Annual Report 1998 - Omron
Annual Report 1998 - Omron
Annual Report 1998 - Omron
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ANNUAL REPORT <strong>1998</strong><br />
YEAR ENDED MARCH 31, <strong>1998</strong>
A pioneer in the field of automation, OMRON<br />
Corporation is one of the world’s premier manufacturers<br />
of automation components, equipment,<br />
and systems with advanced computer,<br />
communications, and control technologies.<br />
OMRON’s versatile lineup of products<br />
includes relays, sensors, and switches; computer<br />
systems for factory automation (FA); and<br />
large-scale control and information systems.<br />
Our Seventh Mid-Term Management Plan is<br />
focused on achieving mid-to-long-term growth<br />
through structural reforms targeting three<br />
major goals:<br />
•creating a growth-oriented structure,<br />
•establishing an innovative cost structure, and<br />
•revitalizing corporate resources.<br />
Significant progress has been made in these<br />
three areas during the year under review.<br />
Financial Highlights ............................................................................. 1<br />
To Our Shareholders ........................................................................... 2<br />
Progress <strong>Report</strong> of the Seventh Mid-Term Management Plan ............. 5<br />
Review of Operations.......................................................................... 8<br />
<strong>Omron</strong>’s Commitment to Environmental Protection ..........................15<br />
Board of Directors ...............................................................................18<br />
Financial Section..................................................................................19<br />
International Network.........................................................................43<br />
Corporate Data ....................................................................................46
FINANCIAL HIGHLIGHTS<br />
OMRON Corporation and Subsidiaries<br />
Years ended March 31, <strong>1998</strong>, 1997 and 1996<br />
Thousands of<br />
Millions of yen U.S. dollars (Note 3)<br />
(except per share data)<br />
(except per share data)<br />
<strong>1998</strong> 1997 1996 <strong>1998</strong><br />
Net sales ................................................................................ ¥611,795 ¥594,261 ¥525,289 $4,634,811<br />
Income before income taxes and minority interests.............. 42,243 39,248 32,252 320,023<br />
Net income............................................................................ 18,300 15,739 14,587 138,636<br />
Net income per share (yen and U.S. dollars, Note 1):<br />
Basic .................................................................................. ¥69.8 ¥60.1 ¥55.7 $0.53<br />
Diluted............................................................................... 68.3 58.8 54.5 0.52<br />
Cash dividends per share (yen and U.S. dollars, Note 2) ...... 13.0 13.0 13.0 0.10<br />
Total assets ............................................................................ ¥579,663 ¥590,353 ¥580,815 $4,391,386<br />
Total shareholders’ equity..................................................... 336,064 323,019 302,458 2,545,939<br />
Capital expenditures ............................................................. 35,896 29,956 34,079 271,939<br />
Research and development expenses ................................... 39,914 35,188 34,433 302,379<br />
Notes: 1. Net income per share amounts are computed based on the Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings per Share,” which is<br />
effective for the fiscal year ended March 31, <strong>1998</strong>. The amounts for 1997 and 1996 have been restated to conform with the provisions of SFAS No. 128.<br />
2. Cash dividends per share are the amounts applicable to the respective year, including dividends to be paid after the end of the year.<br />
3. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at March 31, <strong>1998</strong>, of ¥132=$1.<br />
NET SALES<br />
(Billion ¥)<br />
INCOME BEFORE<br />
INCOME TAXES<br />
AND MINORITY<br />
INTERESTS<br />
(Billion ¥)<br />
NET INCOME<br />
(Billion ¥)<br />
TOTAL ASSETS<br />
(Billion ¥)<br />
NET INCOME<br />
PER SHARE<br />
(DILUTED)<br />
(¥)<br />
13<br />
5<br />
20.1<br />
25<br />
12<br />
461<br />
32<br />
49.4<br />
490<br />
15<br />
54.5<br />
525<br />
16<br />
58.8<br />
594<br />
612<br />
39<br />
42<br />
18<br />
552<br />
569<br />
581<br />
590<br />
580<br />
68.3<br />
’94 ’95 ’96 ’97 ’98<br />
’94 ’95 ’96 ’97 ’98<br />
’94 ’95 ’96 ’97 ’98<br />
’94 ’95 ’96 ’97 ’98<br />
’94 ’95 ’96 ’97 ’98<br />
1
TO OUR SHAREHOLDERS<br />
Yoshio Tateisi<br />
President and Director<br />
It gives me great pleasure to<br />
report that, despite a lackluster<br />
Japanese economy and the economic<br />
downturn in Southeast Asia,<br />
OMRON Corporation achieved a<br />
record-high performance in fiscal <strong>1998</strong>,<br />
ended March 31, <strong>1998</strong>. Consolidated<br />
net sales rose 3.0%, to ¥611,795 million,<br />
marking the fourth consecutive<br />
year of growth. Sales gains can be<br />
attributed mainly to a strong overseas<br />
showing by our core operations—<br />
control components and systems—<br />
coupled with bullish domestic and<br />
international healthcare and medical<br />
equipment sales. This solid sales performance<br />
and Companywide cost-cutting<br />
efforts produced a 7.6% increase<br />
in income before income taxes and<br />
minority interests, to ¥42,243 million.<br />
Net income gained 16.3%, climbing to<br />
¥18,300 million.<br />
During the fiscal year in review, the<br />
Japanese economy labored under sluggish<br />
personal consumption and housing<br />
investment. Moreover, beginning<br />
in summer 1997 the decline in business<br />
confidence in reaction to the stalled<br />
economy resulted in a drop-off in<br />
private-sector capital investment.<br />
Consequently, the economy slowed<br />
overall despite growth in exports.<br />
In our global markets, the economic<br />
turmoil in Asian economies was in<br />
stark contrast to the continued expansion<br />
in the United States, which was<br />
driven by strong consumer spending<br />
and corporate capital investment.<br />
European economies were favorable<br />
in general, with the ripple effects of<br />
rising exports supporting a recovery<br />
process.<br />
Facing the volatile business environment,<br />
OMRON entered the second<br />
year of its Seventh Mid-Term Management<br />
Plan in fiscal <strong>1998</strong>. Through<br />
the plan, we are pursuing structural<br />
reforms that will support future growth<br />
and profitability. The objectives of<br />
those reforms are to create a growthoriented<br />
structure, establish an<br />
innovative cost structure, and revitalize<br />
corporate resources. A progress report<br />
on those structural reforms and our<br />
mid-term management plan follows<br />
on pages 5 to 7.<br />
BUSINESS PERFORMANCE<br />
Sales by our Control Components<br />
and Systems Division rose 7.7%,<br />
to ¥313,642 million, accounting<br />
for just over half of consolidated net<br />
sales. In achieving sales growth, the<br />
division shrugged off weak domestic<br />
sales in the second half of the term<br />
due to the sudden economic downturn<br />
in Japan and the overall negative<br />
impact of the currency crises in<br />
Southeast Asian countries. Favorable<br />
sales in North America and Europe<br />
throughout the fiscal year and an<br />
expanded product lineup provided<br />
support for this solid performance.<br />
The Social Business Division’s sales<br />
declined 4.8%, to ¥138,203 million,<br />
resulting from a slump in electronic<br />
fund transfer systems (EFTSs) sales<br />
2
elated to the troubled financial services<br />
industries in Japan and Korea, a major<br />
overseas market. Sales of Public Information<br />
and Transport Systems (PITSs),<br />
however, recorded considerable<br />
growth thanks to the construction of<br />
a new railway line in the Kansai area<br />
and greater use of multiroute stored<br />
fare (SF) card systems. Traffic management<br />
systems sales remained the<br />
same as in fiscal 1997, hampered by<br />
strong competition and restraint in<br />
public construction programs.<br />
Sales by the Specialty Products Division<br />
rose 1.6%, to ¥47,263 million, thanks<br />
to solid global sales of automotive<br />
electronic components. In addition,<br />
the shift to digital color copiers and<br />
the increased manufacture of copiers<br />
overseas resulted in high demand<br />
from copy machine manufacturers.<br />
Sales by the Healthcare Division<br />
advanced 12.1%, to ¥40,793 million,<br />
boosted by a boom in the domestic<br />
sales of new products, such as bodyfat<br />
monitors, massage chairs, and eartype<br />
digital thermometers, as well as<br />
of traditional big sellers, including<br />
blood pressure monitors and pedometers.<br />
Vigorous overseas sales, particularly<br />
in the People’s Republic of China<br />
and the United States, also contributed<br />
to double-digit growth.<br />
The Open Systems Division posted<br />
sales of ¥50,131 million, held to approximately<br />
last year’s level because<br />
of the further weakening of the Japanese<br />
economy and heightened competition<br />
produced by the slump in<br />
personal computer (PC) sales. Bright<br />
spots in performance included strong<br />
showings in the open systems platform<br />
market for PC servers and in the system<br />
planning and maintenance services areas.<br />
JAPANESE MARKET<br />
Our mid-to-long-term strategy<br />
for growth in domestic sales<br />
of control components and<br />
systems is to strengthen our solution<br />
proposal capabilities. The Company<br />
has a long-standing sales system using<br />
OMRON distributors that is unbeatable<br />
when it comes to providing a diverse<br />
range of customers with general-use<br />
components. To reinforce this competitive<br />
advantage, we have bolstered<br />
our personnel, financial, and material<br />
resource support to distributors who<br />
demonstrate superior solution-providing<br />
capabilities and have more than a<br />
specified number of sales engineers.<br />
The new system will help us better<br />
accommodate market needs.<br />
The OMRON distributor sales system,<br />
however, does not adequately specify<br />
customer needs. We addressed this<br />
problem through a reorganization of<br />
our sales system in October 1997.<br />
Specifically, we established a special<br />
sales team responsible for providing<br />
our semiconductor and automobile<br />
clients with more customized products<br />
and solutions. This allows us to<br />
insert more direct sales approaches<br />
into our distributor sales system.<br />
OMRON is cooperating with distributors<br />
in creating customized products<br />
for end users and vendors as well as<br />
selling directly to clients. Customer<br />
needs are now served more quickly<br />
by our ability to select the optimal<br />
method for providing specific products<br />
to each customer in each market.<br />
In addition, we added staff to our<br />
sales organization to pursue direct<br />
sales approaches with the goal of<br />
strengthening our sensor business.<br />
Through the well-balanced application<br />
of such measures, we are seeking<br />
to improve OMRON’s capabilities to<br />
find the best solution, both Companywide<br />
and within such related companies<br />
as OMRON distributors.<br />
During the reorganization of our sales<br />
system, we introduced a product<br />
manager system that permits finer<br />
control of profitability by managing<br />
the cost, profitability, and life cycle<br />
of product groups on an integrated<br />
basis. In addition, the Company has<br />
product marketing managers for individual<br />
areas, including Japan, who<br />
are responsible for working with<br />
product managers to ensure that<br />
OMRON supplies products that meet<br />
local requirements.<br />
Our short-term strategy for growth in<br />
domestic sales of control components<br />
and systems is to increase our emphasis<br />
on industries and companies that<br />
are making relatively strong capital<br />
investments in new products or rationalization.<br />
The sudden slowdown in<br />
Japan’s economy in the second half of<br />
fiscal <strong>1998</strong> after a strong first half initiated<br />
a decline in corporate capital<br />
investment that is ongoing. Due to<br />
the progressive polarization of business<br />
performances, even within industries,<br />
however, some companies<br />
continue to make significant capital<br />
investments.<br />
SOUTHEAST ASIAN MARKET<br />
The Southeast Asian market<br />
for control components<br />
and systems has contracted<br />
significantly because of the stagnation<br />
in the economies of the region spurred<br />
by the currency crises in the latter<br />
half of fiscal <strong>1998</strong>. OMRON is steadily<br />
taking measures to cope with this<br />
3
situation from a mid-to-long-term point<br />
of view.<br />
Over the past few years, OMRON has<br />
been strengthening its local sales<br />
organization in the region, setting up<br />
sales bases in each country to establish<br />
a direct sales organization. Similar<br />
to the Company’s domestic operations,<br />
this action has been taken to<br />
strengthen solution proposal capabilities<br />
in Southeast Asia. These efforts<br />
have met with favorable results. For<br />
example, direct marketing permits us<br />
to accurately gauge customer reaction<br />
to prices and other sales criteria,<br />
allowing us to make persuasive sales<br />
approaches that have been well<br />
received in local markets. Of course,<br />
these measures in themselves cannot<br />
produce profits amid the sudden fall<br />
in business. We are also introducing<br />
measures, such as increasing sales<br />
productivity and managing liabilities,<br />
to minimize declines in profitability.<br />
Overall, our fiscal <strong>1998</strong> sales to<br />
Southeast Asia rose, thanks to the<br />
growth achieved in the first half of the<br />
term. In light of the poor performance<br />
in the second half, however, we expect<br />
business conditions to be difficult in<br />
the current fiscal year. It will be necessary<br />
to adjust responses to the varying<br />
pace of recovery in each country.<br />
In the mid-to-long term, we believe<br />
that the restructuring occurring in<br />
Southeast Asian economies will result<br />
in significant progress in industrialization,<br />
thereby expanding markets for<br />
our control components and systems.<br />
We are implementing strategies that<br />
capitalize on the current opportunity<br />
to expand market share despite the<br />
shrinking market size.<br />
NORTH AMERICAN AND<br />
EUROPEAN MARKETS<br />
OMRON’s operations in North<br />
America and Europe are<br />
achieving stable growth. The<br />
U.S. and European markets accounted<br />
for 10% and 12%, respectively, of<br />
consolidated net sales in fiscal <strong>1998</strong>,<br />
and these percentages are rising annually.<br />
They provide strong evidence<br />
that OMRON is steadily increasing<br />
its presence in these markets as a<br />
global corporation.<br />
In fiscal <strong>1998</strong>, against the background<br />
of the growing economy in the United<br />
States, we strove to expand our marketing<br />
efforts there. These efforts<br />
resulted in a 17% upswing in sales,<br />
helped by the strengthening of the<br />
dollar against the yen.<br />
In Europe, OMRON’s strategy of<br />
strengthening its system solution<br />
capabilities to take advantage of the<br />
ongoing economic recovery was<br />
rewarded with sales growth. Overall<br />
sales in the region rose 10%, despite<br />
European currencies weakening<br />
slightly against the yen during the<br />
fiscal year under review.<br />
We expect U.S. and European markets<br />
to achieve relatively stable growth in<br />
the mid-to-long term. Accordingly,<br />
we will be implementing measures<br />
to boost our marketing efforts by<br />
strengthening our solution proposal<br />
capabilities.<br />
PERSPECTIVES<br />
The global business environment<br />
in fiscal 1999 is again<br />
one of great contrast. Although<br />
there is hope that the measures being<br />
taken to stimulate the Japanese economy<br />
will take hold, we expect no<br />
immediate sign of recovery because<br />
of weak personal consumption and<br />
declining corporate capital investment.<br />
On the other hand, the U.S.<br />
economy should continue to expand<br />
despite concerns that a slowdown is<br />
long overdue. Looking at Europe,<br />
economies there will continue down<br />
the path to recovery despite monetary<br />
policy restraint in the lead-up to monetary<br />
union. Asian economies will be<br />
implementing reforms, which we<br />
intend to watch carefully.<br />
Although the business environment<br />
appears daunting, we continue to<br />
focus on growth industries and companies.<br />
To reach our longer-term<br />
goal of becoming a competitive, highquality<br />
growth company in the 21st<br />
century, we will further progress with<br />
our structural reforms. In addition, we<br />
will revise the allocations of management<br />
resources and the organization<br />
and strategies of our operations in<br />
preparing the Eighth Mid-Term<br />
Management Plan.<br />
June 25, <strong>1998</strong><br />
Yoshio Tateisi,<br />
President and Director<br />
4
Progress <strong>Report</strong><br />
of the<br />
Seventh<br />
Mid-Term<br />
Management Plan<br />
Our Seventh Mid-Term<br />
Management Plan is<br />
focused on achieving<br />
mid-to-long-term growth<br />
through structural reforms<br />
targeting three major goals:<br />
• creating a growth-oriented<br />
structure,<br />
• establishing an innovative<br />
cost structure, and<br />
• revitalizing corporate<br />
resources.<br />
Significant progress has<br />
been made in these three<br />
areas during the year<br />
under review.<br />
CREATING A GROWTH-ORIENTED<br />
STRUCTURE<br />
In line with the ongoing shift in global<br />
industrial structures, from the manufacturing<br />
to the service and software<br />
sectors, we are steadily expanding<br />
business derived from new integrated<br />
markets, which we develop by extending<br />
the scope of or combining our<br />
existing technologies. These new integrated<br />
markets are steadily expanding,<br />
and their contributions to revenue are<br />
growing. Examples of new integrated<br />
markets include the development of<br />
applications for our control components<br />
for service-industry-related<br />
fields, such as video game equipment<br />
and solar inverters.<br />
As its key approach to creating a<br />
growth-oriented structure, OMRON has<br />
produced a set of visionary concepts.<br />
To further improve our growth-oriented<br />
structure over the mid-to-long term,<br />
we must take advantage of the trend<br />
toward customer-oriented software and<br />
services, rapid advances in information<br />
technology, and the potential for<br />
growth as our customers expand their<br />
infrastructures. Moreover, it is important<br />
that we steadily invest in raising<br />
our competitiveness in high-growth,<br />
high-profit businesses in these areas.<br />
Accordingly, we have created a set<br />
of visionary concepts that indicate<br />
OMRON’s approach to high-growth<br />
fields in the 21st century and its strategies<br />
for success in competitive markets.<br />
The visionary concepts fall under<br />
the headings of Intelligent Transport<br />
Systems (ITSs), multimedia-oriented<br />
factory automation (FA), cybercommunity-related,<br />
total healthcare,<br />
and information sensing businesses.<br />
Revenues from these areas are gradually<br />
increasing and were slightly less<br />
than ¥20 billion in fiscal <strong>1998</strong>. We expect<br />
