SMC Corporation Annual Report 2009 · 2000 European Technical Centre established in the U.K. ... As...

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

For the year ended March 31, 2009

Annual Report

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 15,388Current Status of Stocks : Total number of shares 240,000,000 Shares outstanding 71,869,359 Number of shareholders 8,122Stock 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 Usui

Managing DirectorsYoshiki TakadaKatsunori TomitaKanji Tanioka

DirectorsBunji OshidaTamon KitabatakeYoshihiro FukanoIwao MogiEiji OhashiMasahiko SatakeSeiji KosugiKouichi ShikakuraOsamu KuwaharaPeter G. DriverGerman BerakoetxeaDaniel Langmeier

Standing Statutory AuditorsJinichi Shimazaki

Statutory AuditorsTakashi HondaKouji TakahashiYoshiaki Ogawa

(As of June 26, 2009)

Since its establishment in 1959 as a manufacturer of sintering metal filters and filtration elements, SMC Corporation has consistently increased its corporate value in the global market as a leading manufacturer of pneumatic equipment. Pneumatic technology has become indispensable not only in various industrial fields of the primary, secondary and tertiary industries but also in the high-tech industries represented by IT. As of March 31, 2009, the SMC Group had 64 subsidiaries and affiliates in 50 nations under its firmly established global operating system. The SMC Group is determined to further extend its business fields worldwide through the integration of pneumatic equipment and a variety of advanced technologies.

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.

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.


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.Printed with soy ink

Profile

History

Corporate Information

Board of Directors

Financial Highlights …………… 1

Message from the President …… 2

Corporate Governance ………… 4

Quickly Meeting the Sophisticated and Diversifying Needs of Custumers Worldwide ………… 6

Financial Section ………………… 8

Corporate Directory …………… 24

Corporate Information & Board of Directors ……………… 25

Contents

1

Financial Highlights

Thousands of Millions of yen Change in % U.S. dollars

FY2006 FY2007 FY2008 FY2007-2008 FY2008

Net sales ¥339,689 ¥357,919 ¥283,437 -20.8% $2,884,561

Operating income 88,964 87,646 49,726 -43.3 506,065

Operating expenses 250,725 270,273 233,711 -13.5 2,378,496

Net income 63,073 55,985 25,978 -53.6 264,380

Cash dividends 7,901 8,588 8,230 -4.2 83,757

Total assets 687,831 680,491 607,669 -10.7 6,184,297

Shareholders’ equity 534,313 516,909 487,613 -5.7 4,962,477

Yen Change in % U.S. dollars

Per share:

Net income ¥877.93 ¥791.33 ¥378.74 -52.1% $3.85

Cash dividends 120.00 120.00 120.00 — 1.22

Notes:1. U.S. dollar figures are translated from yen, at the rate of ¥98.26 to U.S.$ 1, the approximate rate of exchange on March 31, 2009.2. Net income per share is computed based on the weighted average number of shares outstanding during the respective years. 3. Cash dividends per share are based on the cash dividends paid in respect of the relevant period.

SMC Corporation and Subsidiaries Years ended March 31, 2007 (FY2006), 2008 (FY2007), and 2009 (FY2008)

FY

400,000(Millions of yen)

03 04 05 06 07 08

300,000

200,000

100,000

0 0

100000

200000

300000

400000

08*07*06*05*04*03*

◦ Net SaleS ◦

FY


03 04 05 06 07 08

80,000

60,000

40,000

20,000

0 0

20000

40000

60000

80000

100000

08*07*06*05*04*03*

◦ OperatiNg iNcOme ◦

FY

15(%)

03 04 05 06 07 08

12

9

6

3

0 0

3

6

9

12

15

08*07*06*05*04*03*

◦ returN ON equity ◦

FY


03 04 05 06 07 08

60,000

45,000

30,000

15,000

0 0

15000

30000

45000

60000

75000

08*07*06*05*04*03*

◦ Net iNcOme ◦

2

Review of opeRationsDuring the year ended March 31, 2009, the global economy faced an unprecedented stringent setback in the second half against the backdrop of confusion in the global financial markets and the resulting credit crunch, which involved not only the advanced countries but also the emerging economies, following the subprime housing loan crisis and the hike of crude oil and raw material prices.In these circumstances, the SMC Group continued to focus its group-wide efforts on reinforcing sales capabilities in Japan and overseas and further reducing diverse expenses in all aspects of its business operations in response to vehement changes in the demand environment in conjunction with strengthened rationalization and the cost-reduction activities of employees.As a result, consolidated net sales of the SMC Group for the year ended March 31, 2009, decreased 20.8% from the previous term to ¥283,437 million. Consolidated operating income decreased 43.3% to ¥49,726 million, affected by such factors as the decline in net sales and the negative effect of foreign exchange fluctuations. Net income decreased 53.6% to ¥25,978 million, reflecting such factors as a foreign exchange loss and an unrealized loss on investment securities.Net cash provided by operating activities for the year ended March 31, 2009, was ¥35,929 million, a ¥22,936 million decrease from the previous year. Major factors of this contribution were ¥41,204 million in income before income taxes and minority interests and ¥13,537 million in depreciation and amortization, which were partly offset by ¥25,834 million in income taxes paid.Net cash used in investing activities was ¥27,381 million, a ¥2,583 million decrease from a year

earlier. This was mainly attributable to ¥17,573 million for purchases of property, plant and equipment and a ¥13,729 million increase in time deposits.Net cash used in financing activities was ¥6,877 million, down ¥23,845 million from a year earlier. This was mainly attributable to ¥8,229 million for dividends paid.As a result of the above cash flows, a ¥19,636 million decline in the effect of exchange rate changes and a ¥1,283 million increase due to a change in the scope of consolidation (inclusion of two consolidated subsidiaries), the SMC Group’s cash and cash equivalents at the end of the year decreased ¥16,682 million, or 12.2% year over year, to ¥119,907 million.

The Company celebrated its 50th anniversary on April 27, 2009. Management deeply appreciates the warm-hearted support and encouragement of its customers and business partners. Although the current business environment is extremely harsh, we are determined to survive the crisis via the concerted efforts of the SMC Group.

BasiC poLiCY on pRofit appRopRiationThe SMC Group maintains a basic long-term policy of ensuring stable dividends to shareholders, while con-stantly improving its financial structure to prepare for changing business conditions and the future development of promising businesses.During the fiscal year ended March 31, 2009, by a resolution of the Board of Directors, the Company purchased 2,271 shares of treasury stock by market buying at the acquisition price of ¥23 million.

essage from the PresidentM

3

MeDiUM-anD LonG-teRM ManaGeMent stRateGY anD oUR tasKs aHeaDThe SMC Group is a trailblazer within the industry for the establishment of sales, production, logistics and R&D bases overseas in view of global business development. Today, competitors are seeking international alliances. The Group aims to further globalize its overall corporate activities from R&D and the procurement of raw materials to manufacturing and marketing. To expand its market shares worldwide much further over the medium to long term, the Group intends to carry out the following measures:(1) Globalize its products

For the globalization of its products, the SMC Group will reinforce the R&D functions shouldered by the three R&D bases in Japan, the United States and Europe and collect demand and technological information to develop and manufacture optimum products that meet specific local needs in each country and comply with international standards.

