ANNUAL REPORT 2011
For the fiscal year ended March 31, 2011

Financial Highlights“Dreams, Inspiration,
and Future”— It’s all in your hands! —Percent change
2010/2011

Millions of yen

Thousands of
U.S. dollars

2010

2011

¥ 64,371¥ 61,914(3.8)%$ 744,607

Operating income

2,479

2,754

33,129Net income

1,862

1,037

11.1
(44.3)¥ 56,113¥ 53,059(5.4)%$ 638,117

31,127

29,862(4.1)

359,136

Years ended March 31

2011

Operating Results
Net sales

12,482● SMK Philosophy

Audio Visual
Home
Electronics/Industry

SMK is committed to the advancementof mankind through development of
the information society, by integrating
its current technological strengths andcreating advanced technology.

Car Electronics

Financial Position
Total assets
Total net assets

Yen

U.S. dollars

Per Share Data
Net income(43.9)%

Basic¥ 25.19¥ 14.14

Diluted

—

—

—

—

Cash dividends

8.00

9.00

12.5

0.11

$ 0.17

Note: The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ¥83.15 = U.S. $1.00.

Information

Communication
Net sales

Operating income

Net income (loss)

Millions of yen

Millions of yen

Millions of yen

90,0006,000

87,65979,07472,74264,371 61,914

60,000

5,000

5,654
5,166

3,693
2,500

4,000

● Action Guidelines

C o n t e n t s
Financial Highlights
To Our Shareholders and Investors
Overview of Consolidated Results by Division
SMK’s New Lineup
TopicsGlobal Network
Financial Section
Five-Year Summary
Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Comprehensive Income
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
Shares and Shareholders
Board of Directors and Corporate Auditors
Corporate Data

1

2
3
5
7
9
12
13
13
14
15
17
17
18
19
20
27
28
29
30

1. Contribute to society with pride and confidence.
2. Be customer-oriented, with zeal and sincerity.
3. Challenge courageously for higher goals without fear of failure.
4. Trust and respect each other for a brighter working atmosphere.
5. Keep an open mind, and view SMK from a global perspective.

2,479
30,000Total assets/Total net assets
Total assets
Total net assets

Millions of yen

75,0001,037(1,620)(2,500)2007 2008 2009 2010 20112007 2008 2009 2010 2011

Basic net income (loss) per share

Cash dividends per share

Yen

Yen

15

60

65,575 66,737

14.00 14.00

47.48
58,168 56,113

50,00034,564 32,386
25,000238

02007 2008 2009 2010 2011

1,862

0

2,000

0

2,094

2,754

53,059

30

27.32

10

25.19

9.00
14.14

29,079 31,127 29,862

2007 2008 2009 2010 2011

9.00

5

0

(30)

0

8.00

(21.68)2007 2008 2009 2010 201102007 2008 2009 2010 20112

To Our Shareholders and Investors“Dreams, Inspiration, and Future” — It’s all in your hands! —Introduction
I would like to offer my deepest condolences toeveryone affected by the Great East Japan Earthquake
and convey my heartfelt prayers for the quickest
possible recovery.
Thankfully, none of our employees were injured andthe effects on equipment, machinery, and otherproduction facilities were only minor, enabling us toreturn to normal production quickly.
We received messages of sympathy from shareholders,business partners, and others, for which I would like toexpress my sincere appreciation.
I look forward to your continued support as wemove ahead from here.

Overview
Tetsuya Nakamura
President and Chief Operating Officer

3

Although moderate economic recovery centering on
emerging nations was seen during the fiscal year underreview, the future of the global economy remained
uncertain with financial insecurity in Europe andpolitical unrest in the Middle East.
In Japan, corporate profits showed improvementwith the progress made in production adjustments
together with an increase in exports on the back ofgrowth in overseas demand. Nevertheless, this was notenough to dispel uncertainty over the future of theoverall Japanese economy, given factors such as theincreasingly steep appreciation of the yen from thesecond half of the year.
Although surrounded by an unpredictable external
environment, the electronics industry is basicallyfollowing a moderate recovery track, spurred byexpanding demand for components for cellular phones,
triggered by the rise of smartphones, and forautomotive components.
The Great East Japan Earthquake that occurred on
March 11, 2011 exerted a harmful influence upon theJapanese economy and on the global economy as well.
Some of SMK’s production equipment was damaged,

and there was an effect on our sales. Under thesecircumstances, the SMK Group’s consolidated
net sales for the year under review declined 3.8%
year on year to ¥61,914 million, despite our best
efforts to actively launch new products, improve
price competitiveness, and bolster our sales
capability. In terms of profits, operating income
increased, in contrast to the decline in net sales,
as a result of our efforts to cut costs and reduce
fixed costs. Net income, however, fell withforeign exchange losses caused by the strong
yen and with disaster losses inflicted by theearthquake.
Just as the economy was heading toward aworldwide recovery, it suffered unprecedented
damage brought about by the earthquake.
The shock to the supply chain was widespreadeven just within the electronics industry, andcompanies are now facing the problem of dealing
with a power shortage, which is a serious issue
for the entire industry.
We are committed to making our best effort tomaintain and improve our business performanceby striving for an early return to the recovery
path in response to the present uncertain market
environment, by responding quickly to growthfields such as environment-related opportunities,
and by opening up new markets.
An IT-based society is continuing to evolveworldwide. User needs are becoming increasingly
diverse and changing daily at an unprecedented
speed. Embracing these changes in our operating
environment, we aim to achieve further growthby strengthening our marketing capabilities,
by enhancing our technology development
capabilities needed for venturing into new
possibilities, and by establishing a flexible
production system unified with productdevelopment operations. At the same time, we
are making efforts to go back to the basics andreview elemental technology, which is thestarting point of manufacturing. We arecontinuing to focus on the “enhancement of
SMK brand power,” “quality improvement(Zero Defects),” and “another challenge inproduct creation” in an attempt to raise ourcompetitiveness in global markets and with thecommitment of being a company trusted by its
customers. “Good components make good final
products,” and we are determined to persistently
pursue the production of “the most reliable
components.”
What is more, at SMK we are making efforts
to raise the awareness of each and every one of
our employees with thorough environmental
education aimed at the creation of a low-carbon,
recycling-oriented society, which is a challengeshared by all humankind.
We have positioned harmonious coexistencewith the global environment as a key management
issue, and are committed to moving forward
flexibly and steadily as a company that meetsthe requests of society.
We anticipate ongoing unpredictability in ouroperating environment, but are nonethelessresolved to make united company-wide efforts
to enhance our corporate value and increase
profits further.
We look forward to the continuing support ofour shareholders as we pursue these goals.
June 2011

Tetsuya Nakamura
President and Chief Operating Officer

4Overview of Consolidated Results by Division(April 1, 2010 to March 31, 2011)

The many different electronic components that SMK manufactures are widely used byelectronics manufacturers in and outside Japan. The markets for these components can bebroadly classified into five categories: the audio visual market, the car electronics market, thecommunication market, the information market, and the home electronics/industry market.
Three divisions, namely the Connection System (CS) Division, the Functional Components(FC) Division, and the Touch Panel (TP) Division, as well as the Research & Development
Center are responsible for developing products that constantly meet market requirements inthe five markets outlined above. The three divisions handle operations ranging from productplanning and design to mass production, while the Research & Development Center is
primarily in charge of designing and developing products in new and other fields.
In this section, we present an overview of each of our results the three divisions achieved in
the fiscal year under review.

Other
Touch Panel
Division
Audio
Visual¥242 million
0.4%¥8,350
million

13.5%
CarElectronics

Functional
Components
Division

Net sales¥30,080
million48.6%

Connection System
Division

Overview of results by division

Connection
SystemDivision
Main productsUÊ >Ý>ÊViVÌÀÃUÊ* ÊViVÌÀÃUÊ >À`ÌL>À`ÊViVÌÀÃ
UÊ>VÃ

Functional
Components
Division
Main products
UÊ-ÜÌV iÃUÊ ÕiÌÌ ®ÊÕÌÃUÊ,iÌiÊVÌÀÃ
UÊ >iÀ>Ê`ÕiÃ

¥23,242 million
37.5%
Touch Panel
Division

Communication
Main products
UÊ,iÃÃÌÛiÊÌÕV Ê«>iÃUÊ >«>VÌÛiÊÌÕV Ê«>iÃUÊ"«ÌV>ÊÌÕV Ê«>iÃ

Information

Home
Electronics/IndustryIn the first half of the year, components for digital appliances and car
electronics supported by the eco-point and subsidies systems as well ascomponents for smartphones and PCs brought in above-target results.
However, the market environment deteriorated in the second half of theyear with factors such as rapid appreciation of the yen and credit
uneasiness in Europe, resulting in poor performance with sluggish sales
mainly in components for cellular phones and video game consoles.
At present, demand is surging for components for solar powersystems, which are attracting attention as a new energy, and components
for LED lighting are also expected to do well.
Going forward, the division aims to expand businesses in theenvironmental and medical sectors in addition to its mainstay
information and communication and AV markets.