these areas to enter their true<br />
5
growth phase during the Eighth Mid-<br />
Term Management Plan.<br />
ITS<br />
In preparation for creating growthoriented<br />
structures in these fields, we<br />
are currently engaged in determining<br />
the appropriate allocation of resources,<br />
the most effective management structure,<br />
and the required personnel training<br />
programs based on our estimates<br />
of business volume.<br />
ITSs Business<br />
In the ITSs business, we are developing<br />
sensors for automobile collision<br />
prevention systems and an automobile<br />
category identification system for<br />
no-stop automated electronic toll collection<br />
(ETC). The special ITSs organization<br />
established in November 1996<br />
was further bolstered in April 1997<br />
with the addition of 60 additional staff<br />
members, mainly engineers. We built a<br />
special test course for our ETC system<br />
at our Ayabe factory and are steadily<br />
progressing toward being able to offer<br />
a commercial product. We were the<br />
first in the industry to be licensed<br />
as an auxiliary organization of the<br />
Ministry of Posts and Telecommunications<br />
for wireless technology.<br />
Multimedia-Oriented FA Business<br />
Our multimedia-oriented FA business<br />
addresses emerging on-site manufacturing<br />
needs. The increasingly sophisticated<br />
demands of this field include<br />
achieving more timely production in<br />
keeping with the trend toward smalllot<br />
flexible production and shorter<br />
product life cycles as well as making<br />
the maximum use of information technology<br />
through “smart factories.” With<br />
this in mind, we are promoting more<br />
software-oriented components, such<br />
as personal-computer-based FA components,<br />
as well as versatile general-use<br />
components. We also are strengthening<br />
our system installation and management<br />
and maintenance services.<br />
Cyber-Community-Related<br />
Business<br />
In the cyber-community-related business<br />
field, we are expanding operations<br />
that interface service providers<br />
and consumers in financial, public,<br />
and retail sectors. In addition, we are<br />
actively exploring the electronic money<br />
business. We are taking steps to establish<br />
an infrastructure for this business,<br />
such as investing in the Japanese subsidiary<br />
of Cybercash Corporation, of<br />
the United States, and taking part in an<br />
experimental electronic money program<br />
launched in Tokyo as well as<br />
conducting other such test runs.<br />
Total Healthcare Business<br />
With the progressive graying of the<br />
world’s population and the growing<br />
interest in personal healthcare, we are<br />
keeping a close eye on business opportunities<br />
in preventative medicine.<br />
Along with our popular hardware<br />
products, we intend to offer software<br />
products and services that contribute<br />
to the healthcare business as a whole.<br />
For example, we are progressing with<br />
6<br />
establishing such businesses as the<br />
Health Master service, which provides<br />
health management support services<br />
to households in a way similar to correspondence<br />
education courses; a<br />
health management system that targets<br />
corporations and organizations; and<br />
other businesses.<br />
Information Sensing Business<br />
The underlying theme of our visionary<br />
concepts is the development of highgrowth<br />
markets through information<br />
sensing, one of our areas of core competence.<br />
Examples include a variety<br />
of automotive sensors for ITSs, the<br />
Register with counterfeit-detection<br />
capabilities
ultracompact pressure sensors used in<br />
our total healthcare business, and the<br />
currency note recognition sensors used in<br />
our cyber-community-related business.<br />
We are also seeking to create new markets<br />
by introducing innovative sensingtechnology-based<br />
products.<br />
ESTABLISHING AN INNOVATIVE<br />
COST STRUCTURE<br />
We are implementing innovations that<br />
will change OMRON’s fundamental<br />
cost structure over the mid-to-long<br />
term. Specifically, we are concentrating<br />
on implementing profitability planning<br />
and management functions for<br />
each product line, achieving thorough<br />
planning of basic costs, and establishing<br />
a globally diversified production<br />
organization.<br />
Profitability Planning and Management<br />
Functions by Product Line<br />
In our core business of control components<br />
and systems, we have introduced<br />
a product manager system<br />
under which product managers oversee<br />
the life cycle of a product line,<br />
from planning and development to<br />
production and marketing, on an integrated<br />
basis. By working together with<br />
product managers responsible for individual<br />
areas, we expect to substantially<br />
boost our sales performance.<br />
Thorough Planning of Basic Costs<br />
We are targeting the thorough control<br />
of product costs from the planning<br />
and development stages, including the<br />
centralization of procurement and<br />
the integration of development and<br />
production. Specifically, we will be<br />
implementing such measures as the<br />
relocation of product development<br />
sections to their production bases.<br />
A Globally Diversified<br />
Production Organization<br />
Looking to achieve an optimal balance<br />
between management effectiveness<br />
and marketing capabilities, we are<br />
building a globally diversified production<br />
organization that will increase<br />
OMRON’s cost efficiency.<br />
REVITALIZING CORPORATE<br />
RESOURCES<br />
To support reform of our growthoriented<br />
and cost structures, we are<br />
targeting the maximum revitalization<br />
of our corporate resources—personnel<br />
as well as financial, information, and<br />
physical assets.<br />
In April 1996, OMRON introduced<br />
a performance-based—rather than<br />
seniority-based—salary system for<br />
senior management to motivate its<br />
employees. This system was expanded<br />
to include all managers in April 1997.<br />
To encourage the effective utilization<br />
of financial assets, we are advocating<br />
the Companywide use of a new management<br />
accounting system that measures<br />
business performance based on<br />
consolidated return on assets (ROA).<br />
One of the factors in evaluating performance<br />
is whether the set ROA target<br />
has been met.<br />
We are building a worldwide internal<br />
computer network system to bolster<br />
our information resources. Targeting<br />
enhanced administrative efficiency,<br />
the new system will assist in innovating<br />
business processes.<br />
MANAGEMENT GOALS<br />
We had set our overall management<br />
goal as a 7% return on shareholders’<br />
equity (ROE) on a consolidated basis in<br />
fiscal 1999, the last year of the Seventh<br />
Mid-Term Management Plan. However,<br />
this goal now seems difficult because<br />
the impact of the sudden downturn in<br />
the Japanese economy has offset the<br />
gains of our structural reforms. Accordingly,<br />
we also do not expect to reach<br />
our goal of a 7% return on sales in<br />
terms of income before income taxes<br />
and minority interests.<br />
Because of the difficult business environment,<br />
we are pursuing more efficient<br />
use of investment and operating<br />
expenditures. During the Eighth Mid-<br />
Term Management Plan, we will be<br />
looking to steadily and quickly recoup<br />
our investments in growth fields to increase<br />
our corporate worth, thereby<br />
achieving higher management goals.<br />
To provide additional momentum<br />
behind our drive to implement the<br />
necessary measures for boosting<br />
corporate worth, we established a set<br />
of guidelines during the fiscal year that<br />
require our directors and auditors to<br />
hold shares in OMRON commensurate<br />
with their management position. In fiscal<br />
1999, we are introducing a stock<br />
option plan for OMRON’s directors<br />
that will link the interests of management<br />
with those of shareholders,<br />
encouraging them to manage the<br />
Company in the shareholders’ best<br />
interests. We have also initiated a<br />
share buyback program.<br />
7
REVIEW OF OPERATIONS<br />
Control<br />
Components<br />
and Systems<br />
51.3%<br />
In fiscal <strong>1998</strong>, sales of the Control Components and Systems<br />
Division rose 7.7%, to ¥313.6 billion. Following favorable business<br />
conditions during the first half of fiscal <strong>1998</strong>, sales deteriorated in<br />
the second half under the impact of the sudden downturn in the<br />
Japanese economy following the business failure of several major<br />
financial institutions and the currency crises in Southeast Asia.<br />
However, this slack was taken up in part by the continued growth in sales to North<br />
American and European markets.<br />
Compact, highly functional G6S telecom<br />
relays are used in telephone<br />
exchanges around the world.<br />
SALES<br />
(Billion ¥)<br />
248<br />
CONTROL COMPONENTS<br />
Among major products, sales of relays expanded, particularly to overseas markets, such as<br />
North America, Europe, and China. Mechanical components also recorded sales growth<br />
based on favorable sales of pressure switches for gas meters and connectors in the domestic<br />
market and on sales of components for electric power tools in overseas markets.<br />
By introducing a line of narrow pitch connectors, we achieved double-digit growth in<br />
sales of connectors to the domestic amusement market in fiscal <strong>1998</strong>. Overseas, demand has<br />
jumped for relays, with dramatic increases in shipments of compact, general-purpose, and<br />
printed circuit board (PCB) relays to home appliance and FA manufacturers in North<br />
America, Europe, and China. In addition, sales of trigger switches rose substantially, supported<br />
by the favorable electric power tool markets in North America and Asia. Exports of<br />
mouse switches climbed, centered on North America and China.<br />
Among the new products and technologies that contributed significantly to sales during<br />
fiscal <strong>1998</strong> were the G6S telecom relays, which are true surface-mountable relays, and micromachined<br />
pressure sensors for meters used in liquid petroleum gas and consumer gas systems.<br />
Our main strategy for relays and other control components in the current fiscal year will<br />
be to achieve strong sales in multimedia and amusement fields as well as expanding sales<br />
of new relays and other products to growth regions, such as Europe.<br />
Among sensors, sales of optoelectronic sensors attained double-digit growth, while sales<br />
of measuring inspection systems posted significant increases as well. Demand was high for<br />
the automization of inspections, with sales of printed web inspection systems and PCB soldering<br />
inspection systems advancing.<br />
In the semiconductor industry, technology enabling the manufacture of 300-millimeter<br />
wafers is creating a revolution in the field, while demand is growing for equipment to<br />
reduce pollution and conserve energy and materials. These factors are also generating<br />
increased demand for sensing technology.<br />
New photoelectronic sensors that contributed to sales during the term under review included<br />
the ultracompact E3T sensor inside amplifiers, a fiber sensor (EX-3NH) with an autotuning<br />
function, and a full color sensor (E3MC). Among other devices, a digital finescope<br />
231<br />
275<br />
291<br />
314<br />
’94 ’95 ’96 ’97 ’98<br />
8
The E3T is an ultracompact photoelectric<br />
sensor inside amplifiers, fusing<br />
original OMRON technology in<br />
achieving wire conservation and<br />
lower costs.<br />
Including all the necessary functions<br />
and properties for temperature control<br />
applications, the E5DN temperature<br />
controller is now featured in a<br />
new size (far right).<br />
The SYSMAC system is an intelligent<br />
factory compatible controller incorporating<br />
information exchange<br />
capabilities.<br />
(VC 2400) that features 360-degree viewing; a low-cost, high-performance vision sensor<br />
(F150); and a laser micrometer (NEW3Z4L) contributed significantly to sales.<br />
In our sensor operations, in April <strong>1998</strong> we established an application development group to<br />
improve our sensor application development capabilities. This group will facilitate our ability<br />
to provide solutions to customers’ problems more rapidly and lead to expanded sales of sensors.<br />
Our major strategy for sensors in fiscal 1999 is to focus on providing an expanded line of<br />
inspection and measurement sensors for growth markets, such as the semiconductor industry.<br />
Among supervisory control products, the domestic market for timers and counters was<br />
extremely difficult, but sales of power supply and temperature controllers continued to<br />
achieve growth in domestic and overseas markets. Among general-purpose components,<br />
sales of large switches and industrial relays were negatively affected by the decline in capital<br />
investment, remaining at the previous fiscal year’s levels. By industry, demand expanded<br />
for machine-safety-related products, while power supply and specialty switches continued<br />
to sell well in the amusement industry. The growing popularity of numerical control applications<br />
in response to the need for energy conservation and reduced labor related to environmental<br />
issues is expected to increase demand for temperature controllers and counters.<br />
Demand is also anticipated to grow for machine-safety-related components, thanks to<br />
heightened interest in working safety in Japan and Europe as well as the widening market<br />
penetration of these products.<br />
New products were introduced not only in Japan but also overseas during the fiscal year under<br />
review to strengthen sales, including a power supply series (S82J), temperature controllers<br />
(E5N series), and large switches (A16 and A22). Seeking market expansion, the division entered<br />
new fields with such products as FA vibration sensors, inclination sensors, and flexible<br />
monitors. Overseas, the division aimed for stronger sales by promoting global development<br />
in the markets for timers and counters by introducing products that target regional markets and<br />
by dispatching liaison personnel to shore up sales activities in North America, Europe, and China.<br />
SYSTEM COMPONENTS<br />
Favorable exports by the Japanese automobile and semiconductor industries—our major customers—helped<br />
system components record double-digit growth in global sales in fiscal <strong>1998</strong>.<br />
Among our core products, programmable logic controllers (PLCs) posted double-digit<br />
growth in sales. The expansion in sales of our series of FA network (CompoBus/D) products,<br />
which are used to line PLCs with component devices, was notable.<br />
Improving cost-competitiveness and efficiency by shortening product development time<br />
and utilizing flexible, small-lot production systems remained important trends during the fiscal<br />
year under review. With advances in information technology and in global standardization,<br />
demand rose for virtual (premanufacturing testing) and more flexible (variable<br />
production) systems. The progressive downsizing of PLCs and the shift to open systems<br />
controllers and communication systems are producing heightened competition. In response,<br />
we are upgrading the features of our PLCs, including making them open system compatible.<br />
New products and technologies that contributed to sales during the fiscal year included<br />
CPT, our programmable support tool for PLCs, as well as the C200HX, E, G, and W series of<br />
upgraded SYSMAC (alpha) systems. The ISA bus compatible SYSMAC board, C200PC-ISA01-<br />
DRM, and the FA network family of CompoBus/D slave chips and multiple-I/O terminals<br />
also sold well.<br />
We have integrated product planning, production, and development to a single location<br />
to speed up our product development and enable us to focus on the release and sale of<br />
new versions of this division’s core products—PLCs and programmable terminals.<br />
9
Social Business<br />
22.6%<br />
As of April 1997, our Electronic Fund Transfer Systems (EFTS)<br />
Division and Public Information and Transfer Systems (PITS)<br />
Division were merged into a single division, the Social Business<br />
Division, to combine resources in developing new integrated markets.<br />
Social Business Division sales declined in fiscal <strong>1998</strong>, reflecting<br />
weak sales of financial systems.<br />
Since the start of Japan’s<br />
Big Bang financial regulations,<br />
we have developed<br />
foreign currency<br />
exchange machines for<br />
the domestic market.<br />
SALES<br />
(Billion ¥)<br />
120<br />
127<br />
126<br />
145<br />
138<br />
In the financial services market, domestic sales of automated teller machines (ATMs) to<br />
banks sank under diminished capital investment from the troubled banking industry.<br />
However, demand for ATMs remained strong in Japan’s consumer finance industry as companies<br />
expanded their ATM and unstaffed automated loan application machine networks to<br />
maintain their customer bases as competition heightened under deregulation in this currently<br />
profitable market. Overseas, the upheaval in the financial industry in South Korea, which<br />
has been an important market, resulted in lower overseas sales of ATMs.<br />
Among market trends, demand for low-cost and open systems products is growing in line<br />
with the trend of purchasing system solutions rather than packaged systems. The introduction<br />
of a revised Foreign Exchange and Foreign Trade Law allowing companies other than<br />
banks to enter the foreign exchange market has prompted a rush in orders for foreign currency<br />
exchange machines as well as for centralized surveillance and other systems. We<br />
have introduced an open systems version of our IX-ATM and new foreign currency exchange<br />
machines to meet the broadened demand in the market.<br />
We also introduced a CX-ATM model that accepts integrated circuit (IC) cards to the South<br />
Korean market, where such cards have recently been standardized. In Taiwan, demand for<br />
an automatic deposit function for paper currency at ATMs led us to launch a new model of<br />
our AP-ATM, a low-cost machine designed for Asian markets, that features this function.<br />
In the retail systems market, capital investment declined because volume discount retailers<br />
and gas stations reduced their capital investment due to the fierce price competition in<br />
these markets. However, demand for credit authorization terminals (CATs) from consumer<br />
credit companies remained high, as these companies further expanded their operations.<br />
Overseas, orders for retail systems from major customers in Europe were favorable. The<br />
popularity of PC point-of-sale (POS) systems continued to grow in overseas markets, and<br />
we introduced the PC-POS Compact, including the RS6500 series, to meet this demand.<br />
Current demand for retail systems in the domestic market centers on achieving low-cost<br />
operations and minimizing functions. In response, we have developed purchase coupon<br />
vending machines, equipment, and systems with pared-down functions.<br />
Major strategies for expanding and improving the content of our EFTSs sales in the current<br />
fiscal year include full-scale efforts to secure new, major clients. We are also looking at<br />
developing new integrated markets, particularly in the area of overlap between the financial<br />
and retail sectors. To improve our cost structure, we are cutting fixed costs while expanding<br />
