Omron Corporation
Annual Report 2012

Plain-text annual report

Integrated Report 2012 Year ended March 31, 2012 “Working for the benefit of society” with unwavering resolve Omron’s Sensing and Control Technology Brings Machines Closer to People For over half a century, the Omron Group has operated in accordance with our corporate motto: “At work for a better life, a better world for all.” A more direct representation of the sentiment embodied in this slogan is the corporate core value “Working for the benefit of society” that lies at the heart of the Omron Principles and serves as a proclamation of our commitment to coexist in harmony with society. Aware of our role as a member of international society, the Omron Group will act in accordance with the Omron Principles and continue “Working for the benefit of society.” We will strive to earn the trust of our stakeholders by acting with integrity, we aim to be a pioneer in contributing to the development of a sustainable society. To this end, we will work to ensure the fairness and transparency of corporate activities and will continue to be a proactive benefactor of society. User Guide Each page of this PDF features navigation buttons, category tabs, and other functions to make it easier to use and to facilitate information searches. ■ Category tabs　 (can be used to move to the first page of each category when clicked) To Our Stakeholders Profile Business Strategies Facets of Human Society Global Business, Local Citizen 10-Year Financial Highlights Omron through the Year ■ Icons Move to the CONTENTS page Move to the page listed Move to an external website For more information, please refer to the Company’s websites (listed below): Omron’s Global Website Investor Relations Corporate Social Responsibility (CSR) http://www.omron.com/ http://www.omron.com/ir/ http://www.omron.com/about/csr/ The scope of this report covers the 165 companies of the Omron Group, consisting of 153 consolidated subsidiaries and 12 non-consolidated subsidiaries and affiliates accounted for under the equity method (as of March 31, 2012). Caution Concerning Forward-Looking Statements Statements in this annual report with respect to Omron’s plans, strategies, and benefits, as well as other statements that are not historical facts, are forward-looking statements involving risks and uncertainties. Important factors that could cause actual results to differ materially from such statements include, but are not limited to, general economic conditions in Omron’s markets, which are primarily Japan, Americas, Europe, Asia Pacific, and Greater 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. 2 Omron Corporation Integrated Report 2012 1 IntegratedCONTENTS To Our Stakeholders 4 Message from the President Profile 6 Facets of Human Society 8 Global Business, Local Citizen 10 10-Year Financial Highlights (Omron Corporation and Subsidiaries) 12 Omron through the Year Business Strategies 14 20 Interview with the President 01 Special Feature 1: Global Vertical-Horizontal Matrix Management Striving to Create New Value through Linkages down Business Lines (Vertical) and between Corporate Headquarters and Business Divisions (Horizontal) 02 Special Feature 2: 26 Omron’s Supply Responsibility and Business Continuity We will Fulfill Our Social Responsibility by Creating a Business Structure that is Resilient to Changes in the External Environment and Strong in the Face of Risks. Segment Information 30 Business Segments and Key Products 34 Omron at a Glance 36 Segment Information 36 38 40 42 44 46 Intellectual Property Strategy Industrial Automation Business (IAB) Electronic and Mechanical Components Business (EMC) Automotive Electronic Components Business (AEC) Social Systems, Solutions and Service Business (SSB) Healthcare Business (HCB) Other Businesses 48 49 R&D Corporate Governance, CSR, and Others 52 The Omron Principles and CSR Management 56 03 Special Feature 3: Dialogue: The Importance of having a Corporate Philosophy Earning Stakeholder Trust by Exercising the Omron Principles Corporate Governance, Internal Control, Compliance, and Risk Management 60 65 Directors, Corporate Auditors, and Executive Officers 68 04 Special Feature 4: Corporate Governance Working to Enhance Omron’s Corporate Value 72 05 Special Feature 5: Resolving Environmental Issues New Vision Contributing to the Global Environment 78 06 Special Feature 6: Resolving Health Issues Contributing to the Health of People throughout the World 82 Creating Value for Employees 83 Creating Value for Customers 84 Creating Value for Shareholders and Investors 85 Creating Value for Local Communities 86 Omron: Advancing Sensing and Control Technology Financial Information 87 Financial Section (U.S. GAAP) Internal Control Section 130 Corporate Information 132 Corporate and Stock Information Publication of Integrated Report 2012 Previously, Omron has published its annual reports, which contain information on its management vision, business strategies, and financial condition, and its sustainability reports, which detail corporate social responsibility (CSR) and other initiatives, as two separate reports. These two reports have been integrated into a single report entitled Integrated Report 2012. In addition to bolstering non-financial information, we have taken steps to illustrate the connection between financial and non-financial information. Rather than simply explaining the Omron Principles and the policy of risk management, corporate governance, and internal control systems, we have endeavored to further illuminate our efforts in these areas by providing concrete examples of initiatives whenever possible. For example, this report contains statements from site managers explaining in detail how Omron’s business continuity plan functioned in response to the unprecedented Great East Japan Earthquake, which devastated Japan on March 11, 2011, and how the Company conducted supply chain management to fulfill its supply responsibility as a component manufacturer. The goal of this report is to provide all Omron stakeholders, whether inside or outside of the Company, with an overview of its management and to be the best possible report and the only one necessary for this purpose. We hope that you will use this, Omron’s first integrated report, to develop an understanding of the various business activities of the Company, which it will employ in targeting enhanced corporate value over the long term, and its business activities that aim to prove its value to society. Omron’s integrated reports will be published once a year. I would like to ask all our stakeholders for their continued support and understanding. In creating this report, we incorporated several items raised during a forum investigating how non-financial data can contribute to ongoing corporate value, which was held by an industry and trade research section of the Ministry of Economy, Trade and Industry. This forum was held over the period from November 2011 to March 2012, and as a member of this research section I attended this forum myself. I would like to express my sincere appreciation to the members of the Ministry research team for providing us with this valuable opportunity. Satoshi Ando Executive Officer Senior General Manager, Investor Relations Headquarters 2 Omron Corporation Integrated Report 2012 3 Message from the President We Will Seize the Opportunities Created by Market Changes to Accelerate the New Long-Term Vision, VG2020. A Look Back at My First Year as President More than one year has passed since I assumed the position of president in June 2011. This year has been one plagued with adversity as we were faced with the lingering impacts of the Great East Japan Earthquake, the severe flooding in Thailand, and the strong yen. These difficulties tested our ability to adapt to drastic changes. On the other hand, I believe we made considerable strides during the year. Endeavoring to overcome these trials helped unify Omron’s management team and inspired all members of the Omron Group to take the initiative in standing up to these difficulties. Also during this year, we developed new products and reinforced our network targeting emerging markets. At the same time, we pushed forward with measures to improve profitabil- ity. These efforts have reaffirmed my confidence in our capacity to meet the goals defined in VG2020. Fiscal 2011 Performance and Shareholder Returns First, I would like to report on our fiscal 2011 performance. Our efforts to develop businesses and introduce new products targeting emerging markets contributed to sales, and net sales edged up 0.3% year on year, to ¥619.5 billion, accordingly. However, the impacts of the strong yen and rising raw material prices resulted in a 16.4% drop in operating income, to ¥40.1 billion. Regardless of this performance, I feel our efforts during the year to respond to the changing operating Consolidated Income Forecast (Billions of yen) FY2012 (Forecast) FY2011 FY2010 Net sales Gross profit SG&A expenses R&D expenses Operating income Other expenses, net Income before income taxes Net income (loss) attrib- utable to shareholders USD (yen) EUR (yen) 650.0 243.5 152.0 45.5 46.0 3.0 43.0 28.5 78.7 99.0 4 Omron Corporation 619.5 227.9 145.7 42.1 40.1 6.6 33.5 16.4 79.3 617.8 231.7 142.4 41.3 48.0 6.3 41.7 26.8 85.8 110.3 113.5 environment enabled us to establish foundations for profitable growth and enhance our ability to respond to such changes. In regard to shareholder returns, in fiscal 2011, we paid annual cash dividends of ¥28.00 per share, down from ¥30.00 in fiscal 2010, resulting in a dividend payout ratio of 37.6% and a dividend on equity (DOE) ratio of 1.9%. We will continue to target a dividend payout ratio of at least 20% and DOE ratio of 1.9%. After securing capital required for investments in future growth and sufficient internal reserves, we will distribute the surplus to our shareholders. DOE, Dividends, Net Income (Loss) Attributable Trends in DOE, Dividends, Net Income Attributable to Shareholders to Shareholders Annual dividend (yen) Dividend payout ratio (%) 106.4 22.6 42 24.7 37.6 25 17 30 28 Net income (loss) attributable to shareholders (billions of yen) DOE (%) 2.5 42.4 1.7 2007 -29.2 2008 2.1 26.8 1.9 16.4 1.2 3.5 2009 2010 2011 (FY) What Must be and Must Not be Changed During the year, dramatic changes have taken place in the global economy. As the operating environment places increasingly heavy pressure on corporate management, Omron’s responsiveness to such changes is being chal- lenged. Amidst rapidly transforming market conditions, sudden natural disasters, and intensified competition, it is clear we must respond more quickly, flexibly, and proac- tively than before. Our employees, products, and solutions must evolve constantly in response to changing conditions. We are thus working to ensure management can make the necessary changes, such as those related to global human resources systems or investment policies, in a quick and decisive manner whenever needed. However, the central aspects of our operations will not be changed: these central aspects are embodied by the Omron Principles that form the heart of our corporate philosophy. Omron regards having a corporate philosophy as something that is highly important, and we are proud of the fact that we faithfully implement our principles. The corporate core value defined by these principles is “Working for the benefit of society,” and our corporate motto is “At work for a better life, a better world for all.” I believe this motto, originally coined over 50 years ago by founder Kazuma Tateishi as a simple way of expressing our philosophy, serves a purpose to the Company similar to that of the spine for humans. Even if we are not aware of it, our spine supports us and allows us to stand properly. If we practice management based on the spirit of this motto, which embodies the belief that companies should not only pursue profit but also act as responsible corporate citizens by giving back to the society in which they operate, I am convinced that Omron will continue to grow and that this growth will drive the development of society. Our experience with the Great East Japan Earthquake, which devastated Japan in 2011, proved these principles are firmly entrenched throughout the Company. Following this disaster, many Omron employees voluntarily con tributed to reconstruction efforts at the stricken regions, providing support in the healthcare field and in social infrastructure areas such as transportation and the maintenance of financial systems. In addition, the entire Group came together to fulfill its responsibility of supplying products to customers, an endeavor I think was successful. The spirit of “Working for the benefit of society” was naturally and voluntarily practiced by employees, not imposed on them. As we accelerate the globalization of our operations, it is my hope this philosophy will become further rooted throughout our operations. In hopes of accomplishing this, in May 2012, we dubbed the anniversary of Omron’s founding as “OMRON Group FOUNDER’S DAY,” which is positioned as a day for us to reconfirm our purpose together with all Omron employees across the globe. In times of adversity, it is even more important to look back at our founding and renew our intrepid spirit to continue taking on challenges into the future. To Achieve Stronger Growth Fiscal 2012 will be devoted to advancing the new VG2020 long-term vision based on the three pillars of reinforce- ment of the Industrial Automation (IA) Business, sales expansion in emerging markets, and focus on the environ- mental solutions business. I am confident that this is the best course of action for us. To achieve higher levels of growth in the future, we will maximize our efforts geared toward meeting the goals outlined in VG2020 by creating new value and operating our business in a speedy man- ner. I would like to ask for the continued support of all our stakeholders, and I hope you will look forward to the future of the Omron Group with anticipation. August 2012 Yoshihito Yamada President and CEO Integrated Report 2012 5 44% INDuSTRIAL AuTOMATION BuSINESS (IAB) Manufacturing and sales of control systems and components for factory automation and industrial equipment IAB has established a complete lineup of state-of-the-art equipment that plays a principal role in automation: The sensors that provide automation systems with the senses of “vision” and “touch,” the controllers that serve as their “brain,” the drives that form their “limbs,” and the networks that connect these various items as the “nerve system.” With these sophisticated products, we are contributing to quality, safety, and the environment by supporting the innovation of manufacturing industries around the world. 13% ELECTRONIC AND MECHANICAL COMPONENTS BuSINESS (EMC) Manufacturing and sales of electronic components for consumer appliances, telecommunications equipment, mobile telephones, amusement devices, and office automation equipment EMC utilizes its cultivated strength in monozukuri (product creation) technology, integrating its relays, switches, connectors, and other electromechanical components to supply products to customers in a wide range of industries. 14% AuTOMOTIVE ELECTRONIC COMPONENTS BuSINESS (AEC) Production and sales of electronic components for automobiles AEC caters specifically to the ever-evolving automotive electronics field, a subsection of the automobile industry, which continues to grow on a global basis. This business continues to contribute to the realization of safer and more secure and comfortable driving by producing technologies and products designed to create “the best matching of automobiles to people.” Net Sales ¥619.5 billion FY2011 Contributing to Society 9% SOCIAL SYSTEMS, SOLuTIONS AND SERVICE BuSINESS (SSB) Providing solutions and services for contributing to a safer and more secure and comfortable society SSB provides various equipment, systems, and services to support secure and comfortable living environments and a safe societal infrastructure. HEALTHCARE BuSINESS (HCB) Providing health and medical devices and services for homes and medical institutions HCB is aiming to expand business with a focus on emerging econo- mies by developing innovative products and services to enable people around the world to accurately and easily monitor their health. 10% 9% OTHER BuSINESSES Several other business incubation operations under the direct control of the president The main objective of operations in these businesses is to undertake incubation activities for future business expansion. They advance business in future growth areas including the environmental field, where energy-conservation and CO2-reduction needs are expected to continue growing, and the expanding smartphone market. * In addition to the above, elimination and corporate of 1% is included in net sales. Leading Market Share *As of August 2012 Control-Related Equipment (Domestic Market Share) Approximately 40% Source: Nippon Electric Control Equipment Industries Association (NECA) Railway Infrastructure Equipment (Domestic Market Share) Approximately 40% Source: Omron internal survey Home-Use Digital Blood Pressure Monitors (Global Market Share) Approximately 50% Source: Omron internal survey 6 Omron Corporation Integrated Report 2012 7 Japan (includes direct exports) ¥307.6 billion Omron Employees 4,245 The Americas ¥74.8 billion Europe ¥83.6 billion Asia Pacific ¥52.4 billion Greater China ¥101.1 billion Net Sales ¥619.5 billion FY2011 Domestic Group Employees 7,283 Overseas Group Employees 24,464 Omron Group Employees 35,992 *As of March 31, 2012 Greater China Subsidiaries 27 Affiliates 1 Japan Subsidiaries 40 Affiliates 9 Japan Asia Pacific Subsidiaries 24 Affiliates 2 The Americas Subsidiaries 24 Europe Subsidiaries 38 Global Network Global Business Omron aims to be a global value-creating group. Underlying this goal is our strong determination to bring about a brighter tomor- row by generating new value that can only be conceived by assuming a “Planet Earth” perspective, in addition to more conventional human and social perspectives. 　To provide customers what they want when they want it, Omron has established a global network and a highly localized service system covering its operating bases in Japan, the Americas, Europe, Greater China, and the Asia Pacific region. Omron’s 35,992 full time employees provide optimal local support to its business partners worldwide, through the Company’s comprehen sive support system ranging from development to production, distribution, and maintenance. 　Omron will continue to take on the challenge of growing into a truly global group on which its customers and society at large can rely and depend. Global Business, Local Citizen Respect for Diversity Currently, one-half of the Omron Group’s total net sales derive from outside of Japan, while two-thirds of its employees are at overseas sites. Looking ahead, the new Value Generation 2020 (VG2020) long-term management strategy calls on us to pursue growth through the further globalization of our operations. In this pursuit, Omron will need to expand across national and regional borders and overcome religious, ethnic, and gender boundaries to bring out the creativity of each and every one of its employees and inspire them to come up with new innovations. We will work to generate new value by develop- ing an accurate understanding of diversifying needs and values through interactions with our various stakeholders. Quest to Be a Good Corporate Citizen In “Working for the benefit of society,” the Omron Group aims to ensure the impartiality and transparency of management, while it works to install a stakeholder-centered perspective into management, based on which the Group will practice integrity in its dialogues with stakeholders, including employees, customers, shareholders, and communities, and build bonds of trust with these stakeholders. Further, as a mem- ber of global society, we will contribute to the economic and cultural development of local communities. At the same time, we will work to resolve various social issues, such as those related to conserving resources and preserving the environment. 8 Omron Corporation Integrated Report 2012 9 10-Year Financial Highlights Omron Corporation and Subsidiaries Financial Information IR Library Operating Income Omron applies the “single step” presentation of income under U.S. GAAP (i.e., the various levels of income are not presented) in its consolidated statements of income. For easier comparison to other companies, operating income is presented as gross profit less selling, general and administrative expenses and research and development expenses. Discontinued Operations Figures for FY2002 onward have been restated to account for businesses discontinued in FY2007. Net Sales and Operating Income Margin 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 2) Net income (loss) attributable to shareholders Cash Flows (for the year): Net cash provided by operating activities Net cash used in investing activities Free cash flow (Note 3) Net cash provided by (used in) financing activities Financial Position (at year-end): Total assets Total interest-bearing liabilities Total shareholders’ equity Per Share Data: Net income (loss) attributable to shareholders (basic) Shareholders’ equity Cash dividends (Note 4) Ratios: Gross profit margin Operating income margin EBITDA margin Return on shareholders’ equity (ROE) Ratio of shareholders’ equity to total assets FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 Millions of yen Thousands of U.S. dollars (Note 1) FY2011 (Billions of yen) 1,000 ¥522,535 201,816 ¥575,157 235,460 ¥598,727 245,298 ¥616,002 232,667 ¥723,866 278,241 ¥762,985 293,342 ¥627,190 218,522 ¥524,694 184,342 ¥617,825 231,702 ¥619,461 227,887 $7,554,402 2,779,110 133,406 40,235 28,175 57,851 511 139,569 46,494 49,397 77,059 26,811 141,185 49,441 54,672 83,314 30,176 157,909 55,315 60,782 91,607 35,763 164,167 52,028 62,046 95,968 38,280 176,569 51,520 65,253 101,596 42,383 ¥ 41,854 (30,633) 11,221 ¥ 80,687 (34,484) 46,203 ¥ 61,076 (36,050) 25,026 ¥ 51,699 (43,020) 8,679 ¥ 40,539 (47,075) (6,536) ¥ 68,996 (36,681) 32,315 164,284 48,899 5,339 38,835 (29,172) 133,426 37,842 13,074 40,088 3,518 142,365 41,300 48,037 71,021 26,782 145,662 42,089 40,136 62,753 16,389 1,776,366 513,280 489,463 765,280 199,866 ¥ 31,408 (40,628) (9,220) ¥ 42,759 (18,584) 24,175 ¥ 41,956 (20,210) 21,746 ¥ 31,946 (26,486) 5,460 $ 389,585 (323,000) 66,585 (1,996) (28,119) (40,684) (38,320) (4,697) (34,481) 21,867 20,358 3,333 (33,492) (408,439) ¥567,399 71,260 251,610 ¥592,273 56,687 274,710 ¥585,429 24,759 305,810 ¥589,061 3,813 362,937 ¥630,337 21,813 382,822 ¥617,367 19,809 368,502 ¥538,280 54,859 298,411 ¥532,254 38,217 306,327 ¥562,790 46,599 312,753 ¥537,323 18,774 320,840 $6,552,720 228,951 3,912,683 800 600 400 200 0 02 03 04 05 06 07 08 09 10 11 Net Sales [left axis] Operating Income Margin [right axis] Net Income (Loss) Attributable to Shareholders and ROE (Billions of yen) 60 45 30 15 0 –15 –30 02 03 04 05 06 07 08 09 10 11 Net Income (Loss) Attributable to Shareholders [left axis] ROE [right axis] (%) 10 8 6 4 2 0 (FY) (%) 20 15 10 5 0 –5 –10 (FY) ¥ 2.1 1,036.0 10.0 ¥ 110.7 1,148.3 20.0 ¥ 126.5 1,284.8 24.0 ¥ 151.1 1,548.1 30.0 ¥ 165.0 1,660.7 34.0 ¥ 185.9 1,662.3 42.0 38.6% 5.4% 11.1% 0.2% 44.3% 40.9% 8.6% 13.4% 10.2% 46.4% 41.0% 9.1% 13.9% 10.4% 52.2% 37.8% 9.9% 14.9% 10.7% 61.6% 38.4% 8.6% 13.3% 10.3% 60.7% 38.4% 8.6% 13.3% 11.3% 59.7% Yen U.S. dollars (Note 1) Cash Dividends Dividends & Shareholder Returns ¥ (132.2) 1,355.4 25.0 ¥ 16.0 1,391.4 17.0 ¥ 121.7 1,421.0 30.0 ¥ 74.5 1,457.5 28.0 $ 0.91 17.77 0.34 34.8% 0.9% 6.2% (8.7)% 55.4% 35.1% 2.5% 7.6% 1.2% 57.5% 37.5% 7.8% 11.5% 8.7% 55.6% 36.8% 6.5% 10.1% 5.2% 59.7% (Yen) 50 40 30 20 10 0 *2 *1 02 03 04 05 06 07 08 09 10 11 (FY) *1. Commemorative dividend of ¥7.0 included. *2. Commemorative dividend of ¥5.0 included. Long-term corporate vision Grand Design 2010 (GD2010) Value Generation 2020 (VG2020) FY2001–FY2003 FY2004 –FY2007 FY2008 – FY2010 FY2011–FY2020 1st Stage Establishing a Profit Structure Concentrating on cost structure reform and restructuring the Company as a profit-generating business Achievements • ROE 10% • Withdrew from unprofitable business, spun off of the Healthcare Business • Raised the level of corporate governance to the global standard 2nd Stage Balancing Growth & Earnings Reinforcing business foundations through aggressive investment in growth areas, such as M&A, and cost cutting Achievement • Increased EPS (earnings per share) from ¥110.7 (FY2003) to ¥185.9 (FY2007) Notes: 1. U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate on March 31, 2012, of ¥82 = $1. 2. EBITDA = Operating income + depreciation and amortization 3. Free cash flow = Net cash provided by operating activities + net cash used in investing activities 4. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the year. 3rd Stage Achieving a Growth Structure Fortification of growth business (high profitability) Revision of 3rd stage due to an abrupt change in the business environment Revival Stage (from February 2009 to March 2011) • Emergency Measures (Cost reduction target of approx. ¥63.0 billion achieved in fiscal 2009) 14 months (February 2009–March 2010) • Structural Reform (Strengthening of profit base over the medium term) 26 months • May 2010 Spun off the Automotive Electronic Components Business • April 2011 Spun off the Social Systems, Solutions and Service Business GLOBE STAGE (FY2011–FY2013) Establishment of profit and growth structures on a global basis Goals • Sales: ¥700 billion • Operating Income: ¥63 billion • Gross Profit Margin: 39% • Operating Income Margin: 9% EARTH STAGE (FY2014 –FY2020) New value generation for growth Goals • Sales: ¥1 trillion • Operating Income: ¥150 billion or higher • Operating Income Margin: 15% or higher 10 Omron Corporation Integrated Report 2012 11 Omron through the Year News Releases Management Topics April 21 June 1 Release of striped bitterling (acheilognathus cyanostigma) into on-site biotope employing purified factory wastewater—contributing to the protection of regional biodiversity Establishment of NTT Smile Energy Co., Ltd., as a joint venture with NTT West to provide services supporting residential energy savings June 30 July 1 OMRON Kyoto Taiyo Co., Ltd., receives Monozukuri Grand Prize from the Society of Plant Engineers Japan Deployment of “smart energy savings” throughout the Omron Group in Japan September 8 Acquisition of Chinese power latching relay manufacturer October Donation to support victims of flooding in Thailand March December 7 NTT Docomo and OMRON Healthcare announce alliance in health and medical business January February Establishment of regional head office in India and commencement of operations First Omron Group manufacturing facility in Mexico commences production March 22 March 29 2012 Establishment of joint venture between OMRON (China) Co., Ltd., and Hangzhou Tongling Automation Co., Ltd., a Chinese system integrator and sales agent Receipt of 2012 Grand Prize in Key Firm of Integrity Awards Donation of ¥3.11 million provided to the city of Kyoto as an “Om-Walk” matching gift for reconstruction following the Great East Japan Earthquake Consolidated net sales ¥166.6 billion +0.1% Consolidated operating income ¥10.0 billion -7.9% (YoY change) 2011 Q1 April Consolidated net sales Consolidated operating income ¥12.2 billion +9.4% Q2 ¥151.4 billion + 3.0% (YoY change) Consolidated net sales ¥151.8 billion +0.6% Consolidated operating income ¥10.6 billion -20.8% (YoY change) Q3 Consolidated net sales Consolidated operating income (YoY change) ¥149.6 billion ¥7.4 billion -41.7% Q4 -2.5% May June July August September October November December January February March Product-Related Topics ■ Industrial Automation Business （IAB） ■ Electronic and Mechanical Components Business （EMC） ■ Automotive Electronic Components Business （AEC） ■ Social Systems, Solutions and Service Business (SSB) ■ Healthcare Business (HCB) ■ Other Businesses July Launch of new KP K series of power conditioners, Japan’s first with built-in multiple-unit “Anti-Islanding Control Technology (AICOT)” July 11 Launch of world’s first fiber laser marker employing flexible pulse control technology, enabling fine marking and processing July Development and commencement of mass production of world’s first connector using electroforming technology July 29 Launch of new Sysmac next-genera- tion machine automation controller integrating functions needed for machine control August 1 Launch of code reader capable of reading codes on paper and labels as well as direct markings on metal, substrates, and glass surfaces August 1 Launch of simple electricity logger for reforming energy-saving activi- ties at manufacturing sites August 29 Launch of the HDS-2000 Dual Scan medical instrument for measuring visceral fat, the first in the world using the impedance method for calculating visceral fat areas safely, simply, and accurately September 1 Launch of one of the industry’s most compact rocker switches with the industry’s first delay/off function September 1 Launch of MC-680 predictive ther- mometer capable of detecting tem- perature in only 15 seconds September 20 Launch of the HBF-214/212 body composition monitor, featuring compact, thin-profile design and convenient storage September 20 Launch of BY80S and BY120S com- pact and lightweight uninterruptible power supply units with sinusoidal wave output Early November Launch of Multipeak power monitoring device, the industry’s first device capable of simultaneous predictive monitoring of peak power consumption in business offices and individual areas November 1 Launch of HJA-310 Calorie Scan activity monitor for indicating calorie reduction necessary to reach monthly dieting targets and determine daily effort December 1 Launch of cutting-edge fiber amplifier with unparalleled usability, com- pletely redesigned and with the industry’s first smart tuning function December 1 Launch of temperature controller featuring outstanding visibility thanks to black-and-white display and extra-large characters January 6 Omron Social Solutions Co., Ltd., receives Barrier-Free Universal Design Promotion Merit Award January 12 Launch of area fan ionizer that is the thinnest and most lightweight in its class and for which location is not an issue January 20 Launch of next-generation series device for external monitoring of post-reflow substrates equipped with revolutionary image-processing technology February 20 Launch of HBP-1600, Japan’s first spot-check monitor for automatic transmission to electronic medical record of blood pressure, tempera- ture, and other measurement data March 5 Launch of Smile Scan Tablet, a real- time facial expression sensor that determines the extent to which someone is smiling which has be- come and has been made easier to use and can be employed for work purposes Fiscal 2012 April 10 Launch of MC-642L women’s basal thermometer, the first in Japan to read temperatures in approximately 10 seconds April 10 Launch of HSL-001 sleep duration tracker that records the time it takes users to fall asleep as well as their total sleep time by reading the movements of bedding 12 Omron Corporation Integrated Report 2012 13 Interview with the President We Will Aggressively and Quickly Practice Global Horizontal-Vertical Matrix Management to Advance the Measures Set Out in VG2020. We will not change the main strategies of VG2020. We will accelerate the plan. GLOBE STAGE: Goals & Tasks Policy Establishment of a global profit and growth structure Goals Tasks (unchanged) FY2013 Gross profit margin: 39 %; Operating income margin: 9 %; ROE: 11%; Net sales: approx. ¥700 billion; Operating income: approx. ¥63 billion (Assumed exchange rates: 1US$ = ¥78; 1EUR = ¥104) 1. Reinforcement of Industrial Automation (IA) business (IAB & EMC) 2. Sales expansion in emerging markets 3. Focus on environmental solutions business 4. Profit structure reform 5. Strengthening global human resources Yoshihito Yamada President and CEO fiscal 2011. We also established Automation Centers in Japan, China, and Europe to strengthen our customer support network. Through these centers, we will provide manufacturers around the world with products and services that optimally meet their needs. One of the key strengths of Omron lies in the utilization of its vast expertise in relation to production lines. This strength enables the Company to offer customers solutions that not only employ its own prod- ucts, but also effectively combine these products with those of other companies, allowing the Company to provide customers with optimal value. Omron will further accelerate the development of Automation Centers around the world, in emerging countries as well as in the United States and other developed nations. I am certain that the strategies defined by VG2020, such as sales expansion in emerging markets and the reinforcement of the IA Business, will lead the Company in the right direction. Q1 The new long-term vision, VG2020, was announced in July 2011. Later, in April 2012, you revised your targets for the “GLOBE STAGE” (FY2011–2013), the first phase of this vision, to reflect the drastic changes in the market environment. In what specific ways were the targets revised? Drastic changes in the market environment, such as the strong yen and the instability of financial systems in Europe, forced us to revise our targets for the “GLOBE STAGE” of VG2020. Regardless, I saw no need to adjust the five basic tasks: (1) reinforcement of the Industrial Automation (IA) Business (IAB & EMC), (2) sales expansion in emerging mar- kets, (3) focus on the environmental solutions business, (4) profit structure reform, and (5) strengthening global human resources. Of these tasks, I feel the reinforcement of the IA Business, one of Omron’s clear areas of strength, and sales expansion in emerging markets are the most important. This is because of the rising demand for factory automation in manufacturing industries in emerging markets. In China, for example, soaring personnel expenses, or in other words, fixed costs, are becoming a burden for manage- ment, which has subsequently become a serious issue. For these reasons, it is growing increasingly difficult to conduct successful production operations simply by employing a large number of employees. This situation is boosting the demand for factory automation and is also creating a highly favorable environment for Omron’s business. Aiming to take advantage of this environment, we increased the number of sales bases in China from approximately 30 to 50 in GLOBE STAGE Road Map FY2013 targets: Gross profit margin: 39%; Operating income margin: 9%, while making necessary strategic investments GLOBE STAGE (Billions of yen) EARTH STAGE More than 1,000.0 10,000 8,000 6,000 4,000 Initial Plan 655.0 Net Sales 619.5 650.0 750.0 Around 700.0 Gross Profit Margin 36.8% 37.5% 39.0% 2,000 Operating Income (Operating Income Margin) 55.0 40.1 46.0 0 (6.5%) 2011 (7.1%) 2012 100.0 Around 63.0 (9.0%) 2013 Over 150.0 (15.0%) 2020 (FY) 14 Omron Corporation Integrated Report 2012 15 Interview with the President Forging stronger team relations among business lines (vertical) and between corporate headquarters and business divisions (horizontal) will allow us to fully demonstrate the power of the Omron Group. in China, 75% in India, and 30% in other emerging markets. We will utilize the unique strengths of each business and conduct management with the aim of further cementing the positions these businesses have already established. The SSB is also an important business to us, and we will strengthen it by promoting coordination between this business and the Environmental Solutions Business HQ and IAB. The goal of these initiatives will be to create new environmental solutions businesses for factories and public facilities. I believe this will enable us to generate business synergies that are characteristic of Omron into the future. Also, we will forge stronger vertical team relations down business lines and horizontal relations between them and create new value through the strategic allocation of management resources, including products, technologies, human resources, and capital. This is an important management strategy that will enable us to fully utilize the power of the Omron Group. Q4 You mentioned forging stronger vertical and horizontal team relations. Specifically, what initiatives are being implemented? One example is our efforts to expand operations in emerging countries. Omron established regional headquarters in Japan, the United States, the Netherlands, China, and Singapore to develop a unique global network and services systems closely linked to each geographical area. Recently, we have identified India as a key emerging country in growth strategies and for the reinforcement of the IA business. To enable business divisions in this country to better focus on business operations, we established a new regional headquarters in India in fiscal 2011. In addition, we established a regional headquarters in Brazil in fiscal 2012. Now, with seven regional headquarters, we are ready for the full-fledged advancement of operations in emerging countries. In accelerating our approach toward emerging countries, it will be vitally important to raise the recognition of the Omron brand. Omron brand billboard advertisement on a road connecting to an airport in Sao Paulo, Brazil Q2 Are there any other changes undergone by markets that you view as opportunities? The changes in the environmental solutions business, one of the key businesses in VG2020, are particularly beneficial. After the Great East Japan Earthquake, serious electricity shortages occurred, and their persistence has become a social issue that must be urgently addressed. The ongoing limited electricity supplies are forcing companies and individuals to think of ways to conserve electricity and reduce usage during peak hours. One of the responses to this issue has been the rapid expansion in the usage of solar power. In July 2012, the Government of Japan launched a system for purchasing electricity generated using renewable energy sources, which is anticipated to greatly stimulate the growth of the solar power market. We are already witnessing the benefits of growth in this market, as solar power conditioners, which are used to convert power from solar cells from DC to AC, have experienced a substantial increase in sales, rising 20% year on year in fiscal 2011. We are also developing a wide range of solar power- related businesses, including the provision of an integrated system for monitoring the operation of solar power systems and managing on-site maintenance by utilizing remote monitoring. Further, in order to effectively utilize limited electricity supplies, there is a rising need for a means to control maximum electricity demand through the usage of energy consumption monitoring systems. The Omron Group has introduced such systems and is already seeing impressive results. Also, several customers have introduced these systems and are experi- encing favorable results. These market changes represent significant opportunities for Omron. Power conditioner for solar power generation system Q3 Focusing on the IA Business will be one of your key strategies. What are your plans for other business areas? That is a question often asked by people from both inside and outside the Company. Other businesses, too, are important to Omron. Currently, our Automotive Electronic Components Business (AEC), Social Systems, Solutions and Service Business (SSB), and Healthcare Business (HCB) are run as independent (spin-off) companies, each of which has established its own unique position in its respective business domains. We believe it is important to target growth for these businesses that matches their individual characteristics. Faced with harsh market conditions, we implemented initiatives in these three businesses to accelerate business development through faster decision making. Targeting further acceleration, we delegated responsibility for these businesses in an appropriate manner to enable more-optimal business operation. The effects are beginning to appear in various areas. The previously unprofitable AEC saw significant improvements, and in fiscal 2011, it had an operating income margin of 3.2%, despite the impact of the severe flooding in Thailand. In fiscal 2012, we anticipate this business will become stronger and will record a margin of 5.3% (forecasts released on July 30, 2012), which is an exceptionally high level for the automotive industry. The HCB, meanwhile, will be operated in a manner prioritizing speed and close connections with the sites where our products are used. Through such management, we will work to meet our ambitious goals for fiscal 2012 of improving sales by approximately 15% 16 Omron Corporation Integrated Report 2012 17 Free blood pressure testing provided in Delhi, India Billboard advertisement for Omron’s blood pressure monitors in India Interview with the President In pursuing stronger growth, we will strengthen intergroup connections under the mantra of “Team Omron.” in the future. Currently, Omron has defined 167 core positions, 59 of which are based overseas. Forty of these positions are currently filled with Japanese people, with only 19 held by people from other countries. Looking ahead, we realize that strengthening local management will be essential to continuing our operations as we progressively globalize. For this reason, I aim to reverse this ratio in the near future. Accordingly, we will develop an in-house environment conducive to providing such opportunities. I hope employees will take advantage of these opportunities, and from such motivated employees, the executive management team at headquarters will be able to find candidates for the next generation of management. Q6 Lastly, how do you plan to demonstrate your own strengths into Omron’s future management initiatives? What do you think is most important in management? I think my own strengths lie in my ability to encourage team building and my management background in international operations. In the past, I served as president of the Omron Healthcare Europe. During this period, I came to realize the importance of respecting diversity in team building efforts. The management team consisted of 11 people from six different countries, three of whom were women. A startling number of opinions were raised and discussions were grueling but very fruitful. Together, we undertook many challenges, including expansion into the Russian market, and we were able to succeed thanks to our strong sense of unity. These experiences help me in promoting team building today. Developing a mutual understanding between all members is of the utmost importance in raising team spirit. This requires substantial discussion. In this practice, I am always sure to thoroughly listen to others. Drawing on my own strengths, I will actively gather information from both internal and external sources, be decisive, and work to make Omron’s management more ever dynamic. We are working to strengthen intergroup bonds of “Team Omron,” with the aim of guaranteeing even firmer growth into the future. The management team are leading these efforts as a core part of Team Omron. At the same time, each business division has their own version of Team Omron. Team Omron holds open discussions without fear of opposition, and all members work hard together to accomplish the same shared goal. I compare this type of team work to a shinkansen bullet train. A shinkansen cannot head toward its goal at full speed if all its cars are not securely connected. Likewise, it is not sufficient for the organization to only be connected within divisions, and this is why we place such a strong emphasis on promoting connections between business divisions and corporate headquarters divisions. Going forward, Team Omron will keep running at full speed, heading toward the achievement of the goals outlined in VG2020. The HCB currently operates in more than 110 countries. The business-to-consumer (B2C) business is playing an integral role in raising awareness of the Omron brand. To make Omron known, people must first see our products and under- stand our technological superiority. Our Omron brand healthcare products embody our philosophies and technological capabilities. Accordingly, marketing these products and promoting their use in new markets enables us to establish a bridgehead that will facilitate the introduction of our IAB, AEC, or other business-to-business (B2B) businesses in these countries. These brand strategies targeting emerging countries will be conducted by promoting coordination between business lines and the corporate communications department in headquarters, and through these strategies we will work to raise brand recognition among consumers in these countries. It has been said, that if brand recognition* among consumers exceeds 40%, it will represent a significant advantage for expanding operations in these countries. By targeting this goal of 40%, we have succeeded in raising brand recognition in India from 24% in fiscal 2011 to 45% today. Enhanced brand recognition has proven to be incredibly beneficial in accelerating the development of our various businesses in the Indian market. In Brazil, where we started full-fledged brand marketing one year after doing so in India, we have already achieved brand recognition of approximately 20%. This is an example of the success of coordination between the HCB and corporate headquarters divisions in establishing a superior position in emerging countries. * Brand recognition is calculated as the percentage of people that recognize Omron’s logo and have an understanding of Omron’s business activities. Q5 How about human resources strategies? What specific measures are you considering? VG2020 defines developing human resources as an important management strategy for ensuring future growth. If we are able to develop a strong team of superior personnel, the growth of our business will become even stronger. We therefore aim to grow our human resources in conjunction with our business growth. In other words, we want to provide new and challenging opportunities for employees who do exemplary work, and we want to grow as a company that can continue to provide such opportunities. For us to grow as such a company, it is important to emphasize the development of human resources in manage- ment, and for this reason we have defined the task of strength- ening global human resources in VG2020. At the same time, it is important for all employees to establish their own visions for their future career path. I do not doubt we will have to compete on the global stage in the future. For this reason, I hope every employee will have a clear picture of what work they wish to do in what part of the world. One specific human resources strategy we have developed is the Global Core Position Strategy, which was born out of our desire to actively provide opportunities to non-Japanese employ- ees by allowing them to participate in management. We have defined management positions critical to advancing the VG2020 strategies as “core positions.” We intend to discover, promote, and educate human resources that can take over these positions 18 Omron Corporation Integrated Report 2012 19 Special Feature Global Vertical-Horizontal Matrix Management Striving to Create New Value through Linkages down Business Lines (Vertical) and between Corporate Headquarters and Business Divisions (Horizontal) 01 Competition is growing more intense in global markets, particularly in emerging economies. To more firmly establish its competitive advantage, the Omron Group is forging stronger vertical team relations down its business lines and horizontal linkages between corporate headquarters and business divisions with the aim of accelerating management. This section looks at the strengths and strategies of each of our businesses through the lens of matrix management and introduces the roles of our head office divisions. (Interviewer: Satoshi Ando, Executive Officer, Senior General Manager, Investor Relations Headquarters) Industrial Automation Business (IAB) —— Further Reinforcing Operations on the Basis of Three Core Strategies —— To begin, could you please outline IAB’s strengths and competitive advantages? Fujimoto: We are working to boost competitiveness through three core strategies: “No. 1 in control,” “No. 1 in product lineup,” and “No. 1 in the future.” For our “No. 1 in control” strategy, the key is changing the culture of controls. Under this strategy, we are pro- moting machine controls that are faster, more precise, and safe. Our strength in this area is robust machine- focused engineering. The “No. 1 in product lineup” strategy emphasizes extending our product lines by reducing costs on general-purpose products and through radical changes on a variety of fronts. Our “No. 1 in the future” strategy refers to anticipating customer needs and offering proposals that meet those latent demands, such as by addressing the issue of conserving energy. Demand for power-saving solutions is increasing through- out the manufacturing sector, and we have specific expertise in this area. —— To bolster your engineering and strengthen your ability to provide higher added-value proposals, do you intend to continue pursuing a strategy of increasing the number of SEs and acquiring companies in China? Fujimoto: In the previous fiscal year, we increased the number of SEs in emerging markets by approximately 50%; the question now is how to enhance their capabili- ties further. We will also continue looking at M&A and collaboration opportunities in fields that we are unable to develop on our own. —— Please explain more specifically what is meant by Omron’s “ability to connect” in ways that other companies cannot. Fujimoto: One good example is to connect all the highly sophisticated products on the same network. Through our Sysmac NJ Series, which I described earlier, we aim to change the culture of controllers. Going forward, we also plan to connect to an increasing number of safety- related products that could not be connected in the past. Electronic and Mechanical Components Business (EMC) —— Monozukuri (Product Creation) Is a Competitive Advantage That Other Companies Cannot Emulate Industrial Automation Business (IAB) Shigeki Fujimoto Senior Managing Officer President, Industrial Automation Company The above-mentioned title is as of the date of this dialogue (June 20, 2012). —— What are IAB’s core products? Fujimoto: Last year, we launched Sysmac NJ Series controllers that are based on an automation platform for connecting ultrahigh-speed, high-precision machinery and controlling them via a single software program. In the current fiscal year, we expect to expand this series further as one of our “No. 1 in control” products. Global standard products are the concept behind our “No. 1 in product lineup” strategy. In line with this approach, we plan to steadily roll out products that match the needs of emerging and other world markets. We are also cultivating environment-related equipment, such as electricity sensors and their controllers, as “No. 1 in the future” products. —— Could you describe IAB’s core technologies? Fujimoto: Our core technologies provide functionality that competitors are unable to match. These technologies effectively utilize general-purpose products and elements and take advantage of the capabilities of software, and are the product of countless development processes conducted in the pursuit of higher levels of functionality. Moreover, these technologies enable us to create prod- ucts more inexpensively, holding down costs without sacrificing quality. Aiming to Heighten Our Engineering Prowess through Means such as M&A and Collaboration —— What are the issues you face in enhancing competitiveness further? Fujimoto: Strengthening our ability to provide proposals related to sophisticated control products is extremely difficult, and we face the issue of how to cultivate sales engineers (SEs) who are well versed in various equip- ment in a short period of time. Another important issue lies in being responsive cost-wise in global markets across our product portfolio. We are working to hold down development costs by standardizing product development and creating system platforms that utilize our products in a standard manner. 