ANNUAL REPORT 2012
For the ﬁscal year ended March 31, 2012

Connectors for Photovoltaic Module

Financial Highlights

To Our Shareholders
We are obliged to you for your

Percent change
2011/2012

Millions of yen

continued support and good patronage.

Years ended March 31

Thousands of
U.S. dollars

2011

2012

2012

¥ 61,914¥ 55,340(10.6)%$ 673,321

Operating Results

We would like to report on the outline
and results of the SMK Group’s

Net salesbusinesses for the 90th fiscal year (fromOperating income（loss）

2,754（1,166）―(14,195)

April 1, 2011 to March 31, 2012).

Net income（loss）

1,037

（799）

―

(9,724)¥ 53,059¥ 53,883

1.6%$ 655,594

29,862

28,257(5.4)

343,805

We look forward to your continuing
support and encouragement.

Financial Position

June 2012
Yasumitsu Ikeda
President and COO

Tetsuya Nakamura
Chairman and CEO

Total assets
Total net assets

Overview

During the fiscal year ended March 31, 2012, the global economy remained uncertain with phenomena suchas slowing economies in the Western countries affected by the deteriorating debt issue in Europe and a
decline in growth rates in the emerging nations including China.
The Japanese economy continued to see harsh conditions, affected by adverse factors such as the decline
in GDP mainly due to the effects of the Great East Japan Earthquake, the impact of the Thai floods on supply
chains in the manufacturing industry, historically high appreciation of the yen and the overall slowdown ofoverseas economies.
The electronic components industry followed a steady track, spurred by expanding demand mainly forcomponents for smartphones, and for automotive components, despite the weakened competitive edge dueto the extreme appreciation of the yen and the impact of the Thai floods. Meanwhile, sales of components for
digital home appliances represented by flat-panel televisions remained sluggish principally due to weakdomestic demand for replacement products and languid overseas economies.
Under these circumstances, the SMK Group’s consolidated net sales and profits for the year declined year
on year despite our best efforts to actively launch new products, improve price competitiveness, and bolster
our sales capability.
On the basis of our initiatives in fields of communications and automobiles, we will respond quickly to
growth fields such as resource-conservation and environment-related opportunities and open up newmarkets. We will also focus on developing new products and technologies that meet customers’ needs,
enhancing our production engineering, and streamlining our sales systems. Furthermore, we are committed
to making a companywide effort to improve our business performance by further increasing costcompetiveness.

CO N T E NTS
To Our Shareholders …………………………………… 1
Financial Highlights ……………………………………… 2
Overview of Consolidated Results by Division …… 3
SMK's New Lineup ……………………………………… 5
Topics ……………………………………………………… 6
Financial Section ………………………………………… 7
Financial Review ………………………………………… 8
Consolidated Balance Sheets ………………………… 9
Consolidated Statements of Income ………………… 11
Consolidated Statements of Changes in Net Assets 12
Consolidated Statements of Cash Flows…………… 13
Notes to Consolidated Financial Statements …… 14
Report of Independent Auditors ……………………… 21
Officer Introduction ……………………………………… 22
Corporate Information ……………………… back cover

1 ANNUAL REPORT 2012

SMK Philosophy

SMK is committed to the advancement of mankind throughdevelopment of the information society, by integrating its current
technological strengths and creating advanced technology.

Yen

Per Share Data
Net income（loss）
Basic¥ 14.14¥（11.04）

―%

9.00

6.00

(33.3)Cash dividends$(0.13)
0.07

Note: The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ￥82.19 = U.S. $1.00.

Net sales

Operating income（loss）

Millions of yen
87,65990,000Millions of yen
6,000

Net income (loss)
Millions of yen

5,654

4,000

72,74264,371

61,91455,34060,000

2,094

4,000
2,479

2,754

1,862

2,000

1,037

2,000
238

30,0000

0（799）（1,166）

0

2008

2009

2010

2012

2011

Total assets / Total net assets
Millions of yen ■■ Total assets■■ Total net assets

80,000（2,000） 2008

2009

2010

2011

2012

（2,000） 2008

Basic net income (loss) per share（1,620）
2009

2010

2011

2012

Cash dividends per share

Yen

Yen

60

15

14.00

66,737
58,16860,00056,11353,05953,88330

Action Guidelines

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.

U.S. dollars

40,000

27.32

25.19

9.00

10
14.14

32,38629,07931,127

29,862

8.00

9.00

6.00

28,2575

0
20,000（11.04）（21.68）

0

2008

2009

2010

2011

2012

（30）

2008

2009

2010

2011

2012

0

2008

2009

2010

2011

2012

ANNUAL REPORT 2012 2

Overview of Consolidated Results by Division(April 1, 2011 to March 31, 2012)

The many different electronic components that SMK produces are widely used by electronics
manufacturers in and outside Japan. The markets for these components can be broadlyclassified into five categories: the communication market, the information market, the home
appliance/industry market, the car electronics market, and the audio visual market.

Overview of results by division

Connection
SystemDivision

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 in thefive 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 the results the three divisions achieved in the fiscal

Major Products○ RF coaxial connectors○ FPC connectors○ Board to Board
connectors○ Jacks

Sales in the first half of the year were sluggish overall because of restricted
demand for components due to the impact of the earthquake. However, arecovery in set production along with a sharp increase in demand forconnectors led to sales exceeding the previous year in the second half.
Driven by vigorous sales for smartphones and tablet PCs, steady salesof automotive connectors due to the tax-reduction effect and the adoption of
new connectors for TV game consoles and photovoltaic modules
contributed considerably to the remarkable performance.
Under an unclear economic environment characterized by foreignexchange fluctuations, the European debt crisis and concerns about an
economic slowdown in the United States, the Division will push ahead with
developing new products for the information and communication market,
our core market, and other expanding markets including digital home
appliances, car electronics, and renewable energy systems.

year under review.

