Annual Report 2007
Year ended March 31, 2007
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7
Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530, Japan
Phone: 81-75-344-7000 Fax: 81-75-344-7001
Homepage: http://www.omron.co.jp (Japanese)
http://www.omron.com (English)
P R O F I L E
Omron’s core sensing & control technology is creating new value through accurate read-
ings of needed information in all circumstances. Through this, Omron provides products
and services that support safety, security, environment and health in a variety of areas
including industry, society, and in lifestyles.
Contents
Business Domains of OMRON
Grand Design 2010 (GD2010)
Ten-Year Financial Highlights
To Our Stakeholders
Message from the Chairman
Message from the President
2
4
6
8
8
10
Special Feature:
Growing Stronger and Expanding
Omron’s Reach through M&A
32
Corporate Governance, Compliance, and Risk Management 36
Corporate Social Responsibility (CSR)
Directors, Corporate Auditors and Executive Officers
Interview with the President — Seven Important Questions 12
Financial Section (U.S. GAAP)
Omron at a Glance
Industrial Automation Business (IAB)
Electronic Components Business (ECB)
Automotive Electronic Components Business (AEC)
Social Systems Business (SSB)
Healthcare Business (HCB)
Business Development Group and Other Businesses
Intellectual Property Strategy
18
20
22
24
26
28
30
31
Fiscal 2006 Management’s Discussion and Analysis
Business and Other Risks
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Independent Auditors’ Report
Global and Domestic Network
Corporate and Stock Information
Compass Determining the Direction of
Omron’s Management— SINIC Theory
40
42
43
45
50
52
58
80
81
82
83
Sustainability Report 2007
Sustainability Report 2007
For information on Omron’s sustainability initiatives,
please refer to “Sustainability Report 2007”, a report
on social and environmental activities to our stake-
holders, including employees, clients and customers,
shareholders, and regional communities.
http://www.omron.com/corporate/csr/
FINANCIAL FACT BOOK 2007
Financial Fact Book 2007
For financial data from the past 10 years, please
refer to “Fact Book 2007”.
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 for-
ward-looking statements involving risks and uncertainties. Important factors that could cause actual results to differ materially from such statements include,
but are not limited to, general economic conditions in Omron’s markets, which are primarily Japan, North America, Europe, Asia-Pacific and China; demand
for, and competitive pricing pressure on, Omron’s products and services in the marketplace; Omron’s ability to continue to win acceptance for its products
and services in these highly competitive markets; and movements of currency exchange rates.
Definition of Terms
All references to “Omron” and “the Company” herein are to Omron Corporation and consolidated subsidiaries and affiliates.
A B E T T E R W O R L D F O R A L L
PHILOSOPHY
T H R O U G H
S E N S I N G & C O N T R O L
G R A N D D E S I G N 2 0 1 0 ( G D 2 0 1 0 )
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 maximization of corporate value
and indicates the direction to be pursued over the ten-year period from 2001.
Furthermore, we divided GD2010 into three stages or medium-term management
plans, each with its own theme and target, and are aiming for sustainable growth.
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 WA 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
L O N G - T E R M M A N A G E M E N T P L A N G R A N D D E S I G N 2 0 1 0 ( G D 2 0 1 0 )
1st Stage
2nd Stage
3rd Stage
Theme
Establishing
a Profit
Structure
Balancing
Growth &
Earnings
Achieving a
Growth
Structure
Target
ROE 10%
Doubling
Total
Business
Value
2nd Stage Management Policies
In the 2nd Stage of GD2010, the 4 years of fiscal 2004 through fiscal 2007, we set a management
target of doubling total corporate value over 2003 levels and set a theme of balancing growth and
earnings. That is, based on policies of ensuring profitability through reforms in management struc-
ture and ensuring growth through expanding business segments, the more than 100 business
units of the Omron Group are working to double total corporate value.
4
B u s i n e s s D o m a i n s o f O M R O N
T H E B E S T M A T C H I N G O F M A C H I N E S T O P E O P L E
S e n s i n g & C o n t r o l T e c h n o l o g y
In sensing & control, machines sense information just as humans do with their five senses (sight, hearing, smell, taste, and touch), and similarly control a process
by handling the information with intuition, producing output in a convenient form. Not simply through humans and not simply through machines, through coopera-
tion between human and machine Omron aims for the best matching of machines to people via its sensing & control technology.
INDUSTRIAL AUTOMATION BUSINESS
(IAB)
ELECTRONIC COMPONENTS BUSINESS
(ECB)
Others
4%
HCB
9%
AUTOMOTIVE ELECTRONIC
COMPONENTS BUSINESS
(AEC)
SOCIAL SYSTEMS BUSINESS
(SSB)
HEALTHCARE BUSINESS
(HCB)
SSB
14%
AEC
13%
S e n s i n g
&
C o n t r o l
IAB
41%
ECB
19%
Note: % of Net Sales
BUSINESS DEVELOPMENT GROUP AND
OTHER BUSINESSES
Net Sales
¥736.7 billion (FY2006)
Industry
Electronic components
Automobiles
Society
Lifestyle
RFID
IAB Control Equipment for Factory
Automation
Programmable logic controllers
(PLC) Production line control
Safety light curtain
Sensing if fingers, arms, or
other parts of the body are
present in dangerous areas
ECB Electronic components for home
appliances, communications, mobile
device, etc.
計測センサ
LCD Backlights
AEC Automotive electronic
components
Smart entry
Releasing a lock with
electromagnetic waves
Power window switches
SSB Social systems
HCB Healthcare and medical equipment
Traffic management systems
Automatic gate
Home use
Digital blood pressure
monitor
Body composition analyzer
Visual sensors
Detecting defects in product
exteriors or in print
AOI (Automated
optical
inspection)
Electronic components
for home appliances
Relays
Switches
Laser radars
Detecting distance between your
car and objects in front
Automotive relays
Providing traffic light and
congestion information for
city streets
Next-generation image sensors
Measurement image for traffic
volume at an intersection
Medical use
Blood pressure and
pulse wave
screening device
A B E T T E R W O R L D F O R A L L
PHILOSOPHY
T H R O U G H
S E N S I N G & C O N T R O L
G R A N D D E S I G N 2 0 1 0 ( G D 2 0 1 0 )
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 maximization of corporate value
and indicates the direction to be pursued over the ten-year period from 2001.
Furthermore, we divided GD2010 into three stages or medium-term management
plans, each with its own theme and target, and are aiming for sustainable growth.
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 WA 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
L O N G - T E R M M A N A G E M E N T P L A N G R A N D D E S I G N 2 0 1 0 ( G D 2 0 1 0 )
1st Stage
2nd Stage
3rd Stage
Theme
Establishing
a Profit
Structure
Balancing
Growth &
Earnings
Achieving a
Growth
Structure
Target
ROE 10%
Doubling
Total
Business
Value
2nd Stage Management Policies
In the 2nd Stage of GD2010, the 4 years of fiscal 2004 through fiscal 2007, we set a management
target of doubling total corporate value over 2003 levels and set a theme of balancing growth and
earnings. That is, based on policies of ensuring profitability through reforms in management struc-
ture and ensuring growth through expanding business segments, the more than 100 business
units of the Omron Group are working to double total corporate value.
4
Corporate Performance
(%)
12
8
4
0
Operating income margin (right axis)
(Billions of yen)
800
(Billions of yen)
600
400
200
0
80
40
0
95
96
97
98
99
00
01
02
03
04
05
06
(FY)
07
(plan)
Net sales (left axis)
Operating income (right axis)
1st Stage
2nd Stage
3rd Stage
Increased Sales and Profits for the Fifth
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 last 2nd Stage goal of
doubling total business value. In fiscal 2006 we
actively invested in strengthening our profitabili-
ty base. As a result, despite one-time increases
in costs the fruits of restructuring began to be
seen, and the fifth consecutive term of higher
sales and profits was realized. Also, for fiscal
2007, the effects of M&A activities has brought
sales of ¥800 billion within sight.
Restructuring of Business Segments
1) In order to establish ECB and AEC as pillars of busi-
ness of the same scale as IAB, we are, above all, pro-
moting the expansion of the two segments.
2) In Greater China—which stands out as a major con-
sumer—we are focusing on expanding sales where
major manufacturers are building plants.
Sales Breakdown by Segment
Sales Breakdown by Region
(%)
100
80
60
40
20
0
01
IAB
SSB
02
ECB
HCB
3.8
8.9
14.4
12.6
18.8
41.5
03
04
05
06
(FY)
(%)
100
80
60
40
20
0
5.5
9.5
15.8
13.3
55.9
01
02
03
04
05
06
(FY)
AEC
Others
Japan (including exports)
Greater China
North America
Southeast Asia and Others
Europe
Operational Restructuring
In order to build a robust earnings
structure, we are continuously working
on business efficiency, and are aiming
to achieve an SG&A expense ratio of
22% by fiscal 2007.
SG&A Expense Ratio
(%)
25.3
25.3
22.8
24.3
24.1
23.8
22.8
22.0
Note: Until FY03, Greater China was included
in Southeast Asia and Others. Greater
China includes China, Hong Kong and
Taiwan.
Note: Excluding extraordinary factors in the ATM
business and the response to hazardous
chemical substance regulations in FY04.
Also excluding extraordinary factors in
response to hazardous chemical substance
regulations in FY05
00
01
02
03
04
05
06
(FY)
07
(Target)
26
25
24
23
22
21
20
5
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 (loss)
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
Millions of yen
FY2006
FY2005
FY2004
FY2003
¥ 736,651
284,199
¥ 626,782
253,389
¥ 608,588
249,771
¥ 584,889
240,054
168,135
52,028
64,036
97,959
38,280
40,539
(47,075)
(6,536)
(4,697)
630,337
21,813
382,822
Yen
165.0
1,660.7
34.0
38.6%
8.7%
13.3%
10.3%
60.7%
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)
589,061
3,813
362,937
585,429
24,759
305,810
592,273
56,687
274,710
151.1
1,548.1
30.0
126.5
1,284.8
24.0
110.7
1,148.3
20.0
40.4%
9.9%
14.8%
10.7%
61.6%
41.0%
9.2%
13.9%
10.4%
52.2%
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
(%)
10
800
600
400
200
0
8
6
4
2
0
97
98
99
00
01
02
03
04
05
06 (FY)
40
30
20
10
0
-10
-20
(Billions of yen)
(%)
20
15
10
5
0
-5
-10
(FY)
97
98
99
00
01
02
03
04
05
06
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, 2007, of ¥118=$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.
6
FY2002
FY2001
FY2000
FY1999
FY1998
FY1997
FY2006
Thousands of
U.S. dollars (Note 1)
¥ 535,073
207,660
¥ 533,964
180,535
¥ 594,259
218,065
¥ 555,358
196,447
¥ 555,280
190,966
¥ 611,795
224,350
$ 6,242,805
2,408,466
135,112
40,235
32,313
61,989
511
41,854
(30,633)
11,221
(1,996)
134,907
41,407
4,221
37,790
(15,773)
33,687
(40,121)
(6,434)
(12,056)
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)
567,399
71,260
251,610
549,366
58,711
298,234
593,144
67,213
325,958
579,489
69,472
336,062
580,586
86,723
321,258
593,129
54,544
343,066
2.1
1,036.0
10.0
(63.5)
1,201.2
13.0
87.4
1,311.1
13.0
45.0
1,308.6
13.0
8.3
1,249.5
13.0
71.4
1,308.9
13.0
38.8%
6.0%
11.6%
0.2%
44.3%
33.8%
0.8%
7.1%
(5.1%)
54.3%
36.7%
7.5%
12.9%
6.7%
55.0%
35.4%
4.7%
10.4%
3.5%
58.0%
34.4%
2.1%
7.8%
0.7%
55.3%
36.7%
7.5%
12.6%
5.4%
57.8%
1,424,873
440,915
542,678
830,161
324,407
343,551
(398,941)
(55,390)
(39,805)
5,341,840
184,856
3,244,254
U.S. dollars (Note 1)
1.40
14.07
0.29
Free Cash Flow
(Billions of yen)
Shareholders’ Equity and Ratio of Shareholders’ Equity to Total Assets
(Billions of yen)
(%)
50
40
30
20
10
0
-10
97
98
99
00
01
02
03
04
05
06
(FY)
400
300
200
100
0
97
98
99
00
01
02
03
04
05
06
80
60
40
20
0
(FY)
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.
Shareholders’ Equity
Ratio of Shareholders’ Equity to Total Assets
7
T O O U R S TA K E H O L D E R S
M E S S A G E F R O M T H E C H A I R M A N
The Omron Group responded flexibly to changing market conditions in fiscal 2006 and, in addition to reporting
that we were able to steadily increase our corporate value, I want to thank all of our stakeholders who
supported that growth. I would like to explain how the Omron Group will achieve sustainable growth in the
future, the vision we must aim for, our mission to respond to the changing times, and the grounding force
required for global management.
A Corporation Contributing to the 21st
Century Earth that Incorporates the
Dynamism of Asian Growth
In June 2007, we opened our first R&D center over-
seas, the Omron R&D Collaborative Innovation Center, in
Shanghai, China. The center will be the second R&D
base for our global operations together with the Keihanna
Technology Innovation Center in Japan, and its purpose
is to enhance the development of our core sensing and
control technologies.
The Omron Group has positioned China as its most
important area of focus in our 10 year long-term corporate
vision, “Grand Design 2010” (GD2010), launched in fiscal
2001. In particular, in the 2nd Stage of GD2010, which
began in fiscal 2004, we concentrated capital investment
in China, which culminated in fiscal 2007 with the open-
ing of the R&D center in Shanghai. The center estab-
lishes a functional coherence for our operations from
R&D through manufacturing, sales and after-sales service
in the Chinese market, which is currently a driver for the
world economy.
Over the next two decades, we plan to incorporate
the dynamism of the Asian market into our current U.S.
and European operations. Ultimately, we aim to be rec-
ognized as a truly 21st century company that contributes
to the healthy development of society on a global basis.
8
Safety, Security, Environment and Health are
Global Social Needs
Further Growth through Governance with
Corporate Principles as a Grounding Force
Safety, Security, environment and health are funda-
The values that society requires of a company change
mental elements in the creation of sustainable society.
with the times, and now they are not only emphasizing
This has been true in the already advanced countries,
economic values such as profitability and growth, but
and remains equally essential in China, India, and the
also social value. At the same time, social values vary
other rapidly emerging nations of Asia.
between countries and regions. However, I believe that
In many respects, this growth resembles Japan’s pas-
our corporate principles, which are characterized by our
sage through industrial development (see “SINIC Theory”,
core value of working for the benefit of society set at
on P83) on its way to becoming an economic power.
the founding of the Omron Group and our corporate
Therefore, we believe the Japanese companies that are
motto since 1959 of “At work for a better life, a better
benefiting from the development of the Asian markets
world for all,” will be recognized as common values by
have an obligation as members of Asian society to use
stakeholders in all countries and regions.
their accumulated technology and know-how to help solve
In the future the Omron Group will continue enforcing
the modern issues that arise as these countries seek sus-
its corporate principles and aim for diligent corporate
tainability. The Omron Group follows the management
governance powered by the grounding force of these
principle of “working for the benefit of society” and is
principles. As we take up the challenge to creatively
creatively helping resolve problems faced by Asian socie-
approach and resolve the new social needs in building
ty through our corporate DNA of “innovation driven by
sustainable society for the 21st century, we will imple-
social needs*” and “challenging ourselves to always do
ment corporate social responsibility (CSR) through our
better.” This may be our most important corporate mis-
business as though our existence itself represents the
sion, and I believe this is also where we will find many
fulfillment of CSR and aim to be a company chosen for its
business opportunities for Omron’s future growth.
future promise.
* Discover latent social needs, and be the first to provide products and
services to build a better society
July 2007
Yoshio Tateisi, Chairman of the BOD
9
T O O U R S TA K E H O L D E R S
M E S S A G E F R O M T H E P R E S I D E N T
Looking to the future, we have restructured our business portfolio and reformed our operational structure to
create a more robust profit structure. As a result, we achieved record profits for the fourth consecutive year in
fiscal 2006. We are now devoting our efforts to achieving our 2nd Stage goal of operating income of ¥75 billion,
and addressing remaining issues as we shift our focus to the 3rd Stage theme of GD2010: establishing a growth
structure for the future of the Omron Group.
Structural Reforms Aimed at
Both Growth and Profit
My role at the helm of Omron Group management is
to steer our company on a course that will enable us to
maximize the corporate value of the Group over the long
term. In 2001, we launched the 10-year long-term corpo-
rate plan Grand Design 2010 (GD2010) with three distinct
stages of development and targets. Our medium-term objec-
tive during the 2nd Stage (fiscal 2004-2007) is to double
the Omron Group’s total business value in terms of both
growth and profit from the level in fiscal 2003. The specific
targets for the 2nd stage are net sales of ¥750 billion and
an operating income of ¥75 billion. To achieve our growth
objectives, we have clearly identified target growth markets
and fundamental technology that can give us competitive
superiority. We aim to raise business value by 1) expanding
sales in China and 2) creating value in new areas centered on
core technologies as part of our business segment reforms
to set the foundation of our competitive edge in the future.
We are also establishing more efficient profit structures for
our businesses as part of our operational structure reforms to
realize more robust profit structures.
Fiscal 2006: The Fifth Consecutive Year of Sales
Growth and Increased Profits, the Fourth
Consecutive Year of Increased Dividends
These business policies enabled us to raise both sales
and profit for a fifth consecutive year. Net sales for fiscal
2006 exceeded our initial forecast of ¥700 billion, reaching
¥736.7 billion (up 17.5% over the previous year) due in part
to the contribution of large-scale M&As. Operating income
reached ¥64 billion (up 3.1% over the previous year, or
27.5% excluding the previous year gains from the return of
the ¥11.9 billion substitutional portion of the employee pen-
sion fund), also surpassing our initial projection, and net
income was ¥38.2 billion (up 7.0% over the previous year).
As a result, return on equity (ROE) rose to 10.3%, and we
again fulfilled the company target of ROE of 10% or above.
10
In view of these solid results, we raised the annual div-
idend for the fourth consecutive year by ¥4, to ¥34 per
share, in accordance with our basic policy for a payout ratio
of around 20% of consolidated net income (see page 17
for Omron’s capital policy).
Maximizing Corporate Value with
a Long-term Vision
Although the outlook for the economic environment in
fiscal 2007 holds unclear elements such as steep rises in the
prices of raw materials, we anticipate further positive out-
comes from structural reforms and contributions from M&A
activities to date. We are targeting net sales of ¥800 billion
(up 8.6% over the previous period) and operating income
of ¥75 billion. Meeting these targets will raise consolidated
earnings per share (EPS) to about ¥200 (net profit of ¥46
billion), which is roughly double the level of the ¥110 con-
solidated EPS in fiscal 2003.
We are also aware that if we fail to keep business and
investment on an even keel by opting to pursue immediate
gains that can have the potential to stunt our future growth,
or if we shy away from promising challenges simply for the
sake of cutting costs, we will fall behind the times and dimin-
ish as a company. With this in mind, we are aiming to strike
a balance between growth and earnings in the 2nd Stage
of GD2010.
Looking back at the three-year period of the 2nd Stage,
the Group has become even stronger than we could have
anticipated. In terms of earnings, productivity in IAB has
improved significantly following the reorganization of our
global production and development bases. SSB has also
achieved positive outcomes through cost cutting measures
based on selection and concentration. ECB also has achieved
growth through expansion of the liquid crystal backlight busi-
ness, and HCB has improved its position by making a full-
fledged entry into the supply market for medical institutions
and private medical practices. Despite concerns over steep
rises in raw material prices, AEC also lifted its productivity
through management efforts and returned to profitability in
the second half of fiscal 2006. While disparities in profitabil-
ity and growth exist among the business units, our man-
agement strategy of maintaining an effective balance of
growth and earnings is producing steady overall results for
the Omron Group.
Fiscal 2007 will bring us another important step closer to
our goal. However, the 2nd stage of the GD2010 is just
one part of establishing a foundation on which to transform
the Omron Group into a sustainable value creation company.
I am committed to doing my utmost to guide the company
toward maximizing corporate value over the long term based
on GD2010 by promoting optimal distribution of limited
management resources (people, goods, money).
The Omron Group strives to meet the tasks cut out for
us, and I would like to ask all of you to give even greater
support and cooperation in the days ahead.
July 2007
Hisao Sakuta, President and CEO
11
I N T E R V I E W W I T H T H E P R E S I D E N T
— S E V E N I M P O R TA N T Q U E S T I O N S
What do you consider to be the main factors in achieving this?
Q.1 In fiscal 2006 the Omron Group again set a new record high in profits.
A.If you look at consolidated net sales for fiscal
ufacturer, and STI (consolidated as of September 2006), a
leading North American safety equipment manufacturer.
Contributing to the increase in net sales and the improve-
ment in the product mix were IAB, which increased its sales
in Europe and the United States, and SSB, which benefited
from demand for IC cards by railway companies upgrading
station services to accommodate wider use of electronic
tickets. At HCB, there was also steady growth in sales of
blood pressure monitors in Russia & Eastern Europe and
Asia. On the other hand, while ECB did show an improve-
ment in earnings, the sharp fall in the prices of large-size
backlights, which has been a driving force in sales, had a
severe impact on results, and unavoidably ECB’s contribution
to the product mix in terms of profitability deteriorated. In
the latter half of the year, AEC began to show a dramatic
recovery in performance but failed to return to the black for
the full year. At ECB and AEC, the high component ratio of
relay and switch products, which were directly affected by
the negative effects of price rises in raw materials such as sil-
ver and copper, also put pressure on profits. In comparison
with the previous year, prices of silver increased 60% and
copper 80%, so an austere earnings environment persist-
ed for the entire year. However, we managed to overcome
the negative effects of the rises in raw material prices,
absorb the non-recurrence of gains from the return of the
substitutional portion of the employee pension of the pre-
vious year and secure an increase in profits. On the whole,
fiscal 2006 was a solid year.
2006, you will see that our core IAB operation
achieved double-digit growth and that SSB also
demonstrated noteworthy expansion. In addition, our M&A
activities and the positive effects of yen exchange rates
were factors contributing to favorable performance in fiscal
2006, and overall we were able to achieve year-on-year
growth of 17.5% in net sales to ¥736.7 billion. At the same
time, consolidated operating income rose 3.1% over the
previous year to ¥64 billion. While the growth in operating
income looks low in comparison with growth in net sales,
this is because the operating income for fiscal 2005 included
gains of ¥11.9 billion resulting from the return of the sub-
stitutional portion of the employee pension fund, an anomaly
of that period. If we exclude the effects of these gains, the
actual increase in operating income rises to 27.5%.
In terms of growth in consolidated operating income,
on the positive side there was an increase in net sales and
an improvement in the product mix, as well as the effects of
M&As and the depreciation of the yen. At the same time,
there were also negative factors working against us, name-
ly steep rises in the cost of raw materials such as silver
and copper, increases in manufacturing fixed costs, and an
increase in selling, general and administrative expenses.
Research and development expenses also rose during the
period. The effects of M&As during the fiscal year under
review were for the most part derived from the acquisition
of Pioneer Precision Machinery Corporation (consolidated
as of August 2006), a multi-light source LCD backlight man-
12
comment on conditions at AEC at present and what you are planning for
future measures to rebuild the segment?
Q.2 For the past three years, AEC has remained in the red. Could you please
A.In the automobile industry the development of
China. In addition, we revised our logistics network infra-
structure and shifted operations from local production to
production in what we deemed to be optimal locations. As
a result of these measures, the operating income of AEC
improved dramatically in the second half of fiscal 2006 and
returned to the black.
new vehicles has been centered on the themes
of safety and the environment, and the number of
electronic devices used in vehicles is increasing. Following
this trend, the introduction of AEC products in new vehi-
cles is also increasing. As a result, net sales for AEC in fiscal
2006 rose significantly to ¥93.3 billion (up 20.3% over the
previous year). Despite a rapid recovery in operating income
during the second half of the fiscal year, operating income
for the full year finished in the red with a deficit of ¥1.2 bil-
lion (the first half was ¥2 billion in the red, the second half
was ¥0.8 billion in the black).
There were two main factors inhibiting performance at
AEC. One was the squeeze on profits caused by surges in
raw material prices such as silver and copper, and the other
was the delay in improvement in production efficiency at
production bases in North America in both the previous year
and the first half of fiscal 2006. In North America, orders
have been increasing over the past year, but production
plants were unable to cope with increases in production
volume and were unable to fulfill their supply quotas in fis-
cal 2006. Consequently, production plants in Japan had to
cover their shortfall, and the products then had to be air
freighted. This abnormal situation not only resulted in unnec-
essary transport costs and production costs but also result-
ed in productivity at North American plants falling below
projections and a significant rise in fixed production expens-
es. Added to these was the negative effect of the appreci-
ation of the Canadian dollar on results.
To address this situation, AEC put in place emergency
measures to improve earnings. Specifically, we reviewed
product values and the possibilities of changing over to
alternative materials, based on value analysis (VA) and value
engineering (VE), and we undertook efforts to revise prices
of relays where profitability had been seriously impaired by
the surges in silver and copper prices. Furthermore, as for
the production framework, we also transferred production of
some of our products from North America to Japan and
Furthermore, to broaden the application of relays to other
areas, such as general consumer electronics and commu-
nications equipment, we launched the Relay Business
Improvement Project: a company-wide initiative under my
direct control that involved IAB as well as ECB. We have
also been promoting improvement in productivity not only in
North America but in other areas as well.
As a result, AEC’s operating income is gradually head-
ing in the direction of improvement in fiscal 2007, and we are
expecting a profit of ¥1.4 billion for the full year. However, in
contrast to AEC’s sales target of ¥100 billion, the level of
operating income is still far too low. I am determined to do
everything within my power, in cooperation with the entire
Omron Group and AEC, in order to improve income in a way
that will result in lifting the operating income margin in
excess of capital cost (about 6%).
13
Can you please comment on the current situation there and your forecast
for the future?
Q.3 Sales for Greater China are trailing behind initial projections noticeably.
A.We at the Omron Group stated that we will lift
IAB’s business in Greater China consists largely of the com-
ponent business, which is conducted through local distrib-
utors. We have been working on developing sales chan-
nels over the past several years and although we have
been able to retain a number of sales distributors and sales
staff above levels called for in our initial plan, the skill level of
distributors and sales staff who provide support for distrib-
utors is still an issue that requires attention. On the other
hand, skills which can be honed through experience are
improving on a daily basis, and now we are beginning to
see results from this improvement. Our customer base is
expanding and we are deepening our business relations
with them. Therefore, although we are trailing behind our ini-
tial sales plan by about one year, we believe that we can
top US$1,000 million in sales during fiscal 2007 and we will
be able to reach US$1,330 million in fiscal 2008.
sales in Greater China to US$1,330 million in fis-
cal 2007 and we undertook strategic investment
accordingly. In fiscal 2006, net sales for Greater China includ-
ing the contribution of ECB, which acquired Omron Precision
Technology Co., Ltd. (formerly Pioneer Precision Machinery
Corporation), increased about 1.8-fold to US$726 million
from the previous fiscal year. This surpassed our initial pro-
jection of US$676 million for fiscal 2006, but is falling far
short of our medium-term plan target. However, in our exist-
ing businesses at present, we believe that we can expect
growth of about 30%, and we are still planning on sales of
just over US$1,000 million for fiscal 2007.
