Omron Corporation
Annual Report 2004

Plain-text annual report

Printed in Japan O M R O N C o r p o r a t i o n A n n u a l R e p o r t 2 0 0 4 Annual Report 2004 Year ended March 31, 2004 100% Recycled-content level Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530, Japan Phone: 81-75-344-7000 Fax: 81-75-344-7001 Home page: http://www.omron.co.jp (Japanese) http://www.omron.com (English) PROFILE The Omron Group has developed its business in a global setting, aiming to provide innovative devices and solutions that meet the requirements of industry and society, and that help to improve the quality of life. In fiscal 2003, ended March 31, 2004, the Group achieved its highest-ever profits and attained the ROE target of 10% one year ahead of the schedule laid out in Grand Design 2010, the Group’s long-term management plan in effect through fiscal 2010. Now is the time to prepare the ground for the next surge of growth. To this end, we presently are focusing on implementing the second phase of Grand Design 2010, dubbed GD 2010 New Phase 2, which covers the period from fiscal 2004 to fiscal 2007. Leveraging our core sensing & control technology competencies in combi- nation with our decades of accumulated business experience, we will contin- ue to pursue our goal of becoming the leading company in the global indus- try as we steadily fulfill our mission to contribute meaningfully to the devel- opment of society. CONTENTS Financial Highlights Corporate Philosophy —Corporate Public Responsibility— To Our Shareholders, Customers, and All Other Stakeholders Special Feature: FY2004 - 2007 Medium-Term Management Plan “GD2010 New Phase 2” Business Lineup Industrial Automation Business (IAB) Electronic Components Business (ECB) Automotive Electronic Components Business (AEC) Social Systems Business (SSB) Healthcare Business (HCB) Other Businesses Research & Development Corporate Social Responsibility Corporate Governance and Compliance Directors, Corporate Auditors and Corporate Officers Financial Section Global Network Stock Information 1 2 4 7 10 12 14 16 18 20 22 23 24 27 28 29 67 69 A Caution Concerning Forward-Looking Statements Statements in this annual report with respect to Omron’s plans, strategies and benefits, 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. Definition of Terms All references to “Omron” and “the Company” herein are to Omron Corporation; references to “the Omron Group” and “the Group” refer to Omron Corporation and consolidated subsidiaries and affiliates. FINANCIAL HIGHLIGHTS (U.S. GAAP) Omron Corporation and Consolidated Subsidiaries Years ended March 31, 2004, 2003 and 2002 Millions of yen (unless otherwise specified) Thousands of U.S. dollars (Note 2) (unless otherwise specified) 2004/3 2003/3 2002/3 2004/3 For the Year: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥584,889 ¥535,073 ¥533,964 $5,517,821 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,054 207,660 180,535 2,264,661 Selling, general and administrative expenses (Except research and development expenses) . . . . . . . . . . . . . . . 142,157 135,112 134,907 1,341,104 Research and development expenses . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,494 51,403 26,811 At Year-End: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592,273 Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,687 Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,710 Ratios: Gross profit margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on shareholders’ equity (ROE) . . . . . . . . . . . . . . . . . . . . . . . Ratio of shareholders’ equity to total assets . . . . . . . . . . . . . . . . . . Per Share Data (yen and U.S. dollars): Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.0% 8.8% 10.2% 46.4% 110.7 107.5 Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1148.3 Cash dividends (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.0 40,235 32,313 511 567,399 71,260 251,610 38.8% 6.0% 0.2% 44.3% 2.1 2.1 1036.0 10.0 41,407 4,221 (15,773) 549,366 58,711 298,234 33.8% 0.8% (5.1%) 54.3% (63.5) (63.5) 1201.2 13.0 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 on March 31, 2004, of ¥106=$1. 438,623 484,934 252,934 5,587,481 534,782 2,591,604 1.04 1.01 10.83 0.19 Net Sales & Operating Income Margin Net Income (Loss) & ROE Shareholders’ Equity & Ratio of Shareholders’ Equity to Total Assets Cash Dividends per Share (Billions of yen) 30 (Billions of yen) 600 500 400 300 200 100 0 00/3 01/3 02/3 03/3 04/3 (%) 12 10 8 6 4 2 0 20 10 0 -10 -20 (%) 15 10 5 0 -5 (Billions of yen) 400 300 200 100 (%) 60 50 40 30 20 (Yen) 20 15 10 5 0 01/3 01/3 02/3 03/3 04/3 00/3 01/3 02/3 03/3 04/3 -10 0 01/3 01/3 02/3 03/3 04/3 Net sales [left axis] Net income (loss) [left axis] Shareholders’ equity [left axis] Cash dividends per share Operating income margin [right axis] ROE [right axis] Ratio of shareholders’ equity to total assets [right axis] 1 CORPORATE PHILOSOPHY —CORPORATE PUBLIC RESPONSIBILITY— We at the Omron Group are proud of and confident in our approach to Corporate Public Responsibility, introduced at an early stage in our history. As a global company, we are dedicated to exploring potential social needs and creating new markets to materialize the Optimization Society. To this end, we are upgrad- ing a system of corporate governance capable of responding quickly to changes in the business environment. Yoshio Tateisi Chairman of the BOD PRIDE AND CONFIDENCE IN OUR CORPORATE PUBLIC RESPONSIBILITY Stakeholders are increasingly attentive to the quality of companies’ efforts towards corporate social responsi- bility. Omron’s founder, Kazuma Tateisi, established the Group’s corporate motto—“At work for a better life, a better world for all”—in 1959. Since then, we have tried to live up to this guiding philosophy by contributing to society on two fronts: through our business activities and through our corporate citizenship activities. We are proud of and confident in this approach adopted nearly half a century ago, and we will continue to fulfill our Corporate Public Responsibility in these two ways, always bearing in mind the perspectives of our stake- holders. EXPLORING SOCIAL NEEDS TO MATERIALIZE THE OPTIMIZATION SOCIETY In 1970, founder Kazuma Tateisi presented a theory—the SINIC (Seed-Innovation to Need-Impetus Cyclic Evolution) Theory—for predicting future social and business trends to the International Future Research Conference. Serving as a compass guiding the Group’s management for over 30 years, this theory predicts a shift from industrialized society to an “Optimization Society” starting from 2005. Rather than merely providing the material prosperity achieved by industrialized society, the new Optimization Society will emphasize spiritual richness and more holistic human life. This new society will achieve an optimally balanced fusion between the contradictory concepts and values embodied in such duali- ties as individual/society, culture/nature, and human/machine. Issues neglected by industrialized society, such as industrial pollution and its effects on the environment, natural resource depletion, safety, peace of mind, and 2 equal access to health care, education, and other fundamental human rights, will thus be addressed. A con- crete example might be automobiles capable of sensing potentially hazardous conditions in the surrounding environment that automatically avoid accidents. The SINIC Theory posits that machines will conform to the requirements of humans, not vice versa, in the Optimization Society. In the coming Optimization Society, there- fore, the Omron Group’s mission will be to contribute to satisfying social needs centered on peace of mind, safety, and environmental conservation by leveraging our sensing and control technology strengths to achieve a “best match” between human requirements and machine capabilities. TOWARD WELL-ESTABLISHED CORPORATE GOVERNANCE The Company’s introduction of an internal company system and a managing officer system in 1999 was aimed at separating the roles of corporate management and actual business operations. In an effort to reinforce the management oversight function, Omron increased the number of outside directors and outside corporate auditors as well as established within the Board of Directors the Compensation Advisory Committee, which is chaired by an outside director, as is the Personnel Advisory Committee. At the same time, in order to provide greater disclosure of information to stakeholders we began making quarterly presentations of our financial results. Responding to stakeholders’ expectations in my role as Chairman of the Board of Directors, I place the highest emphasis on three specific elements of corporate governance: fulfilling management accountability, achieving management transparency and strengthening disclosure, and pursuing high business ethics. To fur- ther strengthen the Group’s competitiveness in the global business environment and thereby achieve our man- agement goal of maximizing long-term corporate value, we are committed to enhance our corporate gover- nance system to enables us to respond quickly to changes in the business environment. July 2004 Yoshio Tateisi Chairman of the BOD 3 TO OUR SHAREHOLDERS, CUSTOMERS, AND ALL OTHER STAKEHOLDERS Our mission—to contribute meaningfully to the development of society—is more than just an empty dream. That’s because we have adopted a realistic approach to carrying out this mission, effectively utilizing our accumulated managerial resources. Hisao Sakuta President and CEO RETROSPECTIVE ON FISCAL 2003 1. Operating Environment Momentum fueled by domestic private-sector capital investment and continued growth in China and increasingly sophisticated requirements, which in turn guided our development and market launch of technology-driven products and provision of solutions to help our customers attain greater pro- ductivity and improved quality. Specifically, we actively undertook The subtle signs of recovery in the Japanese economy, which proposal-based sales and marketing activities focusing on the began to emerge during the fiscal year ended March 31, 2003, semiconductor and flat panel display (FPD) industries, and suc- grew increasingly apparent over the course of fiscal 2003, ended ceeded in substantially expanding sales of such products as base March 31, 2004. The biggest difference compared to past recov- inspection systems, displacement sensors, and high-precision ery cycles is that the present upturn is not solely reliant on exports control devices. In addition, sales of backlights used in cellular but rather is grounded in solid domestic demand. In particular, phones doubled by differentiating our products in respect of lower movement is being felt in the new growth industry of digital con- energy consumption and increased brightness. sumer electronics, even as long-depressed private-sector capital Geographically, sales rose 11.0% year-on-year in Japan and investment has shown impressive double-digit year-on-year growth 6.8% overseas. Sales in China, in particular, showed strong growth for the fiscal year under review. of approximately 30%, including direct exports from Japan, which is At the same time, overseas expansion is picking up, centered on clearly one of the most important factors of the year under review. China, where the Omron Group has prioritized business development for some time. Currently making a transformation from the “world’s factory” to the largest consumer market on earth, China achieved Structural improvements and increased net sales yield record profits strong real GDP growth of 9.1% during the year under review. Operating income jumped 59.1% year-on-year to ¥51.403 billion, while net income soared by a factor of over 52.5 to ¥26.811 billion, 2. Operating Results of the Omron Group both record highs. These figures exceeded our initial targets by High-value-added technology and marketing, com- bined with aggressive overseas business development Overall sales for fiscal 2003 outpaced our initial target by 4.4%, ris- 19.5% and 41.1%, respectively. Our proactive stance for strengthening our technological edge and new market development resulted in increase in expense by ing to ¥584.889 billion, a 9.3% increase over the previous year. ¥13.4 billion during the year. Nevertheless, this was more than off- Our Automotive Electronic Components Business (AEC) receded set by the positive effects of an increase in net sales (¥22.2 billion) because of production cutbacks by North American automakers. and productivity gains (¥10.2 billion). Productivity gains were the Moreover, sales in the Other Businesses segment declined due to fruits of our Value-added Innovation Committee 21 (VIC21) struc- exclusion of a number of previously consolidated subsidiaries from tural reforms, launched in fiscal 2001, which served to accelerate the period’s consolidated results owing to structural reforms imple- reductions in variable costs and fixed manufacturing costs. mented prior to September 2003. Nevertheless, we could achieve Return on shareholder’s equity (ROE) jumped from 0.2% to the better-than-expected results, thanks largely to strong perform- 10.2%, thus reaching a year ahead of schedule the 10% target set ances by our core business segments. In addition to positive con- out in VIC21. In short, I would summarize the year’s achievements ditions in the macro business environment, I believe the expansion by noting that we succeeded in establishing a solid platform for the in sales was driven by our solid grasp of customers’ diversifying next stage of growth. 4 Results of VIC21 Structural Reforms Period of implementation: April 2002 to September 2003 Item Target Actual Reduction in groupwide fixed and variable expenses . . . . . . ¥30.0 billion ¥32.4 billion Expansion of overseas production ratio (compared with March 2001) . . . . . 50% increase in ratio 52% increase in ratio Absorption or sale of low-profit or unprofitable businesses . . . . . . . 2 businesses, 5 subsidiaries 8 businesses, 11 subsidiaries Review of GD2010 Phase 1 (ROE: %) 15 10% ROE achieved 1 year ahead of schedule 10 5 0 -5 -10 7.5 8.4 6.7 10.2 10.0 9.3 0.2 -5.1 FY00 FY03 FY04 Structural Reforms (VIC21) FY02 Initial ROE target Actual ROE FY01 OUR GROWTH STRATEGY: SOLIDIFYING PAST INITIATIVES reforms stipulated in VIC21. Under VIC21, we carried out several FOR THE FUTURE significant reforms. Specifically, an early retirement program led to a 1. The Essence and Inevitability of Strategy reduction in domestic employment of about 1,460 people. Strengthening profitability, growth potential, and stability to maximize corporate value Furthermore, we closed three plants or partially transferred functions overseas, and sold or absorbed eight businesses and 11 sub- It is my conviction that a CEO’s primary responsibility is to respond sidiaries. At the same time, we achieved cost reductions by under- to stakeholders’ expectations by maximizing corporate value. taking sweeping re-evaluations of our production processes and Accordingly, in 2001 the Omron Group formulated Grand Design materials procurement. As a result, we achieved all of VIC21’s 2010 (GD2010), a long-term management plan expressing the numerical targets, including overseas production ratios and busi- desired direction for the Group over the coming decade, with the ness portfolio revision as well as reductions in fixed and variable priority goal of maximizing corporate value over the long term. expenses (¥32.4 billion actual vs. ¥30.0 billion target). This prepared I believe that corporate value is composed of three major ele- the ground for the dramatic earnings recovery we enjoyed during ments. The first of these is profitability. Only by producing profits the year under review. that exceed current investment costs can an enterprise begin to achieve value, and high profitability demonstrates high-added-value 3. Issues for the Future business development based on technology that distinguishes a company from its competitors. In GD2010, we established 10% of Offensive-defensive strategic balance for progress in the next stage of growth ROE as a profitability benchmark for our medium-term management By bringing our profitability targets (ROE) one year forward, I feel objectives. The second element is growth prospects. Needless to that we are now at a stage where we can work on improving our say, the market places a premium, thus respects the bland value, growth and stability. This does not mean, however, that our mission only on companies demonstrating growth potential. The third ele- to raise profitability has ended. Despite our gradual strengthening of ment is stability. It is vital that a Company establish a solid earnings our earnings base, it is not yet solid enough to enable us to maintain base capable of withstanding volatility in the external environment. In superior international competitiveness. Bearing this in mind, we have order to increase profitability and stability, it is necessary to reinforce divided the remaining seven years of GD2010 into two parts. During both financial and production systems. To raise growth potential, the first four years, from fiscal 2004 to fiscal 2007, dubbed GD2010 meanwhile, technology and marketing must be organically integrat- New Phase 2, we will implement a strategy of offensive/defensive ed. These principles are the essence of GD2010. balance with an eye to increasing the prospects for growth and sta- bility, all the while paying keen attention to profitability. 2. Verification of the Past Strengthening our earnings base —turning the negative into the positive Shortly after the launch of GD2010, the Omron Group was hit by a major downturn in the economy, pushing us off the path of growth that we had envisioned. In response, from fiscal 2002 we focused on increasing profitability at an accelerated pace via structural 5 Doubling Total Business Value GD2010 Long-Term Management Goal Maximizing long-term corporate value New Medium-Term Management Goal Doubling total business value Enhancing brand value Business C ＰＶ* Corporate expenses Brand value Corporate value Business B ＰＶ* Total business value Business A ＰＶ* * PV＝Present Value Strategy Overview for GD2010 New Phase 2 —Improving production and sales efficiency, and expanding growth-oriented regions and business domains while also speeding up decision-making, with management moni- toring provided by the corporate auditors. Furthermore, thorough a proactive IR strategy and an open shareholders’ meeting, manage- ment receives valuable opinions and critiques from investors and To raise profitability, we are focusing on two major initiatives. First, analysts. We will continue to further enhance and reinforce our cor- we are increasing the efficiency of our marketing system by porate governance. strengthening and integrating our authorized distributors. Second, we are rationalizing our production processes and materials pro- A RETURN FOR ALL OF OUR STAKEHOLDERS curement. Through these two measures, we aim to lower the We are committed to rewarding shareholders for their support aggregate ratio of selling, general and administrative (SG&A) through both expanded corporate value and dividends. On the expenses and fixed manufacturing expenses to total sales by sev- other hand, as we enter a new stage of growth we will be required eral percentage points during GD2010 New Phase 2. to expand advance investments in future growth for the time being, We will achieve higher earnings stability and growth potential, necessitating higher levels of retained earnings. meanwhile, by carrying out the following two measures. First, we That much said, we take our dividend policy quite seriously. In will further develop high-growth markets, particularly China. fact, in the year under review we doubled the dividend to ¥20 per Second, we will expand new technology-driven business domains share, including a 70th anniversary commemorative dividend of ¥7 with high-value-added technologies, namely, our four core tech- per share. For the future we are targeting a dividend payout rate of nologies of microreplication processing, light wave control, about 20% of consolidated current net income. To our customers, vision/optical/radio wave sensing, and artificial intelligence informa- we will contribute to greater productivity and profitability by provid- tion control. Through these measures, we will reach the final goal ing high-value-added products and services. To society at large, of GD 2010 New Phase 2, which is a doubling of the aggregate we will contribute to the maintenance of a sound society and envi- business value, i.e., the total current net value of future cash flows, ronment through our business activities and through a variety of generated by each of our business segments. volunteer activities. With the unwavering trust and support of all our *For more details of our New Phase 2 strategy, please refer to the section entitled “FY2004-2007 Medium-Term Management Plan (GD2010 New Phase 2).” stakeholders, the Omron Group will continue to strive to maximize corporate value. CORPORATE GOVERNANCE Strong corporate governance systems are required for the maxi- mization of corporate value, two essential facets of which are (1) committed execution of strategy and (2) incorporation of valuable opinions and critiques from outside the company. The Company’s management is centered on the Board of Directors, Executive Meeting, and Board of Corporate Auditors. The managing officer system and internal company system serve to promote the separa- tion of the roles of corporate management and business execution, July 2004 Hisao Sakuta President and CEO 6 SPECIAL FEATURE: FY2004 - 2007 MEDIUM-TERM MANAGEMENT PLAN “GD2010 NEW PHASE 2” —Strategy of Balancing Growth and Earnings— Maximizing Long-Term Corporate Value Phase 1 Establish a profit structure New Phase 2 Build a growth structure Phase 3 Achieve a growth structure FY2001 FY2004 FY2007 FY2010 Target ROE 10% Double total business value PROLOGUE OPERATING STRUCTURE REFORM —AIMING AT DOUBLING TOTAL BUSINESS VALUE —FURTHER REINFORCEMENT OF PLATFORM FOR Due principally to a substantial worsening of the eco- PROFITABILITY nomic climate immediately following launch of our long- 1. Basic Recognition: term growth vision, Grand Design 2010 (GD2010), the We are far from satisfied with the current situation performance of the Omron Group deviated considerably Although ROE and other indicators of profitability from the growth path initially laid out. With subsequent exceeded initial projections following implementation of steady implementation of the productivity improvement VIC21, we are fully aware that the current situation does structural reforms, Value-added Innovation Committee not allow us to rest on our laurels. All we have accom- 21 (VIC 21), however, we were finally able during fiscal plished thus far is to improve slightly the structural 2003 to improve our profitability to where it surpassed weaknesses we identified. It is important, in particular, the goals we set in GD2010. With that as a turning to promote still further our ability to cope with changes point, we will now move forward steadily toward maxi- in the external environment and our international com- mizing the Omron Group’s corporate value, the original petitiveness. aim of GD2010. Maximizing corporate value, however, is not a goal 2. Concrete Strategies and Objectives: that can be accomplished overnight. During the first half Further reductions in SG&A and fixed manufactur- of the remaining seven years of GD2010, therefore, we ing cost ratios will be seeking a balance between growth and earnings, As a goal for further reinforcing our earnings structure, with the aim of doubling the total present value of the we are aiming to increase our operating income from future cash flows anticipated from our various business the current 8.8% to more than 10% by fiscal 2007. The segments. specific ways in which we will accomplish that goal are to accelerate shifting production to China to reduce our fixed manufacturing cost ratio while promoting efficien- cy in our sales and related support structures and fur- ther reductions in SG&A expenses for a lower SG&A ratio. The combination of lower fixed manufacturing costs and SG&A ratio is expected to result in a 2-3 per- centage points drop making it possible to realize oper- ating income margins of over 10%. 