ANNUAL REPORT 2009
For the fiscal year ended March 31, 2009

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

Financial Highlights“Survival and Innovation”— Enhance Power to Overcome Changes

Percent change
2008/2009

Millions of yen

2008

2009

¥ 87,659¥ 72,742

Operating income

5,654

Net income (loss)

2,094

238
(1,620)¥ 66,737
32,386

Thousands of
U.S. dollars

2009

Operating Results
Net sales● SMK Philosophy

Audio-Visual

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

(17.0)%(95.8)$ 740,534—

2,430(16,499)¥ 58,168(12.8)%$ 592,164

29,079(10.2)

296,038

Financial Position
Total assets
Total net assets

Yen

U.S. dollars

Per Share Data

Home
Electronics

Car Electronics

Net income (loss)
Basic¥ 27.32¥ (21.68)

Diluted27.30—

Cash dividends

14.00

9.00

$ (0.22)—%—(35.7)—
0.09

Note: The U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ¥98.23 = U.S. $1.00.

Information

Communication
Net sales

Operating income

Net income (loss)

Millions of yen

Millions of yen

Millions of yen

90,000● Action Guidelines

Contents
Financial Highlights
To Our Shareholders and Investors
Sales and Market Overview
SMK’s NEW LINEUPTOPICS
Global Network
Financial Section
Five-Year Summary
Financial Review
Consolidated Balance Sheets
Consolidated Statements of Operations
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
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.

60,0006,000

87,65979,07466,43872,742

71,8604,000

30,0003,081

4,134 4,290

Total assets/Total net assets
Total assets
Total net assets

Millions of yen

238

57,95561,344

Cash dividends per share

Yen

Yen

58,16827,568

15

39.11
30

32,736 34,564 32,386

29,0792005 2006 2007 2008 2009

14.00 14.00

44.33 47.48
27.32

0

(30)

0

2005 2006 2007 2008 2009

Basic net income (loss) per share

65,575 66,737

50,000(1,620)(2,500)2005 2006 2007 2008 200960

75,000

2,094

0

0

2005 2006 2007 2008 2009

3,473 3,693

2,500

2,000

0

25,000

5,000

5,654
5,166

10

10.00 10.00

9.00

5

(21.68)2005 2006 2007 2008 200902005 2006 2007 2008 20092

To Our Shareholders and Investors

Terutaka Ikeda

Tetsuya Nakamura

Chairman andChief Executive Officer

President andChief Operating Officer

Overview“Survival and Innovation”—Enhance Power to Overcome Changes

During the term under review, the impact of thefinancial crisis that originated in the UnitedStates extended into the real economy, and theglobal economy entered recession in the latter
half of the term. For the Japanese economy, thedrop in consumer confidence all over the world
and the appreciation of the yen prompted adecline in exports and capital investments,
enhancing the recessionary mood. In theelectronics industry, corporate profits remained
strong in the first half of the term, fueled bystrong exports. In contrast, the second half of theyear saw an increasingly severe businessenvironment due to the continuing appreciationof the yen, rapid inventory adjustment, andother factors.
In this environment, the SMK Group posted
year-on-year declines in consolidated sales andprofits, which resulted in a net loss for theperiod. In response, we intend to reduce costs
while reducing inventory by reviewing our
production system. We will also devote ourselvesto improving our performance by utilizing ourtechnological capabilities to create attractive
products.

Based on our corporate philosophy of being “committed to the advancement of mankind throughdevelopment of the information society, by integrating current technological strengths and creating
advanced technology,” we aim to “establish a position as the leading supplier of information technology
infrastructure in the global information society.”
In recent years, while the speed of change has accelerated due to drastic changes in the economic
environment, the diversification of consumption and the digitalization of products, the period for
product development has shortened and demand for further improvement in the quality of electronics
components has been growing. To respond quickly to these changes and to overcome competition, we will
enhance the SMK brand, carry out zero defects initiatives for quality improvement, and take on anotherchallenge of manufacturing again under our new slogan, “Survival and Innovation”—Enhance Power toOvercome Changes.
In 2009, we will capitalize on new business opportunities in the environmental field, such as solar products,
in addition to the communications, digital consumer electronics, and automotive electronics fields. We
will act quickly in growth areas and step up the development of new products, new technologies, and newmarkets to establish a firm business structure that will enable us to survive the global recession.
We at SMK regard coexistence with the global environment as a corporate duty and have positioned it
as a key management objective. We will continue promoting green procurement in a positive mannerand bolster our capabilities to comply with laws and regulations including the RoHS Directive. We will
also pursue development and design with a reduced environmental footprint by eyeing energy andresource conservation and other environmental measures, and manufacture products that help preserve
the environment. With these actions, we will continue making sincere efforts to protect the global
environment.
Although the earnings environment is likely to become more severe in the future, the SMK Group is
united in its commitment to improving corporate value and boosting performance. We hope that we cancontinue counting on the understanding and support of our shareholders as we pursue these goals.

June 20093

Terutaka Ikeda

Tetsuya Nakamura

Chairman and Chief Executive Officer

President and Chief Operating Officer

4Sales and Market Overview(April 1, 2008 to March 31, 2009)(Year ended March 31)

Net Sales Millions of yen
2006

Audio-Visual

2007

2008

2009

30,00024,08630.3%

25,262

26,75522,04420,00010,000

Audio-visual parts
22,044 million yen

HDMI Standard Type A receptacle

Car Electronics

0
8,000

7,424
6,589

6,815
6,077

6,000

8.4%
4,000

2,000
“Force-feedback” touch panels

Electronic instruments
6,077 million yen

Communication

40,00030,32530,00041.5%

30,207

23,11720,00010,000Communications parts
30,207 million yen

Stereo earphone-microphone and Bluetooth unit

Information

Although overall sales slumped with production cutbacks by major
overseas cellular phone manufacturers since autumn of last year, sales ofconnectors, switches, and touch panels for smart phones have increased.
We will continue to focus on developing new products, including parts
used in operating systems and internal parts that will contribute toimproving the added value of cellular phones.

0
15,00011,67910.6%

10,000

9,661

8,897
7,681

5,000

xD-4in1 card connectors

Information, office equipment parts
7,681 million yen

Home Electronics

10,000

7,500

9.2%

6,387
5,000

2,500

Electronic toys, home electronics and other parts
6,732 million yen

Although sales of ATM touch panels and remote controls for Internet
terminals remained strong, sales of connectors and unit products
slumped because of the rapid worsening of market conditions for laptop
PCs and digital still cameras. We will focus on developing new productsthat respond to new market trends, including parts for the
next-generation data transmission market.

0

8,611

5

With the decline in the sales of vehicles, sales of car audio parts, as well as
touch panels and microphone units, etc., for the car navigation system
market, have slowed. To respond to our customers’ latest needs, we are
currently developing products such as vehicle-mounted connectors andparts used in operating systems. These efforts are aimed at marketing
new products in a timely manner.

035,969DS-SS modulation/demodulation engine for PLC

Although sales of remote controls for flat-panels televisions andconnectors for portable audio players remained robust, we had a difficult
period because sales of our products for audio equipment and set-top
boxes have been slowing since autumn of last year. By anticipating future
demand, we will actively enhance the development of new products
including RF remote controls that lead the market, connectors forhigh-speed transmission, and so on.

7,009

6,732

Although touch panels for electronic dictionaries began to contributeto sales, we had a difficult period because sales of connectors for video
game consoles and remote control devices for home electric appliancessuch as air-conditioners and lighting equipment remained stagnant.
We will make a strong effort to develop new products forenvironmental businesses, including the field of new energies such as
solar cells and fuel cells.