(2) Globalize its distributionFor the globalization of distribution, the Group will reinforce our overseas production bases to establish an effective groupwide logistics system that enables us to provide cost-competitive standard products and application-specific custom products with short delivery times in every region of the world. SMC intends to actively dispatch its sales staff to help Group companies strengthen their marketing capabilities.

(3) Promote rationalizationThe SMC Group will make thorough efforts to reduce manufacturing costs including the reform of manu-facturing methods, an enhanced commitment by R&D departments to

reduce costs, the expansion of overseas manufacturing, the promotion of a global procurement strategy and more efficient capital investment.Moreover, the Group will improve logistics efficiency by completing logistics bases worldwide and reducing transportation expenses, and review its current indirect operations to streamline administrative departments.

estiMateD peRfoRManCe in tHe CoMinG YeaRFor the fiscal year ending March 31, 2010, the setback of the global economy will likely continue and the momentum of recovery in demand for pneumatic equipment is expected to remain weak.Under these circumstances, the SMC Group will aggressively promote measures to restrict all kinds of expenses and enhance profit-gaining capability through cost-reduction activities at all levels and improvement campaigns to raise productivity.Accordingly, the SMC Group expects, at this time, to attain consolidated net sales of ¥170,000 million, or a year-over-year decline of 40.0%, and consolidated net income of ¥2,000 million, a 92.3% decline, for the fiscal year ending March 31, 2010.

Katsunori MaruyamaPresident

June 2009

4

Corporate Governance

BasiC views on CoRpoRate GoveRnanCeSMC recognizes the need to reinforce corporate governance, ensuring speedy decision making and transparency of management, as a critical managerial issue in the pursuit of higher corporate value and the complete protection of shareholders’ rights.

CURRent statUs of CoRpoRate GoveRnanCe iMpLeMenteD1 corporate organs

SMC adopts the statutory auditor system, and three of the four statutory auditors are outside auditors as defined in Article 2, Paragraph 16, of the Companies Act. These outside auditors have no special interests in the SMC Group including business transactions.The 19 directors serve as the persons responsible for business execution departments or overseas consolidated subsidiaries and ensure that the businesses under their charge are conducted in compliance with the relevant laws and in an appropriate manner. Moreover, they oversee each other through the Board of Directors. To further improve director accountability, SMC decided the directors’ term of office up to one year.

2 improvement of internal control systems and risk management systemsIn accordance with the resolution of the Board of Directors regarding basic guidelines for the establishment of internal control systems pursuant to the Corporation Law, SMC now addresses the streamlining of more effective and efficient internal control systems.Furthermore, SMC is active in streamlining systems to ensure the propriety of financial reports in accordance with the Financial Instruments and Exchange Act.The outline of the aforementioned Board resolution is as follows:

(a) Systems to ensure compliance of the execution of duties by directors and employees with laws, regulations and the Articles of Incorporation

・SMC shall establish the SMC Ethical and Corporate Principles that declare the basic management philosophy of the SMC Group and the SMC GroupCode of Conduct, according to which officers and employees autonomously discipline themselves, in order to create a company trusted by not only customers and business partners but also by society through open and honest business activities in compliance with statutes and ethical norms.

・SMC shall establish the Compliance Committee, which

will be chaired by the President and consist of the Senior General Managers of the respective Headquarters as the responsible persons for the business execution departments and outside experts such as legal advisers, in order to enhance the compliance systems.

・SMC shall improve the group-wide systems for　internal whistle-blowing and the notification of acts　that might fall under conflicts of interest in order to prevent and correct any fraudulent acts. The relevant systems cover all the Group companies.

・SMC shall have no contact, transaction or relation with any antisocial forces. Should any unreasonable demand be claimed, SMC shall systematically take a resolute position as a sound corporate entity in close collaboration with lawyers and the Police.

(b) Systems to preserve and manage information pertaining to the execution of duties by directors

・SMC shall streamline internal regulations including the information management rules and take necessary measures to prevent the leakage of important information such as trade secrets.

・SMC shall establish the Information Disclosure　Committee, which will be chaired by the President and　consist of the Senior General Managers of the　respective Headquarters and outside experts such as Certified Public Accountants, for the appropriate information disclosure at the proper timing.

(c) Rules and other systems regarding risk management

・Each department of SMC shall check for and point out risks specific to its own business operations, take the necessary countermeasures and study how to cope with the situation if a risk is elicited.

・SMC shall establish a dedicated department, section or committee that will exclusively engage in handling especially significant risks such as quality, environmental measures, compliance and disaster prevention. Such a department, section or committee shall take the necessary countermeasures and study how to cope with the situation if a risk is elicited.

・Any and all information related to complaints on quality shall be reported to the Chairman and the President regardless of the value in the damage to our customer(s). Whether appropriate follow-up measures and measures to prevent a recurrence have been taken shall be verified later.

・SMC shall improve and operate the risk management

5

systems required to ensure the reliability of financial　reports (internal controls regarding financial reporting)　and endeavor to improve the effectiveness thereof　through periodic evaluation.

(d) Systems to ensure the efficient execution of duties by directors

・SMC shall establish the Management Council to facilitate speedier sharing of information.

・SMC shall set out medium- and long-term business plans, determine annual policies and budgets at the levels of the parent, each department and each subsidiary and carry out appropriate operational management and unified group strategies.

(e) Systems to ensure efficient audits by the statutory auditors

・SMC shall assign certain employees to assist with the duties of the statutory auditors. The independence of such employees as assistants for the statutory auditors shall be guaranteed in terms of personnel concerns.

・The statutory auditors shall have periodic meetings with the President, the Independent Auditors and the staff of the internal auditing department to improve the auditing environment and enhance cooperation with each other.

3 internal audits, internal control audits and audits conducted by the statutory auditorsThe Audit Office, which has six staff reporting directly to the President, conducts internal audits within the SMC Group. The audits include auditing the propriety of the performed business operations of the respective Group companies, and the audit results are reported to the President, the applicable responsible directors and the statutory auditors. Furthermore, the Audit Office conducts mission audits, as required, by employees who have the expertise to complement the internal audit function.The Internal Control Promotion Office, which has five staff reporting directly to the President, conducts internal control audits (with independent evaluation). In collaboration with employees who have the expertise, the Internal Control Promotion Office evaluates the improved and operating conditions of the internal control systems regarding financial reporting, provides instruction on the areas that need improvement and reports the results thereof to the President, the applicable responsible directors and the statutory auditors to raise the effectiveness of internal controls regarding financial reporting.

The four statutory auditors conduct audits on the legitimacy and propriety of SMC’s corporate management in various ways, including attendance at important corporate meetings such as the Board of Directors; listening to reports from directors, employees and the Independent Auditors; and information exchanges at the Board of Statutory Auditors meetings, which are held monthly, in principle.The Audit Office, the Internal Control Promotion Office, the statutory auditors and the Independent Auditors cooperate closely with each other by sharing the necessary information on the status of audits performed, through the exchange of the respective reports and liaison conferences.

accounting audits(a) Certified Public Accountants and years of

service as an auditorTakashi Nishiyama, Certified Public Accountant(Representative Associate Partner, O-YU KYODOJIMUSHO): has engaged in auditing services for 21 years on an ongoing basisHideo Niwa, Certified Public Accountant (RepresentativeAssociate Partner, O-YU KYODO JIMUSHO):Eizaburo Koinuma, Certified Public Accountant(Representative Associate Partner, O-YU KYODO JIMUSHO):Certified Public Accountant Takashi Nishiyama retired from the post of Independent Auditor due to the maturity of his term of office at the conclusion of the 50th Ordinary General Meeting of Shareholders of SMC Corporation held on June 26, 2009. As his successor, Takashi Saito, Certified Public Accountant (Representative Associate Partner, O-YU KYODO JIMUSHO), was newly appointed as an Independent Auditor at said Ordinary General Meeting of Shareholders.

