Omron Corporation Annual Report 2003

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FY2003 Annual Report · Omron Corporation

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The Productivity to Create

Annual Report 2003
Year ended March 31, 2003

Profile

In May 2003, Omron Corporation marked its 70th year of operations. Since its

establishment, Omron has been quick to grasp social needs and turn them into

businesses. Today, Omron conducts a wide range of businesses that aim to

provide innovative solutions for industry, society and daily life.

In the fiscal year ended March 31, 2003, Omron moved ahead with its

Structural Reforms for Group Productivity to build a solid earnings infrastructure,

toward the realization of Grand Design 2010 (GD2010), Omron’s long-term Group

management vision established in May 2001. During the year to March 2004, to

further strengthen its operations, the Company will complete the Structural

Reforms for Group Productivity and enter its next stage of growth, shifting from

reform to creation.

In the future, Omron will continue to transform itself and contribute to the

development of society as a global corporation centered on the core strength of

its expertise in sensing and control technology.

Contents

Financial Highlights............................................................................ 1

To Our Shareholders ......................................................................... 2

Message from CEO Hisao Sakuta .................................................... 4

Topics for Omron’s 70th Anniversary: Evolving Venture DNA ......... 8

Omron at a Glance ............................................................................ 10

Review of Operations ........................................................................ 12

Corporate Citizenship Activities ........................................................ 17

Environmental Activities .................................................................... 18

Board of Directors, Corporate Auditors

and Corporate Officers ................................................................. 20

Financial Section................................................................................ 21

Global Network .................................................................................. 53

Investor Information........................................................................... 55

A Caution Concerning Forward-Looking Statements

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, 2003, 2002 and 2001

Millions of yen
(except per share data)

Thousands of
U.S. dollars (Note 2)
(except per share data)

2003

2002

2001

2003

For the Year:
Net Sales ....................................................................................... ¥535,073
Income (Loss) before Income Taxes, Minority Interests

¥533,964

¥594,259

$4,458,942

and Cumulative Effect of Accounting Change...........................

4,732

(25,373)

40,037

39,433

Income (Loss) before

Cumulative Effect of Accounting Change..................................
Net Income (Loss) .........................................................................

511
511

(16,157)
(15,773)

22,297
22,297

4,258
4,258

Per Share Data (yen and U.S. dollars):

Income (Loss) before

Cumulative Effect of Accounting Change

Basic................................................................................. ¥ 2.1
2.1
Diluted ..............................................................................

¥ (65.0)
(65.0)

¥ 87.4
85.3

Net Income (Loss)

Basic.................................................................................
Diluted ..............................................................................
Cash Dividends (Note 1) .........................................................

2.1
2.1
10.0

(63.5)
(63.5)
13.0

87.4
85.3
13.0

0.02
0.02

0.02
0.02
0.08

Capital Expenditures (cash basis) ................................................. ¥ 34,454
40,235
Research and Development Expenses .........................................

¥ 38,896
41,407

¥ 37,583
42,513

$ 287,117
335,292

At Year End:
Total Assets................................................................................... ¥567,399
251,610
Total Shareholders’ Equity ............................................................

¥549,366
298,234

¥593,144
325,958

$4,728,325
2,096,750

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, 2003, of ¥120=$1.

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)

(Yen)

100

Net Sales

(Billions of Yen)

600

500

400

300

200

100

1999 2000 2001 2002 2003

-25.4

-15.8

-63.5

A n n u a l R e p o r t 2 0 0 3 • 1

(Left)
Yoshio Tateisi
Chairman and
Representative Director

(Right)
Hisao Sakuta
Chief Executive Officer and
Representative Director

To Our Shareholders

The Omron Group is currently operating under Grand Design 2010 (GD2010), a long-term vision

announced in May 2001 for the Omron Group’s first decade in the 21st century. Since April 2002, we

have been carrying out Structural Reforms for Group Productivity to ensure that we achieve the goals

of GD2010. The benefits of these structural reforms began to take effect during the fiscal year ended

March 31, 2003, and contributed to a dramatic improvement in profits. In the fiscal year ending

March 2004, we will continue to execute these reforms and build a strong earnings structure to place

the Omron Group on a firm footing for growth in the years ahead.

2 • O m r o n C o r p o r a t i o n

➤ Operating Results

Backed by a worldwide recovery in production and a bottoming-out of consumption, the Industrial Automation
Company (IAB), the Electronic Components Company (ECB) and the Healthcare Company (HCB) performed well. As a
result, despite the loss of sales due to business transfers made as part of the structural reforms, consolidated net sales
for the year ended March 31, 2003 increased 0.2 percent year-on-year to ¥535.1 billion. However, challenging conditions
persisted in the Social Systems Business, reflecting a severe operating environment in the financial industry as well as a
downward trend in capital investment due to sluggish passenger revenues in the public transportation market.

Consolidated profits reflected the expansion in sales of IAB and ECB, Omron’s core businesses, as well as the cost
reductions achieved as a result of the structural reform measures that were implemented throughout the Omron Group to
raise productivity. Consequently, operating income improved considerably, totaling ¥32.3 billion, more than seven times
the level of the previous fiscal year.

Omron posted non-operating expenses that included additional retirement payments associated with the

implementation of an early retirement program as part of the structural reforms; impairment losses associated with the
sale and disposal of idle assets; and losses on the sale and impairment of securities. As a result, income before income
taxes, minority interests and cumulative effect of accounting change was ¥4.7 billion, compared with a loss of ¥25.4
billion in the previous fiscal year. Net income was ¥0.5 billion, compared with a net loss of ¥15.8 billion in the previous
fiscal year.

➤ Execution and Results of Structural Reforms

Given the deterioration of results in the previous fiscal year, we carried out structural reforms to raise productivity
across the entire Omron Group. As specific measures, we implemented an early retirement program aimed at rightsizing
our workforce; consolidated or closed operating bases and reassigned the affected businesses and employees;
accelerated the shift of production to overseas factories, particularly in China; and withdrew from low-profit and
unprofitable businesses. These initiatives are now yielding steady results, and we plan to complete them during the first
half of the current fiscal year. In addition to our efforts to build a sustainable earnings base for the future, the R&D results
from the Omron Keihanna Innovation Center, which opened in May 2003, will support long-term maximization of
corporate value, the management objective of GD2010.

➤ New Management Structure

At the 66th General Meeting of Shareholders held on June 25, 2003, and the Board of Directors meeting that
followed, Hisao Sakuta took over as chief executive officer and representative director of the Company, and Yoshio
Tateisi was appointed chairman and representative director. Under this new management structure, we aim to achieve
long-term maximization of corporate value as a truly global enterprise. In this fiscal year, Omron will shift from structural
reform to the stage of business growth, and will take numerous measures that together will transform the Company. We
look forward to sharing with you in the growth of the Omron of tomorrow.

Yoshio Tateisi
Chairman and Representative Director

Hisao Sakuta
Chief Executive Officer and Representative Director

A n n u a l R e p o r t 2 0 0 3 • 3

Message from CEO Hisao Sakuta

I assumed the position of Chief Executive Officer and

Representative Director in June 2003. I would like to take this

opportunity to explain my management stance and the

direction in which I will guide the Omron Group.

Today, the times are becoming more and more volatile. Yet

even in these circumstances, I believe Omron has the potential

to survive and develop into the next generation by further

extending the entrepreneurial spirit and the philosophy of

cultivating social needs that have characterized Omron since

its founding.

I will listen to the opinions of our shareholders and all of our

stakeholders, and diligently and boldly carry out management

with speed. I am committed to maximizing Omron’s corporate

value and leading the Omron Group’s transformation into a

truly global enterprise.

Achieving the Goals of GD2010

In May 2001, Omron began implementation of Grand Design 2010 (GD2010) to establish the

direction of the Omron Group over the next ten years. We also set the goal of achieving ROE of 10

percent by the year ending March 2005, the midway point of GD2010. I intend to maintain GD2010

as Omron’s basic policy and continue executing management to achieve long-term maximization of

the Group’s corporate value.

To do this, we will first complete the establishment of a solid earnings structure and manage

the Omron Group’s operations to ensure the achievement of 10 percent ROE in the year ending

March 2005.

4 • O m r o n C o r p o r a t i o n

Position in the Current Fiscal Year

For the year ending March 31, 2004, we will focus on establishing a strong and sustainable
earnings structure, with the objective of maximizing business strength. In the first half of the period,
we will push ahead with the VIC21 (Value-added Innovation Committee 21) Structural Reforms for
Group Productivity that are currently under way.

We initiated VIC21 because major changes in the economic environment and deterioration of
business results just after the start of GD2010 had caused us to deviate from the path to profitability
that we had originally set.

In implementing the VIC21 reforms, we have reduced our domestic workforce by 1,460 people

through an early retirement program, closed three domestic production facilities, and sold or
integrated eight businesses and ten subsidiaries. In addition to these results, by completing the
various measures we are currently implementing, we expect to nearly achieve all of the structural
reform targets necessary to reduce Group consolidated fixed and variable costs by ¥30 billion.

In the second half of the fiscal year, we will maintain our stronger earnings base, and gradually

steer our efforts toward improving our platform for growth.

Management Stance
Maximizing Group Corporate Value on a Long-Term Basis through GD2010

3/2011

1st STAGE

2nd STAGE

VIC21

3/2005 Target

3/2004 (est.)
7.5%

3/2001
6.7%

3/2000
3.5%

GD2010
Medium-Term Target
ROE 10%

3/2003
0.2%

3/2002
(5.1%)

e
u
a
V
e
t
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r
o
p
r
o
C
p
u
o
r
G

For our growth platform, our basic policy for the first two years will be to focus on linking the
existing seeds of growth, including internal companies, to businesses, rather than creating new
seeds for growth.

Toward this aim, we will accelerate the creation of a high-profit model in our core businesses.

In addition, we will position “Sensing Network Solutions” as the image of our targeted growth
businesses, and establish the Device Business and the Solutions Business as our two main
strategic areas.

A n n u a l R e p o r t 2 0 0 3 • 5

Shifting Gears toward Growth

Orientation of Growth Strategy

Our objectives for March 2005 are as follows.

Accelerating Creation of a High-Profit Business Model
for Core Businesses
“Sensing Network Solution”

Device
Business

Solutions
Business

Use our strength in
SENSING components
in the growing
NETWORK market
to shift to
SOLUTION-based
added value

Toward the Second Stage of GD2010

➤ Device Business

We will establish a profit model for Omron’s device business
targeting the fields of optical devices (optical communications,
MLA) and MEMS, so that it can be established as a full-scale
Device Business in ECB.

➤ Solutions Business

In the Solutions Business, which is centered in IAB, we will

complete our examination of the market for a high-profit
business model based on sensing components, and develop this
into a core business.

While completing VIC21 and shifting to the growth stage, we
will aim to restore ROE to 7.5% in the fiscal year ending March
31, 2004 and work to ensure achievement of our ROE target of
10% in the year ending March 31, 2005.

In the second stage, from April 2005 and beyond, our goal will be to maintain profitability while

generating growth toward 2010.

Simply stated, we will practice “corporate value management.”

➤ Corporate Value Management

For Omron, corporate value management enables generation of growth while maintaining

profitability – in other words, it is management that seeks long-term maximization of Group
corporate value.

To put corporate value management into practice, we will embrace indicators, such as cash
flow, that provide a more comprehensive understanding of the Group’s financial condition, and use
them as benchmarks for evaluation. We must also link these indicators to our day-to-day business
activities, to bring them into line. We will develop these conditions with the aim of completion in the
second stage.

In managing the Group, we will adhere to “selection and focus,” “core competence” and

“employee self-management” as the three key strategies of corporate value management.

➤ Selection and Focus

We will expedite maximization of corporate value through a strategy of selection and focus.
Omron’s businesses operate autonomously in frameworks such as the internal company
system. As exemplified by the separation of the Healthcare Company on July 1, 2003, we will
accelerate autonomous management in an even greater variety of forms in order to maximize the
value of each business.

After creating these frameworks, we will speed up the redistribution of management resources
based on careful assessment of the future value of each business to restructure them as a collection

6 • O m r o n C o r p o r a t i o n

of highly profitable businesses, which will support maximization of the Group’s corporate value. The
value assessment standards used for this redistribution will be determined in consideration of the
new business evaluation standards mentioned earlier.

➤ Core Competence

As we work to maximize the Omron Group’s corporate value, we will practice management that

turns to technology for the sources of competitive strength in our core businesses.

In GD2010, “Sensing & Control” is positioned as the core competence of the Omron Group. In the

future, we will expedite the realization of Sensing & Control to further strengthen our technologies.

I believe that superior technologies should back not only our products but also quality

management and all of our business processes. These technologies are also core competencies that
contribute to increasing corporate value.

I aspire to the type of management where our outstanding technologies are exhibited in all our

businesses, products and business processes.

➤ Employee Self-Management

What will ultimately bring about maximization of Omron’s corporate value is people. Omron’s

management has always valued people, and I will not change that.

Omron values people by providing opportunities and compensation to employees who contribute
to increasing the Group’s corporate value and who themselves aspire to grow – in other words, self-
managing individuals who can make decisions, think and act on their own. In an increasingly volatile
business environment, this quality of self-management in employees will be needed even more.

I plan to reexamine ways to create a relationship of continuous give-and-take between Omron

and its self-managing employees, including a review of our compensation system.

Through the measures outlined here, I intend to expend every effort to advance toward

maximization of Omron’s corporate value. I ask for your support and guidance.

Ideal Image of OMRON Creating a 21st century company

Mission
Contributing to the
development of society

Management
Objective
Maximizing
corporate value
on a long-term
basis

Offering maximum
satisfaction to customers

Becoming a global winner

Self-Reliant Management

Self-Reliant Business Units

Self-Reliant Individuals

Vision that requires
consistent evolution
Corporate
Transformation
Vision

Vision that needs
to be preserved

Identity Vision

Corporate Philosophy

Core Competence

Management

Vision supporting the achievement of an ideal image
Internal Business Company Vision
Industrial Business, Social Business, Lifestyle Business

A n n u a l R e p o r t 2 0 0 3 • 7

Topics for Omron’s 70th Anniversary:
Evolving Venture DNA

Omron celebrated the 70th anniversary of its founding in May 2003. While continuing to evolve original technologies

in its core competence area of sensing and control, Omron has expanded into new business areas. “To the machine,

the work of the machine; to man, the thrill of further creation” — the venture spirit manifested in this corporate

philosophy has been passed down since Omron’s inception, and helps the Company to evolve with the times.

Omron will work to meet the new social needs engendered by the network society, and to create customer value

that stays ahead of social change.

1933 ➤1952

Established through the development of a timer for
X-ray machines using proprietary technology

Kazuma Tateisi founded Tateisi Electric Manufacturing Co., which would

later become Omron Corporation. Successfully developing a timer for X-ray

Successful
commercialization of
timers for X-ray
photography in 1933

photography and a precision switch, the subsequent

establishment of the Company led to the opportunity

for development of advanced automated control

(cybernation) technology. Tateisi Electric was

incorporated after it had passed Japan Electrical

Measuring Instruments Association testing of its

current limiters, which were in demand during the fuel

shortages after World War II, and became a

designated manufacturer.

The first precision switch
made in Japan

➤1953 ➤1962

Developing businesses as a forerunner
in the new age of automation

After Kazuma Tateisi’s 1953 inspection tour of electrical

Automated passenger gate
installed at Hankyu
Kita-senri Station

➤1963 ➤1978

Successive development of numerous
“world-first” products through the cybernation revolution

Omron developed an electronic vending machine and a bill changer to display at the

1963 Tokyo International Trade Fair. Thereafter, Omron established the foundation of its

present social systems business through such feats as successful field tests of its

automatic traffic signal at the Kawaramachi-Sanjo intersection in Kyoto, introduction of

its multi-function automated ticket vending machine at the Kokutetsu (currently JR)

Kobe Station, and the joint development of automated passenger gate systems with

Kinki Nippon Railway and Kinki Sharyo Research Institute.

For the manufacturing floor, Omron launched a sequence programmer in 1968 and

an IC-based programmable controller called SYSMAC in 1972. Both products

contributed substantially to factory automation. Furthermore, the Company launched its

international business with incorporations overseas in 1970, upon the occasion of

founder Kazuma Tateisi’s announcement of

his Seed-Innovation to Need-Impetus Cyclic

factories in the United States, the Company began to bring

Evolution (SINIC) Theory, a tool for

many control components for automated systems onto the

management to make predictions regarding

market. In 1960, the Company succeeded in developing the

society’s future needs. In 1972, Omron

“dream switch,” a solid state contactless proximity switch

using transistors, and the solid state contactless relay, both

established OMRON Taiyo Co., Ltd., a joint

venture with welfare organization Japan Sun

Founder Kazuma Tateisi

of which were hailed as breakthrough, pioneering

technological innovations on a worldwide level.