In the first half of the year, components for cellular phones and othercommunications equipment, particularly smartphones, as well ascomponents for vehicle-mounted and other electric parts achieved solid
sales results. Components for air conditioners and home appliances also
helped expand sales for the division, thanks to the effects of the ecopoint system. In the second half of the year, however, changes in market
conditions resulted in poor performance overall, particularlycomponents for game consoles and PCs. Going forward, the divisionaims to accelerate the development and market launches of new
products, especially in the vehicle-mounted and eco-friendly sectors,
which are anticipated to expand, and to also make efforts to grow its
existing businesses further, particularly for remote controls, which is thecore of the division’s sales.

Driven by solid demand for new cars in North America, China, andemerging nations, touch panels for car navigation systems sold well.
Touch panels for the smartphone market performed below-target, inpart due to clients’ changed market launch schedules for some models.
Supported by demand in China, sales in the industrial machinery
market were nearly on-target. From here on, the division will makeefforts to expand its businesses further by speeding up the developmentof medium and large capacitive touch panels, for which demand is rising
rapidly, and by launching products in such markets as in-car products,
tablet devices, and POS.

In addition to net sales for the divisions presented above, net sales of ¥242 million were earned by “other” businesses in the term under review.
Net sales for the Research & Development Center were included in net sales for “other” businesses.

56

SMK’s New Lineup

Connectors for LED lighting developedwith consideration for safety and heat resistance

Projected capacitive touch panels

With the LED lighting market attracting rising attention,
demand in the market is expected to expand. Taking note ofthis market, we recently enhanced our series of connectors
for LED lighting.
Products in this series are compliant with IEC standards
and provisions of the Electrical Appliances and Material
Safety Act. Consideration was also given to safety and heat
resistance by ensuring creepage distance and spatial distance.
The product repertoire consists of five models ofconnectors: three models for base and line lighting and twomodels for LED lamps. The three models for base and line
lighting (LT-1, LT-2, and LT-3 series) connect LED
mounting boards together or connect LED mounting boards
to power boards. The two types for LED lamps (LT-4 andLT-5 series) are one-piece connectors that directly connect
LED mounting boards to power boards.
Products in these series enable harness-free assembly,
contribute to reliability during long-term use, and help
reduce production process times. From here on, we will meetthe needs of this market, which is expected to continue
growing, and will actively expand our sales promotion inthis area.

We have been actively developing, taking orders for,and growing sales of multi-touch capable projected
capacitive touch panels, for which market demand has
been intensifying.
During the previous fiscal year, we developed productswith excellent operability and a focus on thinner and lighter
models for mobile devices and supplied these to various
Japanese cellular phone manufacturers.
Furthermore, we developed ahead of the industry, andstarted taking orders for genuine capacitive touch panels for
in-car navigation systems (operating temperature range:–30°C to +85°C; storage temperature range: –40°C to +95°C)
in order to meet demand from the automotive market.
From here on, we will move forward with development,
focusing on increasing the size of capacitive touch panels andimproving the feeling of operation. We aim to expand sales,with orders coming not only from within Japan but also
from overseas markets.

Connectors for LED lighting
Applications:
LED lighting, LED lamps

7

Applications (mobile devices):
Cellular phones

Applications (in-car devices):
Car navigation systems,
central control systems

Human body communication module developed

Mini 1-dome switch developed
The cellular phone and compact device markets have been
demanding smaller and thinner electronic components inrecent years. In response, we recently developed a mini 1-dome
switch that enables devices to be made even smaller andthinner. This product, which expands our lineup of strongselling 1-dome switches for smartphones, is 30% smaller thanour conventional product in terms of area ratio.
There is also demand for switches to be more reliable. For
example, switches should not detach from the board if
dropped during set assembly or during product use. To copewith this, we ensure stable contact reliability by continuing touse a contact spring model that is highly regarded in our
1-dome switches. Moreover, unlike conventional products, thisproduct uses an actuator-attached sheet in place of a cover,which helps prevent displacement during insertion.
We expect use of this product to expand to a wider variety
of applications in the future, including in cellular phones,
tablet PCs, and other portable equipment.

Projected capacitive touch panels(mobile devices/in-car devices)

Mini 1-dome switch
Applications:
Cellular phones and other mobile equipment

SMK developed a human body communication module,
applying the electric field method.
Human body communication is a technology that uses ahuman body as a channel for communication, developed
focusing on a human body’s nature of leading a weak current.
One of its advantages is its “security,” characterized by the factthat data never leaks out of the human body, while the other isan “energy-saving feature” such that it does not need to emit
radio waves and saves energy consumption, which are both
unlike the conventional radio wave communications.
Generally speaking, there exist two methods for humanbody communication such as the electric field method and theelectric current method, and SMK has adopted the former. In
the electric field method, a transmitter induces a modulated
electric field on the surface of a human body and a receiver
detects the emerged electric field as information.
A feature of the electric field method is that you
communicate through the electric field induced on the surface
of a human body and it is possible to communicate even if theelectrodes on the transmitter or on the receiver do not directly
contact the human body. For example, when used in access
control, it is unnecessary for you to pick out the IC card. Thisshould be a considerably convenient feature, unlike
conventional contactless IC cards.

Human body communication module
Applications:
Access control systems and more

8

Topics
SMK’s activities in the green device market
SMK aims to contribute to green devices such as photovoltaic systems, LED lighting,eco monitors, and smart meters, and develop electronic components that cater to a wide
range of needs.
We are actively developing products that canmeet the needs of customers. In the case ofphotovoltaic systems, our “connectors for

Photovoltaic systemphotovoltaic modules” have excellent usability

Connectors for photovoltaic modules

Photovoltaic
systemand waterproof performance, considering thatcables can easily be made waterproof with ourunique waterproof structure. As to LED lighting,Junction box

our “connectors for LED lighting” arecompatible with the thermal operating
Power conditioner

environment of LEDs. We have applied our trackrecord and technical capabilities acquired over

LED lighting

many years to eco monitors and smart meters,

Connectors for LED lighting

working to develop new products such as touch
Switchboard

panels and communication modules.
Smart meter

Eco monitor

LED lighting

Electrical appliance

SMK exhibits at the Photovoltaic
Power Generation System Expo
(PV System Expo)
The PV System Expo (Photovoltaic Power Generation System
Expo) was held at Tokyo Big Sight from March 2 to 4, 2011.
This is an international specialty tradeshow that brings
together exhibits including system equipment which makes up
photovoltaic power generation systems aswell as products and technology relating tosystem design, construction, installation,

Smart meterand maintenance.

Specified low power RF modules

SMK exhibited a number of products
related to the environmental market,
including connectors for photovoltaic
Eco monitor

modules and connectors for LED lighting.

Resistive touch panels

910Topics

Global Network

PadDock 10™ developed and released
SMK has developed and released the PadDock 10™

Sales Office
Works
Works & Office

speaker stand and docking station for the iPad. This uniquestand rotates and tilts and is uses custom designed oval
speakers for the best media experience. In addition to highspeed charging, an integrated Sync mode allows users to
Head Office(Tokyo)add music and install applications from their computer.
The product was exhibited in the SMK-Link zone at theInternational CES tradeshow held in Las Vegas fromJanuary 6 to 9, 2011, where it attracted a great deal ofinterest from visitors.

Features(1) Charges the iPad
(2) Synchs with iTunes(3) Rotating stand (switch between portrait and landscape views)(4) Tilts back and forth to find the most comfortable viewing angle

USA/Mexico SMK Manufacturing, Inc. / SMK Electronica S.A. de C.V.

Note: In August 2011, a new model for the iPad 2 was launched.

US affiliate SMK-Link acquires France-based
Movea’s Gyration business unit
In February 2011, SMK Corporation’s US affiliate company SMK-Link acquired France-based

Marco Lopez,
Plant Manager,
SMK Electronica S.A.de C.V.

Founded in 1988, SMK Electronica works as atwin plant, in Tijuana in northwestern Mexico,
together with SMK Manufacturing, founded in1982 in San Diego in the southwestern UnitedStates. Located just 10 km apart, they are able
to produce and deliver remote controls for all
kinds of consumer electronics, taking
advantage of the Mexican work force thatseeks better job opportunities and the key
location that represents the entrance to theUnited States. Tijuana and San Diego are twovery important cities for the North American
Free Trade Agreement and part of a dynamic
economic zone in North America.

Movea’s Gyration business unit.
The Gyration business acquired by SMK has an established reputation for products such as the
motion control technology-operated Air Mouse(US registered trademark). The acquisition enables
SMK-Link to develop, manufacture, and market
products using Movea’s SmartMotion™,
MotionTools and other licensed technologies,
thereby enhancing its product lineup. Moreover,further expansion of sales can be expected from useof the Gyration brand, which enjoys a high degreeASIA
SMK High-Tech Taiwan Trading Co., Ltd.
SMK Electronics (H.K.) Ltd.
SMK Trading (H.K.) Ltd.
SMK Dongguan Gaobu Factory
SMK Electronics (Shenzhen) Co., Ltd.
SMK Electronics (Shenzhen) Co., Ltd. Futian Office
SMK Electronics (Shenzhen) Co., Ltd. Xi’an Office
SMK Electronics Technology Development (Shenzhen) Co., Ltd.
SMK Electronics Trading (Shanghai) Co., Ltd.
SMK Electronics INT’L Trading (Shanghai) Co., Ltd.
SMK Electronics INT’L Trading (Shanghai) Co., Ltd. Beijing Office
SMK Electronics Singapore Pte. Ltd.
SMK Electronics (Malaysia) Sdn. Bhd.
SMK Electronics (Phils.) Corporation
SMK Korea Co., Ltd.

