Annual Report 2006
Year ended March 31, 2006
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6
OMRON CORPORATION ANNUAL REPORT 2006
P R O F I L E
The Omron Group creates and provides innovative devices and solutions in a broad range of fields including industry,
society and lifestyle, through the use of its core competences of “sensing and control” to extract essential data from all
manner of events. At the same time, it is strongly conscious of contributing to the building of a better society through
its business activities.
Along with being a turning point in our long-term management plan “Grand Design 2010 (GD2010)”, fiscal 2005 saw
us set new records for sales and profits. In fiscal 2006, we will aim to accomplish the goals of the 2nd Stage of GD2010
(fiscal 2004 – fiscal 2007), changing gears for structural reform to put us on the offensive, and accelerating investment
to build foundations for future growth.
Discrete Information on
People’s Intention and Thoughts
People’s Biometric Data
Environmental Information
Discrete Information on
People and Things
Location of People and Things
Sensing
&
Control
Industry
Society
Lifestyle
Sustainability Report 2006
For information on Omron’s sustainability initiatives,
please refer to “Sustainability Report 2006”, a report
on social and environmental activities to our stake-
holders, including employees, clients and customers,
shareholders, and the regional community.
http://www.omron.com/corporate/csr/
Financial Fact Book 2006
For financial data from the past 10 years, please
refer to “Fact Book 2006”.
http://www.omron.com/ir/ir_factbook.html
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 accept-
ance 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.
H2
OMRON CORPORATION ANNUAL REPORT 2006
P R O D U C I N G W I N - W I N O U T C O M E S F O R A L L S TA K E H O L D E R S
Contents
2 Grand Design 2010 (GD2010)
4 Ten-Year Financial Highlights
6 To Our Shareholders, Customers, and All Other Stakeholders
6 Message from the Chairman
7 Message from the President
11 Special Feature: Small but Global
15 Segment Information
16 Business Lineup (At a Glance)
18
20
Industrial Automation Business (IAB)
Electronic Components Business (ECB)
22 Automotive Electronic Components Business (AEC)
24
Social Systems Business (SSB)
26 Healthcare Business (HCB)
28
Business Development Group and Other Businesses
29 Management Systems
30
32
34
Corporate Governance and Legal Compliance
Corporate Social Responsibility
Intellectual Property Strategy
36 Directors, Corporate Auditors and Executive Officers
37 Financial Section (including Business and Other Risks)
77 Global and Domestic Network
78 Corporate and Stock Information
79 Compass Determining the Direction of Omron’s Management
—SINIC Theory
1
OMRON CORPORATION ANNUAL REPORT 2006
G R A N D D E S I G N 2 0 1 0 ( G D 2 0 1 0 )
O M R O N I S S T E A D I LY P R O G R E S S I N G T O W A R D S T H E E S TA B L I S H M E N T O F
F O U N D AT I O N S F O R S U S TA I N A B L E G R O W T H
LONG-TERM MAXIMIZATION OF CORPORATE VALUE
In 2001, we established our long-term management plan “Grand Design 2010 (GD2010)” which has as its main goal the long-term maxi-
mization of corporate value and indicates the direction to be pursued over the ten-year period from 2001. Furthermore, GD2010 is
divided into three stages or medium-term management plans, each with its own theme. Currently, in the 2nd Stage, we are working
under the theme of “Balancing Growth & Earnings” with the goal of “Doubling Total Business Value”.
1st Stage
2nd Stage
3rd Stage
Theme
Establishing
a Profit Structure
Balancing
Growth & Earnings
Achieving a
Growth Structure
FY 2001
FY 2004
FY 2007
FY 2010
Target
ROE 10%
Doubling
Total Business Value
Maintaining ROE above 10%
The Goal of the 2nd Stage: Doubling Total Business Value
ROE of 10% is indispensable if we are to compete
globally. At the same time, we see it as a baseline for
continuing business operations while making effec-
tive use of capital markets. In the 1st Stage, we
achieved our goal of maintaining ROE of 10%, and
we are carrying out further reforms to build a busi-
ness structure that can keep this level.
10.2
10.4
10.7
0.2
-5.1
ROE
(%)
15
10
5
0
-5
-10
2
Under GD2010, we are aiming to become a corporation from which future
growth, in the form of the long-term expansion of earnings based on a clear
vision, can be expected. We are aiming for “Corporate Value-focused Manage-
ment” which is highly rated in the capital market. To achieve these goals, we
have defined corporate value as an estimate of present value, formed by using
capital cost to discount the future free cash flow expected by the business
units, for use as an internal management indicator, and are working to maximize
corporate value. In particular, in the 2nd Stage of GD2010, where the pivotal
role is shifted to investment for growth, the doubling of total business value
(compared to levels in fiscal 2003) based on this internal definition, is our
newest goal, and we are raising the level of corporate value in both existing and
growth business areas.
Doubling Total Business Value
(Billions of yen)
1,200
1,000
800
600
400
200
130
210
600
720
730
240
870
250
New Tech
Fields
950
Existing
Businesses
01
02
03
04
05
(FY)
0
03
04
05
06
Plan
(FY)
07
Target
OMRON CORPORATION ANNUAL REPORT 2006
Increased Sales and Profits for the Fourth Consecutive Period
We have established sales of more than ¥750 billion and operating income of greater than ¥75 billion for fiscal 2007 as management indi-
cators to achieve the latest 2nd Stage goal of doubling total corporate value. In fiscal 2005, there was the extraordinary factor of a gain
recorded on the return of pension assets to the government, but along with the fact that sales and profits increased for the fourth con-
secutive period, operating income and net income both established new highs, and we were able to take another step closer to realizing
our latest goal for the 2nd Stage.
Corporate Performance
(Billions of yen)
800
600
400
200
0
Net sales (left axis)
Operating income (right axis)
Operating income margin (right axis)
(Billions of yen)
(%)
12
9
95
96
97
98
99
00
01
02
03
04
05
06
Plan
(FY)
07
Target
80
6
40
3
0
0
1st Stage
2nd Stage
3rd Stage
Restructuring of Business Segments
Management Restructuring
1) In order to establish pillars of business
in the IAB, we are, above all, promot-
ing the expansion of the ECB and AEC
segments.
2) In Greater China—which stands out as
a major consumer—we are focusing on
expanding sales where major manufac-
turers are building plants.
In order to build a robust earnings structure,
we are continuously working on business effi-
ciency, and are aiming to achieve an SG&A
expense ratio of 22% by fiscal 2007.
Sales Breakdown
by Segment
IAB
ECB
AEC
SSB
HCB
Other
Sales Breakdown
by Region
Southeast Asia and Others
Greater China
Europe
North America
Japan (including exports)
(%)
100
80
60
40
9.4
6.6
9.2
7.6
23.9
24.0
21.8
9.5
15.2
6.5
7.9
4.2
8.0
4.5
8.3
4.2
9.7
21.8
23.3
11.1
10.1
14.8
15.2
18.9
14.6
10.6
12.4
16.6
15.6
20
38.3
34.5
37.8
39.3
41.1
43.5
0
00
01
02
03
04
05
(FY)
Note: In FY00, AEC was included in ECB.
(%)
100
80
60
40
20
0
8.5
9.9
10.2
13.7
14.4
7.6
10.3
10.8
12.2
12.3
4.8
5.6
15.2
12.7
11.0
10.8
5.7
6.7
15.8
12.7
71.3
67.0
63.7
64.3
63.7
59.1
00
01
02
03
04
05
(FY)
SG&A Expense Ratio
(%)
26
25
24
23
22
21
20
25.3
25.3
24.3
24.1
23.8
22.1
00
01
02
03
04
05
(FY)
Note: Until FY03, Greater China was included in Southeast Asia and Others.
Greater China includes China, Hong Kong and Taiwan.
Note: Excluding extraordinary factors of ATM business and response to
hazardous chemical substance regulations in FY04
Excluding extraordinary factors of response to hazardous chemical
substance regulations in FY05
IAB: Industrial Automation Business
SSB: Social Systems Business
ECB: Electronic Components Business
HCB: Healthcare Business
AEC: Automotive Electronic Components Business
G
D
2
0
1
0
3
OMRON CORPORATION ANNUAL REPORT 2006
T E N - Y E A R F I N A N C I A L H I G H L I G H T S
OMRON Corporation and Subsidiaries
Operating Results (for the year):
Net sales
Gross profit
Selling, general and administrative expenses
(Excluding research and development expenses)
Research and development expenses
Operating income
EBITDA (Note 3)
Net income
Cash Flows (for the year):
Net cash provided by operating activities
Net cash used in investing activities
Free cash flow (Note 4)
Net cash used in financing activities
Financial Position (at year-end):
Total assets
Total interest-bearing liabilities
Total shareholders’ equity
Per Share Data:
Net income (Basic)
Shareholders’ equity
Cash dividends (Note 5)
Ratios:
Gross profit margin
Operating income margin
EBITDA margin
Return on shareholders’ equity (ROE)
Ratio of shareholders’ equity to total assets
2006/3
2005/3
2004/3
2003/3
¥ 626,782
253,389
¥ 608,588
249,771
¥ 584,889
240,054
¥ 535,073
207,660
152,675
50,501
62,128
92,953
35,763
51,699
(43,020)
8,679
(38,320)
144,219
49,441
56,111
84,753
30,176
61,076
(36,050)
25,026
(40,684)
142,157
46,494
51,403
79,065
26,811
80,687
(34,484)
46,203
(28,119)
135,112
40,235
32,313
61,989
511
41,854
(30,633)
11,221
(1,996)
589,061
3,813
362,937
585,429
24,759
305,810
592,273
56,687
274,710
567,399
71,260
251,610
151.1
1,548.1
30.0
126.5
1,284.8
24.0
40.4%
9.9%
14.8%
10.7%
61.6%
41.0%
9.2%
13.9%
10.4%
52.2%
110.7
1148.3
20.0
41.0%
8.8%
13.5%
10.2%
46.4%
Net Sales and Operating Income Margin
Net Income (Loss) and ROE
(Billions of yen)
1,000
800
600
400
200
0
(%)
10
(Billions of yen)
40
8
6
4
2
0
30
20
10
0
-10
-20
97/3
98/3
99/3
00/3
01/3
02/3
03/3
04/3
05/3
06/3
97/3
98/3
99/3
00/3
01/3
02/3
03/3
04/3
05/3
06/3
Net sales (left axis)
Operating income margin (right axis)
Net income (loss) (left axis)
ROE (right axis)
Notes: 1. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate on March 31, 2006, of ¥117=$1.
2. About the above-mentioned financial data, the profit or loss (excluding the balance of obligation settled) recognized on the transfer of employee pension
fund liabilities in March 31, 2006 is not included in any of “cost of sales”, “selling, general & administrative expenses” and “research and development
expenses”, to enable an easy comparison with previous fiscal years. It is assumed that this profit or loss is allocated in one lump sum.
4
2.1
1036.0
10.0
38.8%
6.0%
11.6%
0.2%
44.3%
(%)
20
15
10
5
0
-5
-10
OMRON CORPORATION ANNUAL REPORT 2006
2002/3
2001/3
2000/3
1999/3
1998/3
1997/3
2006/3
Millions of yen
Thousands of
U.S. dollars (Note 1)
¥ 533,964
180,535
¥ 594,259
218,065
¥ 555,358
196,447
¥ 555,280
190,966
¥ 611,795
224,350
¥ 594,261
206,256
I
I
F
N
A
N
C
A
L
H
G
H
L
G
H
T
S
I
I
131,203
42,513
44,349
76,566
22,297
50,796
(32,365)
18,431
(24,582)
133,662
36,605
26,180
57,625
11,561
59,926
(34,180)
25,746
(23,785)
136,734
42,383
11,849
43,245
2,174
29,583
(29,011)
572
21,629
138,404
39,914
46,032
77,161
18,300
32,086
(17,631)
14,455
(23,637)
130,163
35,188
40,905
72,139
15,739
57,169
(29,398)
27,771
(37,857)
593,144
67,213
325,958
579,489
69,472
336,062
580,586
86,723
321,258
593,129
54,544
343,066
610,930
75,147
333,102
$ 5,357,111
2,165,718
1,304,915
431,632
531,009
794,470
305,667
441,872
(367,692)
74,179
(327,521)
5,034,710
32,590
3,102,026
87.4
1311.1
13.0
36.7%
7.5%
12.9%
6.7%
55.0%
45.0
1308.6
13.0
35.4%
4.7%
10.4%
3.5%
58.0%
Yen
U.S. dollars (Note 1)
8.3
1,249.5
13.0
71.4
1,308.9
13.0
60.1
1,270.9
13.0
1.29
13.23
0.26
34.4%
2.1%
7.8%
0.7%
55.3%
36.7%
7.5%
12.6%
5.4%
57.8%
34.7%
6.9%
12.1%
4.8%
54.5%
Free Cash Flow
Shareholders’ Equity and
Ratio of Shareholders’ Equity to Total Assets
(Billions of yen)
400
300
200
100
0
97/3
98/3
99/3
00/3
01/3
02/3
03/3
04/3
05/3
06/3
97/3
98/3
99/3
00/3
01/3
02/3
03/3
04/3
05/3
06/3
Shareholders’ equity (left axis)
Ratio of shareholders’ equity to total assets (right axis)
3. EBITDA = Operating income + Depreciation and amortization.
4. Free cash flow = Net cash provided by operating activities – Net cash used in investing activities.
5. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the year.
(%)
80
60
40
20
0
5
134,907
41,407
4,221
37,790
(15,773)
33,687
(40,121)
(6,434)
(12,056)
549,366
58,711
298,234
(63.5)
1201.2
13.0
33.8%
0.8%
7.1%
(5.1%)
54.3%
(Billions of yen)
50
40
30
20
10
0
-10
T O O U R S H A R E H O L D E R S , C U S T O M E R S , A N D A L L O T H E R S TA K E H O L D E R S
OMRON CORPORATION ANNUAL REPORT 2006
M e s s a g e f r o m t h e C h a i r m a n
In addition to the usual economic value that society demands from
companies, the relative weight being placed on social value is increas-
ing. Thus, the Omron Group—along with generating the centrifugal
force or expansive power necessary for growth in ways such as global-
ization, decentralization, and M&As—is using “The Omron Principles”
as a source of centripetal force or cohesive power to raise the quality
of its corporate governance, aiming for the long-term maximization of
its corporate value while meeting the expectations of society.
Yoshio Tateisi, Chairman of the BOD
AN OPTIMUM PORTFOLIO MADE POSSIBLE BY A “SMALL BUT GLOBAL” APPROACH
The Omron Group has grown to reach the scale of a major corporation, but in fact our company is a collection of
120 small business units organically intertwined and built around our core competence of “sensing and control”.
The ability to recognize opportunity and the flexibility that comes with this “venture company” structure allows the
entire Group to quickly build an optimum portfolio and remain on course toward growth despite whatever severe
business circumstances might come along. In the future, even if our individual business units are small, we would
like to be known as a “Small but Global” company with a strong worldwide presence.
BALANCING THE CENTRIFUGAL AND CENTRIPETAL FORCES NEEDED FOR GROWTH
Our Group is already at the point of operating in 33 countries around the world, which means half our business
and half our employees can now be found overseas. In addition to this globalization, it can be said that both
decentralization and M&As will provide the necessary centrifugal force that will drive future growth, but from
the perspective of corporate governance, the diversification of values and standards of judgment brought
about by this centrifugal force is, on occasion, problematic. Thus, in order to strongly bind this centrifugal force
to sustainable growth for the entire Group, I believe that it is necessary to counter it with centripetal force, and
we are finding this centripetal force in “The Omron Principles”.
WORKING FOR THE BENEFIT OF SOCIETY
“The Omron Principles” serve to announce our company’s mission and its methods of action to both those inside
the Company and the public at large. These fundamental values are the foundation for decision-making and stan-
dards of behavior. However, if they are going to be a source of centripetal force, “The Omron Principles” must
also transcend personal and business interests. Therefore, last year, we formed a committee to examine “The
Omron Principles”, and with the help of an employee survey, debated, from various points of view, such impor-
tant questions as who owns the corporation and what corporate principles are globally acceptable. This resulted
in our establishing “The Omron Principles”, the highest of which is “Working for the benefit of society”, which
stems from the idea that companies get their start in business by leveraging various resources belonging to soci-
ety. This way of thinking has been the basis of our management since the founding of our Group half a century
ago. In order to further clarify this idea of “Working for the benefit of society” and ensure that it is passed down
as an important value, we have established it anew as the kernel of “The Omron Principles”.
CORPORATE GOVERNANCE POWERED BY “THE OMRON PRINCIPLES”
The substance of the value that society demands from companies changes with the times. Nowadays, society not
only demands the usual economic value, but also has strong expectations in terms of contributions to society and
other forms of social value. Since Omron’s founding, the founder and his family have served as a source of cen-
tripetal force; however, in this day and age, in order to achieve continuous growth on a global basis, “The Omron
Principles” must become that source of centripetal force. Furthermore, I believe that the highest level of corporate
governance can be achieved by having all employees, management included, share this value. Through corporate
governance based on “The Omron Principles”, we will inherit and pass on our “innovation driven by social needs”,
which contributes to society, and our “challenging ourselves to always do better” that comes from being a group
of venture companies—two manifestations of our founding DNA. I want to continue as a company that is chosen
for its future promise.
July 2006
6
Yoshio Tateisi, Chairman of the BOD
OMRON CORPORATION ANNUAL REPORT 2006
M e s s a g e f r o m t h e P r e s i d e n t
Thanks to the support of our stakeholders in fiscal 2005, we were able
to carry on from the previous term to once again achieve record sales
and profits. To help lay the groundwork for making large strides in fis-
cal 2007 toward the final goals contained in the 2nd Stage of our
long-term management plan, we intend to make a bold investment in
growth in fiscal 2006.
M
E
S
S
A
G
E
Hisao Sakuta, President and CEO
RETROSPECTIVE ON FISCAL 2005
Business Environment
The economy is gearing up for recovery
In fiscal 2005, Japan’s economy finished a cycle of inventory adjustments for IT and digital-
related products. An increase in capital investment on the back of major improvements in
corporate profits, a recovery in consumer spending fed by improved employment and
wages, as well as other events, moved business conditions a step closer toward real
recovery. Overseas, the sharp rise in crude oil prices and the destructive impact of large-
scale hurricanes raised concerns about the North American economy, but a favorable
employment environment overcame both worries to produce positive results. In China, a
moderate slowdown in consumer spending and capital investment failed to interrupt high
levels of growth. Furthermore, in the European economy, growth in corporate production
made possible by robust exports is evidence that conditions are moving toward recovery.
Overview of Operating Results
Four consecutive years of higher sales and profits
Amidst a solid performance by the global economy, the Omron Group enjoyed new highs
for operating income and net income above last year’s record numbers along with
increased net sales and profits for the fourth consecutive term. For fiscal 2005, net sales
increased 3.0% year on year to ¥626.8 billion, operating income rose 10.7% to ¥62.1 bil-
lion and net income was up 18.5% to ¥35.8 billion. Operating income was 4.4% below the
initial target, mainly because of variations in the product mix. Return on shareholders’ equi-
ty (ROE), however, was kept above 10%, finishing at 10.7%.
Net Sales and Operating Income
¥ 100M
Net sales
Operating income
5,340
5,351
5,849
6,086
6,268
42
01
323
02
514
03
561
621
04
05
(FY)
The IAB, AEC, and HCB are the engines of growth
Segment sales, aside from the Electronics Components Business (ECB), achieved strong
results that came in above target.
Nets sales of the Industrial Automation Business (IAB) rose 8.9% to ¥272.7 billion, backed by
greater investment in products related to automobiles, semiconductors and digital consumer
appliances which produced strong results in both domestic and overseas markets. In North
America, IAB results were particularly striking, finishing 20% above initial targets. Sales in the
Automotive Electronics Components Business (AEC) jumped 20.2% year on year to ¥77.6 billion,
helped by the release of products able to meet demand for more environmentally friendly and
safer automobiles in conjunction with new vehicle introductions by automakers who are Omron
customers. In the Healthcare Business (HCB), the valuable acquisition of Colin Medical Technolo-
gy and a strong sales performance by digital blood pressure monitors and body composition
analyzers, both of which are mainstay products, generated sales of ¥61.1 billion, up 20.8% year
on year. The Social Systems Business (SSB) also experienced strong sales, partly as a result of
replacement demand for equipment adapted to commuter passes containing ICs, and large-scale
projects tied to the opening of new train lines. On the other hand, the transfer of the information
equipment business—which includes Automated Teller Machines (ATMs)—to an equity-method
affiliate removed ¥27.0 billion from revenues, causing SSB net sales to decline 20.3% year on
year to ¥91.8 billion. In the ECB business segment, sales fell 3.4% to ¥97.7 billion, partly
because the slump in sales of backlights for LCDs was worse than expected.
Breakdown of Change
in Sales by Segment (FY05)
¥ 100M
+224
Transfer of
ATM business
+130
+105
-34
-234
-9
IAB
ECB
AEC
SSB
HCB
Other
7
OMRON CORPORATION ANNUAL REPORT 2006
Return of substitutional portion of pension fund gives operating income a lift
In comparing operating income year on year, the transfer of the information equipment busi-
ness (including ATMs) to an equity-method affiliate, compliance with Europe’s Restriction of
Hazardous Substances (RoHS) in Electrical and Electronic Equipment Directive, and
increased SG&A and R&D expenses represented minus factors worth ¥18.7 billion. Also,
changes to the product mix squeezed ¥5.8 billion from earnings. On the positive side, the
contributions of ¥14 billion from higher sales, ¥4.6 billion in foreign exchange gains and ¥11.9
billion from the return of substitutional portion of pension fund resulted in a year-on-year
increase in net operating income of ¥6 billion.
Financial Conditions
The ratio of shareholders’ equity to total assets rises to 62%
We have streamlined total assets to add more strength to the balance sheet. Based on an
acceleration of investment in growth, fixed assets have increased by ¥7.3 billion, but interest-
bearing liabilities have declined by ¥20.9 billion. At the same time, shareholders’ equity has
gained ¥57.1 billion. In addition to higher net income, return of substitutional portion of pen-
sion fund has reduced minimum pension liability adjustments, and unrealized gains on
available-for-sale securities have increased. The overall result has been that the ratio of share-
holders’ equity has risen 9 percentage points year on year to 62%.
Operating
income
561
04
FISCAL 2006 PLANS
Keep Higher Sales and Profits on Track and Invest Aggressively
In fiscal 2006, the Omron Group aims to keep the recent run of higher sales and profits on track
and to register another year of record profits. Specifically, our forecast (as of April 2006) calls for
net sales of ¥700 billion (11.7% increase over fiscal 2005), operating income of ¥63 billion (1.4%
increase), and net income of ¥37.5 billion (4.9% increase). In line with the final goals of the 2nd
Stage of the “GD2010” long-term management plan, “doubling of total business value (operat-
ing results targets: net sales of ¥750 billion or more and operating income of ¥75 billion or
more),” we are maintaining support for higher sales and profits in fiscal 2006 in view of the tar-
gets we plan to hit in fiscal 2007, alongside of which we will carry out forward-looking R&D and
invest in growth. Accordingly, we anticipate a temporary slowdown in operating income growth.
* The operating results forecast does not account for the effects of M&As intended at present.
Important Issues to Resolve in Fiscal 2006
Fiscal 2005 was another year of record profits, but leaving aside foreign exchange gains and
return of substitutional portion of pension fund, two important issues have surfaced which
need to be resolved; namely, (1) the decline in ECB sales and (2) deteriorating AEC prof-
itability. As discussed below, we intend to take steps to resolve these issues in fiscal 2006.
(1) ECB sales turnaround
The decline in ECB sales in fiscal 2005 was caused mainly by the sluggish performance of back-
lights for LCDs. One reason for this sluggishness is the inadequate supply arrangement for
large-scale backlights used in flat panel TVs in Taiwan. In fiscal 2006, measures are already being
taken to create a much better supply system. Another reason is that in the market for small-
scale backlights for cellular phones, low-cost point light source backlights (a single LED serves
as the light source) well suited to special applications have been hit by lower selling prices and
by fierce competition with ultra bright multi-light source backlights (multiple LEDs serve as the
light source). In response to this second problem, efforts are being made to boost sales in the
expanding BRICs markets where point light source backlights can be more cost competitive. At
the same time, we are in the process of offering a full line of backlight products based on our
development of high-performance-oriented integrated 3-LED ultra-high brightness backlights and
converting the Pioneer Precision Machinery acquisition (see pages 12 and 21) into an opportuni-
ty to create a multi-light source backlight supply system. Based on these measures, we hope to
make certain we can turn ECB sales and growth performance around in fiscal 2006.
Breakdown of Change
in Operating Income (FY05)
¥ 100M
Exchange
profit
Transfer of
ATM business
+46
-40
-58
SG&A
expenses
Product mix
Sales
+140
+119
Substitutional
portion of
pension fund
-112
-35
R&D
expenses
Operating
income
621
05
(FY)
¥ 100M
750
Operating Income
Continuation of
investments for growth
621
630
561
514
03
04
05
06
Plan
(FY)
07
Target
Forecast of ECB Sales
and Operating Income
¥ 100M
Net sales
approx.
+50
Electronic
components
Sales
977
05
approx.
+100
approx.
+50
Amusement
Backlights
approx.
+35
Sales
Components
for mobile
phones,
etc.
1,215
(FY)
06
Plan
Opearting income
+142
-60
Sales
Operating
income
112
05
-25
Added
value
ratio
Manufacturing
fixed costs
-24
Operating
income
SG&A
and
R&D
expenses
145
(FY)
06
Plan
8
* Excluding effects of M&As
OMRON CORPORATION ANNUAL REPORT 2006
(2) Putting the AEC back into the black
AEC sales have experienced substantial growth and are forecast to achieve a strong 17%
jump in fiscal 2006. The problem, however, is profitability. Analyzing fiscal 2005 results,
product profitability was in part hurt by a steep rise in raw material prices while the
expense of quality improvements at factories in North America increased the cost burden.
However, quality improvement costs were of a temporary nature. As for improvement of
product profitability, which is a more substantial problem, we are sharing development and
components with other business segments to improve cost competitiveness. In fiscal
2006, the AEC will continue to address problems in the ways described. If the benefits of
higher sales are added to the picture, we believe we can turn the operating income per-
formance from a ¥2 billion loss in fiscal 2005 into a ¥3 billion profit in the current term.
Forecast of AEC Sales
and Operating Income
Net Sales
+42
Europe
+77
North
America
Sales
776
05
+17
-2
Japan
China
Asia
M
E
S
S
A
G
E
¥ 100M
Sales
910
(FY)
06
Plan
MOVING TOWARD ACCOMPLISHING GD2010 2nd STAGE OBJECTIVES
Accelerating Efforts to Hit our Targets in Fiscal 2007
Under our GD2010 plan, the theme of the 2nd Stage (which has fiscal 2007 as the final year)
is striking a balance between profits and growth. Our strategies pivoting on growth are
expanding sales in new business areas and Greater China. We also aim at “building a strong
profit structure.” In regard to these important strategies, the sales plan for Greater China is
running slightly behind schedule, but in the area of new business we expect to exceed our
targets, and we are continuing to steadily build a strong profit structure. To ensure that we
reach our fiscal 2007 goals, we are accelerating our business efforts in fiscal 2006.
Strategies Pivoting on Growth
(1) Pushing higher the goals for expanding new business
In order to create new social needs, the Omron Group is investing aggressively in fostering
important new business. The initial plan for the 2nd Stage of GD2010 called for lifting sales
in the area of new business by ¥50 billion from ¥18 billion in fiscal 2003, but after adding
¥14 billion to the goal we have revised up our fiscal 2007 sales goal to ¥82 billion. Among
the reasons for this revision are that customer interest in some products such as automated
optical inspection (AOI) systems is growing as production lines in the manufacturing sector
have a greater need for product quality improvements and safety assurances; backlights for
LCDs are likely to return to the offensive after being flat in fiscal 2005; RFID tag systems
have entered a period of full-scale growth; and that optical communications devices such as
Stacked Polymer Optical IC/Advanced (SPICA) are now showing signs of growth.