In the same year, the Company established the Central

R&D Laboratory in Nagaoka, Kyoto as the foundation for

further technological development.

Industries that employs physically

challenged employees.

OMRON Taiyo Co., Ltd.

8 • O m r o n C o r p o r a t i o n

Solid state switch

The SINIC Theory, which
attracted worldwide attention

➤1979 ➤1986

Developing a dynamic business strategy as a global company

In June 1979, President Kazuma Tateisi became Chairman and Takao Tateisi became

President of Omron. The Company went on to strengthen its business foundation and its

domestic bases. These efforts included widespread introduction of computers and the creation

of a mission critical system. Furthermore,

operations at the main sensor factory in

Ayabe were strengthened, and other

production bases were expanded. Measures

to dramatically improve production

efficiency Group-wide included the adoption

of new production systems through high-

mix, low-volume automated production,

such as FIMS.

The FIMS line of controller parts

Keihanna Innovation Center (opened in May 2003)

Regional headquarters, together with the head office in Japan, divide global operations into
four areas (photographs from time of announcement).

Europe

Americas

Asia/Pacific

➤1987 ➤1989

Building a foundation for Omron’s
“Third Inauguration” in the 21st century

New president Yoshio Tateisi led Omron in accelerating

infrastructure upgrades for growth in the next century. Active

preparations for the third phase of business creation for the

21st century included the establishment of a system of two

head offices in Kyoto and Tokyo, enhancement of R&D bases

and the establishment of regional headquarters in three major

regions around the world in addition to Japan. In 1987, the

Fuzzy logic products

Company developed the world’s first super-high-speed fuzzy

logic controller, and worked to expand its fuzzy logic business.

➤1990 ➤1999

Promoting management strategies for creating
corporate value to become a 21st century company

The company name was changed to Omron Corporation. Omron put its Golden

’90s Plan into practice. This long-term vision aimed for substantial global growth

for the ten years starting in April 1990, as a “New Omron” that aimed to be a high-

quality growth company. Omron also established its fuzzy logic technology, a

company strength, and made Omron a leading name in the field through the launch

of a stream of fuzzy logic-based products.

➤2000 ➤2003

Working to maximize corporate value
on a long-term basis through GD2010

Against the backdrop of globalization and the spread of

the IT revolution, Omron announced its Grand Design 2010

(GD2010) plan outlining the ideal image of the Omron Group

in 2010. Omron worked aggressively to develop its high-

value-added device business for the broadband era and a

solutions business for industry and society, and opened a

China Headquarters with the ultimate goal of establishing a

“Second Omron” overseas.

In 2003, the 70th anniversary of its founding, Omron

completed its Keihanna Innovation Center, the focal point of

the R&D that will support the Company’s growth in the 21st

century. Through collaboration that incorporates advanced

outside technologies, Omron has polished its sensing and

control business to create new value that inspires a sense of

wonder for the emerging Optimization Society.

From Tateisi Electric to
Omron Corporation

A n n u a l R e p o r t 2 0 0 3 • 9

Omron at a Glance

Industrial Automation Company (IAB)

Electronic Components Company (ECB)

Automotive Electronic Components Company

Social Systems Solutions and
Service Business Company (SSB)

Advanced Modules Business Company (AMB)

Healthcare Company (HCB)

Others

% of Net Sales

37.8%

25.9%

21.8%

7.9%

6.6%

Note: The Automotive Electronic Components Company, formerly part of the Electronic Components Company, was reclassified as a separate internal company as of April 2003.

1 0 • O m r o n C o r p o r a t i o n

Net Sales
(Billions of Yen)

202.5

184.2

2002

2003

131.9

138.8

2002

2003

128.1

116.7

2002

2003

40.6

42.3

2002

2003

49.2

34.7

2002

2003

Main Products

Control Relays (Relays, Timers, Counters) Control Switches (Limit Switches, Micro Switches, Manipulate Switches) Control
Devices (Temperature Controllers, Power Supplies, Level Controllers, Protective Devices, Digital Power Meters, Transmission
Units, Wireless Units, Energy-Saving Devices, etc.) Sequence Control Equipment (PLCs, Industrial Networking Equipment,
Programmable Terminals, Application Software, etc.) Motion Controllers (Inverters, Servo Motors, etc.) Sensors (Photoelectric
Sensors, Proximity Sensors, Displacement Sensors, Pressure Sensors, Ultrasound Sensors, Measurement Sensors, Vision
Sensors, Visual Components, Information Sensing Equipment, etc.) Inspection Systems (Solder Paste Printing, Sheet Inspection
Systems, PCB Inspection Systems, etc.) Safety-Related Devices (Safety Relays, Door Switches, Area Sensors, Safety Mats, etc.)

ELECTRONIC COMPONENTS COMPANY: Switches (Micro Switches, Tactile Switches, Trigger Switches, DIP Switches, etc.)
Relays (General-Purpose Relays, PCB Relays) Amusement Components, Units and Systems (Sensors, Keys, IC’s, IC Coin
Systems, Game Controllers, etc.) Connectors, Sensors for Consumer, Micro Lens Alleys, Components for Printers and
Photocopiers (Toner Sensors, Counterfeit Detectors, etc.) Components for Mobile Equipment (Flash Lights For Mobile Phones
with Digital Cameras, etc.)

AUTOMOTIVE ELECTRONIC COMPONENTS COMPANY: 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.)

SOCIAL SYSTEMS SOLUTIONS AND SERVICE BUSINESS COMPANY: 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, Ticket Window Machines etc.) Traffic and Road Management
Systems (Traffic Management Systems, Vehicle Information and Communication Systems, Travel Time Measurement Systems,
Public Transportation Priority Systems, etc.) Room Access Control Systems, Face Recognition Systems

ADVANCED MODULES BUSINESS COMPANY: Bank Note Processing Systems (Bill Processing Modules, Coin Processing
Modules) Tickets Processing Systems (Ticket Conveying Modules, Ticket Issuing Modules) Video Vehicle Detectors (Silhouette
Vision Sensor, Laser Sensors) Card Reader/Writer

Healthcare Equipment (Digital Blood Pressure Monitors, Digital Thermometers, Electronic Pulse Massagers,
Chair Massagers, Pedometers, Body-Fat Analyzers, etc.) Medical Equipment (Nebulizers, Professional Digital Blood Pressure
Monitors, etc.) Health Management Services (Consultations, Health Promotion Programs, etc.)

Personal Computer Peripherals (ADSL Modems, Terminal Adapters, Backup Power Supplies, Mobile Phone Modems,
Fingerprint Authentication Units) RF-ID Tags, Speech Recognition and Voice Authentication Systems, Remote Supervisory
System, Anti-Theft System for Automobiles, Vehicle Disturbance Surveillance Device, Photo-Sticker Vending Machines,
Contents Distribution Services for Mobile Phone

A n n u a l R e p o r t 2 0 0 3 • 1 1

Digital Controller E5 R
The speed and precision of the
E5 R are among the highest in the
industry. It uses a function-based
modular structure, which speeds
delivery lead time.

Programmable Logic
Controller CJ1M
This is the industry’s smallest
programmable logic controller, and
is ideal for use in machinery such
as equipment that assembles
electronic components, food
processing equipment and
packaging equipment.

PCB Inspection System
VT-WIN II
Omron’s top PCB solder inspection
system, the VT-WIN II is equipped
with a high-resolution camera, and
features twice the inspection speed
of existing equipment. It is also
compatible with lead-free solder,
which manufacturers are
increasingly adopting as an
environmental measure.

FPD Seal Profile Sensor
Z5FP
This sensor measures the profile of
seals used to bond flat panel
displays (FPD) with both high speed
and high precision to effectively
improve manufacturing process
yields and quality.

Industrial Automation Company

➤ Business Overview

For the fiscal year ended March 31, 2003, net sales of the Industrial Automation Company (IAB) increased 10.0 percent
from the previous fiscal year to ¥202.5 billion. While overall investment in all types of machinery and equipment was weak,
sales expanded in greater China and Southeast Asia. By industry, sales to semiconductor and flat panel display (FPD)
manufacturers rebounded moderately, and sales to the automobile and food industries were firm. By application, sales
expanded in the areas of equipment safety and advanced automation of inspection.

In the domestic market, IAB reinforced strategic activities targeting specific industries and provided solutions to promote
the use of information technology (IT) among manufacturers. As a result, sales of safety-related components and sensors, FA
auto identification components, displacement sensors, vision sensors, motion control components and other products
increased substantially.

Overseas, sales in North America increased strongly, led by sales of sensing equipment. Sales in Europe were flat due to

the effect of restrained investment in the electronics and electrical equipment industries. Sales in Southeast Asia and in
greater China increased substantially as IAB strengthened direct marketing and sales channels, and increased its emphasis
on social infrastructure projects and implemented other initiatives.

➤➤ Strategies and Outlook

IAB will concentrate on maximizing customer satisfaction and adding value for component packages composed of

controllers, sensors and control systems, as well as inspection systems and service, with a focus on industries and
applications including automobiles, semiconductors, LCDs and food.

At the same time, IAB will design product platforms and launch modular products, while boosting its cost
competitiveness and profitability by continuously reducing manufacturing costs. Efforts to expand sales will focus on
measures such as strengthening global marketing tie-ups and improving regional sales channels through relationships with
sales agents and distributors. In particular, IAB aims to substantially increase profitability by raising the volume and quality of
sales activities in greater China and introducing the most suitable products for given areas. Moreover, IAB will work to
continuously increase productivity by investing in and generating returns from IT, particularly customer relationship
management (CRM).

1 2 • O m r o n C o r p o r a t i o n

➤ Business Overview

The Electronic Components Company (ECB) posted net sales of ¥138.8 billion, a year-on-year increase of 5.3 percent.

While consumer spending and capital investment declined due to the global deflationary economy, the shift of customers
overseas and the emergence of Chinese manufacturers exposed ECB to intensifying competition and price pressure.

In Japan, sales growth was strong for backlights for cellular phones and integrated circuit (IC) coin systems for the
amusement industry, both introduced in the previous fiscal year. In the consumer and commerce components business,
although sales of relays for telecommunications equipment were weak, exports of relays and switches for consumer
appliances remained firm. Sales of automotive electronic components also expanded strongly, benefiting from increased
exports and the growing importance of electronics in automobiles. ECB also formed a new marketing organization to
strengthen sales of components for mobile devices. This strategy has started to produce results, including the launch of a
new flash for cameras in cell phones.

In overseas markets, although the telecommunications equipment industry was in a downturn in North America,
Europe and Asia, sales of relays and switches for consumer appliances remained firm and sales of automotive devices
expanded strongly.

➤➤ Strategies and Outlook

Although the emergence of Chinese manufacturers is expected to lead to increased price competition, ECB will
reinforce its overseas production capabilities, and optimize its sales network and strengthen marketing capabilities to
enhance its competitiveness in China. ECB will also augment resources in key sectors such as automotive components,
amusement-related products, and optical communication devices. In addition, the planning and development divisions of
the core relay business were integrated with a manufacturing subsidiary to create a new company, Omron Relay and
Device Co., Ltd., on April 1, 2003. The new organization will enable prompt response to customer needs. It will also
integrate four overseas production facilities and unify the management of the relay business, raising its speed and
operating efficiency.

Electronic Components Company

DR-LED
Omron’s DR-LED more than
doubles the level of brightness.

LED Backlight
Achieves a high level of brightness
with low energy consumption

Optical Communications
Devices
Optical communications devices
support next-generation optical
networks, particularly access home
network fields. (Photo: optical
switches)

A n n u a l R e p o r t 2 0 0 3 • 1 3

Bill Circulation Unit EX-BH
High-performance bill handling
equipment used in applications
such as railway station ticket
vending machines

Card Reader/Writer
Applicable in all industrial fields,
including financial systems,
security systems, card issuing
machines and ID systems

Automated Teller Machine
A totally barrier-free ATM
designed for ease of use

“goopas”
Content Delivery Service
A new system that customizes and
transmits selected information
when a pass for public
transportation is passed
through a passenger gate

Social Systems Business

➤ Business Overview

The Social Systems Business posted net sales of ¥116.7 billion, a year-on-year decrease of 8.9 percent. In June 2002, this
business was divided into the Social Systems Solutions and Service Business Company (SSB), which operates the solutions and
service businesses, and the Advanced Modules Business Company (AMB), which is involved in the modules business.

Social Systems
Solutions and Service
Business Company
(SSB)

The electronic fund transfer systems sector was affected by reduced capital investment due to the overall weakness of the

financial industry. As a result, sales fell sharply.

In the public transportation systems sector, sales increased considerably as SSB obtained a major ticket vending machine

order in the Kanto region that had been deferred from the previous fiscal year.

In the traffic control and road information systems sector, despite significant demand in certain areas, sales decreased

because of reduced public works investment. Also, SSB transferred its parking systems business during the period.

➤➤ Strategies and Outlook

As markets for existing products mature, SSB will focus on customer-oriented solutions and shift its emphasis to
services. In particular, as the spreading use of IC cards and mobile devices integrates businesses such as finance, retail and
transportation, SSB will concentrate on these areas, especially the rapidly expanding sector of transportation IC cards.

➤ Business Overview

AMB generated growth in sales of electronic fund transfer systems, supported by strong demand in South Korea and
Taiwan. In the domestic market, however, sales declined sharply due to a lull in deliveries of ATMs for convenience stores,
which made a large contribution to sales in the prior fiscal year. Sales were down in the card reader business and in the
overseas public transportation systems business.

➤➤ Strategies and Outlook

AMB plans to increase sales, particularly in overseas markets, by developing products with a focus on its core module

business, collaborating with equipment manufacturers and strengthening its sales organization. In addition, AMB will
establish an earnings structure through stronger cost reduction activities by expanding production at overseas bases.

Advanced Modules
Business Company
(AMB)

1 4 • O m r o n C o r p o r a t i o n

➤ Business Overview

Healthcare Company (HCB) sales were buoyed by a moderate recovery in consumption in the early part of the fiscal year.

However, consumption slowed toward the end of the period. As a result, HCB sales increased 4.2 percent year-on-year to
¥42.3 billion.

Blood pressure monitors, thermometers and nebulizers, the core products of this division, sold well, and sales of a new
compact, low-cost massage chair expanded steadily in a brisk market. However, sales of products in other categories such
as electronic pulse massagers and pedometers declined.

By region, although sales in Japan were unchanged from the previous fiscal year, overseas sales grew strongly. Sales
increased substantially in the Asia/Oceania region, centered on Australia, and in China, where HCB expanded sales offices
and strengthened user support functions.

➤➤ Strategies and Outlook

HCB will work to expand its business by aggressively introducing new products, as well as strengthening overseas sales

channels and raising the power of its brands by marketing products that meet local market needs. Additionally, monitoring
lifestyle-related diseases is a core business domain, and HCB will develop hardware and create services in this new field.
HCB will also create a new business model that generates growth by supporting the prevention of lifestyle-related diseases.

Healthcare Company

Blood Pressure Monitor
HEM-637IT
The first in Japan with a guide for
placement on the arm when
measuring, this monitor allows
daily management of blood
pressure data on a personal
computer.

Mesh-Type Nebulizer
NE-U22
The world’s smallest and lightest
pocket-sized nebulizer, this unit
allows inhalation at any angle.

Massage Chair Pisu
HM-601
This low-priced, comfortable
reclining chair incorporates a
massage unit that gives a full-
fledged massage.

A n n u a l R e p o r t 2 0 0 3 • 1 5

Vehicle Disturbance
Surveillance Device
Carmoni 200
Using Omron’s original sound and
pressure sensor, this device
detects disturbances to a vehicle
(break-in, window breakage, hit-
and-run, etc.), uses light and sound
to startle the perpetrator, and
sends notification to the owner’s
remote control.

High-Speed VPN
Broadband Router Viaggio
MR104DV
This ultra-high-speed throughput
broadband router (maximum 92
Mbps) offers high-performance
firewall and virtual private network
(VPN) functions for solid Internet
security.

Others

➤ Business Overview

Other businesses posted net sales, including royalty income, of ¥34.7 billion, a decrease of 30 percent from the previous

fiscal year.

The Business Development Group explores and nurtures new businesses, and develops and strengthens existing
businesses that are not formally classified under other internal business companies. In addition, Omron reassessed some
businesses as part of its business structure reforms.