EUROPESMK Europe N.V.
SMK Europe N.V., U.K. Branch
SMK Europe N.V., France Branch
SMK Europe N.V., Munich Office
SMK Europe N.V., Dortmund Office
SMK (U.K.) Ltd.
SMK Hungary Kft.

NORTH AMERICASMK Electronics Corporation U.S.A.
SMK Electronics Corporation U.S.A., San Jose Office
SMK Electronics Corporation U.S.A., East Office
SMK Electronics Corporation U.S.A., Los Angeles Office
SMK Electronics Corporation U.S.A., Seattle Office
SMK Electronics Corporation U.S.A., Chicago Office
SMK Electronics Corporation U.S.A., Detroit Office
SMK-Link Electronics Corporation
SMK Manufacturing, Inc.
SMK Electronica S.A. de C.V.
SMK Mexicana S.R.L. de C.V.
SMK Mexicana S.R.L. de C.V., Mexico City Officeof name recognition in the West.
11

12

Financial Section

Financial Review
SMK’s net sales for fiscal 2011, which ended March 31,
2011, decreased 3.8% year on year, to ¥61,914
million (US$744,607 thousand). Operating income rose
11.1% year on year, to ¥2,754 million (US$33,129
thousand) with net income of ¥1,037 million(US$12,482 thousand).

Five-Year Summary
2008

2009

Thousands of
U.S. dollars

2010

2011

Net Sales

29,86229,000¥ 72,742¥ 64,371¥ 61,914$ 744,607

Operating income

5,166

5,654

238

2,479

2,754

33,129As a result, net sales were ¥61,914 million (US$744,607 thousand),

Net income (loss)

3,693

2,094

(1,620)

1,862

1,037

12,482

down 3.8% year on year.

Operating Income

Financial Position¥ 65,575¥ 66,737¥ 58,168¥ 56,113¥ 53,059$ 638,117

34,56432,38629,07931,127

29,862359,136

Yen

U.S. dollars

Efforts to strengthen profitability by introducing new products, reducing

2007 2008 2009 2010 2011
(As of March 31)

Return on equity (ROE)%

costs, and cutting fixed costs in the face of a decline in operating income

12

11.0

attributable to lower net sales resulted in operating income rising 11.1%
year on year to ¥2,754 million (US$33,129 thousand).

6.3

6

Per Share Data
Total net assets

29,0790reaching a condition that could dispel overall uncertainty over the future.

¥ 87,659

Total net assets

31,12731,000automotive components, despite the global and Japanese economies not¥ 79,074

Total assets

34,564

Net sales recovered moderately with expanded demand for components
for cellular phones, triggered by the rise of smartphones, and for2011

Operating Results
Net sales

35,00032,386

Millions of yen

2007

Millions of yen

33,000

Corporation and Consolidated Subsidiaries

Years ended and as of March 31

Total net assets¥ 445.33¥ 427.75¥ 392.15¥ 420.07¥ 408.12$ 4.91

Net income (loss)

3.4

Net Income
Net income was ¥1,037 million (US$12,482 thousand) due in part to

Basic

47.48

27.32

(21.68)

25.19

14.14

0.17

the effects of foreign exchange losses resulting from the appreciation of

Diluted

47.41

27.30

—

—

—

—

the yen and disaster losses caused by the Great East Japan Earthquake.

Cash dividends

14.00

14.00

9.00

8.00

9.00

0.11

Note: The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ¥83.15 = U.S. $1.00.

6.2

0

(5.3)

(6)

2007 2008 2009 2010 2011
(Years ended March 31)

Total Net Assets/ROE
As of March 31, 2011, total net assets were ¥29,862 million(US$359,136 thousand). ROE stood at 3.4%.

Return on assets (ROA)

Total Assets/ROA
As of March 31, 2011, total assets were ¥53,059 million (US$638,117

%

6

5.8

thousand). ROA stood at 1.9%.
3

3.2

3.3

Cash Flows

1.9

Net cash flow from operating activities amounted to ¥6,230 million(US$74,932 thousand), net cash used in investing activities totaled

0¥4,001 million (US$48,128 thousand) and net cash used in financing
activities was valued at ¥3,347 million (US$40,264 thousand).

(3)

(2.6)
2007 2008 2009 2010 2011
(Years ended March 31)

1314

Consolidated Balance Sheets
Corporation and Consolidated Subsidiaries
As of March 31, 2011 and 2010

Thousands of
U.S. dollars(Note 2)Millions of yen

Assets

2010

2011

2011

¥ 8,749¥ 7,383$ 88,790

9

60

721

16,337

14,842

178,495

(61)

(48)

(580)

Inventories (Note 3)

5,241

5,672

68,220

Deferred tax assets (Note 8)

1,303

885

10,642Other current assets

2,402

3,060

36,80633,98031,854

383,094

Time deposits (Note 17)
Notes and accounts receivable, trade (Note 17)
Allowance for doubtful accounts

Liabilities and net assets

2010

2011

2011

Current liabilities

Current assets
Cash and cash equivalents (Note 17)

Thousands of
U.S. dollars(Note 2)Millions of yen

Short-term loans payable (Notes 4 and 17)

3,207$ 38,564

3,402

3,290

39,565

Accrued income taxes

197

344

4,140

Accrued bonus

828

771

9,268

Accrued directors’ bonus

35

36

433

Accounts payable, non-trade (Note 17)

7,440

7,691

92,499Other current liabilities

1,325

1,423

17,11817,633

16,762201,587

6,560

5,720

68,791

Notes and accounts payable, trade (Note 17)

¥

4,406

¥

Long-term liabilities
Investments and long-term loans
Investment securities (Notes 13 and 17)

Long-term debt (Notes 4 and 17)
2,863

2,493

29,984

Accrued employees’ retirement benefits (Note 14)

16

16

187

Long-term loans receivable

247

103

1,236

Accrued directors’ and officers’ retirement benefits

153

125

1,509

Other investments (Note 14)

1,659

1,602

19,270

Other long-term liabilities (Note 8)

624

574

6,907

Allowance for doubtful accounts

(232)

(116)

(1,393)

7,353

6,435

77,394

4,537

4,082

49,097

7,996

7,996

96,174

Capital surplus

12,353

12,353

148,561Retained earnings

15,79815,876

190,933

Treasury stock (Note 11)(2,953)(3,308)(39,790)

33,19432,917395,878

499

266

3,204

(2,687)(3,449)(41,483)(2,188)(3,183)(38,279)

117

123

1,482

4

5

55

31,127

29,862359,136¥ 56,113¥ 53,059$ 638,117

Net assets
Shareholders’ equity (Note 10)

Property, plant and equipment (Notes 4, 7 and 18)
Land

4,432

4,424

53,206

Common stock

Buildings

16,90617,143

206,165

Authorized:

Machinery and vehicles

18,627

16,843

202,566

Issued and outstanding: 79,000,000 shares

Tooling and office furniture

25,116

20,503

246,571

10

29

346

65,091

58,942

708,854(48,158)(42,696)(513,480)

16,933

16,246

195,374

Construction in progressLess-accumulated depreciation

195,961,274 shares

Accumulated other comprehensive income
Net unrealized gains (losses) on other securities
Foreign currency translation adjustments

Other assets
Deferred tax assets (Note 8)

111

271

3,265

Subscription rights to shares (Note 20)

Intangible assets

552

606

7,287

Minority interests

663

877

10,552¥ 56,113¥ 53,059$ 638,117

Total assets

Total liabilities and net assets

See accompanying notes to consolidated financial statements.

15

16

Consolidated Statements of Income

Consolidated Statements of Changes in Net Assets

Corporation and Consolidated Subsidiaries

Corporation and Consolidated Subsidiaries

Years ended March 31, 2011 and 2010

Years ended March 31, 2011 and 2010

Thousands of
U.S. dollars(Note 2)Millions of yen

Net sales (Note 19)
Cost of sales (Notes 3 and 5)
Selling, general and administrative expenses (Notes 5 and 6)
Operating income (Note 19)
Other income
Interest and dividend income
Rent income
Gain on sales of fixed assets
Other
Total other income
Other expenses
Interest expense
Rent expense
Foreign exchange loss, net
Loss on disposal of fixed assets
Loss on valuation of investment securities
Impairment loss on fixed assets (Note 7)
Loss on disaster
Other
Total other expenses
Income before income taxes and minority interests
Income taxes (Note 8)
Current
DeferredIncome before minority interests
Minority interests
Net income

2010

2011

2011

¥ 64,371
54,0107,882
2,479¥ 61,914
51,3457,815
2,754$ 744,607
617,499
93,97933,129