(2) Goals for expanding sales in Greater China remain unchanged
Greater China is not only an important region for raising cost competitiveness, but it also
has latent demand in such areas as automobiles, mobile phones, LCD TVs, health equip-
ment and improvements to infrastructure. Given the Omron Group’s involvement in these
areas, Greater China will again be an important market for driving growth. As mentioned
earlier, the reason for the slowdown in our fiscal 2005 sales to Greater China was the sig-
nificant impact of the delay in starting up LCD backlight supplies in Taiwan. The recent rise
in interest rates is one of the uncertain factors in China’s economy, but based on the
expanding reach of our sales distribution network in Greater China markets, our goal to
achieve sales of US$1,330 million in fiscal 2007 (four times the fiscal 2003 sales figure)
remains unchanged.
Building a Strong Profit Structure
Aiming to achieve a 4:3:1 profit structure
To survive global competition and reach the goal of a strong profit structure, we aim to
have in place a “4:3:1” profit structure by the end of fiscal 2007. The meaning of this
three-part ratio is a profit structure which is based on a gross profit margin of 40%, an
SG&A expense ratio of 30% (with an R&D expense ratio of 8%) and an operating income
margin of 10%. In the interest of making this structure work, issues which concern Omron
as a whole are being addressed, namely controlling SG&A expenses and lowering the ratio
of fixed manufacturing costs mainly by shifting production to Greater China. In particular, in
Operating Income
+68
+8
-10
Added
value
ratio
Operating
loss
-20
05
Sales
-16
Operating
income
Manufacturing
fixed costs
SG&A
and
R&D
expenses
30
(FY)
06
Plan
Sales Growth in New Tech Fields
¥ 100M
180
03
288
04
343
05
820
569
06
Plan
(FY)
07
Target
Sales Growth in Greater China
US$ M
325
03
411
04
412
05
1,330
676
06
Plan
(FY)
07
Target
Building a Strong Profit Structure
Greater China
production ratio
SG&A
expense ratio
24.1%
23.8%
24.3%
30%
22.0%
9%
03
12%
04
11%
05
06
Plan
(FY)
07
Target
* Excluding extraordinary factors of ATM business and response to
hazardous chemical substance regulations in FY2004
* Excluding extraordinary factors of response to hazardous chemical
substance regulations in FY2005
9
Double the Total Business Value
¥ 100M
8,500
9,400
6,000
11,100
12,000
03
04
05
06
Plan
(FY)
07
Target
Cash Dividends per Share
¥
13
01
10
02
20
24
3030
03
04
05
(FY)
OMRON CORPORATION ANNUAL REPORT 2006
the IAB, which has a big impact on earnings, we have raised our fiscal 2007 operating
income margin goal to 20%, seeking a profit-loss structure with a ratio of gross profit to
SG&A expenses (including R&D expenses) to operating income of 5:3:2, and continuing to
strengthen our global competitiveness by restructuring our development and production
system both in Japan and in China.
MAXIMIZING CORPORATE VALUE AND RETURNING VALUE TO SHAREHOLDERS
Plan to “Double Business Value” Moving Ahead Steadily
The yardstick we use for evaluating the profitability and growth potential of the Omron
Group is “total business value,” defined as the expected cash flow discounted by capital
costs to arrive at the current value total, from which Omron’s indirect costs are deducted.
Doubling the fiscal 2003 total business value is an especially important theme of the 2nd
Stage of our GD2010 plan. In fiscal 2005, value creation came to ¥10 billion in existing
business and ¥80 billion in growth areas, producing an estimated total business value of
¥940 billion. We are moving toward a target of ¥1.2 trillion in fiscal 2007, which leads me
to conclude that the business value is increasing quite well.
Three Consecutive Terms of Increased Dividend Payments
At Omron, our priority is to increase medium- to long-term corporate value through using
retained earnings to invest in growth. However, as for residual profits, bearing in mind the
level of free cash flow, we have adopted a policy of returning value to shareholders based
on a dividend payout ratio which corresponds to approximately 20% of our consolidated
net income. Accordingly, on the basis of our fiscal 2005 results we have increased the divi-
dend payment by ¥6, which is ¥30 annually (dividend payout ratio 19.8 %). Also, Omron
has a dividend policy which is responsive to the expectations of our long-range sharehold-
ers. Even in the event of a slide in our earnings performance, our policy is to stand by
long-term stable dividends by supporting a minimum annual dividend payment of ¥10.
STRENGTHENING GOVERNANCE AND COMPLIANCE
The Omron Group is made up of 120 business units. As we navigate our way through
efforts to accelerate growth, the post-M&A process of integrating different cultures,
decentralization through widespread empowerment, and globalization of our business and
workforce are all continuing to progress. In the face of these internal and external changes
in the environment, we believe management transparency and universal compliance are
extremely important. Thus, we are taking additional steps to improve Omron’s corporate
governance and legal compliance systems. (See pages 30-31)
CONCLUSION
Fiscal 2006 is the year of the final important milestone on the way toward meeting the
goals of the 2nd Stage in fiscal 2007. Careful consideration has been given to the choice
between maintaining sound profit through a modest investment in growth or rapidly mov-
ing in the direction of building a base for future growth possibly at the cost of some loss of
profitability. However, I believe that current expectations with respect to Omron are
toward our Company’s future growth potential as indicated by the rise in the Company’s
share price in fiscal 2005. Thus, on the premise that fiscal 2006 stands ready to be another
year of higher sales and record profits, we are making a bold investment in sustainable
future growth, even though this may temporarily push up costs. As before, your continued
support will be greatly appreciated.
July 2006
10
Hisao Sakuta, President and CEO
OMRON CORPORATION ANNUAL REPORT 2006
S P E C I A L F E AT U R E
SMALL BUT GLOBAL
Small but still aiming to be number one in the world
Opening up niche areas where we can leverage our propri-
etary technology and clinching the top share in those
markets—this is the essence of the Omron Group’s growth
strategy. When you look at niche markets individually, they
are invariably small in scale, but we are seeking to maximize
our overall corporate value by having each of our business
units exhibit their globally competitive strengths in their
respective markets. In this special feature, we will spotlight
our backlight, safety and laser radar businesses as a few
examples of niche areas which are particularly expected to
experience growth on a global basis.
I
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F
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11
Aiming to Be No.1 in the World 01: LCD Backlights
OMRON CORPORATION ANNUAL REPORT 2006
Realizing High Brightness, Low Weight,
and Low Power Consumption Through
Proprietary Photoregulation
Technology
High brightness, low weight and low power
consumption are characteristics of small
LCD backlights for mobile phones and digi-
tal cameras which grasp user needs. Here,
using our proprietary MLA technology*, we
supply small LCD backlights which realize
low power consumption and weight-reduc-
tion (i.e., fewer parts) through a point light
source system** which provides illumination
from a single light source (LED).
Aiming for a Tenfold Increase in Sales
Across the Whole Product Lineup
In addition, in August 2006, we acquired
Pioneer Precision Machinery Corporation—
a major manufacturer of small and medium
multi-light source LCD backlights which
dispose multiple LEDs—and renamed it
Omron Precision Technology Co., Ltd.
Through this acquisition, we have respond-
ed to low-end to high-end needs in the
area of small LCD backlights, through both
point light source and multi-light source
systems, and have gained the top market
share*** in the world. In the future, we will
take advantage of synergies between the
two companies, and aim to raise our global
market share to 35% in fiscal 2008.
Target for Expanding
the Backlight Business
¥ 100M
1,000
100
2005
Actual Results
(FY)
2008
Target
Building a Full Line of Small, Medium and Large Backlights
Screen Size
Large
TAMA Fine Opto Co., Ltd.
Medium
Multi-Light Source Backlights
Small
Omron’s Existing
Point Light Source Backlights
Area of Omron Precision
Technology Co., Ltd.
Super High Brightness
Multi-Light Source and
Point Light Source Backlights
Low-End
High-End
Function
Application
Liquid Crystal Televisions
Desktop Monitors
Notebook Computers
Car Navigation Systems
Game Consoles
PDA
Digital Camera
Mobile Phones
Together with TAMA Fine Opto Co.,
Ltd.—a manufacturer and marketer of
large backlights for flat panel televisions,
which we made a wholly owned subsidiary
in May 2004—we will cover a whole range
encompassing small, medium, and large
backlights. Furthermore, sales of back-
lights, which were ¥10 billion in fiscal
2005, will increase tenfold to nearly ¥100
billion in fiscal 2008. Moreover, the results
from these acquisitions are not included in
previously mentioned expectations of per-
formance for fiscal 2006.
*** Nearly 20% market share on a unit basis in
the area of small LCD backlights (estimated by
Omron).
Strengthening Production Systems in
Asia
The major maker’s of LCDs are nearly all
located in Asia. Therefore, we are produc-
ing backlights in China and elsewhere in
Asia in order to raise our cost competitive-
ness and at the same time be in position
to respond to local users. In terms of plan-
ning and development too, we are,
through our Hong Kong Design Center,
preparing a system which can respond
promptly to all demands.
*MLA technology
Proprietary technology which
maximizes the efficiency of
light use by reflecting light
which diverges in all directions
in a single direction using an
MLA (microlens array) aggre-
gating millions of microlenses
on a single board
**Point light source system
LCDs display an image by projecting light
emitted from an LED (light-emitting diode)
onto a liquid crystal panel. For this reason,
brightness can be increased by either
increasing the number of LEDs—the light
sources—or using the light emitted from
LEDs more efficiently. A point light source
system raises the efficiency of light use real-
izing a two- to threefold increase in light
efficiency and brightness over conventional
methods which scatter light.
12
Aiming to Be No.1 in the World 02: The Safety Business
OMRON CORPORATION ANNUAL REPORT 2006
The Market for Safety Equipment Is
Expected to Grow by an Annual Rate of 15%
With user needs diversifying and the life
cycles of products becoming ever shorter,
there is demand at production facilities for
better manufacturing equipment and, at
the same time, quicker production. It is in
this setting that large numbers of skilled
workers in Japan are reaching the age of
retirement, and employment is diversifying
to include temporary and part-time work-
ers. Furthermore, with the shifting of
production overseas, employment of inex-
perienced local workers at new plants is
also increasing. Thus, the shortage of
skilled workers at production facilities is
worsening, and not only the efficiency of
production, but also the safety of workers
has become a major concern. Under these
conditions, in the next three years, we
expect the market for safety equipment
used in production facilities to grow at an
annual pace of 15%, expanding to ¥35 bil-
lion, ¥85 billion and ¥50 billion, in the United
States, Europe, and Japan/Asia/Oceania
respectively, for a total of ¥170 billion (esti-
mated at ¥110 billion in fiscal 2005).
Expanding Business on a Global Basis
Through the Acquisition of STI
In addition to safety equipment such as
entry detectors, alarms, and emergency
stop switches, we provide systems incor-
porating such components. In fiscal 2005,
sales of our safety equipment business
reached ¥10 billion. We already boast the
largest share of the market for safety
equipment for the Japanese and Asian
automobile and semiconductor industries.
Furthermore, aiming for the No. 1 position
globally, we agreed to buy the safety busi-
ness of Scientific Technologies Incorporated,
a major North American safety equipment
maker. Sales of STI’s safety business were
nearly ¥7.1 billion at the end of fiscal 2005,
The Consulting Service Is also
Developing
Using the expertise that we have cultivat-
ed at all stages of development—from
planning and manufacturing to installation
and maintenance—of all types of control
equipment for production facilities, we are
developing a consulting service which sup-
ports the planning of equipment and
machinery systems that make it possible
to both raise efficiency and ensure safety.
Especially for manufacturing companies,
stopping all production lines in order to
carry out safety inspections is very expen-
sive, so we are focusing on supporting the
construction of systems that permit the
efficient assurance of safety by minimizing
the interruption to production lines.
and STI’s safety business has built a brand
in a wide range of North American indus-
tries and also holds patents for optical
technology that complement our technolo-
gy. Moreover, in terms of products, the
areas in which each company excels differ;
through the synergistic effects arising
from integration, we expect the sum of
both company’s sales of safety equipment
to expand to ¥30 billion in fiscal 2008.
Target for Expanding the Safety Business ¥ 100M
STI
Omron
71
100
300
2005
Actual Results
(FY)
2008
Target
Safety Light Curtains
Safety Components
Safety Switches
Safety Light Curtains
A sensor which emits beams of
light to form a curtain. It detects
dangerous objects based on the
shape and size of objects which
obstruct the light.
Safety Components
A shutdown sensor which acts
as a mechanical guard. It con-
firms the entry of people into
hazardous areas and is used to
build safety circuits.
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Aiming to Be No.1 in the World 03: Laser Radar Sensors
OMRON CORPORATION ANNUAL REPORT 2006
Greater Need for Safety and Security in
the Automotive World
Automobiles have evolved greatly, not only
achieving superb drive and fuel efficiency,
but also becoming more environmentally
friendly. However, from the point of view
of safety, the evolution of the car has only
just begun. In Japan, the making mandato-
ry of the wearing of seat belts and the
spread of airbags have reduced the num-
ber of people killed in car accidents.
However, it still remains to put the brakes
on the rising number of collisions between
cars. The cause of most such collisions is
slowness on the part of drivers to spot
other vehicles as well as errors of judg-
ment.
Providing Laser Radar Systems to
Major Automobile Makers
Anticipating the safety needs of the auto-
motive world, we have inherited the
intention of our founder to “use our sens-
ing technology to develop cars which don’t
crash”, and, since 1990, we have been
engaged in research on sensors which
monitor the distance between vehicles.
We have already developed, and are sup-
plying to major automobile makers for use
in new models, a laser radar which
reduces rear-end collisions by measuring
the distance between a car and the vehicle
or other obstructions in front of it based on
the time it takes for a laser projected at
the vehicle in front to return. When too
close, the system warns the driver by
applying the breaks automatically. Further-
more, our development pivots around laser
radar, which is cheaper than milliwave
radar. Thus we are promoting the develop-
ment of products not just for luxury
vehicles, but also for popular models.
Developing Next Generation Sensors
by Fusing Laser Radar and Image
Sensing Technologies
In addition, we are promoting the develop-
ment of image sensing technology which
uses High Dynamic Range Cameras
(HDRC*). We expect that such image sen-
sors will be applicable in various uses, one
of which is a sensor fusion technology
which combines laser radar with forward
surveillance image sensors. This technolo-
gy makes possible the discrimination of
forward objects, which was difficult with
laser radar alone. In brief, the car is able to
tell whether the object in front is another
car or a pedestrian, and based on that
information, support the driver. This tech-
nology will make a great contribution to
the next generation development of safe
automobiles. In this way, we are applying
our proprietary image sensing technology,
aiming to become the global leader in sen-
sors that contribute to the ensuring of
automobile safety.
* High Dynamic Range Camera. Able to carry out
sensing in a range of lighting conditions, from
poor light, in which it would be difficult to see
with the naked eye, to situations where the light
is behind the object.
Main Features of Laser Radar
•High sensitivity: Able to detect
vehicles under difficult condi-
tions, such as in rainy weather
or when the vehicle is dirty.
•Two-dimensional scan: Has a
wide angle of detection both
horizontally and vertically, and
does not lose sight of the vehi-
cle in front, even when the
vehicle moves up and down
with the slope of the road.
Main Features of Sensor
Fusion
•Distinguishing between
vehicles and pedestrians:
Based on the information
from the laser radar image
sensor, it is possible to per-
ceive the characteristics of
both vehicles and pedestri-
ans, and thereby distinguish
between them.
14
OMRON CORPORATION ANNUAL REPORT 2006
S E G M E N T I N F O R M AT I O N
Contents
15 Segment Information
16 At a Glance
18
20
Industrial Automation Business (IAB)
Electronic Components Business (ECB)
22 Automotive Electronic Components Business (AEC)
24
Social Systems Business (SSB)
26 Healthcare Business (HCB)
28
Business Development Group and Other Businesses
S
E
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T
I
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F
O
R
M
A
T
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15
OMRON CORPORATION ANNUAL REPORT 2006
AT A G L A N C E
Summary of Business and Market Position
% of Net Sales
I N D U S T R I A L A U T O M AT I O N B U S I N E S S ( I A B )
Top market share for high-precision sensors in Japan
The IAB is Japan’s largest* manufacturer of control devices for factory
automation (FA), and contributes to production in all manner of industries.
Recently, the IAB has not just stayed with providing equipment and sys-
tems, but is focusing on its solutions business for management themes
such as quality improvement, work safety, and environmental friendliness,
needs which are rapidly increasing at production facilities.
* Market share data obtained from the Nippon Electric Control Equipment Industries Association (NECA). Domestic
market share for high precision sensors is roughly 60%.
E L E C T R O N I C C O M P O N E N T S B U S I N E S S ( E C B )
Aiming to be top in the LCD backlight business
The ECB manufactures and sells semiconductor sensors using micromachining
technology and entertainment equipment, among other things, centering on
relays, switches and connectors for home electronics, communications, and indus-
trial equipment. Recently, it is also concentrating on new growth businesses which
can be expected to secure the top market share in the future, through such prod-
ucts as LCD backlights which provide high brightness and low power consumption
characteristics, for use in mobile phones and flat panel televisions.
A U T O M O T I V E E L E C T R O N I C C O M P O N E N T S B U S I N E S S ( A E C )
Focusing on development of leading-edge products
The AEC manufactures and sells a variety of components for automobiles
such as controllers, sensors, switches and relays. In the rapidly advancing
market for car electronics, it is focusing on the development of next-genera-
tion, key components for which “peace of mind”, “safety”, and
“environment” are keywords, and is already producing leading-edge prod-
ucts such as laser radars (sensors for measuring the distance between cars).
S O C I A L S Y S T E M S B U S I N E S S ( S S B )
Top market share for automated gates at stations
The SSB provides a variety of systems which support social infrastructure,
including systems for railways such as automated ticket gates and automat-
ed ticket machines, and traffic control systems. Recently, as social needs
related to security and safety have been rising quickly, the security business
has been focusing on the provision of solutions related to room access con-
trol and information access control.
* The ATM business was transferred to Hitachi-Omron Terminal Solutions, Corp. (Hitachi: 55%, Omron: 45%) on
October 1, 2004.
H E A LT H C A R E B U S I N E S S ( H C B )
Top market share for digital home blood pressure monitors in Japan
The HCB provides a wide range of health care equipment including blood
pressure monitors, digital thermometers, pedometers and massage chairs. In
particular, Omron’s digital home blood pressure monitors, which are a core
product, boast 60% of the domestic market (according to a survey by a private
research institute), and Omron is the top brand in the global market.
Furthermore, along with developing new equipment for medical institutions,
through our health care equipment, we are focusing on home medical care,
which ties together home care and professional medical care.
B U S I N E S S D E V E L O P M E N T G R O U P A N D O T H E R B U S I N E S S E S
Exploration and development of new businesses
The other businesses includes new businesses being explored and
developed by the Business Development Group and other businesses not
part of the above-described segments. Currently, the Business Development
Group is carrying out the other part of the Omron Group’s growth strategy,
and is focusing in particular on the RFID business and the service business for
the remote monitoring of electricity.
43.5%
15.6%
12.4%
14.6%
9.7%
4.2%
16
OMRON CORPORATION ANNUAL REPORT 2006
Net Sales (100 millions of yen) Operating Income* (100 millions of yen)
Main Products and Services
Operating Income Margin (%)
2,727
2,503
2,296
414
419
16.5
15.4
342
14.9
Manufacturing and sales of control systems and
equipment for factory automation and production
machinery
Sensing devices (Photoelectric/Proximity sensors, AOI, etc.), Control
devices (Programmable logic controllers, Relays, Timers, etc.), Safety
devices (Safety sensors, Safety switches, etc.)
S
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O
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M
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2003
2004
2005 (FY)
2003
2004
2005
(FY)
1,011
977
890
146
161
16.4
15.9
112
2003
2004
2005
(FY)
2003
2004
2005
(FY)
11.5
588
646
776
1.7
10
(9)
(1.4)
(20)
(2.6)
2003
2004
2005
(FY)
2003
2004
2005
(FY)
1,360
1,152
918
7.6
104
64
5.6
44
4.8
2003
2004
2005
(FY)
2003
2004
2005
(FY)
611
470
506
15.3
76
87
72
15.1
14.2
2003
2004
2005
(FY)
2003
2004
2005
(FY)
245
268
259
15.5
14.2
38
38
17
6.4
2003
2004
2005
(FY)
2003
2004
2005
(FY)
Operating income
Operating income
margin (%)
Operating income
Operating income
margin (%)
Operating income
Operating income
margin (%)
Operating income
Operating income
margin (%)
Operating income
Operating income
margin (%)
Operating income
Operating income
margin (%)
Manufacturing and sales of electronic components for
home appliances, communications, mobile phones,
amusement components, OA
Relays, Switches, Connectors, Sensors, Micro lens arrays, Customized
ics, IC coins, Optical communications devices, etc.
Manufacturing and sales of automotive electronic
components
Automotive relays, Sensors, Laser radars, Power window switches,
Keyless entry systems, ECU, etc.
Manufacturing and sales of equipment/modules, and
provision of solutions and services in the fields of public
transportation and traffic/road management
Public transportation : Passenger gates, Ticket vending machines, etc.
Traffic/Road management, Signal controllers, Road management
systems, etc.
Manufacturing and sales of home and professional
healthcare equipment
Digital blood pressure monitors, Digital thermometers, Pedometers,
Body composition analyzers (Body-fat analyzers), Electronic pulse
massagers, Massage chairs, Vital signs monitors, Inpatient blood
pressure monitoring devices, Exhaled gas monitors, Central monitors,
Vascular screening devices, etc.
Business Development Group/Development of new
businesses for achieving the Group growth strategy
Entertainment business (Commercial game machines (Photo sticker
machines), Cellular phone content distribution, Prizes for commercial
game machines (Prize business), etc.), Personal computer peripherals
(ADSL modems, Broadband routers, Uninterruptible power supplies,
etc.), Wireless sensing business (Simple anti-theft devices for
automobiles (Carmoni), Remote monitoring equipment, RFID business
(IC tag, Reader/Writer, Antennae, etc.)
* Operating income indicates income including internal income prior to the
deduction of amounts such as intersegment transactions and headquar-
ters expenses that are not apportionable.
17
OMRON CORPORATION ANNUAL REPORT 2006
I N D U S T R I A L A U T O M AT I O N B U S I N E S S ( I A B )
Manufacture and Sale of Control Equipment for Factory Automation
IAB RESULTS AND PLANS
Fiscal Year
2006 Plan
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization
Capital expenditures
298.0
142.0
156.0
29.5
72.5
14.5
33.0
6.5
48.0
16.1%
20.0
11.0
2005
272.7
136.2
136.5
25.4
69.6
12.7
24.0
4.8
41.9
15.4%
18.5
8.7
10.2
Y o Y
108.9%
104.6%
113.6%
125.0%
106.1%
122.3%
122.9%
112.1%
101.2%
(1.1 pt.)
110.9%
114.1%
116.3%
2004
250.3
130.2
120.1
20.3
65.6
10.4
19.5
4.3
41.4
Billions of yen
2003
229.6
117.1
112.5
19.6
60.7
13.6
18.4
0.3
34.2
16.5%
14.9%
16.7
7.6
8.8
145.
10.0
7.3
*Projections for FY2006 are based on an exchange rate of ¥110/US$ and ¥135/Euro.
*The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income
including internal income prior to the deduction of amounts such as intersegment transactions and headquarters expenses that are not appor-
tionable.
Network-Ready Next-Generation Printed
Circuit Board Inspection Equipment VT-RNS Series
Network-Ready printed circuit board inspection equipment
leveraging Omron's proprietary sensing and control technolo-
gy, inspection technology cultivated over many years in the
solder inspection equipment business, and IT.
ZJ-FA10 Ionizer
An advanced ionizer developed for high quality production.
Generated ions are blown by fan, while sensing and control
technology is used to optimize the ion balance.
Safety Network Controller NE1A-SCPU01
The world’s first safety controller to incorporate the
DeviceNet Safety interface. It realizes modularization and
programmability of essential safety circuit functions, and ful-
fills the world's highest safety standards.
18
OMRON CORPORATION ANNUAL REPORT 2006
The IAB, the driving force behind structural reform of the Omron Group’s overall
profits, has an operating income margin goal of 20% by fiscal 2007. For this reason,
along with bold investment in structural reforms, we are increasing added value
through “technology” and “solutions” to respond to new need for improved “prod-
uct quality”, “safety” and “environmental friendliness” in the manufacturing
process.
Fumio Tateisi Executive Vice President,
Company President, Industrial Automation Company
Review of Fiscal 2005
• Showing Strength in North America and China
In addition to large-scale investment in the automobile industry,
growing equipment demand in the semiconductor and digital con-
sumer electronics industries following inventory adjustments set
the stage for increased domestic needs related to “product
quality”, “safety” and “environmental friendliness”, and strong
performances in the Safety Network Controller and the Solution
Service businesses. Overseas, in North America, sales rose sub-
stantially owing to demand in both the automobile industry and oil
and gas-related businesses. In China, sales increased substantially
due to the strengthening of Omron’s sales force, centered on full-
time sales staff, and its network of sales agents. Furthermore, in
Europe, sales centering on inverters, servo motors and sensor
equipment increased in Russia and in Eastern Europe. As a result,
IAB net sales increased 8.9% year on year to ¥272.7 billion.
Investments made to comply with the European RoHS* directive
resulted in a 1.2% rise in operating income to ¥41.9 billion and a
1.1 percentage point fall in the operating income margin to 15.4%.
*RoHS (Restriction of Hazardous Substances)
THE MARKET ENVIRONMENT AND KEY STRATEGY
• An Operating Income Margin Goal of 20%
In fiscal 2006, aggressive investment by manufacturing industries,
especially the automobile industry, and investment in equipment
replacements among domestic small and medium-sized companies
are likely to create a favorable business climate for the IAB. Further-
more, as the level of performance of facilities increases, needs for
improvements related to “product quality”, “safety” and “environ-
mental friendliness” are strengthening, and we will undertake to
expand our sales through proposing solutions. However, not only is
the IAB currently seeking better profits, it is also accelerating efforts
to serve as a core company which can realize an operating income
margin of 20% by fiscal 2007. Specifically, over the three years
from fiscal 2005 to fiscal 2007, Omron will invest a total of ¥10 bil-
lion in IAB for a program of structural reforms aimed at reorganizing
technology, development and production operations, all of which
center on controller products, placing them in the same manufactur-
ing plant, and shifting production to a Chinese subsidiary. From
fiscal 2007, we expect to be in a position to reduce IAB fixed manu-
facturing costs by more than ¥9 billion annually and at the same
time increase development speeds while augmenting and strength-
ening our base of manufacturing technology.
MEASURES FOR ACCELERATING GROWTH
• Strengthening the Safety Device Business
In June 2006, Omron agreed to acquire the safety controller busi-
ness of Scientific Technologies, Inc. (STI), a top maker of safety
controller devices in North America for US$94 million. In the face
of growing need for greater safety in manufacturing processes,
we estimate that global annual sales in the safety device market
reached approximately ¥110 billion at the end of fiscal 2005; thus
we expect annual market growth of around 15%. STI’s business in
North America includes a variety of industries, such as automo-
biles, semiconductors, electronic devices, pharmaceuticals,
cosmetics, and food. It is noted for its light curtains, which provide
protection against illegal entry and accidents at manufacturing
facilities, and its chemical plant safety sensors. In fiscal 2005,
safety device sales were nearly ¥10 billion at Omron and roughly
¥7.1 billion at STI. In uniting the strengths of the two companies,
Omron has set a combined safety device sales target of ¥30 bil-
lion by fiscal 2008 and is aiming to become the No. 1 company in
the world in the field of safety devices used in manufacturing
plants. (See page 13 of “Special Feature”)
• Full-Scale Entry into the Indian Market
Omron has established a sales subsidiary in New Delhi, which
opened for business in fiscal 2006. Production facilities in India are
expanding, centering on the automobile industry, and we anticipate
large growth in the market for control devices. Until now, Omron
serviced its customers in India through a representative office affili-
ated with a Singaporean sales company (OEP*). But in the absence
of sales distribution rights, the activities of this office were restrict-
ed to promoting OEP sales and customer support. Actual product
deliveries were handled through authorized distributors or trading
firms. By having established the sales subsidiary in India, Omron
can more proactively tap into the potential of the Indian market, pro-
viding a personalized level of customer support and responding to
diverse demand for a full array of products such as sensors, compo-
nents, PLCs**, motion controllers and inverters, as well as offering
higher levels of technical support and better delivery service.
