Internet Disclosure Accompanying
the Notice of the Convocation of
The 61st Ordinary General Meeting of Shareholders

Notes to Consolidated Financial Statements
Notes to Non-Consolidated Financial Statements

1
27

Pursuant to the relevant law and ordinance, and Article 16 of the Articles of Incorporation of
SECOM CO., LTD., “Notes to Consolidated Financial Statements” and “Notes to
Non-Consolidated Financial Statements” are made available on the Company’s web site(https://www.secom.co.jp/english/ir/). The Company provides this translation for yourreference and convenience only and without any warranty as to its accuracy or otherwise.

Notes to Consolidated Financial Statements
Notes to Significant Items for Preparation of Consolidated Financial
Statements
1.

Scope of Consolidation(1) Number of Consolidated Subsidiaries: 161
Names of major consolidated subsidiaries:
Secom Joshinetsu Co., Ltd., Asahi Security Co., Ltd., Nohmi Bosai Ltd.,
Nittan Co., Ltd., Secom Medical System Co., Ltd., Secom General
Insurance Co., Ltd., Pasco Corporation, Secom Trust Systems Co., Ltd., At
Tokyo Corporation, TMJ, Inc., The Westec Security Group, Inc., SecomPlc(2) Descriptions of Non-Consolidated Subsidiaries:
Eishin Denshi Co., Ltd., Kyoudou Setubi Ltd. and 5 other companies(The reason for exclusion from scope of consolidation)
All of these 7 non-consolidated subsidiaries are of a small size, so that theaggregate amounts of total assets, revenue, net income/loss (an amountprorated to ownership) and retained earnings (an amount prorated toownership) and others do not have a significant effect on the consolidated
financial statements.
(3) Names of Other Companies Owing Majority of Voting Rights not Regarded
as Subsidiaries:
Katzkin Holdings, LLC, United Tactical Systems Holdings, LLC, CLP
Legal Services, LLC, CLP Landscape Services, LLC, PF Holdco, LLC,
Austin Fitness Holdings, LLC, Handel’s Holdco, LLC, CLP ICS Holdings,
LLC.
(The reason for not regarded as subsidiaries)
These companies were acquired by subsidiaries of The Westec Security
Group, Inc. through normal course of business with the objective ofinvestment, not with the objective of control.
2.

Equity Method(1) Number of equity method affiliates: 16
Names of major affiliates accounted for under the equity method:
S1 Corporation, Toyo Tec Co., Ltd., Taiwan Secom Co., Ltd.
(2) Number of non-equity method affiliates: 8(The reason for not applying the equity method)
These 8 companies are not accounted for under the equity method because
their effect on net income/loss (an amount prorated to ownership) andretained earnings (an amount prorated to ownership) is insignificant andimmaterial as a whole.

[English Translation]
1

3.

Changes in Scope of Consolidation and Companies Accounted for under the
Equity Method
Consolidation
Newly consolidated subsidiaries: 1
Scan Alarms and Security Systems (Ireland) Ltd. (Establishment
investment)
Excluded from consolidation: 5
Zao Urbane Properties Co., Ltd. and 2 other companies (Merger)
PASCO DO BRASIL CONSULTORIA TECNICA LTDA.
(Divesture)
D’Garde Security Pte. Ltd. (Liquidation)
Equity Method: None

4.