7 Full-Fledged Growth in China Fiscal 2001 Actual Fiscal 2004 Plan Net sales: ¥25.0 billion ¥50.0 billion Investment: ¥8.5 billion (FY2001–2003) Fiscal 2003 Actual Fiscal 2007 Plan Net sales: ¥38.8 billion ¥150.0 billion Investment: ¥30.0 billion (FY2004–2007) Sales in the China Region (Billions of yen) 150 120 90 60 30 0 e s in 4 y e ars 4 ti m ¥150.0 billion FY01 FY02 FY03 FY04 FY05 FY06 FY07 GD2010 New Phase 2 BUSINESS DOMAIN STRUCTURAL REFORMS 1) Further development in high growth regions —ESTABLISHMENT OF NEW PLATFORMS FOR —Emphasis on China GROWTH 1. Basic Recognition: The Omron Group places China at the top of the list of regional markets to be developed. Although business Essential to raise the level of potential growth in contraction is anticipated in the short term in China due each business domain to government tightening to bring economic overheating We define business value as the present value of future under control, growth potential remains strong in the cash flows anticipated from the Group’s various busi- medium to long term as China continues to serve as the ness domains. In order to realize increased business “world’s factory” while also emerging as one of the value it is essential to improve the profitability of existing world’s great consumer market. The Group chalked up businesses (operational structure reforms) and to ¥38.8 billion in sales during fiscal 2003 in the Chinese increase our sales in growth domains. market, and has already achieved a correspondingly 2. Basic Strategy: well-recognized presence there. By fiscal 2007, the Group aims to roughly quadruple its sales in China to Further development of high growth regions and ¥150.0 billion. of value-added fields utilizing our technological At the center of our strategy in China are our edge Industrial Automation Business (IAB), Electronic Two main focuses mark our approach to raising the top Components Business (ECB), and Healthcare Business line. The first focus is to prioritize the development of (HCB). Major manufacturers from Japan, Europe and geographic regions (markets) with high growth potential. North America are expanding their output in China, and That means placing primary emphasis on the Chinese more sophisticated automation is being required along- market. The second focus is to fully leverage and then side expanding demand for leading-edge devices such further strengthen our technological edges in order to as micro lens arrays (MLAs). In addition, as the living advance into new, high value-added business domains. standard in China continues to climb rapidly, the growth Through the second focus, in particular, we are confi- potential is increasing for various healthcare products. dent that we can achieve top line growth even in mature Factors such as the spread of private car ownership markets such as those in Japan, Europe and North and development of the transportation infrastructure, America. moreover, are expected to result in expanded needs that positively affect the demand felt by the Automotive Electronic Components Business (AEC) and the Social 8 Technology-Centered Growth Growth structure of four core technologies and two fields Core technologies Product fields Product examples • Micro-replication processing • Master/Electrotyping • Reproduction/Materials • MEMS • Lightwave control Fields where light nano-technology is a strength Optical display devices MLA, etc. Optical communication devices SPICA, etc. • Vision sensing • Lightwave sensing • Radio wave sensing • Artificial intelligence information control (Fuzzy/AI) Fields where sensing is a strength Sensing technology Control technology MEMS components 3-axis acceleration sensors, etc. Quality lifecycle manage- ment (QLM) Waveform analysis and diagnostics solutions (SIGNARC, etc.) Car Safety HDRC etc. Systems Business (SSB). business is particularly high. Our MLAs offer double to The Omron Group will, therefore, continue to shift triple the brightness of existing devices, with only a third production to China as a means of improving its interna- to half of the power consumption. Many cellular phone tional competitiveness. Greater levels of capital invest- manufacturers have already recognized the superiority ment are essential in order to aggressively pursue these of our MLAs and have adopted them in their products. efforts in terms of both sales and manufacturing. We Products with high growth potential are also appear- plan to expand total investment in China to ¥30.0 billion ing from the combination of vision, optical, and radio during next four years to fiscal 2007, which is 3.5 times wave sensing technology with knowledge and informa- the ¥8.5 billion invested over the preceding three years tion control technology (artificial intelligence and fuzzy by fiscal 2003. technology). Examples include waveform analysis diag- nosis solutions and in-vehicle high dynamic range 2) Further development in new technological CMOS (HDRCs). Waveform analysis diagnosis solutions domains incorporate the abilities and knowledge of skilled work- From the perspective of the Omron Group, the most ers on production and shipment lines into algorithms, powerful driver for realizing growth is technology enhancing the quality of production equipment. HDRCs designed to differentiate the Group from competitors. are capable of substantial contributions to driver sup- During our more than 70 years of history we have suc- port functions, an area in which automobile manufactur- cessfully developed four core differentiated technolo- ers are actively competing to differentiate themselves gies: 1) ultra-precision 3D fabrication and replication from their competitors. technology, 2) lightwave control technology, 3) vision, Our strategy based on the domains integrating these optical, and radio wave sensing, and 4) knowledge and core technologies, i.e., a) ultra-precision 3D fabrication information control. Various combinations of these four and replication technology with lightwave control tech- technologies give rise to cultivation of a wide range of nology, and b) vision, optical, and radio wave sensing high value-added products. technology with knowledge and information control The application of ultra-precision 3D fabrication and technology, aims for a six-fold increase in sales to replication technology and lightwave control technology, ¥60.0 billion by fiscal 2007, from the current ¥10.0 bil- for example, has resulted in the development of MLAs lion. for cellular phones, as well as discoveries such as repli- cated polymer optical waveguide (SPICA) for optical communication devices. Growth potential in the MLA 9 BUSINESS LINEUP % of Net Sales (FY2003 Actual) Net Sales and Operating Income IAB INDUSTRIAL AUTOMATION BUSINESS ECB Manufacture and sale of control components for factory automation, etc. ELECTRONIC COMPONENTS BUSINESS Manufacture and sale of electronic components for consumer electron- ics, communication equipment, etc. AEC AUTOMOTIVE ELECTRONIC COMPONENTS BUSINESS SSB SOCIAL SYSTEMS BUSINESS HCB HEALTHCARE BUSINESS Other OTHER BUSINESSES Manufacture and sale of electronic components for automobiles Provision of equipment, modules, services, and solutions in financial, sta- tion management and transportation areas Manufacture and sale of medical devices Exploration of new busi- ness, business not included in above Notes: All the sales described herein are on the basis of segment classification effective in 2003. 10 39.3% 15.2% 10.1% 23.3% 8.0% 4.2% FY01 12.1 FY02 FY03 24.1 34.2 (Billions of yen) 184.2 202.5 229.6 Net Sales Operating Income FY01 7.9* FY02 FY03 10.3 14.6 (Billions of yen) 81.1 79.4 89.0 Net Sales Operating Income *Operating income for fiscal 2001 includes the figures for Automotive Electronic Components Business. FY01 * FY02 4.3 FY03 1.0 (Billions of yen) 50.8 59.5 58.8 Net Sales Operating Income *Operating income for fiscal 2001 is included in the figures for Electronic Components Business. FY01 -3.0 FY02 FY03 1.2 10.4 (Billions of yen) 128.1 116.7 136.0 Net Sales Operating Income FY01 1.6 FY02 3.8 FY03 7.2 (Billions of yen) 40.6 42.3 47.0 Net Sales Operating Income (Billions of yen) 49.2 FY01 2.6 FY02 FY03 4.5 3.8 34.7 24.5 Net Sales Operating Income Sales Breakdown, by Product and Service (FY2003 Actual) Main Products and Services –Industrial equipment –System equipment –Sensors 41% 32% 27% –Consumer electronic components –Semiconductors –Amusement equipment –Other –Automotive relays –Switches –Electric control equipment –Other –Financial –Train station management –Transportation –Other –Blood pressure monitors –Thermometers –Nebulizers –Chair massagers –Body composition monitor with scale –Other 66% 12% 16% 6% 19% 26% 42% 13% 35% 17% 12% 37% 54% 11% 8% 5% 6% 16% • Control Relays (Relays, Timers, Counters etc.) • Control Switches (Limit Switches, Micro Switches, Manipulate Switches etc.) • 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 (PCB Inspection Systems, Sheet Inspection Systems, etc.) • Safety-Related Devices (Safety Relays, Door Switches, Safety Controller, Area Sensors, Safety Mats, etc.) • Switches (Micro Switches, Tactile Switches, Trigger Switches, etc.) • Relays (General-Purpose Relays, PCB Relays, relays for telecommunications equipment, etc.) • Amusement Components, Units and Systems (Sensors, Keys, IC’s, IC Coin Systems, etc.) • Connectors, Sensors for Consumer, Micro Lens Alleys • Components for Printers and Photocopiers (Toner Sensors, Face Recognition Systems Software Components, etc.) • Components for Mobile Equipment (Backlights and Flash Lights for Mobile Phones, etc.) • Various Automotive Relays, Switches, Keyless Entry Systems, Power Window Switches, Electric Power Steering Controllers, Various Controller, Laser Radar Devices, etc. • Electronic Fund Transfer Systems and Modules (Automated Teller Machines, Cash Dispensers, Automated Bill Changers, Automated Loan Application Machines, Credit/Debit Card Transaction Terminals, etc.) • Public Transportation Systems and Modules (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, Card Reader/Writer • Circulatory System Device and Bio-Chemistry System Device (Blood pressure monitor for home use, Blood pressure monitor for professional use) • Obesity Solution Device (Body composition monitor, pedometer) • Lifestyle Improvement Programs (“Kenko Tastujin”, “Kenko partner”) • Other Medical and Healthcare Device (Thermometer, Massager, Nebulizer) • Personal Computer Peripherals (ADSL Modems, Broadband Routers, Uninterruptible Power Supplies, etc.) • RFID Systems (IC Tags, Reader/Writer, Antenna, etc.) • Remote Supervisory Systems, Vehicle Disturbance Surveillance Devices • Commercial Game Machines (Photo Sticker Machine) 11 IAB INDUSTRIAL AUTOMATION BUSINESS IAB Results and Projections The IAB segment is our Group’s core business, accounting for 39.3% of consol- idated net sales. We are Japan’s foremost manufacturer of control equipment for factory automation (FA), providing high precision sensing and control equip- ment that contributes considerably to improving the productivity and profitabili- ty of manufacturers in a wide range of industries. FY2004 Projected Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Exchange rates for projections are ¥105 to the US dollar, and ¥125 to the euro. ¥ 239.0 123.5 115.5 20.2 61.0 9.5 20.7 4.1 37.6 15.7% 10.2 Billions of yen (unless otherwise specified) FY2003 ¥ 229.6 117.1 112.5 19.6 60.7 13.6 18.4 0.3 34.2 14.9% 7.3 FY2002 FY2001 ¥ 202.5 ¥ 184.2 102.2 100.3 19.9 53.0 12.1 15.0 0.3 24.1 11.9% 8.0 95.5 88.7 18.5 47.9 10.2 12.0 0.2 12.1 6.6% 4.5 Sales Breakdown, by Product (Fiscal 2003 Actual) STRENGTHS AND POSITIONING IN Group’s share of that domestic market is THE INDUSTRY about 20%. PLCs allow sophisticated pro- 27% 41% ing technology, one of the Group’s core ponents, such as sensors, timers, temper- High precision sensors are based on sens- cessing of data from various control com- competences. They are used for inspecting ature regulators, and switches, and the and measuring products in a wide range of efficient control of machines and equip- manufacturing processes, and our Group ment. In effect, they serve as the “brains” 32% boasts of nearly a 60% share of the at production jobsites. Industrial Equipment: Power supplies, Temperature controllers, Control relays, Timers, Switches etc. System Equipment: PLCs, Inverters, Motion controllers etc. Sensors: Application sensors, Photoelectric sensors, Proximity sensors etc. domestic market for these sensors. Another of the core competences of the Group is control technology used in pro- grammable logic controllers (PLCs). The Note: Market share figures are based on the statistics taken by Nippon Electric Control Equipment Industries Association (NECA) Major IAB Products Auto Sensory Inspection System “Signarc” Signarc is a solution services busi- ness aimed at improving product quality, using Omron’s proprietary Waveform Analysis Diagnosis technology. It assesses the prod- ucts’ condition and identifies caus- es of product malfunctions based on the sounds and vibrations ema- nating from products equipped with motors or other drive parts. 12 Solution Service Business for SMT Process Improvement This solution service promotes minimization of losses caused by mounting errors and introduction of lead-free technology in SMT process through providing the customers with printed circuit board inspection systems, and software for defective analysis and/or lead-free introduction, as well as consulting services. OPERATING RESULTS IN FISCAL 2003 such as base inspection systems, dis- FUTURE OUTLOOK AND STRATEGY A look at operating results for fiscal 2003 placement sensors, vision sensors, motion Bullish capital investment is expected to shows that machinery orders, a leading controllers, and safety-related devices. continue during fiscal 2004. Efforts in the indicator of private-sector capital invest- In overseas markets, the Group rein- domestic market will include more efficient ment, increased 8.2% year-on-year in the forced its direct marketing aimed at cus- utilization of the system of authorized dis- domestic market, the first increase in three tomers, expanded and improved its sales tributors and an expansion of our solutions years. In China, meanwhile, a priority over- channels, and made solid efforts in pro- business. In overseas markets, since China seas business region where the Group is moting products for social infrastructure, will continue to be a priority business making special sales efforts, industrial out- resulting in increased sales in China and region we will reinforce our supply network put increased an impressive 16.3%. In that other countries in Asia. Sales in China were for general-use products there, introduce a business environment, domestic sales for especially notable, up 23.1% year-on-year sufficiently competitive cost structure in the IAB increased 14.6% year-on-year to to ¥18.4 billion, the second consecutive context of the Chinese market, and ¥117.1 billion and overseas sales year of runaway growth in excess of 20%. enhance our sales and marketing capabili- increased 12.1% year-on-year to ¥112.5 In North America, meanwhile, despite ties. At the same time, we will energetically billion. Total sales thus reached ¥229.6 bil- increased capital investment (up 2.8% promote an expansion of new businesses lion, up 13.4% year-on-year. year-on-year) and although demand was focused on new requirements in manufac- As recovery in capital investment con- generally buoyant, the appreciated yen turing industries related to quality, safety, tinued to strengthen in the domestic mar- brought about a 1.7% decline in sales and the environment. Based on an outlook ket, the Group has energetically pursued (sales increased 6.2% on local currency for global development and new business solution-based sales for resolving problems basis) to ¥19.6 billion. In Europe, although growth, sales for the IAB Group for fiscal related to quality improvement and IT inte- the local business environment was severe 2004 are expected to increase 4.1% year- gration at the factory floor level for semi- due to the appreciated euro and sluggish on-year to reach ¥239.0 billion. conductors, flat panel displays, electronic capital investment, aggressive sales and components, automobiles, food products, marketing efforts resulted in a sales machine tools, transportation equipment, increase of 14.4% (sales increased 4.8% and packaging equipment. As a result, on local currency basis) year-on-year to sales increased substantially for products reach ¥60.7 billion. F3SX Safety Controller A safety circuit is already built in the controller. The product thereby contributes to higher level of safety at worksites with- out making any special designs for the safety. D4N Small Safety Limit Switch This switch is completely free of RoHS (Restriction of Hazardous Substances) designated haz- ardous chemicals such as cad- mium and lead. 13 ECB ELECTRONIC COMPONENTS BUSINESS ECB Results and Projections The ECB segment accounts for 15.2% of consolidated net sales, concentrated on electronic components such as relays, switches, and connectors for consumer appliances, telecommunications equipment, and industrial equipment applica- tions. In recent years, we have placed a special focus on the development of new growth areas that take advantage of our proprietary technology, allowing us to establish a strong presence in optical devices like backlight-micro lens arrays (B- MLAs) for cellular phones. Billions of yen (unless otherwise specified) FY2004 Projected FY2003 FY2002* FY2001* Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Exchange rates for projections are ¥105 to the US dollar, and ¥125 to the euro. *In April 2003, AEC business was separated from ECB segment. For easier comparison under the new organization, sales for FY2002 and FY2001 are recomputed on the new segment basis. However, adjustment for operating income, operating income margin, and capital expenditure are only made for FY2002. ¥ 107.0 57.0 50.0 9.8 11.1 4.7 11.0 13.4 16.2 15.1% 9.9 ¥ 81.1 44.9 36.2 12.5 9.3 4.2 7.7 2.5 7.9 6.0% 12.0 ¥ 89.0 47.5 41.5 10.5 10.4 5.0 9.1 6.6 14.6 16.4% 7.1 ¥ 79.4 43.1 36.3 11.6 9.3 4.7 7.5 3.1 10.3 13.0% 6.9 Sales Breakdown, by Product (Fiscal 2003 Actual) 6% 16% 12% STRENGTHS AND POSITIONING IN wave control, as well as product develop- THE INDUSTRY ment capabilities for integrating these tech- Since we started working on the develop- nologies. Backlights for cellular phones are ment of pressure sensors and acceleration an example of this success. Since the sensors using MEMS* technology about 15 arrival of these products on the market in 66% years ago, we have been expanding our fiscal 2001, our superiority in terms of presence in the area of “Sensing & brightness and low energy consumption Control,” pushing forward with technology has led to the adoption of the backlights by to set the company apart from competi- many cellular phone manufacturers around Consumer Electronic Components: Connectors, Switches, Relays, Built-in sensors tors. Important strengths for the Group the world. Semiconductors: B-MLA Amusement equipment: IC coin systems Other: Mobile equipment (LED backlight, transducer), Toner sensors for office automation equipment include a number of proprietary and advanced technologies in the area of light- *MEMS (microelectro mechanical systems), also known as micro machines, are micro three-dimensional struc- tures produced using semiconductor manufacturing process. Two-dimensional structures such as large-scale Major ECB Products LCD backlight A backlight for LCD use, which enhances brightness and reduces power consumption of mobile equipment such as cellular phones. We are working on con- tinuous upgrade of the product in response to the increasing needs for sophistication and downsizing of cellular phones and other LCD equipment. 14 Optical Switch A small, low-power consumption, low-cost optical switch based on our proprietary MLA and fine mechanical technology. It con- tributes to accelerate the spread of home-based optical communica- tion devices that are increasingly in demand on the back of ongoing diffusion of digital broadcasting. integrated (LSI) chips are limited to the integration of electronic circuits, but the realization of three-dimension- al structures has enabled the extreme miniaturization of various sensing functions and actuators, which can be applied in a wide variety of fields. released in fiscal 2001 expanding to reach scale backlights used in televisions and sales of ¥7.5 billion, or double the figure for monitors. With this end in view, we the previous year. Narrow pitch flexible acquired the backlight business of KOA printed circuit (FPC) connectors and LED Corporation in June 2004. Due primarily to OPERATING RESULTS IN FISCAL 2003 light modules for cellular phones, produced the expansion in the new growth area, we Although the business climate surrounding using ultra-precision 3D fabrication and expect the segment’s sales to achieve the ECB segment has been positively replication technology, also showed con- 20.2% year-on-year growth in fiscal 2004, impacted by steadily rising demand for sistent sales growth. In addition, sales of to ¥107.0 billion. consumer appliances, telecommunications signal relays for base station grew substan- infrastructure, and the mobile device indus- tially due to rapid expansion in the try, profitability has been pressured by fac- telecommunications infrastructures in tors such as the strong yen and the price China and Europe. erosion by competition and customers’ requests. FUTURE OUTLOOK AND STRATEGY Domestic sales for the fiscal year under For fiscal 2004, we expect that severe review were up 10.2% compared to the price competition will continue although previous fiscal year, to ¥47.5 billion, while the demand for digital consumer appli- overseas sales were up 14.3%, to ¥41.5 ances and cellular telephony is still on the billion, for a total increase of 12.1% to rise. The Omron Group will accordingly ¥89.0 billion. Despite the trends toward a move to develop new growth areas, and stronger yen and price erosion, however, will focus on the combination of ultra-pre- growth led by technology designed to set cision 3D fabrication and replication and us apart from competitors succeeded in lightwave control technologies for applica- boosting operating profits by 41.6%. tion in optical display devices, optical Reviewing products, high value-added communications devices, and MEMS. In products for cellular phones showed espe- the area of optical display devices, in par- cially strong growth, with the backlights ticular, we are actively pursuing large- MEMS Flow Sensor This sensor is able to measure gas velocity and direction at extremely low flow rates, using newly developed MEMS device. With this sensor, it is possible to detect even such slight movements as butterfly’s flutter. DC Power Relay This DC power relay allows quickly-interrupting high voltage current loads safely and silently, thus contributes to the diffusion of clean energy vehicles such as hybrid cars and fuel cell vehicles. 15 AEC AUTOMOTIVE ELECTRONIC COMPONENTS BUSINESS AEC Results and Projections The AEC segment, which accounts for 10.1% of consolidated net sales, is specializ- ing in automotive electronics industry, and carrying out operations with a focus on providing components built into automobiles, such as controllers, sensors, switch- es, and relays. Priority requirements in the fast-evolving automotive electronics market are for safety, comfort, and environmental friendliness, and the Omron Group is actively developing new products such as safety control systems for win- dow opening/closing and sensors for measuring the distance between vehicles. Billions of yen (unless otherwise specified) FY2004 Projected FY2003 Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Exchange rates for projections are ¥105 to the U.S. dollar, and ¥125 to the euro. *Operating income and capital expenditures for fiscal 2001 are included in the figures for ECB. ¥ 62.5 27.5 35.0 21.6 3.7 9.7 — — 2.9 4.6% 9.4 ¥ 58.8 24.8 34.0 20.9 4.0 8.8 — 0.3 1.0 1.7% 9.0 FY2002 ¥ 59.5 23.6 35.9 23.4 3.7 8.6 — 0.2 4.3 7.2% 6.2 FY2001 ¥ 50.8 20.8 30.0 21.2 1.8 7.0 — — * * * Sales Breakdown, by Product (Fiscal 2003 Actual) 13% 19% STRENGTHS AND POSITIONING IN between vehicles. We are also conducting THE INDUSTRY R&D works on miniaturized mounting tech- Applying the Omron Group’s core compe- nology for controllers and products that tence in Sensing & Control technology, we comply with environmental regulations. are pushing forward with new develop- Innovations are constantly being intro- 42% ments in the market for automotive elec- duced in the automotive electronics indus- 26% tronics. Some examples are power win- try, and the Group is working hard to satis- Automotive Relays: PCB relays, Power relays Switches: Power window switches, Power seat switches etc. Electric Control Equipment: Keyless remote controllers etc. Other: Laser radar devices, Sensors etc. dow switches integrating motor control fy the needs of customers and the industry technology for safer window opening and with advanced technological development closing, keyless remote entry systems capabilities for product excellence in minia- using wireless communications technolo- turization, performance, sensitivity, and gy, and laser radar incorporating sensor functionality. technology for measuring the distance Major AEC Products Automotive Laser Radar This radar measures the dis- tance of vehicle ahead by sen- sitive, wide-field laser for traffic control purpose. People and bicycles are also detectable. Power Window Switch This switch with anti-pinch con- trol function automatically stops the upward movement of a power window when it comes in contact with an obstruction. The application of this function is extending to side doors and sunroofs. 