Among new businesses, Omron began marketing new products in the machine-to-machine business, including a tank

monitoring system and a vehicle anti-theft system, and verified their future marketability.

In existing businesses, sales of entertainment equipment declined due to factors including increased competition
resulting from the entry of other companies into the market. Sales of automated voice answering systems were negatively
impacted by restrained corporate investment due to the slump in the IT industry. Despite a decline in domestic shipments of
personal computers, sales of PC peripherals were essentially unchanged from the previous fiscal year because of Omron’s
focus on developing the market for uninterruptible power supplies. Sales of RFID tag systems were firm, reflecting growing
interest in IC tags in both manufacturing and consumer sectors.

The Creative Service Company has been engaged in the outsourcing business, mainly for administrative work. However,
after reassessing its businesses as part of the Group productivity structural reforms, Omron placed each business under the
control of the head office to increase Group productivity by focusing on internal services in specialized fields. As a result, in
March 2003, the Creative Service Company was dissolved as an internal company.

➤➤ Strategies and Outlook

The Business Development Group will explore and nurture new businesses, and will reinforce and assess existing

businesses that are not classified as part of any of the current internal companies.

1 6 • O m r o n C o r p o r a t i o n

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.

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.

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.

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.

Based on an awareness of the role forests
play in environmental preservation, “Forest
Volunteers” thin forests and prune branches.
Activities in 2002 were carried out in
cooperation with Keihokucho in Kyoto.

Science & Technology

Social Welfare

Arts & Culture

Global Environment

Striving to create
greater harmony
between people and
machines

Creating employment
opportunities for the
disabled

Enriching society by
developing arts and
culture

Omron is dedicated to helping

Omron believes strongly in the

Becoming one of the
most environmentally
conscious companies
of the 21st century

To help create a society in

physically challenged individuals

importance of culture and the arts,

Omron’s environmental

which people and machines can co-

find employment opportunities and

demonstrating its support by co-

objectives include not only meeting

exist in harmony, Omron provides

achieve independence. In 1972,

sponsoring the Omron Kyoto

the criteria for ISO 14001

assistance to researchers involved in

Omron established Omron Taiyo

Cultural Forum and organizing

certification, but also minimizing the

the development of advanced

Co., Ltd. in Beppu, Oita Prefecture

concerts and exhibitions of

environmental impact of its

technologies and helps to publicize

-- the first factory in Japan run by

traditional performing arts.

operations by developing

their findings. Through the Tateisi

physically challenged people. A

Science and Technology Foundation,

similar factory, Omron Kyoto Taiyo

Omron supports joint research and

Co., Ltd., was built in Kyoto in 1985.

technological exchange not only in

In addition, Omron sponsors events

Japan but all over the world.

such as wheelchair marathon races,

In addition, Omron is using its

art festivals and other events for

sensing and control technology to

disabled people.

contribute to causes around the

world such as landmine removal.

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.”

A n n u a l R e p o r t 2 0 0 3 • 1 7

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, 2003 are as follows:

Theme

Environmental education

Eco-Mind

Promotion of environmental awareness

Environmental accounting

Eco-Management

Pollution control/

Environmental risk management

ISO 14001 certification

Results of Activities

•Conducted training for internal environmental auditors and

environmental education for new employees (total of 3 times).

•Invited and awarded employee suggestions (592 entries submitted).
•NE-U22 nebulizer received Environmental Grand Prize.
•Expanded scope of data gathering to 24 sites: 15 domestic production

sites and 9 domestic non-production sites.

•No instances of law infringement, environmental accidents, claims or complaints.

•OMRON Field Engineering Co., Ltd. received ISO 14001 certification.
•48 sites received or maintained certification from outside audit organization.

Development and marketing of eco-products •Launched 26 Eco-Products and 21 products with the Eco label

Eco-Products

Creation of products with less or

no regulated chemical substances

Promotion of green procurement

Product recycling and reuse

Promotion of CO2 emissions reduction

Promotion of waste recycling

(cumulative total of 119 products).

•Launched 26 products for lead-free soldering.

•Evaluated 527 major domestic suppliers and certified 502 as green procurement

suppliers.

•Conducted ATM recycling in western Japan.
•Achieved recycling rate of more than 98 percent (over 1,400 units recycled).
•Reduced CO2 emissions from energy usage to 42,486 tons-CO2

(11% reduction compared to FY 1995).

•Waste recycling rate of 95.1%, final disposal rate of 2.0%.
•Zero emissions achieved at 10 domestic production sites; achieved at 12

of 15 sites to date.

Eco-Factories/

Laboratories/

Offices

Eco-Logistics

Eco-Communication

Promotion of green procurement

(indirect materials)

•Operated Strategic Linkage for Intelligent Procurement Management (SLIM) system and

promoted purchasing of green products (green product purchasing rate: 82%).

Reduction of environmental impact

in distribution

•Reduced CO2 emissions 18.6% (828 tons-CO2) from fiscal 2001 by introducing rail shipping
from Kyushu to Nagoya, and from Kyushu to Tokyo, and by adjusting distribution routes.

Promotion of resource conservation

•Implemented container returnable system at 140 key domestic distributors

in distribution

(cardboard boxes for product packing reduced 30%).

Promotion of environmental communication •Issued environmental report (10,000 in Japanese, 1,000 in English).

•Posted site reports of major production bases on Omron Web site (30 sites).
•Participated in environmental exhibitions (Lake Biwa Environmental Business Messe and

Eco-Products exhibit).

•Carried out Omron Day activities at all sites. Performed volunteer forest preservation

activities at Kyoto Office.

Note: In the year ended March 31, 2003, the unit for CO2 emission volume was changed from tons-C to tons-CO2.

1 8 • O m r o n C o r p o r a t i o n

Topics

Activities to Reduce Environmental Impact
• Reduction of CO2 Emissions from Energy Usage

To help prevent global warming, Omron sets targets each fiscal year for
reduction of carbon dioxide emissions, and takes steps to achieve them. In
the year ended March 31, 2003, the target for the total volume of CO2
emissions at domestic production sites was 45,239 tons-CO2, a 5 percent
reduction compared with the level in the year ended March 1996. The
actual result was an 11 percent reduction to 42,486 tons-CO2. Despite an
increase in production volume, CO2 emissions per unit of production
improved 10 percent from the previous fiscal year due to higher
productivity and improved yield. At overseas production sites, the total
volume of CO2 emissions was 30,236 tons-CO2.

• Wastes and Recycling

Omron’s targets for the year ended March 2003 were a recycling rate of
94.0 percent and a final disposal rate of 4.0 percent. Actual results were a
recycling rate of 95.1 percent and a final disposal rate of 2.0 percent. Total
waste volume was 3,882 tons, a 3 percent reduction from the previous
fiscal year, and the final disposal volume was 78 tons, a 60 percent
reduction. In the past fiscal year, ten more domestic production sites
achieved zero emissions, and 12 of the 15 sites have now done so.
Overseas, total waste volume was 2,964 tons.

• Reduction of Environmental Impact in Distribution

(1) Environmental protection cost: ¥2,190 million (investment ¥570

million, expenses ¥1,620 million)

(2) Economic benefits: ¥110 million (Actual benefits only, not including

intangible benefits)

(3) Quantitative benefits: CO2 emissions reduced 1,796 tons (3.5%

reduction from previous fiscal year), volume of waste reduced 219 tons
(5% reduction from previous fiscal year)

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 2003, 47 products were approved (26 Eco-
Products, 21 products with the Eco label), bringing the cumulative total to
119 products. Eco-products (including products approved for the Eco label)
accounted for 14 percent of all new products in the year ended March
2003. Omron will accelerate the creation of eco-products, aiming to raise
the eco-product ratio to 50 percent in the current fiscal year.

Green Procurement
• Purchasing Green Parts and Materials

Using green procurement standards, Omron conducted evaluations of
527 suppliers in the year ended March 2003, and certified 502 (95 percent)
of them as green suppliers. Purchases from green suppliers constitute 91
percent of Omron’s parts and material purchases. Omron plans to give
green suppliers preferential status in purchasing in the future.

Omron took steps to reduce the environmental impact of its distribution

• Purchasing Green Indirect Materials

operations in the year ended March 2003. Measures included
implementing rail shipping from Kyushu to Nagoya, and from Kyushu to
Tokyo, as well as shortening shipping distances by changing distribution
routes. As a result, total CO2 emissions were reduced 18.6 percent, or 828
tons-CO2, from the previous fiscal year. Omron also introduced a container
returnable system at 140 major domestic distributors, and consequently
reduced cardboard boxes for product packing by 30 percent (46.2 tons)
compared with the previous fiscal year.

Reduction of Regulated Chemical Substances
• Operation of Database for Regulated Chemical Substances

The content of regulated chemical substances in all major components
and materials purchased by the Company is registered in a database that
Omron began using in the year ended March 2003. In the future, Omron
will be able to use this database in product assessments at the
development and design stage to reduce the amount of regulated chemical
substances contained in products.

• Environmental Accounting

In the year ended March 2003, Omron adopted environmental accounting

at 9 domestic non-production sites, after introducing it for 15 domestic
production sites in the previous fiscal year. Results for domestic production
and non-production sites in the year ended March 2003 are as follows:

An Indirect Materials Purchasing Management System has been
adopted and put into operation at Omron Group companies in Japan to
promote purchasing of green products and reduce costs. In the year ended
March 2003, the green product purchasing rate was 82 percent. Omron
plans to enhance this system by expanding its application to include office
equipment and office furniture.

Total CO2 Emissions from Omron Factories in Japan

(t-CO2)
50,000

45,000

40,000

35,000

30,000

Domestic sites (target)
Overseas sites (actual total)

Domestic sites (actual)

CO2 emissions-to-production unit ratio

4
7
,
6
0
1

4
6
,
5
8
9

-9

4
2
,
7
4
2

-15

4
6
,
2
5
2

4
5
,
3
2
0

4
8
,
8
0
7

4
5
,
9
1
4

-18

-5

4
5
,
5
7
7

4
4
,
0
2
2

2
7
,
9
2
8

4
5
,
2
3
9

-14

4
2
,
4
8
6

3
0
,
2
3
2

(FY)

1995

1998

1999

2000

2001

2002

(%)
0

-10

-20

-30

-40

-50

Note: In addition to the above, CO2 emissions from 9 offices and laboratories totaled

9,218t-CO2 during the year ended March 31, 2003. In the year ended March 31, 2003,
the unit for CO2 emission volume was changed from tons-C to tons-CO2.

A n n u a l R e p o r t 2 0 0 3 • 1 9

Board of Directors, Corporate Auditors
and Corporate Officers

Board of Directors

Corporate Officers

Chairman and
Representative Director

Yoshio Tateisi

CEO and
Representative Director

Hisao Sakuta

Vice President and Director

Tatsuro Ichihara

Senior Managing Director

Tadao Tateisi

Directors (Non-executive)

Shozo Hashimoto

Noriyuki Inoue

Corporate Auditors

Tsutomu Ozako

Yoshisaburo Mogi

Yoshio Nakano

Hidero Chimori

Executive Vice Presidents

Shingo Akechi

Fumio Tateisi

Senior Managing Officers

Yoshifumi Kajiya

Fujio Tokita

Akihiko Otani

Soichi Yukawa

Managing Officers

Minoru Tamura

Tsukasa Yamashita

Yutaka Takigawa

Yasuhira Minagawa

Kuniyasu Kihira

Toshio Ochiai

Hiroki Toyama

Kojiro Tobita

Keizo Kadono

Hiroyuki Nishimura

Kuninori Hamaguchi

Executive Officers

Yukio Kobayashi

Yoshinobu Morishita

Takuji Yamamoto

Yoshinori Suzuki

Akio Sakumiya

Yoshio Tateisi

Hisao Sakuta

Tatsuro Ichihara

Tadao Tateisi

Shozo Hashimoto

Noriyuki Inoue

2 0 • O m r o n C o r p o r a t i o n

(As of June 25, 2003)

Financial Section

Contents

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

A n n u a l R e p o r t 2 0 0 3 • 2 1

Six-year Summary

OMRON Corporation and Subsidiaries
Years ended March 31

2003

2002

2001

2000

1999

1998

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

¥202,518
138,845
116,652
42,331
—
—
—
34,727
535,073

327,413
135,112
40,235
348
575
26,658
530,341

4,732
3,936
285

511
511

¥184,185
131,862
128,057
40,617
—
—
—
49,243
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

Basic ........................................................
Diluted .....................................................

2.1
2.1

(65.0)
(65.0)

87.4
85.3

¥ 45.0
44.5

¥ 8.3
8.3

71.4
69.8

Net Income (Loss)

Basic ........................................................
Diluted .....................................................
Cash Dividends (Note 1) ................................
Capital Expenditures (cash basis) ...................
Total Assets .......................................................
Total Shareholders’ Equity ...............................
Value Indicators:

2.1
2.1
10.0
¥ 34,454
567,399
251,610

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) .........................

38.8
0.9
0.1
0.8
0.2
4.36
900.8
0.96
1.255
23.59

(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

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

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 2002 in order for them to conform to 2003 categories. The

amounts previously reported for 2002 were: Industrial Automation, ¥186,984 million; Electronic Components, ¥128,193 million; Social Systems, ¥124,627
million. These same reclassifications could not be made to net sales amounts previously reported for 2001 and earlier because the necessary data is not
readily available.

3. Categories within net sales for 1998 reflect the categories at that time, which can not be restated to conform to present categories following reorganization.

2 2 • O m r o n C o r p o r a t i o n

Management’s Discussion and Analysis

Financial Strategy

the tax burden resulting from implementation of a new

The financial policies aimed at strengthening the earn-

factor-based standard for use in calculating the effective

ings base of Omron Corporation and the Omron Group of

tax rate, net income totaled ¥511 million, compared to a

companies include improving asset efficiency, disciplined

net loss of ¥15,773 million for the previous fiscal year.

liquidity management and efforts to raise competitive-

ness. In addition, Omron invests capital according to spe-

Sales

cific plans and keeps capital expenditures within the

Consolidated net sales increased 0.2 percent year-on-

scope of cash flow, while focusing on high-profit busi-

year to ¥535,073 million. Overall, sales in Japan

nesses to increase corporate value.

decreased year-on-year, while overseas sales increased,

General Overview

resulting in the marginal year-on-year increase in net

sales. While overall capital investment in all types of con-

During the fiscal year ended March 31, 2003, economic

trol devices, machinery and equipment remained low,

concerns in Japan due to issues such as the continuing

sales in China and Southeast Asia were higher.

problems in disposing of nonperforming loans restrained

both consumer spending and corporate capital invest-

Cost of Sales, SGA Expenses and Income

ment. The U.S economy drew support from housing

Cost of sales decreased ¥26,016 million, or 7.4 percent,

investment and consumer spending during the first half

to ¥327,413 million, reflecting Omron’s progress in reduc-

of the year, but conditions worsened in the second half

ing manufacturing costs and raising efficiency through

because of higher oil prices, a weak stock market and the

the Structural Reforms for Group Productivity. As a result,

situation in Iraq. Europe showed signs of recovery, while

gross profit increased ¥27,125 million, or 15.0 percent, to

increased exports and growth in consumer spending led

¥207,660 million. The gross profit margin was 38.8 per-

to expansion in the economies of Asia, particularly in

cent, compared to 33.8 percent for the previous fiscal

greater China.

year. Selling, general and administrative (SGA) expenses

In the markets where Omron conducts business, a

increased marginally, and represented 25.3 percent of net

recovery in production and steady consumption lent

sales, unchanged from the previous fiscal year. Research

vigor to the Industrial Automation Company, the

and development expenses decreased 2.8 percent to

Electronic Components Company and the Healthcare

¥40,235 million, and represented 7.5 percent of net sales,

Company. However, the Social Systems Business, which

compared to 7.7 percent in the previous fiscal year. R&D

includes the Social Systems Solutions and Service

is essential to the Group’s future growth, and Omron’s

Business Company and the Advanced Modules Business

policy is to maintain R&D expenses close to 7 percent of

Company, faced challenging conditions, including

net sales each year.

restrained capital investment among financial institutions

and public entities.