production and improving the operating efficiency of our business functions, such as sales,<br />
production, development, and maintenance. To achieve the most effective use of resources<br />
inside and outside the Company, we are considering appropriate alliances and the outsourcing<br />
of certain business functions.<br />
In the public transportation systems market, the construction of a new subway line in the<br />
Kansai area and expansion of the number of stored fare (SF) systems, which allow passengers<br />
to travel on different companies’ lines with the same card, boosted sales of automated<br />
passenger gates (PGs) and ticket vending machines.<br />
’94 ’95 ’96 ’97 ’98<br />
10
Traffic control systems<br />
utilize information on<br />
traffic volume and congestion<br />
to achieve a<br />
smooth flow of traffic.<br />
The U-PG automated passenger gate<br />
is barless and features a new design<br />
as well as the high-speed processing<br />
of many types of tickets.<br />
Capital investment by railway and subway companies remained weak in reaction to a<br />
lack of growth in the number of passengers. However, there has been firm demand for SF<br />
systems, which increase the convenience of railway stations, and a check system for cheaton-the-fare<br />
passengers. In response, we have developed and introduced new types of PGs<br />
that handle two or more tickets at one time and have enhanced the functions of existing<br />
models.<br />
In the traffic control systems market, sales remained approximately the same as in the<br />
previous year, due to increased competition for smaller public construction expenditures<br />
under fiscal reform measures by the government. We introduced a Ground View Sensor<br />
(GVS), which allows drivers to continuously monitor road conditions. The GVS was installed<br />
in a road patrol car displayed at the Nagano ITS Showcase during the <strong>1998</strong> Nagano Winter<br />
Olympic Games.<br />
We remain focused on developing the ITSs market. Utilizing advanced networking and<br />
communication technology to integrate the vehicle, driver, and road with the goal of improving<br />
traffic efficiency and safety, this market is one with immense growth potential. One<br />
area where we have concentrated our efforts is the electronic toll collection (ETC) system,<br />
which Japanese tolling agencies soon will begin installing on major domestic highways.<br />
Our medium-term strategies for the PITSs market include increasing the competitiveness<br />
of our core businesses through cost reductions. Using that firm base, we will improve our<br />
marketing and technology capabilities to provide our customers with new technologies and<br />
products in accordance with market needs in a timely manner. Our PITSs business is still<br />
mainly a domestic business, but, to achieve growth, we are planning to increase overseas<br />
business. For this purpose, and to maintain a leading position as more foreign companies<br />
are able to bid on public projects in Japan, we are strengthening our business system to ensure<br />
our competitiveness under global standards.<br />
11
Specialty<br />
Products<br />
During fiscal <strong>1998</strong>, sales by the Specialty Products Division edged<br />
up slightly. Domestic sales of automotive electronic components,<br />
including keyless entry systems, electric window switches, and relays,<br />
were favorable despite the severe downturn in the Japanese<br />
7.7%<br />
automotive industry. We attribute our firm performance to the division’s<br />
marketing of innovative products rather than the mere development<br />
of products according to manufacturers’ requests. Overseas, sales of<br />
automotive electronic components were brisk, supported by the strong automotive<br />
industry in the United States.<br />
The MT128-NET/D<br />
is a network terminal<br />
adapter that integrates<br />
router, TA, hub, analog<br />
port, and DSU functions.<br />
SALES<br />
(Billion ¥)<br />
40<br />
42<br />
39<br />
47<br />
47<br />
Sales were strong in the office automation (OA) industry, our other major domestic market,<br />
because of the current popularity of digital color copiers. In addition, domestic manufacturers<br />
were shifting overseas their production of analog copiers, thereby contributing to higher<br />
demand.<br />
Among our products for PCs, sales of peripheral equipment, including integrated service<br />
digital network (ISDN) adapters, high-speed modems, uninterruptible power supply units,<br />
and scanners, declined due to the cooling off of consumer spending, which produced a<br />
drop in the domestic PC market. In addition, overseas sales of scanners declined as a major<br />
customer revised its business.<br />
The Specialty Products Division is pursuing growth opportunities in the ITSs market, as<br />
are other divisions. In particular, the Advanced Safety Vehicle (ASV) project is expected to<br />
produce demand for automotive electronic components. In the OA market, we foresee that<br />
an ongoing shift to digital, color, and network systems will support firm demand for devices<br />
used in copiers. In the computer peripheral market, the revolution in information systems<br />
occurring through digital communication, the Internet, and multimedia will support continued<br />
favorable demand for OMRON products.<br />
One of our key strategies for the current fiscal year is to expand sales of relays, controllers<br />
for rear defrosters and daytime running lights, and keyless entry systems to U.S.<br />
automakers in line with their higher production. In Canada, we are producing more power<br />
seat switches for sale to the Big Three U.S. automakers. Our European strategy focuses on<br />
the introduction of our air conditioner panel and our keyless entry system based on increased<br />
local production. We also are stressing greater sales of relays imported from our<br />
U.S. plant to manufacturers in the United Kingdom.<br />
Overseas, we will be reinforcing our copier operating base in Europe in the aftermath of<br />
the removal of antidumping taxes. Furthermore, we are aiming to expand assembly operations<br />
in other areas, particularly that of facsimile machines.<br />
Our OA domestic strategy will revolve around the introduction of Windows 98 ® and the<br />
expected recovery in the discount PC market, which should support growth in peripheral<br />
equipment sales.<br />
This power window switch has an<br />
antipinching function to prevent it<br />
from closing on arms or other obstacles.<br />
When an obstacle is encountered,<br />
the switch causes the window to stop<br />
and reverse in motion.<br />
’94 ’95 ’96 ’97 ’98<br />
12
Healthcare<br />
6.7%<br />
The Healthcare Division attained double-digit sales growth in fiscal<br />
<strong>1998</strong>, thanks to excellent performances in a wide range of<br />
product categories.<br />
Ear-type digital thermometers<br />
take body temperature in seconds<br />
using advanced infrared sensor<br />
technology.<br />
SALES<br />
(Billion ¥)<br />
In the domestic market, sales of ultrasonic electronic pulse massagers, infrared<br />
therapy devices, and electric toothbrushes declined, reflecting sluggish consumer<br />
spending. Sales of newly introduced body-fat monitors, massage chairs, and ear-type digital<br />
thermometers, however, soared. Traditionally popular blood pressure monitors and pedometers<br />
also recorded substantial sales growth, riding on the healthcare boom. Overseas,<br />
prompted by the weaker yen, we focused our efforts on developing sales routes in new<br />
markets, such as China, and on expanding sales by introducing new products. In particular,<br />
ear-type digital thermometers were a hit in the United States, contributing strongly to overseas<br />
sales growth.<br />
A digital compact wrist blood pressure monitor that was introduced near the end of the<br />
fiscal year in review was also among the new products that contributed to sales growth in<br />
fiscal <strong>1998</strong>. A significant market is developing for ear-type digital thermometers, especially<br />
in the United States, as these products gain global popularity. Moreover, our efforts to create<br />
a special market for our massage chairs were rewarded with greater sales than originally<br />
anticipated.<br />
Consumers continue to take a growing interest in maintaining and improving their health.<br />
Consequently, demand for healthcare services is increasingly focused on self-medication,<br />
particularly with the revision of regulations regarding medical nursing institutions. Providing<br />
better healthcare management services, therefore, is the core of our business development<br />
in this market. Our technology development also concentrates on this goal through advances<br />
in sensing and healthcare management technologies. We expect our systems service<br />
business, which aims to provide comprehensive solutions to healthcare needs, to eventually<br />
become one of the division’s core businesses. The KAZ Healthcare Academy, which offers<br />
sophisticated healthcare counseling by healthcare professionals supported by advanced software<br />
for healthcare management, is one of the bases from which we are developing the<br />
systems service business.<br />
During fiscal 1999, our basic business aim is to achieve thorough customer satisfaction<br />
while building a solid foundation for developing OMRON’s visionary concepts, especially<br />
within the total healthcare business. More concretely, we will continue to promote the total<br />
healthcare business while nurturing the necessary technology and development capabilities<br />
to pursue growth based on our visionary concepts.<br />
29<br />
29<br />
32<br />
36<br />
41<br />
<strong>Omron</strong>’s body-fat monitor<br />
creates a new alternative<br />
to the present standard for<br />
daily health checks.<br />
’94 ’95 ’96 ’97 ’98<br />
13
Open Systems<br />
OMRON offers clients added value in<br />
information systems by combining<br />
the latest technology with comprehensive<br />
services.<br />
SALES<br />
(Billion ¥)<br />
50<br />
8.2%<br />
The Open Systems Division maintained sales and profit levels in<br />
fiscal <strong>1998</strong> amid highly competitive markets.<br />
With the consumer market for PCs stalled by stagnant consumer spending,<br />
competitors refocused their sights on corporate information systems<br />
and network sales, creating a highly competitive environment in the information technology<br />
market. In the second half of the period under review, the slowdown in Japan’s economy<br />
further worsened conditions, resulting in falling performances in the PC-oriented wholesale<br />
market. The market for information systems to boost corporate competitiveness, however,<br />
remained firm as companies continued to make significant capital investment.<br />
During fiscal <strong>1998</strong>, we cooperated with system integrator companies in winning largescale<br />
company orders. Consequently, sales were favorable for open platform systems based<br />
on PC servers and for systems design and installation as well as operating and maintenance<br />
services.<br />
Although companies continue to expand their information systems, the process of setting<br />
up E-mail networks within major corporations is essentially complete. Customer demand<br />
has now turned from faster information-sharing and decision-making functions to improving<br />
customer services; various other activities, including sales methods; and strengthening ties<br />
with leading vendors.<br />
At present, capital investment in information systems and networks is focused on achieving<br />
the maximum use of a company’s client-server system, including the thorough management<br />
of efficiency and security. At the same time, companies are rebuilding their business<br />
systems, such as core enterprise resource planning (ERP) systems and computer telephone<br />
integration (CTI) systems. Customers continued to be concerned with system costs, but their<br />
concern has shifted from start-up costs to overall running costs.<br />
Demand is currently high for network- and security-related equipment as well as for ERP<br />
and CTI packages. On the other hand, the increasing complexity of systems has given rise<br />
to a strong need for comprehensive maintenance and other services. To meet this demand,<br />
OMRON Alphatec Corporation, an associated company, introduced “Movice,” a comprehensive<br />
service for multivendor systems, during fiscal 1996. “Movice” allows customers to select<br />
the services they need from a menu of multiple support services that cover system design<br />
and installation to management and maintenance. The comprehensive service is highly evaluated<br />
by manufacturers and customers. To effect further improvements, OMRON Alphatec<br />
is upgrading its menu by adding preventative maintenance, remote inspection and maintenance,<br />
a customer help desk, and 24-hour services.<br />
34<br />
35<br />
39<br />
50<br />
We are supporting a revolution in<br />
marketing methods based on information<br />
technology.<br />
’94 ’95 ’96 ’97 ’98<br />
14
OMRON’S COMMITMENT TO ENVIRONMENTAL PROTECTION<br />
ENVIRONMENTALLY SOUND TECHNOLOGY<br />
Through industrial and other activities, the global population is consuming increasingly<br />
large amounts of the world’s limited energy resources and damaging the earth’s environment<br />
through the use and disposal of hazardous materials. However, through the adaptation<br />
of better technologies, it is possible to greatly reduce our energy consumption and limit<br />
the use and disposal of these materials.<br />
OMRON is creating such environmentally sound technologies and products. We are particularly<br />
emphasizing the following three areas:<br />
• developing low energy consumption products,<br />
• minimizing energy consumption and eliminating hazardous materials in our production<br />
and manufacturing processes, and<br />
• reducing industrial waste through recycling.<br />
ACHIEVING ISO 14001 CERTIFICATION<br />
ISO 14001 environmental management systems certification is recognized around the world<br />
as the membership card of “green” corporations. Meeting ISO 14001 standards also indicates<br />
that a company has established environmental management systems that promote continual<br />
efforts to prevent pollution.<br />
OMRON established its Environmental Charter in 1994, having had organizations for the<br />
promotion of environmental protection activities since 1992. As of April <strong>1998</strong>, 13 domestic<br />
and 3 overseas manufacturing sites had obtained ISO 14001 certification. We expect to<br />
achieve full certification for all 30 of the OMRON Group’s manufacturing sites by the end of<br />
the current fiscal year.<br />
MINIMIZING ENERGY CONSUMPTION<br />
To minimize the effect of its operations on global warming, OMRON has set 15% as its goal<br />
by which to reduce its electric energy consumption per unit of product shipments by the<br />
end of the current fiscal year, relative to the fiscal 1996 level. Thermal electric power generation,<br />
which burns fossil fuels, is considered one of the main causes of global warming.<br />
Among other measures to diminish energy consumption, we are managing our use of airconditioning,<br />
lighting, and office equipment; revising our production processes; and utilizing<br />
solar power systems. In fiscal <strong>1998</strong>, we achieved a 13.5% reduction in energy<br />
consumption per unit of product shipments compared with the fiscal 1996 level.<br />
REDUCING INDUSTRIAL WASTE<br />
Since fiscal 1997, we have made efforts to reduce the volume of industrial waste and to recycle<br />
resources.<br />
We now are practicing the thorough separation of waste by category to enable better recycling<br />
and the proper processing of nonrecyclables. Furthermore, we are developing applications<br />
for recycled materials to improve our recycling ratio. In fiscal <strong>1998</strong>, we achieved a<br />
36% reduction in our industrial waste volume relative to the fiscal 1996 level, and our recycling<br />
ratio rose to 60%. Of course, our ultimate goal is zero emissions.<br />
OMRON’S ECO-PRODUCTS<br />
OMRON develops and improves upon technologies and products to help solve serious environmental<br />
issues. The key words for these activities are the Four Rs: Reject, Reduce,<br />
Reuse, and Recycle.<br />
15
~<br />
~<br />
Striving to obtain ISO 14001 certification for all 30<br />
of the OMRON Group’s manufacturing sites by the<br />
end of fiscal 1999.<br />
Reduction in Electric<br />
Energy Consumption<br />
CO 2 Emissions (Conversion)<br />
(t—c)<br />
12,000<br />
Reduction (%)<br />
0<br />
11,500<br />
11,000<br />
5<br />
10,500<br />
10<br />
10,000<br />
9,500<br />
9,000<br />
8,500<br />
15<br />
20<br />
8,000<br />
FY 1996 1997 <strong>1998</strong> 1999 2002<br />
25<br />
(Projected)<br />
Mishima Plant, in Japan<br />
CO 2 emissions from electric power<br />
generation<br />
Reduction performance on product<br />
shipment basis<br />
Target performance reduction on<br />
product shipment basis<br />
Sensing Technology<br />
Sensor for Conserving Resources and Electric Energy (Proximity Switch)<br />
OMRON’s DC two-wire proximity sensor reduces the use of resources by 1/3 less copper<br />
and 1/4 less insulation than the three-wire sensor. The sensor is also highly electric energy efficient,<br />
requiring 1/15 less electric energy than the three-wire sensor.<br />
CO 2 Control Technology<br />
Clean Energy (Solar Power Conditioner)<br />
OMRON’s solar power conditioner converts environment-friendly clean electric power obtained<br />
from solar cells into usable commercial electric power to run electric appliances in<br />
the home.<br />
Intelligent Transport Systems (ITSs) Technology<br />
ITSs are designed to integrate driver, vehicle, and road in such a way as to solve many current<br />
traffic issues. One of the main objectives in the development of ITSs was environmental<br />
16
~<br />
~<br />
Weight (tons) Recycling Ratio (%)<br />
6,000<br />
Reduction in Waste<br />
and Recycling Ratio<br />
100<br />
5,000<br />
4,000<br />
75<br />
3,000<br />
50<br />
2,000<br />
1,000<br />
25<br />
OMRON Manufacturing<br />
of the Netherlands B.V.<br />
PT OMRON Manufacturing<br />
of Indonesia<br />
protection. In addition to their potential for improving safety, efficiency, and comfort,<br />
ITSs lessen CO 2 emissions by reducing traffic jams, thereby mitigating global warming.<br />
OPTIMIZING TRAFFIC CONTROL<br />
Through the use of signal lights and information displays, traffic control centers ensure the<br />
smooth and safe movement of traffic, thus avoiding congestion. The centers also contribute<br />
significantly to reducing CO 2 and NO x emissions, as engines burn cleaner when running<br />
smoothly.<br />
0<br />
0<br />
FY 1996 1997 <strong>1998</strong> 1999 2002 (Projected)<br />
Total of recycling resources and waste<br />
Waste<br />
Recycling performance<br />
Recycling target<br />
ELECTRONIC TOLL COLLECTION (ETC) SYSTEM<br />
OMRON’s no-stop automated ETC system allows tolls to be collected “on the run.” Because<br />
vehicles do not have to stop, the system eliminates bottlenecks on highways, which, in turn,<br />
helps reduce CO 2 and NO x emissions.<br />
17
BOARD OF DIRECTORS<br />
Seated (left to right):<br />
Nobuo Tateisi,<br />
Kohei Jinkawa,<br />
Yoshio Tateisi<br />
Standing (left to right):<br />
Norio Hirai,<br />
Tomoaki Nishimura,<br />
Hideki Masuda,<br />
Isao Hatano,<br />
Soichi Koshio<br />
Chairman and Director<br />
Nobuo Tateisi*<br />
Vice Chairman<br />
and Director<br />
Kohei Jinkawa*<br />
President and Director<br />
Yoshio Tateisi*<br />
Vice Presidents<br />
and Directors<br />
Isao Hatano*<br />
Soichi Koshio*<br />
Senior Managing<br />
Directors<br />
Hideki Masuda*<br />
Tomoaki Nishimura*<br />
Norio Hirai*<br />
Managing Directors<br />
Kiyohiko Watanabe<br />
Tsunehiko Tokumasu<br />
Tsutomu Narita<br />
Izuru Minami<br />
Noboru Sano<br />