Closing Dates of Consolidated Subsidiaries and Equity Method Affiliates
With respect to overseas consolidated subsidiaries, 6 U.S. subsidiaries suchas The Westec Security Group Inc., 8 Australia and New Zealandsubsidiaries such as Secom Australia Pty., Ltd., , 5 U.K. subsidiaries such as
Secom Plc, 16 Chinese subsidiaries such as Secom (China) Co., Ltd., 6
Vietnam subsidiaries such as Secom Vietnam Security Service JSC,
Secom (Singapore) Pte. Ltd., Secom Medical System (Singapore) Pte. Ltd.,
Takshasila Hospitals Operating Pvt. Ltd., Takshasila Healthcare andResearch Service Pvt. Ltd., PT. Nusantara Secom Infotech, PT. Secom
Indonesia, PT. Secom Bhayangkara, PT. Secom Realty Indonesia, Pasco
Thailand Co., Ltd., Thai Secom Security Co., Ltd., Pasco Philippines Corp.,
Nohmi Taiwan Ltd., TMJP BPO SERVICES, INC., Secom Aktif Güvenlik
Yatirim A.S., Secom Aktif Elektronik Güvenlik Çözümleri A.S., and Scan
Alarms and Security Systems (Ireland) Ltd. close their book as of December
31 each year, and the financial statements as of this date are used for
preparation of the consolidated financial statements. Also, while Secom
Smart (Malaysia) Sdn. Bhd., Secom Smart (Singapore) Pte. Ltd. and ADT
Alarm Monitoring Hong Kong Limited closes its book as of September 30,
the financial statements prepared pursuant to the provisional closing ofbooks conducted as of December 31 are used.
With respect to equity method affiliates, 6 companies such as S1
Corporation and Taiwan Secom Co., Ltd. close their book as of December
31 each year, and the financial statements as of this date are used for
preparation of the consolidated financial statements. While Koatsu Co., Ltd.
closes its book as of September 30 each year, the financial statements
prepared pursuant to the provisional closing of books conducted as of March
31 are used for preparation of the consolidated financial statements.
The necessary adjustments related to the consolidation are made for any
major transactions which arise between the consolidated closing dates. The
closing dates of other consolidated subsidiaries and equity method affiliates
are the same as the consolidated closing date.

5.

Significant Accounting Policies(1) Valuation Policies and Methods for Significant Assets
1) Securities
a. Held-to-maturity debt securities are carried at amortized cost.
b. Available-for-sale
Securities other than shares that do not have a market value[English Translation]2

At fair value
Net unrealized gains and losses of securities are primarily
reported directly in net assets. The cost of securities sold isprimarily calculated by the moving average method.
Shares that do not have a market value
At cost, principally based on the moving average method
2) Derivatives
Derivatives are stated at fair value.
3) Inventories
Inventories are principally stated at cost based on the moving
average method (or at the net realizable value (NRV) calculated
by writing down the book value to reflect a decrease in the NRV).
4) Real estate for saleStated at cost by the specific cost method (or at the NRV
calculated by writing down the book value to reflect a decrease in
the NRV).
(2) Depreciation and Amortization of Depreciable and Amortizable Fixed
Assets1) Tangible Assets (except for leased assets)a. Security equipment and control stations
Security equipment and control stations are depreciated overtheir average estimated useful lives (5-8 years) by the
declining-balance method.
b. Other tangible fixed assets
Other tangible fixed assets are depreciated by the straight-line
method.
Their main useful lives are as follows:
Buildings and improvements: 33-50 years
Tools and equipment: 2-20 years
2) Intangible Assets (except for leased assets)
Intangible fixed assets are amortized by the straight-line method.
The software used in the Company is amortized by thestraight-line method based on the useful lives within the Company(5 years).
3) Leased Assets
a. Leased assets related to ownership-transfer finance leasetransactions
Depreciated, using the same depreciation method applied to
fixed assets in possession.
b. Leased assets related to non-ownership-transfer finance leasetransactions
Depreciated, using the straight-line method over a useful life
equal to the lease period with a residual value of zero.
In addition, non-ownership-transfer finance leases entered into
on or before March 31, 2008 are treated using the method
applicable to operating lease transactions.
4) Long-term Prepaid Expenses[English Translation]
3