(b) Composition of assistantsEleven Certified Public Accountants who belong to O-YU KYODO JIMUSHO and one Certified Information System Auditor

(c) Judging systemThe examination of the opinions to be expressed by the relevant Certified Public Accountants is made by several committee members who are not engaged in the duty of audit certification for SMC at the Judging Committee, which is permanently established by O-YU KYODO JIMUSHO.

4

The Group was an early promoter of the “Four-Pillar Global Frame Network” for international business operations with a focus on Japan, North America, Europe and Asia/Oceania. The SMC Group had 320 subsidiaries and affiliates in 50 nations as of March 31, 2009. The Group has established a backbone system to ensure the provision of homogenous products and support activities such as those offered in Japan in every region in which we have operated our overseas business activities for more than 40 years. Having established locality-oriented, flexible responses and swift delivery of individualized customer requests, the Group boasts an overwhelming share of more than 60% in the Japanese market and a global market share of 26%.

FY


03 04 05 06 07 08

16,000

12,000

8,000

4,000

0

OthersAutomation Control Equipment Business Division (Overseas)Automation Control Equipment Business Division (Domestic)

0

4000

8000

12000

16000

20000

08*07*06*05*04*03*

FY


03 04 05 06 07 08

16,000

12,000

8,000

4,000

0

OthersAutomation Control Equipment Business Division (Overseas)Automation Control Equipment Business Division (Domestic)

0

4000

8000

12000

16000

20000

08*07*06*05*04*03*

capital expeNditureS

(addition to property, plant and equipment)

Strong Confidence and High Evaluation among World’s Customers

6

Quickly Meeting the Sophisticated and Di versifying Needs of Customers WorldwideQuickly Meeting the Sophisticated and Di versifying Needs of Customers Worldwide

In addition to Japan, North America and England, the Group has established similar technical centers in China and Germany as core bases to engage in collaborative R&D activities to meet a variety of customer needs with high technological standards. The Group now offers excess of 600,000 items from standard products to customized products. The pursuit of higher customer satisfaction enhances our expertise in pneumatic control technology.

FY

1,600(Persons)

03 04 05 06 07 080

2

4

6

8

10

06*05*04*03*02*01*

1,200

800

400

0 0

400

800

1200

1600

08*07*06*05*04*03*

Number Of eNgiNeerS

FY


03 04 05 06 07 08

R&D ExpensesRatio to Net Sales

0

4000

8000

12000

16000

20000

08*07*06*05*04*03* 0

2

4

6

8

10

08*07*06*05*04*03*

16,000

12,000

8,000

4,000

0

10(%)

8

6

4

2

0

r&d expeNSeS & ratiO tO Net SaleS

Pursuing the Unlimited Possibilities of Pneumatic Equipment and Automatic Controls

FY


03 04 05 06 07 08

R&D ExpensesRatio to Net Sales

0

4000

8000

12000

16000

20000

08*07*06*05*04*03* 0

2

4

6

8

10

08*07*06*05*04*03*

16,000

12,000

8,000

4,000

0

10(%)

8

6

4

2

0

7

Quickly Meeting the Sophisticated and Di versifying Needs of Customers WorldwideQuickly Meeting the Sophisticated and Di versifying Needs of Customers Worldwide

Steady Expansion of Production, Sales and Service Bases

The Group now has 17 domestic and 13 overseas plants and streamlines its global production system to enable the SMC Group’s optimized production that emphasizes cost competitiveness. The number of locally incorporated companies and agencies as sales and service bases around the world has been rising every year. Such concerted efforts are behind our high quality, short delivery times and low costs.

FY


04 05 06 07 08

Consolidated Net Sales Overseas Sales

300,000

200,000

100,000

0 0

100000

200000

300000

400000Net Sales

Overseas Sales

08*07*06*05*04*

60(%)

06

50

40

20

10

0

30

05 07 0810

20

30

40

50

60

07*06*05*

perceNtage Of Net SaleS

JapanEurope

Asia and OceaniaNorth America

cONSOlidated Net SaleS & OverSeaS SaleS

perceNtage Of Net SaleSby area (composite)

Results by AreaDomestic sales decreased for our products bound for such industries as semiconductors, automobiles and machine tools, all of which are major demand-related industries for the SMC Group and were significantly affected by the large-scale production adjustment due to the rapid decline in global demand that started in the second half of the year ended March 31, 2009.As a result, SMC’s net sales in Japan decreased 22.8% year over year to ¥202,712 million. Operating income decreased 46.8% to ¥32,721 million, affected mainly by such factors as the decline in sales, heavier burden of fixed costs due to the production decline and the impact of exchange rate fluctuations. During the year under review, SMC’s net sales in North America decreased 18.1% to ¥38,734 million due to negative factors such as decreases in demand in the semiconductor, electric appliance and automotive industries and a decline resulting from unfavorable fluctuations in foreign exchange rates. Operating income dropped 35.9% year over year to ¥1,324 million, primarily owing to the decline in sales. SMC’s net sales in Europe decreased 22.5% to ¥51,620 million primarily due to deteriorated results in association with the worsened demand environment for the major consolidated subsidiaries and a decline in sales resulting from unfavorable fluctuations in foreign exchange rates. Operating income fell 75.4% year over year to ¥1,418 million, reflecting the decline in sales and an increase in selling, general and administrative expenses at several subsidiaries. SMC’s net sales in Asia and others decreased 13.5% to ¥90,697 million, mainly due to decreases in demand for industries such as semiconductors, automobiles and machine tools, all of which were affected by the deteriorated economies in Japan, the United States and Europe; a decline in sales due to unfavorable fluctuations in foreign exchange rates; despite newly inclusion of SMC Pneumaticos do Brasil Ltda as a consolidated subsidiary. Operating income decreased 34.8% year over year to ¥14,701 million, reflecting the decline in sales and the adverse effect of exchange rate fluctuations, which were partly offset by the positive contribution of subsidiaries in China.

8

Financial Section


contentsSix-Year Summary ………………… 9Financial Review ………………… 10Consolidated Balance Sheets …… 12Consolidated Statements of Income …………………………… 14Consolidated Statements of Changes in Net Assets …………… 15Consolidated Statements of Cash Flows ………………………… 16Notes to Consolidated Financial Statements ……………………… 17Report of Independent Certified Public Accountants on the Consolidated Financial Statements ……………………… 23

9

SMC Corporation and Subsidiaries Years ended March 31

■ Six-Year Summary

Millions of yen

FY2008 FY2007 FY2006 FY2005 FY2004 FY2003

Net sales ¥283,437 ¥357,919 ¥339,689 ¥307,827 ¥280,144 ¥247,184

Cost of sales 155,895 185,869 173,007 163,149 145,918 133,793

Selling, general and administrative expenses 77,816 84,404 77,718 69,153 62,354 57,216

Operating income 49,726 87,646 88,964 75,525 71,872 56,175

Net income 25,978 55,985 63,073 53,458 49,251 32,222

Total assets 607,669 680,491 687,831 613,389 539,522 473,549

Shareholders’ equity 487,613 516,909 534,313 469,758 403,860 350,723

Current assets 363,348 409,841 425,452 363,083 316,195 267,335

Current liabilities 71,419 121,201 106,875 99,114 92,833 78,988

Net income per share (Yen) 378.74 791.33 877.93 738.19 679.68 445.25

Cash dividends per share (Yen) 120.00 120.00 120.00 100.00 100.00 48.00

Return on equity (%) 5.2 10.7 12.6 12.2 13.1 9.6

Return on assets (%) 4.3 8.2 9.7 9.3 9.7 7.1

Equity ratio (%) 80.2 76.0 77.7 76.6 74.9 74.1

Notes:1. Net income per share is computed based on the weighted average number of shares outstanding during the respective years.2. Cash dividends per share are based on the cash dividends paid in respect of the relevant period.