As a result of these factors, consolidated net sales

increased 0.2 percent compared with the previous fiscal

year to ¥535,073 million. Omron recorded non-operating

expenses including retirement payments associated with

the implementation of an early retirement program as part

of the Group’s structural reform measures, a loss associat-

ed with the sale and disposal of idle assets, and loss on

sale and impairment of investment securities. Income

before income taxes, minority interests and cumulative

effect of accounting change totaled ¥4,732 million, com-

pared to a loss before income taxes, minority interests

and cumulative effect of accounting change of ¥25,373

million for the previous fiscal year. Despite the effect of

Gross Profit Margin (%)

SGA Expenses/Net Sales and
R&D Expenses/Net Sales (%)
● SGA Expenses/Net Sales
■ (excluding R&D Expenses)
● R&D Expenses/Net Sales

34.4 35.4

36.7

33.8

38.8

24.6 24.1

22.1

25.3

7.6

6.6

7.1

7.7

7.5

1999 2000 2001 2002 2003

A n n u a l R e p o r t 2 0 0 3 • 2 3

Costs, Expenses and Income as Percentages of Net Sales

2003

2002

2001

Net sales ...................................

100.0% 100.0% 100.0%

Cost of sales .............................

Gross profit ..............................

61.2

38.8

66.2

33.8

63.3

36.7

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).....................

25.3

22.1

7.5

0.1

0.9

0.7

7.7

0.0

7.1

0.0

(4.8)

(1.8)

6.7

2.9

0.1

(3.0)

3.8

—

0.1

0.0

(3.0)

—

3.8

assessment of impairment of certain long-lived assets at

Omron and its subsidiaries, with consideration given to

future transfer, including the possibility of disposal. As a

result, certain land and buildings, which were not expect-

ed to recover their entire carrying value through future

cash flows, were written down to fair value.

Earnings per Share and
Price/Earnings Ratio (Yen/Times)
■ Earnings per Share
● Price/Earnings Ratio*

Net Income (Loss) per Employee
(Millions of Yen)

3
8

5
4
4

3
5
8

5
3
6
-

1
2

1
0

5
0

9
0

6
0
-

0
0

900.8

175.0

64.9

23.6

1999 2000 2001 2002 2003

* Not calculated in 2002 due to net loss.

Other expenses, net, decreased to ¥26,658 million from

¥27,865 million for the previous fiscal year. The primary

Despite the effect of other expenses, net, the increase in

component of this total was a charge of ¥18,968 million in

gross profit supported income before income taxes,

connection with Omron’s voluntary early retirement pro-

minority interests and cumulative effect of accounting

gram, under which participating employees received a

change of ¥4,732 million, compared to a loss before

lump sum payment in addition to the retirement benefits

income taxes of ¥25,373 million for the previous fiscal

they had earned. Management believes that the cost and

year. Net income totaled ¥511 million, compared to a net

efficiency benefits of this program will support consis-

loss of ¥15,773 million for the previous fiscal year. Basic

tently higher earnings. Loss on impairment of investment

net income per share was ¥2.1, compared to a net loss per

securities and other assets decreased substantially to

share of ¥63.5 for the previous fiscal year. After consider-

¥2,269 million from ¥17,199 million for the previous fiscal

ing performance and the Group’s capital requirements as

year. Loss on impairment of property, plant and equip-

it invests to generate profitable long-term growth, Omron

ment totaled ¥4,231 million, compared to ¥6,815 million

paid cash dividends applicable to the fiscal year totaling

for the previous fiscal year. The Group carried out an

¥10.00 per share, compared to cash dividends of ¥13.00

per share applicable to the previous fiscal year.

Income (Loss) Before Income
Taxes, Minority Interests and
Cumulative Effect of
Accounting Change/Net
Sales and Net Income (Loss)/
Net Sales (%)
● Income (Loss) Before Income
Taxes, Minority Interests and
Cumulative Effect of
Accounting Change/Net Sales

● Net Income (Loss)/Net Sales

Interest Expenses and
Interest Coverage
(Millions of Yen/Times)
■ Interest Expenses
● Interest Coverage

Review of Operations by Company

Because of divisional restructuring among companies,

prior-year net sales of internal companies have been

recalculated to present a more realistic year-on-year com-

8
1
5
,
2

7
9
8
,
1

1
3
7
,
1

1
9
2
,
1

0
3
4
,
1

parison.

26.83

23.59

Composition of Net Sales

6.7

3.8

2.1

1.5

0.4

-3.0

-4.8

0.9

0.1

14.64

5.56

4.36

2003

2002

2001

Industrial Automation .............

37.8% 34.5% 38.3%

Electronic Components ...........

Social Systems Business ........

Healthcare ................................

Others .......................................

25.9

21.8

7.9

6.6

24.7

24.0

7.6

9.2

21.8

23.9

6.6

9.4

1999 2000 2001 2002 2003

Note: The composition of net sales is based on the classifications reported in the

Six-year Summary.

2 4 • O m r o n C o r p o r a t i o n

Industrial Automation Company

Sales of the Social Systems Solutions and Service

Net sales of the Industrial Automation Company (IAB),

Business Company (SSB) decreased substantially due to

excluding intercompany transactions, increased 10.0 per-

reduced capital investment in electronic fund transfer sys-

cent from the previous fiscal year to ¥202,518 million, and

tems due to the overall weakness of the financial indus-

accounted for 37.8 percent of net sales. Overall, sales to

try. In the public transportation systems sector, sales

semiconductor and flat panel display (FPD) manufacturers

increased considerably as Omron received a major ticket

rebounded moderately, and sales to the automobile and

vending machine order in the Kanto region that had been

food industries were firm. In Japan, sales of devices used

deferred from the previous fiscal year. In the traffic con-

for safety, information sensing equipment, displacement

trol and road information systems sector, sales decreased

sensors, vision sensors, motion controllers and other

because of reduced public works investment, and Omron

products increased substantially. Sales in North America

transferred operations related to equipment sales in its

increased, led by sales of sensing equipment. Restrained

parking systems business during the period.

investment in the electronics and electrical equipment

The Advanced Modules Business Company (AMB)

industries resulted in flat sales in Europe. Sales in greater

increased sales of electronic fund transfer systems, sup-

China and Southeast Asia increased substantially as IAB

ported by solid demand in South Korea and Taiwan.

strengthened direct marketing and sales channels, and

Sales of ATMs for convenience stores in Japan, however,

increased its emphasis on social infrastructure projects.

decreased as the latest sales cycle came to an end. Sales

also declined in the card reader business and in the over-

Electronic Components Company

seas public transportation systems business.

Net sales for the Electronic Components Company

(ECB), excluding intercompany transactions, increased

Healthcare Company

5.3 percent from the previous fiscal year to ¥138,845 mil-

Net sales for the Healthcare Company (HCB), excluding

lion, and accounted for 25.9 percent of net sales. In

intercompany transactions, increased 4.2 percent from

Japan, sales of backlights for cellular phones and inte-

the previous fiscal year to ¥42,331 million, and accounted

grated circuit (IC) coin systems for the amusement indus-

for 7.9 percent of net sales. While continued consumer

try increased substantially. In the consumer and com-

frugality in Japan impacted discretionary spending, over-

merce components business, sales of relays for

all consumption recovered moderately. The introduction

telecommunications equipment were sluggish, but

of new products including a new type of massage chair,

exports of relays and switches for consumer appliances

increased distribution efficiency and support for sales

remained firm. Sales of automotive electronic compo-

outlets allowed HCB to maintain sales at the prior-year

nents expanded strongly, benefiting from increased

level. Overseas, results were firm in almost every region.

exports and the growing importance of electronics in

By region, HCB strengthened relationships with large-

automobiles. ECB also formed a new marketing organiza-

scale retail chains in the United States. In Europe, HCB

tion to strengthen sales of components for mobile

worked to construct an efficient sales system in ways

devices. In overseas markets, sales of relays and switches

including optimizing its network of sales agents. In Asia,

for consumer appliances offset slumping demand in the

HCB strengthened its efforts in the growth areas of

telecommunications equipment industry in North

Taiwan and Australia. In China, HCB added sales bases

America, Europe and Asia, and sales of automotive

and enhanced user support.

devices expanded strongly.

Others

Social Systems Business

Net sales of other divisions, excluding intercompany

Net sales for the Social Systems Business, excluding

transactions, decreased 29.5 percent from the previous

intercompany transactions, decreased 8.9 percent from

fiscal year to ¥34,727 million, and accounted for 6.6 per-

the previous fiscal year to ¥116,652 million, and account-

cent of net sales. The decrease reflected in part the exclu-

ed for 21.8 percent of net sales. On July 1, 2002, the

sion of Omron Alphatech Corporation from the scope of

Social Systems Business was divided into the Social

consolidation in the second half of the fiscal year. The

Systems Solutions and Service Business Company, which

Creative Service Company increased sales of outsourcing

is involved in the solutions and service businesses, and

services, mainly business services for corporate adminis-

the Advanced Modules Business Company, which is

trative operations. However, as part of the company-wide

involved in the module business.

structural reform program, Omron dissolved the Creative

A n n u a l R e p o r t 2 0 0 3 • 2 5

Service Company in March 2003 and reoriented its opera-

prospects. IAB, ECB and HCB generated firm results, sup-

tions to an in-company focus. The Business Development

ported by the depreciation of the yen against the euro from

Group is responsible for exploring and nurturing new

the previous fiscal year. As a result, total sales to external

businesses, as well as developing and strengthening

customers increased 12.6 percent to ¥73,513 million.

businesses that are not formally internal companies. New

businesses include a remote supervisory system for the

Asia and Other

machine-to-machine field and a vehicle anti-theft system,

The economies of Asia, particular those of greater

which are now on the market. The Business Development

China, continued to expand because of increased exports

Group will assess additional market opportunities in

and consumer spending. IAB, ECB and HCB generated

these sectors.

Increase (Decrease) in Sales of Internal Business Companies

2003

2002

2001

Industrial Automation .............

10.0% (17.9)% 11.2%

Electronic Components ...........

5.3

(1.0)

Social Systems Business ........

(8.9)

(12.2)

Healthcare ................................

4.2

Others .......................................

(29.5)

3.3

(4.2)

7.5

10.4

(7.8)

(6.0)

Note: The increase or decrease in sales for 2001 and 2002 is based on the amounts

previously reported for the respective years, prior to the reclassifications made
in the following year.

Review of Operations by Region

Japan

solid results in this environment. As a result, total sales to

external customers increased 17.4 percent year-on-year

to ¥53,099 million.

Sales by Region (%)
■ Japan
■ North America
■ Europe
■ Asia and Other

1999

2000

2001

2002

2003

69.8

71.6

71.3

67.0

63.7

10.5

13.9

5.8

10.7

11.0

6.7

10.8

10.3

7.6

12.3

12.2

8.5

12.7

13.7

9.9

The disposal of nonperforming loans continued to

Assets, Liabilities and Shareholders’ Equity

weigh on Japan’s economy. Concerns about the future

As of March 31, 2003, total assets were ¥567,399 million,

restrained personal consumption and capital expendi-

an increase of ¥18,033 million, or 3.3 percent, from March

tures, which weakened domestic demand. IAB and ECB

31, 2002. Current assets increased ¥17,615 million, or 6.3

achieved solid results during the past fiscal year. The envi-

percent, to ¥295,113 million. The return to profitability and

ronment remained challenging for SSB and AMB, as diffi-

improved cash flow resulted in an increase of ¥9,140 mil-

cult conditions in the financial markets held back capital

lion, or 12.9 percent, in cash and cash equivalents, and

investment and public-sector investment was restrained.

deferred income taxes also increased.

Omron also transferred the operations of consolidated

Net property, plant and equipment decreased ¥3,249

subsidiary Omron Alphatech Corporation as part of its

million, or 2.1 percent, to ¥149,045 million. Investment in

ongoing structural reforms, which reduced net sales. As a

machinery and equipment offset the effect of the write

result, total sales to external customers for the fiscal year

down of buildings to fair value as discussed above.

decreased 4.8 percent year-on-year to ¥340,575 million.

Investments and other assets increased ¥3,667 million,

North America

or 3.1 percent, to ¥123,241 million. An increase in deferred

income taxes offset the decrease in the market value of

During the first half of the fiscal year, the economy of

investment securities.

the United States remained the driving force of the global

The total of current liabilities, long-term liabilities and

economy with support from firm housing investment and

minority interests in subsidiaries increased ¥64,657 mil-

consumer spending. In the second half, however, weak-

lion, or 25.7 percent, to ¥315,789 million. Current liabilities

ness in the stock market and events in Iraq exerted an

increased ¥22,132 million, or 17.1 percent, to ¥151,577 mil-

unfavorable effect. In this environment, IAB, ECB and

lion, due primarily to an increase of ¥4,225 million in bank

HCB generated solid results. Total sales to external cus-

loans to ¥18,948 million and an increase of ¥10,805 million

tomers increased 3.5 percent to ¥67,886 million.

in the current portion of long-term debt to ¥11,997 million.

Europe

Working capital at the balance sheet date decreased

¥4,517 million, or 3.1 percent, to ¥143,536 million, and the

The economies of Europe showed indications of moder-

current ratio was 195 percent, compared to 214 percent a

ate recovery, along with growing concerns about future

year earlier. Long-term debt decreased by a net ¥2,481

2 6 • O m r o n C o r p o r a t i o n

million, or 5.8 percent, to ¥40,315 million, as new long-

times a year earlier. Shareholders’ equity per share was

term debt totaling ¥8,398 million offset the shift of matur-

¥1,036.01, compared to ¥1,201.23 a year earlier.

ing long-term debt to current liabilities. Interest-bearing

liabilities, defined as the sum of bank loans, the current

Cash Flow

portion of long-term debt and long-term debt, increased

Cash and cash equivalents at March 31, 2003 increased

¥12,549 million, or 21.4 percent, to ¥71,260 million.

¥9,140 million from a year earlier, or 12.9 percent, to

Termination and retirement benefits increased ¥45,363

¥79,919 million. The effect of exchange rates on cash and

million, or 60.2 percent, to ¥120,730 million.

cash equivalents was negligible.

Shareholders’ equity decreased ¥46,624 million, or 15.6

Net cash provided by operating activities increased

percent, from a year earlier to ¥251,610 million, due pri-

¥8,167 million to ¥41,854 million. The return to net prof-

marily to an increase in accumulated other comprehen-

itability was a primary factor in the year-on-year increase.

sive loss totaling ¥34,546 million that resulted primarily

Omron also generated a net ¥9,791 million in cash from

from the increase in the minimum pension liability.

changes in working capital, compared to ¥4,719 million

Accumulated other comprehensive loss includes foreign

for the previous fiscal year.

currency translation adjustments, minimum pension liabil-

Net cash used in investing activities decreased ¥9,488

ity adjustments, unrealized gains or losses on available-

million to ¥30,633 million. Net proceeds from sales or

for-sale securities and net losses on derivative instru-

maturities of short-term investments and investment

ments. Note 15 of the Notes to the Consolidated Financial

securities totaled ¥649 million, compared to net purchas-

Statements provides additional explanation.

es totaling ¥3,070 million in the previous fiscal year, or a

The ratio of shareholders’ equity to total assets was 44.3

year-on-year contribution to cash flow totaling ¥3,719 mil-

percent, compared to 54.3 percent as of March 31, 2002.

lion. Omron also reduced capital expenditures by ¥4,442

The debt/equity ratio, defined as total liabilities divided by

million, or 11.4 percent, to ¥34,454 million, reflecting

shareholders’ equity, was 1.255 times, compared to 0.842

greater selectivity in making capital commitments.

Working Capital and Current
Ratio (Millions of Yen/%)
■ Working Capital
● Current Ratio

0
1
6
,
4
6
1

7
9
7
,
9
6
1

9
8
4
,
5
4
1

3
5
0
,
8
4
1

6
3
5
,
3
4
1

195

214

215

204

179

Inventory Turnover
(Times)

Omron also generated cash totaling ¥1,450 million from

proceeds from sales of business entities.

Net cash used in financing activities decreased ¥10,060

million to ¥1,996 million. Net cash generated from external

sources totaled ¥11,307 million, consisting of net borrow-

4.56

ings of short-term bank loans totaling ¥2,909 million, and

4.18

4.44

4.25

4.36

net proceeds from long-term debt totaling ¥8,398 million.

The amount raised externally compared a total of ¥13,303

million in cash used for dividends paid by Omron totaling

¥2,855 million, and cash used to repurchase shares of

Omron Corporation totaling ¥10,218 million. Dividends

paid by Omron decreased ¥375 million, or 11.6 percent.