06

’s NEW LINEUP

EN-32 Series 0.3mm-pitch shielded FPC connectors
compatible with high-speed transmission and low
mounting height of 0.8mm, developed and marketed

Small capacitive touch panel
with multi-touch input function developed

SMK has developed and launched the EN-32 Series 0.3mm-pitch
shielded FPC connectors, which are compatible with high-speedtransmission. This product is intended for use in cellular phones.
It has been noticed in the market that signal transmission speeds
have increased with improved image quality and performance of
DVCs and DSCs. Given the growing demand for higher
transmission speed for connectors for internal connection, coaxial
connectors for extra-fine cables are mainly used for connection ofimage pickup devices, LCD panels and main PCBs.
Operating at the forefront of the industry, we put forward asuggestion that coaxial connectors for extra-fine cables be replacedwith shielded FPCs, and developed the EN-31 series shielded FPC
connectors featuring 0.3mm-pitch and 1.2mm mounting height,
which enjoy a good reputation. To respond to market demands foreven lower profile and smaller dimensions, SMK has developed the
EN-32 Series connectors whose mounting height is 0.8mm (down
33% from previous products). This new product’s performance isequal to that of connectors for extra-fine cables, and it is capable offast signal transmission.
This connector is covered with a metal shield, and its shielding
performance and advanced rigidity ensure high contact reliability.
Combined use of this connector with a shielded FPC will enhance
grounding performance of both the FPC and the connector, andmake counter-EMI performance more effective.

SMK has developed a capacitive touch panel with multi-point
input (multi-touch) and gesture input functions, and commenced
commercial production.
In recent years, user interfaces allowing intuitive input haveattracted market attention as mobile phones become more
multifunctional and their display screens grow larger. In responseto these market needs, we have developed capacitive touch panels
for small equipment.
The capacitive system is structured to sense changes in capacitancein the electrical charge on the sensor surface to “read” the points
that are touched. A soft touch with fingers on a touch panel issufficient to operate the panel, freeing users from the hard pressing
required with resistance-sensitive touch panels. Further, theprovision of multi-touch input and gesture input capabilities
permits gesture operations such as zooming in or out (scaling thescreen) or page scrolling.
The most important aspect in developing this product was toensure visibility of LCD panels and light-touch operation when thetouch panels are built into products. To do this, we sought torealize both highly transparent and colorless visual performance andhigh input sensitivity—formerly considered difficult—and finallyachieved this by establishing an exclusive production method.
In the future, we will seek to supply modules comprising a touch
panel and a decorative sheet glued together, and to expand sales formore extensive application opportunities in small equipment.

EN-32 Series 0.3mm-pitch
shielded FPC connector

Microphone-free Bluetooth® headset
FX 7009 developed

IEEE802.11b/g compatible
wireless LAN module WL101C developed

SMK has developed a full-duplex system microphone-freeBluetooth® headset, the FX 7009, featuring an earphone unit thatfunctions both as an earphone when listening and as a microphonewhen talking.
Microphone function has been achieved by picking up faintvibrations of the eardrum within the external ear canal when theearpiece is inserted into the ear.
The microphone-free structure makes this product less susceptible
to external noise than most Bluetooth® headsets.
Moreover, the simultaneous use of echo and noise canceling
functions allows uninterrupted conversation, even with backgroundnoise that usually inhibits phone call conversations, such as thewhistling of strong wind.

SMK has developed and began to accept orders for theIEEE802.11b/g compatible wireless LAN module WL101C.
There has been remarkable market penetration and expansion of
wireless LAN, with which networks can be easily built. Increase inits demand is prominent with business-purpose information
terminals such as order-entry terminals, handheld terminals, web
terminals and business-use printers.
Previously, however, stringent size and consumption power
requirements restricted embedding of wireless LAN modules to avery limited number of equipment. As a response to theserequirements, we developed and commercialized the WL101C, an
IEEE802.11b/g compatible wireless LAN module, for built-in
applications.
Building wireless networks will be a matter of ease with thisproduct when it is built into various types of information
communication terminals.

FX 7009 microphone-freeBluetooth® headset
Note: Bluetooth® is a trademark owned by Bluetooth SIG, Inc. SMK has
been given permission to apply this trademark.

7

Capacitive touch panel

WL101C IEEE802.11b/g compatible
wireless LAN module

8

TOPICSUL recognized “photovoltaic cell module connector”
for photovoltaic power generation systems marketed
We have earned recognition from UL for the American
market for our “photovoltaic cell module connector”
which has been accepted in the photovoltaic power
generation system market very favorably.
Generation systems of photovoltaic power, a clean
energy, have drawn attention and demands have growncentering around in Europe, and also in the USA,
where growth of the presence of this system is
expected. Photovoltaic power generation systems
consist of multiple photovoltaic cell modules, which
are connected via cables when the systems are installed. To connect cables, relay connectors
are used. These connectors are installed outdoors, so they are required to be waterproof andresistant to weather. Workability during installation is also important.
This connector is designed to relay cables emerging from photovoltaic cell modules. With
our eyes focused on the big potential for further expansion lying in this market, wedeveloped the “photovoltaic cell module connector” excellent in contact performance,waterproofing property and workability, and recently earned UL recognition. In addition toTÜV certification for European markets, we have also acquired UL recognition, which will
enable us to evolve and spread marketing activities in the North American market.

Acquisition of ISO/TS16949 certification
Our touch panels for car navigation systems producedin our Philippines Factory has obtained thecertification according to ISO/TS16949, theinternational standards of quality management for
automotive-related products. Our Philippine factory
launched its operations in 2001. Its current business is
production primarily of touch panels for automotive
and portable product applications for distribution
worldwide.
ISO/TS16949 is an expansion of ISO 9001, aninternational standard for quality management systems,with requirements unique to automotive applications
added. Acquisition of the certification is now a common requirement that many automakers
require of their suppliers. This acquisition is the result of efforts promoted by all our Works
including those located overseas since some time ago to acquire certification of various typesof international standards for quality management systems. We plan a more aggressive
approach to the automotive electronics market where steady growth is anticipated, as well as
enhancing product line up.

9

Exhibiting at Int’l Automotive Electronics
Technology Expo
We exhibited at the Int’l
Automotive Electronics
Technology Expo, held at Tokyo
Big Sight from January 28 to 30,
2009.
The Int’l Automotive Electronics
Technology Expo (known as
CAR-ELE JAPAN), which was
inaugurated this year, is an
exhibition of all kinds ofspecialized technologies related toautomotive electronics. At theElectronic Component & Device
Zone of the venue, we exhibited
products for automotive
electronics, including connectors and modules forvehicle-mounted cameras, antenna connectors,
and force feedback touch panels. Our technicalcapabilities appealed to a large number of visitors.

Ranked 121st in the manufacturing sector of
the Environmental Management Survey
SMK was ranked 121st in the overall ranking of
the manufacturing sector of the 12th
Environmental Management Survey conducted by
Nikkei Inc. The purpose of this survey is toevaluate companies’ commitment toenvironmental measures in a comprehensive
manner. Overall scores of manufacturers arecalculated based on their answers to questions infive categories: environmental management
systems, measures against pollution, resource
recycling, eco-friendly products, and measuresagainst global warming.
We at SMK regard coexistence with the global
environment as a corporate duty and havepositioned it as a key management objective. We
will continue to make diligent efforts to preserve
the global environment.

Overall score
1st

490

121st (SMK)

372

510th

85

The subjects of the survey were 1,796 manufacturers
and 2,639 non-manufacturers from among listed
and major unlisted companies. The questionnaire
was conducted from late August to early November,
2008.
The response rates were 28.4% for manufacturers
and 13.5% for non-manufacturers. The maximum
overall score for manufacturers is 500.