10

REVIEW OF OPERATIONS

SalesDuring the year ended March 31, 2009, the global

economy faced an unprecedented stringent setback in the second half against the backdrop of confusion in the global financial markets and the resulting credit crunch, which involved not only the advanced countries but also the emerging economies, following the subprime housing loan crisis and the hike of crude oil and raw material prices. Consequently, the Japanese economy quickly experienced an unprecedentedly difficult business climate, affected by such factors as significant drops in domestic and external demand, as well as the appreciation of the yen. In these circumstances, the SMC Group continued to focus its group-wide efforts on reinforcing sales capabilities in Japan and overseas and further reducing diverse expenses in all aspects of its business operations in response to vehement changes in the demand environment in conjunction with strengthened rationalization and the cost-reduction activities of employees.

As a result, on a consolidated basis, net sales of the SMC Group for the year ended March 31, 2009, decreased 20.8% from the previous term to ¥283,437 million. Cost of sales decreased 16.1% year over year to ¥155,895 million, resulting in a decrease of 25.9% in gross profit with a ratio of 45.0% compared with 48.1% in the previous term.

SG&A expenses and operating incomeThe decrease in net sales led to a 7.8% year-over-year

decline in SG&A expenses to ¥77,816 million, and the ratio to net sales increased to 27.5% from 23.6% for the previous term. As a result, operating income decreased 43.3% to ¥49,726 million and the operating margin ratio deteriorated to 17.5% from 24.5%.

Net income, net income per share and dividendsConsolidated net income for the year under review

decreased 53.6% from the previous term to ¥25,978 million. The net profit ratio declined to 9.2% from 15.6% in the previous term.

Net income per share decreased to ¥378.74 from ¥791.33 in the previous term.

Regarding the annual cash dividends, our policy is to make a steady and appropriate distribution of our profit. We decided to maintain our annual dividend at the same amount as the previous year, or ¥120 per share. The payout ratio increased 16.5 percentage points to 31.7%.

ANALYSIS OF THE FINANCIAL POSITION

As of March 31, 2009, the SMC Group’s total assets decreased 10.7% from a year earlier to ¥607,669 million.

Current assets decreased 11.3% to ¥363,348 million, reflecting such factors as a decline in notes and accounts

■ Financial Review

FY

40(%)

03 04 05 06 07 08

30

20

10

0 0

10

20

30

40

08*07*06*05*04*03*

SG&A Expenses to Net Sales

SG&A ExpEnSES to nEt SAlES

FY

4(X)

03 04 05 06 07 08

3

2

1

0

Inventory Turnover Ratio

0

1

2

3

4

08*07*06*05*04*03*

08* 2.1

InvEntory turnovEr rAtIo

FY

600(X)

03 04 05 06 07 08

450

300

150

0 0

150

300

450

600Fixed Ratio (con)

Current Ratio(con)

08*07*06*05*04*03*

Current Ratio & Fixed RatioCurrent Ratio Fixed Ratio

CurrEnt rAtIo & FIxEd rAtIo

FY


03 04 05 06 07 08

36,000

24,000

12,000

0 0

12000

24000

36000

48000

07*06*05*04*03*02*

Interest-bearing Debts 08 42,358 07 40,855 06 19,690 05 19,751 04 19,300 03 19,058 02 36,389

IntErESt-bEArInG dEbtS

11

receivable resulting from sales decline and a decrease in cash and cash equivalents due to payment of taxes.

Investments and other assets decreased 12.1% to ¥149,981 million, mainly due to a decrease in investment securities as a result of the drop in stock prices.

Current liabilities decreased 41.1% to ¥71,419 million. This decrease was mainly attributable to a decline in notes and accounts payable resulting from decreased purchases of materials and a decrease in income taxes payable due to the profit decline.

Long-term liabilities increased 18.6% year over year to ¥46,752 million mainly due to an increase in long-term borrowings.

Net assets decreased 5.8% from the previous year to ¥489,498 million mainly due to a decline in foreign currency translation adjustments.

The equity ratio increased 4.2 percentage points to 80.2%. The return on equity decreased 5.5 percentage points to 5.2%.

CASH FLOWS

Cash flows from operating activitiesNet cash provided by operating activities was ¥35,929

million, down ¥22,936 million from the previous year. This was primarily attributable to a decrease of ¥47,445 million in income before income taxes and minority interests, an

increase in inventories and a decrease in notes and accounts payable resulting from decreased purchases of materials despite a considerable decrease in notes and accounts receivable.

Cash flows from investing activitiesNet cash used in investing activities was ¥27,381 million,

down ¥2,583 million from the previous year. This was primarily attributable to ¥17,573 million for purchases of property, plant and equipment and a ¥13,729 million increase in time deposits.

Cash flows from financing activitiesNet cash used in financing activities was ¥6,877 million,

down ¥23,845 million from the previous year. This was primarily attributable to ¥8,229 million for dividends paid.

After taking into account a decrease of ¥19,636 million in the effect of exchange rate changes and an increase of ¥1,283 million due to a change in the scope of consolidation (inclusion of two consolidated subsidiaries) along with the above factors, the SMC Group’s cash and cash equivalents at the end of the year decreased ¥16,682 million, or 12.2%, from the previous year-end to ¥119,907 million.

FY

750,000

600,000

(Millions of yen)

03 04 05 06 07 08

Shareholders’ EquityEquity Ratio

450,000

300,000

150,000

0

(%)

0

Shareholders’ Equity & Equity Ratio

Shareholders’ Equity

100

80

60

40

20

0

150000

300000

450000

600000

08*07*06*05*04*03* 0

20

40

60

80

08*07*06*05*04*03*

ShArEholdErS’ EquIty & EquIty rAtIo

FY


03 04 05 06 07 08

Total Assets Return on Assets

600,000

450,000

300,000

0

10(%)

8

6

4

150,000 2

0

FY


01 02 03 04 05 06

600,000

450,000

300,000

0

10(%)

8

6

4

150,000 2

0

Total Assets Return on Assets

Total Assets & Return on Assets

0

2

4

6

8

10

08*07*06*05*04*03*0

150000

300000

450000

600000

750000

08*07*06*05*04*03*

totAl ASSEtS & rEturn on ASSEtS

FY

1,000(Yen)

03 04 05 06 07 08

800

600

400

0

200

Net Income per Share

FY

1,000(Yen)

01 02 03 04 05 06

0

200

400

600

800

1000

08*07*06*05*04*03*

800

600

400

200

0

nEt InComE pEr ShArE

FY

8,000(Yen)

