2011 P01-P11 - :: SMC · Notes Regarding Future Plans and Estimates This annual report contains...

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4-14-1, Soto-Kanda, Chiyoda-ku, Tokyo 101-0021, Japan Tel : 03-5207-8271 Fax : 03-5298-5361 http://www.smcworld.com

Annual ReportAnnual ReportAnnual ReportFor the year ended March 31, 2011For the year ended March 31, 2011For the year ended March 31, 2011

20112011

Notes Regarding Future Plans and EstimatesThis annual report contains projections concerning the future plans, strategies and estimated performance of SMC. These statements do not include historical data but rather are based on management’s projections given the information currently available. Accordingly, these projections involve risks and uncertainties relative to the status of the economy and demand, intensifying competition, exchange rates, taxation and other regulations.

Printed with soy ink

Founded in 1959 as a manufacturing firm specializing in sintered metal filters and filtration elements, the SMC Group entered the pneumatic equipment market in 1961 and has since engineered and produced a wide variety of pneumatic products for the global market. The Group’s expertise has continued to increase the range of its products, which now exceed 600,000--including air line equipment, directional control valves, actuators and air preparation equipment. The Group’s strengths—offering high quality products at low cost and with quick delivery—enable it to retain a high market share in Japan and compete overseas as a leading global integrated manufacturer of pneumatic equipment even as it evolves into an automatic control equipment manufacturer.

Profile

History

Corporate Information

Board of Directors

SMC Corporation

Head Office : 4-14-1, Soto-Kanda, Chiyoda-ku, Tokyo 101-0021, Japan Tel: 03-5207-8271 Fax: 03-5298-5361Established : April 27, 1959Capital : JPY 61,005 millionNumber of Employees : Consolidated 15,305Current Status of Stocks : Total number of shares 240,000,000 Shares outstanding 71,869,359 Number of shareholders 7,414Stock Listing : First Section, Tokyo Stock Exchange Administrator of Register of Shareholders : The Chuo Mitsui Trust and Banking Co., Ltd. 33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan

ChairmanYoshiyuki Takada

PresidentKatsunori Maruyama

Executive Managing Directors

Fumitaka ItohIkuji UsuiYoshihiro Fukano

Managing DirectorsYoshiki TakadaKatsunori TomitaSeiji Kosugi

DirectorsTamon KitabatakeIwao MogiEiji OhashiMasahiko SatakeKouichi ShikakuraOsamu KuwaharaKouji OguraMotoichi KawadaGerman BerakoetxeaDaniel LangmeierLup Yin Chan

Standing Statutory AuditorsJinichi Shimazaki

Statutory AuditorsTakashi HondaKouji TakahashiYoshiaki Ogawa

(As of June 29, 2011)

1959 Established under the name of Shoketsu Kinzoku Kogyo Co., Ltd. (Sintered Metal Corporation), capitalized at ¥5 million (Manufacture and sales of sintering metal filters by power metallurgy).

1961 Started manufacture of pneumatic air line equipment.

1967 Embarked on overseas operations with capital participation in Airmate SMC Pty. Ltd., Australia. (Reorganized into a wholly owned subsidiary SMC Pneumatics (Australia) Pty. Ltd. in 1980)

1968 Soka 1st Factory completed.1970 Started manufacture of air cylinders.1973 Soka 2nd Factory completed.1977 SMC Pneumatics, Inc. name changed to SMC

Corporation of America in 2001, a wholly owned subsidiary, established in the U.S.

1978 SMC Pneumatik GmbH, a wholly owned subsidiary, established in Germany.

1983 Tsukuba 1st Factory completed.1986 SMC Manufacturing (Singapore) Pte. Ltd., a

wholly owned subsidiary established. Corporate name changed to SMC Corporation

from Shoketsu Kinzoku Kogyo Co., Ltd.1987 Stocks listed on the second section of the Tokyo

Stock Exchange; Capital increased to ¥11,340 million.

1989 Stocks listed on the first section of the Tokyo Stock Exchange; Tsukuba 2nd and Soka 3rd Factories completed.

1991 Kamaishi Factory completed. Japan Technical Center completed.1994 Yamatsuri Factory completed. SMC (China) Co., Ltd., a wholly owned subsidiary

established.1997 Tono Factory completed.1998 Acquired ISO 9001 certification.1999 Acquired ISO 14001 certification.2000 European Technical Centre established in the U.K.2002 Established the US Technical Center in the United

States.2006 Moved Headquarters to new facility.2007 Established the Chinese Technical Center.

Financial Highlights …………………………1Message from the President ………………2Operating Data ……………………………4Financial Review ……………………………5Financial Data ………………………………6Consolidated Balance Sheets ………………12Consolidated Statements of Income ………………………………………14Consolidated Statements of Comprehensive Income ……………………15Consolidated Statements of Changes in Net Assets ………………………16Consolidated Statements of Cash Flows ……………………………………17Notes to Consolidated Financial Statements …………………………………18Report of Independent Certified Public Accountants on the Consolidated Financial Statements …………………………………25Corporate Directory ………………………26Corporate Information & Board of Directors …………………………27

Contents

1

SMC Corporation and SubsidiariesYears ended March 31, 2006 (FY2005), 2007 (FY2006), 2008 (FY2007), 2009 (FY2008), 2010 (FY2009), and 2011 (FY2010)

For the year:Net sales ¥307,827 ¥339,689 ¥357,919 ¥283,437 ¥220,906 ¥325,117 47.2 % $3,910,006 Operating income 75,525 88,964 87,646 49,726 25,567 81,971 220.6 985,821 Net income 53,458 63,073 55,985 25,978 19,594 47,760 143.8 574,384 At year-end: Total assets 613,389 687,831 680,491 607,669 637,621 716,175 12.3 8,613,048 Shareholders’ equity 469,758 534,313 516,909 487,613 509,215 535,780 5.2 6,443,536 Interest-bearing debts 19,752 19,691 40,856 42,358 42,178 �37,704 -10.6 453,443 Free cash flow 24,516 27,594 28,901 8,548 18,142 46,505 156.3 559,291 Cash and equivalents 121,709 144,715 136,589 119,907 137,139 165,831 20.9 1,994,360 Depreciation and amortization 10,990 11,767 13,701 13,537 11,594 10,804 -6.8 129,934 Capital expenditures 16,954 17,377 17,228 16,066 9,559 14,013 46.6 168,524R&D expenses 15,274 15,858 16,646 15,303 13,163 13,776 4.7 165,678 Per share data (yen): Net income (EPS) 738.19 877.93 791.33 378.74 285.67 696.32 143.7 8.37 Shareholders’ equity 6,533.32 7,436.57 7,536.04 7,109.09 7,424.16 7,811.61 5.2 93.95 Cash dividends 100.00 120.00 120.00 120.00 100.00 110.00 10.0 1.32 Reference indices: Operating income ratio (％) 24.5 26.2 24.5 17.5 11.6 25.2 Return on equity (％) 12.2 12.6 10.7 5.2 3.9 9.1 Equity ratio (％) 76.6 77.7 76.0 80.2 79.9 74.8 Debt equity ratio (％) 4.2 3.7 7.9 8.7 8.3 7.0 Payout ratio (％) 13.5 13.7 15.2 31.7 35.0 15.8 Other data: Market value(billons of yen, millions of U.S.dollars) 13,181 11,363 7,553 6,792 9,120 9,839 Number of engineers 1,256 1,331 1,427 1,540 1,574 1,581 Number of employees 12,959 13,714 14,756 15,388 15,170 15,305

NET INCOME

FY

75,000(Millions of yen)

08 09

60,000

45,000

30,000

15,000

005 06 07 10

RETURN ON EQUITY

FY

15(%)

05 06 07 08 09 10

12

9

6

3

0

OPERATING INCOME

FY


08 09

80,000

60,000

40,000

20,000

005 06 07 10

NET SALES

FY


08 09

300,000

200,000

100,000

005 06 07 10

Thousands ofU.S. dollarsMillions of yen Change in %

FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2010FY2009-2010

Notes:1. U.S. dollar figures are converted from yen, at the rate of ¥83.15 to U.S.$ 1, the approximate rate of exchange on March 31, 2011.2. Free cash flow = Net cash provided by operating activities + Net cash used in investing activities.3. Net income per share is computed based on the weighted average number of shares outstanding during the respective years. 4. Cash dividends per share are based on the cash dividends paid in respect to the relevant period.

Financial HighlightsFinancial Highlights

Message from the PresidentMessage from the President

2

Business progress and resultsThe global economy during the fiscal term ended March 31, 2011 remained on a moderate recovery track, driven by robust economic growth in Asian countries, most notably in China and India.Demand for pneumatic equipment--the flagship products of the SMC Group--showed remarkable growth in all regions including Asia, the U.S. and Europe, as well as in all industrial fields centering on semiconductor, liquid crystals and machine tools.During this time, SMC Group continued to implement company-level rationalization and cost reduction initiatives including product design changes, streamlining development periods, revising production methods and increasing the efficiency of production facilities.In addition, the SMC focused on securing new customers and strengthening cooperation both within the Group and with distribution agents.The Group also continued to implement several key strategies such as introducing strategic production facilities and making investments in developing manufacturing and sales infrastructure in emerging nations (including BRICS) to prepare for a recovery in demand.As a result, net sales for the year ended March 31, 2011 rose 47.2% year on year to ¥325,117 million. Profits increased substantially thanks to significant sales increase, with operating income surging by 220.6% year on year to ¥81,971 million. Net income rose by 143.8% year on year to ¥47,760 million although SMC recorded the estimated amount of income taxes for prior periods based on the transfer pricing taxation.Key sales performances by country or region are described below:

JapanThe Japanese economy started to move toward recovery on the strength of growing exports to Asian countries and the progress of inventory

adjustments. However, it continued to lack a clear direction due to factors such as the slowdown in consumer spending reflecting their anxiety about the future and the appreciation of the yen. In addition, the Great East Japan Earthquake that occurred in March 2011 has had an extensive impact on the economy, causing the outlook for the economy to become uncertain.Looking at sales of the Group by industry, sales at the semiconductor and liquid crystal-related sectors increased solidly and those at the automobile and machine tool sectors began recovering. Consequently, net sales amounted to ¥127,928 million.

u.s.Demand related to semiconductors grew strongly, having a positive impact on facilities manufacturers and equipment makers. In addition, demand in the automobile industry, which had previously been weak, began a rapid recovery.The newly constructed head office of SMCUS and its factory fulfilled a function as the core of the Group companies in the North American region and helped enhance customer satisfaction. The new products launched for semiconductor, automobile and medical equipment manufacturers also proved successful. As a result, net sales amounted to ¥35,079 million.