72
960
91
365
1,488

68
927
39
167
1,201

823
11,152463
2,013
14,451

Shareholders’ equity

214
306
595
152
1
24
—
601
1,893

156
301
879
166
0
—
485
151
2,138

1,881
3,617
10,573
2,001
3
—
5,833
1,815
25,723

2,074

1,817

21,857

561
(349)
1,862
—
¥ 1,862

434
345
1,038
1
¥ 1,037

5,211
4,152
12,49412$ 12,482
U.S. dollars(Note 2)¥ 420.07¥ 408.12

25.19
—
8.00

14.14
—
9.00

$

4.91

Accumulated other comprehensive income

Foreign Total accumulated
Net unrealized
Number of
Total gains (losses) currency
other Subscription
shares of Common Capital Retained Treasury shareholders’rights to Minority Total net
on other translation comprehensive
incomestock surplus earnings
stock
common stock
equitysecurities adjustments
shares interests assets

Balance at March 31, 2009 79,000,000 ¥ 7,996 ¥ 12,348 ¥ 13,961 ¥ (2,873) ¥ 31,432 ¥
(222)
(222)
Cash dividends paid(29) ¥ (2,393) ¥ (2,422) ¥56¥

13 ¥ 29,079
(222)

—

Change in scopeof consolidation

197

197

—

197

Net income

1,862

1,862

—

1,862

(66)

(66)

—

(66)

10

15

—

15

(24)

(24)

—

(24)

Acquisition of treasury stockYen

Per share data
Total net assets
Net income
Basic
DilutedCash dividends

Millions of yen

Disposition of treasury stock

5

Change in treasury stock resulting
from change in equity in affiliates
accounted for by equity method
Net changes in items otherthan shareholders equity
Total changes

—

528

(294)

234

61

—

—

5

1,837

(80)

1,762

528

(294)

234

61

(9)
(9)

Balance at March 31, 2010 79,000,000

7,996

12,353

15,798(2,953)33,194499(2,687)(2,188)

117

4

286
2,048
31,127

Cash dividends paid

(959)

(959)

—

(959)

Net income

1,037

1,037

—

1,037

(356)

(356)

—

(356)

1

1

—

1

Acquisition of treasury stock
Disposition of treasury stock
Net changes in items otherthan shareholders equity
Total changes

(0)

—

—

(0)

78

(355)

—

(233)

(762)

(277)

(233)

(762)

Balance at March 31, 2011 79,000,000 ¥ 7,996 ¥ 12,353 ¥ 15,876 ¥ (3,308) ¥ 32,917

¥

(995)
(995)

6

1

6

1

266 ¥ (3,449) ¥ (3,183) ¥ 123

¥

(988)
(1,265)5 ¥ 29,862

0.17
—
0.11

See accompanying notes to consolidated financial statements.

Thousands of U.S. dollars (Note 2)

Consolidated Statement of Comprehensive Income

Shareholders’ equity

Foreign Total accumulated
Net unrealized
Total gains (losses) currency
other Subscription
Common Capital Retained Treasury shareholders’rights to Minority Total net
on other translation comprehensive
incomestock surplus earnings
stock
equitysecurities adjustments
shares interests assets

Corporation and Consolidated Subsidiaries
Year ended March 31, 2011

Millions of yen

Income before minority interests
Other comprehensive income
Net unrealized gains (losses) on other securities
Foreign currency translation adjustments
Total other comprehensive income
Comprehensive income
Total comprehensive income attributable to:Shareholders of the Company
Minority interests
See accompanying notes to consolidated financial statements.

17

Thousands of
U.S. dollars(Note 2)

Balance at March 31, 2010

$ 96,174 $ 148,565 $ 190,000 $ (35,519) $ 399,220$ 6,002 $ (32,314) $ (26,312) $ 1,402$

43 $ 374,353

Cash dividends paid

(11,549)(11,549)—(11,549)

Net income

12,482

12,482—

12,482(4,292)(4,292)—(4,292)

21

17

—

17

2011

2011

¥ 1,038$ 12,494

Acquisition of treasury stock

(233)
(762)
(995)
43

(2,798)(9,169)$ (11,967)$
527

Disposition of treasury stock
Net changes in items otherthan shareholders equity
Total changes

42
1

515
12

¥
¥

Accumulated other comprehensive income

Balance at March 31, 2011

(4)

—
—

(4)

933

(4,271)(3,342)$ 96,174 $ 148,561 $ 190,933 $ (39,790) $ 395,878(2,798)(2,798)(9,169) (11,967)(9,169) (11,967)

80

12

80

12

$ 3,204 $ (41,483) $ (38,279) $ 1,482$(11,875)(15,217)55 $ 359,136

See accompanying notes to consolidated financial statements.

18

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Corporation and Consolidated Subsidiaries

Corporation and Consolidated Subsidiaries

Years ended March 31, 2011 and 2010

Thousands of
U.S. dollars(Note 2)Millions of yen

Cash flows from operating activities
Income before income taxes and minority interests
Depreciation and amortization
Impairment loss on fixed assets
Amortization of goodwill
Increase (decrease) in accrued directors’ bonus
Increase (decrease) in accrued employees’ retirement benefits
Increase (decrease) in prepaid pension costs
Increase (decrease) in accrued directors’ and officers’ retirement benefits
Interest and dividend income
Interest expense
Loss on disposal of fixed assets
Loss on valuation of investment securities
Loss on disaster
Loss on liquidation of subsidiaries and affiliates
Loss on compensation of products(Increase) decrease in notes and accounts receivable, trade(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable, trade
Increase (decrease) in accounts payable, non-trade
Other
SubtotalInterest and dividends received
Interest paid
Compensation of products paid
Income taxes paid
Income taxes refunded
Net cash provided by (used in) operating activities
Cash flows from investing activities
Payments into time deposits
Proceeds from time deposits
Purchases of fixed assets
Proceeds from sale of fixed assets
Purchases of intangible fixed assets
Proceeds from sale of investment securities
Payments for execution of loans
Collection of loans receivable
Payments for acquisition of business (Note 12)
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities
Increase (decrease) in short-term loans payable
Proceeds from long-term debt
Payments of long-term debt
Redemption of bonds
Purchases of treasury stock
Proceeds from sale of treasury stock
Dividends paid
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Increase in cash and cash equivalents arising from
inclusion of subsidiaries in consolidation
Cash and cash equivalents at end of the year
See accompanying notes to consolidated financial statements.

19

2010

2011

2011

¥ 2,074
4,021
24
159
34
(3)
210
(238)
(72)
214
152
1
—
78
378
(1,776)
863
1,337
1,162
233
8,851
73
(219)
(114)
(165)
578
9,004

¥ 1,817
3,653
—
155
1
0
87
(28)
(68)
156
166
0
485
—
58
706
(683)
990
221
(1,008)
6,708
58
(157)
—
(418)
39
6,230

$ 21,857
43,932
—
1,864
17
6
1,040
(329)
(823)
1,881
2,001
3
5,833
—
698
8,490
(8,224)
11,906
2,661(12,130)
80,683695(1,887)—(5,030)471
74,932——(2,843)
325
(6)
56
(204)
135
—
56
(2,481)(87)
59(3,598)
68
(49)
0
(52)
112
(473)
19
(4,001)(1,051)
705(43,268)
814
(584)
0
(631)
1,348
(5,694)
233(48,128)(6,268)
600
(466)
(300)
(65)
8
(251)
(6,742)
(182)
(401)
9,073

(1,383)
—
(656)
—
(355)
1
(954)
(3,347)(248)(1,366)
8,749(16,635)—(7,894)—(4,274)17(11,478)(40,264)(2,972)(16,432)
105,22277¥ 8,749—¥ 7,383—$ 88,790