* OMRON ASIAPACIFIC PTE LTD.
**PLCs (Programmable Logic Controllers) are intelligent control devices used
in production processes. PLCs control equipment efficiently by processing
information from various control components such as sensors, timers, tem-
perature regulators and switches.
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OMRON CORPORATION ANNUAL REPORT 2006
E L E C T R O N I C C O M P O N E N T S B U S I N E S S ( E C B )
Manufacture and sale of electronic components for consumer appliances, telecommunications
equipment, and industrial equipment
ECB RESULTS AND PLANS
Fiscal Year
2006 Plan
2005
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization
Capital expenditures
121.5
55.0
66.5
11.0
10.5
7.0
28.5
9.5
14.5
11.9%
9.0
12.0
97.7
45.0
52.7
9.9
12.5
6.3
14.5
9.5
11.2
11.5%
7.8
7.4
7.2
Y o Y
96.6%
86.9%
106.7%
104.3%
104.5%
112.3%
125.7%
88.1%
69.7%
(4.4 pt.)
99.9%
127.6%
79.2%
2004
101.1
51.8
49.3
9.5
12.0
5.6
11.6
10.7
16.1
15.9%
7.9
5.8
9.1
Billions of yen
2003
89.0
47.5
41.5
10.5
10.4
5.0
9.1
6.6
14.6
16.4%
6.7
5.9
7.1
*Projections for FY2006 are based on an exchange rate of ¥110/US$ and ¥135/Euro.
*The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income including
internal income prior to the deduction of amounts such as intersegment transactions and headquarters expenses that are not apportionable.
LX4 Optical Interface Modules
Divides an optical source into four waves and is used for
optical communications in transmission equipment receiver
modules. Developed by Aduro, Inc., prior to our acquisition of
this company.
Cellular Phone Ultra-Bright LCD Backlights
Three integrated LEDs achieve high brightness of 20,000 cd
(candles) per square meter. Enable extremely clear images
and video.
Ultra-small FPC Connectors 0.5 mm Pitch
FPC (Flexible Printed Circuit) connectors used in a wide vari-
ety of portable devices (cellular phones, portable music
players, notebook PCs, etc.) and other products.
20
OMRON CORPORATION ANNUAL REPORT 2006
The ECB stands ready to become the driving force behind creating a new source of
growth for the Omron Group. We are focused on the development of technology
that distinguishes the Group from its competitors and on encouraging growth in
new business areas like LCD backlights, optical communications devices and MEMS
sensors.
Soichi Yukawa Senior Managing Officer
Company President, Electronic Components Company
REVIEW OF FISCAL 2005
• Tough Fight for LCD Backlights
Domestic sales were weak in the first half of the fiscal year. How-
ever, in the second half of the year, particularly in the digital
consumer electronics industry, the cycle of inventory adjustments
came to an end, and demand recovered, benefiting from a big
jump in FPC connector sales owing to brisk markets for flat-panel
televisions and portable music players. Overseas, sales in China, a
key region where we have strengthened our production capacity
and marketing structure, grew significantly. In addition, European
and American sales were also bullish owing to strengthened sales
and marketing. On the other hand, sales in the LCD backlight
business, which is a particular focus of the ECB segment,
declined due to mounting price competition over small backlights
for cellular phones and the late start of mass production of large
backlights for flat-panel televisions. As a result, net sales in the
ECB segment fell by 3.4% year on year to ¥97.7 billion. With high-
er prices for crude oil and materials, operating income dropped
30.3% to ¥11.2 billion. The operating income margin declined 4.4
points to 11.5%.
THE MARKET ENVIRONMENT AND KEY STRATEGY
• Working towards a Rapid Recovery in LCD Backlights
In fiscal 2006, we look for demand growth in the flat-panel televi-
sion and cellular phone markets and for bullish industrial
electronic component sales to hold steady. Given this anticipated
environment, we will explore opportunities for our small-size LCD
backlights in BRICs markets by leading with our energy-efficient
products made using in-house technology. In response to the
need for increasingly high performance-capable backlights for tel-
evision-enabled mobile phones, we will try to put the sales back
on track by creating a distribution supply system for ultra bright-
type products. In regard to large-size LCD backlights, we are
improving our supply system in parallel with the briskness of LCD
television sales. Also, in August 2006 we will acquire Pioneer Pre-
cision Machinery Corporation, a major backlight maker, to add
Pioneer’s small-size (high-brightness, high-resolution) and medi-
um-size backlight products to our lineup, aiming to raise total
sales of the backlight business to ¥100 billion in fiscal 2008. China
has been established as a key market, and our goal is consider-
ably higher sales in China, which we intend to accomplish by
strengthening production capacity and broadening our sales oper-
ations.
MEASURES FOR ACCELERATING GROWTH
• Looking to Expand the Optical Communications Devices
Business
In December 2005, Omron acquired Aduro, Inc., a U.S.-based
venture capital company for high-speed optical communications
components, which we renamed Omron Network Products LLC.
Given expectations of higher demand for even faster high-speed
optical fiber networks and for transmission devices required for
optical signal transmission & receiving modules, the ECB has
developed a transmission-side multiplexer device which uses high
precision lenses to compress multiple light wavelengths into one
wavelength. This device will enable us to respond to the growth
in the volume of communications data. On the other hand, Aduro,
Inc., has developed a demultiplexer device which uses receiving-
side optical signals. Based on this acquisition, the ECB is now
able to supply transmission and receiving modules to the optical
communications market. We believe these optical interface mod-
ules and other products will help us reach our fiscal 2006 sales
target of ¥1.9 billion in the optical communications device busi-
ness, a better than ten-fold increase over our fiscal 2005 sales.
• Expanding Our Lineup of LCD Backlight Products
In August 2006, Omron acquired Pioneer Precision Machinery
Corporation, a major maker of small and medium-size LCD back-
lights, which we renamed OMRON PRECISION TECHNOLOGY
Co., Ltd. Until now, the ECB has been focused on energy-efficient
light source backlights for small-size LCDs used in such products
as cellular phones and digital cameras. These LCDs are powered
by our unique micro lens array technology to project light using
one LED. At the same time, Pioneer Precision Machinery Corpora-
tion is strong in high-resolution high-brightness multi-light source
backlights and is also engaged in making medium-size LCD back-
lights. Through our acquisition of this company, Omron is now in a
position to provide a complete line-up of small, medium and large-
size backlight products. Moreover, the small-size category will
mainly consist of products that can meet the need for both ener-
gy-efficient backlights used in ordinary equipment and
high-resolution high-brightness-type backlights used in high-end
equipment, aiming for a 35% share of the global market for small-
size backlights by fiscal 2008. (See page 12 of “Special Feature”)
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OMRON CORPORATION ANNUAL REPORT 2006
A U T O M O T I V E E L E C T R O N I C C O M P O N E N T S B U S I N E S S ( A E C )
Manufacture and sale of electronic components for automobiles
AEC RESULTS AND PLANS
Fiscal Year
2006 Plan
2005
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization
Capital expenditures
91.0
27.0
64.0
36.5
10.5
16.0
1.0
0
3.0
3.3%
7.0
9.0
77.6
27.2
50.4
28.8
6.2
15.1
0.1
0
(2.0)
—
6.7
5.7
11.9
Y o Y
120.2%
104.8%
130.6%
136.9%
115.7%
127.6%
—
15.7%
—
—
103.7%
175.2%
157.5%
Billions of yen
2004
2003
64.6
26.0
38.6
21.0
5.4
11.9
0
0.3
(0.9)
—
6.4
3.3
7.6
58.8
24.8
34.0
20.9
4.0
8.8
0
0.3
1.0
1.7%
5.2
3.0
9.0
*Projections for FY2006 are based on an exchange rate of ¥110/US$ and ¥135/Euro.
*The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income
including internal income prior to the deduction of amounts such as intersegment transactions and headquarters expenses that are not appor-
tionable.
Automotive Laser Radar
Measures the distance to the vehicle head using a sensitive
wide-field laser and provides automatic braking. Automo-
biles, bicycles and other obstacles are also detectable.
Electric Power Steering Controllers
Compared with conventional oil pressurization, electric
(motorized) power steering leads to improved fuel efficiency.
Consequently, adoption of electric power steering controllers
is rapidly expanding in new automobile models.
Automotive Relays
High reliability and longevity are the important qualities
required of automotive relays, which have a wide range of
applications. In particular demand for automotive printed cir-
cuit board relays for use in motor control is rapidly
increasing.
22
OMRON CORPORATION ANNUAL REPORT 2006
As the trends of safety, comfort and environmental friendliness are leading to
increasing high performance and greater use of electronic components in automo-
biles, the AEC is utilizing its advanced “Sensing & Control” technology to both
develop high value-added products and push forward with improvements to our cost
structure, to keep ahead of the global competition.
Hiroki Toyama Managing Officer
Company President, Automotive Electronic Components Company
REVIEW OF FISCAL 2005
• Achieved Higher Sales in all Areas,
but Cost Increases Are Painful
Although there was disparity in operating results among automo-
tive manufacturers, global automobile production was generally
quite strong in fiscal 2005. Based on the trend of building more
environmentally friendly and safer automobiles, the AEC recorded
increased sales of products developed in line with the introduction
of new models by our customers. By region, sales in North Ameri-
ca showed an especially impressive performance, rising 36.9%
from the previous fiscal year on the back of newly released prod-
ucts. In Asia, sales rose 27.6% year on year, benefiting from the
strong sales of major customers. Moreover, with the help of high-
er sales at a relay subsidiary we acquired in the previous fiscal
year, sales in Europe also climbed. The total of overseas sales fin-
ished ¥6.4 billion above the target we set at the beginning of the
fiscal year. As a result, net sales in the AEC business rose 20.2%
year on year to ¥77.6 billion. However, more severe price competi-
tion and the cost of quality improvements in our North American
production bases hurt earnings, causing the segment to suffer an
operating loss of ¥2 billion, greater than the operating loss of ¥0.9
billion a year earlier.
THE MARKET ENVIRONMENT AND KEY STRATEGY
• The Key Issue Is to Improve Profitability
Global automobile production is expected to continue to grow in
fiscal 2006, driven mainly by expanded output in China, Eastern
Europe and South America. In this context, the AEC new products
are being adopted increasingly in the overseas and domestic
development of new automobile models. Also, now that our pro-
duction subsidiary in China has become fully operational, we are
expecting AEC sales to rise 17.3% year on year in fiscal 2006, for
the second consecutive year of double-digit growth. The key
issue, however, is to improve profitability. In fiscal 2005, the cost
of making improvements to quality in our North American produc-
tion bases placed enormous pressure on profits, but in our view
this was a one-time expenditure. As well, we believe that the
steep rise in raw material prices can be offset through the select-
ing of suppliers and better productivity. Lastly, we plan to take full
advantage of Group synergies to address costs in a number of
ways. For example, we are aiming to strengthen our cost competi-
tiveness globally, promoting the expansion of our line-up of high
value-added products such as automotive laser radars, boosting
China-based production, sharing component suppliers with other
companies in the group, and exploring ways to reduce research
and development expenses.
MEASURES FOR ACCELERATING GROWTH
• Production Base in China Commences Operation
Automobile production in China is currently estimated at five mil-
lion units. According to forecasts, China’s annual automobile
production will continue to grow at 10% annually in the years
ahead. Some forecasts indicate that by 2007 or 2008 the number
of automobiles produced in China annually will exceed Japan's
total annual output of seven million units. For this reason, global
automotive manufacturers are speeding up their timetables for
localizing production in China. Given this situation, in January 2006
the AEC established a new plant in Guangzhou that produces key-
less entry systems and power window switches with a view to
meeting the procurement needs of the major automobile manu-
facturers operating in China. Plans call for the Guangzhou plant to
achieve sales of ¥5 billion in fiscal 2007. But in future we will posi-
tion the Guangzhou plant as an important base for strengthening
the AEC’s overall cost competitiveness, adjust the global supply
structure, and aim to double or triple the plant’s production capaci-
ty within three years.
• New Automotive Laser Radar System in Development
Given the strong interest in the development of Advanced Safety
Vehicles (ASV), the AEC is already active in the area of car-follow-
ing control systems and collision mitigation systems. It is
supplying the major automobile makers with laser radars, for pre-
cisely measuring the distance to the vehicle in front and the
direction of movement of one’s own vehicle. The rapidly growing
need to reduce accidents is also encouraging the AEC to further
develop its laser radar technology and to move ahead with devel-
opment of a fusion system incorporating a high dynamic range
camera (See page 14 of “Special Feature”). The AEC segment is
using its core “sensor technology” and “control technology” to
develop high value-added products to meet the high-performance
needs of safety vehicles and to be able to expand into new
growth areas.
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OMRON CORPORATION ANNUAL REPORT 2006
S O C I A L S Y S T E M S B U S I N E S S ( S S B )
Manufacturing and sales of railroad equipment, such as automated passenger gates, and traffic
management systems plus services
SSB RESULTS AND PLANS
Fiscal Year
2006 Plan
2005
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization
Capital expenditures
99.0
95.0
4.0
0.5
0
0
0
3.5
6.0
6.1%
3.6
4.0
91.8
90.5
1.3
0.2
0
0
0
1.1
4.4
4.8%
4.0
2.4
4.3
Y o Y
79.7%
83.3%
20.3%
96.4%
0.0%
—
—
19.1%
68.9%
(0.8 pt.)
74.8%
40.1%
104.3%
2004
115.2
108.6
6.6
0.2
0.4
0
0
6.0
6.4
5.6%
5.3
6.1
4.1
Billions of yen
2003
136.0
126.4
9.6
0.2
0.9
—
0.4
8.0
10.4
7.6%
7.6
6.6
3.2
*Projections for FY2006 are based on an exchange rate of ¥110/US$ and ¥135/Euro.
*The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income
including internal income prior to the deduction of amounts such as intersegment transactions and headquarters expenses that are not appor-
tionable.
Non-contact IC specialized automated
passenger gates
A new style of automated passenger gates; antenna compo-
nents attached to passenger gates instantly read information
contained in a briefly flashed non-contact IC card and then
allow passengers to pass through.
Next-generation image sensors
Sensors that can read motion differences in moving objects,
differentiate multiple objects onscreen and perform precise
tracking operations. In the road traffic control systems field,
the movement to different directions of automobiles at inter-
sections can be precisely measured.
Security solutions
Providing optimum solutions to such problems as the risk of
private information leaks and preparing packages to protect
“people, things, information, and environment” which are
the assets of our customers..
24
OMRON CORPORATION ANNUAL REPORT 2006
The SSB provides various systems that support society’s railroad and roadway infra-
structure. Moreover, in recent years we have pursued the creation of new value by
also putting our energies into a Security Solutions Business that can respond to the
increasingly obvious social need for “security” and “safety.”
Yutaka Takigawa Senior Managing Officer
Company President, Social Systems Solutions Business Company
REVIEW OF FISCAL 2005
• Above Target Net Sales and Profits
In the railway station service systems business, demand for upgrad-
ed and remodeled ticket sales machines in response to the issuance
of new paper currency has ebbed. However, demand for upgraded
and remodeled equipment to respond to the growing conversion of
rail passes to an IC format and the existence of large-scale projects
associated with the start-up of new railroad lines remain favorable. In
the road traffic control systems business, fierce competition in the
traffic control systems market is prolonging a severe business envi-
ronment. In other business, new business, such as security
solutions and IC cards & mobile solutions, generated increased net
sales. Furthermore, in the related maintenance business, OA sys-
tems and other IT-related business as well as the maintenance &
repair of other company products business produced higher net
sales. On an overall basis, the increase in demand was a positive
outcome, but the impact of transferring the information equipment
business, which includes ATMs, to an equity-method affiliate led to
SSB net sales of 91.8 billion yen (down 20.3% YoY), operating
income of 4.4 billion yen (down 31.1%) and an operating income
margin of 4.8% (down 0.8%).
THE MARKET ENVIRONMENT AND KEY STRATEGY
• Pushing Structural Changes
In FY 2006, we believe the railway station service systems busi-
ness will benefit from growth in demand for upgraded and
remodeled equipment that can respond to the continuous and full-
scale adoption of IC cards and higher demand for IC
card-compatible systems. However, in the road traffic control sys-
tems business, we anticipate severe business conditions to
remain owing to restrained public investment. In this context, the
SSB is changing to a business structure necessary to maintain sta-
ble growth by offering consistently high added-value total
solutions including software and services. As a new business, in
addition to strengthening our security solutions business and
alongside the expansion of railway IC cards, we are aiming to
establish an IC card and mobile solutions business in and around
train stations. Furthermore, we are proactively expanding our
sales activities in China, where infrastructure development is con-
tinuing to accelerate.
MEASURES FOR ACCELERATING GROWTH
• Tapping into Demand for Social Infrastructure in China
In June 2005, the SSB and a Chinese business partner jointly
received an order for an Automatic Fare Collection (AFC) system
for all 22 railway stations along Beijing’s newly constructed Sub-
way Line #5. This AFC system applies contactless IC cards for all
kinds of tickets and will be environmentally friendly by recycling
single journey tickets, which are collected automatically at exit
gates and reissued by ticket sales machines including Booking
Office Machines and Ticket Vending Machines. Line #5 will begin
operating with this AFC system in July 2007. These new subways
are intended by Beijing City Government as a means of traffic
management for the 2008 Beijing Olympics, and also as a solution
against traffic congestion and associated environmental problems
which are getting worse. The order is the result of steady market-
ing we have conducted over more than two years. Omron intends
to use this opportunity to further expand business in the Chinese
market and establish the Omron brand name.
• Developing Innovative Image Sensors in the Security Field
Omron has developed innovative image sensors in cooperation
with researchers at Tokyo University by applying technology based
on the “Spatio-Temporal Markov Random Field” algorithm they
created. These sensors read motion differences in moving
objects, differentiate multiple objects onscreen and perform pre-
cise tracking operations. For example, the sensors can be used to
read the presence of two vehicles and then select one vehicle for
tracking. Also, these sensors can be installed in traffic intersection
cameras to help ease traffic congestion by adjusting traffic signals
to the flow of vehicles. They can also be used at crosswalks to
prolong the “Walk” signal for elderly pedestrians. Beyond high-
ways and intersections, other uses for these new sensors are
likely. We anticipate a wide range of demand from fields where
high-level surveillance is required, such as anti-terrorism, and at
airports, train stations and factories.
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OMRON CORPORATION ANNUAL REPORT 2006
H E A LT H C A R E B U S I N E S S ( H C B )
Manufacture and sale of medical devices for home and institutional use
HCB RESULTS AND PLANS
Fiscal Year
2006 Plan
2005
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
66.5
33.5
33.0
16.0
11.0
1.5
4.0
0.5
8.5
61.1
30.3
30.8
15.4
10.6
1.6
2.9
0.2
8,7
Operating income margin*
12.8%
14.2%
R&D expenses
Depreciation and amortization
Capital expenditures
4.0
2.0
3.4
1.1
1.5
Y o Y
120.8%
131.6%
111.7%
105.6%
119.4%
116.3%
114.1%
180.8%
113.5%
(0.9 pt.)
124.5%
148.6%
71.4%
Billions of yen
2004
2003
50.6
23.1
27.5
14.6
8.9
1.4
2.6
0.1
7.6
47.0
21.3
25.7
13.3
8.3
1.2
2.7
0.1
7.2
15.1%
15.3%
2.7
0.7
2.1
2.7
0.9
1.9
*Projections for FY2006 are based on an exchange rate of ¥110/US$ and ¥135/Euro.
*The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income
including internal income prior to the deduction of amounts such as intersegment transactions and headquarters expenses that are not appor-
tionable.
“HEM-7020” Digital Blood Pressure Monitor
A blood pressure monitor which has the ability to detect
early morning hypertension, which is difficult to diagnose in
hospital. An “early morning hypertension” mark lights up if
the weekly average morning blood pressure exceeds the
mean home blood pressure of 135/85mmHg.
“HBF-362” Body Composition Analyzer
A body composition analyzer which measures the percentage
of subcutaneous fat and skeletal muscle in the torso, legs and
arms. Also has the ability to compare various results against
mean values for the same build, sex, and age.
“Form” Blood Pressure and Pulse Wave
Screening Device
A blood pressure and pulse wave screening device which is
capable of measuring vascular hardening, narrowing and
blockage. It allows for easy checking of a patient's blood ves-
sels in the space of a few minutes, enabling efficient
treatment of lifestyle-related disease.
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Omron Healthcare Co., Ltd. (HCB) is steadily expanding its business in response to
growing global awareness to prevent lifestyle-related diseases. Our goal is to
achieve further growth through our “Healthcare at Home” business, which plays a
useful role at medical institutions in enabling preventive treatment of diseases based
on bio-information and/or behavioral information recorded at home.
Keiichiro Akahoshi
Representative Director and Chief Executive Officer, Omron Healthcare Co., Ltd.
REVIEW OF FISCAL 2005
• Favorable Domestic and Overseas Results
In fiscal 2005, increased attention to personal health and growing
awareness to prevent lifestyle-related diseases both in Japan and
overseas resulted in higher sales in every region, of the sales of
our mainstay product, digital blood pressure monitors. In the
Japanese market, growing awareness of metabolic syndrome and
interest in visceral fat helped produce strong sales of our body
composition analyzers with scales. At the same time, in order to
strengthen our business directed at medical institutions, in June
2005, we acquired Colin Medical Technology Corporation, a major
medical device manufacturer, and renamed it OMRON COLIN Co.,
Ltd. (OHK). In overseas markets, business expansion in Russia
with the launch of a new sales office there contributed to the high
sales growth in Europe, while in Southeast Asia demand for our
nebulizers increased. As a result, the HCB segment had net sales
of ¥61.1 billion (up 20.8% YoY) and operating income of ¥8.7 bil-
lion (up 13.5%). Costs ballooned with the acquisition of OHK,
causing the operating income margin to fall 0.9 percentage points
to 14.2%.
THE MARKET ENVIRONMENT AND KEY STRATEGY
• Focused on Product Development with the View of Expand-
ing Market to Prevent Lifestyle-Related Diseases
In Japan, promoting preventive medicine has been employed as
one of the national policies to control medical costs. Under the
guidance of national and local government authorities, efforts to
address lifestyle-related disease prevention are being accelerated.
Also, as societies become aging and the number of patients with
lifestyle-related diseases increases, primarily in advanced coun-
tries, we expect demand for our healthcare and medical equipment
continuously to expand. Moreover, the idea has acquired general
consensus among medical professionals that sharing bio-informa-
tion measured at home leads effective and efficient medical
treatment and supervision. Given these circumstances and views,
HCB is improving its line-up of equipment useful for preventing
lifestyle-related diseases, especially its “Cardiovascular Indices
Monitoring Systems” designed to measure blood pressure and
stiffness of arteries, while focusing the development of “Health-
care at Home” products which measure daily bio-information at
home to be utilized for preventive medicine
MEASURES FOR ACCELERATING GROWTH
• Acquisition of OHK Helps Strengthen and
Expand Our Business Directed at Medical Institutions
The acquisition of OHK represents our decision to greatly increase
our presence in the “Preventive Medicine” business field; our
restructuring of the business framework across the entire HCB
group has been ongoing from the “Healthcare at Home” stand-
point. Subsequent to the acquisition, OHK’s development division
was merged into HCB in April 2006, to promote the development
of new products—combining technologies of caradiovascular
monitoring systems which have been strengths of both compa-
nies—such as digital blood pressure monitors and vascular
screening devices. Moreover, streamlining of business was
enforced by merging the marketing division specializing in medical
institutions into OHK. In fiscal 2006, we plan to invest about ¥0.7
billion in structural reforms in the HCB business to achieve even
greater efficiency.
Health Data Collected at Home is Used in Preventive Medicine
at Medical Institutions
Targeting the Market for Preventive Medicine
HOME
Blood pressure is
measured at home
Data is brought
to the doctor
Therapy/advice
/follow-up
HOSPITAL
Measurement data is
used in therapy
Diagnosis
(cid:127) Early morning
hypertension
(prescription of
medication)
(cid:127) Advice on lifestyle
improvement
(cid:127) Follow-up visits
Health care
Professionals
Institutional use
(cid:127)Vascular screening devices
(cid:127)Hospital room monitors
(cid:127)Operating room monitors
Preventive Medicine
business
Consumers
Home use
(cid:127)Blood pressure monitors
(cid:127)Body composition (fat) meters
(cid:127)Pedometers
Expansion of operating
base through acquisition
of OHK
Growth through synergies
between Omron and OHK
Home
Medical institutions
Existing business
area of Omron
Healthcare
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OMRON CORPORATION ANNUAL REPORT 2006
B U S I N E S S D E V E L O P M E N T G R O U P A N D O T H E R B U S I N E S S E S
New business development and other business not covered by Group companies
Tag Inlets
A tiny film-like device with an IC chip
embedded with an antenna. Generally, the
device is used inside a tag or a label and
stored data is read with a special reader.
The Business Development Group carries out the Omron Group’s growth strategy. It
seeks out and fosters new business opportunities and actively supports technologi-
cal development and product commercialization. In particular, it is giving priority to
the investment of management resources in the RFID business and the electric
power remote monitoring service business.
Kazunobu Amemiya Executive Officer
Senior General Manager, Business Development Group
IAB RESULTS AND PLANS
Fiscal Year
2006 Plan
2005
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization
Capital expenditures
24.0
24.0
0
0
0
0
0
0
0.5
2.1%
11.9
7.0
25.9
25.6
0.3
0
0
0
0.2
0.1
1.7
6.4%
10.2
5.5
6.0
Y o Y
96.8%
97.0%
87.0%
—
—
—
74.5%
80.2%
43.9%
Billions of yen
2004
2003
26.8
26.4
0.4
0
0
0
0.3
0.1
3.8
24.5
24.0
0.5
0.1
0
0
0.4
0
3.8
(7.8 pt.)
14.2%
15.5%
97.1%
106.4%
104.0%
10.6
5.1
5.8
9.8
1.3
9.5
*Projections for FY2006 are based on an exchange rate of ¥110/US$ and ¥135/Euro.
*The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating
income indicates income including internal income prior to the deduction of amounts such as intersegment
transactions and headquarters expenses that are not apportionable.
REVIEW OF FISCAL 2005
• Entertainment Business, Computer Peripherals
THE MARKET ENVIRONMENT AND KEY STRATEGY
• Accelerating Development of the RFID Business
and RFID Proved Positive
in North America
In the entertainment business, favorable results for cellular
phone content distribution boosted sales, and in the computer
peripherals business sales increased dramatically. Also, the
Radio Frequency Identification (RFID) business, one of our
focuses of business development, has entered an expansion
phase on the back of rising domestic and overseas demand.
However, in the wireless sensing business, easy-to-install vehi-
cle anti-theft system sales were sluggish. As a result, Other
Business net sales fell 3.2% year on year to ¥25.9 billion and
operating income declined ¥2.1 billion to ¥1.7 billion.
Given the recovery in operating results and other background fac-
tors, we will try to boost sales of communications equipment,
such as broadband routers, and backup power supplies in the
computer peripherals business. In the area of new business, we
are accelerating development of the RFID business in the North
American market, where it has finally entered a phase of full-scale
growth, and in the domestic market we are working to increase
sales of electric power remote monitoring systems. However, we
plan to streamline our product choices and businesses based on
profitability and growth potential, and as a result Other Business
net sales are expected to fall 7.5% year-on-year in fiscal 2006.
MEASURES FOR ACCELERATING GROWTH
• Expanding RFID Manufacturing Lines
The RFID Business Development Division has built new Tag Inlet
manufacturing lines in response to expected growth in demand
for UHF-band IC Tag Inlets. As a result in fiscal 2006 we antici-
pate a year-on-year doubling of sales in the RFID business. In the
United States, suppliers dealing with Wal-Mart, the world’s
largest retailer, are installing RFID systems, and in the domestic
market, UHF-band RFID systems have been spreading since the
use of UHF-band radio waves became possible in April 2005.