ChinaIn China, where the economy is booming as shown by the holding of the Shanghai Expo in 2010, the demand environment continued to gain, with orders related to semiconductor, liquid crystals and solar panels remaining brisk and local automobile manufacturers making active capital investments.In order to meet this increase in demand, the SMC Group reinforced its sales capabilities in China by dispatching representatives from Japan and utilizing distribution agencies. This resulted in net sales amounting to ¥39,036 million.

Message from the PresidentMessage from the President

3

asia (eXCluding China)Demand for capital investment was boosted substantially in sectors including semiconductors, liquid crystals, LEDs and HDDs in response to strong sales of smart phones and tablet PCs, as well as at automobile manufacturers and automotive parts makers in South Korea, Taiwan, Singapore and other Asian nations including India and Thailand.The SMC Group made an all-out effort to enhance marketing and improve customer services. It also completed a new factory in Chennai (an industrial city in Southeast India) in an effort to boost its product supply capability. As a result, net sales amounted to ¥53,207 million.

europeThe European economy remained unsettled due to the financial instability in some countries in southern Europe, though export industries in Germany and France benefited from the euro’s drop. Given the situation, the demand environment in the European region remained even on the whole.The SMC Group completed a new factory in the Czech Republic in response to the shift of manufacturing industries in the region to Eastern Europe. Although the Group saw a negative impact on its currency translation adjustment because of the appreciation of the yen against the euro, sales related to semiconductors, automobiles and foods were robust. As a result, net sales amounted to ¥51,791 million.

other areasDemand is recovering steadily in countries in other areas such as Brazil, Mexico and Australia, resulting in net sales of ¥18,074 million.

status oF Capital inVestMentsCompletion of major facilities, etc. in the term· Construction of factory building :SMC Czech

· Construction of factory building (Chennai) : SMC IndiaIn addition, capital investments were made to enhance production and rationalization through purchasing equipment and renewing dies. Total capital investments in the term added up to ¥14,011 million.

Current situation and steps taKen aFter earthQuaKeThe Great East Japan Earthquake that occurred in March 2011 caused only minor damage to the SMC Group’s buildings, mechanical equipment and inventory assets at its factories, including the Kamaishi Factory (Kamaishi City, Iwate Pref.). Therefore we were able to resume production and shipments quickly.Regarding the nuclear power plant accident that occurred following the earthquake, there is no cause for concern about our operation bases or products being affected by radiation. However, we are monitoring the amount of radiation on our own to give our customers peace of mind. We will continue to take steps to weather the current circumstances, including augmenting private power generation facilities to prepare for a possible shortage of electricity.

Katsunori Maruyama President

June 2011

4

Review of OperationsSales During the fiscal term ending March 31, 2011, the global economy remained on a moderate recovery track driven by robust growth in Asian countries, most notably China and India. Orders for pneumatic equipment, the flagship product of the SMC Group, showed remarkable growth in all regions, including Asia, the U.S. and Europe. In addition, demand surged in industrial fields centered on semiconductors, liquid crystals and machine tools. During the year, SMC Group continued to implement company-level rationalization and cost-reduction initiatives such as product design changes, streamlining development periods, revising production methods and increasing the efficiency of production facilities. In addition, SMC focused on securing new customers as well as strengthening cooperation both within the Group as well as with distribution agents. The Group also continued to implement several key strategies, such as introducing strategic production facilities and making investments to develop manufacturing and sales infrastructure in emerging nations (including BRIC) to prepare for a recovery in demand. As a result, net sales for the year ended March 31, 2011 rose by 47.2% year on year to 325,117 million yen. Cost of sales gained 33.3% from the previous year to ¥175,375 million, which led to an increase of 67.5% in gross profit, increasing the gross margin by 5.6 percentage points from 40.5% to 46.1%.

SG&A expenses and operating income The boost in net sales caused an upswing of SG&A expenses by 6.2% from last year earlier to ¥67,771 million, and the ratio of SG&A expenses to net sales decreased from 28.9% to 20.8%. Operating income climbed 220.6% to ¥81,971 million, recovering the operating margin from 11.6% to 25.2%.

Net income, net income per share and dividends As a result, net income for the year ended March 31, 2011, increased 143.7% from the previous year to ¥47,760 million, and the net margin recovered from 8.9% to 14.7%. Net income per share rose from ¥285.67 to ¥696.32. In line with our basic dividend policy for the stable and appropriate distribution of profits, we decided to pay an annual dividend of ¥110 per share for the year under review. The payout ratio decreased 19.2 percentage points to 15.8% on a consolidated basis.

Analysis of the Financial Position As of March 31, 2011, the SMC Group’s total assets amounted to ¥716,175 million, or an increase of 12.3% from the previous year-end. Current assets increased 18.6% to ¥470,118 million, owing to an increase in cash, cash equivalents, and an increase in notes and accounts receivable--reflecting a recovery in order receipts and an increase in inventories due to increased production in response to increasing demand. Investments and other assets increased 2.9% to ¥150,267 million, mainly due to a increase in refundable insurance payments. Total liabilities increased 40.8% to ¥178,718 million, chiefly due to accretion in notes and accounts payable, reflecting higher purchases of materials due to elevated production and an increase in income taxes payable. Net assets advanced 5.2% to ¥537,457 million, mainly due to increases in retained earnings. The equity ratio declined 5.1 percentage points to 74.8%. The return on equity increased 5.2 percentage points to 9.1%.

Cash FlowsCash flows from operating activities Net cash provided by operating activities was ¥73,758 million, up ¥31,895 million from the previous year. This was mainly because there was an increase in income before income taxes and minority interests, while notes and accounts payable increased due to greater material purchases, despite a rise in inventories and increase in income tax payments.

Cash flows from investing activities Net cash used in investing activities was ¥27,253 million, up ¥3,532 million from the previous year. This was primarily attributed to a decrease in proceeds from maturity of refundable insurrance payments.

Cash flow from financing activities Net cash used in financing activities was ¥11,571 million, up ¥3,749 million from the previous year. This was primarily due to an increase in the redemption of bonds. As a result of the aforementioned factors, and taking into account a decrease of ¥6,242 million due to the effect of exchange rate changes, the SMC Group’s cash and cash equivalents at the end of the year under review increased ¥28,692 million, or 20.9%, from the previous year-end to ¥165,831 million.

2,500

2,000

1,500

1,000

500

0080706FY 09 10

(Persons)

■ Number of Engineers

（Millions of yen）

FY09 FY10FY08FY07FY06For the Years Ended March 31

1,5741,5401,4271,331Number of Engineers （Persons) 1,581

JapanAsia and OceaniaEuropeNor th America

39.329.117.214.4

40.430.615.014.0

45.722.917.913.5

46.821.818.413.0

49.120.216.414.3

Percentage of Net Sales by Area (%)

080706FY 09 10

(%)

60

50

40

30

20

10

0

■ Percentage of Net Sales by Area

Operating Data Financial ReviewOperating Data Financial Review

(Millions of yen)

■ Net Sales by Area

07FY

400,000

300,000

200,000

100,000

008 0906 10

(Millions of yen)

■ Consolidated Net Sales & Overseas Sales

Consolidated Net Sales Overseas Sales

220,906136,500

325,117197,190

283,437159,215

357,919197,023

339,689178,120

Consolidated Net SalesOverseas Sales

JapanAsia and OceaniaEuropeNor th America

86,80864,15438,03031,914

131,48799,43548,68345,512

129,44364,85750,84238,295

167,45778,08865,68346,691

166,67868,73555,72448,552

Net Sales by Area

FY

400,000

300,000

200,000

100,000

0

North America Europe

Asia and Oceania Japan

080706 09 10

Europe

JapanAsia and Oceania

North America

5

Review of OperationsSales During the fiscal term ending March 31, 2011, the global economy remained on a moderate recovery track driven by robust growth in Asian countries, most notably China and India. Orders for pneumatic equipment, the flagship product of the SMC Group, showed remarkable growth in all regions, including Asia, the U.S. and Europe. In addition, demand surged in industrial fields centered on semiconductors, liquid crystals and machine tools. During the year, SMC Group continued to implement company-level rationalization and cost-reduction initiatives such as product design changes, streamlining development periods, revising production methods and increasing the efficiency of production facilities. In addition, SMC focused on securing new customers as well as strengthening cooperation both within the Group as well as with distribution agents. The Group also continued to implement several key strategies, such as introducing strategic production facilities and making investments to develop manufacturing and sales infrastructure in emerging nations (including BRIC) to prepare for a recovery in demand. As a result, net sales for the year ended March 31, 2011 rose by 47.2% year on year to 325,117 million yen. Cost of sales gained 33.3% from the previous year to ¥175,375 million, which led to an increase of 67.5% in gross profit, increasing the gross margin by 5.6 percentage points from 40.5% to 46.1%.

SG&A expenses and operating income The boost in net sales caused an upswing of SG&A expenses by 6.2% from last year earlier to ¥67,771 million, and the ratio of SG&A expenses to net sales decreased from 28.9% to 20.8%. Operating income climbed 220.6% to ¥81,971 million, recovering the operating margin from 11.6% to 25.2%.

Net income, net income per share and dividends As a result, net income for the year ended March 31, 2011, increased 143.7% from the previous year to ¥47,760 million, and the net margin recovered from 8.9% to 14.7%. Net income per share rose from ¥285.67 to ¥696.32. In line with our basic dividend policy for the stable and appropriate distribution of profits, we decided to pay an annual dividend of ¥110 per share for the year under review. The payout ratio decreased 19.2 percentage points to 15.8% on a consolidated basis.

Analysis of the Financial Position As of March 31, 2011, the SMC Group’s total assets amounted to ¥716,175 million, or an increase of 12.3% from the previous year-end. Current assets increased 18.6% to ¥470,118 million, owing to an increase in cash, cash equivalents, and an increase in notes and accounts receivable--reflecting a recovery in order receipts and an increase in inventories due to increased production in response to increasing demand. Investments and other assets increased 2.9% to ¥150,267 million, mainly due to a increase in refundable insurance payments. Total liabilities increased 40.8% to ¥178,718 million, chiefly due to accretion in notes and accounts payable, reflecting higher purchases of materials due to elevated production and an increase in income taxes payable. Net assets advanced 5.2% to ¥537,457 million, mainly due to increases in retained earnings. The equity ratio declined 5.1 percentage points to 74.8%. The return on equity increased 5.2 percentage points to 9.1%.

Cash FlowsCash flows from operating activities Net cash provided by operating activities was ¥73,758 million, up ¥31,895 million from the previous year. This was mainly because there was an increase in income before income taxes and minority interests, while notes and accounts payable increased due to greater material purchases, despite a rise in inventories and increase in income tax payments.