Note 1. Summary of significant accounting policies(a) Basis of presenting financial statements
The accompanying consolidated financial statements of SMK Corporation (the “Company”) and consolidated subsidiaries are prepared on the basis ofaccounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International
Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Company as required by the Financial
Instruments and Exchange Law of Japan. For the purpose of this document, certain reclassifications have been made in the accompanying consolidated
financial statements to facilitate understanding by readers outside Japan. In addition, certain reclassifications have been made to the prior year’s
consolidated financial statements to conform to the current year’s presentation.
(b) Basis of consolidation and investments in affiliated companies
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries over which substantial control is exercisedeither through majority ownership of voting stock and/or by other means.
All significant intercompany balances and transactions have been eliminated in consolidation.
Certain foreign subsidiaries’ fiscal period ends on December 31, which differs from the year-end date of the Company; however, the accounts of thesecompanies were tentatively closed as of March 31 and the necessary adjustments for consolidation were made.
Investments in affiliates (companies over which the Company has the ability to exercise significant influence) are stated at cost plus equity in their
undistributed earnings or losses. Consolidated net income includes the Company’s equity in the current net income or loss of such companies, after theelimination of unrealized intercompany profits.
All assets and liabilities of the Company’s subsidiaries are revalued at the acquisition, if applicable, and the excess of cost over the underlying net assets atthe date of acquisition is amortized over a period of five years on a straight-line basis if such excess is material, or charged to income when incurred if
immaterial.
(c) Scope of consolidation
Number of consolidated subsidiaries: 25
The remaining 2 subsidiaries which are unconsolidated are deemed immaterial and, accordingly, their results of operations had no significant effect on the
consolidated financial statements.
(d) Application of equity method of accounting
Number of affiliated companies accounted for by the equity method: 1
The 2 unconsolidated subsidiaries and 1 affiliated company are deemed immaterial. As the effect of their results of operations on the consolidated financial
statements would be insignificant, the equity method of accounting has not been applied to these companies.
(e) Translation of foreign currencies
All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at the appropriate year-end exchange rates except forshareholders’ equity, which is translated at rates of exchange prevailing at the time the transactions occurred. Revenue and expense accounts are translated at
the average rates of exchange prevailing during the year.
(f ) Cash and cash equivalents
Cash and cash equivalents are composed of cash and time deposits all of which are low-risk, short-term financial instruments readily convertible into cash.
(g) Inventories
The following inventories are measured principally by their respective methods:
Finished products: Retail cost method
Work in process: Actual raw material cost, determined by the most recent purchase cost method, plus direct labor costs and manufacturing overheads
Raw materials and supplies: Most recent purchase cost method(h) Securities
Securities are classified into three categories depending upon the holding purpose and accounted for as follows:i) trading securities, which are held for the purpose of earning capital gains in the short-term, are stated at fair market value, with related gain and loss
realized on disposal and unrealized gain and loss from market fluctuations recognized as gain or loss in the statement of income in the year of the change;ii) held-to-maturity debt securities, which a company has the positive intent to hold until maturity, are stated at amortized cost; and iii) other securities,
which are not classified as either of the aforementioned categories but are stated at fair market value if such value is available, or, if not, at moving-average
cost, with unrealized gain and loss, net of the applicable taxes, reported as a separate component of net assets. Realized gain and loss on sales of suchsecurities are calculated based on the moving-average cost.
(i) Derivatives
Derivatives are stated at fair value.
(j) Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment is calculated principally by the declining-balance method
for the Company and its domestic subsidiaries, and by the straight-line method mainly for foreign subsidiaries.
(k) Intangible assets
Amortization of intangible assets is calculated by the straight-line method. Software for own use is amortized based on the utilizable period (5 years).
(l) Leases
Finance leases which are deemed to transfer the ownership of the leased assets to the lessee are capitalized and depreciated over their lease term with noresidual value.
However, such finance lease agreements executed on or before March 31, 2008 are accounted for by a method similar to that applicable to operating leases.
(m) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at the amount of estimated uncollectable accounts, based on individual collectability with respect toidentified doubtful receivables and past experience of doubtful receivables.
(n) Accrued bonuses
Accrued bonuses are provided on the estimate of the amounts to be paid in the future by the Company, domestic consolidated subsidiaries and certain
overseas subsidiaries based on an accrual basis at the balance sheet date.
(o) Accrued directors’ bonuses
Accrued directors’ bonuses are provided on the estimate of the amounts to be paid in the future by the Company based on an accrual basis at the balance
sheet date.
(p) Accrued retirement benefit obligations
To cover projected employee retirement benefits, the Company and consolidated subsidiaries record the estimated obligations at the end of the fiscal year
based on projected year-end benefit obligations and plan assets, as adjusted for unrecognized actuarial gains or losses and unrecognized prior service cost.
Unrecognized actuarial gains or losses are amortized in the year following the year in which the gains or losses are incurred by the straight-line method overthe period of 5 years which is within the average remaining years of service of the employees.
(Change in accounting policy)
From the year ended March 31, 2010, the Company and consolidated subsidiaries applied the partial amendments to Accounting Standard for Retirement
Benefits (Part 3) issued by the Accounting Standards Board of Japan. The application of this standard, had no impact on profit and loss for the year ended
March 31, 2010.
(q) Accrued directors’ and officers’ retirement benefits
Accrued directors’ and officers’ retirement benefits have been provided at an amount equal to 100% of the amount which would be required to be paid
based on the Company’s bylaws if all directors and officers resigned from the Company on the balance sheet date.
(r) Hedge accounting(1) Method of hedge accounting
The exceptional method of hedge accounting is applied for the transactions of interest rate swaps, in cases meeting certain conditions.
(2) Hedge instrument and hedged item
Hedge instrument: interest rate swap
Hedged item: interest rate for long-term borrowings subject to interest rate fluctuations.

20

(3) Hedge policy
The Company uses interest rate swaps to avoid risks from interest rate fluctuations on borrowings, only when approved by the management.
(4) Assessment of hedge effectivenessAs the exceptional method is applied for interest rate swap, the assessment of hedge effectiveness is omitted.
(s) Income taxes
Deferred income taxes are recognized based on the differences between financial reporting and the tax bases of the assets and liabilities and are calculatedusing the enacted tax rates and laws which will be in effect when the differences are expected to reverse.
(t) Per share information
Basic net income per share is computed based on the net income available for distribution to shareholders of common stock and weighted-average numberof shares of common stock outstanding during the year. Diluted net income per share is computed based on the net income available for distribution toshareholders and weighted-average number of shares of common stock outstanding during each year after giving effect to the dilutive potential of shares ofcommon stock to be issued upon the conversion of convertible bonds.
Net assets per share is computed based on the net assets available for distribution to shareholders of common stock and the number of shares of common
stock outstanding at the balance sheet date. Cash dividends per share shown for each period in the consolidated statements of income represent thedividends applicable to the respective period.
(u) Change in method of accounting(1) Accounting Standard for Asset Retirement Obligations
From the year ended March 31, 2011 the Company adopted the Accounting Standard for Asset Retirement Obligations and the Guidance on
Accounting Standard for Asset Retirement Obligations. The application of this standard had no impact on profit and loss for the year ended March 31,
2011.
(2) Accounting Standard for Business Combinations and related matters
From the year ended March 31, 2011 the Company adopted the Accounting Standard for Business Combinations, the Accounting Standard forConsolidated Financial Statements, the partial amendments to Accounting Standard for Research and Development Costs, the revised AccountingStandard for Business Divestitures, the revised Accounting Standard for Equity Method of Accounting for Investments and the revised Guidance on
Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures.
(3) Accounting Standard for Presentation of Comprehensive Income
From the year ended March 31, 2011 the Company adopted the Accounting Standard for Presentation of Comprehensive Income. In accordance with
the new standard, consolidated statements of comprehensive income for the year ended March 31, 2010 is not presented. The comparative information
for the year March 31, 2010 is disclosed in Note 9.
Note 2. U.S. dollar amounts
The U.S. dollar amounts are stated solely for the convenience of the reader at the rate of U.S.$1.00 = ¥83.15, the approximate rate of exchange at March
31, 2011. The translation should not be construed as a representation that the Japanese yen amounts actually represent, have been or could be converted
into U.S. dollars at that or any other rate.
Note 3. Inventories
Inventories as of March 31, 2010 and 2011, consisted of the following:
Millions of yen
Finished products
Work in process
Raw materials and supplies
Total

Thousands of U.S. dollars

2010

2011

2011

¥ 2,469
588
2,184¥ 5,241¥ 2,572648
2,452¥ 5,672$ 30,933
7,797
29,490$ 68,220

The write-downs of inventories resulted from decreased profitability for the year ended March 31, 2010 and 2011 were as follows:
Millions of yen
Thousands of U.S. dollars
Cost of sales

2010

2011

2011

¥ 459

¥ 290

$ 3,487

Note 4. Short-term loans payable and long-term debt
Short-term loans payable and long-term debt as of March 31, 2010 and 2011, consisted of the following:
Millions of yen
Short-term loans payable
Loans, principally from banks with interest
rates ranging from 0.66% to 0.75%:
SecuredUnsecured
Total

2010

2011

¥

¥

400
3,350
¥ 3,750

Long-term debt
Loans, principally from banks with interest
rates ranging from 0.84% to 2.30%:
SecuredUnsecured
Less: portion due within one year
Total

255
2,112
¥ 2,367

Millions of yen

Thousands of U.S. dollars
2011$ 3,070
25,395$ 28,465
Thousands of U.S. dollars

2010

2011

2011

¥ 4,3662,850(656)¥ 6,560¥ 4,1102,450(840)¥ 5,720$ 49,426
29,465(10,100)$ 68,791

The assets pledged as collateral for short-term and long-term debt as of March 31, 2010 and 2011 were summarized as follows:
Millions of yen
Thousands of U.S. dollars
Property, plant and equipment-book value

2010

2011

2011

¥ 1,973¥ 1,896$ 22,804

The aggregate annual maturities of long-term debt (including current portion) outstanding as of March 31, 2011 were summarized as follows:
Millions of yen
Thousands of U.S. dollars
Year ending March 31,
2012
¥ 840
$ 10,100
2013
3,903
46,942
2014
1,692
20,351
125
1,498
2015
¥ 6,560$ 78,891
Total
Note 5. Research and development costs
Research and development costs included in cost of sales and selling, general and administrative expenses for the years ended March 31, 2010 and 2011
amounted to ¥2,770 million and ¥2,903 million ($34,908 thousand), respectively.