16 OPERATING RESULTS IN FISCAL 2003 tory adjustments centered on the Big distance between vehicles, various door Production in the domestic automobile Three. In Europe, on the other hand, a lock control technology (anti-pinching industry was flat on a unit basis. On the strong sales performance by on-board function), wireless technology for applica- other hand, production showed a 3% relays for electric components manufactur- tion with security devices, and tire pres- year-on-year decline in North America, ers resulted in a 9.4% increase to ¥4.0 bil- sure monitoring systems (TPMS). In terms which is one of our major markets lion (0.3% increase based on local curren- of the development of environmentally accounting for 36% of the segment sales. cy basis) versus the previous year. In the friendly products, we are focusing mainly The appreciation of the Japanese yen and countries of Asia, despite strikes at the on electric power steering systems with the Canadian dollar against the U.S. dollar, facilities of our major client in Korea, improved fuel consumption. Based on and intensified price competition, also neg- growth of 1.9% (8.2% increase based on a these efforts, we expect a 6.2% increase atively affected the business environment local currency basis) was recorded. year-on-year to ¥62.5 billion in sales for surrounding the business segment. the segment during fiscal 2004. Given that context, domestic sales for FUTURE OUTLOOK AND STRATEGY the AEC segment were up 5.4%, to ¥24.8 For fiscal 2004, we anticipate a slight billion, with overseas sales down 5.4% ver- increase in unit sales of domestic automo- sus the previous year, to ¥34.0 billion, biles and a recovery in unit sales in the resulting in an overall decline of 1.1% to North American automobile market. ¥58.8 billion. Corresponding this background, the AEC Domestically, in addition to electric segment will be aggressively working on power steering controllers, expansion in the sales and marketing activities in new safety related products, such as laser response to launching of new car models radars and door lock controllers, con- both domestically and overseas, as well as tributed to the sales growth. promoting development of products Overseas, however, sales in North focused on safety and environmental America dropped 10.8% (3.7% decrease friendliness. In the area of safety, the on local currency basis) compared to the Omron Group will be devoting particular previous year due to production and inven- efforts to laser sensors for measuring the Keyless Entry System This system is to lock or unlock doors by remote control in con- junction with hazard lamp. The maximum distance between transmitter and receiver is expanding, and the sensitivity of the sensor is increasing. Automotive Relay High reliability and longevity are the important aspects required for automotive relays. Especially the demand for auto- motive PBC relay is rapidly increasing for the use of motor control. 17 SSB SOCIAL SYSTEMS BUSINESS SSB Results and Projections The SSB accounts for 23.3% of consolidated net sales, operating mainly in the markets associated with financial service (equipment such as ATMs and automated bill chang- ers), train station management (equipment such as automated passenger gates and automated ticket venders), and traffic and road management. This business includes 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. The segment is concentrating on development not only domestically, but also in China and other countries in Asia where the development of social infrastructure is proceeding rapidly. FY2004 Projected Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Exchange rates for projections are ¥105 to the US dollar, and ¥125 to the euro. ¥ 125.0 113.5 11.5 0.6 1.0 — — 9.9 4.7 3.8% 3.5 Billions of yen (unless otherwise specified) FY2003 ¥ 136.0 126.4 9.6 0.2 0.9 — 0.4 8.0 10.4 7.6% 3.2 FY2002 FY2001 ¥ 116.7 ¥ 128.1 104.8 11.9 0.3 — 0.1 0.3 11.2 1.2 1.0% 4.5 116.2 11.8 0.7 — 0.3 0.8 10.1 (3.0) (2.3%) 4.1 Sales Breakdown, by Product (Fiscal 2003 Actual) STRENGTHS AND POSITIONING IN leading position in business areas essential THE INDUSTRY to modern life, such as traffic management 37% 35% 12% 17% Financial: Sales of equipment and solutions such as automated teller machines and cash dispensers Train Station Management: Sales of equipment and solutions such as automated passenger gates, automated ticket venders Transportation: Traffic management systems, Traffic light control equipment Other: Installation and maintenance of equipment, Software development We developed the world’s first unmanned systems and card reader modules. Across train station system in 1967, based on our diverse fields that include train station man- original automation and laborsaving tech- agement, financial service, traffic control, nology. Another milestone was achieved in and retail, the Group is steadily addressing 1969 with development of the world’s first further expanding social requirements in cash dispenser using a magnetic card, terms of cashless payment systems, marking Omron’s entrance into the infor- automation, IT integration, and safety. mation equipment business, including Besides providing products in those areas, financial terminals. Today, based on tech- we are also putting to good use our exten- nological expertise accumulated over 30 sive solutions-based experience for overall years, the Omron Group has assumed a development of our business. Major SSB Products Automated Teller Machine Latest model ATM, adapted user-friendly universal design as well as sophisticated sens- ing technology for note/coin identification. Automatic Gate Most updated automatic gate developed through the advanced software technology that enables rapid-conveying and simultaneous processing of multiple tickets. 18 OPERATING RESULTS IN FISCAL 2003 and conversion to handle IC cards and the ness in China, where the financial infra- Domestically, demand related to electronic new yen notes. However, demand for structure is being rapidly developed; and fund transfer systems, including the electronic fund transfer systems is likely to (3) in the currency recycling processing replacement and conversion of equipment decrease as a reaction to the considerable module business in global scale. such as ATMs and automated bill chang- expansion recorded in fiscal 2003. In the ers, expanded rapidly in advance of the area of traffic and road management sys- planned introduction of new yen notes in tems, we also expect a challenging busi- the second half of fiscal 2004. Demand ness environment due to constrained pub- associated with public transportation sys- lic investment. As a result, we anticipate tems also increased, in order to improve that SSB will experience an 8.1% drop in passenger services such as the accept- sales to ¥125 billion. ance of IC cards. At the same time, the As a strategy for sales expansion in the demand for traffic and road management global market over the medium and long systems was relatively strong due to large- term, the Group will become more aggres- scale projects centered on an urban sive in seeking collaboration with other expressway. equipment manufacturers. A joint venture Overseas, meanwhile, sales were gen- company in the information equipment erally stagnant due to intensified competi- business is planned for October 2004 with tion in the Korean market and delayed Hitachi, Ltd., with whom we have been launch of the ATM business in the Chinese jointly developing next-generation ATMs market. since 2000. Related to that move, we will The SSB segment was thus generally transfer its information equipment business propelled by large domestic demand, with currently handled by SSB and AMB to the sales rising 16.6% to ¥136.0 billion. new joint venture. Based on collaboration between Omron and Hitachi, the new com- FUTURE OUTLOOK AND STRATEGY pany will aim to reach the number one For fiscal 2004, we anticipate growth in the position in three business areas: (1) the area of public transportation systems in domestic financial terminal machine busi- Japan’s Kansai region tied to replacement ness; (2) the currency recycling ATM busi- Banknote Recycler Unit Integrated into ATMs, financial services kiosk and other net- works. This unit recycles deposited banknote for with- drawals. Quick and accurate processing of counting, sorting and conveying banknotes is possible. 19 Card Reader/Writer Module Applicable in ATMs, financial services kiosk and other net- works. This next generation of card reader/writer incorporates the needs of both contact and Contact-Less IC cards, and is able to fit various IC card stan- dards by modifying the pro- gram. HCB HEALTHCARE BUSINESS HCB Results and Projections The HCB segment accounts for 8.0% of consolidated net sales. Based on propri- etary bio-information sensing technology, the segment’s core products include digital blood pressure monitors and digital thermometers, with a wide range of other healthcare and medical equipment, including pedometers and chair mas- sagers. In this segment, we also promote various services such as health man- agement systems in which we recommend programs for prevention and alleviation of lifestyle-related diseases. FY2004 Projected Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 49.5 Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Exchange rates for projections are ¥105 to the US dollar, and ¥125 to the euro. 23.0 26.5 13.8 8.2 1.1 3.3 0.1 8.4 17.0% 2.0 Billions of yen (unless otherwise specified) FY2003 ¥ 47.0 FY2002 ¥ 42.3 FY2001 ¥ 40.6 21.3 25.7 13.3 8.3 1.2 2.7 0.1 7.2 15.3% 1.9 18.9 23.4 12.7 7.5 1.2 2.0 0.1 3.8 9.0% 1.9 18.9 21.7 12.6 6.4 1.1 1.6 0.0 1.6 3.9% 1.5 Sales Breakdown, by Product (Fiscal 2003 Actual) STRENGTHS AND POSITIONING IN other burdens to users, we are currently THE INDUSTRY working on the further evolution of bio- 6% 5% 8% 16% 11% Blood pressure monitors Thermometers Nebulizers Chair massagers Body composition monitor with scale Other Major HCB Products HEM-780 Digital Blood Pressure Monitor As demonstrated by our 65% global mar- information sensing technology for appli- ket share of digital blood pressure moni- cations in areas such as circulatory sys- tors for home use, personal healthcare tems, bio-chemical systems, body com- 54% equipment is an area in which our brand position, and metabolic systems. At the strength is visible around the world. The same time, we are pursuing a strategy to Omron Group’s technological excellence set the Group apart from competitors in in bio-information sensing, or the meas- the fields of bio-information management urement of various types of physiological and disease prevention, involving linkage signals, is what stands behind the brand. with treatment programs aimed at With an eye to develop measuring equip- lifestyle-related diseases. ment that does not cause any pain or Body Composition Monitor with Scale, “Karada Scan” This monitor is able to show diet effectiveness at a glance, measuring body fat percentage, muscle mass, and basal meta- bolic rate (BMR). Total body scanning via both hands and both feet makes more accurate measurement possible. With the ComFitTM Cuff that easily wraps around the arm, this auto- matic digital blood pressure moni- tor makes the measurement pro- cedure easier. The optimal meas- urement technology through per- sonalized inflation for each person enables accurate measurement in a short time. 20 OPERATING RESULTS IN FISCAL 2003 In the domestic market, greater numbers demand through expansion of sales and Lifestyle-related diseases are becoming an of patients with high blood pressure and service locations together with investment in increasingly serious issue in the U.S., accelerated popularization of blood-pres- advertising and promotion taking advantage Europe, and Japan. In the circumstances, sure taking at home spurred the sales of brand strength. the needs of home medical care are also growth of digital monitors, and the introduc- growing rapidly. Such care effectively pre- tion of new products and aggressive adver- FUTURE OUTLOOK AND STRATEGY vents and manages lifestyle-related dis- tising investment resulted in rapid expansion As health consciousness increases both eases when doctors promptly utilize vital in market share for body composition moni- domestically and overseas, continued health readings monitored at home on a tors. In addition, the satisfaction of user expansion is expected for digital blood daily basis. With living standards improving requirements for greater compactness in pressure monitors, body composition in urban areas in China and other Asian chair massagers helped drive sales of that monitors, and nebulizers. Domestically, countries, self-care awareness is gradually product line as well. growth is also expected from an enhanced taking hold. Thus, the Omron Group’s Overseas, sales were up in all product lineup of chair massagers. In China, healthcare business is set for expansion in areas, against a background of greater emphasis will be placed on expanding the an increasingly wide arena. numbers of people with high blood pres- market in urban areas for healthcare and As a result of growing social needs with sure. Particularly in the U.S., the sales of medical equipment. These strategies will respect to lifestyle-related diseases, domes- nebulizers for patients experiencing chronic serve to further reinforce the HCB operat- tic sales rose 12.7% year-on-year to ¥21.3 obstructive pulmonary disease (COPD) as ing structure. Given this environment and billion, and overseas sales increased 9.5% well as the sales of digital blood pressure strategy, sales for fiscal 2004 in the HCB to ¥25.7 billion. Sales for the segment as a monitors increased. In China as well, mar- segment are anticipated to rise 5.4%, to whole grew 10.9% to ¥47.0 billion. ket development was achieved by spurring ¥49.5 billion. Transformation of Healthcare Business from Internal Company to Wholly Owned Subsidiary In July 2003, the internal Health Care Business Company (overseeing planning and sales) was combined with OMRON Institute of Life Science Co., Ltd. (overseeing development), to form a wholly owned subsidiary known as Omron Healthcare Co., Ltd. Health care related operations were thus spun off into a separate entity. This new subsidiary, which encompasses the growth domain of lifestyle- related disease monitoring, required independent structures, decision-making systems, and employment systems so as to flexibly and speedily direct resources toward this domain. As a specialist manufacturer in the healthcare and medical field, this subsidiary will oper- ate autonomously to encourage business development in the four home medical care areas of circulatory systems measurement, bio- chemical systems measurement, obesity solutions, and lifestyle improvement programs. The objective will be continued progress toward the maximization of corporate value. Chair Massager Pisu Style HM-411 This chair massager incorpo- rates a full-fledged massage function while achieving a low price. Available in six different colors, and Good Design Award-winning. Mesh Nebulizer Model NE-U22 World’s smallest, lightest nebu- lizer operates with two “AA” batteries, for convenient use at work, school, or when traveling. 21 Other OTHER BUSINESSES This segment, comprised of businesses and products in “other” categories, accounts for 4.2% of consolidated net sales. The primary components of this segment consist of the initial development of new businesses, and the fostering and reinforcement of businesses not covered by existing internal companies, undertaken by the Business Development Group. Products in this segment include commercial game machines (such as photo- sticker machines), PC peripherals (e.g., uninterruptible power supplies and broadband routers), RF-ID tag systems, vehicle disturbance surveillance devices, remote supervisory systems, and contents distribution services for cellular phones. Other Businesses Results and Projections FY2004 Projected Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 27.0 Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: Exchange rates for projections are ¥105 to the US dollar, and ¥125 to the euro. 26.5 0.5 — — — 0.5 — 4.0 14.8% 6.0 Billions of yen (unless otherwise specified) FY2003 ¥ 24.5 24.0 0.5 0.1 — — 0.4 — 3.8 FY2002 ¥ 34.7 32.8 1.9 — — — 1.6 0.2 4.5 15.5% 9.5 13.0% 7.1 FY2001 ¥ 49.2 48.5 0.8 — — — 0.5 0.3 2.6 5.3% 16.5 OPERATING RESULTS IN FISCAL 2003 Net sales for the segment fell 29.5% AND FUTURE OUTLOOK compared to the previous fiscal year, to With stagnation of the domestic market for ¥24.5 billion, due to factors such as business computers, the PC peripherals excluding Omron Alphatec Corporation business faced a downturn. At the same (¥5.4 billion) from Omron Group’s consoli- time, competition was intensified in the dated results. area of commercial game machines, mak- In fiscal 2004, demand for telecommu- ing for a difficult business climate. We nications equipment is expected to rise continued to make efforts to develop and with the expanding number of broadband foster new businesses, as market viability users, contributing to an anticipated is assessed in “machine-to-machine” busi- 10.3% rise in sales year-on-year, to ¥27.0 ness domains such as remote supervisory billion. systems and vehicle anti-theft systems. Major Products of Other Businesses Photo Sticker Machine “Hyakka Kenran” With sophisticated image pro- cessing technology and high- definition computer graphics, this entertainment photo machine allows you to make composite pictures using vari- ous images of scene. BN50XS Uninterruptible Power Supply This power supply backs up power supply at the time of server down due to power- associated trouble such as blackout, in order to prevent servers and computers from losing data. 22 RESEARCH & DEVELOPMENT The principal theme of GD2010 New Phase 2 is construction of a platform for growth. The Omron Group will continue the efforts needed to ensure that its core technologies are ever more advanced, centered on “Sensing & Control.” In collaboration with partners, moreover, the Group will energetically promote the creation of new technological value, i.e., R&D based on collaborative innovation, as it aims to estab- lish “creative technology” for winning out among 21st century competition. R&D INVESTMENT guides (SPICA) for realizing outstanding cost nanotechnology, controlling the structures R&D investment was ¥46.5 billion in fiscal reductions in optical communications and functions of materials at the nano level, 2003, representing a 0.4% rise over the devices, and lightwave control devices such with biotechnology and IT. previous year to 7.9% in the percentage of as Double Reflection-LEDs and flat type The Group’s main contributions in the R&D. R&D is the most important factor for LEDs. boosting our growth potential, and we will R&D sector consist of proprietary visual sensing technology such as face recogni- continue active investment in R&D. The APPROACH TO R&D BASED ON tion technology, and nano level ultra-preci- total investment for fiscal 2004 is expected COLLABORATIVE INNOVATION sion 3D fabrication and replication technol- to reach ¥49.0 billion (8% level in terms of The Omron Group is taking part in a joint ogy developed through research on light- percentage of R&D expenses to net sales). project with participants from industry, aca- wave control devices. R&D in this field demia, and government involving the fusion requires integration of extensive areas of INVESTMENT IN PROPRIETARY of nanotechnology, biotechnology, and IT. science and technology ranging from basic TECHNOLOGICAL DOMAINS The project seeks to enhance industrial science to applied industrial technology. Proprietary technological domains that the capabilities centered on medical applica- Against that backdrop, we will be actively Group is designating for ongoing attention tions by developing materials and products promoting collaborative innovation to com- include ultra-precision 3D fabrication and to substitute for or supplement human mercialize new technologies in this field replication technology and MEMS; lightwave physical functions, such as ergonomic with participating partners that possess a control; vision, optical, and radio wave sens- materials and sensors that replicate the five high level of specialized knowledge in each ing; and knowledge and information control. human senses. This approach combines field. Lightwave control technology, for exam- ple, is based on the miniaturization and increased integration of various optical ele- ments for greater accuracy in the control of lightwaves. The Omron Group is currently developing micro lens arrays (MLAs) for dra- matically improving the brightness of liquid crystal used for projectors and cellular phones, replicated polymer optical wave- Point Light Source High Efficiency Backlight Wins Invention Award Omron researchers won the 2004 Ministry of Education, Culture, Sports, Science and Technology Prize for invention of a high effi- ciency backlight to be used for point light source used for LCD lighting devices in mobile equipment applications. The new back- light is already starting to be used widely around the world together with the increased use of color displays for cellular phones. We will apply the product to general lighting in the future with the aim of contributing to greater energy conservation. R&D expenses (Billions of yen) R&D expenses ratio (%) R&D staff (persons) Number of patents (cases) FY2004 Projected FY2003 FY2002 FY2001 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IAB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ECB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other businesses (Business Development Group and other segments) . . . . . . . . . . . . . . Total Total Total applications . . . . . . . . . . . . . . . . . . . . . . . . . Patents obtained . . . . . . . . . . . . . . . . . . . . . . . . . Number of patents . . . . . . . . . . . . . . . . . . . . . . . . 49.0 15.7 8.0 5.8 6.5 2.9 10.1 8.0% 168.0 1,190 610 — 46.5 14.5 6.7 5.2 7.6 2.7 9.8 7.9% 159.4 1,170 580 4,154 40.2 13.4 6.0 4.0 5.4 2.5 8.9 7.5% 137.8 1,141 543 4,068 41.4 14.7 9.2 * 7.4 2.9 7.2 7.8% 141.0 1,134 437 3,794 * R&D expenses of AEC were included in ECB in fiscal 2001. 23 CORPORATE SOCIAL RESPONSIBILITY The Omron Group holds that corporate social responsibility should be manifested in our business in the first place. Indeed, the products and services we have developed based on technologies differentiating the Group from competitors comprise the greatest means at our disposal for contributing to increased social prosperity and efficiency, and to environmental preservation. Our commitment time is, however, not merely to business expansion. Apart from our business, we energetically involve ourselves in socie- ty and the environment through volunteer activities, contributing substantially toward maintaining a healthy society and healthy environment and thus helping to ensure sustainable growth. CORPORATE CITIZENSHIP ACTIVITIES The Omron Group embedded the concept of Corporate Public Responsibility in its corporate motto in 1959. This motto is expressive of its corporate philosophy as, “At work for a better life, a better world for all.” Based on this philosophy, Omron also released a corporate citi- zenship declaration in 1998. Corporate Citizenship Declaration —As a responsible member of society, we pledge to promote corporate citizenship activities toward the goal of creating a better society.