Cash flows from investing activities Net cash used in investing activities was ¥27,253 million, up ¥3,532 million from the previous year. This was primarily attributed to a decrease in proceeds from maturity of refundable insurrance payments.

Cash flow from financing activities Net cash used in financing activities was ¥11,571 million, up ¥3,749 million from the previous year. This was primarily due to an increase in the redemption of bonds. As a result of the aforementioned factors, and taking into account a decrease of ¥6,242 million due to the effect of exchange rate changes, the SMC Group’s cash and cash equivalents at the end of the year under review increased ¥28,692 million, or 20.9%, from the previous year-end to ¥165,831 million.

2,500

2,000

1,500

1,000

500

0080706FY 09 10

(Persons)

■ Number of Engineers


FY09 FY10FY08FY07FY06For the Years Ended March 31

1,5741,5401,4271,331Number of Engineers （Persons) 1,581

Asia and OceaniaEuropeNor th AmericaJapan

29.117.214.439.3

30.615.014.040.4

22.917.913.545.7

21.818.413.046.8

20.216.414.349.1

Percentage of Net Sales by Area (%)

080706FY 09 10

(%)

60

50

40

30

20

10

0

■ Percentage of Net Sales by Area

Asia and Oceania Europe

North America Japan

Operating Data Financial ReviewOperating Data Financial Review

FY

400,000

300,000

200,000

100,000

0

(Millions of yen)

■ Net Sales by Area

North America Europe

Asia Japan

07FY

400,000

300,000

200,000

100,000

008 0906 10

(Millions of yen)

■ Consolidated Net Sales & Overseas Sales

Consolidated Net Sales Overseas Sales

080706 09 10

220,906136,500

325,117197,189

283,436159,215

357,919197,023

339,689178,119

Consolidated Net SalesOverseas Sales

Nor th AmericaEuropeAsiaJapan

31,91438,03064,15386,807

45,51248,68299,434

131,487

46,69050,84164,855

129,443

46,69065,68278,089

167,456

48,55155,72468,734

166,678

Net Sales by Area

6


637,621 716,175607,669680,491687,831Total Assets

509,215 535,780487,613516,909534,313Shareholders' Equity

126,273 140,193136,352131,884133,857Inventories

42,178 37,70442,35840,85619,691Interest-bearing Debt

28.9 20.827.523.622.9SG & A Ratio (%)

19,5948.9

47,76014.7

25,9789.2

55,98515.6

63,07318.6

Operating IncomeOperating Income Ratio (%)

Net IncomeReturn on Sales (%)

3.93.2

9.17.1

5.24.0

10.78.2

12.69.7

Return on Equity (%)Return on Assets (%)

Financial Data

FYFY

FYFY

1,000,000

600,000

800,000

400,000

200,000

008 0907 10

10

(Millions of yen)

■ Total Assets

800,000

600,000

400,000

200,000

008 0906 07 10

(Millions of yen)

■ Shareholders’ Equity

200,000

150,000

100,000

50,000

008 09

06

06 07

(Millions of yen)

■ Inventories

50,000

40,000

30,000

20,000

10,000

0080706 09 10

(Millions of yen)

■ Interest-bearing Debt

080706FY 09 10FY

(%)

70,000

50,000

40,000

30,000

20,000

10,000

0

21

18

15

12

9

6

3

0

60,000

08 0906 07 10

(Millions of yen)

■ Net Income & Return on Sales(%)

■ Return on Equity & Return on Assets

15

12

9

6

3

0

Return on Equity Return on AssetsNet Income Return on Sales

(%)

100,000

80,000

60,000

40,000

20,000

0

30

24

18

12

6

0

(Millions of yen)

■ Operating Income & Operating Income Ratio

08FY

Operating Income Operating Income Ratio

080706FY 09 10

(%)

■ SG & A Ratio

40

30

20

10

0

FY09 FY10FY08FY07FY06For the Years Ended March 31 FY09 FY10FY08FY07FY06For the Years Ended March 31

25,56711.6

81,97125.2

49,72617.5

87,64624.5

88,96426.2

Profitability

0906 1007

Assets and Liabilities

Financial Data


7


637,621 716,175607,669680,491687,831Total Assets

509,215 535,780487,613516,909534,313Shareholders' Equity

126,273 140,193136,352131,884133,857Inventories

42,178 37,70442,35840,85619,691Interest-bearing Debt

28.9 20.827.523.622.9SG & A Ratio (%)

19,5948.9

47,76014.7

25,9789.2

55,98515.6

63,07318.6

Operating IncomeOperating Income Ratio (%)

Net IncomeReturn on Sales (%)

3.93.2

9.17.1

5.24.0

10.78.2

12.69.7

Return on Equity (%)Return on Assets (%)

Financial Data

FYFY

FYFY

1,000,000

600,000

800,000

400,000

200,000

008 0907 10

10

(Millions of yen)

■ Total Assets

800,000

600,000

400,000

200,000

008 0906 07 10

(Millions of yen)

■ Shareholders’ Equity

200,000

150,000

100,000

50,000

008 09

06

06 07

(Millions of yen)

■ Inventories

50,000

40,000

30,000

20,000

10,000

0080706 09 10

(Millions of yen)

■ Interest-bearing Debt

080706FY 09 10FY

(%)

70,000

50,000

40,000

30,000

20,000

10,000

0

21

18

15

12

9

6

3

0

60,000

08 0906 07 10

(Millions of yen)

■ Net Income & Return on Sales(%)

■ Return on Equity & Return on Assets

15

12

9

6

3

0

Return on Equity Return on AssetsNet Income Return on Sales

(%)

100,000

80,000

60,000

40,000

20,000

0

30

24

18

12

6

0

(Millions of yen)

■ Operating Income & Operating Income Ratio

08FY

Operating Income Operating Income Ratio

080706FY 09 10

(%)

■ SG & A Ratio

40

30

20

10

0


25,56711.6

81,97125.2

49,72617.5

87,64624.5

88,96426.2

Profitability

0906 1007

Assets and Liabilities

Financial Data


8

（Times）

0.4 0.50.40.50.5Total Assets Turnover

0.4 0.60.60.70.7Equity Turnover

1.7 2.32.12.72.8Inventories Turnover

2.3 3.42.93.63.5Fixed Assets Turnover

Current Ratio (%)Fixed Assets Ratio (%)

79.9 74.880.276.077.7

445.347.3

358.445.9

508.850.1

338.252.4

398.149.1

Equity Ratio (%)

87.7 187.382.5194.8254.8Interest Coverage Ratio (Times)

8.3 7.08.77.93.7Debt Equity Ratio (%)


■ Total Assets Turnover ■ Equity Turnover ■ Equity Ratio■ Current Ratio & Fixed Assets Ratio

Current Ratio

080706FY 09 10

(Times)

1.0

0.8

0.6

0.2

0

0.4

080706FY 09 10

(Times)

1.0

0.8

0.6

0.4

0

0.2

(%)

600

450

300

150

0

Fixed Assets Ratio

(%)

120

90

0

30

60

■ Inventories Turnover ■ Fixed Assets Turnover ■ Interest Coverage Ratio ■ Debt Equity Ratio

080706FY 09 10

(Times)

5

4

3

2

0

1

080706FY 09 10

(Times)

5

4

3

2

0

1

(Times)

400

300

200

100

0

(%)

10

8

6

2

0

4

StabilityEfficiency

Financial Data

080706FY 09 10

080706FY 09 10

080706FY 09 10

080706FY 09 10

9

（Times）

0.4 0.50.40.50.5Total Assets Turnover

0.4 0.60.60.70.7Equity Turnover

1.7 2.32.12.72.8Inventories Turnover

2.3 3.42.93.63.5Fixed Assets Turnover

Current Ratio (%)Fixed Assets Ratio (%)

79.9 74.880.276.077.7

445.347.3

358.445.9

508.850.1

338.252.4

398.149.1

Equity Ratio (%)

87.7 187.382.5194.8254.8Interest Coverage Ratio (Times)

8.3 7.08.77.93.7Debt Equity Ratio (%)


■ Total Assets Turnover ■ Equity Turnover ■ Equity Ratio■ Current Ratio & Fixed Assets Ratio

Current Ratio

080706FY 09 10

(Times)

1.0

0.8

0.6

0.2

0

0.4

080706FY 09 10

(Times)

1.0

0.8

0.6

0.4

0

0.2

(%)

600

450

300

150

0

Fixed Assets Ratio

(%)

120

90

0

30

60

■ Inventories Turnover ■ Fixed Assets Turnover ■ Interest Coverage Ratio ■ Debt Equity Ratio

080706FY 09 10

(Times)

5

4

3

2

0

1

080706FY 09 10

(Times)

5

4

3

2

0

1

(Times)

400

300

200

100

0

(%)

10

8

6

2

0

4

StabilityEfficiency

Financial Data

080706FY 09 10

080706FY 09 10

080706FY 09 10

080706FY 09 10

10

（Yen）

100.00 110.00120.00120.00120.00Dividends per Share

285.67 696.32378.74791.33877.93Earnings per Share

7,424.16 7,811.617,109.097,536.047,436.57Book Value per Share

454.69 853.84576.10985.001,041.73Cash Flow per Share

Payout Ratio (%)

1.4 1.41.61.61.7

35.0 15.831.715.213.7

Dividends on Equity (%)

44.4 19.624.913.318.0Price Earnings Ratio (Times)

1.7 1.81.31.42.1Price Book Value Ratio (Times)

Per Share Data Investment Data


■ Dividends per Share ■ Earnings per Share ■ Dividends on Equity■ Payout Ratio(%)

40

30

20

10

0

200

100

50

0

150

(Yen)

1,000

600

200

0

800

400

(Yen) (%)

4

3

2

1

0

■ Book Value per Share ■ Cash Flow per Share ■ Price Earnings Ratio ■ Price Book Value Ratio(Times)

60

45

0

30

15

10,000

4,000

2,000

0

6,000

8,000

(Yen)

1,200

600

0

900

300

(Yen) (Times)

3

2

1

0

Financial Data

FY 08 0906 07 10FY 08 0907 1006 080706FY 09 10 08FY 0906 1007

FY 08 0906 07 10FY 08 0907 1006 080706FY 09 10 08FY 0906 1007

11

（Yen）

100.00 110.00120.00120.00120.00Dividends per Share

285.67 696.32378.74791.33877.93Earnings per Share

7,424.16 7,811.617,109.097,536.047,436.57Book Value per Share

454.70 853.84576.101,015.961,041.63Cash Flow per Share

Payout Ratio (%)