Long-term prepaid expenses are amortized by the straight-line
method.
(3) Basis for Significant Allowances
1) Allowance for Doubtful Accounts
To prepare for losses from bad debts such as losses on tradereceivables and loans, the allowance for doubtful accounts
provides an estimated amount of uncollectables. It is determinedbased on the historical loss rate with respect to ordinary accounts,
and an estimate of uncollectable amounts respectively determinedby reference to specific doubtful accounts from customers whoare experiencing financial difficulties.
2) Accrued Bonuses
The accrued bonuses are provided for the bonus payments toemployees, at an amount incurred during the current fiscal year.
3) Provision for Loss on Construction Contracts
To prepare for future losses on construction contracts etc., an
accrual is provided based on the estimated losses on construction
contracts etc. that are undelivered at the end of the current fiscal
year.
4) Accrued Retirement Benefits for Directors and Audit &Supervisory Board Members
To prepare for payment for retirement benefits of Directors andAudit & Supervisory Board Members of domestic consolidated
subsidiaries, a necessary amount at the end of the current fiscal
year is accrued based on the rules of the Directors and Audit &Supervisory Board Members’ retirement benefits.
(4) Recognition Policies for Significant Revenue and Cost
1) Recognition Policies for Revenue and Cost from Contracts with
Customers
In the major businesses of the Company and its consolidated
subsidiaries related to revenue from contracts with customers, thedetails of major performance obligations, as well as the normal
point in time when such performance obligations are satisfied (i.e.,
the normal point in time when revenue is recognized) are as
follows:
a. Revenues from Security Services are mainly from centralized
systems for businesses and homes, static guard services, andarmored car services, and the Company identifies theperformance obligation to provide services based on the
security contract with the customer.
Such security contracts represent transactions in which theperformance obligation is satisfied over a certain period, andthe Company recognizes revenue in line with the fulfilment of
the contract.
Equipment installation work fees received in a lump sum at thestart of services for centralized systems and other points in time
are allocated on a straight-line basis over the same period as theperiod in which the service is provided and revenue isrecognized in the amount corresponding to the current fiscal
year, if the customer is thought to receive the benefits as theperformance obligations in the security contract is satisfied.

[English Translation]4

It should be noted that equipment installation work expenses
are allocated on a straight line over the same period as theperiod in which the service is provided and recognized as
expenses in the amount corresponding to the current fiscal year.
Additionally, consideration for these performance obligations isgenerally collected within one year from the time theperformance obligations are satisfied, unless they are received
as contract liabilities prior to the satisfaction of the performanceobligations, and the amount of consideration contains no
significant financing components.
b. Revenues from construction related to the Fire Protection
Services are mainly from construction contracts for fire
protection equipment, and the Company recognizes revenue
over time by measuring the progress towards complete
satisfaction of the performance obligation, as it has been
determined that the performance obligation is satisfied over acertain period. The measurement of the progress towards
complete satisfaction of the performance obligation is based on
the percentage of the cost of construction incurred by the end ofeach reporting period to the estimated total cost of construction.
It should be noted that in cases where the expenses incurred are
expected to be recovered despite not being able to reasonably
estimate the degree of completion of the satisfaction of
performance obligations, revenue is recognized using the cost
recovery method.
Additionally, consideration for performance obligations ofconstruction contracts is generally collected within one year
from the time the performance obligations are satisfied, unlessthey are received as contract liabilities prior to the satisfactionof the performance obligations, and the amount ofconsideration contains no significant financing components.
2) Recognition Policies for Revenue and Cost of Finance Leases
Revenue and cost are recognized upon receipt of lease payments.
(5) Other Significant Items for Preparation of Consolidated Financial
Statements
1) Accounting for Major Hedge
a. Hedge Accounting Policy
The Company principally applies deferred hedging accounting.
The interest rate swaps that fulfill requirements for exceptional
treatments permitted for interest rate swaps are accounted forusing exceptional treatments.
b. Hedging Instruments and Hedged Items
Hedging instruments:
Hedged items:
Interest rate swap
Loans payablec. Hedging Policy
The risks for forward interest rate fluctuations are to be hedged
principally pursuant to the risk management policy of theCompany.
d. Assessment of Hedge Effectiveness[English Translation]
5