Sales aren’t growing as planned at IAB, which is posi-
tioned as our engine of growth. This is the main factor that
is keeping us from achieving our sales plan in Greater China.
14
you please comment on anticipated results for fiscal 2007 and the basis of
your expectations?
Q.4 This year is the final year of the 2nd Stage of GD2010. In that light, can
A.In fiscal 2007 we are anticipating net sales of ¥800
billion (up 8.6% over the previous year), operat-
ing income of ¥75 billion (up 17.1%), income
before taxes of ¥72 billion (up 8.6%), and net income of ¥46
billion (up 20.2%), marking the sixth consecutive year of
growth in sales and profits. On that basis we will be able to
meet our initial targets for the 2nd Stage of GD2010.
Thanks to ongoing capital investment, we expect
demand for products of Group businesses to continue grow-
ing, albeit modestly, both in Japan and overseas. This
includes demand for factory automation control devices,
electronic components for digital consumer products and
automotive electronic devices to meet safety and environ-
mental requirements.
In this environment, we expect a combined increase of
¥76 billion in net sales (up ¥63.3 billion year on year for the
Group overall) for IAB, which acquired a safety equipment
manufacturing company, and ECB, which acquired a man-
ufacturer of small-size backlights. We can also expect
growth in sales for HCB in blood pressure monitors in
Europe and Asia as well as an increase in sales of lifestyle
disease prevention devices for private medical practices,
and we are anticipating growth of 10% or more over the
previous fiscal year. In addition to growth in these busi-
nesses, we also anticipate steady growth for AEC with the
increasing number of electronic devices being fitted in new
model cars. On the other hand, we expect sales for SSB
to contract by ¥15.9 billion due to the completion of invest-
ment associated with the installation of IC card equipment
at stations of major railway companies. In other businesses,
we are expecting a contraction of ¥11.3 billion in sales due
to the transfer of our entertainment business to a newly
established company in an arrangement where the man-
agement team of that business is comprised of the principal
investors.
As for operating income (up ¥11 billion year on year
for the Group overall), despite an environment where
negative elements such as prevailing high prices for raw
materials and the increasing severity of price competition
are putting pressure on profits, productivity in China,
which is essential to strengthening our earning power, is
set to increase further. We believe that achieving overall
operating income of ¥75 billion for the Omron Group is well
within our reach due to a number of factors: 1) we expect
an increase of ¥16.1 billion in operating income in IAB,
where we have taken decisive action to increase sales and
revamp our earnings structure, 2) we have achieved a
turnaround in AEC, which, with the help of emergency
profit improvement measures, will post a surplus for the
full year in fiscal 2007, and 3) there has been further
improvement in the operating income margin of SSB due
to structural reforms in fixed expenses.
15
income (up 33.1% year on year) in IAB as the main force driving growth in
results for fiscal 2007, but can you give some specific details of the
possibilities for achieving that?
Q.5 I understand that you are looking at a significant increase in operating
A.In fiscal 2007, we are expecting total operating
As a result of IAB’s efforts to increase sales since fiscal
2004, and the initiatives I just mentioned to control pro-
duction and selling, general and administrative (SG&A)
expenses, we expect to achieve for the most part (operating
margin will be 19%) our commitment of establishing an
earnings structure based on a ratio of 5:3:2, representing
gross profit, SG&A expenses (including R&D expenses),
and operating income respectively. This is, in fact, the most
important IAB company theme of the 2nd Stage of GD2010.
We plan to generate about half of the ¥16.1 billion
increase in operating income expected in fiscal 2007
through structural reforms in fixed expenses, and the
remaining half from an increase in volume. In sales for fis-
cal 2007, we expect a ¥34 billion increase year on year,
largely in Japan and Greater China. At home in Japan, we
will promote aggressive sales for resolving customer issues
in areas such as quality, safety and the environment, and in
those areas we will focus particular attention on the auto-
motive, semiconductor, flat panel display and liquid crys-
tal areas with a view to growing our applications business.
In Greater China, on the other hand, we will concentrate
on expanding our business operations in AOI (automated
optical inspection) and PLC (programmable logic controllers)
by reinforcing our sales framework, boosting productivity
and launching new products.
income of ¥97.4 billion (including inter-segment
income of ¥22.4 billion) for all business segments
and we anticipate that IAB will generate ¥64.6 billion of that
amount. Therefore, it is no exaggeration to say that the IAB will
be the leader in determining whether we will reach our con-
solidated operating income target of ¥75 billion for fiscal 2007.
During the 2nd Stage of GD2010, our long-term man-
agement plan, IAB, which is the core business of the
Omron Group, undertook decisive measures on a large
scale, implementing sweeping structural reforms in its
operations. Specifically, over the past three years we
have consolidated three of our plants in China (Shanghai)
into one plant. In Japan we also streamlined operations by
consolidating our development and production operations
in Mishima and Okayama into our plant at Kusatsu.
In addition, by transferring production of general-pur-
pose products to China, we also expect to achieve a 30%
improvement in productivity in that area in comparison with
the start of the 2nd Stage of GD2010. These initiatives in
streamlining and reform have significantly cut our manu-
facturing fixed costs. Furthermore, we were able to com-
plete spending to accommodate RoHS requirements (restric-
tions of hazardous substances in electric and electronic
devices) by the end of the previous fiscal year, and this will
result in cost reduction from fiscal 2007 onwards.
* Figures for the profit structure plan are based on management of IAB
itself. The share of operating expenses is approximately 1 percentage
point lower than figures released due to the way in which operating
expenses for headquarters are allocated.
16
your view on profit
distribution?
Q.6 Could you please explain
A.Our company policy on profit distribution is that
securing internal capital resources is necessary
in order to maximize corporate value over the
long term. This includes investments in R&D and capital
investments. At the same time, I recognize that distributing
profits every year to our shareholders in a stable, uninter-
rupted manner insofar as possible is an obligation we have
to our shareholders. In particular, to live up to the expecta-
tions of our shareholders who hold the shares of our com-
pany over the long term, we are committed to providing
long-term, stable profit distribution of a certain level even at
times when our profits may fall.
In fiscal 2006, against its target payout ratio of about
20% of consolidated net income, we provided a dividend
of ¥34 per share (dividend payout of 20.6%), which was ¥4
above the dividend of the previous year.
For annual dividends in fiscal 2007 and thereafter, Omron
has clearly stated that it will aim to provide a minimum of
20% of consolidated net income as the payout ratio instead
of the somewhat ambiguous standard of “about 20%”. In
addition to this, to enhance stable, uninterrupted profit dis-
tributions, we will also introduce from fiscal 2007 onwards
indicators such as dividends on equity (DOE), which is return
on equity (ROE) multiplied by the payout ratio. In specific
terms, this means that Omron will strive to maintain a pay-
out ratio of at least 20% and provide profit distributions
with a near-term DOE target of 2%. Of course, we also
intend to provide dividends to shareholders as much as pos-
sible from surpluses remaining after securing internal capi-
tal resources required for growth investment. In addition,
we also have plans to provide return to shareholders flexibly
through the repurchase of common shares using surplus
funds retained over the long term. In fact, the total return
ratio, which is share buybacks and dividends combined, has
been maintained at the high level of close to 50% for the
past few years.
about Omron’s capital
policy?
Q.7 Can you please tell us
A.In fiscal 2006, accounts receivable and invento-
ries increased slightly as a result of M&A activi-
ties and the effect of currency exchange rates.
This combined with efforts to increase capital efficiency on a
global basis and reduce cash has brought the equity ratio to
the current level of 60.7%, demonstrating our sound financial
position. Effectively debt-free, we consider our capital cost to
be in the vicinity of 6 percent, so we believe that there is
capacity for us to increase our interest-bearing liabilities a lit-
tle. On the other hand, if we increase interest-bearing liabili-
ties recklessly, we risk lowering our credit rating, so we have
no intention to borrow more than necessary.
In terms of our financial strategy for the immediate
future, we intend to maintain the basic position of borrowing
the amount we need at the time we need it. Although inter-
est rates are edging upwards, we do not feel that there is a
need for us to secure funds in advance. However, we are
considering using borrowings from the perspective of finan-
cial leverage effects*. If we increase borrowings and lower
our capital cost to the 5 percentile level, and maintain at
least an A credit rating, we estimate that we will be able
to borrow about ¥150 billion. Furthermore, we would like
to undertake investment for future growth through M&A
by using our treasury stock effectively. During fiscal 2007, as
investment necessary for maximizing our corporate value
over the long term, we plan to spend ¥56.5 billion on R&D
expenses (up ¥4.5 billion year on year) and ¥45 billion on
capital expenditure (up ¥600 million year on year), which is
in excess of depreciation (¥35 billion).
* Financial leverage effects
If there is an earnings opportunity for increasing profit above debt costs
(interest expenses), increasing financial leverage (total capital ÷ share-
holders’ equity), in other words utilizing borrowing, will have the effect of
raising ROE.
17
O M R O N AT A G L A N C E
% of Net Sales / Operating Income by Segment
Segment
Net Sales (Billions of yen)
% of Net Sales
IAB
41%
ECB
19%
AEC
13%
SSB
14%
HCB
9%
Business Development Group And
Other Businesses
4%
Operating Income by Segment*
(Billions of yen)
90
80
70
60
50
40
30
20
10
0
2004
IAB
SSB
2005
2006
(FY)
ECB
HCB
AEC
Others
18
INDUSTRIAL
AUTOMATION
BUSINESS
(IAB)
ELECTRONIC
COMPONENTS
BUSINESS
(ECB)
AUTOMOTIVE
ELECTRONIC
COMPONENTS
BUSINESS
(AEC)
(FY)
305.6
305.6
250.3
250.3
272.7
272.7
2004
2005
2006
138.4
101.1
97.7
2004
2005
2006
77.6
64.6
93.3
2004
2005
2006
SOCIAL SYSTEMS
115.2
105.9
91.8
BUSINESS
(SSB)
HEALTHCARE
BUSINESS
(HCB)
BUSINESS
DEVELOPMENT
GROUP AND OTHER
BUSINESSES
2004
2005
2006
61.1
65.7
50.6
2004
2005
2006
26.8
25.9
27.8
2004
2005
2006
Operating Income* (Billions of yen)
Operating Income Margin (%)
(FY)
41.4
16.5%
41.9
15.4%
48.5
15.9%
2004
2005
2006
16.1
15.9%
11.2
11.5%
2004
2005
13.1
9.5%
2006
-0.9
-2.0
-1.2
-1.4%
-1.3%
-2.6%
2004
2005
2006
8.1
7.6%
4.4
4.8%
2005
2006
8.7
8.7
6.4
5.6%
2004
7.6
15.1%
14.2%
2004
2005
14.2%
3.8
2004
6.4%
1.7
2005
13.2%
2006
8.7%
2.4
2006
Overview and Market Position
Main Products and Services
Top market share for high-precision sensors in Japan
IAB is Japan’s largest* manufacturer of control devices for factory automa-
tion (FA), and contributes to production in all manner of industries. Recently,
IAB has not just provided equipment and systems, but is focusing on its
solutions business for management themes such as quality improvement,
work safety, and environmental friendliness-needs which are rapidly increas-
ing at production facilities.
* Market share data obtained from the Nippon Electric Control Equipment Industries Association
(NECA). Domestic market share is roughly 40%.
Manufacturing and sales of control sys-
tems and equipment for factory automa-
tion and production machinery
Sensing devices (photoelectric/proximity sen-
sors, automated optical inspection systems,
etc.), control devices (programmable logic con-
trollers, temperature controllers, relays, timers,
etc.), safety devices (safety sensors, safety
switches, etc.)
Aiming to be top in the LCD backlight business
ECB manufactures and sells semiconductor sensors using micromachining
technology and electronic components for amusement equipment, among
other things, centering on relays, switches and connectors for home elec-
tronics, communications, and industrial equipment. In the business for liquid
crystal backlights used in displays for mobile phones and in flat panel displays,
ECB holds top global share for small-sized backlights, and has product offer-
ings in all size ranges, from small to mid and large-sized backlights.
Manufacturing and sales of electronic
components for home appliances, com-
munications, mobile phones, amusement
equipment, office automation equipment
Relays, switches, connectors, sensors, micro lens
arrays, customized ICs, IC coins, optical commu-
nications devices, etc.
Focusing on development of leading-edge products
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-generation, key com-
ponents for which safety, security, and environment are keywords, and is
already producing leading-edge products such as laser radars (sensors for
measuring the distance between cars).
Manufacturing and sales of automotive
electronic components
Automotive relays, sensors, laser radars, power
window switches, keyless entry systems, elec-
tronic control units, etc.
Top market share for automated gates at stations in Japan
SSB provides a variety of systems which support social infrastructure, includ-
ing systems for railways such as automated ticket gates and automated
ticket machines, and traffic control systems for road networks. Recently,
as social needs related to safety and security have been rising quickly, the
security business has been focusing on the provision of solutions related
to room access control and information access control.
* The ATM business was transferred to Hitachi-Omron Terminal Solutions, Corp. (Hitachi: 55%,
Omron: 45%) on October 1, 2004.
Manufacturing and sales of equip-
ment/modules, and provision of solutions
and services for the fields of public trans-
portation and traffic/road management
Public transportation : passenger gates, ticket
vending machines, fare adjustment machines, etc.
traffic/road management, traffic signal controllers,
road management systems, etc.
Top market share for digital home blood pressure monitors in Japan
HCB provides a wide range of health care equipment including blood pres-
sure monitors, digital thermometers and pedometers. In particular, Omron’s
digital home blood pressure monitors, which are a core product, boast 50%
of the domestic market (according to a survey by a private research institute),
and Omron is becoming 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.
Manufacturing and sales of home and
professional healthcare equipment
Digital blood pressure monitors, digital ther-
mometers, nebulizers, pedometers, body compo-
sition analyzers (body-fat analyzers), electronic
pulse massagers, vital signs monitors, inpatient
blood pressure monitoring devices, exhaled gas
monitors, central monitors, vascular screening
devices, etc.
Exploration and development of new businesses
Other businesses include 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 car-
rying out part of the Omron Group’s growth strategy, and is focusing in par-
ticular on the RFID business and the service business for the remote moni-
toring of electricity.
Business Development
Development/Promotion of new busi-
nesses for achieving the Group growth
strategy
Personal computer peripherals (modems, broad-
band routers, back-up power supplies, etc.), wire-
less sensing business (remote monitoring equip-
ment, etc.), RFID business (IC tags, reader/writ-
ers, antennae, etc.)
* Operating income indicates income including internal income prior to the deduction of amounts such as inter-segment transactions and
headquarters expenses that are not apportionable.
19
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 )
Manufacturing and sales of control systems for factory automation
Fumio Tateisi, Executive Vice President
Company President, Industrial Automation Company
As the driving force behind structural reform of the Omron Group’s overall profits, IAB has
been aiming for an operating income margin of 20% for fiscal 2007 and is currently devoting
efforts to the final stages of realizing that goal. At the same time, we are focusing our
attention on the application business as an area that will contribute to promoting product
quality, safety and environmental friendliness, aspects of management that companies are
intent on improving at the production site.
MARKET ENVIRONMENT AND KEY STRATEGY
Strengthening Abilities in Aggressive Sales in the
AOI (automated optical inspection) system and the
Safety Components Businesses
In fiscal 2007 the business environment in the domestic
market for IAB is expected to continue to be strong on capital
expenditure in the automobile industry as well as the semi-
conductor and electronic components industry. In the over-
seas market, steady capital expenditure is also anticipated in the
United States and Europe, and further growth is expected in
emerging markets such as India and Russia.
On the other hand, the trend to shift production bases
overseas will accelerate as companies the world over strive to
produce goods at lower cost and with greater production effi-
ciency. Irrespective of the technical expertise of local staff,
achieving quality of the same level at every production base
at all times is essential if companies hope to increase their cor-
porate competitiveness. At the same time, securing the safety
of inexperienced local workers and putting in place production
systems that are underpinned by principles affirming a com-
mitment to global environmental protection have also become
important corporate social responsibilities. In that respect, IAB
has been developing its application business to respond to
management issues in product quality, safety and environ-
mental friendliness through technology that we have cultivated
over the years at the actual production site, and we will estab-
lish a sound revenue base by further developing ways in which
we can serve our customers in this area.
BUSINESS RESULTS AND FISCAL 2007 OUTLOOK
Completion of the 5:3:2 Earnings Structure and
Outlook for a Significant Increase in Profit
IAB finished fiscal 2006 with net sales of ¥305.6 billion (up
12.1% year on year), and operating income of ¥48.5 billion (up
15.7%). In Japan the safety components and application busi-
nesses steadily progressed. Semiconductor and digital home
electronics-related capital expenditure also remained strong, driv-
ing up sales for our mainstay FA (factory automation) control
devices. In overseas markets, sales of control devices for oil and
gas-related businesses in the United States were strong.
Moreover, a leading US manufacturer of safety devices, Scientific
Technologies Incorporated (current OSTI), which became a con-
solidated subsidiary of IAB in September 2006, also made a con-
tribution to sales (approximately ¥7.0 billion). In Europe, sales
of inverters and servo motors also showed growth.
In fiscal 2007 we are expecting net sales of ¥339.5 billion
(up 11.1% over the current year), and operating income of ¥64.6
billion (up 33.1%). As our final goal in the current medium-term
business plan, we at IAB made a commitment to establishing an
earnings structure based on a ratio of 5:3:2* for gross profit;
selling, general and administrative SG&A expenses (including
R&D expenses); and operating income respectively, and we
20
IAB RESULTS AND PLANS
Fiscal Year
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization*
Capital expenditures
2007 Plan
339.5
154.5
185.0
38.3
85.8
16.2
38.0
6.6
64.6
19.0%
21.0
13.0
2006
305.6
140.8
164.8
34.8
81.3
14.0
28.8
5.8
48.5
15.9%
18.1
11.2
13.7
YoY
112.1%
103.4%
120.7%
137.2%
116.8%
110.1%
120.2%
120.3%
115.7%
+0.5% pt.
98.1%
109.9%
137.2%
2005
272.7
136.2
136.5
25.4
69.6
12.7
24.0
4.8
41.9
15.4%
18.5
10.2
10.0
2004
250.3
130.2
120.1
20.3
65.6
10.4
19.5
4.3
41.4
16.5%
16.7
7.6
8.8
Billions of yen
2003
229.6
117.1
112.5
19.6
60.7
13.6
18.4
0.3
34.2
14.9%
14.5
10.0
7.3
* Projections for FY2007 are based on exchange rates of ¥115/US$ and ¥150/Euro.
* The sales figures given indicate sales to external customers and exclude inter-segment transactions. Operating income indicates income including internal income prior to
the deduction of amounts such as inter-segment transactions and headquarters expenses that are not apportionable.
* Projections for depreciation and amortization are not publically released.
Portable Multilogger ZR-RX Series
An electronic device for storing data of measurement results
recorded by various sensors, it can be connected to a PC and
convert data into graphs or send it via e-mail in abnormal situ-
ations. In addition to contributing to ISO compatibility measures
and traceability, the device, at one third of the market price for
devices of this type price, represents the highest cost-per-
formance in the market.
Safety Laser Scanner OS3101
Utilizing reflected laser light, this is a non-contact sensor for
detecting the presence of a human body. A system that achieves
both safety and productivity, it has two possible settings: one for
shutting down machines and one for monitoring and warning of
the proximity of workers to machines.
High Speed Accuracy Measurement Devices
Enabling high-speed and accurate measurement of the line
width and overlap of TFT substrates in the LCD array fabrication
process, these devices warn of and prevent the incidence of
defective products. With proprietary technology and algorithms
for image processing, this device achieves high-accuracy meas-
urement of 0.1 nanometer repeatable accuracy and measuring
speed of 1 item per second.
are giving top priority to finalizing that structure during the current
fiscal year. At the same time, we have strengthened our sales
framework for China, which is about one year behind schedule
in terms of sales, and we plan to widen and deepen our sales
activities by expanding our market of AOI instruments. As a
result, we expect to boost growth in sales in the Chinese mar-
ket by 30% or more (See P14 for details).
* Figures for the profit structure plan are based on management of IAB
itself. The share of operating expenses is approximately 1 percentage
point lower than figures released due to the way in which operating
expenses for headquarters are allocated.
MEASURES FOR ACCELERATING GROWTH
Completion of the BRICs Market Sales Network with
IAB’s Full-fledged Entry into the Russian Market
In October 2006 Omron established OEE-RUS in Moscow,
Russia as a sales company under the control of IAB and com-
menced operations. This marked the first full-fledged entry of a
Japanese maker of FA control devices in the Russian market.
With the establishment of OEE-RUS, we have put in place a
framework where we can look after the needs of our cus-
tomers quickly provide them with close support. We already
have sales companies in Brazil, India, and China, so the estab-
lishment and operation of the new sales company for control
devices in Russia marks the completion of our sales network in
the BRICs markets which are expected to grow further. During
fiscal 2007 we expect sales amounting to 20 million euros
(approximately ¥2.7 billion) and by 2010 we plan to increase
sales to 50 million euros, which represents an approximate
five-fold increase in sales from the fiscal 2005.
Expanding the Scope of Business through Laser
Fine Processing Technology
In June 2007 Omron acquired a 95% stake from principal
shareholders in Laser Front Technologies, Inc. (LFT), an inde-
pendent developer and manufacturer of laser fine processing
devices, spun off from NEC Corp., and made it a consolidated
subsidiary under the name Omron Laser Front Co., Ltd. With
the integration of LFT’s laser processing business and IAB’s
testing and measuring business units, IAB will be able to pro-
vide total quality solutions across all production processes
where progress in fine processing is accelerating at a rapid
pace. Moreover, using LFT’s technical capabilities in areas
such as liquid crystals, semiconductors, and electronic com-
ponents, and IAB’s full advantage of the merits of having a
broad customer base that encompasses all manufacturing
industries worldwide, and we plan to develop our operational
base further (see the special feature on P33).
21
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Manufacture and sale of electronic components for consumer appliances, mobile devices, telecommunica-
tions and industrial equipment, and amusement devices
Soichi Yukawa, Senior Managing Officer
Company President, Electronic Components Company
At ECB we are aggressively moving into new growth domains in efforts to expand and extend
the reach of our business. We are now doing this by offering innovative products that make
the most of new technologies in areas such as liquid crystal backlights, input devices, and
face recognition sensing to enhance the performance of mobile telephones and digital
devices, which are rapidly growing industries.
MARKET ENVIRONMENT AND KEY STRATEGY
Increasing Profitability and Promoting the
Development of New Business Areas
In fiscal 2007 we expect to see further growth in the elec-
tronic components market for digital consumer appliances and
mobile devices. This growth will be driven largely by replace-
ment sales and the growing popularity of products like flat
screen TVs and mobile telephones featuring more electronic
components accompanying technical innovation. Electronic
components for industrial use can also look forward to a year of
sound performance, with the help of robust capital investment
plans by companies. However, intensifying competition on a
global scale is putting further downward pressure on prices.
In the backlight business for liquid crystal displays in particular,
the selling prices for liquid crystal displays both for TVs and
mobile devices are falling at a rapid pace. Meanwhile, the man-
ufacturing costs of our mainstay relay products are being
pushed up significantly by costs for raw materials due to soar-
ing conditions in the silver and copper markets. As a measure
to boost earnings in this challenging environment, particularly in
small-size backlights for mobile devices where there is strong
pressure to lower costs, we integrated our product strategies
for point light source lights for the low end of the market and
multiple light source lights for the high end of the market, which
had previously been promoted on two separate tracks, and we
have been devoting efforts to improving efficiency in develop-
ment costs and enhancing our product power. We have also
established a Business Strengthening Project which we are
deploying across the ECB company as we promote sweeping
measures to improve productivity.
As a new initiative, we are presently strengthening and
expanding our line of semiconductor-related products through
our new company Omron Semiconductors Co., Ltd., a whol-
ly-owned subsidiary established at the end of 2006.
Semiconductor business assets transferred from Seiko Epson
Corp. form the foundation of this subsidiary, and in fiscal 2007
we plan sales of approximately ¥3 billion (see the special feature
on P33). Moreover, in our optical fiber communications com-
ponents business, which is beginning to show promising signs
of growth, we will promote the global development of the fiber-
to-the-home (FTTH) market.
BUSINESS RESULTS AND OUTLOOK FOR FISCAL 2007
Outlook for Double-digit Growth in Sales and Profit
despite Concerns over Pressure on Earnings
In fiscal 2006, ECB recorded net sales of ¥138.4 billion
(up 41.6% year on year), and operating income of ¥13.1 billion
(up 16.9%). In the domestic market, demand for semiconduc-
tor and equipment related products is moving at a favorable
pace. In addition, the round of inventory adjustments for digital
consumer electronics which was underway during the second
half of the previous year has come to an end, and our main-
stay products, such as switches and relays for printed sub-
strates as well as connectors, made steady progress. Overseas
22
ECB RESULTS AND PLANS
Fiscal Year
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization*
Capital expenditures
2007 Plan
180.5
75.5
105.0
12.2
12.6
9.3
61.2
9.7
15.3
8.5%
10.0
15.0
2006
138.4
58.8
79.6
11.0
12.0
8.6
35.7
12.4
13.1
9.5%
8.1
9.0
12.8
YoY
141.6%
130.5%
151.1%
110.9%
96.2%
136.5%
245.4%
130.8%
116.9%
(2.0% pt.)
103.5%
108.0%
181.4%
2005
97.7
45.0
52.7
9.9
12.5
6.3
14.5
9.5
11.2
11.5%
7.8
8.4
7.1
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 FY2007 are based on exchange rates of ¥115/US$ and ¥150/Euro.
* The sales figures given indicate sales to external customers and exclude inter-segment transactions. Operating income indicates income including internal income prior to
the deduction of amounts such as inter-segment transactions and headquarters expenses that are not apportionable.
* Projections for depreciation and amortization are not publically released.
MEMS Microphone Chip
Measuring only 1.2 x 1.3 x 0.4mm, a super miniature micro-
phone chip developed using the latest MEMS* technology and
is among the smallest microphone chips in the world.
Combination Jog Switch
A customized jog device that contributes significantly in the
area of design, the switch enables the fabrication of more com-
pact and flatter mobile devices.
OKAO Vision Facial Image Sensing
Software with a range of functions such as exposure correc-
tion in cameras, brightness correction in photo printing, and
personal identify verification of the owners of mobile phones,
OKAO recognizes with high accuracy facial images and can
estimate age and determine sex.
* MEMS (Micro Electro Mechanical System)
Using semiconductor processes, production technology for
precise structures and devices.
in the Chinese market, one of our priority areas, we are cap-
turing demand for products for consumer electronics and mobile
devices and we increased our sales significantly. In addition,
the backlight business of Pioneer Precision Machinery
Corporation (currently Omron Precision Technology Co., Ltd.,
hereafter “OPT”), which became a consolidated subsidiary in
August 2006, also made contributions to sales (approximately
¥26 billion, for eight months). Also, the optic communications
business of NHK Spring Co., Ltd., was transferred to Omron in
November 2006, and we have made efforts to beef up that
business (see the special feature on P35).