10

TOPICS

Global Network

SMK remote control used in TV drama
A special model of the RemotePoint Presenter, apresentation remote control from SMK, was used in the
Fuji Television drama Zettai Kareshi Special, broadcast on
March 24, 2009.
SMK produced the unit in response to a request from Fuji
Television, who found the remote control close to what
they had been looking for—a unit featuring neo-futuristic
design and laser pointer—for use in the drama. The remotecontrol we provided earned high marks from both cast andcrew.
The RemotePoint Presenter is a wireless mouse remotecontrol that permits Forward, Back, and Mute operations
and laser pointer function during slideshows using
PowerPoint®.

Sales Office
Works
Works & Office

Head Office(Tokyo)

SMK website renewed
In November 2008, we renewed our
website to improve our brand image andto improve the provision of information
about our products.
The new website comes with asophisticated design that uses blue—the
corporate color of SMK—as the basecolor, giving unity to the entire website.
The product information pages now
permit search by category, application orfeature. We have made a database of our
products to provide more informationand to enable smooth updating.
We will continue to enhance our website
to ensure usability for all users. We hope
you will find the renewed website useful.

11

Shenzhen, China
SMK Electronics (Shenzhen) Co., Ltd.

ASIASMK 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 Trading (H.K.) Ltd. Shenzhen Office
SMK Electronics Trading (Shanghai) Co., Ltd.
SMK Electronics Trading (Shanghai) Co., Ltd. Beijing Office
SMK Electronics Int’l Trading (Shanghai) Co., Ltd.
SMK Electronics Singapore Pte. Ltd.
SMK Electronics (Malaysia) Sdn. Bhd.
SMK Electronics (Phils.) Corporation
SMK Korea Co., Ltd.
SMK Korea Co., Ltd. Seoul Office

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.
SMK Corporation Helsinki Office

NORTH AMERICASMK Electronics Corporation U.S.A.
SMK-Link Electronics Corporation
SMK Electronics Corporation U.S.A., East Office
SMK Electronics Corporation U.S.A., San Jose 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 Mexicana S.R.L. de C.V.
SMK Mexicana S.R.L. de C.V., Mexico City Office
SMK Manufacturing, Inc.
SMK Electronica S.A. de C.V.

12

Financial Section

Financial Review
SMK’s net sales for fiscal 2009, which ended March 31,
2009, decreased 17.0% year-on-year, to ¥72,742
million (US$740,534 thousand). Operating income
declined 95.8% year-on-year, to ¥238 million(US$2,430 thousand) with net loss of ¥1,620 million(US$16,499 thousand).

Five-Year Summary

Net Sales
Thousands of
U.S. dollars

Millions of yen

2005

2006

2007

2008

Millions of yen

36,00034,56432,73632,38632,000

Corporation and Consolidated Subsidiaries

Year ended and as of March 31

Total net assets

2009

2009

29,07928,000Given the repercussions of the economic recession, which was
triggered by the financial crisis emerging from the United States and27,56824,000spread across the globe through Europe, Asia, and emerging countries,

Operating Results

production of electronic components for new digital home electronics

Net sales¥ 66,438 ¥ 71,860 ¥ 79,074 ¥ 87,659 ¥ 72,742 $ 740,534

Operating income

4,134

4,290

5,166

5,654

238

2,430

Net income (loss)

3,081

3,473

3,693

2,094

(1,620)(16,499)

Financial Position
Total net assets(US$740,534 thousand), down 17.0% year-on-year.

Despite emergency measures such as the right-sizing of production

296,038

and reductions in fixed costs to improve profitability in the face of a

32,73634,56432,38629,079Yen

U.S. dollars(As of March 31)

cut substantially. As a result, net sales were ¥72,742 million¥ 57,955 ¥ 61,344 ¥ 65,575 ¥ 66,737 ¥ 58,168 $ 592,164
27,5682005 2006 2007 2008 2009

such as cellular phones and flat-panel televisions and automobile wasOperating Income

Total assets

0Return on equity (ROE)%20

sharp fall in net sales from the 3rd quarter of the fiscal year under

11.4

Per Share Data
Total net assets¥ 362.88 ¥ 416.04 ¥ 445.33 ¥ 427.75 ¥ 392.15$ 3.99declining 95.8% from the level of previous fiscal year.

Net Income (Loss)

11.5

10

review, operating income was ¥238 million (US$2,430 thousand),

11.0
6.3

Net income (loss)

0

Basic

39.11

44.33

47.48

27.32

(21.68)(0.22)

Diluted

38.94

44.13

47.41

27.30

—

—

Cash dividends

10.00

10.00

14.00

14.00

9.00

0.09

In spite of the generation of gains on foreign exchange, reflecting the

(5.3)

(10)

execution of forward exchange contracts among other measures

2005 2006 2007 2008 2009

against the appreciation of the yen, the net loss was ¥1,620 million(Year ended March 31)(US$16,499 thousand) due to a large loss on the valuation of
investment securities and an impairment loss on fixed assets.
Return on assets (ROA)

Total Net Assets/ROE
As of March 31, 2009, total net assets were at ¥29,079 million%

12(US$296,038 thousand). ROE was at –5.3%.

Total Assets/ROA
Contents
Five-Year Summary
Financial Review
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors

5.4

As of March 31, 2009, total assets were ¥58,168 million (US$592,164
13
14
15
17
18
19
20
27

thousand). ROA was at –2.6%.

Cash FlowsNet cash flow from operating activities amounted to ¥9,249 million(US$94,161 thousand), net cash used in investing activities totaled

5.8

6

5.8
3.2

0

(2.6)
(6)

2005 2006 2007 2008 2009
(Year ended March 31)¥4,020 million (US$40,931 thousand) and net cash used in financing
activities was valued at ¥3,419 million (US$34,808 thousand).

13

14

Consolidated Balance Sheets
Corporation and Consolidated Subsidiaries
As of March 31

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

Assets

2008

2009

2009

Current assets
Cash and cash equivalents
Time deposits
Notes and accounts receivable, trade
Allowance for doubtful accounts
Inventories (Note 3)
Deferred tax assets (Note 8)
Other current assets

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

Liabilities and net assets

2008

2009

2009

Current liabilities¥ 7,073¥ 9,072$ 92,363

Short-term loans payable (Note 4)¥ 13,638¥ 10,528$ 107,173

145

9

88

Notes and accounts payable, trade

4,864

2,689

27,374

20,83014,864

151,322

Accrued income taxes

283

49

497

(66)

(77)

(788)

Accrued bonus

977

592

6,029

8,207

6,235

63,475

Accrued directors’ bonus

83

—

—

Accounts payable, non trade

6,922

6,502

66,189

849

555

5,653

Other current liabilities

1,383

1,450

14,772

2,495

3,645

37,09228,15021,810222,034

39,53334,303

349,205

300

—

—

5,042

6,366

64,809Long-term liabilities
Investments and long-term loans

Corporate bond
3,906

1,947

19,821Long-term debt (Note 4)Long-term loans receivable

852

876

8,914

Accrued employees’ retirement benefits (Note 14)

13

13

129

Other investments (Note 14)

1,779

1,880

19,136

Accrued directors’ and officers’ retirement benefits

388

391

3,976

Allowance for doubtful accounts

(269)

(259)

(2,627)

Other long-term liabilities (Note 8)

458

509

5,178

6,268

4,444

45,244

6,201

7,279

74,092

7,996

7,996

81,409

Capital surplus

12,37012,348125,705

Retained earnings

16,741

13,961

142,126

Treasury stock (Note 11)(2,264)(2,873)(29,255)

34,84331,432319,985

Net unrealized losses on other securities

(161)

(29)

(296)

Foreign currency translation adjustments(2,304)(2,393)(24,356)(2,465)(2,422)(24,652)

Investment securities (Note 13)

Net assets
Property, plant and equipment (Notes 4 and 7)

Shareholders’ equity (Note 9)

Land

4,365

4,437

45,166

Buildings

16,274

16,512

168,093

Authorized: 195,961,274 shares

Machinery and vehicles

16,81518,032

183,574

Issued and outstanding: 79,000,000 shares

Tooling and office furnitures

23,677

24,794

252,40628

6

6261,15963,781

649,301(41,959)(45,760)(465,840)

19,20018,021

183,461

Construction in progress

Less accumulated depreciation

Common stock

Valuation, translation adjustments and other

Other assets
Deferred tax assets (Note 8)

827

619

6,302

Subscription rights to shares

—

56

568

Intangible assets (Note 7)

909

781

7,952

Minority interests

8

13

137

1,736

1,400

14,25432,38629,079296,038¥ 66,737¥ 58,168$ 592,164¥ 66,737¥ 58,168$ 592,164

Total assets

Total liabilities and net assets

See accompanying notes to consolidated financial statements.