03 04 05 06 07 08

6,000

4,000

0

2,000

BOOK VALUE PER SHARE> 07 7,536.04> 06 7,436.57> 05 6,533.32> 04 5,615.84> 03 4,878.62> 02 4,473.86

Book Value Per Share

0

2000

4000

6000

8000

08*07*06*05*04*03*

ShArEholdErS’ EquIty pEr ShArE

12

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

FY2008 FY2007 FY2008

ASSETS Current Assets: Cash and cash equivalents .................................................. ¥119,907 ¥136,589 $1,220,303 Short-term investments (Note 3) ......................................... 37,528 31,986 381,926 Receivable - trade: Notes and accounts ................................................... 48,756 90,632 496,194 Inventories (Note 4) ............................................................ 136,352 131,884 1,387,665 Deferred income taxes (Note 11) ......................................... 9,379 11,620 95,451 Other current assets ............................................................ 12,470 8,454 126,908 Less: Allowance for doubtful receivables ............................. (1,044) (1,324) (10,625) 363,348 409,841 3,697,822

Investments and Other Assets: Investment securities: Subsidiaries and affiliates ........................................... 11,080 20,610 112,762 Other (Note 3 ) ........................................................... 22,206 35,625 225,993

Other assets: Refundable insurance payments ................................. 94,442 94,386 961,144 Deferred income taxes (Note 11) ................................ 10,351 8,812 105,343 Other assets ............................................................... 12,995 11,866 132,251

Less: Allowance for doubtful receivables ............................. (1,093) (680) (11,124) 149,981 170,619 1,526,369

Property, Plant and Equipment: Land ................................................................................. 19,942 18,491 202,951 Building and structures ....................................................... 76,218 82,614 775,677 Machinery and equipment .................................................. 130,748 133,480 1,330,633 Other ................................................................................. 6,317 2,282 64,289 Less: Accumulated depreciation .......................................... (138,885) (136,836) (1,413,444) 94,340 100,031 960,106 ¥607,669 ¥680,491 $6,184,297

See Notes to Consolidated Financial Statements.

SMC Corporation and Subsidiaries

As of March 31, 2009 (the end of FY2008) and 2008 (the end of FY2007)

■ Consolidated Balance Sheets

13


FY2008 FY2007 FY2008

LIABILITIES AND NET ASSETS Current Liabilities: Payable - trade: Notes and accounts ................................................... ¥ 27,924 ¥ 46,080 $ 284,185 Short-term borrowings and Current portion of long-term debt (Notes 5) ................... 22,924 28,660 233,299 Income taxes payable.......................................................... 2,015 17,514 20,507 Accrued expenses ............................................................... 10,449 14,424 106,340 Other current liabilities ....................................................... 8,107 14,523 82,506 71,419 121,201 726,837

Long-term Liabilities: Bonds, less current portion (Note 5) .................................... 5,000 5,100 50,885 Long-term borrowings, less current portion (Notes 5) ......... 10,161 2,980 103,409 Accrued severance indemnities (Note 6) .............................. 23,674 23,246 240,932 Deferred income taxes (Note 11)......................................... 3,579 3,762 36,424 Other long-term liabilities ................................................... 4,338 4,320 44,149 46,752 39,408 475,799

Net Assets (Note 8):

Common stock, par value ¥50 per share: Authorized - 240,000 thousand shares Issued - 71,869 thousand shares ........................ 61,005 71,869 thousand shares ........................ 61,005 620,853 Additional paid-in capital .................................................... 72,678 72,678 739,650 Retained earnings ............................................................... 433,699 415,569 4,413,790 Unrealized gain on investments .......................................... (696) 4,308 (7,083) Foreign currency translation adjustments ............................ (35,893) 6,516 (365,286) Treasury stock, at cost ......................................................... (43,180) (43,167) (439,447) 487,613 516,909 4,962,477 Minority Interests ................................................................ 1,885 2,973 19,184 489,498 519,882 4,981,661 ¥607,669 ¥680,491 $6,184,297

14


FY2008 FY2007 FY2008

Net Sales ................................................................................. ¥283,437 ¥357,919 $2,884,561Cost of Sales (Note 12) ............................................................. 155,895 185,869 1,586,556 Gross profit ................................................................ 127,542 172,050 1,298,005Selling, General and Administrative Expenses (Note 12) ...... 77,816 84,404 791,940 Operating income ...................................................... 49,726 87,646 506,065

Other Income (Expenses): Interest and dividend income .............................................. 4,674 5,896 47,568 Interest expenses ................................................................ (640) (710) (6,513) Other, net (Note 9) ............................................................. (12,556) (4,183) (127,784) (8,522) 1,003 (86,729) Income before income taxes and minority interests............................................... 41,204 88,649 419,336

Income Taxes (Note 11): Current ............................................................................... 10,952 33,932 111,459 Deferred ............................................................................. 4,219 (1,493) 42,937 15,171 32,439 154,396

Minority Interests .................................................................... 55 225 560 Net income ................................................................ ¥ 25,978 ¥ 55,985 $ 264,380

Yen U.S. dollarsPer Share (Note 13): Net income......................................................................... ¥ 378.74 ¥ 791.33 $ 3.85 Cash dividends ................................................................... 120.00 120.00 1.22



For the years ended March 31, 2009 (FY2008) and 2008 (FY2007)

■ Consolidated Statements of Income

15



■ 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, 2007 ................ ¥ 61,005 ¥ 72,678 ¥ 367,544 ¥ 11,629 ¥ 21,711 ¥ (254) ¥ 534,313 ¥ 2,605 ¥ 536,918 Increase/decrease during the period Cash dividends ................................ (8,588) (8,588) (8,588) Net income .................................... 55,985 55,985 55,985 Acquisition of treasury stocks .............. (42,927) (42,927) (42,927) Disposal of treasury stocks ................ (0) (1) 14 13 13 Changes of the scope of consolidation .. 629 629 629 Others .......................................... (7,321) (15,195) (22,516) 368 (22,148)Total increase/ decrease during the period .................. — (0) 48,025 (7,321) (15,195) (42,913) (17,404) 368 (17,036)Balance at March 31, 2008 ................ 61,005 72,678 415,569 4,308 6,516 (43,167) 516,909 2,973 519,882 Increase/decrease during the period Cash dividends ................................ (8,230) (8,230) (8,230) Net income .................................... 25,978 25,978 25,978 Acquisition of treasury stocks .............. (23) (23) (23) Disposal of treasury stocks ................ (2) 10 8 8 Changes of the scope of consolidation .. 384 384 384 Others .......................................... (5,004) (42,409) (47,413) (1,088) (48,501)Total increase/ decrease during the period .................. — — 18,130 (5,004) (42,409) (13) (29,296) (1,088) (30,384)Balance at March 31, 2009 ................ ¥61,005 ¥72,678 ¥433,699 ¥ (696) ¥(35,893) ¥(43,180) ¥487,613 ¥1,885 ¥489,498

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, 2008 ................ $620,853 $739,650 $4,229,279 $43,843 $ 66,314 $(439,314) $5,260,625 $30,256 $5,290,881 Increase/decrease during the period Cash dividends ................................ (83,757) (83,757) (83,757) Net income .................................... 264,380 264,380 264,380 Acquisition of treasury stocks .............. (234) (234) (234) Disposal of treasury stocks ................ (20) 101 81 81 Changes of the scope of consolidation .. 3,908 3,908 3,908 Others .......................................... (50,926) (431,600) (482,526) (11,072) (493,598)Total increase/ decrease during the period .................. — — 184,511 (50,926) (431,600) (133) (298,148) (11,072) (309,220)Balance at March 31, 2009 ................ $620,853 $739,650 $4,413,790 $ (7,083) $(365,286) $(439,447) $4,962,477 $19,184 $4,981,661