20 Omron Corporation Integrated Report 2012 21 Electronic and Mechanical Components Business (EMC) Koichi Tada Managing Officer Company President, Electronic and Mechanical Components Company —— Next, please outline the strengths and business strategies of EMC. Tada: In fiscal 2012, we plan to aggressively develop our business in components for industrial equipment, cen- tered on rapidly growing emerging markets, thereby recovering our growth and profitability. We will also concentrate initiatives in the energy and environment field. In particular, electric vehicles and solar power generation systems. We intend to enhance competitive- ness by taking advantage of the broad and finely gauged global sales network that Omron has built to date and utilize our manufacturing capabilities, including propri- etary product design capabilities, materials technologies, and optimizing technologies based on monozukuri. Targeting an unshakeable Lead in Global Market Share —— What are the core technologies that sup- port the mainstay relay component segment? Tada: We hold the top share of the global market for relay components. Our market share in this area was more than 20% in the previous fiscal year,* but we are the leader by only a small margin.* We will work at increasing our lead. * Based on Omron’s estimates In EMC, most of our products endup inside our customers’ products, so prices are heavily influenced by fluctuations in the market prices of final products. The key therefore becomes how to meet our customers’ needs as reasonably as possible. Furthermore, we must ensure stable product quality. In the past, half of the relay products that we manufactured in China and other Asian countries were labor-intensive, which means they were variable in quality. Now, we are introducing automated equipment to handle this production in a bid to make quality more consistent. ——You have described the Company’s competitiveness and sales and technological capabilities in key product areas. What are your thoughts on the business environment? Tada: The current business environment is tight, but at the same time it offers opportunities. For example, in Asia, social security expenses are expected to rise in the neighborhood of 15% to 25% per year, on average. From a manufacturing viewpoint, this means higher labor costs. However, if customers further automated their operations to counter these labor costs, this presents a business opportunity for our industrial automation and electronic components businesses. It is important to take advantage of the opportunities created by demand trends driven by changing business environments in China and other Asian countries. Healthcare Business (HCB) —— Expanding Four Core Categories through an Extensive Sales Network —— Next, would you explain the Company’s strengths and competitiveness in HCB? Miyata: Our sales network is made up of some 300,000 pharmacies throughout the world. In the field of home healthcare instruments, no other company has a network that can match ours. We are utilizing this strength to expand our business in four core categories: blood pres- sure monitors, thermometers, blood glucose monitors, and nebulizers. We are also developing new technologies that allow bio data to be measured at home, formerly a procedure that could only be done at medical institutions. The key is to make the best use of our competitive edge in sales and R&D. —— Global competition seems to be less pronounced in HCB than in the IAB and EMC. What will be the keys to winning out against local competition? Miyata: The other day, I went to India, where some 50 competitors provide blood pressure monitors. This situa- tion brought home to me anew the importance of Omron’s brand penetration. In addition to measurement precision, we will work aggressively to disseminate other informa- 01 Global Vertical-Horizontal Matrix Management of the production technologies of the Electronic and Mechanical Components Business. Forging links such as this have been extremely effective. Also, the corporate headquarters public relations division has supported efforts to boost our brand recognition on a global level, which has made our activities easier. Global Strategy Headquarters —— Maximizing Management Resources by Combining Vertical and Horizontal Elements —— Please explain the Global Strategy Head- quarters’ mission and role in implementing vertical and horizontal strategies. Miyanaga: We adopted a system of business companies more than 10 years ago, making our business divisions autonomous. The goal behind this move was to acceler- ate business operations. This move has been successful to some extent, but VG2020 calls for us to make greater leaps forward. To achieve this, we will need to utilize the strengths of our global businesses through connections that go beyond the vertical and horizontal barriers. The Global Strategy Headquarters carries out the following three roles in attaining this goal. Healthcare Business (HCB) Kiichiro Miyata Managing Officer President and CEO, OMRON Healthcare Co., Ltd. tion on product quality that is only available through Om- ron, thereby ensuring the reliability of our brand. —— One of your core products is blood pres- sure monitors, and according to your own esti- mates you have shares of around 50% of the global market, approximately 60% in Japan, and more than 60% in China. What is the core tech- nology that supports this strength? Also, what are your strategies for further increasing this market share? Miyata: For blood pressure monitors, on the hardware front measurement precision and ease of use are para- mount. For example, to reduce the impact that such conditions as arm thickness and softness have on mea- sured results, we have developed a sensing and control technology that responds to individual differences. We also continue to pursue efforts that improve ease of use, such as narrower cuffs that are easier to wrap around the arm. Based on the concept of providing products that are easy for anybody to use to provide accurate measure- ments, we are accelerating the popularization of the “Medical Link” system for providing blood pressure data measured at home to healthcare institutions, where it can be assessed by physicians and other specialists. In this way, we are building up an unassailable business base from the perspectives of products as well as ser- vices and systems. —— HCB is driving one of the VG2020 strategies, “growth in emerging markets.” Have horizontal and vertical relationships in this busi- ness changed? Miyata: Operational speed has picked up through proac- tive contributions on the horizontal axis from corporate headquarters. Nowadays, we are able to make effective use of information on other business lines’ products and technologies, whereas we were unaware of this informa- tion in the past. For example, we are moving forward with production line automation at a rate that develop- ment personnel in the healthcare sector would have been unable to handle in the past by taking advantage 22 Omron Corporation Integrated Report 2012 23 (1) Strategically distributing and allocating strategic resources (2) Creating a system of global vertical-horizontal matrix management (3) Communicating our strategies both within and outside the Omron Group Prioritizing Efficient Investment —— What has changed, or that you are working to change, as a result of your new structure and strategies? Miyanaga: One element is prioritizing investment. We are earmarking investment for the further development of existing businesses, such as industrial automation and businesses in emerging markets, as well as environmen- tal businesses and other new businesses. We are also thinking of expanding our manufacturing structure to achieve global growth, centered on Asia. By making capital investments that outpace depreciation and amorti- zation, we will augment our growth potential and cost- competitiveness. We are also planning around ¥10 billion in strategic investment, centered on IA. Furthermore, we will overhaul our manage ment council by creating a structure that brings together the heads of our business Global Strategy Headquarters Yutaka Miyanaga Executive Officer Senior General Manager, Global Strategy Headquarters divisions and head office divisions to enable swifter decision making. In the previous fiscal year, we set up a regional head- quarters in India. This year, we set up a headquarters in Brazil. Whereas in the past each business line had its own human resources and administrative functions, the new structure will provide a package that offers support for these infrastructure and brand strategy development functions. Initiatives involving these horizontal functions are another major change. Global Resource Management Headquarters (GRM) —— Human Resource Strategy to Cultivate Global Management Resources —— In closing, could you please outline the major initiatives of GRM? Nitto: Our most important initiatives concern human resources strategy. In addition to rejuvenating our management team, our initiatives will take a bird’s-eye view toward the next decade. We will build a structure to cultivate management resources on a global basis for the next generation and the generation after that. We have identified 167 global core positions. We will fill these positions through both internal training and external recruiting by determining who is most suitable for these positions, during what span, and based on what level of experience. Also, the Company plans to move aggressively toward assigning locally hired personnel to core positions. —— What are your other points of focus? Nitto: My missions include strategic cash management and risk management. In the past, the allocation of funds and real estate tended to be on the basis of vertical management. We will shift to a more centralized financial strategy that includes making more-effective use of management resources. Globally, the risks that we face are growing, including sudden fluctuations in the eco- nomic environment and the risk of natural disasters. We will strive to create structures and systems that avoid these risks and minimize the damage they cause to ensure our business divisions can move ahead securely. 01 Global Vertical-Horizontal Matrix Management —— What will be focuses for the Global Resource Management Headquarters? Nitto: We need to embrace diversity wholeheartedly. In addition to promoting non-Japanese personnel, the key to our current strategy lies in how to make Japanese people, as well as Japan itself, more global. At the same time, there is no point in pursuing diver- sity if this simply results in fragmentation. It will be important to maintain the binding force of our corporate principles. I believe the Company excels in remaining true to its corporate principles, but this is because we have management strategies that are fully based on our corpo- rate principles. Promoting diversity will be a major chal- lenge, but I believe we can achieve this goal as long as we rely on our corporate principles as the binding force. —— We hope these interviews have assisted in deepening the readers’ understanding of the Omron Group’s efforts to realize the goals of VG2020 as well as the possibilities of vertical- horizontal matrix management. Global Resource Management Headquarters (GRM) Koji Nitto Executive Officer Senior General Manager, Global Resource Management Headquarters Interviewer Satoshi Ando Executive Officer, Senior General Manager, Investor Relations Headquarters Cultivating New Markets That Engender Synergies between Businesses —— Please provide some examples of efforts you are making to foster ties between business lines. Fujimoto: Let us look at relays for solar batteries. These are manufactured by EMC and sold by IAB, so we natu- rally need to pursue a joint strategy. EMC excels at manu- facturing products, while IAB has marketing expertise. By combining these two strengths, we can move into en- tirely new markets. As another example, when IAB aims to move into emerging markets, the division can benefit from the solid expertise of HCB, which was an early entrant into these markets, working to firmly established the Omron brand there. This situation is extremely favorable. —— What will be the focuses for the Global Strategy Headquarters going forward? Miyanaga: When making decisions, I believe we will need to strike a balance between stable, incremental improve- ment and rapid, drastic progress. From the standpoint of stable, incremental improve- ment, from our manufacturing processes to the manage- ment of our global operating performance, it is important to make ongoing improvements in various business processes based on the knowledge we gain through our everyday activities. Conversely, in achieving rapid, drastic progress, innovation is needed when delving into alto- gether new products and businesses and developing the unparalleled cost structures that will be necessary to succeed in global markets and achive a competitive advantage. 24 Omron Corporation Integrated Report 2012 25 Special Feature Omron’s Supply Responsibility and Business Continuity We will fulfill our social responsibility by creating a business structure that is resilient to changes in the external environment and strong in the face of risks. 02 Kiyoshi Yoshikawa Executive Officer Senior General Manager, Global Process Innovation Headquarters Amid the Great East Japan Earthquake and the flooding in Thailand, we moved forward on initiatives to minimize risks. To this end, we sought to decentralize parts procurement risk and standardize equipment and information systems. —— Please describe the roles and objectives of the Global Process Innovation Headquarters. At Omron, each business division conducts planning, development, production, and sales in a vertical line, but the Global Process Innovation Headquarters takes a horizontal, Companywide approach and has the role of improving all steps of business processes on a global basis. Its objective is to improve development, produc- tion, purchasing, and quality management and further strengthen each of these processes. To provide total optimization, the unit functions as a corporate headquar- ters division and is involved in logistics, IT, and other infra- structure activities. —— These major disasters were of course unexpected. Could you please describe their impact on the Omron Group and responses of the Global Process Innovation Headquarters? The Great East Japan Earthquake, which struck in March 2011, directly affected our sales, maintenance, and service functions in the Tohoku region. Our production functions were not directly affected, partly because we do not have any factories in the Tohoku region. However, many semiconductor and electronic components manu- facturers are clustered in Tohoku, and more than 100 of the suppliers upon which the Omron Group relies were affected by the disaster. This situation affected our sup- plies of more than 16,000 parts, so the damage to our parts procurement network was extensive. Following the earthquake, we quickly set up a Compa- nywide disaster response headquarters, centered on President Yamada, who was head of the Group strategy department at the time. We launched a Procurement Task Force, and the Global Process Innovation Headquarters took on the role of promoting its measures throughout the organization. We formed project teams comprising —— After that point, faced with the flooding in Thailand you were able to procure parts and turn to alternative sources of production in a rela- tively short time. Was putting these fundamental measures into action a case of applying the lessons the Company had learned as a result of the Great East Japan Earthquake? The factory of the Automotive Electronic Components (AEC) Business was hit directly and severely by the flooding in Thailand. Some 25 suppliers were affected, many of them companies that provide us with general- purpose electronic components, so we felt the effects over a broad range of businesses. Ultimately, we esti- mated the impact to have been on a similar scale to that of the earthquake. However, because we had a complete list of which parts were used for which products that we could utilize in the aftermath of the earthquake, we were able to respond in around two-thirds of the amount of time that was needed following the earthquake. —— I understand AEC was the main focus of recovery and restoration work at your plants in Thailand. What support did the Global Process Innovation Headquarters provide? Business divisions handled the on-site reconstruction and recovery work themselves; as in the case of the earth- quake, we took the lead on parts supply measures. We also provided logistical support as well as support on the equipment production front when it was urgently need- ed. The Global Process Innovation Headquarters dis- patched personnel to China and other parts of Asia with the aim of facilitating adjustments on a global basis, including the sourcing of alternative parts and communi- cation with individual plants. the heads of purchasing from each business division to pursue the task force’s initiatives. First, we worked to meet our responsibility for supply- ing products and services to our customers. To this extent, we determined which products were at risk in terms of procurement and developed measures to mini- mize these risks. We soon recognized that in addition to the general-purpose items used in semiconductors and electronic components, Omron’s proprietary, custom- made products were subject to substantial risk. Even though we gathered information from our suppliers on a daily basis, it was difficult to judge exactly when produc- tion could recommence. Therefore, we made a Group- wide decision to place bulk orders for these items, particularly semi conductors and custom electronic com- ponents, which entailed exposure to risks as these items were not returnable. —— What sort of initiatives did you enact as next steps? At an early stage, the disaster response headquarters recognized it would be difficult to continue production on our previous scale for a certain length of time. We made the management decision to give the highest weighting to business in the medical sector and involving social infrastruc- ture, followed by businesses of high strategic importance, and we prioritized products for each business division. Next, we introduced design changes and alternatives for key parts for which suppliers did not have inventories or were unable to supply. We presented delivery time recovery plans to our customers and asked them to accept postponed deliveries for orders that were not urgent or to accept delivery of alternative products. Our salespeople pulled together to work out adjustments with customers around the world. —— I understand these initiatives ultimately evolved into structural reforms. Can you offer specific examples of their results? Afterward, we adopted a strategic and continuous approach to management, identifying the social responsibility of each of our businesses, prioritizing business strategies, and clarifying which products could be discontinued and replaced with new items. We also promoted the transi- tion to new generations of products due to business continuity concerns in the aftermath of the earthquake. This switching from older products to newer alternatives was a move that in some cases we had been unable to accomplish beforehand. At the same time, when revising designs we encouraged an approach toward product standardization. 26 Omron Corporation Integrated Report 2012 27 —— It seems that you are enacting Company- wide initiatives, including risk response, stan- dardizing production, and utilizing universal product coding. As a measure to quickly restore the production of key products, under which, in the event that existing facilities are hit by a major disaster, other manufacturing bases compensate for this loss in production capacity. In this sense, standardizing facilities and information systems is important. In other words, we need to pursue initiatives that step up our ability to shift to alternative production given a variety of scenarios. We can postulate a variety of disasters that may occur in the future, but I believe we have created a structure that will allow us to respond flexibly. I consider this readiness to be a major source of Omron’s competitiveness. —— Please describe the status of the Omron energy-saving measures and systems that the Environmental Solutions Business HQ intro- duced to address electricity supply shortages and encourage energy-saving measures. We responded to the need for electricity-saving mea- sures in the summer of 2011 by introducing our energy savings monitoring system*1 at all 21 of our locations throughout Japan, allowing us to monitor electricity use at multiple locations. These systems went into operation on July 1, 2011. We were able to visualize, in real time, the total amount of power being used at our facilities by individual power company service area by our three facilities in the Tokyo Electric Power Co., Ltd.’s service area, for example, or by the six facilities in the Kansai Electric Power Co., Inc.’s service area. By making this Optimizing CO2 reductions by making waste and inefficiencies visible information visible, the system enabled us to implement measures to reduce peak power consumption.This year, we continued these initiatives, which we dubbed “Smart Power Savings.”* In the summer of 2011, Smart Power Savings activities led us to reduce peak electricity con- sumption in the Kansai Electric service area by 22% compared with fiscal 2010 levels. Reinforcing our own power generation systems accounted for 6 percentage points of this amount and “eco-monozukuri (eco-product creation)*2” for the remaining 16 percentage points. These measures had the effect of curtailing the amount of power used at production sites. In the summer of 2012, we will continue with Smart Power Savings initia- tives, combined with advanced eco-monozukuri. Through these endeavors, we expect to reduce power consump- tion by more than 25% compared with fiscal 2010. * Smart Power Savings: Omron’s name for proprietary energy-saving measures being pursued throughout the Company, comprising the following two initiatives: *1 Energy savings monitoring system: This is a system for monitoring and reducing peak electricity consumption throughout a specific area. *2 Eco-monozukuri: Reducing electricity used in manufacturing by improving production facility operations Details of our business continuity plan (BCP) and business involving energy-saving measures are available on our website. http://www.omron.co.jp/green-automation/trend/bcp/ —— Updating the BCP must certainly have been a management priority following the Great East Japan Earthquake and the flooding in Thailand. Could you outline some specific BCP-related initiatives? Omron’s fundamental BCP policy has three main thrusts: protecting the safety of people, cooperating across the board in maintaining and restoring social infrastructure, and minimizing any impact on our customers and Omron’s businesses. In developing disaster response plans, it is not sufficient to merely focus on short-term reconstruction 02 Omron’s Supply Responsibility and Business Continuity Energy savings monitoring system M2M data center Uniform electricity consumption management Factory A Branch Internet transmission FOMA communications Factory B Factory C We recognize that “supply responsibility” is a management priority for a manufacturer and understand that fulfilling this responsibility leads to enhanced corporate value. Headquarters function after a disaster, concluding efforts after a sufficient level of reconstruction is achieved. Rather, we must work vigilantly on an ongoing basis to ensure that we can minimize the risks of any future disasters that may occur. Accordingly, after having experienced last year’s earthquake and flood- ing in Thailand, I believe we need to conduct a full review of our initiatives, addressing additional issues and creating a business structure that is more resilient to changes in the external environment and stronger in the face of risks. —— In closing, what was it that inspired you to go to such lengths to fulfill your “supply responsibility” as a manufacturer? If our business divisions and headquarters networks function smoothly on a daily basis, the moment we detect an issue that could have a major impact on our business we can pull together to respond quickly on a Companywide basis. In the face of the crises that we have recently experienced, I believe that each employee has gained a greater recognition of their responsibility to our businesses. The back ground for this realization is one of the Omron Principles, of “contributing to society through business.” Even if recovery measures cause prof- its to drop temporarily, as a manufacturer we must focus on meeting the important responsibility of continuing to supply products and services to our customers. Our core thinking is that meeting this responsibility ultimately leads to enhanced corporate value. Going forward, as we continue to prepare against risks, we need to redouble our efforts to meet our responsibilities as a company and realize growth. 28 Omron Corporation Integrated Report 2012 29 Business Segments and Key Products Industrial Automation Business IAB provides a wide spectrum of devices neces- sary for the optimal operation of manufacturing equipment, products ranging from sensors, control devices, and all types of inspection and processing equipment to equipment meeting the growing demand for products to enhance worker safety and environmental products that contribute to improving energy efficiency. IAB’s wide-ranging product lineup, which is number one in the industry,*1 supports the manufacturing innovation of customers around the world. *1 As of August 2012, Omron internal survey Electronic and Mechanical Components Business EMC’s strength is its advanced monozukuri technology in each stage from product design to materials, metal molds, product processing, and assembly. It has fostered wide-ranging expertise through the production of its vast array of relays, switches, connectors, and other components utilized in consumer appliances, telecommunica- tions equipment, mobile devices, amusement devices, office automation (OA), and other equipment. Automotive Electronic Components Business AEC is an active contributor to the rapidly advanc- ing car electronics market that aims to realize a safe, comfortable, and environmentally friendly automotive society. The company supplies all types of controllers, sensors, switches, and other components to automakers and electrical equip- ment producers around the world. AEC provides the sensing and control technology for the future of auto manufacturing. The top provider of control equipment for the manufacturing industry in Japan*1 and supporting manufacturing innovation worldwide Segment Information >> 36 IAB’s product lines comprise devices for sensing lighting, imaging, vibration, temperature and humidity levels, location, speed, and other data necessary for the operation of manufacturing equipment; control and motion devices that process large volumes of data into meaningful and useful information and execute optimal control; and display and operating devices that monitor the control status at the production site and enable configuration and adjustment. Interconnecting IAB’s devices for data communication enables high-speed, high-precision control to contribute to enhancing “quality, safety, and the environment” at the production site. Display and Operating Devices Nerve System = Network Indicator Display Equipment Senses= Sensing Devices Brain= Control Equipment Limbs= Motion Devices and Drives Vision Sensors Photoelectric Sensors Temperature Controllers Programmable Logic Controllers Servomotors and Servo Drivers Proximity Sensors Power Supply Units Position Control Units Inverters Network Automated Optical Inspection (AOI) Devices Laser Repair Devices for Liquid-Crystal Applications • Safety Equipment IAB’s safety equipment meets international safety standards and contributes to the creation of a safe workplace environment by automatically sounding an alarm or safely shutting down machinery when a worker enters a defined danger zone in a factory. • Environmental Equipment IAB’s environmental equipment provides constant monitoring of manufacturing environment data, such as the presence of foreign particles and temperature and humidity levels, and provides analysis of electric power consumption data, thereby contributing to maintaining product quality standards while also providing data to help reduce excess power consumption and improve energy efficiency. Air Cleaning Units Safety Controllers Safety Door Switches Safety Sensors Air Thermal Sensors Air Particle Sensors Ionizers A provider of ever-improving digital components to a wide range of industries, leveraging monozukuri technology Segment Information >> 38 • Relays and Switches • OKAO Vision • Connectors • Sensors and Modules Surface-Mounting High-Frequency Relays OKAO Vision is gaining wide use as a technology for correct ing exposure in digital photography and brightness in photo printing, and its face recognition capability is used in mobile phone user verification as well as estimating age and determining gender. Connectors are used as an interface between electronic devices and are widely used in mobile devices, industrial equip- ment, and other electronics. We respond to various needs from the amusement industry and needs for video equipment with higher specs. Flexible Optical Distribution Modules Power Supply Unit for Amusement Devices Surface Mount Switches OKAO Vision Facial Image Sensing FPC Connectors Relays are composed of electromag- nets that convert electric signals to mechanical movement and switches that turn electricity on and off. Relays and switches are used in virtually all electric and electronic devices, including refrigerators, microwave ovens, and air conditioners. Contributing to the creation of safe and comfortable automobiles worldwide • Transmitter Key & Engine Start Systems Segment Information >> 40 • Automotive Switches / • Electric Power Steering Controllers Controllers AEC supplies multi-function control units that integrate control of diverse automobile body features, including switches to automatically open and close power windows, lock and unlock doors, and turn on and off windshield wipers, using multiple communication technologies. Electric power steering controllers are equipped with high-output and high-preci- sion sensing functions to enable smooth steering. These devices help achieve energy savings and better mileage. Electric Power Steering Controllers Transmitter Key Entry systems enable car doors to be locked and unlocked by touching the door handle or pressing a switch for the door without taking out the transmitter key. Engine start systems enable car engines to be started or shut down by pressing a switch from the driver’s seat of the car without taking the transmitter key out of one’s bag. Power Window Switches 30 Omron Corporation Integrated Report 2012 31 EMCAECIABJapan’s No. 1*2 supplier of railway infrastructure systems and creator of a wide variety of social systems Segment Information >> 42 • Train Station Solutions • Social Sensing • Road Traffic Solutions SSB provides systems solutions, including the newest models for automated ticket gates and ticket vending machines using universal designs, to increase the comfort and efficiency of train stations. Sensors located in public settings gather data on the movement and conditions of people, automobiles, and other objects and provide opti- mal information to people and control equipment. In addition to control systems for traffic volumes and traffic conditions, SSB is developing next-generation traffic safety systems designed to prevent accidents by transmitting data on pedestrians, bicycles, and other objects collected by sensors to nearby vehicles. Social Systems, Solutions and Service Business SSB provides a wide variety of systems to support social infrastructure centering on railway and traffic control systems. Recently, SSB has been a major contributor of IC card equipment for railway systems, building on its position as the top domestic supplier of automated ticket gates and ticket vending machines. The company has further expanded its business scope to contribute to the realization of a safe, secure, and comfortable soci- ety through innovative solutions utilizing image sensing technologies. *2 As of August 2012, Omron internal survey Automated Ticket Gates Ticket Vending Machines Smile Scans Traffic Control Systems Healthcare Business Global No. 1*3 market share for digital home blood pressure monitors and a wide range of products and services for treating lifestyle-related diseases Segment Information >> 44 • Healthcare & Medical Devices for Home use • Medical Equipment for Hospital use HCB provides equipment and services worldwide for personal and professional use to support the disease prevention, treatment, and health im- provement fields. The company’s home blood pressure monitors command top market shares, with more than 60%*3 of the domestic market and more than 50%*3 of the global market. HCB’s bio-information sensing technology has made it a leader in the home healthcare market, and it is taking on the new challenge of supporting daily personal health management all over the world. *3 As of August 2012, Omron internal survey HCB supports the health of individuals by connecting daily personal health management at home and disease management at medical institutions. Sleep Sensors Body Composition Monitors Thermometers Body Glucose Meters Spot Check Monitors Blood Pressure Monitors Activity Monitors Portable Electrocardiogram (ECG) Monitors Nebulizers Central Monitors Non-Invasive Vascular Screening Devices Other Businesses Discovering and fostering new business opportunities for achieving group growth strategies • LCD Backlights • Micro Devices • Energy-Saving Solutions The Other segment explores and develops new businesses outside the realm of the main five segments. The segment’s Environmental Solutions Business, Electronic Systems & Equip- ments Business, and other operations play an important part in advancing the Omron Group’s growth strategy. The Other segment advances business in future growth areas, including the environment field and the smartphone market, which are expected to expand. Microlens array technology with several million micron-sized micro lenses to maximize light utilization efficiency contributes to brighter and slimmer mobile phones with lower power consumption. Omron provides new applications centering on micro electrical mechanical systems (MEMS). To maximize energy efficiency, Omron is developing solutions-based businesses that combine energy- saving, creating, and storing components with consulting and engineering services. MEMS Absolute Pressure Sensor Smart Electricity Usage Monitors Segment Information >> 46 • Electronic Systems & Equipment Business activities related to computers, devices, uninterruptible power supplies (UPS), and other electronic systems and equipment. LCD Backlights MEMS Non-Contact Temperature Sensors Power Conditioner for Solar Power Generation System BY-S Series, Uninterruptible Power Supply Unit 32 Omron Corporation Integrated Report 2012 33 SSBHCBOtherOmron at a Glance Performance and Forecast by Segment Net Sales and Operating Income Net Sales by Segment (Billions of yen) Operating Income by Segment (Billions of yen) 800 700 600 500 400 300 200 100 0 Eliminations and Corporate Other Businesses Healthcare Business (HCB) Social Systems, Solutions and Service Business (SSB) Automotive Electronic Components Business (AEC) Electronic and Mechanical Components Business (EMC) Industrial Automation Business (IAB) 90 60 30 0 –30 09 10 11 12 Forecast (FY) 09 10 11 12 Forecast (FY) R&D Expenses and Capital Expenditures R&D Expenses by Segment Capital Expenditures by Segment (Billions of yen) 60 50 40 30 20 10 0 08 09 10 11 (FY) (Billions of yen) 40 Eliminations and Corporate Other Businesses Healthcare Business (HCB) Social Systems, Solutions and Service Business (SSB) Automotive Electronic Components Business (AEC) Electronic and Mechanical Components Business (EMC) Industrial Automation Business (IAB) 30 20 10 0 08 09 10 11 (FY) Notes: 1. From fiscal 2009, the Companies adopted the Accounting Standards Codification No. 280, “Segment Reporting” (previously Statement of Financial Accounting Standards No.131, “Disclosures about Segments of an Enterprise and Related Information”). Accordingly, the figures of the segment information for fiscal 2008 have been restated to conform with the current year presentation. 2. The Company’s business segments were reclassified as IAB, EMC, AEC, SSB, HCB, and Other in the third quarter of fiscal 2009. Figures for fiscal 2008 have been restated to reflect the new classifications. 3. Beginning in fiscal 2010, the Omron Group has been revising the management guidance fees for the purpose of concentrating capital funds at the headquarters in order to reinforce selection and concentration and allocate resources strategically. This inclusion has had an effect on the operating income of each segment. 4. Fiscal 2008 figures for R&D expenses and capital expenditures are the combined total for all the segments due to the new segment organization. Industrial Automation Business (IAB) Net Sales by Segment 44% Electronic and Mechanical Components Business (EMC) Net Sales by Segment 13% 270.8 274.0 Net Sales (Billions of yen) 300 250 200 150 100 50 0 Operating Income Operating Income Margin (right scale) (%) 18 (Billions of yen) 60 50 40 30 20 10 0 12.3% 12.8% 35.0 33.3 15 12 9 6 3 0 Net Sales (Billions of yen) 100 89.0 83.0 80 60 40 20 0 Operating Income Operating Income Margin (right scale) (%) 20 (Billions of yen) 20 16 12 8 4 0 8.7% 9.0% 8.0 7.2 16 12 8 4 0 09 10 11 12 (FY) Forecast 09 10 11 12 (FY) Forecast 09 10 11 12 (FY) Forecast 09 10 11 12 (FY) Forecast Automotive Electronic Components Business (AEC) Net Sales by Segment 14% Social Systems, Solutions and Service Business (SSB) Net Sales by Segment 9% Net Sales (Billions of yen) 100 95.0 85.0 80 60 40 20 0 Operating Income Operating Income Margin (right scale) (Billions of yen) 6 5 4 3 2 1 0 5.0 2.7 5.3% 3.2% (%) 12 10 8 6 4 2 0 Net Sales (Billions of yen) 100 80 60 40 20 0 60.0 57.2 Operating Income Operating Income Margin (right scale) (Billions of yen) 3.0 2.4 1.8 1.2 0.6 0 (%) 10 8 6 4 2 0 1.0 1.7% 0.2% 0.1 09 10 11 12 (FY) Forecast 09 10 11 12 (FY) Forecast 09 10 11 12 (FY) Forecast 09 10 11 12 (FY) Forecast Healthcare Business (HCB) Net Sales by Segment Other Businesses Net Sales by Segment Net Sales (Billions of yen) 100 80 60 40 20 0 67.5 62.4 10% Operating Income Operating Income Margin (right scale) (Billions of yen) 10 8 6 4 2 0 (%) 15 12 9 6 3 0 4.0 5.9% 2.9 4.7% 09 10 11 12 (FY) Forecast 09 10 11 12 (FY) Forecast Net Sales Operating Income (Loss) 9% (Billions of yen) 100 80 60 40 20 0 59.0 53.5 (Billions of yen) 2.0 0 –2.0 –4.0 –6.0 –8.0 –10.0 –2.0 –3.6 09 10 11 12 (FY) Forecast 09 10 11 12 (FY) Forecast 34 Omron Corporation Integrated Report 2012 35 SEGMENT INFORMATION Industrial Automation Business (IAB) 44% Manufacturing and sales of control systems and components for factory automation and industrial equipment 売上構成比 % of Net Sales 44% IAB has established a complete lineup of state-of-the-art equipment that plays a principal role in automation. This lineup includes the sensors that provide automation systems with the senses of “vision” and “touch,” the controllers that serve as their “brain,” the drives that form their “limbs,” and the networks that connect these various items as the “nerve system.” With these sophisticated products, we are contributing to quality, safety, and the environment by supporting the innovation of manufacturing industries around the world. Fiscal 2011 in Review Overcoming the challenges presented by the Great East Japan Earthquake and the strong yen, sales in line with levels in fiscal 2010 were secured in all regions. IAB net sales declined 0.4% year on year, to ¥270.8 billion, and demand as well as elevated demand from Japanese companies following the severe flooding in Thailand, and as a result capital investment demand held firm in the automobile and machine tool industries. The cumulative effect of these factors was sales levels in fiscal 2011 remaining in line with those in fiscal 2010. operating income decreased 12.8%, to ¥33.3 billion, in fiscal 2011. Overseas, sales slipped 0.2%, to ¥147.7 billion, due to the impact In Japan, sales were down 0.6% year on year, to ¥123.1 billion. In of the strong yen and other factors. Operations in Europe were the first quarter, there was concern regarding the impact of delayed adversely affected by the strong yen and financial instability; however, capital investment in the automobile and semiconductor industries demand showed a gradual trend toward recovery, and accordingly as well as the difficulty in procuring parts, both of which resulted sales were relatively unchanged year on year. Sales levels were from the Great East Japan Earthquake. Faced with such adversity, maintained in China as well, where increased demand for automo- we prioritized product supply, leading to significant increases in net biles and consumer electronics as well as higher internal demand sales, particularly in regard to sensors and programmable logic for social infrastructure development compensated for the impacts controllers, which reflected customers’ efforts to secure inventories. of the inventory adjustment trend that stemmed from monetary Starting in the second quarter, performance was impacted by tightening measures. In other areas of Asia, net sales proved solid continued sluggish capital investment and inventory adjustment thanks to demand created by reconstruction efforts following the trends in industries related to semiconductors and electronic floods in Thailand. In North America, sales of control equipment for components, but strong capital investment demand in the automo- oil- and gas-related businesses rose considerably, resulting in bile and machine tool industries helped keep net sales in line with favorable overall sales figures. Due to the above, sales in fiscal 2011 levels in the second quarter of fiscal 2010. The third quarter was were relatively unchanged from levels in fiscal 2010. marked by the appearance of post-earthquake reconstruction (Billions of yen) Check it out! IAB Results and Forecast Fiscal Year Net sales Domestic Overseas Americas Europe Asia Pacific Greater China Direct exports Operating income 2008 272.0 125.5 146.5 31.6 70.7 17.4 25.7 1.0 18.2 2009 203.9 91.2 112.7 18.9 51.2 16.8 25.5 0.3 12.7 2010 271.9 123.9 148.0 26.7 56.7 25.0 38.8 0.7 38.2 2011 270.8 123.1 147.7 29.3 55.3 25.3 36.8 1.0 33.3 2012 (Forecast) 274.0 124.0 150.0 32.5 52.5 27.5 36.5 1.0 35.0 Operating income margin 6.7% 6.2% 14.1% 12.3% 12.8% R&D expenses Depreciation and amortization Capital expenditures* — — — 11.1 5.2 1.9 13.2 4.5 2.2 14.4 4.2 3.8 * From fiscal 2009, the Companies adopted the Accounting Standards Codification No. 280, “Segment Reporting.” The Company’s business segments have been reclassified from the third quarter of fiscal 2009. Accordingly, the segment information figures for fiscal 2008 have been restated to conform with the current year’s presentation. * Beginning in fiscal 2010, the Omron Group has been revising the management guidance fees for the purpose of concentrating capital funds at the headquarters to reinforce selection and concentration and strategically allocate resources. This inclusion has had an effect on the operating income of each segment. * Fiscal 2008 figures for R&D expenses, depreciation and amortization, and capital expenditures have not been stated due to the new segment organization. * The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income including internal income prior to the deduction of such amounts as intersegment transactions and head office expenses that are not apportionable. * The forecast for R&D expenses, depreciation and amortization, and capital expenditures is not publicized. Analysis of external environment Index of industrial production and machinery orders and IAB sales * 120 100 80 60 40 20 0 (Billions of yen) 35 30 25 20 15 10 5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY2010 FY2011 Index of Industrial Production* (Seasonally adjusted) [left axis] Machinery orders* [left axis] IAB sales [right axis] *Sources: The Ministry of Economy, Trade and *Sources: The Ministry of Economy, Trade Industry and the Cabinet Office, and Industry and the Cabinet Government of Japan Office, Government of Japan IAB sales trends move on a slight time lag to indices for industrial production and machinery orders. Yoshinobu Morishita Representative Director and Executive Vice President Company President, Industrial Automation Company　 * As of July 21, 2012 Business Strategy and Outlook for Fiscal 2012 We will maintain our standing as the best partner for manufacturers worldwide. In the IAB segment, in fiscal 2012 we are forecasting a year-on- year rise in net sales of 1.2%, to ¥274.0 billion, and a 5.0% increase, to ¥35.0 billion, in operating income. Conditions both in Japan and overseas are expected to make a full-fledged recovery starting in the second half of fiscal 2012, and consequently full-year net sales are anticipated to be in line with fiscal 2011. While the strong yen and financial instability in Europe will continue to represent uncertainty regarding the future of the operating environment, we are forecasting higher capital investment in the automobile and machine tool industries in Japan, North America, and emerging countries, such as China. The IAB segment aims to respond to the automation needs of rapidly growing emerging countries as well as the increasingly more sophisticated and complex needs of developed countries in the area of controls and in the areas of safety, the environment, and energy. To facilitate this endeavor, we are reinforcing sales systems and fortifying global customer support systems. In addi- tion, we are bolstering our lineup of competitive products by quickly introducing equipment that boasts industry-leading levels of new ultra high-speed and high-precision products to beat out the competitors in emerging markets, which are rapidly gaining force. Through these efforts, we aim to further strengthen our robust product lineup, which we believe to be No. 1 in the world. Further, we are enhancing our lineup of products that assist manufacturing sites, which use massive amounts of electricity, in realizing energy savings. These products include our electricity usage monitoring equipment and our equipment that measures the humidity, pressure, and electricity flow levels of production facilities. Striving to maintain our No. 1 standing into the future, amidst rising concern for environmental issues we will work to respond to the energy-saving and creation needs of customers in a wide range of environmental fields. What’s New Omron Tongling Automation System (Hangzhou) Co., Ltd., Established as Joint Venture Company by Omron (China) Co., Ltd., and Chinese System Integrator / Sales Agent On March 15, 2012, Omron (China) Co., Ltd., and Hangzhou Tongling Automation Co., Ltd. (HTL), completed the registration of Omron Tongling Automation System (Hangzhou) Co., Ltd., a joint venture between these two companies located in Hangzhou, China, that commenced operations in June 2012. This company’s operations will be centered on the Sysmac machine automation platform* products born out of Omron’s advanced technologies. By fusing Omron’s expertise related to state-of-the-art control equipment, which we have accumulated through our dealings with customers around the world, with HTL’s engineering capabilities that were created by its drive to become a top system integrator in China, this company will assist us in rapidly developing automation equipment that can compete in the Chinese and global markets. Omron Tongling Automation System (Hangzhou) Co., Ltd. * Sysmac machine automation platform: With a machine automation controller at its core, this platform seamlessly links input and output devices through “one connection,” allowing entire machines to be controlled by a single controller. Further, this platform enables the programming, motion setting, and network functions of connected equipment to be adjusted using a single software program, which conforms to the IEC 61131-3 standard. In these ways, the system enables users to achieve drastic improvements in productivity. Machine Automation Controllers: Sysmac NJ Series (NJ3 CPu unit) For use in our line of NJ Series controllers that serve as the “brain” for the Sysmac automation platform, we introduced the NJ3 CPU unit series, which is compatible with 4- or 8-axis motion control, making it ideal for small scale control. This series complements the NJ5 CPU unit, compatible with up to 64-axis control, to further enhance our lineup in this area. Next-Generation Standard Temperature Controllers: E5CC and E5EC (Digital Controllers) Clamp Electricity Data Logger That Accelerates Energy-Saving Efforts at Manufacturing Sites: ZN-CTC11 These new digital temperature controllers feature present value (PV) displays using large, white characters for better visibility and offer improved ease in selection, operation, and setting. Functionality and features have also been improved by increasing the number of inputs and outputs, significantly expanding the range of compatible applications, and other means. By clamping the ZN-CTC11 electricity data logger onto power cords, this device can record the electricity usage of facilities and production lines without stopping the equipment. This is the industry’s first clamp electricity data logger to have the clamp integrated into the logger (as of June 2012, Omron internal survey). 