Other

Communication￥234 Million
0.5％
Touch Panel
Division￥10,418 Million

Information

18.8％
Home
Appliance/Industry

Net sales

39.8％

Car
Electronics

Audio
Visual40.9％

Connection
SystemDivision￥22,639 Million
Functional
Components
Division￥22,049 Million

Functional
Components
Division

Major Products○ Switches○ Bluetooth® units○ Remote controls○ Camera modules

Touch Panel
Division

Major Products○ Resistive
touch panels○ Capacitive touch
panels○ Optical touch panels

In the first half of the year, sales were stagnant due to a rapid sales drop in
digital home appliances with flat-panel televisions at its core and declines in
the market shares of smartphone manufacturers, for which SMK products
are adopted, although sales of antennae for cellular phones andaccessories were favorable.
In the second half, sales of components for air conditioners and remotecontrollers as parts for home appliances achieved solid results and thosefor set-top boxes also rallied. Nevertheless, overall sales were weak,suffering from the lingering impact of negative factors in the first half.
Going forward, the Division aims to make efforts to grow its businesses
particularly for the home appliance and air-conditioner sector, which draws
attention from an energy-saving viewpoint, the visual sector centering on
set-top boxes, and the vehicle-mounted and eco-friendly sectors.

Sales of the touch panel division as a whole increased substantially fromthe previous fiscal year.
In the automotive products market, vehicle-mounted touch panels for car
navigation systems sold at high levels throughout the fiscal year underreview, supported by vigorous inquiries in Japan and overseas. The ATM
market saw increased demand particularly in the Chinese market. Demand
for smartphones in the cellular phone market has been rising, but thegrowth rate slowed in the second half due to intensified competition.
Looking ahead, the Division will aim to further expand sales for capacitive
touch panels for the automotive products market and the cellular phonemarket, where demand has been increasing.

In addition to net sales for the divisions presented above, net sales of ¥234 million were earned by “Other” businesses in the fiscal year under review. Net sales for the Research &Development Center were included in net sales for “Other” businesses.
3 ANNUAL REPORT 2012

ANNUAL REPORT 2012 4

SMK's New Lineup

TopicsConnector for photovoltaic
module (PV Series)
In recent years, themarket for photovoltaic
power generation
systems has drawn muchattention and demand forthe systems has been
expanding globally.
Applications: Photovoltaic power
This product is a relay generation systems
connector to connect photovoltaic modules withcables. SMK’s original waterproof construction has
achieved high performance and its terminals in a
multi-point contact configuration are acclaimed forstable contact.
The number of orders for adoption has been
increasing due to SMK’s extended productrepertoire such as compact-type and bifurcatedconnectors. From now, we will actively expand oursales promotion.

Touch panel using an ITO
substitute material
Usually, touch panels employ transparent
conductive electrodes formed by indium (indium tinoxide: ITO), a kind of rare metal. SMK developed
two types of touch panels using an ITO substitutematerial (carbon nanotube and organic conductive
polymer) to reduce the quantity of rare metals used.
Carbon nanotube–based touch panels areespecially promising for various potential
applications because carbon nanotube excels indurability.

Applications: Office machines and FA
equipment

5 ANNUAL REPORT 2012

50W/20W enabled AC adapter(EPM Series)
In recent years, energy-efficiency regulations havebeen legislated internationally in consideration ofenvironmental impacts. In response to this global
trend, we have developed the 50W/20W enabled
AC adapter (EPM Series).
The original products in this series haveconsiderably reduced noise and energy loss andcomply with the safety standards of individual
countries and the EMC standards. A stable power
supply to activate the circuitry of equipment (e.g.,
printers and scanners) that requires large electric
current is ensured.

01 Business Development in the Chinese Cultural Zone
Following the opening of a sales office in Xi’an in
May 2011, we opened the Tsingtau Office in March2012 and the office started operation. SMK is
increasing the number of sales bases for sales
expansion in the Chinese market. The opening of
the Tsingtau Office aims to strengthen sales activity
and offer support services tolocal customers of digital
home appliances and cellular
phones.
In October 2011, we turned
the factory in Dongguan,
China, to which our
subsidiary SMK Electronics(H.K.) Ltd. previously
outsourced its manufacturing,
into one of our subsidiaries.
Appearance of the building inwhich SMK’s Tsingtau Office is
We intend to further reinforce
located

Sales Bases
Production Bases
Production and Sales Bases

Xi an Oﬃce

Beijing
Tsingtau Oﬃce
Shanghai

DongguanTaipeiHong Kong Shenzhen

our production and sales systems to actively
provide local customers with detailed services in
the Chinese cultural zone.

Applications: Printers and scanners

Bluetooth® Low Energy compliant
module (single mode)This product is a communication module compliant
with the Bluetooth® Low Energy single mode, whichenables wireless communications with low power
consumption.
Bluetooth® Low Energy (BLE) technology, which
was first implemented in Bluetooth® Version 4.0,
features relatively low power consumption
compared with conventional Bluetooth® technology.
The enhanced use of BLE technology to enablewireless communications with low power
consumption is highly
expected given the
recent rising demand
to incorporate
wireless
communication
technology in various Applications: Remote controls, cellular
phones, peripheral equipment, security
fields.
equipment and health care products

02 Exhibition Information
FPD International 2011

October 26–28, 2011, at PACIFICO YOKOHAMAFPD International is a comprehensive exposition
for flat-panel displays, as well as for their
manufacturing equipment, components andmaterials. For this event, SMK prepared six
demonstrative machines. Touch panels using ITO
substitute films, for which a press release wasdistributed before the opening of the exhibition, andcapacitive touch panels
operable with gloved hands
were spotlighted. We had
1,445 visitors to our booth
during the 3-day event.

International Automotive
Electronics Technology Expo
(CAR-ELE JAPAN)

January 18–20, 2012, at Tokyo Big Sight
CAR-ELE JAPAN is an
exposition specialized in
automotive electronics
technologies. At this fourth
event, SMK focused on
demonstrating car-mounted
touch panels and camera modules at its booth. We
intend to actively tackle the car electronics market
to contribute to the safe and secure driving of carsand comfortable vehicle interiors.

SMK held “SMK TEXPO2012,” its own technical exhibition exclusively targeting its business partners, June 6–8,
2012 (in Shinagawa, Tokyo), by assembling all the advanced technologies that it had presented at the above
expositions. The theme was “Navigating smartly for the people, the future, and the environment.” We informed
guests of our eco-friendly product technologies and world-leading miniaturization technologies.

ANNUAL REPORT 2012 6

Financial Section

Financial Review

Five-Year Summary

2012 decreased 10.6% year on year to ¥55,340

SMK Corporation and Consolidated Subsidiaries

million (US$673,321 thousand), whereas an
operating loss of ¥1,166 million (US$14,195
thousand) and a net loss of ¥799 million
Thousands of
U.S. dollars

Millions of yen
Years ended andas of March 31

2008

2009

2010

2012

2011

consolidated basis.