— MAJOR CORPORATE CITIZENSHIP ACTIVITIES We at the Omron Group promote a wide variety of corporate citizenship activities in six main categories: science & technology, social wel- fare, international exchange, arts & culture, global environment, and community support. 1) Science & Technology 2) Social Welfare 3) International Exchange Centered on the Tateisi Science and Technology Foundation, we support research projects and international exchange that pro- motes harmony between man and machines in the fields of electronics and information engineering. For fiscal 2003, some 20 themes were selected for research funding and five for support of international exchange. In addition, joint work was undertaken with NPOs using our proprietary sensing technology to develop new anti-personnel landmine detectors and to support landmine removal operations. In 1972, the Omron Group built Japan’s first production plant designed with a work-friendly environment for physically challenged people. Omron Taiyo Co., Ltd., operates the plant in Oita Prefecture. This same approach was bol- stered for use in construction of Omron Kyoto Taiyo Co., Ltd., in 1986. The Group also sup- ports wheelchair marathons, art festivals, and other events for the physically challenged. Our employees participate in various volunteer activities to encourage international exchange, such as the activities in Foster Plan and a pro- gram for charity sweater knitting. We also support foster children by topping up the amount of money commensurate with the contributions corresponding to the amounts employees spend using their Omron Volunteer Cards*. * Combination employee ID and credit cards; 0.3% of the credit card amount used is used for donation. 4) Arts & Culture 5) Global Environment 6) Community Support The Omron Group contributes toward devel- oping and spreading the arts and culture fur- ther through sponsorship of various presenta- tions and performances, such as the Kyoto Culture Forum and pipe organ concerts. Besides moving to reduce the burden on the environment through its business activities, the Omron Group is also involved in environmental conservation activities in Japan and overseas, including clean-up and streetscape activities, and tree-planting and reforestation. Many employees also participate in volunteer activi- ties to support conservation of the natural environment, such as selective thinning for sustainable forest management. The Omron Group supports various efforts to improve social welfare and the general living environment, centered on Kyoto, home of Omron’s Group Headquarters. Also, each year on the Founder’s Day, what we call Omron Day, employees at all Omron Group facilities make personal efforts to express their appreciation to the local communities through activities such as clean-up activities, visits to community institutions, blood donations, and computer training. 24 ENVIRONMENTAL ACTIVITIES ENVIRONMENTAL ACCOUNTING GREEN PROCUREMENT The Omron Group views environmental The Omron Group is tackling implementa- After the RoHS Directive*1 and WEEE issues as important management tasks, tion of efficient environmental accounting in Directive*2 came into effect in Europe in and promotes environmental management order to quantify its environment-related February 2003, the Group was presented practices that enhance both economy and investments and expenses and to confirm with stronger requirements from cus- ecology. Green Omron 21, an environ- their effectiveness for promoting efficient tomers not to use hazardous chemical mental vision released in May 2002, environmental management. substances in its products. As a result, expresses our direction, plans, and goals We introduced environmental account- Omron moved from fiscal 2003 to offer for environmental management. It is ing at our Japanese production sites from environmentally guaranteed products. aimed at long-term maximization of corpo- fiscal 2001, and expanded it the following With this change of policy, we revised rate value and contributing to a recycle- year to cover our Japanese non-produc- our certification standards for suppliers based sustainable society. tion sites. In the future we will also include and imposed several conditions on them. Efforts during fiscal 2003 included (1) our Japanese non-production affiliates, These conditions include: the provision of the promotion of zero emissions through and our overseas production sites. information on regulated substances con- 100% recycling and reuse of waste prod- In fiscal 2003 we began to examine tained in supplied materials and ensuring ucts generated in our business activities; (2) what we call internal environmental the accuracy of said information, as well evaluation of the environmental manage- accounting indicators in order to allocate as the acquisition of ISO 14001 certifica- ment systems of suppliers, and investiga- environmental costs so as to best achieve tion or other third-party environmental tion of chemical substances subject to reg- environmental benefits. management certificates by the end of ulated use in purchased parts and materi- als; and (3) provisional implementation of an Scope: environmental management assessment 15 Japanese production sites, and 7 Japanese non-production sites. system, aimed at promoting prioritization of Environmental costs: environmental concerns throughout the Omron Group, as well as accelerating envi- ronment-related efforts. During fiscal 2004, we plan to formulate a long-term environ- mental vision extending through 2010. ¥1.84 billion (investments: ¥0.3 billion; expenses: ¥1.54 billion). Economic benefits due to reduced expenses: ¥74.4 million (effects in real terms versus the previous fiscal year only) March 2006. Going forward, we continue to go on with the certification of suppliers based on the revised standards, and from April 2006 we will procure materials only from “green suppliers” who satisfy our supplier certification standards. *1 RoHS Directive: Restriction of Hazardous Substances in Electrical and Electronic Equipment Directive (pro- hibiting the use of six specified hazardous sub- stances) *2 WEEE Directive: Waste Electrical and Electronic Equipment Directive (requiring collection and recycling of affected products at the end of their life cycle) New System for Reduction of Hazardous Chemical Substances Recent years have seen the reinforcement of laws and regulations in Europe, the United States, and China for regulating the used of hazardous chemicals. As a result, corporate policy on the management and handling of such substances is increasingly being questioned. We set up a Rechs system, a survey support system for chemicals contained in materials, and in October 2003 we started to collect information on regulated chemicals contained in materials provided from suppliers. We also established an E-Warps system, a support system for the design of environmentally-guaranteed products, for the use of product design and information disclosure on products. These systems began functioning in part from April 2004, and are now being used for abolishing totally the use of hazardous chemicals designated by RoHS Directive. The Omron Group will introduce improvements in those two systems in the future with a view to smoother collection of information on the environmental responsiveness of products, business improvement associated with the development of environmentally guaranteed products, and compatibility with overseas requirements. By the end of March 2006, we plan to provide environmental guaranty for all our products around the world. 25 ACTIVITIES FOR REDUCING ENVIRONMENTAL IMPACT DEVELOPMENT OF ECO-PRODUCTS We recognize that one of our major roles, CO2: The Omron Group has set a goal of Waste: The Omron Group defines “zero as a manufacturer is to minimize the bur- cutting the amount of CO2 emissions from emissions” as 100% recycling and reusing den on the environment through product our Japanese production sites in fiscal 2010 of all waste materials produced through development. We thus began from 1998 by 11% from the 1995 level, to 42,540 tons, our business activities without incinerating to promote Eco-Products, environmentally taking our cue from the CO2 emissions or burying any of it. friendly products as defined by the Eco- reduction target for Japan set at the Third Omron achieved zero emissions at 14 Product Approval System. Conference of Parties to the U.N. Framework out of 15 Japanese production sites during At eco-product planning and develop- Convention on Climate Change held in Kyoto. fiscal 2003. The remaining site is sched- ment stages, we carry out prior assess- Due to substantial production increases, uled to achieve zero emissions during fis- ments on the environmental impacts of our CO2 emissions at Omron’s Japanese pro- cal 2004. products in order to minimize the burden duction sites during fiscal 2003 were up by Although the total volume of emissions on the environment at all stages of our 2,156 tons compared to the previous fiscal was 220 tons greater than for fiscal 2002, production activities: manufacturing, distri- year. Compared to fiscal 1995, however, our 97.2% recycling rate surpassed the bution, use, maintenance, collection, CO2 emissions were cut 6.2% to 44,642 goal of 96%. waste, and recycling. tons-CO2, thus achieving the quantified goal The Omron Group aims to reach a During fiscal 2003, the Group achieved for the year of no more than 44,902 tons- recycling rate of 100% also at Japanese an Eco-Product rate of 69% for new prod- CO2. Omron also realized a 4.0% improve- non-production sites and overseas pro- ucts compared with its 50% goal. That ment per output unit during the fiscal year duction sites by fiscal 2006, and is working success covered 65 products (23 Eco- under review compared to last year. During toward zero emissions at all sites by label products, and 42 Eco-Products). fiscal 2004, we will establish emissions establishing annual goals. During the three years from 2001 to 2003, the effects of energy savings associ- ated with Eco-label products totaled approximately 36.26 million kWh (equiva- lent to 13,417 tons of CO2 emission). In addition, some 100 tons of metals and 451 tons of resin were subject to resource conservation. (%) 100 reduction targets for our Japanese non- production sites covering the period to March 2010, as has already been done for our production sites. Total CO2 Emissions from Japanese Production Sites Waste Disposal from Japanese Production Sites (t-CO2) 50,000 46,000 42,000 38,000 34,000 30,000 FY95 FY99 FY00 FY01 FY02 FY03 (%) 0 -10 -20 -30 -40 -50 (ton) 6,000 4,800 3,600 2,400 1,200 0 Target [left axis] Actual [left axis] Unit CO2 emission [right axis] (=Total CO2 emissions ÷ Production outpu 80 60 40 20 0 FY95 FY02 FY99 FY00 FY01 Total volume of waste [left axis] Total volume of final disposal [left axis] Recycling rate [right axis] FY03 Total CO2 Emissions from Japanese Non-production Sites (t-CO2) 12,000 Waste Disposal from Japanese Non-production Sites (ton) 400 1,0000 8,000 6,000 4,000 2,000 0 FY01 FY02 FY03 300 200 100 0 FY01 FY02 FY03 (%) 80 60 40 20 0 Total volume of waste [left axis] Total volume of final disposal [left axis] Recycling rate [right axis] 26 * Note: Details on activities related to corporate social responsibility, including environmental activities, are presented in the Sustainability Report 2004. CORPORATE GOVERNANCE AND COMPLIANCE In order to reinforce our competitiveness as a global company and to maximize an Omron Group’s cor- porate value over the long term, as is incorporated in our “Grand Design 2010” (GD2010) long-term man- agement vision, it will be essential to reorganize our corporate governance structure and implement enhanced functions for rapid execution of business operations and management monitoring in response to changes in the business environment. It will also be important to undertake thoroughgoing risk man- agement and compliance, so as to maintain the unwavering trust of our stakeholders. OMRON’S STANCE AND POLICIES TO management and of business operations. shareholders and investors, establishing CORPORATE GOVERNANCE The roles of the Board of Directors and two-way communications for manage- Our universal mission is to contribute to the Board of Corporate Auditors have also ment. development of society while maintaining a been strengthened in order to achieve strong sense of Corporate Public greater accountability. We have also rein- Responsibility (the philosophy behind our forced operational aspect of our gover- company motto). With this company nance system by setting up the Personnel motto philosophy as the cornerstone of our Advisory Committee and the values, we are committed to corporate Compensation Advisory Committee, both value-focused management aimed at maxi- of which work for increasing fairness and mizing the Group’s value on a long-term objectivity in terms of the decisions on the basis in capital markets for improved value compensation and appraisals affecting all to shareholders. This goal is consistent of our Directors. with the expectations of all our stakehold- ers including customers, shareholders, employees, and society at large. Pursuit of Ethicalness Corporate ethics are at the heart of our management philosophy and goals, while Omron also sees risk management as an effective vehicle for greater competitive- ness. This stance has allowed us to inte- grate corporate ethics and risk manage- ment with the formation of the Corporate Ethics & Business Conduct Committee. From the perspective of prioritizing compli- Realization of Management ance, Omron has also established the Characterized by Disclosure and Compliance Special Committee. And Superior Transparency based on the results of risk analysis across THE THREE ASPECTS OF We are working for accurate and timely the Omron Group as a whole, the CORPORATE GOVERNANCE disclosure, using fair, unbiased, and appro- Earthquake Risk Special Committee and Implementation of Accountability priate means with respect to essential Information Risk Special Committee have Since Omron introduced the Managing information such as financial status, busi- been formed to respond to risks character- Officers System and the Internal Company ness results, and governance issues. In ized by substantial urgency and impor- System in 1999, we have been promoting addition to information disclosure, Omron tance by proposing and fully implementing the separation of the roles of corporate actively listens to valuable input from appropriate countermeasures. Major Efforts to Enhance Corporate Governance during Fiscal 2003 – Increase in the number of outside directors from one to two – Increase in the number of outside auditors from two to three – Separation of the Chairman of the Board and CEO functions – Formation of the Compensation Advisory Committee with an outside director as chairman – Formation of the Corporate Ethics & Business Conduct Committee Management System Shareholders’ Meeting Board of Corporate Auditors Corporate Auditor Staff Group Auditing firm Executive Body President & CEO Corporate Ethics & Conduct Committee Execution Meetings (Chaired by: President and CEO) Corporate Division (Managing Officers) 27 Board of Directors (Chaired by: Chairman and Representative Director) Personnel Advisory Committee Compensation Advisory Committee Corporate Auditing Division DIRECTORS, CORPORATE AUDITORS AND CORPORATE OFFICERS (As of March 31, 2004) 3 4 5 6 7 1 2 1. Yoshio Tateisi Chairman of the BOD 2. Hisao Sakuta President and CEO 3. Shozo Hashimoto Director (external) 4. Tatsuro Ichihara Director and Executive Vice President 5. Shingo Akechi Director and Executive Vice President 6. Tadao Tateisi Director and Executive Vice President 7. Noriyuki Inoue Director (external) Executive Officers Yukio Kobayashi Yoshinobu Morishita Takuji Yamamoto Yoshinori Suzuki Akio Sakumiya Hiroshi Fujiwara Kazunobu Amemiya Hideo Higuchi Directors Chairman of the BOD Yoshio Tateisi President and CEO Hisao Sakuta Directors and Executive Vice Presidents Tatsuro Ichihara Shingo Akechi Tadao Tateisi Directors (external) Shozo Hashimoto Noriyuki Inoue Corporate Auditors Tsutomu Ozako Yoshisaburo Mogi (external) Yoshio Nakano (external) Hidero Chimori (external) Corporate Officers Executive Vice President Fumio Tateisi Senior Managing Officers Fujio Tokita Akihiko Otani Soichi Yukawa Tsukasa Yamashita Yutaka Takigawa Managing Officers Minoru Tamura Yasuhira Minagawa Kuniyasu Kihira Toshio Ochiai Hiroki Toyama Kojiro Tobita Keizo Kadono Kuninori Hamaguchi 28 FINANCIAL SECTION CONTENTS 30 31 32 38 40 41 42 43 44 66 67 69 Six–Year Financial Summary Eight–Quarter Financial Summary Fiscal 2003 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 Global Network Corporate and Stock Information SIX–YEAR FINANCIAL SUMMARY (U.S. GAAP) OMRON Corporation and Subsidiaries Years ended March 31 2004 2003 2002 2001 2000 1999 Millions of Yen (unless otherwise specified) ¥584,889 229,638 88,988 58,824 135,997 46,962 24,480 344,835 240,054 142,157 46,494 51,403 79,065 26,811 80,687 (34,484) 46,203 (28,119) 95,059 592,273 131,678 56,687 274,710 110.7 107.5 1,148.3 20.0 41.0% 8.8% 13.5% 24.3% 7.9% 8.3% 10.2% 4.73 1.01 46.4% 171.4% 1.16 43.27 ¥535,073 202,518 79,365 59,480 116,652 42,331 34,727 327,413 207,660 135,112 40,235 32,313 61,989 511 41,854 (30,633) 11,221 (1,996) 79,919 567,399 143,536 71,260 251,610 2.1 2.1 1,036.0 10.0 38.8% 6.0% 11.6% 25.3% 7.5% 0.8% 0.2% 4.36 0.96 44.3% 194.7% 1.26 23.59 ¥533,964 184,185 81,062 50,800 128,057 40,617 49,243 353,429 180,535 134,907 41,407 4,221 37,790 (15,773) 33,687 (40,121) (6,434) (12,056) 70,779 549,366 148,053 58,711 298,234 (63.5) (63.5) 1,201.2 13.0 33.8% 0.8% 7.1% 25.3% 7.8% (4.4%) (5.1%) 4.25 0.93 54.3% 214.4% 0.84 4.36 ¥594,259 227,691 129,444 — 141,928 39,327 55,869 376,194 218,065 131,203 42,513 44,349 76,566 22,297 50,796 (32,365) 18,431 (24,582) 85,621 593,144 145,489 67,213 325,958 87.4 85.3 1,311.1 13.0 36.7% 7.5% 12.9% 22.1% 7.2% 6.8% 6.7% 4.44 1.01 55.0% 179.3% 0.82 26.83 ¥555,358 215,087 109,661 — 128,534 42,640 59,436 358,911 196,447 133,662 36,605 26,180 57,625 11,561 59,926 (34,180) 25,746 (23,785) 88,670 579,489 169,797 69,472 336,062 45.0 44.5 1,308.6 13.0 35.4% 4.7% 10.4% 24.1% 6.6% 3.6% 3.5% 4.56 0.96 58.0% 215.1% 0.72 14.64 ¥555,280 245,785 56,673 — 135,872 43,729 73,221 364,314 190,966 136,734 42,383 11,849 43,245 2,174 29,583 (29,011) 572 21,629 88,900 580,586 164,610 86,723 321,258 8.3 8.3 1,250.3 13.0 34.4% 2.1% 7.8% 24.6% 7.6% 1.4% 0.7% 4.18 0.95 55.3% 204.4% 0.81 5.56 Operating Results: Net sales (Note 1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . Industrial Automation Business . . . . . . . . . . . . . . . . . Electronic Components Business . . . . . . . . . . . . . . . Automotive Electronic Components Business . . . . . Social Systems Business . . . . . . . . . . . . . . . . . . . . . Healthcare Business . . . . . . . . . . . . . . . . . . . . . . . . . Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SG&A expenses (excluding R&D expenses) . . . . . . . . . R&D expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITDA (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flows: Net cash provided by operating activities . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . Free cash flow (Note 3). . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) financing activities . . . Cash and cash equivalents at end of the year. . . . . . . . Financial Position (At Year-End): Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-bearing debt . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . Per Share Data (Yen): Net income (loss): Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . Ratios: Gross profit margin . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income margin . . . . . . . . . . . . . . . . . . . . . . . EBITDA margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SG&A expenses (excluding R&D expenses)/Net sales . R&D expenses/Net sales . . . . . . . . . . . . . . . . . . . . . . . Return on assets (ROA) (Note 5). . . . . . . . . . . . . . . . . . Return on shareholders’ equity (ROE) . . . . . . . . . . . . . . Inventory turnover (times) . . . . . . . . . . . . . . . . . . . . . . . Assets turnover (times) . . . . . . . . . . . . . . . . . . . . . . . . . Ratio of shareholders’ equity to total assets . . . . . . . . . Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt/equity ratio (times) . . . . . . . . . . . . . . . . . . . . . . . . Interest coverage ratio (times). . . . . . . . . . . . . . . . . . . . Other Financial Data: Capital expenditures (cash basis) . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . Employees (persons) . . . . . . . . . . . . . . . . . . . . . . . . . . 36,696 31,396 23,742 Note: 1. Certain reclassifications have been made to the net sales amounts previously reported for the year ended March 2002 in order for them to conform to the categories of the year ended March 2003. The amounts previously reported for the year ended March 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 the year ended March 2001 and earlier because the necessary data is not readily available. 31,146 31,445 24,821 37,583 32,217 24,997 38,115 27,662 24,324 38,896 33,569 25,124 34,454 29,676 23,476 2. EBITDA = Operating income + Depreciation and amortization EBITDA margin = EBITDA/Net sales x 100 3. Free cash flow = Net cash provided by operating activities – Net cash used in investing activities 4. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the year. 5. Return on assets (ROA)=Income (loss) before income taxes, minority interests and cumulative effect of accounting change/Total assets x 100 Total assets are based on the simple average of beginning and end of each fiscal year. 30 EIGHT–QUARTER FINANCIAL SUMMARY (U.S. GAAP) OMRON Corporation and Subsidiaries Years ended March 31 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter For the year 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Millions of Yen Operating Results: Net sales . . . . . . . . . . . . . . . . . . . . . 134,382 116,909 135,810 129,981 146,645 131,226 168,052 156,957 584,889 535,073 Industrial Automation Business. . . 54,477 46,940 56,128 51,293 57,934 50,990 61,099 53,295 229,638 202,518 Electronic Components Business . 22,341 19,718 21,201 19,186 23,360 19,803 22,086 20,658 88,988 79,365 Automotive Electronic Components Business . . . . . . . 14,593 13,738 13,631 14,637 14,995 15,274 15,605 15,831 58,824 59,480 Social Systems Business . . . . . . . 25,648 17,859 28,010 23,944 30,795 25,609 51,544 49,240 135,997 116,652 Healthcare Business. . . . . . . . . . . 11,693 10,108 11,119 10,259 13,328 11,574 10,822 10,390 46,962 42,331 Other Businesses . . . . . . . . . . . . . 5,630 8,546 5,721 10,662 6,233 7,976 6,896 7,543 24,480 34,727 Operating income (loss) . . . . . . . . . . 9,886 (252) 11,654 11,708 15,793 9,913 14,070 10,944 51,403 32,313 Cash Flows: Net cash provided by operating activities . . . . . . . . . . . . 14,192 12,690 21,353 2,356 9,984 2,802 35,158 24,006 80,687 41,854 Net cash used in investing activities. . . . . . . . . . . . . (6,059) (4,910) (9,492) (7,917) (5,053) (6,692) (13,880) (11,114) (34,484) (30,633) Net cash provided by (used in) financing activities . . . . . . . . . . . . (3,403) 10,198 (14,538) 514 (1,506) 9,519 (8,672) (22,227) (28,119) (1,996) Cash and cash equivalents at end of the year . . . . . . . . . . . . . 