36 Omron Corporation Integrated Report 2012 37 SEGMENT INFORMATION Electronic and Mechanical Components Business (EMC) Manufacturing and sales of electronic components for consumer appliances, telecommunications equipment, mobile telephones, amusement devices, 13% and office automation equipment 13% % of Net Sales 売上構成比 EMC utilizes its cultivated strength in monozukuri (product creation) technology, integrating its relays, switches, connectors, and other electromechanical component products to supply products to customers in a wide range of industries. Fiscal 2011 in Review Following a strong performance by products for the automobile industry in Japan and overseas, sales were up year on year. EMC net sales were up 2.2% year on year, to ¥83.0 billion, and operating income was down 39.2%, to ¥7.2 billion, in fiscal 2011. Domestic sales edged up 1.3%, to ¥25.3 billion. Net sales initially dropped as demand for automotive-use relays and switches fell in the first quarter in conjunction with the reduced production of automobiles following the Great East Japan Earthquake. In July, recovery trends were evident in the automo- bile and amusement industries, and sales to consumer-related industries, such as those related to consumer electronics, were strong due to post-earthquake recovery demand. These factors encouraged a recovery in second quarter results from the declines experienced in the first quarter. A strong performance continued for the remainder of the year, and as a result sales in Japan were in line with fiscal 2010’s level. Overseas sales rose 2.6% year on year, to ¥57.7 billion, despite the impacts of the strong yen, monetary tightening measures in China, and financial instability in Europe. In China, the monetary tightening measures implemented during the first half of the year drove consumer-related industries, such as those related to consumer electronics, into an inventory adjustment phase with regard to certain products. However, the impacts of these trends were outweighed by the benefits of customers working to procure parts in advance due to concerns for possible supply shortages after the earthquake. China and other emerging countries were adversely affected by the global decline in automobile production as well as the impact on Asian automotive parts markets of the floods in Thailand that occurred during the second half of the fiscal year. Nevertheless, sales of automotive parts and mobile telephone components were strong throughout fiscal 2011. As a consequence, overseas sales were up. EMC Results and Forecast* Fiscal Year Net sales Domestic Overseas Americas Europe Asia Pacific Greater China Direct exports Operating income 2008 2009 2010 2011 76.5 25.6 50.9 8.6 9.2 8.4 20.9 3.8 4.2 70.7 22.3 48.4 7.3 11.7 7.6 19.8 1.9 6.7 81.2 24.9 56.3 13.7 13.0 8.4 19.8 1.5 11.9 83.0 25.3 57.7 13.2 12.9 7.6 22.7 1.3 7.2 (Billions of yen) 2012 (Forecast) 89.0 27.0 62.0 13.0 13.5 9.0 25.0 1.5 8.0 Operating income margin 5.5% 9.5% 14.7% 8.7% 9.0% R&D expenses Depreciation and amortization Capital expenditures* — — — 5.0 8.5 4.2 5.6 6.9 8.7 6.5 7.2 9.9 * From fiscal 2009, the Companies adopted the Accounting Standards Codification No. 280, “Segment Reporting.” The Company’s business segments have been reclassified from the third quarter of fiscal 2009. Accordingly, the segment information figures for fiscal 2008 have been restated to conform with the current year’s presentation. * Beginning in fiscal 2010, the Omron Group has been revising the management guidance fees for the purpose of concentrating capital funds at the headquarters to reinforce selection and concentration and strategically allocate resources. This inclusion has had an effect on the operating income of each segment. * Fiscal 2008 figures for R&D expenses, depreciation and amortization, and capital expenditures have not been stated due to the new segment organization. * The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income including internal income prior to the deduction of such amounts as intersegment transactions and head office expenses that are not apportionable. * The forecast for R&D expenses, depreciation and amortization, and capital expenditures is not publicized. Check it out! Analysis of external environment Global shipments of electronic components and sales of EMC products for consumer electronics (Billions of yen) 1,500 1,200 900 600 300 0 (Billions of yen) 50 40 30 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY2010 FY2011 Global [left axis] Japan [left axis] EMC products for consumer electronics [right axis] Source: Japan Electronics and Information Source: Japan Electronics and Information Technology Industries Association (JEITA) Technology Industries Association (JEITA) Sales were sluggish from the second half of fiscal 2011 following the deceleration of overseas economies. Koichi Tada Managing Officer Company President, Electronic and Mechanical Components Company　 Business Strategy and Outlook for Fiscal 2012 utilizing our monozukuri capabilities, we will focus on the Greater China region, other parts of Asia, and environmental fields. We plan to raise EMC net sales 7.2% year on year, to ¥89.0 billion, and operating income 10.5%, to ¥8.0 billion, in fiscal 2012. The operating environment for electronic components is expected to remain harsh overall due to the financial instability in Europe, the deceleration of growth in the Greater China region, and the persistence of the strong yen. Conversely, in China and other parts of Asia, a geographic segment that accounts for 65% of the world’s population, markets are expanding rapidly, and we are steadily pushing forward with initiatives to address this market growth. Our sophisticated monozukuri capabilities, which enable us to conduct production in an integrated manner spanning from product design and material procurement to molding, parts processing, and assembly, will play a key role in undertaking these efforts. Utilizing these capabilities, we will improve the quality, reduce the costs, and stabilize the supplies of relays, switches, and connectors for industrial machinery, as these are the characteristics our target industries seek out in products. In addition, as markets related to the environmental and energy fields are expanding, we will create components that contribute to the advancement of environmental fields and target sales growth for such components. Specifically, we have high expectations for the future performance of smart meters, which are electricity meters equipped with communications functions, in markets in China and other parts of Asia. For this reason, we are enhancing our power latching relay operations. Power latching relays are used to control the flow of electricity into smart meters. We are also taking steps to improve the competitiveness of our DC power relays for use in electric and hybrid-electric vehicles with the aim of advancing their use among automobile manufacturers worldwide. What’s New Strengthening Smart Meter—Related Power Latching Relay Operations Aiming to strengthen its relay operations, Omron acquired Shanghai Best Electrical Appliance Manufacturing Co., Ltd. (BST), a manufacturer of power latching relays, which are used in smart meters. Smart meters are expected to become a mainstay device in smart grids, which are projected to experience a rapid increase in demand as an interface for connecting power grids with commercial buildings or individual homes. Demand is expected to be particularly strong in China and other parts of Asia. Power latching relays are employed in the load switching units used for directly controlling the supply of power to these smart meters. BST commands the leading position in the Chinese market for power latching relays. The company has gained a competitive advantage through its high-mix, low-volume production system and by enhancing productivity through the use of modular parts. By incorporating BST’s strengths, Omron will further expand its power latching relay business. Power latching relays Remote Reset Rocker Switch: A8GS The A8GS remote reset rocker switch is among the smallest rocker switches in the industry. This switch is primarily used as the main power switch for office automation (OA), audio video (AV), and other equipment. Featuring a solenoid, this switch can be operated manually and possesses a remote reset function that allows the switch to be turned off by outside signals. This function reduces standby electricity consumption to zero, thus contributing to energy savings. Dust-Proof ultra Subminiature Basic Switch: D2FD Based on the design specifications of a popular preceding model, D2FD switches feature rubber sealing, which means they can be used in dust-proof environments (IEC IP6X). Equipped with this high-demand feature, D2FD switches are the optimal switches for use in the position sensors of washing machine lids and refrigerator doors as well as for use in industrial equipment, office equipment, telecommunications equipment, and other equipment requiring dust-proof switches. Hand Gesture Recognition Technologies Hand gesture recognition technologies are used to simultaneously identify the position, contour, and movement of hands or fingers from camera-recorded videos. These technologies enable televisions to be operated with hand signs, cameras to be programmed to automatically take pictures in response to the “peace” sign, and other motion-based equipment control schemes to be realized. 38 Omron Corporation Integrated Report 2012 39 SEGMENT INFORMATION Automotive Electronic Components Business (AEC ) Production and sales of electronic components for automobiles 売上構成比 14% % of Net Sales 14% Omron Automotive Electronics Co., Ltd. (AEC), conducts business operations catering specifically to the ever-evolving automotive electronics field, a subsection of the automobile industry, which continues to grow on a global basis. This business continues to contribute to the realization of a safer, more secure, and more comfortable driving society by producing technologies and products designed to create “the best matching of automobiles to people.” Fiscal 2011 in Review Domestic automobile manufacturers recovered and automobile markets in emerging countries grew, stimulating sales increases. AEC net sales edged up 0.9% year on year, to ¥85.0 billion, and operating income declined 35.3%, to ¥2.7 billion, in fiscal 2011. Domestic sales were ¥28.9 billion, up 1.8%, from the previous year. Automobile production by principal customers fell immediately after the Great East Japan Earthquake, resulting in a sharp drop in sales during the first quarter of the year. However, in conjunc- tion with the recovery of automobile and parts manufacturers, automobile production gradually recovered starting in the latter half of the first quarter. In addition, certain automobile manufac- turers accelerated production to return inventories of completed vehicles to a certain level. In the second half of the fiscal year, the recovered production among manufacturers led to a come- back in demand for the company’s products. The severe flooding in Thailand that occurred in October damaged our Thai manufac- turing base, and the issues with procuring electronic compo- nents after the floods adversely impacted sales in this segment and in the automobile industry as a whole. Later in the year, when parts supplies were able to be secured, production by automobile manufacturers rallied once again. Thanks to the above, sales were solid on a full-year basis. Overseas sales rose 0.5%, to ¥56.1 billion, despite the impacts of the strong yen, the monetary tightening measures in China, and the financial instability in Europe. During the first half of the fiscal year, sales to China and other emerging countries as well as South Korea were strong. In North America, demand from U.S. automobile manufacturers held firm, but reduced production among Japanese automobile manufacturers resulted in signifi- cant declines in sales. The favorable sales trends in China, other emerging countries, and South Korea continued into the second half of the fiscal year, thus helping to offset the impacts of the less-than-ideal exchange rates and the floods in Thailand. As a result of these factors, overseas sales were overall relatively unchanged from the previous fiscal year. 2008 2009 2010 2011 AEC Results and Forecast Fiscal Year Net sales Domestic Overseas Americas Europe Asia Pacific Greater China Direct exports Operating income (loss) Operating income margin R&D expenses Depreciation and amortization Capital expenditures* 82.1 25.0 57.1 27.9 9.0 12.5 4.7 3.0 (7.1) — — — — 75.2 23.9 51.3 24.0 2.0 13.1 6.3 5.9 1.7 84.3 28.4 55.9 23.9 2.6 14.2 9.1 6.2 4.2 85.0 28.9 56.1 21.5 2.4 16.2 9.5 6.5 2.7 (Billions of yen) 2012 (Forecast) 95.0 30.0 65.0 23.5 3.0 19.0 11.5 8.0 5.0 2.3% 4.9% 3.2% 5.3% 5.0 2.1 3.6 5.3 2.1 2.0 6.6 2.1 5.2 * From fiscal 2009, the Companies adopted the Accounting Standards Codification No. 280, “Segment Reporting.” The Company’s business segments have been reclassified from the third quarter of fiscal 2009. Accordingly, the segment information figures for fiscal 2008 have been restated to conform with the current year’s presentation. * Beginning in fiscal 2010, the Omron Group has been revising the management guidance fees for the purpose of concentrating capital funds at the headquarters to reinforce selection and concentration and strategically allocate resources. This inclusion has had an effect on the operating income of each segment. * Fiscal 2008 figures for R&D expenses, depreciation and amortization, and capital expenditures have not been stated due to the new segment organization. * The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income including internal income prior to the deduction of such amounts as intersegment transactions and head office expenses that are not apportionable. * The forecast for R&D expenses, depreciation and amortization, and capital expenditures is not publicized. Check it out! Analysis of external environment Worldwide automobile production (unit basis) (Millions) 6 5 4 3 2 1 0 EU China North America Japan Asia South America Middle East, Africa Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY2010 FY2011 Source: CSM Worldwide, Inc. Source: CSM Worldwide, Inc. Sales were poor in Japan due to the impacts of the Great East Japan Earthquake, while sales improved significantly in China. Yoshinori Suzuki Managing Officer President and CEO, Omron Automotive Electronics Co., Ltd. Business Strategy and Outlook for Fiscal 2012 Automobile market growth is expected to center on emerging countries. For AEC, we are forecasting a year-on-year increase of 11.7%, to ¥95.0 billion, in net sales, with an 85.8% jump in operating income, to ¥5.0 billion, in fiscal 2012. In Japan, strong sales are projected as a result of the demand stimulated by government subsidies for the purchase of eco- friendly automobiles as well as favorable conditions in the market for small vehicles. Strong sales are also projected overseas. Factors expected to support sales growth include the recovering North American market, expansion in the emerging markets of China and Southeast Asia, the start of full-fledged production of globally strategic vehicles by automotive manufacturers in Thailand and other countries, and the start of production of new-model vehicles that incorporate Omron’s new products. Further, the automobile market is expected to continue growing centered on emerging countries. Against this backdrop, competition between manufacturers is intensifying and the globalization of production is accelerating. Aiming to respond to such market changes, AEC will employ the “One Global Team” management strategy, under which global expansion will be pursued by leveraging the Group's accumulated technologies and techniques and installing high-quality development, production, sales, and services functions in each major region of the world. The resulting system will be used to further advance us in our quest to uncover the social needs inherent to each different area and quickly and efficiently introduce products that meet these needs. What’s New Automobile Parts Production in Mexico In February 2012, a new AEC production base was established in Guanajuato, Mexico. This base has begun the production of automotive electronic components. As automobile manufacturers are progressively developing and expanding operations in Mexico and as the production of completed automobiles in this country rises in the future, this new production base will come to play a central role in developing our own operations thanks to its convenient access to the automobile markets in the Americas and Europe. In addition, as this is the Omron Group’s first production base in Mexico, we will utilize it to facilitate social contribution efforts in this country. An automotive electronic components production base, in Mexico Electric Power Steering Controllers AEC anticipates that a growing number of automobile models will utilize its electric power steering controllers, which enable smooth steering wheel operation and save energy. AEC’s long track record has made the business a highly trusted supplier, and AEC began the full-fledged mass production of controllers at its plant in China last year. Transmitter Key and Engine Start Systems AEC is carrying out the development and production of various devices integrating its abundant wireless, miniaturization, and weight-reducing technologies. These systems provide added convenience for users and greater ease in locking and unlocking doors and starting the engine. Components for Eco-Friendly Vehicles AEC conducts the mass production of cell monitoring units, electricity leakage sensors, and other devices for use in electric vehicles (EVs). This segment will continue to develop products that contribute to higher levels of energy and fuel efficiency while creating technologies and products for EVs in the power management and power conversion fields. 40 Omron Corporation Integrated Report 2012 41 SEGMENT INFORMATION Social Systems, Solutions and Service Business (SSB) Providing solutions and services for cotributing to a safer and more secure, and comfortable society 売上構成比 % of Net Sales 9% 9% Omron Social Solutions Co., Ltd. (SSB), provides various equipment, systems, and services to support secure and comfortable living environments and a safe social infrastructure. Fiscal 2011 in Review Sales and income were down due to the stagnant domestic economy and sluggish capital investment in the railway industry. In fiscal 2011, SSB net sales were down 10.4% year on year, to ¥57.2 billion, and operating income was ¥0.1 billion, compared with ¥1.7 billion in fiscal 2010. In the railway infrastructure business, demand weakened during the first half of the fiscal year as a result of the curtailing of capital investment among railway companies that were heavily impacted by the Great East Japan Earthquake. While sales of safety and security solutions centered on remote monitoring systems increased during the second half of the fiscal year, capital investment demand from railway companies failed to recover to pre-earthquake levels. As a result, full-year sales dropped in this business significantly. The traffic control and road control systems business benefited from income from the deliveries and related installation of products scheduled for the end of fiscal 2010 that were delayed due to the Great East Japan Earthquake. However, the stagnancy in the domestic economy led to sluggish sales overall. The Environmental Solutions Business HQ marked the smooth launches of energy-saving, creating, and storing businesses. In the related maintenance business, strong sales continued, as demand for solar power generation products increased and related installation expanded substantially. SSB Results and Forecast Fiscal Year Net sales Domestic Overseas Americas Europe Asia Pacific Greater China Direct exports Operating income 2008 2009 2010 2011 72.3 70.7 1.6 0.0 0.0 0.0 0.0 1.6 5.2 58.0 57.5 0.5 0.0 0.0 0.0 0.0 0.5 2.7 63.8 63.1 0.7 0.0 0.0 0.0 0.0 0.7 1.7 57.2 56.9 0.3 0.0 0.0 0.0 0.0 0.3 0.1 (Billions of yen) 2012 (Forecast) 60.0 59.0 1.0 0.0 0.0 0.0 0.0 1.0 1.0 Operating income margin 7.2% 4.6% 2.6% 0.2% 1.7% R&D expenses Depreciation and amortization Capital expenditures* — — — 2.9 1.4 1.2 3.0 1.7 1.0 2.2 1.1 0.9 * From fiscal 2009, the Companies adopted the Accounting Standards Codification No. 280, “Segment Reporting.” The Company’s business segments have been reclassified from the third quarter of fiscal 2009. Accordingly, the segment information figures for fiscal 2008 have been restated to conform with the current year’s presentation. * Beginning in fiscal 2010, the Omron Group has been revising the management guidance fees for the purpose of concentrating capital funds at the headquarters to reinforce selection and concentration and strategically allocate resources. This inclusion has had an effect on the operating income of each segment. * Fiscal 2008 figures for R&D expenses, depreciation and amortization, and capital expenditures have not been stated due to the new segment organization. * The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income including internal income prior to the deduction of such amounts as intersegment transactions and head office expenses that are not apportionable. * The forecast for R&D expenses, depreciation and amortization, and capital expenditures is not publicized. Check it out! Analysis of external environment [Reference] Changes in the number of rail transport passengers (year on year) Private Railways Total JR Railway Company （%） 10 8 6 4 2 0 –2 –4 –6 –8 –10 3 2011 4 5 6 7 8 9 10 11 12 1 2 3 2012 （Month） Source: “Rail Transport Overview”, Ministry of Land, Infrastructure, Transport and Tourism SSB’s business covers a broad range of social fields, and there are no specific economic indicators that link closely to performance. In the railway segment, for example, SSB’s sales are strongly influenced by customer budgets for IC card equipment installation and new railway and station construction plans. During fiscal 2011, travel dropped following the Great East Japan Earthquake, and capital investment in this area was influenced accordingly. However, these conditions showed recovery beginning in March 2012. Kiichiro Kondo Managing Officer President and CEO Omron Social Solutions Co., Ltd. Business Strategy and Outlook for Fiscal 2012 Profit structure reforms and accelerated growth in business development will generate increases in sales and income. In fiscal 2012, we are projecting a 4.9% year-on-year gain in SSB net sales, to ¥60.0 billion, and a ¥0.9 billion rise in operating income, to ¥1.0 billion. Existing businesses, such as those related to stations, railways, traffic control, and road control, will face the continued curtailment of capital investment. In this environment, we will advance the profit structure reforms undertaken in fiscal 2011, striving to generate income to be reinvested in growth areas. Going forward, we will further accelerate growth by investing this income in environment-related businesses and reinforcing our strong engineering capabilities as well as by bolstering our lineup of unique solutions that meet market needs. In developing environment-related businesses, we will focus on the following three growth drivers. Working together with the Environmental Solutions Business HQ, SSB will expand its business operations in this area centered on engineering fields, such as system design, installation, and maintenance. 1. Energy creation: We will introduce remote monitoring services for solar power generation systems that bundle design and installation services together with maintenance and inspection and establish a business model for providing one-stop service for solar power solutions. 2. Energy storage: Focused on electricity storage systems, we will realize optimal energy systems that link energy creation with energy saving to manage peak-hour energy usage and realize other benefits. 3. Energy saving: We will provide services related to the construction, operation, and maintenance of systems that monitor and automatically control electricity usage. What’s New SSB Receives Minister of State for Special Missions’ Excellence Award SSB received the Minister of State for Special Missions’ Excellence Award at the 2011 Barrier-Free Promotion Contributor Awards, which was the 10th occasion of this event. This award is presented to individuals or organizations that have made significant contributions to the promotion of barrier-free universal design. The goal of the award is to encourage such superior barrier-free universal design initiatives that assist in making society safer and more comfortable for everyone, including seniors, people with disabilities, pregnant women, and people with children. SSB received this award in recognition of its efforts to make the automated ticket vendors and ticket gates in train stations easier to use for all passengers, including seniors and people with disabilities, by employing universal design concepts. Another factor considered was SSB’s contribution to developing barrier-free design guidelines for automated ticket vendors. These guidelines are not only applied to in-house development but have also been made available to the entire industry. Automated ticket vendor employing universal design concepts Intelligent Image Monitoring System: SS Vision SS Vision is a new image monitoring system that combines image recording and replay functions with image enhancement functions. This system enables the improved efficiency of image monitoring operations, which are on the rise, while reducing growing security risks. Moreover, this system is equipped with various image analysis engines, including those for facial recognition and license plate identification, and thus can be used in a wide variety of applications. Real Time Translation Application: TranScope TranScope is a convenient smartphone application that serves as a valuable asset in overcoming language barriers when traveling abroad. The application allows text to be translated by reading the text through the smartphone’s camera, making it highly viable in a variety of situations, whether in transit on trains or buses or at restaurants when reading menus. This application is compatible with Japanese, Korean, Chinese, and English. * Image recording functions that employ LECRE Inc.’s ArobaView system * The application is currently under development, and we plan to begin sequentially launching versions for different language pairs starting in fall 2012. 42 Omron Corporation Integrated Report 2012 43 SEGMENT INFORMATION Healthcare Business (HCB) Providing health and medical devices and services for homes and medical institutions 10% 売上構成比 % of Net Sales 10% Kiichiro Miyata Managing Officer President and CEO, Omron Healthcare Co., Ltd. Omron Healthcare Co., Ltd. (HCB), is aiming to expand business with a focus on emerging economies by developing innovative products and services to enable people around the world to accurately and easily monitor their health status. Fiscal 2011 in Review Sales were unchanged in Japan due to the Great East Japan Earthquake, but strong overseas sales growth drove overall sales increases. HCB net sales rose 3.0% year on year, to ¥62.4 billion, while operating income decreased 28.4%, to ¥2.9 billion in fiscal 2011. Domestic sales were up 1.3%, to ¥27.2 billion. The market for home-use healthcare devices contracted notably during the first half of the fiscal year as a result of the electricity-saving efforts and the declines in consumer spending that were inspired by the impact of the Great East Japan Earthquake, and consequently sales were sluggish. In the second half of fiscal 2011, sales of new home-use healthcare devices, such as thermometers, body composition monitors, and activity monitors, proved to be favorable and we were able to expand our market share. In equipment for use in medical institutions, the world’s first visceral fat monitor to employ Omron’s dual impedance analysis method posted sales growth. Conversely, capital investment was limited in the hospital market due to the influences of the earthquake, which resulted in weak sales of physiological monitors, a core product. As a result of the above, overall sales in Japan were relatively unchanged in fiscal 2011. Overseas sales were up 4.4%, to ¥35.2 billion. Rising healthcare awareness contributed to brisk demand for healthcare devices, and performance in the first half of fiscal 2011 was consequently strong. Sales were particularly impressive in China, Central and South America, Southeast Asia, and the Middle East. In the second half of the year, economic slowdown in China and North America adversely affected sales, but full-year sales still showed an increase. HCB Results and Forecast Fiscal Year Net sales Domestic Overseas Americas Europe Asia Pacific Greater China Direct exports Operating income 2008 2009 2010 2011 63.6 28.1 35.5 12.0 14.3 2.1 6.7 0.4 4.8 63.4 29.6 33.8 10.8 12.7 2.3 7.4 0.7 7.1 60.6 26.9 33.7 10.2 12.2 2.5 8.0 0.8 4.1 62.4 27.2 35.2 9.8 13.0 2.9 8.6 0.9 2.9 (Billions of yen) 2012 (Forecast) 67.5 29.5 38.0 10.5 13.5 3.5 9.5 1.0 4.0 Operating income margin 7.5% 11.1% 6.7% 4.7% 5.9% R&D expenses Depreciation and amortization Capital expenditures* — — — 5.0 1.3 1.5 5.0 1.2 4.7 5.1 1.5 2.8 * From fiscal 2009, the Companies adopted the Accounting Standards Codification No. 280, “Segment Reporting.” The Company’s business segments have been reclassified from the third quarter of fiscal 2009. Accordingly, the segment information figures for fiscal 2008 have been restated to conform with the current year’s presentation. * Beginning in fiscal 2010, the Omron Group has been revising the management guidance fees for the purpose of concentrating capital funds at the headquarters to reinforce selection and concentration and strategically allocate resources. This inclusion has had an effect on the operating income of each segment. * Fiscal 2008 figures for R&D expenses, depreciation and amortization, and capital expenditures have not been stated due to the new segment organization. * The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income including internal income prior to the deduction of such amounts as intersegment transactions and head office expenses that are not apportionable. * The forecast for R&D expenses, depreciation and amortization, and capital expenditures is not publicized. Check it out! Analysis of external environment Changes in domestic electronics market (blood pressure monitors) (Billions of yen) 2.5 2.0 1.5 1.0 0.5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY2010 FY2011 Omron Products Other Products Source: GfK Sales of blood pressure monitors were brisk in the second half of the year after dipping briefly in the first half due to the impact of the Great East Japan Earth- quake. 44 Omron Corporation Business Strategy and Outlook for Fiscal 2012 Markets in emerging countries are expected to continue expanding. For HCB, we forecast a gain of 8.1% year on year in net sales, to ¥67.5 billion, accompanied by a 37.1% increase in operating income, to ¥4.0 billion, in fiscal 2012. Improved standards of living, the adoption of Western diets, and other lifestyle changes in emerging countries, such as China and India, as well as those in Central and South America, have resulted in growing trends in lifestyle diseases. We anticipate these trends will result in the continued expansion of healthcare device markets in these countries. To capture this demand, we are strengthening sales systems on a global basis and enhancing our network of distributors, pharmacies, drugstores, and other sales channels. Also, we will introduce into these emerging countries new products that meet the individual needs of specific countries. Through these efforts, we will work to accelerate sales growth. In developed countries, sluggish consumer spending and limited capital investment among medical institutions is forecasted. Regardless, we will work to develop new markets in Japan. To this end, we will introduce sleep sensors and WellnessLink-compatible products in the home-use healthcare device market and launch the Medical LINK blood pressure management service for the medical devices market. What’s New Start of Sleep Sensor Business In April 2012, the HSL-001 sleep duration tracker, a device that helps users correct their internal body rhythms, was released. This was subsequently followed by the May launch of the HSL-101 sleep sensor, which measures sleep conditions when placed bedside, marking the full-fledged start of our sleep sensor business. The HSL-001 sleep duration tracker determines when users drift into sleep and then records their sleep time. By transferring the recorded data to a specialized sleep rhythm recording application for Android smartphones, users can easily track data and confirm variances in their sleeping and waking times. The HSL-101 sleep sensor can be used simply by placing it next to one’s bed. The built-in radio wave sensor tracks the user’s movements in bed, including that of their chest, and determines whether they are asleep or awake. This is the first device in Japan to allow sleep conditions to be measured with zero contact and zero restraint. Further, data can be transmitted to the WellnessLink health management service, which will display sleep trends classified into three categories of sleep depth and provide reports analyzing sleep trends. In these ways, this device helps improve sleep quality. Together with exercise and diet, sleep is a factor that must be considered for preventing and improving lifestyle diseases. By evolving our lineup of products and services in this area, we will assist customers in improving sleep quality and comfort into the future. HSL-001 sleep duration tracker Sleep-depth graph measured by the HSL-101 sleep sensor HSL-101 sleep sensor Omron’s Visceral Fat Monitor System: HDS-2000 DuALSCAN HDS-2000 DUALSCAN is the world’s first visceral fat monitor to employ Omron’s proprietary dual impedance analysis method. This system enables medical institutions to safely and easily measure visceral fat volumes. As X-ray or CT scans used to be necessary to measure visceral fat, this monitor is a safer option because it does not involve exposure to radiation. Also, it is faster than conventional methods. Omron Body Composition Monitor: HBF-214 This glass body composition monitor features a slim design with a width of only 28mm, indicating it can safely be stored even in tight spaces. Equipped with such basic features as body fat percentage and visceral fat level measurements, this device is optimal for household health management. Omron Activity Monitor Calorie Scan: HJA-311 The HJA-311 is more than just a pedometer; it is an advanced activity monitor equipped with communications functions that enable it to measure the total amount of calories burned throughout a day. When linked with a specialized application, “Yurupika Diet,” for Android smartphones, this device can provide more comprehensive support in achieving monthly weight loss goals. Moreover, the HJA-311 indicates to users when they have earned the right to reward themselves with sweets or some other diet deviation, thus helping raise motivation. Integrated Report 2012 45 SEGMENT INFORMATION Other Businesses Several other business incubation operations under the direct control of the Company president 9% 売上構成比 % of Net Sales 9% The main objective of operations in the Other segment is to undertake incubation activities for future business expansion. The Other segment advances business in future growth areas, including the environmental field, where energy-conservation and CO2-reduction needs are expected to continue growing, and the expanding smartphone market. Fiscal 2011 in Review Solar power conditioners and backlights for smart- phones contributed positively to sales. In the Other segment, net sales increased 7.8% year on year, to ¥53.5 billion, and operating loss improved, from ¥4.7 billion in fiscal 2010, to ¥3.6 billion in fiscal 2011. The Environmental Solutions Business HQ registered low sales during the first half of the year due to the impact of component procurement difficulties following the Great East Japan Earth- quake. In the second half of the year, the energy-saving compo- nents and services business grew thanks to a rise in sales of systems for monitoring electricity usage in response to the requests for electricity conservation posed by the government and power companies in light of the impact of the earthquake. Sales volumes of solar power conditioners (energy-creation business) also expanded, as we actively introduced new prod- ucts in this line, a move taken in consideration of the growing attention for solar power as an alternative power source. As a result, full-year sales were strong. In the Electronic Systems & Equipments Business HQ, sales of industrial-use computers and contract manufacturing and the development of electronic devices were weak, as customers modified or scaled back investment plans due to the earthquake. However, demand for uninterruptible power supply units to manage power supply concerns continued to increase. As a result, overall sales remained essentially unchanged from the previous fiscal year. The Micro Devices Business HQ experienced weak sales due to a decline in demand for contract semiconductor manufactur- ing and custom integrated circuits for consumer products and industrial use. In the Backlight Business, we actively addressed demand in the firmly established smartphone market, while automotive-use LED backlights experienced stable demand. Accordingly, sales were solid throughout the year. Other Businesses Results and Forecast Fiscal Year Net sales Domestic Overseas Americas Europe Asia Pacific Greater China Direct exports Operating income (loss) Operating income margin R&D expenses Depreciation and amortization Capital expenditures* 2008 2009 2010 2011 50.2 30.5 19.7 0.0 0.0 0.0 17.0 2.7 (7.3) — — — — 43.6 24.7 18.9 0.0 0.0 0.0 17.5 1.3 (5.8) — 1.7 1.2 1.1 49.7 27.5 22.2 0.0 0.0 0.0 20.7 1.5 (4.7) — 2.5 1.2 1.9 53.5 29.5 24.0 0.0 0.0 0.0 22.6 1.4 (3.6) — 2.8 0.9 2.1 (Billions of yen) 2012 (Forecast) 59.0 29.0 30.0 0.0 0.0 0.0 28.0 2.0 (2.0) — * From fiscal 2009, the Companies adopted the Accounting Standards Codification No. 280, “Segment Reporting.” The Company’s business segments have been reclassified from the third quarter of fiscal 2009. Accordingly, the segment information figures for fiscal 2008 have been restated to conform with the current year’s presentation. * Beginning in fiscal 2010, the Omron Group has been revising the management guidance fees for the purpose of concentrating capital funds at the headquarters to reinforce selection and concentration and strategically allocate resources. This inclusion has had an effect on the operating income of each segment. * Fiscal 2008 figures for R&D expenses, depreciation and amortization, and capital expenditures have not been stated due to the new segment organization. * The sales figures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income including internal income prior to the deduction of such amounts as intersegment transactions and head office expenses that are not apportionable. * The forecast for R&D expenses, depreciation and amortization, and capital expenditures is not publicized. Check it out! Analysis of external environment Smartphone unit shipment volume trend and forecasts (Million units) 45 （%） 100 80 60 40 20 30 15 0 *PHS, data transmission cards, and communications modules not included Source: MM Research Institute data The proliferation of smartphones is expected to expand the backlight market for high-end liquid-crystal panels. Business Strategy and Outlook for Fiscal 2012 The smartphone market will continue to expand and conditions will be favorable for environment-related businesses. In the Other segment, in fiscal 2012 we are forecasting a 10.2% year-on-year rise in net sales, to ¥59.0 billion, and a decrease in operating loss, from ¥3.6 billion, to ¥2.0 billion. Conditions will be favorable for the Environmental Solutions Business HQ in fiscal 2012 as a result of the July 2012 launch of a government system under which all electricity generated using renewable energy sources will be purchased and a related subsidy system. Taking advantage of these conditions, we will target higher domestic sales of solar power conditioners and a larger share of this market. Also, we anticipate growth in the energy-saving components and services business thanks to this business’s ability to provide the type of electricity-saving solu- tions for which demand has been growing since 2011. In addition, we will further expand the scale of operations by developing comprehensive energy solutions businesses that combine energy saving, creation, and storage to respond to demand for business continuity plans and other social needs. The Electronic Systems & Equipments Business HQ will work to expand sales of industrial-use computers and contract manu- facturing and the development of electronic devices. At the same time, with the aim of boosting sales, we will bolster our lineup of uninterruptible power supply units, which are register- ing increases in demand due to concerns regarding electricity shortages. In the Micro Devices Business HQ, demand for custom integrated circuits and other existing products will likely remain at the same level as in fiscal 2011. However, we will target sales expansion in the growing market for micro electrical mechanical systems (MEMS) microphones and sensors. In the Backlight Business, we will continue to focus develop- ment on making slimmer and brighter products for use in the high-resolution liquid-crystal displays of smartphones and are thus forecasting higher sales in this business. Moreover, we will advance the automation and boost the productivity of production lines for mass-produced products while simultaneously reducing costs in the pursuit of improved profitability. What’s New Helping Solar Power Systems Stabilize Generation Volumes and Supporting Maintenance with Monitoring Services Solar power continues to gain attention as a means of preventing global warming and as an alternative source of electricity that can be used to combat electricity shortages, such as those that occurred in Japan during 2011. As such, the solar power market is expanding with each coming year. Further market growth is anticipated following the July 2012 launch of a government system under which all electricity generated using renewable energy sources will be purchased and the resulting rise in demand for methods of realizing local production and consumption of electricity. In July 2012, Omron launched a new service that supports this market by utilizing remote monitoring to provide an integrated system for monitoring the operation of solar power systems and managing on-site maintenance. The remote monitoring of solar power systems allows generation efficiency and malfunctions to be tracked in real time; should a malfunction occur, the details of this disturbance can be quickly confirmed, thus enabling the speedy procurement of necessary parts and facilitating timely repairs, replacement, and other maintenance procedures. This consequently limits generation losses while helping solar power systems operate stably for longer periods of time. 09 10 11 12 13 14 15 16 (FY) 0 Forecast Smartphone unit shipments [left axis] Feature phone unit shipments [left axis] Shipment ratio of smartphone units to feature phone units [right axis] Backlights Business Four-Inch Backlight for High-End Smartphones Our four-inch backlights realize higher levels of brightness and efficiency while providing more uniform lighting and enabling slimmer bodies of smartphones and narrower frames. Electronic Systems and Equipment Business uninterruptible Power Supply units: BY-S Series The BY-S Series of sine wave output uninterruptible power supply units features units that are both compact and affordable and can be used safely with PCs and servers. By introducing a lineup of products with maximum capacities ranging from 350VA to 1200VA, we will further invigorate the uninterruptible power supply unit market. Micro Devices Business MEMS Absolute Pressure Sensor Omron has developed an absolute pressure sensor capable of accurately detecting 50cm altitudinal variations through highly precise sensing of air pressure fluctuations. The Company will promote the usage of this sensor, which is among the world’s most accurate and power efficient, in smartphones and activity monitors. 46 Omron Corporation Integrated Report 2012 47 Intellectual Property Strategy Enhancing Profitability and Promoting Business Growth The Intellectual Property Center defends high-value technical assets to boost the Group’s competitive strengths and protects and effectively utilizes the Company’s patents, brand names, and expertise to maximize the Omron Group’s long-term corporate value. The Center raises the success rate of the Group’s business activities and contributes to enhancing the profitability and promoting the business growth of the Omron Group. Establishment and Implementation of the Omron Intellectual Property Guidelines connecting our vertical businesses horizontally by leveraging our intellectual property strengths. Omron has established Omron Intellectual Property Guidelines based on the Management Principles to serve as guiding principles and judgment criteria for the execution of activities related to intellectual property. In addition, under the Intellectual Property Policy, derived from the Omron Intellectual Property Guidelines, the Company formulates an intellectual property strategy that is consistent with its business and technical strategies and implements the strategy. INTELLECTUAL PROPERTY GUIDELINES 1. Create high-quality intellectual property 2. Aggressively utilize intellectual property 3. Respect, protect, and manage intellectual property 4. Recognize Omron’s strengths are based on intellectual property Intellectual Property Activities Contributing to Business The Intellectual Property Center prioritizes and determines the degree of importance of research projects, in accordance with our business strategies, and carries out the formulation of intellectual property strategies in a focused manner, with the objective of contributing to business through the efficient and effective use of management resources. Investments are made from the near-term perspective of strengthening current core businesses and from the long-term perspective of advancing in the direction of next-generation technological innovation to create new business while ensuring that the core businesses will remain vital in the future. The center also identifies and analyzes technological trends in new markets, such as environmental businesses, to ensure the Company is fully prepared to create an Omron-style business using fundamental Omron technology and respond swiftly to business opportunities that may appear when the markets begin expanding. The Center contributes to the growth of our business value over the long term through intellectual property by strengthening internal coordination to respond to rapidly changing market conditions, accurately assessing our core technologies, creating a matrix of our businesses and technologies, and thus Intellectual Property and R&D-Related Data Promoting Globalization of Intellectual Property Capabilities The globalization of our intellectual property has been advancing ahead of the Omron Group’s Hyper-Global business development. Our Singapore headquarters, in particular, is positioned as a hub that is capable of consolidating patent applications and filings for those innovations created by the Group globally. At the same time, we are bolstering the functions necessary to support intellectual property activities in general in the Asia Pacific region, which is anticipated to experience rapid market growth. In China, we have expanded both in production and development and are establishing intellectual property functions to support localized innovation. With the aim of greatly enhancing our intellectual property capabilities in China, we are providing intensive training for Chinese staff to cultivate local intellectual property management and specialist staff. Similar training and staff development programs are being conducted at local affiliated companies in the United States. We are making steady progress in fortifying our foundation for global intellectual property through the active cultivation of staff at all our global operating sites who can contribute to the Group’s business success with intellectual property expertise. We are also establishing a global intellectual property management system and reducing intellectual property risks to achieve results that are the key components of strong global intellectual capabilities. Intellectual Property Holdings in Japan and Overseas Trademark rights 12% Design rights 12% Patent rights, Utility model rights 27% Total number of intellectual properties Over- seas held: 10,704 (as of the end of Japan fiscal 2011) Patent rights, Utility model rights 29% Design rights 10% Trademark rights 10% Fiscal Year Number of patents Applications Approvals Total patents R&D expenses (billions of yen) R&D expense / Sales ratio 48 Omron Corporation 2007 1,255 943 5,717 515 2008 1,119 826 5,205 489 2009 794 730 5,218 378 2010 901 753 5,452 413 2011 1,068 915 5,959 421 6.7% 7.7% 7.2% 6.7% 6.8% R&D Fostering Innovation through Sensing and Control The Omron Group conducts R&D in line with a medium- to long-term technology strategy designed to cultivate and strengthen the Group’s technologies. Sensing and control, our strengths and core competences, are at the center of our technology strategy. Adopting a Companywide perspective, the corporate R&D laboratories that constitute our technology headquarters handle the development of basic technology, while individual business divisions pursue applied technological and product development. We prioritize the allocation of R&D expenses toward our mainstay businesses, Industrial Automation Business and Electronic & Mechanical Components Business, aiming to reinforce their product development and manufacturing technologies. Also, we are pursuing proactive R&D initiatives in the growth business areas of healthcare and the environment. Core Technologies: What is Sensing & Control Technology? This is technology used to identify and gather the special data that is needed by people or a system and then rapidly and skillfully processed to provide valuable information. Omron seeks to create machines with capabilities approaching the level of the five senses, knowledge, and power of judgment of humans with the objective of realizing machines that can provide optimal service and data to each individual customer. Monitoring Human will and thoughts Human body data Location and condition of a person or object Simulation data Gathers only the required data IN Sensing & Control Industry Safety and Security Conversion into value OUT Value Environment Society Specified data of a person or object Small Fast Easy Highly reliable Efficient Optimal Health Lifestyles Natural environment Integrated Report 2012 49 R&D Fostering Innovation through Sensing and Control Automotive Electronic Components Business (AEC) To make automobiles more comfortable and fuel efficient, we are moving forward with the development of electrically driven power steering control technology. Through this technology, which provides steering force assistance, we strive to further enhance product quality. Electronic and Mechanical Components Business (EMC) Omron uses high-precision electroformed contacts formed with electroplating methods for the battery connectors found in mobile phones. This approach enables the development of microminiaturized connectors with modifiable terminal shapes and superior properties, which had been difficult to realize using conventional press processing techniques. Automotive Electronic Components Business (AEC) Social Systems, Solutions and Service Business (SSB) Social Systems, Solutions and Service Business (SSB) In this business, Omron develops remote monitoring systems, human detection sensors, and camera systems. These products contribute to safety and security at next-generation train stations and help ensure passenger safety. Electronic and Mechanical Components Business (EMC) Sensing & Control Healthcare Business (HCB) In accordance with our mission “to help realize health and comfortable life for people around the world,” we endeavor to develop health-oriented products that deliver new value. For example, we were the first organization in the world to provide medical equipment for measuring the percentage of visceral fat simply and safely, without exposing patients to the risks attendant to bombarding visceral fat areas with X-rays. Healthcare Business (HCB) Industrial Automation Business (IAB) We provide Sysmac—the world’s fastest machine controller that uses communication technology to connect control devices swiftly and employs programming software designed to international standards—as well as vision sensors and other devices. These offerings contribute to higher productivity for plant equipment and facilities as well as gains in product quality. Industrial Automation Business (IAB) Other Businesses Other Businesses One of the VG2020 strategies involves the environmental business. In this area, we have developed power conditioners for solar power with built-in multiple-unit Anti-Islanding COntrol Technology (AICOT). We are also working to develop ultracompact sensor devices with environmental and health applications. Based on semiconductor technologies, these devices are used to sense temperature, airflow, and pressure. 