2012¥ 72,742¥ 64,371¥ 61,914¥ 55,340$ 673,321

Operating income（loss）

5,654

238

2,479

2,754

(1,166)(14,195)

Net income（loss）

2,094(1,620)

1,862

1,037

(799)

(9,724)

Financial Position

Total net assets¥ 66,737¥ 58,168¥ 56,113¥ 53,059¥ 53,883$ 655,594

32,38629,07931,127

29,862

28,257

343,805

Yen

U.S. dollars

Per Share Data
Total net assets¥ 427.75¥ 392.15¥ 420.07¥ 408.12¥ 392.59$

4.78

Net income（loss）
Basic

27.32

(21.68)

25.19

14.14

(11.04)(0.13)

Diluted

27.30

ー

ー

ー

ー

ー

14.00

9.00

8.00

9.00

6.00

0.07

Cash dividends

Millions of yen
33,00032,38632,00031,12731,00030,00029,86229,000¥ 87,659

Total assets(As of March 31)(US$9,724 thousand) were recorded, on a

Operating Results
Net sales

Total net assets

SMK’s net sales for the year ended March 31,

Note: The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ￥82.19 = U.S. $1.00.

Net Sales
Although the global economy and the Japanese economy
remained uncertain and harsh on the whole, the electronics
industry experienced steady demand mainly for components
for cellular phones, triggered by the rapid propagation ofsmartphones, and for automotive components.
As a result, consolidated net sales were ¥55,340 million(US$673,321 thousand), down 10.6% year on year.

Operating Income (Loss)
Despite our efforts to strengthen profitability by introducing new
products, reducing costs and cutting fixed costs in the face of adecline in profits attributable to decreased net sales, anoperating loss of ¥1,166 million (US$14,195 thousand) wasrecorded.

Net Income (Loss)
A net loss of ¥799 million (US$9,724 thousand) was recorded,reflecting a currency exchange loss resulting from appreciationof the yen despite a gain on sales of investment securities anda gain on reversal of subscription rights to shares.

0

2008

2009

2010

2011

2012

Return on equity（ROE）(Years ended March 31)

%
9
6.3

6.2

6
3.4
3

0

（3）

（2.8）
（5.3）

（6）

2008

2009

2010

2011

2012

Return on assets（ROA）(Years ended March 31)%
6Total Assets / ROA
As of March 31, 2012, total assets were ¥53,883 million(US$655,594 thousand). ROA stood at negative 1.5%

28,25728,000Total Net Assets / ROE
As of March 31, 2012, total net assets were ¥28,257 million(US$343,805 thousand). ROE stood at negative 2.8%.

29,079

3.3

3.2
3

1.9

Cash FlowsNet cash provided by operating activities amounted to ¥2,001
million (US$24,348 thousand), net cash used in investing
activities totaled ¥3,764 million (US$45,806 thousand) and net
cash provided by financing activities was ¥2,686 million(US$32,684 thousand).
7 ANNUAL REPORT 2012

0

（1.5）
（2.6）
（3）

2008

2009

2010

2011

2012

ANNUAL REPORT 2012 8

Consolidated Balance Sheets

SMK Corporation and Consolidated Subsidiaries
As of March 31,2012 and 2011

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

Assets2012

2011

Liabilities and net assets

2012

Time deposits (Note 16)
Notes and accounts receivable, trade (Note 16)
Allowance for doubtful accounts
Inventories (Note 3)
Deferred tax assets (Note 7)
Other current assets (Notes 16 and 20)

2011

2012

2012

¥ 3,207¥ 9,675$117,714

3,290

3,283

39,948

Accrued income taxes

344

94

1,145

Accrued bonus

771

630

7,664

Accrued directors’ bonus

36

―

―

Accounts payable, non-trade (Note 16)

7,691

7,517

91,457

Other current liabilities

1,423

1,357

16,513

16,762

22,556274,441

5,720

2,483

30,211

Current liabilities

Current assets
Cash and cash equivalents (Note 16)

Thousands of
U.S. dollars(Note 2)Millions of yen¥ 7,383¥ 8,390$102,078

60

83

1,011

14,842

15,223

185,221

(48)

(45)

(553)

5,672

5,473

66,585885

1,149

13,980

3,060

3,213

39,09831,85433,486

407,420

Short-term loans payable (Notes 4 and 16)
Notes and accounts payable, trade (Note 16)

Long-term liabilities
Investments and long-term loans

Long-term debt (Notes 4 and 16)
2,493

2,212

26,911

Accrued employees’ retirement benefits (Note 13)

16

21

256

Long-term loans receivable

103

102

1,240

Accrued directors’ and officers’ retirement benefits

125

119

1,442

Other investments (Note 20)

1,602

1,044

12,713

Other long-term liabilities

574

447

5,439

Allowance for doubtful accounts

(116)

(117)

(1,428)

6,435

3,070

37,348

4,082

3,241

39,436

Issued and outstanding : 79,000,000 shares

7,996

7,996

97,297

Investment securities (Notes 12 and 16)

Net assets
Shareholders’ equity (Note 9)

Property, plant and equipment (Notes 4 and 17)

Common stock

Land

4,424

4,418

53,748

Buildings

17,143

17,242

209,786

Machinery and vehicles

16,843

16,975

206,532

Capital surplus

12,353

12,345150,206

Tooling and office furniture

20,503

20,716

252,054

Retained earnings

15,876

14,785

179,886

29

19

232

Treasury stock (Note 10)(3,308)(3,554)(43,252)

58,94259,370722,352

32,917

31,572

384,137(42,696)(43,171)(525,258)

16,246

16,199197,094

266

147

1,789

(3,449)(3,499)(42,578)

Deferred tax assets (Note 7)

271

567

6,898

(3,183)(3,352)(40,789)

Intangible assets

606

390

4,746

123

32

395

877

957

11,6445

5

62

29,862

28,257

343,805¥53,059¥53,883$655,594¥53,059¥53,883$655,594

Construction in progressLess-accumulated depreciation

Other assets

Total assets

Authorized :

195,961,274 shares

Accumulated other comprehensive income
Net unrealized gains (losses) on other securities
Foreign currency translation adjustments
Subscription rights to shares (Note 19)
Minority interests

Total liabilities and net assets

See accompanying notes to consolidated financial statements.
9 ANNUAL REPORT 2012