Given these conditions, the Omron Group has developed an
ultrasonic bonding technology, named JOMFUL, which address-
es the most common problem with Tag Inlets, namely the poor
connections of IC contact points. The technology features strong
bonding capabilities and stable communication distance, and
patents have been applied for in Japan, the US, Europe, South
Korea and Taiwan. We are aiming at a global market share of
20% for UHF-band RFID systems within the next three years.
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M A N A G E M E N T S Y S T E M S
Contents
29 Management Systems
30
32
34
Corporate Governance and Legal Compliance
Corporate Social Responsibility
Intellectual Property Strategy
36 Directors, Corporate Auditors and Executive Officers
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OMRON CORPORATION ANNUAL REPORT 2006
C O R P O R AT E G O V E R N A N C E A N D L E G A L C O M P L I A N C E
As a global company, the Omron Group is dedicated to
working harder than ever before to demonstrate accounta-
bility to our stakeholders, increase management
transparency and manage, as well as maintain support for,
an appropriate governance system. Also, we remain
focused on our goal of fostering a strong set of corporate
ethics that go beyond the observance of laws and regula-
tions and on promoting internal control such as an
extensive compliance and corporate ethics program.
CORPORATE GOVERNANCE STRUCTURE
Basic Policies
The major goal of the Omron Group which underlies all stakeholder
expectations is “long-term maximization of corporate value”.
Reaching this goal requires efficient and competitive management,
which we strive to achieve by creating optimized systems of man-
agement control and practicing sound corporate management. To
achieve stronger corporate governance, we make a constant effort
to put into practice three guiding perspectives: fulfilling manage-
ment accountability, achieving management transparency and
pursuing high business ethics. In keeping with this effort, the goal
of our Group’s corporate governance is to earn the support of our
stakeholders and achieve sustainable corporate growth by improv-
ing our corporate competitiveness and by building a structure (an
audit system) that functions to guarantee this outcome.
Governance Structure
In 1999, the Omron Group separated corporate management and
business execution by introducing both a Managing Officer System
and an Internal Company System. This move also represented an
opportunity to encourage each business segment to focus on maxi-
mizing their strengths in their own areas of business, to assign
broader powers to the presidents of each internal company who
have expertise in certain fields of business, to facilitate swift deci-
sion-making, and to enhance productivity. It was also a moment to
clarify roles and responsibilities and commit ourselves to a diverse
set of management goals, including the profit of each company, and
a performance-based compensation program for the purpose of real-
izing shareholder value-based corporate value management.
1) Management and Monitoring Structure
Omron operates with a small seven-member Board of Directors to
increase efficiency and engage in more results-oriented delibera-
tions. Our management monitoring functions are based on
separating the duties of corporate management and business exe-
cution. Both of these duties are the responsibility of the President
& CEO, while corporate management duties are the responsibility
of the Directors and business execution duties are the responsibil-
ity of the Executive Officers. Furthermore, in order to enforce our
management objectivity, we have separated the positions of
Chairman of the Board of Directors and CEO and worked to
strengthen management monitoring functions. In addition, the
Chairman of the Board of Directors oversees business operations
as a representative of the stakeholders without actually taking part
in the execution of business.
In regard to matters pertaining to the appointment, promotion,
and remuneration of all Board Members (Directors, Auditors, and
Managing Officers), we maintain objectivity and transparency
through the Personnel Advisory Committee and the Remuneration
Advisory Committee within the Board of Directors and by having
our two outside Directors chair each of the committees. These
committees are the venue for addressing personnel and remuner-
ation matters relating to all Directors, and none reserves seats for
the Chairman of the Board and the President.
2) Auditing Functions
The Board of Corporate Auditors, which consists of four auditors
(three of whom are outside corporate auditors), monitors gover-
nance and management conditions as well as the daily activities of
management, including those of the board of directors. Also, in
undertaking its internal auditing function, the Audit Office, which
functions directly under the President & CEO, periodically conducts
Structure of Omron Corporate Governance
Shareholders General Meeting
Board of
Auditors
Board of
Directors
Board of
Auditors Office
Auditing
Firm
Executive
Organization
President
& CEO
Personnel
Advisory Committee
Compensation
Advisory Committee
Corporate
Environmental
Activity
Committee
Corporate
Ethics
& Conduct
Committee
Executive
Council
Audit Office
CSR
Management
Headquarters
Information
Disclosure
Committee
Board of Directors This Board monitors execu-
tive operations (President and Chief Executive
Officer) and decides important business practices
and strategies for matters such as company
objectives and management strategy. The Board
is chaired by the Chairman of the Board of Direc-
tors, who monitors executive activities and
represents stakeholders who do not hold execu-
tive positions.
Board of Auditors This Board consists of four
auditors, of whom three are outside auditors. The
Board checks expected governance and manage-
ment conditions, and it monitors daily activities of
management, including the Board of Directors.
Personnel Advisory Committee This Commit-
tee, formed of outside directors, receives
guidance from the Chairman of the Board of
Directors and from the President, sets election
standards for the Board of Directors, Board of
Auditors and executive officers, selects candi-
dates, and evaluates current officers.
Compensation Advisory Committee This Com-
mittee, which consists of outside directors,
receives guidance from the Chairman of the
Board of Directors and from the President,
decides on the compensation structure for the
Board of Directors, board of auditors and execu-
tive officers, sets evaluation standards, and
evaluates current officers.
Executive Council This Council determines and
reviews important executive matters that are
within the scope of authority of the President.
Under the internal company system, decision-
making is streamlined and operations made
more efficient by transferring authority to the
presidents of each company.
Audit Office This Office periodically conducts
internal audits of accounting, administration,
business risks, and compliance for each head-
quarters division and each company, and it offers
concrete advice for monitoring and administra-
tive improvement.
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OMRON CORPORATION ANNUAL REPORT 2006
internal audits of accounting, administration, business risks, and
compliance in each headquarters division and in each company. In
addition to its checking functions, the Audit Office also offers spe-
cific advice on ways of improving administrative functions.
examples of problem situations along with judgment criteria to
help guide appropriate reactions and (ii) the creation of a system
by which all Directors and employees can proactively execute cor-
porate ethics and compliance PDCA.
Information Disclosure Committee Established
In fiscal 2005, we responded to the needs of our shareholders and
other stakeholders for more pro-active information disclosure by
exploring the creation of our own unique and rigorous information
disclosure standards in accordance with those stock exchange
rules which require timely disclosure. In June 2006, the Informa-
tion Disclosure Committee chaired by the President of Omron
was established and a new system was created to monitor infor-
mation disclosure activities for the entire Group. Based on these
steps, we have moved to further upgrade the quality of our man-
agement accountability.
COMPLIANCE
Basic Policies
To insure that our corporate ethics are widely understood and
established, the Group is taking four important actions: (1) active
monitoring, (2) activating a PDCA cycle, (3) reinforcing compliance
education and (4) rebuilding our compliance structure.
Compliance Structure
In 2003, the Group combined its risk management and compliance
activities by establishing a Corporate Ethics & Business Conduct
Committee chaired by Omron’s President. The general manager of
each division and the president of each company participate in this
committee to report on corporate ethics efforts for their respec-
tive organizations in accordance with Omron’s corporate ethics
and conduct framework and on the status of the response to each
risk. Moreover, the Corporate Ethics & Business Conduct Commit-
tee has established a whistleblower center called the “Corporate
Ethics Hotline” (a call center was also opened at an outside law
firm in fiscal 2005), which is situated within the Corporate General
Affairs Division, to receive reports directly from employees and
their families.
Rebuilding Our Domestic and Overseas Compliance Structure
In fiscal 2005, the compliance and risk management activities in the
affiliated companies under the supervision of our companies were
rebuilt in several ways. First, in September 2005, in order to organ-
ize these activities, all domestic affiliated companies selected an
individual to serve as a corporate ethics manager, and the members
of that committee started to receive education and training. Sec-
ond, in conducting monitoring and management training, we put a
high priority on relatively small-size affiliated companies which have
marketing functions and are facing severe market competition.
At the same time, we are promoting (i) awareness of our Corpo-
rate Ethics and Business Conduct Guidelines throughout the
entire Group by starting to edit a “casebook” to provide specific
In addition, we finished writing and publishing region-specific
Corporate Ethics and Business Conduct Guidelines for four areas
of the world in fiscal 2005. Also, the so called “legal monitoring”
we first introduced in the North America region has also been
introduced in China, and the Asia Pacific region. In these two
regions, we have started to provide compliance training to desig-
nated managers. In fiscal 2006, an education and training program
for managers will be continued to ensure and strengthen compli-
ance and we will institute monitoring in each global area.
Risk Management Structure and Internal Control System
The Omron Group is improving its internal control system as we
believe that all risk arising from management and business opera-
tions must be accurately assessed and controlled in order to
appropriately manage operations, maintain stable growth and
secure the required level of management resources. To achieve
this end, Omron is putting into place a system of risk manage-
ment for detecting, analyzing, countering and monitoring risk in
each division and internal company. Moreover, the Corporate Gen-
eral Affairs Division has oversight of risk management activities,
and efforts are underway to identify and control risk throughout
the Group.
Structure of Omron Corporate Ethics
Structure of Omron Corporate Ethics
Corporate Ethics &
Business Conduct Committee
Committee Chair
(President & CEO)
Committee
Secretariat
Corporate Ethics
Hotline
Business Company
Committee Members
(Business Company
Presidents)
Corporate Committee
Members (Head Office
Administrative
Division Managers)
Corporate Ethics &
Business Conduct
Promotion Committee
Specialized Committees
Export Control
Committee
Business Companies’
Promotional Departments
Administrative Divisions’
Promotional Departments
Human Rights
Committee
Safety and Health
Committee
Central Disaster
Prevention Committee
For more information about our Corporate Governance and Legal Compliance programs, please refer to our Company Sustainability Report 2006
http://www.omron.com/corporate/csr/
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OMRON CORPORATION ANNUAL REPORT 2006
C O R P O R AT E S O C I A L R E S P O N S I B I L I T Y
Ever since our founding, Omron has worked sincerely in
the belief that the Company’s real purpose lies not only in
seeking profits but also in serving society. Omron will,
while upholding this corporate core value of “Working for
the benefit of society”, work to meet the expectations of
our stakeholders while fulfilling our social responsibility
toward sustainable development in the “optimization
society.”
The Basic Philosophy of CSR: Working for the Benefit of
Society
Today, the criteria for evaluating a company are not only profitability
and growth. Social value, as well, has been given greater impor-
tance. A company’s social value means how a company fulfills its
responsibility to society and how it contributes to a society’s sus-
tainable development. On top of this change in society’s
expectations toward corporations, the expansion and globalization
of the Omron Group’s business and the subsequent diversification
of our stakeholders* prompted us to review and reorganize the
platform of our corporate philosophy, and we have restated it in the
form of the new Omron Principles. This review process resulted in
our re-acknowledgement of the importance of our corporate core
value: ”Working for the benefit of society” which we have upheld
since our founding. This is the very spirit behind our Corporate
Motto: “At work for a better life, a better world for all.” Omron has
been managed based upon this corporate core value for over 50
years. The Omron Group once again places this corporate core
value at the center of the new Omron Principles and puts it into
action with stronger conviction. We are convinced that it is the true
fulfillment of CSR. Omron intends to continue its management
responding to the expectations of our stakeholders, adhering to our
belief that by meeting social needs we can earn the trust and
respect of society as good corporate citizens.
* Stakeholders: Omron considers that our stakeholders, those who are affect-
ed by our actions, consist mainly of employees, business partners,
customers, shareholders & investors, and society.
CSR Management System
The Omron Group has established “CSR Management Headquar-
ters” under the direct control of the President and CEO, to assume
planning and supervising functions related to CSR. Specific CSR
activities, including environmental conservation, respect for human
rights, promotion of appropriate labor standards, maintenance and
improvement of corporate ethics, and corporate citizenship, are
promoted through each specialized-function administrative division
or internal business company. A CSR manager was assigned and a
CSR management promotion system was set up at each internal
business company. At present, the Omron Group has set out three
CSR pillars of basic policy and four focused areas. In the future, the
Omron Group plans to specify criteria for evaluating performance
related to common corporate-wide CSR elements.
Three Pillars of Omron’s CSR Activities
[1] Contributing to a better society through business operations.
Continuously offering advanced technologies, high-quality
products and services through the cultivation of social needs.
[2] Always demonstrating fairness and integrity in the
promotion of corporate activities.
By addressing a broad range of issues including legal com-
pliance, corporate ethics, accountability and disclosure, we
will promote more transparent corporate activities that
maintain fairness and integrity.
[3] Showing a commitment to addressing societal issues as
a concerned party.
We aim to address various issues such as those related to
human rights, labor relations and the environment in a way
that draws on Omron’s distinctive strengths.
Four Focused Areas for CSR
[1] Cultivating social needs through business operations.
[2] Strengthening legal compliance and corporate ethics.
[3] Addressing diversity issues through endeavors including
extending support to people with disabilities and encour-
aging women to take more active roles in the workplace.
[4] Commitment to environmental conservation.
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OMRON CORPORATION ANNUAL REPORT 2006
Commitment to Environmental Conservation
Basic Thoughts About Environmental Management
The Omron Group has positioned environmental issues as one of
our important management objectives. We are of course working
to reduce the burden of our activities on the environment and we
also work to create products and technology that will help to pre-
serve the environment. Our environmental management strives
to bring together economy and ecology.
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Completion of Compliance with the RoHS Directive
In fiscal 2005 our environmental conservation costs registered a
year-on-year increase of ¥3.2 billion to ¥7.5 billion due to a ¥3.1
billion increase in research and development to comply with the
RoHS (Restriction of Hazardous Substances) directive which took
effect in July 2006 and other European regulatory requirements.
With this investment we have eliminated hazardous substances
from not only the product parts we purchase but also from our
manufacturing processes. We have also built an environmental
security system at the developmental and design stages of our
operations. We successfully completed our process to comply
with RoHS at the end of March 2006.
74 %: Product Ratio Certified as Eco-label Products
The Omron Group has assessed products’ potential impact on the
environment in order to assure that our products fully comply with
environmental laws and regulations all over the world. The Omron
Group defines those products that have met environmental tar-
gets through these product assessments as “Eco-Products.”
Those products that satisfy even higher standards of environmen-
tal impact reduction are certified as “Eco-label products” and are
eligible to bear Omron’s Eco-label. In fiscal 2005, 74% of the new
product developments met the Eco-label Product environmental
standard.
Implementation of CSR
Contributing to the “Optimization Society”
“Seed-Innovation to Need-Impetus Cyclic Evolution (SINIC) theory
(See page 79 for more information): science, technology and society
have a cyclical relationship”, the predictive theory, developed by
Omron’s founder Kazuma Tateisi, has served as a compass deter-
mining the direction of Omron’s management. This theory predicted
the “Optimization Society” where not only productivity but also new
needs such as safety, security, environment and health are pursued.
We believe that we are now in this new society. Omron, which has
successfully anticipated and met the potential needs of society
based on its SINIC theory, now promotes development and provi-
sion of products and services contributing to the “Optimization
Society.” Specifically this includes: safety sensors to prevent indus-
trial accidents at manufacturing sites, laser radar systems to
anticipate imminent danger and automatically activate brakes, and
home medical care equipment to enable individuals to monitor and
assess their daily health and to help them improve their lifestyles.
Addressing Diversity
Under the banner of fairness and impartiality and being free from
gender and other discrimination, the Omron Group promotes its
endeavors to address diversity issues through providing our
diverse group of employees with opportunities to exercise their
full potential at work. Specifically we provide female leadership
training programs in order to bring out the abilities of our female
employees. As a result we have improved our appointment ratio
of female employees to positions of responsibility. The Omron
Group has proactively promoted normalization* while working to
improve the group-wide employment ratio of persons with disabil-
ities since the establishment of a first-of-its-kind factory in Japan
in 1972, Omron Taiyo Co., Ltd., which provides persons with dis-
abilities with special considerations. In fiscal 2006, we plan to
take advantage of our track record of experience in hiring the
physically handicapped and other forms of know-how to begin a
“Physically Handicapped Employment Support Business for the
Physically Handicapped.”
* Normalization: It is enshrined in the United Nations Declaration on the
Rights of Disabled Persons: Bearing in mind the necessity of preventing
physical and mental disabilities and of assisting disabled persons to develop
their abilities in the most varied fields of activities and of promoting their
integration as far as possible in normal life.
Eco-label Product Developments in Fiscal 2005
Six RoHS banned substances
eliminated HEM-5001 Digital
Blood Pressure Monitor
This upper arm-type blood pressure monitor
allows a patient to share two years’ worth
of home-measured blood pressure data
with his doctor to assist in diagnosis.
30% less metal in use 3P5JX
Vision Sensor for Intersections
Installed at street corners, this sensor cap-
tures the image of passing vehicles to
control the traffic lights, thus helping alle-
viate traffic jams.
For more details about Omron’s implementation activities please see The Company Sustainability Report 2006.
We believe it is important that we fulfill our responsibility to create dialog with more of our stakeholders, explaining thoughts regarding
the expectations people hold for us, and having everyone understand our position. For more details regarding Omron’s CSR principles,
plans and activity reports, please refer to The Company Sustainability Report 2006 available on our website. We would be happy to hear
everyone’s frank opinions.
http://www.omron.com/corporate/csr/
33
OMRON CORPORATION ANNUAL REPORT 2006
I N T E L L E C T U A L P R O P E R T Y S T R AT E G Y
The mission of the Omron Group is to be a pioneer among
companies in the creation of social needs and the carrying
out of continuous innovation. The proof of our accomplish-
ments in these areas is our intellectual property portfolio,
which is one of the most important resources available to
management for determining growth potential, profitability
and sustainability.
The Basis of Our Intellectual Property Strategy
The Omron Group is strengthening and strategically leveraging its
intellectual property portfolio of patents, know-how, copyright and
trademarks in order to maximize corporate value.
From a company-wide perspective, the Group’s research and
development scheme is structured so that the Advance Device Lab-
oratory and Sensing & Control Laboratory, both belonging to our
R&D Headquarters, undertake fundamental research and develop-
ment while each Group company translates the two Laboratories’
work into application technologies and commercial products. Also,
our R&D policy takes core technology as the starting point for creat-
ing management-driven three to five-year growth scenarios.
Executing a scenario involves bringing together three separate
themes: Group growth strategy, business company growth strategy
and core technology development. The first and second themes are
handled jointly by the business companies and R&D Headquarters,
while the third is handled solely by the R&D Headquarters.
Furthermore, the sections involved in our management & busi-
ness strategies, technology strategies, and intellectual property
strategies all share common growth strategies, thereby building a
structure which can generate technologies that become the core
of our business growth, acquire potent intellectual property and
translate intellectual property into actual business growth.
With our R&D expense ratio set at a higher-than-normal level of
8%*, total R&D expenses amounted to ¥50.5 billion in fiscal 2005.
The ratio of investment in basic technology development versus
commercial product and business development was one to five.
*Prior to losses resulting from the return of the substitute portion of the
employee pension fund managed on behalf of the government
Intellectual Property: Developing a Strategy
and Business Growth Scenario
Management/
Business Strategy
Original technologies =
maximization of corporate
value by the power of
intellectual property
Shared Growth
Strategy
Intellectual
Property Strategy
Development of
strong intellectual
property and
mitigation of risk
Technology
Strategy
Strengthening our
technical edge through
the creation of core
technologies
Management Planning Office
/Intellectual Property Dept.
Intellectual property group
for each segment
Expansion of
business
Overall management
Technology
headquarters
Development of
core technologies
Strengthening and Leveraging our Intellectual Property Portfolio
Patents, know-how, copyrights, trademarks, etc.
Group
Structure
Foundation of
Intellectual
Property
Strategy
34
Measures to Enhance Our Intellectual Property
Promoting Our Global Patenting Strategy
Since the Omron Group started putting into practice its long-term
vision GD2010 in 2001, we have accelerated our business develop-
ment on a global basis and increased our overseas patent
applications. In particular, we are striving to secure internationally
recognized patent rights. In the United States, which is the world's
superpower in terms of patents, we are strengthening acquisition
of patents in order to increase our international competitiveness.
In China, which is a country of strategic importance to us for
production and marketing reasons, we are aggressively seeking
patent rights as a way of supporting our business growth in that
country.
Planning to Open a Fundamental R&D Center in China
In December 2006 the Omron Group plans to open an R&D center
(a registered corporation) in Shanghai, China called the Omron Insti-
tute of Sensing & Control Technology (Shanghai) Co., Ltd. It will
begin with about 100 people tackling 30 different research themes,
with the intention of doubling both the number of research person-
nel and research themes by the end of fiscal 2007. Under current
plans the institute will focus mainly on R&D in the areas of human
facial recognition and image sensing of shapes and conditions of
various objects. Until now individual Group companies have had
their own commercial product development bases in China, but this
is the first time that an incorporated institution is to be established
for fundamental research. The institute will be located next to
Shanghai Jiao Tong University, in an area with excellent research
and education facilities, where highly capable graduate students
and researchers are concentrated, many of whom have studied
overseas. (Each year some 100,000 Chinese students who have
studied advanced technology in Europe, US and Japan return to
their homeland.) It will be a place where Chinese faculty, graduate
students, other university-based researchers and Omron
researchers can work side by side, putting the concept of “collabo-
rative innovation” into practice and creating new value.
R&D Organization
R&D Organization
CEO
Advance Device
Laboratory
Sensing &
Control Laboratory
R&D Center
Research and
Development
Headquarters
Business
Company
SBU
(Strategic Business Unit)
Product Development
Department
OMRON CORPORATION ANNUAL REPORT 2006
Patents in the U.S.: Applications, Registrations and Rank
Patent Applications in China
(Number of Applications/Registrations)
200
178
169
163
(Total Number of Applications)
200
137
93
57
67
27
30
29
62
44
88
82
150
100
50
0
99
00
01
02
03
04
05
(FY)
150
100
50
0
162
160
150
105
38
6
99
13
00
01
02
03
04
05
(FY)
Number of Applications
Number of Registrations
Number of Applications
Managing Intellectual Property
In recent years, particularly in China, many counterfeit Omron
products have been found in circulation, causing damage to our
corporate value. In response we have stationed company staff in
Shanghai and have created a unique “Anti-Counterfeit Measures
Manual” which has been distributed to local administrative
authorities.
Also, to eliminate counterfeits circulating in the Chinese mar-
ket, we have carried out a public demonstration targeting
counterfeit products. This involved mass destruction of large vol-
umes of counterfeit products that had been discovered. The
event was meant to express the Group's principles on intellectual
property and our determination not to allow the manufacture and
sale of counterfeit products, which was communicated through
the media to people in China and abroad.
Intellectual Property and R&D-related Data
Number of patents Applied for
Registered
Number of patents
R&D expenses
(Billions of yen)
Total
IAB
ECB
AEC
SSB
HCB
Business Development Group
and Other Businesses
R&D expenses ratio
R&D staff (persons)
Workers destroy counterfeit products as part of a
campaign in Leqing, China. The items, which
numbered in excess of 58,000, included proximi-
ty switches and relays.
FY2005
FY2004
FY2003
FY2002
1,509
705
4,538
50.5
18.5
7.8
6.7
4.0
3.4
10.2
8.1%
1,591
1,216
676
4,426
49.4
16.7
7.9
6.4
5.3
2.7
10.6
8.1%
1,384
1,170
580
4,154
46.5
14.5
6.7
5.2
7.6
2.7
9.8
7.9%
1,594
1,141
543
4,068
40.2
13.4
6.0
4.0
5.4
2.5
8.9
7.5%
1,378
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OMRON CORPORATION ANNUAL REPORT 2006
D I R E C T O R S , C O R P O R AT E A U D I T O R S A N D E X E C U T I V E O F F I C E R S
As of June 22, 2006
(From the left) Director and Executive Vice President Tadao Tateisi, Director (external) Noriyuki Inoue, Director and Executive Vice President Shingo Akechi, President and CEO Hisao Sakuta,
Chairman of the BOD Yoshio Tateisi, Senior Managing Director Tsukasa Yamashita, Director (external) Kakutaro Kitashiro
DIRECTORS
CORPORATE AUDITORS
EXECUTIVE OFFICERS
Chairman of the BOD
Yoshio Tateisi
President and CEO
Hisao Sakuta
Director and Executive Vice President
Shingo Akechi
Tadao Tateisi
Senior Managing Director
Tsukasa Yamashita
Directors (external)
Noriyuki Inoue
Kakutaro Kitashiro
Corporate Auditors
Executive Vice President
Executive Officers
Tsutomu Ozako
Fumio Tateisi
Yoshisaburo Mogi (external)
Yukio Kobayashi
Hiroshi Fujiwara
Yoshio Nakano (external)
Senior Managing Officers
Kazunobu Amemiya
Hidero Chimori (external)
Fujio Tokita
Soichi Yukawa
Hideo Higuchi
Yutaka Fujiwara
Yutaka Takigawa
Tatsunosuke Goto
Mike van Gendt
Toshio Yamashita
Roberto Maietti
Managing Officers
Koichi Imanaka
Yoshinobu Morishita
Takuji Yamamoto
Yoshinori Suzuki
Kuniyasu Kihira
Toshio Ochiai
Hiroki Toyama
Kojiro Tobita
Kuninori Hamaguchi
36
OMRON CORPORATION ANNUAL REPORT 2006
F I N A N C I A L S E C T I O N
Contents
38 Financial Highlights
40 Six-year Summary
41 Fiscal 2005 Management’s Discussion and Analysis
46 Business and Other Risks
48 Consolidated Balance Sheets
50 Consolidated Statements of Income
51 Consolidated Statements of Comprehensive Income (Loss)
52 Consolidated Statements of Shareholders’ Equity
53 Consolidated Statements of Cash Flows
54 Notes to Consolidated Financial Statements
76 Independent Auditors’ Report
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OMRON CORPORATION ANNUAL REPORT 2006
F I N A N C I A L H I G H L I G H T S
OMRON Corporation and Subsidiaries
Years ended March 31, 2006, 2005 and 2004
For the Year:
Net Sales
Income before Income Taxes, Minority Interests
and Cumulative Effect of Accounting Change
Income before Cumulative Effect of Accounting Change
Net Income
Per Share Data (yen and U.S. dollars):
Income before Cumulative Effect of Accounting Change
Basic
Diluted
Net Income
Basic
Diluted
Cash Dividends (Note 1)
Millions of yen (except per share data)
2006
2005
2004
Thousands of
U.S. dollars
(Note 2)
(except per
share data)
2006
¥ 626,782
¥ 608,588
¥ 584,889
$ 5,357,111
64,352
36,964
35,763
52,548
30,176
30,176
47,984
26,811
26,811
550,017
315,932
305,667
¥
156.2
¥
126.5
¥
110.7
$
156.1
124.8
107.5
151.1
151.1
30.0
126.5
124.8
24.0
110.7
107.5
20.0
1.34
1.33
1.29
1.29
0.26
Capital Expenditures (cash basis)
Research and Development Expenses (Note 3)
¥ 40,560
¥ 38,579
¥ 38,115
$ 346,667
55,315
49,441
46,494
472,778
At Year End:
Total Assets
Total Shareholders’ Equity
¥ 589,061
¥ 585,429
¥ 592,273
$ 5,034,710
362,937
305,810
274,710
3,102,026
Notes: 1. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the year.
2. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at March 31, 2006, of ¥117=$1.
3. A loss of ¥4,814 million ($41,145 thousand) in connection with the transfer of the substitutional portion of the benefit obligation and related plan
assets is allocated to Research and Development Expenses for 2006.
38
OMRON CORPORATION ANNUAL REPORT 2006
Costs, expenses and income as percentages of net sales were as follows:
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Interest expenses (income), net
Income before income taxes, minority interests and Cumulative effect of Accounting Change
Income taxes
Net income
The increase or decrease in sales of each internal business company was as follows:
Industrial Automation Business
Electronic Components Business
Automotive Electronic Components Business
Social Systems Business
Healthcare Business
Other Businesses
2006
2005
2004
100.0%
100.0%
100.0%
62.1
37.9
25.8
8.8
(0.1)
10.3
4.4
5.7
59.0
41.0
23.7
8.1
(0.0)
8.6
3.6
5.0
59.0
41.0
24.3
7.9
0.1
8.2
3.5
4.6
2006
2005
2004
8.9%
9.0%
13.4%
(3.4)
20.2
(20.3)
20.8
(3.2)
13.6
9.7
(15.3)
7.7
9.4
12.1
(1.1)
16.6
10.9
(29.5)
Notes: 1. For 2004, Social Systems Business includes “Social Systems Solutions and Service Business Company” and “Advanced Module Business Company.”