1999 2000 2001 2002 2003

Return on Assets (%)

Price/Book Value Ratio (Times)

Return on Tangible Fixed
Assets (%)

Return on Shareholders’
Equity (%)

14.1

7.2

1.3

6.7

3.5

0.3

0.7

0.2

6.8

2.23

3.6

1.4

0.8

1.18

1.88

1.62 1.60

-4.4

-10.1

-5.1

1999 2000 2001 2002

2003

1999 2000 2001 2002

2003

1999 2000 2001 2002

2003

1999 2000 2001 2002

2003

A n n u a l R e p o r t 2 0 0 3 • 2 7

Consolidated Balance Sheets

OMRON Corporation and Subsidiaries
March 31, 2003 and 2002

ASSETS

Current Assets:

Millions of yen

Thousands of
U.S. dollars (Note 2)

2003

2002

2003

Cash and cash equivalents............................................................................

¥ 79,919

¥ 70,779

$ 665,992

Notes and accounts receivable – trade .........................................................

113,595

114,906

Allowance for doubtful receivables................................................................

(3,484)

Inventories (Note 3)........................................................................................

Deferred income taxes (Note 11) ...................................................................

Other current assets ......................................................................................

75,446

20,139

9,498

(2,755)

74,617

13,001

6,950

946,625

(29,033)

628,717

167,825

79,149

Total Current Assets ................................................................................

295,113

277,498

2,459,275

Property, Plant and Equipment:

Land ...............................................................................................................

Buildings ........................................................................................................

46,094

99,455

Machinery and equipment .............................................................................

137,710

Construction in progress ...............................................................................

11,313

Total ...........................................................................................................

294,572

46,979

108,547

133,672

8,642

297,840

384,117

828,792

1,147,583

94,275

2,454,767

Accumulated depreciation.............................................................................

(145,527)

Net Property, Plant and Equipment........................................................

149,045

(145,546)

152,294

(1,212,725)

1,242,042

Investments and Other Assets:

Investments in and advances to associates..................................................

Investment securities (Note 4) .......................................................................

Leasehold deposits........................................................................................

Deferred income taxes (Note 11) ...................................................................

Other (Note 5) ................................................................................................

1,187

30,861

9,173

64,305

17,715

785

43,431

10,653

43,901

20,804

Total Investments and Other Assets ......................................................

123,241

119,574

Total ..................................................................................................................

¥ 567,399

¥ 549,366

9,892

257,175

76,442

535,875

147,624

1,027,008

$ 4,728,325

See notes to consolidated financial statements.

2 8 • O m r o n C o r p o r a t i o n

Millions of yen

Thousands of
U.S. dollars (Note 2)

LIABILITIES AND SHAREHOLDERS’ EQUITY

2003

2002

2003

Current Liabilities:

Bank loans (Note 6) .......................................................................................

¥ 18,948

¥ 14,723

$ 157,900

Notes and accounts payable – trade.............................................................

Accrued expenses (Note 18) .........................................................................

Income taxes payable....................................................................................

Other current liabilities (Note 11) ...................................................................

Current portion of long-term debt (Note 6)....................................................

67,773

24,394

4,095

24,370

11,997

60,000

22,748

3,832

26,950

1,192

564,775

203,283

34,125

203,084

99,975

Total Current Liabilities ...........................................................................

151,577

129,445

1,263,142

Long-Term Debt (Note 6).................................................................................

40,315

42,796

335,958

Deferred Income Taxes (Note 11) ...................................................................

643

436

5,358

Termination and Retirement Benefits (Note 8)..............................................

120,730

75,367

1,006,083

Other Long-Term Liabilities............................................................................

291

434

Minority Interests in Subsidiaries ..................................................................

2,472

2,797

20,600

Shareholders’ Equity (Note 9):

Common stock, no par value:

Authorized: 487,000,000 shares

lssued:

249,109,236 shares................................................................

Additional paid-in capital ...............................................................................

Legal reserve .................................................................................................

64,082

98,705

7,619

Retained earnings ..........................................................................................

153,134

Accumulated other comprehensive loss (Note 15)........................................

(59,909)

64,082

98,705

7,660

155,069

(25,363)

Treasury stock, at cost — 6,245,053 shares in 2003 and

836,289 shares in 2002 ....................................

(12,021)

(1,919)

Total Shareholders’ Equity ......................................................................

251,610

Total ..................................................................................................................

¥567,399

298,234

¥549,366

534,017

822,542

63,491

1,276,117

(499,242)

(100,175)

2,096,750

$4,728,325

See notes to consolidated financial statements.

A n n u a l R e p o r t 2 0 0 3 • 2 9

Consolidated Statements of Operations

OMRON Corporation and Subsidiaries
Years ended March 31, 2003, 2002 and 2001

Millions of yen

Thousands of
U.S. dollars (Note 2)

2003

2002

2001

2003

Net Sales .................................................................................................

¥535,073

¥533,964

¥594,259

$4,458,942

Costs and Expenses:

Cost of sales .........................................................................................

327,413

Selling, general and administrative expenses ......................................

135,112

Research and development expenses .................................................

40,235

Interest expense, net (Note 6)...............................................................

Foreign exchange loss, net...................................................................

348

575

353,429

134,907

41,407

223

1,506

Other expenses, net (Note 10) ..............................................................

26,658

27,865

376,194

131,203

42,513

111

1,389

2,812

2,728,442

1,125,933

335,292

2,900

4,792

222,150

Total..................................................................................................

530,341

559,337

554,222

4,419,509

4,732

3,936

(25,373)

(9,348)

40,037

17,318

(16,025)

22,719

132

422

(16,157)

22,297

384

—

39,433

32,800

6,633

2,375

4,258

—

¥ (15,773)

¥ 22,297

4,258

Yen

2002

U.S. dollars (Note 2)

2001

2003

¥(65.0)

(65.0)

(63.5)

¥87.4

85.3

87.4

85.3

$0.02

0.02

796

285

511

—

511

2003

¥2.1

2.1

Income (Loss) before Income Taxes, Minority Interests and

Cumulative Effect of Accounting Change..........................................

Income Taxes (Note 11) ..........................................................................

Income (Loss) before Minority Interests and

Cumulative Effect of Accounting Change..........................................

Minority Interests ...................................................................................

Income (Loss) before Cumulative Effect of Accounting Change.......

Cumulative Effect of Accounting Change............................................

Net Income (Loss) ..................................................................................

Per Share Data (Note 13):

Income (Loss) before Cumulative Effect of Accounting Change

Basic.................................................................................................

Diluted ..............................................................................................

Net Income (Loss)

Basic.................................................................................................

Diluted ..............................................................................................

See notes to consolidated financial statements.

3 0 • O m r o n C o r p o r a t i o n

Consolidated Statements of Comprehensive Income (Loss)

OMRON Corporation and Subsidiaries
Years ended March 31, 2003, 2002 and 2001

Net Income (Loss) ..................................................................................

511

¥(15,773)

¥22,297

4,258

Millions of yen

Thousands of
U.S. dollars (Note 2)

2003

2002

2001

2003

Other Comprehensive Income (Loss), Net of Tax (Note 15):

Foreign currency translation adjustments:

Amount arising during the year on investments

in consolidated foreign entities held at end of year ........................

(2,227)

6,310

7,286

(18,557)

Reclassification adjustment for the portion realized upon

sale or liquidation of investments in foreign entities .......................

222

—

1,856

Net change in foreign currency translation adjustments

during the year ................................................................................

(2,005)

6,310

Minimum pension liability adjustments.................................................

(27,484)

(13,973)

7,286

(7,251)

(16,701)

(229,031)

Unrealized gains (losses) on available-for-sale securities:

Unrealized holding losses arising during the year ............................

(6,400)

(7,570)

(8,532)

(53,337)

Reclassification adjustment for losses on impairment realized

in net income (loss) .........................................................................

Reclassification adjustment for net losses (gains)

on sales realized in net income (loss)..............................................

692

661

Net unrealized losses ........................................................................

(5,047)

Net gains (losses) on derivative instruments:

8,030

391

5,771

(746)

(286)

(2,072)

(10,213)

5,510

(42,056)

Net losses on derivative instruments designated as cash flow

hedges during the year ...................................................................

(788)

(1,673)

Reclassification adjustment for net losses realized

in net income (loss) .........................................................................

Net losses .........................................................................................

778

(10)

1,605

(68)

—

(6,563)

6,467

(96)

Other Comprehensive Loss...................................................................

(34,546)

(8,017)

(10,178)

(287,884)

Comprehensive Income (Loss) .............................................................

¥(34,035)

¥(23,790)

¥12,119

$(283,626)

See notes to consolidated financial statements.

A n n u a l R e p o r t 2 0 0 3 • 3 1

Consolidated Statements of Shareholders’ Equity

OMRON Corporation and Subsidiaries
Years ended March 31, 2003, 2002 and 2001

Number of
common shares
issued

Common
stock

Additional
paid-in
capital

Legal
reserve

Retained
earnings

Accumulated
other
comprehensive
income (loss)

Treasury
stock

Millions of yen

Balance, April 1, 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 ...............

Acquisition of 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 ...............

Acquisition of treasury stock ...........

Exercise of stock options.................

(15,773)

(3,227)

(8)

(8,017)

(725)

Balance, March 31, 2002 ...................

249,109,236

64,082

98,705

7,660

155,069

(25,363)

(1,919)

Net income.......................................

Cash dividends, ¥10 per share ........

Reversal of legal reserve..................

Other comprehensive loss ...............

Acquisition of treasury stock ...........

Reissuance of treasury stock (Note 9)...

(41)

511

(2,455)

(32)

(34,546)

(10,218)

116

Balance, March 31, 2003 ...................

249,109,236

¥64,082

¥98,705

¥7,619

¥153,134

¥(59,909)

¥(12,021)

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, 2002................................................ $534,017

$822,542

$63,833

$1,292,242

$(211,358) $ (15,992)

Net income ...................................................................

Cash dividends, $0.08 per share ..................................

Reversal of legal reserve...............................................

(342)

Other comprehensive loss............................................

Acquisition of treasury stock ........................................

Reissuance of treasury stock (Note 9)..........................

4,258

(20,458)

342

(267)

(287,884)

(85,150)

967

Balance, March 31, 2003................................................ $534,017

$822,542

$63,491

$1,276,117

$(499,242) $(100,175)

See notes to consolidated financial statements.

3 2 • O m r o n C o r p o r a t i o n

Consolidated Statements of Cash Flows

OMRON Corporation and Subsidiaries
Years ended March 31, 2003, 2002 and 2001

Operating Activities:

Net income (loss) .................................................................................... ¥
Adjustments to reconcile net income (loss) to net

511

¥(15,773)

¥ 22,297

4,258

Millions of yen

Thousands of
U.S. dollars (Note 2)

2003

2002

2001

2003

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 loss (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 ............................................
Net gain on sales of business entities.................................................
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 .............................................................
Proceeds from sales of business entities ...............................................
Acquisition of business entities ..............................................................
Net cash used in investing activities............................................

29,676
11
4,231

1,221
2,269
465
(1,087)
(3,915)
285
—
(1,550)

1,363
(1,918)
214
9,770
232
130
(54)
41,343
41,854

1,388
(739)
(34,454)
592
1,641
(101)
1,450
(410)
(30,633)

Financing Activities:

2,909
Net borrowings (repayments) of short-term bank loans.........................
10,358
Proceeds from issuance of long-term debt ............................................
(1,960)
Repayments of long-term debt...............................................................
(2,855)
Dividends paid by the Company ............................................................
(230)
Dividends paid to minority ......................................................................
—
Share buyback........................................................................................
(10,218)
Treasury stock ........................................................................................
—
Exercise of stock options .......................................................................
(1,996)
Net cash used in financing activities ...........................................
(85)
Effect of Exchange Rate Changes on Cash and Cash Equivalents.....
9,140
Net Increase (Decrease) in Cash and Cash Equivalents ......................
Cash and Cash Equivalents at Beginning of the Year ..........................
70,779
Cash and Cash Equivalents at End of the Year ..................................... ¥ 79,919

See notes to consolidated financial statements.

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)

5,786
13,102
(26,970)
(3,230)
(37)
—
(725)
18
(12,056)
3,648
(14,842)
85,621
¥ 70,779

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)

(1,371)
715
(1,650)
(3,337)
—
(18,338)
(749)
148
(24,582)
3,102
(3,049)
88,670
¥ 85,621

247,300
92
35,258

10,175
18,908
3,875
(9,058)
(32,625)
2,375
—
(12,917)

11,358
(15,983)
1,783
81,417
1,933
1,083
(450)
344,524
348,782

11,567
(6,158)
(287,117)
4,933
13,675
(842)
12,083
(3,416)
(255,275)

24,242
86,317
(16,333)
(23,792)
(1,916)
—
(85,150)
—
(16,632)
(708)
76,167
589,825
$ 665,992

A n n u a l R e p o r t 2 0 0 3 • 3 3

Notes to Consolidated Financial Statements

OMRON Corporation and Subsidiaries

1. Summary of
Significant
Accounting
Policies

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 busi-
ness in over 30 countries around the world and strategically manages its worldwide operations through 5 regional
management centers, Japan, North America, Europe, Asia-Pacific and China. Products, classified by type and mar-
ket, are organized into six 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 industry. 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 Solutions Business encompasses the sale of automated teller machines, card authorization ter-
minals and point of sales systems mainly for the domestic markets. Passing gates and automated ticket machines
and electronic panels and terminal displays for traffic information and monitoring purposes are also supplied for the
domestic market.

Advanced Modules Business manufactures products for the Social Systems Business, and also sells products

for certain domestic customers and overseas markets.

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, modems, terminal adapters, scanners and uninter-
rupted 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 2003 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.

The Companies’ investments in companies in which ownership is from 20% to 50% (associates) are accounted

for using the equity method.

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 report-
ed amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less, including

time deposits, commercial paper, securities purchased with resale agreements and money market instruments.

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.

3 4 • O m r o n C o r p o r a t i o n

Other investments are stated at the lower of cost or estimated net realizable value. The cost of securities sold is

determined on the average cost basis.

Inventories

Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market.

Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment has been com-
puted principally on a declining balance method based upon the estimated useful lives of the assets. The estimated
useful lives primarily range from 3 to 50 years for buildings and from 2 to 15 years for machinery and equipment.

Goodwill and Other Intangible Assets

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business
Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the pur-
chase method of accounting be used for all business combinations completed after June 30, 2001. SFAS No. 141
also specifies the types of acquired intangible assets that are required to be recognized and reported separately
from goodwill. SFAS No. 142 requires that goodwill no longer be amortized, but instead tested for impairment at
least annually. SFAS No. 142 also requires recognized intangible assets be amortized over their respective estimat-
ed useful lives and reviewed for impairment. Any recognized intangible asset determined to have an indefinite useful
life is not to be amortized, but instead tested for impairment until its life is determined to no longer be indefinite.

The Companies adopted the provision of SFAS No. 141 and SFAS No. 142 on April 1, 2002. In connection with
the transitional goodwill impairment evaluation, SFAS No. 142 required the Companies to perform an assessment of
whether there was an indication that goodwill was impaired as of the date of adoption. This initial test resulted in no
goodwill impairment charges. Other intangible assets were amortized on a straight-line basis over the expected
useful lives principally up to 5 years.

Long-Lived Assets

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets.” SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144
also changes the criteria for classifying an asset as held for sale; and broadens the scope of businesses to be dis-
posed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such
operations. The Companies adopted SFAS No. 144 on April 1, 2002. The adoption of SFAS No.144 did not have a
material impact on the operating results or financial position of the Companies.

Long-lived assets 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 undiscounted cash flows 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 exceed the fair value of the assets. Assets to be disposed of other than by sale
are considered held and used until disposed of. Assets to be disposed of by sale 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 ¥7,196 million ($59,967 thou-

sand), ¥7,931 million and ¥8,796 million for the years ended March 31, 2003, 2002 and 2001, respectively.

Shipping and Handling Charges

Shipping and handling charges were ¥7,300 million ($60,833 thousand), ¥7,342 million and ¥8,027 million for the
years ended March 31, 2003, 2002 and 2001, respectively, and are included in selling, general and administrative
expenses in the consolidated statements of operations.

Termination and Retirement Benefits

Termination and retirement benefits are accounted for in accordance with SFAS 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 amounts for directors
and corporate auditors of the Company.

A n n u a l R e p o r t 2 0 0 3 • 3 5

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.

Product Warranties

A liability for the estimated warranty related cost is established at the time revenue is recognized and is included
in other current liability. These estimates are established using historical information on the nature, frequency, and
average cost of warranty claims.

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 the 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 Companies’ 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 SFAS No. 133 and No. 138, net of the related income tax

effect resulted in a decrease to net loss of approximately ¥384 million.

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
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 exists, delivery has occurred
and title has transferred, the sales price is fixed or determinable, and collectibility is probable. These criteria are met
when products are shipped or services are performed.