21

Note 6. Selling, general and administrative expenses
Major elements of selling, general and administrative expenses for the years ended March 31, 2010 and 2011 were as follows:
Millions of yen
Thousands of U.S. dollars
Salaries and wages of employees
Provision for bonus
Provision for directors’ and officers’ bonus
Retirement benefit cost
Provision for directors’ and officers’ retirement benefit
Provision for doubtful accounts

2010

2011

2011

¥ 3,454
264
34
271
41
—

¥ 3,382
312
36
243
35
9

$ 40,678
3,750
433
2,923
424
112

Note 7. Impairment of fixed assets
An impairment loss is recognized when the carrying amount of asset exceeds undiscounted future net cash flows which are expected to be generated by such
asset. The impairment loss is measured by the amount by which the carrying amount of the asset exceeds its recoverable amount, being the higher of
discounted future net cash flows or net realizable value.
For the year ended March 31, 2010, the impairment loss was recognized for the following assets:
Millions of yen
2010

Asset group
SMK U.K. Ltd.
Total

Machinery
Tooling andand vehicles office furniture
¥
17
¥
7
¥
17
¥
7

Location
Use
U.K. Switch production facilities

Total
¥
24
¥
24

For the year ended March 31, 2011, there was no major impairment loss recognized.
Note 8. Income taxes
Income taxes applicable to the Company and its domestic subsidiaries comprised corporation, inhabitants’ and enterprise taxes which, in the aggregate,
resulted in statutory tax rate of approximately 40.5% for the years ended March 31, 2010 and 2011, respectively.
Reconciliations between the statutory tax rate and the effective tax rates for the years ended March 31, 2010 and 2011 were as follows:
Statutory tax rate
Items such as entertainment expenses permanently not deductible for tax purposes
Items such as dividend income permanently not deductible for tax purposesTax credit for research and development cost
Foreign tax credit
Change in valuation allowance
Statutory tax rate differences in subsidiaries
Elimination of dividend income
Other
Effective tax rates
The significant components of deferred tax assets and liabilities at March 31, 2010 and 2011 were as follows:
Millions of yen
Deferred tax assets:
Inventory write-down disallowed
Accrued bonuses disallowed
Intercompany profit on inventory
Retirement benefits disallowed
Allowance for doubtful accounts
Impairment loss
Operating loss carryforwards for tax purposes
Carried forward foreign tax credit
Other
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Deferred gain on land
Advanced depreciation on buildings
Reserve for special depreciation
Net unrealized gains on other securities
Other
Net deferred tax assets

2010

2011

¥

¥

137
320
70
263
56
252
145
425
638
(320)
1,986

(108)
(117)
(30)
(331)
(155)
¥ 1,245

2010

2011

40.5%
2.1
(14.7)(1.1)(18.4)(4.9)(18.5)
23.5
1.7
10.2%

40.5%
1.8
(20.6)
(3.8)
—
13.1
(9.1)
20.9
(0.0)
42.8%

Thousands of U.S. dollars
2011

131
297
65
301
47
176
209
250
669
(557)
1,588

$ 1,580
3,565
781
3,622
564
2,122
2,515
3,000
8,051
(6,701)
19,099

(108)
(108)
(21)
(199)
(122)
¥ 1,030(1,303)(1,296)(255)(2,398)(1,462)$ 12,385

Note 9. Comprehensive income and other comprehensive income
The following table shows to whom comprehensive income is attributable:
Millions of yen
2010

Shareholders of the Company
Minority interests
Total comprehensive income¥ 2,096—¥ 2,096

The following table presents components of other comprehensive income for the year ended March 31, 2010:
Millions of yen
2010

Net unrealized gains (losses) on other securities
Foreign currency translation adjustments
Total other comprehensive income

¥

528
(294)
¥ 234

Note 10. Shareholders’ equity
The Corporation Law of Japan provides that an amount equal to 10% of the amount to be distributed as distributions of capital surplus (other than thecapital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of
the capital reserve and the legal reserve equals 25% of the common stock account. Such distributions can be made at any time by resolution of theshareholder’s meeting, or by the Board of Directors if certain conditions are met, but neither the capital reserve nor the legal reserve is available for
distributions.
Note 11. Treasury stock
The number of common stock of the Company held by the Company, consolidated subsidiaries and affiliated companies subject to the equity method at
March 31, 2010 and 2011 totaled 5,185,336 shares and 6,142,417 shares, respectively.

22

Note 12. Supplementary information on the consolidated statements of cash flows
Assets acquired and liabilities assumed resulting from the acquisition of business and related payments for the year ended March 31, 2011 are as follows:
Millions of yen
Thousands of U.S. dollars
2011

Current assets
Non current assets
Total assets
Current liabilities
Total liabilities
Payments for acquisition of business

¥

¥

2011

270
273
543
(70)
(70)
473

$ 3,244
3,285
6,529
(835)
(835)
$ 5,6942010

Securities whose fairvalue exceeds their cost
StocksOthersSecurities whose costexceeds their fair value
Stocks
Total

2011

2011

Fair value

Costs

Unrealized
gain (loss)¥ 2,36047
2,407¥ 1,469
36
1,505

¥ 891
11
902

¥ 1,95048
1,998¥ 1,456
36
1,492

¥ 494
12
506

$ 23,453
580
24,033$ 17,522
432
17,954$ 5,931
148
6,079

248
248
¥ 2,655

320
320¥ 1,825

(72)
(72)
¥ 830

268
268
¥ 2,266

332
332¥ 1,824

(64)
(64)
¥ 442

3,228
3,228
$ 27,261

3,993
3,993
$ 21,947

(765)
(765)
$ 5,314

Fair value

Costs

Unrealized
gain (loss)

Fair value

Costs

Unrealized
gain (loss)

Information regarding sales of securities for the year ended March 31, 2010 was as follows:
Millions of yen
2010

Proceeds from sales of securities
Gains of sales
Losses on sales

¥

53
16
(0)

Note 14. Accrued employees’ retirement benefits(a) Outline of retirement benefit plans
The Company and certain of its domestic consolidated subsidiaries transferred the retirement benefit plans to the corporate pension fund plans under
the Defined Benefits Enterprise Pension Law of Japan on April 1, 2004. On the same day the approval was obtained for the exemption from thesubstituted portion of the welfare pension fund plans from the Minister of Health, Labor and Welfare. At the same time, the Company and certain ofits domestic consolidated subsidiaries revised the retirement benefit schemes and adopted the cash balance pension plans and the defined contribution
pension plans for a part of future contribution.
(b) Retirement benefit obligation as of March 31, 2010 and 2011
Millions of yen
Thousands of U.S. dollars
Retirement benefit obligation
Fair value of plan assets
Funded status
Unrecognized actuarial gains (losses)
Net amount recognized in the consolidated balance sheets
Prepaid pension costs
Accrued employees’ retirement benefits

2010

2011

2011

¥ 7,199(6,289)910(1,913)(1,003)1,019¥ 16¥ 7,330(6,188)1,142(2,059)
(917)
933
¥ 16

$ 88,154(74,415)
13,739(24,768)(11,029)
11,216
$ 187

2011

2011

2011

Note 16. Leases
Lease expenses and pro forma amounts of depreciation and interest expense for finance leases for the years ended March 31, 2010 and 2011 were as follows:
Millions of yen
Thousands of U.S. dollars
2010

Millions of yen

Service cost, net of plan participants’ contributions
Interest cost
Expected returns on plan assets
Amortization of unrecognized actuarial (gains) losses
Contribution to defined contribution pension plan
Net periodic cost

2011

¥

¥

322
142
(162)
471
53
¥ 826

2011

327
144
(194)
377
63
¥ 717

$ 3,927
1,736(2,335)
4,539
757$ 8,624(d) Assumptions to calculate the actuarial present value of the benefit obligation and the expected return on plan assets
Discount rate
Expected return on plan assets
Amortization period of unrecognized actuarial gains or losses

2010

2011

2.0%
3.5%
5 years

2.0%
3.5%
5 years

Note 15. Derivatives
As a matter of policy, the Company does not speculate in derivative transactions. The Company does not anticipate nonperformance by any of thecounterparties to the derivative transactions, all of whom are leading domestic financial institutions with high bond ratings.
In accordance with the Company’s policy, the accounting department controls derivative transactions and requires approval by the director responsible foraccounting and the representative directors of the Company. The director who has the responsibility to control the performance and the related risks
connected with derivatives reports these to the Management Committee of the Company.
The Company uses interest rate swaps to avoid risks from interest rate fluctuations on borrowings. The exception method of hedge accounting is used toaccount for those transactions.
(Currency related)

Millions of yen

Contract
amountThousands of U.S. dollars
Contract
Unrealized
amountFair value gain (loss)

Unrealized
gain (loss)

Fair value

2010

2011

2010

2011

2010

2011

¥ 1,780—¥ 1,780¥ 2,029—¥ 2,029¥ (46)—¥ (46)¥ (29)—¥ (29)¥ (46)—¥ (46)¥ (29)—¥ (29)(1) Calculation of fair value
The fair value is calculated by the forward exchange rate.