15

16

Consolidated Statements of Operations

Consolidated Statements of Changes in Net Assets

Corporation and Consolidated Subsidiaries

Corporation and Consolidated Subsidiaries

Year ended March 31

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

2008

2009

2009

¥ 87,659¥ 72,742$ 740,534

Cost of sales (Notes 3 and 5)

73,002

63,651

647,979

Selling, general and administrative expenses (Notes 5 and 6)

9,003

8,853

90,125

Operating income

5,654

238

2,430

Net sales

Other income
Interest and dividend income

318

170

1,734

Rent income

889

903

9,188

Foreign exchange gain, net

—

249

2,540

Gain on sales of fixed assets

92

69

703

Gain on sales of investment securities

38

—

—

Other

311

234

2,380

1,648

1,625

16,545

Total other income
Other expenses
Interest expense

285

311

3,171

Rent expense

294

280

2,847

2,148

—

—

Loss on disposal of fixed assets

229

75

760

Loss on valuation of investment securities
Impairment loss of fixed assets (Note 7)

37

1,681

17,111

179

692

7,040

Other

125

166

1,706

3,297

3,205

32,635

4,005(1,342)(13,660)

Current

1,256

(67)

(684)

Deferred

654
1

350
(5)

3,574
(51)

¥ 2,094¥ (1,620)$ (16,499)

Foreign exchange loss, net

Total other expenses
Income (loss) before income taxes and minority interests
Income taxes (Note 8)

Minority interests
Net income (loss)

U.S. dollars(Note 2)Per share data
¥ 427.75¥ 392.15

$

3.99

Basic

27.32

(21.68)(0.22)

Diluted

27.30

—

—

Cash dividends

14.00

9.00

0.09

Net income (loss)

See accompanying notes to consolidated financial statements.

17

Valuation, translation adjustments and otherForeign Total valuation,
Net unrealized
Number of
Total gains (losses) currency translation
shares of Common Capital Retained Treasury shareholders’on other translation adjustments Subscription Minority Total net
and other rights to shares interests assets
stock surplus earnings
stock
common stock
equity securities adjustments

Balance at March 31, 2007 79,000,000 ¥ 7,996 ¥ 12,390 ¥ 15,461 ¥ (992) ¥ 34,855 ¥Net income
2,094
2,094
(1,159)(1,159)Cash dividends paid
(1,329) (1,329)
Acquisition of treasury stock(20)
57
Disposition of treasury stock
37
Increase due to exclusion ofsubsidiaries from consolidation
345
345
Items other thanshareholders’ equity, net—(20) 1,280 (1,272)(12)——
Total changes
Balance at March 31, 2008 79,000,000 7,996 12,370 16,741 (2,264) 34,843(1,620)(1,620)Net loss
(981)
(981)
Cash dividends paid
(667)
(667)
Acquisition of treasury stock()
58
Disposition of treasury stock22
36
Decrease due to inclusion of
(179)
(179)
subsidiaries in consolidation
Items other thanshareholders’ equity, net—(609) (3,411)(22) (2,780)——
Total changes
Balance at March 31, 2009 79,000,000 ¥ 7,996 ¥ 12,348 ¥ 13,961 ¥ (2,873) ¥ 31,432 ¥425 ¥(723) ¥

(298) ¥
—
—
—
—

—

¥

7 ¥ 34,564
2,094(1,159)(1,329)
37

—
(586)
(586)
(161)

(1,581)(1,581)(2,304)(2,167)(2,167)(2,465)

345
—
—
—

—
—
—
—

(2,166)(2,178)32,386(1,620)
(981)
(667)
36
(179)

—
(89)
132
43
(89)
132
43
(29) ¥ (2,393) ¥ (2,422) ¥

1
1
8

56
56
56

5
104
5 (3,307)¥ 13 ¥ 29,079

Thousands of U.S. dollars (Note 2)
Valuation, translation adjustments and other

Shareholders’ equity

Yen

Total net assets

Shareholders’ equity

Foreign Total valuation,
Net unrealized
Total gains (losses) currency translation
Common Capital Retained Treasury shareholders’on other translation adjustments Subscription Minority Total net
and other rights to shares interests assets
stock surplus earnings
stock
equity securities adjustments

Balance at March 31, 2008
Net loss
Cash dividends paid
Acquisition of treasury stock
Disposition of treasury stock
Decrease due to inclusion ofsubsidiaries in consolidation
Items other thanshareholders’ equity, net
Total changes
Balance at March 31, 2009

$ 81,409 $ 125,932 $ 170,423 $ (23,054) $ 354,710 $ (1,637) $ (23,463) $ (25,100) $(16,499)(16,499)—(9,988)(9,988)—(6,791) (6,791)
—
(227)
590
363
—
(1,810)(1,810)

—

—

(893)
—
1,341
448
568
(227) (28,297) (6,201) (34,725) 1,341
(893)
—
448
568
(
)
(
)
(
)
(
)
$ 81,409 $ 125,705 $ 142,126 $ 29,255 $ 319,985 $ 296 $ 24,356 $ 24,652 $ 568$ 86 $ 329,696(16,499)(9,988)(6,791)363(1,810)51
1,067
51 (33,658)$ 137 $ 296,038

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

Year ended March 31
Thousands of
U.S. dollars(Note 2)Millions of yen

Cash flows from operating activities
Income (loss) before income taxes and minority interests
Depreciation and amortization
Decrease in accrued directors’ bonus
Increase (decrease) in accrued employees’ retirement benefits
Increase in prepaid pension costs
Increase in accrued directors’ retirement benefits
Increase (decrease) in allowance for doubtful accounts
Interest and dividend income
Interest expense
Loss on disposal of fixed assets
Impairment loss of fixed assets
Loss on valuation of investment securities
Increase (decrease) in notes and accounts receivable, trade
Increase (decrease) in inventories
Increase (decrease) in notes and accounts payable, trade
Other
Subtotal
Receipts for interest and dividend income
Payments of interest expenses
Payments of income taxes
Refunds of income taxes
Net cash provided by 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
Purchases of investment securities
Proceeds from sale of investment securities
Payment on loans receivable
Proceeds from loans receivable
Payment for business transfer (Note 12)
Other
Net cash 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 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
Decrease in cash and cash equivalents due to exclusion of a subsidiary from consolidation
Cash and cash equivalents at end of the year
See accompanying notes to consolidated financial statements.