84,378 85,677 79,259 83,240 81,401 87,417 95,059 79,919 95,059 79,919 31 FISCAL 2003 MANAGEMENT’S DISCUSSION AND ANALYSIS THE MACROECONOMIC ENVIRONMENT 1. Japan GENERAL OVERVIEW OF FISCAL 2003 RESULTS The Japanese economy began showing signs of recovery from fiscal Although consolidated net sales increased 9.3 percent compared to 2002, with the pace of recovery accelerating in fiscal 2003, ended fiscal 2002, operating income rose 59.1 percent and net income was March 2004. Structural dependence on the U.S. decreased as China up by a factor of 52, with both figures setting new all-time highs. An emerged as another engine of growth in the world economy, and increase in SG&A expenses of ¥13.3 billion, including our aggressive exports continued to expand despite the appreciation of the Japanese investments in Research & Development (R&D) to achieve future yen. One characteristic of the economic recovery in fiscal 2003 was growth, was more than covered by the combination of an increase in that domestic demand, after a long period of stagnation, showed revenue (¥22.2 billion) and effects of structural reforms such as reduc- signs of recovery, reinforcing the expansionary undertone. In particu- tions in fixed manufacturing costs (¥10.2 billion). As a result, return on lar, private-sector capital investment began showing double-digit equity (ROE) jumped to 10.2 percent, up from 0.2 percent in fiscal growth from the second half of the fiscal year. New growth industries, 2002, allowing the Omron Group to reach its goal of 10 percent ROE where Japan can fully demonstrate its originality and competitiveness, one year earlier than planned. Accordingly, a substantial improvement such as digital home electronics emerged for the first time in many was achieved in terms of free cash flow, and the ratio of shareholders’ years, accompanying a substantial improvement in the corporate men- equity to total assets advanced from 44.3 percent to 46.4 percent. tality concerning forward-looking capital investment. In the fourth quarter, this wave of recovery also began rippling across consumption REVIEW AND ANALYSIS OF THE INCOME STATEMENT and employment. 2. Overseas Sales Consolidated net sales were up 9.3 percent year-on-year to ¥584,889 million. Higher sales were recorded for all regions except North Despite elements of uncertainty such as concerns over terrorism and America, and for all business segments except Automotive Electronic the federal deficit, real GDP in the U.S. showed a 3.1 percent year-on- Components Business (AEC) and Other Businesses. year growth in fiscal 2003, up from 2.2 percent in the previous year. Tax cuts contributed especially to strength in housing investments and Cost of Sales and SG&A Expenses consumption. Recovery in Europe was softer, as the strong euro Along with the increase in sales, the cost of sales and SG&A expenses restrained exports and personal consumption did not fully overcome rose, by 5.3 and 5.2 percent year-on-year, respectively. Partly thanks the continuing stagnation. A bright spot, however, was seen in corpo- to our restructuring efforts through the implementation of the Group’s rate profits resulting from structural reforms. The greatest economic Productivity Improvement Reforms (VIC21), however, the cost of sales expansion was seen in Asia, as real GDP growth during 2003 exceed- and the SG&A expenses ratio declined by 2.2 and 1.0 percent points, ed three percent in Hong Kong, Taiwan, and Korea, and hit nine per- respectively. R&D expenses were up by ¥6,259 million year-on-year, cent in China. Besides dynamism in IT industries, domestic demand to ¥46,494 million, rising from 7.5 percent to 7.9 percent as a percent- in China remained strong due to ongoing preparations for the 2008 age to total net sales. This only reflects the fact that the Omron Group Olympic Games. This strength was spreading to neighboring coun- has promoted R&D investment as a key component of its growth tries as well. strategy. The Group plans to maintain future R&D expenses at approximately eight percent of net sales. Net Sales & Operating Income (Billions of yen) 600 SG&A Expenses Ratio & R&D Expenses Ratio (%) 30 Net Income (Loss) & ROE (Billions of yen) 30 500 400 300 200 100 0 FY99 FY00 FY01 FY02 FY03 Net sales Operating income 20 10 0 FY99 FY00 FY01 FY02 FY03 SG&A expenses ratio R&D expenses ratio 32 20 10 0 -10 -20 FY99 FY00 FY01 FY02 FY03 Net income (loss) [left axis] ROE [right axis] (%) 15 10 5 0 -5 -10 Non-operating Profit and Loss moted the introduction of IT in manufacturing industry and the provi- Net non-operating loss came to ¥3,419 million, for a substantial sion of total solutions to enable customers to improve the quality of ¥24,162 million improvement over the loss recorded in the previous their products. As a result, sales rose substantially for base inspection year. The main factor was elimination of the fiscal 2002 one-time loss- systems, displacement sensors, vision sensors, motion controllers, es, i.e., structure restructuring expenses such as for the early retire- and safety-related products. ment program. Overseas, sales were generally strong in North America, while we managed to increase sales in Europe amid the challenging business Net Income before Income Taxes and Net Income environment of euro strength and stagnant capital investment by rein- As a result of the foregoing, net income before income taxes, minority forcing our marketing efforts. Sales expanded substantially in interests, and the cumulative effect of accounting change, increased Southeast Asia and China as well, due to expanded direct marketing, to ¥47,984 million, up from ¥4,732 million for the previous year. enhancement of sales channels, and stronger efforts on social infra- Similarly, net income rose to ¥26,811 million, up from ¥511 million. structure. Net income per share (basic) was ¥110.7, a huge leap from ¥2.1 of the previous fiscal year. Based on its profit distribution policy, the • Electronic Components Business (ECB) Omron Group increased its fiscal 2003 ordinary cash dividend to Sales of ECB rose 12.1 percent year-on-year in fiscal 2003, to ¥13.0 in consideration of the current and previous fiscal year results, ¥88,988 million, accounting for 15.2 percent of consolidated net sales. and declared a ¥7.0 special cash dividend to commemorate its 70th Despite negative factors such as intensified price competition and anniversary, for a total dividend of ¥20.0 for the fiscal year under lower retail prices, we expanded sales centered on consumer elec- review. SEGMENT INFORMATION tronics and products for the telecommunications industry by offering value-added products utilized our technological edges. In particular, sales of backlights for cellular phones, originally introduced in fiscal 1. Review of Operations by Business Segment 2001, doubled compared to the previous fiscal year. Narrow pitch From fiscal 2003, the Automotive Electronic Components Business flexible print circle (FPC) connectors for cellular phones, produced (AEC) was classified separately from the Electronic Components using ultra-precision 3D fabrication and replication technology, also Business (ECB). The following year-on-year changes in segment sales showed consistent sales growth, as did cellular phone LED light mod- have been calculated, using the figures after the reclassification. ules. Sales of base station relays also increased substantially, due to Sales Breakdown, by Business Segment FY2003 FY2002 Note that from fiscal 2003, ECB transferred its electrical and elec- rapid expansion of the telecommunications infrastructure markets in China and Europe. IAB . . . . . . . . . . . . . . . . . . . . . . . . ECB . . . . . . . . . . . . . . . . . . . . . . . AEC . . . . . . . . . . . . . . . . . . . . . . . SSB . . . . . . . . . . . . . . . . . . . . . . . HCB . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . 39.3% 15.2% 10.1% 23.3% 8.0% 4.2% 37.8% 14.8% 11.1% 21.8% 7.9% 6.5% tronic parts for the automobile business to AEC. • Automotive Electronics Business (AEC) Sales of AEC fell by 1.1 percent year-on-year to ¥58,824 million, and accounted for 10.1 percent of consolidate net sales in the year under review. Although production in the domestic auto industry was flat on a unit basis, AEC increased its sales through launching of new prod- • Industrial Automation Business (IAB) ucts such as laser radars, electronic power steering controllers, and Sales of IAB for the fiscal year under review rose 13.4 percent year- door lock controllers. These new products are now positioned to fuel on-year against a background of global economic recovery, reaching future sales growth. In North America, output reductions centered on ¥229,638 million and accounting for 39.3 percent of consolidated net the Big Three were compounded by the weakness of the U.S. dollar sales. Various types of control equipment, especially for the semicon- as well as severe price competition in areas such as on-board relays, ductor and flat panel display (FPD) industries, experienced significant resulting in a difficult market environment. The markets in Europe, growth, and demand from the automotive industry was also relatively Korea, and Asia, however, recorded relatively solid performance. strong. In terms of applications, sales related to equipment quality, Sales of on-board relays to European electronic component manufac- safety, and the environment registered major increases. turers showed especially significant gains. Domestically, IAB reinforced its marketing efforts in industries manu- facturing products such as semiconductors, FPDs, electronic compo- • Social Systems Business (SSB) nents, and automobiles, seeking to maintain a firm grip on the demand Sales of SSB rose 16.6 percent year-on-year to ¥135,997 million, for digital consumer appliances. At the same time, IAB actively pro- accounting for 23.3 percent of consolidated net sales. Domestically, 33 demand related to electronic funds transfer systems, including the 2. Review of Operations by Region modification and replacement of equipment such as ATMs and auto- As of April 1, 2003, AEC was separated from ECB. Therefore, prior- mated bill changers, expanded in advance of the planned introduction year comparisons of the sales for each segment below are calculated of new paper currency in the second half of fiscal 2004. Overseas using the reclassified figures. demand was also generally firm. Demand from the train station systems sector also increased, • Japan thanks to the demand for upgrading main equipments to conform to Sales increases were recorded for all business segments with the an improvement in passenger services such as the acceptance of IC exception of Other Businesses, which was negatively affected by cards. In traffic control and road management system fields, on the transfer of the operations of Omron Alphatec Corporation as part of other hand, demands for urban highways-related were robust in the operational restructuring. Sales to external customers totaled year under review. ¥376,349 million, for a 10.5 percent increase over the previous year. • Health Care Business (HCB) • North America Sales of HCB were up 10.9 percent year-on-year to ¥46,962 million, HCB registered a solid performance, but declines were experienced in accounting for 8.0 percent of consolidated net sales. Both domesti- IAB, the ECB, and AEC. This was partly due to the appreciated cally and overseas, sales growth stemmed from restraints on public Japanese yen and Canadian dollar, as well as reduced unit output by healthcare spending and increased health-related demands. In the automakers that affected AEC. Sales to external customers totaled domestic market, greater numbers of patients with high blood pres- ¥64,613 million, marking a 4.8 percent decline from the previous year. sure and the increased public awareness of the effectiveness of blood- pressure taking at home spurred the sales growth of digital blood • Europe pressure monitors. Also, the introduction of new products and The appreciated euro was a positive factor despite a difficult business aggressive investments in advertising resulted in a rapid expansion of climate, and sales gains were achieved by IAB, ECB, AEC, and HCB. the market share for body composition analyzers. In addition, satisfy- Sales to external customers reached ¥84,286 million, increasing 14.7 ing the needs of customers for greater compactness helped to pro- percent from the previous year. mote the sales of chair massagers. Overseas, sales were up in all markets, against a background of greater numbers of people with high • Asia and Other blood pressure. In the U.S., in particular, sales of nebulizers for IAB, ECB, and HCB chalked up strong performances in Asia and other patients experiencing chronic obstructive pulmonary disease (COPD) regions, and AEC also performed relatively well. Sales to external cus- as well as those of digital blood pressure monitors substantially tomers totaled ¥59,641 million, increasing 12.3 percent from the previ- increased. In China as well, HCB increased sales by expanding the ous year. number of marketing and service centers and promoting demand through aggressive investments in advertising and sales promotion. • Other Businesses Sales of Other Businesses, were down 29.5 percent percentage year- on-year to ¥24,480 million (accounting for 4.2 percent of consolidated net sales), due to factors such as exclusion of Omron Alphatec Corporation from consolidation since the second half of the previous fiscal year. The primary components of this business field consist of Sales Breakdown, by Region the Business Development Group’s exploration and nurturing of new businesses, and the fostering and strengthening businesses not cov- ered by a specific internal company. In terms of exploring new busi- nesses, market viability was assessed in machine-to-machine busi- ness domains such as remote supervisory systems. In existing busi- ness lines, the market prices for PC peripherals continued to decline, and in the entertainment area commercial game machines faced inten- sified competition. FY99 FY00 FY01 FY02 FY03 71.5% 10.7% 11.0% 6.7% 71.3% 10.8% 10.3% 7.6% 67.0% 12.3% 12.2% 8.5% 63.7% 12.7% 13.7% 9.9% 64.3% 11.0% 14.4% 10.2% Japan North America Europe Asia and Other 34 EXPLANATION OF BALANCE SHEETS Assets, Liabilities and Shareholders’ Equity foreign currency translation adjustments, minimum pension liability adjustments, net unrealized gain (loss) on securities, and net unreal- Total assets as of March 31, 2004, stood at ¥592,273 million, up by ized loss on derivatives. As a result, the ratio of shareholders’ equity ¥24,874 million (4.4 percent) compared to the end of the previous to total assets improved to 46.4 percent from the 44.3 percent at the year. Most of this increase was in the form of current assets (up by end of the previous year, and the debt/equity ratio, defined as total lia- ¥21,113 million year-on-year). Cash and cash equivalents rose by bilities divided by shareholders’ equity, improved from 1.26 times to ¥15,140 million (18.9 percent) accompanying increased free cash flow, 1.16 times. Shareholder’s equity per share based on the number of while notes and accounts receivable-trade rose by ¥11,296 million (9.9 shares outstanding at the end of the year was ¥1,148.33, compared percent) due mainly to increased orders. Property, plant, and equip- to ¥1,036.01 a year earlier. ment grew only slightly, expanding by ¥1,678 million (1.1 percent). Investments and other assets also rose only slightly, increasing by CASH FLOW ¥2,083 million (1.7 percent), due to the increased value of investment Cash and cash equivalents as of the end of fiscal 2003 were up by securities accompanying higher stock prices. ¥15,140 million (18.9 percent) compared to the previous year, rising to Current liabilities, long-term debt, and minority interests in sub- ¥95,059 million. The effects of exchange rate fluctuations during the sidiaries rose by ¥1,774 million (0.6 percent) compared to the end of fiscal year were minimal. the previous fiscal year, reaching ¥317,563 million. Countering the Cash flow provided by operating activities for the year totaled aforementioned increase in notes and accounts receivables-trade, ¥80,687 million in inflow, up by ¥38,833 million from the previous year. notes and accounts payable-trade rose by ¥11,572 million (17.0 per- The main factor responsible for this was the sharp increase in net cent). Also, in conjunction with a bond redemption scheduled for income for the year. September 2004, the current portion of long-term debt (repayment Net cash used in investing activities totaled ¥34,484 million in out- within one year) increased by ¥18,039 million, to ¥30,036 million. The flow, an increase of ¥3,851 million. The main factor responsible was current ratio thus moved from 195 percent at the end of the previous ¥3,661 million increase in capital investment (for a total of ¥38,115 mil- year to 171 percent. Due to accelerated repayments and the conver- lion) accompanying Omron’s growth strategy. sion to short-term debt of the bond redemption amount, long-term Net cash used in financing activities was ¥28,119 million in outflow, debt declined by ¥29,108 million, to ¥11,207 million. As a result, total compared to outflow of ¥1,996 million in the previous fiscal year. The interest-bearing liabilities fell by ¥14,573 million (20.5 percent), to main factor responsible was accelerating the repayment of net bor- ¥56,687 million. Termination and retirement benefits decreased by rowings of short-term bank loans and long-term debt. The Omron ¥992 million (0.8 percent), to ¥119,738 million. Group paid dividends of ¥2,942 million, with ¥8,411 million expended Shareholders’ equity increased by ¥22,162 million in terms of on share repurchases, for a total use of funds of ¥11,353 million. “other” surplus funds resulting from increased net income for fiscal 2003, as well as increasing by ¥11,803 million due to net unrealized gains on securities resulting from the increased value of investment securities. Omron also repurchased ¥8,411 million worth of its own shares, and total shareholders’ equity rose accordingly, by ¥23,100 million (9.2 percent) compared to the end of the previous fiscal year, to ¥274,710 million. Accumulated other comprehensive losses include Working Capital & Current Ratio (Billions of yen) 200 160 120 80 40 0 FY99 FY00 FY01 FY02 FY03 Working capital [left axis] Current ratio [right axis] (%) 250 200 150 100 50 0 Outstanding Interest-Bearing Liabilities & Debt/Equity Ratio (Billions of yen) (Times) 2.0 Free Cash Flow (Billions of yen) 50 80 60 40 20 0 1.5 1.0 0.5 0.0 40 30 20 10 0 -10 FY99 FY00 FY01 FY02 FY03 FY99 FY00 FY01 FY02 FY03 Outstanding interest-bearing liabilities [left axis] Free cash flow Debt/equity ratio [right axis] 35 RISK AND RISK MANAGEMENT 38.3 percent and 39.2 percent, respectively, and we expect further With respect to items related to the Omron Group’s business and increases in the overseas operations ratio due to factors such as pro- accounting, the following risks may influence the Omron Group’s man- duction shifts. The Omron Group seeks to hedge against exchange agement results and financial condition (including share price), and we rate risk in such ways as balancing imports and exports denominated believe that these items may substantially affect investor decisions. in foreign currencies. Exchange rate fluctuations, however, could have Note that items referring to the future reflect the Omron Group’s fore- a negative impact on our operating results and financial condition. casts and/or assumptions as of June 25, 2004. 4. Protection of Intellectual Property, including Imitation 1. Economic Conditions Products in China The primary business of the Omron Group is electronic components The Omron Group has accumulated technology and expertise allowing used in the manufacture of control system equipment and other elec- us to differentiate our products from those of our competitors. But it is trical/electronic equipment by the manufacturing sector and in capital impossible to completely protect all of our intellectual property consist- investment related areas. Accordingly, demand for Omron Group ing of proprietary technology and expertise, due to legal restrictions in products is affected by economic conditions pertaining to these mar- specific regions, including China, and/or conditions that allow only lim- kets. Also, the Omron Group procures raw materials and semi-fin- ited protection. At present, the Omron Group is working on intellectu- ished products in a wide variety of forms, and rapid increases in al property protection against imitation products, through such meas- demand could result in supply shortages and/or sudden increases in ures as the placement of full-time personnel in China. However, it is prices that could halt production and/or cause sudden increases in possible that we will not be able to effectively prevent third parties costs. from using our intellectual property in the manufacture of imitation Both in Japan and overseas, therefore, market forces affecting sup- products. It is also possible that future Omron Group products and/or pliers to, and purchasers from, the Omron Group can result in the technology may be cited as infringing upon the intellectual property contraction of demand for our products, thereby possibly having a rights of competitors. Such events could impact negatively on our negative impact on our operating results and financial condition. operating results and financial condition. 2. Risks Accompanying Overseas Business Activities 5. Product Defects The Omron Group is actively undertaking business activities such as The Omron Group is committed to the management philosophy; maxi- production and sales in overseas markets. This imposes risks related mization of customer satisfaction, and implement the philosophy by to possible social unrest in the countries where we do business, due providing the best quality products and services based on our motto to factors such as differences in culture or religion, differences in busi- of “quality first.” We have strict quality control standards in place, and ness customs, economic circumstances such as specific legal and tax we develop and manufacture our products accordingly. The systems, and terrorisms, wars, or other political circumstances. In Corporate General Affairs Division of the parent company conducts particular, the Omron Group continues to expand the scale of produc- quality audits, and a Group-wide quality check system is in place for tion and components procurement in China, which has been growing the ongoing improvement of the quality of our entire line of products rapidly in recent years. It is therefore possible that problems could and services. arise in the management of our production equipment and the per- Nevertheless, there is no assurance that all our products are without formance of other businesses due to sudden changes in the Chinese defects, and that recalls will not occur in the future. Large-scale political or legal environment, the surfacing of problems related to envi- recalls and/or product defects resulting in liability-related damages ronmental issues or delayed response to social infrastructure needs could impose huge costs, could severely influence evaluations of the such as electrical power generation, or other unpredictable events Omron Group, and could result in reduced sales. Such events could within China, including changes in the economic situation. impact negatively on our operating results and financial condition. These factors may have a negative impact on the Omron Group’s operating results and financial condition. 6. Regulated Chemical Substances 3. Exchange Rate Fluctuation The Omron Group currently manufactures products with materials containing regulated chemical substances such as lead and cadmium The Omron Group has 90 overseas affiliated companies and continues that will be banned from use in the EU from July 2006. A regulated to reinforce its business operations in overseas markets, such as chemical substance investigation project has been launched within the China for which major market growth is anticipated in the future. The Omron Group, and we are working with our suppliers to review the percentages of consolidated net sales accounted for by overseas status of regulated chemical substances in all of the components and sales during the fiscal years ended March 2003 and March 2004 were materials we use. Efforts are also being made to switch to substitute 36 components and materials that do not contain regulated chemical substances. Although we are thus proceeding with a project to make Omron Group products throughout the world “environmentally war- ranted products” by the end of March 2006, delays in the switchover due to shortages of substitute parts and materials could impact nega- tively on our operating results and financial condition. 