ANNUAL REPORT 2012 10

Consolidated Statements of Income

Consolidated Statements of Changes in Net Assets

Years ended March 31, 2012 and 2011

Years ended March 31, 2012 and 2011

SMK Corporation and Consolidated Subsidiaries

SMK Corporation and Consolidated Subsidiaries

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

Net sales (Note 18)
Cost of sales (Notes 3 and 5)
Selling, general and administrative expenses(Notes 5 and 6)
Operating income (loss) (Note 18)

2011

2012

2012

¥ 61,914
51,345¥55,340
48,564$ 673,321
590,876

7,815
2,754

7,942
(1,166)

96,640(14,195)

68
927
39
―
3
164
1,201

67
590
45
106
121
241
1,170

814
7,181
551
1,285
1,477
2,935
14,243

Other income
Interest and dividend income
Rent income
Gain on sales of fixed assets
Gain on sales of investment securities
Gain on reversal of subscription rights to shares
Other
Total other income
Other expenses
Interest expense
Rent expense
Foreign exchange loss, net
Loss on disposal of fixed assets
Loss on liquidation of subsidiaries and affiliates
Loss on disaster
Loss on compensation for products
Other
Total other expenses
Income (loss) before income taxes and minority interests
Income taxes (Note 7)
Current
DeferredIncome (loss) before minority interests
Minority interests
Net income (loss)

Shareholders’ equity

Number ofshares of Common
stockcommon stock(959)

Net income

1,037

1,037

―

1,037

(356)

(356)

―

(356)

1

1

―

1

Acquisition of treasury stock
Disposition of treasury stock

Acquisition of treasury stock

434
345
1,038
1
¥ 1,037

263
(441)
(799)
0
¥ (799)3,201(5,370)(9,718)6$ (9,724)

Disposition of treasury stock(11.04)6.00(0)

Net changes in items otherthan shareholders’ equity(11,887)

14.14
9.00

Total changes

(762)

(995)

6

1

(988)

(0)

78

(355)

(277)

(233)

(762)

(995)

6

1

(1,265)

Balance at March 31, 2011 79,000,000

7,996

12,353

15,876(3,308)32,917266(3,449)(3,183)123

529,862

Balance at April 1, 2011

7,996

12,353

15,876(3,308)32,917266(3,449)(3,183)123

529,86279,000,000

Cash dividends paid

(292)

(292)

―

(292)

Net loss

(799)

(799)

―

(799)

(263)

(263)

―

(263)

17

9

―

9

(8)

Net changes in items otherthan shareholders’ equity
Total changes

―

―

(8)

(1,091)

(246)

―

(119)

(50)

(169)

(91)

0

(260)

(1,345)

(119)

(50)

(169)

(91)

0

(1,605)32 ¥

5 ¥ 28,257

Balance at March 31, 2012 79,000,000 ¥ 7,996 ¥ 12,345 ¥ 14,785 ¥ (3,554) ¥ 31,572 ¥

147 ¥ (3,499) ¥ (3,352) ¥

4.78
Thousands of U.S. dollars (Note 2)(0.13)
0.07

Shareholders’ equity

Commonstock

SMK Corporation and Consolidated Subsidiaries

Balance at April 1, 2011

Years ended March 31, 2012 and 2011

Thousands of
U.S. dollars(Note 2)

2011

2012

2012

¥ 1,038¥ (799)$ (9,718)

(233)
(762)

(995)
43
¥

(119)
(50)
(169)
¥ (968)(1,453)(610)(2,063)$(11,781)

421¥ (968)0$(11,787)
6

¥

(233)

―

Consolidated Statements of Comprehensive Income

Income (loss) before minority interests
Other comprehensive income (Note 8)
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.

Millions of yen

4 ¥ 31,127

―

(977)

$

117 ¥

Total net
assets

(959)

1,817

¥392.59

499 ¥ (2,687) ¥ (2,188) ¥Minority
interests

(959)

1,844
3,756
2,998
432
280
―
1,243
1,382
11,935¥ 408.12

Retainedearnings

Total
Foreign accumulated
Net unrealized
Total gains (losses)
currency
other Subscription
Treasury shareholders’rights toon other translation comprehensive
stock
equitysharesincomesecurities adjustments

Cash dividends paid

152
309
246
35
23
―
102
114
981

U.S. dollars(Note 2)

Capitalsurplus

Accumulated other comprehensive income

Balance at April 1, 2010 79,000,000 ¥ 7,996 ¥ 12,353 ¥ 15,798 ¥ (2,953) ¥ 33,194 ¥

156
301
879
166
―
485
58
93
2,138

Yen

Per share data
Total net assets
Net income (loss)
Basic
Cash dividends

Millions of yen

CapitalsurplusRetainedearnings

Accumulated other comprehensive income

Total
Foreign accumulated
Net unrealized
Total gains (losses)
currency
other Subscription
Treasury shareholders’rights toon other translation comprehensive
stock
equitysharesincomesecurities adjustments

Minority
interests$ 97,297 $150,296 $193,163 $(40,255) $400,501 $ 3,242 $(41,968) $(38,726) $ 1,500 $

Total net
assets56 $363,331

Cash dividends paid

(3,553)(3,553)―(3,553)Net loss(9,724)(9,724)―(9,724)(3,200)(3,200)―(3,200)

203

113

―

113

Acquisition of treasury stock
Disposition of treasury stock(90)

Net changes in items otherthan shareholders’ equity
Total changes
Balance at March 31, 2012

―

(90)

(13,277)(2,997)―(1,453)(610)(2,063)(1,105)

6(3,162)(16,364)(1,453)(610)(2,063)(1,105)

6(19,526)$ 97,297 $150,206 $179,886 $(43,252) $384,137 $ 1,789 $(42,578) $(40,789) $

395 $

62 $343,805

See accompanying notes to consolidated financial statements.
11 ANNUAL REPORT 2012

ANNUAL REPORT 2012 12

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

SMK Corporation and Consolidated Subsidiaries

SMK Corporation and Consolidated Subsidiaries

Years ended March 31, 2012 and 2011

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

2012

2011

Cash flows from operating activities
Income (loss) before income taxes andminority interests
Depreciation and amortization
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’ andofficers’ retirement benefits
Interest and dividend income
Interest expense
Gain on reversal of subscription rights to shares
Loss on disposal of fixed assets
Loss on disaster
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 11)
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
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 oncash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year

13 ANNUAL REPORT 20122012

¥1,817
3,653
155
1

¥ (977)
3,664
184
(36)

$(11,887)
44,585
2,236
(438)