19

2008

2009

2009

¥ 4,005
4,934
(12)
(430)
(377)
44
(26)
(317)
285
229
179
37
(657)
(2,199)
1,751
1,231
8,677
317
(276)
(2,648)—6,070¥ (1,342)
5,611
(83)
3
(852)
2
1
(170)
311
75
692
1,681
5,523
1,886
(1,686)(1,438)
10,214179(324)(1,248)429
9,249$ (13,660)
57,119(845)
26(8,673)24
15(1,734)
3,171
760
7,041
17,111
56,227
19,204(17,166)(14,642)
103,978
1,822(3,302)(12,705)
4,368
94,161(953)
1,791(5,940)
202
(77)
(740)
195
(299)
343
(1,317)(24)(6,819)—435(4,970)
74
(116)
(13)
506
(136)
202
—
(2)
(4,020)—4,432(50,591)752(1,184)(135)
5,148(1,382)
2,059
—
(30)
(40,931)609
3,890(1,520)(1,328)37(1,155)
533
(269)
(485)
7,562
—
(4)
¥ 7,073(1,585)
1,790(1,990)
(667)
13
(980)
(3,419)
55
1,865
7,073
134
—
¥ 9,072(16,136)
18,223(20,254)(6,786)130(9,985)(34,808)559
18,981
72,0091,373—$ 92,363

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 all 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 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 stated at cost plus equity in their undistributed earnings orlosses. 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 on 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: 22
The remaining 5 subsidiaries which are unconsolidated are deemed immaterial and, accordingly, their results of operations had no significant effect on the consolidated
financial statements.
From the year ended March 31, 2009, SMK Hungary Kft., Showa Denshi Co., Ltd. and Toyama Showa Co., Ltd. were included in the scope of consolidation.
(d) Application of equity method of accounting
Number of affiliated companies accounted for by the equity method: 2
The 5 unconsolidated subsidiaries and 1 other 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 for 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(Change in accounting policy)
From the year ended March 31, 2009, the Company and consolidated subsidiaries accounted for inventories in accordance with the Accounting Standard for Measurementof Inventories issued by the Accounting Standards Board of Japan. Under this standard, inventories held for sale in the ordinary course of business are stated at cost, wrote
down due to decreased profitability.
Due to the application of this standard, operating income for the year ended March 31, 2009 decreased by ¥115 million ($1,174 thousand) and loss before income taxes
and minority interests increased the same amount.
The impact on the segment is listed in the concerned note.
(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.
(Change in accounting policy)
From the year ended March 31, 2008, the Company and consolidated subsidiaries changed their method of accounting for depreciation of property, plant and equipment
acquired on or after April 1, 2007, which was based on an amendment to the Corporation Tax Law.
The effect of this change was operating income and income before income taxes and minority interests decreased by ¥504 million respectively compared with the amountwhich would have been recorded by the method applied in the previous year.
The impact on the segment is listed in the concerned note.
(Additional information)
From the year ended March 31, 2008, the Company and consolidated subsidiaries changed their method of accounting for depreciation of property, plant and equipment
acquired before March 31, 2007 to depreciate to memorandum value by the straight-line method of 5 years after the year when depreciated to their respective residual values.
As a result of this change, operating income decreased by ¥168 million and income before income taxes and minority interests decreased by ¥172 million compared withthe amount which would have been recorded by the method applied in the previous year.
The impact on the segment is listed in the concerned note.
Also, from the year ended March 31, 2009, the Company and consolidated subsidiaries changed the residual term of a part of machinery under the 2008 revision of the
Corporation Tax Law.
As a result of this change, operating income decreased by ¥198 million ($2,019 thousand) and loss before income taxes and minority interests increased by the same amount.
The impact on the segment is listed in the concerned note.
(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 to zero for their lease term.
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.

20

(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 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 records 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.
Unrecognized prior service cost is amortized in the year following the year in which the prior service cost is 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 exception 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.
(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 exception 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.
(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 outstandingat the balance sheet date. Cash dividends per share shown for each period in the consolidated statements of income represent the dividends applicable to the respective period.
(u) Change in method of accounting(1) Research and development expense
From the year ended March 31, 2008, the Company and consolidated subsidiaries changed the account of research and development expense from cost of sales toselling, general and administrative expense. The Company used to account research and development expense for cost of sales because the research and development
activities belonged to design department, which was accounted in manufacturing cost. However, the organizational change of the Company’s development center etc.
enabled to separate from the manufacturing cost.
Due to this change in accounting, cost of sales decreased by ¥584 million and selling, general and administrative expense increased by ¥599 million for the year ended
March 31, 2008 from the amount which would have been recorded by the method applied in the previous year. Also, operating income and income before income taxes
and minority interests decreased by ¥14 million respectively.
The impact on the segment is listed in the concerned note.
(2) Accounting standard for lease transactions
From the year ended March 31, 2009, the Company and consolidated subsidiaries accounted for leased assets in accordance with the Accounting Standard for Lease
Transactions and the Guidance on Accounting Standard for Lease Transactions issued by the Accounting Standards Board of Japan. Under this standard and guidance,
finance leases other than those which are deemed to transfer the ownership of the leased assets to the lessee are accounted for in a manner similar to ordinary sales andpurchase transactions.
However, such finance lease agreements executed on or before March 31, 2008, are accounted for in a manner similar to the accounting for ordinary rental transactions.
Due to the application of this standard, the Company had no impact on net loss for the year ended March 31, 2009.
(3) Unification of accounting policies applied to foreign subsidiaries for consolidated financial statements
From the year ended March 31, 2009, the Company applied the Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements and made necessary modifications for the consolidated process.
Due to the application of this standard, the Company had a slight impact on net loss for the year ended March 31, 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 = ¥98.23, theapproximate rate of exchange at March 31, 2009. The translation should not be construed as a representation that theJapanese 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, 2008 and 2009, consisted of the following:
Millions of yen

Finished Products
Work in process
Raw materials
Supplies
Total

Thousands of U.S. dollars

2008

2009

2009

¥ 4,727
770
2,616
94
¥ 8,207¥ 3,255
527
2,129
324
¥ 6,235$ 33,136
5,366
21,6703,303$ 63,475

The write-downs of inventories resulted from decreased profitability as of March 31, 2009 were as follows:
Millions of yen
2008

Cost of sales

21

¥

—

¥

Thousands of U.S. dollars
2009

2009

387

$ 3,937

Note 4. Short-term loans payable and long-term debt
Short-term loans payable principally to banks were unsecured and represented with interests ranging from 0.96% to1.48% per annum as of March 31, 2009.

Long-term debt as of March 31, 2008 and 2009, consisted of the following:
Millions of yen
2008

Thousands of U.S. dollars
2009

2009

668
6,464
(766)
¥ 6,366$ 6,798
65,805(7,794)$ 64,809

Loans, principally to banks with interest
rates ranging from 1.19% to 2.40%:
SecuredUnsecured
Less: portion due within one year
Total

¥

¥

985
6,046
(1,989)¥ 5,042

The assets pledged as collateral for long-term debt as of March 31, 2009 are summarized as follows:
Millions of yen

Thousands of U.S. dollars¥ 1,506$ 15,333

Property, plant and equipment—book value

The aggregate annual maturities of long-term debt outstanding as of March 31, 2009 are summarized as follows:Year ending March 31,
2010
2011
2012
2013
2014 and thereafter
Total

Millions of yen

Thousands of U.S. dollars

¥

466
550
717
3,530
1,569
¥ 6,832$ 4,740
5,605
7,295
35,936
15,973$ 69,549

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, 2008 and 2009 amounted to ¥3,387 million and ¥3,168 million ($32,251 thousand), respectively.
Note 6. Selling, general and administrative expenses
Major elements of selling, general and administrative expenses for the years ended March 31, 2008 and 2009 were as follows:
Millions of yen

Salaries and wages of employees
Provision for bonus
Retirement benefit cost
Provision for directors’ and officers’ retirement benefit
Provision for doubtful accounts

Thousands of U.S. dollars

2008

2009

2009

¥ 3,843
369
(166)
44
—

¥ 3,876
204
(69)
57
2

$ 39,460
2,080
(712)
579
20

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 higher of discounted future net cash flows or net realizable value.
For the years ended March 31, 2008 and 2009, the impairment losses were recognized for the following assets.
Millions of yen
2008

Asset group
Idle assets
SMK Korea Co., Ltd.
SMK U.K. Ltd.
Total

Location
Use
Japan
Ferrule production facilities
Korea
Switch production facilities
U.K.
Switch production facilities