Hedge effectiveness is assessed by comparing the cumulative
totals of price fluctuations of the hedged items and hedging
instruments from the beginning of hedging to the effective pointof assessment, taking the changes of both the hedged items andhedging instruments into account. However, when an item isjudged to fulfill requirements for exceptional treatments, theassessment of hedge effectiveness is omitted.
2) Accounting for Retirement Benefit
To prepare for the retirement benefits of employees, the Company
and its domestic consolidated subsidiaries recognize a net defined
benefit asset and a net defined benefit liability for the amountcalculated by deducting plan assets from retirement benefit
obligations, based on the estimated amount of these items at theend of the current fiscal year.
Prior service cost is recognized as profit or loss in the year ofoccurrence.
Actuarial gains and losses are amortized from the following fiscal
year of occurrence, using the straight-line method over certain
years within the average remaining service period (mainly 10
years).
Unrecognized actuarial gains and losses are included in the line
item “Remeasurements of defined benefit plans, net of taxes” ofaccumulated other comprehensive income in the net assets
section.
3) Amortization of Goodwill and Negative Goodwill
Goodwill is amortized by the straight-line method over 5-20
years.
6. Notes on Changes in Accounting Policies(Application of Accounting Standard for Revenue Recognition, etc.)
From the beginning of the fiscal year ended March 31, 2022, we haveapplied “Accounting Standard for Revenue Recognition” (ASBJ Statement
No.29, March 31, 2020; hereinafter, “Accounting Standard for Revenue
Recognition”), etc. Accordingly, we recognize revenue to describe thetransfer of promised goods or services to customers in the amount thatreflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.
The major changes due to the application of Accounting Standard for
Revenue Recognition etc. are as follows:(1) Initial lump sum revenue related to service contracts, etc.
With respect to the initial lump-sum revenue from some service contracts,
etc., the Company previously recognized revenue at the time of acceptance,
but has changed to recognize the revenue over a certain period when thecustomer receives the benefits as performance obligations are satisfied.
(2) Revenue recognition related to construction contracts
For construction contracts, the Company previously applied thepercentage-of-completion method when the outcome of the construction
activity is deemed certain. However, when control over goods or services is
to be transferred to the customer over a certain period of time, the Company
has changed the method to one in which revenue is recognized over a certain
period of time as the performance obligation to transfer the goods or services
to the customer is satisfied. The Company measures the degree of progress[English Translation]
6