2011

Future minimum lease payments for non-cancellable operating leases subsequent to March 31, 2010 and 2011 were as follows:
Millions of yen
Thousands of U.S. dollars
Due within one year
Due after one year
Total

¥ 5
5
¥ 10

2011

2011

¥ 4
1
¥ 5

$ 48
7
$ 55

Note 17. Financial instruments(Additional information)
From the year ended March 31, 2010, the Company and consolidated subsidiaries applied the Accounting Standard for Financial Instruments and the
Guidance on Disclosures about Fair Value of Financial Instruments issued by the Accounting Standards Board of Japan.
(1) Policy for financial instruments
The Company and consolidated subsidiaries raise funds through bank borrowings.
The Company and consolidated subsidiaries use derivatives for the purpose of reducing risk and do not enter into derivatives for speculative or trading purposes.
(2) Types of financial instruments and related risk
Trade receivables—trade notes and accounts receivable—are exposed to credit risk in relation to customers. Regarding this risk, the credit management
is executed periodically.
Marketable securities and investment securities are exposed to market risk. The fair value of those securities is reported in a board meeting periodically.
Substantially all trade payables—trade notes and accounts payable—have payment due dates within one year.
Short-term borrowings are raised mainly in connection with business activities, and the repayment dates of long-term debt extend up to four years fromthe balance sheet date. Long-term debt with variable interest rates is exposed to interest rate fluctuation risk. However, to reduce such risk and fix
interest expense for long-term debt bearing interest at variable rates, the Company and consolidated subsidiaries utilize interest rate swap transactions as
a hedging instrument.
Information regarding fair value of financial instruments at March 31, 2010 and 2011 was summarized as follows:
Millions of yen
Book value¥ 8,749
916,337
2,654
3,750
3,402
7,440
7,216
(46)

Cash and cash equivalents
Time deposits
Notes and accounts receivable, trade
Investment securities
Short-term loans payable
Notes and accounts payable, trade
Accounts payable, non-tradeLong-term debt
Derivatives

Thousands of U.S. dollars

2010

2011

Lease expenses
¥ 1
¥—
$ —
Reversal of allowance for impairment loss on leased assets———
Depreciation
1——
Interest expense
0——
Impairment loss———
Depreciation is calculated based on the straight-line method, assuming that useful life is within the lease term with no residual value.
Interest is calculated based on the discrepancy between total lease expenses and acquisition cost and is allocated to each term by the interest method.

2010(c) Retirement benefit cost

23

2010

2010

Unlisted stocks of ¥36 million at March 31, 2010 and ¥36 million ($431 thousand) at March 31, 2011 are not included in the above table because there
were no quoted market prices available and the fair value is extremely difficult to determine.

Forward foreignexchange contracts:
Sell:
US$
EUR
Total

2011

Interest rate swaps¥ 2,636¥ 2,468¥ 2,468¥ 1,969$29,681$23,680
Since exceptional treatment is applied to interest rate swaps transactions, they are accounted for as if they were an integral part of the hedged long-term
debt, and their fair value is included in the fair value of long-term debt in Note 17.

Note 13. Securities
Information regarding securities classified as other securities at March 31, 2010 and 2011 was summarized as follows:
Millions of yen
Thousands of U.S. dollars
2010(2) Derivative transactions to which hedge accounting was applied are excluded from the above table.
Millions of yen
Thousands of U.S. dollars(Interest related)
Contract
Due after
Contract
Due after
amountone yearamountone year

2011

2011

2011

$24,398—$24,398$ (348)—$ (348)$ (348)—$ (348)Fair value¥ 8,749
916,337
2,654
3,750
3,402
7,440
7,127
(46)

Difference
¥ —
—
—
—
—
—
—
(89)
—

Millions of yen

Thousands of U.S. dollars

2011

2011

Book value Fair value Difference Book value Fair value Difference
Cash and cash equivalents¥ 7,383¥ 7,383¥ —$ 88,790 $ 88,790$ —Time deposits
60
60
—
721
721
—
Notes and accounts receivable, trade
14,842
14,842—
178,495
178,495—
Investment securities
2,267
2,267
—
27,262
27,262—
Short-term loans payable
2,367
2,367
—
28,46528,465—
Notes and accounts payable, trade
3,290
3,290
—
39,56539,565—
Accounts payable, non-trade
7,691
7,691
—
92,49992,499—(31)(374)
Long-term debt
6,560
6,529
78,891
78,517
(29)
(29)
(348)
(348)
Derivatives——
Long-term debt includes current portion of long-term debt which is booked as short-term loans payable in balance sheets.
1. Methods to determine the estimated fair value of financial instruments and other matters related to securities and derivative transactions
Cash and cash equivalents, time deposits, and notes and accounts receivable, trade
Since these items are settled in a short period of time, their carrying value approximates fair value.
Investment securities
The fair value of stocks is based on quoted market prices.
Short-term loans payable, notes and accounts payable, trade, and accounts payable, non-trade
Since these items are settled in a short period of time, their carrying value approximates fair value.
Long-term debt
The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be applied if
similar new loans were entered into.
Derivatives
Please refer to Note 15 Derivatives of the notes to the consolidated financial statements.
2. Financial instruments whose fair value is extremely difficult to determine
Thousands ofMillions of yen
U.S. dollars
2010

Unlisted securities

¥ 208

2011

¥ 226

2011

$ 2,722

Unlisted securities are not included in the investment securities because there were no quoted market prices available and the fair value is extremely difficult todetermine.

24

3. The schedules for redemption of monetary assets and securities with maturities
Millions of yen

2. Geographical information(1) Net sales

2010

Due within
one year¥ 8,749
16,337—¥ 25,086

Cash equivalents and time deposits
Notes and accounts receivable, trade
Investment securities (other)
Total

Due after one year Due after five years
through five years through ten years
¥ —
¥ —
—
—
15
31
¥ 15
¥ 31

Due within
one year¥ 7,435
14,842—¥ 22,277

Cash equivalents and time deposits
Notes and accounts receivable, trade
Investment securities (other)
Total

Millions of yen

Thousands of U.S. dollars

2011

2011

Due after one year Due after five years
through five years through ten years
¥ —
¥ —
—
—
15
33
¥ 15
¥ 33

Due within
one year$ 89,414
178,496—$ 267,910

Due after one year Due after five years
through five years through ten years
$ —
$ —
—
—
181
400
$ 181
$ 400

Note 18. Investment and rental property(Additional information)
From the year ended March 31, 2010, the Company and consolidated subsidiaries applied the Accounting Standard for Disclosures about Fair Value ofInvestment and Rental Property and the Guidance on Accounting Standard for Disclosures about Fair Value of Investment and Rental Property issued by
the Accounting Standards Board of Japan.
The profit of investment and rental property for the years ended March 31, 2010 and 2011 amounted to ¥655 million and ¥627 million ($7,535
thousand), respectively.
Information on the fair value of investment and rental property at March 31, 2010 and 2011 was summarized as follows:
Millions of yen
Thousands of U.S. dollars
2010

2011

Book value
Book value
beginning of the year end of the year
¥ 4,150¥ 4,119

Fair value¥ 8,833

2011

Book value
Book value
beginning of the year end of the year
¥ 4,119¥ 4,055

Fair value¥ 8,282

Book value
Book value
beginning of the year end of the year
$ 49,541$ 48,762

Fair value$ 99,601

1. The fair value represents the acquisition cost less accumulated depreciation.
2. The fair value is mainly estimated by real estate agency.

Note 19. Segment information(Additional information)
From the year ended March 31, 2011, the Company and consolidated subsidiaries applied the Accounting Standard for Disclosures about Segments of anEnterprise and Related information and the Guidance on the Accounting Standard for Disclosures about Segments of an Enterprise and Related
information issued by the Accounting Standards Board of Japan.
(Over view)
The reporting segments of the Company and consolidated subsidiaries are designed as business segments whose segregated financial information can beobtained and to which the management reviews to decide on the allocation of managerial and financial resources and to evaluate their financial performance.
The Company and consolidated subsidiaries are primarily engaged in the three divisions as follows;
CS (Connection System) Division: The division produces and sells connectors and jacks.
FC (Functional Components) Division: The division produces and sells switches, units, remote controls and camera modules.
TP (Touch Panel) Division: The division produces and sells touch panels.
The business segment information is prepared by taking almost the same methods as described in Note 1.
1. Business segment information
Millions of yen

2010
Net sales
Outside customers
Intersegment sales
Total
Operating income
Identifiable assets
OthersDepreciation
Increase in fixed assets
and intangible fixed assets

Connection System Functional Components
Division
Division

Touch Panel
Division

Other

¥

¥

¥ 27,712—
27,712719
16,263¥ 27,521—
27,521
1,481
13,372

8,952
—
8,952
184
4,861

2,618

1,010

267

1,317

847

425

Total

Adjustment

Consolidated

¥

—
—
—
—
17,110¥ 64,371—
64,371
2,479
56,113

186
—
186
95
4,507

¥ 64,371—
64,371
2,479
39,003

7

3,902

—

3,902

92

2,681

—

2,681

Adjustment

Consolidated

¥

—
—
—
—
15,742¥ 61,914—
61,9142,754
53,059Millions of yen

2011
Net sales
Outside customers
Intersegment sales
Total
Operating income (loss)
Identifiable assets
OthersDepreciation
Increase in fixed assets
and intangible fixed assets

25

2011
Net sales
Outside customers
Intersegment sales
Total
Operating income (loss)
Identifiable assets
OthersDepreciation
Increase in fixed assets
and intangible fixed assets

Connection System Functional Components
Division
Division¥ 23,242—
23,242565
14,038¥ 30,080—
30,0802,223
13,646