Machinery Tooling andBuildings and vehicles office furnitures

Patent

¥

¥

¥

—
1
—
1

¥
¥

47
1
42
90

¥
¥

—
1
9
10

¥

—

78
—
—
78

¥
¥

Total

—
—
—
—

¥
¥

125
3
51
179

Millions of yen
2009

Asset group
Location
Use
Functional components Japan
Switch/Unit production facilities
Touch panel
Japan
Touch panel production facilities
Total

Machinery Tooling andBuildings and vehicles office furnitures

LeasedassetsSoftware

¥

¥

¥

¥

68
3
71

¥
¥

257
147
404

¥
¥

124
10
134

¥

80
—
80

¥

3
—
3

Total

¥
¥

532
160
692

Thousands of U.S. dollars
2009

Asset group
Location
Use
Functional components Japan
Switch/Unit production facilities
Touch panel
Japan
Touch panel production facilities
Total

Machinery Tooling andBuildings and vehicles office furnitures

LeasedassetsSoftware

Total

$

$

$

$ 5,416
1,625$ 7,041

$

692
27
719

$ 2,619
1,495$ 4,114$ 1,261103$ 1,364

$

817
—
817

$

27
—
27

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 rates of approximately 40.5% for the years ended March 31, 2008 and 2009 respectively.
Reconciliations between the statutory tax rate and the effective tax rates for the year ended March 31, 2008 and 2009 are
as follows, however those for the year ended March 31, 2009 are omitted because the operating result ended with net loss:
Statutory tax rate
Items such as entertainment expenses 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

2008

2009

40.5%
1.4
(4.7)
(8.0)
2.4
0.1
16.9
(0.9)
47.7%

—%
—
—
—
—
—
—
—
—%

22

The significant components of deferred tax assets and liabilities at March 31, 2008 and 2009 were as follows:
Millions of yen
2008

Deferred tax assets:
Inventory write-down disallowed
Accrued bonuses disallowed
Intercompany profit on inventory
Retirement benefits disallowed
Impairment loss
Operating loss carryforwards for tax purposes
Net unrealized losses on other securities
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

¥

2009

70
384
112
523
143
389
156
865
(690)
1,952

¥

(108)
(140)
(27)
—
(74)
¥ 1,603

The schedules for redemption of other securities with maturity dates at March 31, 2008 and 2009 are summarized
as follows:
Millions of yen

Thousands of U.S. dollars
2009

$

91
224
54
178
361
384
22
726
(403)
1,637

2008

Due inone year

927
2,281
545
1,816
3,675
3,907
224
7,392
(4,106)
16,661OthersMillions of yen

Guarantees of loans

¥

500

¥

2009

250

$ 2,545

Millions of yen
2008

¥

457
978
1,435
(118)
(118)
1,317

Millions of yen

Thousands of U.S. dollars

2008

Costs

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

¥

2009

2009

Unrealized
Fair value gain (loss)

Costs

Costs

Unrealized
Fair value gain (loss)

385
—
385

¥ 669
—
669

¥ 284
—
284

¥

196
—
196

¥ 275
—
275

¥

79
—
79

$ 1,992—
1,992$ 2,799
—
2,799

$

807
—
807

3,060
100
3,160
¥ 3,545

2,444
79
2,523
¥ 3,192

(616)
(21)
(637)
¥ (353)

1,582
55
1,637
¥ 1,833

1,452
55
1,507
¥ 1,782

(130)
0
(130)
¥ (51)

16,110562
16,672$ 18,664

14,786559
15,345$ 18,144(1,324)(3)(1,327)$ (520)Information regarding sales of securities for the year ended March 31, 2008 and 2009 is as follows, however that for theyear ended March 31, 2009 is omitted because of low materiality:
Millions of yen
2008

Sales of securities
Gains of sales
Losses on sales¥

Thousands of U.S. dollars
2009

194
38
—

¥

—
—
—

2009

$

—
—
—

Information regarding other securities without market value at March 31, 2008 and 2009 is as follows:
Millions of yen
2008

23
Unlisted securities

¥

529

¥ 14

¥ 22

Due after one year Due after five years
through five years through ten years

$ 193

$ 223

$ 143

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 thecorporate pension fund plans under the Defined Benefits Enterprise Pension Law of Japan on April 1, 2004. On thesame day the approval was obtained for the exemption from the substituted portion of the welfare pension fund plansfrom 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 thedefined contribution pension plans for a part of future contribution.
(b) Retirement benefit obligation as of March 31, 2008 and 2009
Millions of yen

Retirement benefit obligation
Fair value of plan assets
Funded status
Unrecognized actuarial losses
Unrecognized prior service cost
Net amount recognized in the consolidated balance sheets
Prepaid pension costs
Accrued employees’ retirement benefits

Thousands of U.S. dollars

2008

2009

2009

¥ 6,955(6,902)
53
(882)
465
(364)
377
¥
13

¥ 7,114(5,245)
1,869(3,085)—(1,216)1,229¥
13$ 72,421(53,394)
19,027(31,410)—(12,383)
12,512$129(c) Retirement benefit cost

Millions of yen
2008

Service cost, net of plan participants’ contributions
Interest cost
Expected returns on plan assets
Amortization of unrecognized actuarial gains
Amortization of unrecognized prior service cost
Contribution to defined contribution pension plan
Net periodic costThousands of U.S. dollars
2009

2009

289
139
(205)
(27)
(465)
54
¥ (215)$ 2,945
1,413(2,091)(273)(4,736)549$ (2,193)

¥

¥

275
137
(236)
(246)
(473)
45
¥ (498)(d) Assumptions to calculate the actuarial present value of the benefit obligation and the expected return on plan assets

Note 13. Securities
Information regarding marketable securities classified as other securities at March 31, 2008 and 2009 is summarized as follows:

Unrealized
Fair value gain (loss)¥ 19

Others

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, 2008 and 2009 totaled 3,307,091 shares and 5,021,837 shares, respectively.
Note 12. Supplementary cash flow information
For the year ended March 31, 2008, consolidated subsidiaries of the Company acquired from Interlink Electronics(U.S.A) its business segments. Assets and liabilities increased or decreased due to the acquisition were as follows:(As of August 31, 2007)
Current assets
Fixed assets
Total assets
Current liabilities
Total liabilities
Cash paid due to the acquisition of business¥ 40

Due after one year Due after five years
through five years through ten years

2009

Thousands of U.S. dollars
2009

¥ 39

Due inone year

Note 9. Shareholders’ equity
The Corporation Law of Japan provides that an amount equal to 10% of the amount to be distributed as distributions ofcapital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to thecapital 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. Contingent liabilities
Contingent liabilities as of March 31, 2008 and 2009 were as follows:
2008

¥ —

Due inone yearThousands of U.S.dollars(1,103)(1,302)(392)—(1,913)$ 11,951

(108)
(128)
(39)
—
(188)
¥ 1,1742009

Due after one year Due after five years
through five years through ten years

Thousands of U.S. dollars
2009

¥

35

2009

$

352

Discount rate
Expected return on plan assets
Amortization period of unrecognized actuarial gains
Amortization period of unrecognized prior service cost

2008

2009

2.0%
3.5%
5 years
5 years

2.0%
3.5%
5 years
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 the counterparties 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 for accounting 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 theManagement Committee of the Company.
The Company uses interest rate swaps to avoid risks from interest rate fluctuations on borrowings. The exception methodof hedge accounting is used to account for those transactions.
Millions of yen(Currency related)
Contract
amountFair value

Unrealized
gain (loss)

Thousands of U.S. dollars
Contract
Unrealized
amount Fair value gain (loss)

Forward foreignexchange contracts:

2008

2009

2008

2009

2008

2009

Sell:
US$
EUR
NT$
Total

¥ 549
—
90
¥ 639

¥ 1,13735—¥ 1,172

¥ 521
—
96
¥ 617

¥ 1,20836—¥ 1,244

¥ 28
—
(6)
¥ 22

¥ (71) $ 11,579
(1)
356
—
—
¥ (72) $ 11,935

2009

2009

2009

$ 12,300365—$ 12,665$ (721)(9)—$ (730)(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.