Tadao Tateisi<br />
Tatsuro Ichihara<br />
Akio Imaizumi<br />
Directors<br />
Takao Abu<br />
Sadao Masuyoshi<br />
Masaaki Sadatomo<br />
Yoshikazu Tachi<br />
Masato Mori<br />
Shingo Akechi<br />
Yoshifumi Kajiya<br />
Hisao Sakuta<br />
Minoru Tamura<br />
Tsukasa Yamashita<br />
Fujio Tokita<br />
Yutaka Takigawa<br />
Keiichiro Akahoshi<br />
Fumio Tateisi<br />
Standing Corporate<br />
Auditors<br />
Kinji Hanamoto<br />
Isao Suzuki<br />
Motoki Tamura<br />
Corporate Auditor<br />
Takayuki Yamashita<br />
*Representative Director<br />
18
FINANCIAL SECTION<br />
Five-Year Summary ..............................................................................20<br />
Management’s Discussion & Analysis..................................................21<br />
Consolidated Statements of Income....................................................25<br />
Consolidated Balance Sheets ...............................................................26<br />
Consolidated Statements of Shareholders’ Equity ...............................28<br />
Consolidated Statements of Cash Flows..............................................29<br />
Notes to Consolidated Financial Statements .......................................30<br />
Independent Auditors’ <strong>Report</strong>.............................................................42<br />
19
1FIVE-YEAR SUMMARY<br />
OMRON Corporation and Subsidiaries<br />
Years ended March 31<br />
Millions of yen (except per share data)<br />
<strong>1998</strong> 1997 1996 1995 1994<br />
Net Sales:<br />
Control Components and Systems ..................................... ¥313,642 ¥291,277 ¥275,149 ¥248,023 ¥230,983<br />
Social Business.................................................................... 138,203 145,172 125,623 127,382 120,429<br />
Specialty Products .............................................................. 47,263 46,533 38,687 42,465 40,323<br />
Healthcare .......................................................................... 40,793 36,388 31,618 28,790 28,919<br />
Open Systems ..................................................................... 50,131 50,187 38,621 34,672 33,964<br />
Others................................................................................. 21,763 24,704 15,591 8,368 6,251<br />
................................................................................................ 611,795 594,261 525,289 489,700 460,869<br />
Costs and Expenses:<br />
Cost of sales........................................................................ 387,445 388,005 342,500 324,666 312,248<br />
Selling, general and administrative expenses ..................... 138,404 130,163 109,117 100,333 100,193<br />
Research and development expenses ................................ 39,914 35,188 34,433 31,223 28,698<br />
Interest expenses, net ........................................................ 682 1,591 2,044 5,102 6,428<br />
Other, net ........................................................................... 3,107 66 4,943 3,428 240<br />
................................................................................................ 569,552 555,013 493,037 464,752 447,807<br />
Income before Income Taxes,<br />
Minority Interests, and Cumulative Effect<br />
of Change in Accounting Principle................................... 42,243 39,248 32,252 24,948 13,062<br />
Income Taxes....................................................................... 23,775 22,952 17,039 12,358 8,822<br />
Minority Interests................................................................ 168 557 626 438 134<br />
Cumulative Effect of<br />
Change in Accounting Principle..................................... — — — — 584<br />
Net Income ........................................................................... 18,300 15,739 14,587 12,152 4,690<br />
Net Income per Share (yen, Note 1):<br />
Basic .................................................................................. ¥69.8 ¥60.1 ¥55.7 ¥50.8 ¥20.3<br />
Diluted .............................................................................. 68.3 58.8 54.5 49.4 20.1<br />
Cash Dividends per Share (yen, Note 2) ........................... 13.0 13.0 13.0 13.0 13.0<br />
Capital Expenditures (cash basis)....................................... ¥ 35,896 ¥ 29,956 ¥ 34,079 ¥ 30,954 ¥ 26,875<br />
Total Assets........................................................................... 579,663 590,353 580,815 569,151 552,174<br />
Total Shareholders’ Equity................................................. 336,064 323,019 302,458 288,086 230,706<br />
Notes: 1. Net income per share amounts are computed based on the Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings per Share,” which is<br />
effective for the fiscal year ended March 31, <strong>1998</strong>. All prior years’ data presented has been restated to conform with the provisions of SFAS No. 128.<br />
2. Cash dividends per share are the amounts applicable to the respective year, including dividends to be paid after the end of the year.<br />
20
MANAGEMENT’S DISCUSSION & ANALYSIS<br />
Sales<br />
The Japanese economy slowed in the second half of fiscal <strong>1998</strong>, ended March 31, <strong>1998</strong>,<br />
buffeted by domestic problems as well as the currency turmoil in Southeast Asia. Consumers<br />
displayed growing spending restraint in the face of deteriorating corporate performances<br />
caused by weak personal consumption. The recessionary mood was further reinforced by<br />
the string of major business failures precipitated by a troubled banking industry. The sudden<br />
collapse in Asian currencies also contributed to a loss of confidence in the future direction<br />
of Japan’s economy.<br />
Despite these significant swings in Japan’s economy as well as in certain Asian currencies,<br />
OMRON’s consolidated net sales rose 3.0%, to ¥611,795 million ($4,635 million). The weaker<br />
yen as well as economic growth in overseas markets, particularly in the United States and<br />
Europe, supported strong sales for the Company’s core control components and systems<br />
operations.<br />
The increase or decrease in sales of each product group or division is as follows:<br />
The composition of net sales is as follows:<br />
<strong>1998</strong> 1997 1996<br />
Control Components and Systems............................. 7.7% 5.9% 10.9%<br />
Social Business ........................................................... (4.8) 15.6 (1.4)<br />
Specialty Products...................................................... 1.6 20.3 (8.9)<br />
Healthcare .................................................................. 12.1 15.1 9.8<br />
Open Systems............................................................. (0.1) 29.9 11.4<br />
Others ........................................................................ (11.9) 58.5 86.3<br />
<strong>1998</strong> 1997 1996<br />
Control Components and Systems............................. 51.3% 49.0% 52.3%<br />
Social Business ........................................................... 22.6 24.5 23.9<br />
Specialty Products...................................................... 7.7 7.8 7.4<br />
Healthcare .................................................................. 6.7 6.1 6.0<br />
Open Systems............................................................. 8.2 8.4 7.4<br />
Others ........................................................................ 3.5 4.2 3.0<br />
Divisional performance was mixed in fiscal <strong>1998</strong>. OMRON’s major product group, the<br />
Control Components and Systems Division, attained satisfactory growth—amid a difficult<br />
business climate, thanks to the beneficial effects of robust economies in the United States<br />
and Europe—in overseas sales as well as in exports of OMRON’s major domestic customers,<br />
the automotive and semiconductor industries. The division also made significant inroads in<br />
selling to the multimedia and amusement industries. In fiscal <strong>1998</strong>, we combined our<br />
Electronic Fund Transfer Systems (EFTS) and Public Information and Transfer Systems<br />
(PITS) divisions into a single division, the Social Business Division, which posted a small<br />
decline during the fiscal year under review due mainly to weak domestic and overseas markets<br />
for financial systems. The division recorded approximately the same level of traffic control<br />
sales as in the previous fiscal year and continued to make headway developing the<br />
Intelligent Transport Systems (ITSs) market. Sales by the Specialty Products Division rose<br />
slightly overall because of the success of marketing efforts to a stagnant domestic automobile<br />
industry, supported by a strong overseas automobile market and the current boom in<br />
21
digital and color copiers in the office automation (OA) industry. Sales of products for PCs<br />
declined because of consumer spending restraint. Healthcare Division sales achieved doubledigit<br />
growth in fiscal <strong>1998</strong> thanks to strong domestic and overseas demand for new products,<br />
such as body-fat monitors, massage chairs, and ear-type digital thermometers.<br />
Traditionally popular products, such as blood pressure monitors and pedometers, continued<br />
to sell well because of the global boom in self-healthcare. The Open Systems Division’s<br />
sales stalled in fiscal <strong>1998</strong> after three consecutive years of consolidated sales growth, remaining<br />
approximately the same as in the previous year. Weak consumer spending depressed<br />
sales of PCs to individuals, causing a shift in emphasis from sales of PCs to<br />
individuals to corporate sales of information systems and networks, thus producing heightened<br />
competition in this market. Strong overall demand in this area, however, helped the<br />
division maintain sales levels approximately the same as the previous fiscal year’s despite<br />
the economic downturn in the second half of the term.<br />
Sales by foreign subsidiaries rose 12.6% and generated 28.0% of net sales, compared with<br />
25.6% of net sales in fiscal 1997 and 23.4% in fiscal 1996.<br />
Including direct exports from Japan, the overseas sales ratio climbed to 29.6% in fiscal<br />
<strong>1998</strong>, from 27.3% in the previous fiscal year.<br />
Costs, Expenses, and Income<br />
Costs, expenses, and income as percentages of net sales were as follows:<br />
<strong>1998</strong> 1997 1996<br />
Net sales ......................................................................... 100.0% 100.0% 100.0%<br />
Cost of sales.................................................................... 63.3 65.3 65.2<br />
Gross profit..................................................................... 36.7 34.7 34.8<br />
Selling, general and administrative expenses................. 22.6 21.9 20.8<br />
Research and development expenses ............................ 6.5 5.9 6.6<br />
Interest expenses, net .................................................... 0.1 0.3 0.4<br />
Income before income taxes and minority interests ....... 6.9 6.6 6.1<br />
Income taxes .................................................................. 3.9 3.9 3.2<br />
Net income..................................................................... 3.0 2.6 2.8<br />
Cost of sales declined marginally, to ¥387,445 million ($2,935 million), during the period<br />
under review. Because cost of sales remained flat while net sales gained 3.0%, the gross<br />
profit ratio improved to 36.7%, from 34.7% in fiscal 1997. Selling, general and administrative<br />
expenses rose 6.3%, to ¥138,404 million ($1,049 million), and research and development expenses<br />
increased 13.4%, to ¥39,914 million ($302 million). Interest expenses, net, dropped<br />
to ¥682 million ($5 million), mainly because of lower debt. Foreign exchange loss, net, totaled<br />
¥4,419 million ($33 million). Income before income taxes and minority interests was<br />
¥42,243 million ($320 million), an increase of 7.6% from the previous fiscal year.<br />
Income taxes climbed slightly, reflecting greater corporate profits. Minority interests declined<br />
to ¥168 million ($1 million). Net income advanced 16.3%, to ¥18,300 million ($139 million).<br />
Basic net income per share rose from ¥60.1 to ¥69.8 ($0.53), and diluted net income per<br />
share rose from ¥58.8 to ¥68.3 ($0.52). Cash dividends per share applicable to the period<br />
were maintained at ¥13.0 ($0.10). ROA and ROE were 3.1% and 5.6%, respectively, compared<br />
with 2.7% and 5.0% in the previous fiscal year.<br />
22
Financial Position<br />
Total current assets edged down 3.8%, to ¥327,372 million ($2,480 million), largely because<br />
of the declines in cash and cash equivalents and short-term investments. The inventory<br />
turnover rate, as determined by cost of sales divided by inventories at year-end, decreased<br />
to 4.1, from 4.5 at the previous fiscal year-end. Total current liabilities, however, dropped<br />
8.0%, to ¥176,288 million ($1,336 million), mainly reflecting a large decline in the current<br />
portion of long-term debt. Working capital increased ¥2,295 million, to ¥151,084 million<br />
($1,145 million), providing adequate liquidity for operations. The current ratio was 1.86,<br />
compared with 1.78 at the previous fiscal year-end.<br />
Cash and cash equivalents at beginning of the year were ¥79,288 million ($601 million).<br />
Net cash provided by operating activities declined to ¥32,086 million ($243 million).<br />
Depreciation and amortization, the main component of cash flows from operating activities,<br />
edged down 0.3%, to ¥31,129 million ($236 million). Net cash used in investing activities<br />
sunk to ¥17,631 million ($134 million), mainly because of a sharp drop in the purchase of<br />
short-term investments and investment securities. Capital expenditures rose 19.8%, to<br />
¥35,896 million ($272 million).<br />
Net cash used in financing activities was ¥23,637 million ($179 million). Proceeds from issuance<br />
of long-term debt were ¥648 million ($5 million), and repayments of long-term debt<br />
were ¥18,013 million ($136 million). Reflecting the above cash outflows and inflows, cash<br />
and cash equivalents at end of the year decreased to ¥68,365 million ($518 million).<br />
Total indebtedness—bank loans, current portion of long-term debt, and long-term debt—<br />
decreased 27.4%, to ¥54,544 million ($413 million). Long-term debt fell 19.9%, to ¥33,500<br />
million ($254 million).<br />
Total shareholders’ equity grew 4.0%, to ¥336,064 million ($2,546 million), with higher retained<br />
earnings being offset somewhat by cumulative translation adjustments and minimum<br />
pension liability adjustment. Total shareholders’ equity as a percentage of total assets rose<br />
to 58.0%, compared with 54.7% at the end of fiscal 1997. ROE was 5.6%, compared with<br />
5.0% at the previous fiscal year-end. OMRON is targeting an ROE of 6.0% by the end of its<br />
Seventh Mid-Term Management Plan.<br />
Capital Investments and Finance<br />
A total of ¥35,896 million ($272 million) in capital expenditures was made during fiscal <strong>1998</strong><br />
and was principally invested in establishing a growth structure, in expanding our global network<br />
in Asia and other countries, and in plant and equipment.<br />
OMRON has not found it necessary to raise capital to fund its current capital expenditure<br />
program at this stage.<br />
23
Research and Development<br />
Research and development expenses were ¥39,914 million ($302 million) during the fiscal<br />
year under review, representing 6.5% of net sales.<br />
Year 2000 Compliance<br />
The Company has developed plans to address the exposure of its computer systems to the<br />
so-called millennium bug. Key financial, information, and operational systems have been assessed,<br />
and detailed plans have been developed to achieve Year 2000 compliance by<br />
December 31, 1999. The financial impact of making the required system changes is not expected<br />
to be material to the Company’s consolidated financial position, results of operations,<br />
or cash flows.<br />
Share Buyback Program<br />
In accordance with a resolution passed at the general meeting of shareholders in June <strong>1998</strong>,<br />
OMRON will repurchase and retire shares up to a maximum of ¥10 billion, or five million<br />
shares, during the period before the next general shareholders’ meeting. In addition, the<br />
Company’s Articles of Incorporation have been amended to allow future share repurchases<br />
up to a total of 25 million additional shares.<br />
Stock Option Plan<br />
The Company has introduced a stock option plan for its directors to further motivate them<br />
to consider growth in investors’ value as their chief management goal and to otherwise<br />
manage in a manner that is in the best interest of shareholders. A maximum of 158,000<br />
shares, or ¥500 million, will be allocated for this purpose in accordance with a resolution<br />
passed at the general meeting of shareholders. The exercise period will run from July 1999<br />
to the end of June 2001.<br />
24
CONSOLIDATED STATEMENTS OF INCOME<br />
OMRON Corporation and Subsidiaries<br />
Years ended March 31, <strong>1998</strong>, 1997 and 1996<br />
Thousands of<br />
Millions of yen U.S. dollars (Note 2)<br />
<strong>1998</strong> 1997 1996 <strong>1998</strong><br />
Net Sales ................................................................................... ¥611,795 ¥594,261 ¥525,289 $4,634,811<br />
Costs and Expenses:<br />
Cost of sales .......................................................................... 387,445 388,005 342,500 2,935,189<br />
Selling, general and administrative expenses ....................... 138,404 130,163 109,117 1,048,515<br />
Research and development expenses ................................... 39,914 35,188 34,433 302,379<br />
Interest expenses, net (Note 5) ............................................ 682 1,591 2,044 5,167<br />
Foreign exchange loss, net ................................................... 4,419 860 5,027 33,477<br />
Other income, net ................................................................. (1,312) (794) (84) (9,939)<br />
Total ................................................................................. 569,552 555,013 493,037 4,314,788<br />
Income before Income Taxes and Minority Interests ....... 42,243 39,248 32,252 320,023<br />
Income Taxes (Note 9)............................................................ 23,775 22,952 17,039 180,114<br />
Income before Minority Interests........................................ 18,468 16,296 15,213 139,909<br />
Minority Interests ................................................................... 168 557 626 1,273<br />
Net Income .............................................................................. ¥ 18,300 ¥ 15,739 ¥ 14,587 $0,138,636<br />
Yen U.S. dollars (Note 2)<br />
Net Income per Share (Note 11):<br />
Basic...................................................................................... ¥69.8 ¥60.1 ¥55.7 $0.53<br />
Diluted .................................................................................. 68.3 58.8 54.5 0.52<br />
Cash Dividends per Share (Note 11)..................................... 13.0 13.0 13.0 0.10<br />
See notes to consolidated financial statements.<br />
25
CONSOLIDATED BALANCE SHEETS<br />
OMRON Corporation and Subsidiaries<br />
March 31, <strong>1998</strong> and 1997<br />
Thousands of<br />
Millions of yen U.S. dollars (Note 2)<br />
ASSETS <strong>1998</strong> 1997 <strong>1998</strong><br />
Current Assets:<br />
Cash and cash equivalents......................................................................... ¥ 68,365 ¥ 79,288 $ 517,917<br />
Short-term investments (Note 4) ............................................................... 4,767 25,970 36,114<br />
Notes and accounts receivable—trade...................................................... 138,149 133,771 1,046,583<br />
Allowance for doubtful receivables........................................................... (3,301) (3,023) (25,008)<br />