7. Information Leakage All aspects of the operations of the Omron Group depend on personal computers and an IT environment, including production, R&D, sales, and management, with external data exchange being conducted in the course of sales and procurement activities. With recent rapid advances in the Internet and large-capacity media, moreover, there is an increasing possibility that important internal information such as customer information could be leaked to the outside of the Group. The Omron Group is strengthening its security measures to prevent external entry into its internal information systems, and a special com- mittee has been established centering on the Corporate General Affairs Division. Steps are accordingly being taken to reinforce control over the information we handle, and to further improve employees’ information literacy. Unanticipated leakage of internal information, however, due for example to invasion of internal information systems using technology exceeding implemented security levels, could impact negatively on our operating results and financial condition. 8. R&D Activities The Omron Group is actively investing in R&D activities while proceed- ing its business operation centered on technology, based on a man- agement policy of securing a balance between growth and profits. As a result, R&D expenditures as a percentage of sales rose from 7.5 per- cent for fiscal 2002 to 7.9 percent for fiscal 2003. The Omron Group concentrates its R&D efforts on specific technological domains and market objectives, and consistently seeks improvement in its contribu- tion rate of new products. A decline in the contribution rate of new products, however, due to factors such as R&D delays and insufficient applicability, could impact negatively on our operating results and financial condition. 9. Natural Disasters The Omron Group established a special committee within the Corporate General Affairs Division for minimizing the risk from natural disasters such as earthquakes and from events such as power out- ages, and seeks to define risks and implement corresponding counter- measures. It is impossible, however, to avoid all risk pertaining to nat- ural disasters, and the occurrence of natural disasters could impair our production capacity and/or temporarily disrupt our sales channels. Such events could impact negatively on our operating results and financial condition. 37 CONSOLIDATED BALANCE SHEETS OMRON Corporation and Subsidiaries March 31, 2004 and 2003 ASSETS Current Assets: Millions of yen Thousands of U.S. dollars (Note 2) 2004 2003 2004 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 95,059 Notes and accounts receivable – trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,891 Allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,823) 70,341 18,458 10,300 ¥079,919 113,595 $ 896,783 1,178,217 (3,484) 75,446 20,139 9,498 (26,632) 663,594 174,132 97,170 Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316,226 295,113 2,983,264 Property, Plant and Equipment: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,583 Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,852 Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,932 Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,760 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,127 46,094 99,455 137,710 11,313 294,572 430,028 1,017,472 1,338,981 35,472 2,821,953 Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (148,404) Net Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,723 (145,527) 149,045 (1,400,038) 1,421,915 Investments and Other Assets: Investments in and advances to associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment securities (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,245 50,331 8,777 47,301 17,670 Total Investments and Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,324 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥592,273 1,187 30,861 9,173 64,305 17,715 11,745 474,821 82,802 446,236 166,698 123,241 ¥567,399 1,182,302 $5,587,481 See notes to consolidated financial statements. 38 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Millions of yen Thousands of U.S. dollars (Note 2) 2004 2003 2004 Bank loans (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 15,444 ¥018,948 $ 145,698 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,345 26,146 10,114 23,463 30,036 67,773 24,394 4,095 24,370 11,997 748,538 246,660 95,415 221,349 283,358 Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184,548 151,577 1,741,018 Long-Term Debt (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,207 40,315 105,726 Deferred Income Taxes (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483 643 4,557 Termination and Retirement Benefits (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,738 120,730 1,129,604 Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 52 1,321 Minority Interests in Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,447 2,472 13,651 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 7,450 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,296 Accumulated other comprehensive loss (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,559) Treasury stock, at cost — 9,884,413 shares in 2004 and Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,710 6,245,053 shares in 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,264) 64,082 98,705 7,619 153,134 (59,909) (12,021) 251,610 604,547 931,179 70,283 1,653,736 (476,971) (191,170) 2,591,604 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥592,273 ¥567,399 $5,587,481 See notes to consolidated financial statements. 39 CONSOLIDATED STATEMENTS OF OPERATIONS OMRON Corporation and Subsidiaries Years ended March 31, 2004, 2003 and 2002 Millions of yen Thousands of U.S. dollars (Note 2) 2004 2003 2002 2004 Net Sales Costs and Expenses: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥584,889 ¥535,073 ¥533,964 $5,517,821 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344,835 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . 142,157 Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,494 Interest expense, net (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses, net (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 1,254 1,848 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536,905 Income (Loss) before Income Taxes, Minority Interests and Cumulative Effect of Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . Income Taxes (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,984 20,762 Income (Loss) before Minority Interests and Cumulative Effect of Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . 27,222 Minority Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411 Income (Loss) before Cumulative Effect of Accounting Change . . . . . . . . 26,811 Cumulative Effect of Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . . . — 327,413 135,112 40,235 348 575 26,658 530,341 4,732 3,936 796 285 511 — 353,429 134,907 41,407 223 1,506 27,865 559,337 (25,373) (9,348) (16,025) 132 (16,157) 384 3,253,160 1,341,104 438,623 2,991 11,830 17,434 5,065,142 452,679 195,868 256,811 3,877 252,934 — Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 26,811 ¥,000511 ¥,(15,773) $ 252,934 2004 Per Share Data (Note 13): Income (Loss) before Cumulative Effect of Accounting Change Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥110.7 Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.5 Net Income (Loss) Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110.7 107.5 See notes to consolidated financial statements Yen 2003 ¥2.1 2.1 2.1 2.1 2002 ¥(65.0) (65.0) (63.5) (63.5) U.S. dollars (Note 2) 2004 $1.04 1.01 1.04 1.01 40 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) OMRON Corporation and Subsidiaries Years ended March 31, 2004, 2003 and 2002 Millions of yen Thousands of U.S. dollars (Note 2) 2004 2003 2002 2004 Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥26,811 ¥ 511 ¥(15,773) $252,934 Other Comprehensive Income (Loss), Net of Tax (Note 15): Foreign currency translation adjustments: Foreign currency translation adjustments arising during the year . . . . . . . . (6,680) Reclassification adjustment for the portion realized in net income . . . . . . . Net change in foreign currency translation adjustments during the year . . Minimum pension liability adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462 (6,218) 3,470 (2,227) 222 (2,005) (27,484) 6,310 — 6,310 (13,973) (63,018) 4,358 (58,660) 32,736 Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during the year . . . . . . . . . . . . . . 11,916 (6,400) (7,570) 112,415 Reclassification adjustment for losses on impairment realized in net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 692 8,030 4,717 Reclassification adjustment for net losses (gains) on sales realized in net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . (613) Net unrealized gains (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,803 661 (5,047) (746) (286) (5,783) 111,349 Net gains (losses) on derivative instruments: Net gains (losses) on derivative instruments designated as cash flow hedges during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639 (788) (1,673) 6,028 Reclassification adjustment for net losses (gains) realized in net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (344) 295 Other Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,350 Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥36,161 778 (10) (34,546) ¥(34,035) 1,605 (68) (8,017) (3,245) 2,783 88,208 ¥(23,790) $341,142 See notes to consolidated financial statements 41 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY OMRON Corporation and Subsidiaries Years ended March 31, 2004, 2003 and 2002 Number of common shares issued Common stock Additional paid-in capital Legal reserve Retained earnings Accumulated other compre- hensive income (loss) Treasury stock Millions of yen Balance, April 1, 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 (8,017) (725) 18 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) 41 (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) Net income . . . . . . . . . . . . . . . . . . . . . . . Cash dividends, ¥20 per share . . . . . . . . Reversal of legal reserve . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . Acquisition of treasury stock . . . . . . . . . . Exercise of stock options. . . . . . . . . . . . . (169) 26,811 (4,808) 169 (10) 9,350 (8,411) 168 Balance, March 31, 2004 . . . . . . . . . . . . . 249,109,236 ¥64,082 ¥98,705 ¥7,450 ¥175,296 ¥(50,559) ¥(20,264) Thousands of U.S. dollars (Note 2) Common stock Additional paid-in capital Legal reserve Retained earnings Accumulated other compre- hensive income (loss) Treasury stock Balance, March 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . $604,547 $931,179 $71,877 $1,444,660 $(565,179) $(113,406) Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends, $0.19 per share . . . . . . . . . . . . . . . . . . . . Reversal of legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . (1,594) 252,934 (45,358) 1,594 (94) 88,208 (79,349) 1,585 Balance, March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . $604,547 $931,179 $70,283 $1,653,736 $(476,971) $(191,170) See notes to consolidated financial statements. 42 CONSOLIDATED STATEMENTS OF CASH FLOWS OMRON Corporation and Subsidiaries Years ended March 31, 2004, 2003 and 2002 Operating Activities: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income (loss) to net 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 loss (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 current liabilities . . . . . . . . . . . . . . . . . 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 in leasehold deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of property, plant and equipment . . . . . . . . . . . . . . . . Acquisition of minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of business entities, net . . . . . . . . . . . . . . . . . . . . . . . . Payment for acquisition of business entities, net . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . Financing Activities: Net borrowings (repayments) of short-term bank loans . . . . . . . . . . . . . . . . Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . Effect of Exchange Rate Changes on Cash and Cash Equivalents . . . . . Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . . Cash and Cash Equivalents at Beginning of the Year . . . . . . . . . . . . . . . . Cash and Cash Equivalents at End of the Year . . . . . . . . . . . . . . . . . . . . . See notes to consolidated financial statements. 43 Millions of yen Thousands of U.S. dollars (Note 2) 2004 2003 2002 2004 ¥ 26,811 ¥ 511 ¥(15,773) $252,934 27,662 479 41 (1,039) 2,413 0 5,016 7,235 411 — 494 (10,853) 4,105 891 10,976 6,015 (52) 82 53,876 80,687 1,894 (1,617) (38,115) 312 4,808 (1,738) (365) 337 (34,484) (4,842) 1,011 (13,093) (2,792) (150) (8,411) 158 (28,119) (2,944) 15,140 79,919 ¥ 95,059 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) 2,909 10,358 (1,960) (2,855) (230) (10,218) — (1,996) (85) 9,140 70,779 ¥79,919 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 ¥ 70,779 260,962 4,519 387 (9,802) 22,764 0 47,321 68,255 3,877 — 4,660 (102,387) 38,726 8,406 103,547 56,745 (491) 774 508,263 761,197 17,868 (15,255) (359,575) 2,943 45,358 (16,396) (3,443) 3,179 (325,321) (45,679) 9,538 (123,519) (26,340) (1,415) (79,349) 1,491 (265,273) (27,773) 142,830 753,953 $896,783 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 business in over 30 countries around the world and strategically manages its worldwide operations through 5 regional management centers in Japan, North America, Europe, Asia-Pacific and China. Products, classified by type and market, are organized into six internal companies and one business develop- ment 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 labor-saving automation, environmental protection, safety improvement, and inspection-automization solutions for highly developed production systems. Electronic Components manufactures and sells electric and electronic components found in such consumer goods as home appli- ances as well as such business equipment as telephone systems, vending machines, and office equipment. Automotive Electronic Components Business develops and produces automotive electronic components and other components for automobiles and automotive electronic components manufacturers throughout the world. Social Systems Solutions Business encompasses the sale of automated teller machines, card authorization terminals and point of sales systems mainly for the domestic markets. Passing gates and automated ticket machines and electronic panels and terminal dis- plays for traffic information and monitoring purposes are also supplied for the domestic market. Advanced Modules Business manufactures products for the Social Systems Solutions 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 therapy devices aimed at both the consumer and institutional markets. Business Development Group consists of businesses with high growth potential. The group provides the peripheral equipment used in office automation equipment, modems, terminal adapters, scanners and uninterrupted power supplies. Basis of Financial Statements The accompanying consolidated financial statements, stated in Japanese yen, include certain adjustments, not recorded on the books of account, to present these statements in accordance with accounting principles generally accepted in the United States of America, except for the omission of segment information required by Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Certain reclassifications have been made to amounts previously reported in order to conform to 2004 classifications. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries (together the “Companies”). All signifi- cant intercompany accounts and transactions have been eliminated. Investments in which the Companies have a 20% to 50% interest (associates) are accounted for using the equity method. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclo- sure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents Cash equivalents consist of highly liquid investments with original maturities of three months or less, including time deposits, commer- cial paper, securities purchased with resale agreements and money market instruments. 44 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 accumulat- ed other comprehensive income, net of related taxes, until recognized. If necessary, individual securities classified as available-for-sale are reduced to fair value by a charge to income in the period in which the decline is deemed to be other than temporary. Other invest- ments 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 computed principally on a declining balance method based upon the estimated useful lives of the assets. The estimated useful lives primarily range from 3 to 50 years for buildings and from 2 to 15 years for machinery and equipment. Goodwill and Other Intangible Assets The Company accounts for its goodwill and other intangible assets in accordance with SFAS No.142, "Goodwill and Other Intangible Assets,” which 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 estimated useful lives and reviewed for impairment. Any rec- ognized 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. Long-Lived Assets 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 impair- ment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value. Assets to be dis- posed 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 ¥8,391 million ($79,160 thousand), ¥7,196 million and ¥7,931 million for the years ended March 31, 2004, 2003 and 2002, respectively. Shipping and Handling Charges Shipping and handling charges were ¥8,061 million ($76,047 thousand), ¥7,300 million and ¥7,342 million for the years ended March 31, 2004, 2003 and 2002, respectively, and are included in selling, general and administrative expenses in the consolidated state- ments 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 (revised 2003), “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. 45 Income Taxes Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. Future tax benefits, such as net operating loss carry forwards and tax credit carry forwards, are rec- ognized to the extent that such benefits are more likely than not to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Product Warranties A liability for the estimated warranty related cost is established at the time revenue is recognized and is included in other current liabili- ties. The liability is established using historical information including the nature, frequency, and average cost of warranty claims. Derivatives Derivative instruments and hedging activities are accounted for in accordance with SFAS No.133, “Accounting for Derivative Instruments and Hedging Activities,” SFAS No.138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No.133,” and SFAS No.149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” These standards establish accounting and reporting standards for derivative instruments and for hedging activities, and require that an entity recognize all derivatives as either assets or liabilities 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 variability 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 at the date of adoption. The adoption of SFAS No.149 had no impact on the con- solidated financial statements. 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 liabilities in the consolidated balance sheets. Revenue Recognition The Companies recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred and title and risk of loss has transferred, the sales price is fixed or determinable, and collectibility is probable. These criteria are met when products are received by customers or services are performed. Stock-Based Compensation The Companies account for stock-based awards to employees using the intrinsic value method 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.” At March 31, 2004, 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 net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No.123, to stock-based employee compensation. 46 Net income (loss), as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deduct: Total stock-based employee compensation expense determined under fair value based Millions of yen (except per share data) Thousands of U.S. dollars (except per share data) 2004 ¥26,811 2003 ¥511 2002 2004 ¥(15,773) $252,934 method for all awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Pro forma net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥26,705 91 ¥420 100 1,000 ¥(15,873) $251,934 Net income (loss) per share (yen and U.S. dollars): Basic – as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic – pro forma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted – as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted – pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 110.7 110.2 107.5 107.1 ¥ 2.1 ¥ (63.5) $ 1.04 1.7 2.1 1.7 (63.9) (63.5) (63.9) 1.04 1.01 1.01 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 translation of Japanese yen amounts into U.S. dollar amounts is included solely for convenience of the readers outside of Japan and has been made at the rate of ¥106 to $1, the approximate rate of exchange at March 31, 2004. Such translation 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 4. SHORT-TERM INVESTMENTS AND INVESTMENT SECURITIES Millions of yen 2004 ¥34,983 15,725 19,633 ¥70,341 2003 ¥39,264 16,608 19,574 ¥75,446 Thousands of U.S. dollars 2004 $330,028 148,349 185,217 $663,594 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: 2004 2003 Millions of yen Cost ( * ) Gross unrealized gains Gross unrealized losses Fair value Cost ( * ) Gross unrealized gains Gross unrealized losses Fair value Available-for-sale securities: Debt securities . . . . . . . . . . . . . ¥ 62 ¥ — Equity securities . . . . . . . . . . . . 26,949 18,915 Total available-for-sale securities . ¥27,011 ¥18,915 ¥ — (81) ¥(81) ¥ 62 ¥ 000,44 ¥(000— ¥(000— ¥,000,44 45,783 ¥45,845 27,947 ¥27,991 4,000 ¥4,000 (5,171) 26,776 ¥(5,171) ¥26,820 (*) Cost represents amortized cost for debt securities and acquisition cost for equity securities. 47 Thousands of U.S. dollars 2004 Cost ( * ) Gross unrealized gains Gross unrealized losses Fair value Available-for-sale securities: Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 585 $ — $ — $ 585 Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254,236 178,443 Total available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $254,821 $178,443 (764) $(764) 431,915 $432,500 (*) Cost represents amortized cost for debt securities and acquisition cost for equity securities. Gross unrealized holding losses and fair value of certain available-for-sale, equity securities, aggregated by length of time that such securities have been in a continuous unrealized loss position, at March 31, 2004, were as follows: Millions of yen Thousands of U.S. dollars Less than 12 months Fair value Gross Unrealized Holding losses Fair value Gross Unrealized Holding losses Available-for-sale securities: Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥404 ¥(81) $3,811 $(764) There were no securities which have been in a continuous unrealized loss position over 12 months at March 31, 2004. Losses on impairment of available-for-sale securities recognized to reflect the decline in market value considered to be other than temporary were ¥847 million ($7,991 thousand), ¥1,194 million and ¥13,845 million for the years ended March 31, 2004, 2003 and 2002, respectively. Net unrealized holding gains (losses) on available-for-sale securities, net of related taxes, increased by ¥11,803 million ($ 111,349 thousand) and decreased by ¥5,047 million for the years ended March 31, 2004 and 2003, respectively. Debt securities classified as available-for-sale investment securities mature in various amounts through 2006. Proceeds from sales of available-for-sale securities were ¥1,833 million ($17,292 thousand), ¥1,240 million and ¥2,750 million for the years ended March 31, 2004, 2003 and 2002, respectively. Gross realized gains on sales were ¥1,120 million ($10,566 thousand), ¥78 million and ¥1,608 million for the years ended March 31, 2004, 2003 and 2002, respectively. Gross realized losses on sales were ¥82 million ($774 thousand), ¥1,218 million and ¥321 million for the years ended March 31, 2004, 2003 and 2002, respectively. 