In fiscal 2007 we are expecting net sales of ¥180.5 billion
(up 30.5% over the current period) and an operating income of
¥15.3 billion (up 16.8%). Raw material prices such as copper
and silver remain high and will continue to place pressure on
earnings, but we expect the demand environment to remain
favorable. In terms of anticipated performance for specific prod-
ucts, we expect an increase in demand for flexible printed circuit
connectors for mobile devices, combination jog switches, and
hinges. In addition, we anticipate an increase in demand for
relays for communications equipment in Europe and the United
States. Furthermore, OPT will contribute to earnings for the full
year for small to medium-size backlights, and we can also expect
a rise in demand for large-size backlights as the popularity of
large flat-screen TVs accelerates.
MEASURES FOR ACCELERATING GROWTH
Strengthening Existing Areas and the Backlight
Business through Expansion of Our Facilities in China
At ECB we are making plans to put in place a cost structure
that will enable us to stand up to strong competition inside and
outside China. At the same time, we are currently undertaking ini-
tiatives to strengthen our existing business (relays, switches,
and connectors) in China and to boost our production capacity in
backlights so that we can remain in close contact with major
local manufacturers to respond to their requests promptly. As
part of this initiative, we have already started construction on
the third phase of our production subsidiary OMZ, which was
established as a core base for our existing business areas in
June 2006, and we plan to establish a framework for accom-
modating a double-digit increase in demand by 2010. In the back-
light business, following on from the start of operations of a
new large-scale liquid crystal backlight plant in Changshu, Jiangsu
Province in December 2006, we commenced operations in April
2007 at a second plant of an existing production subsidiary for
small-size liquid crystal backlights with a monthly production
capacity of 8,000,000 units, in the province.
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AUTOMOTIVE ELECTRONIC COMPONENTS BUSINESS (AEC)
Manufacture and sale of electronic components for automobiles
Yoshinori Suzuki, Managing Officer
Company President, Automotive Electronic Components Company
As automobiles make greater use of electronic components and become more sophisticated,
the Automotive Electronic Components Company (AEC) is increasing sales steadily under the
principle of meeting society's need for more secure, safe and environmentally friendly
products. With regard to the challenge of increasing profitability, positive results are being
seen gradually in tandem with a fundamental reform of our cost structure. Our goal is to
expand our business while maintaining a balance between growth and profits.
MARKET ENVIRONMENT AND KEY STRATEGY
Promoting Our High Value-Added Module Business
In 2006, Japan’s automobile production reached the
world's top spot, surpassing domestic output in the United
States for the first time in 13 years since 1993. Even though
Japan's domestic automobile market is reaching maturity, pro-
duction increased in 2006 mainly as a result of the growing pop-
ularity of Japan's fuel-efficient automobiles worldwide against
the backdrop of a surge in gasoline prices, triggering a rapid
increase in production of vehicles for export. Automobile pro-
duction is forecast to continue growing steadily on a global
basis, driven by the demand in Asia which is enjoying remarkable
economic growth. Japan’s automobile manufacturers are
responding by moving aggressively to build factories in emerg-
ing countries, focusing particularly on China, prioritizing on local-
ized production and procurement as well as enhanced cost com-
petitiveness. At the same time, intensifying competition to
develop a new generation of automobiles based on the themes
of environmentally friendliness, improved safety and comfort
has set the stage for car electronics demand to expand. AEC
expects the above trend will continue in the automobile industry
for the time being. We are taking advantage of the demand for
car electronic components driven by increased awareness for
automobile safety and environmental conservation by develop-
ing our business for tire pressure monitoring systems and other
high-performance component modules, while operating our fac-
tories in China to their full potential to meet local procurement
needs. Nevertheless, profitability has become an increasingly
significant challenge due to downward pressure on electronic
component prices and surges in raw material costs caused by
soaring silver and copper market prices.
BUSINESS RESULTS AND OUTLOOK FOR FISCAL 2007
Profitability Improvements Will Put Fiscal 2007
into the Black
In fiscal 2006, AEC recorded net sales of ¥93.3 billion (up
20.3% year on year) and an operating loss of ¥1.2 billion.
Despite the small increase in domestic automobile production,
expanded use of AEC products in new automobile models over-
seas enabled sales to exceed expectations made at the begin-
ning of the fiscal year. Particularly noteworthy was North
America, where our new products such as wireless control
equipment and power window switches enjoyed higher sales,
even though the auto sales performance of our main customers
was disappointing. Also, our manufacturing subsidiary in China,
which began full operation in January 2006, made an enor-
mous contribution to AEC's total sales growth. Earnings, how-
ever, were another matter. Although value analysis/value engi-
neering-based cost reductions, the relocation of some compo-
nent production and other emergency measures designed to
improve profitability did help earnings recover in the second
24
AEC RESULTS AND PLANS
Billions of yen
Fiscal Year
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization*
Capital expenditures
2007 Plan
100.0
25.5
74.5
41.9
12.8
17.3
2.4
0
1.4
1.4%
8.0
6.0
2006
93.3
26.1
67.2
37.9
9.8
16.2
1.4
2.0
(1.2)
—
7.1
8.1
8.9
YoY
120.3%
95.7%
133.5%
131.5%
157.9%
106.8%
1032.4%
—
—
—
106.9%
116.9%
79.6%
2005
77.6
27.2
50.4
28.8
6.2
15.1
0.1
0
(2.0)
—
6.7
7.0
11.2
2004
64.6
26.0
38.6
21.0
5.4
11.9
0
0.3
(0.9)
—
6.4
3.3
7.6
2003
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 FY2007 are based on exchange rates of ¥115/US$ and ¥150/Euro.
* The sales figures given indicate sales to external customers and exclude inter-segment transactions. Operating income indicates income including internal income prior to
the deduction of amounts such as inter-segment transactions and headquarters expenses that are not apportionable.
* Projections for depreciation and amortization are not publically released.
Laser Radar
Measures the distance to the vehicle up ahead using a sensitive
wide-field laser to contribute to realizing a driving control sys-
tem. In addition to automobiles, bicycles and other objects are
also detectable.
Smart Entry
Portable devices that transmit signals to automatically lock
and unlock doors. It also features enhanced security func-
tions for authorizing engine start-up, increasing the owner’s
peace of mind.
Electric Power Steering Controller
Compared with conventional oil pressurization, electric (motor-
ized) power steering leads to improved fuel efficiency.
Consequently, adoption of electric power steering controllers is
rapidly expanding in new automobile models.
half, delayed productivity improvements at our North American
manufacturing facility, higher raw material costs and other fac-
tors resulted in our third consecutive year of operating losses.
Our fiscal 2007 full-term forecast looks for net sales of
¥100 billion (up 7.2% year on year) and a return to the black
with operating income of ¥1.4 billion. Despite potential risk fac-
tors such as poor performance among the Big Three in North
America and slumping sales of new cars in the Japanese mar-
ket, we anticipate a rise in automobile production in China,
India, Central and Eastern Europe, South America and other
new markets. Moreover, we expect stronger demand for such
strategic products as laser radars, tire pressure monitoring sys-
tems and electric power steering controllers in light of expand-
ed use of AEC products in new models scheduled to be
launched by Japanese and non-Japanese automobile manu-
facturers. As for earnings prospects, AEC’s own efforts to
improve its manufacturing efficiency should of course help, as
will working with IAB and ECB to share product platforms for
relays and other products and lower R&D costs. In taking these
steps we are determined to return to profitability. (See P13 for
profitability recovery initiatives)
MEASURES FOR ACCELERATING GROWTH
Greater TPMS Marketing in North America in
Response to New Safety Requirements
In 2000 inadequate tire pressure was pointed out to be
one of the causes of a series of automobile tire failure acci-
dents in the United States. As a result, automobile safety leg-
islation, known as the TREAD Law*, was passed that requires
all automobiles sold in the United States from September 2007
to be equipped with a TPMS** device to warn of inadequate
tire pressure. TPMS is an alarm system that uses a wireless
central processing unit with a high-frequency receiver to
receive information from sensors attached to each of the four
wheels of an automobile. The driver of an automobile receives
data on tire pressure and internal temperature of the tire and
will be alerted to an abnormal condition. AEC has already intro-
duced products for TPMS systems using electronic frequency
sensing technology to the North American market from fiscal
2005, based on which it will expand the business to promote
installation in new model vehicles.
* TREAD Law: Transportation Recall Enhancement, Accountability and
Document Act
**TPMS: Tire Pressure Monitoring System
25
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S O C I A L S Y S T E M S B U S I N E S S ( S S B )
Providing solutions and services for realizing a secure, safe, and comfortable social environment
Yutaka Takigawa, Senior Managing Officer
Company President, Social Systems Solutions Business Company
In response to today’s growing needs for security, safety and comfort, SSB is promoting
expansion of new business areas by providing solutions that capitalize on the strengths of the
Omron Group in services ranging from image sensing, IC card technology, and system
construction to system maintenance and management.
MARKET ENVIRONMENT AND KEY STRATEGY
BUSINESS RESULTS AND OUTLOOK FOR FISCAL 2007
Stepping up Efforts to Address Society’s Needs in
Security, Safety, and Comfort
Amid calls for tighter measures to address increasing inci-
dents and accidents in society and growing concern regarding
corporate social responsibility and internal control in the wake of
a series of corporate scandals, the demand for services to pro-
mote a safer, more secure society where people can live with
greater peace of mind is set to increase. Likewise, as values in
our society become increasingly diverse, new services to
address individual needs in pursuit of more comfortable and
convenient lifestyles have emerged one after another. In this
environment of dramatic changes in social needs, SSB cannot
expect significant further growth in its railway and roadway
infrastructure services which have been its mainstay to date.
The widespread use of IC cards has resulted in the need for
fewer ticket vending machines, and government agencies are
restraining investment in infrastructure. To counter this we will
foster image sensing and IC technologies which we have devel-
oped to date by positioning them as core technologies that
will serve as the mainstay of future growth in new business
aimed at providing wide-ranging solutions centered on the
themes of security, safety, comfort, and convenience. Also,
we will continue efforts to transform our business manage-
ment and change business processes in our existing busi-
nesses to strengthen our business structure.
Efforts to Secure Profit amid a
Significant Decline in Sales
In fiscal 2006, SSB recorded net sales of ¥105.9 billion
(up 15.4% year on year), and operating income of ¥8.1 billion
(up 82.0%). In the railroad infrastructure business, new and
replacement demand for automated passenger gates and auto-
matic ticket vending machines was a major driving force in
sales as the nationwide transition to IC card use by railways
in Japan continued. Sales in the IC card mobile solutions busi-
ness also grew accompanying an increase in demand for cred-
it authorization terminals. Sales also increased in the new serv-
ices segment due to demand for security against the leaking of
information at production sites. On the other hand, sales in the
roadway infrastructure business tapered considerably. Despite
efforts to promote traffic-load measuring systems, there were
few major contracts. In terms of profits, because of the
decrease in fixed expenses and other costs due to the
changeover in operations, increases in income exceeded the
sales increases considerably.
During fiscal 2007, we expect net sales of ¥90 billion
(down 15.0% year on year) and operating income of ¥7.3
billion (down 9.6%). The cycle of demand accompanying the
introduction of IC cards for transport tickets will come to an
end, and sales are expected to fall off considerably. On the
other hand, we expect an increase in demand for new
26
SSB RESULTS AND PLANS
Fiscal Year
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization*
Capital expenditures
2007 Plan
90.0
87.5
2.5
1.0
0
0
0
1.5
7.3
8.1%
3.5
1.8
2006
105.9
101.8
4.1
5
0
0
0
3.6
8.1
7.6%
5.1
3.3
3.9
YoY
115.4%
112.6%
308.8%
262.1%
—
—
—
317.9%
182.0%
+2.8% pt.
128.3%
101.9%
91.6%
2005
91.8
90.5
1.3
0.2
0
0
0
1.1
4.4
4.8%
3.9
3.2
4.3
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 FY2007 are based on exchange rates of ¥115/US$ and ¥150/Euro.
* The sales figures given indicate sales to external customers and exclude inter-segment transactions. Operating income indicates income including internal income prior to
the deduction of amounts such as inter-segment transactions and headquarters expenses that are not apportionable.
* Projections for depreciation and amortization are not publically released.
Non-contact IC Specialized Automated
Passenger Gates
The latest in automated passenger gates, antenna components
attached to passenger gates instantly read information con-
tained in a non-contact IC card held briefly over the machine
and then allow passengers to pass through
Real-time Security Management Systems
Quantifying the continually changing risk of important assets in a
building, this system contributes to security and safety through
its ability to profile risks in real time by making risk “visible”.
Next-generation Image Sensors
Sensors that can read differences in the movement of moving
objects, separate images of overlapping objects on screen and
perform precise tracking operations, these sensors are already
used in the area of road traffic control systems. At present
these sensors are being developed for application in security
and safety solutions where they will be used for sensing the
movement of people and objects.
Launch of the ID Management Solutions Business
In March 2007, SSB integrated its security solutions busi-
ness and IC card mobile solutions business, and launched its ID
management solutions business. This business will contribute
to increasing the value of cities and local areas by gathering
and analyzing ID information of individual people and objects and
providing solutions that will promote security & safety, and
comfort & convenience. In fiscal 2007, we plan to devote efforts
to improving security in cities and local areas through the pro-
vision of a range of security packages and improving the con-
venience of IC cards in areas such as micro-payment and point
club services.
business in the area of security for ID keys using facial
recognition to control, for example, persons entering and
leaving production sites. In this environment we will devote
our efforts to further boosting the operating income margin
and curbing the decrease in profits as sales taper off. To
achieve this, we aim to reduce fixed expenses by continuing
to change the way we manage operations and through the
efficient management of SG&A and R&D expenses.
MEASURES FOR ACCELERATING GROWTH
Development of New Security Systems
In a three-company joint project withTakenaka Corporation,
a major construction company, and Secure Planning Co., Ltd.,
a company specializing in anti-crime consulting, Omron devel-
oped a real-time security management system in November
2006. This system enables supervisors in buildings to identify
risk in real time and implement appropriate, optimal risk meas-
ures by quantifying external and internal risks as they change by
the moment based on information such as the location of impor-
tant assets and the status of people in nearby areas obtained
through cameras and sensors stationed in different locations in
the building. SSB plans to expand this new system not only
into plants and offices but also commercial facilities and schools
to contribute to improving the safety and security of cities.
27
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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 medical institutions.
Keiichiro Akahoshi
Representative Director and Chief Executive Officer, Omron Healthcare Co., Ltd.
Omron Healthcare Co., Ltd. (HCB) is enjoying steady growth amid a market that is expanding
with rising global awareness of disease prevention. Our goal is to increase the size of our
business through the promotion of our “Healthcare @ Home” business, which aims at preventive
treatment via home healthcare management and by sharing related data with medical
institutions. Our goal is also to increase our business through our creation of health & medical
equipment and services in a wide range of areas.
MARKET ENVIRONMENT AND KEY STRATEGY
BUSINESS RESULTS AND OUTLOOK FOR FISCAL 2007
Acceleration of Growth in Our Global Business as
Awareness of Lifestyle-related Disease Prevention Rises
In Japan, for health-insured individuals aged 40-74 a spec-
ified array of physical examinations and health guidance will
be made mandatory from fiscal 2008, with the prevention of
lifestyle-related disease listed as one of the national measures
to slash medical expenditures. As a result, the Japanese are
becoming more aware of lifestyle-related disease prevention. As
a research survey conducted by HCB in January 2007 shows,
public awareness of metabolic syndrome* has skyrocketed in
just one year, from 3% to 74%.
Given this background, we believe the Japan market for
lifestyle-related disease prevention for medical institutions and
individuals will see further growth. Also, because of the aging of
populations, particularly in advanced countries, and rising living
standards in emerging countries, the issue of lifestyle-related
disease measures is being pushed to the national level in various
countries, and global demand for health and medical equipment
is expanding. In the face of these developments, based on the
concept of Healthcare @ Home, HCB is creating useful prod-
ucts that can help prevent and treat lifestyle-related diseases
while promoting a differentiation strategy underpinned by bio-
information sensing technology and high-quality products.
* Metabolic syndrome: A condition characterized by obesity caused by fat
collected on internal organs that can combine with such risk factors as
high blood pressure, diabetes and lipid abnormality to easily trigger heart
attacks and seizures.
Growth in Body Composition Analyzers in Japan
and Blood Pressure Monitors Overseas
In fiscal 2006, HCB realized net sales of ¥65.7 billion (up
7.6% year on year) and operating income of ¥8.7 billion (up
0.4%). In the Japan market, in addition to greater personal
health awareness triggered by increased public familiarity with
metabolic syndrome, faster efforts by local governments and
companies for meeting the obligation of a specified array of
physical examinations and health guidance were favorable fac-
tors. In overseas markets, sales in Russia, Eastern Europe and
China rose, led by products such as blood pressure monitors.
On a global basis however, price competition is becoming more
severe. As for our earnings performance, an approximately
¥0.7 billion investment in business restructuring in connection
with our acquisition of Omron Colin (formerly Colin Medical
Technology Corporation) was a temporary factor weighing down
operating income.
In fiscal 2007, we forecast net sales of ¥73.5 billion (up
11.8% year on year) and operating income of ¥9.5 billion (up
9.4%). In particular, we look for continued strong growth in
blood pressure monitor sales in China and Russia and body
composition analyzer sales in Japan. At the same time, our
equipment for medical institutions business is coming up
against hospital management efficiency measures driven by
28
HCB RESULTS AND PLANS
Fiscal Year
Net sales*
Domestic
Overseas
North America
Europe
Asia
China
Direct exports
Operating income*
Operating income margin*
R&D expenses
Depreciation and amortization*
Capital expenditures
2007 Plan
73.5
37.5
36.0
14.3
14.4
2.0
4.6
0.7
9.5
12.9%
4.5
2.1
2006
65.7
32.8
32.9
13.8
13.1
2.1
3.6
0.3
8.7
13.2%
3.9
1.0
1.5
YoY
107.6%
108.2%
107.0%
89.8%
124.3%
127.0%
123.8%
106.8%
100.4%
(1.0% pt.)
115.5%
93.5%
94.7%
2005
61.1
30.3
30.8
15.4
10.6
1.6
2.9
0.2
8.7
14.2%
3.3
1.1
1.6
2004
50.6
23.1
27.5
14.6
8.9
1.4
2.6
0.1
7.6
15.1%
2.7
0.7
2.1
Billions of yen
2003
47.0
21.3
25.7
13.3
8.3
1.2
2.7
0.1
7.2
15.3%
2.7
0.9
1.9
* Projections for FY2007 are based on exchange rates of ¥115/US$ and ¥150/Euro.
* The sales figures given indicate sales to external customers and exclude inter-segment transactions. Operating income indicates income including internal income prior to
the deduction of amounts such as inter-segment transactions and headquarters expenses that are not apportionable.
* Projections for depreciation and amortization are not publically released.
HEM-7020 Digital Blood Pressure Monitor
A blood pressure monitor with detection functions for early
morning high blood pressure, which is difficult for Hospitals to
detect. If weekly average readings for morning readings sur-
pass the standard level of 135/85mmHg, a warning icon appears
on display early morning high blood pressure.
HBF-361 Body Composition Analyzer
A body composition analyzer which measures visceral fat level
and percentage of subcutaneous fat. Visceral fat level can be
measured down to a unit of 0.5 and the result can be compared
with the mean values for people in the same age group.
“Form” Blood Pressure and Pulse Wave
Screening Device
A blood pressure and pulse detection device that can deter-
mine hardness of blood vessels as well as constriction and
blockage. In just a few minutes, patients can quickly and easi-
ly have their blood ves-
sels checked and thus
receive efficient care for
lifestyle-related diseases.
New Factory in Vietnam
In response to rising global demand for home-use blood
pressure monitors, HCB has invested about ¥0.6 billion in con-
struction of a new factory in Vietnam, which will begin pro-
duction in December 2007. At present, HCB has a roughly 50%
global share of home-use blood pressure monitors, of which
some 97% is manufactured at our factory in China. However,
the aging of populations in advanced countries and the rising
number of lifestyle-related disease patients in emerging coun-
tries suggest that demand for home-use blood pressure mon-
itors is likely to experience further growth.
the need to contain medical costs and other unfavorable devel-
opments. However, it is expected that demand for equipment
for lifestyle-related diseases such as vascular screening devices
will continue to grow.
MEASURES FOR ACCELERATING GROWTH
Tie-up with GE Yokogawa in Bio-Information
Monitoring
In April 2007, HCB formed an alliance with GE Yokogawa
Medical Systems of the General Electric (GE) Group to acquire
exclusive sales rights to GE's bio-information monitors* sold
in the Japan market and to jointly develop products in the diag-
nostic, prevention and home medical fields. In the bio-infor-
mation monitoring business, HCB has been involved in devel-
oping products for general hospital wards, while GE Yokogawa
has provided high-performance products mainly for use in oper-
ating rooms and intensive care units. By tying up with GE
Yokogawa, HCB is expanding its business through the creation
of a sales structure that can supply a wide variety of products,
from those for general hospital wards to operating rooms and
intensive care units in need of high-performance equipment.
Furthermore, going forward we will jointly develop products
for markets worldwide with GE.
* Bio-information monitoring devices monitor a patient's condition by meas-
uring and recording blood pressure, pulse and other forms of bio-infor-
mation, as well as perform electrocardiograms.
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BUSINESS DEVELOPMENT GROUP AND OTHER BUSINESSES RESULTS AND PLANS
Billions of yen
Fiscal Year
Net sales*
Domestic
Overseas
Operating income*
Operating income margin*
R&D expenses
Depreciation and
amortization*
2007 Plan
16.5
16.0
0.5
(0.6)
—
9.5
2006
27.8
27.7
0.1
2.4
8.7%
9.7
YoY
106.9%
107.8%
35.0%
144.8%
+2.3%pt.
95.1%
2005
25.9
25.7
0.2
1.7
6.4%
10.2
2004
26.8
26.4
0.4
3.8
14.2%
10.6
2003
24.5
24.0
0.5
3.8
15.5%
9.8
Capital expenditures
125.4%
51.7%
* Projections for FY2007 are based on exchange rates of ¥115/US$ and ¥150/Euro.
* The sales figures given indicate sales to external customers and exclude inter-segment transactions. Operating income indi-
cates income including internal income prior to the deduction of amounts such as inter-segment transactions and headquarters
expenses that are not apportionable.
1.3
3.6
1.3
9.5
1.0
7.0
5.1
5.8
7.1
Remote Monitoring Equipment
A terminal for measuring energy consump-
tion at business facilities that can be installed
easily without requiring any wiring work with
the adoption of a mobile communication net-
work and specified low-power consumption
radio transmission. The terminal can provide
detailed measurement data at low cost.
* Projections for depreciation and amortization are not publically released.
BUSINESS DEVELOPMENT GROUP AND OTHER BUSINESSES
Seeking Out and Fostering New Business Opportunities
Kazunobu Amemiya, Executive Officer
Senior General Manager, Business Development Group
The Business Development Group is contributing to the building of a basis for the Omron
Group’s growth by seeking out and fostering new business opportunities and also supporting
technological development and product commercialization. In particular, we are focusing on
the steadily-growing energy management and RFID businesses and stepping up efforts
toward their further growth.
MARKET ENVIRONMENT AND KEY STRATEGY
Placing High Expectations on the RFID System and
Energy Monitoring Businesses
We have our eyes on people’s growing awareness of
environmental protection and energy-saving. Accordingly, we
are accelerating efforts to identify the potential of the com-
mercialization of energy monitoring equipment and related serv-
ices, which should not only support corporate clients’ promotion
of energy-saving efforts but also contribute to their cost-cut-
ting efforts. We will also take advantage of the full-scale growth
in demand for RFID*-related equipment to provide the global
marketplace with products suitable for UHF and HF radio bands.
Further, we will seek to create new businesses in the fields
of safety, security, environment and health by making full use
of the Omron Group’s core competence.
* RFID: Radio Frequency Identification
BUSINESS RESULTS AND FISCAL 2007 OUTLOOK
Photo Sticker Machines, Energy Monitoring
Business Turn in Strong Performance
In fiscal 2006, we saw net sales of ¥27.8 billion (up
6.9% year on year) and operating income of ¥2.4 billion (up
44.8%). Among existing businesses, the mainstay photo
sticker machines performed strongly in the entertainment
business, with the membership of the mobile site linked to
these machines also growing smoothly. In the computer
peripherals business, sales increased for uninterruptible
power supply equipment. Among businesses with particular
emphasis for growth, we started shipments of UHF-band
RFID equipment to the Asian market, following the U.S. and
Japanese markets, and sales of the newly launched energy
monitoring business also grew steadily.
In fiscal 2007, however, despite an expected expansion of
the RFID and energy monitoring businesses, we are forecasting
an operating loss of ¥0.6 billion on net sales of ¥16.5 billion
(down 40.5% year on year), as the sale of the entertainment
business will lead to a corresponding decline in both sales and
operating income and as we continue to invest in the search for
new business opportunities.
MEASURES FOR ACCELERATING GROWTH
Expansion of the Energy Monitoring Business
We are putting extra effort into the energy monitoring
business as a new business area. In this business, we utilize
wireless technology to measure energy consumption of air-con-
ditioning and other equipment, as well as room temperature
and humidity, at manufacturing plants and distribution centers,
process the measurement results into data useful in energy-
saving efforts and feed these data into personal computers of
client companies or into mobile phones of individuals. We
launched the business in fiscal 2006 to provide both equipment
and services to corporate clients who can expect both energy-
saving and cost-cutting benefits. We will seek to double fiscal
2007 sales for the business from the fiscal 2006 level, and at the
same time expand the scope of energy measurement and
enhance the range of data services provided.
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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
Intellectual property relating to technology and know-how is one of the Omron Group’s most vital management
resources for ensuring its sustainable growth. Acting as our mentor in technology, the Intellectual Property
Center strategically links research and development with business and plays an essential role as a corporate
concierge in converting technology into profit.
Patent Applications and Approvals in the United States
Patent Applications in China
200
150
137
178
169
163
157
132
88
82
62
44
100
93
50
0
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01
Applications
162
160
150
142
200
150
100
50
38
105
02
Approvals
03
04
05
06
(FY)
0
01
02
03
04
05
06
(FY)
Applications
Omron’s Research and Development Scheme and
Strategy for Intellectual Property
Focusing on sensing and control as core competencies,
the Advance Device Laboratory and Sensing & Control Laboratory
are responsible for the development of fundamental technology
while the companies of the Omron Group engage in the devel-
opment of applied technology and product development.
In the context of this research and development scheme,
the Intellectual Property Center not only serves as an interme-
diary between business and technology but also contributes
to the Group by creating the differentiating value that in the
future will set Omron apart from other manufacturers in the
industry. In specific terms, the Center comprehensively man-
ages intellectual content from the development of fundamental
technology to the development of applied technology and
determines the direction of strategic development with a view
to providing integrated support for both R&D and the business
units. Through the Intellectual Property Center, we will predict
and assess value in terms of the differentiating value that will be
created in the future, synergies between technologies, and
the accumulation of know-how, and we will promote the acqui-
sition of rights for these projects, including business models
from the research and development stages to their catego-
rization as business models, aiming at maximization of corporate
value.