Inventories (Note 3) .................................................................................. 94,981 85,966 719,553<br />
Deferred income taxes (Note 9)................................................................ 11,798 10,139 89,379<br />
Other current assets .................................................................................. 12,613 8,310 95,553<br />
Total Current Assets .......................................................................... 327,372 340,421 2,480,091<br />
Property, Plant and Equipment:<br />
Land ........................................................................................................... 50,166 51,169 380,045<br />
Buildings .................................................................................................... 107,974 107,036 817,985<br />
Machinery and equipment......................................................................... 143,809 143,736 1,089,462<br />
Construction in progress........................................................................... 4,124 2,746 31,242<br />
Total ..................................................................................................... 306,073 304,687 2,318,734<br />
Accumulated depreciation ........................................................................ (135,591) (134,277) (1,027,205)<br />
Net Property, Plant and Equipment................................................ 170,482 170,410 1,291,529<br />
Investments and Other Assets:<br />
Investments in and advances to associates................................................ 1,843 2,098 13,962<br />
Investment securities (Note 4) .................................................................. 43,245 42,198 327,614<br />
Leasehold deposits .................................................................................... 11,730 11,809 88,864<br />
Deferred income taxes (Note 9)................................................................ 7,507 6,945 56,871<br />
Other ......................................................................................................... 17,484 16,472 132,455<br />
Total Investments and Other Assets ............................................... 81,809 79,522 619,766<br />
Total.............................................................................................................. ¥579,663 ¥590,353 $4,391,386<br />
See notes to consolidated financial statements.<br />
26
Thousands of<br />
Millions of yen U.S. dollars (Note 2)<br />
LIABILITIES AND SHAREHOLDERS’ EQUITY <strong>1998</strong> 1997 <strong>1998</strong><br />
Current Liabilities:<br />
Bank loans (Note 5) ................................................................................... ¥ 12,578 ¥ 15,302 $ 95,288<br />
Notes and accounts payable—trade.......................................................... 88,756 95,552 672,394<br />
Accrued expenses ..................................................................................... 23,117 22,478 175,129<br />
Income taxes payable................................................................................ 15,011 16,236 113,720<br />
Other current liabilities ............................................................................. 28,360 24,040 214,848<br />
Current portion of long-term debt (Note 5).............................................. 8,466 18,024 64,136<br />
Total Current Liabilities .................................................................... 176,288 191,632 1,335,515<br />
Long-Term Debt (Note 5) ........................................................................... 33,500 41,821 253,788<br />
Deferred Income Taxes (Note 9)............................................................... 5,531 4,214 41,902<br />
Termination and Retirement Benefits (Note 7)...................................... 24,913 22,909 188,735<br />
Other Long-Term Liabilities...................................................................... 367 108 2,780<br />
Minority Interests in Subsidiaries ........................................................... 3,000 6,650 22,727<br />
Shareholders’ Equity (Note 8):<br />
Common stock with ¥50 par value:<br />
Authorized—500,000,000 shares;<br />
Issued and outstanding—262,107,214 shares in <strong>1998</strong> and 1997 .......... 64,079 64,079 485,447<br />
Additional paid-in capital........................................................................... 98,702 98,702 747,742<br />
Legal reserve.............................................................................................. 6,314 5,963 47,833<br />
Retained earnings ...................................................................................... 174,282 159,741 1,320,318<br />
Cumulative translation adjustments .......................................................... (5,912) (3,320) (44,787)<br />
Minimum pension liability adjustment (Note 7) ....................................... (1,401) (2,146) (10,614)<br />
Total Shareholders’ Equity ............................................................... 336,064 323,019 2,545,939<br />
Total ............................................................................................................. ¥579,663 ¥590,353 $4,391,386<br />
27
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY<br />
OMRON Corporation and Subsidiaries<br />
Years ended March 31, <strong>1998</strong>, 1997 and 1996<br />
Millions of yen<br />
Number of<br />
Minimum<br />
common shares Additional Cumulative pension<br />
issued and Common paid-in Legal Retained translation liability<br />
outstanding stock capital reserve earnings adjustments adjustment<br />
Balance, April 1, 1995 .................... 262,100,942 ¥64,075 ¥98,696 ¥5,087 ¥137,107 ¥(16,879) ¥ —)<br />
Shares issued upon<br />
conversion of bonds .................... 6,272 4 6<br />
Net income .................................... 14,587<br />
Cash dividends, ¥13.0 per share.... (3,408)<br />
Transfer to legal reserve ................ 386 (386)<br />
Translation adjustments ................ 7,822<br />
Adjustment to minimum<br />
pension liability............................ (4,639)<br />
Balance, March 31, 1996................ 262,107,214 64,079 98,702 5,473 147,900 (9,057) (4,639)<br />
Net income .................................... 15,739<br />
Cash dividends, ¥13.0 per share.... (3,408)<br />
Transfer to legal reserve ................ 490 (490)<br />
Translation adjustments................. 5,737<br />
Adjustment to minimum<br />
pension liability............................ 2,493<br />
Balance, March 31, 1997................ 262,107,214 64,079 98,702 5,963 159,741 (3,320) (2,146)<br />
Net income .................................... 18,300<br />
Cash dividends, ¥13.0 per share.... (3,408)<br />
Transfer to legal reserve ................ 351 (351)<br />
Translation adjustments................. (2,592)<br />
Adjustment to minimum<br />
pension liability............................ 745<br />
Balance, March 31, <strong>1998</strong>................ 262,107,214 ¥64,079 ¥98,702 ¥6,314 ¥174,282 ¥ (5,912) ¥(1,401)<br />
Thousands of U.S. dollars (Note 2)<br />
Minimum<br />
Additional Cumulative pension<br />
Common paid-in Legal Retained translation liability<br />
stock capital reserve earnings adjustments adjustment<br />
Balance, March 31, 1997...................................... $485,447 $747,742 $45,174 $1,210,159 $(25,152) $(16,258)<br />
Net income ............................................................. 138,636<br />
Cash dividends, $0.10 per share.............................. (25,818)<br />
Transfer to legal reserve .......................................... 2,659 (2,659)<br />
Translation adjustments........................................... (19,635)<br />
Adjustment to minimum pension liability ............... 5,644<br />
Balance, March 31, <strong>1998</strong>...................................... $485,447 $747,742 $47,833 $1,320,318 $(44,787) $(10,614)<br />
See notes to consolidated financial statements.<br />
28
CONSOLIDATED STATEMENTS OF CASH FLOWS<br />
OMRON Corporation and Subsidiaries<br />
Years ended March 31, <strong>1998</strong>, 1997 and 1996<br />
Thousands of<br />
Millions of yen U.S. dollars (Note 2)<br />
<strong>1998</strong> 1997 1996 <strong>1998</strong><br />
Operating Activities:<br />
Net income .................................................................................. ¥18,300 ¥15,739 ¥14,587 $138,636<br />
Adjustments to reconcile net income to net<br />
cash provided by operating activities:<br />
Depreciation and amortization ................................................ 31,129 31,234 30,196 235,826<br />
Loss on sales of property, plant and equipment...................... 268 771 677 2,030<br />
Valuation loss on property held for sale .................................. — 2,040 — —<br />
Net (gain) loss on sale of short-term investments<br />
and investment securities ...................................................... (1) (2,828) 22 (8)<br />
Termination and retirement benefits....................................... 2,004 4,574 (154) 15,182<br />
Deferred income taxes............................................................. (230) (62) (1,242) (1,742)<br />
Minority interests ..................................................................... 168 557 626 1,273<br />
Changes in assets and liabilities:<br />
Notes and accounts receivable—trade, net ......................... (3,537) (7,927) (16,936) (26,795)<br />
Inventories ........................................................................... (8,412) (4,163) (7,289) (63,727)<br />
Other assets.......................................................................... (7,004) (2,080) 494 (53,061)<br />
Notes and accounts payable—trade .................................... (4,315) 12,000 5,841 (32,689)<br />
Income taxes payable .......................................................... (1,998) 4,711 1,455 (15,136)<br />
Accrued expenses and other ............................................... 4,425 3,232 (706) 33,523<br />
Other, net................................................................................. 1,289 (629) (798) 9,763<br />
Total adjustments................................................................. 13,786 41,430 12,186 104,439<br />
Net cash provided by operating activities ....................... 32,086 57,169 26,773 243,075<br />
Investing Activities:<br />
Proceeds from sales or maturities of short-term investments<br />
and investment securities .......................................................... 21,285 43,671 70,382 161,250<br />
Purchase of short-term investments and investment securities.... (1,427) (45,904) (45,625) (10,811)<br />
Capital expenditures.................................................................... (35,896) (29,956) (34,079) (271,939)<br />
Decrease in leasehold deposits .................................................... 5 285 57 38<br />
Proceeds from sales of property, plant and equipment............... 1,335 2,818 3,427 10,114<br />
Acquisition of minority interests.................................................. (2,933) (312) (1,056) (22,220)<br />
Net cash used in investing activities ................................ (17,631) (29,398) (6,894) (133,568)<br />
Financing Activities:<br />
Net (repayments) borrowings of short-term bank loans ............. (2,864) 3,738 5,141 (21,697)<br />
Proceeds from issuance of long-term debt ................................. 648 5,446 1,050 4,902<br />
Repayments of long-term debt..................................................... (18,013) (43,634) (26,525) (136,462)<br />
Dividends paid ............................................................................. (3,408) (3,407) (3,355) (25,811)<br />
Net cash used in financing activities................................ (23,637) (37,857) (23,689) (179,068)<br />
Effect of Exchange Rate Changes on Cash<br />
and Cash Equivalents................................................................. (1,741) 1,510 1,618 (13,189)<br />
Net Decrease in Cash and Cash Equivalents ............................ (10,923) (8,576) (2,192) (82,750)<br />
Cash and Cash Equivalents at Beginning of the Year............. 79,288 87,864 90,056 600,667<br />
Cash and Cash Equivalents at End of the Year ........................ ¥68,365 ¥79,288 ¥87,864 $517,917<br />
See notes to consolidated financial statements.<br />
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br />
OMRON Corporation and Subsidiaries<br />
1. Summary of<br />
Significant<br />
Accounting<br />
Policies<br />
Basis of Financial Statements The accompanying consolidated financial statements, stated in<br />
Japanese yen, include certain adjustments, not recorded on the books of account, to present these<br />
statements in accordance with accounting principles as generally accepted in the United States, except<br />
for the omission of segment information as required by the Statement of Financial Accounting Standards<br />
(“SFAS”) No. 14, “Financial <strong>Report</strong>ing for Segments of a Business Enterprise,” and except that the recognition<br />
and measurement provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and<br />
Equity Securities,” have not been applied (see Note 4). The principal adjustments include accrual of<br />
certain expenses, recognition of the value of warrants issued with bonds, accounting for termination and<br />
retirement benefits, accrual of deferred income taxes relating to these adjustments and other temporary<br />
differences, and accounting for prior years’ stock dividends at market value.<br />
Certain reclassifications have been made to accounts previously reported in order to conform to <strong>1998</strong><br />
classifications.<br />
Principles of Consolidation The consolidated financial statements include the accounts of<br />
OMRON Corporation (the “Company”) and its subsidiaries (together the “Companies”). All significant<br />
intercompany accounts and transactions have been eliminated. Costs in excess of the fair value of net<br />
assets acquired are amortized on a straight-line basis over five years.<br />
The Companies’ investments in companies in which ownership is from 20% to 50% (associates) are<br />
stated at cost plus equity in undistributed net income or loss.<br />
Use of Estimates The preparation of consolidated financial statements in conformity with generally<br />
accepted accounting principles requires management to make estimates and assumptions that affect<br />
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at<br />
the date of the consolidated financial statements as well as the reported amounts of revenues and<br />
expenses during the reporting period. Actual results could differ from those estimates.<br />
Cash Equivalents Cash equivalents consist of highly liquid investments with original maturities of<br />
three months or less, including time deposits, securities purchased with resale agreements and money<br />
market instruments.<br />
Short-Term Investments and Investment Securities Marketable equity securities are carried at<br />
the lower of aggregate cost or market. Other investments are stated at the lower of cost or estimated net<br />
realizable value (see Note 4). The cost of securities sold is determined on the average cost basis.<br />
Inventories<br />
or market.<br />
Inventories are stated at the lower of cost, determined by the first-in, first-out method,<br />
Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation of<br />
property, plant and equipment has been computed principally on the declining balance method based<br />
upon the estimated useful lives of the assets.<br />
Advertising Costs Advertising costs are charged to earnings as incurred. Advertising expenses were<br />
¥10,329 million ($78,250 thousand), ¥8,473 million and ¥7,477 million for the years ended March 31,<br />
<strong>1998</strong>, 1997 and 1996, respectively.<br />
Termination and Retirement Benefits Termination and retirement benefits are accounted for in<br />
accordance with SFAS No. 87, “Employers’ Accounting for Pensions.” Provision for termination and<br />
retirement benefits includes those for directors and corporate auditors of the Company.<br />
Income Taxes Deferred income taxes reflect the tax consequences on future years of differences<br />
between the tax bases of assets and liabilities and their financial reporting amounts. Future tax benefits,<br />
such as net operating loss carryforwards, are recognized to the extent that such benefits are more<br />
likely than not to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is<br />
recognized in income in the period that includes the enactment date.<br />
30
Derivatives Currency derivatives (foreign exchange forward contracts and currency option contracts)<br />
are used to manage currency risk. Gains and losses on hedges of existing assets or liabilities<br />
denominated in foreign currencies are recognized currently in income, as are the offsetting foreign<br />
exchange losses and gains on the items hedged. Gains and losses related to qualifying hedges of firm<br />
commitments denominated in foreign currencies are deferred and are recognized as adjustments to the<br />
hedged transaction when such transaction occurs. Derivative contracts that do not qualify as hedges<br />
are marked to market with the related gains and losses included in Foreign exchange loss, net, in the<br />
consolidated statements of income.<br />
Interest rate swaps are used to manage exposure to fluctuations in interest rates arising from the<br />
Companies’ existing debt. The amounts receivable or payable under interest rate swap agreements are<br />
recognized as adjustments to interest expenses.<br />
Cash Dividends Cash dividends are reflected in the consolidated financial statements at proposed<br />
amounts in the years to which they are applicable, even though payment is not approved by shareholders<br />
until the annual general meeting of shareholders held early in the following fiscal year. Resulting<br />
dividends payable are included in Other current liabilities in the consolidated balance sheets.<br />
Nature of Operations The Company is a multinational manufacturer of automation components,<br />
equipment and systems with advanced computer, communications and control technologies. The<br />
Company conducts business in more than 30 countries around the world and strategically manages its<br />
worldwide operations through five regional management centers: Japan, North America, Europe, Asia-<br />
Pacific and China. Products, classified by type and market, are organized into five principal business<br />
units, as described below.<br />
Control Components and Systems include a wide range of products, including sensors, relays,<br />
switches, printed circuit boards and computer systems for factory automation. These products are primarily<br />
used by manufacturers of electronic and high-technology equipment with certain products<br />
aimed at the consumer and industrial markets.<br />
Social Business encompasses the production and sale of automated teller machines, credit authorization<br />
terminals, point-of-sale systems and card readers for both domestic and overseas markets.<br />
Automated passenger gates and ticket vending machines as well as electronic panels and terminal displays<br />
for traffic information and monitoring purposes are also produced for the domestic market.<br />
Specialty Products include the production of automotive electronic components for use by the automotive<br />
industry and high-technology electronic components and equipment directed at the office<br />
automation industries.<br />
Healthcare includes blood pressure monitors, nebulizers and infrared therapy devices aimed at both<br />
the consumer and institutional markets.<br />
Open systems supply network and PC systems to institutional and individual consumers.<br />
New Accounting Standards In July 1997, the Financial Accounting Standards Board issued SFAS<br />
No. 130, “<strong>Report</strong>ing Comprehensive Income,” and SFAS No. 131, “Disclosures about Segments of an<br />
Enterprise and Related Information.”<br />