50 Omron Corporation Integrated Report 2012 51 The Omron Principles and CSR Management Living up to the Corporate Core Value of “Working for the Benefit of Society” Maintaining Honest Dialogue with Stakeholders to Build Relationships of Trust Corporate Motto and the Omron Principles Corporate Motto The Omron Principles At work for a better life, a better world for all Corporate Core Value Working for the benefit of society Management Principles • Challenging ourselves to always do better • Innovation driven by social needs • Respect for humanity Management Commitments • Respect for individuality and diversity • Maximum customer satisfaction • Relationship-building with shareholders • Awareness and practice of corporate citizenship Guiding Principles for Action • Quality first • Unceasing commitment to challenging ourselves • Integrity and high ethics • Self-reliance and mutual support Corporate Core Value: “Working for the Benefit of Society” On May 10, 2006, in honor of Omron’s Founda- tion Day, the Company announced its new corporate principles: the Omron Principles. The new principles were established to respond to the change in values society requires from companies as well as Omron’s drive to promote business globally. According to the Omron Principles, “working for the benefit of society” is positioned as the corporate core value that describes the true purpose of the Omron Group’s existence. The underlying philosophy of these principles is that a company’s reason for existence is to serve society, and only companies that add value and meet social needs can earn trust and confidence from society as good corporate citizens and thus successfully continue to survive as businesses. The core value reemphasizes the Company’s commitment to offering benefits for society while also clearly stating Omron’s determination to promote business management that emphasizes value for stakeholders that comprise society. in turn, spending more than three hours at each location explain- ing to local executives the concepts behind the Omron Principles and their implementation. These meetings, which include involved discussions on the content of the Omron Principles, assist in con- firming mutual understanding. The meetings are being held at 30 overseas and three domestic locations and involve approximately 300 participants. The managers who attend these meetings subsequently discuss this content with their subordinates to instill the Omron Principles throughout the Group. To deepen employees’ understanding of the Omron Principles that have carried on for half a century, we have created a comic book, the Kazuma Tateishi Story, introducing our founder’s personal background and his struggles to create new business- es. We distribute the book to employees at overseas locations. The story has already been translated into English, Malay, Thai, Vietnamese, Indonesian, Hindi, and Chinese. We added Korean to this list in 2011. The comic book has proved to be an effective tool for helping overseas employees understand the Omron spirit. Instilling “Management Commitments” and “Guiding Principles for Action” through Two Guidelines To ensure the fundamental CSR concepts specified in the Management Commitments are being thoroughly practiced by all Group employees, Omron has formulated two guidelines. The CSR Practice Guidelines establish a code of conduct outlining the societal responsibilities of each organization in the Omron Group. The second guideline, Implementing the Guiding Principles for Action, details specific actions expected of all employees in the course of their everyday activities and constitutes Guiding Principles for Action for the corporate philosophy. We distribute both guidelines to all employees in Japan, and we are striving to instill and entrench them through our CSR-based concept of our corporate core value, “working for the benefit of society.” To cultivate employee understanding, work- place meetings are held once each year to confirm and debate the content of these guidelines. We have translated these two guidelines into 25 languages so that they can be put into practice on a global basis. Activities to Instill the Corporate Philosophy Omron conducts activities to instill its corporate philosophy in Japan and overseas. Between 2011 and 2012, Omron’s chairman and vice chairman are visiting the sites of each of the Company’s global operations, 52 Omron Corporation CSR Management Basic CSR Policy While remaining true to the basic spirit of our corporate motto and corporate core value, as expressed in our Management Commitments we manage our business in a way that emphasizes the importance of honest dialogue with shareholders to forge relationships of trust. CSR Practice Policies Framework of CSR Activities • Contribute to a better society through business operations. Continuously offer advanced technologies and high-quality products and services by stimulating innovation driven by social needs. • Show a commitment to addressing societal issues as a Business concerned party. Address issues such as human rights, the environment, diversity, and community relations in a way that draws on Omron’s distinctive strengths. • 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, regulations, and social rules but also through increased accountability. Integrating CSR Promotion under Our Management Strategy Society Environment Corporate Governance/ Internal Controls • Compliance • Maintenance of corporate ethics • Information disclosure • Risk management In fiscal 2011, Omron formulated a new long-term strategy, VG2020, centered on a CSR perspective, thereby integrating CSR and over- all strategies. At this time, we transferred the main functions of the Group CSR Committee to the Executive Council, integrating them with the council’s other responsibilities. The committee was subsequently dissolved on March 29, 2012. Supervisory departments and the CSR-related committees that formerly operated under the Group CSR Committee will continue to take primary charge of individual CSR issues, which we will work to resolve on a Groupwide basis. How We Respond to Individual CSR Issues Individual CSR issues Department in charge Heads of CSR-related committees Innovation driven by social needs Safety assurance for products and services and protection of customers Environmentally conscious business activities Environmental conservation activities Respect for human rights Business divisions, R&D division Business divisions, quality department Business divisions, environment department Personnel department, legal affairs department Companywide quality assurance council Group Environment Committee Central Human Rights Committee Labor standards compliance and respect for individuality and diversity Personnel department Committee for Promoting Employment of People with Disabilities Occupational health and safety Personnel department, legal affairs department Community involvement and social contributions (Corporate citizenship) Personnel department Management of information and intellectual property Competition and fair dealing Prevention of corrupt practices Proper discharge of tax responsibilities, accounting, and investment activities Respect for local communities Legal affairs department, information systems department, intellectual property department Legal affairs department, purchasing department Legal affairs department Finance department Legal affairs department, general affairs department Strict trade management for the maintenance of international peace and security Legal affairs department Prohibition of abuse of corporate position in personal life Legal affairs department, personnel department, investor relations department Overall control of CSR CSR policy, guidelines, and gathering of related information CSR department Occupational Safety and Health Committee Central Disaster Prevention Committee Information Security Management Committee Group Ethical Behavior Promotion Committee Export Management Committee Information Disclosure Executive Committee Integrated Report 2012 53 Framework of CSR activities Business Environment Society Governance Corporate Philosophy and CSR Policy ESG Information on Our Website Observance of International CSR Standards and Guidelines Detailed environmental, social, and governance (ESG) information is provided on our website. upholding the united Nations Global Compact’s 10 Principles http://www.omron.com/about/csr/ The Omron Principles and CSR Policy Reporting from a Social Perspective • The Omron Principles • CSR Policy • Support for the UN Global Compact Reporting from an Environmental Perspective • Environmental Policy, Vision, Targets, and Results • Special Feature on the Environment • Green Omron 2020 and Action Guidelines Omron Eco-Factories, Offices, and Laboratories Environment-Friendly Business Activities CO2 emissions reduction, waste reduction, and lowering consumption of raw materials, reduction of PRTR substances, water conservation, prevention of air pollution, prevention of water pollution Eco-Products Creation of Environment-Friendly Products and Products That Contribute to the Environment Eco-product development, green procurement, product recycling and reuse Eco-Logistics • Responsibility to Employees Respect for individuality, providing growth opportunities for individuals Employment, remuneration, employee work environment support initiatives, and respect for human rights Respect for workers’ rights, occupational health and safety, human resource development Respect for diversity, work-life balance, dialogue with employees • Responsibility to Customers With a primary focus on quality, developing and stably providing products that contribute to the environment, safety, and health Quality assurance, universal design, dialogue with customers • Responsibility to Business Partners Building strong partnerships CSR procurement, dialogue with business partners • Responsibility to Shareholders Building relationships of trust through proactive communications Distribution of profits, dialogue with investors • Responsibility to Communities Activities to contribute to international society as a good corporate citizen Community contribution activities Environment-Friendly Logistics Reducing CO2 and waste emissions from logistics, conserving resources used in logistics Governance Report Eco-Management Incorporating the Environment into Corporate Management Environmental management promotion system, environmental accounting, environmental auditing, environmental risk manage- ment, promoting acquisition of ISO environmental certification Eco-Mind Activities to Promote High Environmental Awareness among All Employees Environmental education and awareness enhancement Eco-Communication Disclosure to Society of Environmental Information and Environmental Contribution Activities Release of environmental information, environmental contribu- tion activities, biodiversity initiatives • Performance Data • Corporate Governance Fair and impartial management Basic policy, corporate governance structure, information disclosure Internal controls • Compliance Respecting laws, regulations, and social norms Promoting compliance activities, compliance education, information security, fair dealings • Risk Management Risk management on a global basis Omron respects such international standards and guidelines as the Universal Declaration of Human Rights, the UN Global Compact, ISO 26000, and the OECD Guidelines for Multinational Enterprises and has formulated CSR Practice Guidelines as a framework for the Groupwide code of conduct. In 2008, Omron declared its support for the 10 Principles of the United Nations Global Compact (UNGC), which are universally accepted principles in the areas of human rights, labor standards, the environment, and anti-corruption. Accordingly, Omron joined the Global Compact Japan Network (GC-JN), a local Global Compact network. In 2011, Omron dispatched its representative to GC-JN to serve as the chief secre- tariat and support the network’s administration. Omron will continue to uphold the UNGC’s 10 principles and sincerely implement them to meet the expectations of stakeholders. August 2012 Omron Corporation Hisao Sakuta Chairman of the BOD upholding the uN Global Compact’s 10 Principles UNGC 10 Principles Omron Group In-House Regulations Status of Activities Human Rights Principle 1 Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2 Principle 3 make sure that they are not complicit in human rights abuses. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; The basic policy for respect for human rights, based on the Universal Declaration of Human Rights, the OECD Guidelines for Multinational Enterprises, and other major international standards, is set forth in the Omron Group CSR Practice Guidelines. In addition, Omron’s respect for the ILO Declaration on Fundamental Principles and Rights at Work is discussed in the Omron Group CSR Practice Guidelines. 2-1-1. Respect for Human Rights 2-1-2. Labor Standards Compliance and Respect for Individuality and Diversity Respect for human rights Responsibility to business partners Respect for diversity Work-life balance Procurement based on CSR principles Principle 4 the elimination of all forms of forced and compulsory labour; Labor Principle 5 Principle 6 the effective abolition of child labour; and the elimination of discrimination in respect of employment and occupation.  Principle 7 Businesses should support a precautionary approach to environmental challenges; The basic policy for environmental protection is specified in the Omron Group CSR Practice Guidelines. Implementation of Green Omron 2020 Environment Principle 8 undertake initiatives to promote greater environmental responsibility; and 2-3. Environmental Protection In 2011, Omron established its “Green Omron 2020,” a new environmental vision. Principle 9 encourage the development and diffusion of environmentally friendly technologies.  Anti- Corruption Principle 10 Businesses should work against corruption in all its forms, including extortion and bribery.  The basic policy for preventing corrupt practices is described in the Omron Group CSR Practice Guidelines. Compliance Responsibility to business partners 2-2-4. Prevention of Corrupt Practices 54 Omron Corporation Integrated Report 2012 55 Special Feature Dialogue: The Importance of having a Corporate Philosophy Earning Stakeholder Trust by Exercising the Omron Principles 03 Hisao Sakuta Chairman of the Board of Directors Omron Corporation One Akiyama President IntegreX Inc. Corporate value comprises both economic and social factors. Sakuta: Why did you decide to establish IntegreX Inc.? Akiyama: I had previously worked at a securities com- pany. It was then that I first encountered the concept of socially responsible investment (SRI), which entails investing in companies that practice socially responsible management. I was deeply inspired by this concept, even to the point of holding in-house workshops. How- ever, I realized that developing SRI fund products would require a more unbiased standpoint from which to evaluate companies. Therefore, I decided to establish a company that investigates and evaluates companies based on corporate social responsibility (CSR). This was the birth of IntegreX. Conducting SRI means investing in companies from a long-term perspective. Economic factors are naturally of importance, but SRI requires more emphasis on social factors, such as whether or not the company displays integrity to its stakeholders and fulfills its responsibilities to society. SRI is centered on the belief that if companies do not properly address such social concerns, they will not be able to grow and develop in a sustainable manner. Sakuta: I believe corporate value comprises two ele- ments: economic factors, such as sales and income, and social factors, including ethics, morals, and just actions. It is easy to become overly focused on the economic factors, which can be dangerous. No matter how high the economic value of a company may be, if it takes actions that damage its social value, the overall corporate value of that company will deteriorate, and it will eventually go out of business. Akiyama: Earning the trust of stakeholders is vitally important for companies. When I first started this busi- ness, I pondered considerably on the subject of a com- pany’s responsibility to society. Through this process, I came to realize the importance of having a corporate philosophy. Omron has defined its corporate philosophy as “Working for the benefit of society.” I understand that you, Chairman Sakuta, have traveled to Omron Group sites around the world to spread awareness regarding this philosophy. These efforts were highly evaluated and Omron was awarded the 2012 Integrity Award Grand Prize from Japan’s Integrity Award Council. A corporate philosophy should be a platform rather than a set of rules. Akiyama: It is of the utmost importance for a company to practice its corporate philosophy through its business activities and reaffirm the value of its existence. For this reason, the corporate philosophy must be understood by and shared among employees, and the philosophy must resonate with employees. When employees feel the corporate philosophy resonates with them, they are able to understand the meaning of their work and take pride in it. Sakuta: In discussions with managers, we start with how they see Omron’s corporate core value of “Working for the benefit of society” and how they are exercising this philosophy in their daily work. Using our strengths in sensing and control technology, we aim to provide solu- tions to social issues relating to safety and security, the environment, and health by realizing “the best matching of machines to people.” We see this as Omron’s respon- sibility to society and our way of “Working for the benefit of society.” Of course, there are differences between how such concepts are viewed by each individual employee and how they are viewed by the Company. Therefore, it is best if we perceive the values promoted by Omron as a broad platform rather than as specific rules. If we are able to make our own values resonate with the platform created through the philosophy of “Working for the benefit of society,” then we can become happy. There may be some people who do not entirely agree with Omron’s values. It is important to try to understand what other people are thinking. Akiyama: Employees feel great joy in their work when the Company shares the same goals as them. Also, a corporate philosophy cannot serve its true purpose if it is 2012 Integrity Award A balance between binding and propelling forces is critical to global expansion. Sakuta: We were honored to receive this award. At Omron, we view making the corporate philosophy known throughout the organization as one of the most important duties of management. Our corporate philosophy is based on the Omron Principles, which were revised in 2006. At the time, the task of communicating these new principles was delegated among the Company’s execu- tives, and we held meetings at sites both inside and outside of Japan. These efforts have been ongoing, and since 2011, Vice Chairman Tateishi and I have held nearly 40 discussions to facilitate the understanding and imple- mentation of the principles in Greater China, Southeast Asia, North America, Europe, and Japan. We talk face to face with site managers for more than three hours. The Omron Principles represent our shared values and consti- tute the binding force of the Company. As we continue to grow on a global scale, balancing this binding force with a propelling force will become increasingly important. Currently, one-half of the Omron Group’s total net sales derive from overseas, and two-thirds of its employees are at overseas sites. Looking ahead, our new long-term vision, Value Generation 2020 (VG2020), calls on us to pursue growth through further globalization. In this pursuit, we have to promote diversity across country and regional borders as well as across religious and ethnic boundaries. However, if we are not careful in developing this diversity, we run the risk of losing the sense of unity within the Company. That’s what the Omron principles are for: serving as a minimal but strong force that keeps us together. I keep reminding managers of the importance of bringing out their subordinates’ creativity in making sure that Omron can continue to be a collection of freethink- ing and free-acting individuals that exercise creativity by sharing a set of values. 56 Omron Corporation Integrated Report 2012 57 03 Dialogue: The Importance of having a Corporate Philosophy not put into practice. Rather, the true value of a corporate philosophy comes into effect when employees begin considering how the philosophy relates to their own work. I am very impressed with the fact that Omron actively practices its corporate philosophy. Borrowings should be returned with interest. Sakuta: Once or twice a month, I visit overseas sites to talk with site managers. I truly enjoy these face-to-face interactions with employees and find them to be very informative. It could be said that all the resources needed to operate a business are borrowed from society. For this reason, at Omron, our basic belief is that the Company belongs to society. The employees, capital, and social infrastructure used in our business are all borrowed from society, thus our responsibility is to return these borrowings with interest. For example, our semiconductor plant in Yasu City, Shiga Prefecture, uses a substantial amount of ground- water. We employ refined water processing techniques to return this water cleaner than what we borrowed. Another example of these efforts can be found at a site in China located in an area with a relatively high rate of employee turnover. The manager of this site told me that even if they knew an employee was going to quit the following day, they would still give the employee the At Omron, we believe the Company belongs to society. Discussion in Chicago, the United States Discussion in Amsterdam, the Netherlands training he or she needed for that day. This manager believed that as a manager of a local subsidiary of Omron, which places an emphasis on “Working for the benefit of society,” it was their responsibility to make sure that everyone who entered the Group left it as a stronger individual. I was very proud to hear this. Akiyama: It is imperative for companies to fulfill their responsibility to today’s society, but they must also work for the society of the future. The future health of a society requires the contributions of the companies that help make up that society. Therefore, the sustainability of society is a key issue. In a similar manner, when cultivating human resources, companies need to take a long-term perspective and work to nurture these individuals in a way that will enable them to benefit the society of the future. Therefore, the sustainability of society is a key issue. In a similar manner, when cultivating human resources, com- panies need to take a long-term perspective and work to nurture these individuals in a way that will enable them to benefit the society of the future. For a company to be respected by society, a company must respect society. Akiyama: As you know, the “R” in “CSR” stands for “responsibility.” However, “responsibility” can sound like something that is forced upon a company or that it is made to do. I feel it would be better to look at “R” as standing for “respect.” A company must pay attention to the various needs and trends in society, respect them, and act accordingly. Respecting society in this manner will ultimately lead to society respecting the company. I believe building this type of relationship is the true goal of CSR. Sakuta: At a European subsidiary, I had a discussion with managers about the type of company they envisioned for Omron. After extensive discussion, they concluded that they wanted Omron to be a trustworthy company. How- ever, there are cases in which we are unable to come through on our promises to customers due to quality defects or other issues. In these cases, it is important we do not simply let the agreements end in broken promises but rather work diligently as a team to make things right. Even in our daily interactions, our response in such situa- tions can have a significant impact on how we are thought of thereafter, which may be the line between being judged as unreliable or proving our reliability. I feel the discussion of such issues by Company representatives at the general manager level in this manner will facilitate Omron’s growth into an even more sound company. Akiyama: Whether in Japan or overseas, there must be consistency between what a company says and what it does. Based on what I have heard so far, it is clear that managers are constantly pondering the proper course for the Company to take and that this process is forming the core of Omron’s strength. Company employees need “excitement and anticipation.” Sakuta: People have a tendency to turn their attention to things that can be seen. However, there are some, people such as musicians and poets, who try to convey messages to the world by expressing their thoughts through intangible mediums. In a company, how we work can greatly influence output. In other words, output is determined by whether or not a company’s employees enjoy their working environment. Akiyama: I call such types of enjoyment “excitement and anticipation.” I also feel it is crucial for companies to exercise the three “I’s”: Integrity, Innovation, and Ichien- yugo (or, “circle of interdependence”). Ichien-yugo is a term coined by Japanese philosopher Sontoku Ninomiya and refers to the belief that everything in the world is interdependent, as if contained within a circle. In this way, two things that appear to be in opposition may actually be supporting each other. There are some prob- lems that can only be resolved by combining the unique strengths of employees and companies or of companies and society. While Sontoku is often thought to be a person that spent his life toiling down a scholarly path, it seems that he actually placed great importance on “enjoyment.” Likewise, if one’s work lacks “excitement and anticipation,” innovation will not arise and the indi- vidual will not grow. Sakuta: I agree. In fact, Omron used “excitement and anticipation” for its long-term visions in the 1990s. We are therefore well aware of the importance of excitement and anticipation. You also mentioned “innovation,” which has a special meaning for us as well. Omron founder Kazuma Tateishi’s favorite words were “innovation” and “creativity.” We at Omron will strive to continue being a company at which all employees can fully exercise their creativity and feel excitement and anticipation. It is crucial for companies to exercise the three “I’s”: Integrity, Innovation, and Ichien-yugo. 58 Omron Corporation Integrated Report 2012 59 Corporate Governance, Internal Control, Compliance, and Risk Management Promoting Sound and Proper Corporate Management Omron is committed to maintaining and exercising a proper corporate governance system while increasing management transparency. To firmly establish a high standard of corporate ethics, we will continue to enhance our compliance system and strengthen the risk management framework that supports ongoing improvement in corporate value. Corporate Governance Basic Policies Auditing Functions Omron is making efforts to fortify its corporate governance based on the belief that the most crucial factor in earning stakeholders’ support is building an optimal management structure and conduct- ing fair business operations while enhancing the mechanism (a supervisory system) for such verification and realizing sustainable growth. In line with this basic policy, Omron has adopted an executive officer system and clearly separates management oversight and business execution. Under an internal company system, Omron is realizing faster decision making and efficient business opera- tions by delegating substantial authority to the president of each internal company. Moreover, autonomous individual business units that can specialize in creating value for customers take the initiative in conducting business. At the same time, through commitment-based management, we clarify roles and responsi- bilities and practice corporate value management based on shareholder value. Management and Oversight Frameworks Omron is a “Company with Board of Corporate Auditors”. The corporate governance regime has a supervisory and observational function pertaining to the actions of the Board of Directors and also involves auditing carried out by the Board of Corporate Auditors. Omron has set the number of members of its Board of Directors at seven to encourage efficient and meaningful discussion. The only members of the Board of Directors who are also involved in business execution activities are the president and CEO as well as the representative director and executive vice president. Furthermore, the business operation monitoring function of the Board of Directors has been strengthened. To increase objectivity in management, the positions of chair- man and president and CEO are separated. At the same time, every effort is made to bolster management oversight functions. The chairman of the Board of Directors monitors business execu- tion activities as a representative of the Company’s stakeholders. Chaired by outside directors, Omron has established the Person- nel Advisory Committee, the President & CEO Selection Advisory Committee, the Compensation Advisory Committee, and the Corporate Governance Committee. In this manner, the Company is working to increase the transparency and objectivity of man- agement’s decision-making process. By incorporating the best aspects of the Companies with Com- mittees system, we have created a type of hybrid corporate gover- nance regime that we feel is the most appropriate for the Company. The Board of Corporate Auditors, composed of four corporate auditors, audits governance practices and monitors the everyday management activities of the Board of Directors and other management staff as well as the nature and operational condi- tions of the corporate governance regime. The Global Internal Auditing Headquarters, which reports directly to the president and CEO, periodically conducts internal audits of accounting, administration, business risks, and compliance in each headquar- ters division and in each business company as part of its internal auditing function. Moreover, the Internal Auditing HQ offers specific advice for improving business functions. Appointment of Outside Executives To allow the Board of Directors to monitor business execution as a representative of the Company’s stakeholders, two of the seven directors are outside directors and two of the four corpo- rate auditors are outside corporate auditors. Emphasizing the independence of outside executives, Omron has formulated its own original Outside Executive Eligibility Criteria in addition to the requirements under Japan’s Corporate Law. Outside executives are selected using these eligibility criteria as our standard. In specific terms to be considered for the position of outside executive, candidates themselves and the companies or organizations they belong to must comply with the seven items that serve as Omron’s selection criteria. Among these seven items, candidates must not have assumed the role of representative or employee of an independent auditor for the Omron Group for five years prior to being nominated and cannot be a major Omron Group shareholder (holding shares that provide 10% or more of total voting rights) or a director, auditor, executive officer, or employee of any legal entity that the Omron Group is a major shareholder of; or a director, auditor, executive officer, or employee of any principal partner or supplier of the Omron Group. The Corporate Governance Committee takes steps to confirm the aforementioned Outside Executive Eligibility Criteria do not pose any problem with respect to determination criteria con- cerning independence formulated by the appropriate securities exchange. After obtaining a resolution of the Board of Directors, notifications are submitted with the appropriate securities exchange for all outside executives as independent officers. Corporate Governance Initiatives 1999 2003 2011 President 1987– President Yoshio Tateishi 2003– President Hisao Sakuta 2011– President Yoshihito Yamada Chairman of the Board of Directors/CEO President serves as Board of Directors’ Chairman and CEO Chairman serves as Board of Directors’ Chairman/President serves as CEO Separation of management oversight and business execution 30 directors 1999~ Number of directors reduced to seven 1999~ Introduction of executive officer system Advisory board Outside directors Outside corporate auditors 1999 Advisory Board One member 2003– Two members (seven directors) One member 1999~ Two members 2003– Three members (four auditors) 2011– Two members (four auditors) 1996– Management Personnel 2000– Personnel Advisory Committee Advisory Committee Advisory committees 2003– Compensation Advisory Committee 2006– President & CEO Selection Advisory Committee 2008– Corporate Governance Committee Corporate philosophy Omron Principles formulated in 1990 Revised in 1998 Revised in 2006 Corporate motto formulated in 1959 Corporate Governance Structure Board of Corporate Auditors Board of Directors Chairman: Chairman of the BOD Shareholders Meeting Corporate Auditors Office Board of Directors Office Accounting Auditor Executive Organization President & CEO Executive Council Personnel Advisory Committee CEO Selection Advisory Committee Compensation Advisory Committee Corporate Governance Committee CSR-Related Committees* Head office divisions Business companies (Internal companies) Internal Auditing HQ * The Group Ethical Behavior Promotion Committee, the Information Disclosure Executive Committee, the Group Environment Committee, etc. Board of Directors (BOD) The BOD oversees business activities and decides important business matters such as management objectives and strategies. Compensation Advisory Committee This committee, chaired by an external director, determines the compensation structure for directors and executive of- ficers, sets evaluation standards, and evaluates current executives. Board of Corporate Auditors This board oversees the corporate governance system and its implementa- tion and audits the day-to-day operations of directors and other executives. Corporate Governance Committee This committee, chaired by an external director, discusses measures to contin- uously enhance corporate governance and increase fairness and transparency in management. Personnel Advisory Committee This committee, chaired by an outside director, sets election standards for directors and executive officers, selects candidates, and evaluates current executives. Executive Council This council determines and reviews important business operation matters that are within the scope of authority of the president. CEO Selection Advisory Committee This committee, chaired by an external director, is dedicated to the nomination of presidents and deliberates on the selection of the new president for the upcoming term and on preparing contin- gency succession plans. Director and Corporate Auditor Remuneration To increase objectivity and transparency, the Compensation Advisory Committee, chaired by an outside director, is consulted on the compensation of directors. This committee discusses the compensation of each individual and makes recommendations. After receiving these recommendations, the amount of compen- sation for each director is determined by a resolution of the Board of Directors, and the amount of compensation for each corporate auditor is determined by discussions among the corporate auditors (resolution of the Board of Corporate Audi- tors). These amounts are within the scope of the aggregate compensation amounts for all directors and all corporate audi- tors, as each has been set by a resolution of the General Meet- ing of Shareholders. 60 Omron Corporation Integrated Report 2012 61 19982001 Fiscal 2011 Director and Corporate Auditor Remuneration (Millions of yen) Classification Number of People Basic Compensation Bonus Total Remuneration Directors (Outside Directors) Corporate Auditors (Outside Auditors) Total (Total for Outside Directors and Auditors) 10 (2) 5 (3) 15 (5) 356 (21) 82 (25) 438 (46) 69 (–) – (–) 69 (–) 425 (21) 82 (25) 507 (46) Compensation amounts listed above include compensation paid to the 3 directors and 1 outside corporate auditor that resigned following the end of the 74th annual shareholders’ meeting held on June 21, 2011. Director compensation consists of basic compensation (monthly salary), bonus, and stock-based compensation.* Outside director compensation consists of basic compensation (monthly salary). Corporate auditor compensation consists of basic compensation (monthly salary). * Stock-based compensation is administered following guidelines specifying set remuneration amounts to be paid on a monthly basis and utilized to acquire Company stock (through a director stock ownership plan), which is then held during the individual’s tenure. Appointments of Directors and Corporate Auditors Personnel Advisory Committee President & CEO Selection Advisory Committee Compensation Advisory Committee Corporate Governance Committee Board of Directors Internal Directors and Auditors Outside Directors and Auditors Position Name Chairman of the BOD Hisao Sakuta Director and Executive Vice Chairman Representative Director and President and CEO Representative Director and Executive Vice President Senior Managing Director Director Director Full-time Corporate Auditor Full-time Corporate Auditor Fumio Tateishi Yoshihito Yamada Yoshinobu Morishita Akio Sakumiya Kazuhiko Toyama Masamitsu Sakurai Soichi Yukawa Tokio Kawashima Corporate Auditor Hidero Chimori Corporate Auditor Eisuke Nagatomo Note: is the chairman Internal Controls Maintaining and operating an internal control system to ensure healthy and effective organizational operations Two types of internal audits to ensure healthy and effective organizational operations Omron has established the Basic Policy on the Maintenance of an Internal Control System to ensure the healthy and effective opera- tion of its organization. This policy provides the basis for the mainte- nance and operation of an internal control system throughout the Omron Group to ensure the controls are functioning effectively in each of the four objective areas of financial report accuracy, legal compliance, operating efficiency, and asset safeguarding. Omron maintains a monitoring system undertaken by the internal audit department after each division and affiliated company conducts its own review of the maintenance and operation of business processes in accordance with the Internal Control Reporting System (J-SOX) requirements of Japan’s Financial Instruments and Exchange Act promulgated in June 2006. The reviews enable each division and affiliated company to deepen their understanding of the internal controls associated with financial reporting and thereby serve as a system for promoting self-governing controls. Omron conducts two types of internal audits to ensure the healthy and effective operation of its organization. The Internal Control Audit is conducted to ensure the internal controls are functioning effectively in each of the four objective areas of financial report accuracy, legal compliance, operating efficiency, and asset safeguarding. The Management Audit examines the solutions and improvement measures implement- ed for specific management issues. In the event the result of these audits includes items recommended for improvement, the Company supports measures to carry out the improvements. In addition, the Omron Group has established a Corporate Auditor Office and placed full-time auditors in each of its four regions of global business (the Americas, Europe, Greater China,* and Asia Pacific) to implement internal audits based on local practices and legal systems at its business sites worldwide. * Greater China includes China, Hong Kong, and Taiwan. Compliance Strengthening global risk management systems Promoting continuous improvement of management on the back of a PDCA cycle Omron’s policy in enhancing information security is to fulfill its responsibilities to stakeholders by appropriately managing confidential information supplied from business associates as well as personal information and its own corporate information to protect from leakage. Within the Company, an Information Security Management Committee was set up as a Groupwide promotional organization after formulating new management rules that reflect basic policy. In this regard, Omron is implementing an integrated management system covering both confidential information and personal information. As a specific activity, and under the promo- tion system led by the committee, Omron has conducted employee education and monitoring to check the status of management at each worksite. Other activities included the implementation of measures based on risk analysis for the leakage of important information and surveys to determine the information security management status of subcontractors on a regular basis. Through these activities, the improvement of information security is sought based on the implementation of a Groupwide PDCA cycle. Each year, management rules are reviewed and revised to reflect changes in the external environment and incorporate findings from worksite monitoring. In fiscal 2011, a new rule was added regarding the use of smartphones and related devices. Overseas, a set of common global rules for information security has been established, with each Group company establishing its own regulations based on the common global rules. Furthermore, information security education is offered at each affiliated company on a successive basis with steps taken to confirm the status of management implementation. Going forward, Omron will continually upgrade and maintain information security management throughout the world. Aiming to promote legal and regulatory compliance across the Group, Omron set up a Group Corporate Ethical Conduct Promo- tion Committee. In recent years, the committee has expanded its activities from the promotion of compliance to quick detec- tion and sharing of risks associated with changes in laws and regulations and other external environment factors as well as such changing internal conditions as the launching of new businesses and entering emerging markets. The committee members consist of corporate ethics officers from each busi- ness company and corporate headquarters division in charge of human resources, general administration, and legal affairs. In fiscal 2011, the Company formulated the Global Crisis Man- agement Rules, which cover a wide range of areas, including reporting channels and response systems in the event of a crisis in Japan and overseas. At the same time, Omron conducted risk analysis at several overseas affiliated companies. Moreover, compliance monitoring activities were undertaken in the person- nel, labor, and other priority risk fields. Affiliated companies in Japan appointed corporate ethics promotion officers in charge of offering compliance education selected from among manager- and higher-ranking employees. A corporate ethics promotion officer meeting is held once a year with these members participating to exchange information regarding the implementation of a plan-do-check-act (PDCA) cycle in accordance with an action plan as well as hosting compliance training. In fiscal 2012, Omron will put in place a business continuity plan (BCP) based on deliberation details undertaken by the Group Corporate Ethical Conduct Promotion Committee in fiscal 2011. At the same time, the Company will strengthen risk man- agement activities focusing mainly on compliance with global statutory and regulatory requirements. Establishing operational regulations with clearly stated provisions for the protection of whistle-blowers In Japan and North America, a whistle-blower hotline is in place inside and outside of the Company for Omron Group executives, full-time employees, and temporary staff as well as their families. The Legal Affairs Department staff handle hotline information within the Company, while an external attorney office serves to accept information. In fiscal 2008, it became possible to contact the hotline or seek advice through the electronic bulletin board on the Company’s intranet in Japan in addition to conventional telephone and e-mail access. In fiscal 2011, a total of 15 hotline contacts were made in Japan and two in North America. In operating the whistle-blower hotline, responses are based on the Group’s CSR Guidelines. These guidelines clearly state strict maintenance of security and the protection of whistle- blowers from any detrimental treatment. Moreover, Omron informs employees of the availability of the hotline through corporate ethics cards, through the intranet, and during new employee training. Ongoing case studies are used to help further the skills of advisors. Omron will continue making the hotline available and improving its response to whistle-blowing. 62 Omron Corporation Integrated Report 2012 63 Risk Management Basic crisis management policies Business Continuity Plan (BCP) Directors, Corporate Auditors, and Executive Officers As of June 21, 2012 A series of events, including the Great East Japan Earthquake on March 11, 2011, as well as the flooding in Thailand in October 2011, reinforced the importance of business continuity amid a crisis to management. Currently, Omron is conducting Groupwide efforts to review its BCP, focusing particularly on prioritizing such critical functions and areas as the head office, headquarters, IT, production, and supply chain management (SCM). According to the Global Crisis Management Rules (established in 1999 and revised in 2011), a “crisis” is defined as any event that has or may have a significant negative impact on the con- tinuation of management and business activities by the Omron Group; or any event that does or may harm the social credibility of the Company. These rules cover a wide range of areas while also outlining basic policies, reporting procedures, and the establish- ment of an Emergency Response Headquarters. Based on the Global Crisis Management Rules, the Company established Disaster Contingency Planning Rules (established in 1999 and revised in 2011) as well as the Product Quality Risk Management Rules (established in 2012). In addition to implement ing response procedures by each type of crisis, Omron is pursuing the compilation of a disaster response manual. Omron is striving to instill a greater awareness and understand- ing of the details of these rules among employees by organizing simulation drills to assist employees in preparing for possible crises. Moreover, the Company provides training sessions for emergency risk communications. The Omron Group initial emergency response manual was prepared by referring to countermeasures taken in past cases and applying knowledge gained through drills. This manual serves as an important reference for the Emergency Response Headquarters in the event of a crisis. Basic Policies of Omron’s Global Crisis Management Rules Taking into consideration the Omron Principles and CSR Guidelines, all Omron Group executives and employees will take swift and appropriate action based on the following basic policies: 1. Place human life and personal safety at the top of the list of priorities. 2. Give high priority to legal/regulatory compliance and respect for social rules (fairness). 3. Minimize the negative impact of crises on customers and society. 4. Curtail the negative impact of crises on Omronʼs business and strive to ensure smooth continuation and quick restoration of business operations. 5. Take necessary measures in a sincere and consistent manner (proper risk communication). 