24

Note 16. Leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of the leased assets prior
to the initial year of application of the Accounting Standard for Lease Transactions as of March 31, 2008 and 2009, which would have beenreflected in the balance sheets if finance lease accounting had been applied to finance leases currently accounted for as operating leases.
Acquisition costs(Millions of yen)
Machinery and vehicles
Tooling and office furniture
Total

Accumulated depreciation

2009

2008

2009

2008

2009

¥ 896
53
¥ 949

¥ 896
53
¥ 949

¥ 429
36
¥ 465

¥ 644
46
¥ 690

¥ 467
17
¥ 484

¥ 251
8
¥ 259

Acquisition costs

Accumulated depreciation

Net book value

2009

2009

2009

$ 6,560464$ 7,024$ 9,122540$ 9,662

Overseas sales
Consolidated sales
Ratio of overseas sales (%)

Overseas sales
Consolidated sales
Ratio of overseas sales (%)

Overseas sales
Consolidated sales
Ratio of overseas sales (%)

Due within one year
Due over one year
Total
Balance of accumulated impairment loss on leased assets

2009

¥ 161
357
¥ 518
¥ 4

¥ 151
204
¥ 355
¥ 74

$ 1,5422,080$ 3,622$ 758

Millions of yen

Lease expenses
Reversal of allowance for impairment loss on leased assets
Depreciation
Interest expense
Impairment loss

Thousands of U.S. dollars
2009

2009

¥ 192
2
158
36
—

¥ 176
10
144
27
80

$ 1,791
107
1,469
270
817

Depreciation is calculated based on the straight-line method, assuming that useful life is within the lease term and salvage value is zero.
Interest is calculated based on the discrepancy between total lease expenses and acquisition cost and is allocated to eachterm by the interest method.
Note 17. Segment information
The business segments are not presented because the Company’s primary business activity consists of a single segment of electronic components.
Geographic segments
Year ended or as of March 31
Millions of yen

2008
Net sales
Outside customers
Intersegment sales
Total
Cost and expenses
Operating income
Identifiable assets

Japan

Asia

North America

Other areas

Elimination or corporate

Consolidated¥ 38,983
33,45872,441
69,2783,163
58,654¥ 29,345
28,12557,47056,536934
19,443¥ 17,883
110
17,993
16,3461,647
6,882¥ 1,448
325
1,773
1,753
20
963

¥

¥ 87,659—
87,65982,0055,654
66,737—(62,018)(62,018)(61,908)(110)(19,205)

1. The division of these groups depends on the geographic proximity and region.
Asia ------------------------Singapore, Malaysia, China, Taiwan, Korea and Philippines
North America -----------U.S.A. and Mexico
Other areas ---------------United Kingdom and Belgium
2. As described in Note 1./(j)/(Change in accounting policy), from the year ended March 31, 2008, the Company and consolidated subsidiaries changed their
method of accounting for depreciation of property, plant and equipment. As a result of this change, operating expense increased by ¥504 million and operating
income decreased by the same amount in Japan compared with the amount which would have been recorded by the method applied in the previous year.
Also, as described in Note 1./(j)/(Additional information), from the year ended March 31, 2008, the Company and consolidated subsidiaries changed their
method of accounting for depreciation of property, plant and equipment acquired before March 31, 2007 to depreciate to memorandum value by the straight-line
method of 5 years after the year when depreciated to their respective residual values. As a result of this change, operating expense increased by ¥168 million andoperating income decreased by the same amount in Japan compared with the amount which would have been recorded by the method applied in the previous year.
3. As described in Note 1./(u)/(1), from the year ended March 31, 2008, the Company and consolidated subsidiaries changed the account of research and development
expense from cost of sales to selling, general and administrative expense. Due to this change in accounting, operating expense increased by ¥14 million andoperating income decreased by the same amount in Japan compared with the amount which would have been recorded by the method applied in the previous year.

2009
Net sales
Outside customers
Intersegment sales
Total
Cost and expenses
Operating income
Identifiable assets

2009
Net sales
Outside customers
Intersegment sales
Total
Cost and expenses
Operating income
Identifiable assets

25

Japan

Asia

¥ 31,162
27,90959,07159,011
60
55,118¥ 24,574
23,09047,664
48,471(807)
14,811

Japan

Asia

$ 317,235
284,124
601,359
600,742617
561,112$ 250,172
235,059
485,231493,443(8,212)
150,781Millions of yen
North America
Other areas¥ 15,850
132
15,982
14,9631,019
6,064¥ 1,156
158
1,314
1,542
(228)
1,074

Thousands of U.S. dollars
North America
Other areas$ 161,359
1,344
162,703
152,333
10,37061,729$ 11,768
1,610
13,37815,701(2,323)
10,939Elimination or corporate

Consolidated¥—(51,289)(51,289)(51,483)
194(18,899)¥ 72,742—
72,74272,504238
58,168Elimination or corporate

Consolidated$$ 740,534—
740,534
738,104
2,430
592,164—(522,137)(522,137)(524,115)
1,978(192,397)¥ 18,776¥ 6,139

43.0

21.4

¥

7.0

Total

803

¥ 63,372
87,659
72.3

0.9

Asia

North America

Millions of yen
Europe¥ 31,595¥ 16,681¥ 3,551

43.4

22.9

4.9

Asia

Other areas

Other areas

¥

Total

683

¥ 52,510
72,74272.2

1.0

Thousands of U.S. dollars
North America
EuropeOther areas$ 321,644$ 169,819$ 36,151$ 6,948

43.4

22.9

4.9

1.0

Total

$ 534,562
740,534
72.2

Note 18. Stock option plan
2008

Lease expenses and pro forma amounts of depreciation and interest expense for finance leases for the years ended
March 31, 2008 and 2009 were as follows:2008¥ 37,654

The division of these groups depends on the geographic proximity and region.
Asia ---------------------Singapore, Malaysia, China, Taiwan, Korea and others
North America --------U.S.A. and others
Europe -----------------United Kingdom, Belgium and others
Other areas ------------Brazil and others

Thousands of U.S. dollars
2009

Millions of yen
Europe2009

The amount of outstanding future lease payments for finance leases subsequent to March 31, 2008 and 2009 were as follows:
Millions of yen

North America

2009$ 2,56276$ 2,638

2008

Asia

2008

Net book value

2008(Thousands of U.S. dollars)
Machinery and vehicles
Tooling and office furniture
Total

Overseas sales

1. The division of these groups depends on the geographic proximity and region.
Asia ------------------------Singapore, Malaysia, China, Taiwan, Korea and Philippines
North America -----------U.S.A. and Mexico
Other areas ---------------United Kingdom, Belgium and Hungary
2. As described in Note 1./(g)/(Change in accounting policy), from the year ended March 31, 2009, the Company and consolidated subsidiaries accounted forinventories in accordance with the Accounting Standard for Measurement of Inventories. Due to the application of this standard, operating income decreased by¥41 million ($421 thousand) in Japan and by ¥6 million ($70 thousand) in North America, and operating loss increased by ¥66 million ($676 thousand) in Asiaand ¥0 million ($7 thousand) in other areas compared with the amount which would have been recorded by the method applied in the previous year.
3. As described in Note 1./(j)/(Additional information), from the year ended March 31, 2009, the Company and consolidated subsidiaries changed the residual termof a part of machinery under the 2008 revision of the Corporation Tax Law. As a result of this change, operating income decreased by ¥198 million ($2,019
thousand) in Japan compared with the amount which would have been recorded by the method applied in the previous year.