1.4 1.41.61.61.7

35.0 15.831.715.213.7

Dividends on Equity (%)

44.4 19.624.913.318.0Price Earnings Ratio (Times)

1.7 1.81.31.42.1Price Book Value Ratio (Times)

Per Share Data Investment Data


■ Dividends per Share ■ Earnings per Share ■ Dividends on Equity■ Payout Ratio(%)

40

30

20

10

0

200

100

50

0

150

(Yen)

1,000

600

200

0

800

400

(Yen) (%)

4

3

2

1

0

■ Book Value per Share ■ Cash Flow per Share ■ Price Earnings Ratio ■ Price Book Value Ratio(Times)

60

45

0

30

15

10,000

4,000

2,000

0

6,000

8,000

(Yen)

1,200

600

0

900

300

(Yen) (Times)

3

2

1

0

Financial Data

FY 08 0906 07 10FY 08 0907 1006 080706FY 09 10 08FY 0906 1007

FY 08 0906 07 10FY 08 0907 1006 080706FY 09 10 08FY 0906 1007

12

Thousands of Millions of yen U.S. dollars (Note 1)

FY2010 FY2009 FY2010

ASSETS Current Assets: Cash and cash equivalents .................................................. ¥165,831 ¥137,139 $1,994,360 Short-term investments (Note 3) ......................................... 62,307 52,145 749,333 Receivable - trade: Notes and accounts ................................................... 84,245 67,162 1,013,168 Inventories (Note 4) ............................................................ 140,193 126,273 1,686,025 Deferred income taxes (Note 10) ......................................... 12,561 9,973 151,064 Other current assets ............................................................ 7,331 5,490 88,166 Less: Allowance for doubtful receivables ............................. (2,350) (1,651) (28,262) 470,118 396,531 5,653,854

Investments and Other Assets: Investment securities: Subsidiaries and affiliates ........................................... 11,448 9,919 137,679 Other (Note 3 ) ........................................................... 25,737 25,199 309,525

Other assets: Refundable insurance payments ................................. 95,095 90,472 1,143,656 Deferred income taxes (Note 10) ................................ 11,144 10,003 134,023 Other assets ............................................................... 7,886 11,714 94,841

Less: Allowance for doubtful receivables ............................. (1,043) (1,314) (12,544) 150,267 145,993 1,807,180

Property, Plant and Equipment: Land ................................................................................. 23,820 21,130 286,470 Building and structures ....................................................... 84,624 85,842 1,017,727 Machinery and equipment .................................................. 135,348 134,773 1,627,757 Other ................................................................................. 4,416 2,169 53,109 Less: Accumulated depreciation .......................................... (152,418) (148,817) (1,833,049) 95,790 95,097 1,152,014 ¥716,175 ¥637,621 $8,613,048

See Notes to Consolidated Financial Statements.

SMC Corporation and Subsidiaries

As of March 31, 2011 (the end of FY2010) and 2010 (the end of FY2009)

■ Consolidated Balance Sheets

13


FY2010 FY2009 FY2010

LIABILITIES AND NET ASSETS Current Liabilities: Payable - trade: Notes and accounts ................................................... ¥ 50,773 ¥ 30,043 $ 610,619 Short-term borrowings and Current portion of long-term debt (Notes 5) ................... 22,647 34,001 272,363 Income taxes payable.......................................................... 29,855 6,583 359,050 Accrued expenses ............................................................... 15,024 11,241 180,686 Other current liabilities ....................................................... 12,866 7,175 154,732 131,165 89,043 1,577,450

Long-term Liabilities: Bonds, less current portion (Note 5) .................................... — — — Long-term borrowings, less current portion (Notes 5) ......... 10,431 3,824 125,448 Accrued severance indemnities (Note 6) .............................. 27,348 25,479 328,899 Deferred income taxes (Note 10)......................................... 4,934 4,136 59,339 Other long-term liabilities ................................................... 4,840 4,439 58,208 47,553 37,878 571,894

　Net Assets (Note 8):

Common stock, par value ¥50 per share: Authorized - 240,000 thousand shares Issued - 71,869 thousand shares ........................ 61,005 61,005 733,674 Additional paid-in capital .................................................... 72,678 72,678 874,059 Retained earnings ............................................................... 487,887 446,986 5,867,553 Unrealized gain on investments .......................................... 374 606 4,498 Foreign currency translation adjustments ............................ (42,956) (28,867) (516,609) Treasury stock, at cost ......................................................... (43,208) (43,193) (519,639) 535,780 509,215 6,443,536 Minority Interests ................................................................ 1,677 1,485 20,168 537,457 510,700 6,463,704 ¥716,175 ¥637,621 $8,613,048

14


FY2010 FY2009 FY2010

Net Sales ................................................................................. ¥325,117 ¥220,906 $3,910,006Cost of Sales (Note 11) ............................................................. 175,375 131,524 2,109,140 Gross profit ................................................................ 149,742 89,382 1,800,866Selling, General and Administrative Expenses (Note 11) ...... 67,771 63,815 815,045 Operating income ...................................................... 81,971 25,567 985,821

Other Income (Expenses): Interest and dividend income .............................................. 3,707 2,968 44,582 Interest expenses ................................................................ (539) (609) (6,482) Other, net (Note 9) ............................................................. (3,004) 1,890 (36,128) 164 4,249 1,972 Income before income taxes and minority interests............................................... 82,135 29,816 987,793

Income Taxes (Note 10): Current ............................................................................... 37,109 10,498 446,289 Deferred ............................................................................. (2,926) 140 (35,189) 34,183 10,638 411,100

Minority Interests .................................................................... 192 (416) 2,309 Net income ................................................................ ¥ 47,760 ¥ 19,594 $ 574,384

Yen U.S. dollarsPer Share (Note 12): Net income......................................................................... ¥ 696.32 ¥ 285.67 $ 8.37 Cash dividends ................................................................... 110.00 100.00 1.32



For the years ended March 31, 2011 (FY2010) and 2010 (FY2009)

■ Consolidated Statements of Income

15


FY2010 FY2009 FY2010

Income before minority interests .......................................... ¥47,951 — $576,681 Other comprehensive income Valuation difference on available-for-sale securities ..... (224) — (2,694) Foreign currency translation adjustment ..................... (14,097) — (169,537) Total other comprehensive income ...................................... (14,321) — (172,231)

Comprehensive income ........................................................... 33,630 — 404,450 (Breakdown) Comprehensive income attributable to owners of the parent ...... 33,438 — 402,141 Comprehensive income attributable to minority interests ..... 192 — 2,309




■ Consolidated Statements of Comprehensive Income

16



■ Consolidated Statements of Changes in Net Assets

Millions of yen

Net unrealized

Foreign Total

Common Additional Retained

gain on currency Treasury

shareholders' Minority Total net

stock paid-in capital earnings investments

translation stock, at cost equity

interests assets adjustments

Balance at March 31, 2009 ................ ¥ 61,005 ¥ 72,678 ¥ 433,699 ¥ (696) ¥ (35,893) ¥ (43,180) ¥ 487,613 ¥ 1,885 ¥ 489,498 Increase/decrease during the period Cash dividends ................................ (7,544) (7,544) (7,544) Net income .................................... 19,594 19,594 19,594 Acquisition of treasury stocks .............. (13) (13) (13) Disposal of treasury stocks ................ (0) 0 0 0 Changes of the scope of consolidation .. 1,237 1,237 1,237 Others .......................................... 1,302 7,026 8,328 (400) 7,928Total increase/ decrease during the period .................. — — 13,287 1,302 7,026 (13) 21,602 (400) 21,202Balance at March 31, 2010 ................ 61,005 72,678 446,986 (606) (28,867) (43,193) 509,215 1,485 510,700 Increase/decrease during the period Cash dividends ................................ (6,859) (6,859) 6,859 Net income .................................... 47,760 47,760 47,760 Acquisition of treasury stocks .............. (15) (15) (15) Disposal of treasury stocks ................ Changes of the scope of consolidation .. Others .......................................... (232) (14,089) (14,321) 192 (14,129)Total increase/ decrease during the period .................. — — 40,901 (232) (14,089) (15) 26,565 192 26,757Balance at March 31, 2011 ................ ¥61,005 ¥72,678 ¥487,887 ¥ 374 ¥(42,956) ¥(43,208) ¥535,780 ¥1,677 ¥537,457

Thousands of U.S. dollars (Note 1)

Net unrealized

Foreign Total

Common Additional Retained

gain on currency Treasury

shareholders' Minority Total net

stock paid-in capital earnings investments

translation stock, at cost equity

interests assets adjustments

Balance at March 31, 2010 ................ $733,674 $874,059 $5,375,658 $7,288 $(347,169) $(519,459) $6,124,051 $17,859 $6,141,910 Increase/decrease during the period Cash dividends ................................ (82,489) (82,489) (82,489) Net income .................................... 574,384 574,384 574,384 Acquisition of treasury stocks .............. (180) (180) (180) Disposal of treasury stocks ................ Changes of the scope of consolidation .. Others .......................................... (2,790) (169,440) (172,230) 2,309 (169,921)Total increase/ decrease during the period .................. — — 491,895 (2,790) (169,440) (180) 319,485 2,309 321,794Balance at March 31, 2011 ................ $733,674 $874,059 $5,867,553 $ 4,498 $516,609 $(519,639) $6,443,536 $20,168 $6,463,704


17


FY2010 FY2009 FY2010

Cash Flows from Operating Activities: Income before income taxes and minority interests ................ ¥ 82,135 ¥ 29,816 $ 987,793 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................... 10,804 11,594 129,934 Loss on impairment of long-lived assets ...................... — 374 — Loss on adjustment for changes of accounting standards for asset retirement obligations .................................... 182 — 2,189 Increase in accrued severance indemnities .................... 1,910 1,830 22,971 Increase in allowance for doubtful receivables .................. 496 820 5,965 Interest received/paid and dividend received, net ........... (3,320) (2,465) (39,928) Exchange loss ............................................................ 908 285 10,920 Loss on sales of investment securities ......................... (1) 1 (12) Unrealized loss on holding investment securities ......... 509 262 6,121 (Increase) Decrease in trade receivables....................... (20,028) (17,706) (240,866) (Increase) Decrease in inventories ............................... (18,904) 12,499 (227,348) Decrease in trade payables ......................................... 24,277 (486) 291,966 (Increase) Decrease in other current assets .................. (2,777) 7,586 (33,397) Increase (Decrease) in other current liabilities .............. 7,666 744 92,195 Other, net .................................................................. 753 543 9,056 84,610 45,697 1,017,559 Interest and dividend received .................................... 3,515 3,154 42,273 Interest paid ............................................................... (394) (477) (4,738) Income taxes paid ...................................................... (13,955) (6,553) (167,830) Other net ................................................................... (18) 42 (216) Net cash provided by operating activities .................... 73,758 41,863 887,048