6. Disclose information appropriately and remain accountable (transparency). Back row, from left: Soichi Yukawa Full-Time Corporate Auditor Hidero Chimori Outside Corporate Auditor Kazuhiko Toyama Outside Director Masamitsu Sakurai Outside Director Eisuke Nagatomo Outside Corporate Auditor Tokio Kawashima Full-Time Corporate Auditor Front row, from left: Yoshinobu Morishita Representative Director and Executive Vice President Hisao Sakuta Chairman of the BOD Yoshihito Yamada President and CEO Fumio Tateishi Director and Executive Vice Chairman Akio Sakumiya Senior Managing Director Directors Chairman of the BOD Hisao Sakuta Director and Executive Vice Chairman Fumio Tateishi Outside Directors Kazuhiko Toyama President & CEO of Industrial Growth Platform, Inc. Masamitsu Sakurai Chairman and Executive Officer of Ricoh Co., Ltd. Honorary Chairman Yoshio Tateishi Representative Director and President and CEO Yoshihito Yamada Representative Director and Executive Vice President Yoshinobu Morishita Senior Managing Director Akio Sakumiya Corporate Auditors Full-Time Corporate Auditors Soichi Yukawa Tokio Kawashima Outside Corporate Auditors Hidero Chimori Partner of Miyake & Partners, Attorney at Law Eisuke Nagatomo President & CEO of EN Associates Co., Ltd. 64 Omron Corporation Integrated Report 2012 65 Senior Managing Officer Executive Officers Managing Officers Shigeki Fujimoto Group Earnings Structure Reform Administrator Yoshinori Suzuki President and CEO, OMRON AUTOMOTIVE ELECTRONICS Co., Ltd. Masaki Arao Senior General Manager, Technology & Intellectual Property H.Q. Kiichiro Kondo President and CEO, OMRON SOCIAL SOLUTIONS Co., Ltd. Kiichiro Miyata President and CEO, OMRON HEALTHCARE Co., Ltd. Koichi Tada Company President, Electronic and Mechanical Components Company Masayuki Tsuda (China Resident Officer) Chairman and President, OMRON ELECTRONIC COMPONENTS (SHENZHEN) LTD. Electronic and Mechanical Components Company Hideji Ejima Environmental Solutions Business H.Q. Manager, Business Planning Department, Environmental Solutions Business H.Q. Masaki Teshigahara Technology & Intellectual Property H.Q. General Manager, Intellectual Property Center, Technology & Intellectual Property H.Q. Taiji Sogo Senior General Manager, Strategy Planning Division H.Q., Industrial Automation Company Koji Doi (China Resident Officer) Chairman and President, OMRON (CHINA) CO., LTD. Hisato Takano Senior General Manager, Sales & Marketing Division H.Q., Industrial Components Division H.Q. Industrial Automation Company Takashi Ikezoe Senior General Manager, Industrial Components Division H.Q. Chairman, OMRON (SHANGHAI) CO., LTD. Industrial Automation Company Yoshihiro Taniguchi Representative Director and CEO, OMRON SWITCH & DEVICES Corporation Kiyoshi Yoshikawa Senior General Manager, Global Process Innovation H.Q. Koji Nitto Senior General Manager, Global Resource Management H.Q. Shizuto Yukumoto Senior General Manager, Environmental Solutions Business H.Q. Toshio Hosoi Managing Director, OMRON SOCIAL SOLUTIONS CO., LTD. Shinya Yamasaki Senior General Manager, Automation Systems Division H.Q. Industrial Automation Company Yutaka Miyanaga Senior General Manager, Global Strategy H.Q. Satoshi Ando Senior General Manager, Investor Relations H.Q. Nigel Blakeway (U.S. Resident Officer) Chairman, President and CEO, OMRON MANAGEMENT CENTER OF AMERICA INC. Chairman and President, OMRON MANAGEMENT CENTER OF EUROPE Goshi Oba (China Resident Officer) Chairman and President, OMRON INDUSTRIAL AUTOMATION (CHINA) CO., LTD. Industrial Automation Company Takayoshi Oue Senior General Manager, Accounting and Finance Center, Global Resource Management H.Q. 66 Omron Corporation Integrated Report 2012 67 Special Feature Corporate Governance Working to Enhance Omron’s Corporate Value 04 Interview with Masamitsu Sakurai, Outside Director Exemplified by its unique CEO Selection Advisory Committee, Omron’s robust systems of checks and balances as well as supervision are enhancing the Company’s corporate value. —— What roles do you play within the Company’s Board of Directors and each of its advisory com- mittees as an outside director? When considering why I was selected as an outside director by the Company, I naturally assume that it is because of my common skill set and experience within the manufacturing industry. On second thought, how- ever, Omron is essentially a component and materials manufacturer, while as Chairman of Ricoh Co., Ltd., I oversee the assembly of finished products. Recognizing that manufacturing comes in many shapes and forms, my role then is to provide input from a different perspective within the broad manufacturing domain. Coming from a company that took the path toward globalization a little earlier than Omron’s initial foray, I expect the Company will be looking to draw on my experience and knowledge in this area. Against the backdrop of a harsh operating environment, Ricoh has continued to generate steady increases in revenues and earnings. In hindsight, however, this growth has occurred without implementing the neces- sary fundamentals and foundation. Drawing on past experience, therefore, I see my role as an outside direc- tor to provide advice that may benefit the Company and prevent it from taking the wrong path. In another area, I recognize the importance of Omron’s Personnel Advi- sory Committee in selecting candidates for the positions of director, corporate auditor, and executive officer. I am impressed by the Company’s President & CEO Selection Advisory Committee, an unprecedented initiative, and Omron’s steps to establish a fair and impartial personnel selection system. Coming from outside the Company, however, I see my role as contributing to the overall design of Omron’s systems and determining the types of mechanisms and processes that best fit the Company. —— In recent years, we have witnessed a suc- cession of incidents within the corporate sector, most notably misconduct by senior executives. As an outside director, how are you involved in the Company’s system of director checks and balances and supervision? With each incidence of misconduct, I have felt that the point of initial focus has generally been misdirected. Before questioning whether the external governance is or is not effective, emphasis should be placed on the inter- nal governance. In instances where in-house personnel have a firm grasp on financial and other pertinent infor- mation, abnormal situations are readily uncovered at an early stage. The importance then is on establishing an environment in which any incidence of concern can be openly and freely brought to light. Quite frankly, the need to call on external resources because internal personnel do not want to be whistle-blowers is absurd. In this regard, the attitude and behavior of the president is of paramount importance. When senior executives act in a fair and honest manner, employees will follow suit and behave accordingly. The role of an outside director is therefore to provide input into governance mechanisms, including a company’s checks and balances as well as supervisory systems from a separate perspective. This is the principle to which I strive to adhere. —— What do you believe are Omron’s strengths? There are several. I believe the most impressive strength has been the Company’s genuine and earnest efforts to establish a robust foundation. I am constantly impressed that whenever an officer provides an explanation of a particular project or undertaking, it is always based on a detailed understanding of where the particular business structure fits within the Company’s overall profit struc- ture. Everyone within the Company maintains a com- monly shared image of the degree to which a particular area requires adjustment, be it costs, fixed, or variable expenses. This naturally dovetails into a feature of particu- lar strength, namely the speed with which decisions are made. Another attribute that defines Omron as a com- pany is its focus on teamwork. Such sports as soccer and rugby are based a predetermined set of rules. Omron is guided by a discipline that places the utmost emphasis on the Company’s profit structure. This rallying catch- phrase and commonly held philosophy is truly amazing. —— What are your thoughts on the Omron Group’s corporate culture? In a word, I would say that “earnest” best describes Omron’s corporate culture. More than just a mere super- ficial pursuit of the truth, the Company takes steps to ascertain the roots of a particular matter and fully under- stand its structure. This stance is also a distinguishing feature of the manufacturing sector. Using the Board of Directors as an example, Omron maintains an open environment that is conducive to the lively exchange of opinions between directors and executive departments. This positive trait that extends throughout the entire Company, coupled with genuine and flexible efforts to lend a keen ear to the views of outside directors, are the sources of Omron’s highly effective corporate governance. —— What do you feel is required for Omron to enhance its corporate value? Omron is currently stepping up its activities in such promising fields as environmental solutions and health- care. Recognizing the critical need to secure innovative technologies if the Company is to nurture these activities as its next core businesses, I believe it is vital for Omron to not only form alliances but also enter into M&As with a strong and unwavering resolve. Looking ahead, it is imperative that the Company intro- duce innovations that change the way people behave. To this end, Omron must accurately picture customers’ future lifestyles and become a company that is capable of delivering added value that exceeds market expectations. Of equal importance, and in combining its expertise across a variety of fields with wide-ranging technologies, the Company must broaden its horizons beyond the engineering perspective and incorporate within its ranks personnel from a diversity of areas. Only in this manner can the Company hope to come up with the fresh and innovative ideas necessary to achieve the aforementioned goal. It is up to Omron’s president to make the bold decisions to introduce those human resources and acquire those companies that can trigger change in areas that are considered of significant value. I would therefore encour- age Mr. Yamada, Omron’s president, to take increasingly audacious strides going forward. Outside Director Masamitsu Sakurai Chairman of Ricoh Co., Ltd. Masamitsu Sakurai joined Ricoh Co., Ltd., in 1966. Following successive appointments as president of Ricoh UK Products Ltd. in 1984, director of Ricoh Co., Ltd., in 1992, representative director and president in 1996, representative director and chairman in 2007, and chairman of the Japan Association of Corporate Executives (Keizai Doyukai), Mr. Sakurai assumed the position of director and chairman of Ricoh Co., Ltd., in 2011. As the first person with a technical background to take the helm of Ricoh Co., Ltd., Mr. Sakurai led the charge toward digital networking, helping the company to develop into a leading IT entity. In addition to promoting environmental management that balances both corporate management and environmental concerns, Mr. Sakurai adopted an aggressive approach toward overseas M&A and was instrumental in the company’s global growth. Drawing on this proven track record, and after assuming the position of Keizai Doyukai chairman, Mr. Sakurai put forward numerous telling recommendations in the fields of both politics and industry. Appointed an Omron outside director in 2008, Mr. Sakurai has received many honors, including Commander of the Most Excellent Order of the British Empire in 2003, L’ordre national de la légion d’honneur (National Order of the Legion of Honour) from the French Republic in 2006, and the Deming Prize in fiscal 2011. 68 Omron Corporation Integrated Report 2012 69  Interview with Eisuke Nagatomo, Outside Corporate Auditor Through a corporate governance structure that places the utmost emphasis on sustainability based on the values of its founder as well as resolute risk management, Omron is steadily enhancing its corporate value. —— What roles do you play within the Company’s Board of Directors and its Corporate Governance Committee as an outside corporate auditor? When conducted in good faith, both the Company with Committees system, commonly adopted throughout Europe and the United States, and Japan’s unique Com- pany with Board of Corporate Auditors’ system are more than adequate in addressing the needs of all stakehold- ers. As someone who was appointed as an outside corporate auditor at the Company’s Shareholders Meet- ing, it is my duty to draw on every possible source of outside information and enhance Omron’s management integrity from a broad perspective. To ensure manage- ment that consistently addresses the needs of all stake- holders in good faith, a variety of steps are undertaken. For example, the Corporate Governance Committee, which comprises outside directors and outside corporate auditors, deliberates on those items that it considers are important to increasing shareholder value. When asked what must be protected, the answer lies not in the interests of management, but in the interests of all stakeholders, including shareholders. As outside corpo- rate auditors, our role is to protect Omron’s corporate value. At the same time, I am convinced that enhancing corporate value is firmly entrenched in the hearts and minds of the Company’s management. —— In recent years, we have witnessed a suc- cession of incidents within the corporate sector, most notably misconduct by senior executives. As an outside corporate auditor, how are you involved in the Company’s system of director checks and balances and supervision? The duties of an outside corporate auditor extend well beyond attending meetings of the Boards of Directors and Corporate Auditors and reviewing company docu- ments. In addition to attending every possible meeting, an outside corporate auditor must maintain continuous and constant dialogue with executive officers, visit branch offices and plants, and actively seek opportunities to listen carefully to comments from the frontline. Con- ducting numerous hearings directly with employees and making every effort to accurately grasp the status of business execution and operations is an effective way to peg back any incidence of misconduct. For agenda items scheduled for deliberation and determination by the Board of Directors, the Board of Corporate Auditors must play a central role in screening each item through a process of prior consultation. In the event that a pro- posed agenda item is considered inappropriate, it is the responsibility of outside corporate auditors and the Board of Corporate Auditors to instruct the responsible depart- ment to make the appropriate modifications or to with- hold the agenda item. In my experience with the Company, there has never been an occasion where instructions have been ignored or an agenda item al- lowed to proceed to the Board of Directors without modification or the appropriate action. In my opinion, Omron’s systems in this regard are functioning more than adequately. —— How would you assess the effectiveness of Omron’s corporate governance? When serving as managing director of the Tokyo Stock Exchange, I had the opportunity to closely examine more than 700 companies. Compared with these companies, I can commend Omron for its sound initiatives and activi- ties. The Company is indeed defined by a corporate governance structure that imbues the spirit and values of its founder and an unwavering focus on enhancing sus- tainability. A majority of the Board of Directors comprises 04 Corporate Governance Outside Corporate Auditor Eisuke Nagatomo President and Chief Executive Officer of EN Associates Co., Ltd. Eisuke Nagatomo joined the Tokyo Stock Exchange, Inc., in 1971 and was appointed managing director in 2003. In 2005, Mr. Nagatomo was appointed chief self-regulation officer and continued in this position through to 2007. In the same year, Mr. Nagatomo became president and chief executive officer of EN Associates Co., Ltd., and appointed an outside corporate auditor of Omron Corporation in 2008. Mr. Nagatomo serves as a visiting professor of the Graduate School of Commerce, Waseda University, and as an outside director of kabu.com Securities Co., Ltd., and Miroku Jyoho Service Co., Ltd., since 2010. Mr. Nagatomo is also an outside corporate auditor of Nikkiso Co., Ltd. what is required for a global company and how best to enhance CSR. In addition, and as a member of society, it is my responsibility to constantly point out the risks of failing to take appropriate action from a variety of legal and other aspects. I would therefore like to do my ut- most to assist Omron enhance its corporate value. —— In closing, is there a message that you would like to convey to stakeholders? I would call on all stakeholders to adopt an open and frank stance when analyzing the Company. Moving beyond immediate gains and profits, I would ask that stakehold- ers point out any areas in which they believe Omron is lacking, particularly in the Company’s efforts to further enhance its significance to society. At the same time, I would hope that stakeholders will support the Company over the long term in the belief that Omron’s long-term efforts will lead to increased corporate value. From my perspective, as an outside corporate auditor with four years’ standing, I am confident that the Company will continue to follow the correct direction and path. individuals whose principal role is to carry out a supervi- sory function. These directors take no part in the execu- tion of business. In addition, I am impressed by the role played by corporate auditors, whose primary function is to provide a system of checks and balances and super- vise the activities of directors. This attitude toward consistently identifying the risks of failing to take appro- priate action as well as those risks associated with taking inappropriate action, combined with unwavering efforts to enhance corporate value, are collectively the driving force behind the Company as a going concern. —— What do you believe is Omron’s strength? Together with the technological capabilities and its sophis- tication, Omron’s strength lies in the integrity of its corpo- rate culture that emphasizes the creation of products that consistently satisfy customers. This comes from an awareness of Omron’s significance within society by each and every employee together with management. While I am equally sure that the Company can continue to improve in a variety of areas, Omron is well served by its unflagging efforts to minimize problems, issues, and risks as well as garner the trust of users and client customers. —— What do you feel is required for Omron to enhance its corporate value? In its most basic form, corporate governance entails risk management. Accordingly, aggressively addressing risks is vital to enhancing corporate value. Omron is already a company with over half of its revenues generated over- seas. An important key to securing further growth is therefore the Company’s ability to rebuild its global risk management structure and to then accelerate globaliza- tion. As a part of efforts to fulfill its obligations toward the supply of essential products and services, Omron must also work resolutely to rebuild its supply chain and imple- ment a robust business continuity plan (BCP). —— You are well versed in a number of fields, including corporate governance and internal control systems. How do you plan to utilize these skills and knowledge with respect to the Omron Group’s management? More than just lip service, I believe my primary role is to put forward specific recommendations that help formu- late Omron’s management strategies going forward. This includes bringing to the table an outside perspective on 70 Omron Corporation Integrated Report 2012 71 Special Feature Resolving Environmental Issues New Vision Contributing to the Global Environment 05 Recognizing environmental preservation as a management priority, Omron revised its environmental management vision, “Green Omron 2020,” in 2011. Based on this new vision, the Company will promote two key measures: reducing the environmental impact of its business activities and increasing the environmental contributions of its products and services. Green Omron 2020 Omron established the Group’s Environmental Policy in 1996 and its environmental management vision, "Green Omron 21," in 2002. Based on this policy and vision, Omron has promoted environmental management prac- tices centered on lessening the impact of its business activities on the environment. Efforts were concentrated on reducing total CO2 emissions and the amount of waste associated with business activities in Japan. The Omron Group formulated its new environmental management vision, “Green Omron 2020,” in September 2011. In addition to continuing with efforts to reduce the environmental impact of its internal business activities, the vision highlights efforts to resolve global environmental issues by creating and supplying products and services that reduce environmental impact. Under this vision, we aim to contribute to the develop- ment of a sustainable society by maximizing the effec- tiveness of management resources. Meanwhile, rather than merely focusing on the environmental impact associ- ated with increased business activities, we will also con- centrate on reducing environmental impact by generating more products and services that contribute to the global environment. Having expressed these thoughts in our Environmental Policy, we have established environmental targets and for Action Guidelines to realize the objectives of Green Omron 2020. Maximizing effective use of management resources (Improvement of energy/resource productivity) Offering products/services beneficial to society (Expansion of business that contributes to the global environment) Reducing environmental loads of business activities Less Expanding contribution to improving the environment through products/services More Omron Group Environmental Policy Based on the Omron Group Corporate Motto and the Omron Principles, we will contribute to the reduction of global environmental loads by maximizing the effective use of management resources, such as human resources, materials, money, and energy, and providing useful products and services for society. 1. Considering the environmental impact of the Omron Group's business activities, products, and services, we will establish the Environmental Management System globally and ensure continual improvements. 2. We will comply with the legal and other requirements to which we subscribe concerning environmental aspects, and we will take actions for environmental conservation and the prevention of pollution. 3. Under the Environmental Policy, we will establish and implement objectives, targets, and programs, and through their periodic evaluations we will strive to improve, maintain, and review our activities. 4. To accomplish the objectives of the Environmental Policy smoothly and efficiently, we will communicate it to all em- ployees by providing environmental education and activities as well as subcontractors engaged in activities with the Omron Group. 5. We will disclose the Environmental Policy and the status of our environmental activities to the public in an appropriate manner as necessary. Environmental Targets The Omron Group’s Environmental Targets for Fiscal 2020 1. Improve carbon productivity*1 (targeting global sales/CO2 emissions from global production sites) by 30% compared with the fiscal 2010 level on a global basis *1 Carbon productivity: Sales per ton of CO2 emitted 2. Environmental contribution*2 > CO2 emissions from global production sites *2 Environmental contribution: Reduction in CO2 emissions resulting from the use of Omron’s energy-saving or energy-creating products Action Guidelines Strive to minimize the input of energy/re- sources for business activities while promot- ing recycling/reuse and reduction to mini- mize waste. Offer customers environmentally warranted products that help reduce negative environ- mental impact throughout their life cycles. Eco-Factories/Office/ Laboratories Eco-Products Assess environmental impact of the entire supply chain, ranging from the procurement of raw materials to production, sales, and distribution, and strive to reduce its negative impact on the environment. Eco-Logistics Expand acquisition of ISO 14001 certification and establish a multi-site ISO registration system while reducing environmental risk and ensuring legal/regulatory compliance. Eco-Management Promote environmental education and awareness-raising activities to encourage all employees to heighten their ecological awareness and upgrade the level of environ- mental preservation activities they are in- volved with. Eco-Mind Proactively release information on Omron’s environmental activities and results and promote social and community contributions. Eco-Communication 72 Omron Corporation Integrated Report 2012 73 Environmental Impact Reduction: Exceeding Targets for Cutting Peak Power Use through Smart Power Savings Facing increasingly tight electricity supply-demand condi- tions, Omron conducted Smart Power Savings activities between July and September 2011. Smart Power Savings is Omron’s name for the energy- saving activities the Company is pursuing. By introducing the Power Savings Monitoring System at our locations in Japan, we were able to substantially reduce electric power consumption without making sacrifices on the operational and production fronts. We implemented a host of energy-saving measures, such as improving facili- ties and manufacturing equipment to minimize energy requirements through eco-manufacturing, and reduced usage of air conditioners. As a result, we succeeded in cutting our peak power consumption in all areas beyond our target levels. Target and Actual Peak Power Cuts through Smart Power Savings Area Target Actual Tokyo Electric Power Company Incorporated’s service area (Kanto region) 15% (In response to government request) Kansai Electric Power Co., Inc.’s service area 15% (In response to request from Kansai Electric) Chubu Electric Power Co., Inc.’s service area Chugoku Electric Power Co., Inc.’s service area Kyushu Electric Power Co., Inc.’s service area 10% (Voluntary target) 10% (Voluntary target) 10% (Voluntary target) 31% 22% 14% 12% 16% using the Power Savings Monitoring System to Control Maximum Power Demand In July 2011, we segmented our 21 domestic business locations according to electric power company service area and introduced the Power Savings Monitoring Sys- tem at each site, making total power use for each area “visible” in real time. When a site approached the preset limit for power use, an alarm sounded, alerting the facility manager to the need for measures to cut peak power use. In the past, we had used this system for managing individual sites. By expanding the system to monitor peak power at several sites, we were able to efficiently man- age maximum power demand by area without suffering productivity losses in individual locations. Employing sensing and control technologies that Omron has cultivated, the Power Savings Monitoring System constitutes an environmental business solution. In addition to using the system ourselves as a summer power-savings measure, we have provided it to many of our customers, who have also confirmed its effectiveness in reducing power consumption. Area total Exceeding target at one site Achieved target for all areas Eco-Manufacturing “Eco-manufacturing” is Omron’s word for streamlining the use of energy and resources employed in manufac- turing as much as possible by improving the operation of manufacturing equipment and ancillary facilities. Produc- tion requires a great deal of energy, and the key to eco- manufacturing lies in economically supplying the amount of pressure, lighting, and cooling that is needed for pro- duction precisely when needed. We render these require- ments visible and strive to save energy by determining these needs in real time. On a production line, for example, rather than simply replace an existing machine with another that is more ener- gy-efficient—an approach that may be costly—we time- shift equipment use and switch off power while machines are in wait mode as well as improve air conditioner and compressor operation. These approaches have reduced power consumption by as much as 30% at some facilities. Energy-Saving Initiatives at the Yasu Office At Omron’s Yasu Office, the manufacture of semiconduc- tors, MEMS, and connectors requires a great deal of energy. Located in the power service area, this plant accounts for approximately 70% of the power used by all 05 Resolving Environmental Issues In fiscal 2011, we focused in particular on initiatives to improve peak power consumption at the Yasu Office by concentrating on utility services. We will also review tem- perature and humidity settings at our production facilities, on the condition that revisions do not affect product qual- ity. As a result, we expect to save even more energy. Yasu Office (City of Yasu, Shiga Prefecture) The center for our advanced technologies in the microelectronics business, this facility uses ultrafine processing technologies to manufacture MEMS, semiconductors, and connectors. Also, the office serves as the sales and marketing site for our IAB. As well as efforts to save energy, at this office we have introduced equipment to reduce greenhouse gas emissions and improved wastewater processing equipment, and employees participate in maintaining and managing a biotope on site. Through environmental preservation activities such as these, we take the region’s natural environment and resources into account as we work to turn this facility into an environmentally conscious model factory. of Omron’s facilities in Japan. Measures to slash power requirements at the Yasu Office therefore had a major impact on reducing peak power use throughout the Kan- sai Electric Power service area. In June 2011, Yasu Office managers gathered together and set the goal of reducing peak power use between July and September 2011 by 9.9% compared with 2010 levels and drawing up measures to reach this objective. During this process, we realized that such electricity, water, ventilation, and compressed air used by equipment at the plant and supplied by utilities accounted for 56% of peak electricity. We also recognized that around 70% of utility-related peak electricity went toward refrigeration systems—turbo freezers, chilled water pumps, cooling water pumps, and cooling towers—and was used to cool production equipment. To cut peak power used by these cooling systems, we ran simulations and conducted repeated tests with actual equipment, allowing us to adjust coolant water pump pressure and optimize flow rates. In addition to energy-saving measures targeting these cooling systems, we sprayed water on the roof of the office wing, reduced lighting, consolidated office areas, Turbo freezer and lowered the volume of air delivered by air-condition- ing systems. Through relatively simple measures such as these, we succeeded in reducing electricity consumption from July to September 2011 by 13.3% year on year. In addition to reducing electricity bills during the period, these efforts will be instrumental in making power-saving improvements in future years. 74 Omron Corporation Integrated Report 2012 75 05 Resolving Environmental Issues total of 554 units (as of December 2009). Having a total generation output of 2,129kW, this project is one of the world’s largest multiunit systems. The project is attracting significant amounts of attention from many quarters, taking Pal Town Josai-no-Mori as the model for an environmental city with low CO2 emissions. The AICOT® mark’s design is meant to convey a sense of tenderness toward the environment and people. The large circle denotes the sun, while the three smaller orbs indicate houses. * Anti-Islanding COntrol Technology (AICOT®) is a registered trademark of Omron Corporation (registration number 5205429). Increasing Environmental Contributions: “AICOT®”—Boosting the Popularity of Solar Power Generation Systems Trouble Resulting from the Concentration of Solar Power Generation Facilities Solar power generation systems are the focus of rapidly growing attention as a measure for countering the in- creasingly serious issue of global warming by converting solar energy, rather than fossil fuels, into electricity. One problem with installing solar power generation systems on adjacent roofs, as has been done in the past, is that this results in multiunit systems—multiple solar power generation systems connected to electric wires as they would be for an electric power utility. This complexity can be the source of system trouble, creating a barrier to the proliferation of solar power generation systems. We have addressed this issue by taking the industry lead in devel- oping AICOT®, an acronym for “Anti-Islanding COntrol Technology.” Solar power generation systems configured with Omron power conditioners* employing AICOT® allow the concen- tration of solar power generation systems within a certain area. We believe this technology will contribute signifi- cantly to the popularization and promotion of solar power generation systems. Omron began marketing AICOT®-equipped power con- ditioners in July 2011. Since that time, sales have grown steadily as customers have recognized the advantages the technology provides in alleviating the problems associated with multiunit systems. By leveraging the advantages of this technology, Omron looks forward to encouraging the proliferation of solar power generation systems. To do so, we will concentrate on developing AICOT® along with other technologies and products. * Power conditioner: A device that converts the direct current supplied by solar panels to the alternating current used in homes. The higher the power conditioner’s conversion ratio, the more power it supplies for home use. Removing the Need for Safety Verification on Power Generation Systems Solar power generation systems may continue to gener- ate electricity even in the event that electricity supplied by power companies is interrupted due to outages or electri- cal accidents. This situation, known as “islanding,” can shock people involved in reconstruction activities, start equipment fires when electrical service resumes, and create a host of other problems. To address this situation, solar power generation systems can be equipped with anti-islanding functions. For multiunit systems, however, interference between generation systems can prevent anti-islanding functions from working properly. To prevent this situation from occurring, we conduct interference tests using multiunit systems with individual meters attached to power conditioner assemblies, con- firming that no trouble arises and confirming their safety. As this testing can require one to two months, however, in the past we faced the risk that such testing could affect delivery times. Using AICOT®-equipped power conditioners obviates the need for interference testing on multiunit systems, eliminating potential problems on delivery schedules. Power cable Solar battery module Solar battery module Power Power conditioner conditioner Distribution Distribution panel panel Electric power meter Electric power meter Electrical equipment Electrical equipment Contributing Significantly to the Popularization of Solar Power Generation Systems Another major roadblock exists along the path to the proliferation of solar power generation systems. For safe- ty reasons, rules are in place that limit solar power gen- eration system installation to around 10% of sites to each area. However, power conditioners equipped with AICOT® are not subject to this regulation, so they could theoreti- cally be used to install solar power generation systems on all roofs. As a result, Omron is making a major contribution to the popularization of solar power generation systems, which use environment-friendly renewable energy. Accumulated R&D Expertise in Electrical Equipment Results in AICOT® Since 2003, Omron has been working with Kandenko Co., Ltd., and other organizations in Ota, Gunma Prefecture, on the Demonstrative Project on Grid-Interconnection of Clustered Photovoltaic Power Generation Systems, which was commissioned by the New Energy and Industrial Technology Development Organization (NEDO). This proj- Power conditioner with AICOT® Color display unit makes checking power generation volume enjoyable ect is part of an R&D effort concentrating on islanding detection technology during the deployment of multiple solar power generation systems. When research began, the industry believed the viability of this sort of technological development to be low, and the research was considered difficult. As a result, no company other than Omron was interested in taking part. However, we were able to take advantage of the product development that we had conducted on protective relays and other electrical equipment. Following six years of technological development, in 2008 we took the industry lead by successfully developing AICOT® anti-islanding technology, which is effective even when solar power generation systems are concentrated at housing com- plexes or in high-density residential areas. At Pal Town Josai-no-Mori, in the City of Ota, Gumma Prefecture, we are collaborating with inhabitants on the Demonstrative Project on Grid-Interconnection of Clustered Photovoltaic Power Generation Systems, using AICOT® anti-islanding technology for multiunit sys- tems. AICOT®-equipped power conditioners are used on a Pal Town Josai-no-Mori 76 Omron Corporation Integrated Report 2012 77 Special Feature Resolving Health Issues Contributing to the Health of People throughout the World 06 The desire to be healthy is shared by people throughout the world. With the aim of contributing to the health of people throughout the world, Omron develops and markets products that contribute to health maintenance and improvement and detect illness quickly and easily. We also undertake a host of activities to prevent illness and promote health, both inside and outside the Company. Contributing to the Health of People in India Rapid Increase in Number of People with Lifestyle Diseases a Social Issue In recent years, Indian lifestyles have come to resemble those of people in Europe and the United States, and the number of people suffering from lifestyle diseases has surged accordingly. Some 130 million people are said to suffer from hypertension, 100 million from obesity, and 50 million from diabetes.* Alleviating or preventing such lifestyle diseases has thus evolved into a major social issue. *According to a survey by Global Information, Inc. To improve this situation in India, we are pursuing activities centered on Omron Healthcare India (OHS-IN), combining our experience and lineup of healthcare and medical instruments with our expertise in health manage- ment and alleviating illness. Omron first established a representative office in India in 1997. In 2011, we stepped Building that houses Omron Healthcare India (OHS-IN) up marketing efforts involving digital blood pressure moni- tors. To expand our business activities further, in Novem- ber we established the marketing company OHS-IN in Gurgaon, located near Delhi, in the state of Haryana. Encouraging the Proliferation of Health and Medical Care Instruments and Contributing to the Community Alleviating lifestyle diseases requires first determining a patient’s condition, followed by the improvement of life- style habits. At the moment, however, in India only about 0.5% (as of 2010) of people with high blood pressure had digital blood pressure monitors. Low diffusion levels are also the norm for electronic thermometers, body compo- sition monitors, blood glucose monitors, pedometers, and other healthcare and medical instruments. In many cases, patients do not have the knowledge needed to use these healthcare and medical instruments, but another major issue is that many patients do not recognize the impor- tance of health management. This situation has been changing in recent years as more people are becoming aware of and interested in health, and the percentage of people engaging in fitness activities is on the rise. OHS-IN is working to encourage this trend toward health by augmenting the number of shops that handle Omron products to enable more households to gain access to our products. Also, we are producing Hindi- language documentation and developing products to match the needs of Indian people. In this way, OHS-IN is reinforcing sales and promotional activities related to healthcare and medical instruments. The company is also contributing to the local community in a number of ways. For example, we have begun holding free health-check events to determine blood pressure and other factors, thereby encouraging an understanding of how to prevent or alleviate lifestyle diseases. Activities Targeting a Greater Number of People Amid intense competition from other companies, OHS-IN is making steady inroads in the Indian market. In fiscal 2011, the company expanded its sales network to 12,500 shops. Furthermore, Omron-brand digital blood pressure monitors hold the top share of the Indian market, at 60%, which reflects the fact that physicians around the world recognize the quality and reliability of our products. Against this backdrop, we are steadily cultivating local staff who understand the importance of the healthcare business. We aim to popularize digital blood pressure monitors in small and medium-sized Indian cities with populations of less than one million. By leveraging the local expertise and personnel we are cultivating in India, we aim to popularize healthcare and medical instruments and encourage health- promotion activities in other emerging markets as well. Free Health-Check Events In fiscal 2011, we held 376 free health-check events in cities with populations of one million or more. Conducted at such locations as pharmacies, these events gave at- tendees a chance to check their blood pressure, weight, and temperature. Owing to extremely high interest in measuring physical health parameters, each of these free health-check events attracts more than 100 people. At these events, we share test results with participants and give them blood pres- sure diaries and health handbooks, which explain test results in careful detail. A long queue for a free health check Contributing to the Health of People in India Exercise is important to maintaining or improving health. To encourage exercise, Omron sponsors three India’s most prominent distance-running events: the Mumbai Marathon, the Delhi Half Marathon, and the Bangalore 10km Marathon, supporting the health of many competi- tors in the process. Company booths at each of these marathons introduce our healthcare and medical instruments, including digital blood pressure monitors, accompanied by a free health- check event. Participants can visit our booth to check their fitness before the race. Mumbai Marathon 78 Omron Corporation Integrated Report 2012 79 Dream.Do. Campaign In January 2012, we launched the “Dream.Do. Campaign” to advance Omron’s dream of contributing to Indian soci- ety by resolving health issues. The thrust of the cam- paign, which features popular actor Farhan Akhtar as a brand ambas- sador, is to emphasize what a single person can accomplish if they push ahead toward their dreams. Using newspa- per and mass media advertising, this cam- paign is designed to promote the image of Omron as a progressive and approachable brand as well as raise the awareness of health management among Indian people. Corporate Dream.Do. Campaign advertisement featuring Farhan Akhtar Supporting Pharmacies Privately managed pharmacies are a major channel for acquainting Indian consumers with Omron’s healthcare and medical instruments. Therefore, we conduct semi- nars to demonstrate to heads of pharmacies how to use our instruments, augment their understanding, and dis- seminate knowledge on the appropriate role of instru- ments in health management. At the same time, to increase the understanding of healthcare and medical instruments among consumers Seminar for the heads of pharmacies held in cooperation with a local pharmacy association who are unfamiliar with them, we erect billboards adver- tising Omron products along the street and at the front of pharmacies. Mother’s Day campaign notice at curbside Providing Support for Large-Scale Clinical Research in India In fiscal 2011, we collaborated with the Indian Society of Hypertension to support a large-scale clinical study involv- ing leading doctors from Japan, Canada, and India entitled “the Relationship between Indian Food Culture and Hy- pertension”. As one of the society’s official sponsors, we provided medical personnel with digital blood pressure monitors and other measurement equipment used in the clinical study. At Annamalai University, one site of the large-scale clinical study, OHS-IN donated 100 digital blood pressure monitors and 100 electronic thermometers for student use, thereby supporting university research. Presentation ceremony for donating healthcare and medical instruments to Annamalai University 06 Resolving Health Issues Supporting Employee Energy and Health Commencement of the “GENKI Project” Recognizing that healthy bodies and ensuring occupa- tional health and safety are essential if employees are to fully utilize their skills, Omron has been a leader in various business activities centered on health and safety. We have had illness prevention measures targeting lifestyle and other diseases in place for some time as well as measures to address mental health. In fiscal 2011, we augmented these programs by launching the GENKI Project (genki means “healthy” in Japanese). The project is aimed at fostering in which employees who are healthy, full of energy, dynamic, and possess a sense of commu- nity. During the first year of the project, we conducted “Om-Walk” and “Kyoto Marathon Participant Support” activities. The Om-Walk Walking Event in Japan The slogan for our Om-Walk event emphasizes being healthy and competing in calorie-burning activities. Using our products and services—activity monitors and Well- nessLink,* our health portal site—teams competed for the highest overall activity level. Exercise Effectively Easy to Record Data USB communication Just by having the pedometer in your pocket, you can count your steps each day. Launch the software and place the pedometer in the communication tray to upload your data easily. Enjoy continuing to exercise E n j o y e x e r c i s i n g o n y o u r o w n A host of functions with various types of data that everyone can enjoy E n j o y e x e r c i s i n g t o g e t h e r Compete with your friends by creating walking records ・Various rankings ・Group events ・Record calendar ・Graphical display ・Group events ・Data navigation ・Health information service The Om-Walk Program The fiscal 2011 Om-Walk was voluntary; however, 91% of our employees participated, including temporary work- ers. (Participants numbered 13,554, composing 807 teams). We used “WellnessLink” to show how competing teams fared, allowing participants to check their walking status at a glance via the website and heightening the sense of participation. Om-Walk award ceremony Participants made such comments as “This event in- creased my awareness of walking and exercise,” “When commuting to work, I decided to get off my train or bus one stop earlier and walk the rest of the way,” and “This was a great conversation topic at work; it helped to im- prove communications.” *WellnessLink This free-of-charge health management service employs information technology to offer personal advice based on health data determined by using Omron healthcare devices on a daily basis. We offer a service targeting individuals as well as services for companies and other organizations. We are increasing the number of devices designed to communicate with WellnessLink and simplifying the process of transmitting measured data. As of July 31, 2012, WellnessLink members numbered approximately 250,000. Please refer to the following website for details. http://www.wellnesslink.jp/ 80 Omron Corporation Integrated Report 2012 81 Creating Value for Employees Creating Value for Customers Respect for Individuality and Diversity Respecting Individuality and Diversity and Fostering Employees Who Are Effective in a Global Context Omron has made “respect for individuality and diversity” one of its Management Commitments. We do not discriminate on the basis of nationality, gender, or ability, and we welcome individuals who have diverse values and skills. We recognize such attributes encourage corporate and personal growth, and we aim to be a company that encourages people to grow. the International Labour Organization (ILO) as well as kudos from the Indonesian government. Increasing Opportunities to Empower Women In order to improve motivation among women, we will work to increase the number of opportunities for women to contribute to the workplace and encourage a balance between work and family life. We are thus promoting devotion to these initiatives in top management, in the workplace, and among the women themselves. In October 2008, Omron launched a project to study ways to increase the empowerment of female staff. In fiscal 2011, we held study sessions, lecture presentations, and other events to brainstorm ideas on expanding women’s networks on a variety of fronts. Since fiscal 2001, we have conducted Female Leader Training to promote women to positions of responsibility. As of fiscal 2011, 124 women have taken advantage of this program. As a result of these initiatives, the number of women in core management positions—de- fined as positions of respon- sibility or specialist or higher positions—has increased steadily. As of April 2011, throughout the Omron Group 21 women were in manager positions and 260 in assis- tant manager positions. Female training program Direct Dialogue with the President Omron has a practice of encouraging dialogue between employ- ees and the president called “The KURUMAZA”, which began as a result of the president’s desire to foster a deeper mutual under- standing with workplace personnel. This program enables the president to understand the issues employees face in their daily work by hearing their problems and issues directly. The program also gives employees the chance to hear firsthand the presi- dent’s thoughts and assists in cultivating an atmosphere of mu- tual understanding. We plan to introduce this program globally. Cultivating Global Human Resources To achieve the goal expressed in our new long-term strategy, Value Generation 2020 (VG2020), of creating a workforce and organizations to support the global growth of our business, in fiscal 2012 we will introduce “Team Omron Global Training Pro- gram (TOP)”—a human resources training system. Focused on workplace practices, the Camp seeks to nurture staff with vision who are ready for action. The program begins by determining employees’ current skills and subsequently shows them the next steps toward growth while continuing to challenge them. In the current fiscal year, we have updated “The Boot Camp,” our training program for newly appointed managers, to strength- en worksite management. In tandem with the global develop- ment of our business, we have begun training to assist employ- ees in quickly boosting their English proficiency and gaining a necessary understanding of other cultures. Promoting the Employment of People with Disabilities on a Global Basis Omron’s corporate philosophy emphasizes respect for diversity, and one aspect of this tenet is to increase the number of em- ployment opportunities for people with disabilities. We continue to rank at the top of the manufacturing industry for our employment of people with disabilities, which as of June 2011 amounted to 2.24% of our workforce in Japan, including 24 Group companies. In Indonesia, meanwhile, although the law stipulates that people with disabilities must ac- count for at least 1% of the workforce, few companies comply. However, in 2010, PT OMRON Manufacturing of INDONESIA (OMI) created and is implementing a program to provide training and employment as a package to people with disabilities. This program has proved successful. OMI has raised its percentage of people with disabilities to 2% of its workforce, and word of the program has spread to other companies in Indone- sia. Five companies have now introduced a similar type of program to OMI. These efforts have earned OMI the Best Practice Award for employing peo- ple with disabilities from Omron Kyoto Taiyo Receiving the Best Practice Award from the ILO Maximizing Customer Satisfaction Aiming to Provide Products and Services That Are Safe and Instill Confidence We strive to satisfy customers by enhancing the quality of the products and services we offer. By recognizing business activities leading to the safety of our products, services, and customers as a management priority, we pursue initiatives to provide products and services that function safely and that customers can use with confidence. Quality Assurance Quality Management Omron has set forth a Groupwide quality policy while preparing quality manuals for each business division and Group company to establish a solid quality assurance system. As of March 31, 2012, three business companies, 16 Group companies in Japan, and 24 Group companies overseas had acquired certification under the ISO 9001 international standard for their quality management systems. This has led to the estab- lishment and full-scale implementation of a “plan, do, check, act” (PDCA) cycle at each organization. The PDCA cycle is in- tended to first formulate an improvement plan, implement it, evaluate the degree of achievement, and reflect the evaluation results by making subsequent improvements. The strict imple- mentation of an individual PDCA cycle helps ensure safety and quality of products, the continued improvement of quality, and the prevention of quality-related problems. Quick Detection and Prevention of Serious Claims We manage information on customer inquiries and complaints regarding defects so we quickly become aware of any major quality issues that might affect customer safety as well as prevent such quality issues from recurring. We have established Product Quality Risk Management Regulations for communicating infor- mation about any major product quality issues immediately and accurately to top management. We respond promptly to customer inquiries and have in place links between the quality departments at headquarters and those of business companies and business divisions. This ar- rangement enables us to respond quickly to complaints and prevent their recurrence. The long-term management strategy that began in fiscal 2011 raises the goal for the customer service division of converting each person who makes an inquiry at the Customer Service Center into an Omron fan. In fiscal 2012, we changed our operat- ing structure, shifting from a rank-specific organization to one that is function based. We are restructuring the center to im- prove quality and efficiency by creating a call center that is easy to reach. Reflecting Customer Feedback in Product Development Aiming to provide society with products that are easy for anyone to use, Omron Healthcare conducts universal design evaluations at every stage of product development to confirm “universal quality.” As one example of this process, when configuring the screens and verification-testing of the