These statements are effective for fiscal years beginning after December 15, 1997. The Companies<br />
will adopt SFAS No. 130 for the year beginning April 1, <strong>1998</strong>, except for the effects on shareholders’<br />
equity from the provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity<br />
Securities.” The Companies currently anticipate that the segment information required by SFAS No. 131<br />
will not be provided. Neither of these statements will have an effect on the Company’s consolidated<br />
financial position or results of operations.<br />
31
2. Translation<br />
into United<br />
States Dollars<br />
The consolidated financial statements are stated in Japanese yen, the currency of the country in which<br />
the Company is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar<br />
amounts are included solely for convenience and have been made at the rate of ¥132 to $1, the<br />
approximate free rate of exchange at March 31, <strong>1998</strong>. Such translations should not be construed as<br />
representations that the Japanese yen amounts could be converted into U.S. dollars at the above or any<br />
other rate.<br />
3. Inventories Inventories at March 31, <strong>1998</strong> and 1997 consisted of:<br />
Millions of yen<br />
Thousands of<br />
U.S. dollars<br />
<strong>1998</strong> 1997 <strong>1998</strong><br />
Finished products ............................................................................................. ¥56,665 ¥46,564 $429,280<br />
Work-in-process ................................................................................................ 17,707 19,731 134,144<br />
Materials and supplies....................................................................................... 20,609 19,671 156,129<br />
Total .......................................................................................................... ¥94,981 ¥85,966 $719,553<br />
4. Short-Term<br />
Investments<br />
and Investment<br />
Securities<br />
The Companies have chosen not to adopt the recognition and measurement principles of SFAS No.<br />
115 and have instead continued to account for investments in debt and equity securities under previously<br />
accepted accounting principles. The Companies were of the opinion that the adoption of SFAS<br />
No. 115 would materially reduce the comparability of the financial statements with those of other<br />
Japanese companies that follow the Japanese accounting practice of reporting marketable debt and<br />
equity securities under the lower of cost or market method. Marketable securities included in shortterm<br />
investments and investment securities at March 31, <strong>1998</strong> and 1997 would be classified as<br />
available-for-sale securities under SFAS No. 115. The recognition and measurement provisions of SFAS<br />
No. 115 require that the investments in debt and equity securities which are classified as available for<br />
sale be reported at fair value with unrealized gains and losses, net of related taxes, reported in a separate<br />
component of shareholders’ equity.<br />
If the Companies had followed SFAS No. 115, consolidated net income would have increased ¥404<br />
million ($3,061 thousand) for the year ended March 31, <strong>1998</strong>. There was no effect on income for the<br />
years ended March 31, 1997 and 1996, of not adopting SFAS No. 115. The effects on the consolidated<br />
balance sheets as of March 31, <strong>1998</strong> and 1997 of not adopting SFAS No. 115 were as follows:<br />
Thousands of<br />
Millions of yen<br />
U.S. dollars<br />
<strong>1998</strong> 1997 <strong>1998</strong><br />
Shareholders’ equity as reported .................................................................. ¥336,064 ¥323,019 $2,545,939<br />
Net increase in the carrying amount of short-term investments................... 1,375 3,065 10,417<br />
Net increase in the carrying amount of investment securities ..................... 12,091 17,512 91,598<br />
Net increase in deferred tax liabilities as a result<br />
of the above net increases in short-term investments<br />
and investment securities............................................................................ (6,868) (10,494) (52,030)<br />
Net increase in net income due to a change in enacted tax rates ................ 404 — 3,061<br />
Shareholders’ equity based on SFAS No. 115........................................ ¥343,066 ¥333,102 $2,598,985<br />
32
The carrying amounts, gross unrealized holding gains and losses and fair value of securities, excluding<br />
equity securities with no public market value, by major security type at March 31, <strong>1998</strong> and 1997<br />
were as follows:<br />
Millions of yen<br />
<strong>1998</strong> 1997<br />
Gross Gross Gross Gross<br />
Carrying unrealized unrealized Fair Carrying unrealized unrealized Fair<br />
amount gains losses value amount gains losses value<br />
Short-term investments:<br />
Debt securities..................... ¥ 3,913 ¥ — ¥ — ¥ 3,913 ¥13,746 ¥ — ¥ — ¥13,746<br />
Asset-backed securities........ — — — — 11,250 — — 11,250<br />
Equity securities................... 854 1,442 (67) 2,229 974 3,095 (30) 4,039<br />
Total short-term investments... 4,767 1,442 (67) 6,142 25,970 3,095 (30) 29,035<br />
Marketable investment<br />
securities:<br />
Debt securities..................... 25 — — 25 48 — — 48<br />
Equity securities................... 39,447 17,675 (5,584) 51,538 39,160 21,189 (3,677) 56,672<br />
Total marketable investment<br />
securities............................... 39,472 17,675 (5,584) 51,563 39,208 21,189 (3,677) 56,720<br />
Total................................. ¥44,239 ¥19,117 ¥(5,651) ¥57,705 ¥65,178 ¥24,284 ¥(3,707) ¥85,755<br />
Thousands of U.S. dollars<br />
<strong>1998</strong><br />
Gross Gross<br />
Carrying unrealized unrealized Fair<br />
amount gains losses value<br />
Short-term investments:<br />
Debt securities..................... $ 29,644 $ — $ — $ 29,644<br />
Asset-backed securities........ — — — —<br />
Equity securities................... 6,470 10,925 (508) 16,887<br />
Total short-term investments... 36,114 10,925 (508) 46,531<br />
Marketable investment<br />
securities:<br />
Debt securities..................... 189 — — 189<br />
Equity securities................... 298,841 133,901 (42,303) 390,439<br />
Total marketable investment<br />
securities............................... 299,030 133,901 (42,303) 390,628<br />
Total................................. $335,144 $144,826 $(42,811) $437,159<br />
Net unrealized holding gains on available-for-sale securities, net of related taxes, decreased by<br />
¥3,081 million ($23,341 thousand) and ¥5,653 million for the years ended March 31, <strong>1998</strong> and 1997,<br />
respectively. Debt securities classified as available-for-sale investment securities mature in various<br />
amounts through 2001.<br />
Proceeds from sales of available-for-sale securities were ¥21,160 million ($160,303 thousand),<br />
¥43,671 million and ¥70,382 million for the years ended March 31, <strong>1998</strong>, 1997 and 1996, respectively.<br />
Gross realized gains on those sales were ¥2,828 million and ¥1,269 million for the years ended<br />
March 31, 1997 and 1996, respectively, and were not material for the year ended March 31, <strong>1998</strong>.<br />
Gross realized losses were ¥1,291 million for the year ended March 31, 1996 and were not material for<br />
the years ended March 31, <strong>1998</strong> and 1997.<br />
33
5. Bank Loans<br />
and Long-Term<br />
Debt<br />
The weighted average annual interest rates of short-term bank loans at March 31, <strong>1998</strong> and 1997 were<br />
5.2% and 4.4%, respectively.<br />
Long-term debt at March 31, <strong>1998</strong> and 1997 consisted of the following:<br />
Thousands of<br />
Millions of yen<br />
U.S. dollars<br />
<strong>1998</strong> 1997 <strong>1998</strong><br />
Unsecured debt:<br />
Convertible bonds at 1.7%, due 2004 ........................................................... ¥29,741 ¥29,741 $225,311<br />
Notes:<br />
Loans from banks and other financial institutions,<br />
generally at 2.8% to 6.7%, due serially through 2004 ................................. 11,615 29,570 87,992<br />
Other................................................................................................................. 610 534 4,621<br />
Total .......................................................................................................... 41,966 59,845 317,924<br />
Less portion due within one year ..................................................................... 8,466 18,024 64,136<br />
Long-term debt, less current portion................................................................ ¥33,500 ¥41,821 $253,788<br />
The annual maturities of long-term debt outstanding at March 31, <strong>1998</strong> were as follows:<br />
Thousands of<br />
Year ending March 31, Millions of yen U.S. dollars<br />
1999 .............................................................................................................................. ¥ 8,466 $ 64,136<br />
2000 .............................................................................................................................. 2,161 16,371<br />
2001 .............................................................................................................................. 844 6,394<br />
2002 .............................................................................................................................. 272 2,061<br />
2003 .............................................................................................................................. 229 1,735<br />
2004 and thereafter ...................................................................................................... 29,994 227,227<br />
Total.......................................................................................................................... ¥41,966 $317,924<br />
The convertible bonds may be purchased at any time by the Company or its subsidiaries principally<br />
at any price in the open market or otherwise and may be redeemed at the Company’s option prior to<br />
maturity. The convertible bonds are redeemable, in whole or in part, beginning October 1997 at 106%<br />
of face value, decreasing 1% per year.<br />
The number of contingently issuable shares of common stock related to the convertible bonds as of<br />
March 31, <strong>1998</strong> was 10,028,661 shares.<br />
The conversion price per share at March 31, <strong>1998</strong> was ¥2,965 ($22.47), subject to antidilutive provisions.<br />
As is customary in Japan, additional security must be given if requested by a lending bank, and banks<br />
have the right to offset cash deposited with them against any debt or obligation that becomes due and, in<br />
case of default and certain other specified events, against all debt payable to the banks. The Companies<br />
have never received any such requests.<br />
As is customary in Japan, the Company and domestic subsidiaries maintain deposit balances with banks<br />
with which they have short- or long-term borrowings. Such deposit balances are not legally or contractually<br />
restricted as to withdrawal.<br />
Total interest cost incurred and charged to expenses for the years ended March 31, <strong>1998</strong>, 1997 and<br />
1996 amounted to ¥2,412 million ($18,273 thousand), ¥3,557 million and ¥5,075 million, respectively.<br />
34
6. Leases The Companies have operating lease agreements primarily involving offices and equipment for varying<br />
periods. Leases that expire generally are expected to be renewed or replaced by other leases. At March 31,<br />
<strong>1998</strong>, future minimum rental payments applicable to noncancelable leases having initial or remaining<br />
noncancelable lease terms in excess of one year were as follows:<br />
Thousands of<br />
Year ending March 31, Millions of yen U.S. dollars<br />
1999 .............................................................................................................................. ¥2,199 $16,659<br />
2000 .............................................................................................................................. 1,901 14,402<br />
2001 .............................................................................................................................. 1,588 12,030<br />
2002 .............................................................................................................................. 614 4,652<br />
2003 .............................................................................................................................. 560 4,242<br />
2004 and thereafter ...................................................................................................... 2,760 20,909<br />
Total.......................................................................................................................... ¥9,622 $72,894<br />
Rental expense amounted to ¥13,917 million ($105,432 thousand), ¥11,105 million and ¥11,554 million<br />
for the years ended March 31, <strong>1998</strong>, 1997 and 1996, respectively.<br />
In December 1997, the Company entered into an agreement with an outside service organization for<br />
outsourcing computer services. The contract requires an annual service fee of ¥4,460 million ($33,788<br />
thousand) for the year ending March 31, 1999. The annual service fee will gradually decrease each year<br />
during the initial contract term of 10 years to ¥3,769 million for 2008. The contract is cancelable subject<br />
to a penalty of 15% of aggregate service fees payable for the remaining term of the contract.<br />
7. Termination<br />
and Retirement<br />
Benefits<br />
The Company and its domestic subsidiaries sponsor termination and retirement benefit plans which<br />
cover substantially all domestic employees. Benefits are based on the employee’s years of service, with<br />
some plans considering compensation and certain other factors. If the termination is involuntary, the<br />
employee is usually entitled to greater payments than in the case of voluntary termination.<br />
The Company and its domestic subsidiaries fund a portion of the obligations under these plans. The<br />
general funding policy is to contribute amounts computed in accordance with actuarial methods<br />
acceptable under Japanese tax law. The Company and substantially all domestic subsidiaries have a<br />
contributory termination and retirement plan which is interrelated with the Japanese government<br />
social welfare program and consists of a basic portion requiring employee and employer contributions<br />
plus an additional portion established by the employers.<br />
Periodic pension benefits required under the basic portion, prescribed by the Japanese Ministry of<br />
Health and Welfare, commence at age 60 and continue until the death of the surviving spouse. Benefits<br />
under the additional portion are usually paid in a lump sum at the earlier of termination or retirement,<br />
although periodic payments are available under certain conditions.<br />
The following table summarizes the financial status of the contributory termination and retirement<br />
plan and the amounts recognized in the consolidated balance sheets at March 31, <strong>1998</strong> and 1997:<br />
Thousands of<br />
Millions of yen<br />
U.S. dollars<br />
<strong>1998</strong> 1997 <strong>1998</strong><br />
Actuarial present value of benefit obligation:<br />
Vested........................................................................................................ ¥103,861 ¥ 94,024 $ 786,826<br />
Nonvested ................................................................................................. 12,488 12,800 94,606<br />
Accumulated benefit obligation.................................................................... 116,349 106,824 881,432<br />
Effect of projected future salary increases .................................................... 38,265 37,117 289,886<br />
Projected benefit obligation for service rendered to date ............................ 154,614 143,941 1,171,318<br />
Less: trusteed fund assets at fair value, including cash equivalents,<br />
bonds and stocks......................................................................................... 92,927 85,316 703,992<br />
Projected benefit obligation in excess of plan assets.................................... 61,687 58,625 467,326<br />
Remaining unrecognized net obligation from April 1, 1989......................... (1,618) (1,888) (12,258)<br />
Unrecognized net loss from past experience different from that<br />
assumed and effect of changes in assumptions .......................................... (41,121) (41,496) (311,523)<br />
Adjustment to recognize minimum pension liability .................................... 4,477 6,267 33,917<br />
Recognized liabilities for contributory termination and retirement plans.... ¥ 23,425 ¥ 21,508 $ 177,462<br />
35
The provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” require the recognition of an<br />
additional minimum pension liability for each defined benefit plan to the extent that a plan’s accumulated<br />
benefit obligation exceeds the fair value of plan assets and accrued pension liabilities. The adjustment<br />
to recognize the minimum pension liability is partially offset by an intangible asset, equal to the<br />
unrecognized net obligation from the adoption of SFAS No. 87 of ¥1,618 million ($12,258 thousand) and<br />
¥1,888 million at March 31, <strong>1998</strong> and 1997, respectively. The amount of the adjustment in excess of this<br />
amount is reflected as a separate reduction of shareholders’ equity, net of related deferred tax benefits.<br />
The unrecognized net obligation and the unrecognized net loss are being amortized over 15 years.<br />
Key assumptions utilized in calculating the actuarial present value of benefit obligations are as follows:<br />
<strong>1998</strong> 1997 1996<br />
Discount rate....................................................................................................................... 4.0% 4.0% 4.0%<br />
Compensation increase rate................................................................................................ 3.8 3.8 4.0<br />
Long-term rate of return on plan assets............................................................................... 3.5 3.5 3.5<br />
The expense recorded for the contributory termination and retirement plans included the following<br />
components for the years ended March 31, <strong>1998</strong>, 1997 and 1996:<br />
Thousands of<br />
Millions of yen<br />
U.S. dollars<br />
<strong>1998</strong> 1997 1996 <strong>1998</strong><br />
Service cost, less employees’ contributions .................................... ¥ 7,680 ¥ 7,795 ¥5,160 $58,182<br />
Interest cost on projected benefit obligation .................................. 5,758 5,440 3,800 43,621<br />
Actual return on plan assets ............................................................ (1,556) (3,602) (5,254) (11,788)<br />
Net amortization and deferral.......................................................... 786 3,557 3,395 5,955<br />
Net expense............................................................................. ¥12,668 ¥13,190 ¥7,101 $95,970<br />
The Companies also have unfunded noncontributory termination plans administered by the Companies.<br />
These plans provide lump-sum termination benefits and are paid at the earlier of the<br />
employee’s termination or mandatory retirement age, except for payments to directors and corporate<br />
auditors, which require approval by the shareholders before payment. The Companies record provisions<br />
for termination benefits sufficient to state the liability equal to the plans’ vested benefits, which<br />
exceed the plans’ accumulated benefit obligations.<br />
The consolidated liabilities for the noncontributory termination plans as of March 31, <strong>1998</strong> and 1997<br />
were ¥1,488 million ($11,273 thousand) and ¥1,401 million, respectively. The consolidated expenses<br />