5. GOODWILL AND OTHER INTANGIBLE ASSETS The components of acquired intangible assets excluding goodwill at March 31, 2004 and 2003 were as follows: Millions of yen 2004 2003 Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization Intangible assets subject to amortization: Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥24,531 4,001 ¥28,532 ¥14,392 2,952 ¥17,344 ¥21,780 3,842 ¥25,622 ¥10,268 2,838 ¥13,106 48 Thousands of U.S. dollars 2004 Gross Amount Accumulated Amortization Intangible assets subject to amortization: Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $231,425 $135,774 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,745 27,849 Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $269,170 $163,623 Intangible assets not subject to amortization at March 31, 2004 and 2003 were immaterial. Aggregate amortization expense related to intangible assets was ¥4,625 million ($43,632 thousand) and ¥4,544 million for the years ended March 31, 2004 and 2003, respectively. Estimated amortization expense for the next five years ending March 31 is as follows: Years ending March 31 Millions of yen Thousands of U.S. dollars 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,440 $33,453 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,274 2,337 1,504 479 30,887 22,047 14,189 4,519 The carrying amount of goodwill at March 31, 2004 and 2003 and changes in its carrying amount for the years ended March 31,2004 and 2003 were immaterial. 6. BANK LOANS AND LONG-TERM DEBT The weighted average annual interest rates of short-term bank loans at March 31, 2004 and 2003 were 1.2% and 1.2%, respectively. Long-term debt at March 31 consisted of the following: Millions of yen Thousands of U.S. dollars 2004 2003 2004 Unsecured debt: Convertible bonds at 1.7%, due in September 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥29,735 ¥29,735 $280,519 Loans from banks and other financial institutions, generally at 0.4% to 3.8%, due on various dates through the years ended March 31,2006 . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less portion due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,986 522 41,243 30,036 21,802 775 52,312 11,997 103,641 4,924 389,084 283,358 Long-term debt, less current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥11,207 ¥40,315 $105,726 49 The annual maturities of long-term debt outstanding at March 31, 2004 were as follows: Years ending March 31 Millions of yen Thousands of U.S. dollars 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥30,036 10,404 89 69 — 645 ¥41,243 $283,358 98,150 840 651 — 6,085 $389,084 The convertible bonds may be redeemed at the Company’s option prior to maturity at any time by the Company or its subsidiaries. At March 31, 2004, the convertible bonds were redeemable, in whole or in part, at 100% of face value. The number of contingently issuable shares of common stock related to the convertible bonds as of March 31, 2004 was 10,026,639 shares. The conversion price per share at March 31, 2004 was ¥2,965 ($27.98), 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, 2004, 2003 and 2002 amounted to ¥1,217 mil- lion ($11,481 thousand), ¥1,430 million and ¥1,291 million, respectively. 7. LEASES The Companies have operating lease agreements primarily involving offices and equipment for varying periods. Leases that expire gen- erally are expected to be renewed or replaced by other leases. At March 31, 2004, future minimum rental payments applicable to non- cancelable leases having initial or remaining non-cancelable lease terms in excess of one year were as follows: Years ending March 31 Millions of yen Thousands of U.S. dollars 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,590 2,386 2,206 1,975 1,546 15,649 ¥26,352 $ 24,434 22,509 20,811 18,632 14,585 147,632 $248,603 Rental expense amounted to ¥11,059 million ($104,330 thousand), ¥12,818 million and ¥11,322 million for the years ended March 31, 2004, 2003 and 2002, respectively. 8. TERMINATION AND RETIREMENT BENEFITS The Company and its domestic subsidiaries sponsor termination and retirement benefit plans which cover substantially all domestic employees. Benefits are based on the employee’s years of service, with some plans considering compensation and certain other fac- tors. 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 con- tribute 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 substitutional potion requiring employee and employer contributions plus an additional portion estab- lished by the employers. 50 Periodic pension benefits required under the substitutional 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 payments are available under certain conditions. In January 2003, Emerging Issues Task Force ("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. The process of separating the substitutional portion from the corporate portion occurs in four phases. EITF Issue 03-2 requires that the separation process should be accounted for upon completion of the transfer to the government of the substitutional portion of the benefit obligation and related plan assets as the culmination of a series of steps in a single settlement transaction. Under the consensus reached, at the time the assets are transferred to the government in an amount sufficient to complete the separation process, the transaction is considered to be complete and the elimination of the entire substitutional portion of the benefit obligation would be accounted for as a settlement at that time. The difference between the obligation settled and the assets transferred to the government should be accounted for as a subsidy from the government. On April 26, 2004, the Company received the Japanese government’s approval of exemption from the obligation for benefits related to future employee service under the substitutional portion of its pension plan. The effect on the consolidated financial statements of the future transfer of the assets and liabilities related to the substitutional portion of its pension plan has not yet been determined Obligations and Funded status 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 Thousands of U.S. dollars 2004 2003 2004 Change in benefit obligation: Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 248,378 ¥(232,178 $ 2,343,189 Service cost, less employees’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employees’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlement paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,981 4,968 931 2,813 (4,443) (981) 9,611 5,804 942 13,340 (8,829) (4,668) 75,292 46,868 8,783 26,538 (41,915) (9,255) Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 259,647 ¥(248,378 $ 2,449,500 Change in plan assets: Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,311 Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employers’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employees’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,368 5,789 931 (3,228) 119,487 (17,608) 6,233 942 (3,743) 993,500 78,943 54,613 8,783 (30,453) Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 117,171 ¥,105,311 $ 1,105,386 Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (142,476) 108,395 (3,603) — (143,067) 113,301 (3,904) 268 Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (37,684) ¥1(33,402) (1,344,114) 1,022,594 (33,991) — $ (355,511) Amounts recognized in the consolidated balance sheets: Accrued liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss (gross of tax) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(115,784) 78,100 ¥ (37,684) ¥ 232,955 ¥(117,382) $(1,092,302) 83,980 736,792 ¥0(33,402) $ (355,510) ¥,222,693 $ 2,197,689 51 Components of Net Periodic Benefit Cost The expense recorded for the contributory termination and retirement plans included the following components for the years ended March 31: Millions of yen Thousands of U.S. dollars 2004 2003 2004 Service cost, less employees’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 7,981 ¥19,611 $ 75,292 Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,968 (4,210) 3,530 5,804 (4,072) 2,742 46,868 (39,717) 33,302 Net expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥12,269 ¥14,085 $115,745 The provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” require the recognition of an additional minimum pension lia- bility 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 liability is reflected as other comprehensive income, net of related tax effect. The unrecognized net actuarial loss and the prior service credit are being amortized over 15 years. Measurement Date The Company and certain of its domestic subsidiaries use a December 31measurement date for the majority of their plans. Subsequent to the measurement date, in February 2004, the Company amended its plan to establish a new formula for determining pension bene- fits. The effect of this amendment was a decrease of ¥15,546 million($146,660 thousand) in the projected benefit obligation and will be recorded in the year ending March 31, 2005. Assumptions Weighted-average assumptions used to determine benefit obligations at March 31, 2004 and 2003 are as follows: Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation increase rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 2.0% 2.0 2003 2.0% 2.0 Weighted-average assumptions used to determine net periodic benefit cost for the years ended March 31,2004, 2003 and 2002 are as follows: Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation increase rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 2.0% 2.0 3.0 2003 2.5% 3.0 4.0 2002 3.0% 3.0 4.0 The expected return on plan assets is determined by estimating the future rate of return on each category of plan assets considering actual historical returns and current economic trends and conditions. 52 Plan assets The Company’s pension plan weighted-average asset allocation by asset category is as follows: Asset Category 2004 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4% Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Life insurance company general accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.0 43.5 10.8 6.3 2003 —% 60.6 27.1 11.9 0.4 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% The Company investment policies are designed to ensure adequate plan assets are available to provide future payments of pension benefits to eligible participants. Taking into account the expected long-term rate of return on plan assets, the Company formulates a model portfolio comprised of the optimal combination of equity and debt securities in order to produce a total return that will match the expected return on a mid-term to long-term basis. The Company evaluates the gap between expected return and actual return of invested plan assets on an annual basis to determine if such differences necessitate a revision in the model portfolio. The Company revises the model portfolio when and to the extent con- sidered necessary to achieve the expected long-term rate of return on plan assets. Equity securities include common stock of the Company in the amounts of ¥53 million ($500 thousand)(0.04% of total domestic plan assets) and ¥111 million (0.11% of total domestic plan assets) at December 31,2003 and 2002, respectively. Cash Flows The Company expects to contribute ¥5,712 million ($53,887 thousand) to its domestic termination and retirement benefit plans in the year ending March 31, 2005. Certain employees of European subsidiaries are covered by a defined benefit pension plan. The projected benefit obligation for the plan and related fair value of plan assets were ¥1,285 million ($12,123 thousand) and ¥1,125 million ($10,613 thousand), respectively, at March 31, 2004 and ¥1,315 million and ¥887 million, respectively, at March 31, 2003. 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 ter- mination benefits sufficient to state the liability equal to the plans’ vested benefits, which exceed the plans’ accumulated benefit obliga- tions. The aggregate liability for the termination plans excluding the funded contributory termination and retirement plan in Japan, as of March 31, 2004 and 2003 was ¥3,954 million ($37,302 thousand) and ¥3,348 million, respectively. The aggregate net periodic benefit cost for such plans for the years ended March 31, 2004, 2003 and 2002 was ¥1,688 million ($15,925 thousand), ¥890 million and ¥2,385 million, respectively. 9. SHAREHOLDERS’ EQUITY Japanese companies are subject to the Japanese Commercial Code (the "Code") to which various amendments have become effective since October 1, 2001. The Code was revised whereby common stock par value was eliminated resulting in all shares being recorded with no par value and at least 50% of the issue price of new shares is required to be recorded as common stock and the remaining net proceeds as addition- al paid-in capital, which is included in capital surplus. The Code permits Japanese companies, upon approval of the Board of Directors, to issue shares to existing shareholders without consideration as a stock split. Such issuance of shares generally does not give rise to changes within the shareholders’ accounts. The revised Code also provides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain other appropriations of retained earnings associated with cash outlays applicable to each period shall be appropriated as a legal reserve (a 53 component of retained earnings) until such reserve and capital surplus equals 25% of common stock. The amount of total capital sur- plus and legal reserve that exceeds 25% of the common stock may be available for dividends by resolution of the shareholders. In addition, the Code permits the transfer of a portion of capital surplus and legal reserve to the common stock by resolution of the Board of Directors. The revised Code eliminated restrictions on the repurchase and use of treasury stock allowing Japanese companies to repurchase treasury stock by a resolution of the shareholders at the general shareholders meeting or by resolution of the Board of Directors provid- ed it is stipulated in an article of incorporation and dispose of such treasury stock by resolution of the Board of Directors. The repur- chased amount of treasury stock cannot exceed the amount available for future dividend plus amount of common stock, capital sur- plus or legal reserve to be reduced in the case where such reduction was resolved at the general shareholders meeting. The Code permits companies to transfer a portion of additional paid-in capital and legal reserve to stated capital by resolution of the Board of Directors. The Code also permits companies to transfer a portion of unappropriated retained earnings, available for dividends, to stated capital by resolution of the shareholders. Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividends are applicable. Semiannual interim dividends may also be paid upon resolution of the Board of Directors, subject to certain limitations imposed by the Code. Under the Code, the amount legally available for dividends is based on retained earnings as recorded in the books of the Company for Japanese financial reporting purposes. At March 31, 2004, retained earnings amounting to ¥31,086 million ($293,264 thousand) were available for future dividends subject to legal reserve requirements. In 2003, the Company acquired the minority interests of certain domestic subsidiaries in exchange for the Company’s common stock previously held in its treasury. The Company reissued 52,275 shares of treasury stock to acquire minority interests with book values and fair values equal to ¥84 million. These transactions resulted in a combined loss on reissuance of treasury stock of ¥32 million, rep- resenting the aggregate difference between the cost of shares repurchased and the fair 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 directors 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 Yen Shares Weighted- average exercise price Weighted- average fair value of options granted during the year Options outstanding at April 1, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498,000 ¥2,467 Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,000 Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,000) (85,000) Options outstanding at March 31, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695,000 Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,000 Options outstanding at March 31, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 971,000 Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,000 Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86,000) 2,306 1,839 2,161 2,446 1,913 2,294 2,435 1,839 Options outstanding at March 31, 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,089,000 ¥2,357 325 285 736 54 U.S. dollars Weighted- average exercise price Weighted- average fair value of options granted during the year Options outstanding at March 31, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21.64 Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.97 17.34 $6.94 Options outstanding at March 31, 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22.24 Options exercisable at March 31, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143,000 Options exercisable at March 31, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403,000 Options exercisable at March 31, 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609,000 Shares Shares Yen Weighted- average exercise price ¥1,839 ¥2,547 ¥2,531 U.S. dollars Weighted- average exercise price Options exercisable at March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609,000 $23.88 The following summarizes information about fixed stock options at March 31, 2004: Options outstanding Options exercisable Yen Range of exercise prices Shares Weighted-average remaining contractual life Yen Weighted-average exercise price ¥1,839 2,936 2,306 1,913 2,435 57,000 260,000 292,000 276,000 204,000 ¥1,839 to ¥2,936 1,089,000 0.25 years 1.25 years 2.25 years 3.25 years 4.25 years 2.54 years ¥1,839 2,936 2,306 1,913 2,435 ¥2,357 Shares 57,000 260,000 292,000 — — Yen Weighted-average exercise price ¥1,839 2,936 2,306 — — 609,000 ¥2,531 Options outstanding Options exercisable U.S. dollars Range of exercise prices Shares Weighted-average remaining contractual life U.S. dollars Weighted-average exercise price $17.35 27.70 21.75 18.05 22.97 57,000 260,000 292,000 276,000 204,000 $17.35 to $27.70 1,089,000 0.25 years 1.25 years 2.25 years 3.25 years 4.25 years 2.54 years $17.35 27.70 21.75 18.05 22.97 $22.24 Shares 57,000 260,000 292,000 — — 609,000 U.S. dollars Weighted-average exercise price $17.35 27.70 21.75 — — $23.88 55 The fair value of each option grant was estimated as of the grant date using the Black-Scholes option-pricing model with the follow- ing assumptions: Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 2003 2002 0.738% 45.0 0.857 3.5 years 0.271% 0.560% 25.0 0.559 20.0 0.576 3.5 years 3.5 years 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 valuation models require the input of highly sub- jective 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 materi- ally affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. 10. OTHER EXPENSES, NET Other expenses (income), net for the years ended March 31, 2004, 2003 and 2002 consisted of the following: Loss on impairment of investment securities and other assets . . . . . . . . . . . . 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 . Net loss (gain) on sales of business entities . . . . . . . . . . . . . . . . . . . . . . . . . . Voluntary early retirement program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 ¥ 2,413 479 41 (1,039) 494 — (540) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,848 ¥26,658 Millions of yen Thousands of U.S. dollars 2003 2002 2004 ¥2,269 ¥17,199 $22,764 11 4,231 1,221 (1,550) 18,968 1,508 1,314 6,815 (1,008) — — 3,545 ¥27,865 4,519 387 (9,802) 4,660 — (5,094) $17,434 The Companies assessed the potential impairment of certain long-lived assets in consideration of future alternate uses, including dis- posal by sale. As a result, certain land and buildings, principally dormitories in 2004 and 2002, and laboratories in 2003, were deemed to be impaired and written down to fair value. The estimated fair value of these assets was primarily determined by independent real estate appraisals of land and buildings. During the year ended March 31, 2003 the Company and most domestic subsidiaries implemented a voluntary early retirement pro- gram 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 retirement benefits. 56 11. INCOME TAXES The provision for income taxes for the years ended March 31, 2004, 2003 and 2002 consisted of the following: Current income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income tax expense (benefit) ,exclusive of the following . . . . . . . . . . Change in the beginning of the year balance of Millions of yen 2003 ¥ 7,851 (5,600) Thousands of U.S. dollars 2002 2004 ¥006,783 $127,613 (17,679) 67,311 2004 ¥13,527 7,135 the valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . . . . . . (27) 136 1,548 (254) Adjustments of deferred tax assets and liabilities for enacted changes in tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 ¥20,762 1,549 ¥ 3,936 — 1,198 ¥ 1(9,348) $195,868 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: 2004 42.0% 2003 42.0% 2002 (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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 1.0 — (0.6) (0.1) 0.3 (0.3) 7.7 38.7 (33.0) (14.9) 2.9 32.7 7.1 1.9 3.3 — (1.3) 0.4 — 0.9 Effective tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.3% 83.2% (36.8)% 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 2004, 2003 and 2002. An amendment to Japanese tax regulations was enacted into law on March 31, 2003. As a result of this amendment, 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 would be realized. The effect was an increase in the provision for income taxes of ¥127 million ($ 1,198 thousand) and ¥1,549 million increase for the year ended March 31, 2004 and 2003,respectively. 57 The approximate effect of temporary differences and tax credit and loss carry forwards that gave rise to deferred tax balances at March 31, 2004 and 2003 were as follows: Millions of yen 2004 2003 Deferred tax assets Deferred tax liabilities Deferred tax assets Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3,215 ¥ — 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 carry forwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,432 14,942 676 2,349 — 1,683 1,249 — 32,020 10,641 4,205 6,185 82,597 (7,118) — — — — 7,721 — 47 — — 2,578 — — 10,346 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥75,479 ¥10,346 ¥03,761 4,682 12,319 150 2,547 480 2,369 2,531 — 34,431 10,827 4,124 16,226 94,447 (8,348) ¥86,099 Deferred tax liabilities ¥00,— — — — — — — 99 1,050 — 1,792 — — 2,941 — ¥2,941 Thousands of U.S. dollars 2004 Deferred tax assets Deferred tax liabilities Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,330 $ — Accrued bonuses and vacations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination and retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enterprise taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intercompany profits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,245 140,962 6,377 22,160 — — — — Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 72,840 Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minimum pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other temporary differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax credit carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,877 11,783 302,075 100,387 39,670 58,349 779,215 (67,151) — 443 — 24,321 — — 97,604 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $712,064 $ 97,604 The total valuation allowance decreased by ¥1,230 million ($11,604 thousand) in 2004 and increased by ¥1,226 million and ¥1,779 million in 2003 and 2002, respectively. As of March 31, 2004, the Company and certain subsidiaries had operating loss carry forwards approximating ¥16,063 million ($151,534 thousand) available for reduction of future taxable income, the majority of which expire in 2009. The Company has not provided for Japanese income taxes on unremitted earnings of certain 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 rein- 58 vested and for which Japanese income taxes have not been provided were ¥47,638 million ($449,415 thousand) and ¥62,094 million at March 31, 2004 and 2003, respectively. Dividends received from domestic subsidiaries are expected to be substantially free of tax. 12. FOREIGN OPERATIONS Net sales and total assets of foreign subsidiaries for the years ended March 31, 2004, 2003 and 2002 were as follows: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥208,540 ¥162,630 ¥194,498 ¥158,300 ¥176,096 ¥146,734 $1,967,358 $1,534,245 Millions of yen Thousands of U.S. dollars 2004 2003 2002 2004 13. PER SHARE DATA The Company accounts for its net income (loss) 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 computations is as follows: Income (loss) before cumulative effect of accounting change . . . . . . . . . . . . . . ¥26,811 Effect of dilutive securities: Convertible bonds, due 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted income (loss) before cumulative effect of accounting change . . . . . . 