service content of the MedicalLink home blood pressure management service employ- ing information technology, the company asked private medical practitioners to evaluate the service. The frank opinions the company received from healthcare professionals led Omron Healthcare to introduce improvements. In the past, usability evaluations and Group interviews were conducted in a research format that centered on product param- eters. We have altered this approach and are accelerating our rollout of lifestyle evaluations (ethnography studies) designed to uncover potential needs. This method enables us to better un- derstand overseas needs, particularly in emerging markets, against substantially different cultural backdrops. Determining potential needs by taking lifestyles into account is instrumental in developing “glocal”* product plans. We will remain closely attuned to customers’ input and needs by using this information to forecast future needs and gain a head start in the develop- ment of worldwide product plans. Customer Service * A word combining “global” and “local” Industry-Leading Customer Service and Support In fiscal 2006, IAB established the Global Service Center. With the aim of increasing and standardizing service quality, the center conducts customer satisfaction surveys at the site level throughout the world (approximately 300 sites in 80 countries or regions), among other activities. In B to B Site Ranking, a study of web support in Japan by Japan Brand Strategy, Inc., Omron has ranked first in customer service for six consecutive fiscal years, through fiscal 2012. Omron Healthcare Co., Ltd., has set up a Customer Service Center, which handles customer queries, parts sales, and repairs in an integrated manner. MedicalLink screen 82 Omron Corporation Integrated Report 2012 83 Creating Value for Shareholders and Investors Creating Value for Local Communities Relationship Building with Shareholders IR Activities Focusing on Dialogue Awareness and Practice of Corporate Citizenship Contributing to the Development of Local Communities as a Member of International Society With its investor relations (IR) policy emphasizing interactive communication with current and potential investors, Omron provides timely and accurate information on the Company's business conditions and management policies. Omron also aims to reflect investors' comments in its management strategies to the fullest extent possible to maximize corporate value. Aiming to be a valued corporate citizen, Omron strives for harmonious coexistence with local communities. As such, Omron complies with all applicable laws and rules and respects local culture and customs. We also communicate proactively with local residents and organizations to build relations of mutual understanding. president made to personally meet investors throughout the world, presentations of business results and financial standing, telecon- ferences, and participation in investor relations conferences. In Japan, we hold tours of our plant in Kusatsu, Shiga Prefec- ture, for institutional investors and analysts. Overseas, we con- duct tours of our plants in Shanghai and Guangzhou, in China. Moreover, we hold well-received technology briefings, centering on our blood pressure monitor and relay technologies. Input and feedback obtained through dialogue are relayed via the investor relations department to the president and the man- agement team and are used to help create various manage ment strategies. Proactive Information Disclosure We employ an IR site and various other tools to support interac- tive communications with shareholders and investors by disclos- ing information on product development and sales activities tailored to specific markets as well as information on operating performance. Our IR site features a message from the presi- dent, explanations of our strategies and operating performance, and video footage. Inclusion in SRI Indexes Omron’s CSR activities have earned high praise from around the world, and the Company’s shares are included in two major socially responsible investment (SRI) indexes: the Morningstar Socially Responsible Investment Index and the Asia Pacific (AP) version of the Dow Jones Sustainability Index (DJSI). As of July 25, 2012 Creating More Open and Interactive Shareholders’ Meetings In an effort to make its shareholders’ meeting more open and easier for shareholders to attend, Omron schedules meetings to avoid days on which the shareholders’ meetings of other large companies are concentrated. Omron uses a conveniently located hotel at the JR Kyoto station as a venue for these meetings. Also, Omron has set up systems that allow shareholders to exercise their voting rights by post as well as an electronic voting system that enables exercise via personal computer or mobile device. Since 2006, Omron has offered access to the Electronic Voting Platform, creating an environment whereby institutional investors in Japan and overseas can quickly provide documents for the general meeting and smoothly exercise their voting rights. After the close of the general meet- ing, a separate presentation to explain management conditions is held as well as a shareholder roundtable confer- ence. These events provide the oppor- tunity to offer shareholders further information on Omron’s initiatives that could not be communicated during the general meeting. The 75th annual general shareholders’ meeting, held on June 21, 2012, was attended by 796 shareholders, 134 more than in the preceding fiscal year. This figure represented 84.3% of voting rights. Aiming to Strengthen Two-Way Communications To enhance communications with individual investors, Omron conducts corporate presentations and participates in investor fairs. In fiscal 2011, Omron participated in 24 investor relations (IR) events, communicating with some 2,500 investors. For institutional investors, Omron provided about 970 communi- cation opportunities in fiscal 2011. These included trips that the Supporting Reconstruction following the Great East Japan Earthquake Providing Support through Business Activities To provide support for the people affected by the Great East Japan Earthquake and assist in rebuilding the stricken region, we donated a portion of the proceeds from sales of our KM Series* of electricity monitors, which are used in energy-saving activities at manufacturing plants. Through this effort, we raised ¥18,723,000 for the Japanese Red Cross Society. During the 11 months from May 2011 through March 2012, we worked with stores that market IAB products, concentrating on sales of the KM Series. Numerous sales outlets and customers joined in this effort, recognizing the importance of the KM Series in saving energy at manufacturing plants and supporting recon- struction. Their cooperation was instrumental. * KM Series: A lineup of electricity monitors used to simply and reliably measure and analyze electricity use. Sponsoring the Kyoto Marathon The first Kyoto Marathon was held on March 11, 2012, to support reconstruction efforts following the Great East Japan Earthquake. Omron participated as a special sponsor in the event, and numer- ous employees, colleagues, and family members volunteered their support on the day of the marathon, cheering on partici- pants or participating in the race themselves. The Omron Group in Japan also sponsored an Om-Walk event (for details, see page 81) during the 11 days leading up to the marathon and provided matching donations. We donated ¥3,118,000 to correspond with participants’ total activity level, providing these funds to the Japanese Red Cross Society via the Kyoto Shimbun Welfare Work Team and crisis management headquarters in the stricken region. Lecturing at Ofunato High School On September 21, 2011, we conducted a lecture at Ofunato High School, in Iwate Prefecture. Titled “The Connection between Omron’s Technologies and Society,” the talk coincided with the school’s “Daylong General University” event. By offering stu- dents a chance to learn from a broad spectrum of people in the working world, the event encouraged high school students to think about developing their own careers and gave them a point of reference as they considered their paths for the future. A post-event questionnaire revealed a number of forward- thinking comments, such as “I want to remain aware of my relationship with society as I learn” and “I want to become an engineer who looks at society from various perspectives and meets its needs.” We also received a posi- tive note from one of the high school instructors: “I aim to help young people, whose future is unfolding before them, find their path to the future.” Assisting Reconstruction following Major Flooding in Thailand Through Japan Platform, the Omron Group donated ¥5 million to victims of the major flooding that occurred in Thailand in October 2011. After restoring its own plant, Omron Automotive Electronics Co., Ltd., located in Ayutthaya Province, set about helping to address the many scars left by the flooding, participating in such volunteer activities as repairing and painting the damaged schoolhouse of Wat Kan Ham Elementary School. The company and employee volunteers also made contributions and provided school supplies. The volunteer activities served another purpose: through association with members of another Omron company in Bang- kok, volunteers strength- ened the ties within Team Omron. 84 Omron Corporation Integrated Report 2012 85 Omron: Advancing Sensing and Control Technology オムロンの歴史 Founding 1933 10th Year 1943 X-ray Timers Microswitches Electromagnetic Relays Utilizing sensing and control technologies, Omron has developed countless products that are ahead of their time and have come to meet unrealized social needs in various areas. l o r t n o C & g n i s n e S : y g o l o n h c e T e r o C 20th Year 1953 Pressure Switches Contactless Switches Coin-Operated Timers Proximity Switches 30th Year 1963 Miniature Power Relays Photoelectric Switches Automatic Ticket Gates Automatic Food Ticket Vending Machines Automated Teller Machines (ATMs) 40th Year 1973 Sequence Controllers Digital Blood Pressure Monitors Calculators Electronic Temperature Controllers Electronic Registers Servomotors Solid-State Relays 50th Year 1983 PCB Solder Inspection Equipment Radio Frequency Smart Entry Systems Digital Thermometers Electric Power Steering Controllers Travel Time Measurement Systems LCD Backlights 60th Year 1993 Switch Mode Power Supplies Smart Sensors 70th Year 2003 Machine Automation Controllers Body Composition Monitors Ultra-Small Pressure Sensors for Wrist Blood Pressure Monitors FPC Connectors Social Sensors Smart Electricity Volume Monitors Industrial Automation Business (IAB) Electronic and Mechanical Components Business (EMC) Automotive Electronic Components Business (AEC) Social Systems, Solutions and Service Business (SSB) Healthcare Business (HCB) Other Businesses Current Business Divisions 86 Omron Corporation Financial Section (U.S. GAAP) Contents 87 Financial Highlights 88 Six-Year Summary 89 Fiscal 2011 Management’s Discussion and Analysis 94 Business and Other Risks 96 Consolidated Balance Sheets 98 Consolidated Statements of Income 99 Consolidated Statements of Comprehensive Income (Loss) 100 Consolidated Statements of Shareholders’ Equity 101 Consolidated Statements of Cash Flows 102 Notes to Consolidated Financial Statements 129 Independent Auditors’ Report Note: Financial Highlights, Six-Year Summary, Fiscal 2011 Management’s Discussion and Analysis, and Business and Other Risks are unaudited. Financial Highlights Omron Corporation and Subsidiaries Years ended March 31, 2012, 2011 and 2010 For the year: Net sales Millions of yen (except per share data) Thousands of U.S. dollars (Note 2) (except per share data) FY2011 FY2010 FY2009 FY2011 ¥619,461 ¥617,825 ¥524,694 $7,554,402 Income from continuing operations before income taxes and equity in loss (earnings) of affiliates 33,547 41,693 10,195 409,110 Net income 16,352 27,016 3,621 199,415 Net income attributable to shareholders 16,389 26,782 3,518 199,866 Per share data (yen and U.S. dollars): Net income attributable to shareholders Basic Diluted ¥ 74.46 ¥ 121.66 ¥ 15.98 $ 0.91 74.46 121.66 15.98 0.91 0.34 Cash dividends (Note 1) 28.0 30.0 17.0 Capital expenditures (cash basis) Research and development expenses ¥ 27,502 ¥ 21,647 ¥ 20,792 $ 335,390 42,089 41,300 37,842 513,280 At year end: Total assets Total shareholders’ equity ¥537,323 ¥562,790 ¥532,254 $6,552,720 320,840 312,753 306,327 3,912,683 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, 2012, of ¥82 = $1. Integrated Report 2012 87 FY2011 FY2010 FY2009 FY2008 FY2007 FY2006 Market Environment Millions of yen (except per share data) Fiscal 2011 Management’s Discussion and Analysis Note: The business divisions are presented using their abbreviated names: Industrial Automation Business (IAB), Electronic and Mechanical Components Business (EMC), Automotive Electronic Components Business (AEC), Social Systems, Solutions and Service Business (SSB), and Healthcare Business (HCB). Six-Year Summary Omron Corporation and Subsidiaries Years ended March 31 Net sales (Notes 3, 4): Industrial Automation Business (IAB) Electronic and Mechanical Components Business (EMC) Automotive Electronic Components Business (AEC) Social Systems, Solutions and Service Business (SSB) Healthcare Business (HCB) Other Businesses Elimination and Corporate Costs and expenses: Cost of sales Selling, general and administrative expenses Research and development expenses Other expenses (income), net Income (loss) from continuing operations before income taxes and equity in loss (earnings) of affiliates Income taxes Equity in loss (earnings) of affiliates Income (loss) from continuing operations Income from discontinued operations, net of tax (Note 2) Net income (loss) Net income (loss) attributable to noncontrolling interests Net income (loss) attributable to shareholders Per share data (yen): Income (loss) from continuing operations Basic Diluted Net income (loss) attributable to shareholders Basic Diluted Cash dividends (Note 1) Capital expenditures (cash basis) Total assets Total shareholders’ equity Value indicators: Gross profit margin (%) Income (loss) before tax/Net sales (%) Return on sales (%) Return on assets (%) Return on equity (%) Inventory turnover (times) Price/earnings ratio (times) Assets turnover (times) Debt/equity ratio (times) Interest coverage ratio (times) ¥270,835 ¥271,894 ¥203,917 ¥271,204 ¥339,161 ¥316,812 83,002 81,216 70,717 76,494 100,668 96,240 85,027 84,259 75,163 82,109 107,521 93,321 57,200 62,446 53,535 7,416 619,461 391,574 145,662 42,089 6,589 585,914 33,547 17,826 (631) 16,352 — 16,352 (37) 16,389 63,846 60,629 49,672 6,309 617,825 386,123 142,365 41,300 6,344 576,132 41,693 14,487 190 27,016 — 27,016 234 26,782 57,981 63,359 43,592 9,965 524,694 340,352 133,426 37,842 2,879 514,499 10,195 3,782 2,792 3,621 — 3,621 103 3,518 72,336 63,592 50,989 10,466 627,190 408,668 164,284 48,899 44,472 666,323 (39,133) (10,495) 811 (29,449) — (29,449) (277) (29,172) 76,876 71,706 56,841 10,212 762,985 469,643 176,569 51,520 1,087 698,819 64,166 24,272 348 39,546 3,054 42,600 217 42,383 98,707 65,731 44,604 8,451 723,866 445,625 164,167 52,028 (2,233) 659,587 64,279 25,595 1,352 37,332 1,186 38,518 238 38,280 ¥ 74.5 74.5 ¥ 121.7 121.7 ¥ 16.0 16.0 ¥ (132.2) — ¥ 172.5 172.4 ¥ 159.8 159.7 74.5 74.5 28.0 ¥ 27,502 537,323 320,840 121.7 121.7 30.0 ¥ 21,647 562,790 312,753 16.0 16.0 17.0 ¥ 20,792 532,254 306,327 (132.2) — 25.0 ¥ 37,477 538,280 298,411 185.9 185.8 42.0 ¥ 37,848 617,367 368,502 165.0 164.9 34.0 ¥ 44,689 630,337 382,822 36.8 5.4 2.6 6.1 5.2 4.39 23.9 1.13 0.675 153.01 37.5 6.7 4.3 7.6 8.7 4.71 19.2 1.13 0.799 101.96 35.1 1.9 0.7 1.9 1.2 4.19 135.8 0.98 0.738 22.15 34.8 (6.2) (4.7) (6.8) (8.7) 4.54 (8.7) 1.09 0.804 6.01 38.4 8.4 5.6 10.3 11.3 4.96 10.7 1.22 0.675 44.34 38.4 8.9 5.3 10.5 10.3 5.27 19.1 1.19 0.647 57.82 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. In accordance with Accounting Standards Codification No. 360, “Property, Plant and Equipment,” the figures of the consolidated statements of operations for the prior years related to the discontinued operations have been separately reported from the ongoing operating results to conform with the current year presentation. 3. Starting with the fiscal year ended March 31, 2010, the Companies adopted Accounting Standards Codification No. 280, “Segment Reporting” (previously Statement of Financial Accounting Standards No.131, “Disclosures about Segments of an Enterprise and Related Information”). The figures of the segment information for the prior years have been restated to conform with the current year presentation. 4. Starting with the fiscal year ended March 31, 2011, the solar power conditioner business in the “Industrial Automation Business” was transferred to “Other.” The figures of the segment information for the prior years have been restated to conform with the current year presentation. 1. Macroeconomic Environment In fiscal 2011, the economic climate in Japan continued to face harsh conditions, such as depression in corporate production activities and consumer spending due to the impact of the Great East Japan Earthquake, which occurred on March 11, 2011. Moreover, efforts to recover from these impacts were impeded by electricity shortages, which were the result of the nuclear power plant incident that followed the earthquake as well as the tight supply and demand situation regarding parts. Overseas, while growth continued in emerging countries, the combined impacts of the monetary tightening in China, high unemployment rates in the United States, the instability of financial systems in Europe, and the severe flooding in Thailand in October 2011 further strengthened the sense of stagnancy in the global economy. The decrease in exports as a result of disrupted supply chains in Japan and the sharp rise in resource imports forced Japan to record a trade deficit for the first time in 31 years, when deficits resulted from the 1979 oil crisis. Also, the current account balance surplus dropped by more than 50% in comparison with fiscal 2010. Further, the real GDP of Japan was down 1.8% year on year during the first quarter of the fiscal year. While a recovery was evident during the summer months, real GDP did not show any change over the full fiscal year and was down 0.7% for the calendar year. Growth Rates of Real GDP for Each Country/Region (Calendar-Year Basis) 2010 2011 2012 Estimates Japan 4.4 –0.7 2.0 2.3* –0.6* U.S. 3.0 1.7 2.1 EU 1.9 1.4 –0.3 China 10.4 9.2 8.2 India 10.6 7.2 6.9 Brazil Total 7.5 2.7 3.0 5.3 3.9 3.5 Source: IMF; “World Economic Outlook,” April 2012 Note: Fiscal-year basis for figures marked with an asterisk (*) Domestic Macroeconomic Environment Growth Rate of Real Private Capital Investment (%) 6 3 0 –3 –6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 (FY) Note: Seasonally adjusted Source: Cabinet Office, Government of Japan Growth Rate of Machinery Orders (Manufacture) (Billions of yen) 1,000 950 900 850 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 (FY) Orders [left axis] Change from the previous quarter [right axis] Note: Seasonally adjusted Source: Cabinet Office, Government of Japan (%) 15 10 5 0 –5 2. The Omron Group Market Environment In Japan, the drive for energy saving and increased environ- mental awareness contributed to higher product sales. Also, demand for Omron products is expanding steadily in growing markets in China and the Asia Pacific region. Conversely, downward pressure was placed on earnings by soaring materials prices and the strong yen, for which the average exchange rates appreciated to ¥79.3 to the U.S. dollar, up ¥6.5 from the previous fiscal year, and to ¥110.3 to the euro, a ¥3.2 year-on-year rise. The direct impact of the Great East Japan Earthquake was minimal for the Omron Group, whose main production sites are located outside the affected areas. In response to the supply chain disruptions, we established emergency product supply systems to fulfill our responsibility to supply products and limit the impact of these disruptions on society to the greatest extent possible. Index of Electronic Parts and Devices (Seasonally adjusted indices, 2005 average =100) Silver and Copper Prices Exchange Rates 300 250 200 150 100 50 2008 2009 2010 2011 (Yen/kg) 120,000 100,000 80,000 60,000 40,000 20,000 0 (Yen/kg) 1,800 1,500 1,200 900 600 300 0 (Yen) 160 150 140 130 120 110 100 90 80 70 2008 2009 2010 2011 2008 2009 2010 2011 Production Shipments Inventory Silver [left axis] Copper [right axis] US$ EUR Source: Ministry of Economy, Trade and Industry 88 Omron Corporation Integrated Report 2012 89 Overview of Consolidated Results and Financial Condition Note: Segment operating income is prepared using the single-step method (which does not show individual income levels) based on U.S. GAAP. For an easier comparison with other companies, operating income represents gross profit minus selling, general and administrative (SG&A) expenses and research and development (R&D) expenses. In this market environment, the Group’s consolidated net sales were heavily affected by the strong yen, but it was still able to record a 0.3% year-on-year increase, to ¥619.5 billion, due to sales contributions of such initiatives as expanding operations in emerging countries and introducing new products. However, the strong yen and high raw materials prices significantly impacted income, resulting in year-on-year decreases of 16.4% in operating income, to ¥40.1 billion; 19.5% in income before income taxes, to ¥33.5 billion; and 38.8% in net income attributable to shareholders, to ¥16.4 billion. Total assets decreased 4.5% from the end of the previous fiscal year, largely due to declines in cash and time deposits, which was a result of the redemption of commercial paper, as well as in deferred tax assets. Total shareholders’ equity was up 2.6%, to ¥320.8 billion, due to the accumulation of retained earnings, and led to a rise in the shareholders’ equity ratio, to 59.7%, from 55.6% at the end of the previous fiscal year. Return on equity (ROE) stood at 5.2%, and return on invested capital (ROIC) was 6.9%, both percentages down from 8.7% and 9.3%, respectively, in the previous fiscal year. Net Sales & Income before Income Taxes Net Income Attributable to Shareholders & ROE Total Shareholders’ Equity and Ratio of Shareholders’ Equity to Total Assets (Billions of yen) (Billions of yen) 160 800 600 400 200 0 –200 120 80 40 0 –40 07 08 09 10 11 (FY) Net sales [left axis] Income (loss) before income taxes [right axis] * Figures have been restated to account for businesses discontinued in FY2007. (Billions of yen) 50 25 0 –25 –50 07 08 09 10 11 (FY) Net income attributable to shareholders [left axis] ROE [right axis] (%) 20 10 0 –10 –20 (Billions of yen) 400 300 200 100 0 07 08 09 10 11 (FY) Total shareholders’ equity [left axis] Ratio of shareholders’ equity to total assets [right axis] (%) 80 60 40 20 0 Review and Analysis of the Statements of Income Net Sales In fiscal 2011, the yen continued to appreciate against the dollar and the euro, negatively impacting sales. At the same time, sales benefited from the successes of such initiatives as expanding operations in China, India, and other emerging countries and the aggressive introduction of new products. As a result, net sales were up ¥1.6 billion year on year, or 0.3%, to ¥619.5 billion. By region, sales declined 1.4% in Japan. Overseas, sales in Europe were down 1.1%, due to the impacts of the sovereign debt crisis, whereas sales were up 0.6% in the Americas, 4.2% in the Greater China region, and 4.7% in the Asia Pacific region. Performance in the Greater China region continued to lead other overseas segments in terms of both net sales and operating income. Consolidated Operating Income Analysis (YoY) Billions of yen Sales increase, product mix, fixed manufacturing costs +7.8 –8.5 Exchange loss Material costs increase –3.1 SG&A, R&D, Exchange gain +3.1 –7.2 SG&A, R&D increase (including strategic investment) 40.1 Gross profit loss –3.8 bn Operating income loss –5.4 bn (Exchange loss) 2011 Actual (FY) 48.0 2010 Actual Cost of Sales and SG&A Expenses Cost of sales increased 1.4% year on year due to soaring raw materials prices, and the cost of sales ratio rose 0.7 percentage point, to 63.2%. In fiscal 2011, the average price per kilogram of silver rose rapidly, to ¥92,379, compared with ¥62,664 per kilogram recorded in the previous year, and the unit price of copper also remained high. While the Company strove to limit manufacturing fixed costs and enhance its product mix, the environment continued to present difficul- ties with regard to profitability. SG&A expenses increased ¥3.3 billion, or 2.3%, from the previous fiscal year, and the SG&A-to-sales ratio rose 0.5 percentage point, to 23.5%. At the same time, R&D expenses were up ¥0.8 billion, or 1.9%, and the R&D-to-sales ratio rose 0.1 percentage point, to 6.8%. This increase was due to the Company’s policy to steadily implement investment as neces- sary for future growth. Other Expenses (Income) * See Note 12 on page 115. Other expenses increased ¥0.2 billion year on year, to ¥6.6 billion, due to the impact of loss on impairment of goodwill and foreign exchange loss, net. Income before Income Taxes, Net Income Attributable to Shareholders, and Profit Distribution As a result of the above, income before income taxes and equity in loss (earnings) of affiliates amounted to ¥33.5 billion, declining ¥8.1 billion from the ¥41.7 billion recorded in the previous fiscal year. Likewise, net income attributable to shareholders was ¥16.4 billion, down ¥10.4 billion from the previous year’s ¥26.8 billion. Basic net income attributable to shareholders per share fell from ¥121.7 in fiscal 2010, to ¥74.5 in fiscal 2011. The Company distributed an annual cash dividend of ¥28.0 per share in fiscal 2011, representing a ¥2.0 decrease from the previous fiscal year payment. The dividend payment was determined based on the Company’s basic policy of securing (Yen) 50 40 30 20 10 0 Costs, Expenses, and Income as Percentages of Net Sales Net sales Cost of sales Gross profit Selling, general and administrative expenses Research and development expenses Other expenses, net Income before income taxes and equity in loss (earnings) of affiliates Income taxes Net income Segment Information sufficient internal capital resources for future growth while maintaining a minimum 20% dividend payout ratio and targeting a 2% dividend on equity (DOE) ratio and returning profits to shareholders to the greatest extent possible after these conditions are met. The consolidated dividend payout ratio was 37.6%, and the DOE ratio was 1.9% in fiscal 2011. Dividends per Share 07 08 09 10 11 (FY) FY2011 100.0% FY2010 100.0% FY2009 100.0% 63.2 36.8 23.5 6.8 1.1 5.4 2.9 2.6 62.5 37.5 23.0 6.7 1.1 6.7 2.3 4.3 64.9 35.1 25.4 7.2 0.6 1.9 0.7 0.7 Note: Segment operating income is prepared using the single-step method (which does not show individual income levels) based on U.S. GAAP. For easier compari- son with other companies, operating income represents gross profit minus SG&A expenses and R&D expenses. Note: In segment information, sales represent sales to external customers and exclude intersegment transactions. Conversely, operating income includes income from intersegment transactions before deductions of headquarters expenses and other non-apportionable amounts. Please refer to pages 36–47 for detailed segment business results, fiscal 2012 outlook, and strategy. 1. Review of Operations by Business Segment Industrial Automation Business (IAB) IAB net sales decreased 0.4% year on year, to ¥270.8 billion. Operating income was impacted by the strong yen and the Group’s strategic investment efforts and thus dropped 12.8%, to ¥33.3 billion. In Japan, sales were up during the first quarter but were lackluster throughout the rest of the fiscal year due to the impacts of inventory adjustment trends and sluggish demand for semiconductor and electronic compo- nent-related products. Overseas, operations in Europe were affected by external factors including the strong yen and the instability of financial systems, but these factors were offset by strong sales of control equipment for oil- and gas-related businesses in the Americas and the benefits of reconstruction demand following the floods in Thailand. Overall performance in overseas operations was strong accordingly. Electronic & Mechanical Components Business (EMC) EMC net sales increased 2.2% year on year, to ¥83.0 billion. However, operating income declined 39.2%, to ¥7.2 billion, due to the lower sales of high-profit-margin factory automation (FA) products as well as the impacts of the strong yen and soaring raw materials prices. In Japan, sales of automotive components and amusement devices quickly recovered after the Great East Japan Earthquake, and post-earthquake recon- struction demand drove strong sales of certain components for consumer products. Overseas, sales of products for the automobile industry and mobile telephones grew. Automotive Electronic Components Business (AEC) AEC net sales edged up 0.9% year on year, to ¥85.0 billion, however, operating income fell 35.3%, to ¥2.7 billion, as a result of the strong yen and the impacts of the Great East Japan Earthquake and floods in Thailand. Domestic sales were adversely influenced in the first half of the fiscal year by reduced production among automobile manufacturers, the main customers for this business. However, demand recov- ered later in the year in conjunction with the recovery of these manufacturers. In overseas operations, strong demand from overseas automobile manufacturers and the economic growth of emerging countries contributed positively to sales. 90 Omron Corporation Integrated Report 2012 91 Social Systems, Solutions and Service Business (SSB) In SSB, net sales decreased 10.4% year on year, to ¥57.2 billion, and operating income was down 94.1%, to ¥0.1 billion. The environmental solutions business saw the smooth launch of energy-saving, creating, and storing businesses, and the related maintenance business witnessed continued sales expansion for solar power generation and accompanying installation services. Conversely, the railway infrastructure business suffered due to the persisting trend of limited invest- ment among railway companies after the earthquake, which offset favorable sales of safety and security solutions centered on remote monitoring systems, thus leading to sluggish sales. Performance in the traffic control and road control systems business was lackluster in a similar manner. Healthcare Business (HCB) HCB net sales stepped up 3.0% year on year, to ¥62.4 billion, but operating income was down 28.4%, to ¥2.9 billion, as a result of the impacts of the strong yen and the imple- mentation of strategic investments. In Japan, sales of new home-use healthcare devices, such as activity monitors, body composition monitors, and thermometers, proved to be favor- able and we managed to expand our market share. In equip- ment for use in medical institutions, the world’s first visceral fat monitor posted sales growth. However, the overall trend of curtailing capital investment in the market resulted in weak sales of physiological monitors, a core product. Overseas, meanwhile, demand for Omron’s healthcare equipment increased, particularly in emerging markets, and sales were strong in all areas except the Americas, where the impact of the strong yen was particularly heavy. Other Businesses The Other segment’s net sales increased 7.8% year on year, to ¥53.5 billion, and operating loss improved ¥1.1 billion, to ¥3.6 billion, due to the benefits of cost-reduction measures instituted in the micro devices business. In the environmental solutions business, the social drive for electricity saving and the development of alternative energy sources contributed to expansion of the energy-saving components and services business, which includes systems for making electricity usage data more accessible, while sales of solar power condi- tioners, as part of the energy-creation business, were also strong. In the electronic systems and equipment business, demand for uninterruptible power supply units continued to increase in view of rising power supply concerns. In the micro devices business, sales were sluggish for contract semicon- ductor production orders and custom integrated circuits for consumer products and industrial use. In the backlight business, sales increased notably thanks to strong demand for smartphones. Growth in Net Sales by Business Segment Composition of Net Sales by Business Segment IAB EMC AEC SSB HCB Other FY2011 (0.4)% 2.2 0.9 (10.4) 3.0 7.8 FY2010 33.3% FY2009 (24.8)% 14.8 12.1 10.1 (4.3) 13.9 (7.6) (8.5) (19.8) (0.4) (14.5) IAB EMC AEC SSB HCB Other FY2011 43.7% FY2010 44.0% FY2009 38.9% 13.4 13.7 9.2 10.1 8.6 13.2 13.6 10.3 9.8 8.0 13.5 14.3 11.0 12.1 8.3 Note: The Other segment includes “Eliminations and Corporate.” Note: The composition of net sales is based on the classifications reported in the Six-Year Summary (page 88). Greater China In China, while the monetary tightening measures imple- mented by the Chinese government slowed the economy to a degree, the overall strong growth trend in the market continued. In this environment, sales of components for the automobile industry and products for use in mobile telephones in the EMC were solid, and the HCB made particular notable contributions to sales. As a result, net sales in the Greater China region rose 4.2% year on year, to ¥101.1 billion. Operating income, however, decreased 26.3%, to ¥8.4 billion, due to the worsening of the product mix. Regardless though, the Greater China region still accounted for the largest portion of the sales and income compared with other overseas segments. Asia Pacific In the Asia Pacific region, the impact of the floods in Thailand was only temporary, and the subsequent reconstruction demand contributed to higher sales in the IAB. The AEC, HCB, and other businesses also registered improved performances. As a result, net sales in the Asia Pacific region increased 4.7% year on year, to ¥52.4 billion. Operating income contracted 20.6%, to 4.7%, due to the impacts of natural disasters and the worsening of product mixes. Financial Condition Assets Total assets amounted to ¥537.3 billion at the end of fiscal 2011, representing a decrease of ¥25.5 billion, or 4.5%, compared with the previous fiscal year-end. This decrease is mainly attributable to declines in cash and time deposits and the result of the redemption of commercial paper as well as in deferred tax assets. Liabilities and Shareholders’ Equity Total liabilities amounted to ¥215.6 billion, down ¥33.5 billion from the previous fiscal year-end. This decline is largely due to lower short-term debt and termination and retirement benefits. Total shareholders’ equity was up ¥8.1 billion, to ¥320.8 billion, causing the shareholders’ equity ratio to rise 4.1 percentage points, to 59.7%, compared with 55.6% at the end of the previous fiscal year. The debt/equity ratio was 0.675 times, showing improvement from the previous year’s 0.799 times. Shareholders’ equity per share was ¥1,457.51 at the end of the fiscal year, compared with ¥1,421.03 per share at the end of the previous fiscal year. Working Capital & Current Ratio (Billions of yen) 200 150 100 50 0 07 08 09 10 11 (FY) Working capital [left axis] Current ratio [right axis] (%) 220 190 160 130 100 Outstanding Interest-Bearing Debt & Debt/Equity Ratio (Billions of yen) (Times) 2.0 60 45 35 15 0 1.5 1.0 0.5 0 07 08 09 10 11 (FY) Outstanding interest-bearing debt [left axis] Debt/equity ratio [right axis] 2. Review of Operations by Region Japan sales in the Americas rose 0.6%, to ¥74.8 billion, and operating income increased 5.4%, to ¥3.0 billion. Cash Flows In Japan, demand for semiconductors, electronic compo- nents, and consumer electronics was sluggish, and invest- ment in railways and transportation infrastructure was low. At the same time, post-earthquake reconstruction demand and changes in consumer tendency fueled strong sales of automobiles, machine tools, amusement devices, and environment-related products. Also as a result of these trends, sales in the IAB, EMC, AEC, and HCB were relatively unchanged from the previous fiscal year. Due to the above, net sales (including direct exports) in Japan declined 1.4% year on year, to ¥307.6 billion, and operating income was down 27.1%, to ¥21.7 billion. The Americas In the Americas, sales in the HCB were heavily impacted by the strong yen. However, the IAB benefited from the recent increases in the price of crude oil, and sales of local oil- and gas-related businesses were up accordingly. As a result, net Europe In Europe, the Company faced an increasingly harsh operating environment, as major countries showed negative growth on a quarterly basis and in the exchange market the yen continued to appreciate against the euro. Performance in the HCB was strong, but sales of certain products in the IAB and EMC were adversely affected by ongoing inventory adjustment trends. As a result, net sales in Europe declined 1.1% year on year, to ¥83.6 billion, and operating income decreased 11.0%, to ¥3.0 billion. Sales Breakdown by Region (%) 100 80 60 40 20 0 7.6% 14.7% 14.8% 11.7% 8.1% 15.7% 13.7% 12.0% 8.5% 16.3% 13.5% 12.1% 51.3% 50.5% 49.6% 09 10 11 (FY) Asia Pacific Greater China Europe The Americas Japan * Includes direct exports Cash and cash equivalents at the end of the fiscal year stood at ¥45.3 billion, a ¥29.5 billion decrease from the end of the previous fiscal year. Cash Flows from Operating Activities Net cash provided by operating activities totaled ¥31.9 billion, down ¥10.0 billion from the previous fiscal year. Major factors included a decline in net income before the deduction of noncontrolling interests and decreases in notes and accounts receivable—trade, net, and inventories. Cash Flows from Investing Activities Net cash used in investing activities amounted to ¥26.5 billion, up ¥6.3 billion from the previous fiscal year. This advance was the result of increased investments in such areas as the expansion of production sites and production facilities. Cash Flows from Financing Activities Net cash used in financing activities was ¥33.5 billion, compared with net cash provided by financing activities of ¥3.3 billion in the previous fiscal year. Major outflows included those to repay debt and issue dividend payments. Free Cash Flow (Billions of yen) 40 30 20 10 0 –10 07 08 09 10 11 (FY) 92 Omron Corporation Integrated Report 2012 93 Business and Other Risks Regarding a number of items described in the “Status of Business and the Status of Accounting” of this report, some items may pose risks and influence the Omron Group’s management results and financial condition (including share price), and Omron believes 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, 2012, the release date of its Yukashoukenhou- kokusho (Annual Securities Report filed under the Financial Instruments and Exchange Act of Japan). (1) Economic Conditions The primary businesses of the Omron Group are the Indus- trial Automation Business, Electronic and Mechanical Compo- nents Business, Automotive Electronic Components Business, Social Systems, Solutions and Service Business, and Health- care Business. Accordingly, demand for Omron Group products is affected by economic conditions in these markets. Both in Japan and overseas, therefore, market forces affecting the product markets in which the Omron Group conducts business can result in the contraction of demand for its 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 such business activi- ties as production and sales in overseas markets. The Group may be subject to operating difficulties in countries outside Japan related to possible social unrest due to factors including differences in culture or religion; political turmoil and uncer- tainty in economic trends; differences in business customs in areas such as the structure of relationships with local businesses and the collection of receivables, specific legal systems and investment regulations; changes in tax systems; difficulty guaranteeing safety, labor shortages, and problems in the labor management relationship; 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 116 overseas affiliated companies and continues to target increased sales in emerging countries, such as China and other Asian countries, while taking other steps to reinforce its business operations in overseas markets. The percentage of consolidated net sales accounted for by overseas sales during fiscal 2011 was 52.2%, and Omron expects further increases in the overseas operations ratio due to factors such as production shifts. The Omron Group seeks to hedge against exchange rate risk, for example, by 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. (4) Product Defects The Omron Group seeks to provide “maximum customer satisfaction” by providing the best quality products and services based on its “Quality first principle.” Regarding quality, the Group has established an ISO-certified quality control system and develops and manufactures its products in accordance with this system. A Groupwide quality check system is in place for the ongoing improvement of the quality of the Group’s entire line of products and services. While Omron takes every precaution against the occur- rence of defects, it has become extremely difficult to guarantee that defects will not occur (including defects that arise due to the changing environments in which the products are used) or that recalls will not occur. Changing conditions in Japan, such as the establishment of the Consumer Affairs Agency, have necessitated corporate responses that pay more attention to consumer protection. Product quality is also increasingly a major issue overseas. For this reason, product defects that require large-scale product recalls or that carry damage beyond the coverage capability of liability insurance could not only incur substantial losses for the Group but also seriously damage trust in the Company and the Omron brand. Such a situation could lead to declining sales for the Group and has the potential to negatively impact the Group’s financial condition. The Group also strives to provide Environmental Assurance Products that do not include banned substances designated in the Restriction of Hazardous Substances (RoHS) Directive enforced by the European Union in July 2006. The Group is investigating the status of regulated chemical substances in components and materials and is seeking to use compo- nents and materials that do not contain banned substances. Since 2009, the Group adheres to the European Union’s Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) Regulation concerning the identification of contained substances. Despite the Group’s efforts, the frequent modifications of the regulations on controlled substances complicate the supervisory efforts, and it is possible that infractions could incur, such as failure to comply with modified regulations. (5) Research and Development Activities The Omron Group has established technical strategies to facilitate the development and reinforcement of technologies from a medium- to long-term perspective and is advancing research and development (R&D) activities accordingly. Sensing and control technology is an area in which the Company is particularly strong; this area represents the source of our competitive edge. For this reason, we are focusing R&D expenses on our mainstay Industrial Automa- tion Business and Electronic and Mechanical Components Business, areas in which we are pursuing the development of new products and the strengthening of manufacturing technologies. As a result, the R&D-to-sales ratio remains at approximately 7%. The Group conducts R&D activities with the aim of devel- oping new products that meet market needs. However, it is possible that the anticipated results of these activities may not be achieved due to delays in R&D plans or a lack of technological capabilities. It is also possible that the products created through such R&D activities may not be as successful in markets as expected. In such cases, the Omron Group’s operating results and financial condition could be adversely affected. (6) Information Leakage The Omron Group acquires personal information and classi- fied customer information through its business processes and acquires important information in the course of business. The Omron Group is taking steps to reinforce control over the information the Group handles and to further improve employees’ information literacy with the goal of preventing external entry into its internal information systems and misap- propriation 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 conducts research on technology devel- oped by other companies and in the public domain in the course of its R&D and design activities. A very large number of intellectual property rights exist within the Group’s range of business and products, and new intellectual property rights are declared on a daily basis. The potential therefore exists that a third party could present a claim regarding one of the Group’s specific products or components, which could have a negative impact on the Group’s operating results and financial condition. When exercising our intellectual property rights during efforts to resolve issues related to the intellectual property rights of the Group, disputes with third parties could arise, such as oppositional tactics from the third party subject to the exercise of rights. The Omron Group takes appropriate measures to recognize and compensate employees for inventions, such as through the Employee Invention Compensation Program and the Invention Commendation Program. Disputes regarding the value of an invention can arise with inventors, including inven- tors who have retired from the Group. The Omron Group has accumulated technology and exper- tise allowing it to differentiate its products from those of its competitors. However, the ever-increasing sophistication of counterfeit product manufacturing and sales methods and other factors make it virtually impossible to completely protect all of the Group’s proprietary technology and exper- tise in certain regions, including China. The Group implements strategic measures to protect its intellectual property rights, but the circulation of low-quality counterfeit items fraudu- lently bearing the Omron brand has the potential to damage the trust in the Group’s products and the Group’s brand image and could have a negative impact on the Group’s operating activities. Omron has focused on brand management since its incep- tion and in recent years has initiated prompt and appropriate countermeasures to the use of domain names similar to “Omron” that have appeared overseas. Identifying and taking action against all such fraudulent domain names that have been registered is virtually impossible. The danger exists that the same or a similar name to “Omron” could be used in a fraudulent business transaction that could damage the trust in the Group. (8) Natural Disasters The Omron Group has implemented the necessary safety measures and taken steps to facilitate the continuity and early restoration of business operations in the case of a natural disaster, fire, or other calamity, including a large-scale earthquake in Japan’s Tokai, Tonankai, or Tokyo metropolitan areas, and has implemented preventive measures for other types of emergency situations, such as a worldwide outbreak of a new form of influenza virus. The Group and its business clients maintain operating bases in Japan and around the world, making it virtually impossible to completely avoid the risks that would arise from an unfore- seen natural disaster, fire, or other calamity. A major event of an unforeseen scale could impact Group operations, such as limiting its ability to carry out production and business activi- ties. Events such as the above could have a negative impact on the Group’s operating results and financial condition. (9) Raw Material Shortages and Provision Price Rises It is absolutely essential to the Group’s manufacturing activities to obtain raw materials and parts of sufficient quality in a timely manner and in necessary quantities. Therefore, we stringently select suppliers from a reliability standpoint. However, if one of the following supply issues were to arise and we were to have difficulty changing suppliers, securing additional suppliers, or switching to different parts under such conditions, the Group’s performance could be adversely affected. • The supply chain is significantly disrupted due to an unfore- seen natural disaster or accident. • The deterioration of the management situation at a supplier resulted in reduced or halted supply of materials or parts. • Market demand increased. Further, while the Group has concluded contracts with suppliers to fix provision prices, if increased demand in emerging countries or an influx of capital into these countries were to result in a rise in the prices of petrochemicals, steel, silver, copper, rare earths, or other raw materials, it could impact manufacturing costs. Certain raw materials and parts can only be procured from specific suppliers. According, events such as the above could have a negative impact on the Group’s operating results and financial condition. (10) Environmental Laws and Regulations The Group must comply with a wide variety of environ- mental laws and regulations, including those related to climate change, air and water pollution, hazardous substances, waste, product recycling, and the contamination of soil and groundwater. These laws and regulations not only apply to the Omron Group’s current business activities but may also be retroactively applied to past business activities or the past activities of businesses transferred from other companies through acquisition or some other means. It is possible that compliance with future environmental laws and regulations or efforts to improve the environmental soundness of opera- tions could result in a rise in expenses related to the environ- ment, which could subsequently have an adverse effect on the Group’s operating results and financial condition. 94 Omron Corporation Integrated Report 2012 95 Millions of yen Thousands of U.S. dollars (Note 2) FY2011 FY2010 FY2011 LIABILITIES AND SHAREHOLDERS’ EQUITY FY2011 FY2010 FY2011 Millions of yen Thousands of U.S. dollars (Note 2) Consolidated Balance Sheets OMRON Corporation and Subsidiaries March 31, 2012 and 2011 ASSETS Current Assets: Cash and cash equivalents (Note 1) ¥ 45,257 ¥ 74,735 $ 551,915 Notes and accounts receivable—trade (Note 5) 143,304 137,531 1,747,610 Allowance for doubtful receivables (Note 1) Inventories (Note 1, 3) Deferred income taxes (Note 1, 13) Other current assets (Note 4, 18, 20) (2,205) 92,253 17,975 11,513 (2,230) 86,151 20,183 11,520 (26,890) 1,125,037 219,207 140,402 Total Current Assets 308,097 327,890 3,757,281 Property, Plant and Equipment (Note 1, 7): Land Buildings Machinery and equipment Construction in progress Total Accumulated depreciation 26,950 128,870 142,148 7,417 27,875 125,686 136,792 6,836 328,659 1,571,585 1,733,512 90,451 305,385 297,189 3,724,207 (184,679) (177,191) (2,252,183) Current Liabilities: Short-term debt (Note 8) Notes and accounts payable—trade Accrued expenses Income taxes payable Other current liabilities (Note 1, 10, 13, 18, 20) ¥ 18,774 ¥ 45,519 $ 228,951 79,331 29,179 623 24,989 77,836 29,414 2,188 26,475 967,451 355,841 7,598 304,744 Total Current Liabilities 152,896 181,432 1,864,585 Deferred Income Taxes (Note 1,13) Termination and Retirement Benefits (Note 1, 10) Other Long-Term Liabilities 738 60,432 1,577 697 65,485 1,524 9,000 736,976 19,232 Shareholders’ Equity (Note 1, 11): Common stock, no par value: Authorized: 487,000,000 shares in 2012 and 2011 Net Property, Plant and Equipment 120,706 119,998 1,472,024 Issued: 239,121,372 shares in 2012 and 2011 64,100 64,100 781,707 Investments and Other Assets: Investments in and advances to affiliates (Note 1) Investment securities (Note 1, 4, 20) Leasehold deposits Deferred income taxes (Note 1, 13) Other assets (Note 1, 6, 7) 14,443 36,161 7,219 34,516 16,181 13,521 35,694 7,126 42,190 16,371 176,134 440,988 88,037 420,927 197,329 Total Investments and Other Assets 108,520 114,902 1,323,415 Total See notes to consolidated financial statements. ¥ 537,323 ¥ 562,790 $ 6,552,720 Capital surplus Legal reserve Retained earnings Accumulated other comprehensive income (loss) (Note 1, 16) Treasury stock, at cost— 18,991,739 shares and 99,078 10,034 260,557 (68,433) 99,081 9,574 250,824 (66,227) 1,208,268 122,366 3,177,524 (834,548) 19,032,544 shares in 2012 and 2011, respectively (44,496) (44,599) (542,634) Total Shareholders’ Equity Noncontrolling interests Total Net Assets Total See notes to consolidated financial statements. 