Stepping up Patent Applications in the United States and
China and Commencing Application Procedures in India
Since the Omron Group put in place its long-term man-
agement vision GD2010 in 2001, we have accelerated our busi-
ness development globally and have increased our number of
overseas patent applications. With our sights set on securing
patents that will enhance our competitive edge internationally,
we are stepping up efforts to acquire patents in the United
States. Likewise, we have also been promoting the acquisi-
tion of patents in China, which is positioned as one of our pri-
ority strategic areas. In India too, despite existing inadequa-
cies in legislation to protect intellectual property rights, we
have not only investigated legal conditions but have actually
begun to file applications for patents with a vision for the future.
Promoting the Acquisition of Patents on a Global Scale
To coincide with our plans as a global corporation, we
will continue to promote collaborative innovation with local
universities and local development in various regions of the
world. In China, as we move ahead with research and devel-
opment locally at the Omron Institute of Sensing & Control
Technology (ORS) in Shanghai and at Omron (Shanghai) Co.,
Ltd., the need for us to apply for patents locally in accordance
with the Chinese legal system is increasing in recent years.
To facilitate the acquisition of patents, we have appointed spe-
cialist staff in both China and North America to provide local
support at every stage from consultation concerning inven-
tions to the filing of patent applications.
Intellectual Property and R&D-related Data
Fiscal Year
Number of patents
Applications
Approvals
Total patents
R&D expenses (Billions of yen)
R&D expenses ratio
R&D staff (persons)
2006
2005
2004
2003
2002
1,300
836
5,206
52.0
7.1%
1,630
1,509
705
4,538
50.5
8.1%
1,591
1,216
676
4,426
49.4
8.1%
1,384
1,170
580
4,154
46.5
7.9%
1,594
1,141
543
4,068
40.2
7.5%
1,378
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SPECIAL FEATURE:
GROWING STRONGER AND EXPANDING OMRON’S REACH THROUGH M&A
Because we live in a rapidly changing world, we at Omron understand that it is essential for us to always be seek-
ing out promising fields, areas, and technologies for our growth, rapidly reorganize and recombine our busi-
ness areas to accommodate selection and concentration of management resources, and grow our business. As
a powerful means of executing this strategy, we carefully consider the possibilities of M&A and proceed accord-
ingly. In this special feature, we present the strengthening and expanding of our businesses through M&A in six
case studies explaining initiatives to create synergies with existing businesses and to break into new growth areas
in the 2nd Stage of GD2010 from the perspective of long-term maximization of corporate value.
Case 1: Aiming to be the global No. 1 company in safety equipment for the production site.
In addition to the need to pursue productivity at production
sites, there is a rapidly growing need to establish greater safe-
ty. Positioning the safety equipment business specializing in
safety at production sites as its top area of priority, the Industrial
Automation Business (IAB) has focused its efforts on strength-
ening its expertise in system solutions and consulting in safety
design know-how in addition to the manufacture of its wide-
ranging product lineup of safety equipment from components
to networks. As a result of its efforts, IAB has the largest share
of the safety equipment market for the Japanese and Asian
automobile and semiconductor industries.
Aiming for ambitious growth to further enhance our posi-
tion in the market, we acquired the safety equipment business
division of Scientific Technologies, Inc. a top manufacturer of
safety equipment in North America, in June 2006, and estab-
lished Omron Scientific Technologies, Inc (OSTI). OSTI has
strengths in safety equipment such as powerful, long-distance
safety light curtains and laser scanners and in North America
also boasts high technical expertise and brand power in the
food, pharmaceutical, and cosmetics industries as well as in
the automobile, semiconductor, and electronic machinery indus-
tries. Therefore, IAB plans to add OSTI’s safety devices to its
product lineup and to expand their application.
Moreover, the integration of IAB’s sensing and control
technologies and OSTI’s basic patents for optical application
technology and superior know-how in creating powerful devices
will boost IAB’s ability to respond to advanced safety needs
by reinforcing its expertise and pace of development.
As a result of these efforts, IAB’s safety equipment busi-
ness in fiscal 2008 is anticipating sales of ¥30 billion, which
represents a three-fold increase in sales from fiscal 2005.
Safety Laser Scanner
Programmable Terminal
Safety Mat
Safety Light
Curtain
Guard Lock Safety-door Switch
Safety Network Controller
Target for Expanding the Safety Business of Omron
Billions of yen
10.0
2005
15.1
2006
22.0
2007
plan
30.0
2008
Target
(FY)
* OSTI has been in the scope of consolidation since September 2006
32
Case 2: Total quality support at the production site through precision laser processing technologies
In June 2007, Omron entered into a business and capi-
tal alliance with LaserFront Technologies Co., Ltd. (LFT), a
development and manufacturing company of precision laser
processing equipment that became independent of NEC Corp.
and that recorded net sales of ¥10.3 billion in fiscal 2006, and
officially changed its name to OMRON LASERFRONT Inc. (See
P21). This company is the first in the world to commercialize the
use of solid lasers and possesses technological expertise of
the highest standard in both laser oscillators and laser process
technology that utilizes the oscillators in manufacturing. The
company in particular boasts top global share for laser CVD
repair systems* for LCD panels.
Through this capital alliance, IAB added to its product line-
up various products used in manufacturing and repair process-
es such as laser repair devices, laser markers** and laser
welders which utilize precision laser processing technologies
owned by LFT. Furthermore, IAB plans to expand the domain of
its quality solution business by providing solutions for yield
improvement and traceability systems in all areas of produc-
tion processes including machining, assembly, inspection,
measuring, and repair.
* CVD repair systems for LCD displays: these systems improve the yield in
LCD mass production by using laser irradiation on defective areas occur-
ring in the metal wiring pattern on LCD substrates in processes for LCD
displays. Products are repaired through thin film pattern cuts, fusion join-
ing, and connection of spaces between wiring with laser CVD film. Laser
CVD (chemical vapor deposition) is a coating method based on the for-
mation of a membrane through chemical and physical reactions of raw
material gas on a laser irradiated surface achieved by irradiating laser
beams on a substrate placed in the gas.
**Laser markers: devices which directly engrave characters such as let-
ters and symbols on a surface by altering, fusing, or evaporating a part of
the material surface through laser irradiation. One example of such devices
is two-dimensional bar-code printing equipment.
Production Process
Material
Processing
Assembly
Inspection /
Measurement
Repair (processing)
Shipment
Information (Traceability)
Laser welding
Laser trimmer
Film-thickness sensor, LCD /
overlay measurement
LCD repair
Laser marker
Two dimension code reader/RFID
Precision laser processing technologies
Integration
Sensing & control technologies
Case 3: Full-fledged entry into the proprietary development and production of Omron semiconductors
Following the transfer of assets of the semiconductor
business of Seiko Epson Corporation and its consolidated sub-
sidiary Yasu Semiconductor Corporation to ECB at the end of
fiscal 2006, OMRON Semiconductors Co., Ltd. (OSC) was
established as a wholly-owned subsidiary and commenced
operation in April 2007. The new company started with the
commissioned manufacturing of nonvolatile memory and logic
ICs employing an 8-inch CMOS (complementary metal oxide
semiconductor) production line. As OSC gradually expands its
production lineup to include proprietary semiconductor ele-
ments and other products, it is aiming for sales of ¥3 billion in
fiscal 2007 and more than ¥5 billion in fiscal 2010.
The Omron Group has been involved in the development,
production and marketing of custom ICs that offer functionality
and cost performance not found in general-purpose semicon-
ductors as well as MEMS (micro electro mechanical systems)*
products such as flow sensors and pressure sensors that utilize
semiconductor processes in their manufacture. The acquisi-
tion of OSC will facilitate further development of products that
utilize semiconductors within our Group as we push ahead
with plans to fully strengthen and expand our semiconductor-
related business.
* MEMS (micro electro mechanical systems) are electronic device sys-
tems consisting of minute parts fabricated using semiconductor micro-
fabrication technology where photographic technology is applied.
Specifically, the method of production involves applying photographic
sensitive material over a silicon wafer and printing an electronic circuit
pattern through irradiation and then scraping off unwanted parts of the sur-
face by etching and other methods.
33
Case 4: Expanding business in optical communication devices world wide
Acquisition of NHK Spring’s optical communication parts
business for the FTTH market
Acquisition of Aduro, an American venture company and
manufacturer of high-speed communication parts
Led by advanced countries, the introduction of FTTH (fiber-
to-the-home), a high-capacity, super-fast continuous connec-
tion network environment using a fiber optic cable connection,
is rapidly progressing. In tune with this trend, ECB has focused
its attention on lowering the cost of optical waveguides* used
in optical splitters, which are key devices in FTTH. To achieve
this, ECB put SPICA** (replication polymer optical waveguide)
technology to practical use. Although as a technology SPICA is
slightly inferior in quality in comparison with fused silica, which
has become the standard, it enables simplification of production
significantly through production based on replication.
Along the same lines, Omron acquired the optical com-
munication parts business for the FTTH market of NHK SPRING
Co., Ltd. in November 2006 to enhance the quality of optical
waveguides and to accelerate the acquisition of a solid cus-
tomer base. This business has become the top supplier in North
America after commercializing high-performance quartz opti-
cal waveguides utilizing precision processing and coating tech-
nologies. This acquisition not only enabled ECB to secure a
sound customer base in North America but also, the integration
of ECB’s cost-cutting technology and NHK Spring’s high per-
formance technology has placed ECB in a prime position for
promoting business expansion in the rapidly growing global
FTTH market.
is attracting attention. To
As the need for high volume data transmission at data
centers and offices and ultra high-speed transmission to
transmit full high-definition television images increases,
electronic transmission is becoming increasingly inadequate
in responding to the growing demands for transmission at
greater speed and distance. As an answer to these needs,
optical transmission
include
responding to such needs in ECB’s business domain, in
December 2005 Omron acquired Aduro, a US venture
company known for its strengths in optical transmission and
reception modules which combine optical wavelength
multiplexing
from/to electronic
conversion technology (CWDM-TOSA/ROSA***). With this
acquisition as a launching point, ECB has developed small
and high-speed TOSA and ROSA by integrating its own micro
lens technology and Aduro’s TOSA and ROSA technologies.
ECB has been making progress toward developing the
market including extension of electric cable and integration
into transmission devices and video devices. Furthermore, in
the future ECB will actively provide optimal solutions by
integrating its own technology and the technologies acquired
through M&A in the globally expanding optical high-speed
communications market.
technology and optical
* Optical waveguide: a component used to branch out optical signals sent
through optical fiber. It transmits, divaricates, branches, and controls opti-
cal signals without leaking them in the circuitry of information communi-
cation devices.
**SPICA: Stacked Polymer Optical IC / Advanced
*** CWDM-TOSA/ROSA
CWDM: Coarse Wavelength Division Multiplexer (multiplexes and trans-
mits 400 to 1600nm wavelengths).
TOSA: Transmitter Optical Sub-Assembly (transmission module)
ROSA: Receiver Optical Sub-Assembly (reception module)
FFTH System Structure
Relay station
OLT(*)
Fiber optics
ONU
ONU(**)
Application in fiber optic network monitoring and
as an optical switch for redundancy changeovers
Receipt by a fiber optic splitter
(1/8 & 1/32 type)
*OLT (optical line terminal): transmission device to connect the backbone network and FTTH
**ONU (optical network unit): receiver set in the home of fiber optic subscribers
34
Fiber optic splitters for FTTH
Case 5: Rising to the world’s top position in LCD backlight production
Using proprietary optical control technology that utilizes
microlens array* (MLA) technology, ECB developed and com-
mercialized small LCD backlight units for mobile phones that
provide illumination from a single light source (LED). At the
same time, with our sights set on making backlights a future
core business, our aim is to ensure the soundness of growth
potential in the LCD backlight business by broadening the busi-
ness domain. To do this, in May 2004 we acquired the large-size
LCD backlight business from Tama Electric Co., Ltd., which is
a wholly-owned subsidiary of KOA Corp., and we made it a
wholly-owned subsidiary of Omron under the name of Tama
Fine Opto Co., Ltd.
This acquisition was followed by the acquisition of Pioneer
Precision Machinery Corporation, which deals with small and
medium multi-light source LCD backlights with multiple placed
LEDs, in August 2006 as a wholly-owned subsidiary and
renamed it Omron Precision Technology Co., Ltd. Through the
acquisition of these two companies, Omron is able to meet
the diverse needs of customers from low-end to high-end users
in the area of point-source and multi-light source systems, and
offers products meeting backlight needs in all areas including
medium and large backlights, making Omron one of the world’s
leading companies in LCD backlights**
* MLA technology: Omron’s proprietary technology which maximizes the
efficiency of light use by reflecting light that normally diverges in all direc-
tions in a single direction using a microlens array (MLA), aggregating mil-
lions of microlenses on a single board.
**According to Omron estimates, we have the world’s top share of slight-
ly more than 20% in the area of small LCD backlights in terms of the
number of units.
Building a Full Line of Small, Medium and Large Backlights
Screen Size
Large
Medium
TAMA Fine Opto Co., Ltd.
Omron Precision
Technology Co., Ltd.
Omron
Small
LED point light source
backlights
(low-power consumption
/low-cost)
LED multi-light source
backlights
(high brightness
/high-definition)
Low-End
High-End
Application
Liquid Crystal
Televisions
Car Navigation Systems
Game Consoles
PDAs
Digital Cameras
Mobile Phones
Function
Case 6: Providing a wide range of products for use in the home to medical institutions
In June 2005, Omron Healthcare (HCB) acquired Colin
Medical Technology Corporation (fiscal 2004 net sales: ¥8.6 bil-
lion), a leading medical device manufacturer. This acquisition
expanded HCB’s product line and created a framework which
enables us to provide health care products for both home and
institutional use in every area of lifestyle-related disease pre-
vention. In addition to health and medical care devices for home
use such as blood pressure monitors, body composition ana-
lyzers, and thermometers, HCB’s business domain now includes
a range of instruments for measuring biological information
including inpatient vital sign monitors and screening devices to
detect vascular hardening for medical institution use.
As societies, particularly in advanced countries, continue
aging, the number of persons with lifestyle-related illnesses,
such as hypertension and diabetes, is on the rise and coun-
tries are beginning to promote preventive medicine as a nation-
al policy measure. With its recent acquisition, HCB will strength-
en its business for medical institutions with a view to growing
its business for preventive medical care, an area which is
expected to grow into a vibrant market in the future.
Health and Medical Care Devices for Home Use
Products for Medical Institutions
Digital blood pressure
monitors
Body composition
analyzers
Inpatient blood
pressure monitoring
devices
Exhaled gas
monitors
Operating room
Hospital ward
Central monitors
Examination
Full automatic
blood pressure
monitors
Vascular
screening
devices
Thermometers
Electrocardiograph
Nebulizers
Strengthening the operational base for the medical institution
business through the acquisition of Colin Medical Technology
35
CORPORATE GOVERNANCE, COMPLIANCE, AND RISK MANAGEMENT
As a global company, Omron is committed to demonstrating accountability to our stakeholders, increasing management
transparency and maintaining & managing an appropriate governance system. In efforts to firmly establish corporate
ethics of a high standard, we will continue to strengthen our compliance system and promote the establishment of a risk
management framework that will support ongoing improvement in sustainable corporate value.
Corporate Governance
Basic Policies
Omron believes that pursuing long-term maximization of
corporate value holds the key to fulfilling all stakeholders’
expectations. Reaching this goal requires efficient and com-
petitive management which we strive to achieve by creating an
optimal management, structure and conducting fair and appro-
priate business operations. To achieve stronger corporate gov-
ernance, we will concentrate our efforts on putting three guid-
ing perspectives into practice continually: fulfilling manage-
ment accountability, achieving management transparency and
pursuing high business ethics.
Implementation Status of Corporate Governance
In addition to strengthening management monitoring func-
tions, Omron separates management oversight and business exe-
cution to quickly respond to changes in the business environment.
To facilitate business operations, Omron has adopted an exec-
utive officer system. Aiming to strengthen operations of each
business area, an internal company system was introduced,
with the president of each internal business company empow-
ered by more authority to realize quicker decision-making and
more streamlined operations.
Also, the goals between the President & CEO and exec-
utive officers, and the top management of each division com-
pany have been clarified, along with thorough promotion of
management commitments and a performance-based com-
pensation program for meeting various goals including those
Corporate Governance Structure
for profitability at each division company. These initiatives have
been put in place to put into practice corporate value manage-
ment based on shareholder value.
At the same time, we are taking preventive action against
risk by putting in place a system that will identify various forms
of risk with the potential to impede ongoing improvement in
sustainable corporate value both internally and externally, and
that will manage the risk of loss and prevent acts of staff which
could be in breach of the law.
Basic Structure
• Management and Monitoring Structure
Omron has reduced the number of board members to
seven to increase its efficiency and deepen deliberations. Our
management monitoring functions are based on separating the
duties of corporate management and business execution. The
President & CEO is the only director who serves concurrently
both in corporate management and business execution, while
other directors are distanced from day to day business execution.
Furthermore, in order to enforce our management objec-
tivity, we have separated the positions of Chairman of the
Board of Directors and President & CEO, and worked to
strengthen management monitoring functions. In addition, the
Chairman of the Board of Directors oversees business opera-
tions as a representative of stakeholders by not taking part in
the execution of business. In regard to matters of the appoint-
Board of Directors (BOD) The BOD
decides important business matters such
as company objectives and management
strategies, while overseeing the business
practices of the President & CEO.
Board of Corporate Auditors This
board verifies the effectiveness of the cor-
porate governance system and its imple-
mentation, while also monitoring the day-
to-day operations of executives including
directors. The board consists of four cor-
porate auditors, three of whom are out-
side auditors.
Personnel Advisory Committee This
committee, chaired by an outside director,
sets election standards for directors, cor-
porate auditors and executive officers,
selects candidates, and evaluates current
executives.
Shareholders Meeting
Board of Corporate
Auditors
Board of Directors
Chair:
Chairman of the Board
Board of Corporate
Auditors Office
Personnel
Advisory Committee
Independent
Auditing Firm
Compensation
Advisory Committee
CEO Selection
Advisory Commitee
Executive
Organization
President & CEO
Corporate
Environmental
Activitiy
Committee
Corporate
Ethics
& Business
Conduct
Committee
Executive
Council
Corporate
Auditors
Office
Information
Disclosure
Committee
Compensation Advisory Committee
Also chaired by an outside director, this
committee determines the compensa-
tion structure for directors, corporate
auditors and executive officers, sets
evaluation standards, and evaluates
current executives.
CEO Selection Advisory Committee
This committee, chaired by an outside
director, is dedicated to nomination of
the President. It deliberates on selec-
tion of the new President for the next
term and a succession plan in prepara-
tion for contingencies.
Executive Council This council deter-
mines and reviews important business
operation matters that are within the
scope of authority of the President.
Information Disclosure Committee In
June 2006, Omron set forth an informa-
tion disclosure policy and standards
that are more exacting than the Tokyo
Stock Exchange rules. Established in
June 2006, and chaired by the
President, the committee monitors
information disclosure activities of the
entire Group.
36
ment, promotion, and compensation of all officers (directors,
auditors, and managing officers), we maintain objectivity and
transparency through the Personnel Advisory Committee and
the Compensation 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 compensation matters relating to all
officers, without the presence of the Chairman of the Board
and the President & CEO.
• Auditing Functions
The Board of Corporate Auditors, consisting of four audi-
tors (including three outside corporate auditors), monitors gov-
ernance and management conditions as well as the daily activ-
ities of the Board of Directors and other management. Also,
in undertaking its internal auditing function, the Audit Office,
which functions directly under the President & CEO, periodically
conducts internal audits of accounting, administration, busi-
ness risks, and compliance in each headquarters division and in
each division company. In addition to its auditing functions, the
Audit Office also offers specific advice on ways of improving
administrative functions.
Comments from Outside Directors
Main Activities of Outside Directors
The outside directors attend monthly Board meetings and
directors’ liaison meetings (arranged as forums for free dis-
cussion and sharing information on management strategies
following Board meetings), as well as technology liaison meet-
ings for narrowing down specific technical themes. They provide
appropriate advice and recommendations as necessary. Serving
as chairman of the Personnel Advisory Committee, the
Compensation Advisory Committee, and the President & CEO
Selection Advisory Committee, the outside directors also con-
tribute to the soundness of management.
In accordance with the selection standards for outside
directors, Mr. Noriyuki Inoue and Mr. Kazuhiko Toyama have
been appointed as Omron’s two outside directors. Mr. Inoue
has been selected for his extensive experience in corporate
management and broad insight while Mr. Toyama has been
selected as a management specialist on the basis of his long
years of experience in the management of several companies.
Omron looks forward to benefiting from the experience and
wisdom of the two outside directors in the management of
the company.
For the fourth consecutive year, Omron has set a record in perform-
ance. This is proof of the high regard Omron’s customers have for its
superb expertise in technology. It is also an achievement made possible
through growth resulting from Omron’s ambitious M&A strategies and
a broadening of the company’s business domain. As a person involved
in corporate management at the top-level, I am committed to working
tirelessly for our shareholders and investors by considering what they
expect of Omron in light of my own experience. At a time when there
are strong demands placed on CSR management, I understand that it is my duty to engage
in management keeping in mind our stakeholders including our shareholders and investors
and to provide advice and monitoring for Omron’s management team from an independent
perspective. In this capacity, I am determined to fulfill my responsibilities as an outside
director with the aim of improving shareholder value.
Noriyuki Inoue
The true purpose of governance is to improve intrinsic corporate value,
in other words, to make a company consistently well-regarded by socie-
ty over a long period of time, thereby maintaining and increasing the
earnings of the company’s business. As a COO of the Industrial
Revitalization Corporation of Japan over the past four years, I have
engaged directly in corporate revitalization as an authority in corporate
governance. I also had first hand experience working with the Kanebo
affair*. That experience made me again realize that corporate gover-
nance in Japan - and the world for that matter - had come to a turning point in many respects.
It is clear that governance can no longer be seen simply as an extension of the authority of
shareholders or a refuge of mutual checking within a village society; these are no longer
accepted as answers. Many excellent companies in advanced countries including Japan
today are those which promote the concentration of knowledge and establish their compet-
itive superiority on the basis of human capital and knowledge capital. I see Omron as a com-
pany in that category and think that it should remain that way in the future. In that context, I
think we must consider how governance at Omron should be. Keeping this fundamental
issue in mind, I am determined to devote my energy and efforts to contributing to Omron as
a director involved in corporate governance to enhance the true corporate value of Omron. In
these efforts, I would like to ask for the support of Omron’s stakeholders.
Kazuhiko Toyama
* Kanebo affair: an accounting scandal at Kanebo, a maker of cosmetics and other products, after which
the Industrial Revitalization Corporation of Japan became involved in the company’s revitalization
Joined Daikin Industries, Ltd.
Appointed Director, Daikin Industries, Ltd.
Appointed Managing Director, Daikin Industries, Ltd.
Appointed Senior Managing Director, Daikin Industries, Ltd.
Appointed President and Representative Director, Daikin
Industries, Ltd.
Appointed President and Representative Chairman of the
Board, Daikin Industries, Ltd.
Appointed President and Representative Director, Daikin
Industries, Ltd.
Appointed CEO and Representative Chairman, Daikin
Industries, Ltd. (current position)
Appointed Director, OMRON Corporation (current posi-
tion)
Personal History
March 1957
February 1979
February 1985
June 1989
June 1994
May 1995
June 1996
June 2002
June 2003
Personal History
April 1985
March 1986
April 1986
March 1993
April 2000
April 2001
March 2003
April 2003
March 2007
April 2007
June 2007
Joined The Boston Consulting Group K.K.
Resigned from The Boston Consulting Group K.K.
Established Corporate Directions, Inc.
Appointed Director, Corporate Directions, Inc.
Appointed Executive Managing Director, Corporate
Directions, Inc.
Appointed President and Representative Director of
Corporate Directions, Inc.
Resigned from Corporate Directions, Inc.
Appointed Executive Managing Director and COO,
Industrial Revitalization Corporation of Japan
Industrial Revitalization Corporation of Japan is dissolved
Appointed CEO & Representative Director, Industrial
Growth Platform, Inc. (current position)
Appointed Director, OMRON Corporation (current position)
37
Initiatives in Governance in Fiscal 2006
• Directors’ Term Shortened to One Year
In efforts to further clarify the responsibilities of the man-
agement team toward our shareholders and to enable rapid
response to changes in the management environment, a res-
olution was passed to shorten the term of office for directors
from two years to one year from fiscal 2007 onward.
• Establishment of the President & CEO Selection Advisory
Committee
In December 2006 the President & CEO Selection
Advisory Committee was established to further enhance trans-
parency and objectivity in the replacement of presidents.
• Establishment of the Information Disclosure Committee
In June 2006, in response to the requests of increasingly
discerning stakeholders to further disclose information, Omron
established information disclosure policies and disclosure stan-
dards which are more rigorous than the timely disclosure stan-
dards of the stock exchanges. Based on these standards, we
established the Information Disclosure Committee chaired by
the President & CEO to monitor the information disclosure
activities of the entire Group.
• Improvement of the Framework for an Internal Control System
We also put in place a structure for assessing and report-
ing on internal control relating to financial reports (in accor-
dance with the Financial Instruments and Exchange Law) two
years ahead of requirement to enable us to submit confirmation
by the President & CEO to the Financial Services Agency.
Furthermore, the Board of Directors passed a resolution
regarding a structure for ensuring that the execution of the
directors’ duties conforms to the law and to the Articles of
Incorporation as well as a framework for establishing appropri-
ateness in other company business. We are making efforts to
put this framework in place.
Compliance and Risk Management
Basic Policies
• Compliance
Omron has set a high standard in corporate ethics which
goes beyond simple observance of laws and regulations. In
efforts to ensure that our corporate ethics are thoroughly under-
stood and well established in work practices throughout the
company, we have been focusing our compliance activities on
four important areas: (1) monitoring, (2) implementing the PDCA
(plan do check act) cycle, (3) reinforcing compliance education
and (4) rebuilding our compliance structure.
• Risk Management
Omron is improving its internal control system as we
believe that all risk arising from management and business
operations must be accurately assessed and controlled in order
to appropriately manage operations, maintain stable growth
and protect management resources. To achieve this end,
Omron is putting into place a system of risk management for
detecting, analyzing, countering and monitoring risk in each
headquarters division and division company. Moreover, over-
sight of risk management activities has been placed in the
Corporate Resources Innovation Headquarters, and efforts are
underway to promote and improve our risk management sys-
tem and identify and control risk throughout the Group.
Basic Framework
In 2003, Omron combined its risk management and
compliance activities by establishing the Corporate Ethics &
Business Conduct Committee chaired by the President &
CEO. The General Manager of each headquarters division
and the President of each division company participate in this
committee to report on corporate ethics efforts for their
respective organizations in accordance with their corporate
ethics and conduct framework and on the status of the
response to risks. Moreover, the Corporate Resources
Innovation Headquarters has established the Corporate
Ethics Hotline (a call center was also opened at an outside
law firm in fiscal 2005), a whistleblower center to receive
reports directly from employees and their families.