0
87

6
522

68
6,356

(28)
(68)
156
(3)
166
485
58

(7)
(67)
152
(121)
35
―
102

(85)
(814)
1,844
(1,477)
432
―
1,243

706
(683)

(339)
196

(4,130)
2,383

990

(166)

(2,018)221(1,005)
6,708
58
(157)
―
(418)
39
6,230

(121)
(275)
2,752
68
(147)
(246)
(644)
218
2,001

(1,477)(3,342)33,479832(1,792)(2,996)(7,834)
2,659
24,348(87)
59(3,598)
68
(49)
0
(52)
112
(473)
19
(4,001)(138)
118(3,926)
130
(31)
87
(145)
112
―
29
(3,764)(1,681)
1,440(47,772)
1,582
(377)
1,058
(1,761)
1,364―
341(45,806)(1,383)
―
(656)
(355)
1
(954)
(3,347)

3,261
816
(840)
(262)
3
(292)
2,686

39,674
9,928(10,217)(3,183)34(3,552)
32,684(248)(1,366)8,749¥7,383

84
1,007
7,383
¥8,390

1,025
12,25189,827$102,078

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 of accounting
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 exercised either throughmajority 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 these companies weretentatively 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 accounted for by the equity method. Consolidated net
income includes the Company’s equity in the current net income or loss of such companies, after the elimination 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 at the date ofacquisition 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: 26
			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 are deemed immaterial. As the effect of their results of operations on the consolidated financial statements would be insignificant, theequity 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. Shareholders’ 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 such securities 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).
			 Goodwill is amortized by the straight-line method over 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 no residual value.
( 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 to identified doubtfulreceivables and past experience of doubtful receivables.
( n ) Accrued bonus			Accrued bonus 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’ bonus
			 Accrued directors’ bonus 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 employees’ retirement benefits			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 over the period of
5 years which is within the average remaining years of service of the employees.
( 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 debt subject to interest rate fluctuations.
( 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 effectiveness			 As 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 calculated using theenacted tax rates and laws which will be in effect when the differences are expected to reverse.

ANNUAL REPORT 2012 14

( 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 number of shares ofcommon stock outstanding during the year. Diluted net income per share is computed based on the net income available for distribution to shareholders and weightedaverage number of shares of common stock outstanding during each year after giving effect to the dilutive potential of shares of common stock to be issued upon theconversion 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 the dividends applicable to therespective period.
( u ) Supplemental information
			Effective April 1, 2011, the Company adopted the “Accounting Standard for Accounting Changes and Error Corrections” (Accounting Standards Board of Japan (ASBJ)
Statement No.24 issued on December 4, 2009) and the “Guidance on Accounting Standard for Accounting Changes and Error Corrections” (ASBJ Guidance No.24 issued
on December 4, 2009).

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 = ¥82.19, the approximate rate of exchange at March 31, 2012. 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 7. 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
rates of approximately 40.5% for the years ended March 31, 2011 and 2012, respectively.
A reconciliation between the statutory tax rate and the effective tax rate for the year ended March 31, 2011 was as follows. A reconciliation for the year ended March 31, 2012 isomitted because a net loss was recorded:
2011

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
Change in valuation allowance
Statutory tax rate differences in subsidiaries
Elimination of dividend income
Other
Effective tax rates

2012

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

The significant components of deferred tax assets and liabilities at March 31, 2011 and 2012 were as follows:
Millions of yen
2011

Note 3. Inventories
Inventories as of March 31, 2011 and 2012, consisted of the following:
Millions of yen

Thousands of U.S. dollars

2011

Finished products
Work in process
Raw materials and supplies
Total

2012

¥2,572648
2,452¥5,6722012¥2,749539
2,185¥5,473$33,440
6,562
26,583$66,585

The write-downs of inventories resulted from decreased profitability for the years ended March 31, 2011 and 2012 were as follows:
Millions of yen

Thousands of U.S. dollars

2011

Cost of sales

2012

¥290

2012

¥205

$2,491

Note 4. Short-term loans payable and long-term debt
Short-term loans payable and long-term debt as of March 31, 2011 and 2012, consisted of the following:
Short-term loans payable

Millions of yen

Thousands of U.S. dollars

2011

Average interest rate on short-term loans payable, principally from banks is 0.74%
SecuredUnsecured
Total

2012

¥255
2,112
¥2,367

Long-term debt

2012¥1,293
4,329¥5,622

Millions of yen

Thousands of U.S. dollars

2011

Average interest rate on long-term debt, principally from banks is 1.08%
SecuredUnsecured
Less: portion due within one year
Total

$15,733
52,668$68,4012012¥4,1102,450(840)¥5,7202012¥3,786
2,750(4,053)¥2,483$46,064
33,460(49,313)$30,211

The assets pledged as collateral for short-term and long-term debt as of March 31, 2011 and 2012 were summarized as follows:
Millions of yen

Thousands of U.S. dollars

2011

Property, plant and equipment-book value

2012¥1,8962012¥2,277$27,705

Millions of yen¥4,053
1,842
274
150
217
¥6,536

Thousands of U.S. dollars$49,312
22,411
3,339
1,822
2,639
$79,523

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, 2011 and 2012 amounted to ¥2,903
million and ¥3,080 million ($37,471 thousand), respectively.

Note 6. Selling, general and administrative expenses
Major elements of selling, general and administrative expenses for the years ended March 31, 2011 and 2012 were as follows:
Millions of yen
2011

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

15 ANNUAL REPORT 2012

Thousands of U.S. dollars
2012

2012

¥3,382
312
36
243
35
9

¥3,389
262
—
384
—
3

$41,228
3,188
—
4,667
—
32

Thousands of U.S. dollars
2012

2012

Deferred tax assets:
Inventory write-down disallowed
Accrued bonus 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
Undistributed earnings of consolidated subsidiaries
Other
Valuation allowance
Deferred tax assets

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

¥64
222
60
481
43
104
403
37
329
613
(321)
2,035

$780
2,696
732
5,853
519
1,267
4,902
446
4,005
7,461
(3,904)24,757

Deferred tax liabilities:
Deferred gain on land
Advanced depreciation on buildings
Reserve for special depreciation
Net unrealized gains on other securities
Other
Deferred tax liabilities
Net deferred tax assets

(108)
(108)
(21)
(199)
(122)
(558)
¥1,030

(95)
(88)
(13)
(128)
(110)
(434)
¥1,601(1,156)(1,075)(161)(1,556)(1,334)(5,282)$19,475