327 ¥27,138 2004 Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥26,811 Effect of dilutive securities: Convertible bonds, due 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 ¥27,138 2004 Millions of yen 2003 ¥511 — ¥511 Millions of yen 2003 ¥511 — ¥511 Thousands of U.S. dollars 2002 2004 ¥(16,157) $252,934 — 3,085 ¥(16,157) $256,019 Thousands of U.S. dollars 2002 2004 ¥(15,773) $252,934 — 3,085 ¥(15,773) $256,019 Number of shares 2004 2003 2002 Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,296,332 247,336,015 248,401,803 Dilutive effect of: Convertible bonds, due 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,026,639 53,053 — — — — Diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252,376,024 247,336,015 248,401,803 59 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 incremental shares, was anti-dilutive and has been excluded from the computation. 14. SUPPLEMENTAL INFORMATION FOR CASH FLOWS Supplemental cash flow information for the years ended March 31, 2004, 2003 and 2002 was as follows: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash investing and financing activities: 2004 ¥1,217 7,508 Liabilities assumed in connection with capital expenditures . . . . . . . . . . . . . . 3,848 Fair value of minority interests acquired by the reissuance of treasury stock . — Millions of yen 2003 ¥1,431 7,588 1,320 84 2002 ¥ 1,264 17,748 1,516 — Thousands of U.S. dollars 2004 $11,481 70,830 36,302 — 15. OTHER COMPREHENSIVE INCOME (LOSS) The change in each component of accumulated other comprehensive income (loss) for the years ended March 31, 2004, 2003 and 2002 was as follows: Millions of yen Thousands of U.S. dollars 2004 2003 2002 2004 Foreign currency translation adjustments: Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ (9,407) (6,218) (15,625) Minimum pension liability adjustments: Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,708) Change for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,470 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,238) Unrealized gains (losses) on available-for-sale securities: Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net losses on derivative instruments: Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total accumulated other comprehensive loss: (1,716) 11,803 10,087 (78) 295 217 ¥0(7,402) ¥(13,712) $ (88,745) (2,005) (9,407) (21,224) (27,484) (48,708) 3,331 (5,047) (1,716) (68) (10) (78) 6,310 (7,402) (7,251) (13,973) (21,224) 3,617 (286) 3,331 — (68) (68) (58,660) (147,405) (459,509) 32,736 (426,773) (16,189) 111,349 95,160 (736) 2,783 2,047 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59,909) Change for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,350 (25,363) (34,546) (17,346) (8,017) (565,179) 88,208 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(50,559) ¥(59,909) ¥(25,363) $(476,971) 60 Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended March 31, 2004, 2003 and 2002 were as follows: 2004 Tax (expense) benefit Before-tax amount Net-of-tax amount Before-tax amount Millions of yen 2003 Tax (expense) benefit Net-of-tax amount Before-tax amount 2002 Tax (expense) benefit Net-of-tax amount Foreign currency translation adjustments: Foreign currency translation adjustments arising during the year . . . . . . . . . . . . . . . . . ¥ (6,875) ¥ 195 ¥(6,680) ¥ (2,227) ¥(000,— ¥0(2,227) ¥0(6,310 ¥0000,— ¥ (6,310 Reclassification adjustment for the portion realized in net income (loss) . . . . . . . . . . . . . 462 — 462 222 — 222 — — — Net change in foreign currency translation adjustments during the year . . . . . . . . . . . . (6,413) 195 (6,218) (2,005) — (2,005) 6,310 — 6,310 Minimum pension liability adjustments . . . . . 5,880 (2,410) 3,470 (47,387) 19,903 (27,484) (24,091) 10,118 (13,973) Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during the year . . . . . . . . . . . . . . . . 20,196 (8,280) 11,916 (11,036) 4,636 (6,400) (13,052) 5,482 (7,570) Reclassification adjustment for losses on impairment realized in net income (loss) . . . 847 (347) 500 1,194 (502) 692 13,845 (5,815) 8,030 Reclassification adjustment for net losses (gains) on sales realized in net income (loss) . . . . . . . . . . . . . . . . . . . (1,038) 425 (613) 1,140 (479) 661 (1,287) Net unrealized gains (losses). . . . . . . . . . . . . . 20,005 (8,202) 11,803 (8,702) 3,655 (5,047) (494) 541 208 (746) (286) Net gains (losses) on derivative instruments: Net gains (losses) on derivative instruments designated as cash flow hedges during the year . . . . . . . . . . . . . . . . . . . . . . 1,095 (456) 639 (1,358) 570 (788) (2,884) 1,211 (1,673) Reclassification adjustment for net losses (gains) realized in net income (loss) . . . . . . . Net gains (losses) on derivative instruments . . (592) 503 248 (208) (344) 295 1,340 (18) (562) 8 778 (10) 2,767 (1,162) 1,605 (117) 49 (68) Other comprehensive income (loss) . . . . . . . . ¥19,975 ¥(10,625) ¥ 9,350 ¥(58,112) ¥23,566 ¥(34,546) ¥(18,392) ¥10,375 ¥ (8,017) 61 Thousands of U.S. dollars Before-tax amount 2004 Tax (expense) benefit Net-of-tax amount Foreign currency translation adjustments: Foreign currency translation adjustments arising during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(64,858) $ 1,840 $(63,018) Reclassification adjustment for the portion realized in net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,358 — 4,358 Net change in foreign currency translation adjustments during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minimum pension liability adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60,500) 55,472 1,840 (22,736) (58,660) 32,736 Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,528 (78,113) 112,415 Reclassification adjustment for losses on impairment realized in net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,991 (3,274) 4,717 Reclassification adjustment for net losses (gains) on sales realized in net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,792) 4,009 (5,783) Net unrealized gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,727 (77,378) 111,349 Net gains (losses) on derivative instruments: Net gains (losses) on derivative instruments designated as cash flow hedges during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,330 (4,302) 6,028 Reclassification adjustment for net losses (gains) realized in net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net gains (losses) on derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,585) 4,745 2,340 (1,962) (3,245) 2,783 Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $188,444 $(100,236) $ 88,208 16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Financial Instruments The following table presents the carrying amounts and estimated fair values as of March 31, 2004 and 2003, of the Companies’ finan- cial instruments. Millions of yen 2004 2003 Carrying amount Fair value Carrying amount Fair value Nonderivatives: Long-term debt, including current portion . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(41,243) ¥(42,707) ¥(52,312) ¥(53,669) Derivatives: Included in Other current assets (liabilities): Forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 613 (198) (198) 62 Thousands of U.S. dollars 2004 Carrying amount Fair value Nonderivatives: Long-term debt, including current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(389,084) $(402,896) Derivatives: Included in Other current assets: Forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,783 5,783 The following methods and assumptions were used to estimate the fair values of each class of financial instruments 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 deter- minable 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 values are estimated using present value of discounted future cash flow analysis, based on the Companies’ current incremental issuing rates for similar types of arrangements. Derivatives The fair value of derivatives generally reflects the estimated amounts that the Companies would receive or pay to terminate the con- tracts 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, 2004 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 gains of ¥639 mil- lion ($6,028 thousand ) and losses of ¥788 million for the years ended March 31, 2004 and 2003, respectively. The amounts, which were reclassified out of accumulated other comprehensive income (loss) into Foreign exchange loss, net depending on their nature, net of the related tax effect, are net gains of ¥344 million ($3,245 thousand ) and net losses of ¥778 million for the years ended March 31, 2004 and 2003, respectively. The amount of the hedging ineffectiveness is not material for the years ended March 31, 2004 and 2003. 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. 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 63 be minimal since the counterparties are major financial institutions. The notional amounts of contracts to exchange foreign currency (forward contracts) outstanding at March 31, 2004 and 2003 were as follows: Millions of yen Thousands of U.S. dollars 2004 2003 2004 Forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥35,597 ¥24,326 $335,821 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 contracts and options designated as hedges of the monetary assets and liabilities are also marked to market rates with the resulting gains and losses reported in the consolidated statements of operations. 17. RELATED PARTY TRANSACTION The Company has an operating lease agreement for its 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, a director, and certain managing offi- cers. This lease agreement has an initial non-cancelable lease term to 2020 and requires a monthly rental payment of ¥106 million ($1,000 thousand) and a security deposit of 2,600 million ($24,528 thousand) which is refundable when the agreement expires. During the years ended March 31, 2004, 2003 and 2002, the Company paid ¥1,272 million ($12,000 thousand), in rental expense and the security deposit at March 31, 2004 and 2003 was ¥2,600 million ($ 24,528 thousand). 18. COMMITMENTS AND CONTINGENT LIABILITIES The Company has commitments at March 31, 2004 of approximately ¥18,549 million ($174,991 thousand) related to contracts for out- sourcing computer services through 2008. The contracts require an annual service fee of ¥4,764 million ($44,943 thousand) for the year ending March 31, 2005. The annual service fee will gradually decrease each year during the contract term to ¥ 4,518 million ($42,623 thousand) for 2008. The contract is cancelable at any time 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 cur- rently available to both the Company and its legal counsel, management of the Company believes that damages from such lawsuits, if any, would not have a material effect on the consolidated financial statements. 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 institu- tions. Concentrations of credit risk with respect to trade receivables, as approximately 75% of total sales are concentrated in Japan, are limited due to the large number of well-established customers and their dispersion across many industries. The Company normally requires customers to deposit funds to serve as security for ongoing credit sales. 64 Guarantees The Company provides guarantees to third parties of bank loans of associates and other companies. The guarantees for the associates and other companies are made to ensure that those companies operate with less finance costs. The maximum payments in the event of default is ¥1,527 million ($14,406 thousand) at March 31, 2004. The carrying amounts of the liabilities recognized under those guar- antees at March 31, 2004 were immaterial. Bank loans of ¥889 million ($8,387 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 borne equally among the companies. 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, 2004 and 2003 are summarized as follows: Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Addition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen 2004 ¥ 2,752 4,188 (3,787) ¥ 3,153 2003 ¥ 1,890 3,493 (2,631) ¥ 2,752 Thousands of U.S. dollars 2004 Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,962 Addition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,509 Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,726) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,745 19. SUBSEQUENT EVENTS On May 6, 2004, management of the Company resolved to propose the following for approval of the shareholders at the meeting to be held on June 24, 2004. (1) A plan to repurchase the Company’s outstanding shares at the Company’s discretion with a maximum limit of ¥5,000 million ($47,170 thousand), or 2,000,000 shares, for the period up to the date of the June 2005 general meeting of shareholders. (2) Amendment of the Company’s articles of incorporation enabling the repurchase of the Company’s outstanding shares upon resolution by the Board of Directors. On May 11, 2004, the Company entered into a joint venture agreement with Hitachi, Ltd. In connection with the joint venture agree- ment, a corporate separation agreement was approved by the Board of directors, allowing for the transfer of Automated Teller Machines and other information equipment businesses to the joint venture. The agreement is subject to approval of the shareholders at the meeting to be held on June 24, 2004. The new company, if approved, will start operations on October 1, 2004, and will be called Hitachi-Omron Terminal Solutions Corp. ("HOTS"). HOTS will strive for a globally competitive position in the information equipment mar- ket. The Company will be given a 45% interest in exchange for transferring certain assets and liabilities. The assets and liabilities to be transferred recorded on the Company’s book of account at March 31,2004 were ¥27,203 million ($256,632 thousand) and ¥3,058 mil- lion ($28,849 thousand), respectively. 65 Deloitte Touche Tohmatsu Osaka Kokusai Building 2-3-13, Azuchi–machi Chuo–ku, Osaka 541-0052 Japan Tel: +81 (6) 6261 1381 Fax: +81 (6) 6261 1238 www.deloitte.com/jp 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, 2004 and 2003, 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, 2004, all expressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opin- ion 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 disclosures 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, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2004 in conformity with accounting principles generally accepted in the United States of America. Our audits also comprehended the translation of Japanese yen amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2 to the consolidated financial state- ments. Such United States dollar amounts are presented solely for the convenience of readers outside Japan. June 4, 2004 66 GLOBAL NETWORK EUROPE Regional Headquarters OMRON Europe B.V. (The Netherlands) Phone: 31-23-5681300 Fax: 31-23-5681388 Industrial Automation Business 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: 420-2-3460-2602 Fax: 420-2-3460-2607 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 THE AMERICAS OMRON Electronics KFT (Hungary) Phone: 36-1-399-3050 Fax: 36-1-399-3060 OMRON Electronics SpA. (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: 44-19-0825-8258 Fax: 44-19-0825-8158 OMRON Electronics Manufacturing of Germany G.m.b.H. (Germany) Phone: 49-7032-811-0 Fax: 49-7032-811-199 OMRON Manufacturing of The Netherlands B.V. (The Netherlands) Phone: 31-73-6481811 Fax: 31-73-6420195 OMRON Yasukawa Motion Control B.V. (The Netherlands) Phone: 31-23-5681400 Fax: 31-23-5681388 Electronic Components Business OMRON Electronic Components Europe B.V. (The Netherlands) Phone: 31-23-5681300 Fax: 31-23-5681212 Automotive Electronic Components Business OMRON Automotive Electronics UK Ltd. (U.K.) Phone: 44-1384-405500 Fax: 44-1384-405508 IMS Vision G.m.b.H. (Germany) Phone: 49-711-686876-0 Fax: 49-711-686876-70 Healthcare Business OMRON Medizintechnik Handelsgesellschaft G.m.b.H. (Germany) Phone: 49-621-83348-20 Fax: 49-621-834-820 OMRON Healthcare Europe B.V. (The Netherlands) Phone: 31-20-354-8200 Fax: 31-20-354-8201 OMRON Healthcare UK Ltd. (U.K.) Phone: 44-1-273-497912 Fax: 44-1-273-495123 Regional Headquarters OMRON Management Center of America, Inc. (U.S.A.) Phone: 1-847-884-0322 Fax: 1-847-884-1866 Electronic Components Business OMRON Electronic Components LLC. (U.S.A.) Phone: 1-847-882-2288 Fax: 1-847-992-2192 OMRON Business Systemas Eletro˜ icos da America Latina Ltda. (Brazil) Phone: 55-11-251-0073 Fax: 55-11-251-1053 Industrial Automation Business OMRON Electronics LLC. (U.S.A.) Phone: 1-847-843-7900 Fax: 1-847-843-7787 Automotive Electronic Components Business OMRON Automotive Electronics, Inc. (U.S.A.) Phone: 1-630-443-6800 Fax: 1-630-443-6898 Healthcare Business OMRON Healthcare, Inc. (U.S.A.) Phone: 1-847-680-6200 Fax: 1-847-680-6269 OMRON Manufacturing of America, Inc. (U.S.A.) Phone: 1-630-513-0400 Fax: 1-630-513-1027 OMRON Dualtec Automotive Electronics Inc. (Canada) Phone: 1-905-829-0136 Fax: 1-905-829-0432 OMRON Canada Inc. (Canada) Phone: 1-416-286-6465 Fax: 1-416-286-6648 OMRON Electronica Automotiva Do Brasil LTDA (Brazil) Phone: 55-11-5563-4465 Fax: 55-11-5564-7751 OMRON IDM Controls, Inc. (U.S.A.) Phone: 1-713-849-1900 Fax: 1-713-849-4666 OMRON Eletro˜ ica do Brasil Ltda. (Brazil) Phone: 55-11-5564-6488 Fax: 55-11-5564-7751 Social Systems Business (Advanced Modules) 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 Other 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 Asia Pacific Pte. Ltd. (Singapore) Phone: 65-6835-3011 Fax: 65-6835-2711 Industrial Automation Business OMRON Electronics Pte. Ltd. (Singapore) Phone: 65-6547-6789 Fax: 65-6547-6766 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 P.T. OMRON Electronics (Indonesia) Phone: 62-21-8370-9555 Fax: 62-21-8370-9550 Electronic Components Business OMRON Malaysia Sdn. Bhd. (Malaysia) Phone: 603-7620-0036 Fax: 603-7620-0049 P.T. OMRON Manufacturing of Indonesia (Indonesia) Phone: 62-21-897-5108 Fax: 62-21-897-5160 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 Business OMRON Automotive Electronics Korea, Co., Ltd. (Korea) Phone: 82-2-850-5700 Fax: 82-2-859-1687 67 OMRON Automotive Electronics Co., Ltd. (Thailand) Phone: 66-35-227-169 Fax: 66-35-227-167 Social Systems Business (Advanced Modules) OMRON Mechatronics of The Philippines Corp. (Philippines) Phone: 63-47-252-5236 Fax: 63-47-252-1491 OMRON Technical Service Malaysia Sdn. Bhd. (Malaysia) Phone: 603-7954-3119 Fax: 603-7954-1559 Healthcare Business OMRON Healthcare Singapore Pte. Ltd. (Singapore) Phone: 65-6736-2345 Fax: 65-6736-2500 CHINESE ECONOMIC AREA Regional Headquarters OMRON China Headquarters (China) Phone: 86-21-6841-2588 Fax: 86-21-6841-2788 OMRON (China) Group Co.,Ltd. (Hong Kong) Phone: 852-2375-3827 Fax: 852-2375-1475 OMRON Corporation Beijing Office (China) Phone: 86-10-6515-5788 Fax: 86-10-6515-5799 OMRON China Centtalised Procurement Center (China) Phone: 86-755-8348-1108 Fax: 86-755-8348-0578 Industrial Automation Business OMRON (China) Co., Ltd. (China) Phone: 86-10-8391-3005 Fax: 86-10-8391-3688 OMRON (China) Co., Ltd., Shanghai Office (China) Tel:86-21-5037-2222 Fax:86-21-5037-2200 OMRON Electronics (Guangzhou) Ltd. (China) Tel:86-20-8732-0508 Fax:86-20-8732-1750 OMRON Electronics (Hong Kong) Ltd. (Hong Kong) Phone: 852-2375-3827 Fax: 852-2375-1475 OMRON Taiwan Electronics Inc. (Taiwan) Phone: 886-2-2715-3331 Fax: 886-2-2712-6712 OMRON Taiwan System Inc. (Taiwan) Phone: 886-2-2375-2200 Fax: 886-2-2375-2233 JAPAN Manufacturing Mishima Systems Factory Phone: 81-55-977-9000 Fax: 81-55-977-9080 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 Business 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 OTE Engineering Inc. (Taiwan) Phone: 886-3-352-4442 Fax: 886-3-352-4239 OMRON Trading (Shanghai) Co., Ltd. (China) Phone: 86-21-5046-0660 Fax: 86-21-5046-0998 OMRON Trading (Tianjin) Co., Ltd. (China) Phone: 86-22-2420-7209 Fax: 86-22-2420-7217 OMRON Trading (Shenzhen) Co., Ltd. (China) Phone: 86-755-8359-9028 Fax: 86-755-8359-9628 Shanghai OMRON Automation System Co., Ltd. (China) Phone: 86-21-5050-4535 Fax: 86-21-5854-2658 OMRON (Shanghai) Co., Ltd. Phone: 86-21-5854-0055 Fax: 86-21-5854-0614 OMRON (Shanghai) Control System Engineering Co., Ltd. (China) Phone: 86-21-5131-9030 Fax: 86-21-5131-9040 Electronic Components Business OMRON Electronic Components (H.K.) Ltd. (Hong Kong) Phone: 852-2375-3827 Fax: 852-2375-1475 Shanghai OMRON Control Components Co., Ltd. (China) Phone: 86-21-5854-0012 Fax: 86-21-5854-8413 OMRON Electronic Components (Shenzhen) Ltd. (China) Phone: 86-755-8462-0000 Fax: 86-755-8462-1111 Social Systems Business OMRON Corporation Beijing Office, Social Systems Business (China) Phone:86-10-6515-5783 Fax:86-10-6515-5797 Healthcare Business OMRON(China) Co., Ltd. Shanghai Branch (Healthcare Business) (China) Phone:86-21-6351-9588 Fax:86-21-6351-6300 OMRON Industry & Trade (Dalian) Co., Ltd. (China) Phone: 86-411-8731-7201 Fax: 86-411-8731-7191 OMRON Dalian Co., Ltd. (China) Phone: 86-411-8761-4222 Fax: 86-411-8762-8494 OMRON(Dalian) Co., Ltd. Research & Development Center (China) Phone:86-411-8476-8080 Fax:86-411-8476-7299 OMRON Technocult Co., Ltd. Phone: 81-45-321-0471 Fax: 81-45-321-0473 OMRON Software Hokkaido Co., Ltd. Phone: 81-11-898-6711 Fax: 81-11-898-6710 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 Business 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 Social Systems Business (Advanced Modules) OMRON Nohgata Co., Ltd. Phone: 81-949-22-2811 Fax: 81-949-28-3046 Healthcare Business 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 Taiyo Co., Ltd. Phone: 81-977-66-4447 Fax: 81-977-67-5112 OMRON Marketing Co., Ltd. Phone: 81-75-344-7048 Fax: 81-75-344-7059 OMRON Logistic Create Co., Ltd. Phone: 81-6-6347-5891 Fax: 81-6-6347-5991 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 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 Automotive Electronic Components Business 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 68 CORPORATE AND STOCK INFORMATION (As of March 31, 2004) 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, 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 Number of Employees 24,324 Paid-in Capital ¥64,082 million Common Stock Authorized: 487,000,000 shares Issued: 249,109,236 shares Number of shareholders: 27,020 Stock Listings Osaka Securities Exchange Tokyo Stock Exchange Nagoya Stock Exchange Frankfurt Stock Exchange Ticker Symbol Number 6645 Common Stock Price Range/ Trading Volume (Osaka Securities Exchange) Transfer Agent The Mitsubishi Trust and Banking Corporation 1-4-5, Marunouchi, Chiyoda-ku, Tokyo 100-8212, Japan Depositary and Transfer Agent for American Depositary Receipts JPMorgan Chase Bank 270 Park Avenue, New York, NY 10017-2070, U. S. A. ADR Holder Contact: JPMorgan Service Center P. O. Box 43013 Providence, RI 02940-3013 Phone : 781-575-5328 Fax : 781-575-4082 General E-mail: adr@jpmorgan.com Homepage http://www.omron.co.jp (Japanese) http://www.omron.com (English) (Yen) 4,000 3,000 2,000 1,000 0 (Shares) 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 Price range of common tock [left axis] Adjusted average for Nikkei 225 stocks [right axis] (Yen) 40,000 30,000 20,000 10,000 0 Trading volume Yearly High and Low Prices Yen FY1994 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 High . . . . . . . . . . . . ¥ 1,910 ¥ 2,710 ¥ 2,400 ¥ 2,900 ¥ 2,230 ¥ 3,450 ¥ 3,200 ¥ 2,560 ¥ 2,080 Low . . . . . . . . . . . . 1,450 1,500 1,690 1,760 1,059 1,500 1,702 1,390 1,341 ¥ 2,740 1,685 69 Printed in Japan O M R O N C o r p o r a t i o n A n n u a l R e p o r t 2 0 0 4 Annual Report 2004 Year ended March 31, 2004 100% Recycled-content level Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530, Japan Phone: 81-75-344-7000 Fax: 81-75-344-7001 Home page: http://www.omron.co.jp (Japanese) http://www.omron.com (English) 

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