Also, Omron has also appointed officers or managers in its
Group companies to promote risk management and compli-
ance throughout the Group and is conducting training for these
officers every year in efforts to promote and thoroughly famil-
iarize staff in the Omron Group with risk management.
Structure of Omron Corporate Ethics
Corporate Ethics &
Business Conduct Committee
Committee Chair
(President & CEO)
Committee
Secretariat
Business Company
Committee Members
(Business Company
Presidents)
Corporate Committee
Members
(Head office Administrative
Division Managers)
Corporate Ethics &
Business Conduct
Promotion Committee
Specialized
Committees
Corporate Ethics
Hotline
Export Control
Committee
Human Rights
Committee
Safety and Health
Committee
Central Disaster
Prevention Committee
Business Companies
Promotional
Departments
Administrative
Divisions’ Promotional
Departments
Information Security
Management Committee
38
Efforts in Fiscal 2006
• Compliance
In fiscal 2006, we undertook compliance monitoring at
11 Omron Group companies in Japan and overseas, including
newly acquired companies, to confirm that laws and regula-
tions are being observed. In all domestic companies, we
reviewed compliance activities on the basis of the PDCA cycle
in efforts to strengthen compliance. Also, at all of our domestic
Group companies, in addition to conducting compliance training
for directors, management, specialist personnel, and regular
and temporary staff, we also held training sessions for new
employees and staff transferring from other companies. In
addition, we introduced e-learning as a new method of training
and in fiscal 2007 we plan to broaden its application as we con-
tinue to focus our efforts on ways of promoting compliance
throughout the Group.
• Risk Management
To establish an enduring information security system, we
undertook a company-wide review of the status of security in
domestic Group operations. With an understanding of our obli-
gation to fulfill our social responsibility to our stakeholders by
appropriately managing confidential and personal information to
safeguard it against leaking or unauthorized use, we undertook
a sweeping review of our rules for information management
and commenced the construction of an integrated system for
managing both confidential information and personal informa-
tion. In fiscal 2007 we intend to implement comprehensive
measures to guarantee security in information management
at Group companies in Japan and we will also commence a
review of rules for information management in our overseas
Group companies.
Promoting corporate ethics and compliance in four regions outside of Japan
At the Omron Group, a total of 32,456 people are working in Japan and four regions around the world. To
demonstrate fairness and integrity in all corporate activities and individual employees’ behavior
throughout the world, Omron is promoting compliance and risk management at each region through
distribution of the Corporate Ethics Guidelines and monitoring of compliance status. In fiscal 2007, Omron
will publish regional versions of the CSR Practice Guidelines, which are based on and upgraded from the
Corporate Ethics Guidelines. Continued promotion of compliance training and monitoring is also planned.
North America
Compliance officers are in
place at each North American
Group company. In fiscal
2006, compliance monitoring
for Group companies contin-
ued, while awareness of the
whistleblower hotline was
enhanced, resulting in 11 hot-
line contacts received.
Blake Thatcher
Bill Abbott
Europe
Under the leadership of Omron Europe’s Risk
Management Committee, compliance audit-
ing and manager training have been con-
ducted on a regular basis to strengthen com-
pliance. Establishment of a contact channel
to work in collaboration with the committee
is now underway along with the improve-
ment of the compliance promotion system. Managers in
charge of regulatory matters were assigned to ensure strict
observance of environmental and other regulations.
Patrick Duregger
China
Compliance and maintenance
of ethical standards are
among the key CSR issues
for Omron in Greater China.
In fiscal 2006, corporate
ethics officers were assigned
at each Group company, and
the first promotion confer-
ence was held in Shanghai. In addition to manager train-
ing, compliance monitoring continued with a focus on
observing compliance with three important laws, related
to customs, bribery and operations falling outside each
company’s authorized scope of business.
Fumihiro
Matsuzaki
Dai Ogihara
Asia-Pacific
Taking into consideration the language and cultural
diversity in the region, the Corporate Ethics Guidelines
have been translated into five different languages*.
Efforts are focused on education, training and monitoring
with the aim of strengthening understanding of corporate
ethics and compliance among all employees through the
distribution of guidelines and creation of a system to
ensure strict legal observance.
*Thai, Indonesian, Vietnamese, Malay and Tamil
39
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 ( C S R )
Since the founding of our Company, Omron has held the belief that a company exists to serve society, and that only when
this is accomplished should a company earn profits and enjoy sustainable growth. We take pride in being a company under-
pinned by the corporate core value of working for the benefit of society and we are committed to fulfilling our corporate social
responsibility for the sustainable development of society as we live up to the expectations of all of our stakeholders.
The Basic Philosophy of CSR
— Working for the Benefit of Society
Companies today are judged not only on the basis of their
profitability and growth. How a company fulfills its responsibility
to society and how it contributes to promoting sustainable devel-
opment have also come to be considered important criteria in
judging a company. In addition to the change in the company’s
raison d’être, the expansion and globalization of Omron’s busi-
ness and the subsequent diversification of our stakeholders*
prompted us to review and reorganize the platform of our cor-
porate philosophy, and we have rearranged it in the form of the
new Omron Principles announced in May 2006. This review
process resulted in our reaffirmation 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 established in 1959: “At work for a better
life, a better world for all,” Omron has been managed on the
basis of this corporate core value since its formulation. The
Omron Group once again places this corporate core value at the
center of the new Omron Principles and puts it into action with
even stronger conviction. We are convinced that serving society
is the true fulfillment of a company’s CSR.
Omron intends to continue its management in conformity
with the belief that only companies that add value and meet social
needs can earn trust and respect from society as good corporate
citizens, and thus successfully continue to exist as businesses.
As society’s needs become more diversified and wide-ranging,
and the social responsibilities that companies assume become
even more multifaceted and evolving, it is crucial that companies
meet society’s expectations.
Disseminating and instilling The Omron Principles in All
Staff at Omron
The Omron Principles take on real meaning only when each
and every employee of the company can describe them in his or
her own words and put them into practice. This is because our
people are the driving force for all of our corporate activities.
Therefore, in 2006 when we announced the new Omron
Principles, we distributed a booklet entitled the “Introduction
to The Omron Principles” to all staff worldwide. However, our
efforts did not stop at simply distributing these booklets. We
also prepared two action guidelines and distributed these to all
staff in the Omron Group in Japan. The first set of guidelines,
CSR Practice Guidelines, specify the Group’s basic policy for
addressing important CSR issues, which is a reflection of current
worldwide trends, as well as define what all Omron Group direc-
tors and employees should or should not adopt in conformance
with this policy.
The second booklet is “Implementing the Guiding
Principles for Action,” which stipulates the key points of prac-
tices for Omron Group directors and employees to put Guiding
Principles for Action into practice in day-to-day operations.
Following the distribution of the booklets, discussions at
workplace meetings were held throughout the Omron Group in
Japan on three occasions in May, July and December to January.
The third meeting on the theme of the CSR Practice Guidelines
evoked particularly meaningful discussion because a total of 42
briefings were given for all managerial class people in Japan
before the meeting.
* Stakeholders: Omron considers as its stakeholders employees and poten-
tial employees, business partners, customers, shareholders & investors,
and society (in other words, all those interested parties who are affected by
Omron’s activities).
40
CSR Management System
It is Omron’s firm belief that alignment of CSR with its busi-
ness strategy and embedding it into its business operations is
absolutely essential. In efforts to enhance the effectiveness and
thoroughness of Omron’s CSR-oriented management by ensuring
that CSR is more fully integrated into the business strategy, we
established the CSR Management Department, within the
Corporate Strategic Planning Headquarters, as a body under the
direct control of the President & CEO.
The CSR Management Department is responsible for the
planning and general control of CSR within the company.
Specific CSR activities, which include environmental conserva-
tion, respect for human rights, promotion of appropriate labor
standards, compliance and corporate ethics, and community
relations, have been put into practice by assigning a CSR
Manager at each internal business company. In addition, the
CSR Promotion Committee coordinates CSR across the vari-
ous divisions at headquarters.
Under this committee there are also working groups which
take up to various CSR themes and issues. Under this system,
during the current second stage of GD2010, the Omron Group
is promoting CSR activities built on three pillars, with particu-
lar focus on four key issues.
CSR Management Structure
Internal Business Companies
President
& CEO
President of
Business
Companies
BC CSR
Managers
Business
Divisions
Japanese Affiliated
Companies
Overseas Affiliated
Companies
CSR Promotion
Committee
*1
Working Groups
*1 CSR Promotion Committee:
consists of administrative divisions, with the CSR
Management Department at the center.
*2 Head Office Administrative Divisions:
Corporate Resources Innovation Headquarters,
Business Process Innovation Headquarters,
Monozukuri Innovation Headquarters, etc.
Corporate
Strategic
Planning
Headquarters
CSR
Management
Department
Head Office
Administrative
Divisions
*2
Basic CSR policy — Three pillars
(1) Contribute to a better society through business operations.
Continuously offer advanced technologies, high-quality products, and
services by stimulating innovation driven by social needs.
(2) Always demonstrate fairness and integrity in the promotion of
corporate activities.
Promote more transparent corporate activities that maintain fairness
and integrity not only through strict compliance with laws, regula-
tions, and social rules but also through increased accountability.
(3) Show a commitment to addressing societal issues as a con-
cerned party.
Address issues such as human rights, environment, diversity, and
community relations in a way that draws on Omron‘s distinctive
strengths.
CSR activities — Four focus areas
(1) Promoting innovation driven by social needs through business
operations
(2) Strengthening legal compliance and corporate ethics
(3) Addressing diversity issues
(4) Committing to environmental conservation
Practicing CSR
Four Focus Areas for CSR
Resolving security issues in manufacturing operations
was one example of our initiatives in the four focus areas of
CSR in fiscal 2006. In addition, we also provided a system for
improving quality management and traceability in food pro-
duction sites. In promoting diversity in the work place, we
made efforts to improve the employment rate of the disabled
and increased the overall employment ratio of the disabled at
Omron as of June 2006 to 2.04% (compared with 1.78% in
June 2005), coming close to meeting 2.3%, which is a high
level in manufacturing industries and is our goal. To promote
greater participation of women in the workplace, albeit on a
small scale, we have been conducting ongoing training of
female leaders and, as a result, the ratio of women in man-
agement is steadily increasing. We have also steadily imple-
mented programs in compliance and environmental initiatives.
Promoting CSR Activities in China
Since 1979 when the company initiated technological
exchange with China, Omron has built strong associations with
the country. Beginning in 2001 Omron, based on the GD2010
plan, specified China as the most important strategic region
and aggressively expanded business in the region. At present,
more than 13,000 Chinese employees are working in Greater
China, with the scale of production and sales expanding annu-
ally. The results have been annual expansion in the economical,
environmental and social impact of Omron’s businesses in
China. Against this backdrop, we decided to give priority to our
CSR activities in China that contribute to promoting harmo-
nious social relations in areas where Omron has a presence, and
initiate activities accordingly.
Our principal activities conducted in China during fiscal
2006 included: (1) assignment of corporate ethics officers in
each affiliated company, (2) employment of and support to peo-
ple with disabilities, (3) the inclusion of additional CSR items
in contract negotiations with 136 suppliers in Greater China
and the signing of contracts with 75% of these, (4) group envi-
ronmental audits (internal audits) at plants of two affiliated com-
panies, and (5) the establishment of the Omron Education Fund.
Tackling Environmental Issues
The Omron Group has positioned environmental issues
as one of its important management objectives. We have for-
mulated action plans for the Group companies and headquarters
divisions accordingly and we evaluate their implementation in
terms of products, business places, and violation of environ-
mental laws or regulations according to our Group environ-
mental auditing standards, ranking companies and headquar-
ters divisions from A to C. The assessment results are then
reflected in the following year’s annual plan, and companies
and headquarters divisions with a C rank are obliged to under-
take additional investment in environmental protection in spe-
cific environmental areas to promote improvement. In fiscal
2006, there were companies which were unable to reach their
targets in curbing CO2, waste, and use of paper accompanying
an increase in production. During fiscal 2007, we will focus our
efforts on appropriate measures to address areas where goals
have not yet been reached and to promote energy-saving meas-
ures in distribution under the tighter provisions of the revised
Law Concerning the Rational Use of Energy.
For more details about Omron’s CSR activities, please see our Sustainability Report 2007.
We would like to engage in dialog with as many of our stakeholders as possible. Taking the time to explain to you Omron’s views in response to your
expectations of us and gaining your understanding of our activities and plans is, we believe, very important in fulfilling our role as a responsible and account-
able corporate citizen. If you would like to learn more about Omron’s CSR principles, plans, and reports of activities to date, we would like to invite you
to take a look at our report “Sustainability Report 2007” available on our website. We would appreciate hearing your opinions.
http://www.omron.com/corporate/csr/
41
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 21, 2007
DIRECTORS (7 persons), CORPORATE AUDITORS (4 persons)
Chairman of the BOD
Yoshio Tateisi
President and CEO
Hisao Sakuta
Director and Executive Vice
President Shingo Akechi
Director and Executive Vice
President Tadao Tateisi
Senior Managing Director
Tsukasa Yamashita
Director (external)
Noriyuki Inoue
Director (external)
Kazuhiko Toyama
Corporate Auditor
Tsutomu Ozako
EXECUTIVE OFFICERS
(24 persons)
Executive Vice President
Fumio Tateisi
Senior Managing Officers
Soichi Yukawa
Yutaka Takigawa
Managing Officers
Koichi Imanaka
Yoshinobu Morishita
Takuji Yamamoto
Yoshinori Suzuki
Yukio Kobayashi
Hideo Higuchi
Toshio Ochiai
Masaki Kobayashi
Hiroki Toyama
Kojiro Tobita
Executive Officers
Kazunobu Amemiya
Yutaka Fujiwara
Tatsunosuke Goto
Mike van Gendt
Toshio Yamashita
Roberto Maietti
Yoshisaburo Mogi
Hiroshi Miyagawa
Koichi Tada
Kiichiro Kondo
Shigeki Fujimoto
Corporate Auditor (external)
Satoshi Ando
Corporate Auditor (external)
Yoshio Nakano
Corporate Auditor (external)
Hidero Chimori
42
F I N A N C I A L S E C T I O N ( U . S . G A A P )
Contents
Financial Highlights
Six-year Summary
Fiscal 2006 Management’s Discussion and Analysis
Business and Other Risks
Consolidated Balance Sheets
Consolidated Statements of Income
43
44
45
50
52
54
Consolidated Statements of
Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors’ Report
55
56
57
58
80
Notes: Financial Highlights, Six-year Financial Summary, Fiscal 2004 Management’s Discussion and Analysis (including Business and Other Risks) are unaudited.
F I N A N C I A L H I G H L I G H T S
OMRON Corporation and Subsidiaries
For the year:
Net sales
Income before income taxes, minority interests,
equity in loss of affiliates 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)
Thousands of
U.S. dollars
(Note 2)
(except per share data)
FY2006
FY2005
FY2004
FY2006
¥ 736,651
¥626,782
¥608,588
$ 6,242,805
66,288
38,280
38,280
64,845
36,964
35,763
54,031
30,176
30,176
561,763
324,407
324,407
¥
165.0
¥ 156.2
¥ 126.5
$
164.9
156.1
124.8
165.0
164.9
34.0
151.1
151.1
30.0
126.5
124.8
24.0
1.40
1.40
1.40
1.40
0.29
Capital expenditures (cash basis)
Research and development expenses (Note 3)
¥ 44,689
¥ 40,560
52,028
55,315
¥ 38,579
49,441
$
378,720
440,915
At year end:
Total assets
Total shareholders’ equity
¥ 630,337
¥589,061
382,822
362,937
¥585,429
305,810
$ 5,341,840
3,244,254
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, 2007, of ¥118=$1.
3. A loss of ¥4,814 million 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 FY2005.
43
S I X - Y E A R S U M M A R Y
OMRON Corporation and Subsidiaries
Net sales (Note 2 and 3):
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
Other expenses (income), net
Income (loss) before income taxes,
Minority interests, equity in loss (earnings)
of affiliates and cumulative effect of
accounting change
Income taxes
Minority interests
Equity in loss (earnings) of affiliates
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 (%)
Equity ratio (%)
Inventory turnover (times)
Price/earning ratio (times)
Assets turnover (times)
Debt/equity ratio (times)
Interest coverage ratio (times)
FY2006
FY2005
FY2004
FY2003
FY2002
FY2001
Millions of yen (except per share data)
¥ 305,568
138,352
93,321
105,944
65,726
27,740
736,651
¥ 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
452,452
168,135
52,028
—
(2,252)
670,363
389,368
161,310
55,315
(41,339)
(2,717)
561,937
358,817
144,219
49,441
—
2,080
554,557
344,835
142,157
46,494
—
3,511
536,997
327,413
135,112
40,235
—
27,522
530,282
¥ 184,185
81,062
50,800
128,057
40,617
49,243
533,964
353,429
134,907
41,407
—
29,669
559,412
66,288
26,418
238
1,352
64,845
27,238
150
493
38,280
38,280
36,964
35,763
54,031
22,108
264
1,483
30,176
30,176
47,892
20,762
411
(92)
26,811
26,811
4,791
3,936
285
59
511
511
(25,448)
(9,348)
132
(75)
(16,157)
(15,773)
¥
¥
¥
165.0
164.9
156.2
156.1
¥
126.5
124.8
¥
110.7
107.5
¥
2.1
2.1
¥
(65.0)
(65.0)
165.0
164.9
34.0
44,689
630,337
382,822
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
38.6
9.0
5.2
10.9
10.3
60.7
5.35
19.1
1.21
0.647
59.60
37.9
10.3
5.7
11.0
10.7
61.6
5.43
22.2
1.07
0.623
71.43
41.0
8.9
5.0
9.2
10.4
52.2
5.17
18.5
1.03
0.914
53.36
41.0
8.2
4.6
8.3
10.2
46.4
4.73
23.3
1.01
1.156
43.27
38.8
0.9
0.1
0.9
0.2
44.3
4.36
900.8
0.96
1.255
23.59
33.8
(4.8)
(3.0)
(4.5)
(5.1)
54.3
4.25
—
0.93
0.842
4.36
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
FY2002 and FY2001 have been reclassified in accordance with the change.
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.
44
F I S C A L 2 0 0 6 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Market Environment
Note: The macro indicators may be changed in subsequent revisions. The figures presented are the newest data as of the end of June 2007.
1. Macroeconomic Environment
The Japanese economy improved steadily as corporate prof-
its improved and capital investment increased, in addition to which
there were improvements in employment and income situations.
While there were concerns for the U.S. economy such as adjust-
ments in the housing sector, it held firm supported by capital
investment and consumer spending. The European economy also
did well overall where improved corporate earnings led to
increased capital investment and as consumer spending recov-
ered. As Asian economies continued to expand led by exports, in
particular China maintained its high rate of growth. Furthermore,
India has shown remarkable economic growth.
Growth rates of real GDP for each country (calendar year basis)
2000
2001
2002
2003
2004
2005
2006
Japan
2.9
0.2
0.3
1.4
2.7
1.9
2.2
U.S.
3.7
0.8
1.6
2.5
3.9
3.2
3.3
Canada
5.2
1.8
2.9
1.9
3.1
3.1
2.8
Germany
3.2
1.2
0.0
-0.2
1.3
0.9
2.8
France
4.0
1.8
1.1
1.1
2.3
1.7
2.2
U.K.
3.8
2.4
2.1
2.7
3.3
1.9
2.8
Italy
3.8
1.7
0.3
0.1
1.0
0.2
1.9
Russia
10.0
5.1
4.7
7.3
7.2
6.4
6.7
China
8.4
8.3
9.1
10.0
10.1
10.4
10.7
Korea
8.5
3.8
7.0
3.1
4.7
4.2
5.0
India
4.4
5.8
3.8
8.5
7.5
8.8
9.4
Brazil
4.3
1.3
2.7
1.1
5.7
2.9
3.7
Source: Cabinet Office “Overseas Economic Data” June 2007, etc.
Domestic Macroeconomic Environment
Real Private Capital Investment
Growth Rate
(%)
10.0
5.0
0
-5.0
-10.0
Machinery Orders Growth Rate
(Manufacturing)
Indices of Electronic Parts and Devices
(Seasonally adjusted indices, 2000 average =100)
(Billions of yen)
1,600
1,500
1,400
1,300
(%)
10.0
180
5.0
140
0
100
-5.0
60
97 98
99
00
01
02
03
04
05
06
(FY)
Note: Change from the previous year,
seasonally adjusted
Source: Cabinet Office, Government of Japan
Q1
Q2 Q3
2005
Q4
Q1 Q2 Q3
2006
Q4
(FY)
Orders (left axis)
Change from the previous quarter
(right axis)
Note: Seasonally adjusted
Source: Cabinet Office, Government of Japan
00
01
02
03 04 05 06
(FY)
Shipments
Productions
Inventory
Source: Ministry of Economy, Trade and Industry
2. Market Trends Affecting the Omron Group
The market environment surrounding the Omron Group was favorable for the
main product area of factory automation control equipment supported by demand
for capital investment, and was solid for business and consumer equipment for IT
and digital related products as the electronic parts industry recovered. Growth con-
tinued for automotive electronics as the needs remained high for car electronics in
the safety and environmental areas. Furthermore, as railroad companies all over
Japan increased reciprocal use of IC cards, demand for updating equipment in rail-
way stations increased. Rising costs for raw materials such as copper and silver
were factors putting pressure on profits.
Silver and Copper Prices
(Yen/kg)
60,000
50,000
40,000
30,000
20,000
10,000
0
03
04
05
06
(FY)
Silver (left axis)
Copper (right axis)
(Yen/kg)
1,200
1,000
800
600
400
200
0
45
General Overview of Consolidated Results and Financial Condition
In this market environment the Company experienced real growth
in its existing businesses, and with a proactive implementation of a
growth strategy including M&A activities, as well as the depreciation
of the yen, Group sales grew 17.5 percent over the previous fiscal
year. In addition, income before income taxes, minority interests,
equity in loss of affiliates and cumulative effect of accounting change,
(“net income before income taxes” hereafter) and net income
increased by 2.2 percent and 7.0 percent, respectively so that the
Company has achieved increases in both sales and profits for five
consecutive years, and both sales and profits were at record highs.
Total assets increased 7.0 percent over the previous fiscal
year due to the assets of acquired companies. Meanwhile, share-
holders’ equity increased 5.5 percent over the previous fiscal year,
and the shareholders’ equity ratio was 60.7 percent, compared
to 61.6 percent at the end of the previous fiscal year.
Return on equity (ROE) was 10.3 percent due to the increase
in net income, and the Group has cleared its goal of maintaining a
level of 10 percent for four consecutive years.
Review and Analysis of the Income Statement
Note 1: The following business segment abbreviations are used in the discussion 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/ loss (excluding adjustment of income returned) recognized on the transfer of the substitutional portion of employee
pension funds in fiscal year 2006 is included in the presentation of “cost of sales,” “selling, general & administrative 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
adjustment of income returned is allocated in one lump sum to the gain on transfer of the substitutional portion of the employees’ pension fund.
Sales
Consolidated net sales, generally boosted by growth in existing
businesses, the depreciation of the yen, and the acquisitions of
OSTI and OPT (refer to Note 5 on page 63) increased 17.5 percent
over the previous year to ¥736.7 billion. All segments recorded
increased revenues, and in particular the acquisition of OPT con-
tributed to ECB, and sales for SSB grew significantly due to the
boost from demand for improvement and replacement of equip-
ment in railway stations throughout Japan to accommodate the
implementation of IC cards for boarding passes.
In addition, revenues increased in all regions, with net sales
up by 9.3 percent over the previous fiscal year in Japan, and by
28.2 percent overseas (overseas sales comprised 47.3 percent of
total sales). In particular sales in the region that the Group places
the most importance on, Greater China, posted remarkable
growth over the previous fiscal year at 66.4 percent.
OSTI:
Omron Scientific Technologies, Inc.
Business lines:
Capital:
Development, manufacturing, sales, consulting, and service
of safety equipment
US$10,000 (wholly owned by OMRON MANAGEMENT
CENTER OF AMERICA INCORPORATED)
Date shares acquired: September 12, 2006
Location:
Employees:
Sales:
Fremont, California, U.S.A.
320
$52,141,000 (for the year ended December, 2005)
OPT:
Omron Precision Technology Co., Ltd.
Business lines:
Sales composition in fiscal 2005 was 85 percent small
liquid crystal backlighting and 15 percent rubber and metal
molding
¥448 million (wholly owned by Omron Corporation)
Capital:
Date shares acquired: August 1, 2006
Location:
Employees:
Sales:
Saitama Prefecture
about 270 (as of July 1, 2006, non-consolidated)
¥36.4 billion (for the year ended March 2006)
Cost of Sales and SG&A Expenses
Other Expenses (Income) * See Note 11 on page 72
In line with the overall growth in sales, the cost of sales
and SG&A expenses increased 21.2 percent and 10.1 percent,
respectively. The cost of sales margin rose 1.8 percentage
points over the previous year due to the effect of soaring
prices for copper, silver and other raw materials. As a result of
efforts to achieve the target revenue structure for the 2nd
Stage of GD2010, the SG&A expense ratio was reduced by 1.5
percentage points from the previous fiscal year. Meanwhile,
R&D expenses rose ¥1.5 billion over the previous fiscal year to
¥52.0 billion. However, the R&D expense ratio fell by 1 per-
centage point from the previous fiscal year to 7.1 percent as
net sales increased. Furthermore, the Group will not change
its policy of active investment in R&D, but will strive for more
efficient operations and we estimate that in fiscal 2007 the
R&D expense ratio will be maintained at the same level of 7.1
percent.
Note: SG&A expenses include neither research & development expenses nor the
profits from transfer of employee pension funds.
The net amount of other expenses (income) was a net gain
of ¥2.3 billion. While gains from sales of investment securities
declined by ¥3.3 billion from the previous fiscal year, and there
was a loss of ¥5.9 billion from the sale of property at the Tokyo
head office, there was a gain on the contribution of securities to
retirement benefit trusts of ¥10.1 billion, which covered the
losses.
Net Income before Income Taxes, Net Income and Profit
Distribution
Due to the results noted above, net income before income
taxes increased by ¥1.4 billion (2.2 percent) over the previous
year to ¥66.3 billion, and net income increased ¥2.5 billion (7.0
percent) over the same period to ¥38.3 billion.
In addition, basic net income per share was ¥165.0 (¥151.1
in the previous year).
Based on our profit distribution policy (see page 17), an
annual dividend of ¥34 per share was paid (¥4 higher than in
the previous fiscal year).