Cash Flows from Investing Activities: Increase in short-term investments ......................................... (11,612) (14,627) (139,651) Proceeds from sale of investment securities ............................ 50 32 601 Payment for purchase of investment securities ........................ (3,000) (2,098) (36,079) Payment for purchase of property, plant and equipment ........ (11,672) (10,744) (140,373) Decrease (Increase) in refundable insurance payments ............ (4,622) 3,970 (55,586) Other, net .............................................................................. 3,603 (254) 43,331 Net cash used in investing activities ............................ (27,253) (23,721) (327,757)

Cash Flows from Financing Activities: Decrease in short-term borrowings ........................................ 340 (180) 4,089 Increase in long-term borrowings ........................................... (86) 23 (1,034) Payment for retirement of bonds ............................................. (5,000) (100) (60,132) Cash dividends paid and others .............................................. (6,860) (7,548) (82,502) Other, net .............................................................................. 35 (17) 421 Net cash used in financing activities ........................... (11,571) (7,822) (139,158)Effect of Exchange Rates Changes on Cash and Cash Equivalents ..... (6,242) 4,189 75,069Net Increase (Decrease) in Cash and Cash Equivalents ........ 28,692 14,509 345,064Cash and Cash Equivalents at Beginning of Period ............. 137,139 119,907 1,649,296Cash and Cash Equivalents of Newly Consolidated Subsidiaries ....... — 2,723 —Cash and Cash Equivalents at End of Period ........................ ¥165,831 ¥137,139 $1,994,360




■ Consolidated Statements of Cash Flows

18

The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Securities and Exchange Laws of Japan and its related accounting regulations, and in conformity with accounting principles and practice generally accepted in Japan (hereinafter referred to as the “GAAP of Japan”), which are different in certain respects as to application and disclosure requirements of International Accounting Standards. In preparing the consolidated financial statements, certain reclassifications have been made to the consolidated financial statements issued in Japan in order to present them in a form which is more familiar to readers outside Japan.

Also, certain prior accounts have been reclassified to conform to the FY2010 presentation. Japanese yen amounts are presented in millions of yen and are rounded to the nearest million yen. U.S. dollar amounts included herein are solely for convenience for readers and have been translated, as a matter of arithmetical computation only, at the rate of ¥83.15 to U.S.$1, the exchange rate prevailing at March 31, 2011. This translation should not be construed as a representation that the yen amounts actually represent or have been or could be converted into U.S. dollars at this or at any other rate.

1. BASIS OF PrESENTING CONSOLIDATED FINANCIAL STATEMENTS

(a) Principles of consolidationThe consolidated financial statements as at, and for the year ended March 31, 2010 and 2011, include the accounts of SMC Corporation (the “Company”), SMC Corporation of America, SMC Pneumatics (Canada) Ltd., SMC Corporation (Mexico) SA. de CV., SMC Pneumãticos do Brasil Ltda., Advanced Pressure Technology, SMC Pneumatics (Aust.) Pty. Ltd., SMC Pneumatics (N.Z.) Ltd., SMC Manufacturing (Aust.) Pty. Ltd., SMC Pneumatik GmbH., SMC Pneumatics (U.K.) Ltd., SMC Italia S.p.A., SMC Pneumatik AG, SMC Pneumatique SA, SMC Pneumatik GmbH (Austria), SMC España SA, SMC Pneumatics Sweden AB, SMC Pneumatics (Ireland) Ltd., SMC Pneumatik LLC, SMC Industrial Automation CZ s.r.o., SMC Manufacturing (Singapore) Pte. Ltd., SMC Pneumatics (S.E.A) Pte. Ltd., SMC Pneumatics (Hong Kong) Ltd., SMC Pneumatics (Taiwan) Co., Ltd., SMC Pneumatics (S.E.A) Sdn. Bhd., SMC Pneumatics (India) Pvt. Ltd., SMC Pneumatics Korea Co., Ltd., SMC (China) Co., Ltd., SMC (Beijing) Manufacturing Co. Ltd, SMC Thailand Ltd., SMC Pneumatics (Guangzhou) Ltd., Toyo Warehouse and Transportation Co., Ltd., Nihon Kizai Co., Ltd., Seigyo Kizai Co., Ltd. Accounts of SMC (China) Co., Ltd. and SMC (Beijing) Manufacturing Co., Ltd, SMC Corporation (Mexico) SA. de CV., SMC Pneumatik LLC and SMC Pneumãticos do Brasil Ltda., whose financial year-end of December 31, 2008 and 2009 and accounts of SMC Pneumatics (Guangzhou) Ltd. and SMC Industrial Automation CZ s.r.o., whose financial year-end of December 31, 2009 have been adjusted for significant transactions to properly reflect their financial positions at, and the results of operations for the year ended March 31, 2009 and 2010.Accounts of SMC (China) Co., Ltd., SMC (Beijing) Manufacturing Co. Ltd, SMC Pneumatics (Guangzhou) Ltd., SMC Corporation (Mexico) SA. de CV., SMC Pneumatik LLC SMC Industrial Automation CZ s.r.o. and SMC Pneumãticos do Brasil Ltda., whose financial year-end of December 31, 2009 and 2010 have been adjusted for significant transactions to properly reflect their financial positions at, and the results of operations for the year ended March 31, 2010 and 2011.The accounts of the other subsidiaries were not included in the consolidated financial statements due to their aggregate sales, total assets, net income and retained earnings were

insignificant. Investments in non-consolidated sub sidiaries and affiliates are carried at cost due to their immateriality.All significant intercompany accounts and transactions have been eliminated.

(b) Cash and cash equivalentsCash and cash equivalents include all highly liquid investments, generally with original maturities of three months or less.

(c) Short-term investments and investment securitiesThe GAAP of Japan requires the classification of short-term investment and investment securities (except for “non-consolidated subsidiaries and affiliates”) of the Company and its consolidated subsidiaries (hereinafter, the Companies) into three categories as follows:i) Debt securities that are expected to be held-to-maturity:

carried at accumulated cost using straight-line methodii) Other securities primarily designated as available-for-sale,

whose fair values are readily determinable: carried at fair value with unrealized gains or losses included in Shareholders’ Equity as “unrealized gain or loss on investments” net of applicable income taxes

iii) Other securities primarily designated as available-for-sale, whose fair values are not readily determinable: carried at cost using moving average method

(d) Derivative financial instrumentsThe Company and certain of its consolidated subsidiaries have entered into foreign exchange contracts and interest rate swap contracts to manage currency and interest rate exposures. These financial instruments, including foreign exchange forward contracts and interest rate swap agreements, are used for risk management of foreign currency and interest rate risk exposures of its financial assets and liabilities by the Company and the subsidiaries. All derivatives are stated fair value and the recognition of gain / loss resulting from changes in fair value of all hedging item is recognized. However, when an interest rate swap agreement meets certain conditions, the net amount to be paid or received under the contract is added to or deducted from the interest expenses on the hedged item.

2. SuMMArY OF SIGNIFICANT ACCOuNTING POLICIES


■Notes to Consolidated Financial Statements

19

(e) Inventories Inventories are stated principally at lower of cost or market, cost being determined principally by the monthly average method.

(f) Property, plant and equipmentProperty, plant and equipment (except leased assets) are principally stated at cost. Depreciation of property, plant and equipment of the Company and its consolidated domestic subsidiaries is computed primarily under the declining balance method over the estimated useful lives of the assets, while the straight-line method is applied to the buildings (excluding equipment of building) of the Company and its consolidated domestic subsidiaries newly acquired on and after April 1, 1998, and to the property, plant and equipment of consolidated foreign subsidiaries substantially. The range of useful lives is principally from 3 to 50 years for building and structures and from 2 to 20 years for machinery and equipment.

(g) Intangible assetsIntangible assets (except leased assets) including software are stated at cost. Amortization of intangible assets of the Company and its consolidated domestic subsidiaries is computed under the straight-line method, while its consolidated foreign subsidiaries apply arranged straight-line methods allowed by applicable accounting principle. The software utilized by the Companies is amortized over the estimated useful lives (mainly 5 years).

(h) Allowance for doubtful receivablesThe Company and its consolidated domestic subsidiaries have provided an allowance for doubtful receivables on the basis of their past credit loss experience, and on the individual basis, estimated uncorrectable amount have accrued for troubled receivables.Foreign consolidated subsidiaries have provided an allowance for doubtful receivables at an estimated uncollectible amount on an individual basis.

(i) Foreign currency translation Foreign currency deposits and foreign currency receivables and payables are translated into Japanese yen at the rates prevailing at the balance sheet date, except for those subject to forward

contracts, which are translated at the contracted rates. All asset and liability of foreign subsidiaries are translated at the rates of exchange prevailing at the balance sheet date. Income and expense are translated at average rates of exchange during the fiscal period. Resulting translation adjustments are charged to “Minority Interests“ and “Shareholders’ Equity“.

(j) LeasesFinancial leases, which contract was made on and after April 1, 2008, other than those that are deemed to transfer the ownership of the leased assets to the lessees are principally accounted for by the method that should be considered it as assets acquisition.Financial leases, which contract was made on or before March 31, 2008, other than those that are deemed to transfer the ownership of the leased assets to the lessees are principally accounted for by the method that is applicable to ordinary operating leases.

(k) Per share information Net income per share has been computed based on a weighted average number of shares of common stock outstanding during the respective fiscal year.The GAAP of Japan requires deductions of the amounts, with which common stockholders are not vested (e.g. payment of directors’ and statutory auditors’ bonuses), from net income at computing net income per share. Cash dividends per share are based on the cash dividends paid in respect of the relevant period.

(l) Accounting standard for asset retirement obligations Effective from the fiscal year under review, the Company applied “Accounting Standards for Asset Retirement Obligations” (ASBJ Statement No. 18, March 31, 2008) and “Guidance on Accounting Standards for Asset Retirement Obligations” (ASBJ Guidance No. 21, March 31, 2008).As a result of this change, operating income for the fiscal year under review decreased by ¥41 million (U.S.$493 thousand) and income before income taxes and minority interests decreased by ¥223 million (U.S.$2,682 thousand).

(a) PoliciesThe Company and its subsidiaries raise the funds by borrowings from banks in addition to own resources to manage working capital. Idle cash, if any, are held, as low-risk financial instruments by the Company and mainly as bank deposits by its subsidiaries which are prohibited to hold securities in principle. The Companies use derivatives to hedge risk and do not enter into derivatives for speculative purpose.

