395 Paid–in Capital ¥64,082 million Common Stock Authorized: 487,000,000 shares Issued: 249,109,236 shares Number of shareholders: 25,610 Stock Price Range/Trading Volume (Osaka Securities Exchange) Monthly Stock Price Range (¥) Stock Listings Osaka Securities Exchange Tokyo 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, 2002) High price=¥2,560 Low price=¥1,390 Monthly Trading Volume (shares) 4/01 5 6 7 8 9 10 11 12 1/02 2 3 Month Omron Corporation 49 3,000 2,500 2,000 1,500 1,000 500 0 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 This annual report is printed on recycled paper. Printed in Japan 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) 

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