46
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 expenses (income), net
Income before income taxes, minority interests, equity in loss
of affiliates and cumulative effect of accounting change
Income taxes
Income before cumulative effect of accounting change
Cumulative effect of accounting change
Net income
Net Sales &
Net Income before Income Taxes
(Billions of yen)
800
(Billions of yen)
160
Net Income & ROE
(Billions of yen)
50
600
400
200
0
120
80
40
0
40
30
20
10
0
FY2006
100.0%
61.4
38.6
22.8
7.1
—
(0.1)
9.0
3.6
5.2
—
5.2
(%)
12.5
10.0
7.5
5.0
2.5
0
FY2005
100.0%
62.1
37.9
25.8
8.8
—
(0.1)
59.6*
40.4*
24.3*
8.1*
(1.9)*
10.3
4.4
5.9
(0.2)
5.7
Dividends per Share
FY2004
100.0%
59.0
41.0
23.7
8.1
—
(0.0)
8.9
3.6
5.0
—
5.0
(Yen)
40
30
20
10
0
34
30
24
20
10
02
03
04
05
06 (FY)
02
03
04
05
06 (FY)
02
03
04
05
06 (FY)
Net sales (left axis)
Net income before income taxes
(right axis)
Net income (left axis)
ROE (right axis)
Segment Information *Prepared in accordance with Japanese Securities Exchange Law
Note 1: Disclosure of operating income
Sales in the segment information column show sales to external customers, excluding inter-segment transactions. Conversely, operating income shows operating
income including internal profits, prior to the deduction of amounts such as inter-segment transactions and headquarters expenses that are not apportionable.
Note 2: The comparison with the previous fiscal year is calculated based on a comparison of the results for the current fiscal year and the profit/loss for the previous fiscal
year before the transfer of the substitutional portion of the employee pension funds.
* Please refer to pages 20 to 30 for details on the business results, prospects for fiscal 2007 and strategy of each segment.
1. Conditions by Business Segments
IAB enjoyed good orders, and OSTI, which became a subsidiary in
September 2006, contributed so that net sales increased 12.1 per-
cent over the previous fiscal year to ¥305.6 billon, and operating
income increased 15.7 percent over the same period to ¥48.5 billion.
In addition to existing ECB businesses, OPT, which
became a subsidiary in August 2006, contributed so that net
sales increased 41.6 percent over the previous fiscal year to
¥138.4 billion, and operating income increased 16.9 percent
over the same period to ¥13.1 billion.
Net sales in AEC grew 20.3 percent from the previous fis-
cal year to ¥93.3 billion based on the need for car electronics
to provide for safety and concern for the environment.
However, due to soaring raw material prices and the delay in
improvements in productivity at North American facilities, the
Company recorded an operating loss of ¥1.2 billion (the operat-
Growth in Net Sales by Business Segment
FY2006
FY2005
FY2004
IAB
ECB
AEC
SSB
HCB
Other
12.1%
41.6
20.3
15.4
7.6
6.9
8.9%
(3.4)
20.2
(20.3)
20.8
(3.2)
9.0%
13.6
9.7
(15.3)
7.7
9.4
Note: For FY2004, Social Systems Business includes “Social Systems Solutions and
Service Business Company” and “Financial Systems Business Company.”
47
ing loss in the previous fiscal year was ¥2.0 billion).
Composition of Net Sales by Business Segment
As railway boarding passes shifted to using IC cards across
Japan, there was demand to improve or replace automated
passenger gate and automatic ticket vendors, and SSB net
sales increased 15.4 percent over the previous fiscal year to
¥105.9 billion. Meanwhile the effects of structural reform
began to emerge and operating income increased 82.0 percent
over the same period to ¥8.1 billion.
HCB was boosted by a worldwide movement to prevent
lifestyle related illness and recorded a 7.6 percent increase in net
sales over the previous fiscal year to ¥65.7 billion. However, oper-
ating income recorded only an 0.4 percent increase over the same
period to ¥8.7 billion, due to the inclusion of expenses for restruc-
turing the business and price competition on a global scale.
Other business was primarily in the Business Development
Group, which searches for and fosters new businesses, and is
in charge of fostering and strengthening businesses that are
2. Review of Sales by Region
Japan
Net sales grew solidly in IAB and ECB as capital investment in
semiconductors and digital household appliances continued to be
high. Also, net sales in SSB grew significantly on demand for
improvements and replacement to the railway station equipment as
railway boarding passes using IC cards were introduced nationwide.
Meanwhile, AEC net sales remained level with the previous fiscal
year as the domestic market for sales of new automobiles matured.
As a result, total net sales in Japan increased 11.2 percent over the
previous fiscal year to ¥412.1 billion, and operating income
increased by 17.7 percent over the same period to ¥62.3 billion.
North America
Net sales in IAB and ECB grew solidly as capital investment
remained firm. Also, net sales in AEC grew with the launch of
new products in wireless control equipment, power window
switches and others. As a result, net sales in North America
increased 23.0 percent over the previous fiscal year to ¥98.0 bil-
lion, but operating income decreased 27.1 percent over the
same period to ¥300 million.
Europe
As capital investment in Europe increased along with improved
earnings at European corporations, net sales at IAB grew, center-
ing on inverters and servomotors. Also, AEC and HCB performed
solidly. As a result, net sales in Europe increased 17.6 percent over
the previous fiscal year to ¥116.4 billion, and operating income
increased 40.8 percent over the same period to ¥10.3 billion.
Financial Condition
Assets
Total assets rose ¥41.2 billion (7.0 percent) from the previ-
ous fiscal year to ¥630.3 billion. Trade notes and accounts
receivable both increased ¥36.7 billion from the previous fiscal
year along with the increase in net sales due to improved busi-
ness results and acquisitions (refer to Note 5 on page 63), and
inventory increased ¥19.2 billion in the same period.
Meanwhile, land was reduced by ¥18.3 billion from the previ-
ous fiscal year due to a loss from the sale of land and buildings
of the Tokyo head office, and investment securities were
reduced ¥15.7 billion by such factors as establishment of a
retirement benefits trust.
IAB
ECB
AEC
SSB
HCB
Other
FY2006
FY2005
FY2004
41.5%
43.5%
41.1%
18.8
12.7
14.4
8.9
3.7
15.6
12.4
14.6
9.7
4.2
16.6
10.6
18.9
8.3
4.5
Note: The composition of net sales is based on the classifications reported in the
Six-year Summary.
not handled by division companies. The total net sales for other
segments increased 6.9 percent over the previous fiscal year to
¥27.7 billion, and operating income increased 44.8 percent in
the same period to ¥2.4 billion.
Greater China
As a result of actively investing in strengthening our marketing in
China, where high growth is expected, IAB’s net sales grew signifi-
cantly. Also, the sales of the subsidiary of OPT contributed greatly
to ECB. As a result, net sales in Greater China increased 66.4 per-
cent over the previous fiscal year to ¥69.4 billion, and operating
income increased 44.5 percent in the same period to ¥1.5 billion.
Southeast Asia and Others
IAB and ECB performed solidly as export led economies
expanded. As a result, net sales in Southeast Asia increased 14.0
percent over the previous fiscal year to ¥40.7 billion, and operating
income increased 7.2 percent in the same period to ¥4.0 billion.
Sales Breakdown, by Region
(%)
100
80
60
40
20
0
4.8%
5.6%
15.2%
10.8%
5.7%
6.7%
15.8%
12.7%
5.5%
9.4%
15.8%
13.3%
63.7%
59.1%
55.9%
North America
Japan
Europe
Greater China
Southeast Asia and Others
04
05
06
(FY)
Liabilities and Shareholders’ Equity
The total of current liabilities, long-term liabilities and minority
interests increased ¥21.4 billion (9.5 percent) from the previous fis-
cal year to ¥247.5 billion. The major factors behind the increase
were an increase in short-term liabilities by ¥17.4 billion from the
previous fiscal year to ¥19.9 billion, and increases in other current
liabilities and deferred income taxes (refer to Note 12 on page 72).
In addition, interest bearing debt outstanding increased ¥18.0 billion
from the previous fiscal year due to the effects of M&A activities
(refer to Note 7 on page 64), to ¥21.8 billion. However, accrued
retirement benefits (refer to Note 9 on page 66) decreased ¥14.3
billion (21.4 percent) from the previous fiscal year.
Shareholders’ equity rose ¥19.9 billion from the previous
48
fiscal year (5.5 percent) to ¥382.8 billion. While net income
was ¥38.3 billion and foreign currency translation adjustments
increased ¥7.9 billion, treasury stock increased ¥10.6 billion (a
decrease in shareholders’ equity).
As a result the shareholders’ equity ratio fell 0.9 percentage
points from the previous fiscal year to 60.7 percent, and the
debt/equity ratio rose from 0.623 to 0.647 over the same period.
In addition, net assets per share based on the number of shares
outstanding at the end of the year was ¥1,660.68, compared to
¥1,548.07 at the end of the previous fiscal year.
Working Capital & Current Ratio
(Billions of yen)
200
150
100
50
0
Outstanding Interest-Bearing Debts
& Debt/Equity Ratio
(Billions of yen)
80
(Times)
2.0
60
40
20
0
1.5
1.0
0.5
0
(%)
200
175
150
125
100
02
03
04
05
06 (FY)
Working capital (left axis)
Current ratio (right axis)
02
03
04
05
06 (FY)
Outstanding interest-bearing debts
(left axis)
Debt/equity ratio (right axis)
Cash Flows
Cash and cash equivalents at the end of the year came to
¥43.0 billion, down ¥9.3 billion from the previous year. The sit-
uation regarding cash flows was as follows.
Cash Flow from Operating Activities
Cash flow from operating activities was ¥40.5 billion, an
inflow decrease of ¥11.2 billion from the previous year.
Although we recorded the contribution of the establishment of
an employee retirement benefit trust, and accounts receivable
and inventories increased, net income was ¥38.3 billion and
depreciation and amortization, a non-cash item, also increased.
Cash Flow from Investing Activities
Cash flow from investing activities saw a net outflow of
¥47.1 billion, an increase of ¥4.1 billion over the previous year.
While inflow increased due to the sale of the land and build-
ings belonging to the Tokyo head office, our active investment
in growth opportunities and our acquisitions of OSTI and OPT
led to increased expenditure overall.
Overview of Capital Expenditures
In the fiscal year under review most of our capital expenditures
were for buildings and structures, machinery and equipment, and
molds for IAB, ECB, and AEC. Total capital expenditures (including
investments in intangible fixed assets and long-term prepaid expens-
es) were ¥44.4 billion, an 8.1 percent increase over the previous
year. Looking at the results by region, capital expenditures were
higher in all areas than in the previous year and in particular we made
a large number of forward-looking investments in China, which is
expected to achieve higher growth.
Capital expenditures by business segment were as follows.
Total capital expenditures in IAB and ECB, business segments in
which we are accelerating investments for growth, were cen-
tered on enhancements to manufacturing facilities and increased
37.2 percent to ¥13.7 billion, and 81.4 percent to ¥12.8 billion,
Cash Flow from Financing Activities
Cash flow from financing activities saw a net outflow of ¥4.7 bil-
lion (an improvement of ¥33.6 billion over the previous year due to
the impact of our repayment of borrowings in the previous year).
Although short-term debt increased, our acquisition of treasury stock
and payment of dividends led to a net outflow overall.
Free Cash Flow
(Billions of yen)
50
40
30
20
10
0
-10
02
03
04
05
06 (FY)
respectively. On the other hand, in AEC capital expenditures
were centered on enhancements to manufacturing facilities and
declined 20.4 percent to ¥8.9 billion. In SSB capital expenditures
were centered on upgrading manufacturing facilities and
decreased 8.4 percent to ¥3.9 billion. In HCB capital expendi-
tures were centered on enhancements to sales and administra-
tive capacity and decreased 5.3 percent to ¥1.5 billion. Lastly in
other businesses capital expenditures decreased 48.3 percent
to ¥3.6 billion.
Total capital expenditures for fiscal 2007 are expected to be
¥45.0 billion, 1.2 percent higher than in fiscal 2006.
49
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, 2007.
shifts. The Omron Group seeks to hedge against exchange rate
risk in such ways as balancing 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 condition.
(1) Economic Conditions
The primary business of the Omron Group is consumer and com-
mercial electronic components used in the manufacture of elec-
trical and electronic equipment, as well as control system equip-
ment used by manufacturing sectors and in capital investment
related areas. Accordingly, demand for Omron Group products
is affected 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 affect-
ing suppliers to, and purchasers from, the Omron Group can
result in the contraction of demand for our products, thereby
possibly having a negative impact on the Group’s operating
results and financial 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 regula-
tions, changes in tax systems, labor shortages and problems in
the labor-management relationship, epidemics, and terrorism,
wars, and other political circumstances.
These 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 121 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 percentage of consolidated net sales account-
ed for by overseas sales during the fiscal year ended March 31,
2007 was 47.3 percent, and Omron expects further increases
in the overseas operations ratio due to factors such as production
(4) Product Defects
Based on its core corporate value of “working for the benefit of
society,” the Omron Group has declared maximum customer
satisfaction to be one of its management philosophies and imple-
ments it 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 control system, and develops and manufactures its prod-
ucts accordingly. A Group-wide quality check system 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 lia-
bility-related damages could impose huge costs, severely influ-
ence evaluations of the Omron Group, and 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 elec-
tric 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
with a view to completely eliminating regulated substances from
all the Group’s products throughout the world in order to make
them environmentally friendly products. However, delays in the
switchover beyond customer deadlines due to a late response by
suppliers in providing substitute components and other factors
could result in liability-related damages or a violation of the EU
directive, which could have a negative 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 remains at approximately 7 percent.
The Omron Group strives to increase the new product con-
50
tribution 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 personal information and classified
information of customers through its business processes and
acquires important information in the course of business. The
Omron Group is taking steps to reinforce control over the infor-
mation the Group handles and to further improve employees’
information literacy, with the goal of preventing external entry
into its internal information systems and misappropriation by
third parties resulting from theft or loss of that information.
Unanticipated leakage of internal information, however, due
for example to invasion of internal information systems using
technology exceeding implemented security levels, could exert
a negative 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 com-
petitors. However, it is impossible to completely protect all of
the Group’s intellectual property consisting of proprietary tech-
nology and expertise, due to legal restrictions in specific regions,
including China, and conditions that allow only limited protec-
tion. At present, the Omron Group is working on intellectual
property protection 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 property 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 activities.
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, although Omron is monitoring the registration of
illegal domain names on a global level and on a daily basis, it is dif-
ficult to identify and deal with all businesses and organizations
registering and using similar domain names, and there is a danger
that such entities will resort to unethical business practices such
as the use of identical or similar domain names which could dam-
age the Group’s reputation. This is not limited to the problem of
imitation products and domain names; when exercising our intel-
lectual property rights, including the granting or assigning of licens-
es for the intellectual property of the Omron Group, disputes
could arise with third parties, such as oppositional tactics from
the party which is subject to the exercise of rights.
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 against 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 com-
pensation 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, and this could exert a negative impact
on the Omron Group’s operating results and financial condition.
(8) Natural Disasters
Because of the possibility of reduction of production capability,
temporary disruption of distribution and sales routes, or other con-
sequences of a natural disaster, fire or other calamity, including a
large-scale earthquake in areas such as Tokai and Tonankai or
directly below the Tokyo area, the Omron Group has identified
risks and implemented the necessary safety measures and meas-
ures for continuation and early recovery 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 nat-
ural disaster, fire or other calamity could exert a negative impact
on the Omron Group’s operating results and financial condition.
51
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, 2007 and 2006
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)
2007
2006
2007
¥
42,995
¥ 52,285
$
364,364
175,700
139,001
1,488,983
(2,297)
94,109
19,985
11,567
(2,653)
74,958
18,571
10,151
(19,466)
797,534
169,364
98,026
Total current assets
342,059
292,313
2,898,806
Property, plant and equipment:
Land
Buildings
Machinery and equipment
Construction in progress
28,271
125,227
175,398
6,389
46,571
117,414
159,254
8,180
239,585
1,061,246
1,486,423
54,144
Total
335,285
331,419
2,841,398
Accumulated depreciation
(175,970)
(163,802)
(1,491,271)
Net property, plant and equipment
159,315
167,617
1,350,127
Investments and other assets:
Investments in and advances to affiliates
Investment securities (Note 4)
Leasehold deposits
Deferred income taxes (Note 12)
Other (Note 6)
16,677
46,770
8,650
17,293
39,573
16,135
62,477
8,553
15,892
26,074
141,331
396,356
73,305
146,551
335,364
Total investments and other assets
128,963
129,131
1,092,907
Total
See notes to consolidated financial statements.
¥ 630,337
¥ 589,061
$ 5,341,840
52
LIABILITIES AND SHAREHOLDERS’ EQUITY
2007
2006
2007
Millions of yen
Thousands of
U.S. dollars (Note 2)
Current liabilities:
Short-term debt (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)
¥ 19,868
¥
2,468
$ 168,373
91,543
32,548
11,467
33,170
264
85,224
28,683
12,288
26,701
296
775,788
275,831
97,178
281,102
2,237
Total current liabilities
188,860
155,660
1,600,509
Long-term debt (Note 7)
1,681
1,049
14,246
Deferred income taxes (Note 12)
2,006
673
17,000
Termination and retirement benefits (Note 9)
52,700
67,046
446,611
Other long-term liabilities
830
571
7,034
Minority interests in subsidiaries
1,438
1,125
12,186
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 – 18,599,842 shares in 2007 and
64,100
64,100
543,220
98,828
8,256
258,057
(3,013)
98,724
8,082
227,791
(2,971)
837,525
69,966
2,186,924
(25,534)
14,676,607 shares in 2006
(43,406)
(32,789)
(367,847)
Total shareholders’ equity
382,822
362,937
3,244,254
Total
See notes to consolidated financial statements.
¥ 630,337
¥ 589,061
$ 5,341,840
53
C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E
OMRON Corporation and Subsidiaries
Years ended March 31, 2007, 2006 and 2005
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Research and development expenses
Subsidy from the government (Note 9)
Other expenses (income), net (Note 11)
Millions of yen
Thousands of
U.S. dollars (Note 2)
2007
2006
2005
2007
¥ 736,651
¥ 626,782
¥ 608,588
$ 6,242,805
452,452
168,135
52,028
—
(2,252)
389,368
161,310
55,315
(41,339)
(2,717)
358,817
144,219
49,441
—
2,080
3,834,339
1,424,873
440,915
—
(19,085)
Total
670,363
561,937
554,557
5,681,042
Income before income taxes, minority interests, equity in loss
of affiliates and cumulative effect of accounting change
66,288
64,845
54,031
561,763
Income taxes (Note 12)
26,418
27,238
22,108
223,881
Income before minority interests, equity in loss of
affiliates and cumulative effect of accounting change
39,870
37,607
31,923
337,882
Minority interests
238
150
264
2,017
Equity in loss of affiliates
Income before cumulative effect of accounting change
1,352
38,280
493
36,964
1,483
30,176
11,458
324,407
Cumulative effect of accounting change, net of tax (Note 9)
—
(1,201)
—
—
Net income
¥ 38,280
¥ 35,763
¥ 30,176
$ 324,407
Per share data (Note 14):
Income before cumulative effect of accounting change
Basic
Diluted
Net income
Basic
Diluted
See notes to consolidated financial statements.
2007
Yen
2006
U.S. dollars (Note 2)
2005
2007
¥ 165.0
164.9
¥ 156.2
156.1
¥ 126.5
124.8
$ 1.40
1.40
165.0
164.9
151.1
151.1
126.5
124.8
1.40
1.40
54
CONSOLIDATED STATEMENTS OF C O M P R E HE N S I V E IN C O ME ( L OSS)
OMRON Corporation and Subsidiaries
Years ended March 31, 2007, 2006 and 2005
Millions of yen
Thousands of
U.S. dollars (Note 2)
2007
2006
2005
2007
¥ 38,280
¥ 35,763
¥ 30,176
$ 324,407
Net income
Other comprehensive income (loss), net of tax (Note 16):
Foreign currency translation adjustments:
Foreign currency translation
adjustments arising during the year
7,907
9,201
5,071
67,008
Reclassification adjustment for the portion
realized in net income
Net change in foreign currency translation
adjustments during the year
6
—
—
51
7,913
9,201
5,071
67,059
Minimum pension liability adjustments
1,658
19,940
4,115
14,051
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during the year
(560)
10,905
1,274
(4,746)
Reclassification adjustment for losses on
impairment realized in net income
Reclassification adjustment for net gains
on sales realized in net income
Reclassification adjustment for net gains on contribution of
85
287
13
720
(475)
(2,430)
(465)
(4,025)
securities to retirement benefit trust realized in net income
(5,983)
—
—
(50,703)
Net unrealized gains (losses)
(6,933)
8,762
822
(58,754)
Net gains (losses) on derivative instruments:
Net losses on derivative instruments designated
as cash flow hedges during the year
Reclassification adjustment for net losses
realized in net income
Net gains (losses)
(1,208)
(1,282)
(1,004)
(10,237)
1,172
1,417
(36)
135
546
(458)
9,932
(305)
Other comprehensive income
2,602
38,038
9,550
22,051
Comprehensive income
¥ 40,882
¥ 73,801
¥ 39,726
$ 346,458
See notes to consolidated financial statements.
55
C O N S O L I D AT E D S TAT 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, 2007, 2006 and 2005
Number of
common shares
issued
Common
stock
Capital
surplus
Legal
reserve
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury
stock
Millions of yen
Balance, April 1, 2004
249,109,236
¥ 64,082
¥ 98,705
¥ 7,450
¥ 175,296
¥ (50,559)
¥ (20,264)
Net income
Cash dividends, ¥24 per share
Transfer to legal reserve
Other comprehensive income
Acquisition of treasury stock
Sale of treasury stock
Conversion of convertible bonds
12,136
18
Exercise of stock options
30,176
(5,713)
(199)
199
3
19
(1)
9,550
(3,065)
16
1
105
(9)
Balance, March 31, 2005
249,121,372
64,100
98,726
7,649
199,551
(41,009)
(23,207)
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
35,763
(7,078)
(433)
433
1
(3)
(12)
38,038
(10,075)
2
491
Balance, March 31, 2006
249,121,372
64,100
98,724
8,082
227,791
(2,971)
(32,789)
Net income
Cash dividends, ¥34 per share
Transfer to legal reserve
Other comprehensive income
Adjustment to initially apply
SFAS No.158 (Note 9)
Acquisition of treasury stock
Sale of treasury stock
Exercise of stock options
Grant of stock options
38,280
(7,839)
(174)
174
2,602
(2,644)
(1)
(11,204)
2
585
1
10
93
Balance, March 31, 2007
249,121,372
¥ 64,100
¥ 98,828
¥ 8,256
¥ 258,057
¥ (3,013)
¥ (43,406)
Thousands of U.S. dollars (Note 2)
Common
stock
Capital
surplus
Legal
reserve
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury
stock
Balance, March 31, 2006
$ 543,220
$ 836,644
$ 68,491
$ 1,930,432
$ (25,178)
$ (277,873)
Net income
Cash dividends, $0.29 per share
Transfer to legal reserve
Other comprehensive income
Adjustment to initially apply SFAS No.158 (Note 9)
Acquisition of treasury stock
Sale of treasury stock
Exercise of stock options
Grant of stock options
324,407
(66,432)
(1,475)
1,475
22,051
(22,407)
(8)
(94,949)
17
4,958
8
85
788
Balance, March 31, 2007
$ 543,220
$ 837,525
$ 69,966
$ 2,186,924
$ (25,534)
$ (367,847)
See notes to consolidated financial statements.
56
C O N S O L I D AT E D S TAT 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, 2007, 2006 and 2005
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 investment securities
Loss on impairment of investment securities
and other assets
Bad debt expenses
Subsidy from the government
Gain on contribution of securities to
retirement benefit trust
Termination and retirement benefits
Deferred income taxes
Minority interests
Equity in loss of affiliates
Cumulative effect of accounting change
Net gain on sales of business entities
Changes in assets and liabilities:
Notes and accounts receivable - trade, net
Inventories
Other assets
Notes and accounts payable - trade
Income taxes payable
Accrued expenses and other current liabilities
Other, net
Total adjustments
Net cash provided by operating activities
Investing activities:
Proceeds from sales or maturities of
investment securities
Purchase of investment securities
Capital expenditures
Decrease (increase) 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 borrowings (repayments) of short-term debt
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 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)
2007
2006
2005
2007
¥ 38,280
¥ 35,763
¥ 30,176
$ 324,407
33,923
30,825
28,642
287,483
6,445
1,441
(954)
682
—
—
(10,141)
(1,403)
3,887
238
1,352
—
—
(19,773)
(13,955)
2,248
(5,674)
(2,244)
6,480
(293)
2,259
40,539
1,643
(2,108)
(44,689)
(9)
17,930
(15)
(1,189)
—
(18,638)
(47,075)
13,812
242
(455)
(7,680)
(9)
(11,204)
3
594
(4,697)
1,943
(9,290)
52,285
¥ 42,995
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
6,830
(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)
1,307
(28,334)
80,619
¥ 52,285
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
1,867
(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)
1,218
(14,440)
95,059
¥ 80,619
54,619
12,212
(8,085)
5,780
—
—
(85,941)
(11,890)
32,941
2,017
11,458
—
—
(167,568)
(118,263)
19,051
(48,085)
(19,017)
54,915
(2,483)
19,144
343,551
13,923
(17,865)
(378,720)
(76)
151,949
(127)
(10,076)
—
(157,949)
(398,941)
117,051
2,051
(3,856)
(65,085)
(76)
(94,949)
25
5,034
(39,805)
16,466
(78,729)
443,093
$ 364,364
57
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 TAT 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 tech-
nologies. 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-automiza-
tion 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 com-
ponents for automobiles and automotive electronic components
manufacturers throughout the world.
Social Systems Solutions 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 purposes
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 information
required by Statement of Financial Accounting Standards
(“SFAS”) No. 131, “Disclosures about Segments of an Enterprise
and Related Information.” Certain reclassifications have been
made to amounts previously reported in order to conform to
2007 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 con-
formity with accounting principles generally accepted in the
United States of America requires management to make esti-
mates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and lia-
bilities 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 clas-
sified 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 con-
secutive months. The Companies may also consider other fac-
tors, including their ability and intent to hold the applicable invest-
ment securities until maturity, and the severity of the decline in
fair value.
Other investments are stated at the lower of cost or esti-
mated net realizable value. The cost of securities sold is deter-
mined on the average cost basis.
Inventories
Inventories are stated at the lower of cost, determined by the
first-in, first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation of
property, plant and equipment has been computed principally
on a declining balance method based upon the estimated useful
lives of the assets. The estimated useful lives primarily range
from 3 to 50 years for buildings and from 2 to 15 years for
machinery and equipment.
58
Goodwill and Other Intangible Assets
The Companies account 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 impairment until its life is
determined to no longer be indefinite.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying
amount of an asset to undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds
the fair value. Assets to be disposed of other than by sale are
considered held and used until disposed of. Assets to be dis-
posed 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 ¥10,315 million ($87,415 thousand), ¥10,290 million
and ¥8,718 million for the years ended March 31, 2007, 2006
and 2005, respectively.
Shipping and Handling Charges
Shipping and handling charges were ¥8,851 million ($75,008
thousand), ¥7,627 million and ¥7,720 million for the years ended
March 31, 2007, 2006 and 2005, respectively, and are included in
selling, general and administrative expenses in the consolidat-
ed statements of income.