(b) Type of risks Notes and accounts receivables are exposed to customers’ credit risk. In addition, those receivables denominated in foreign currencies are exposed to fluctuation risk of foreign currency exchange rates. Securities and investment securities are mainly consisted from securities of the companies which have business relationship with the Company and investment trusts, and are exposed to fluctuation risk of market price. Payment terms of trade payables, such as notes and accounts, are mainly less than one year. Trade payables denominated in foreign currencies are exposed to fluctuation risk of foreign currencies. Long-term borrowings are used for the working capital, and bear fixed interest rate, and are due until 5 years from the balance sheet date. Derivative transactions are mentioned in 2(d) above.

3. FINANCIAL INSTruMENTS

20

(i) Method of the valuation / estimation of fair value of financial instruments and other matters related to securities and derivative transactions

Cash and cash equivalents, short-term investments and notes and accounts receivable - tradeSince these items are settled in a short period, their carrying amounts are approximately the same as their fair value.

Investment securities – otherThe fair value of equity securities is based on quoted market prices. The fair value of debt securities and investment trusts are based on quoted market prices or prices provided by the related financial institutions.

Notes and accounts payable - trade and short-term borrowings and current portion of long-term debtsSince these items are settled in a short period, their carrying amounts are approximately the same as their fair value.

Derivatives transactionsThere was no derivative transaction for FY2010.

Millions of yen Carrying amounts Estimated fair value Difference

Cash and cash equivalents ............................................................................ ¥165,831 ¥165,831 –Short-term investments ................................................................................. 62,307 62,307 –Notes and accounts receivable -trade ............................................................ 84,245 84,245 –Investment securities - other ......................................................................... 25,533 25,533 –Total of these assets ...................................................................................... ¥337,916 ¥337,916 –Notes and accounts payable - trade .............................................................. 50,773 50,773 –Short-term borrowings and current portion of long-term debts ................... 22,647 22,647 –Total of these liabilities .................................................................................. ¥ 73,420 ¥ 73,420 –Derivatives .................................................................................................... – – –

Thousands of U.S. dollars Carrying amounts Estimated fair value Difference

Cash and cash equivalents ............................................................................... $1,994,360 $1,994,360 –Short-term investments .................................................................................... 749,333 749,333 –Notes and accounts receivable -trade ............................................................... 1,013,168 1,013,168 –Investment securities - other ............................................................................ 307,072 307,072 –Total of these assets ......................................................................................... $4,063,933 $4,063,933 –Notes and accounts payable - trade ................................................................. 610,619 610,619 –Short-term borrowings and current portion of long-term debts ...................... 272,363 272,363 –Total of these liabilities ..................................................................................... $0,882,982 $0,882,982 –Derivatives ....................................................................................................... – – –

(c) risk management i) Credit risk (default of customers) - The Companies monitor due dates and outstanding balance of receivables of customer each by each, routinely check their credit conditions and periodically assess their credit risk. Furthermore, the Company secures guarantee deposits from main distributors. To minimize the credit risk of derivative transactions, the Companies choose the counterparties from high rating financial institutions.ii) Market price fluctuation risk (the risk arising from fluctuations in foreign exchange rates and interest rates) – The Company and certain of its consolidated subsidiaries use, if necessary, foreign exchange forward contracts to reduce the risk arising from receivables and payables denominated in foreign currencies. The balance of such payables denominated in foreign currencies is consistently less than the balance of such receivables of the same sort.The Companies periodically checks the fair value and financial conditions of issuers of the securities and investment securities.Derivative transactions, as far as the contracts entered and remaining balance of their asset / liability, are reviewed according to the Company's internal regulations.iii) Liquidity risk for financing (default of the Companies) – The Companies manage the liquidity risk by preparing monthly cash-flow forecast.

(d) Supplementary description for fair value of financial instruments Fair values of financial instruments are based on the listed quotes in the markets. If quotes are not available, they are reasonably calculated, based on the certain conditions which might differ in any other economic situation, and are subjected to change.

(e) The carrying amounts, their estimated fair values and their difference of the financial instruments, except for certain financial instruments whose fair value are extremely difficult to estimate (see note (ii) below) , included in the consolidated balance sheet as of March 31, 2011, are as the followings:

21

Thousands of Millions of yen U.S. dollars FY2010 FY2009 FY2010

Loans principally from the banks ................................................................... ¥21,190 ¥20,850 $254,841


Goods and finished products .............................................................................. ¥ 55,135 ¥ 50,357 $ 663,079Work in process .................................................................................................. 10,477 10,226 126,001Raw materials and supplies................................................................................. 74,581 65,690 896,945 ¥140,193 ¥126,273 $1,686,025


2.15% Euro bonds due 2011 ............................................................................. – ¥ 5,000 –Loans principally from the banks ........................................................................ 11,888 11,975 142,971 11,888 16,975 142,971Less: Current portion .......................................................................................... 1,457 13,151 17,523 ¥10,431 ¥3,824 $125,448

At March 31, 2010 and 2011, short-term borrowings were as follows:

5. ShOrT-TErM BOrrOwINGS AND LONG-TErM DEBT

At March 31, 2010 and 2011, inventories were comprised as follows:

4. INvENTOrIES

The weighted average interest rate of these short-term borrowings at March 31, 2011, was approximately 0.6 per cent.At March 31, 2009 and 2010, long-term debt were consisted as follows:

Millions of yen Due in one Due after one year Due after five years Due after ten year or less through five years through ten years years

Cash and cash equivalents ....................................................... ¥165,831 – – –Notes and accounts receivable - trade ..................................... 84,245 – – –Investments securities with maturities: Debt securities to be held-to-maturity .................................. – – – – Other .................................................................................... – – – –Total ........................................................................................ ¥250,076 – – –

Thousands of U.S.dollars Due in one Due after one year Due after five years Due after ten year or less through five years through ten years years

Cash and cash equivalents ....................................................... $1,994,360 – – –Notes and accounts receivable - trade ..................................... 1,013,168 – – – Securities and investment securties Held-to-maturity debt securities............................................ – – – – Other securities with maturities ............................................ – – – –Total ........................................................................................ $3,007,528 – – –

(iii) Schedule of the maturities of receivables and investment securities with maturities as of March 31, 2011 were as the followings:

(ii) Financial instruments whose fair value are extremely difficult to measure / estimate as of March 31, 2011, not included in the chart (e) above, were as the followings:

　As of March 31, 2011 　Millions of yen　 Thousands of U.S.dollars

Subsidiaries and affiliates .............................................................................. ¥ 11,448 $137,679Other unlisted equity securities ..................................................................... 215 2,586

22


Service cost ......................................................................................................... ¥2,189 ¥3,012 $26,326Interest cost ........................................................................................................ 1,435 1,478 17,258Expected return of plan assets ............................................................................ (734) (633) (8,828)Amortization of unrecognized actuarial difference ............................................. 1,090 798 13,109Amortization of prior service cost ....................................................................... (111) (111) (1,335)Net pension cost ................................................................................................ ¥3,869 ¥4,544 $46,530

“Accrued severance indemnities” in the consolidated balance sheets as of March 31, 2010 and 2011 also includes the provision for lump-sum severance indemnities for directors and statutory auditors of the Company and its consolidated domestic subsidiaries amounted to ¥705 million and ¥706 million (U.S. $8,490 thousand) respectively.Net service cost of the plans for the years ended March 31, 2010 and 2011 were as follows:

Significant assumption used to calculate the above-mentioned amount were as follows:Allocation method of benefit obligation Straight-line methodDiscount rate FY2009 : 2.1% FY2010 : 2.1%Expected rate of return on plan assets FY2008 : 2.0% FY2009 : 2.0%Unrecognized actuarial difference is amortized in 10 years. Unrecognized prior service cost is amortized in 10 years.


Projected benefit obligation ................................................................................ ¥(72,468) ¥(69,457) $(871,533)Fair value of plan assets ...................................................................................... 37,282 36,795 448,370Unfunded benefit obligation .............................................................................. (35,186) (32,662) (423,163)Unrecognized actuarial difference ...................................................................... 8,671 8,109 104,281 Unrecognized prior service cost .......................................................................... (111) (221) (1,335) Prepaid pension cost .......................................................................................... (16) – (192)Net amount recognized ...................................................................................... ¥(26,642) ¥(24,774) $(320,409)

At March 31, 2010 and 2011, “Accrued severance indemnities” recognized in the consolidated balance sheet were as follows:

Employees of the Company and its consolidated domestic subsidiaries are usually entitled to lump-sum severance indemnities determined by reference to their current basic rate of pay, length of service and conditions under which the termination occurs. With respect to directors and statutory auditors of the Company, lump-sum severance indemnities are calculated using a similar formula and are normally paid subject to the approval at the shareholders’ meeting of the Company.The Company has a contributory funded defined benefit pension plan, which are pursuant to the Welfare Pension Insurance Law of Japan. The contributory pension plan covers a portion of the governmental welfare pension program, under which the Company and its employees make the contributions.The Company and its consolidated domestic subsidiaries have provided “accrued severance indemnities” based on the projected benefit obligation, considering the estimated fair value of the assets of the pension fund.Unrecognized actuarial difference are amortized and charged to income on a straight-line method from a succeeding year of the incurrence over certain years within the average remaining years of service of employees at the incurrence.(Additional information)Following the enforcement of the Defined Benefit Corporate Pension Act, SMC obtained the approval of the Minister of Health,

Labour and Welfare for alleviating future obligations to disburse the substitute portion related to past employee services on April 1, 2010. The Company plans to return the substitute portion related to past employee service of employees’ pension fund in July 2011. Simultaneously with the return of the substitute portion of employees’ pension fund, SMC plans to shift from the existing retirement benefit system to a new defined benefit pension plan and defined contribution pension system.The amount of return of substitute portion related to past employee services payable (minimum actuarial liability) determined as of the end of the fiscal year under review was ¥15,975 million (U.S.$192,123 thousand), and the estimated gains generated if the Company applied the Paragraph 44-2 of the “Practical Guidelines on Accounting for Retirement Benefits (Interim Report)” (Accounting Committee Report No. 13 of JICPA), assuming that the payment of the said amount of return of substitute portion related to past employee services payable (minimum actuarial liability) is made at the end of the fiscal year under review, is ¥11,533 million (U.S.$138,701 thousand).Meanwhile, the estimated loss generated assuming that the transfer to the new pension systems is implemented as of the end of the fiscal year under review is ¥7,723 million (U.S.$92,880 thousand).

6. ACCruED SEvErANCE INDEMNITIES

23

At March 31, 2010 and 2011, there were no contingent liabilities of the Companies.