Stock-Based Compensation

The Companies account for stock-based awards to employees using the intrinsic value method in accordance
with APB Opinion No. 25, “Accounting for Stock Issued to Employees,” including related interpretations, and follow
the disclosure only provision of SFAS No. 123, “Accounting for Stock Based Compensation.”

3 6 • O m r o n C o r p o r a t i o n

At March 31, 2003, the Company had a stock-based employee compensation plan, which is described more fully
in Note 9. No stock-based employee compensation cost is reflected in the results of operations, as all options
granted under those plans had an exercise price exceeding the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on net income (loss) and earnings per share if the Company
had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation.

Net income (loss), as reported.................................................
Deduct:

Total stock-based employee compensation

expense determined under fair value based
method for all awards ........................................................

Millions of yen
(except per share data)
2002
¥(15,773)

2003
¥511

2001
¥22,297

100

Pro forma net income (loss) .....................................................

¥420

¥(15,873)

¥22,219

Earnings per share (yen and U.S. dollars):

Basic – as reported ..............................................................
Basic – pro forma.................................................................
Diluted – as reported............................................................
Diluted – pro forma ..............................................................

¥ 2.1
1.7
2.1
1.7

¥ (63.5)
(63.9)
(63.5)
(63.9)

¥ 87.4
87.1
85.3
85.0

Thousands of
U.S. dollars
(except per share data)
2003
$ 4,258

758

$ 3,500

$ 0.02
0.01
0.02
0.01

New Accounting Standards

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligation,” which is effective
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. The
Companies expect that the adoption of SFAS No. 143 will not be material.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit and Disposal
Activities.” SFAS No. 146 nullifies Emerging Issues Task Force (“EITF”) Issue 94-3, “Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring).” Under EITF Issue 94-3, a liability for an exit cost is recognized at the date of an entity’s commit-
ment to an exit plan. Under SFAS No. 146, the liabilities associated with an exit or disposal activity will be mea-
sured at fair value and recognized when the liability is incurred and meets the definition of a liability in the conceptu-
al framework of the FASB. This statement is effective for exit or disposal activities initiated after December 31,
2002. The adoption of SFAS No. 146 did not have a material impact on the operating results or financial position of
the Companies.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 addresses the
disclosures to be made by a guarantor about its obligations under certain guarantees it has issued and clarifies the
accounting for such guarantees. FIN No. 45 requires the recognition of a liability by a guarantor for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN No.
45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclo-
sure requirements are effective for periods ending after December 15, 2002. The adoption of FIN No. 45 did not
have a material impact on the operating results or financial position of the Companies.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and
Disclosure,” an amendment of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148 amends
the disclosure requirements for stock-based compensation for annual periods ending after December 15, 2002 and
for interim periods beginning after December 15, 2002. The disclosure requirements apply to all companies, includ-
ing those that continue to recognize stock-based compensation under the intrinsic value provisions of APB Opinion
25. SFAS No. 148 also provides three alternative transition methods for companies that choose to adopt the fair
value measurement provisions of SFAS No. 123. The Company has adopted the pro forma disclosure requirements
of SFAS No. 148 during the year ended March 31, 2003.

In January 2003, EITF reached a final consensus on Issue 03-2, “Accounting for the Transfer to the Japanese
Government of the Substitutional Portion of Employee Pension Fund Liabilities.” EITF Issue 03-2 addresses
accounting for a transfer to the Japanese government of a substitutional portion of an Employees’ Pension Fund
plan which is a defined benefit pension plan established under the Welfare Pension Insurance Law. The Company
has not yet decided if they will apply for the transfer.

In February 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities,” which addresses the
consolidation by business enterprises of variable interest entities, which have one or both of the following charac-
teristics: (1) the equity investment at risk is not sufficient to permit the entity to finance its activities without addition-

A n n u a l R e p o r t 2 0 0 3 • 3 7

al financial support from other parties, or (2) the equity investors lack one or more of the following essential charac-
teristics of a controlling financial interest: (a) the direct or indirect ability to make decisions about the entity’s activi-
ties through voting or similar rights, (b) the obligation to absorb the expected losses of the entity if they occur, or (c)
the right to receive the expected residual returns of the entity if they occur. FIN No. 46 will have a significant effect
on existing practice because it requires existing variable interest entities to be consolidated if those entities do not
effectively disperse risks among parties involved. FIN No. 46 applies immediately to variable interest entities creat-
ed after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date.
It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which
an enterprise holds a variable interest that it acquired before February 1, 2003. FIN No. 46 may be applied prospec-
tively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued
financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year
restated. The adoption of FIN No. 46 did not have a material impact on the operating results or financial position of
the Companies.

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 ¥120 to $1, the approximate free
rate of exchange at March 31, 2003. 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

2003
¥39,264
16,608
19,574

¥75,446

2002
¥39,772
14,923
19,922

¥74,617

Thousands of
U.S. dollars
2003
$327,200
138,400
163,117

$628,717

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

readily determinable public market value, by major security type at March 31 were as follows:

2003

2002

Millions of yen

Gross
unrealized
gains

Gross
unrealized
losses

Fair
value

Cost (*)

Gross
unrealized
gains

Gross
unrealized
losses

Fair
value

Cost (*)

Available-for-sale securities:

Debt securities ............... ¥
Equity securities.............

44
27,947

Total available-for-sale

¥ — ¥ — ¥

4,000

(5,171)

44
26,776

33
31,185

¥ —
8,346

¥ — ¥

(815)

33
38,716

securities.......................... ¥27,991

¥4,000

¥(5,171) ¥26,820

¥31,218

¥8,346

¥(815) ¥38,749

Available-for-sale securities:

Debt securities ........................................................................ $
Equity securities ......................................................................

Thousands of U.S. dollars
2003

Gross
unrealized
gains

Gross
unrealized
losses

Fair
value

Cost (*)

367

—

— $

367

232,892

33,333

(43,092)

223,133

Total available-for-sale securities ............................................... $233,259

$33,333

$(43,092)

$223,500

*Cost represents amortized cost for debt securities and acquisition cost for equity securities.

3 8 • O m r o n C o r p o r a t i o n

5. Goodwill and

Other Intangible
Assets

Losses on impairment of available-for-sale securities recognized to reflect the decline in market value considered
to be other than temporary were ¥1,194 million ($9,950 thousand), ¥13,845 million and ¥674 million for the years
ended March 31, 2003, 2002 and 2001, respectively.

Net unrealized holding gains (losses) on available-for-sale securities, net of related taxes, decreased by ¥5,047
million ($42,058 thousand) and ¥286 million for the years ended March 31, 2003 and 2002, respectively. Debt secu-
rities classified as available-for-sale investment securities mature in various amounts through 2005.

Proceeds from sales of available-for-sale securities were ¥1,240 million ($10,333 thousand), ¥2,750 million and

¥9,372 million for the years ended March 31, 2003, 2002 and 2001, respectively.

Gross realized gains on sales were ¥78 million ($650 thousand), ¥1,608 million and ¥3,579 million for the years

ended March 31, 2003, 2002 and 2001, respectively.

Gross realized losses on sales were ¥1,218 million ($10,150 thousand), ¥321 million and ¥8 million for the years

ended March 31, 2003, 2002 and 2001, respectively.

The components of acquired intangible assets excluding goodwill at March 31, 2003 and 2002 were as follows:

Millions of yen

2003

2002

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

Intangible assets subject to amortization:

Software ..................................................................................

¥21,780

¥10,268

¥22,250

¥11,023

Other .......................................................................................

3,842

2,838

3,680

2,674

Total ........................................................................................

¥25,622

¥13,106

¥25,930

¥13,697

Thousands of U.S. dollars
2003

Gross
Carrying
Amount

Accumulated
Amortization

Intangible assets subject to amortization:

Software...........................................................................................................................

$181,500

$ 85,567

Other ................................................................................................................................

32,017

23,650

Total .................................................................................................................................

$213,517

$109,217

Intangible assets not subject to amortization at March 31, 2003 and 2002 were immaterial.
Aggregate amortization expense for the year ended March 31, 2003 was ¥4,544 million ($37,867 thousand).

Estimated amortization expense for the next five years ending March 31 is as follows:

Years ending March 31

Millions of yen

2004 .....................................................................................................................

¥4,095

2005 .....................................................................................................................

2006 .....................................................................................................................

2007 .....................................................................................................................

2008 .....................................................................................................................

3,473

2,853

1,525

486

Thousands of
U.S. dollars

$34,125

28,942

23,775

12,708

4,050

The carrying amount of goodwill at March 31, 2003 and 2002 and its movement for the year ended March 31,

2003 were immaterial.

A n n u a l R e p o r t 2 0 0 3 • 3 9

6. Bank Loans and

The weighted average annual interest rates of short-term bank loans at March 31, 2003 and 2002 were 1.2% and

Long-Term
Debt

1.7%, respectively.

Long-term debt at March 31 consisted of the following:

Millions of yen

2003

2002

Thousands of
U.S. dollars
2003

Unsecured debt:

Convertible bonds at 1.7%, due in 2004.....................................................

¥29,735

$247,792

Loans from banks and other financial institutions,

generally at 0.4% to 3.8%, due serially through 2006 ..................................
Other................................................................................................................

Total.............................................................................................................
Less portion due within one year ....................................................................

21,802
775

52,312
11,997

12,541
1,712

43,988
1,192

181,683
6,458

435,933
99,975

Long-term debt, less current portion ..............................................................

¥40,315

¥42,796

$335,958

The annual maturities of long-term debt outstanding at March 31, 2003 were as follows:

Years ending March 31

Millions of yen

2004 .....................................................................................................................

¥11,997

2005 .....................................................................................................................

2006 .....................................................................................................................

30,235

10,080

Thousands of
U.S. dollars

$ 99,975

251,958

84,000

Total .....................................................................................................................

¥52,312

$435,933

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 became redeemable, in whole or in part, beginning October 1997 at 106% of face value, decreasing 1% per
year. At March 31, 2003 the convertible bonds were redeemable, in whole or in part, at 101%.

The number of contingently issuable shares of common stock related to the convertible bonds as of March 31,
2003 was 10,026,639 shares. The conversion price per share at March 31, 2003 was ¥2,965 ($24.71), 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, 2003, 2002 and 2001 amount-

ed to ¥1,430 million ($11,917 thousand), ¥1,291 million and ¥1,731 million, respectively.

7. 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, 2003, future
minimum rental payments applicable to non-cancelable leases having initial or remaining non-cancelable lease
terms in excess of one year were as follows:

Years ending March 31

Millions of yen

2004 .....................................................................................................................

¥ 2,686

2005 .....................................................................................................................

2006 .....................................................................................................................

2007 .....................................................................................................................

2008 .....................................................................................................................

2,461

2,217

2,088

1,928

2009 and thereafter..............................................................................................

17,163

Total .....................................................................................................................

¥28,543

Thousands of
U.S. dollars

$ 22,383

20,508

18,475

17,400

16,067

143,025

$237,858

Rental expense amounted to ¥12,818 million ($106,817 thousand), ¥11,322 million and ¥11,232 million for the

years ended March 31, 2003, 2002 and 2001, respectively.

4 0 • O m r o n C o r p o r a t i o n

8. Termination and

Retirement
Benefits

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.

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

2003

2002

Change in benefit obligation:

Benefit obligation at beginning of year........................................................ ¥ 232,178
9,611
Service cost, less employees’ contributions ...............................................
5,804
Interest cost.................................................................................................
942
Employees’ contributions ............................................................................
—
Plan amendments........................................................................................
13,340
Actuarial losses............................................................................................
(8,829)
Benefits paid ...............................................................................................
(4,668)
Settlement paid ...........................................................................................

¥205,907
8,401
6,042
1,053
(4,504)
20,138
(3,590)
(1,269)

Thousands of
U.S. dollars
2003

$1,934,817
80,092
48,367
7,850
—
111,167
(73,575)
(38,900)

Benefit obligation at end of year.............................................................. ¥ 248,378

¥232,178

$2,069,818

Change in plan assets:

Fair value of plan assets at beginning of year .............................................
Actual return on plan assets ........................................................................
Employers’ contributions.............................................................................
Employees’ contributions ............................................................................
Benefits paid................................................................................................

119,487
(17,608)
6,233
942
(3,743)

121,875
(7,974)
6,922
1,053
(2,389)

995,725
(146,733)
51,942
7,850
(31,192)

Fair value of plan assets at end of year ................................................... ¥ 105,311

¥119,487

$ 877,592

Funded status..................................................................................................
Unrecognized net actuarial loss ......................................................................
Unrecognized prior service credit ...................................................................
Unrecognized transition obligation..................................................................

(143,067)
113,301
(3,904)
268

(112,691)
81,051
(4,204)
538

(1,192,226)
944,175
(32,532)
2,233

Net amount recognized ........................................................................... ¥ (33,402)

¥ (35,306) $ (278,350)

Amounts recognized in the consolidated balance sheets:

Accrued liability ........................................................................................... ¥(117,382)
83,980
Accumulated other comprehensive loss (gross of tax) ...............................

¥ (71,899) $ (978,183)
699,833

36,593

Net amount recognized ........................................................................... ¥ (33,402)

¥ (35,306) $ (278,350)

Accumulated benefit obligation at end of year........................................... ¥ 222,693

¥191,386

$1,855,775

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.

A n n u a l R e p o r t 2 0 0 3 • 4 1

Key assumptions utilized in calculating the actuarial present value of benefit obligations are as follows:

Discount rate ................................................................................................................ 2.0%
Compensation increase rate ........................................................................................ 2.0
Expected long-term rate of return on plan assets ....................................................... 3.0

2003

2002
2.5%
3.0
4.0

2001
3.0%
3.0
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.................................................................................................

2003
¥ 9,611
5,804
(4,072)
2,742

¥14,085

Millions of yen

Thousands of
U.S. dollars
2003
$ 80,092
48,367
(33,933)
22,850

2002
¥ 8,401
6,042
(5,010)
1,681

¥11,114

$117,376

9. Shareholders’

Equity

Some part of the employees of European subsidiaries are covered by a defined benefit pension plan. The project-
ed benefit obligations for the plan and related fair value of plan assets were ¥1,315 million ($10,958 thousand) and
¥887 million ($7,392 thousand), respectively, at March 31, 2003 and ¥1,176 million and ¥793 million, respectively, at
March 31, 2002.

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
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.

Sum of the consolidated liability for the termination plans other than the funded contributory termination and
retirement plan in Japan, as of March 31, 2003 and 2002 was ¥3,348 million ($27,900 thousand) and ¥3,468 million,
respectively. The consolidated expense for the noncontributory termination and retirement plans for the years
ended March 31, 2003, 2002 and 2001 was ¥890 million ($7,417 thousand), ¥2,385 million and ¥1,015 million,
respectively.

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 resulting 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 applic-
able 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 resolution 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
dividing 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 res-
olution 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 divi-
dends are applicable. Semiannual interim dividends may also be paid upon resolution of the Board of Directors,
subject to certain limitations imposed by the Code.

4 2 • O m r o n C o r p o r a t i o n

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, 2003, retained earnings amounting
to ¥36,472 million ($303,933 thousand) were available for future dividends subject to legal reserve requirements.

The Company acquired the minority interests of certain domestic subsidiaries in exchange for the Company’s
common stock previously held in its treasury. For the year ended March 31, 2003, the Company reissued 52,275
shares of treasury stock to acquire minority interests with book values and fair values of ¥84 million ($700 thou-
sand). These transactions resulted in a combined loss on reissuance of treasury stock of ¥32 million ($267 thou-
sand), representing the aggregate difference between the cost of shares repurchased and the fair market value of
shares reissued on the effective date of acquisition. The loss was charged directly to retained earnings.

Stock Options

The Company has authorized the grant of options to purchase common stock of the Company to certain direc-
tors and officers of the Company under a fixed stock option plan. All of the authorized shares available for grant
have been granted.

Under the above plan, the exercise price of each option exceeded the market price of the Company’s common
stock on the date of grant and the options expire 5 years after the date of the grant. Generally, options become fully
vested and exercisable after 3 years. A summary of the Company’s fixed stock option plan activity and related
information is as follows:

Fixed options

Weighted-average
exercise price

Yen

Weighted-average
fair value of options
granted during the year

Options outstanding at April 1, 2000................................................. 307,000
Granted.......................................................................................... 260,000
(64,000)
Exercised .......................................................................................
(5,000)
Forfeited ........................................................................................

Options outstanding at March 31, 2001............................................ 498,000
Granted.......................................................................................... 292,000
(10,000)
Exercised .......................................................................................
(85,000)
Expired...........................................................................................