Termination and retirement benefits
Deferred income taxes (Investments and other assets)
Accumulated other comprehensive loss
Termination and retirement benefits
Deferred income taxes (Investments and other assets)
Accumulated other comprehensive loss
Termination and Retirement Benefits
Termination and retirement benefits are accounted for in
accordance with SFAS No. 87, “Employers’ Accounting for
Pensions” and SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans”
based on the fiscal year-end fair value of plan assets and the
projected benefit obligations of employees, and are disclosed
in accordance with SFAS No. 132 (revised 2003), “Employers’
Disclosures about Pensions and Other Postretirement
Benefits” and SFAS No. 158. 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 pre-
viously used December 31 as the measurement date for pro-
jected benefit obligation and plan assets of the termination and
retirement benefits. During the year ended March 31, 2006, the
companies changed the measurement date to March 31. The
purpose of this change was 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 benefits, in the projected benefit obligation and retire-
ment benefit expense.
A cumulative effect (net of tax) of this change was recog-
nized in the consolidated statement of income for the year ended
March 31, 2006, which reduced net income for the period by
¥1,201 million.
On March 31, 2007, the Companies adopted the recognition
and disclosure provisions of SFAS No. 158.
SFAS No. 158 required the Companies to recognize the
funded status (i.e., the difference between the fair value of
plan assets and the projected benefit obligations) of their
pension plans in the March 31, 2007 consolidated balance
sheet, with a corresponding adjustment to accumulated other
comprehensive income (loss) as pension liability adjustments.
Before adoption of SFAS No. 158, an additional minimum
pension liability was recognized based on a plan’s accumulated
benefit obligation (projected benefit obligation, less future
compensation increase), pursuant to SFAS No. 87. The
incremental effects of adopting the provisions of SFAS No.
158 on the accompanying consolidated balance sheet at
March 31, 2007 are presented in the following table.
Before Application
of SFAS No.158
Millions of yen
Adjustments
After Application of
SFAS No.158
¥ (48,219)
¥ (4,481)
¥ (52,700)
15,456
(369)
1,837
(2,644)
17,293
(3,013)
Thousands of U.S. dollars
Before Application
of SFAS No.158
Adjustments
After Application of
SFAS No.158
$ (408,635)
$ (37,975)
$ (446,610)
130,983
(3,127)
15,568
(22,407)
146,551
(25,534)
59
Income Taxes
Deferred income taxes reflect the tax consequences on future
years of differences between the tax bases of assets and liabil-
ities 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.
The Company and certain domestic subsidiaries compute
current income taxes based on the consolidated taxable income
as permitted by Japanese tax regulations for the year beginning
after April 1, 2006.
Product Warranties
A liability for the estimated warranty related cost is established
at the time revenue is recognized and is included in other
current liabilities. The liability is established using historical
information including the nature, frequency, and average cost
of warranty claims.
Derivatives
Derivative instruments and hedging activities are accounted for in
accordance with SFAS No.133, “Accounting for Derivative
Instruments and Hedging Activities,” SFAS No.138, “Accounting
for Certain Derivative Instruments and Certain Hedging Activities,
an amendment of FASB Statement No.133,” and SFAS No.149,
“Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.” These standards establish accounting and
reporting standards for derivative instruments and for hedging
activities, and require that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value.
For foreign exchange forward contracts and foreign currency
options, on the date the derivative contract is entered into, the
Companies designate the derivative as a hedge of a forecasted
transaction or the variability of cash flows to be received or paid
related to a recognized asset or liability (“cash flow” hedge or
“foreign currency” hedge). The Companies formally document all
relationships between hedging instruments and hedged items, as
well as its risk management objective and strategy for under-
taking various hedge transactions. This process includes linking
all derivatives that are designated as cash flow or foreign cur-
rency hedges to specific assets and liabilities on the consolidat-
ed balance sheet or to specific firm commitments or forecasted
transactions. Based on the Companies’ policy, all foreign
exchange forward contracts and foreign currency options entered
into must be highly effective in offsetting changes in cash flows
of hedged items.
Changes in fair value of a derivative that is highly effective and
that is designated and qualifies as a cash flow or foreign curren-
cy 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 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 applied revised SFAS No. 123, “Share Based
Payment,” and recognized a stock-based compensation cost
measured by the fair value method. For the years ended March
31, 2006 and 2005, the Companies applied APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and recognized a
stock-based compensation cost measured by the intrinsic value
method. The following table illustrates the effect on net income
and net income per share if the Companies had applied the fair
value method to stock-based compensation cost.
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)
Basic - as reported
Basic - pro forma
Diluted - as reported
Diluted - pro forma
60
Millions of yen
(except per share data)
2006
2005
¥ 35,763
¥ 30,176
73
101
¥ 35,690
¥ 30,075
¥ 151.1
¥ 126.5
150.8
151.1
150.7
126.1
124.8
124.3
New Accounting Standards
In June 2006, the FASB ratified the Emerging Issue Task Force
(“EITF”) consensus on EITF Issue 06-2, “Accounting for
Sabbatical Leave and Other Similar Benefits Pursuant to FASB
Statement No. 43.” EITF Issue 06-2 provides guidance for an
accrual of compensated absences that require a minimum serv-
ice period but have no increase in the benefit even with addi-
tional years of service. EITF Issue 06-2 is effective for fiscal years
beginning after December 15, 2006. The adoption of EITF Issue
06-2 will not have a material impact on the Companies’ consoli-
dated financial statements.
In June 2006, the FASB issued FASB Interpretation (“FIN”)
No. 48, “Accounting for Uncertainty in Income Taxes, an inter-
pretation of FASB Statement No.109”. FIN No. 48 clarifies the
accounting for uncertainty in income taxes by prescribing the
recognition threshold a tax position is required to meet before
being recognized in the financial statements. It also provides
guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN No.
48 is effective for fiscal years beginning after December 15,
2006. The Companies do not expect the adoption of FIN No. 48
will have a material impact on the Companies’ consolidated finan-
cial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements.” SFAS No. 157 defines fair value, estab-
lishes a framework for measuring fair value, and expands dis-
closures about fair value measurements. SFAS No. 157 is effec-
tive for fiscal years beginning after November 15, 2007. The
adoption of SFAS No. 157 will not have a material impact on the
Companies’ consolidated financial statements.
2. Translation into United States Dollars
In September 2006, the FASB issued SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans.” SFAS No. 158 requires plan sponsors of
defined benefit pension and other postretirement benefit plans
(collectively, “postretirement benefit plans”) to recognize the
funded status of their postretirement benefit plans in the con-
solidated balance sheet, measure the fair value of plan assets
and benefit obligations as of the date of the fiscal year-end con-
solidated balance sheet, and provide additional disclosures. On
March 31, 2007, the Company adopted the recognition and dis-
closure provisions of SFAS No. 158. The effect of adopting SFAS
No. 158 on the Company’s financial condition at March 31, 2007
has been included in the accompanying consolidated financial
statements. SFAS No. 158’s provisions regarding the change in
the measurement date of postretirement benefit plans did not
have a material impact on the Company’s consolidated results of
operations and financial condition as the Company already uses
a measurement date of March 31 for the majority of its plans.
In February 2007, the FASB issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities-Including
an amendment of FASB Statement No. 115.” SFAS No. 159
provides companies with an option to report selected financial
assets and liabilities at fair value. Unrealized gains and losses
on items for which the fair value option has been elected will
be recognized in earnings. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The adoption of SFAS
No. 159 will not have a material impact on the Companies’ con-
solidated financial statements.
The consolidated financial statements are stated in Japanese
yen, the currency of the country in which the Company is incor-
porated 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
¥118 to $1, the approximate rate of exchange at March 31, 2007.
Such translation should not be construed as representations that
the Japanese yen amounts could be converted into U.S. dollars
at the above or any other rate.
3. Inventories
Inventories at March 31 consisted of:
Finished products
Work-in-process
Materials and supplies
Total
Millions of yen
Thousands of
U.S. dollars
2007
2006
2007
¥ 53,331
¥ 40,613
$ 451,958
14,043
26,735
14,286
20,059
119,008
226,568
¥ 94,109
¥ 74,958
$ 797,534
61
4. Marketable Securities and Investments
Available-for-sale securities are recorded at fair value, with unrealized gains and losses excluded from income and reported in other
comprehensive income (loss), net of tax. Cost, gross unrealized holding gains and losses and fair value of securities, excluding equi-
ty securities with no readily determinable public market value, by major security type at March 31 were as follows:
2007
2006
Millions of yen
Cost (*)
Gross unrealized
gains
Gross unrealized
losses
Fair value
Cost (*)
Gross unrealized
gains
Gross unrealized
losses
Fair value
Available-for-sale securities：
Debt securities
¥ 2,559
Equity securities
16,063
Total available-for-sale
¥
510
22,351
¥ —
(12)
¥ 3,069
¥ 1,067
¥
413
38,402
22,302
33,770
¥ —
—
¥ 1,480
56,072
securities
¥ 18,622
¥ 22,861
¥ (12)
¥ 41,471
¥ 23,369
¥ 34,183
¥ —
¥ 57,552
Thousands of U.S. dollars
2007
Cost (*)
Gross unrealized
gains
Gross unrealized
losses
Fair value
Available-for-sale securities：
Debt securities
$ 21,686
$
4,322
$ —
$ 26,008
Equity securities
136,127
189,415
(101)
325,441
Total available-for-sale
securities
$ 157,813
$ 193,737
$ (101)
$ 351,449
(*) Cost represents amortized cost for debt securities and acquisition cost for equity securities.
Maturities of debt securities classified as available-for-sale at March 31 were as follows:
Millions of yen
Thousands of U.S. dollars
2007
2006
2007
Cost
Fair value
Cost
Fair value
Cost
Fair value
Due after one year through five years
Due over five years
¥ 1,059
¥ 1,500
¥ 1,569
¥ 1,500
¥ 1,067
¥ —
¥ 1,480
¥ —
$ 8,974
$ 12,712
$ 13,296
$ 12,712
Gross unrealized holding losses and fair value of certain available-for-sale, equity securities, aggregated by length of time that such secu-
rities have been in a continuous unrealized loss position at March 31 were as follows:
Millions of yen
Thousands of U.S. dollars
2007
2006
2007
Fair value
Gross unrealized
holding losses
Fair value
Gross unrealized
holding losses
Fair value
Gross unrealized
holding losses
Less than 12 months
Equity securities
¥ 312
¥ (12)
¥ —
¥ —
$ 2,644
$ (101)
Aggregate cost of non-marketable equity securities accounted for
under the cost method totaled ¥5,299 million ($44,907 thousand)
and ¥4,925 million at March 31, 2007 and 2006, respectively.
Investments with an aggregate cost of ¥5,279 million ($44,737
thousand) were not evaluated for impairment because (a) the
Companies did not estimate the fair value of those investments as
it was not practicable to do so and (b) the Companies did not iden-
tify any events or changes in circumstances that might have had a
significant adverse effect on the fair value of those investments.
Losses on impairment of available-for-sale securities recog-
nized to reflect declines in market value considered to be other
than temporary were ¥144 million ($1,220 thousand), ¥487 million
62
and ¥22 million for the years ended March 31, 2007, 2006 and
2005, respectively.
Proceeds from sales of available-for-sale securities were ¥976
million ($8,271 thousand), ¥6,511 million and ¥1,638 million for
the years ended March 31, 2007, 2006 and 2005, respectively.
Gross realized gains on sales were ¥805 million ($6,822 thou-
sand), ¥4,119 million and ¥788 million for the years ended March
31, 2007, 2006 and 2005, respectively.
There were no gross realized losses on sales for the years
ended March 31, 2007, 2006 and 2005.
The fair value of available-for-sale securities contributed to
a retirement benefit trust was ¥16,019 million ($135,754 thou-
sand) and the gain on contribution was ¥10,141 million ($85,941
thousand) for the year ended March 31, 2007.
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 (now OMRON Colin Co., Ltd.,
“OHK”) for cash in the aggregate amount of ¥8,943 million.
This acquisition was to expand healthcare business, to obtain
synergies with OHK and to create preventive medicine market
through the acquisition of OHK’s medical devices business for
healthcare professionals. The consolidated financial statements
for the year ended March 31, 2006 include the operating results
of OHK from the date of acquisition. The estimated fair values of
the assets acquired and liabilities assumed at the date of acqui-
sition were as follows:
In September 2006, OMRON Management Center of
America, Inc., a subsidiary of the Company, acquired 100% of the
issued common stock of Scientific Technologies Incorporated
(now OMRON Scientific Technologies Incorporated, “OSTI”) for
cash in the aggregate amount of ¥11,667 million ($98,873 thou-
sand).
This acquisition was to fulfill line-up of safety equipment,
expand safety business and create cutting-edge equipment.
The consolidated financial statements for the year ended
March 31, 2007 include the operating results of OSTI from the
date of acquisition. The estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition were as follows:
Current assets
Property, plant and equipment
Investments and other assets (*)
Current liabilities
Long term liabilities
Net assets acquired
Millions of yen
¥ 4,339
996
6,747
(2,958)
(181)
¥ 8,943
Millions of yen
Thousands of
U.S. dollars
Current assets
¥ 2,463
$ 20,873
Property, plant and equipment
458
Investments and other assets (*)
11,360
Current liabilities
Long term liabilities
(795)
(1,819)
3,881
96,271
(6,737)
(15,415)
(*) Investments and other assets include acquired goodwill of ¥6,554 million.
Net assets acquired
¥ 11,667
$ 98,873
(*) Investments and other assets include acquired goodwill of ¥7,044 million ($59,695
thousand).
In August 2006, the Company acquired 100% of the issued com-
mon stock of Pioneer Precision Machinery Corporation (now
OMRON Precision Technology Co., Ltd., “OPT”) for cash in the
aggregate amount of ¥7,721 million ($65,432 thousand).
This acquisition was to expand and strengthen LCD backlights
business from small-size to large-size.
The consolidated financial statements for the year ended
March 31, 2007 include the operating results of OPT from the
date of acquisition. The estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition were as
follows:
Millions of yen
Thousands of
U.S. dollars
Current assets
¥ 18,299
$ 155,076
Property, plant and equipment
Investments and other assets (*)
Current liabilities
Long term liabilities
3,788
3,855
(16,284)
(1,937)
32,101
32,670
(138,000)
(16,415)
Net assets acquired
¥
7,721
$
65,432
(*) Investments and other assets include acquired goodwill of ¥2,179 million ($18,466
thousand).
63
6. Goodwill and Other Intangible Assets
The components of acquired intangible assets excluding goodwill at March 31, 2007 and 2006 were as follows:
Millions of yen
2007
2006
Thousands of U.S. dollars
2007
Gross amount
Accumulated
amortization
Gross amount
Accumulated
amortization
Gross amount
Accumulated
amortization
Intangible assets
subject to amortization:
Software
Other
Total
¥ 37,141
4,895
¥ 42,036
¥ 21,426
2,897
¥ 24,323
¥ 31,031
3,583
¥ 34,614
¥ 19,414
2,408
¥ 21,822
$ 314,754
41,483
$ 356,237
$ 181,576
24,551
$ 206,127
Aggregate amortization expense related to intangible assets was ¥5,867 million ($49,720 thousand), ¥5,235 million and ¥4,827 million
for the years ended March 31, 2007, 2006 and 2005, respectively.
Estimated amortization expense for the next five years ending March 31 is as follows:
Years ending March 31
2008
2009
2010
2011
2012
Millions of yen
Thousands of
U.S. dollars
¥ 6,335
5,132
3,482
1,900
793
$ 53,686
43,492
29,508
16,102
6,720
Intangible assets not subject to amortization at March 31, 2007 and 2006 were immaterial.
The carrying amount of goodwill at March 31, 2007 and 2006 and changes in its carrying amount for the years ended March 31, 2007
and 2006 were as follows:
Balance at beginning of year
Acquisition
Foreign currency translation adjustments and other
Balance at end of year
7. Short-Term Debt and Long-Term Debt
Short-term debt at March 31 consisted of the following:
Millions of yen
2007
¥ 8,895
10,080
46
¥ 19,021
2006
¥ 1,314
7,633
38
¥ 8,895
Thousands of
U.S. dollars
2007
$ 75,381
85,424
390
$ 161,195
Millions of yen
Thousands of
U.S. dollars
2007
2006
2007
Commercial Paper
The weighted average annual interest rates
¥ 16,000
¥ —
$ 135,593
2006
2007
—
0.8%
Unsecured debt:
The weighted average annual interest rates
3,868
2,468
32,780
2006
2007
Total
3.7%
5.0%
64
¥ 19,868
¥ 2,468
$ 168,373
Long-term debt at March 31 consisted of the following:
Unsecured debt:
The weighted average annual interest rates
¥
120
¥ —
$ 1,017
Millions of yen
Thousands of
U.S. dollars
2007
2006
2007
2006
2007
Other
Total
—
5.4%
Less portion due within one year
Long-term debt, less current portion
1,825
1,945
264
¥ 1,681
1,345
1,345
296
¥ 1,049
15,466
16,483
2,237
$ 14,246
The annual maturities of long-term debt outstanding at March 31, 2007 were as follows:
Years ending March 31
2008
2009
2010
2011
2012
Thereafter
Total
Millions of yen
Thousands of
U.S. dollars
¥ 264
492
69
60
62
998
¥ 1,945
$ 2,237
4,169
585
508
525
8,459
$ 16,483
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 also customary in Japan, the Company and domestic
subsidiaries maintain deposit balances with banks with which
they have short- or long-term debt. 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, 2007, 2006 and 2005 amounted to ¥1,116
million ($9,458 thousand), ¥898 million and ¥1,083 million, respec-
tively.
8. Leases
The Companies do not have any material capital lease agree-
ments.
The Companies have operating lease agreements primarily
involving offices and equipment for varying periods. Leases
that expire generally are expected to be renewed or replaced
by other leases. At March 31, 2007, future minimum rental
payments applicable to non-cancelable leases having initial or
remaining non-cancelable lease terms in excess of one year
were as follows:
Years ending March 31
2008
2009
2010
2011
2012
Thereafter
Total
Millions of yen
Thousands of
U.S. dollars
¥ 2,908
2,388
1,780
1,560
1,367
10,579
¥ 20,582
$ 24,644
20,237
15,085
13,220
11,585
89,653
$ 174,424
Rental expense amounted to ¥12,758 million ($108,119 thousand), ¥11,862 million and ¥11,151 million for the years ended March 31,
2007, 2006 and 2005, respectively.
65
9. Termination and Retirement Benefits
The Company and its domestic subsidiaries sponsor termina-
tion and retirement benefit plans which cover substantially all
domestic 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 deter-
mining pension benefits including a “point-based benefits sys-
tem,” under which benefits are calculated based on accumulat-
ed points allocated to employees each year according to their
job classification and performance. If the termination is involun-
tary, the employee is usually entitled to greater payments than in
the case of voluntary termination.
The Company and its domestic subsidiaries fund a portion of
the obligations under these plans. The general funding policy is
to contribute amounts computed in accordance with actuarial
methods acceptable under Japanese tax law. The Company and
substantially all domestic subsidiaries had a contributory termi-
nation and retirement plan which was interrelated with the
Japanese government social welfare program and consisted of
a substitutional potion requiring employee and employer contri-
butions plus an additional portion established by the employers.
Periodic pension benefits required under the substitutional
portion 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 termi-
nation or retirement although periodic payments were available
under certain conditions.
In January 2003, EITF reached a final consensus on Issue
03-2, “Accounting for the Transfer to the Japanese Government
of the Substitutional Portion of Employee Pension Fund
Liabilities.” EITF Issue 03-2 addresses accounting for a transfer
to the Japanese government of a substitutional portion of an
Employees’ Pension Fund plan.
The process of separating the substitutional portion from
the corporate portion occurs in four phases. EITF Issue 03-2
requires that the separation process should be accounted for
upon completion of the transfer to the government of the sub-
stitutional portion of the benefit obligation and related plan assets
as the culmination of a series of steps in a single settlement
transaction. Under the consensus reached, at the time the assets
are transferred to the government in an amount sufficient to
complete the separation process, the transaction is considered
to be complete and the elimination of the entire substitutional
portion of the benefit obligation would be accounted for as a
settlement at that time. The difference between the obligation
settled and the assets transferred to the government should be
accounted for as a subsidy from the government.
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
termination and retirement benefit plans. The substitutional por-
tion of the benefit obligation and related plan assets were trans-
ferred to the government on September 29, 2005. The transfer
resulted in the Company recording a subsidy from the govern-
ment of ¥41,339 million 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 derecog-
nition of previously accrued salary progression of ¥8,870 million
and a settlement loss of ¥38,294 million. The net amount of
derecognition of previously accrued salary progression and set-
tlement loss is allocated to cost of sales of ¥15,975 million, sell-
ing, general and administrative expenses of ¥8,635 million and
research and development expenses of ¥4,814 million.
On March 31, 2007, the Companies adopted the recogni-
tion and disclosure provisions of SFAS No. 158. SFAS No. 158
required the Companies to recognize the funded status (i.e., the
difference between the fair value of plan assets and the pro-
jected benefit obligations) of their pension plans in the March
31, 2007 consolidated balance sheet, with a corresponding
adjustment to accumulated other comprehensive income (loss)
as pension liability adjustments. Before adoption of SFAS No.
158, an additional minimum pension liability was recognized
based on a plan’s accumulated benefit obligation (projected ben-
efit obligation, less future compensation increase), pursuant to
SFAS No. 87. The effects of adopting the provisions of SFAS
No. 158 on the accompanying consolidated balance sheets at
March 31, 2007 are presented in Note 1. Summary of Significant
Accounting Policies.
66
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:
Millions of yen
Thousands of
U.S. dollars
2007
2006
2007
¥ 154,531
¥ 246,950
$ 1,309,585
3,954
3,091
—
—
—
(2,521)
(3,477)
(1,049)
3,979
3,926
(91,963)
2,424
(7,745)
2,594
(3,659)
(1,975)
33,508
26,195
—
—
—
(21,364)
(29,466)
(8,890)
¥ 154,529
¥ 154,531
$ 1,309,568
Fair value of plan assets at beginning of year
¥ 89,287
¥ 121,121
Actual return on plan assets
Transfer of substitutional portion
Effect of change in measurement date
Employers’ contributions
Benefits paid
Settlement paid
2,894
—
—
5,110
(2,780)
(1,049)
7,668
(41,753)
1,496
5,573
(2,843)
(1,975)
756,670
24,525
—
—
43,305
(23,559)
(8,890)
Fair value of plan assets at end of year
Fair value of assets in retirement benefit trust at beginning of year
Actual return on assets in retirement benefit trust
Employers‘ contributions
Fair value of assets in retirement benefit trust at end of year
Funded status at end of year
¥ 93,462
¥ 89,287
$ 792,051
¥
—
(2,269)
16,019
¥ 13,750
¥
¥
—
—
—
—
$
—
(19,229)
135,754
116,525
¥ (47,317)
¥ (65,244)
$ (400,992)
Amounts recognized in the consolidated balance sheet at March
31, 2007 consist of:
Millions of yen
Thousands of
U.S. dollars
The funded status at March 31, 2006, reconciled to the net
amount recognized in the consolidated balance sheet at that
date, is summarized as follows:
Termination and
retirement benefit
¥ (47,317)
$ (400,992)
Amounts recognized in accumulated other comprehensive
income (loss) at March 31, 2007 consist of:
Funded status
Unrecognized net actuarial loss
Unrecognized prior service benefit
Net amount recognized
Millions of yen
¥ (65,244)
62,151
(23,414)
¥ (26,507)
Net actuarial loss
Prior service cost
Millions of yen
Thousands of
U.S. dollars
¥ 59,950
$ 508,051
(21,561)
(182,720)
¥ 38,389
$ 325,331
Amounts recognized in the consolidated balance sheet at March
31, 2006 consist of:
Termination and retirement benefit
Accumulated other comprehensive
loss (gross of tax)
Net amount recognized
Millions of yen
¥ (62,672)
36,165
¥ (26,507)
67
The accumulated benefit obligation at March 31 was as follows:
Accumulated benefit obligation
Millions of yen
Thousands of
U.S. dollars
2007
2006
2007
¥ 150,045
¥ 151,959
$ 1,271,568
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
2007
2006
2005
2007
¥ 3,954
¥ 3,979
¥ 5,822
$ 33,508
3,091
(3,411)
612
—
—
3,926
(3,620)
2,336
38,294
(8,870)
5,022
(4,301)
2,565
—
—
26,195
(28,907)
5,186
—
—
Net periodic benefit cost
¥ 4,246
¥ 36,045
¥ 9,108
$ 35,982
The unrecognized net actuarial loss and the prior service benefit are being amortized over 15 years.
The estimated net actuarial loss and prior service benefit that
will be amortized from accumulated other comprehensive income
(loss) into net periodic benefit cost for the year ending March
31, 2008 are summarized to the right:
Net actuarial loss
Prior service cost
Millions of yen
¥ 2,479
(1,853)
Thousands of
U.S. dollars
$ 21,008
(15,703)
Measurement Date
The Company and certain of its domestic subsidiaries use March
31 as the measurement date for projected benefit obligation
and plan assets of the termination and retirement benefits.
During the year ended March 31, 2006, the companies changed
the measurement date from December 31 to March 31. The
purpose of this change was 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 benefits, in the projected benefit obligation and retire-
ment benefit expense.
A cumulative effect (net of tax) of this change was recog-
nized in the consolidated statement of income for the year ended
March 31, 2006, which reduced net income for the period by
¥1,201 million.
Assumptions
Weighted-average assumptions used to determine benefit obligations at March 31, 2007 and 2006 are as follows:
Discount rate
Compensation increase rate
2007
2.0%
2.0%
2006
2.0%
2.0%
68
Weighted-average assumptions used to termination and retirement benefit cost for the years ended March 31, 2007, 2006 and
2005 are as follows:
Discount rate
Compensation increase rate
Expected long-term rate of return on plan assets
2007
2.0%
2.0%
3.0%
2006
2.0%
2.0%
3.0%
2005
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 (except for assets in retirement benefit trust) by asset category is as
follows:
Asset Category
Cash
Equity Securities
Debt Securities
Life insurance company general accounts
Other
Total
2007
2006
0.0%
21.1%
48.8%
13.8%
16.3%
0.1%
23.9%
46.1%
14.1%
15.8%
100.0%
100.0%
The assets in the retirement benefit trust at March 31, 2007
consisted of 99.7% equity securities and 0.3% other.
The Company investment policies are designed to ensure
that adequate plan assets are available to provide future pay-
ments of pension benefits to eligible participants. Taking into
account the expected long-term rate of return on plan assets, the
Company formulates a model portfolio comprised of the opti-
mal combination of equity and debt securities in order to pro-
duce a total return that will match the expected return on a mid-
term to long-term basis.
Target allocation of plan assets is 20% equity securities,
66% debt securities and life insurance company general account
and 14% other for both 2007 and 2006.
The Company evaluates the gap between expected return
and actual return of invested plan assets on an annual basis to
determine if such differences necessitate a revision in the model
portfolio. The Company revises the model portfolio to the extent
considered necessary to achieve the expected long-term rate
of return on plan assets.
Equity securities include a common stock of the Company in
the amounts of ¥1 million ($10 thousand) (0.00% of total domes-
tic plan assets), and ¥11 million (0.01% of total domestic plan
assets) at March 31, 2007, and 2006, respectively.