The “Act on Partial Revision of the Income Tax Act etc. for the Purpose of Creating Taxation System Responding to Changes in Economic and Social Structures” (Act No. 114
of 2011) and the “Act for Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction following the Great East Japan Earthquake”(Act No.117 of 2011) were promulgated on December 2, 2011 and the staged reduction of the national corporate tax rate and a special reconstruction corporate tax will apply tocorporate taxes effective for fiscal years beginning on or after April 1, 2012.
As a result , the effective statutory tax rate used to measure the Company’s deferred tax assets and liabilities was changed from 40.5% to 37.9% for the temporary differences
and operating loss carryforwards for tax purposes expected to be realized or settled in the period from April 1, 2012 to March 31, 2015 and from 37.9% to 35.5% for temporary
differences and operating loss carryforwards for tax purposes expected to be realized or settled from fiscal years beginning April 1, 2015. The effect of the announced reductionof the effective statutory tax rate was to decrease deferred tax assets, net by ¥87 million ($1,060 thousand) , increase deferred income taxes by ¥99 million ($1,202 thousand)and increase net unrealized gains on other securities by ¥12 million ($141 thousand) as of and for the year ended March 31, 2012.

Note 8. Other Comprehensive Income
The following table present reclassification adjustments and tax effects allocated to each component of other comprehensive income for the year ended March 31, 2012.

The aggregate annual maturities of long-term debt (including current portion) outstanding as of March 31, 2012 were summarized as follows:Year ending March 31,
2013
2014
2015
2016
2017 and thereafter
Total

—%
—
—
—
—
—
—
—
—%

Net unrealized gains (losses) on other securities:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effectTax effectNet unrealized gains (losses) on other securities
Foreign currency translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effectTax effectForeign currency translation adjustments
Total other comprehensive income

Millions of yen

Thousands of U.S. dollars

2012

2012


¥(190)
(22)
(212)
93
(119)


$(2,317)(266)(2,583)1,130(1,453)

(99)
—
(99)
49
(50)
¥(169)(1,206)—(1,206)596(610)$(2,063)

Note 9. 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 the capital reserve) andretained 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 the shareholder’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 10. 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, 2011 and2012 totaled 6,142,417 shares and 7,119,784 shares, respectively.

ANNUAL REPORT 2012 16

Note 11. Supplementary information on the Consolidated Statements of Cash Flows

Note 14. Derivatives
As a matter of policy, the Company does not speculate in derivative transactions. The Company does not anticipate nonperformance by any of the counterparties to thederivative 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 for accounting and therepresentative directors of the Company. The director who has the responsibility to control the performance and the related risks connected with derivatives reports these to theManagement 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 to account for thosetransactions.

Assets acquired and liabilities assumed resulting from the acquisition of business and related payments for the year ended March 31,2011 were as follows:
Millions of yen
2011

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

¥270
273
543
(70)
(70)
¥473

(Currency related)

Forward foreign exchange contracts:
Sell:
US$

Note 12. Securities
Information regarding securities classified as other securities at March 31, 2011 and 2012 was summarized as follows:
Millions of yen

Thousands of U.S. dollars

2011

Fair value
Securities whose fair value exceeds their cost
StocksOthersSecurities whose cost exceeds their fair value
Stocks
Total

Costs

2012

Unrealized
gain (loss)

Fair value

Millions of yen
Contract
amount

Costs

2012

Unrealized
gain (loss)

Fair value

Unrealized
gain (loss)

Costs¥1,950
48
1,998¥1,456
36
1,492

¥494
12
506

¥719
46
765

¥364
36
400

¥355
10
365

$8,752560
9,312$4,426
438
4,864$4,326
122
4,448

268
268
¥2,266

332
332¥1,824

(64)
(64)
¥442

1,264
1,264
¥2,029

1,399
1,399
¥1,799

(135)
(135)
¥230

15,375
15,375$24,687

17,02917,029$21,893(1,654)(1,654)$2,794

Unlisted stocks of ¥36 million at March 31, 2011 and ¥32 million ($394 thousand) at March 31, 2012 are not included in the above table because there were no quoted market
prices available and the fair value is extremely difficult to determine.

Thousands of U.S. dollars
Unrealized
gain (loss)

Fair value

Contract
amountFair value

Unrealized
gain (loss)

2011

2012

2011

2012

2011

2012

2012

2012

2012

¥2,029¥2,218¥(29)¥(105)¥(29)¥(105)$26,991$(1,274)$(1,274)( 1 ) Calculation of fair value
			 The fair value is calculated by the forward exchange rate.
( 2 ) Derivative transactions to which hedge accounting was applied are excluded from the above table.
(Interest related)

Millions of yen
Contract amountInterest rate swaps

Thousands of U.S. dollars
Contract
amountDue after one year

Due after
one year

2011

2012

2011

2012

2012

2012

¥2,468¥1,969¥1,969¥200$23,957$2,433

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 fairvalue is included in the fair value of long-term debt in Note 16.

Note 15. Leases
Future minimum lease payments for non-cancellable operating leases subsequent to March 31, 2011 and 2012 were as follows:
Millions of yen

Information regarding sales of securities for the year ended March 31, 2012 was as follows:
Millions of yen

Thousands of U.S. dollars

2012

2012

Proceeds from sales of securities
Gains on sales
Losses on sales

¥47
22
(0)

$570
266
(0)

2011

Due within one year
Due after one year
Total

Thousands of U.S. dollars
2012

¥4
1
¥5

2012

¥3
7
¥10

$32
88
$120

Note 16. Financial instruments
Note 13. 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 the substituted portion of the welfare pension fundplans from the Minister of Health, Labor and Welfare. At the same time, the Company and certain of its 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, 2011 and 2012
Millions of yen
2011

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

Thousands of U.S. dollars
2012¥7,330(6,188)1,142(2,059)
(917)
933
¥16

2012

¥7,486(6,455)
1,031(1,420)
(389)
410
¥21

$91,080(78,539)
12,541(17,276)(4,735)
4,991
$256

( c ) Retirement benefit cost
Millions of yen
2011

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 costThousands of U.S. dollars
2012

¥327
144
(194)
377
63
¥717

2012

¥324
147
(195)
810
82
¥1,168$3,947
1,786(2,380)9,856
997$14,206( 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 loans payable are raised mainly in connection with business activities, and the repayment dates of long-term debt extend up to four years from the 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 utilizes interest rate swap transactions as a hedging instrument.
			 Information regarding fair value of financial instruments at March 31, 2011 and 2012 were summarized as follows:
Millions of yen