At the shareholders’ meeting held on June 21, 2002, a stock option plan was approved. Under this plan, certain directors, employees, directors andemployees of affiliated companies were granted options to purchase common stock of 1,051,000 shares in total at an exercise price of ¥293. 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 July 1,
2004 to June 30, 2007.
Stock option activities during the year ended March 31, 2008 were as follows:
Number of Shares
Outstanding at beginning of year
5,000
Exercised
5,000
Exercisable at end of year—
The weighted average price of stocks when exercised is¥770.
At the shareholders’ meeting held on June 20, 2003, a stock option plan was approved. Under this plan, certain employees and employees of affiliatedcompanies were granted options to purchase common stock of 482,000 shares in total at an exercise price of ¥442. 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 July 1, 2005 to June 30, 2008.
Stock option activities during the year ended March 31, 2008 were as follows:
Number of Shares
Outstanding at beginning of year
166,000
Exercised
66,000Exercisable at end of year
100,000
The weighted average price of stocks when exercised is
¥849.

2009
At the shareholders’ meeting held on June 20, 2003, a stock option plan was approved. Under this plan, certain employees and employees of affiliatedcompanies were granted options to purchase common stock of 482,000 shares in total at an exercise price of ¥442 ($4.50). Those eligible could exercise theoptions when the market price exceeded 130% of the exercise price for preceding day within the term of exercise, which was from July 1, 2005 to June 30, 2008.
Stock option activities during the year ended March 31, 2009 were as follows:
Number of Shares
Outstanding at beginning of year
100,000
Exercised
15,000
Expired
85,000The weighted average price of stocks when exercised is¥580 ($5.90).
At the board of directors 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 ($5.18). 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 year ended March 31, 2009 were as follows:
Number of Shares
Granted
1,102,000
Non-eligible at end of year
1,102,000
The fair value of stocks when granted is¥115 ($1.17).

Note 19. Related party transactions
Significant transactions with related parties for the year ended March 31, 2008 and 2009 were as follows:
Millions of yen
Transactions
Loans
Guarantees
LeasesLoan receivable2008

Showa Enterprise Co., Ltd.

¥ 150

¥

500

¥

177

¥

834

Balances
Guarantees¥ —Outstanding future lease payments¥

484

Millions of yen

2009

Loans

Showa Enterprise Co., Ltd.

¥ 50

Transactions
Guarantees¥

Leases

250

¥

163

Loan receivable¥

734

Balances
Guarantees¥ —Outstanding future lease payments¥

332

Thousands of U.S. dollars

2009

Loans

Transactions
Guarantees

LeasesLoan receivable

Balances
Guarantees

Outstanding future lease payments

Showa Enterprise Co., Ltd.

$ 509

$ 2,545$ 1,664$ 7,472$ —$ 3,384(Additional information)
From the year ended March 31, 2009, the company applied the Accounting Standard for Related Party Disclosures and its Implementation Guidance.
The effect of the adoption of this standard had no change in the scope of the disclosures.

Note 20. Business combination
For the year ended March 31, 2008, on August 31, 2007, SMK Electronics Corporation U.S.A and SMK LINK Electronics Corporation, consolidated
subsidiaries of the Company, acquired from Interlink Electronics (U.S.A) its remote control business segments. This acquisition provides the Company toexpand the business in the field of remote control around U.S.A. The results of operations for this business for the period from September 1, 2007 to March
31, 2008 are included in the accompanying consolidated statement of income for the year ended March 31, 2008.
The acquisition was accounted for using the purchase method of accounting.
The amounts of assets acquired and liabilities assumed of this business at the date of the acquisition were as follows:

Millions of yen
2008

Current assets
Goodwill
Current liabilities
Acquisition cost

¥

400
856
(104)
1,152

Note 21. 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, 2009, was approved at a shareholder’s meeting held on June 25, 2009.

Millions of yen

Cash divedends (¥3.00 = $0.03 per share)

Thousands of U.S. dollars

2009

2009

¥ 222

$ 2,259

26

Report of Independent Auditors

Shares and Shareholders(As of March 31, 2009)

Authorized shares:

195,961,274

Issued shares:

79,000,000

Number of shareholders:

11,574

Major shareholders (top ten)

Shares Owned (1,000 shares)

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

Percentage of Shares (%)

5,698
4,001
3,663
3,200
3,134
2,049
1,714
1,580
1,504
1,500

7.21
5.06
4.64
4.05
3.97
2.59
2.17
2.00
1.90
1.90

Notes: 1. SMK holds 4,932 thousand shares of treasury stock, but is excluded from the above list.
2. Of the above shares owned by major shareholders, the following number of shares are held in trust operations:Japan Trustee Service Bank, Ltd. :5,698 thousand shares
Mitsubishi UFJ Trust and Banking Corporation : 112 thousand shares

Share ownership by number

Share ownership by shareholder type (unit: share)

1~999 shares

2,913 (25.17%)

Financial institutions

24,496,685 (31.01%)

1,000~9,999 shares

7,970 (68.86%)

Financial instruments dealers

1,115,964 (1.41%)

10,000~99,999 shares

619 (5.35%)

Companies and other entities

11,670,359 (14.77%)

Foreign investors

4,175,262 (5.29%)

100,000~499,999 shares

55 (0.47%)

Individuals and others

32,609,575 (41.28%)

500,000 shares~

17 (0.15%)

Treasury stock

4,932,155 (6.24%)

Share price chart (unit: yen)

Nikkei 225 stock average
1,050

34,000Stock Price (the candle)
high

900

30,000

high
close

open

open
close
low
low
open price < close price open price > close price750

26,000600

22,000450

18,000300

14,000150

10,000
6,000

0

4 5
2007

27

6

7

8

9

10 11 12

1 2
2008

3

4

5

6

7

8

9

10 11 12

1 2
2009

3
(year/month)28

Board of Directors and Corporate Auditors(As of June 25, 2009)

DIRECTORSC O R P O R AT E E X E C U T I V E O F F I C E R S

Yasumitsu Ikeda

Makoto Irisawa

Yoshiyuki Kaku

Yoshio Sakurai

Hideo Matsumoto

Akira Utazaki

Executive Deputy President
Sales Division

Executive Vice President
Human Resourcesand General Affairs

Executive Vice President
Connection System
Division

Executive Vice President
Production Engineering andEnvironmental Protection

Vice President
Sales Division, Europe

Vice President
Deputy Division Directorof Sales Division

Tetsuya Nakamura
President and COO

Mikio Wakabayashi

Paul Evans

Tsutomu Isoda

Hiroshi Miyakawa

Vice President
Functional Components
Division

Vice President
Sales Division, Americas

Vice President
Research and Development

Vice President
Sales DivisionCorporate Data
(As of March 31, 2009)

Hajime Yamada

Tadashi Yamoto

Yuji Tanahashi

Director, Executive Vice President,
Chief Financial Officer

Director, Senior Executive Vice President,
Chief Technology Officer

Director

AUDITORSName:

SMK Corporation

Established:

January 15, 1929

Primary business:

Manufacture and sale of various electronic machinery and parts used in power,
communications and electronic equipment, other industrial machinery,information equipment, etc.

Capital:7,996,828,021 yen

Stock exchange listing:Tokyo Stock Exchange

Administrator of shareholders register: Mitsubishi UFJ Trust and Banking Corporation

Terutaka Ikeda

Kenji Kobayashi

Hidefumi Kobayashi

Kouichiro Sugihara

Naru Nakashima

Auditor andChairman of Auditors
Meeting

Auditor

Auditor

Auditor

AuditorIndependent auditors:

Ernst & Young ShinNihon LLC
Tokyo, Japan

Employees (SMK-Group):

11,482

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

Subsidiaries & affiliates:
Domestic:
Overseas:
Website:29

Subsidiaries
Affiliates
Subsidiaries

6 companies
3 companies
21 companies

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