2,223

1,017

2,254

833

Connection System Functional Components
Division
Division

Touch Panel
Division

Other

¥

¥

8,350
—
8,350
(143)
5,307
295

Total

242
—
242
109
4,326

¥ 61,914—
61,9142,754
37,317

8

3,543

—

3,543

3,926

—

3,926

814
25
Thousands of U.S. dollars
Touch Panel
Division
Other

Total

Adjustment

Consolidated

$

—
—
—
—
189,320$ 744,607—
744,607
33,129638,117$ 279,519—
279,519
6,797
168,823$ 361,756—
361,756
26,737
164,116$ 100,421—
100,421(1,718)63,823$ 2,911
—
2,911
1,313
52,035$ 744,607—
744,607
33,129448,797

26,731

12,2273,555

94

42,607—42,607

27,102

10,0199,786

309

47,216—47,2162011
Net salesJapan¥ 18,010

Asia¥ 25,358

2011
Net sales(2) Fixed assets

Japan$ 216,598

Asia$ 304,967

2011
Fixed assets

Japan¥ 11,230

Asia¥ 4,289

Millions of yen
North America
Europe¥ 16,197¥ 2,057
Thousands of U.S. dollars
North America
Europe$ 194,792$ 24,743
Millions of yen
North America¥
331
Thousands of U.S. dollars
North America$ 3,978¥

Europe
395

¥

Other
292

Consolidated¥ 61,914

$

Other
3,507

Consolidated$ 744,607

Consolidated¥ 16,245

Japan
Asia
EuropeConsolidated
2011
Fixed assets$ 135,054$ 51,587$ 4,755$ 195,374
3. Information about major customers
The Company and consolidated subsidiaries have no major customers which account for at or more than 10% of net sales.
4. Information about the amorization of goodwill and the balance of goodwill

2011
Amortization
Book value

Millions of yen
FC
¥ 155
¥ 446

Thousands of U.S. dollars
FC$ 1,864$ 5,369

Note 20. Stock option plan
At the board of directors meeting held on April 24, 2008, a stock option plan was approved. Under this plan, certain employees of the Company and a
director and employees of affiliated companies were granted options to purchase common stock of 1,102,000 shares in total at an exercise price of ¥509.
Those eligible could exercise the options when the market price exceeded 130% of the exercise price for preceding day within the term of exercise, which
was from June 1, 2010 to May 31, 2013.
Stock option activities during the years ended March 31, 2010 and 2011 were as follows:2010
Number of Shares
Outstanding at beginning of year
Non-eligible at end of year
The fair value of stocks when granted

1,102,000
1,102,000
¥115

2011
Number of Shares
Outstanding at beginning of year
Non-eligible at end of year
The fair value of stocks when granted

1,102,000
1,072,000¥115 ($1.38)

Note 21. Related party transactions
Significant transactions with related parties for the years ended March 31, 2010 and 2011 were as follows:
Millions of yen
Transactions
Balances
Guaranty money deposited
Rent
Other investments
Rent
2010
Terutaka Ikeda
¥ —
¥ 14
¥ 15
¥ —
Millions of yen
Transactions
Balances
Guaranty money deposited
Rent
Other investments
Rent
2011
Terutaka Ikeda
¥ —
¥ 14
¥ 15
¥ —
Thousands of U.S. dollars
Transactions
Balances
Guaranty money deposited
Rent
Other investments
Rent
2011
Terutaka Ikeda
$ —
$ 167
$ 174
$ —
Note 22. Business combination
On February 14, 2011, a consolidated subsidiary of the Company acquired Movea, Inc.’s Gyration business. The Gyration brand is well known,
particularly in Europe and the U.S., and the acquisition should contribute to the development of new markets for SMK-Link products. In addition, theCompany anticipates that it will be able to further develop product lines by utilizing Movea, Inc.’s innovative technology. Consequently, the Company
intends to expand business in the field of peripheral equipment in the U.S., Europe, Japan and other areas.
The results of operation for Gyration business for the period from February 15, 2011 to March 31, 2011 is included in the Company’s consolidated
statement of income.
The amounts of assets acquired and liabilities assumed of this business at the date of the acquisition were as follows:
Millions of yen
Thousands of U.S. dollars
2011

2011

Current assets¥ 259$ 3,112Non current assets
11
138
Total assets
270
3,250
(67)
(801)
Current liabilities
(67)
(801)
Total liabilities
Acquisition cost and goodwill were recorded in the amounts of ¥454 million ($5,461 thousand) and ¥250 million ($3,013 thousand), respectively. The
goodwill is being amortized over a period of 5 years by the straight-line method.
Note 23. Subsequent events
The following appropriation of retained earnings of the Company, which has not been reflected in the accompanying consolidated financial statements forthe year ended March 31, 2011, was approved at a shareholder’s meeting held on June 23, 2011.
Millions of yen
Thousands of U.S. dollars
Cash dividends (¥4.00 = $0.05 per share)

2011

2011

¥ 292

$ 3,51226

Report of Independent Auditors

Shares and Shareholders(As of March 31, 2011)

Authorized shares:

195,961,274

Issued shares:

79,000,000

Number of shareholders:

11,331

Major shareholders (top ten)

Shares owned (1,000 shares)

Nippon Life Insurance Company
Mizuho Corporate Bank, Ltd.
Dai Nippon Printing Co., Ltd.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
SMK Cooperating Company Share Holding Association
Mitsubishi UFJ Trust and Banking Corporation
Japan Trustee Services Bank, Ltd. (Trust Account)
Terutaka Ikeda
The Showa Ikeda Memorial Foundation
SMK Employees Share Holding Association

4,001
3,619
3,200
3,134
2,034
1,937
1,643
1,540
1,500
1,484

Percentage of shares (%)

5.48
4.95
4.38
4.29
2.78
2.65
2.25
2.10
2.05
2.03

Note: SMK holds 6,002 thousand shares of treasury stock, but they are excluded from the above list. Figures for percentage of shares are calculated excluding treasury stock.

Share ownership by number

Share ownership by shareholder type (unit: share)

1–999 shares

2,158 (19.05%)

Financial institutions

22,513,685 (28.50%)

1,000–9,999 shares

8,459 (74.65%)

Financial instruments dealers

1,960,665

10,000–99,999 shares

642 (5.67%)

Companies and other entities

11,105,827 (14.06%)

Foreign investors

3,334,550

100,000–499,999 shares

56 (0.49%)

Individuals and others

34,082,394 (43.14%)

500,000 shares–

16 (0.14%)

Treasury stock

6,002,879(2.48%)(4.22%)(7.60%)

Please see our website for detailed IR information.
The IR Information section of SMK’s
website includes annual reports andpresentation materials. The website also
carries information about SMK’s products,
corporate data, CSR initiatives, andcommitment to the environment.

Home page

IR Information

http://www.smk.co.jp/27

28

Board of Directors and Corporate Auditors(As of June 23, 2011)

D I R E C TO R S

C O RPO RAT E EXEC UT I VE O F F I C ER S

Yasumitsu Ikeda

Yoshiyuki Kaku

Paul Evans

Hideo Matsumoto

Akira Utazaki

Mikio Wakabayashi

Director, Executive Deputy President
Sales Division

Executive Vice President
Connection System
Division

Executive Vice President
Sales Division, Americas

Vice President
Sales Division, Europe

Vice President
Deputy Division Directorof Sales Division

Vice President
Functional Components
Division

Tetsuya Nakamura

Tsutomu Isoda

Hiroshi Miyakawa

Shigechika Yanagi

Takemi Ishibashi

Kohei Ohgaki

President andChief Operating Officer

Vice President
Research and Development

Vice President
Sales Division

Vice President
Touch Panel Division

Vice President
Production Management

Vice President
Corporate Planning andGeneral Affairs

Corporate Data
(As of March 31, 2011)

Yoshio Sakurai

Hajime Yamada

Yuji Tanahashi

Director, Executive Vice President,
Chief Technology Officer

Director, Executive Vice President,
Chief Financial Officer

Director

AU D I TO R S

Terutaka Ikeda

Kenji Kobayashi

Kouichiro Sugihara

Naru Nakashima

Harutaka Seki

Auditor andChairman of Auditors
Meeting

Auditor

Auditor

Auditor

AuditorName:

SMK Corporation

Established:

January 15, 1929

Primary business:

Manufacture and sale of various parts for electro-communication device andelectronic equipment

Capital:¥7,996,828,021

Stock exchange listing:Tokyo Stock Exchange

Administrator of shareholders’ register:

Mitsubishi UFJ Trust and Banking Corporation

Independent auditors:

Ernst & Young ShinNihon LLC
Tokyo, Japan

Employees (SMK-Group):

11,969Head office:5-5, Togoshi 6-chome, Shinagawa-ku, Tokyo 142-8511, Japan
Tel 81-3-3785-1111
Fax 81-3-3785-1878

Subsidiaries & affiliates:
Domestic:
Overseas:
Website:29

Subsidiaries
Affiliates
Subsidiaries

5 companies
2 companies
22 companies

http://www.smk.co.jp/30

5-5, Togoshi 6-chome, Shinagawa-ku, Tokyo 142-8511, JAPAN
Telephone: 81-3-3785-1111 Fax: 81-3-3785-1878

http://www.smk.co.jp/

Printed in Japan