2. For 2005, Social Systems Business includes “Social Systems Solutions and Service Business Company” and “Financial Systems Business Company.”
The composition of net sales was as follows:
Industrial Automation Business
Electronic Components Business
Automotive Electronic Components Business
Social Systems Business
Healthcare Business
Other Businesses
Note: The composition of net sales is based on the classifications reported in the Six-year Summary.
2006
2005
2004
43.5%
41.1%
39.3%
15.6
12.4
14.6
9.7
4.2
16.6
10.6
18.9
8.3
4.5
15.2
10.1
23.3
8.0
4.1
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OMRON CORPORATION ANNUAL REPORT 2006
S I X - Y E A R S U M M A R Y
OMRON Corporation and Subsidiaries
Years ended March 31
Net Sales (Note 2):
Industrial Automation Business
Electronic Components Business
Automotive Electronic Components Business
Social Systems Business
Healthcare Business
Other Businesses
Costs and Expenses:
Cost of sales
Selling, general and administrative expenses
Research and development expenses
Subsidy from the government
Interest expenses (income), net
Foreign exchange loss, net
Other expenses (income), net
Income (Loss) before Income Taxes,
Minority Interests and Cumulative
Effect of Accounting Change
Income Taxes
Minority Interests
Income (Loss) before Cumulative
Effect of Accounting Change
Net Income (Loss)
Per Share Data (yen):
Income (Loss) before Cumulative
Effect of Accounting Change
Basic
Diluted
Net Income (Loss)
Basic
Diluted
Cash Dividends (Note 1)
Capital Expenditures (cash basis)
Total Assets
Total Shareholders’ Equity
Value indicators:
Gross profit margin (%)
Income (loss) before tax/Net sales (%)
Return on sales (%)
Return on assets (%)
Return on equity (%)
Inventory turnover (times)
Price/earning ratio (times)
Assets turnover (times)
Debt/equity ratio (times)
Interest coverage ratio (times)
Millions of yen (except per share data)
2006
2005
2004
2003
2002
2001
¥ 272,657
97,699
77,593
91,804
61,090
25,939
626,782
¥ 250,329
101,127
64,558
115,205
50,583
26,786
608,588
¥ 229,638
88,988
58,824
135,997
46,962
24,480
584,889
¥ 202,518
79,365
59,480
116,652
42,331
34,727
535,073
¥ 184,185
81,062
50,800
128,057
40,617
49,243
533,964
¥ 227,691
129,444
—
141,928
39,327
55,869
594,259
389,368
161,310
55,315
(41,339)
(609)
1,306
(2,921)
562,430
358,817
144,219
49,441
—
(216)
75
3,704
556,040
344,835
142,157
46,494
—
317
1,254
1,848
536,905
327,413
135,112
40,235
—
348
575
26,658
530,341
353,429
134,907
41,407
—
223
1,506
27,865
559,337
376,194
131,203
42,513
—
111
1,389
2,812
554,222
64,352
27,238
150
52,548
22,108
264
47,984
20,762
411
4,732
3,936
285
(25,373)
(9,348)
132
40,037
17,318
422
36,964
35,763
30,176
30,176
26,811
26,811
511
511
(16,157)
(15,773)
22,297
22,297
¥
¥
156.2
156.1
¥
126.5
124.8
¥
110.7
107.5
¥
2.1
2.1
¥
(65.0)
(65.0)
87.4
85.3
151.1
151.1
30.0
¥ 40,560
589,061
362,937
126.5
124.8
24.0
¥ 38,579
585,429
305,810
110.7
107.5
20.0
¥ 38,115
592,273
274,710
2.1
2.1
10.0
¥ 34,454
567,399
251,610
(63.5)
(63.5)
13.0
¥ 38,896
549,366
298,234
87.4
85.3
13.0
¥ 37,583
593,144
325,958
37.9
10.3
5.7
11.0
10.7
5.43
22.2
1.07
0.623
71.43
41.0
8.6
5.0
8.9
10.4
5.17
18.5
1.03
0.914
53.36
41.0
8.2
4.6
8.3
10.2
4.73
23.3
1.01
1.156
43.27
38.8
0.9
0.1
0.8
0.2
4.36
900.8
0.96
1.255
23.59
33.8
(4.8)
(3.0)
(4.4)
(5.1)
4.25
—
0.93
0.842
4.36
36.7
6.7
3.8
6.8
6.7
4.44
23.6
1.01
0.820
26.83
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 Automotive Electronic Components Business has been classified separately from the Electronic Components Business effective from April 2003.
Figures for 2003 and 2002 have been reclassified in accordance with the change. These same reclassifications could not be made to net sales
amounts previously reported for 2001 because the necessary data is not readily available.
3. As of October 1, 2004, the ATM and other information equipment business that was included in the Social Systems Business was transferred to an
affiliate accounted for using the equity method.
40
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OMRON CORPORATION ANNUAL REPORT 2006
2. General Overview of Consolidated Results and Financial
Conditions
Given this macro environment, Group net sales increased 3.0 per-
cent over the previous fiscal year. Operating income* and net
income jumped 10.7 percent and 18.5 percent, the third consecu-
tive term of record increases for both. Overall, sales and income in
all categories rose for the fourth consecutive term. The higher
earnings meant that return on equity (ROE) reached 10.7 percent,
surpassing the target of 10 percent for the third consecutive term.
Total assets increased by ¥3.6 billion in line with aggressive
investment in future growth. On the other hand, the balance at
the end of the term of interest-bearing debt was ¥3.8 billion (ver-
sus ¥24.8 billion a year earlier). Also, higher net income con-
tributed ¥57.1 billion to shareholders’ equity, resulting in a share-
holders’ equity ratio of 61.6 percent (versus 52.2 percent a year
earlier).
* For the purpose of making comparisons with business results at other
Japanese corporations, our Group operating income is calculated on the
basis of adjustments to “selling, general & administrative expenses,”
“research & development expenses” and “subsidy from the government
related to the transfer of the substitutional portion of employee pension
fund liabilities.”
1. The Macroeconomic Environment
(1) Japan
In fiscal 2005, the Japanese economy saw real GDP growth of
3.2 percent, the biggest growth in 15 years since 6.0 percent
growth in 1990 (a bubble economy year) and the fourth consecu-
tive year of growth. Also, the three “excesses” that have shack-
led Japan’s recovery ever since the collapse of the bubble econo-
my – facilities and equipment, employment and debt – have now
been removed. In fact, for the first time in 14 years major corpo-
rations and manufacturers experienced insufficient facilities and
equipment and employment, a sign that the recovery is gaining
steam. In the first half, IT and digital-related product inventory
adjustments subsided and the economy apparently maneuvered
past a temporary lull. Looking at the second half, big improve-
ments in corporate earnings led to increased capital investment
while better employment and income conditions meant con-
sumer spending looked even more geared up for recovery.
2. Overseas
In the United States, a sharp rise in crude oil prices, higher hous-
ing prices and Hurricane Katrina constituted important negative
factors, but also at work was a virtuous cycle of increased con-
sumer spending, higher production and capital investment,
improved employment and incomes, followed again by a con-
sumer spending rise. The result was real GDP growth of 3.5 per-
cent in fiscal 2005 (calendar year) versus 4.2 percent in fiscal
2004. In Europe, sluggish consumer spending in Germany, which
had a highly negative effect, continued but solid exports to over-
seas locations enabled EU25 real GDP growth of 1.6 percent (ver-
sus 2.4 percent growth in fiscal 2004). In China, both consumer
spending and capital investment slowed somewhat but strong
export-led growth continued, bringing real GDP growth of 9.9 per-
cent (versus 10.1 percent in fiscal 2004). As for the rest of Asia,
the region generally witnessed economic expansion.
Domestic Macroeconomic Environment (Source: Cabinet Office, Government of Japan)
Real GDP Growth Rate
Real Private Capital Investment
Growth Rate
Machinery Orders Growth Rate
(Manufacturing)
（%）
4.0
3.0
2.0
1.0
0
-1.0
-2.0
（%）
10.0
5.0
0
-5.0
-10.0
（%）
15.0
10.0
5.0
0
-5.0
-10.0
98
99
00
01
02
03
04
05
(FY)
98
99
00
01
02
03
04
05
(FY)
1Q
2Q
3Q
FY04
4Q
1Q
4Q
2Q
3Q
FY05
Note: Change from the previous year,
seasonally adjusted
Note: Change from the previous year,
seasonally adjusted
Note: Change from the previous quarter,
seasonally adjusted
41
OMRON CORPORATION ANNUAL REPORT 2006
3. Review and Analysis of the Income Statement
Note 1: The following business segment abbreviations are used in the dis-
cussion that follows: Industrial Automation Business (IAB),
Electronic Components Business (ECB), Automotive Electronic
Components Business (AEC), Social Systems Business (SSB) and
Healthcare Business (HCB).
Note 2: Under U.S. accounting standards, the profit or loss (excluding subsidy
from the government) recognized on the transfer of the substitutional
portion of employee pension fund liabilities in fiscal year 2005 is includ-
ed in the presentation of “cost of sales,” “selling, general & adminis-
trative expenses” and “research & development expenses.”
However, to enable an easy comparison with previous fiscal years, in
the following analysis, it is assumed that this profit or loss together
with the subsidy from the government is allocated in one lump sum to
the transfer of the substitutional portion of employees’ pension fund.
Sales
Consolidated net sales, boosted by overseas sales results,
increased 3.0 percent over the previous fiscal year to ¥626.8 bil-
lion. Domestic sales, which were hurt by the transfer of the
information equipment business (which includes ATMs) from
the SSB segment to an equity affiliate, fell 3.1 percent to ¥354.9
billion. Overseas sales on an all-region basis rose 12.1 percent
to ¥271.9 billion. By segment, the IAB, AEC and HCB recorded
higher sales but the ECB and SSB and Other Businesses experi-
enced declines.
Cost of Sales and SG&A Expenses
In line with the 3.0 percent year-over-year growth in sales, the
cost of sales and SG&A expenses* increased by 4.1 percent and
5.9 percent, respectively. Despite attempts to lower manufactur-
ing costs, a surge in raw material prices, changes in the product
mix and other factors pushed the cost of sales margin higher by
0.6 points to 59.6 percent. Also, a greater cost burden brought on
by quality improvements caused the SG&A expense ratio* to rise
0.6 points to 24.3 percent.
R&D expenses rose to ¥50.5 billion (up ¥1.1 billion year over
year) while the ratio of these expenses to net sales came to 8.1
percent. Our policy is to maintain an R&D expense ratio at the
eight percent level in accordance with the Omron Group’s strate-
gy of accelerating performance growth through further strength-
ening the base of technology.
* SG&A expenses include neither research & development expenses nor
the transfer of employee pension fund liabilities.
Return of substitutional portion of pension fund
In regard to the return of substitutional portion of pension fund,
the payment of an amount to be returned to the government
(minimum actuarial liability) produced a payment portion pro-
ceed of ¥11.9 billion (¥41.3 billion of the subsidy from the gov-
ernment [profit], ¥8.9 billion from the derecognition of previous-
ly accrued salary progression [profit] and ¥38.3 billion in settle-
ment losses [loss]).
Costs, Expenses and Income as Percentages of Net Sales
(Based on the assumption that the all the profit from the transfer of the substitutional portion of employees’ pension fund was accounted for in a lump sum)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Transfer of substitutional portion of employees’ pension fund
Interest expense (income), net
Net income before income taxes *
Income taxes
Net income
FY2005
100.0%
59.6
40.4
24.3
8.1
(1.9)
(0.1)
10.3
4.4
5.7
FY2004
100.0%
59.0
41.0
23.7
8.1
—
(0.0)
8.6
3.6
5.0
FY2003
100.0%
59.0
41.0
24.3
7.9
—
0.1
8.2
3.5
4.6
* Net income before income taxes = The net of income and losses prior to income taxes, minority interests and the cumulative effect of accounting changes
Net Sales &
Net Income before Income Taxes
(Billions of yen)
700
600
500
400
300
200
100
0
-100
(%)
30
20
10
0
SG&A Expenses Ratio &
R&D Expenses Ratio
Net Income (Loss) & ROE
(Billions of yen)
40
30
20
10
0
-10
-20
(%)
20
15
10
5
0
-5
-10
01
02
03
04
05
(FY)
01
02
03
04
05 (FY)
01
02
03
04
05 (FY)
Net sales
Net income before income taxes
SG&A expenses ratio
R&D expenses ratio
Net income (loss) [left axis]
ROE [right axis]
42
OMRON CORPORATION ANNUAL REPORT 2006
Non-operating Income and Loss
A net non-operating income of ¥2.2 billion was recorded, a sub-
stantial improvement over the loss of ¥3.6 billion in the previous
year. The income resulted primarily from booking ¥4.3 billion in
sales of investment securities, which consisted of sales of stock-
holdings mainly in financial institutions and returns on invest-
ments in venture companies. Another important item was inter-
est income (expenses), net, which went from ¥200 million in net
income in the previous term to ¥600 million in fiscal 2005. Also, a
foreign exchange loss of ¥1.3 billion was recorded (versus a loss
of ¥800 million in the previous term).
Net Income before Income Taxes, Net Income and Profit
Distribution
Due to the results noted above, net income before taxes* rose
22.5 percent over the previous year to ¥64.4 billion and net income
rose 18.5 percent to ¥35.8 billion. Also, basic net income per share
was ¥151.14 (¥126.52 in the previous year). Based on a profit distri-
bution policy which includes a set consolidated net income divi-
dend payout ratio of roughly 20 percent, an ordinary cash dividend
of ¥18.0 per share was paid, which comes to ¥30.0 for the year
when the interim cash dividend payment of ¥12.0 is included. Thus
for the year the dividend payout ratio was 19.8 percent.
* Net income before income taxes = The net of income and losses prior to
income taxes, minority interests and the cumulative effect of accounting
changes
4. Segment Information
Note: Sales in the segment information column show sales to external cus-
tomers, excluding intersegment transactions. Conversely, operating
income shows operating income including internal profits, prior to the
deduction of amounts such as intersegment transactions and head-
quarters expenses that are not apportionable. The segment informa-
tion is required under the Japanese Securities Exchange Law.
The Composition of Net Sales by Business Segment
IAB
ECB
AEC
SSB
HCB
Other
FY2005
FY2004
FY2003
43.5%
41.1%
39.3%
15.6
12.4
14.6
9.7
4.2
16.6
10.6
18.9
8.3
4.5
15.2
10.1
23.3
8.0
4.1
The Increase or Decrease in Sales by Business Segment
IAB
ECB
AEC
SSB
HCB
Other
FY2005
FY2004
FY2003
8.9%
9.0%
13.4%
(3.4)
20.2
(20.3)
20.8
(3.2)
13.6
9.7
(15.3)
7.7
9.4
12.1
(1.1)
16.6
10.9
(29.5)
(1) By Business Segments
• Industrial Automation Business (IAB)
Sales in the IAB for the year increased 8.9 percent over the previ-
ous year to ¥272.7 billion, helped by an economy on its way to
recovery and visible corporate capital investment.
Domestically, sales to the automobile industry, which continues
to make large-scale capital investments, were higher and sales
related to the semiconductor industry and digital consumer elec-
tronics recovered. Also, rising concern in manufacturing facilities for
product quality, safety and the environment led to higher sales in
high-profile growth areas in the IAB segment, the safety business
and the product quality solutions business. As a result, IAB domes-
tic sales rose 4.6 percent year over year to ¥136.2 billion.
In overseas markets, in North America sales to automobile-related
industries increased and oil & gas-related sales also moved higher. In
Europe, the new markets of Russia and Eastern Europe saw higher
sales, driven mainly by inverters, servomotors and sensor equip-
ment. In the Greater China and Southeast Asia, which continue to
display high growth, sales were strong. In particular, sales increased
substantially in China due to strengthening of Omron’s sales force,
centered on full-time sales staff, and its network of sales agents. As
a result, IAB overseas sales rose 13.6 percent to ¥136.5 billion.
Operating income, however, weighed down by the cost of com-
plying with the EU’s RoHS (Restriction of Hazardous Substances)
directive, only managed to rise 1.2 percent over the previous year
to ¥41.9 billion.
• Electronic Components Business (ECB)
Owing in part to intense competition in the market for cellular
phone backlights, sales in the ECB fell 3.4 percent over the previ-
ous year to ¥97.7 billion.
In the domestic market, the first half demonstrated a generally
weak sales performance, as inventory adjustments of industrial and
consumer equipment had a dampening effect. As for the second
half, an end to most inventory adjustments and higher demand for
digital consumer electronic and mobile products (mainly flat-display
televisions and portable music players) enabled FPC connectors and
other products to turn toward recovery. Small-size backlights for cel-
lular phones, however, ran into fierce competition from products
sold by other companies. As a result, domestic sales in the ECB fell
13.1 percent over the previous year to ¥45.0 billion.
Looking at overseas markets, in China the electronic compo-
nents market continued to expand, led by digital consumer elec-
tronic and mobile products, while relays, switches and other
major products posted significant sales gains. In Europe, stronger
sales and marketing in the IT and mobile growth markets provid-
ed an upward push to sales. As a result, overseas sales in the
ECB segment rose 6.7 percent to ¥52.7 billion.
Operating income, however, fell 30.3 percent over the previous
year to ¥11.2 billion in response to the lower sales and declines in
profitability of major products.
• Automotive Electronic Components Business (AEC)
Sales in the AEC increased 20.2 percent over the previous year to
¥77.6 billion, due to a higher rate of electrical equipment installa-
tion in vehicles and global growth in the number of vehicles pro-
duced. In particular, new products were released, timed to coin-
cide with new vehicle introductions, to customers all across the
world to address needs related to safety and the environment,
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two prominent themes in the auto industry. As a result, sales reg-
istered gains in all regions of the world including Japan.
Domestically, new products such as laser radars, electronic
power steering controllers and door lock controllers were impor-
tant, enabling sales to rise 4.8 percent to ¥27.2 billion.
Overseas, the core overseas market for the AEC, North
America, benefited from intensified production among client auto-
mobile makers, leading to dramatic sales gains. In Europe, the fis-
cal 2004 acquisition of a relay company provided the momentum
for increased sales. As for Asia, expanded exports to North
America by Korean auto makers produced a favorable sales per-
formance. As a result, overseas sales in the AEC segment
jumped 30.6 percent to ¥50.4 billion.
Operating income, however, showed a loss of ¥2.0 billion
(compared to a loss of ¥900 million in fiscal 2004). Contributing
negative factors included higher research and development costs,
cost increases brought on by quality upgrades at North American
factories and lower prices for major products.
• Social Systems Business (SSB)
SSB sales fell 20.3 percent against a year earlier to ¥91.8 billion.
The key factor was the transfer in fiscal 2004 of the financial equip-
ment business to Hitachi-Omron Terminal Solutions, Corp., an equi-
ty-method affiliate 55 percent held by Hitachi, Ltd. and 45 percent
by Omron, which removed ¥27.0 billion from sales.
In the train station management and approval systems business,
demand decreased following demand in the previous term for modi-
fying and upgrading ticketing machines in response to the issuance
of new Japanese currency. On the other hand, there was new
demand for machines which can read passenger-use IC cards as
well as large-scale demand generated by the inauguration of new
lines. In the Traffic and Road Management Systems business, the
business environment turned more severe as a result of govern-
ment administrative and budgetary pressures. In the Other area, the
new security solutions and IC card mobile solutions businesses
expanded. Also, in the Related Maintenance business, maintenance
and repair sales generated by OA systems and other IT-related busi-
nesses and by other company products jumped considerably higher.
The end result was that in the SSB domestic sales fell 16.7 percent
versus a year earlier to ¥90.5 billion while overseas sales dropped
79.7 percent to ¥1.3 billion.
Operating income decreased 31.1 percent over the previous
fiscal year to ¥4.4 billion on the back of the decrease in sales.
• Healthcare Business (HCB)
Sales in the HCB grew 20.8 percent over the previous fiscal year
to ¥61.1 billion due to rising global consciousness about personal
health issues and life-style related disease prevention.
In the domestic market, given growing awareness of Metabolic
Syndrome and rising concern about bodly fat, a stronger market-
ing campaign focused mainly on TV advertising helped to boost
sales of body composition monitors. Also, in June 2005 we
strengthened our business directed at medical institutions by
acquiring Colin Medical Technology Corporation (CMT), a major
medical equipment maker of such products as bio-information
monitoring devices. As a result, HCB domestic sales climbed
31.6 percent over the previous year to ¥30.3 billion.
In overseas markets, a business expansion in Russia made pos-
sible by the opening of a new marketing sales office in that country
contributed greatly to higher sales in Europe. China saw growth in
sales of digital blood pressure monitors while in Southeast Asia
sales of nebulizers gained. As a result, the HCB had overseas sales
of ¥30.8 billion, up 11.9 percent over the previous year.
The acquisition of CMT added to the cost base, but this was
offset by higher revenues and income. As a result, operating
income increased 13.5 percent to ¥8.7 billion.
• Business Development Group and Other Businesses
Sales in this segment fell 3.2 percent over the previous year to
¥25.9 billion. In the entertainment business, photo sticker
machines and other commercial game machines were weak but
higher revenues were turned in by content delivery to cellular
phones. In the PC peripherals business, broadband routers and
backup power supplies recorded firm sales, aided by a recovery in
corporate investment in IT. But in the wireless sensing business,
revenues from personal automotive antitheft systems and soft-
ware outsourcing declined. The RFID business, which is being
positioned for important growth, enjoyed solid sales gains on the
back of increased use of IC tags. As a result, domestic sales in
this segment fell 3.0 percent to ¥25.6 billion and overseas sales
dropped 13.0 percent to ¥300 million.
Operating income decreased 56.1 percent over the previous
year to ¥1.7 billion due in part to a greater R&D cost burden.
(2) Review of Operations by Region
In Japan, solid demand in the automobile industry helped the IAB
and AEC, while increasing awareness of life-style related dis-
eases benefited the HCB. All three segments recorded higher
sales. On the other hand, the transfer of the financial equipment
business from the SSB to an equity-method affiliate and the
tougher competition faced by the ECB resulted in lower sales for
both segments. As a result, sales in the Japanese market
declined 3.1 percent from last year to ¥354.9 billion.
In North America, similar to events in the Japanese market,
sales in the IAB and AEC benefited from higher demand in the
automobile industry. Also, the ECB and HCB used stronger sales
and marketing operations to achieve better revenue performanc-
es. As a result, sales in the North American market rose 21.5 per-
cent against the previous year to ¥79.7 billion.
Sales Breakdown, by Region
67.0%
12.3%
12.2%
8.5%
63.7%
12.7%
13.7%
9.9%
64.3%
11.0%
14.4%
10.2%
63.7%
10.8%
15.2%
10.3%
59.1%
12.7%
15.8%
12.4%
(FY)
01
02
03
04
05
Japan
North America
Europe
Asia and Other
44
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In the European market, the IAB, HCB and AEC all recorded
higher sales. The IAB and HCB continued to take advantage of
emerging market opportunities in Russia and other areas, while
the AEC was helped by last year’s acquisition of a relay company.
Also, stronger marketing provided a boost to ECB sales. As a
result, sales in the European market increased 7.3 percent over
the previous year to ¥99.0 billion.
In Greater China, because our major clients among auto-related
and digital consumer electronic equipment makers are shifting
their manufacturing operations to China, the IAB and ECB
improved their supply systems in that country, which led directly
to significantly higher sales. Also, the HCB achieved favorable
sales growth. As a result, sales in Greater China rose 23.2 per-
cent over the previous year to ¥41.7 billion.
In Southeast Asia and other areas, digital consumer electronic
inventory adjustments cycled through, allowing sales to recover
in the IAB, ECB and AEC. The HCB witnessed higher sales mainly
on the back of digital blood pressure monitors and nebulizers. As
a result, sales in Southeast Asia jumped 22.2 percent over the
previous year to ¥35.7 billion.
5. Explanation of Balance Sheets
Assets and Liabilities
Total assets at the end of this year rose ¥3.6 billion (0.6 percent)
against a year earlier to ¥589.1 billion. The gain in assets was possible
following a mix of repayment of interest bearing debt (which reduced
debts by ¥20.9 billion ), an increase in accounts receivable (¥14.6 bil-
lion added) and an increase in property, plant and equipment as part of
active investment in growth opportunities (¥12.9 billion added).
The total of year-end current liabilities, long-term liabilities and
minority interests in subsidiaries fell ¥53.5 billion (19.1 percent)
against a year earlier to ¥226.1 billion. A stable cash inflow eased
repayment of corporate bonds and borrowings, leaving the total
of interest-bearing debt at ¥3.8 billion (versus ¥24.6 billion at the
previous year-end). In addition, the return of the substitute portion
of the employee pension fund managed on behalf of the govern-
ment reduced accrued retirement benefits by ¥44.9 billion (40.1
percent) to ¥67.0 billion. Furthermore, the year-end current ratio
was 188 percent as against 182 percent a year earlier.
Shareholders’ Equity
Shareholders’ equity rose ¥571.1 billion (18.7 percent) year on
year. The primary reasons for the increase were: the addition of
¥28.2 billion in other retained earnings made possible by higher
net income; a reduction of ¥19.9 billion in minimum pension liabil-
ity adjustments on account of the return of the substitute portion
of the employee pension fund managed on behalf of the govern-
ment (this means an increase in shareholders’ equity); and ¥8.8
billion in unrealized gains on available-for-sale securities and ¥9.2
billion in foreign currency translation adjustments. Treasury stock
increased ¥9.6 billion as against the end of previous year to ¥32.8
billion. As a result, shareholders’ equity gained ¥57.1 billion and
the ratio of shareholders’ equity to total assets increased to 61.6
percent from 52.2 percent at the end of the previous year. Also,
the debt/equity ratio dropped steeply to 0.62 from 0.91 at the end
of the previous year, a sign of the Group’s more improved finan-
cial position. Net assets per share based on the number of shares
outstanding at the end of the year were ¥1,548.07 compared to
¥1,284.81 at the end of the previous year.
6. Cash Flow
Cash flow from operating activities was ¥51.7 billion, an inflow
decrease of ¥9.4 billion over the previous year. While net income
increased by ¥5.6 billion, accrued retirement benefits were lower
(because of the return of the portion of the employee pension
fund managed on behalf of the government) and tax payments
were higher.
Cash flow from investing activities saw an outflow increase of
¥7.0 billion over the previous year to ¥43.0 billion. The most
important factor was future growth-oriented capital investment
and M&A.
Cash flow from financing activities saw an outflow of ¥38.3 bil-
lion, down by ¥2.4 billion compared with the previous year. The
main factor was that long-term loans which hit their repayment
period declined by ¥19.2 billion against a year earlier, a result of
repaid borrowings.
Given the foregoing, cash and cash equivalents at the end of
the year came to ¥52.3 billion, down ¥28.3 billion over the previ-
ous year.
Working Capital & Current Ratio
Outstanding Interest-Bearing Debts
& Debt/Equity Ratio
Free Cash Flow
(Billions of yen)
150
100
50
0
(%)
300
200
100
0
(Billions of yen)
80
60
40
20
0
(Times)
2.0
1.5
1.0
0.5
0
(Billions of yen)
50
40
30
20
10
0
-10
01
02
03
04
05 (FY)
01
02
03
04
05 (FY)
01
02
03
04
05 (FY)
Working capital [left axis]
Current ratio [right axis]
Outstanding interest-bearing debts [left axis]
Free cash flow
Debt/equity ratio [right axis]
45
OMRON CORPORATION ANNUAL REPORT 2006
B U S I N E S S A N D O T H E R R I S K S
The following risks may influence the Omron Group’s manage-
ment results and financial condition (including share price), and
Omron believes that these items may substantially affect investor
decisions. Note that items referring to the future reflect the
Omron Group’s forecasts and assumptions as of June 22, 2006,
the date of publication of these materials.
ratio due to factors such as production shifts. The Omron Group
seeks to hedge against exchange rate risk in such ways as bal-
ancing imports and exports denominated in foreign currencies.