320,840 312,753 3,912,683 840 899 10,244 321,680 313,652 3,922,927 ¥537,323 ¥562,790 $6,552,720 96 Omron Corporation Integrated Report 2012 97 Consolidated Statements of Income OMRON Corporation and Subsidiaries Years ended March 31, 2012, 2011 and 2010 Consolidated Statements of Comprehensive Income (Loss) OMRON Corporation and Subsidiaries Years ended March 31, 2012, 2011 and 2010 Millions of yen Thousands of U.S. dollars (Note 2) FY2011 FY2010 FY2009 FY2011 ¥619,461 ¥617,825 ¥524,694 $7,554,402 Net Income Millions of yen Thousands of U.S. dollars (Note 2) FY2011 FY2010 ¥16,352 ¥ 27,016 FY2009 ¥ 3,621 FY2011 $199,415 Net Sales (Note 1) Costs and Expenses: Cost of sales Selling, general and administrative expenses (Note 1) Research and development expenses Other expenses, net (Note 8,12,20,21) 391,574 145,662 42,089 6,589 386,123 142,365 41,300 6,344 340,352 133,426 37,842 2,879 4,775,293 1,776,366 513,280 80,353 Total 585,914 576,132 514,499 7,145,292 Income before Income Taxes and Equity in Loss (Earnings) of Affiliates Income Taxes (Note 1,13) Equity in Loss (Earnings) of Affiliates Net Income Net Income (loss) attributable to noncontrolling interests 33,547 17,826 (631) 16,352 (37) 41,693 14,487 190 27,016 234 10,195 3,782 2,792 3,621 103 409,110 217,390 (7,695) 199,415 (451) Net Income attributable to shareholders ¥ 16,389 ¥ 26,782 ¥ 3,518 $ 199,866 Per Share Data (Note 14): Net Income attributable to shareholders Basic Diluted See notes to consolidated financial statements. FY2011 Yen FY2010 FY2009 U.S. dollars (Note 2) FY2011 74.46 74.46 121.66 121.66 15.98 15.98 0.91 0.91 Other Comprehensive Income (Loss), –net of tax (Note 16): Foreign currency translation adjustments: Foreign currency translation adjustments arising during the year Reclassification adjustment for the portion realized in net income Net change in Foreign currency translation adjustments during the year Pension liability adjustments: Pension liability adjustments arising during the year Reclassification adjustment for the portion realized in net income Net change in Pension liability adjustments during the year 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 sale realized in net income Reclassification adjustment for net gains on Share exchange in net income Net unrealized gains (losses) Net gains (losses) on derivative instruments: Net gains on derivative instruments designated as cash flow hedges during the year Reclassification adjustment for net gains (losses) realized in net income Net gains (losses) Other Comprehensive Income (Loss) Comprehensive Income Comprehensive Income (Loss) attributable to noncontrolling interests (1,613) (10,376) (1,400) (19,671) (892) (14) — (10,878) (2,505) (10,390) (1,400) (30,549) 625 (704) (79) 460 227 (188) (74) 425 3 (57) (54) (2,213) 14,139 (1,534) 4,531 7,622 (649) (2,183) (514) 4,017 (1,566) 4,966 466 (10) (4) (1,114) 893 (841) 52 (13,635) 13,381 305 (350) — 4,921 737 (186) 551 8,089 11,710 (8,586) (964) 5,610 2,768 (2,293) (902) 5,183 37 (695) (658) (26,988) 172,427 (44) 212 62 (536) Comprehensive Income attributable to shareholders (Note 1) ¥14,183 ¥ 13,169 ¥11,648 $172,963 See notes to consolidated financial statements. 98 Omron Corporation Integrated Report 2012 99 (762) (762) Net loss on sale and disposal of property, plant and equipment Balance, March 31, 2010 239,121,372 64,100 99,081 9,363 230,859 (52,614) (44,462) 306,327 Consolidated Statements of Shareholders’ Equity OMRON Corporation and Subsidiaries Years ended March 31, 2012, 2011 and 2010 Number of common shares issued Common stock Capital surplus Legal reserve Millions of yen Accumulated other comprehensive income (loss) Retained earnings Total Shareholders’ Equity Noncontrolling interests Total Net Assets Treasury stock Balance, March 31, 2009 239,121,372 ¥64,100 ¥99,059 ¥ 9,059 ¥231,388 ¥(60,744) ¥(44,451) ¥298,411 ¥1,570 ¥299,981 3,518 (3,743) 3,518 103 3,621 (3,743) (3,743) Net income Cash dividends paid to OMRON Corporation shareholders, ¥17 per share Cash dividends paid to noncontrolling interests Equity transactions with noncontrolling interests and other Transfer to legal reserve Other comprehensive income (loss) Acquisition of treasury stock Sale of treasury stock Grant of stock options Net income Cash dividends paid to OMRON Corporation shareholders, ¥30 per share Cash dividends paid to noncontrolling interests Equity transactions with noncontrolling interests and other Transfer to legal reserve Other comprehensive income (loss) Acquisition of treasury stock Sale of treasury stock Net income Cash dividends paid to OMRON Corporation shareholders, ¥28 per share Cash dividends paid to noncontrolling interests Transfer to legal reserve Other comprehensive income (loss) Acquisition of treasury stock Sale of treasury stock 304 (304) — (62) (62) — 8,130 8,130 (41) 8,089 (0) 22 (13) 2 (13) 2 22 (13) 2 22 808 234 307,135 27,016 26,782 26,782 (6,605) 211 (211) 16,389 (6,164) 460 (460) (6,605) (6,605) (0) (0) (121) (121) — — (13,613) (13,613) (22) (13,635) (140) 2 899 (37) 313,652 16,352 16,389 (6,164) (6,164) — (15) (15) — Balance, March 31, 2011 239,121,372 64,100 99,081 9,574 250,824 (66,227) (44,599) 312,753 (0) (1) (140) 3 (140) 2 (3) (32) (2,206) (2,206) (7) (2,213) (10) 113 (10) 78 (10) 78 Balance, March 31, 2012 239,121,372 ¥64,100 ¥99,078 ¥10,034 ¥260,557 ¥(68,433) ¥(44,496) ¥320,840 ¥ 840 ¥321,680 Common stock Capital surplus Legal reserve Thousands of U.S. dollars (Note 2) Accumulated other comprehensive income (loss) Retained earnings Total Shareholders’ Equity Noncontrolling interests Total Net Assets Treasury stock Balance, March 31, 2011 $781,707 $1,208,305 $116,756 $3,058,829 $(807,646) $(543,890) $3,814,061 $10,963 $3,825,024 Net income Cash dividends paid to OMRON Corporation shareholders, $0.34per share Cash dividends paid to noncontrolling interests Transfer to legal reserve Other comprehensive income (loss) Acquisition of treasury stock Sale of treasury stock Balance, March 31, 2012 See notes to consolidated financial statements. 199,866 (75,171) 5,610 (5,610) 199,866 (451) 199,415 (75,171) — (183) (75,171) (183) — (37) (390) (26,902) (26,902) (85) (26,987) (122) 1,378 (122) 951 (122) 951 $781,707 $1,208,268 $122,366 $3,177,524 $(834,548) $(542,634) $3,912,683 $10,244 $3,922,927 Consolidated Statements of Cash Flows OMRON Corporation and Subsidiaries Years ended March 31, 2012, 2011 and 2010 Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Millions of yen Thousands of U.S. dollars (Note 2) FY2011 FY2010 FY2009 FY2011 ¥ 16,352 ¥ 27,016 ¥ 3,621 $ 199,415 Depreciation and amortization 22,617 22,984 27,014 Loss on impairment of property, plant and equipment Net gain on sale of investment securities Loss on impairment of investment securities Loss on impairment of goodwill Termination and retirement benefits Deferred income taxes Equity in loss (earnings) of affiliates 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 sale or maturities of investment securities Purchase of investment securities Capital expenditures Decrease (increase) in leasehold deposits Proceeds from sale of property, plant and equipment Equity transaction with noncontrolling interests Decrease (increase) in investment in and loans to affiliates Proceeds from acquisition of business, net Proceeds from sale of business, net Other, net 861 671 (307) 391 2,009 (5,669) 9,981 (631) (6,838) (6,538) (483) 682 (1,562) 388 22 15,594 31,946 693 (911) 606 413 (7) 805 — (4,785) 5,374 190 (16,227) (12,174) 1,048 9,301 (453) 8,383 (518) 14,940 41,956 109 — 558 217 (636) 632 — (5,110) (1,031) 2,792 (14,440) 4,977 4,457 13,298 1,995 4,554 (139) 39,138 42,759 1,004 (15) 275,817 10,500 8,183 (3,744) 4,768 24,500 (69,134) 121,720 (7,695) (83,390) (79,732) (5,890) 8,317 (19,049) 4,732 268 190,171 389,586 8,451 (11,110) (27,502) (21,647) (20,792) (335,390) (101) 2,307 — (480) (1,012) — 520 276 1,066 — 20 — (34) — 335 1,490 (106) (931) — 431 — (1,232) 28,134 — (5,854) (12,341) — 6,342 Net cash used in investing activities (26,486) (20,210) (18,584) (323,000) Financing Activities: Net borrowings (repayments) of short-term debt Repayments of long-term debt Dividends paid by the Company Dividends paid to noncontrolling interests Acquisition of treasury stock Sale of treasury stock Other, net Net cash provided by (used in) financing activities (26,744) — (6,604) (15) (10) 2 (121) (33,492) Effect of Exchange Rate Changes on Cash and Cash Equivalents (1,446) Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of the Year (29,478) 74,735 29,052 (20,000) (5,285) (0) (140) 3 (297) 3,333 (2,070) 23,009 51,726 (16,282) (326,146) — — (3,083) (80,537) (762) (13) 1 (219) (20,358) 1,278 5,095 46,631 (183) (122) 24 (1,475) (408,439) (17,634) (359,487) 911,402 Cash and Cash Equivalents at End of the Year ¥ 45,257 ¥ 74,735 ¥ 51,726 $ 551,915 See notes to consolidated financial statements. 100 Omron Corporation Integrated Report 2012 101 Notes to Consolidated Financial Statements OMRON Corporation and Subsidiaries 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations principles generally accepted in the United States of America. OMRON Corporation (the “Company”) is a multinational Certain reclassifications have been made to amounts previously manufacturer of automation components, equipment and reported in order to conform to classifications as of and for the systems with advanced computer, communications, and control year ended March 31, 2012. technologies. The Company conducts business in more than 30 countries around the world and strategically manages its world- Principles of Consolidation wide operations through four regional management centers in the The consolidated financial statements include the accounts of United States, the Netherlands, China and Singapore. Products, the Company and its subsidiaries (collectively, the “Companies”). classified by type and market, are organized into business All significant intercompany accounts and transactions have been segments as described below. eliminated in consolidation. Industrial Automation Business manufactures and sells Investments, in which the Companies have a 20% to 50% control components and systems, including programmable logic interest (affiliates), are accounted for using the equity method. controllers, sensors, and switches used in automatic systems in The consolidated financial statements include all the Company’s industry. In the global market, industrial automation business subsidiaries (153 and 152 companies at March 31, 2012 and 2011, offers many services, such as those involving sensors, program- respectively). mable logic controllers, timers, vision sensors, automated optical inspection devices, safety components, temperature controllers, Application of Equity Method and motion controllers. Investments in the Company’s affiliated companies are accounted Electronic and Mechanical Components Business manufactures for using the equity method. and sells electric and electronic components, such as those found Affiliated companies recorded on the equity method as of in relays, switches, components, and units for amusement March 31: devices, connectors, and combination jogs. 2012 Automotive Electronic Components Business develops and — Hitachi-Omron Terminal Solutions, Corp. and others. produces automotive electronic components and other compo- Total: 12 companies nents for automobiles and automotive electronic components 2011 manufacturers throughout the world. Automotive electronic — Hitachi-Omron Terminal Solutions, Corp. and others. components business offers many services, such as those Total: 14 companies involving passive entry devices, power window switches, and electric power steering. Differing Fiscal Year Ends Social Systems Solutions and Service Business encompass Certain subsidiaries have different fiscal year ends from that of the sale of card authorization terminals mainly for the domestic the Company and respective fiscal year end financial statements markets. Passing gates, automated ticket machines, electronic of those subsidiaries were used for the purpose of the Company’s panels, terminal displays, railway infrastructure systems, traffic consolidation. For the years ended March 31, 2012 and 2011, control, road control systems, security systems, and payment difference in fiscal year ends between certain subsidiaries and the systems for traffic information and monitoring purposes are also Company did not have a material effect on the Company’s consol- supplied for the domestic market. idated financial statements. Healthcare Business sells digital blood pressure monitors, digital thermometers, body composition monitors, pedometers, use of Estimates biological information monitors, and nebulizers aimed at both the The preparation of consolidated financial statements in conformity consumer and institutional markets. with accounting principles generally accepted in the United States of Other handles search and cultivation of new businesses and as America requires management to make estimates and assumptions headquarters’ direct control business cultivates and enhances that affect the reported amounts of assets and liabilities and disclo- businesses that are not part of the above five business segments. sure of contingent assets and liabilities at the date of the consoli- The group provides products, such as solar power conditioner dated financial statements and the reported amounts of revenues equipment, computer peripheral equipment, microelectrical- and expenses during the reporting period. Actual results could differ mechanical system (MEMS) microphone chips, and liquid crystal from those estimates. display (LCD) backlight. Cash Equivalents Basis of Financial Statements Cash equivalents consist of highly liquid investments with The accompanying consolidated financial statements are stated original maturities of three months or less, including time deposits, in Japanese yen. Based upon requirements for depositary receipts commercial paper, and securities purchased with resale agree- issued in Europe, they are presented in accordance with accounting ments and money market instruments. Allowance for Doubtful Receivables an indefinite useful life is not to be amortized, but instead tested for An allowance for doubtful receivables is established in amounts impairment until its life is determined to be no longer indefinite. considered to be appropriate based primarily upon the Compa- nies’ past credit loss experience and an evaluation of potential Long-Lived Assets losses within the outstanding receivables. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an Marketable Securities and Investments asset might be unrecoverable. Recoverability of assets to be held The Companies classify all of their marketable equity and debt and used is measured by a comparison of the carrying amount of an securities as available for sale. Available-for-sale securities are asset to undiscounted cash flows expected to be generated by the carried at market value with the corresponding recognition of net asset. If such assets are considered to be potentially impaired, the unrealized holding gains and losses as a separate component of impairment to be recognized is measured by the amount by which accumulated other comprehensive income (loss), net of related the carrying amount of the assets exceeds the fair value. Assets to taxes, until recognized. If necessary, individual securities classi- be disposed of other than by sale are considered held and used until fied as available for sale are reduced to fair value by a charge to disposed. Assets to be disposed of by sale are reported at the lower income in the period in which the decline is deemed to be other of the carrying amount or fair value, less selling costs. than temporary. Available-for-sale securities are reviewed for other-than-temporary declines in the carrying amount based on Advertising Costs criteria that include the length of time and the extent to which the Advertising costs are charged to earnings as incurred. Advertising market value has been less than cost, the financial condition, and expense was ¥5,908 million ($72,049 thousand), ¥5,701 million, near-term prospects of the issuer and the Company’s intent and and ¥ 4,957 million for the years ended March 31, 2012, 2011, and ability to retain the investment for a period of time sufficient to 2010, respectively, and are included in selling, general, and admin- allow for any anticipated recovery in market value. istrative expenses in the consolidated statements of operations. Other investments are stated at the lower of cost or estimated net realizable value. The cost of securities sold is determined on Shipping and Handling Charges the average cost basis. Inventories Shipping and handling charges were ¥7,066 million ($86,171 thousand), ¥7,125 million, and ¥6,005 million for the years ended March 31, 2012, 2011, and 2010, respectively, and are included in Domestic inventories are mainly stated at the lower of cost, selling, general, and administrative expenses in the consolidated determined by the first-in, first-out method, or market value. Also, statements of operations. overseas inventories are mainly stated at the lower of cost, deter- mined by the moving-average method, or market value. Termination and Retirement Benefits Property, Plant, and Equipment Termination and retirement benefits are accounted for and are disclosed in accordance with ASC No. 715, “Compensation- Property, plant, and equipment are stated at cost. Depreciation Retirement Benefits,” based on the fiscal year end fair value of of property, plant, and equipment has been computed principally on plan assets and the projected benefit obligations of employees. a declining-balance method based upon the estimated useful lives The provision for termination and retirement benefits includes of the assets. However, certain of the Company’s subsidiaries amounts for directors and corporate auditors of the Companies. located outside Japan have computed depreciation using a straight- line method based upon the estimated useful lives of the assets. Income Taxes The estimated useful lives primarily range from 3 to 50 years for Deferred income taxes reflect the tax consequences on future buildings and from 2 to 15 years for machinery and equipment. years of differences between the tax bases of assets and liabilities Depreciation expense was ¥19,165 million ($233,720 thousand), and their financial reporting amounts, operating loss carryforwards, ¥19,095 million, and ¥ 22,239 million for the years ended March and tax credit carryforwards. Future tax benefits, such as net 31, 2012, 2011, and 2010, respectively. operating loss carryforwards and tax credit carryforwards, are recognized to the extent that such benefits are more likely than not Goodwill and Other Intangible Assets to be realized. The effect on deferred tax assets and liabilities of a The Companies account for their goodwill and other intangible change in tax rates is recognized in income in the period that assets in accordance with the Financial Accounting Standards Board includes the enactment date. (FASB) issued Accounting Standards Codification (ASC) No. 350, Based on available information at the reporting date, and “Intangibles-Goodwill and Other,” which requires that goodwill no considering a more likely than not threshold, tax benefit related to longer be amortized, but instead tested for impairment at least tax position was recognized. annually. ASC No. 350 also requires recognized intangible assets be The Company and certain domestic subsidiaries compute amortized over their respective estimated useful lives and reviewed current income taxes based on consolidated taxable income as for impairment. Any recognized intangible asset determined to have permitted by Japanese tax regulations. 102 Omron Corporation Integrated Report 2012 103 Consumption Taxes and Other Value-Added Taxes Stock-Based Compensation Consumption taxes and other value-added taxes have been The Companies apply ASC No. 718, “Compensation-Stock excluded from sales and are shown net included in other receivables. Compensation,” and recognize stock-based compensation cost measured by the fair value method. Product Warranties Liability for estimated warranty-related cost is established at the time revenue is recognized and is included in other current Translation of financial statement items of the Company’s subsidiaries located outside Japan into Japanese yen liabilities. The liability is established using historical information, Consolidated financial statements of the Company’s subsid- including the nature, frequency, and average costs of past iaries located outside Japan are translated based upon ASC No. warranty claims. Derivatives 830, “Foreign Currency Matters”. Assets and liabilities of the subsidiaries are translated into Japanese yen at the rates of exchange in effect at the balance sheet date. Income and expense Derivative instruments and hedging activities are accounted for items are translated at the average exchange rates prevailing in accordance with ASC No. 815, “Derivatives and Hedging”. This during the year. Gains and losses resulting from translation of standard establishes accounting and reporting standards for deriv- financial statements are reported in accumulated other compre- ative instruments and for hedging activities and requires that an hensive income (loss) as foreign currency translation adjustments. entity recognize all derivatives as either assets or liabilities in the consolidated balance sheets and measure those instruments at Comprehensive Income (Loss) fair value. The Companies apply ASC No. 220, “Comprehensive Income”. For foreign exchange forward contracts, foreign currency Comprehensive income (loss) is composed of net income (loss) swaps, interest rate swaps, and commodities swaps, on the date attributable to shareholders, changes in foreign currency transla- the derivative contract is entered into, the Companies designate tion adjustments, changes in pension liability adjustments, the derivative as a hedge of a forecasted transaction or the changes in unrealized gains (losses) on available-for-sale securities variability of cash flows to be received or paid related to a recog- and changes in net gains (losses) on derivative instruments, and nized asset or liability (“cash flow” hedge). The Companies comprehensive income (loss) is disclosed within the consolidated formally document all relationships between hedging instruments statements of comprehensive income (loss). and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process New Accounting Standards includes linking all derivatives that are designated as cash flow In September 2011, the FASB issued Accounting Standards hedges to specific assets and liabilities in the consolidated Update No. 2011-8, “Intangibles-Goodwill and Other (Topic 350): balance sheet or to specific firm commitments or forecasted Testing Goodwill for Impairment”. transactions. Based on the Companies’ policy, all foreign exchange ASU No. 2011-8 gives companies the option to perform a quali- forward contracts, foreign currency swaps, interest rate swaps, tative assessment to first assess whether the fair value of a and commodities swaps entered into must be highly effective in reporting unit is less than its carrying amount. If an entity deter- offsetting changes in cash flows of hedged items. mines that the carrying value of the reporting unit is more likely Changes in fair value of a derivative that is highly effective and than not less than its fair value, then performing further impair- that is designated and qualifies as a cash flow hedge are recorded ment test becomes unnecessary. ASU No. 2011-8 is effective for in other comprehensive income (loss) until earnings are affected fiscal years beginning on or after December 15, 2011. The adoption by the variability in cash flows of the designated hedged item. of this standard is not expected to have a significant impact on our Cash Dividends Cash dividends are reflected in the consolidated financial state- ments at proposed amounts in the year to which they are appli- 2. Translation into u.S. Dollars The consolidated financial statements are stated in Japanese cable, even though payment is not approved by shareholders until yen, the currency of the country in which the Company is incorpo- the annual general meeting of shareholders held early in the rated and operates. The translation of Japanese yen amounts into consolidated financial statements. 3. Inventories Inventories at March 31, 2012 and 2011, consisted of: Finished products Work in process Materials and supplies Total Millions of yen 2012 ¥52,033 14,177 26,043 ¥92,253 2011 ¥48,945 11,644 25,562 ¥86,151 Thousands of U.S. dollars 2012 $ 634,549 172,890 317,598 $1,125,037 4. Marketable Securities and Investments Cost, gross unrealized holding gains and losses, and fair value of available-for-sale and held-to-maturity securities at March 31, 2012 and 2011, were as follows: 2012 2011 Unit: 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 ¥ 10 ¥ — Equity securities 19,382 12,366 Total ¥19,392 ¥12,366 ¥ — (236) ¥(236) ¥ 10 31,512 ¥ 10 19,173 ¥31,522 ¥19,183 ¥ — 12,126 ¥12,126 ¥ — (254) ¥(254) ¥ 10 31,045 ¥31,055 Unit: Thousands of U.S. dollars 2012 Cost (*) Gross unrealized gains Gross unrealized losses Fair value Available-for-sale securities: Debt securities $ 122 $ — $ — $ 122 Equity securities 236,366 150,805 (2,878) 384,293 Total $236,488 $150,805 $(2,878) $384,415 (*) Cost represents amortized cost for debt securities and cost for equity securities. 2012 2011 Unit: Millions of yen Amortized cost Gross unrealized gains Gross unrealized losses Fair value Amortized cost Gross unrealized gains Gross unrealized losses Fair value Held-to-maturity securities: Debt securities ¥150 ¥— ¥— ¥150 ¥175 ¥— ¥— ¥175 Unit: Thousands of U.S. dollars 2012 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Held-to-maturity securities: Debt securities $1,829 $— $— $1,829 following fiscal year. Resulting dividends payable are included in U.S. dollar amounts is included solely for convenience of the Maturities of debt securities classified as available-for-sale and held-to-maturity securities at March 31, 2012 and 2011, were as follows: other current liabilities in the consolidated balance sheets. readers outside of Japan and has been made at the rate of ¥82 to Revenue Recognition $1, the approximate rate of exchange at March 31, 2012. Such translation should not be construed as representations that the The Companies recognize revenue when persuasive evidence Japanese yen amounts could be converted into U.S. dollars at the of an arrangement exists, delivery has occurred and title and risk above or any other rate. of loss have transferred, the sales price is fixed or determinable, and collectibility is probable. Due within one year Due after one year through five years Due over five years Total Millions of yen Thousands of U.S. dollars 2012 2011 2012 Cost ¥ 25 ¥110 ¥ 25 ¥160 Fair value ¥ 25 ¥110 ¥ 25 ¥160 Cost ¥ 25 ¥110 ¥ 50 ¥185 Fair value Cost Fair value ¥ 25 ¥110 ¥ 50 ¥185 $ 305 $1,341 $ 305 $1,951 $ 305 $1,341 $ 305 $1,951 104 Omron Corporation Integrated Report 2012 105  Gross unrealized holding losses and fair value of certain available-for-sale equity securities, aggregated by the length of time, that they have been in a continuous unrealized loss position at March 31, 2012 and 2011, were as follows: The carrying amount of goodwill in each segment at March 31, 2012 and 2011, and changes in its carrying amount in each segment for the year ended March 31, 2012 and 2011, were as follows: Less than 12 month Equity securities Millions of yen Thousands of U.S. dollars 2012 2011 2012 Fair value Gross unrealized holding losses Fair value Gross unrealized holding losses Fair value Gross unrealized holding losses ¥2,020 ¥(236) ¥862 ¥(254) $24,634 $(2,878) (*) In regards to the gross unrealized holding losses of available-for-sale securities, the related securities have been at a loss position for a relatively short period of time. Based on this fact and other relevant factors, management has determined that these investments are not considered other-than-temporarily impaired. Proceeds from sales of available-for-sale securities were ¥415 Aggregate cost of nonmarketable equity securities accounted million ($5,061 thousand), ¥106 million, and ¥938 million for the for under the cost method totaled ¥4,514 million ($55,049 years ended March 31, 2012, 2011, and 2010, respectively. thousand) and ¥4,489 million at March 31, 2012 and 2011, respec- Gross realized gains on sales were ¥318 million ($3,878 thousand), tively. Investments with an aggregate cost of ¥4,510 million ¥20 million, and ¥592 million for the years ended March 31, 2012, ($55,000 thousand) and ¥4,489 million at March 31, 2012 and 2011, and 2010, respectively. 2011, respectively, were not evaluated for impairment because (a) There were no realized losses on sales for the year ended the Companies did not estimate the fair value of those invest- March 31, 2012 and 2010. Realized losses on sales were ¥3 ments as it was not practicable to do so and (b) the Companies million for the years ended March 31, 2011. did not identify any events or changes in circumstances that Losses on impairment of available-for-sale securities recog- might have had a significant adverse effect on the fair value of nized to reflect declines in market value considered to be other those investments. than temporary were ¥384 million ($4,683 thousand), ¥790 million, and ¥517 million for the years ended March 31, 2012, 2011, and 2010, respectively. 5. Notes and accounts receivables The companies have entered into different types of transactions with affiliated companies through the ordinary course of business. The amount of accounts receivable with affiliates resulting from these transactions was ¥2,484 million ($30,393 thousand) for the year ended March 31, 2012. 6. Goodwill and Other Intangible Assets The components of acquired intangible assets, excluding goodwill, at March 31, 2012 and 2011, were as follows: Intangible assets subject to amortization: Software Other Total Millions of yen Thousands of U.S. dollars 2012 2011 2012 Gross amount Accumulated amortization Gross amount Accumulated amortization Gross amount Accumulated amortization ¥34,618 4,191 ¥38,809 ¥27,316 1,530 ¥28,846 ¥ 35,060 2,554 ¥ 37,614 ¥ 26,771 1,622 ¥ 28,393 $422,171 51,109 $473,280 $333,122 18,658 $351,780 Aggregate amortization expense related to intangible assets was ¥3,462 million ($42,220 thousand), ¥3,889 million, and ¥4,775 million for the years ended March 31, 2012, 2011, and 2010, respectively. Estimated amortization expense for the next five years ending March 31 is as follows: Years ending March 31 2013 2014 2015 2016 2017 Intangible assets, not subject to amortization, at March 31, 2012 and 2011, were immaterial. Millions of yen Thousands of U.S. dollars ¥3,718 2,806 1,540 791 296 $45,341 34,220 18,780 9,646 3,610 Millions of yen 2012 Industrial Automation Business Electronic and Mechanical Components Business Automotive Electronic Components Business Social Systems Solution and Service Business Healthcare Business Balance at beginning of year Goodwill Accumulated impairment loss Total Acquisition Impairment Sales of business entity Foreign currency translation adjustments and other Balance at end of year Goodwill Accumulated impairment loss Total ¥10,298 (9,406) ¥ 892 — — — ¥ 338 (265) ¥ 73 258 — — ¥ 588 (588) ¥ — — — — (1) 17 — 10,297 (9,406) ¥ 891 613 (265) ¥ 348 588 (588) ¥ — ¥— — ¥— — — — — — — ¥— Other Total ¥ 2,009 — ¥ 2,009 — (2,009) — ¥ 19,787 (16,813) ¥ 2,974 258 (2,009) — ¥ 6,554 (6,554) ¥ — — — — — — 16 6,554 (6,554) ¥ — 2,009 (2,009) ¥ — 20,061 (18,822) ¥ 1,239 Millions of yen 2011 Industrial Automation Business Electronic and Mechanical Components Business Automotive Electronic Components Business Social Systems Solution and Service Business Healthcare Business Balance at beginning of year Goodwill Accumulated impairment loss Total Acquisition Impairment Sales of business entity Foreign currency translation adjustments and other Balance at end of year Goodwill Accumulated impairment loss Total ¥10,361 (9,406) ¥ 955 — — — ¥ 343 (265) ¥ 78 — — — ¥ 588 (588) ¥ — — — — (63) (5) — 10,298 (9,406) ¥ 892 338 (265) ¥ 73 588 (588) ¥ — ¥ — — ¥ — — — — — — — ¥ — Other Total ¥2,009 — ¥2,009 — — — ¥ 19,855 (16,813) ¥ 3,042 — — — ¥ 6,554 (6,554) ¥ — — — — — — (68) 6,554 (6,554) ¥ — 2,009 — ¥2,009 19,787 (16,813) ¥ 2,974 Thousands of U.S. dollars 2012 Balance at beginning of year Goodwill Accumulated impairment loss Total Acquisition Impairment Sales of business entity Foreign currency translation adjustments and other Balance at end of year Goodwill Accumulated impairment loss Total Industrial Automation Business Electronic and Mechanical Components Business Automotive Electronic Components Business Social Systems Solution and Service Business Healthcare Business Other Total $ 125,585 (114,707) $ 10,878 — — — $ 4,122 (3,232) $ 890 3,146 — — $ 7,171 (7,171) $ — — — — (12) 207 — 125,573 (114,707) $ 10,866 7,475 (3,232) $ 4,244 7,171 (7,171) $ — $— — $— — — — — — — $— $ 79,927 (79,927) $ — — — — $ 24,500 — $ 24,500 — (24,500) — $ 241,305 (205,037) $ 36,268 3,146 (24,500) — — — 195 79,927 (79,927) $ — 24,500 (24,500) $ — 244,646 (229,537) $ 15,110 106 Omron Corporation Integrated Report 2012 107 In accordance with ASC No. 350, the Companies recognized impairment losses for the fiscal year ended March 31, 2012, of ¥2,009 million ($24,500 thousand) in other. Due to the increasing competition in the backlight business market, the fair value of the associated reporting unit decreased. The impairment losses are included in “Other expenses, net” of the consolidated financial statements of income. The fair value of the reporting unit was estimated by using the present value of expected future cash flows. 7. Impairment loss on Long-lived Assets In accordance with ASC No. 360, “Property, Plant and Equip- ment”, the Companies recognized impairment losses on long- lived assets for the fiscal years ended March 31, 2012 of ¥534 million ($6,512 thousand) for impairment of property plant and equipment due to decreasing profitability in the semiconductor- related business in other, and ¥137 million ($1,671 thousand) for impairment of office building due to its uncertainty of usage since one of our subsidiaries relocated its head office. The Companies recognized impairment losses on long-lived assets for the fiscal year ended March 31, 2011, of ¥96 million and ¥317 million in automotive electronic component business and other, respectively. These impairment losses are included in “Other expenses, net” of consolidated statements of income. Each of the fair value of these reporting units was estimated by using their each present value of expected future cash flows. 8. Short-Term Debt Short-term debt at March 31, 2012 and 2011, consisted of the following: Commercial paper The weighted-average annual interest rates ¥18,000 ¥45,000 $219,512 Millions of yen 2012 2011 Thousands of U.S. dollars 2012 2012 2011 0.1% 0.2% Unsecured debt: 10. Termination and Retirement Benefits The Company and its domestic subsidiaries sponsor termi- nation and retirement benefit plans which cover substantially all domestic employees (the “funded contributory termina- tion and retirement plan in Japan”). Benefits were based on a point-based benefits system, under which benefits are calcu- lated based on accumulated points awarded to employees each year according to their job classification and performance. If the termination is involuntary, the employee is usually entitled to greater payments than in the case of voluntary termination. The Company and its domestic subsidiaries fund a portion of the obligation under these plans. The general funding policy is to contribute amounts computed in accordance with actuarial methods acceptable under Japanese tax law. Obligations and Funded Status The reconciliation of beginning and ending balances of the benefit obligations and the fair value of the plan assets at March 31, 2012 and 2011, are as follows: Change in benefit obligation: Benefit obligation at beginning of year Service cost, less employees’ contributions Interest cost Actuarial loss Benefits paid Settlement paid Benefit obligation at end of year Change in plan assets: Millions of yen 2012 2011 Thousands of U.S. dollars 2012 ¥166,874 ¥164,857 $2,035,049 4,284 3,337 1,058 (5,804) (737) 4,090 3,297 906 (5,562) (714) 52,244 40,695 12,902 (70,780) (8,988) ¥169,012 ¥166,874 $2,061,122 The weighted-average annual interest rates 774 519 9,439 Fair value of plan assets at beginning of year ¥ 97,890 ¥ 93,922 $1,193,780 2012 2011 Total 4.2% 3.1% ¥18,774 ¥45,519 $228,951 Total interest cost incurred and charged to expense for the years ended March 31, 2012, 2011, and 2010, amounted to ¥269 million ($3,280 thousand), ¥219 million, and ¥381 million, respectively. 9. Leases The Companies do not have any material capital lease agreements. The Companies have operating lease agreements primarily involving offices and equipment for varying periods. Generally leases that expire are expected to be renewed or replaced by other leases. At March 31, 2012, future minimum lease payments applicable to noncancelable leases having initial or remaining noncancelable lease terms in excess of one year were as follows: Actual return on plan assets Employers’ contributions Benefits paid Settlement paid 3,511 9,515 (5,037) (737) 305 9,262 (4,885) (714) Fair value of plan assets at end of year ¥105,142 ¥ 97,890 Fair value of assets in retirement benefit trust at beginning of year ¥ 6,279 ¥ 7,356 Actual return on assets in retirement benefit trust 328 (1,077) 42,817 116,037 (61,427) (8,987) $1,282,220 $ 76,573 4,000 Fair value of assets in retirement benefit trust at end of year ¥ 6,607 ¥ 6,279 $ 80,573 Funded status at end of year ¥ (57,263) ¥ (62,705) $ (698,329) Years ending March 31 2013 2014 2015 2016 2017 Thereafter Total Millions of yen Thousands of U.S. dollars ¥ 4,166 $ 50,805 3,560 3,013 2,507 1,356 4,544 43,415 36,744 30,573 16,537 55,414 ¥19,146 $233,488 Lease expense amounted to ¥13,207 million ($161,061 thousand), ¥12,425 million, and ¥12,507 million for the years ended March 31, 2012, 2011, and 2010, respectively. 108 Omron Corporation Integrated Report 2012 109  Amounts recognized in the consolidated balance sheets at March 31, 2012 and 2011, consist of: Other current liability Termination and retirement benefit Total Millions of yen 2012 ¥ (628) (56,635) ¥(57,263) 2011 ¥ (902) (61,803) ¥(62,705) Thousands of U.S. dollars 2012 $ (7,658) (690,671) $(698,329) Amounts recognized in accumulated other comprehensive income (loss) at March 31, 2012 and 2011, consist of: Net actuarial loss Prior-service cost Total Millions of yen 2012 ¥ 78,213 (12,296) ¥ 65,917 2011 ¥ 80,558 (14,149) ¥ 66,409 The accumulated benefit obligation at March 31, 2012 and 2011, was as follows: Millions of yen 2012 2011 Thousands of U.S. dollars 2012 $ 953,817 (149,951) $ 803,866 Thousands of U.S. dollars 2012 Accumulated benefit obligation ¥164,669 ¥163,061 $2,008,159 Components of Net Periodic Benefit Cost The expense recorded for the contributory termination and retirement plans for the years ended March 31, 2012, 2011, and 2010, included the following components: Service cost, less employees’ contributions Interest cost on projected benefit obligation Expected return on plan assets Amortization Net periodic benefit cost 2012 ¥ 4,284 3,337 (3,482) 1,193 ¥ 5,332 Millions of yen 2011 ¥ 4,090 3,297 (3,349) 1,100 ¥ 5,138 Thousands of U.S. dollars 2012 $ 52,244 40,695 (42,463) 14,548 2010 ¥ 3,978 3,259 (3,316) 873 ¥ 4,794 $ 65,024 Weighted-average assumptions used to determine termination and retirement benefit costs for the years ended March 31, 2012, 2011, and 2010 are as follows: Discount rate Compensation increase rate Expected long-term rate of return on plan assets 2012 2.0% 2.0% 3.0% 2011 2.0% 2.0% 3.0% 2010 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 investment policies are designed to ensure that adequate plan assets are available to provide future payments of pension benefits to eligible participants. Taking into account the expected long-term rate of return on plan assets, the Company formulates a model portfolio composed of the optimal combination of equity and debt securities in order to yield a total return that will match the expected return on a mid-term to long-term basis. The Company evaluates the gap between long-term expected return and actual return of invested plan assets to determine if such differences necessitate a revision in the formulation of the model portfolio. In the event that the Company determines the need for a revision of the model portfolio to accomplish the expected long-term rate of return on plan assets, the Company revises the model portfolio to the extent necessary. Target allocation of plan assets is 20% equity securities, 69% debt securities and life insurance general account assets, and 11% other. Equity securities are mainly composed of stocks that are listed on various securities exchanges. The Company has investigated the business condition of investee companies and appropriately diversified the equity invest- ments by type of industry, brand, and other relevant factors. Debt securities are primarily composed of government bonds, public debt instruments, and corporate bonds. The Company has investigated the quality of the debt issue, including rating, interest rate, and repayment dates and appropriately diversi- fied the debt investments. For investments in life insurance general account assets, contracts with the insurance compa- nies include a guaranteed interest and return of capital. The Company’s fair value of pension plan assets by asset category as of March 31, 2012 and 2011, are as follows: Millions of yen Thousands of U.S. dollars 2012 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total The unrecognized net actuarial loss and the prior-service benefit are being amortized over 15 years. Equity securities Domestic stocks(*1) ¥ 8,316 ¥ — ¥ — ¥ 8,316 $101,415 $ — $ — $ 101,415 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, 2013, are summarized as follows: Net actuarial loss Prior-service cost Millions of yen ¥ 3,251 ¥(1,853) Thousands of U.S. dollars $ 39,646 $(22,598) 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. Assumptions Weighted-average assumptions used to determine benefit obligations at March 31, 2012 and 2011, are as follows: Discount rate Compensation increase rate 110 Omron Corporation 2012 2.0% 2.0% 2011 2.0% 2.0% Overseas stocks 1,712 Joint trusts (*2) Debt securities Joint trusts(*3) Other assets Life insurance general account assets Joint trusts Others Total — 20,030 59,521 14,291 5,792 — — — — 1,712 20,030 59,521 — 14,291 1,423 — 7,215 664 — — — — 664 20,878 — — — — — 244,268 725,866 — — — 20,878 244,268 725,866 174,280 — 174,280 70,634 17,354 8,098 — — 87,988 8,098 ¥10,692 ¥99,634 ¥1,423 ¥111,749 $130,391 $1,215,048 $17,354 $1,362,793 (*) 1. Domestic stocks of equity securities include ¥18 million ($220 thousand) of common stock of the Company as of March 31, 2012. 2. Joint trusts of equity securities invest in listed equity securities consisting of approximately 20% Japanese companies and 80% foreign companies. 3. Joint trusts of debt securities invest in approximately 60% Japanese government bonds and 40% foreign government bonds. Integrated Report 2012 111 Millions of yen 2011 Level 1 Level 2 Level 3 Total Equity securities Domestic stocks ¥ 8,047 ¥ — ¥ — ¥ 8,047 Overseas stocks 1,873 Joint trusts (*1,2) Debt securities Joint trusts (*3) Other assets Life insurance general account assets Joint trusts Others Total — 17,539 56,560 14,097 5,102 — — — — — 367 — 1,873 17,539 56,560 14,097 5,469 584 — — — — 584 ¥10,504 ¥93,298 ¥367 ¥104,169 (*) 1. Joint trusts of equity securities include ¥16 million of common stock of the Company as of March 31, 2011. 2. Joint trusts of equity securities invest in listed equity securities consisting of approximately 20% Japanese companies and 80% foreign companies. 3. Joint trusts of debt securities invest in approximately 60% Japanese government bonds and 40% foreign government bonds. Level 1 assets are composed principally of equity securities which are valued using unadjusted quoted market prices in active markets with sufficient volume and frequency of transactions. Level 2 assets are composed principally of joint trusts and life insurance general account assets that invest in equity and debt securities. These joint trusts and insurance general account assets are valued at their net asset values. Level 3 assets are composed of private equities and real estate funds, which are valued at net asset value. The Company’s pension plan assets classified as Level 3 as of March 31, 2012 and 2011, are as follows: Millions of yen 2012 2011 Thousands of U.S. dollars 2012 Private equity Hedge fund Real estate fund Total Private equity Hedge fund Real estate fund Total Private equity Hedge fund Real estate fund Total ¥367 ¥— ¥ — ¥367 ¥347 ¥ 508 ¥— ¥ 855 $4,476 $— $ — $4,476 0 — 13 — — — 7 — 7 — 1 — — (140) 1,036 1,049 19 (368) — ¥380 — ¥— — — — — ¥1,043 ¥1,423 ¥367 ¥ — — — — — ¥— 1 (140) 0 — (349) 159 — — — 85 — 85 — 12,634 12,793 — — — — — ¥ 367 $4,635 $— $12,719 $17,354 Balance at beginning of year Total gain and loss (realized or unrealized) Current period’s holding Current period’s sale Purchase, issuance, and settlement Current period’s transfer to (from) Level 3 Balance at end of year Cash Flows Contributions The Companies expect to contribute ¥9,685 million ($118,110 thousand) to their domestic termination and retirement benefit plans in the year ending March 31, 2013. Benefit Payments The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Years ending March 31 2013 2014 2015 2016 2017 2018—2022 Millions of yen Thousands of U.S. dollars ¥ 6,668 $ 81,317 6,935 7,270 7,057 7,168 84,573 88,659 86,061 87,415 39,105 476,890 Certain employees of European subsidiaries are covered by a defined benefit pension plan. The projected benefit obliga- tion for the plan and related fair value of plan assets were ¥4,672 million ($56,976 thousand) and ¥3,844 million ($46,878 thousand), respectively, at March 31, 2012, and ¥3,424 million and ¥2,872 million, respectively, at March 31, 2011. The Companies also have unfunded noncontributory termi- nation plans administered by the Companies. These plans provide lump-sum termination benefits which 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. 11. Shareholders’ Equity Japanese companies are subject to Japanese Corporate Law (the “Corporate Law”). The Corporate Law requires that all shares of common stock be issued with no par value and at least 50% of the issue price of new shares is required to be recorded as common stock while the remaining net proceeds are required to be presented as additional paid-in capital, which is included in capital surplus. The Corporate Law permits Japanese companies, upon approval of the board of directors, to issue shares to existing 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) depending 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 The Companies record provisions for termination benefits sufficient to state the liability equal to the plans’ vested benefits, which exceed the plans’ projected benefit obliga- tions. The aggregate liability for the termination plans, excluding the funded contributory termination and retirement plan in Japan, as of March 31, 2012 and 2011, was ¥3,845 million ($46,890 thousand) and ¥4,450 million, respectively. The aggre- gate net periodic benefit cost for such plans for the years ended March 31, 2012, 2011, and 2010, was ¥574 million ($7,000 thousand), ¥346 million, and ¥515 million, respectively. 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 purchased cannot exceed the amount available for distribution to the shareholders which is determined by a specific formula. Under the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. For companies that meet certain criteria, such as; (1) having the board of directors; (2) having independent auditors; (3) having the Board of Corporate Auditors; and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the board of direc- tors may declare dividends (except for dividends in kind) if the company has prescribed so in its articles of incorporation. 112 Omron Corporation Integrated Report 2012 113  The Corporate Law permits companies to distribute dividends in kind (noncash assets) to shareholders subject to a certain limitation and additional requirements. Semiannual interim dividends may also be paid once a year upon resolution of the board of directors if it is stipulated by the articles of incorporation of the company. Under the Corpo- rate 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 dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million. Such amount available for the dividends under the Corporate Law was ¥58,699 million ($715,841 thousand) at March 31, 2012, based on the amount recorded in the Company’s general book of accounts. Stock Options The Company has authorized the granted options to purchase common stock of the Company to certain directors and execu- tive officers of the Company under a fixed stock option plan. Under the above-mentioned 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 five years after the date of the grant. Generally, options become fully vested and exercisable after two years. A summary of the Company’s fixed stock option plan activity and related informa- tion for the year ended March 31, 2012, are as follows: Fixed options Options outstanding at March 31, 2009 Granted Exercised Expired Options outstanding at March 31, 2010 Granted Exercised Expired Options outstanding at March 31, 2011 Granted Exercised Expired Options outstanding at March 31, 2012 Options exercisable at March 31, 2012 Fixed options Options outstanding at March 31, 2011 Granted Exercised Expired Options outstanding at March 31, 2012 Options exercisable at March 31, 2012 Shares (number) Weighted-average exercise price 838,000 ¥2,930 Unit: Yen Weighted-average fair value of options granted during the year ¥ — ¥ — ¥ — — — (179,000) 659,000 — — (205,000) 454,000 — — (217,000) 237,000 237,000 — — 2,580 ¥3,026 — — 2,550 ¥3,240 — — 3,031 ¥3,432 ¥3,432 Unit: U.S. dollars Weighted-average fair value of options granted during the year $ — Shares (number) Weighted-average exercise price 454,000 $39.51 — — (217,000) 237,000 237,000 — — 36.96 $41.85 $41.85 The fixed stock options at March 31, 2012 are as follows: Options outstanding Options exercisable Shares (number) 237,000 237,000 Weighted-average remaining contractual life 0.25 years 0.25 years Range of exercise prices Weighted-average exercise price Yen U.S. dollars Yen U.S. dollars ¥3,432 ¥3,432 $41.85 $41.85 ¥3,432 ¥3,432 $41.85 $41.85 No fixed stock options were granted for the years ended March 31, 2012, 2011, and 2010. The Black-Scholes option-pricing model used by the Company was developed for use in estimating the fair value of fully tradable options, which have no vesting restrictions and are fully transferable. Additionally, 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 signifi- cantly 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 measure of the fair value of its stock options. There was no cash received from exercise of options under the plan for the year ended March 31, 2012. When options are exercised, the Company reissues its treasury stock. 