Options outstanding at March 31, 2002............................................ 695,000
Granted.......................................................................................... 276,000

¥1,995
2,936
2,161
1,839

2,467
2,306
1,839
2,161

2,446
1,913

Options outstanding at March 31, 2003............................................ 971,000

¥2,294

¥424

325

285

U.S. dollars

Weighted-average
exercise price

Weighted-average
fair value of options
granted during the year

Options outstanding at March 31, 2002 ..............................................................
Granted ............................................................................................................

Options outstanding at March 31, 2003 ..............................................................

$20.4
15.9

$19.1

85,000
Options exercisable at March 31, 2001 ...................................................................
Options exercisable at March 31, 2002 ................................................................... 143,000
Options exercisable at March 31, 2003 ................................................................... 403,000

$2.4

Yen

Weighted-average
exercise price

¥2,161
¥1,839
¥2,547

U.S. dollars

Weighted-average
exercise price

Options exercisable at March 31, 2003............................................................................................

$21.2

A n n u a l R e p o r t 2 0 0 3 • 4 3

The following summarizes information about fixed stock options at March 31, 2003:

Yen

Range of
exercise prices

¥1,839
2,936
2,306
1,913

¥1,839 to ¥2,936

U.S. dollars

Range of
exercise prices

$15.3
24.5
19.2
15.9

$15.3 to $24.5

Options outstanding

Yen

Weighted-average
remaining
contractual life

Weighted-average
exercise price

1.25 years
2.25 years
3.25 years
4.25 years

2.97 years

¥1,839
2,936
2,306
1,913

¥2,294

143,000
260,000
292,000
276,000

971,000

Options exercisable

Yen

143,000
260,000
—
—

403,000

Weighted-average
exercise price

¥1,839
2,936
—
—

¥2,547

Options outstanding

Options exercisable

U.S. dollars

143,000
260,000
292,000
276,000

971,000

Weighted-average
remaining
contractual life

Weighted-average
exercise price

1.25 years
2.25 years
3.25 years
4.25 years

2.97 years

$15.3
24.5
19.2
15.9

$19.1

143,000
260,000
—
—

403,000

Weighted-average
exercise price

$15.3
24.5
—
—

$21.2

The fair value of each option grant was estimated as of the grant date using the Black-Scholes option-pricing

model with the following assumptions:

Risk-free interest rate .......................................................................................
Volatility ...........................................................................................................
Dividend yield ...................................................................................................
Expected life ..................................................................................................... 3.5 years

0.271%
25.0
0.559

0.560%
20.0
0.576
3.5 years

0.650%
20.0
0.451
3.5 years

2003

2002

2001

The Black-Scholes option valuation model used by the Company was developed for use in estimating the fair
value of fully tradable options, which have no vesting restrictions and are fully transferable. In addition, option valu-
ation models require the input of highly subjective assumptions including the expected stock price volatility. It is
management’s opinion that the Company’s stock options have characteristics significantly different from those of
traded options and because changes in the subjective input assumptions can materially affect the fair value esti-
mate, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

Other expenses (income), net for the years ended March 31, 2003, 2002 and 2001 consisted of the following:

Loss on relocation ...........................................................
Loss on impairment of investment

2003
¥ —

Millions of yen
2002
¥ —

2001
¥ 2,312

Thousands of
U.S. dollars
2003

—

securities and other assets............................................

2,269

17,199

2,460

18,908

Net loss (gain) on sales and disposals of

property, plant and equipment,
excluding loss on relocation ..........................................

Loss on impairment of

property, plant and equipment ......................................

4,231

Net loss (gain) on sales of short-term investments

and investment securities..............................................
Net gain on sales of business entities .............................
Voluntary early retirement program .................................
Other, net.........................................................................

1,221
(1,550)
18,968
1,508

1,314

6,815

(1,008)
—
—
3,545

(43)

—

(3,703)
—
—
1,786

35,258

10,175
(12,917)
158,067
12,567

Total .............................................................................

¥26,658

¥27,865

¥ 2,812

$222,150

10. Other

Expenses, net

4 4 • O m r o n C o r p o r a t i o n

During the year ended March 31, 2001 the Company recognized a net loss of ¥2,312 million ($19,267 thousand) as

a result of an office relocation plan, primarily consisting of the relocation of the headquarters within Kyoto, Japan.

In 2003 and 2002, the Companies assessed the potential impairment of certain long-lived assets in consideration
of future alternate uses, including disposal by sale. As a result, certain land and buildings, principally laboratories in
2003 and dormitories for employees in 2002, 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 ¥4,231 million ($35,258 thousand) and ¥6,815 million for the years
ended March 31, 2003 and 2002, respectively. There was no such loss for the year ended March 31, 2001.

During the year ended March 31, 2003 the Company and most domestic subsidiaries implemented a voluntary
early retirement program to all employees fulfilling certain conditions such as age and duration of employment.
Employees accepting this offer received an additional lump sum payment, along with their previously earned retire-
ment benefits. The resulting expenses in connection with this program were ¥18,968 million ($158,067 thousand) for
the year ended March 31, 2003.

11. Income Taxes

The provision for income taxes for the years ended March 31, 2003, 2002 and 2001 consisted of the following:

Current income tax expense ...........................................
Deferred income tax benefit, exclusive of the following....
Change in the beginning of the year balance of

2003
¥ 7,851
(5,600)

Millions of yen
2002
¥ 6,783
(17,679)

2001
¥22,720
(5,367)

Thousands of
U.S. dollars
2003
$ 65,425
(46,667)

the valuation allowance for deferred tax assets ............

136

1,548

Adjustments of deferred tax assets and liabilities

for enacted changes in tax rates ...................................

Total .............................................................................

1,549

¥ 3,936

(35)

—

1,134

12,908

—

¥ (9,348)

¥17,318

$ 32,800

The effective income tax rates of the Companies differ from the normal Japanese statutory rates as follows for

the years ended March 31:

Normal Japanese statutory rates .............................................................................
Increase (decrease) in taxes resulting from:

2003
42.0%

2002
(42.0)%

2001
42.0%

Permanently non-deductible items ......................................................................
Losses of subsidiaries for which no tax benefit was provided.............................
Tax loss on sale of subsidiary ..............................................................................
Difference in subsidiaries’ tax rates......................................................................
Change in the beginning of the year balance of

the valuation allowance for deferred tax assets .................................................
Effects of enacted change in tax rates .................................................................
Other, net..............................................................................................................

7.7
38.7
(33.0)
(14.9)

2.9
32.7
7.1

1.9
3.3
—
(1.3)

0.4
—
0.9

2.4
2.6
—
(2.5)

(0.1)
—
(1.1)

Effective tax rates .............................................................................................

83.2%

(36.8)%

43.3%

The Company and its domestic subsidiaries are subject to a number of taxes based on income, which in the

aggregate resulted in a normal tax rate of approximately 42.0% in 2003, 2002 and 2001.

An amendment to Japanese tax regulations was enacted into law on March 31, 2003. As a result of this amend-
ment, the normal income tax rate was reduced from 42.0% to 41.0% effective April 1, 2004. Deferred income tax
assets and liabilities as of March 31, 2003 were measured at both tax rates considering the period the deferred tax
asset or liability will be realized. The effect on the provision for income taxes was a ¥1,549 million ($12,908 thou-
sand) increase for the year ended March 31, 2003.

A n n u a l R e p o r t 2 0 0 3 • 4 5

The approximate effect of temporary differences and tax credit and loss carryforwards that gave rise to deferred

tax balances at March 31, 2003 and 2002 were as follows:

Millions of yen

2003

2002

Thousands of U.S. dollars
2003

Inventory valuation .......................................
Accrued bonuses and vacations ..................
Termination and retirement benefits ............
Enterprise taxes............................................
Intercompany profits ....................................
Marketable securities ...................................
Property, plant and equipment.....................
Allowance for doubtful receivables ..............
Gain on sale of land......................................
Minimum pension liability adjustment ..........
Other temporary differences ........................
Tax credit carryforwards ..............................
Operating loss carryforwards .......................

Deferred
tax
assets
¥ 3,761
4,682
12,319
150
2,547
480
2,369
2,531
—
34,431
10,827
4,124
16,226

Deferred
tax
assets

Deferred
tax
liabilities
¥ — ¥ 3,521
3,492
12,912
164
2,540
—
2,789
2,711
—
15,369
11,871
3,689
12,961

—
—
—
—
—
—
99
1,050
—
1,792
—
—

Subtotal ........................................................
Valuation allowance......................................

94,447
(8,348)

2,941
—

72,019
(9,574)

Deferred
tax
liabilities
¥ —
—
—
—
—
3,164
—
180
1,311
—
1,639
—
—

6,294
—

Deferred
tax
assets
$ 31,342
39,017
102,658
1,250
21,225
4,000
19,742
21,092
—
286,925
90,225
34,367
135,217

787,060
(69,567)

Deferred
tax
liabilities
$ —
—
—
—
—
—
—
825
8,750
—
14,933
—
—

24,508
—

Total ......................................................

¥86,099

¥2,941

¥62,445

¥6,294

$717,493

$24,508

The total valuation allowance decreased by ¥1,226 million ($10,217 thousand) in 2003 and increased by ¥1,779

million and ¥1,310 million in 2002 and 2001, respectively.

As of March 31, 2003, the Company and certain subsidiaries had operating loss carryforwards approximating
¥40,408 million ($336,733 thousand) available for reduction of future taxable income, the majority of which expire in
2008.

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
¥62,094 million ($517,450 thousand) and ¥53,928 million at March 31, 2003 and 2002, 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.

12. Foreign

Net sales and total assets of foreign subsidiaries for the years ended March 31, 2003, 2002 and 2001 were as

Operations

follows:

Net sales ............................................................................ ¥194,498
Total assets ........................................................................ ¥158,300

2003

Millions of yen

2002
¥176,096
¥146,734

2001
¥170,434
¥141,966

Thousands of
U.S. dollars
2003
$1,620,817
$1,319,167

13. Per Share Data

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 compu-

tations is as follows:

Millions of yen

2003

2002

2001

Thousands of
U.S. dollars
2003

Income (loss) before cumulative

effect of accounting change ............................................

¥511

¥(16,157)

¥22,297

$4,258

Effect of dilutive securities:

Convertible bonds, due 2004 .....................................

Diluted net income (loss) ................................................

—

¥511

—

325

—

¥(16,157)

¥22,622

$4,258

4 6 • O m r o n C o r p o r a t i o n

Net income (loss)................................................................
Effect of dilutive securities:

Convertible bonds, due 2004 .....................................

Diluted net income (loss) ................................................

2003
¥511

—

¥511

2003

Weighted average common shares outstanding ................. 247,336,015
Dilutive effect of:

Convertible bonds, due 2004 .......................................
Stock options................................................................

—
—

Millions of yen

2002
¥(15,773)

2001
¥22,297

Thousands of
U.S. dollars
2003
$4,258

—

325

—

¥(15,773)

¥22,622

$4,258

Number of shares
2002
248,401,803

2001
255,031,698

—
—

10,026,639
62,449

Diluted common shares outstanding ............................... 247,336,015

248,401,803

265,120,786

For the years ended March 31, 2003 and 2002, the assumed conversion of convertible bonds, giving effect to the
incremental shares and the adjustment to reduce interest expenses, was anti-dilutive and has, therefore, been
excluded from the computation.

For the years ended March 31, 2003 and 2002, the assumed exercise of stock options, giving effect to the incre-

mental shares, was anti-dilutive and has been excluded from the computation.

Supplemental cash flow information for the years ended March 31, 2003, 2002 and 2001 was as follows:

Interest paid .......................................................................
Income taxes paid..............................................................
Non-cash investing and financing activities:

Liabilities assumed in connection

2003
¥1,431
7,588

Millions of yen
2002
¥ 1,264
17,748

2001
¥ 1,765
19,257

Thousands of
U.S. dollars
2003
$11,925
63,233

14. Supplemental

Information for
Cash Flows

15. Other

Comprehensive
Income (Loss)

with capital expenditures .............................................

1,320

1,516

1,803

11,000

Fair value of minority interests acquired

by the reissuance of treasury stock .............................

—

700

The change in each component of accumulated other comprehensive income (loss) for the years ended March

31, 2003, 2002 and 2001 was as follows:

Millions of yen

2003

2002

2001

Thousands of
U.S. dollars
2003

Foreign currency translation adjustments:

Beginning balance.......................................................... ¥ (7,402)
(2,005)
Change for the year........................................................

Ending balance...............................................................

(9,407)

Minimum pension liability adjustments:

Beginning balance..........................................................
Change for the year........................................................

Ending balance...............................................................

Unrealized gains (losses) on available-for-sale securities:
Beginning balance..........................................................
Change for the year........................................................

Ending balance...............................................................

(21,224)
(27,484)

(48,708)

3,331
(5,047)

(1,716)

Net losses on derivative instruments:

Beginning balance..........................................................
Change for the year........................................................

Ending balance...............................................................

(68)
(10)

(78)

Total accumulated other comprehensive loss:

¥(13,712)
6,310

(7,402)

(7,251)
(13,973)

(21,224)

3,617
(286)

3,331

—
(68)

(68)

¥(20,998)
7,286

(13,712)

$ (61,682)
(16,701)

(78,383)

—
(7,251)

(7,251)

13,830
(10,213)

3,617

—
—

—

(176,867)
(229,031)

(405,898)

27,758
(42,056)

(14,298)

(567)
(96)

(663)

Beginning balance..........................................................
Change for the year........................................................

(25,363)
(34,546)

(17,346)
(8,017)

(7,168)
(10,178)

(211,358)
(287,884)

Ending balance............................................................... ¥(59,909)

¥(25,363)

¥(17,346)

$(499,242)

A n n u a l R e p o r t 2 0 0 3 • 4 7

Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended March

31, 2003, 2002 and 2001 were as follows:

2003

Tax
(expense)
benefit

Before-tax
amount

Millions of yen
2002

Net-of-tax
amount

Before-tax
amount

Tax
(expense)
benefit

Net-of-tax Before-tax

amount

2001

Tax
(expense)
benefit

Net-of-tax
amount

Foreign currency translation adjustments:

Amount arising during the year on

investments in consolidated foreign entities
held at end of year............................................ ¥ (2,227) ¥ — ¥ (2,227) ¥ 6,310 ¥

— ¥ 6,310 ¥ 7,286 ¥ — ¥ 7,286

Reclassification adjustment for the portion

realized upon sale or liquidation of
investments in foreign entities ........................

222

Net change in foreign currency translation

adjustments during the year ...........................

(2,005)

—

222

—

(2,005)

6,310

— 6,310

7,286

—

Minimum pension liability adjustments ............

(47,387)

19,903

(27,484)

(24,091)

10,118 (13,973)

(12,502)

5,251

—

7,286

(7,251)

Unrealized gains (losses) on
available-for-sale securities:

Unrealized holding gains (losses) arising

during period...................................................

(11,036)

4,636

(6,400)

(13,052)

5,482

(7,570)

(14,711)

6,179

(8,532)

Reclassification adjustment for losses on

impairment realized in net income (loss).........

1,194

(502)

692

13,845

(5,815)

8,030

674

(283)

391

Reclassification adjustment for

net losses (gains) on sales realized in
net income (loss) .............................................

1,140

(479)

661

(1,287)

Net unrealized losses........................................

(8,702)

3,655

(5,047)

(494)

541

208

(746)

(3,571)

(286)

(17,608)

1,499

7,395

(2,072)

(10,213)

Net gains (losses) on derivative instruments:

Net losses on derivative instruments
designated as cash flow hedges
during the year ................................................

Reclassification adjustment for net losses

(1,358)

570

(788)

(2,884)

1,211

(1,673)

realized in net loss ..........................................

1,340

(562)

Net losses .........................................................

(18)

778

(10)

2,767

(1,162)

1,605

(117)

(68)

—

Other comprehensive loss ............................ ¥(58,112) ¥23,566 ¥(34,546) ¥(18,392) ¥10,375 ¥(8,017) ¥(22,824) ¥12,646 ¥(10,178)

Thousands of U.S. dollars
2003

Before-tax
amount

Tax (expense)
benefit

Net-of-tax
amount

Foreign currency translation adjustments:

Amount arising during the year on investments in consolidated

foreign entities held at end of year...............................................................................................

$ (18,557)

Reclassification adjustment for the portion realized upon sale or liquidation of

investments in foreign entities .....................................................................................................

Net change in foreign currency translation adjustments during the year ......................................

1,856

(16,701)

—

Minimum pension liability adjustments .........................................................................................