Exchange rate fluctuations, however, could have a negative
impact on the Omron Group’s operating results and financial con-
dition.
(1) Economic Conditions
The primary business of the Omron Group is consumer and com-
merce electronic components used in the manufacture of control
system equipment and other electrical and electronic equipment
by the manufacturing sector and in capital investment related
areas. Accordingly, demand for Omron Group products is affect-
ed by economic conditions in these markets. Also, the Omron
Group procures raw materials and semi-finished products in a
wide variety of forms, and rapid increases in demand could result
in supply shortages and/or sudden increases in prices that could
halt production and/or cause sudden increases in costs.
Both in Japan and overseas, therefore, market forces affecting
suppliers to, and purchasers from, the Omron Group can result in
the contraction of demand for our products, thereby possibly hav-
ing a negative impact on the Group’s operating results and finan-
cial condition.
(2) Risks Accompanying Overseas Business Activities
The Omron Group actively conducts business activities such as
production and sales in overseas markets. The Group may be
subject to operating difficulties in overseas countries related to
possible social unrest due to factors including differences in cul-
ture or religion, political turmoil and uncertainty in economic
trends, differences in business customs in areas such as the
structure of relationships with local businesses and collection of
receivables, specific legal systems and investment regulations,
changes in tax systems, labor shortages and problems in the
labor-management relationship, epidemics, and terrorism, wars,
and other political circumstances.
These various risks associated with overseas operations may
have a negative impact on the Omron Group’s operating results
and financial condition.
(3) Exchange Rate Fluctuation
The Omron Group has 106 overseas affiliated companies and
continues to reinforce its business operations in overseas mar-
kets, such as China for which major market growth is anticipated
in the future. The percentages of consolidated net sales account-
ed for by overseas sales during the fiscal years ended March 31,
2005 and 2006 were 39.9 percent and 43.4 percent, respectively,
and Omron expects further increases in the overseas operations
(4) Product Defects
The Omron Group is committed to the management philosophy
of maximizing customer satisfaction, and implements the philoso-
phy by providing the best quality products and services based on
the Group’s motto of “quality first.” In particular, the Group has
established strict quality control standards and built a quality con-
trol system, and develops and manufactures its products accord-
ingly. The Corporate General Affairs Division of the parent compa-
ny conducts quality audits, and a Group-wide quality check sys-
tem is in place for the ongoing improvement of the quality of the
Group’s entire line of products and services. Nevertheless, there
is no assurance that all of the Group’s products are without
defects, and that recalls will not occur in the future. Large-scale
recalls and/or product defects resulting in liability-related damages
could impose huge costs, could severely influence evaluations of
the Omron Group, and could result in reduced sales. Such events
could exert a negative impact on the Group’s operating results
and financial condition.
In addition, to respond to an EU directive banning the use of
lead, cadmium and certain other chemical substances in electric
and electronic products in the European Union from July 2006,
the Omron Group, in cooperation with its suppliers, is in the
process of investigating the status of regulated chemical sub-
stances in all of the components and materials the Group uses,
and is accelerating efforts to switch to substitute components
and materials that do not contain regulated chemical substances.
Plans are proceeding smoothly to completely eliminate regulated
substances from all the Group’s products throughout the world in
order to make them “environmentally warranted products.”
However, delays in the switchover beyond customer deadlines
due to late response by some suppliers in providing substitute
components and other factors could result in liability-related dam-
ages or a violation of the EU directive, which could have a nega-
tive impact on the Omron Group’s operating results and financial
condition.
(5) Research and Development Activities
Based on a policy of securing a balance between growth and
income, the Omron Group invests aggressively in R&D as part of
its technology-centered business operations. As a result, the R&D
expenses ratio is approximately 8 percent.
46
OMRON CORPORATION ANNUAL REPORT 2006
financial condition.
Omron has always focused on managing its brands. Recently,
however, it has discovered that several overseas businesses and
organizations are using domain names similar to Omron’s. Omron
has identified some of these and is responding with measures
including issuing warning notices.
However, it is difficult to identify and deal with all businesses
and organizations using similar domain names, and there is a dan-
ger that unethical business practices by such entities will damage
the Group’s reputation.
For its R&D and design, the Omron Group uses a dedicated
system to conduct surveys of technologies in the public domain
and those of other companies. However, because Group prod-
ucts cover a diverse range of fields in which there are many
patents and other intellectual property rights, and in which the
number of new patents and intellectual property rights is con-
stantly growing, the possibility exists that a third party could
make a claim again the Group with respect to a specific product
or part. The Omron Group is working to improve employee
morale through measures such as revising its employee invention
compensation policy in line with revisions to Japan’s Patent Law
and introducing a new award system. However, disputes could
arise with respect to the value of an invention with inventors who
have retired from the Group.
(8) Natural Disasters
Because of the possibility of reduction of production capability,
temporary disruption of distribution and sales routes, or other
consequences of a natural disaster, fire or other calamity, includ-
ing a large-scale earthquake in areas such as Tokai and
Tounankai or directly below the Tokyo area, the Omron Group
has identified the assumed risks and implemented the necessary
safety measures and measures for continuation and early recov-
ery of its businesses.
However, the Omron Group’s operating bases are located in
Japan and around the world, and it is impossible to avoid all risks
due to a natural disaster, fire or other calamity. As a result, a natu-
ral disaster, fire or other calamity could exert a negative impact on
the Omron Group’s operating results and financial condition.
The Omron Group strives to increase the new product contri-
bution ratio by reflecting such considerations as market needs in
its R&D themes and goals. However, factors such as delays in
R&D or insufficient technological capabilities that result in a
decrease in the R&D new product contribution ratio could have a
negative impact on the Omron Group’s operating results and
financial condition.
(6) Information Leakage
The Omron Group acquires information (including information on
individuals) regarding the privacy and credit information of cus-
tomers and other entities and other types of classified informa-
tion through its business processes and important information in
the course of business. The Omron Group is strengthening secu-
rity to prevent external entry into its internal information systems
and misappropriation by third parties, and a special committee
has been established centering on the Corporate General Affairs
Division. Steps are being taken to reinforce control over the infor-
mation the Group handles, and to further improve employees’
information literacy.
Unanticipated leakage of internal information, however, due for
example to invasion of internal information systems using tech-
nology exceeding implemented security levels, could exert a neg-
ative impact on the Omron Group’s operating results and financial
condition.
(7) Risks Associated with Patent Rights and Other
Intellectual Property Rights
The Omron Group has accumulated technology and expertise
allowing it to differentiate its products from those of its competi-
tors. However, it is impossible to completely protect all of the
Group’s intellectual property consisting of proprietary technology
and expertise, due to legal restrictions in specific regions, includ-
ing China, and conditions that allow only limited protection. At
present, the Omron Group is working on intellectual property pro-
tection against imitation products, through such measures as the
placement of full-time personnel (including local staff) in
Shanghai. However, it is possible that the Group will not be able
to completely prevent third parties from using its intellectual prop-
erty in the manufacture of imitation products.
In China, skills in the methods needed to manufacture and sell
imitations of the Omron Group’s products improve each year,
and organizations that manufacture and market counterfeit prod-
ucts have become extremely troublesome. The circulation of
low-quality counterfeits that fraudulently use the Omron Group
brand in Asia, including China, could damage trust in the Omron
Group’s products and the Group’s brand image, and could exert
a negative impact on the Omron Group’s operating results and
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OMRON CORPORATION ANNUAL REPORT 2006
C O N S O L I D AT E D B A L A N C E S H E E T S
OMRON Corporation and Subsidiaries
March 31, 2006 and 2005
ASSETS
Current Assets:
Cash and cash equivalents
Notes and accounts receivable - trade
Allowance for doubtful receivables
Inventories (Note 3)
Deferred income taxes (Note 12)
Other current assets
Millions of yen
Thousands of
U.S. dollars
(Note 2)
2006
2005
2006
¥ 52,285
¥ 80,619
$ 446,880
139,001
124,409
1,188,043
(2,653)
74,958
18,571
10,151
(2,757)
68,585
17,240
7,844
(22,675)
640,667
158,726
86,761
Total Current Assets
292,313
295,940
2,498,402
Property, Plant and Equipment:
Land
Buildings
Machinery and equipment
Construction in progress
Total
46,571
117,414
159,254
8,180
43,794
110,367
143,111
5,946
398,043
1,003,538
1,361,145
69,915
331,419
303,218
2,832,641
Accumulated depreciation
(163,802)
(148,529)
(1,400,017)
Net Property, Plant and Equipment
167,617
154,689
1,432,624
Investments and Other Assets:
Investments in and advances to affiliates
Investment securities (Note 4)
Leasehold deposits
Deferred income taxes (Note 12)
Other (Note 6)
16,135
62,477
8,553
15,892
26,074
17,343
49,764
8,595
41,499
17,599
137,906
533,991
73,103
135,829
222,855
Total Investments and Other Assets
129,131
134,800
1,103,684
Total
See notes to consolidated financial statements.
¥ 589,061
¥ 585,429
$ 5,034,710
48
OMRON CORPORATION ANNUAL REPORT 2006
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Bank loans (Note 7)
Notes and accounts payable - trade
Accrued expenses
Income taxes payable
Other current liabilities (Note 12)
Current portion of long-term debt (Note 7)
Millions of yen
Thousands of
U.S. dollars
(Note 2)
2006
2005
2006
¥
2,468
¥ 12,424
$
21,094
85,224
28,683
12,288
26,701
296
75,866
26,701
12,724
24,770
10,503
728,410
245,154
105,026
228,214
2,530
Total Current Liabilities
155,660
162,988
1,330,428
Long-Term Debt (Note 7)
1,049
1,832
8,966
Deferred Income Taxes (Note 12)
673
1,199
5,752
Termination and Retirement Benefits (Note 9)
67,046
111,988
573,043
Other Long-Term Liabilities
571
63
4,880
Minority Interests in Subsidiaries
1,125
1,549
9,615
Shareholders’ Equity (Note 10):
Common stock, no par value:
Authorized:
487,000,000 shares
Issued:
249,121,372 shares
Capital surplus
Legal reserve
Retained earnings
Accumulated other comprehensive loss (Note 16)
Treasury stock, at cost - 14,676,607 shares in 2006 and
64,100
64,100
547,863
98,724
8,082
227,791
(2,971)
98,726
7,649
199,551
(41,009)
843,795
69,077
1,946,931
(25,393)
11,101,591 shares in 2005
(32,789)
(23,207)
(280,247)
Total Shareholders’ Equity
362,937
305,810
3,102,026
Total
See notes to consolidated financial statements.
¥ 589,061
¥ 585,429
$ 5,034,710
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OMRON CORPORATION ANNUAL REPORT 2006
C O N S O L I D AT E D S T AT E M E N T S O F I N C O M E
OMRON Corporation and Subsidiaries
Years ended March 31, 2006, 2005 and 2004
Net Sales
Costs and Expenses:
Cost of sales
Selling, general and
administrative expenses
Research and development expenses
Subsidy from the government (Note 9)
Interest expense (income), net (Note 7)
Foreign exchange loss, net
Other expenses (income), net (Note 11)
Millions of yen
Thousands of
U.S. dollars
(Note 2)
2006
2005
2004
2006
¥ 626,782
¥ 608,588
¥ 584,889
$ 5,357,111
389,368
358,817
344,835
3,327,932
161,310
55,315
(41,339)
(609)
1,306
(2,921)
144,219
49,441
—
(216)
75
3,704
142,157
46,494
—
317
1,254
1,848
1,378,718
472,778
(353,325)
(5,205)
11,162
(24,966)
Total
562,430
556,040
536,905
4,807,094
Income before Income Taxes, Minority Interests
and Cumulative Effect of Accounting Change
Income Taxes (Note 12)
Income before Minority Interests and Cumulative Effect
of Accounting Change
Minority Interests
Income before Cumulative Effect of
Accounting Change
Cumulative Effect of
64,352
27,238
52,548
22,108
47,984
20,762
550,017
232,803
37,114
150
30,440
264
27,222
411
317,214
1,282
36,964
30,176
26,811
315,932
Accounting Change, net of tax (Note 9)
(1,201)
—
—
(10,265)
Net Income
¥ 35,763
¥ 30,176
¥ 26,811
$ 305,667
2006
Yen
2005
U.S. dollars
(Note 2)
2004
2006
¥
156.2
¥
126.5
¥
110.7
$
156.1
124.8
107.5
151.1
151.1
126.5
124.8
110.7
107.5
1.34
1.33
1.29
1.29
Per Share Data (Note 14):
Income before Cumulative
Effect of Accounting Change
Basic
Diluted
Net Income
Basic
Diluted
See notes to consolidated financial statements.
50
OMRON CORPORATION ANNUAL REPORT 2006
C O N S O L I D AT E D S T AT E M E N T S O F C O M P R E H E N S I V E I N C O M E ( L O S S )
OMRON Corporation and Subsidiaries
Years ended March 31, 2006, 2005 and 2004
Net Income
¥ 35,763
¥ 30,176
¥ 26,811
$ 305,667
Millions of yen
Thousands of
U.S. dollars
(Note 2)
2006
2005
2004
2006
Other Comprehensive Income (Loss), net of tax (Note 16):
Foreign currency translation adjustments:
Foreign currency translation adjustments
arising during the year
Reclassification adjustment for the portion
realized in net income
Net change in foreign currency translation
adjustments during the year
9,201
5,071
(6,680)
78,641
—
—
462
—
9,201
5,071
(6,218)
78,641
Minimum pension liability adjustments
19,940
4,115
3,470
170,427
Unrealized gains on available-for-sale securities:
Unrealized holding gains arising
during the year
Reclassification adjustment for losses on
impairment realized in net income
Reclassification adjustment for net gains
on sales realized in net income
10,905
1,274
11,916
93,205
287
13
500
2,453
(2,430)
(465)
(613)
(20,769)
Net unrealized gains
8,762
822
11,803
74,889
Net gains (losses) on derivative instruments:
Net gains (losses) on derivative instruments designated
as cash flow hedges during the year
(1,282)
(1,004)
639
(10,957)
Reclassification adjustment for net losses (gains)
realized in net income
Net gains (losses)
1,417
135
546
(458)
(344)
12,111
295
1,154
Other Comprehensive Income
38,038
9,550
9,350
325,111
Comprehensive Income
See notes to consolidated financial statements.
¥ 73,801
¥ 39,726
¥ 36,161
$ 630,778
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OMRON CORPORATION ANNUAL REPORT 2006
C O N S O L I D AT E D S T AT E M E N T S O F S H A R E H O L D E R S ’ E Q U I T Y
OMRON Corporation and Subsidiaries
Years ended March 31, 2006, 2005 and 2004
Conversion of convertible bonds
12,136
18
Millions of yen
Number of
common shares
issued
Common
stock
Capital
surplus
Legal
reserve
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury
stock
249,109,236
¥ 64,082
¥ 98,705
¥ 7,619
¥ 153,134
¥ (59,909)
¥ (12,021)
(169)
26,811
(4,808)
169
(10)
9,350
(8,411)
168
249,109,236
64,082
98,705
7,450
175,296
(50,559)
(20,264)
30,176
(5,713)
(199)
199
9,550
3
19
(1)
(9)
(3,065)
16
1
105
249,121,372
64,100
98,726
7,649
199,551
(41,009)
(23,207)
35,763
(7,078)
(433)
433
1
(3)
(12)
38,038
(10,075)
2
491
249,121,372
¥ 64,100
¥ 98,724
¥ 8,082
¥ 227,791
¥
(2,971)
¥ (32,789)
Thousands of U.S. dollars (Note 2)
Common
stock
Capital
surplus
Legal
reserve
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury
stock
$ 547,863
$ 843,812
$ 65,376
$ 1,705,564
$ (350,504)
$ (198,350)
305,667
(60,496)
(3,701)
3,701
9
(26)
(103)
325,111
(86,111)
17
4,197
$ 547,863
$ 843,795
$ 69,077
$ 1,946,931
$ (25,393)
$ (280,247)
Balance, April 1, 2003
Net income
Cash dividends, ¥20 per share
Reversal of legal reserve
Other comprehensive income
Acquisition of treasury stock
Exercise of stock options
Balance, March 31, 2004
Net income
Cash dividends, ¥24 per share
Transfer to legal reserve
Other comprehensive income
Acquisition of treasury stock
Sale of treasury stock
Exercise of stock options
Balance, March 31, 2005
Net income
Cash dividends, ¥30 per share
Transfer to legal reserve
Other comprehensive income
Acquisition of treasury stock
Sale of treasury stock
Exercise of stock options
Balance, March 31, 2006
Balance, March 31, 2005
Net income
Cash dividends, $0.26 per share
Transfer to legal reserve
Other comprehensive income
Acquisition of treasury stock
Sale of treasury stock
Exercise of stock options
Balance, March 31, 2006
See notes to consolidated financial statements.
52
OMRON CORPORATION ANNUAL REPORT 2006
C O N S O L I D AT E D S T AT E M E N T S O F C A S H F L O W S
OMRON Corporation and Subsidiaries
Years ended March 31, 2006, 2005 and 2004
Operating Activities:
Net income
Adjustments to reconcile net income 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 gain on sales of short-term investments
and investment securities
Loss on impairment of investment securities
and other assets
Bad debt expenses
Subsidy from the government
Termination and retirement benefits
Deferred income taxes
Minority interests
Equity in loss (earnings) of affiliates
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
Decrease (increase) in investment in and loans to affiliates
Proceeds from sale of business entities, net
Payment for acquisition of business entities, net
Net cash used in investing activities
Financing Activities:
Net 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
Sale 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.
Millions of yen
Thousands of
U.S. dollars
(Note 2)
2006
2005
2004
2006
¥ 35,763
¥ 30,176
¥ 26,811
$ 305,667
30,825
28,642
27,662
263,462
42
—
(4,302)
757
—
(41,339)
29,254
3,962
150
493
1,201
(194)
(9,629)
(2,098)
(560)
7,079
(685)
1,411
(431)
15,936
51,699
918
614
(987)
366
140
—
1,956
1,715
264
1,483
—
—
(2,762)
(1,964)
934
(4,908)
2,423
2,114
(48)
30,900
61,076
479
41
359
—
(1,039)
(36,769)
2,413
0
—
5,016
7,235
411
(92)
—
494
(10,853)
4,105
891
10,976
6,015
(52)
174
53,876
80,687
6,470
—
(353,325)
250,034
33,863
1,282
4,214
10,265
(1,658)
(82,299)
(17,932)
(4,786)
60,504
(5,855)
12,060
(3,684)
136,205
441,872
6,830
1,867
1,894
58,376
(1,294)
(40,560)
161
1,981
(200)
251
(544)
(9,645)
(43,020)
(11,813)
318
(11,012)
(6,190)
(28)
(10,075)
3
477
(38,320)
(267)
(38,579)
221
4,343
(515)
(1,233)
(1,111)
(776)
(36,050)
(3,860)
1,924
(30,238)
(5,611)
(59)
(2,954)
19
95
(40,684)
(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)
(11,060)
(346,667)
1,376
16,932
(1,709)
2,145
(4,650)
(82,436)
(367,693)
(100,966)
2,718
(94,120)
(52,906)
(239)
(86,111)
26
4,077
(327,521)
1,307
1,218
(2,944)
11,171
(28,334)
(14,440)
15,140
(242,171)
80,619
95,059
79,919
689,051
¥ 52,285
¥ 80,619
¥ 95,059
$ 446,880
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OMRON CORPORATION ANNUAL REPORT 2006
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S
OMRON Corporation and Subsidiaries
1. Summary of Significant Accounting Policies
Nature of Operations
OMRON Corporation (the “Company”) is a multinational manu-
facturer of automation components, equipment and systems
with advanced computer, communications and control technolo-
gies. The Company conducts business in over 30 countries
around the world and strategically manages its worldwide oper-
ations through 5 regional management centers in Japan, North
America, Europe, Asia-Pacific and China. Products, classified by
type and market, are organized into five business segments and
one business development group, as described below.
Industrial Automation Business 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 servic-
es, such as those involving labor-saving automation, environ-
mental protection, safety improvement, and inspection-
automization solutions for highly developed production systems.
Electronic Components Business manufactures and sells
electric and electronic components found in such consumer
goods as home appliances 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 compo-
nents manufacturers throughout the world.
Sosial Systems Business encompasses the sale of card
authorization terminals mainly for the domestic markets.
Passing gates, automated ticket machines, electronic panels
and terminal displays for traffic information and monitoring pur-
poses are also supplied for the domestic market.
Healthcare Business 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 equip-
ment 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 informa-
tion 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 con-
form to 2006 classifications.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiaries (together the “Companies”).
All significant intercompany accounts and transactions have
been eliminated.
Investments in which the Companies have a 20% to 50%
interest (affiliates) are accounted for using the equity method.
Use of Estimates
The preparation of consolidated financial statements in conform-
ity 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 lia-
bilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with origi-
nal maturities of three months or less, including time deposits,
commercial paper, securities purchased with resale agreements
and money market instruments.
Allowance for Doubtful Receivables
An allowance for doubtful receivables is established in amounts
considered to be appropriate based primarily upon the
Companies’ past credit loss experience and an evaluation of
potential losses in the receivables outstanding.
Marketable Securities and Investments
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 compo-
nent of accumulated other comprehensive income, net of relat-
ed 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. The Companies principally consider
that an other-than-temporary impairment has occurred when the
decline in fair value below the carrying value continues for over
nine consecutive months. The Companies may also consider
other factors, including their ability and intent to hold the appli-
cable investment securities until maturity, and the severity of
the decline in fair value.
Other investments are stated at the lower of cost or estimat-
ed 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.
54
OMRON CORPORATION ANNUAL REPORT 2006
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 recognized intangible asset determined to have an indefinite
useful life is not to be amortized, but instead tested for impair-
ment 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
disposed of other than by sale are considered held and used until
disposed of. Assets to be disposed of by sale are reported at the
lower of the carrying amount or fair value less costs to sell.
Advertising Costs
Advertising costs are charged to earnings as incurred.
Advertising expense was ¥10,290 million ($ 87,949 thousand),
¥8,718 million and ¥8,391 million for the years ended March 31,
2006, 2005 and 2004, respectively.
Shipping and Handling Charges
Shipping and handling charges were ¥7,627 million ($ 65,188
thousand), ¥7,720 million and ¥8,061 million for the years ended
March 31, 2006, 2005 and 2004, respectively, and are included
in selling, general and administrative expenses in the consolidat-
ed statements of income.
Termination and Retirement Benefits
Termination and retirement benefits are accounted for in accor-
dance 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.
The Company and certain of its domestic subsidiaries previously
used December 31 as the measurement date for projected benefit
obligation and plan assets of the termination and retirement bene-
fits. During the year ended March 31, 2006, the companies have
changed the measurement date to March 31. The purpose of this
change is to enable more timely reflection of factors, such as the
effect of plan amendments and fluctuation of number of employ-
ees in accounting for the termination and retirement benefits, in
the projected benefit obligation and retirement benefit expense.
A cumulative effect (net of tax) of this change was recognized
in the consolidated statement of income for the year ended
March 31, 2006, which reduced net income for the period by
¥1,201 million ($ 10,265 thousand).
Income Taxes
Deferred income taxes reflect the tax consequences on future
years of differences between the tax bases of assets and liabili-
ties and their financial reporting amounts. Future tax benefits,
such as net operating loss carryforwards and tax credit carryfor-
wards, are recognized to the extent that such benefits are more
likely than not to be realized. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Product Warranties
A liability for the estimated warranty related cost is established at
the time revenue is recognized and is included in other current lia-
bilities. The liability is established using historical information includ-
ing 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 “for-
eign currency” hedge). The Companies formally document all rela-
tionships 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 deriva-
tives 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
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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.
Cash Dividends
Cash dividends are reflected in the consolidated financial state-
ments at proposed amounts in the year to which they are appli-
cable, 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 includ-
ed 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
Net Income as reported
Deduct:
Total stock-based employee compensation expense determined
under fair value based method for all awards
Pro forma net income
Net income per share (yen and U.S. dollars)
Basic-as reported
Basic-pro forma
Diluted-as reported
Diluted-pro forma
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, 2006, the Company had a stock-based employee
compensation plan, which is described more fully in Note 10. 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 and net income per share if the
Company had applied the fair value recognition provisions of
SFAS No. 123, to stock-based employee compensation.
Millions of yen
(except per share data)
2006
2005
2004
Thousands of
U.S. dollars
(except per
share data)
2006
¥ 35,763
¥ 30,176
¥ 26,811
$ 305,667
73
101
106
624
¥ 35,690
¥ 30,075
¥ 26,705
$ 305,043
¥ 151.1
¥ 126.5
¥ 110.7
$
150.8
151.1
150.7
126.1
124.8
124.3
110.2
107.5
107.1
1.29
1.29
1.29
1.29
New Accounting Standards
In May 2005, the FASB issued SFAS No.154 “Accounting Changes
and Error Corrections, a replacement of APB Opinion No.20 and
FASB Statement No.3.” SFAS No.154 replaces APB Opinion No.20,
“Accounting Changes” and SFAS No.3 “Reporting Accounting
Changes in Interim Financial Statements.” SFAS No.154 provides
guidance on the accounting for and reporting of accounting changes
and error corrections. SFAS No.154 establishes, unless impractica-
ble, retrospective application as the required method for reporting a
change in accounting principle and the reporting of a correction of an
error. SFAS No.154 will be effective for accounting changes and cor-
rections of errors made in fiscal year beginning after December 15,
2005. The Companies do not expect SFAS No.154 to have material
effect on the consolidated financial statements.
In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-
1, “The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments” (“FSP 115-1”). FSP 115-1
addresses the determination as to when an investment is considered
impaired, whether that impairment is other-than-temporary, and the
measurement of an impairment loss. FSP 115-1 also includes
accounting considerations subsequent to the recognition of an other-
than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-tempo-
rary impairments. FSP 115-1 will be applied to reporting periods begin-
ning after December 15, 2005. The Companies do not expect FSP
115-1 to have material effect on the consolidated financial statements.
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OMRON CORPORATION ANNUAL REPORT 2006
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 ¥117 to $1,
the approximate rate of exchange at March 31, 2006. Such trans-
lation 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. Marketable Securities and Investments
Millions of yen
Thousands of
U.S. dollars
2006
2005
2006
¥ 40,613
¥ 38,893
$ 347,120
14,286
20,059
10,882
18,810
122,103
171,444
¥ 74,958
¥ 68,585
$ 640,667
Available-for-sale securities are recorded at fair value, with unrealized gains and losses excluded from income and reported in other com-
prehensive income (loss), net of tax. Cost, gross unrealized holding gains and losses and fair value of securities, excluding equity securi-
ties with no readily determinable public market value, by major security type at March 31 were as follows:
Available-for-sale securities
Millions of yen
2006
2005
Cost (*)
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Cost (*)
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Debt securities
Equity securities
¥ 1,067
¥
413
22,302
33,770
Total available-for-sale-securities
¥ 23,369
¥ 34,183
¥ —
—
¥ —
¥ 1,480
¥ 1,064
¥
237
¥ —
¥ 1,301
56,072
24,600
19,584
(381)
43,803
¥ 57,552
¥ 25,664
¥ 19,821
¥ (381)
¥ 45,104
Thousands of U.S. dollars
2006
Cost (*)
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Debt securities
Equity securities
$
9,120
$
3,530
190,615
288,632
Total available-for-sale-securities
$ 199,735
$ 292,162
$ —
—
$ —
$ 12,650
479,247
$ 491,897
(*) Cost represents amortized cost for debt securities and acquisition cost for equity securities.
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Maturities of debt securities as available-for-sale at March 31 were as follows:
Millions of yen
Thousands of U.S. dollars
2006
2005
2006
Cost
Fair value
Cost
Fair value
Cost
Fair value
Due after one year through five years
¥ 1,067
¥ 1,480
¥ 1,064
¥ 1,301
$ 9,120
$ 12,650
Gross unrealized holding losses and fair value of certain available-for-sale, equity securities, aggregated by length of time that such securi-
ties have been in a continuous unrealized loss position at March 31 were as follows:
Millions of yen
Thousands of U.S. dollars
Less than 12 months
2006
2005
2006
Fair
value
¥ —
Gross
unrealized
holding
losses
¥ —
Fair
value
¥ 3,671
Gross
unrealized
holding
losses
¥ (381)
Fair
value
$ —
Gross
unrealized
holding
losses
$ —
Equity securities
There were no securities in unrealized loss position at March
31, 2006.
and ¥847 million for the years ended March 31, 2006, 2005 and
2004, respectively.