16


FY2008 FY2007 FY2008

Cash Flows from Operating Activities: Income before income taxes and minority interests ................ ¥ 41,204 ¥ 88,649 $ 419,336 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................... 13,537 13,701 137,767 Loss on impairment of long-lived assets ...................... 3,857 — 39,253 Equity in profit of affiliates ......................................... — (47) — Increase (Decrease) in accrued severance indemnities .... 600 (152) 6,106 Decrease in allowance for Directors' bonuses ................ — (400) — Increase (Decrease) in allowance for doubtful receivables .. 318 (141) 3,236 Interest, net ...................................................................... (4,279) (5,556) (43,547) Exchange loss ............................................................ 1,369 1,197 13,933 (Gain) loss on sales of investment securities ................ 36 (198) 366 Unrealized loss on holding investment securities ......... 3,366 1,713 34,256 (Increase) Decrease in trade receivables....................... 34,748 (3,301) 353,633 Increase in inventories ................................................ (13,983) (4,084) (142,306) Decrease in trade payables ......................................... (11,858) (4,842) (120,680) Increase in other current assets................................... (4,819) (1,201) (49,043) Increase (Decrease) in other current liabilities .............. (6,602) 1,684 (67,189) Other, net .................................................................. (0) 1,020 (0) 57,494 88,042 585,121 Interest received ......................................................... 4,704 5,853 47,873 Interest paid ............................................................... (435) (302) (4,427) Income taxes paid ...................................................... (25,834) (35,051) (262,915) Other net ................................................................... — 323 — Net cash provided by operating activities .................... 35,929 58,865 365,652

Cash Flows from Investing Activities: (Increase) Decrease in short-term investments ........................ (8,714) 2,301 (88,683) Proceeds from sale of investment securities ............................ 1,124 8,674 11,439 Payment for purchase of investment securities ........................ (837) (17,123) (8,518) Payment for purchase of property, plant and equipment ........ (17,573) (20,131) (178,842) Increase in refundable insurance payments ............................. (57) (4,796) (580) Other, net .............................................................................. (1,324) 1,111 (13,474) Net cash used in investing activities ............................ (27,381) (29,964) (278,658)

Cash Flows from Financing Activities: Increase (Decrease) in short-term borrowings ......................... (930) 21,088 (9,465) Increase (Decrease) in long-term borrowings .......................... 2,738 (94) 27,865 Payment for retirement of bonds ............................................. (425) (200) (4,325) Treasury stock ........................................................................ — (42,927) — Cash dividends paid and others .............................................. (8,229) (8,585) (83,747) Other, net .............................................................................. (31) (4) (316) Net cash used in financing activities ........................... (6,877) (30,722) (69,988)Effect of Exchange Rates Changes on Cash and Cash Equivalents ..... (19,636) (6,496) (199,837)Net Increase (Decrease) in Cash and Cash Equivalents ........ (17,965) (8,317) (182,831)Cash and Cash Equivalents at Beginning of Period ............. 136,589 144,715 1,390,077Cash and Cash Equivalents of Newly Consolidated Subsidiaries ....... 1,283 191 13,057Cash and Cash Equivalents at End of Period ........................ ¥119,907 ¥136,589 $1,220,303




■ Consolidated Statements of Cash Flows

17

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 FY2008 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 ¥98.26 to U.S.$1, the exchange rate prevailing at March 31, 2009. 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, 2008 and 2009, include the accounts of SMC Corporation (the “Company”), SMC Corporation of America, SMC Pneumatics (Canada) Ltd., SMC Corporation (Mexico) SA. de CV., 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 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., Toyo Warehouse and Transportation Co., Ltd., Nihon Kizai Co., Ltd., Seigyo Kizai Co., Ltd. The consolidated financial statements as at, and for the year ended March 31, 2008, include the equity in profit of Advanced Pressure Technology. The consolidated financial statements as at, and for the year ended March 31, 2009, also include the accounts of SMC Pneumãicos do Brasil Ltda. and Advanced Pressure Technology due to the increasing significance of their aggregate impact to the consolidated financial statements. Accounts of SMC (China) Co., Ltd. and SMC (Beijing) Manufacturing Co., Ltd, SMC Corporation (Mexico) SA. de CV. And SMC Pneumatik LLC, whose financial year-end of December 31, 2007 and 2008 and accounts of SMC Pneumãicos do Brasil Ltda., whose financial year-end of December 31, 2008 have been adjusted for significant transactions to properly reflect their financial positions at, and the results of operations for the year ended March 31, 2008 and 2009.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 subsidiaries 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 subsidiaries have entered into foreign exchange agreements and interest rate swap agreements to manage currency and interest rate exposures. These financial instruments include foreign exchange forward contracts and interest rate swap agreements, are used in the Company and its subsidiaries’ risk management of foreign currency and interest rate risk exposures of its financial assets and liabilities. All derivatives are stated at fair value and the recognition of gain / loss resulting from changes in fair value of all hedging instruments is deferred until the related gain / loss on the hedged 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.

(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

2. SuMMARY OF SIGNIFICANT ACCOuNTING POLICIES


■Notes to Consolidated Financial Statements

18

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 Company and its consolidated subsidiaries 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 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 that 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.

Information that required to be disclosed in the Notes of the consolidated financial statements by the regulations and rules on disclosures under the Securities and Exchange Laws of Japan, as amended to confirm with the certain reclassification of account balances made to present the consolidated financial statements, consisted of the following:(a) At March 31, 2008 and 2009, Bonds and debentures primarily designated as held-to-maturity whose fair value were readily

determinable were as follows:

3. SHORT-TERM INVESTMENTS AND INVESTMENT SECuRITIES - OTHER

Millions of yen Millions of yen Thousands of U.S. dollars FY2008 FY2007 FY2008 Cost Fair Gains/ Cost Fair Gains/ Cost Fair Gains/ value Losses value Losses value Losses

Bonds and debentures .. ¥856 ¥856 ¥— ¥— ¥— ¥— $8,712 $8,712 $—

Millions of yen Millions of yen Thousands of U.S. dollars FY2008 FY2007 FY2008 Cost Fair Gains/ Cost Fair Gains/ Cost Fair Gains/ value Losses value Losses value Losses

Stocks ................... ¥12,021 ¥10,200 ¥(1,821) ¥12,252 ¥19,112 ¥6,860 $122,339 $103,806 $(18,533)Others .................. 14,921 12,941 (1,980) 15,983 16,342 359 151,852 131,702 (20,150)Total ..................... ¥26,942 ¥23,141 ¥(3,801) ¥28,235 ¥35,454 ¥7,219 $274,191 $235,508 $(38,683)

(b) At March 31, 2008 and 2009, other securities primarily designated as available-for-sale whose fair values were readily determinable were as follows:

(c) For the years ended March 31, 2008 and 2009, proceeds from sales of other securities designated as available-for-sale with resulting gains and losses were as follows:

Millions of yen Millions of yen Thousands of U.S. dollars FY2008 FY2007 FY2008 Proceeds Gross Gross Proceeds Gross Gross Proceeds Gross Gross from realized realized from realized realized from realized realized sales gains losses sales gains losses sales gains losses Available-for-sale securities ............ ¥1,151 ¥32 ¥78 ¥10,694 ¥198 ¥45 $11,714 $326 $794

19

Millions of yen Millions of yen Thousands of U.S. dollars FY2008 FY2007 FY2008 Within Within Within After Within Within Within After Within Within Within After 1 year 5 year 10 year 10 year 1 year 5 year 10 year 10 year 1 year 5 year 10 year 10 year

Corporate bonds ... ¥ 856 ¥ 3 ¥ 0 ¥ – ¥ – ¥ 5 ¥ – ¥ – $ 8,712 $ 30 $ 0 $ –Others ................. 1,155 3,534 1,311 – 42 5,753 1,956 – 11,754 35,966 13,342 –Total .................... ¥2,011 ¥3,537 ¥1,311 ¥ – ¥ 42 ¥5,758 ¥1,956 ¥ – $20,466 $35,996 $13,342 $ –

Thousands of Millions of yen U.S. dollars FY2008 FY2007 FY2008

2.15% Euro bonds due 2011 ............................................................................. ¥ 5,000 ¥5,000 $ 50,8851.5% yen bonds due 2008 ................................................................................. – 400 –0.4% yen bonds due 2008 ................................................................................. – 25 –1.6% yen bonds due 2009 ................................................................................. 100 100 1,018Loans principally from the banks ........................................................................ 11,955 9,255 121,667 17,055 14,780 173,570Less: Current portion .......................................................................................... 1,894 6,700 19,275 ¥15,161 ¥8,080 $154,295

At March 31, 2008 and 2009, short-term borrowings were as follows:

5. SHORT-TERM BORROWINGS AND LONG-TERM DEBT Thousands of Millions of yen U.S. dollars FY2008 FY2007 FY2008

Loans principally from the banks ................................................................... ¥21,030 ¥21,960 $214,024

At March 31, 2008 and 2009, inventories were comprised as follows:

4. INVENTORIES Thousands of Millions of yen U.S. dollars FY2008 FY2007 FY2008

Goods and finished products .............................................................................. ¥ 60,432 ¥ 60,598 $ 615,021Work in process .................................................................................................. 5,132 6,777 52,229Raw materials and supplies................................................................................. 70,788 64,511 720,415 ¥136,352 ¥131,884 $1,387,665

(e) At March 31, 2008 and 2009, debt securities that are expected to be held-to-maturity and other securities with maturity date were consisted as follows:

(d) At March 31, 2008 and 2009, other securities primarily designated as available-for-sale whose fair values were not readily determinable were consisted of the following:


Available-for-sale securitiesUnlisted stocks .............................................................................................. ¥145 ¥ 145 $1,476Unlisted foreign stocks .................................................................................. 71 21 723Unlisted foreign debentures .......................................................................... 4 5 41MMF and others ........................................................................................... 810 849 8,243

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.

6. ACCRuED SEVERANCE INDEMNITIES

The weighted average interest rates of these short-term borrowings at March 31, 2008, was approximately 1.2 per cent.At March 31, 2008 and 2009, long-term debt were consisted as follows:

20


Service cost ......................................................................................................... ¥3,075 ¥2,765 $31,295Interest cost ........................................................................................................ 1,387 1,274 14,116Expected return of plan assets ............................................................................ (1,003) (1,007) (10,208)Amortization of unrecognized actuarial difference ............................................. 301 (158) 3,063Amortization of prior service cost ....................................................................... (111) (111) (1,130)Net pension cost ................................................................................................ ¥3,649 ¥2,763 $37,136

“Accrued severance indemnities” in the consolidated balance sheets as of March 31, 2008 and 2009 also includes the provision for lump-sum severance indemnities for directors and statutory auditors of the Company and its consolidated domestic subsidiaries amounted to ¥692 million and 732 million (U.S. $7,440 thousand) respectively.Net service cost of the plans for the years ended March 31, 2008 and 2009 were as follows:

Significant assumption used to calculate the above-mentioned amount were as follows:Allocation method of benefit obligation Straight-line methodDiscount rate 2.5%Expected rate of return on plan assets FY2007 : 3.0% FY2008 : 2.0%Unrecognized actuarial difference is amortized in 10 years. Unrecognized prior service cost is amortized in 10 years.

At March 31, 2008 and 2009, there were no contingent liabilities of the Company and its consolidated subsidiaries.

7. CONTINGENT LIABILITIES

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”), hereinafter 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 of March 31, 2009 were the capital reserves amounting to ¥72,576 million (US$738,612 thousand) and the retained earnings reserves amounting to ¥15,251 million (US$155,211 thousand).

8. NET ASSETS

For the years ended March 31, 2008 and 2009, ‘Other - net ’ in “Other Income (Expenses)” were consisted of the following:

9. OTHER INCOME (ExPENSES) - OTHER, NET


Exchange gain (loss) ..................................................................................... ¥ (6,169) ¥(4,246) $ (62,782)Write-down of investment securities ............................................................. (3,366) (1,713) (34,256)Gain on sales of wasted metal ...................................................................... – 872 –Dividend received on refundable insurance payment ..................................... 386 409 3,928Net gain (loss) on sales of investment securities ............................................. (37) 173 (377)Decrease (Increase) in allowance for doubtful acounts ................................... (273) 30 (2,778)Loss on impairment of long-lived assets ........................................................ (3,857) – (39,253)Loss on fixed assets sold ................................................................................ (167) (391) (1,700)Other ........................................................................................................... 927 (1,030) 9,434 ¥(12,556) ¥(4,183) $(127,784)


Projected benefit obligation ................................................................................ ¥(60,386) ¥(57,050) $(614,553)Fair value of plan assets ...................................................................................... 31,786 33,619 323,489 Unfunded benefit obligation .............................................................................. (28,600) (23,431) (291,064)Unrecognized actuarial difference ...................................................................... 5,989 (1,320) 60,950 Unrecognized prior service cost .......................................................................... ¥ (332) ¥ (443) $ (3,379)Net amount recognized ...................................................................................... ¥(22,943) ¥(22,554) $(233,493)

At March 31, 2008 and 2009, “Accrued severance indemnities” recognized in the consolidated balance sheet were as follows:

21

FY2008 FY2007

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

Differences in effective tax rate of foreign subsidiaries ......................................................... (8.4)% (4.3)%Expenses not deductible for tax purposes ............................................................................ 1.0% 0.6%Taxes of previous years ........................................................................................................ (1.9)% –%Tax credit ............................................................................................................................. (5.8)% –%Valuation allowance ............................................................................................................ 6.7% –%Difference in elimination of unrealized profit of inventory ................................................... 2.1% –%Difference in prospected dividends ...................................................................................... 1.7% –%Other .................................................................................................................................. 1.4% (0.3)%Effective income tax rate ..................................................................................................... 36.8% 36.6%

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, 2008 and 2009. Reconciliation of the actual effective tax rates in the consolidated statements of income and the normal tax rate was as follows:

11. INCOME TAxES

The Company and its consolidated subsidiaries reduced the carrying amount of the long-lived assets that were impaired to the recoverable amount due to these assets are scheduled to be sold and recognized material decline in price. No asset was impaired the year ended March 31, 2008. ¥3,857 million (U.S. $39,253 thousand) impairment loss was recognized for the year ended March 31, 2009.