12. Other Expenses, net Other expenses, net, for the years ended March 31, 2012, 2011, and 2010, consisted of the following: Net loss on sales and disposals of property, plant, and equipment Loss on impairment of goodwill Loss on impairment of property, plant, and equipment Cost for quality control Cost for environmental remediation Loss on impairment of investment securities Net gain on sales of investment securities Interest income, net Foreign exchange loss, net Dividend income Net loss on sales of business entity Other, net Total Millions of yen 2012 2011 2010 Thousands of U.S. dollars 2012 ¥ 861 2,009 671 330 567 391 (307) (204) 1,195 (545) — 1,621 ¥6,589 ¥ 606 ¥ 558 $10,500 — 413 2,874 — 805 (7) 47 2,102 (538) — 42 ¥6,344 — 217 — — 632 (636) (72) 723 (609) 966 24,500 8,183 4,024 6,915 4,768 (3,744) (2,488) 14,573 (6,646) — 1,100 ¥2,879 19,768 $80,353 114 Omron Corporation Integrated Report 2012 115 13. Income Taxes The provision for income taxes for the years ended March 31, 2012, 2011, and 2010, consisted of the following: Current income tax expense Deferred income tax expenses, exclusive of the following Change in the valuation allowance Change in the effective statutory tax rates 2012 ¥ 7,845 4,802 (167) 5,346 Millions of yen 2011 ¥ 9,113 5,640 (266) — Thousands of U.S. dollars 2012 $ 95,671 58,561 (2,037) 65,195 2010 ¥4,813 (904) (127) — Total ¥17,826 ¥14,487 ¥3,782 $217,390 Amendments to the Japanese tax regulations were enacted into law on November 30, 2011. As a result of these amend- ments, the statutory income tax rate will be reduced from approximately 41% to 38% effective April 1, 2012, and then further reduced to approximately 36% effective April 1, 2015. Total amount of income taxes for the years ended March 31, 2012, 2011, and 2010, respectively, are allocated to the following items: “Income Taxes” in consolidated statement of income Accumulated other comprehensive income (loss) Foreign currency translation adjustments Pension liability adjustments Unrealized gains (losses) on available-for-sale securities Net gains (losses) on derivative instruments 2012 ¥17,826 (257) (1,377) (106) (32) Millions of yen 2011 ¥14,487 (88) (94) (2,496) 36 Thousands of U.S. dollars 2012 $217,390 (3,134) (16,792) (1,293) (390) 2010 ¥ 3,782 72 2,792 3,420 383 Total ¥16,054 ¥11,845 ¥10,449 $195,781 The Company and its domestic subsidiaries are subject to a number of taxes based on income, which in the aggregate resulted in a normal tax rate of approximately 41.0% in 2012, 2011, and 2010. The effective income tax rates of the Companies differ from the normal Japanese statutory rates for the years ended March 31, 2012, 2011, and 2010, as follows: Japanese statutory effective tax rates Increase (decrease) in taxes resulting from permanently nondeductible 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 Impairment of goodwill Change in the effective statutory tax rates Other, net Income taxes burden rates after the application of tax effect accounting 2012 41.0% 2011 41.0% 2010 41.0% 1.1 (0.6) 1.5 (11.5) (0.5) 2.5 15.9 3.7 53.1 2.0 (0.4) 1.1 (10.2) (0.6) — — 1.8 34.7 1.1 (3.5) 2.3 (3.6) (0.9) — — 0.7 37.1 The approximate effect of temporary differences and tax credit and loss carryforwards that gave rise to deferred tax balances at March 31, 2012 and 2011, were as follows: Millions of yen Thousands of U.S. dollars 2012 2011 2012 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities Inventory valuation ¥ 5,730 ¥ — ¥ 5,687 ¥ — $ 69,878 $ — Accrued bonuses and vacations Termination and retirement benefits Marketable securities Property, plant, and equipment Other temporary differences Tax credit carryforwards Operating loss carryforwards 5,161 23,918 — 1,427 14,831 3,800 11,266 — — 2,775 — 2,899 — — 5,990 29,646 — — 62,939 291,683 — — — 3,490 — 33,841 2,122 17,658 4,990 9,352 — 807 — — 17,402 180,867 46,341 137,390 — 35,354 — — Subtotal ¥66,133 ¥5,674 ¥75,445 ¥4,297 $ 806,500 $69,195 Valuation allowance (8,802) — (9,639) — (107,341) — Total ¥57,331 ¥5,674 ¥65,806 ¥4,297 $ 699,159 $69,195 The total valuation allowance decreased by ¥837 million ($10,207 thousand) and ¥137 million in 2012 and 2011, respectively. As of March 31, 2012 and 2011, the Companies had operating loss carryforwards corporate tax approximating ¥13,822 million ($168,561 thousand) and ¥11,440 million, respectively, part of local tax approximating ¥12,338 million ($150,463 thousand) and ¥10,430 million, respectively, avail- able for reduction of future taxable income, the majority of which would expire by 2016. 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 accumulated unremitted earnings of the foreign subsidiaries which the Company has not recognized deferred tax liabilities were ¥88,417 million ($1,078,256 thousand) and ¥78,769 14. Per Share Data The Company accounts for its net income per share in accordance with ASC No. 260, “Earnings per share”. Basic net income per share has been computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during each year. Diluted net income per share reflects the potential dilution of million at March 31, 2012 and 2011, respectively. Dividends received from domestic subsidiaries are expected to be substantially free of tax. The Companies have adopted ASC No. 740, “Income Taxes”. The Companies believe that the total amount of unrecognized tax benefits as of March 31, 2012, is not material to its result of operations, financial condition, or cash flows. The Companies recognize interest and penalties accrued related to unrecognized tax benefits in income taxes in the consolidated statements of income. The Companies file income tax returns in Japanese and foreign jurisdictions. With few exceptions, tax examinations in Japan, for years prior to March 31, 2009, have been finished. With few exceptions, tax examinations in foreign countries, for years prior to March 31, 2003, have been finished. convertible bonds and stock options and has been computed by the “if-converted” method for convertible bonds and by the treasury stock method for stock options. A reconciliation of the numerators and denominators of the basic and diluted net income per share computations as of March 31, 2012, 2011, and 2010, was as follows: 116 Omron Corporation Integrated Report 2012 117 Numerator Net income attributable to Shareholders Diluted Net income attributable to shareholders 2012 ¥16,389 ¥16,389 Millions of yen 2011 ¥26,782 ¥26,782 2010 ¥3,518 ¥3,518 Thousands of U.S. dollars 2012 $199,866 $199,866 Denominator 2012 2011 2010 Weighted-average common shares outstanding 220,093,275 220,131,599 220,158,389 Dilutive effect of: Stock options — — — Diluted common shares outstanding 220,093,275 220,131,599 220,158,389 15. Supplemental Information for Cash Flows Supplemental cash flow information for the years ended March 31, 2012, 2011, and 2010, was as follows: Interest paid Income taxes paid Noncash investing and financing activities 2012 ¥ 269 9,409 Millions of yen 2011 ¥ 482 9,636 2010 ¥ 652 2,813 Thousands of U.S. dollars 2012 $ 3,280 114,744 Liabilities assumed in connection with capital expenditures 2,682 1,843 299 32,707 16. Other Comprehensive Income (Loss) The change in each component of accumulated other comprehensive income (loss) for the years ended March 31, 2011, 2010, and 2009, was as follows: Foreign currency translation adjustments: Beginning balance Change for the year Ending balance Pension liability adjustments: Beginning balance Change for the year Ending balance Unrealized gains (losses) on available-for-sale securities: Beginning balance Change for the year Ending balance Net gains (losses) on derivative instruments: Beginning balance Change for the year Ending balance Total accumulated other comprehensive loss: Beginning balance Change for the year Ending balance 2012 Millions of yen 2011 2010 Thousands of U.S. dollars 2012 ¥(34,046) ¥(23,678) ¥(22,319) $(415,195) (2,498) (36,544) (38,736) (79) (38,815) 6,570 425 6,995 (15) (54) (69) (10,368) (34,046) (36,553) (2,183) (38,736) 7,684 (1,114) 6,570 (67) 52 (15) (1,359) (23,678) (40,570) 4,017 (36,553) 2,763 4,921 7,684 (618) 551 (67) (30,464) (445,659) (472,390) (964) (473,354) 80,122 5,183 85,305 (182) (658) (840) (66,227) (2,206) (52,614) (13,613) (60,744) 8,130 (807,645) (26,903) ¥(68,433) ¥(66,227) ¥(52,614) $(834,548) Tax effects allocated to each component of other comprehensive income (loss), including other comprehensive income (loss) attributable to noncontrolling interests and reclassification adjustments for the years ended March 31, 2012, 2011, and 2010, were as follows: 2012 Millions of yen 2011 2010 Before-tax Tax (expense) Net-of-tax Before-tax Tax (expense) Net-of-tax amount benefit amount amount benefit amount Before-tax amount Tax (expense) benefit Net-of-tax amount ¥(1,870) ¥ 257 ¥(1,613) ¥(10,464) ¥ 88 ¥(10,376) ¥ (1,328) ¥ (72) ¥(1,400) (892) — (892) (14) — (14) — — — (2,762) 257 (2,505) (10,478) 88 (10,390) (1,328) (72) (1,400) (263) 888 625 (1,177) (357) (1,534) 7,681 (3,150) 4,531 Pension liability Adjustments (1,456) 1,377 (79) (2,277) (1,193) 489 (704) (1,100) 451 94 (649) (872) 358 (514) (2,183) 6,809 (2,792) 4,017 379 81 460 (4,376) 2,810 (1,566) 8,417 (3,451) 4,966 384 (157) 227 789 (323) 466 516 (212) 304 (318) 130 (188) (17) (126) 319 52 106 (74) 425 (6) (3,610) 2,496 (1,114) 8,341 (3,420) 4,921 7 2 (10) (592) 243 (349) (4) — — — 11 (8) 3 1,514 (621) 893 1,250 (513) 737 (97) (86) 40 32 (57) (54) (1,426) 88 585 (36) (841) 52 (316) 934 130 (383) (186) 551 ¥(3,985) ¥1,772 ¥(2,213) ¥(16,277) ¥2,642 ¥(13,635) ¥14,756 ¥(6,667) ¥ 8,089 Foreign currency translation adjustments: Foreign currency translation adjustments arising during the year Reclassification adjustment for the portion realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Pension liability adjustments arising during the year Reclassification adjustment for the portion realized in net income Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during the year Reclassification adjustment for losses on impairment in net income Reclassification adjustment for net gains on sales in net income Reclassification adjustment for net gains on share exchange 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 gains (losses) realized in net income Net gains (losses) Other comprehensive income (losses) 118 Omron Corporation Integrated Report 2012 119 Foreign currency translation adjustments: Foreign currency translation adjustments arising during the year Reclassification adjustment for the portion realized in net income Net change in foreign currency translation adjustments during the year Pension liability adjustments: Pension liability adjustments arising during the year Reclassification adjustment for the portion realized in net income Thousands of U.S. dollars 2012 Before-tax Tax (expense) Net-of-tax amount benefit amount $(22,805) $3,134 $(19,671) (10,878) — (10,878) (33,683) 3,134 (30,549) (3,207) 10,829 7,622 (14,549) 5,963 (8,586) Pension liability Adjustments (17,756) 16,742 (964) Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during the year Reclassification adjustment for losses on impairment in net income Reclassification adjustment for net gains on sales in net income Reclassification adjustment for net gains on share exchange 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 gains (losses) realized in net income Net gains (losses) Other comprehensive income (losses) 4,622 988 5,610 4,683 (1,915) 2,768 (3,878) 1,585 (2,293) (1,537) 3,890 635 1,293 (902) 5,183 134 (97) 37 (1,182) (1,048) 487 390 (695) (658) $(48,597) $21,609 $(26,988) 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 its value: Nonderivatives (1) Cash and cash equivalents, notes and accounts receivable, short-term debt, and notes and accounts payable: The carrying amounts approximate fair values. Derivatives The fair value of derivatives generally reflects the estimated amounts that the Companies would receive or pay to termi- nate 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 18. Derivatives and Hedging Activities The Companies enter into foreign exchange forward contracts and combined purchased and written foreign currency swaps to hedge changes in foreign currency rates (primarily the U.S. dollar and the euro). The Companies enter into interest rate swaps to hedge changes in interest rates. The Companies enter into commodities swaps to hedge changes in prices of commodities, including copper and silver used in the manufacturing of various products. The Companies do not use derivatives for trading purposes. The Companies are exposed to credit risk in the event of nonperformance by counterparties to derivatives, but management considers the exposure to such risk to be minimal since the counterparties maintain good credit ratings. (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. Companies’ derivatives. For the rest of the Companies’ deriv- atives, pricing or valuation models are applied to current market information to estimate fair value. The Companies do not use derivatives for trading purposes. Changes in the fair value of foreign exchange forward contracts, and foreign currency swaps designated and quali- fying as cash flow hedges are reported in accumulated other comprehensive income (loss). These amounts are subse- quently reclassified into other expenses, net, in the same period as and when the hedged items affect earnings. Changes in the fair value of commodities swaps designated and quali- fying as cash flow hedges are reported in accumulated other comprehensive income (loss) and are subsequently reclassi- fied into cost of sales, net, in the same period as and when the hedged items affect earnings. Substantially, all of the accumu- lated other comprehensive income (loss) in relation to foreign exchange forward contracts, foreign currency swaps, and commodities swaps at March 31, 2012, is expected to be reclassified into earnings within 12 months. The notional amounts of outstanding contracts to exchange foreign currencies at March 31, 2012 and 2011, were as follows: Millions of yen 2012 ¥49,095 ¥ 1,200 ¥ — 2011 ¥43,184 ¥ 1,200 ¥ 1,307 Thousands of U.S. dollars 2012 $598,720 $ 14,634 $ — 17. Financial Instruments and Risk Management Fair Value of Financial Instruments The carrying amounts and estimated fair values as of March 31, 2012 and 2011, of the Companies’ financial instruments are as follows: Forward exchange contracts Foreign currency swaps Commodities swaps Millions of yen Thousands of U.S. dollars 2012 2011 2012 Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Derivatives Included in other current assets (liabilities) Forward exchange contracts ¥(703) ¥(703) ¥(340) ¥(340) $(8,573) $(8,573) Foreign currency swaps Commodities swaps (16) — (16) — (27) 198 (27) 198 (195) — (195) — 120 Omron Corporation Integrated Report 2012 121  The fair values of derivatives at March 31, 2012 and 2011, were as follows: Derivatives designated as hedges Assets Forward exchange contracts Commodities swaps Liabilities Forward exchange contracts Foreign currency swaps Commodities swaps Millions of yen 2012 ¥394 ¥ — Millions of yen 2012 ¥(1,096) ¥ (16) ¥ — 2011 ¥254 ¥213 2011 ¥(594) ¥ (27) ¥ (15) Thousands of U.S. dollars 2012 $4,805 $ — Thousands of U.S. dollars 2012 $(13,366) $ (195) $ — The effects on consolidated statements of operations for the year ended March 31, 2012, were as follows: Derivatives designated as hedges Cash flow hedge Forward exchange contracts Foreign currency swaps Commodities swaps Profit and loss of other comprehensive income (loss) (hedge effective portion) Transfer from other comprehensive income (loss) to profit and loss (hedge effective portion) Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars ¥ 6 ¥ 8 ¥(11) 2012 $ 73 $ 98 $(134) ¥ 89 ¥ 0 ¥(146) $ 1,085 $ 0 $(1,780) The amount of hedge ineffectiveness was not material. The effects on consolidated statements of income for the year ended March 31, 2011, were as follows: Derivatives designated as hedges Cash flow hedge Forward exchange contracts Foreign currency swaps Interest rate swap Commodities swaps The amount of hedge ineffectiveness was not material. Profit and loss of other comprehensive income (loss) (hedge effective portion) Transfer from other comprehensive income (loss) to profit and loss (hedge effective portion) Millions of yen 2011 ¥738 ¥ — ¥ 39 ¥117 ¥(841) ¥ — ¥ — ¥ — 19. Commitments and Contingent Liabilities The Company and certain of its subsidiaries are defendants in several pending lawsuits. However, based upon the infor- mation 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 consolidated financial statements. Concentration of Credit Risk Financial instruments that potentially subject the Compa- nies 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 48% of total sales are concentrated in Japan, are limited due to the large number of well-established customers and their disper- sion across many industries. The Company normally requires customers to deposit funds to serve as security for ongoing credit sales. Balance at beginning of year Addition Utilization Balance at end of year 20. Fair Value Measurements ASC No. 820, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC No. 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value as follows: Guarantees The Company provides guarantees for bank loans of other companies. The guarantees for the other companies are made to ensure that those companies operate with less finance costs. The maximum payment in the event of default at March 31, 2012 and 2011, is ¥185 million ($2,256 thousand) and ¥246 million, respectively. The carrying amount of the liability recognized under those guarantees at March 31, 2012 is immaterial. Cost for Environmental Remediation The Companies record an environmental remediation accrual when the probability of the accrual is probable and the amount can reasonably be estimated. As of March 31, 2012, the environmental remediation accrual is ¥567 million ($6,915 thousand). 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, 2012 and 2011, are summarized as follows: Millions of yen 2012 ¥ 3,951 1,237 (2,256) ¥ 2,932 2011 ¥ 1,437 3,913 (1,399) ¥ 3,951 Thousands of U.S. dollars 2012 $ 48,183 15,085 (27,512) $ 35,756 Level 1 — Inputs are quoted prices in active markets for identical assets or liabilities. Level 2 — Inputs are quoted prices for similar assets or liabil- ities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 — Inputs are significant to measure fair value of assets or liabilities and unobservable. 122 Omron Corporation Integrated Report 2012 123 The assets and liabilities that are measured at fair value on a recurring basis at March 31, 2012, are as follows: Investment securities Millions of yen Thousands of U.S. dollars Amount of Fair Value Measurements Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total ¥ 10 31,512 ¥ — — ¥— — ¥ 10 31,512 $ 122 384,293 $ — — $— $ 122 384,293 — Investment securities mainly consist of listed stocks. Since fair value of the investment securities is valued using a quoted market price in active markets for identical assets and can be observed, these are classified as Level 1. Derivatives Derivatives consist of foreign exchange forward contracts, foreign currency swaps, and commodity futures. Since fair value of derivatives is valued using the observable market data, such as foreign exchange rates or interest rates, these are classified as Level 2. 402  — 4,902 — 4,902 The assets and liabilities that are measured at fair value on a nonrecurring basis at March 31, 2011, are as follows: Assets Investment securities Debt securities Equity securities Derivative Foreign exchange forward contracts Liabilities Derivative Foreign exchange forward contracts Foreign currency swaps Investment securities — — — 402 1,105 16 — — — 1,105 16  —  — 13,476 195 — — 13,476 195 Investment securities mainly consist of publicly listed stocks. Since fair value of the investment securities is valued using a quoted market price in active markets for identical assets and can be observed, these are classified as Level 1. Derivatives Derivatives consist of foreign exchange forward contracts, foreign currency swaps, and commodity futures. Since fair value of derivatives is valued using the observable market data, such as foreign exchange rates or interest rates, these are classified as Level 2. The assets and liabilities that are measured at fair value on a nonrecurring basis at March 31, 2012, are as follows: Total amount of income (loss) Level 1 Level 2 Level 3 Total Total amount of income (loss) Level 1 Level 2 Level 3 Total Millions of yen Thousands of U.S. dollars Amount of Fair Value Measurements Assets Nonmarketable investment securities Long-lived assets Goodwill ¥ (6) (671) (2,009) ¥— — — ¥— — — ¥ 4 224 — ¥ 4 224 — $ (73) (8,183) (24,500) $— — — $— — — $ 49 2,732 — $ 49 2,732 — During the year ended March 31, 2012, the Company classified most of assets described above in Level 3 as the Company used unobservable inputs to value these assets when recognizing impairment losses related to the assets. The fair value for the major assets was measured through discounted future cash flows. The assets and liabilities that are measured at fair value on a recurring basis at March 31, 2011, are as follows: Amount of Fair Value Measurements Millions of yen Level 1 Level 2 Level 3 Total Assets Investment securities Debt securities Equity securities Derivative Foreign exchange forward contracts Commodities swaps Liabilities Derivative Foreign exchange forward contracts Foreign currency swaps Commodities swaps ¥ 10 31,045 — — — — — 124 Omron Corporation ¥ — — 254 213 594 27 15 ¥ — — ¥ 10 31,045 — — — — — 254 213 594 27 15 Amount of Fair Value Measurements Millions of yen Total amount of income (loss) Level 1 Level 2 Level 3 Total Assets Nonmarketable investment securities ¥ (5) Long-lived assets (413) ¥— — ¥— — ¥ 2 ¥ 2 137 137 During the year ended March 31, 2011, the Company classified most of the assets described above in Level 3 as the Company used unobservable inputs to value these assets when recognizing impairment losses related to the assets. The fair value for the major assets was measured through discounted future cash flows. 21. Segment Information Operating segment information ASC No. 280, “Segment Reporting,” establishes the disclosure of information about operating segments in financial state- ments. Operating segments are defined as components of an enterprise about which separate financial information is avail- able that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The operating segments are determined based on the nature of the products and services offered. The Company discloses five operating segments: “Indus- trial Automation Business,” “Electronic and Mechanical Components Business,” “Automotive Electronic Components Business,” “Social Systems Solution and Service Business,” and “Healthcare Business”. These segments are mainly separated based on the Companies’ consideration of their lines of business and size within the consolidation. The Company presents operating segments other than the above five segments in “Other”. The primary products included in each segment are as follows: (1) Industrial Automation Business: Sensors, programmable logic controllers, timers, vision sensors, automated optical inspection devices, safety components, temperature controllers, and motion controllers. (2) Electronic and Mechanical Components Business: Relays, switches, components, and units for amusement devices, connectors, and combination jogs. (3) Automotive Electronic Components Business: Passive entry devices, power window switches, and electric power steering. (4) Social Systems Solution and Service Business: Railway infrastructure systems, traffic control, road control systems, security systems, and payment systems. (5) Healthcare Business: Digital blood pressure monitors, digital thermometers, body composition monitors, pedom- eters, biological information monitors, and nebulizers. (6) Other: Solar power conditioner equipments, computer peripheral equipments, MEMS microphone chips, and LCD backlight. The segment information is substantially presented in accordance with accounting principles generally accepted in the United States of America. Revenues and expenses directly associated with specific segments are disclosed in the figures of each segment’s operating result. Based on the Company’s allocation method used by management to evaluate results of each segment, revenues, and expenses not directly associated with specific segments are allocated to each segment or included in “Eliminations and others”. Integrated Report 2012 125 ¥ 4,186 ¥ 7,169 ¥ 2,105 ¥ 1,125 ¥ 1,533 ¥ 939 ¥ 17,057 ¥ 5,560 ¥ 22,617 Capital expenditures ¥ 1,850 ¥ 4,231 Operating segment information as of and for the years ended March 31, 2012, 2011, and 2010, was as follows: 2010 2012 I Sales and Segment profit (loss) 1. Sales to external Industrial Automation Business Electronic and Mechanical Components Business Automotive Electronic Components Business Social Systems Solutions and Service Business Healthcare Business Millions of yen Other Total Eliminations and others Consolidated customers ¥270,835 ¥ 83,002 ¥85,027 ¥57,200 ¥62,446 ¥53,535 ¥612,045 ¥ 7,416 ¥619,461 2. Intersegment Sales 6,054 53,080 296 3,980 69 15,417 78,896 (78,896) — Total ¥276,889 ¥136,082 ¥85,323 ¥61,180 ¥62,515 ¥68,952 ¥690,941 ¥(71,480) ¥619,461 ¥ 33,328 ¥ 7,240 ¥ 2,691 ¥ 98 ¥ 2,918 ¥ (3,553) ¥ 42,722 ¥ (2,586) ¥ 40,136 ¥211,356 ¥106,011 ¥55,452 ¥57,423 ¥46,436 ¥38,756 ¥515,434 ¥ 21,889 ¥537,323 Segment profit (loss) II Assets, depreciation, and capital expenditures Assets Depreciation and amortization Capital expenditures ¥ 3,758 ¥ 9,908 ¥ 5,196 ¥ 856 ¥ 3,752 ¥ 2,096 ¥ 25,566 ¥ 2,775 ¥ 28,341 Annotations about the above segment information: No. 1 Intersegment sales are recorded at the same prices used in transactions with third parties. No. 2 Eliminations and others include items, such as unclassifiable expenses, eliminations of internal transaction among each segment. No. 3 Depreciation and amortization and capital expenditures include expenses and expenditures arising from intangible assets. 2011 I Sales and Segment profit (loss) 1. Sales to external Industrial Automation Business Electronic and Mechanical Components Business Automotive Electronic Components Business Social Systems Solutions and Service Business Healthcare Business Millions of yen Other Total Eliminations and others Consolidated customers ¥271,894 ¥ 81,216 ¥84,259 ¥63,846 ¥60,629 ¥49,672 ¥611,516 ¥ 6,309 ¥617,825 2. Intersegment Sales 6,006 56,886 Total Segment profit (loss) II Assets, depreciation, ¥277,900 ¥138,102 ¥ 38,228 ¥ 11,914 493 ¥84,752 ¥ 4,162 4,682 ¥68,528 ¥ 1,653 38 17,020 85,125 (85,125) — ¥60,667 ¥ 4,078 ¥66,692 ¥696,641 ¥(78,816) ¥617,825 ¥ (4,659) ¥ 55,376 ¥ (7,339) ¥ 48,037 and capital expenditures Assets Depreciation and amortization ¥209,019 ¥109,325 ¥48,387 ¥70,642 ¥42,528 ¥35,465 ¥515,366 ¥ 47,424 ¥562,790 Capital expenditures ¥ 2,169 ¥ 8,654 ¥ 4,493 ¥ 6,860 ¥ 2,057 ¥ 2,023 ¥ 1,658 ¥ 1,038 ¥ 1,249 ¥ 4,659 ¥ 1,232 ¥ 17,549 ¥ 5,435 ¥ 22,984 ¥ 1,957 ¥ 20,500 ¥ 2,692 ¥ 23,192 Annotations about the above segment information: No. 1 Intersegment sales are recorded at the same prices used in transactions with third parties. No. 2 Eliminations and others include items, such as unclassifiable expenses, eliminations of internal transaction among each segment. No. 3 Depreciation and amortization and capital expenditures include expenses and expenditures arising from intangible assets. Industrial Automation Business Electronic and Mechanical Components Business Automotive Electronic Components Business Social Systems Solutions and Service Business Healthcare Business Millions of yen Other Total Eliminations and others Consolidated I Sales and Segment profit (loss) 1. Sales to external customers ¥203,917 ¥ 70,717 ¥75,163 ¥57,981 ¥63,359 ¥43,592 ¥514,729 ¥ 9,965 ¥524,694 2. Intersegment Sales 4,088 43,961 Total Segment profit (loss) II Assets, depreciation, ¥208,005 ¥114,678 ¥ 12,694 ¥ 6,739 691 ¥75,854 ¥ 1,731 3,898 ¥61,879 ¥ 2,654 86 14,047 66,771 (66,771) — ¥63,445 ¥ 7,055 ¥57,639 ¥581,500 ¥(56,806) ¥524,694 ¥ (5,822) ¥ 25,051 ¥(11,977) ¥ 13,074 and capital expenditures Assets Depreciation and amortization ¥179,512 ¥104,354 ¥52,520 ¥69,794 ¥45,808 ¥33,212 ¥485,200 ¥ 47,054 ¥532,254 ¥ 5,211 ¥ 8,480 ¥ 2,099 ¥ 3,607 ¥ 1,378 ¥ 1,181 ¥ 1,342 ¥ 1,500 ¥ 1,262 ¥ 19,772 ¥ 7,242 ¥ 27,014 ¥ 1,088 ¥ 13,457 ¥ 6,067 ¥ 19,524 Annotations about the above segment information: No. 1 Intersegment sales are recorded at the same prices used in transactions with third parties. No. 2 Eliminations and others include items, such as unclassifiable expenses, eliminations of internal transaction among each segment. No. 3 Depreciation and amortization and capital expenditures include expenses and expenditures arising from intangible assets. 2012 I Sales and Segment profit (loss) 1. Sales to external customers 2. Intersegment Sales Total Segment profit (loss) II Assets, depreciation, and capital expenditures Assets Depreciation and amortization Industrial Automation Business Electronic and Mechanical Components Business Automotive Electronic Components Business Social Systems Solutions and Service Business Healthcare Business Thousands of U.S dollars Other Total Eliminations and others Consolidated $3,302,866 $1,012,220 $1,036,915 $697,561 $761,537 $652,866 $7,463,965 $ 90,437 $7,554,402 73,829 647,317 3,610 48,537 841 188,012 962,146 (962,146) — $3,376,695 $1,659,537 $1,040,525 $746,098 $762,378 $840,878 $8,426,111 $(871,709) $7,554,402 $ 406,439 $ 88,293 $ 32,817 $ 1,195 $ 35,585 $ (43,329) $ 521,000 $ (31,537) $ 489,463 $2,577,512 $1,292,817 $ 676,244 $700,280 $566,293 $472,634 $6,285,780 $266,940 $6,552,720 $ 51,049 $ 87,427 $ 25,671 $ 13,720 $ 18,695 $ 11,451 $ 208,013 $ 67,805 $ 275,818 Capital expenditures $ 45,829 $ 120,829 $ 63,366 $ 10,439 $ 45,756 $ 25,561 $ 311,780 $ 33,841 $ 345,621 Annotations about the above segment information: No. 1 Intersegment sales are recorded at the same prices used in transactions with third parties. No. 2 Eliminations and others include items, such as unclassifiable expenses, eliminations of internal transaction among each segment. No. 3 Depreciation and amortization and capital expenditures include expenses and expenditures arising from intangible assets. Reconciliation between segment profit (loss) and income before income taxes and equity in loss (earnings) of affiliates for the years ended March 31, 2012, 2011, and 2010, is as follows: Total amount of segment profit Other expenses, net Eliminations and others Income before income taxes and equity in loss (earnings) of affiliates 2012 ¥42,722 6,589 (2,586) Millions of yen 2011 ¥55,376 6,344 (7,339) 2010 ¥ 25,051 2,879 (11,977) Thousands of U.S. dollars 2012 $521,000 80,353 (31,537) ¥33,547 ¥41,693 ¥ 10,195 $409,110 126 Omron Corporation Integrated Report 2012 127 Geographic information Information by the Companies’ sales to external customers and property, plant, and equipment separated into major geographic areas as of and for the years ended March 31, 2012, 2011, and 2010, is as follows: 2012 Sales to external customers ¥307,649 ¥74,820 ¥83,561 ¥101,074 ¥52,357 ¥619,461 Property, plant, and equipment ¥ 79,548 ¥ 4,166 ¥ 4,290 ¥ 24,572 ¥ 8,130 ¥120,706 Japan Americas Europe Greater China Southeast Asia and Others Consolidated Millions of yen Millions of yen Japan Americas Europe Greater China Southeast Asia and Others Consolidated ¥311,906 ¥74,397 ¥84,511 ¥97,012 ¥49,999 ¥617,825 ¥ 83,109 ¥ 4,210 ¥ 4,485 ¥21,381 ¥ 6,813 ¥119,998 Millions of yen Japan Americas Europe Greater China Southeast Asia and Others Consolidated ¥269,143 ¥61,154 ¥77,607 ¥77,136 ¥39,654 ¥524,694 ¥ 85,247 ¥ 5,108 ¥ 5,483 ¥20,853 ¥ 6,303 ¥122,994 2011 Sales to external customers Property, plant, and equipment 2010 Sales to external customers Property, plant, and equipment 2012 Sales to external customers Property, plant, and equipment Deloitte Touche Tohmatsu LLC Shijokarasuma FT Square 20, Naginataboko-cho Karasuma-higashiiru, Shijo-dori Shimogyo-ku, Kyoto 600-8008 Japan Tel: +81 (75) 222 0181 Fax: +81 (75) 231 2703 www.deloitte.com/jp Independent Auditors’ Report 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, 2012 and 2011, 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, 2012, all expressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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 Thousands of U.S. dollars effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also Japan Americas Europe Greater China Southeast Asia and Others Consolidated $3,751,817 $912,439 $1,019,037 $1,232,610 $638,499 $7,554,402 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 $ 970,098 $ 50,805 $ 52,317 $ 299,659 $ 99,145 $1,472,024 presentation. We believe that our audits provide a reasonable basis for our opinion. Annotations about the above geographic information: No. 1 Classification of country or area is based upon physical geographic approximation. No. 2 Major countries or areas belonging to segments other than Japan are as follows: (1) Americas: United States of America, Canada and Brazil (2) Europe: Netherlands, Great Britain, Germany, France, Italy and Spain (3) Greater China: China, Hong Kong and Taiwan (4) Southeast Asia and Others: Singapore, Republic of Korea, India, and Australia No. 3 For sales and property, plant, and equipment, there were no material amounts specific to a particular country that will have required separate disclosure as of and for the years ended March 31, 2012, 2011, and 2010. No. 4 During the year ended March 31, 2012, we changed the name North America to Americas. This was only a name change and no change to the geographic composition of this group has been made. No. 5 There are no sales to important single external customer, which is required to be separately disclosed, for the years ended March 31, 2012, 2011, and 2010. 22. Acquisition There have not been any significant acquisitions for the years ended 2012, 2011 and 2010. 23. Subsequent Events The Companies have adopted ASC No. 855, “Subsequent Events.” ASC No. 855 establishes the disclosure of the date that subsequent events are recognized and the estimate of nature and financial effect of unrecognized subsequent events. No significant event took place since March 31, 2012 through June 22, 2012, the date when Yukashouken-Houkokusho (Annual Securities Report filed under the Financial Instruments and Exchange Act of Japan) for the year ended March 31, 2012 was available to be issued. 128 Omron Corporation In our opinion, 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, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Our audits also comprehended the translation of Japanese yen amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2 to the consolidated financial statements. Such United States dollar amounts are presented solely for the convenience of readers outside Japan. Kyoto, Japan June 22, 2012 Member of Deloitte Touche Tohmatsu Limited Integrated Report 2012 129 Internal Control Section Management’s Report on Internal Control NOTE TO READERS: The following is an English translation of the management’s report on internal control over financial reporting ("ICFR") filed under the Financial Instruments and Exchange Act of Japan. This report is presented merely as supplemental information. There are differences between an assess- ment of ICFR under the Financial Instruments and Exchange Act ("ICFR under FIEA") and one conducted under the standards of the Public Company Accounting Oversight Board (United States) ("ICFR under PCAOB"); In an assessment of ICFR under FIEA, there is detailed guidance on the scope of an assessment of ICFR, such as quantitative guidance on business location selection and/or account selection. In an assessment of ICFR under PCAOB, there is no such detailed guidance. Accordingly, regarding the scope of assessment of internal control over business processes, we selected locations and business units to be tested based on annual consolidated net sales (after the elimination of transactions between consolidated companies), and companies with net sales of approximately two-thirds of the total amount on a consolidation basis were selected as "significant locations and/or business units." At selected "significant locations and/or business units," we included in the scope of assessment, business processes leading to sales, accounts receivable and inventories as significant accounts that may have a material impact on our business objectives. Further, in addition to selected significant locations and/or business units, we also included in the scope of assessment, as business processes having greater materiality, business processes relating to (i) greater likelihood of material misstatements and/or (ii) significant accounts involving estimates and the management’s judgment and/or (iii) a business or operation dealing with high-risk transactions, taking into account their impact on the financial reporting. Management’s Report on Internal Control 1. Matters relating to the basic framework for internal control over financial reporting Yoshihito Yamada, President and Chief Executive Officer; and Takayoshi Oue, Senior General Manager of the Accounting and Finance Center, Executive Officer, and Chief Financial Officer are responsible for designing and operating effective internal control over financial reporting of Omron Corporation (the "Company") and have designed and operated internal control over financial reporting in accordance with the basic framework for internal control set forth in "The Standards and Practice Standards for Management Assessment and Audit Concerning Internal Control Over Financial Reporting (Council Opinion)" released by the Business Accounting Council. The internal control is designed to achieve its objectives to the extent reasonable through the effective function and combination of its basic elements. Therefore, there is a possibility that misstatements may not be completely prevented or detected by internal control over financial reporting. 2. Matters relating to the scope of assessment, the basis date of assessment and the assessment procedures The assessment of internal control over financial reporting was performed as of March 31, 2012 which is the end of this fiscal year. The assessment was performed in accordance with assess- ment standards for internal control over financial reporting gener- ally accepted in Japan. In conducting this assessment, we evaluated internal controls which may have a material effect on our entire financial reporting on a consolidation basis ("entity-level controls") and based on the results of this assessment, we selected business processes to be tested. We analyzed these selected business processes, identified key controls that may have a material impact on the reliability of the Company’s financial reporting, and assessed the design and operation of these key controls. These procedures have allowed us to evaluate the effectiveness of the internal controls of the Company. We determined the required scope of assessment of internal control over financial reporting for the Company, as well as its consolidated subsidiaries and equity-method affiliated compa- nies, from the perspective of the materiality that may affect the reliability of their financial reporting. The materiality that may affect the reliability of the financial reporting is determined by taking into account the materiality of quantitative and qualitative 130 Omron Corporation impacts on financial reporting. In light of the results of assess- ment of entity-level controls conducted for the Company and its consolidated subsidiaries, we reasonably determined the scope of assessment of internal controls over business processes. Consolidated subsidiaries and equity-method affiliated compa- nies determined to have an insignificant quantitative and qualita- tive influence on the reliability of financial reporting are not included in the scope of assessment of entity-level controls. Regarding the scope of assessment of internal control over business processes, we selected locations and business units to be tested based on the previous year’s consolidated net sales (after the elimination of transactions between consolidated companies), and the companies whose net sales reaches two-thirds of total amount on a consolidation basis were selected as "significant locations and/or business units." At selected "signif- icant locations and/or business units," we included in the scope of assessment, business processes leading to sales, accounts receivable and inventories as significant accounts that may have a material impact on the business objectives of the Company. Further, in addition to selected significant locations and/or business units, we also included in the scope of assessment, as business processes having greater materiality, business processes relating to (i) greater likelihood of material misstate- ments and/or (ii) significant accounts involving estimates and the management’s judgment and/or (iii) a business or operation dealing with high-risk transactions, taking into account their impact on the financial reporting. 3. Matters relating to the results of the assessment The above assessments determined that the Company’s internal control over financial reporting was effective as of the last day of the fiscal year under review. 4. Additional notes No material items to report. 5. Special notes No material items to report. June 22, 2012 Yoshihito Yamada President Chief Executive Officer Omron Corporation Independent Auditors’ Report (filed under the Financial Instruments and Exchange Act of Japan) NOTE TO READERS: Following is an English translation of the Independent Auditors’ Report filed under the Financial Instruments and Exchange Act of Japan. This report is presented merely as supplemental information. There are differences between an audit of internal control over financial reporting (“ICFR”) under the Financial Instruments and Exchange Act (“ICFR under FIEA”) and one conducted under the standards of the Public Company Accounting Oversight Board (United States) (“ICFR under PCAOB”); • In an audit of ICFR under FIEA, the auditors express an opinion on management’s report on ICFR, and do not express an opinion on the Company’s ICFR directly. In an audit of ICFR under PCAOB, the auditors express an opinion on the Company’s ICFR directly. • In an audit of ICFR under FIEA, there is detailed guidance on the scope of an audit of ICFR, such as quantitative guidance on business location selection and/or account selection. In an audit of ICFR under PCAOB, there is no such detailed guidance. Accordingly, regarding the scope of assessment of internal control over business processes, locations and business units to be tested were selected based on the previous year’s net sales that in total reaches two-thirds of total net sales on a consolidation basis and were identified as “significant locations and/or business units.” At the selected “significant locations and/or business units,” business processes leading to sales, accounts receivable and inventories as significant accounts that may have a material impact on the business objectives of Omron Corpo- ration (the “Company”) were included in the scope of assessment. Furthermore, in addition to selected “significant locations and/or business units” and their material business processes, other locations and /or business units and other business processes that may have (i) a greater likelihood of material misstatements and/or, (ii) significant accounts involving estimates and management’s judgment, and/or (iii) a business or operation dealing with high-risk transactions, taking into account their impact on the financial reporting, were also included in the list of locations and/or business units to be tested and in the scope of assessment. To the Board of Directors of OMRON Corporation. June 22, 2012 Independent Auditors’ Report Deloitte Touche Tohmatsu LLC Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant: Kazuyasu Yamada Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant: Kenichi Takai Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant: Hiroaki Sakai Audit of Financial Statements Pursuant to the first paragraph of Article 193-2 of the Financial Instru- ments and Exchange Act, we have audited the consolidated financial statements included in the Financial Section, namely, the consolidated balance sheet, and the related consolidated statements of income, comprehensive income (loss), shareholders’ equity and cash flows of OMRON Corporation (the “Company”) and its consolidated subsidiaries for the fiscal year from April 1, 2011 to March 31, 2012 , and the related notes, and consolidated supplementary schedules. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America pursuant to the third paragraph of the Supplementary Provisions of the Cabinet Office Ordinance for Partial Amendment of the Regulations for Terminology, Forms and Preparation Methods of Consolidated Financial Statements (No.11 of the Cabinet Office Ordinance in 2002), and for such internal control as management determines is necessary to enable the prepara- tion of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reason- able assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial state- ments. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consoli- dated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Audit Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of OMRON Corporation and its consolidated subsidiaries as of March 31, 2012, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in Japan. Audit of Internal Control Pursuant to the second paragraph of Article 193-2 of the Financial Instruments and Exchange Act, we have audited management’s report on internal control over financial reporting of OMRON Corporation as of March 31, 2012. Management’s Responsibility for the Report on Internal Control Management is responsible for designing and operating effective internal control over financial reporting and for the preparation and fair presentation of its report on internal control in conformity with assess- ment standards for internal control over financial reporting generally accepted in Japan. There is a possibility that misstatements may not be completely prevented or detected by internal control over financial reporting. Auditor’s Responsibility Our responsibility is to express an opinion on management’s report on internal control based on our internal control audit. We conducted our internal control audit in accordance with auditing standards for internal control over financial reporting generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether management’s report on internal control is free from material misstatement. An internal control audit involves performing procedures to obtain audit evidence about the results of the assessment of internal control over financial reporting in management’s report on internal control. The procedures selected depend on the auditor’s judgment, including the significance of effects on reliability of financial reporting. An internal control audit includes examining representations on the scope, proce- dures and results of the assessment of internal control over financial reporting made by management, as well as evaluating the overall presentation of management’s report on internal control. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, management’s report on internal control over financial reporting referred to above, which represents that the internal control over financial reporting of OMRON Corporation as of March 31, 2012 is effectively maintained, presents fairly, in all material respects, the results of the assessment of internal control over financial reporting in conformity with assessment standards for internal control over financial reporting generally accepted in Japan. Interest Our firm and the engagement partners do not have any interest in the Company for which disclosure is required under the provisions of the Certified Public Accountants Act. The above represents a translation, for convenience only, of the original report issued in the Japanese language. Integrated Report 2012 131 Corporate and Stock Information As of March 31, 2012 Date of Establishment May 10, 1933 Number of Employees (Consolidated) 35,992 Paid-in Capital ¥64,100 million Common Stock Authorized 487,000,000 shares Issued 239,121,372 shares Number of shareholders 33,188 Stock Listings Osaka Securities Exchange Tokyo Stock Exchange Frankfurt Stock Exchange Ticker Symbol Number 6645 Custodian of Register of Share- holders 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.1 Chase Manhattan Plaza, New York, NY 10005, U. S. A. Brazil OMRON Management Center of Latin America (Sao Paulo) Tel 55-11-2101-6348 Fax 55-11-2101-6301 ADR Holder Contact : JPMorgan Service Center P.O. Box 64504 St. Paul, MN 55164-0504 U.S.A. Tel 1-800-990-1135 E-mail jpmorgan.adr@wellsfargo. com Website http://www.omron.com (Japanese) http://www.omron.com (English) Head Office Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530, Japan Tel 81-75-344-7000 Fax 81-75-344-7001 Overseas Headquarters Europe Omron Europe B.V. (The Netherlands) Tel 31-23-568-1300 Fax 31-23-568-1391 North America Omron Management Center of America, Inc. (Illinois) Tel 1-224-520-7650 Fax 1-224-520-7680 Asia-Pacific Omron Asia Pacific Pte. Ltd. (Singapore) Tel 65-6835-3011 Fax 65-6835-2711 India OMRON Management Center of India (Haryana) Tel 91-124-4921700 Fax 91-124-4921777 Greater China Omron (China) Co., Ltd. (Shanghai) Tel 86-21-5888-1666 Fax 86-21-5888-7933 Major Domestic Manufacturing, Marketing, and Research & Development Locations Manufacturing Kusatsu Office Tel 81-77-563-2181 Fax 81-77-565-5588 Ayabe Office Tel 81-773-42-6611 Fax 81-773-43-0661 Yasu Office Tel 81-77-588-9000 Fax 81-77-588-9901 Sales & Marketing Tokyo Office 2-3-13, Konan, Minato-ku, Tokyo 108-0075, Japan Tel 81-3-6718-3400 Fax 81-3-6718-3408 Mishima Office Tel 81-55-977-9000 Fax 81-55-977-9080 Nagoya Office Tel 81-52-571-6461 Fax 81-52-565-1910 Osaka Office Tel 81-6-6347-5800 Fax 81-6-6347-5900 Research & Development Keihanna Technology Innovation Center Tel 81-774-74-2000 Fax 81-774-74-2001 Okayama Office Tel 81-86-277-6111 Fax 81-86-276-6013 Stock Price Osaka Securities Exchange (Index) 240 220 200 180 160 140 120 100 80 60 40 20 0 2003/3 Monthly Volume Omron Nikkei 225 Index 2004/3 2005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 (1,000 Shares) 30,000 20,000 10,000 0 Note: Share index (2003/3E=100) Yearly High and Low Prices* Ownership and Distribution of Shares (%) 100 24.4% 23.8% 24.3% 80 60 40 20 0 39.2% 37.2% 37.6% 5.6% 0.3% 5.5% 0.4% 30.5% 33.1% 5.7% 0.8% 31.3% 0% 0% 0.3% 09 10 11 (FY) (As of March 31) Individuals and others Foreign institutions and individuals Other corporations Financial instruments dealers Financial institutions Local government authorities FY High (¥) Low (¥) 2002 2,115 1,320 2003 2,740 1,648 2004 2,885 2,150 2005 3,620 2,210 2006 3,590 2,615 2007 3,510 1,950 2008 2,385 940 2009 2,215 1,132 2010 2,418 1,749 2011 2,357 1,381 * Stock prices listed in the First Section of Osaka Securities Exchange 132 Omron Corporation INQUIRIES Investor Relations Headquarters Investor Relations Department Shinagawa Front Building 7F 2-3-13, Konan, Minato-ku, Tokyo 108-0075, Japan Phone: +81-3-6718-3421 Fax: +81-3-6718-3429 URL: http://www.omron.com/ir/ Board of Directors Office Corporate Social Responsibility Department Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530, Japan Phone: +81-75-344-7174 Fax: +81-75-344-7111 URL: http://www.omron.com/about/csr/ Integrated Report 2012 133 

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