7. CONTINGENT LIABILITIES

For the years ended March 31, 2010 and 2011, ‘Other - net ’ in “Other Income (Expenses)” were consisted of the following:

9. OThEr INCOME (ExPENSES) - OThEr, NET


Exchange Gain (Loss) .................................................................................... ¥ (4,530) ¥ 1,167 $(54,480)Write-down of investment securities ............................................................. (509) (262) (6,122)Dividend received on refundable insurance payment ..................................... 423 358 5,087Gain on sales of scraps.................................................................................. 612 180 7,360Net gain (loss) on sales of investment securities ............................................. 1 (1) 12Decrease (Increase) in allowance for doubtful accounts ................................. – (110) –Loss on impairment of long-lived assets ........................................................ – (374) –Gain on fixed assets sold ............................................................................... 346 249 4,161Loss on disposition of fixed assets ................................................................. (131) (133) (1,575)Loss on adjustment for changes of accounting standard for asset retirement obligations ........................................................................ (182) – 2,189Other ........................................................................................................... 966 816 11,618 ¥(3,004) ¥1,890 $(36,128)

The Companies’ Act and the applicable Ordinance of the Ministry of Justice provides that an amount equivalent to one tenth of the amount of dividends of surplus shall be recorded as capital reserves (“Additional paid-in capital” shown in the consolidated balance sheet) or retained earnings reserves (included in “Retained earnings”), hereafter referred to as “Reserves”, until an aggregate amount of Reserve equals to one forth of the amount of stated capital (“Common stock” shown in the consolidated balance sheet). The Reserves may be transferred to stated capital or used to reduce a deficit by a resolution of shareholders’ meeting, but shall not be used for dividends of surplus.

The Act also provides that the stated capital shall be the amount of properties contributed by persons who become shareholders at the share issue, although the amount not exceeding half of the amount of the contribution may not be recorded as stated capital. In such case, the amount not recorded as stated capital shall be recorded as capital reserves.The “Reserves” mentioned above included in “Additional paid-in capital” and “Retained earnings” in consolidated balance sheet as March 31, 2011 were the capital reserves amounting to ¥72,576 million (US$872,832 thousand) and the retained earnings reserves amounting to ¥15,251 million (US$183,416 thousand).

8. NET ASSETS

FY2010 FY2009

Normal income tax rate ............................................................................................................... 40.0% 40.0%Increase (Decrease) in taxes resulting from:

Differences in effective tax rate of foreign subsidiaries ......................................................... (7.3)% (9.3)%Expenses not deductible for tax purposes ............................................................................ 0.3% 0.2%Taxes of previous years ........................................................................................................ 8.2% (0.1)%Tax credit ............................................................................................................................. (0.8)% (2.4)%Valuation allowance ............................................................................................................ 0.0% 1.9%Difference in elimination of unrealized profit of inventory ................................................... (0.2)% 3.4%Difference in prospected dividends ...................................................................................... 0.9% 1.3%Other .................................................................................................................................. 0.5% 0.7%Effective income tax rate ..................................................................................................... 41.6% 35.7%

The Company and its consolidated domestic subsidiaries were subject to number of different taxes based on income which, in the aggregate, result in a normal effective tax rate of approximately 40.0% for the years ended March 31, 2010 and 2011. Reconciliation of the actual effective tax rates in the consolidated statements of income and the normal tax rate was as follows:

10. INCOME TAxES

24

For the years ended at March 31, 2010 and 2011, research and development expenses included under “Cost of Sales” and “Selling, General and Administration Expenses” were ¥13,163 million and ¥13,776 million (U.S.$165,676 thousand), respectively.

11. rESEArCh AND DEvELOPMENT ExPENSES


Deferred tax assets:Accrued severance indemnities ................................................................ ¥10,783 ¥ 10,018 $129,681 Write-down of investment securities ........................................................ 968 962 11,642Accrued enterprise and business taxes ..................................................... 1,818 306 21,864Accrued bonuses ..................................................................................... 3,240 2,296 38,966Write-down of inventories ....................................................................... 1,913 1,705 23,007Unrealized holding loss on investments.................................................... – 1 –Write-down of investment in non-consolidated subsidiaries ..................... 1,213 1,213 14,588Allowance for doubtful receivables .......................................................... 955 745 11,485Unrealized profit on principally inventories ............................................... 4,029 3,886 48,455Impairment loss ....................................................................................... 5 628 60Other ...................................................................................................... 1,067 569 12,832 25,991 22,329 312,580Valuation allowance ................................................................................ (2,286) (2,353) (27,492)

Deferred tax liabilities:Unrealized holding gain on investments .................................................. (218) (369) (2,622)Deferred gain on exchange of lands ......................................................... (3,144) (3,372) (37,811) .............. (1,789) – (21,515)Other ...................................................................................................... (185) (916) (2,225) (5,336) (4,657) (64,173)Net deferred tax assets ............................................................................ ¥18,369 ¥15,319 $220,914

At March 31, 2010 and 2011, the significant components of deferred tax assets and deferred tax liabilities were as follows:

Concerning income taxes for prior periods, in anticipation of receiving a notice of correction regarding business transactions between the Company and its overseas subsidiaries based on transfer pricing taxation from the Tokyo Regional Taxation Bureau, the Company recorded prior income tax of ¥6,534 million (U.S.$78,580 thousand) as the expected amount of tax payable based on the said correction notice. The Company will respond appropriately upon receiving the notice of correction after reviewing the details.

Thousands of Millions of yen U.S. dollars

FY2010 FY2009 FY2010

Net income ................................................................................................... ¥47,760 ¥19,594 $574,384The amount not vested in common stockholders ........................................... – – –Net income vested in common stockholders .................................................. 47,760 19,594 574,384

Number of shares (Thousand)

FY2010 FY2009

Weighted average outstanding common shares ........................................... 68,588 68,589

Net income per share has been computed based on as follows:

12. PEr ShArE INFOrMATION

25

To the Board of Directors ofSMC Corporation

We have audited the accompanying consolidated balance sheets of SMC Corporation (the “Company”) and its consolidated subsidiaries as of 31st March, 2010 and 2011, and the related consolidated statements of income, changes in net assets and cash flows for each of the two years ended 31st March, 2011, and consolidated statements of comprehensive income for the year ended 31st March, 2011, all expressed in Japanese yen. Preparing these financial statements is the responsibility of the Company’s management. Our responsibility is limited to express an independent opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied in Japan, which require that we plan and perform the audits to obtain reasonable assurance that the financial statements are free of material misstatement. Our audits include examining evidence supporting the amounts and disclosures in the financial statements on a test basis, and also include assessing the accounting policies and significant estimates adopted and applied by the Company’s management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SMC Corporation and its consolidated subsidiaries as of 31st March, 2010 and 2011, and the consolidated results of their operations, changes in net assets and cash flows for each of the two years ended 31st March, 2011, and consolidated comprehensive income for the year ended 31st March, 2011, in conformity with accounting principles and practices generally accepted in Japan as described in Note 1 to the consolidated financial statements.The U.S. dollar amounts, presented solely for the convenience of the readers, have been translated on the basis described in Note 1 to the consolidated financial statements.

　　　　　　Eizaburo Koinuma Hideo Niwa Takashi Saito Certified Public Accountants

Tokyo, JapanJune 29, 2011

CERTIFIED PUBLIC ACCOUNTANTS

4TH FLOOR NTK BUILDING2-5-11 NISHISHIMBASHI MINATO-KUTOKYO 105-0001 JAPAN

■ Report of Independent Certified Public Accountants on the Consolidated Financial Statements

26

OvErSEAS SuBSIDIArIES

North America● SMC Corporation of America

10110 SMC Blvd., Noblesville, Indiana 46060, U.S.A.TEL: 1-317-899-4650

● SMC Pneumatics (Canada) Ltd.2715 Bristol Circle, Unit #2, Oakville, Ontario, L6H 6Z8, CanadaTEL:1-905-287-9700

● SMC Corporation (Mexico), S.A. de C.V.Carretera Silao-Trejo Km. 2.5 S/N, Predio San José del Durazno, C.P. 36100, Silao, Gto, MexicoTEL:52-472-722-5500

● Advanced Pressure Technology687 Technology Way, Napa, California, 94558, U.S.A.TEL: 1-707-259-0102

Central/South America● SMC Argentina S.A.

Teodoro Garcia 3880, C1427ECH. Buenos Aires, ArgentinaTEL:54-11-5555-762

● SMC Pneumatics (Chile) S.A.Av. La Montaña # 1115, P. Norte Km. 16, 5 Parque Industrial Valle Grande, Lampa, Región Metropolitana de Santiago, ChileTEL:56-2-270-8600

● SMC Pneumatics Bolivia S.r.l.Av. Canal Cotoca No. 2635, Santa Cruz, BoliviaTEL: 591-3-3649957

● SMC Neumatica Venezuela S.A.Av. Michelena Zona industrial, Edficio Canaima-Local 4, Valencia Estado Carabobo, 2003, VenezuelaTEL:58-241-834-5617

● SMC Pneumãticos do Brasil Ltda.Avenida Piraporinha 777, Bairro Planalto, São Bernardo do Campo, São Paulo, CEP: 09891-001, Brasil TEL:55-11-4082-0600

Asia & Oceania● SMC Pneumatics (S.E.A.) Pte. Ltd.