10. IMPAIRMENT OF LONG-LIVED ASSETS


Deferred tax assets:Accrued severance indemnities ................................................................ ¥ 9,178 ¥ 8,915 $ 93,405 Write-down of investment securities ........................................................ 1,370 2,364 13,943Accrued enterprise taxes .......................................................................... – 1,137 –Accrued bonuses ..................................................................................... 2,064 2,988 21,005Write-down of inventories ....................................................................... 966 1,071 9,831Unrealized gain on investments ............................................................... 416 – 4,234Write-down of investment in non-consolidated subsidiaries ..................... 255 195 2,595Allowance for doubtful receivables .......................................................... 328 178 3,338Unrealized profit on principally inventories ............................................... 4,924 5,553 50,112Impairment loss ....................................................................................... 1,548 5 15,754Other ...................................................................................................... 930 1,129 9,465 21,979 23,535 223,682Valuation allowance ................................................................................ (1,855) – (18,879)

Deferred tax liabilities:Unrealized gain on investments ............................................................... (10) (2,935) (102)Deferred gain on exchange of lands ......................................................... (3,243) (3,144) (33,004)Other ...................................................................................................... (985) (1,163) (10,024) (4,238) (7,242) (43,130)Net deferred tax assets ............................................................................ ¥15,886 ¥16,293 $161,673

At March 31, 2008 and 2009, the significant components of deferred tax assets and deferred tax liabilities were as follows:

22

Thousands of Millions of yen U.S. dollars

FY2008 FY2007 FY2008

Net Income ................................................................................................... ¥25,978 ¥55,985 $264,380The amount not vested in common stockholders ........................................... – – –Net income vested in common stockholders .................................................. 25,978 55,985 264,380

Number of shares (Thousand)

FY2008 FY2007

Weighted average outstanding common shares ........................................... 68,590 70,747

Segment information by business for the year ended March 31, 2008 and 2009 were omitted due to sales and operating income from business related to Automation control equipment exceeded 90% of those of all businesses.For the years ended at or as of March 31, 2008 and 2009, geographic segment information required to be disclosed were as follows:

14. SEGMENT INFORMATION

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

13. PER SHARE INFORMATION

For the years ended at March 31, 2008 and 2009, research and development expenses included under “Cost of Sales” and “Selling, General and Administration Expenses” were ¥16,646 million and ¥15,303 million (U.S.$155,740 thousand), respectively.

12. RESEARCH AND DEVELOPMENT ExPENSES

Thousands of U.S. dollars

FY2008 North Asia& Corporate/ Japan America Europe Others Total Eliminations Consolidated

Sales to customers ............... $1,317,352 $389,731 $517,423 $ 660,055 $2,884,561 $ – $2,884,561Sales to intersegment .......... 745,664 4,468 7,918 262,976 1,021,026 (1,021,026) –Total .................................... 2,063,016 394,199 525,341 923,031 3,905,587 (1,021,026) 2,884,561Operating expenses ............. 1,730,012 380,724 510,910 773,418 3,395,064 (1,016,568) 2,378,496Operating income ............... $ 333,004 $ 13,475 $ 14,431 $ 149,613 $ 510,523 $ (4,458) $ 506,065

Assets .................................. $3,344,189 $423,937 $582,251 $1,737,645 $6,088,022 $ 96,275 $6,184,297

Millions of yen


Sales to customers ............... ¥129,443 ¥38,295 ¥50,842 ¥ 64,857 ¥283,437 ¥ – ¥283,437Sales to intersegment .......... 73,269 439 778 25,840 100,326 (100,326) –Total .................................... 202,712 38,734 51,620 90,697 383,763 (100,326) 283,437Operating expenses ............. 169,991 37,410 50,202 75,996 333,599 (99,888) 233,711Operating income ............... ¥ 32,721 ¥ 1,324 ¥ 1,418 ¥ 14,701 ¥ 50,164 ¥ (438) ¥ 49,726

Assets .................................. ¥328,600 ¥41,656 ¥57,212 ¥170,741 ¥598,209 ¥ 9,460 ¥607,669

Millions of yen


Sales to customers ............... ¥167,457 ¥46,691 ¥65,683 ¥ 78,088 ¥357,919 ¥ – ¥357,919Sales to intersegment .......... 95,233 632 882 26,737 123,484 (123,484) –Total .................................... 262,690 47,323 66,565 104,825 481,403 (123,484) 357,919Operating expenses ............. 201,145 45,255 60,798 82,266 389,464 (119,191) 270,273Operating income ............... ¥ 61,545 ¥ 2,068 ¥ 5,767 ¥ 22,559 ¥ 91,939 ¥ (4,293) ¥ 87,646

Assets .................................. ¥333,894 ¥37,192 ¥75,904 ¥178,008 ¥624,998 ¥ 55,493 ¥680,491

23

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, 2008 and 2009, and the related consolidated statements of income, changes in net assets and cash flows for each of the two years ended 31st March, 2009, 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, 2008 and 2009, and the consolidated results of their operations changes in net assets and cash flows for each of the two years ended 31st March, 2009, 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.

Takashi Nishiyama Hideo Niwa Eizaburo Koinuma Certified Public Accountants

Tokyo, JapanJune 26, 2009

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

24

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.6768 Financial Drive, Mississauga, Ontario, L5N 7J6, CanadaTEL:1-905-812-0400

● 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:54-11-4555-5762

● 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.17, 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:33-1-64-76-1000

● 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 LLCLetter “3”, Sverdlovskaya nab. 18, 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 EOODLerinska Chuka St. 4, Krasno Selo, Sofia, 1618, 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: 7172-37-11-28

OVERSEAS ASSOCIATED COMPANY

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

Corporate Directory

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 15,388Current Status of Stocks : Total number of shares 240,000,000 Shares outstanding 71,869,359 Number of shareholders 8,122Stock 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 Usui

Managing DirectorsYoshiki TakadaKatsunori TomitaKanji Tanioka

DirectorsBunji OshidaTamon KitabatakeYoshihiro FukanoIwao MogiEiji OhashiMasahiko SatakeSeiji KosugiKouichi ShikakuraOsamu KuwaharaPeter G. DriverGerman BerakoetxeaDaniel Langmeier

Standing Statutory AuditorsJinichi Shimazaki

Statutory AuditorsTakashi HondaKouji TakahashiYoshiaki Ogawa

(As of June 26, 2009)

Since its establishment in 1959 as a manufacturer of sintering metal filters and filtration elements, SMC Corporation has consistently increased its corporate value in the global market as a leading manufacturer of pneumatic equipment. Pneumatic technology has become indispensable not only in various industrial fields of the primary, secondary and tertiary industries but also in the high-tech industries represented by IT. As of March 31, 2009, the SMC Group had 64 subsidiaries and affiliates in 50 nations under its firmly established global operating system. The SMC Group is determined to further extend its business fields worldwide through the integration of pneumatic equipment and a variety of advanced technologies.


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.



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.Printed with soy ink

Profile

History

Corporate Information

Board of Directors

Financial Highlights …………… 1

Message from the President …… 2

Corporate Governance ………… 4

Quickly Meeting the Sophisticated and Diversifying Needs of Custumers Worldwide ………… 6

Financial Section ………………… 8

Corporate Directory …………… 24

Corporate Information & Board of Directors ……………… 25

Contents

2009

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

For the year ended March 31, 2009

Annual Report

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