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

Book value

2011
Fair value

Difference¥7,383
60
14,842
2,267
3,290
2,367
7,691
6,560
(29)

¥7,383
60
14,842
2,267
3,290
2,367
7,691
6,529
(29)

¥—
—
—
—
—
—
—
(31)
—

Thousands of U.S. dollars

Book value

2012
Fair value

DifferenceBook value

2012
Fair value

Difference¥8,39083
15,223
2,029
3,283
5,622
7,517
6,536
(105)

¥8,39083
15,223
2,029
3,283
5,622
7,517
6,534
(105)

¥—
—
—
—
—
—
—
(2)
—

$102,078
1,011
185,221
24,68739,94868,40291,457
79,523(1,274)$102,078
1,011
185,221
24,68739,94868,40291,45779,493(1,274)

$—
—
—
—
—
—
—
(30)
—

Investment securities includes securities recorded as other current assets in the consolidated balance sheets.
Long-term debt includes current portion of long-term debt recorded as short-term loans payable in the consolidated balance sheets.

( d ) Assumptions to calculate the actuarial present value of the benefit obligation and the expected return on plan assets
2011

Discount rate
Expected return on plan assets
Amortization period of unrecognized actuarial gains or losses

17 ANNUAL REPORT 2012

2012

2.0%
3.5%
5 years

2.0%
3.5%
5 years

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 wereentered into.
		Derivatives
		 Please refer to Note 14 Derivatives of the notes to the consolidated financial statements.

ANNUAL REPORT 2012 18

2. Financial instruments whose fair value is extremely difficult to determine
Millions of yen

Thousands of U.S. dollars

2011

Unlisted securities

2012

¥226

2. Geographical information( 1 ) Net sales

2012

¥198

Millions of yen$2,407

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

2011
Net sales

Japan

Asia

North America¥18,010¥25,358¥16,197

EuropeOther¥2,057¥292

Consolidated

EuropeOther¥1,524¥74¥61,914

Millions of yen

2012
Net sales

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

Thousands of U.S. dollars

2011

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

2012

Japan

Asia

¥17,150¥22,496

North America¥14,096

2012

Consolidated¥55,340

Thousands of U.S. dollars

Due within
one year

Due after
one yearthroughfive years

Due after
five years
throughten years

Due within
one year

Due after
one yearthroughfive years

Due after
five years
throughten years

Due within
one year

Due after
one yearthroughfive years

Due after
five years
throughten years¥7,435
14,842—¥22,277

¥—
—
15
¥15

¥—
—
33
¥33

¥8,465
15,22315¥23,703

—
—
—
—

¥—
—
31
¥31

$102,994
185,221183$288,398

—
—
—
—

$—
—
378
$378

2012
Net sales

Japan

Asia

$208,669$273,713

North America

Japan

Asia

¥11,230¥4,290$171,506

EuropeOther$18,538$895

Consolidated$673,321( 2 ) Fixed assets
Millions of yen

2011
Fixed assets

North America

Europe¥331

Consolidated¥395¥16,246

Millions of yen

2012
Fixed assets

Note 17. Investment and rental property
The profit of investment and rental property for the years ended March 31, 2011 and 2012 amounted to ¥627 million and ¥281 million ($3,424 thousand), respectively.
Information on the fair value of investment and rental property at March 31, 2011 and 2012 was summarized as follows:
Millions of yen
2012Book value
beginningof the year

Book value
end of theyear¥4,119¥4,055

Fair value

Book value
beginningof the year

Book value
end of theyear¥8,282¥4,055¥4,1012012
Fixed assets

2012

Fair value

Book value
beginningof the year

Book value
end of theyear

Fair value¥8,259$49,331$49,894$100,481

North America¥16,199

Japan

Asia

$136,396$52,769

North America

Europe$3,365

Consolidated$4,564$197,094

4. Information about the amortization of goodwill and the balance of goodwill
Thousands of U.S. dollars
2012

2012

Functional Components
Division

The business segment information is prepared by taking almost the same methods as described in Note 1.

Amortization
Book value

¥155
446

¥184
252

Connection
SystemDivision

Reportable Segments
Functional
Components
Touch Panel
Division
Division¥23,242—
23,242565
14,038¥30,080—
30,0802,223
13,646

2,223
2,254

1,017
833

Subtotal

Other

Total

Adjustment

Consolidated¥8,350
—
8,350
(143)
5,307

¥61,672—
61,672
2,645
32,991

¥242
—
242
109
4,326

¥61,914—
61,9142,754
37,317¥————
15,742¥61,914—
61,9142,754
53,059

295
814

3,535
3,901

8
25

3,543
3,926

—
—

3,543
3,926

Millions of yen

Share subscription rights which are not yet vested
Outstanding as of March 31, 2011
GrantedForfeited
VestedOutstanding as of March 31, 2012
Share subscription rights which have already been vested
Outstanding as of March 31, 2011
Forfeited
Outstanding as of March 31, 2012
The fair value of stocks when granted

Connection
SystemDivision

Subtotal

Other

Total

Adjustment

Consolidated¥22,639—
22,639(312)
14,914¥22,049—
22,049(717)
11,610¥10,418—
10,418(154)
6,282¥55,106—
55,106(1,183)32,806

¥234
—
234
17
4,433

¥55,340—
55,340(1,166)37,239¥————
16,644¥55,340—
55,340(1,166)53,883

2,321
2,698

826
615

405
290

3,552
3,603

4
198

3,556
3,801

—
—

3,556
3,801

—
—
—
—
—

—
1,141,000
25,000—1,116,000

1,072,000
1,056,000
16,000¥115 ($1.40)———¥81 ($0.99)

Note 20. Related party transactions
Millions of yen

2011

Terutaka Ikeda

Transactions
Guaranty
money
deposited
Rent

—

2012

Terutaka Ikeda

Other

Other
investments

Other current
assets

¥ 15

¥1

¥ 14

Transactions
Guaranty
money
deposited
Rent

—

¥ 14

Balances
Other
investments

Other current
assets¥ 15¥1Thousands of U.S. dollars

2012
Subtotal

Balances

Millions of yen

Thousands of U.S. dollars
Reportable Segments
Functional
Components
Touch Panel
Division
Division