33, Tuas Avenue 8 Jurong, Singapore 639251TEL:65-6861-0888

● SMC Pneumatics (Hong Kong) Ltd.29/F., Clifford Centre, 778-784 Cheung Sha Wan Road, Kowloon, Hong KongTEL:852-2744-0121

● SMC Pneumatics (Taiwan) Co., Ltd.No.16, Lane 205, Nansan Rd. Sec 2 Luzhu-hsiang, Taoyuan-hsien, TaiwanTEL:886-3-322-3443

● SMC Pneumatics (S.E.A) Sdn.Bhd.Lot 36, Jalan Delima 1/1, Subang Hi-Tech Industrial Park, Batu Tiga, 40000 Shah Alam, Selangor, MalaysiaTEL:60-3-5635-0590

● SMC Pneumatics (India) Pvt. Ltd.D 91-D96, D107-D112 Phase II Exth., Noida, Gautam Budh Nagar, Uttar Pradesh 201305, IndiaTEL:91-120-2568-730

● SMC Pneumatics Korea Co., Ltd.Korea Scout Association B/D 8F, 18-3, Yeouido, Yeongdeungpo, Seoul,150-914, KoreaTEL: 82-2-3219-0700

● SMC (Thailand) Ltd.134/6, Moo 5, Tiwanon Road, Bangkadi Sub-District Muang-Patumthani District, Patumthani Providence 12000, ThailandTEL:66-2-963-7099

● SMC Manufacturing (Singapore) Pte. Ltd.91 Tuas Avenue 1, Jurong, Singapore 639521TEL:65-6861-1868

● SMC (China) Co., Ltd.No.2 Xingsheng St, Beijing Economic & Technological Development Zone, Beijing 100176, P.R. ChinaTEL:86-10-6788-2111

● SMC (Beijing) Manufacturing Co., Ltd.No.3 TianZhu East Road, Area A, Beijing TianZhu Airport Industrial Zone, Beijing TianZhu Export Processing Zone, Beijing 101312 P.R. ChinaTEL:86-10-8048-0101

● SMC Pneumatics (Guangzhou) Ltd.2, Dongming Road 3, Science Park Guangzhou Hi-tech Industrial Development Zone, Guangzhou, ChinaTEL:86-20-28397668

● SMC Pneumatics (Australia) Pty. Ltd.14-18 Hudson Ave., Castle Hill, N.S.W. 2154, AustraliaTEL:61-2-9354-8222

● SMC Pneumatics (N.Z.) Ltd.5 Pacific Rise, Mt. Wellington, Auckland, New ZealandTEL:64-9-573-7007

● SMC Manufacturing (Australia) Pty. Ltd.14-18 Hudson Ave., Castle Hill, N.S.W. 2154, AustraliaTEL:61-2-9354-8222

Europe● SMC Pneumatik GmbH

Boschring 13-15, D 63329 Egelsbach, GermanyTEL:49-6103-402-0

● SMC Pneumatics (U.K.) Ltd.Vincent Avenue, Crownhill, Milton Keynes, Bucks, MK8 0AN England, U.K.TEL:44-1908-563888

● SMC Italia S.p.AVia Garibaldi 62, 20061 Carugate (MI), ItalyTEL:39-02-9271-1

● SMC Pneumatik AGDorfstrasse 7, Weisslingen CH-8484, SwitzerlandTEL:41-52-396-31-31

● SMC España S.A.Zuazobidea 14,Poligono Industrial de Jundiz,01015 Vitoria, SpainTEL:34-945-184-100

● SMC Pneumatique SA1 Boulevard de Strasbourg, Parc Gustave Eiffel, Bussy Saint Georges, Seine et Marne, 77600, FranceTEL:33-1-64-76-1199

● SMC Pneumatik GmbH (Austria)Girakstrasse 8, A-2100 Korneuburg, AustriaTEL:43-2262-62-280-0

● SMC Pneumatics Sweden ABEkhagsvägen 29-31, 141 71 Huddinge, SwedenTEL:46-8-603-12-00

● SMC Pneumatics (Ireland) Ltd.2002 Citywest Business Campus, Naas Road, Saggart, County Dublin, IrelandTEL:353-1-403-9000

● SMC Hellas E.P.E.Anagenniseos 7-9, 14342 Nea Filadelfeia, AtticaTEL:30-210-2717265

● SMC Romania S.r.l.Str. Frunzei, NR. 29, Sector 2, Bucharest 21532, RomaniaTEL:40-21-3205-111

● SMC Industrial Automation CZ s.r.o.Hudcova 78a, CZ-61200 Brno, Czech RepublicTEL:420-5-41-424-612

● SMC Hungary Ipari Automatizálási Kft.Torbágy u. 19, Törökbálint, 2045, HungaryTEL:36-23-511-390

● SMC Industrijska Avtomatika d.o.o.Mirnska Cesta 7, SI-8210 Trebnje, SloveniaTEL:386-73-885-431

● SMC Priemyselná Aumtomatizácia Spol s.r.o.Fantranská 1223, Teplicka nad vahom, 01301 SlovakiaTEL:421-41-32132

● SMC Industrial Automation Polska Sp.z.o.o.Ul. Poloneza 89, PL-02-826 Warzawa, PolandTEL:48-22-211-9616

● SMC Pneumatik LLCBusiness Centre ”F.Leger”, building 3, ST. Petersburg, 195197, RussiaTEL: 7-812-718-5445

● SMC Pneumatics Norway ASVollsveien 13 C, Granfos Naeringspark N-1366 Lysaker NorwayTEL:47-67-129020

● SMC Pneumatics Finland OyPL 72 Tiistiniityntie 4, Espoo 02231, FinlandTEL:358-20-7513513

● SMC Pneumatics Estonia OüLaki12, 10621 Tallin, EstoniaTEL:372-6510370

● SMC Pneumatics Latvia SIADzelzavas str. 120 g, Riga, LV-1021, LatviaTEL: 371-781-7700

● SMC Pneumatik A/SEgeskovvej 1, DK-8700, Horsens, DenmarkTEL: 45-7025-2900

● UAB ”SMC Pneumatics”Oslo g.1, Vilnius, LT-04123, LithuaniaTEL:370-5-264-81-26

● SMC Industrial Automation Bulgaria EOODBusiness Park Sofia Building 8 C, fl. 6, Sofia, 1715, BulgariaTEL:359-297-444-92

● SMC Industrijska Automatika d.o.o.Crnomerec 12, Zagreb, 10000 CroatiaTEL:00385-13-707-288

● LLP ”SMC Kazakhstan”18,Tsiolkovsky`s str, Almaty region, Astana, 010000, KazakhstanTEL: 7172-54-14-07

● SMC Pnömatik Sanayi Ticaret ve Servis A.S.Gulbahar Caddesi Aydin Plaza No:9 Kat: 4 Gunesli, Istanbul, TurkeyTEL: 90-212-489-0440

OvErSEAS ASSOCIATED COMPANY

● SMC Pneumatics B.V.De Ruyterkade 120, 1011 AB Amsterdam, The Netherlands TEL:31-20-531-8888

Corporate Directory

Notes Regarding Future Plans and EstimatesThis annual report contains projections concerning the future plans, strategies and estimated performance of SMC. These statements do not include historical data but rather are based on management’s projections given the information currently available. Accordingly, these projections involve risks and uncertainties relative to the status of the economy and demand, intensifying competition, exchange rates, taxation and other regulations.

Printed with soy ink

Founded in 1959 as a manufacturing firm specializing in sintered metal filters and filtration elements in 1959, the SMC Group entered the pneumatic equipment market in 1961 and has since engineered and produced a wide variety of pneumatic products for the global market. The Group’s expertise has continued to increase the range of its products, which now exceed 600,000--including air line equipment, directional control valves, actuators and air preparation equipment. The Group’s strengths—offering high quality products at low cost and with quick delivery—enable it to retain a high market share in Japan and compete overseas as a leading global integrated manufacturer of pneumatic equipment even as it evolves into an automatic control equipment manufacturer.

Profile

History

Corporate Information

Board of Directors

SMC Corporation

Head Office : 4-14-1, Soto-Kanda, Chiyoda-ku, Tokyo 101-0021, Japan Tel: 03-5207-8271 Fax: 03-5298-5361Established : April 27, 1959Capital : JPY 61,005 millionNumber of Employees : Consolidated 15,305Current Status of Stocks : Total number of shares 240,000,000 Shares outstanding 71,869,359 Number of shareholders 7,414Stock Listing : First Section, Tokyo Stock Exchange Administrator of Register of Shareholders : The Chuo Mitsui Trust and Banking Co., Ltd. 33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan

ChairmanYoshiyuki Takada

PresidentKatsunori Maruyama

Executive Managing Directors

Fumitaka ItohIkuji UsuiYoshihiro Fukano

Managing DirectorsYoshiki TakadaKatsunori TomitaSeiji Kosugi

DirectorsTamon KitabatakeIwao MogiEiji OhashiMasahiko SatakeKouichi ShikakuraOsamu KuwaharaKouji OguraMotoichi KawadaGerman BerakoetxeaDaniel LangmeierLup Yin Chan

Standing Statutory AuditorsJinichi Shimazaki

Statutory AuditorsTakashi HondaKouji TakahashiYoshiaki Ogawa

(As of June 29, 2011)

1959 Established under the name of Shoketsu Kinzoku Kogyo Co., Ltd. (Sintered Metal Corporation), capitalized at ¥5 million (Manufacture and sales of sintering metal filters by power metallurgy).

1961 Started manufacture of pneumatic air line equipment.

1967 Embarked on overseas operations with capital participation in Airmate SMC Pty. Ltd., Australia. (Reorganized into a wholly owned subsidiary SMC Pneumatics (Australia) Pty. Ltd. in 1980)

1968 Soka 1st Factory completed.1970 Started manufacture of air cylinders.1973 Soka 2nd Factory completed.1977 SMC Pneumatics, Inc. name changed to SMC

Corporation of America in 2001, a wholly owned subsidiary, established in the U.S.

1978 SMC Pneumatik GmbH, a wholly owned subsidiary, established in Germany.

1983 Tsukuba 1st Factory completed.1986 SMC Manufacturing (Singapore) Pte. Ltd., a

wholly owned subsidiary established. Corporate name changed to SMC Corporation

from Shoketsu Kinzoku Kogyo Co., Ltd.1987 Stocks listed on the second section of the Tokyo

Stock Exchange; Capital increased to ¥11,340 million.

1989 Stocks listed on the first section of the Tokyo Stock Exchange; Tsukuba 2nd and Soka 3rd Factories completed.

1991 Kamaishi Factory completed. Japan Technical Center completed.1994 Yamatsuri Factory completed. SMC (China) Co., Ltd., a wholly owned subsidiary

established.1997 Tono Factory completed.1998 Acquired ISO 9001 certification.1999 Acquired ISO 14001 certification.2000 European Technical Centre established in the U.K.2002 Established the US Technical Center in the United

States.2006 Moved Headquarters to new facility.2007 Established the Chinese Technical Center.

Financial Highlights …………………………1Message from the President ………………2Operating Data ……………………………4Financial Review ……………………………5Financial Data ………………………………6Consolidated Balance Sheets ………………12Consolidated Statements of Income ………………………………………14Consolidated Statements of Comprehensive Income ……………………15Consolidated Statements of Changes in Net Assets ………………………16Consolidated Statements of Cash Flows ……………………………………17Notes to Consolidated Financial Statements …………………………………18Report of Independent Certified Public Accountants on the Consolidated Financial Statements …………………………………25Corporate Directory ………………………26Corporate Information & Board of Directors …………………………27

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4-14-1, Soto-Kanda, Chiyoda-ku, Tokyo 101-0021, Japan Tel : 03-5207-8271 Fax : 03-5298-5361 http://www.smcworld.com

Annual ReportAnnual ReportAnnual ReportFor the year ended March 31, 2011For the year ended March 31, 2011For the year ended March 31, 2011

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