(394,881)

165,850

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 losses (gains) on sales realized in net income (loss) .............

Net unrealized 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 ......................................................................................................................................

(91,963)
9,950
9,500

(72,513)

(11,315)
11,149

(166)

38,626
(4,179)
(3,990)

30,457

4,752
(4,682)

$ (18,557)

1,856

(16,701)

(229,031)

(53,337)
5,771
5,510

(42,056)

(6,563)
6,467

(96)

Other comprehensive loss .........................................................................................................

$(484,261)

$196,377

$(287,884)

4 8 • O m r o n C o r p o r a t i o n

16. Financial

Financial Instruments

Instruments
and Risk
Management

The following table presents the carrying amounts and estimated fair values as of March 31, 2003 and 2002, of

the Companies’ financial instruments.

Millions of yen

2003

2002

Thousands of
U.S. dollars
2003

Carrying
amount

Fair
value

Carrying
amount

Fair
value

Carrying
amount

Fair
value

Nonderivatives:

Long-term debt, including current portion .... ¥(52,312) ¥(53,669)

¥(43,988)

¥(46,307) $(435,933) $(447,242)

Derivatives:

Included in Other current liabilities:

Forward exchange contracts .................
Foreign currency options .......................
Interest rate swaps.................................

(198)
—
—

(540)
(65)
(15)

(1,650)
—
—

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 similar
instruments. Certain equity securities included in investments have no readily determinable public market value,
and it is not practicable to estimate their fair values.

(3) Long-term debt:

For convertible bonds, the fair values are estimated based on quoted market prices. For other debt, the fair val-
ues 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 at March 31, 2003 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 ¥788 million ($6,563 thousand ) and ¥1,673 million for the years ended March
31, 2003 and 2002, respectively. 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 ¥778 million ($6,467 thousand ) and ¥1,605 million for the years ended March 31, 2003
and 2002, respectively. The amount of the hedging ineffectiveness is not material for the years ended March 31,
2003 and 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-

A n n u a l R e p o r t 2 0 0 3 • 4 9

terparty fails to meet the terms of an interest rate swap agreement, the Companies’ exposure is limited to the
interest rate differential. Management considers the exposure to credit risk to be minimal since the counterpar-
ties are major financial institutions.

At March 31, 2002, the notional amounts on which the Companies had interest rate swap agreements out-
standing aggregated ¥2,500 million. The estimated fair values of interest rate swap contracts are based on pre-
sent 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,

2003 and 2002 were as follows:

Forward exchange contracts ...................................................................
Foreign currency options .........................................................................

Millions of yen

2003
¥24,326
—

2002
¥16,328
8,049

Thousands of
U.S. dollars
2003
$202,717
—

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 currency exchange rates in
effect on the balance sheet date. The effects of changes in currency exchange rates are reported in earnings
and included in Foreign exchange loss, net in the consolidated statements of operations. Currency forward con-
tracts 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 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, which includes the Company’s
chairman and representative director, representative director and chief executive officer, and certain managing offi-
cers at that time. This lease agreement has an initial non-cancelable lease term of 20 years and requires a monthly
rental payment of ¥106 million ($883 thousand) and a security deposit of ¥2,600 million ($21,667 thousand) which is
refundable when the agreement expires. During the years ended March 31, 2003, 2002 and 2001, the Company
paid ¥1,272 million ($10,600 thousand), ¥1,272 million and ¥954 million, respectively, for rentals and the balance of
the security deposit at March 31, 2003 and 2002 was ¥2,600 million ($21,667 thousand).

The Company has commitments at March 31, 2003 of approximately ¥3,170 million ($26,417 thousand) related to

contracts for the construction of a new research and development laboratory building in Kyoto.

The Company has commitments at March 31, 2003 of approximately ¥23,395 million ($194,958 thousand) related
to contracts for outsourcing computer services. The contract requires an annual service fee of ¥4,846 million
($40,383 thousand) for the year ending March 31, 2004. The annual service fee will gradually decrease each year
during the contract term to ¥4,518 million ($37,650 thousand) for 2008. The contract is cancelable subject to a
penalty of 15% of aggregate service fees payable for the remaining term of the contract.

The Company and 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.

17. Related Party
Transaction

18. Commitments

and Contingent
Liabilities

5 0 • O m r o n C o r p o r a t i o n

Guarantees

The Company provides guarantees to third parties of bank loans of associates and other companies. The guaran-
tees for the associates and other companies are made to ensure that those companies operate with less costs of
finance. The maximum payments in the event of default is ¥2,287 million ($19,058 thousand) at March 31, 2003. The
carrying amounts of the liabilities recognized under those guarantees at March 31, 2003 were immaterial.

Bank loans of ¥994 million ($8,283 thousand) of an unaffiliated company were jointly and severally guaranteed by
the Company and six other unaffiliated companies. According to an agreement between the seven companies, any
loss on these guarantees are to be equally borne among the companies.

The Company also provides guarantees to third parties of certain obligations of consolidated subsidiaries. At
March 31, 2003, these guarantees amounted to ¥113 million ($942 thousand). All intercompany guarantees are
eliminated in consolidation.

Product Warranties

The Companies issue contractual product warranties under which they generally guarantee the performance of
products delivered and services rendered for a certain period or term. Changes in accrued product warranty cost
for the year ended March 31, 2003 are summarized as follows:

Balance at beginning of year ......................................................................................
Addition ...................................................................................................................
Utilization.................................................................................................................

Balance at end of year ................................................................................................

Millions of yen

2003

¥ 1,890
3,493
(2,631)

¥ 2,752

Thousands of
U.S. dollars

2003

$ 15,750
29,108
(21,925)

$ 22,933

19. Subsequent
Events

On May 8, 2003, the Company management declared a plan to repurchase the Company’s outstanding shares,
subject to approval at the general meeting of shareholders. The execution of the plan is at the Company’s discre-
tion with a maximum limit of ¥10,000 million ($83,333 thousand), or 5,000,000 shares, for the period up to the date
of the June 2004 general meeting of shareholders.

A n n u a l R e p o r t 2 0 0 3 • 5 1

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,

2003 and 2002, 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, 2003, 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 preceding paragraph, the consolidated

financial statements referred to above present fairly, in all material respects, the financial position of OMRON Corporation and

subsidiaries as of March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years

in the period ended March 31, 2003 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 the convenience of readers outside Japan.

Osaka, Japan

June 17, 2003

5 2 • O m r o n C o r p o r a t i o n

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

OMRON Electronics O.Y. (Finland)
Phone: 358-9-5495-800 Fax: 358-9-5495-8150

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 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: 90-216-474-0040 Fax: 90-216-474-0047

OMRON Electronics Ltd. (U.K.)
Phone: 44-20-8450-4646 Fax: 44-20-8450-8087

OMRON Electronics Manufacturing
of Germany G.m.b.H. (Germany)
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

OMRON Yasukawamotion Control B.V.
(The Netherlands)
Phone: 31-23-5867400 Fax: 31-23-5867488

[Electronic Components Company]
OMRON Electronic Components Europe B.V.
(The Netherlands)
Phone: 31-23-5681200 Fax: 31-23-5681212

[Automotive Electronic Components

Company]

OMRON Electronic Components Ltd. (U.K.)
Phone: 44-1384-405500 Fax: 44-1384-405508

IMS Vision Motion Control G.m.b.H. (Germany)
Phone: 49-711-686876-0 Fax: 49-711-686876-70

[Omron Healthcare Co., Ltd.]
OMRON Medizintechnik

Handelsgesellschaft G.m.b.H. (Germany)
Phone: 49-621-83348-8 Fax: 49-621-8334820

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

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

[Automotive Electronic Components

Company]

OMRON Automotive Electronics, Inc. (U.S.A.)
Phone: 1-248-539-4700 Fax: 1-248-539-4710

OMRON Dualtec Automotive Electronics Inc.
(Canada)
Phone: 1-905-829-0136 Fax: 1-905-829-0432

[Advanced Modules 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

[Healthcare Company]
OMRON Healthcare, Inc. (U.S.A.)
Phone: 1-847-680-6200 Fax: 1-847-680-6269

[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

ASIA–PACIFIC
Regional Headquarters
OMRON Asiapacific Pte. Ltd. (Singapore)
Phone: 65-6835-3011 Fax: 65-6835-2711

[Industrial Automation Company]
OMRON Electronics Pte. Ltd. (Singapore)
Phone: 65-6835-3011 Fax: 65-6835-2711

OMRON Electronics Sdn. Bhd. (Malaysia)
Phone: 603-7628-8388 Fax: 603-7628-8333

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

P.T. OMRON Electronics (Indonesia)
Phone: 62-21-8370-9555 Fax: 62-21-8370-9550

[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: 65-6848-8800 Fax: 65-6848-8811

OMRON Electronic Components Co., Ltd.
(Thailand)
Phone: 66-2-619-0292 Fax: 66-2-619-0624

[Automotive Electronic Components

Company]

OMRON Automotive Electronics Korea, Co., Ltd.
(Korea)
Phone: 82-2-850-5700 Fax: 82-2-859-1687

[Advanced Modules Business Company]
OMRON Business Systems Singapore (Pte.) Ltd.
(Singapore)
Phone: 65-6736-3900 Fax: 65-6736-2736

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

OMRON Technical Service Malaysia Sdn. Bhd.
(Malaysia)
Phone: 603-7954-3119 Fax: 603-7954-1559

[Healthcare Company]
OMRON Healthcare Singapore Pte. Ltd. (Singapore)
Phone: 65-6736-2345 Fax: 65-6736-2500

A n n u a l R e p o r t 2 0 0 3 • 5 3

CHINESE ECONOMIC AREA
Regional Headquarters
OMRON (China) Co., Ltd. (China)
Phone: 86-10-8391-3005 Fax: 86-10-8391-3688

OMRON Electronics Asia Ltd. (Hong Kong)
Phone: 852-2375-3827 Fax: 852-2375-1475

[Industrial Automation Company]
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: 86-21-5050-4535 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

OMRON Electronics (HK) Ltd. (Hong Kong)
Phone: 852-2375-3827 Fax: 852-2375-1475

OMRON Trading (Shanghai) Co., Ltd. (China)
Phone: 86-21-5037-2222 Fax: 86-21-5037-2200

OMRON (Shanghai) Control System Engineering Co.,
Ltd. (China)
Phone: 86-21-5131-9030 Fax: 86-21-5131-9040

[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

OMRON Technocult Co., Ltd.
Phone: 81-45-321-0471 Fax: 81-45-321-0473

OMRON Two Four Service Co., Ltd.
Phone: 81-3-5825-2320 Fax: 81-3-5825-2330

FA Techno Corporation
Phone: 81-3-5297-5223 Fax: 81-3-5297-5224

[Electronic Components Company]
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 Relay & Devices Corporation
Phone: 81-968-44-4101 Fax: 81-968-44-4161

OMRON Taiyo Co., Ltd.
Phone: 81-977-66-4447 Fax: 81-977-67-5112

[Automotive Electronic Components

Company]

OMRON Iida Co., Ltd.
Phone: 81-265-26-6000 Fax: 81-265-26-6030

[Social Systems Business]
OMRON Field Engineering Co., Ltd.
Phone: 81-3-3448-8111 Fax: 81-3-3442-2269

OMRON Software Co., Ltd.
Phone: 81-75-352-7400 Fax: 81-75-352-7210

NishiNihon Field Engineering Co., Ltd.
Phone: 81-6-6348-1270 Fax: 81-6-6349-1923

OMRON Field Engineering Kyushu Co., Ltd.
Phone: 81-92-451-6748 Fax: 81-92-472-5136

OMRON Field Engineering Hokkaido Co., Ltd.
Phone: 81-11-281-5121 Fax: 81-11-281-0917

OMRON T.A.S. Co., Ltd.
Phone: 81-3-5420-6611 Fax: 81-3-5420-6615

OMRON Software Kyushu Co., Ltd.
Phone: 81-96-352-8671 Fax: 81-96-352-8677

OMRON Software Hokkaido Co., Ltd.
Phone: 81-11-898-6711 Fax: 81-11-898-6710

[Advanced Modules Business Company]
OMRON Nohgata Co., Ltd.
Phone: 81-949-22-2811 Fax: 81-949-28-3046

[Healthcare Company]
OMRON Healthcare, Co., Ltd.
Phone: 81-75-322-9300 Fax: 81-75-322-9301

OMRON Matsusaka Co., Ltd.
Phone: 81-598-29-2715 Fax: 81-598-29-1207

[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

OMRON Creative Delica Co., Ltd.
Phone: 81-75-344-7883 Fax: 81-75-353-9026

Shiga Creative Delica Co., Ltd.
Phone: 81-77-569-1271 Fax: 81-77-561-7160

OMRON Marketing Co., Ltd.
Phone: 81-75-344-7048 Fax: 81-75-344-7059

OMRON Logistic Create Co., Ltd.
Phone: 81-6-6282-2530 Fax: 81-6-6282-2786

OMRON Credit Service Co., Ltd.
Phone: 81-75-241-2475 Fax: 81-75-256-6532

Human Renaissance Institute Co., Ltd.
Phone: 81-3-3438-0920 Fax: 81-3-3438-0921

Sanno Consulting Corp.
Phone: 81-3-5350-9291 Fax: 81-3-5350-9283

OMRON Personnel Creative Service Co., Ltd.
Phone: 81-75-344-0901 Fax: 81-75-344-0902

OMRON Business Associates Co., Ltd.
Phone: 81-75-344-7359 Fax: 81-75-344-7265

OMRON Entertainment Co., Ltd.
Phone: 81-3-5728-1761 Fax: 81-3-5489-9310

JAPAN
Manufacturing
Mishima Systems Factory
Phone: 81-559-77-9000 Fax: 81-559-77-9080

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: 81-6-6347-5800 Fax: 81-6-6347-5900

Fukuoka Office
Phone: 81-92-414-3200 Fax: 81-92-414-3201

Research and Development
Keihanna Technology Innovation Center
Phone: 81-774-74-2000 Fax: 81-774-74-2001

[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

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

5 4 • O m r o n C o r p o r a t i o n

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

16F Dojima AVANZA, 1-6-20 Dojima,
Kita-ku, Osaka 530-0003, Japan
Phone: 81-6-6347-5800
Fax: 81-6-6347-5900

Keihanna Technology Innovation Center

9-1-1, Kizugawadai, Kizu-cho, Soraku-gun,
Kyoto 619-0283, Japan
Phone: 81-774-74-2000
Fax: 81-774-74-2001

Date of Establishment
May 10, 1933

Industrial Property Rights

Number of patents:
2,495 (Japan)
1,573 (Overseas)
Number of patents pending:
5,451 (Japan)
1,198 (Overseas)

Number of Employees

23,751

Paid–in Capital

¥64,082 million

Common Stock

Authorized: 487,000,000 shares
Issued: 249,109,236 shares
Number of shareholders: 23,574

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
1-4-5, Marunouchi, Chiyoda-ku,
Tokyo 100-8212, Japan

(As of March 31, 2003)

Common Stock Price Range/Trading Volume
(Osaka Securities Exchange)

Adjusted Average for Nikkei 225 Stocks
(Right Scale)

(¥)
25,000

20,000

15,000

10,000

5,000

(¥)
3,500

3,000

2,500

2,000

1,500

1,000

500

(Shares)
80,000,000

60,000,000

40,000,000

20,000,000

Price Range of Common Stock
(Left Scale)

IV I

III
II
1993

IV I

III
II
1994

IV I

III
II
1995

III
II
1996

IV I

III
II
1997

IV I

III
II
1998

IV I

III
II
1999

III
II
2000

IV I

III
II
2001

III
II
2002

IV I

2003

Trading Volume

IV I

III
II
1993

IV I

III
II
1994

IV I

III
II
1995

III
II
1996

IV I

III
II
1997

IV I

III
II
1998

IV I

III
II
1999

III
II
2000

IV I

III
II
2001

III
II
2002

IV I

2003

Yearly High and Low Prices

Years ended March 31
High (yen)
Low (yen)

1994
1,820
1,230

1995
1,910
1,450

1996
2,710
1,500

1997
2,400
1,690

1998
2,900
1,760

1999
2,230
1,059

2000
3,450
1,500

2001
3,200
1,702

2002
2,560
1,390

2003
2,080
1,341

Notes: 1. Prices have been retroactively adjusted for free share distributions.

2. Trading volume includes shares traded on both the Tokyo Stock Exchange and the Osaka Securities Exchange.

A n n u a l R e p o r t 2 0 0 3 • 5 5

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)
Home page: http://www.omron.com (English)