July 27, 2011

Significant transactions with related parties for the years ended March 31, 2011 and 2012 were as follows:

Reportable Segments
Functional
Components
Touch Panel
Division
Division

Connection
SystemDivision$2,236
3,069

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 ofaffiliated 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 whenthe 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.
At the board of directors meeting held on July 27, 2011, a stock option plan was approved. Under this plan, certain employees of the Company and a director and employees ofaffiliated companies were granted options to purchase common stock of 1,141,000 shares in total at an exercise price of ¥360.
Stock option activities during the year ended March 31, 2012 were as follows:
April 24, 2008

Millions of yen

Functional Components
Division

Note 19. Changes in stock option

1. Business segment information

Total

Adjustment

Consolidated$275,448—
275,448(3,799)181,460$268,269—
268,269(8,727)141,257$126,756—
126,756(1,876)76,437$670,473—
670,473(14,402)399,154$2,848—
2,848
207
53,940$673,321—
673,321(14,195)
453,094$————202,500$673,321—
673,321(14,195)
655,594

28,243
32,831

10,049
7,479

4,930
3,534

43,222
43,84446
2,408

43,26846,252——43,26846,252Other is business segments not included in the reportable segments. It includes other parts, leasing, property rental and factoring businesses.
Adjustment includes corporate assets which are not allocatable to the reportable segments.
19 ANNUAL REPORT 2012

Consolidated¥375

Millions of yen(Overview)
The reportable segments of the Company and consolidated subsidiaries are designed as business segments whose segregated financial information can be obtained and towhich 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.

2012
Net sales
Outside customers
Intersegment sales
Total
Operating income (loss)
Identifiable assets
OthersDepreciation
Increase in fixed assets and intangible fixed assets

Europe

¥277

2011

Note 18. Segment information2012
Net sales
Outside customers
Intersegment sales
Total
Operating income (loss)
Identifiable assets
OthersDepreciation
Increase in fixed assets and intangible fixed assets¥4,337

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.

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

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

Asia¥11,210

Thousands of U.S. dollars

Thousands of U.S. dollars

2011

Japan

Terutaka Ikeda

Transactions
Guaranty
money
deposited
Rent

—

$ 169

Balances
Other
investments

Other current
assets

$ 176

$14

Note 21. Subsequent events
The following appropriation of retained earnings of the Company, which has not been reflected in the accompanying consolidated financial statements for the year ended March
31, 2012, was approved at a shareholders’ meeting held on June 22, 2012.

Cash dividends (¥6.00 = $0.07 per share)

Millions of yen

Thousands of U.S. dollars

2012

2012

¥432

$5,257

ANNUAL REPORT 2012 20

Report of Independent Auditors

Officer Introduction(As of June 22, 2012）

Directors

Tetsuya Nakamura
Chairman and CEO

Yasumitsu Ikeda
President and COO

Yoshio Sakurai

Director,
Executive Deputy President,
Chief Information Officer

Yoshiyuki Kaku

Yuji Tanahashi

Kouichiro Sugihara

Naru Nakashima

Director,
Executive Vice President,
Chief Technology Officer

Director

Auditors

Terutaka Ikeda

Hajime Yamada

Paul Evans

Mikio Wakabayashi
Executive Vice President

Executive Vice President,
Chief Financial Officer

Kohei Ohgaki

Hideo Matsumoto

Hiroshi Miyakawa

Shigechika Yanagi

Takemi Ishibashi

Harutaka Seki

Auditor and Chairman ofAuditors Meeting

Auditor

Auditor

AuditorCorporate
Executive
Officers

Executive Vice President

Tsutomu Isoda
Vice President

21 ANNUAL REPORT 2012

Vice President

Vice President

Vice President

Vice President

Vice President

ANNUAL REPORT 2012 22

Corporate Information(As of March 31, 2012)

Corporate Data

Shares and Shareholders

Name
Established

SMK Corporation
January 15, 1929

Primary business

Manufacture and sale ofvarious parts forelectro-communication device
and electronic equipment

Authorized shares

195,961,274

Issued shares

79,000,000

Number of shareholders

10,951

Major Shareholders (top ten)

Shares Owned(1,000 shares)

Percentageof Shares (%)

Capital￥ 7,996,828,021

Nippon Life Insurance Company

3,601

5.00

Stock exchange listing

Tokyo Stock Exchange

Mizuho Corporate Bank, Ltd.

3,562

4.94

Administrator ofshareholders register

Mitsubishi UFJ Trust andBanking Corporation

Dai Nippon Printing Co., Ltd.

3,200

4.44

Independent auditors

Ernst & Young ShinNihon LLC
Tokyo, JapanSMK Cooperating Company Share
Holding Association

2,582

3.58

Employees (SMK-Group)

8,020

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

2,508

3.48

Head office5-5, Togoshi 6-chome,
Shinagawa-ku,
Tokyo 142-8511, JapanTEL 81-3-3785-1111
FAX 81-3-3785-1878

Japan Trustee Services Bank, Ltd.
(Trust Account)

2,096

2.91

Mitsubishi UFJ Trust and Banking
Corporation

1,937

2.68

SMK Employees Share Holding
Association

1,738

2.41

The Showa Ikeda Memorial Foundation

1,500

2.08

Terutaka Ikeda

1,466

2.03

Subsidiaries & affiliates
Domestic

Subsidiaries - 5companies
Affiliates -Overseas
Website1company

Subsidiaries - 22companies
http://www.smk.co.jp/

Note: SMK holds 6,985 thousand shares of treasury stock, but theseare excluded from the above list. Figures for percentage ofshares are calculated excluding the treasury stock.

Please see our website for detailed IR information.
The IR Information section of SMK's website includes
annual reports and presentation materials. The website
also carries information about SMK's products,
corporate data, CSR initiatives, and commitment to theenvironment.

Share ownership by number
1 - 999 shares

2,151（19.64%）

1,000 - 9,999 shares

8,056（73.56%）

10,000 - 99,999 shares

676（ 6.18%）

100,000 - 499,999 shares

52（ 0.47%）

500,000 shares -16（ 0.15%）

Share ownership by shareholder type（unit : share）
Financial institutions

Home page

IR Information

21,607,685 (27.35%)

Financial instruments dealers

822,014 ( 1.04%)

Companies and other entities

11,033,873 (13.97%)

Foreign investors

3,349,188 ( 4.24%)

Individuals and others

35,201,572 (44.56%)

Treasury Stock

6,985,668 ( 8.84%)

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/