Cash Flows
Contributions
The Companies expect to contribute ¥5,178 million ($43,881
thousand) to their domestic termination and retirement benefit
plans in the year ending March 31, 2008.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
Years ending March 31
2008
2009
2010
2011
2012
2013 — 2017
Millions of yen
Thousands of
U.S. dollars
¥ 4,492
$ 38,068
5,698
6,532
6,883
6,629
48,288
55,356
58,331
56,178
34,340
291,017
69
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 ¥2,687
million ($22,771 thousand) and ¥2,555 million ($21,653 thou-
sand), respectively, at March 31, 2007 and ¥2,812 million and
¥2,020 million, respectively, at March 31, 2006.
The Companies also have unfunded noncontributory termi-
nation plans administered by the Companies. These plans provide
lump-sum termination benefits 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
10. Shareholders’ Equity.
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, 2007 and 2006 was ¥5,383 million ($45,619
thousand) and ¥4,374 million, respectively. The aggregate net
periodic benefit cost for such plans for the years ended March
31, 2007, 2006 and 2005 was ¥1,167 million ($9,890 thousand),
¥618 million and ¥1,241 million, respectively.
Japanese companies are subjected to the Corporate Low.
separate component of shareholders’ equity.
The Corporate Law requires that all shares of common stock
be issued with no par value and at least 50% of amount paid of
the issue price of new shares is required to be recorded as com-
mon stock and the remaining net proceeds are required to be
presented as additional paid-in capital, which is included in capi-
tal surplus. The Corporate Law permits Japanese companies,
upon approval of the Board of Directors, to issue shares to exist-
ing shareholders without consideration by way of a stock split.
Such issuance of shares generally does not give rise to changes
within the shareholders’ accounts.
The Corporate Law also requires that an amount equal to
10% of dividends must be appropriated as a legal reserve or as
additional paid-in capital (a component of capital surplus) depend-
ing on the 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 Corporate Law, the total amount of additional paid-in
capital and legal reserve may be reversed without limitation of
such threshold. 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.
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 pur-
chased cannot exceed the amount available for distribution to
the shareholders which is determined by specific formula.
Under the Corporate Law, stock acquisition rights, which
were previously presented as a liability, are now presented as a
The Corporate Law also provides that companies can pur-
chase both treasury stock acquisition rights and treasury stock.
Such treasury stock acquisition rights are presented as a separate
component of shareholders’ equity or deducted directly from
stock acquisition rights.
Under the Corporate Law, companies can pay dividends at
any time during the fiscal year in addition to the year-end divi-
dend 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 pre-
scribed so in its articles of incorporation.
The Corporate Law permits companies to distribute divi-
dends-in-kind (non-cash assets) to shareholders subject to a cer-
tain limitation and additional requirements.
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 Corporate Law,
certain limitations 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 div-
idends 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.
70
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:
Fixed options
Options outstanding at April 1, 2004
Granted
Exercised
Expired
Options outstanding at March 31, 2005
Granted
Exercised
Expired
Options outstanding at March 31, 2006
Granted
Exercised
Expired
Options outstanding at March 31, 2007
Options exercisable at March 31, 2007
Fixed options
Options outstanding at March 31, 2006
Granted
Exercised
Expired
Options outstanding at March 31, 2007
Options exercisable at March 31, 2007
yen
Weighted-average
exercise price
Weighted-average fair value
of options granted
during the year
¥ 194
¥ 415
¥ 539
¥ 2,357
2,580
1,846
1,839
¥ 2,421
2,550
2,111
2,936
¥ 2,384
3,031
2,284
2,306
¥ 2,570
¥ 2,369
U.S. dollar
Weighted-average
exercise price
Weighted-average fair value
of options granted
during the year
$ 4.57
$ 20.20
25.69
19.36
19.54
$ 21.78
$ 20.08
Shares
1,089,000
219,000
(51,000)
(11,000)
1,246,000
213,000
(226,000)
(260,000)
973,000
217,000
(260,000)
(25,000)
905,000
475,000
Shares
973,000
217,000
(260,000)
(25,000)
905,000
475,000
The following summarizes information about fixed stock options at March 31, 2007:
Shares
Weighted-average
remaining
contractual life
Yen
Range of exercise prices
Weighted-average exercise price
Options outstanding
905,000
2.54 years
¥ 1,913
Options exercisable
475,000
1.44 years
to
¥ 3,031
¥ 1,913
to
U.S. dollars
$ 16.21
to
$ 25.69
$ 16.21
to
Yen
¥ 2,570
U.S. dollars
$ 21.78
¥ 2,369
$ 20.08
¥ 2,580
$ 21.86
71
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
2007
1.540%
28.0%
1.068%
3.5years
2006
1.540%
23.0%
0.982%
3.5years
2005
0.628%
10.0%
0.783%
3.5years
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 trans-
ferable. 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.
Stock-based compensation cost recognized for the year
ended March 31, 2007 was ¥93 million ($788 thousand). As of
March 31, 2007, total compensation cost related to nonvested
options and not yet recognized was ¥84 million ($712 thousand),
and the weighted-average period over which it is expected to
be recognized is 1.12 years. Cash received from options exer-
cised under the plan for the year ended March 31, 2007 was
¥594 million ($5,034 thousand). When options are exercised,
the Company will grant the Company’s treasury stock.
11. Other Expenses (Income), net
Other expenses (income), net for the years ended March 31, 2007, 2006 and 2005 consisted of the following:
Millions of yen
Thousands of
U.S. dollars
2007
2006
2005
2007
Net loss on sales and disposals of property, plant and equipment
¥
6,445
¥
Loss on impairment of property, plant and equipment
Business restructuring expenses
Loss on impairment of investment securities and other assets
Net gain on sales of investment securities
1,441
713
682
(954)
Gain on contribution of securities to retirement benefit trust
(10,141)
42
—
749
757
(4,302)
—
(194)
(609)
1,306
(466)
¥
918
$ 54,619
614
1,767
366
(987)
—
—
(216)
75
(457)
12,212
6,042
5,780
(8,085)
(85,941)
—
(6,178)
9,203
(6,737)
—
(729)
1,086
(795)
¥ (2,252)
¥ (2,717)
¥ 2,080
$ (19,085)
Net gain on sales of business entities
Interest income, net
Foreign exchange loss, net
Other, net
Total
Certain land and buildings, principally idle assets, were
deemed to be impaired and written down to fair value for the
year ended March 31, 2005. Also certain manufacturing assets
of Automotive Electronic Components Business were deemed
to be impaired and written down to fair value for the year
ended March 31, 2007.
The fair value was measured by discounted cash flows
expected to be generated by the assets.
72
12. Income Taxes
The provision for income taxes for the years ended March 31, 2007, 2006 and 2005 consisted of the following:
Current income tax expense
Deferred income tax expenses, exclusive of the following
Change in the valuation allowance
Total
Millions of yen
Thousands of
U.S. dollars
2007
2006
2005
2007
¥ 22,531
¥ 23,276
¥ 20,393
$ 190,941
3,521
366
3,947
15
2,160
(445)
29,839
3,101
¥ 26,418
¥ 27,238
¥ 22,108
$ 223,881
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 2007, 2006 and 2005.
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
Other, net
Effective tax rates
2007
41.0%
0.6
(4.0)
3.7
(2.0)
0.6
0.0
39.9
2006
41.0%
2005
41.0%
0.9
(3.5)
0.4
3.2
0.0
0.0
42.0
3.0
(3.4)
1.5
(0.9)
0.9
(1.2)
40.9
The approximate effect of temporary differences and tax credit and loss carry forwards that gave rise to deferred tax balances at March
31, 2007 and 2006 were as follows:
Millions of yen
2007
2006
Thousands of U.S. dollars
2007
Deferred
tax assets
Deferred
tax liabilities
Deferred
tax assets
Deferred
tax liabilities
Deferred
tax assets
Deferred
tax liabilities
Inventory valuation
¥ 3,776
¥
Accrued bonuses and vacations
Termination and retirement benefits
Enterprise taxes
Intercompany profits
Marketable securities
Property, plant and equipment
5,779
6,279
756
3,970
—
958
Allowance for doubtful receivables
1,088
Minimum pension liability adjustment
Pension liability adjustment
Other temporary differences
Tax credit carryforwards
Operating loss carryforwards
—
15,739
9,363
4,997
3,469
—
—
—
—
—
9,214
—
—
—
—
3,056
—
—
¥ 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
—
—
$ 32,000
$
48,975
53,212
6,407
33,644
—
8,119
9,220
—
133,381
79,347
42,347
29,398
—
—
—
—
—
78,085
—
—
—
—
25,898
—
—
Subtotal
¥ 56,174
¥ 12,270
¥ 58,774
¥ 17,886
$ 476,050
$ 103,983
Valuation allowance
(8,826)
—
(7,203)
—
(74,797)
—
Total
¥ 47,348
¥ 12,270
¥ 51,571
¥ 17,886
$ 401,253
$ 103,983
73
The total valuation allowance increased by ¥1,623 million ($13,754
thousand) in 2007 and decreased by ¥65 million in 2006.
As of March 31, 2007, certain subsidiaries had operating loss
carryforwards approximating ¥9,776 million ($82,847 thousand)
available for reduction of future taxable income, the majority of
which expire by 2014.
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 accu-
mulated unremitted earnings of the foreign subsidiaries which are
considered to be indefinitely reinvested and for which Japanese
income taxes have not been provided were ¥55,211 million
($467,890 thousand) and ¥55,311 million at March 31, 2007 and
2006, respectively. Dividends received from domestic subsidiaries
are expected to be substantially free of tax.
13. Foreign Operations
Net sales and total assets of foreign subsidiaries for the years ended March 31, 2007, 2006 and 2005 were as follows:
Net sales
Total assets
14. Per Share Data
Millions of yen
Thousands of
U.S. dollars
2007
2006
2005
2007
¥ 324,509
¥ 263,900
¥ 256,116
¥ 209,038
¥ 220,961
¥ 178,038
$ 2,750,076
$ 2,236,441
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
2007
2006
2005
2007
Income before cumulative effect of accounting change
¥ 38,280
¥ 36,964
¥ 30,176
$ 324,407
Effect of dilutive securities:
Convertible bonds, due September 2004
—
—
165
—
Diluted income before cumulative effect of accounting change
¥ 38,280
¥ 36,964
¥ 30,341
$ 324,407
Net income
Effect of dilutive securities:
Millions of yen
Thousands of
U.S. dollars
2007
2006
2005
2007
¥ 38,280
¥ 35,763
¥ 30,176
$ 324,407
Convertible bonds, due September 2004
—
—
165
—
Diluted income
¥ 38,280
¥ 35,763
¥ 30,341
$ 324,407
Weighted average common shares outstanding
232,059,070
236,625,818
238,505,304
2007
2006
2005
Dilutive effect of:
Convertible bonds, due September 2004
Stock options
Diluted common shares outstanding
—
—
4,623,997
153,918
131,711
76,574
232,212,988
236,757,529
243,205,875
74
15. Supplemental Information for Cash Flows
Supplemental cash flow information for the years ended March 31, 2007, 2006 and 2005 was as follows:
Interest paid
Income taxes paid
Non-cash investing and financing activities:
Liabilities assumed in connection with capital expenditures
Fair value of securities contributed to retirement benefit trust
Stock issued due to convertible bonds
Transfer of assets and liabilities to joint venture
16. Other Comprehensive Income (Loss)
Millions of yen
2006
¥
898
23,843
3,220
—
—
—
2005
¥ 1,098
17,815
2,671
—
38
16,270
2007
¥ 1,130
24,591
2,977
16,019
—
—
Thousands of
U.S. dollars
2007
$
9,576
208,398
25,229
135,754
—
—
The change in each component of accumulated other comprehensive income (loss) for the years ended March 31, 2007, 2006 and 2005
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
Adjustment to initially apply SFAS No. 158
Ending balance
Pension liability adjustments:
Beginning balance
Adjustment to initially apply SFAS No. 158
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
Adjustment to initially apply SFAS No. 158
Ending balance
Millions of yen
Thousands of
U.S. dollars
2007
2006
2005
2007
¥ (1,353)
¥ (10,554)
¥ (15,625)
$ (11,466)
7,913
6,560
(21,183)
1,658
19,525
—
—
(22,169)
(22,169)
19,671
(6,933)
12,738
(106)
(36)
(142)
(2,971)
2,602
(2,644)
9,201
(1,353)
(41,123)
19,940
—
5,071
(10,554)
67,059
55,593
(45,238)
(179,517)
4,115
—
14,051
165,466
(21,183)
(41,123)
—
—
—
10,909
8,762
19,671
(241)
135
(106)
(41,009)
38,038
—
—
—
—
10,087
822
10,909
217
(458)
(241)
(50,559)
9,550
—
—
—
(187,873)
(187,873)
166,703
(58,754)
107,949
(898)
(305)
(1,203)
(25,178)
22,051
(22,407)
¥ (3,013)
¥ (2,971)
¥ (41,009)
$ (25,534)
75
Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments for the years ended
March 31, 2007, 2006 and 2005 were as follows:
2007
Tax
(expense)
benefit
Before-tax
amount
Net-of-tax
amount
Before-tax
amount
Millions of yen
2006
Tax
(expense)
benefit
Net-of-tax
amount
Before-tax
amount
2005
Tax
(expense)
benefit
Net-of-tax
amount
Foreign currency
translation adjustments:
Foreign currency translation
adjustments arising during the year
¥ 8,248
¥ (341)
¥ 7,907
¥ 9,458
¥
(257)
¥ 9,201
¥ 5,437
¥ (366)
¥ 5,071
Reclassification adjustment for
the portion realized in net income
6
—
6
—
—
—
—
—
—
Net change in foreign currency
translation adjustments during the year
Minimum pension liability adjustments
8,254
2,811
(341)
(1,153)
7,913
1,658
9,458
(257)
9,201
5,437
(366)
33,797
(13,857)
19,940
6,974
(2,859)
5,071
4,115
Unrealized gains (losses)
on available-for-sale securities:
Unrealized holding gains (losses)
arising during the year
(949)
389
(560)
18,469
(7,564)
10,905
2,159
(885)
1,274
Reclassification adjustment for losses
on impairment realized in net income
144
(59)
85
487
(200)
287
22
(9)
13
Reclassification adjustment for net gains
on sales realized in net income
(805)
330
(475)
(4,119)
1,689
(2,430)
(788)
323
(465)
Reclassification adjustment for
net gains on contribution of securities
to retirement benefit trust realized
in net income
Net unrealized gains (losses)
Net gains (losses) on
derivative instruments:
Net gains (losses) on derivative
instruments designated as cash flow
(10,141)
(11,751)
4,158
4,818
(5,983)
—
—
—
—
—
(6,933)
14,837
(6,075)
8,762
1,393
(571)
—
822
hedges during the year
(2,047)
839
(1,208)
(2,173)
891
(1,282)
(1,702)
698
(1,004)
Reclassification adjustment for net
losses (gains) realized in net income
1,986
(814)
1,172
2,400
(983)
1,417
929
(383)
546
Net gains (losses) on
derivative instruments
(61)
25
(36)
227
(92)
135
(773)
315
(458)
Other comprehensive income
¥ (747)
¥ 3,349
¥ 2,602
¥58,319
¥(20,281)
¥38,038
¥13,031
¥(3,481)
¥ 9,550
76
Thousands of U.S. dollars
2007
Before-tax
amount
Tax (expense)
benefit
Net-of-tax
amount
Foreign currency translation adjustments:
Foreign currency translation adjustments arising during the year
$ 69,898
$ (2,890)
$ 67,008
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:
Unrealized holding gains (losses) 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
Reclassification adjustment for net gains on contribution of securities
to retirement benefit trust realized in net income
Net unrealized gains (losses)
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
51
69,949
23,822
(8,042)
1,220
(6,822)
—
(2,890)
(9,771)
3,296
(500)
2,797
51
67,059
14,051
(4,746)
720
(4,025)
(85,941)
(99,585)
35,238
40,831
(50,703)
(58,754)
(17,347)
16,830
(517)
7,110
(6,898)
212
(10,237)
9,932
(305)
$ (6,331)
$ 28,382
$ 22,051
17. Financial Instrumentsand Risk Management
Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values as of March 31, 2007 and 2006, of the Companies’
financial instruments.
Nonderivatives:
Long-term debt, including current portion
¥ (1,945)
¥ (1,945)
¥ (1,345)
¥ (1,345)
Millions of yen
2007
2006
Carrying amount
Fair value
Carrying amount
Fair value
Derivatives:
Included in other current assets (liabilities):
Forward exchange contracts
Foreign currency options
(286)
47
(286)
47
(751)
36
(751)
36
Thousands of U.S. dollars
2007
Carrying amount
Fair value
Nonderivatives:
Long-term debt, including current portion
$ (16,483)
$ (16,483)
Derivatives:
Included in other current assets (liabilities):
Forward exchange contracts
Foreign currency options
(2,424)
398
(2,424)
398
77
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,
short-term debt and notes and accounts payable: The carry-
ing 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
practicable to estimate their fair values.
(3) Long-term debt:
The fair values are estimated using present value of discounted
future cash flow analysis, based on the Companies’ current
incremental issuing rates for similar types of arrangements.
Derivatives
The fair value of derivatives generally reflects the estimated
amounts that the Companies would receive or pay to terminate
the 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.
Derivatives and Hedging Activities
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
other expenses (income), net in the same period as the hedged
items affect earnings. Substantially all of the accumulated other
comprehensive income (loss) in relation to foreign exchange for-
ward contracts at March 31, 2007 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 des-
ignated as cash flow hedges and reported in accumulated other
comprehensive income (loss), net of the related tax effect, are
losses of ¥1,208 million ($10,237 thousand) and ¥1,282 million for
the years ended March 31, 2007 and 2006, respectively. The
amounts, which were reclassified out of accumulated other com-
prehensive income (loss) into other expenses (income), net
depending on their nature, net of the related tax effect, are net
gains of ¥1,172 million ($9,932 thousand) and net gains of ¥1,417
million for the years ended March 31, 2007 and 2006, respec-
tively. The amount of the hedging ineffectiveness is not materi-
al for the years ended March 31, 2007 and 2006.
Foreign exchange forward contracts and foreign currency
options:
The Companies enter into foreign exchange forward con-
tracts and combined purchased and written foreign currency
option contracts to hedge foreign currency transactions (primarily
the U.S. dollar and the EURO) on a continuing basis for periods
consistent with their committed exposure. The terms of the cur-
rency derivatives are typically less than 10 months. The credit
exposure of foreign exchange contracts are represented by the
fair value of the contracts at the reporting date. Management
considers the exposure to credit risk to be minimal since the
counterparties are major financial institutions.
The notional amounts of contracts to exchange foreign cur-
rency outstanding at March 31, 2007 and 2006 were as follows:
Forward exchange contracts
Foreign currency options
Millions of yen
2007
¥ 59,596
¥ 2,100
2006
¥ 43,521
¥ 2,100
Thousands of
U.S. dollars
2007
$ 505,051
$ 17,797
The Companies hedge certain exposures to fluctuations in foreign
currency exchange rates that occur prior to conversion of for-
eign currency denominated monetary assets and liabilities into the
functional currency. Prior to conversion to the functional curren-
cy, 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 other expenses (income), 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
Until the year ended March 31, 2006, the Company had an oper-
ating 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 offi-
cers. This lease agreement had an initial non-cancelable lease
term to 2020 and required a monthly rental payment of ¥106
million and a security deposit of ¥2,600 million which is refund-
able 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 and 2005, the Company paid
¥1,166 million and ¥1,272 million, respectively, in rental expense
and the security deposit to the private company was transferred
to the third party at March 31, 2006.
78
19. Commitments and Contingent Liabilities
The Company has commitments at March 31, 2007 of approxi-
mately ¥29,517 million ($250,144 thousand) related to contracts
for outsourcing computer services through 2013. The contracts
require an annual service fee of ¥6,031 million ($51,110 thou-
sand) for the year ending March 31, 2007. The annual service
fee will gradually decrease each year during the contract term to
¥4,657 million ($39,466 thousand) for 2013. The contract is can-
celable at any time subject to a penalty of 15% of aggregate
service fees payable for the remaining term of the contract.
The Company and certain of its subsidiaries are defendants in
several pending lawsuits. However, based upon the information
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 consol-
idated 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 56% of total sales are concen-
trated in Japan, are limited due to the large number of well-
Balance at beginning of year
Addition
Utilization
Balance at end of year
20. Subsequent Events
established customers and their dispersion across many indus-
tries. 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 ¥1,026 million
($8,695 thousand) at March 31, 2007. The carrying amounts of
the liabilities recognized under those guarantees at March 31,
2007 were immaterial.
Bank loans of ¥574 million ($4,864 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,
2007 and 2006 are summarized as follows:
Millions of yen
Thousands of
U.S. dollars
2007
2006
2007
¥ 1,678
¥ 2,309
$ 14,220
2,082
(1,570)
1,586
(2,217)
17,644
(13,305)
¥ 2,190
¥ 1,678
$ 18,559
1)
In April 2007, OMRON Entertainment Co., Ltd., a subsidiary
of the Company, had transferred all of its business to third
party. As a result of this business transfer, the Company will
record a gain (pre tax base) of approximately ¥5,200 million
($44,068 thousand) in the year ending March 31, 2008.
(2) On May 16, 2007, 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 discretion with a maximum aggregate purchase
of ¥10,000 million ($84,746 thousand), or 3,000,000 shares,
for the period up to the date of the June 2008 general meet-
ing of shareholders.
79
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 Stockholders of OMRON Corporation
We have audited the accompanying consolidated balance sheets of OMRON Corporation and subsidiaries (the "Company") as of
March 31, 2007 and 2006, and the related consolidated statements of income, comprehensive income (loss), shareholders’ equity,
and cash flows for each of the three years in the period ended March 31, 2007, all expressed in Japanese yen. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those stan-
dards 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 opin-
ion, presentation concerning operating segments and other information is required for a complete presentation of the Company’s
consolidated financial statements.
In our opinion, except for the omission of segment information as discussed in the preceding paragraph, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of OMRON Corporation and subsidiaries as
of March 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended
March 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 20 to the financial statements, in April 2007, OMRON Entertainments Co., Ltd., a subsidiary of the
Company, had transferred all of its business to a third party.
Our audits also comprehended the translation of Japanese yen amounts into United States dollar amounts and, in our opinion,
such translation has been made in conformity with the basis stated in Note 2 to the consolidated financial statements. Such
United States dollar amounts are presented solely for the convenience of readers outside Japan.
Osaka, Japan
June 8, 2007
80
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: 39
Greater China
Subsidiaries: 27
Affiliates:
3
Japan
Subsidiaries: 47
Affiliates:
13
Asia-Pacific
Subsidiaries: 21
5
Affiliates:
North America
Subsidiaries: 26
Regional Headquarters
Headquarters
Japan
Kyoto Head Office
North 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: 81-3-3436-7011 Fax: 81-3-3436-7035
Europe
OMRON Europe B.V. (The Netherlands)
Tel: 31-23-568-1300 Fax: 31-23-568-1391
Asia-Pacific
OMRON Asia Pacific Pte. Ltd. (Singapore)
Tel: 65-835-3011 Fax: 65-835-2711
Greater China
OMRON (China) Co., Ltd. (Shanghai)
Tel: 86-21-5888-1666 Fax: 86-21-5888-7633/7933
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
81
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, 2007
Head Office
Shiokoji Horikawa, Shimogyo-ku,
Kyoto 600-8530, Japan
Phone: 81-75-344-7000
Fax: 81-75-344-7001
Tokyo Head Office
3-4-10, Toranomon, Minato-ku,
Tokyo 105-0001, Japan
Phone: 81-3-3436-7170
Fax: 81-3-3436-7180
Date of Establishment
May 10, 1933
Industrial Property Rights
Number of patents:
2,350 (Japan)
2,481 (Overseas)
Number of patents pending:
3,778 (Japan)
2,236 (Overseas)
Number of Employees (Consolidated)
32,456
Paid-in Capital
¥64,100 million
Common Stock
Authorized: 487,000,000 shares
Issued: 249,121,372 shares
Number of shareholders: 29,190
Stock Listings
Osaka Securities Exchange
Tokyo Stock Exchange
Nagoya Stock Exchange
Frankfurt Stock Exchange
Ticker Symbol Number
6645
Common Stock Price Range/ Trading Volume (Osaka Securities Exchange)
Custodian of Register of Shareholders
Mitsubishi UFJ Trust and Banking
Corporation
1-4-5, Marunouchi, Chiyoda-ku,
Tokyo 100-8212, Japan
Depositary and Transfer Agent for
American Depositary Receipts
JPMorgan Chase Bank, 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
21.5%
20.9%
22.0%
80
60
40
20
0
34.4%
39.7%
42.9%
4.3%
1.0%
38.9%
4.1%
0.9%
4.0%
0.8%
34.5%
30.4%
(Yen)
40,000
30,000
20,000
10,000
0
(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
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
’04
’05
’06
(FY)
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
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
1Q
2Q
2Q
3Q 4Q
3Q 4Q
1Q
1Q
2Q
2Q
3Q
3Q
4Q
4Q
1Q
1Q
2Q
2Q
3Q
3Q
4Q
4Q
1Q
1Q
2Q
2Q
3Q
3Q
4Q
4Q
1Q
1Q
2Q
2Q
3Q
3Q
4Q
4Q
1Q
1Q
2Q
2Q
3Q
3Q
4Q
4Q
1Q
1Q
2Q
2Q
3Q
3Q
4Q
4Q
1Q
1Q
2Q
2Q
3Q
3Q
4Q
4Q
1Q
1Q
2Q
2Q
3Q
3Q
4Q
4Q
1Q
1Q
2Q
2Q
3Q
3Q
4Q
4Q
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
Trading volume
Yearly High and Low Prices
FY1997
FY1998
FY1999
FY2000
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
High
Low
¥ 2,810
¥ 2,220
¥ 3,360
¥ 3,180
¥ 2,515
¥ 2,080
¥ 2,740
¥ 2,880
¥ 3,520
¥ 3,570
1,790
1,070
1,501
1,745
1,395
1,341
1,658
2,220
2,230
2,625
* Closing price of Osaka Securities Exchange
82
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
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s
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s
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t
S
r
o
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t
a
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t
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n
d
u
d
s
u
t
r
i
a
l
S
o
c
i
e
t
y
i
o
n
Renaiss
Scie
n
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a
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M
S
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o
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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
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Auto
ic
g
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a
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A
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a
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ti
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n
i
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o
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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
affluence emphasized by the industrialized society will become rela-
tively less important. This will in turn create a complete balance and
harmonious 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 socie-
ty based on its SINIC Theory, and has contributed to society through its
business operations by drawing on its proprietary Sensing & Control tech-
nology, 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 peo-
ple” 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 cur-
rent situation. Other examples include an automotive sensor that can
detect the surrounding 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.
83
Annual Report 2007
Year ended March 31, 2007
O
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2
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0
7
Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530, Japan
Phone: 81-75-344-7000 Fax: 81-75-344-7001
Homepage: http://www.omron.co.jp (Japanese)
http://www.omron.com (English)