for the noncontributory termination and retirement plans for the years ended March 31, <strong>1998</strong>, 1997<br />
and 1996 were ¥146 million ($1,106 thousand), ¥420 million and ¥172 million, respectively.<br />
8. Shareholders’<br />
Equity<br />
The Japanese Commercial Code (the “Code”) requires at least 50% of the issue price of new shares,<br />
with the minimum of the par value thereof, to be recorded as common stock. The portion which is to<br />
be recorded as common stock is determined by resolution of the Board of Directors. Proceeds in<br />
excess of the amounts designated as common stock have been credited to additional paid-in capital.<br />
Under the Code, the Company is required to record an amount at least equal to 10% of the amounts<br />
paid as an appropriation of retained earnings, including dividends and other distributions, to be appropriated<br />
and set aside as a legal reserve until such reserve equals 25% of the common stock. This reserve<br />
is not available for dividends but may be used to eliminate or reduce a deficit by resolution of the<br />
shareholders or may be transferred to common stock by resolution of the Board of Directors.<br />
The Company may transfer portions of additional paid-in capital and legal reserve to common stock<br />
by resolution of the Board of Directors. The Company may also transfer portions of unappropriated<br />
retained earnings, available for dividends, to common stock by resolution of the shareholders.<br />
Under the Code, the amount legally available for dividends is based on retained earnings as recorded in<br />
the books of the Company for Japanese financial reporting purposes. At March 31, <strong>1998</strong>, retained earnings<br />
amounting to ¥106,257 million ($804,977 thousand) were available for future dividends, subject to the<br />
legal reserve requirements.<br />
36
9. Income Taxes The provision for income taxes for the years ended March 31, <strong>1998</strong>, 1997 and 1996 consisted of the<br />
following:<br />
Thousands of<br />
Millions of yen<br />
U.S. dollars<br />
<strong>1998</strong> 1997 1996 <strong>1998</strong><br />
Current income tax expense ........................................................... ¥24,579 ¥22,915 ¥18,107 $186,205<br />
Deferred income tax (benefit) expense,<br />
exclusive of the following ............................................................. (1,305) 342 (337) (9,886)<br />
Change in the beginning of the year balance of<br />
the valuation allowance for deferred tax assets ............................ (176) (305) (731) (1,333)<br />
Adjustments of deferred tax assets and liabilities<br />
for change in enacted tax rates ..................................................... 677 — — 5,128<br />
Total......................................................................................... ¥23,775 ¥22,952 ¥17,039 $180,114<br />
The effective income tax rates of the Companies differ from the normal Japanese statutory rates as<br />
follows for the years ended March 31, <strong>1998</strong>, 1997 and 1996:<br />
<strong>1998</strong> 1997 1996<br />
Normal Japanese statutory rates.......................................................................................... 51.0% 51.0% 51.0%<br />
Increase (decrease) in taxes resulting from:<br />
Permanently nondeductible items .................................................................................. 6.0 9.1 7.4<br />
Losses of subsidiaries for which no tax benefit was provided........................................ 1.0 0.2 0.8<br />
Difference in subsidiaries’ tax rates ................................................................................ (6.0) (3.7) (5.4)<br />
Change in the beginning of the year balance of<br />
the valuation allowance for deferred tax assets ............................................................ (0.4) (0.8) (2.3)<br />
Effects of change in enacted tax rates............................................................................. 1.6 — —<br />
Other, net ........................................................................................................................ 3.1 2.7 1.3<br />
Effective tax rates ........................................................................................................ 56.3% 58.5% 52.8%<br />
The approximate effect of temporary differences and tax loss carryforwards that gave rise to<br />
deferred tax balances at March 31, <strong>1998</strong> and 1997 were as follows:<br />
Thousands of<br />
Millions of yen<br />
U.S. dollars<br />
<strong>1998</strong> 1997 <strong>1998</strong><br />
Deferred Deferred Deferred Deferred Deferred Deferred<br />
tax tax tax tax tax tax<br />
assets liabilities assets liabilities assets liabilities<br />
Inventory valuation ................................................ ¥ 1,476 ¥00— ¥ 1,143 ¥ ,0— $ 11,182 $00,0—<br />
Accrued bonuses and vacations............................. 2,188 — 2,437 — 16,576 —<br />
Termination and retirement benefits..................... 5,085 — 3,157 — 38,523 —<br />
Enterprise taxes ..................................................... 1,129 — 1,577 — 8,553 —<br />
Intercompany profits ............................................. 3,218 — 1,818 — 24,379 —<br />
Marketable securities ............................................. — 3,264 — 2,469 — 24,727<br />
Allowance for doubtful receivables ....................... 462 467 480 419 3,500 3,538<br />
Gain on sale of land................................................ — 1,229 — 1,306 — 9,311<br />
Minimum pension liability adjustment .................. 1,372 — 2,233 — 10,394 —<br />
Other temporary differences ................................. 3,514 1,740 3,005 509 26,621 13,182<br />
Subsidiaries’ operating loss carryforwards............. 3,256 — 5,312 — 24,667 —<br />
Subtotal .................................................................. 21,700 6,700 21,162 4,703 164,395 50,758<br />
Valuation allowance............................................... (2,642) — (4,331) — (20,015) —<br />
Total ............................................................... ¥19,058 ¥6,700 ¥16,831 ¥4,703 $144,380 $50,758<br />
The total valuation allowance decreased by ¥1,689 million ($12,795 thousand), ¥715 million and<br />
¥118 million in <strong>1998</strong>, 1997 and 1996, respectively.<br />
As of March 31, <strong>1998</strong>, certain subsidiaries had operating loss carryforwards approximating ¥8,539<br />
million ($64,689 thousand) available for reduction of future taxable income, most of which expire in<br />
various amounts through 2010.<br />
37
The Company has not provided for Japanese income taxes on unremitted earnings of subsidiaries to<br />
the extent that they are believed to be indefinitely reinvested. The unremitted earnings of the foreign<br />
subsidiaries which are considered to be indefinitely reinvested and for which Japanese income taxes<br />
have not been provided were ¥35,315 million ($267,538 thousand) and ¥29,282 million for the years<br />
ended March 31, <strong>1998</strong> and 1997, respectively. It is not practicable to estimate the amount of unrecognized<br />
deferred Japanese income taxes on these unremitted earnings. Dividends received from domestic<br />
subsidiaries are expected to be substantially free of tax.<br />
10. Foreign<br />
Operations<br />
Net sales and total assets of foreign subsidiaries for the years ended March 31, <strong>1998</strong>, 1997 and 1996<br />
were as follows:<br />
Thousands of<br />
Millions of yen<br />
U.S. dollars<br />
<strong>1998</strong> 1997 1996 <strong>1998</strong><br />
Net sales.................................................................................. ¥171,181 ¥151,992 ¥122,716 $1,296,826<br />
Total assets.............................................................................. 143,247 132,714 107,476 1,085,205<br />
11. Amounts<br />
per Share<br />
The Company adopted SFAS No. 128, “Earnings per Share,” in the year ended March 31, <strong>1998</strong>. SFAS<br />
No. 128 establishes standards for computing and presenting net income per share and simplifies the<br />
standards for computing net income per share previously found in APB Opinion No. 15, “Earnings per<br />
Share.” SFAS No. 128 replaces the presentation of primary net income per share with a presentation of<br />
basic net income per share. SFAS No. 128 also requires dual presentation of basic and diluted net<br />
income per share on the face of the statements of income for all entities with complex capital structures<br />
and requires a reconciliation of the numerator and denominator of the basic and diluted net<br />
income per share computation.<br />
All prior years’ net income per share data presented were restated to conform with the provisions of<br />
SFAS No. 128.<br />
Basic net income per share has been computed by dividing net income available to common shareholders<br />
by the weighted average number of common shares outstanding during each year. Diluted net<br />
income per share reflects the potential dilution of all convertible bonds and has been computed on the<br />
basis that all convertible bonds were converted at the beginning of the year.<br />
A reconciliation of the numerators and denominators of the basic and diluted net income per share<br />
computation is as follows:<br />
Thousands of<br />
Millions of yen<br />
U.S. dollars<br />
<strong>1998</strong> 1997 1996 <strong>1998</strong><br />
Net income.................................................................................... ¥18,300 ¥15,739 ¥14,587 $138,636<br />
Effect of dilutive securities:<br />
Convertible bonds, due 2004.................................................... 292 275 248 2,212<br />
Diluted net income ....................................................................... ¥18,592 ¥16,014 ¥14,835 $140,848<br />
Number of shares<br />
<strong>1998</strong> 1997 1996<br />
Average common shares outstanding............................................. 262,107,214 262,107,214 262,107,214<br />
Dilutive effect of:<br />
Convertible bonds, due 2004 ..................................................... 10,028,661 10,028,661 10,028,661<br />
Diluted common shares outstanding.............................................. 271,135,875 272,135,875 272,135,875<br />
Cash dividends per share are the amounts applicable to the respective year, including dividends to<br />
be paid after the end of the year.<br />
38
12. Supplemental<br />
Information for<br />
Cash Flows<br />
Supplemental cash flow information for the years ended March 31, <strong>1998</strong>, 1997 and 1996 was as follows:<br />
Millions of yen<br />
Thousands of<br />
U.S. dollars<br />
<strong>1998</strong> 1997 1996 <strong>1998</strong><br />
Interest paid..................................................................................... ¥ 2,347 ¥ 3,718 ¥ 5,256 $ 17,780<br />
Income taxes paid ........................................................................... 25,804 18,151 16,499 195,485<br />
Noncash investing and financing activities:<br />
Liabilities assumed in connection with capital expenditures...... 4,547 5,602 4,269 34,447<br />
Exchange of investment securities:<br />
Investment securities surrendered .......................................... — (1,989) — —<br />
Investment securities received ................................................ — 3,197 — —<br />
Conversion of convertible bonds into common stock ................ — — 10 —<br />
13. Financial<br />
Instruments<br />
and Risk<br />
Management<br />
Financial Instruments<br />
The following table presents the carrying amounts and estimated fair values as of March 31, <strong>1998</strong> and<br />
1997 of the Companies’ financial instruments, both on and off the balance sheets.<br />
Millions of yen<br />
Thousands of<br />
U.S. dollars<br />
<strong>1998</strong> 1997 <strong>1998</strong><br />
Carrying Fair Carrying Fair Carrying Fair<br />
amount value amount value amount value<br />
Nonderivatives:<br />
Short-term investments ............................... ¥ 4,767 ¥ 6,142 ¥25,970 ¥29,035 $ 36,114 $ 46,531<br />
Investment securities for which<br />
it is practicable to estimate fair value........ 39,472 51,563 39,208 56,720 299,030 390,628<br />
Long-term debt, including<br />
current portion.......................................... (41,966) (42,170) (59,845) (59,885) (317,924) (319,470)<br />
Derivatives:<br />
Included in other current assets<br />
(other current liabilities):<br />
Options purchased.................................. 288 208 — 10 2,182 1,576<br />
Forward exchange contracts................... (267) (307) (188) (186) (2,023) (2,326)<br />
Interest rate swaps .................................. — (59) — (137) — (447)<br />
The following methods and assumptions were used to estimate the fair value of each class of financial<br />
instruments for which it is practicable to estimate that value:<br />
Nonderivatives<br />
(1) Cash and cash equivalents, notes and accounts receivable, bank loans and notes and accounts<br />
payable:<br />
The carrying amounts approximate fair values.<br />
(2) Short-term investments and investment securities:<br />
The fair values are estimated based on quoted market prices or dealer quotes for marketable securities<br />
or similar instruments. Certain equity securities included in investments have no public market<br />
value; as it is not practicable to estimate their fair values, they have been excluded from the preceding<br />
table.<br />
(3) Long-term debt:<br />
For convertible bonds, the fair values are estimated based on quoted market prices. For other<br />
issues, except capital lease obligations, the fair values are estimated using the present value of discounted<br />
future cash flow analysis, based on the Companies’ current incremental issuing rates for<br />
similar types of arrangements.<br />
39
Derivatives<br />
The fair value of derivatives generally reflects the estimated amounts that the Companies would receive<br />
or pay to terminate the contracts at the reporting date, thereby taking into account the current unrealized<br />
gains or losses of open contracts. Dealer quotes are available for most of the Companies’ derivatives; otherwise,<br />
pricing or valuation models are applied to current market information to estimate fair value. The<br />
Companies do not use derivatives for trading purposes.<br />
(1) Interest rate swap contracts:<br />
The Companies enter into interest rate swap agreements to manage exposure to fluctuations in<br />
interest rates. These agreements involve the exchange of interest obligations on fixed and floating<br />
interest rate debt without exchange of the underlying principal amounts. The agreements generally<br />
mature at the time the related debt matures. The differential paid or received on interest rate swap<br />
agreements is recognized as an adjustment to interest expenses. Notional amounts are used to<br />
express the volume of interest rate swap agreements. The notional amounts do not represent cash<br />
flows and are not subject to risk of loss. In the unlikely event that the counterparty fails to meet the<br />
terms of an interest rate swap agreement, the Companies’ exposure is limited to the interest rate<br />
differential. Management considers the exposure to credit risk to be minimal since the counterparties<br />
are major financial institutions.<br />
At March 31, <strong>1998</strong> and 1997, the notional amounts on which the Companies had interest rate<br />
swap agreements outstanding aggregated ¥6,000 million ($45,455 thousand) and ¥12,500 million,<br />
respectively. The estimated fair values of interest rate swap contracts are based on the present values<br />
of discounted future cash flow analysis.<br />
(2) Foreign exchange forward contracts and foreign currency options:<br />
The Companies enter into foreign exchange forward contracts and engage in the purchase and<br />
writing of foreign currency option contracts to hedge foreign currency transactions (primarily the<br />
U.S. dollar, the deutsche mark and other European currencies) on a continuing basis for periods<br />
consistent with their committed exposure. Some of the contracts involve the exchange of two foreign<br />
currencies, according to local needs in foreign subsidiaries. The terms of the currency derivatives<br />
are rarely more than 10 months. The credit exposure of foreign exchange contracts and<br />
currency purchase options are represented by the positive fair value of the contracts at the reporting<br />
date. Management considers the exposure to credit risk to be minimal since the counterparties<br />
are major financial institutions.<br />
The notional amounts of contracts to exchange foreign currency (forward contracts) and currency<br />
options purchased and written outstanding at March 31, <strong>1998</strong> and 1997 were as follows:<br />
Thousands of<br />
Millions of yen<br />
U.S. dollars<br />
<strong>1998</strong> 1997 <strong>1998</strong><br />
Related to receivables and future sales:<br />
Forward contracts......................................................................................... ¥24,867 ¥20,221 $188,386<br />
Options purchased and written.................................................................... 8,885 2,690 67,311<br />
The notional amounts do not represent the amounts exchanged by the parties to derivatives and are<br />
not a measure of the Companies’ exposure through their use of derivatives. The amounts exchanged<br />
are determined by reference to the notional amounts and the other terms of the derivatives.<br />
The Companies hedge certain exposures to fluctuations in foreign currency exchange rates that<br />
occur prior to conversion of foreign currency denominated monetary assets and liabilities into the<br />
functional currency. Prior to the conversion of the functional currency, these assets and liabilities are<br />
translated at the spot rates in effect on the balance sheet date. The effects of changes in spot rates are<br />
reported in earnings and included in Foreign exchange loss, net, in the consolidated statements of<br />
income. The Company hedges its exposure to changes in foreign exchange with forward contracts.<br />
Because monetary assets and liabilities are marked to spot and recorded in earnings, forward contracts<br />
designated as hedges of the monetary assets and liabilities are also marked to spot with the resulting<br />
gains and losses similarly recognized in earnings. Gains and losses on forward contracts are included in<br />
40
Foreign exchange loss, net, in the consolidated statements of income and offset losses and gains on the<br />
net monetary assets and liabilities hedged.<br />
The Companies hedge future sales denominated in foreign currencies with purchased and written<br />
currency options to reduce the effective cost of the purchased options. The premiums paid for currency<br />
options purchased and premiums received for currency options written are included in other<br />
assets and other liabilities, respectively, in the statements of cash flows and are amortized to Foreign<br />
exchange loss, net, in the consolidated statements of income over the terms of the agreements. Gains<br />
or losses on forward exchange contracts and currency options purchased and written that do not qualify<br />
for deferral for accounting purposes are recognized in income on a current basis and recorded in<br />
Foreign exchange loss, net, in the consolidated statements of income.<br />
Concentration of Credit Risk<br />
Financial instruments which potentially subject the Companies to concentrations of credit risk consist<br />
principally of short-term cash investments and trade receivables. The Companies place their short-term<br />
cash investments with high-credit-quality financial institutions. Concentrations of credit risk with<br />
respect to trade receivables, as approximately 75% of total sales are concentrated in Japan, are limited<br />
due to the large number of well-established customers and their dispersion across many industries. Bad<br />
debts have been minimal. The Company normally requires customers to deposit with it funds to serve<br />