Aggregate cost of non-marketable equity securities accounted
for under the cost method totaled ¥4,925 million ($ 42,094 thou-
sand) and ¥4,660 million at March 31, 2006 and 2005, respective-
ly. Investments with an aggregate cost of ¥4,812 million ($
41,128 thousand) were not evaluated for impairment because (a)
the Companies did not estimate the fair value of those invest-
ments as it was not practicable to estimate the fair value of the
investment and (b) the Companies did not identify any events or
changes in circumstances that might have had significant adverse
effect on the fair value of those investments.
Net unrealized holding gains (losses) on available-for-sale secu-
rities, net of related taxes, increased by ¥8,762 million ($ 74,889
thousand) and by ¥822 million for the years ended March 31,
2006 and 2005, respectively.
Proceeds from sales of available-for-sale securities were ¥6,511
million ($ 55,650 thousand), ¥1,638 million and ¥1,833 million for
the years ended March 31, 2006, 2005 and 2004, respectively.
Gross realized gains on sales were ¥4,119 million ($ 35,205
thousand), ¥788 million and ¥1,120 million for the years ended
March 31, 2006, 2005 and 2004, respectively.
Losses on impairment of available-for-sale securities recog-
nized to reflect the decline in market value considered to be other
than temporary were ¥487 million ($ 4,162 thousand), ¥22 million
Gross realized losses on sales were ¥82 million for the year
ended March 31, 2004. There were no gross realized losses on
sales for the years ended March 31, 2006 and 2005.
5. Acquisition
In June 2005, OMRON Healthcare Co., Ltd., a subsidiary of the
Company, acquired 100% of the issued common stock of Colin
Medical Technology Corporation (“CMT”) for cash in an aggre-
gate amount of ¥8,943 million ($ 76,436 thousand).
This acquisition was to expand healthcare business, to obtain
synergies with CMT and to create preventive medicine market
through the acquisition of CMT’s medical devices business for
healthcare professionals. The consolidated financial statements
for the year ended March 31, 2006 include the operating results
of CMT from the date of acquisition. The estimated fair values of
the assets acquired and liabilities assumed at the date of acquisi-
tion were as follows:
Current assets
Property, plant and equipment
Investments and other assets (*)
Current liabilities
Long term liabilities
Net assets acquired
(*) Investments and other assets include acquired goodwill of ¥6,554 million ($ 56,017 thousand).
58
Millions of yen Thousands of
U.S. dollars
¥ 4,339
$ 37,085
996
6,747
(2,958)
(181)
8,513
57,667
(25,282)
(1,547)
¥ 8,943
$ 76,436
OMRON CORPORATION ANNUAL REPORT 2006
6. Goodwill and Other Intangible Assets
The components of acquired intangible assets excluding goodwill at March 31, 2006 and 2005 were as follows:
Intangible assets subject to amortization:
Software
Other
Total
Intangible assets subject to amortization:
Software
Other
Total
Millions of yen
2006
2005
Gross
amount
Accumulated
amortization
Gross
amount
Accumulated
amortization
¥ 31,031
3,583
¥ 34,614
¥ 19,414
2,408
¥ 21,822
¥ 27,535
4,113
¥ 31,648
¥ 16,150
3,277
¥ 19,427
Thousands of U.S. dollars
2006
Gross
amount
Accumulated
amortization
$ 265,222
$ 165,932
30,624
20,581
$ 295,846
$ 186,513
Intangible assets not subject to amortization at March 31, 2006
and 2005 were immaterial.
Aggregate amortization expense related to intangible assets
was ¥5,235 million ($ 44,744 thousand), ¥4,827 million and
¥4,625 million for the years ended March 31, 2006, 2005 and
2004, respectively.
Estimated amortization expense for the next five years ending March 31 is as follows:
Years ending March 31
2007
2008
2009
2010
2011
Millions of yen
Thousands of
U.S. dollars
¥ 4,301
$ 36,761
3,704
2,650
1,425
507
31,658
22,650
12,179
4,333
The carrying amount of goodwill at March 31, 2006 and changes in its carrying amount for the year ended March 31, 2006 were as fol-
lows:
Balance at April 1, 2005
Acquisition
Foreign currency translation adjustments
Balance at March 31, 2006
The changes in the carrying amount of goodwill for the year ended March 31, 2005 were immaterial.
Millions of yen
Thousands of
U.S. dollars
2006
¥ 1,314
7,633
38
$ 11,231
65,239
325
¥ 8,985
$ 76,795
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7. Bank Loans and Long-Term Debt
The weighted average annual interest rates of short-term bank loans at March 31, 2006 and 2005 were 3.7% and 1.0%, respectively.
Long-term debt at March 31 consisted of the following:
Unsecured debt:
Loans from banks and other financial institutions,
generally at 0.4% to 3.8% due on various dates through 2006
Other
Total
Less portion due within one year
Long-term debt, less current portion
The annual maturities of long-term debt outstanding at March 31, 2006 were as follows:
Years ending March 31
2007
2008
2009
2010
2011
Thereafter
Total
Millions of yen
Thousands of
U.S. dollars
2006
2005
2006
¥ —
1,345
1,345
296
¥ 1,049
¥ 10,779
1,556
12,335
10,503
¥ 1,832
$
—
11,496
11,496
2,530
$ 8,966
Millions of yen
Thousands of
U.S. dollars
¥
296
53
50
51
53
842
¥ 1,345
$ 2,530
453
427
436
453
7,197
$ 11,496
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 sub-
sidiaries 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, 2006, 2005 and 2004 amounted to ¥898 million
($ 7,675 thousand), ¥1,083 million and ¥1,217 million, respectively.
8. Leases
The Companies do not have any material capital lease agree-
ments.
The Companies have operating lease agreements primarily involv-
ing offices and equipment for varying periods. Leases that expire
generally are expected to be renewed or replaced by other leas-
es. At March 31, 2006, future minimum rental payments applica-
ble to non-cancelable leases having initial or remaining non-cance-
lable lease terms in excess of one year were as follows:
Years ending March 31
2007
2008
2009
2010
2011
Thereafter
Total
Millions of yen
Thousands of
U.S. dollars
¥ 2,612
2,243
1,672
1,468
1,598
11,485
¥ 21,078
$ 22,325
19,171
14,291
12,547
13,658
98,162
$ 180,154
Rental expense amounted to ¥11,862 million ($ 101,385 thousand), ¥11,151 million and ¥11,059 million for the years ended March 31,
2006, 2005 and 2004, respectively.
60
OMRON CORPORATION ANNUAL REPORT 2006
9. Termination and Retirement Benefits
The Company and its domestic subsidiaries sponsor termination
and retirement benefit plans which cover substantially all domes-
tic employees. Benefits were based on the employee’s years of
service, with some plans considering compensation and certain
other factors. The Company, effective from April 2004, and its
domestic subsidiaries, effective from April 2005, introduced an
amended plan to establish a new formula for determining pension
benefits including a "point-based benefits system," under which
benefits are calculated based on accumulated points allocated to
employees each year according to their job classification and per-
formance. If the termination is involuntary, the employee is usual-
ly entitled to greater payments than in the case of voluntary ter-
mination.
The Company and its domestic subsidiaries fund a portion of
the obligations under these plans. The general funding policy is to
contribute amounts computed in accordance with actuarial meth-
ods acceptable under Japanese tax law. The Company and sub-
stantially all domestic subsidiaries had a contributory termination
and retirement plan which was interrelated with the Japanese
government social welfare program and consisted of a substitu-
tional potion requiring employee and employer contributions plus
an additional portion established by the employers.
Periodic pension benefits required under the substitutional por-
tion were 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 were
usually paid in a lump sum at the earlier of termination or retire-
ment although periodic payments were 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 substi-
tutional 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 com-
pletion of the transfer to the government of the substitutional por-
tion of the benefit obligation and related plan assets as the culmi-
nation of a series of steps in a single settlement transaction.
Under the consensus reached, at the time the assets are trans-
ferred 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 ben-
efit 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.
The Company received the Japanese government’s approval of
exemption from the obligation for benefit related to future
employee service on April 26, 2004 and past employee service on
May 1, 2005 with respect to the substitutional portion of its termi-
nation and retirement benefit plans. The substitutional portion of
the benefit obligation and related plan assets were transferred to
the government on September 29, 2005. The transfer resulted in
the Company recording a subsidy from the government of
¥41,339 million ($ 353,325 thousand) representing the difference
between the accumulated benefit obligation of the substitutional
portion and the related plan assets. Additionally, the Company
recorded a reduction in net periodic benefit cost related to the
derecognition of previously accrued salary progression of ¥8,870
million ($ 75,812 thousand) and a settlement loss of ¥38,294 mil-
lion ($ 327,299 thousand). The net amount of derecognition of
previously accrued salary progression and settlement loss is allo-
cated to cost of sales of ¥15,975 million ($ 136,539 thousand),
selling, general and administrative expenses of ¥8,635 million ($
73,803 thousand) and research and development expenses of
¥4,814 million ($ 41,145 thousand).
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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:
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost, less employees’ contributions
Interest cost
Transfer of substitutional portion
Effect of change in measurement date
Plan amendments
Actuarial loss (gain)
Benefits paid
Settlement paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Transfer of substitutional portion
Effect of change in measurement date
Employers’ contributions
Benefits paid
Settlement paid
Fair value of plan assets at end of year
Funded status
Unrecognized net actuarial loss
Unrecognized prior service benefit
Net amount recognized
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
Millions of yen
Thousands of
U.S. dollars
2006
2005
2006
¥ 246,950
¥ 259,647
$ 2,110,684
3,979
3,926
(91,963)
2,424
(7,745)
2,594
(3,659)
(1,975)
5,822
5,022
—
—
(15,546)
(3,428)
(3,544)
(1,023)
34,009
33,556
(786,009)
20,718
(66,197)
22,171
(31,274)
(16,880)
¥ 154,531
¥ 246,950
$ 1,320,778
121,121
7,668
(41,753)
1,496
5,573
(2,843)
(1,975)
117,171
1,146
—
—
6,348
(3,544)
—
1,035,222
65,538
(356,863)
12,786
47,632
(24,299)
(16,880)
¥ 89,287
¥ 121,121
$ 763,136
(65,244)
62,151
(23,414)
(125,829)
107,487
(17,812)
(557,642)
531,205
(200,120)
¥ (26,507)
¥ (36,154)
$ (226,557)
¥ (62,672)
¥ (107,278)
$ (535,659)
36,165
71,124
309,102
¥ (26,507)
¥ (36,154)
$ (226,557)
¥ 151,959
¥ 228,399
$ 1,298,795
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:
Service cost, less employees’ contributions
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization
Settlement loss
Derecognition of previously accrued salary progression
Millions of yen
Thousands of
U.S. dollars
2006
2005
2004
2006
¥ 3,979
¥ 5,822
¥ 7,981
$ 34,009
3,926
(3,620)
2,336
38,294
(8,870)
5,022
(4,301)
2,565
—
—
4,968
(4,210)
3,530
—
—
33,556
(30,940)
19,966
327,299
(75,812)
Net periodic benefit cost
¥ 36,045
¥ 9,108
¥ 12,269
$ 308,078
62
OMRON CORPORATION ANNUAL REPORT 2006
The provisions of SFAS No. 87, “Employers’ Accounting for
Pensions,” require the recognition of an additional minimum
pension liability for each defined benefit plan to the extent that a
plan’s accumulated benefit obligation exceeds the fair value of
plan assets and accrued pension liabilities. The net change in
the minimum pension liability is reflected as other comprehen-
sive income, net of related tax effect. The unrecognized net
actuarial loss and the prior service benefit are being amortized
over 15 years.
Measurement Date
The Company and certain of its domestic subsidiaries previously
used December 31 as the measurement date for projected bene-
fit obligation and plan assets of the termination and retirement
benefits. During the year ended March 31, 2006, the companies
have changed the measurement date to March 31. The purpose
of this change is to enable more timely reflection of factors, such
as the effect of plan amendments and fluctuation of number of
employees in accounting for the termination and retirement bene-
fits, in the projected benefit obligation and retirement benefit
expense.
A cumulative effect (net of tax) of this change was recognized
in the consolidated statement of income for the year ended
March 31, 2006, which reduced net income for the period by
¥1,201 million ($ 10,265 thousand).
Assumptions
Weighted-average assumptions used to determine benefit obliga-
tions at March 31, 2006 and 2005 are as follows:
Discount rate
Compensation increase rate
2006
2.0%
2.0
2005
2.0%
2.0
Weighted-average assumptions used to determine net periodic benefit cost for the years ended March 31, 2006, 2005 and 2004 are as follows:
Discount rate
Compensation increase rate
Expected long-term rate of return on plan assets
2006
2.0%
2.0
3.0
2005
2.0%
2.0
3.0
2004
2.0%
2.0
3.0
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.
Plan assets
The Company’s pension plan weighted-average asset allocation by asset category is as follows:
Asset Category
Cash
Equity Securities
Debt Securities
Life insurance company general accounts
Other
Total
2006
0.1%
23.9%
46.1%
14.1%
15.8%
2005
20.0%
15.9%
42.4%
10.3%
11.4%
100.0%
100.0%
The Company investment policies are designed to ensure ade-
quate plan assets are available to provide future payments of pen-
sion benefits to eligible participants. Taking into account the expect-
ed 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.
Target allocation of plan assets is 20% of equity securities,
66% of debt securities and life insurance company general
account and 14% of other for both 2006 and 2005. The actual
asset allocation as of March 31, 2005 did not meet the target allo-
cation because the Companies held cash to be paid to the
Japanese government in connection with the transfer of the sub-
stitutional portion of the benefit obligation and related plan assets.
The Company evaluates the gap between expected return and
actual return of invested plan assets on an annual basis to deter-
mine if such differences necessitate a revision in the model port-
folio. The Company revises the model portfolio when and to the
extent considered 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 ¥11 million ($ 94 thousand) (0.01% of total domestic
plan assets), and ¥10 million (0.01% of total domestic plan
assets) at March 31, 2006, and December 31, 2004, respectively.
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OMRON CORPORATION ANNUAL REPORT 2006
Cash Flows
Contributions
The Companies expect to contribute ¥5,478 million ($ 46,821
thousand) to its domestic termination and retirement benefit
plans in the year ending March 31, 2007.
The Company expects to contribute certain available-for-sale
securities of ¥16,019 million ($ 136,915 thousand) to establish
an employee retirement benefit trust in the year ending March
31, 2007.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
Years ending March 31
2007
2008
2009
2010
2011
2012-2016
Millions of yen
Thousands of
U.S. dollars
¥ 4,531
$ 38,726
5,547
6,108
6,525
6,448
47,410
52,205
55,769
55,111
34,649
296,145
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 ¥2,812 million
($24,034 thousand) and ¥2,020 million ($ 17,265 thousand),
respectively, at March 31, 2006 and ¥1,979 million and ¥1,599
million, respectively, at March 31, 2005.
The Companies also have unfunded noncontributory termina-
tion plans administered by the Companies. These plans provide
lump-sum termination benefits and are paid at the earlier of the
employee’s termination or mandatory retirement age, except for
payments to directors and corporate auditors which require
approval by the shareholders before payment. The Companies
record provisions for termination benefits sufficient to state the
liability equal to the plans’ vested benefits, which exceed the
plans’ accumulated benefit obligations.
The aggregate liability for the termination plans excluding the
funded contributory termination and retirement plan in Japan, as
of March 31, 2006 and 2005 was ¥4,374 million ($ 37,384 thou-
sand) and ¥4,710 million, respectively. The aggregate net periodic
benefit cost for such plans for the years ended March 31, 2006,
2005 and 2004 was ¥618 million ($ 5,282 thousand), ¥1,241 mil-
lion and ¥1,688 million, respectively.
10. Shareholders’ Equity
Through May 1, 2006, Japanese companies are subject to the
Commercial Code of Japan (the “Code”).
The Code requires that all shares of common stock be issued
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 are required to be presented as additional
paid-in capital, which is included in capital surplus. The Code per-
mits Japanese companies, upon approval of the Board of
Directors, to issue shares to existing shareholders without con-
sideration by way of a stock split. Such issuance of shares gener-
ally does not give rise to changes within the shareholders’
accounts.
The Code also provides that an amount of 10% or more of the
aggregate amount of cash dividends and certain other appropria-
tions of retained earnings associated with cash outlays applicable
to each period (such as bonuses to directors) shall be appropriat-
ed as a legal reserve until the total of such reserve and additional
paid-in capital equals 25% of common stock. The amount of total
legal reserve and additional paid-in capital that exceeds 25% of
the common stock may be available for dividends by resolution of
the shareholders after transferring such excess in accordance
with the Code. In addition, the Code permits the transfer of a por-
tion of additional paid-in capital and legal reserve to the common
stock by resolution of the Board of Directors.
The Code allows Japanese companies to purchase treasury
stock and dispose of such treasury stock upon resolution of the
Board of Directors. The aggregate purchased amount of treasury
stock cannot exceed the amount available for future dividends
plus the amount of common stock, additional paid-in capital or
legal reserve that could be transferred to retained earnings or
other capital surplus other than additional paid-in capital upon
approval of such transfer at the annual general meeting of share-
holders.
In addition to the provision that requires an appropriation for a
legal reserve in connection with the cash outlays, the Code also
imposes certain limitations on the amount of capital surplus and
retained earnings available for dividends. The amount of capital
surplus and retained earnings available for dividends under the
Code was ¥53,795 million ($ 459,786 thousand) as of March 31,
2006, based on the amount recorded in the parent company’s
general books of account.
Dividends are approved by the shareholders at a meeting held
subsequent to the end of 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 limi-
tations imposed by the Code.
64
OMRON CORPORATION ANNUAL REPORT 2006
On May 1, 2006, a new corporate law (the “Corporate Law”)
became effective, which reformed and replaced the Code with
various revisions that would, for the most part, be applicable to
events or transactions which occur on or after May 1, 2006 and
for the fiscal years ending on or after May 1, 2006. The significant
changes in the Corporate Law that affect financial and accounting
matters are summarized below;
(a) Dividends
Under the Corporate Law, companies can pay dividends at any
time during the fiscal year in addition to the year-end dividend
upon resolution at the shareholders meeting. For companies that
meet certain criteria such as; (1) having the Board of Directors, (2)
having independent auditors, (3) having the Board of Corporate
Auditors, and (4) the term of service of the directors is prescribed
as one year rather than two years of normal term by its articles of
incorporation, the Board of Directors may declare dividends
(except for dividends in kind) if the company has prescribed so in
its articles of incorporation.
equity account charged upon the payment of such dividends until
the total of aggregate amount of legal reserve and additional paid-
in capital equals 25% of the common stock. Under the Code, the
aggregate amount of additional paid-in capital and legal reserve
that exceeds 25% of the common stock may be made available
for dividends by resolution of the shareholders. Under the
Corporate Law, the total amount of additional paid-in capital and
legal reserve may be reversed without limitation of such thresh-
old. The Corporate Law also provides that common stock, legal
reserve, additional paid-in capital, other capital surplus and
retained earnings can be transferred among the accounts under
certain conditions upon resolution of the shareholders.
(c) Treasury stock and treasury stock acquisition rights
The Corporate Law also provides for companies to purchase
treasury stock and dispose of such treasury stock by resolution of
the Board of Directors. The amount of treasury stock purchased
cannot exceed the amount available for distribution to the share-
holders which is determined by specific formula.
The Corporate Law permits companies to distribute dividends-
in-kind (non-cash assets) to shareholders subject to a certain limi-
tation and additional requirements.
Under the Corporate Law, stock acquisition rights, which were
previously presented as a liability, are now presented as a sepa-
rate component of shareholders’ equity.
Semiannual interim dividends may also be paid once a year
upon resolution by the Board of Directors if the articles of incor-
poration of the company so stipulate. Under the Code, certain lim-
itations were imposed on the amount of capital surplus and
retained earnings available for dividends. The Corporate Law also
provides certain limitations on the amounts available for dividends
or the purchase of treasury stock. The limitation is defined as the
amount available for distribution to the shareholders, but the
amount of net assets after dividends must be maintained at no
less than ¥3 million.
(b) Increases / decreases and transfer of common stock, reserve
and surplus
The Corporate Law requires that an amount equal to 10% of divi-
dends must be appropriated as a legal reserve or as additional
paid-in capital (a component of capital surplus) depending on the
The Corporate Law also provides that companies can purchase
both treasury stock acquisition rights and treasury stock. Such
treasury stock acquisition rights are presented as a separate com-
ponent of shareholders’ equity or deducted directly from stock
acquisition rights.
Stock Options
The Company has authorized the grant of options to purchase
common stock of the Company to certain directors and executive
officers of the Company under a fixed stock option plan.
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 2 years. A summary of the Company’s fixed stock option
plan activity and related information is as follows:
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OMRON CORPORATION ANNUAL REPORT 2006
Fixed options
Options outstanding at April 1, 2003
Granted
Exercised
Options outstanding at March 31, 2004
Granted
Exercised
Exercised
Expired
Options outstanding at March 31, 2005
Granted
Exercised
Exercised
Exercised
Expired
Options outstanding at March 31, 2006
Fixed options
Options outstanding at March 31, 2005
Granted
Exercised
Exercised
Exercised
Expired
Options outstanding at March 31, 2006
Options exercisable at March 31, 2004
Options exercisable at March 31, 2005
Options exercisable at March 31, 2006
Options exercisable at March 31, 2006
Yen
Shares
Weighted-average
exercise price
Weighted-average
fair value of options
granted during
the year
971,000
204,000
(86,000)
1,089,000
219,000
(46,000)
(5,000)
(11,000)
1,246,000
213,000
(95,000)
(117,000)
(14,000)
(260,000)
973,000
¥ 2,294
2,435
1,839
2,357
2,580
1,839
1,913
1,839
2,421
2,550
2,306
1,913
2,435
2,936
¥ 2,384
¥ 736
¥ 194
¥ 415
U.S. dollars
Shares
Weighted-average
exercise price
1,246,000
213,000
(95,000)
(117,000)
(14,000)
(260,000)
973,000
$ 20.69
21.79
19.71
16.35
20.81
25.09
$ 20.38
Shares
609,000
823,000
541,000
Weighted-average
fair value of options
granted during
the year
$ 3.55
Yen
Weighted-average
exercise price
¥ 2,531
¥ 2,376
¥ 2,239
U.S. dollars
Shares
Weighted-average
exercise price
541,000
$ 19.14
The following summarizes information about fixed stock options at March 31, 2006:
Options outstanding
Options exercisable
Yen
Range of
exercise prices
¥ 2,306
1,913
2,435
2,580
2,550
¥1,913 to ¥2,580
Shares
197,000
154,000
190,000
219,000
213,000
973,000
Weighted-average
remaining
contractual life
0.25 years
1.25 years
2.25 years
3.25 years
4.25 years
2.35 years
Yen
Weighted-average
exercise price
¥ 2,306
1,913
2,435
2,580
2,550
¥ 2,384
Shares
197,000
154,000
190,000
—
—
541,000
Yen
Weighted-average
exercise price
¥ 2,306
1,913
2,435
—
—
¥ 2,239
66
OMRON CORPORATION ANNUAL REPORT 2006
Options outstanding
Options exercisable
U.S. dollars
Range of
exercise prices
$ 19.71
16.35
20.81
22.05
21.79
$16.35 to $22.05
Shares
197,000
154,000
190,000
219,000
213,000
973,000
Weighted-average
remaining
contractual life
0.25 years
1.25 years
2.25 years
3.25 years
4.25 years
2.35 years
U.S. dollars
Weighted-average
exercise price
$ 19.71
16.35
20.81
22.05
21.79
$ 20.38
Shares
197,000
154,000
190,000
—
—
U.S. dollars
Weighted-average
exercise price
$ 19.71
16.35
20.81
—
—
541,000
$ 19.14
The fair value of each option grant was estimated as of the grant date using the Black-Scholes option-pricing model with the following
assumptions:
Risk-free interest rate
Volatility
Dividend yield
Expected life
2006
1.540%
23.0%
0.982%
2005
0.628%
10.0%
0.783%
2004
0.738%
45.0%
0.857%
3.5 years
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 transfer-
able. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price
volatility. It is management’s opinion that the Company’s stock
options have characteristics significantly different from those of
traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, the
existing models do not necessarily provide a reliable single meas-
ure of the fair value of its stock options.
11. Other Expenses (Income), net
Other expenses (income), net for the years ended March 31, 2006, 2005 and 2004 consisted of the following:
Business restructuring expenses
Equity in loss (earnings) of affiliates
Loss on impairment of investment securities and other assets
Net gain on sales of investment securities
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 business entities
Other, net
Total
2006
¥
749
493
757
(4,302)
42
—
(194)
(466)
Millions of yen
2005
¥ 1,767
1,483
366
(987)
918
614
—
(457)
¥
2004
—
(92)
2,413
(1,039)
479
41
494
(448)
Thousands of
U.S. dollars
2006
$ 6,402
4,214
6,470
(36,769)
359
—
(1,658)
(3,984)
¥ (2,921)
¥ 3,704
¥ 1,848
$ (24,966)
Certain land and buildings, principally idle assets in 2005, and dormitories in 2004, were deemed to be impaired and written down to fair value.
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OMRON CORPORATION ANNUAL REPORT 2006
12. Income Taxes
The provision for income taxes for the years ended March 31, 2006, 2005 and 2004 consisted of the following:
Millions of yen
Thousands of
U.S. dollars
2006
2005
2004
2006
Current income tax expense
Deferred income tax expenses, exclusive of the following
Change in the valuation allowance
Adjustments of deferred tax assets and liabilities
for enacted changes in tax rates
¥ 23,276
3,947
15
—
¥ 20,393
¥ 13,527
$ 198,932
2,160
(445)
7,135
(27)
33,735
136
—
127
—
Total
¥ 27,238
¥ 22,108
¥ 20,762
$ 232,803
The Company and its domestic subsidiaries are subject to a num-
ber of taxes based on income, which in the aggregate resulted in
a normal tax rate of approximately 41.0% in 2006 and 2005, and
42.0% in 2004.
An amendment to Japanese tax regulations was enacted into
law on March 31, 2003. As a result of this amendment, the nor-
mal 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, 2004 were measured at appropriate tax rates consider-
ing 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 for the year ended March 31, 2004.
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:
Permanently non-deductible items
Tax credit for research and development expenses
Losses of subsidiaries for which no tax benefit was provided
Difference in subsidiaries’ tax rates
Change in the valuation allowance
Effects of enacted change in tax rates
Other, net
Effective tax rates
2006
41.0%
2005
41.0%
2004
42.0%
0.9
(3.5)
0.4
3.2
0.0
—
0.3
42.3
3.0
(3.4)
1.5
(0.9)
0.9
—
0.0
42.1
1.0
—
1.0
(0.6)
(0.1)
0.3
(0.3)
43.3
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OMRON CORPORATION ANNUAL REPORT 2006
The approximate effect of temporary differences and tax credit and loss carryforwards that gave rise to deferred tax balances at March
31, 2006 and 2005 were as follows:
Inventory valuation
Accrued bonuses and vacations
Termination and retirement benefits
Enterprise taxes
Intercompany profits
Marketable securities
Property, plant and equipment
Allowance for doubtful receivables
Minimum pension liability adjustment
Other temporary differences
Tax credit carryforwards
Operating loss carryforwards
Subtotal
Valuation allowance
Total
Inventory valuation
Accrued bonuses and vacations
Termination and retirement benefits
Enterprise taxes
Intercompany profits
Marketable securities
Property, plant and equipment
Allowance for doubtful receivables
Minimum pension liability adjustment
Other temporary differences
Tax credit carryforwards
Operating loss carryforwards
Subtotal
Valuation allowance
Total
Millions of yen
2006
2005
Deferred
tax assets
Deferred
tax liabilities
Deferred
tax assets
Deferred
tax liabilities
¥ 3,418
¥
5,165
11,534
1,292
3,293
—
808
814
14,827
9,998
4,536
3,089
—
—
—
—
—
13,998
—
19
—
3,869
—
—
¥ 2,735
¥
5,206
9,493
1,329
2,790
—
1,410
3,005
29,161
12,267
4,411
4,714
—
—
—
—
—
7,954
—
42
—
3,814
—
—
¥ 58,774
¥ 17,886
¥ 76,521
¥ 11,810
(7,203)
—
(7,268)
—
¥ 51,571
¥ 17,886
¥ 69,253
¥ 11,810
Thousands of U.S. dollars
2006
Deferred
tax assets
Deferred
tax liabilities
$ 29,214
$
44,145
98,581
11,043
28,145
—
6,906
6,957
126,726
85,453
38,769
26,402
—
—
—
—
—
119,641
—
162
—
33,068
—
—
$ 502,341
$ 152,871
(61,564)
—
$ 440,777
$ 152,871
The total valuation allowance decreased by ¥65 million ($ 555
thousand) in 2006 and increased by ¥150 million in 2005.