as security for ongoing credit sales.<br />
Guarantees<br />
Contingent liabilities at March 31, <strong>1998</strong> with respect to loans guaranteed were ¥2,921 million ($22,129<br />
thousand), of which ¥1,400 million ($10,606 thousand) are jointly and severally guaranteed with other<br />
unrelated companies.<br />
14. Subsequent<br />
Events<br />
At the meeting of the Board of Directors (the “Board”) on May 18, <strong>1998</strong>, the Board declared a plan to purchase<br />
the Company’s shares for the purpose of retirement of the shares, subject to approval at the general<br />
meeting of shareholders. The execution of the plan is at the Company’s discretion with a maximum<br />
limit of ¥10,000 million ($75,758 thousand), or 5,000,000 shares, for the period up to the date of the<br />
June 1999 general meeting of shareholders.<br />
In addition, the Board decided to propose an amendment to the Company’s Articles of Incorporation<br />
for approval at the general meeting of shareholders to allow the Board to authorize the purchase of up to<br />
an additional 25,000,000 of the Company’s shares for the purpose of retirement of the shares. Under the<br />
Code, all amounts paid to purchase the Company’s own shares for retirement are charged to retained<br />
earnings and thus are not available for future distribution to shareholders.<br />
The Board also resolved to introduce a stock purchase option plan for the Company’s directors,<br />
subject to approval at the general meeting of shareholders. All directors would be granted stock purchase<br />
options with certain restrictions. The Company would purchase its own shares with a maximum limit<br />
of ¥500 million ($3,788 thousand), or 158,000 shares, in order to sell them to directors upon exercise of<br />
the options.<br />
41
INDEPENDENT AUDITORS’ REPORT<br />
To the Board of Directors and Shareholders of OMRON Corporation<br />
We have audited the accompanying consolidated balance sheets of OMRON Corporation and subsidiaries as of<br />
March 31, <strong>1998</strong> and 1997, and the related consolidated statements of income, shareholders’ equity and cash flows<br />
for each of the three years in the period ended March 31, <strong>1998</strong>, all expressed in Japanese yen. These financial statements<br />
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these<br />
financial statements based on our audits.<br />
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those<br />
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial<br />
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the<br />
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used<br />
and significant estimates made by management, as well as evaluating the overall financial statement presentation.<br />
We believe that our audits provide a reasonable basis for our opinion.<br />
OMRON Corporation and subsidiaries have not adopted the recognition and measurement principles prescribed<br />
in Statement of Financial Accounting Standards (“SFAS”) No. 115 in accounting for certain investments in debt and<br />
equity securities. The effects on the consolidated financial statements of not adopting SFAS No. 115 are summarized<br />
in Note 4 to the consolidated financial statements.<br />
Certain information required by SFAS No. 14 has not been presented in the accompanying consolidated financial<br />
statements. In our opinion, presentation of various segment information regarding operations is required for a complete<br />
presentation of the Company’s consolidated financial statements in accordance with accounting principles generally<br />
accepted in the United States.<br />
In our opinion, except for the effects of the departure from SFAS No. 115 and the omission of segment information<br />
as discussed in the preceding paragraphs, the consolidated financial statements referred to above present fairly, in all<br />
material respects, the financial position of OMRON Corporation and subsidiaries as of March 31, <strong>1998</strong> and 1997, and<br />
the results of their operations and their cash flows for each of the three years in the period ended March 31, <strong>1998</strong> in<br />
conformity with accounting principles generally accepted in the United States.<br />
Our audits also comprehended the translation of Japanese yen amounts into United States dollar amounts and, in<br />
our opinion, such translation has been made in conformity with the basis stated in Note 2 to the consolidated financial<br />
statements. Such United States dollar amounts are presented solely for convenience.<br />
Osaka, Japan<br />
May 18, <strong>1998</strong><br />
42
INTERNATIONAL NETWORK<br />
A S I A - P A C I F I C<br />
REGIONAL HEADQUARTERS<br />
OMRON Asia Pacific Pte. Ltd.<br />
83, Clemenceau Avenue, #11-01, UE Square,<br />
Singapore 239920, Singapore<br />
Phone: (65) 835-3011<br />
Fax: (65) 835-2711<br />
MARKETING AND/OR MANUFACTURING<br />
OF CONTROL COMPONENTS<br />
AND SYSTEMS<br />
OMRON Asia Pacific Pte. Ltd.<br />
83, Clemenceau Avenue, #11-01, UE Square,<br />
Singapore 239920, Singapore<br />
Phone: (65) 835-3011<br />
Fax: (65) 835-2711<br />
––Indonesia Representative Office<br />
W; isma Danamon Aetna Life Tower, Suite 1602,<br />
JL Jend. Sudirman Kav. 45-46,<br />
Jakarta 12930, Indonesia<br />
Phone: (21) 577-0838<br />
Fax: (21) 577-0840<br />
––Vietnam Representative Office<br />
6F, Vinaconex Bldg., 2 Lang Ha,<br />
Hanoi, Socialist Republic of Vietnam<br />
Phone: (4) 8313-121<br />
Fax: (4) 8313-122<br />
––Philippines Representative Office<br />
2F, Kings Court II Bldg.,<br />
2129 Pasong Tamo St. 1231,<br />
Makati City, Metro Manila, The Philippines<br />
Phone: (63) 2811-2831<br />
Fax: (63) 2811-2582<br />
––India Representative Office<br />
59 Hemkunt, Opp. Nehru Place,<br />
New Delhi 110 048, India<br />
Phone: (11) 623-8431<br />
Fax: (11) 623-8434<br />
OMRON Electronics Sales<br />
and Service (M) Sdn. Bhd.<br />
10F, Block B Menara Pkns-Pj No. 17,<br />
Jalan Yong Shook Lin, 46050 Petaling Jaya,<br />
Selangor, Darul Ehsan, Malaysia<br />
Phone: (3) 754-7323<br />
Fax: (3) 754-6618<br />
OMRON Electronics Pty. Ltd.<br />
71 Epping Road, North Ryde,<br />
NSW 2113, Australia<br />
Phone: (2) 9878-6377<br />
Fax: (2) 9878-6981<br />
OMRON Electronics Ltd.<br />
65 Boston Road, Mt. Eden,<br />
Auckland, New Zealand<br />
Phone: (9) 358-4400<br />
Fax: (9) 358-4411<br />
OMRON Korea Co., Ltd.<br />
3F, New Seoul Bldg., #618-3 Shin Sa-dong<br />
Kang Nam-gu, Seoul, South Korea<br />
Phone: (2) 549-2766<br />
Fax: (2) 517-9033<br />
OMRON Electronics Co., Ltd.<br />
20F, Rasa Tower, 555 Phaholyothin Road,<br />
Ladyao, Chatuchak,<br />
Bangkok 10900, Thailand<br />
Phone: (2) 937-0500<br />
Fax: (2) 937-0501<br />
OMRON Malaysia Sdn. Bhd.<br />
Lot 15, Jalan SS 8/4 Sungei Way,<br />
Free Trade Zone, 47300 Petaling Jaya,<br />
Selangor, Darul Ehsan, Malaysia<br />
Phone: (3) 776-1411<br />
Fax: (3) 777-4507<br />
PT OMRON Manufacturing of Indonesia<br />
Ejip Industrial Park Plot 5C, Lemahabang,<br />
Bekasi 17550, West Java, Indonesia<br />
Phone: (21) 8970111<br />
Fax: (21) 8970120<br />
MARKETING AND MANUFACTURING<br />
OF AUTOMOTIVE COMPONENTS<br />
OMRON Automotive Electronics<br />
Korea Co., Ltd.<br />
272-2 Kyerukri, Miyangmyon, Ansong-gun,<br />
Kyonggi-Do, 456-840, South Korea<br />
Phone: (334) 677-4262<br />
Fax: (334) 677-4268<br />
MARKETING AND MANUFACTURING<br />
OF SOCIAL BUSINESS SYSTEMS<br />
OMRON Business Systems Singapore<br />
(Pte.) Ltd.<br />
83, Clemenceau Avenue, #11-02, UE Square,<br />
Singapore 239920, Singapore<br />
Phone: (65) 736-3900<br />
Fax: (65) 736-2736<br />
OMRON Business Systems<br />
Malaysia Sdn. Bhd.<br />
No. 9, Jalan 16/11, Off Jalan Damansara,<br />
46350 Petaling Jaya, Selangor, Malaysia<br />
Phone: (3) 460-9119<br />
Fax: (3) 460-9559<br />
OMRON Mechatronics of the<br />
Philippines Corporation<br />
Subic Techno Center Bldg.,<br />
Along Argonaut Highway, Boton Area,<br />
Subic Bay Freeport Zone, 2222, The Philippines<br />
Phone: (63) 47-252-1490<br />
Fax: (63) 47-252-1491<br />
MARKETING OF HEALTHCARE<br />
EQUIPMENT<br />
OMRON Healthcare Singapore PTE Ltd.<br />
83, Clemenceau Avenue, #11-02, UE Square,<br />
Singapore 239920, Singapore<br />
Phone: (65) 736-2345<br />
Fax: (65) 736-2500<br />
C H I N E S E E C O N O M I C A R E A<br />
REGIONAL HEADQUARTERS<br />
OMRON (China) Group Co., Ltd.<br />
601-9, Tower 2,<br />
The Gateway No. 25, Canton Road,<br />
Tsimshatsui, Kowloon, Hong Kong, S.A.R., China<br />
Phone: 2375-3827<br />
Fax: 2375-1475<br />
OMRON (China) Co., Ltd.<br />
21F, Beijing East Ocean Centre,<br />
No. 24A Jian Guo Men Wai Da Jie,<br />
Chao Yang District,<br />
Beijing 100022, China<br />
Phone: (10) 6515-5788<br />
Fax: (10) 6515-5799<br />
MARKETING AND/OR MANUFACTURING<br />
OF CONTROL COMPONENTS<br />
AND SYSTEMS<br />
OMRON Electronics Asia Ltd.<br />
601-9, Tower 2,<br />
The Gateway No. 25, Canton Road,<br />
Tsimshatsui, Kowloon, Hong Kong, S.A.R., China<br />
Phone: 2375-3827<br />
Fax: 2375-1475<br />
OMRON Taiwan Electronics Inc.<br />
6F, Home Young Bldg., No. 363,<br />
Fu-Shing North Road, Taipei, Taiwan, R.O.C.<br />
Phone: (2) 715-3331<br />
Fax: (2) 712-6712<br />
Shanghai OMRON Automation<br />
System Co., Ltd.<br />
500 <strong>Omron</strong> Road, Jinqiao Export<br />
Processing District, Pudong New Area,<br />
Shanghai 201206, China<br />
Phone: (21) 5854-0044<br />
Fax: (21) 5854-2658<br />
Shanghai OMRON Control<br />
Components Co., Ltd.<br />
388 <strong>Omron</strong> Road, Jinqiao Export<br />
Processing District, Pudong New Area,<br />
Shanghai 201026, China<br />
Phone: (21) 5854-0012<br />
Fax: (21) 5854-8413<br />
OMRON (Shanghai) Co., Ltd.<br />
Block No. 77, Jinqiao Export<br />
Processing Area, Pudong,<br />
Shanghai 201206, China<br />
Phone: (21) 5854-0055<br />
Fax: (21) 5854-0614<br />
OTE ENGINEERING INC.<br />
No. 9, Lane 201, Sec. 2, Nankan Road,<br />
Lu-Chu Village, Tao-Yuan, Taiwan, R.O.C.<br />
Phone: (3) 352-4442<br />
Fax: (3) 352-4239<br />
YAMRON Co., Ltd.<br />
3F, No. 86 Chien-Kuo North Road,<br />
Sec. 2 Taipei, Taiwan, R.O.C.<br />
Phone: (2) 505-5288<br />
Fax: (2) 505-5675<br />
43
MARKETING OF SOCIAL BUSINESS<br />
SYSTEMS<br />
Beijing GOT Business Computer<br />
System Co., Ltd.<br />
8F, Yujing Building, Xueqing Road,<br />
Haidian District, Beijing 10083, China<br />
Phone: (10) 6231-1985<br />
Fax: (10) 6231-2177<br />
MANUFACTURING OF HEALTHCARE<br />
EQUIPMENT<br />
OMRON (Dalian) Co., Ltd.<br />
No. 3 Song Jiang Road,<br />
Dalian Economic and Technical Development Zone,<br />
Dalian 116600, China<br />
Phone: (411) 761-4222<br />
Fax: (411) 761-6602<br />
RESEARCH AND DEVELOPMENT<br />
OMRON Shanghai Computer Corporation<br />
14F, Meike Building, 1 Tianyaoqiao Road,<br />
Shanghai 200030, China<br />
Phone: (21) 6468-9626<br />
Fax: (21) 6468-9489<br />
LOGISTICS<br />
OMRON Trading (Shanghai) Co., Ltd.<br />
Room 1212, Rui-jin Building,<br />
205 Mao Ming Road (South),<br />
Shanghai 200020, China<br />
Phone: (21) 6472-8812<br />
Fax: (21) 6472-6959<br />
T H E A M E R I C A S<br />
North America<br />
REGIONAL HEADQUARTERS<br />
OMRON Management Center<br />
of America, Inc.<br />
1300 Basswood, Suite 100,<br />
Schaumburg, IL 60173, U.S.A.<br />
Phone: (847) 884-0322<br />
Fax: (847) 884-1866<br />
MARKETING AND/OR MANUFACTURING<br />
OF CONTROL COMPONENTS<br />
AND SYSTEMS<br />
OMRON Electronics Inc.<br />
1 East Commerce Drive,<br />
Schaumburg, IL 60173, U.S.A.<br />
Phone: (847) 843-7900<br />
Fax: (847) 843-7787<br />
OMRON Canada Inc.<br />
885 Milner Avenue,<br />
Scarborough, Ontario, M1B 5V8 Canada<br />
Phone: (416) 286-6465<br />
Fax: (416) 286-6648<br />
OMRON Manufacturing of America, Inc.<br />
3705 Ohio Avenue,<br />
St. Charles, IL 60174, U.S.A.<br />
Phone: (630) 513-0400<br />
Fax: (630) 513-1027<br />
MARKETING AND/OR MANUFACTURING<br />
OF AUTOMOTIVE COMPONENTS<br />
OMRON Automotive Electronics Inc.<br />
(MARKETING)<br />
30600 Northwestern Hwy., Suite 250,<br />
Farmington Hills, MI 48334, U.S.A.<br />
Phone: (248) 539-4700<br />
Fax: (248) 539-4710<br />
(MANUFACTURING)<br />
3709 Ohio Avenue,<br />
St. Charles, IL 60174, U.S.A.<br />
Phone: (630) 443-6800<br />
Fax: (630) 443-6898<br />
OMRON Dualtec Automotive<br />
Electronics, Inc.<br />
2270 Bristol Circle, Oakville,<br />
Ontario, L6H 5S3 Canada<br />
Phone: (905) 829-0136<br />
Fax: (905) 829-0432<br />
MARKETING OF OFFICE AUTOMATION<br />
EQUIPMENT<br />
OMRON Office Automation Products, Inc.<br />
3945 Freedom Circle, Suite 700,<br />
Santa Clara, CA 95054, U.S.A.<br />
Phone: (408) 727-1444<br />
Fax: (408) 970-1149<br />
MARKETING OF SOCIAL BUSINESS<br />
SYSTEMS<br />
OMRON Systems, Inc.<br />
55 East Commerce Drive,<br />
Schaumburg, IL 60173, U.S.A.<br />
Phone: (847) 843-0515<br />
Fax: (847) 843-7686<br />
MARKETING OF HEALTHCARE<br />
EQUIPMENT<br />
OMRON Healthcare, Inc.<br />
300 Lakeview Parkway,<br />
Vernon Hills, IL 60061, U.S.A.<br />
Phone: (847) 680-6200<br />
Fax: (847) 680-6269<br />
RESEARCH AND DEVELOPMENT<br />
OMRON Advanced Systems, Inc.<br />
3945 Freedom Circle, Suite 700,<br />
Santa Clara, CA 95054, U.S.A.<br />
Phone: (408) 727-6644<br />
Fax: (408) 727-5540<br />
OMRON Management Center<br />
of America, Inc.<br />
––Information Technology Center<br />
160 West Santa Clara Street, Suite 800,<br />
San Jose, CA 95113, U.S.A.<br />
Phone: (408) 271-1720<br />
Fax: (408) 271-1721<br />
South America<br />
MARKETING AND MANUFACTURING OF<br />
CONTROL COMPONENTS AND SYSTEMS<br />
OMRON Eletrônica do Brasil Ltda.<br />
Av. Santa Catarina, 935/939 04378-300,<br />
São Paulo, Brazil<br />
Phone: (11) 5564-6488<br />
Fax: (11) 5564-7751<br />
OMRON Componentes Eletro Eletrônicos<br />
da Amazônia Ltda.<br />
Av. Constantino Nery, 2800 Chapada,<br />
69050-002-Manaus, Amazonas, Brazil<br />
Phone: (92) 236-5850<br />
Fax: (92) 236-1356<br />
MARKETING OF RETAIL SYSTEMS<br />
EQUIPMENT<br />
OMRON Business Sistemas Eletrônicos<br />
da América Latina, Ltda.<br />
Av. Paulista 949 12-Ander, conj. 122,<br />
CEP 01311-100, São Paulo, Brazil<br />
Phone: (11) 251-0073<br />
Fax: (11) 251-1053<br />
44
E U R O P E<br />
REGIONAL HEADQUARTERS<br />
OMRON Europe B.V.<br />
Wegalaan 67, N1-2132 JD Hoofddorp,<br />
The Netherlands<br />
Phone: (23) 5681-300<br />
Fax: (23) 5681-391<br />
MARKETING AND/OR MANUFACTURING<br />
OF CONTROL COMPONENTS<br />
AND SYSTEMS<br />
OMRON Europe B.V.<br />
Wegalaan 67, N1-2132 JD Hoofddorp,<br />
The Netherlands<br />
Phone: (23) 5681-300<br />
Fax: (23) 5681-391<br />
OMRON Electronics Ges.m.b.H.<br />
Altmannsdorfer Strasse 142,<br />
P.O. Box 323, A-1231,<br />
Vienna, Austria<br />
Phone: (1) 801900<br />
Fax: (1) 8044846<br />
OMRON Electronics N.V./S.A.<br />
Stationsstraat 24,<br />
B-1702 Groot-Bijgaarden, Belgium<br />
Phone: (2) 4662480<br />
Fax: (2) 4660687<br />
OMRON Electronics A.G.<br />
Sennweldstrasse 44,<br />
CH-6312 Steinhausen, Switzerland<br />
Phone: (41) 748-1313<br />
Fax: (41) 748-1345<br />
OMRON Electronics SPOL S.R.O.<br />
Srobarova 6, Prague 10, 101 00,<br />
Czech Republic<br />
Phone: (2) 6731-1254<br />
Fax: (2) 7173-5613<br />
OMRON Electronics G.m.b.H.<br />
P.O. Box 10 10 20,<br />
40710 Hilden, Germany<br />
Phone: (2103) 203-3<br />
Fax: (2103) 203-400<br />
OMRON Electronics A/S<br />
Odinsvej 15, 2600 Glostrup, Denmark<br />
Phone: (43) 44-00-11<br />
Fax: (43) 44-02-11<br />
OMRON Electronics S.A.<br />
c/Arturo Soria 95, E-28027 Madrid, Spain<br />
Phone: (1) 377-7900<br />
Fax: (1) 377-7956<br />
OMRON Electronics S.a.r.l.<br />
BP33, 19, Rue du Bois-Galon 94121<br />
Fontenay-Sous-Bois, Cedex, France<br />
Phone: (1) 4974-7000<br />
Fax: (1) 4876-0930<br />
OMRON Electronics S.r.l.<br />
Viale Certosa 49, 20149 Milano, Italy<br />
Phone: (2) 32-68-1<br />
Fax: (2) 32-51-54<br />
OMRON Electronics Sp. z.o.o.<br />
Ul Fortaczna 6, PL-01540 Warsaw, Poland<br />
Phone: (22) 6399810<br />
Fax: (22) 6399813<br />
OMRON Electronics, kft<br />
1046 Budapest, Kiss Ern u.3, Hungary<br />
Phone: (1) 399-3050<br />
Fax: (1) 399-3060<br />
OMRON Electronics Norway A/S<br />
Ole Deviks Vei 4, P.O. Box 109, Bryn,<br />
N-0611 Oslo, Norway<br />
Phone: (22) 657500<br />
Fax: (22) 658300<br />
OMRON Electronics B.V.<br />
Wegalaan 61,<br />
Postbus 5822132 JD 2130 An Hoofddorp,<br />
The Netherlands<br />
Phone: (23) 5681-100<br />
Fax: (23) 5681-188<br />
OMRON Electronics Lda.<br />
Edificio OMRON, Rua de Sao Tomé,<br />
Lote 131, 2685 Prior Velho, Portugal<br />
Phone: (1) 942-9400<br />
Fax: (1) 941-7899<br />
OMRON Electronics A.B.<br />
Norgegatan 1, P.O. Box 1275,<br />
S-164 28 Kista, Sweden<br />
Phone: (8) 632-3500<br />
Fax: (8) 632-3510<br />
OMRON Electronics oy<br />
Metsänpojankuja 5,<br />
Fin 02130 Espoo, Finland<br />
Phone: (9) 5495-800<br />
Fax: (9) 5495-8150<br />
OMRON Electronics Ltd.<br />
1 Apsley Way, Staples Corner,<br />
London NW2 7HF, U.K.<br />
Phone: (181) 450-4646<br />
Fax: (181) 450-8087<br />
OMRON Electronics Ltd.<br />
Acibadem Caddesi, Palmiye Sokak 12,<br />
TR-81020 Kadikoy, Istanbul, Turkey<br />
Phone: (216) 326-2980<br />
Fax: (216) 326-2979<br />
OMRON Manufacturing of the<br />
Netherlands B.V.<br />
Zilvernberg 2, 5234 GM Den Bosch,<br />
The Netherlands<br />
Phone: (73) 6481811<br />
Fax: (73) 6420195<br />
OMRON Electronics Manufacturing<br />
of Germany G.m.b.H.<br />
Robert-Bosch Strasse 1, P.O. Box 1165,<br />
D-71154 Nufringen, Germany<br />
Phone: (7032) 8110<br />
Fax: (7032) 81199<br />
MARKETING AND MANUFACTURING<br />
OF OFFICE AUTOMATION EQUIPMENT<br />
OMRON Telford Ltd.<br />
Hortonwood 2, Telford,<br />
Shropshire TF1 4GW, U.K.<br />
Phone: (1952) 279444<br />
Fax: (1952) 279456<br />
MARKETING OF SOCIAL BUSINESS<br />
SYSTEMS<br />
OMRON Systems Europe G.m.b.H.<br />
Süder Strasse 16,<br />
20097 Hamburg, Germany<br />
Phone: (40) 237050<br />
Fax: (40) 23705120<br />
OMRON Systems U.K. Ltd.<br />
Victory House, Cox Lane,<br />
Chessington, Surrey KT9 1SG, U.K.<br />
Phone: (181) 974-2166<br />
Fax: (181) 974-1864<br />
MARKETING AND MANUFACTURING<br />
OF HEALTHCARE EQUIPMENT<br />
OMRON Healthcare Europe B.V.<br />
Wegalaan 57, 2132,<br />
JD Hoofddorp, The Netherlands<br />
Phone: (23) 5681-200<br />
Fax: (23) 5681-201<br />
OMRON Medizintechnik<br />
Handelsgesellschaft G.m.b.H.<br />
Windeck Strasse, 81,<br />
68613 Mannheim, Germany<br />
Phone: (621)-83348-8<br />
Fax: (621)-83348-20<br />
45
CORPORATE DATA<br />
HEAD OFFICE<br />
Karasuma Nanajo, Shimogyo-ku,<br />
Kyoto 600-8530, Japan<br />
Phone: (075) 344-7000<br />
Fax: (075) 344-7001<br />
Telex: 542 2889 OMRON KJ<br />
TOKYO HEAD OFFICE<br />
3-4-10, Toranomon, Minato-ku,<br />
Tokyo 105-0001, Japan<br />
Phone: (03) 3436-7227<br />
Fax: (03) 3436-7165<br />
Telex: 3242 4086, 3242 4087 OMRON TJ<br />
OSAKA OFFICE<br />
Osaka Center Bldg.,<br />
4-1-3, Kyutaro-cho, Chuo-ku,<br />
Osaka 541-0056, Japan<br />
Phone: (06) 282-2511<br />
Fax: (06) 282-2789<br />
KYOTO R&D LABORATORY<br />
20, Igadera, Shimo-kaiinji,<br />
Nagaokakyo-shi,<br />
Kyoto 617-8510, Japan<br />
Phone: (075) 951-5111<br />
Fax: (075) 957-2871<br />
DATE OF ESTABLISHMENT<br />
May 10, 1933<br />
INDUSTRIAL PROPERTY RIGHTS<br />
Number of patents:<br />
2,546 (Japan)<br />
1,437 (Overseas)<br />
Number of patents pending:<br />
7,714 (Japan)<br />
596 (Overseas)<br />
NUMBER OF EMPLOYEES<br />
24,048<br />
PAID-IN CAPITAL<br />
¥64,079 million<br />
COMMON STOCK<br />
Authorized: 500,000,000 shares<br />
Issued: 262,107,214 shares<br />
Number of shareholders: 25,961<br />
STOCK LISTINGS<br />
Tokyo Stock Exchange<br />
Osaka Securities Exchange<br />
Kyoto Stock Exchange<br />
Nagoya Stock Exchange<br />
Frankfurt Stock Exchange<br />
TRANSFER AGENT<br />
The Mitsubishi Trust and Banking<br />
Corporation<br />
1-4-5, Marunouchi, Chiyoda-ku,<br />
Tokyo 100-8388, Japan<br />
(As of March 31, <strong>1998</strong>)<br />
46
Karasuma Nanajo, Shimogyo-ku, Kyoto 600-8530, Japan<br />
Phone: (075) 344-7000 Fax: (075) 344-7001<br />
Home page: http://www.omron.co.jp<br />
This annual report is printed on paper made<br />
using a mixture of bagasse and recycled paper.<br />
c4<br />
Printed in Japan