As of March 31, 2006, certain subsidiaries had operating loss
carryforwards approximating ¥7,837 million ($ 66,983 thousand)
available for reduction of future taxable income, the majority of
which expire by 2013.
The Company has not provided for Japanese income taxes on
unremitted earnings of certain foreign subsidiaries to the extent
that they are believed to be indefinitely reinvested. The unremit-
ted earnings of the foreign subsidiaries which are considered to
be indefinitely reinvested and for which Japanese income taxes
have not been provided were ¥55,311 million ($ 472,744 thou-
sand) and ¥54,813 million at March 31, 2006 and 2005, respec-
tively. Dividends received from domestic subsidiaries are expect-
ed to be substantially free of tax.
69
OMRON CORPORATION ANNUAL REPORT 2006
13. Foreign Operations
Net sales and total assets of foreign subsidiaries for the years ended March 31, 2006, 2005 and 2004 were as follows:
Net sales
Total assets
14. Per Share Data
Millions of yen
Thousands of
U.S. dollars
2006
2005
2004
2006
¥ 256,116
¥ 209,038
¥ 220,961
¥ 178,038
¥ 208,540
¥ 162,630
$ 2,189,026
$ 1,786,650
The Company accounts for its net income per share in accor-
dance with SFAS No. 128, "Earnings per Share.” Basic net
income per share has been computed by dividing net income
available to common shareholders by the weighted-average num-
ber of common shares outstanding during each year. Diluted net
income per share reflects the potential dilution of convertible
bonds and stock options, and has been computed by the if-con-
verted method for convertible bonds and by the treasury stock
method for stock options.
A reconciliation of the numerators and denominators of the basic and diluted net income per share computations is as follows:
Millions of yen
Thousands of
U.S. dollars
2006
2005
2004
2006
Income before cumulative effect of accounting change
¥ 36,964
¥ 30,176
¥ 26,811
$ 315,932
Effect of dilutive securities:
Convertible bonds, due September 2004
—
165
327
—
Diluted income before cumulative effect of accounting change
¥ 36,964
¥ 30,341
¥ 27,138
$ 315,932
Net income
Effect of dilutive securities:
Millions of yen
Thousands of
U.S. dollars
2006
2005
2004
2006
¥ 35,763
¥ 30,176
¥ 26,811
$ 305,667
Convertible bonds, due September 2004
Diluted income
—
165
327
—
¥ 35,763
¥ 30,341
¥ 27,138
$ 305,667
Weighted average common shares outstanding
236,625,818
238,505,304
242,296,332
Dilutive effect of:
Convertible bonds, due September 2004
Stock options
Diluted common shares outstanding
—
4,623,997
10,026,639
131,711
76,574
53,053
236,757,529
243,205,875
252,376,024
Number of shares
2006
2005
2004
70
OMRON CORPORATION ANNUAL REPORT 2006
15. Supplemental Information for Cash Flows
Supplemental cash flow information for the years ended March 31, 2006, 2005 and 2004 was as follows:
Interest paid
Income taxes paid
Non-cash investing and financing activities:
Liabilities assumed in connection with capital expenditures
Stock issued due to convertible bonds
Transfer of assets and liabilities to joint venture
16. Other Comprehensive Income (Loss)
Millions of yen
2006
2005
¥
898
23,843
¥ 1,098
17,815
2004
¥ 1,217
7,508
Thousands of
U.S. dollars
2006
$
7,675
203,786
3,220
—
—
2,671
38
16,270
3,848
27,521
—
—
—
—
The change in each component of accumulated other comprehensive income (loss) for the years ended March 31, 2006, 2005 and 2004
was as follows:
Foreign currency translation adjustments:
Beginning balance
Change for the year
Ending balance
Minimum pension liability adjustments:
Beginning balance
Change for the year
Ending balance
Unrealized gains (losses) on available-for-sale securities:
Beginning balance
Change for the year
Ending balance
Net gains (losses) on derivative instruments:
Beginning balance
Change for the year
Ending balance
Total accumulated other comprehensive loss:
Beginning balance
Change for the year
Ending balance
Millions of yen
Thousands of
U.S. dollars
2006
2005
2004
2006
¥ (10,554)
¥ (15,625)
¥ (9,407)
$ (90,205)
9,201
(1,353)
(41,123)
19,940
(21,183)
10,909
8,762
19,671
(241)
135
(106)
5,071
(10,554)
(45,238)
4,115
(41,123)
10,087
822
10,909
217
(458)
(241)
(6,218)
(15,625)
(48,708)
3,470
(45,238)
(1,716)
11,803
10,087
(78)
295
217
78,641
(11,564)
(351,478)
170,427
(181,051)
93,239
74,889
168,128
(2,060)
1,154
(906)
(41,009)
38,038
(50,559)
9,550
(59,909)
9,350
(350,504)
325,111
¥ (2,971)
¥ (41,009)
¥ (50,559)
$ (25,393)
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OMRON CORPORATION ANNUAL REPORT 2006
Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended
March 31, 2006, 2005 and 2004 were as follows:
Millions of yen
2006
Tax
(expense)
benefit
Before-tax
amount
Net-of-tax
amount
Before-tax
amount
2005
Tax
(expense)
benefit
Net-of-tax
amount
Before-tax
amount
2004
Tax
(expense)
benefit
Net-of-tax
amount
Foreign currency translation adjustments:
Foreign currency translation
adjustments arising during the year
¥ 9,458
¥
(257)
¥ 9,201
¥ 5,437
¥
(366)
¥ 5,071
¥ (6,875)
¥
195
¥ (6,680)
Reclassification adjustment
for the portion realized in net income
—
—
—
—
—
—
462
—
462
Net change in foreign currency
translation adjustments during the year
Minimum pension liability adjustments
Unrealized gains (losses)
on available-for-sale securities:
Unrealized holding gains
arising during the year
Reclassification adjustment for losses
on impairment realized in net income
Reclassification adjustment for net gains
on sales realized in net income
Net unrealized gains
Net gains (losses) on derivative instruments:
Net gains (losses) on derivative
instruments designated as cash flow
hedges during the year
Reclassification adjustment for net
losses (gains) realized in net income
Net gains (losses) on derivative instruments
Other comprehensive income
9,458
33,797
(257)
(13,857)
9,201
19,940
5,437
6,974
(366)
(2,859)
5,071
4,115
(6,413)
5,880
195
(2,410)
(6,218)
3,470
18,469
(7,564)
10,905
2,159
(885)
1,274
20,196
(8,280)
11,916
487
(200)
287
22
(9)
13
847
(347)
500
(4,119)
14,837
1,689
(6,075)
(2,430)
8,762
(788)
1,393
323
(571)
(465)
822
(1,038)
20,005
425
(8,202)
(613)
11,803
(2,173)
891
(1,282)
(1,702)
698
(1,004)
1,095
(456)
639
2,400
227
¥ 58,319
(983)
(92)
¥ (20,281)
1,417
135
¥ 38,038
929
(773)
¥ 13,031
(383)
315
¥ (3,481)
546
(458)
¥ 9,550
(592)
503
¥ 19,975
248
(208)
¥ (10,625)
(344)
295
¥ 9,350
Foreign currency translation adjustments:
Foreign currency translation adjustments arising during the year
Reclassification adjustment for the portion realized in net income
Net change in foreign currency translation adjustments during the year
Minimum pension liability adjustments
Unrealized gains (losses) on available-for-sale securities:
Thousands of U.S. dollars
2006
Before-tax
amount
Tax (expense)
benefit
Net-of-tax
amount
$ 80,838
—
80,838
288,863
$
(2,197)
—
(2,197)
(118,436)
$ 78,641
—
78,641
170,427
Unrealized holding gains arising during the year
Reclassification adjustment for losses on impairment realized in net income
Reclassification adjustment for net gains on sales realized in net income
Net unrealized gains
157,855
4,162
(35,205)
126,812
(64,650)
(1,709)
14,436
(51,923)
93,205
2,453
(20,769)
74,889
Net gains (losses) on derivative instruments:
Net gains (losses) on derivative instruments designated
as cash flow hedges during the year
Reclassification adjustment for net losses (gains) realized in net income
Net gains (losses) on derivative instruments
Other comprehensive income
(18,573)
20,513
1,940
$ 498,453
7,616
(8,402)
(786)
$ (173,343)
(10,957)
12,111
1,154
$ 325,111
72
OMRON CORPORATION ANNUAL REPORT 2006
17. Financial Instruments and Risk Management
Financial Instruments
The following table presents the carrying amounts and estimated fair values as of March 31, 2006 and 2005, of the Companies’ financial
instruments.
Millions of yen
2006
2005
Carrying amount
Fair value
Carrying amount
Fair value
Nonderivatives:
Long-term debt, including current portion
¥ (1,345)
¥ (1,345)
¥ (12,335)
¥ (12,356)
Derivatives:
Included in Other current assets (liabilities):
Forward exchange contracts
Foreign currency options
(751)
36
(751)
36
(402)
51
(402)
51
Thousands of U.S. dollars
2006
Carrying amount
Fair value
Nonderivatives:
Long-term debt, including current portion
$ (11,496)
$ (11,496)
Derivatives:
Included in Other current assets (liabilities):
Forward exchange contracts
Foreign currency options
(6,419)
308
(6,419)
308
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) Investment securities (see Note 4):
The fair values are estimated based on quoted market prices
or dealer quotes for marketable securities or similar instru-
ments. Certain equity securities included in investments have
no readily determinable public market value, and it is not prac-
ticable to estimate their fair values.
(3) Long-term debt:
The fair values are estimated using present value of discount-
ed future cash flow analysis, based on the Companies’ current
incremental issuing rates for similar types of arrangements.
Derivatives
The fair value of derivatives generally reflects the estimated
amounts that the Companies would receive or pay to terminate
the contracts at the reporting date, thereby taking into account
the current unrealized gains or losses of open contracts. Dealer
quotes are available for most of the Companies’ derivatives; oth-
erwise, 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 accu-
mulated other comprehensive income (loss) in relation to foreign
exchange forward contracts at March 31, 2006 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 desig-
nated as cash flow hedges and reported in accumulated other
comprehensive income (loss), net of the related tax effect, are
losses of ¥1,282 million ($ 10,958 thousand ) and ¥1,004 million
for the years ended March 31, 2006 and 2005, respectively. The
amounts, which were reclassified out of accumulated other com-
prehensive income (loss) into Foreign exchange loss, net depend-
ing on their nature, net of the related tax effect, are net gains of
¥1,417 million ($ 12,111 thousand ) and net gains of ¥546 million
for the years ended March 31, 2006 and 2005, respectively. The
amount of the hedging ineffectiveness is not material for the
years ended March 31, 2006 and 2005.
Foreign exchange forward contracts and foreign currency
options:
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OMRON CORPORATION ANNUAL REPORT 2006
The Companies enter into foreign exchange forward contracts
and combined purchased and written foreign currency option con-
tracts 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 deriva-
tives are typically less than 10 months. The credit exposure of for-
eign exchange contracts are represented by the fair value of the
contracts at the reporting date. Management considers the expo-
sure to credit risk to be minimal since the counterparties are
major financial institutions.
The notional amounts of contracts to exchange foreign currency outstanding at March 31, 2006 and 2005 were as follows:
Forward exchange contracts
Foreign currency options
Millions of yen
2006
¥ 43,521
¥ 2,100
2005
¥ 37,680
¥ 2,000
Thousands of
U.S. dollars
2006
$ 371,974
$ 17,949
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
income. 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 income.
18. Related Party Transaction
The Company had an operating lease agreement for its Kyoto
head office, including land and a building, with a private company
owned by the family of the Company’s founder, which includes
the Company’s chairman and representative director, a director,
and certain managing officers. This lease agreement had an initial
non-cancelable lease term to 2020 and required a monthly rental
payment of ¥106 million ($ 906 thousand) and a security deposit
of ¥2,600 million ($ 22,222 thousand) which is refundable when
the agreement expires. However, the agreement with the private
company was dissolved in March 2006, because the Kyoto head
office was sold to an unrelated third party. During the years
ended March 31, 2006, 2005 and 2004, the Company paid ¥1,166
million ($ 9,966 thousand), ¥1,272 million and ¥1,272 million,
respectively, in rental expense and the security deposit to the pri-
vate company at March 31, 2005 was ¥2,600 million, which was
transferred to the third party at March 31, 2006.
19. Commitments and Contingent Liabilities
The Company has commitments at March 31, 2006 of approxi-
mately ¥714 million ($ 6,103 thousand) related to contracts for
construction of a new building in Kusatsu city.
The Company has commitments at March 31, 2006 of approxi-
mately ¥9,109 million ($ 77,854 thousand) related to contracts for
outsourcing computer services through 2008. The contracts
require an annual service fee of ¥4,591 million ($ 39,239 thou-
sand) for the year ending March 31, 2007. The annual service fee
will gradually decrease each year during the contract term to
¥4,518 million ($ 38,615 thousand) for 2008. The contract is can-
celable at any time subject to a penalty of 15% of aggregate serv-
ice fees payable for the remaining term of the contract.
The Company and certain of its subsidiaries are defendants in
several pending lawsuits. However, based upon the information
currently available to both the Company and its legal counsel,
management of the Company believes that damages from such
lawsuits, if any, would not have a material effect on the consoli-
dated 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
institutions. Concentrations of credit risk with respect to trade
receivables, as approximately 75% of total sales are concentrated
in Japan, are limited due to the large number of well-established
customers and their dispersion across many industries. The
Company normally requires customers to deposit funds to serve
as security for ongoing credit sales.
Guarantees
The Company provides guarantees for bank loans of other com-
panies. The guarantees for the other companies are made to
ensure that those companies operate with less finance costs.
The maximum payments in the event of default is ¥1,188 million
($ 10,154 thousand) at March 31, 2006. The carrying amounts of
74
OMRON CORPORATION ANNUAL REPORT 2006
the liabilities recognized under those guarantees at March 31,
2006 were immaterial.
Bank loans of ¥679 million ($ 5,803 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 years ended March 31,
2006 and 2005 are summarized as follows:
Balance at beginning of year
Addition
Utilization
Balance at end of year
20. Subsequent Events
Millions of yen
Thousands of
U.S. dollars
2006
2005
2006
¥ 2,309
¥ 3,153
$ 19,735
1,586
(2,217)
2,683
(3,527)
13,556
(18,949)
¥ 1,678
¥ 2,309
$ 14,342
(1) On April 26, 2006, the Company’s board of directors approved a
resolution to establish an employee retirement benefit trust, and
the Company made the contribution on April 28, 2006 of certain
available-for-sale securities owned by the Company. As a result,
in the year ending March 31, 2007, the Company will record a
gain of ¥10,141 million ($ 86,675 thousand) from the contribu-
tion of securities to the employee retirement benefit trust.
(2) On April 26, 2006, the Company’s board of directors approved
a resolution to sell the land and building making up its Tokyo
head office (Minato-ku, Tokyo). As a result of the sale, the
Company will record a loss of approximately ¥5,930 million ($
50,684 thousand) in the year ending March 31, 2007.
(3) On May 12, 2006, the Company’s board of directors approved
a resolution, which is subject to approval at the general meet-
ing of shareholders, outlining a plan to purchase the Company’s
shares. The execution of the plan is at the Company’s discre-
tion with a maximum aggregate purchase of ¥15,000 million ($
128,205 thousand), or 4,200,000 shares, for the period up to
the date of the June 2007 general meeting of shareholders.
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Deloitte Touche Tohmatsu
Nakanoshima Central Tower
2-2-7, Nakanoshima, Kita-ku
Osaka-shi, Osaka 530-0005
Japan
Tel: +81 6 4560 6000
Fax: +81 6 4560 6001
www.deloitte.com/jp
I n d e p e n d e n t A u d i t o r s ’ R e p o r t
To the Board of Directors and Shareholders of OMRON Corporation
We have audited the accompanying consolidated balance sheets of OMRON Corporation and subsidiaries (the “Companies”)
as of March 31, 2006 and 2005, and the related consolidated statements of income, comprehensive income (loss), sharehold-
ers’ equity, and cash flows for each of the three years in the period ended March 31, 2006, all expressed in Japanese yen.
These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
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 finan-
cial statements referred to above present fairly, in all material respects, the financial position of OMRON Corporation and sub-
sidiaries as of March 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in
the period ended March 31, 2006 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Notes 1 and 9 to the consolidated financial statements, the Company and certain of its domestic subsidiaries
changed the measurement date for projected benefit obligation and plan assets of the termination and retirement benefits.
As discussed in Note 20 to the consolidated financial statements, on April 26, 2006, the Company’s board of directors
approved a resolution to establish an employee retirement benefit trust, and the Company made the contribution on April 28,
2006 of certain available-for-sale securities owned by the Company.
As discussed in Note 20 to the consolidated financial statements, on April 26, 2006, the Company’s board of directors
approved a resolution to sell the land and building making up its Tokyo head office.
Our audits also comprehended the translation of Japanese yen amounts into United States dollar amounts and, in our opin-
ion, such translation has been made in conformity with the basis stated in Note 2 to the consolidated financial statements.
Such United States dollar amounts are presented solely for the convenience of readers outside Japan.
Osaka, Japan
June 9, 2006
76
OMRON CORPORATION ANNUAL REPORT 2006
G L O B A L A N D D O M E S T I C N E T W O R K
Europe
Subsidiaries: 36
Greater China
Subsidiaries: 25
1
Affiliates:
Japan
Subsidiaries: 42
13
Affiliates:
Asia-Pacific
Subsidiaries: 18
3
Affiliates:
North and South
America
Subsidiaries: 23
Regional Headquarters
Headquarters
Japan
Kyoto Head Office
North and South America
OMRON Management Center of America, Inc. (Chicago)
Tel: 81-75-344-7000 Fax: 81-75-344-7001
Tel: 1-847-884-0322 Fax: 1-847-884-1866
Tokyo Head Office
Tel: 81-3-3436-7170 Fax: 81-3-3436-7180
Europe
OMRON Europe B.V. (The Netherlands)
Tel: 31-23-568-1300 Fax: 31-23-568-1388
Asia-Pacific
OMRON Asia Pacific Pte. Ltd. (Singapore)
Tel: 65-835-3011 Fax: 65-835-2711
Greater China
OMRON (China) Co., Ltd. (Shanghai)
Tel: 86-21-6841-2588 Fax: 86-21-6841-2788
Major Domestic Manufacturing, Marketing, and Research & Development Locations
Manufacturing
Mishima Systems Factory
Marketing
Osaki Office
Research & Development
Keihanna Technology Innovation Center
Tel: 81-55-977-9000 Fax: 81-55-977-9080
Tel: 81-3-5435-2000 Fax: 81-3-5435-2030
Tel: 81-774-74-2000 Fax: 81-774-74-2001
Kusatsu Plant
Nagoya Office
Komaki Automotive Electronics Office
Tel: 81-77-563-2181 Fax: 81-77-565-5588
Tel: 81-52-571-6461 Fax: 81-52-565-1910
Tel:81-568-78-6160 Fax: 81-568-78-6188
Ayabe Office
Osaka Office
Okayama Office
Tel: 81-773-42-6611 Fax: 81-773-43-0661
Tel: 81-6-6347-5800 Fax: 81-6-6347-5900
Tel: 81-86-277-6111 Fax: 81-86-276-6013
Minakuchi Factory
Fukuoka Office
Tel: 81-748-62-6851 Fax: 81-748-62-6854
Tel: 81-92-414-3200 Fax: 81-92-414-3201
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77
OMRON CORPORATION ANNUAL REPORT 2006
C O R P O R AT E A N D S T O C K I N F O R M AT I O N
As of March 31, 2006
Date of Establishment
May 10, 1933
Industrial Property Rights
Number of patents:
2,455 (Japan)
2,083 (Overseas)
Number of patents pending:
4,150 (Japan)
2,125 (Overseas)
Common Stock
Authorized: 487,000,000 shares
Issued: 249,121,372 shares
Number of shareholders: 28,111
Stock Listings
Osaka Securities Exchange
Tokyo Stock Exchange
Nagoya Stock Exchange
Frankfurt Stock Exchange
Number of Employees (Consolidated)
27,408
Ticker Symbol Number
6645
Paid-in Capital
¥64,100 million
Custodian of Register of Shareholders
Mitsubishi UFJ Trust and Banking
Corporation
1-4-5, Marunouchi, Chiyoda-ku,
Tokyo 100-8212, Japan
Common Stock Price Range/ Trading Volume (Osaka Securities Exchange)
Depositary and Transfer Agent for
American Depositary Receipts
JPMorgan Chase Bank, N. A.
4 New York Plaza, New York,
NY 10004, U. S. A.
ADR Holder Contact:
JPMorgan Service Center
P. O. Box 3408
South Hackensack, NJ 07606-3408
TEL : 1-800-990-1135
FAX : 1-201-680-4604
General E-mail : adr@jpmorgan.com
Homepage
http://www.omron.co.jp (Japanese)
http://www.omron.com (English)
Ownership and
Distribution of shares
（％）
100
21.0%
21.5%
20.9%
30.9%
34.4%
39.7%
4.5%
0.5%
43.1%
4.3%
1.0%
38.9%
4.1%
0.9%
34.5%
80
60
40
20
0
(Yen)
40,000
30,000
20,000
10,000
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
’03
’04
’05
(FY)
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
Price range of common stock [left axis]
Adjusted average for Nikkei 225 stocks [right axis]
Financial Institutions
Securities Firms
Other Corporations
Foreign Institutions and
Individuals
Individuals and Others
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
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
Trading volume
Yearly High and Low Prices
FY1996
FY1997
FY1998
FY1999
FY2000
FY2001
FY2002
FY2003
FY2004
FY2005
High
Low
¥ 2,380
¥ 2,810
¥ 2,220
¥ 3,360
¥ 3,180
¥ 2,515
¥ 2,080
¥ 2,740
¥ 2,880
¥ 3,520
1,720
1,790
1,070
1,501
1,745
1,395
1,341
1,658
2,220
2,230
* Closing price of Osaka Securities Exchange
78
(Yen)
4,000
3,000
2,000
1,000
0
(Shares)
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
OMRON CORPORATION ANNUAL REPORT 2006
C O M PA S S D E T E R M I N I N G T H E D I R E C T I O N O F O M R O N ’ S M A N A G E M E N T
— S I N I C T H E O R Y
According to Omron’s SINIC theory, science, technology and society have a cyclical relationship, in which each area impacts and influences the others in two
directions. In one direction, scientific breakthroughs yield new technologies that stimulate society to advance. In the other direction, the needs of society
motivate technological developments and expectations for new scientific advancement. Both of these directions affect each other in a cyclical manner,
encouraging society to evolve.
SINIC DIAGRAM
Seed-Innovation to Need-Impetus Cyclic Evolution
A g r i cultura Society
c i e t y
o
S
Colle ctiv e
i o n a l
h n i c s
r
T
d i t
c
e
a
T
Handicraft
Technics
Handicraft
S
o
cie
t
y
Seed
Technology
Innovation
Impetus
Need
Progress-
oriented
motivation
Science
Society
Ancient
Science
a r y
Prim
S cie n c
e
ciety
o
S
e
itiv
m
i
r
P
Primitive
Technics
imitive
eligio
r
P
R
n
I
n
d
u
T
e
c
s
t
r
i
a
l
i
z
h
n
i
e
s
c
s
d
t
S
r
o
i
a
c
l
i
i
e
z
t
a
y
t
I
n
I
n
d
u
d
s
u
t
r
i
a
l
S
o
c
i
e
t
y
i
o
n
Renaiss
Scie
n
c
e
a
n
c
e
M
S
c
o
i
d
e
n
e
r
c
e
n
C
o
n
t
r
o
l
S
c
i
e
n
c
e
Seed
Innovation
Need
Impetus
Cyclic Evolution
ciety
o
S
al
r
u
t
a
N
s
u
o
m
o
n
ciety
o
S
Auto
ic
g
o
l
o
h
c
y
s
p
-
a
t
e
M
i
s
c
n
h
c
e
T
s
c
i
t
e
n
o
h
c
y
s
Meta-P
T
e
c
h
n
c
s
i
M
o
d
e
r
n
M
e
c
S
h
o
a
c
n
i
e
i
z
t
y
a
t
i
o
n
A
u
t
o
m
T
a
e
c
ti
c
h
C
n
i
c
s
o
n
tr
ol
C
y
b
ern
etics
A
S
m
uto
o
ciety
ation
pti m ization
S o ciety
O
Cybernatio n
Society
ElectronicControl
Technics
n tr o l
s
o
C
n i c
B i o l o g i c
T e c h
Bionetics
Psycho-Biologic
Technics
h o n etics
s y c
P
The future envisioned by Omron’s founder
In 1970, Omron founder Kazuma Tateisi developed a unique future
prediction method called “SINIC (Seed-Innovation to Need-Impetus
Cyclic Evolution) Theory” and presented it at the International Future
Research Conference. Since then, this theory has served as a com-
pass determining the direction of Omron’s management.
The SINIC Theory predicted that the traditional agricultural society
would be followed by an industrialized society, which in turn would
be broken down into five phases (handicraft society, industrialization
society, mechanization society, automation society and information
society). According to the SINIC Theory, a new society, called the
“Optimization Society,” should follow the information society, the
final phase of the industrialized society, around 2005.
While our industrialized society has brought about great material
wealth, it has also left many issues unsolved. Such issues include
energy and resource depletion, growing industrial waste, food short-
ages and human rights concerns. In the Optimization Society we envi-
sion, these issues will be redressed and psychological fulfillment and
quality of life will grow in importance as fundamental desires of human
beings. At the same time, the pursuit of efficiency and material afflu-
ence emphasized by the industrialized society will become relatively
less important. This will in turn create a complete balance and harmo-
nious relationship between individuals and society, between humans
and the environment, and between people and machines.
Omron in the Optimization Society
Omron has successfully anticipated and met the potential needs of society
based on its SINIC Theory, and has contributed to society through its busi-
ness operations by drawing on its proprietary Sensing & Control technolo-
gy, and combining this with its sophisticated device technology. The most
representative developments that correctly addressed the issues of each
era include automation control devices as well as public information and
traffic control systems. The Optimization Society began around 2005, and
Omron is striving to create the “best matching of machines to people” to
ensure greater safety, security and environmental conservation.
For machines that involve complicated procedures and require expert
knowledge to operate, for example, our goal is to create machines that
can adapt to the needs of each operator. Such machines will be able to
choose functions tailored to each operator’s needs or detect various
conditions, make expert judgments, and provide the operator with
appropriate information necessary to deal with the current situation.
Other examples include an automotive sensor that can detect the sur-
rounding conditions, anticipate a potential crash, and alert the driver or
automatically activate the brakes to assure driving safety.
Instead of people trying to adapt themselves to the needs of
machines, as they do today, machines capable of adapting to the needs
of people are soon to be realized. Through the implementation of its
corporate philosophy, Omron strives to continue its role as a pioneer in
contributing to society in the soon-to-be-realized Optimization Society.
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Phone: 81-75-344-7000 Fax: 81-75-344-7001
Homepage: http://www.omron.co.jp (Japanese)
http://www.omron.com (English)