toward satisfaction of performance obligations based on the percentage of
construction costs incurred by the end of each reporting period to the total
construction costs expected to be incurred. In addition, when the degree ofprogress toward satisfying the performance obligation cannot be reasonably
estimated in the early stages of a contract but the costs to be incurred are
expected to be recovered, the Company recognizes revenue under the cost
recovery method.
The application of the Accounting Standard for the Revenue Recognition,etc. is subject to the transitional treatment provided for in the proviso of
Paragraph 84 of the Accounting Standard for Revenue Recognition. The
cumulative effect of the retrospective application, assuming the new
accounting policy had been applied to periods prior to the beginning of thecurrent fiscal year, was added to or subtracted from the beginning balance ofretained earnings of the current fiscal year, and thus the new accounting
policy has been applied from the beginning balance. In addition, theCompany has applied the method prescribed in proviso (1) of Paragraph 86of the Accounting Standard for Revenue Recognition. The cumulative effect,
after accounting procedures for contract changes made prior to the beginningof the current fiscal year based on the contract terms after reflecting allcontract changes, was added to or subtracted from the beginning balance ofretained earnings of the current fiscal year.
In addition, “Notes and accounts receivable, trade,” which was a part of“Current assets” in the consolidated balance sheet for the previous fiscal
year, is included in “Notes and accounts receivable – trade and contract
assets” from the current fiscal year and a part of “Guarantee deposits
received,” which was included in “Long-term liabilities,” is included in“Long-term deferred revenue” from the current fiscal year.
As a result, for the Consolidated Statements of Income for the current fiscal
year, revenue decreased by 3,301 million yen, cost of revenue decreased by
2,497 million yen, operating profit decreased by 803 million yen,
non-operating expenses decreased by 470 million yen, ordinary profit andincome before income taxes decreased by 332 million yen, respectively,
compared to those before Accounting Standard for Revenue Recognition,etc. being applied.
Retained earnings of the Consolidated Statements of Changes in Net Assets
at the beginning of current period decreased by 10,717 million yen as the
cumulative effect of applying the policy to all prior periods was reflected to
net assets at the beginning of the current fiscal year, compared to those
before Accounting Standard for Revenue Recognition, etc. being applied.
These effects on the per-share information are stated in the relevant section.
(Application of Accounting Standard for Fair Value Measurement, etc.)
From the beginning of the current fiscal year, we have applied “AccountingStandard for Fair Value Measurement” (ASBJ Statement No.30, July 4,
2019; hereinafter, “Fair Value Accounting Standards”), etc. In accordancewith the transitional treatment set forth in Paragraph 19 of Fair Value
Accounting Standards and Paragraph 44-2 of “Accounting Standard for
Financial Instruments” (ASBJ Statement No. 10, July 4, 2019), we haveapplied prospectively new accounting policies prescribed by Fair Value
Accounting Standards, etc. Consequently, from the current fiscal year, wehave adopted the valuation method based on the market price on the closing
date of stocks and beneficiary securities with market value that are among
other securities, from the previous method that was based on the average
market price over a one-month period prior to the closing date.

[English Translation]
7

In addition, notes including matters related to the breakdown of the financial
instruments by level are made in “Notes to Financial Instruments” of “Notes
to Consolidated Financial Statements.”
7. Notes on Accounting Estimates(1) Allowance for Doubtful Accounts
1) Amounts stated in the consolidated financial statements
The Company has recognized short-term loans receivable of YEN
2,563 million, long-term loans receivable of YEN 29,494 million,
an allowance for doubtful accounts of YEN 2,031 million for
current assets, and an allowance for doubtful accounts of YEN
12,195 million for fixed assets in the consolidated balance sheet forthe current fiscal year.
2) Other information to facilitate the understanding of accounting
estimates
As stated in the above 5. (3) 1) Allowance for Doubtful Accounts,
to provide for doubtful accounts such as trade accounts receivableand loans receivable, provisions are recognized as allowance for
doubtful accounts. The amount of such an allowance for general
receivables is determined based on historical default rates and theamount for specific receivables such as delinquent claims isdetermined as the expected non-recoverable amount based on
recoverability assessment on an individual basis.
In identifying specific loans that are required to be assessed forrecoverability on an individual basis, the Company takes into
consideration the status of delinquency in repaying debts as well as
the financial condition, past operating results, and future businessplans of the debtors.
Among these factors, business plans are subject to uncertainty as
they are affected by unforeseeable changes in businessassumptions.
The non-recoverable amount of specific loans identified isestimated based on the debtors’ financial condition and futurebusiness plans and involves significant judgment of the
management on whether the plans for future revenue and expenses
developed as part of the business plans are feasible, including
whether the impact of unforeseeable changes in businessassumptions is properly considered in these plans.
(2) Goodwill and Other Intangible Assets
1) Amounts stated in the consolidated financial statements
The Company has recognized goodwill of YEN 59,996 million andother intangible assets of YEN 33,684 million in the consolidatedbalance sheet for the current fiscal year.
2) Other information to facilitate the understanding of accounting
estimates
Goodwill and other intangible fixed assets are amortized in a
regular manner. However, if there is an indication of impairment
for the asset group containing these intangible assets, they need to
be tested to determine whether an impairment loss needs to berecognized by comparing the total amount of undiscounted future
cash flows arising from the asset group with their carrying amount.
If it is determined that an impairment loss needs to be recognized
as a result of such a test, the Company writes down the carrying[English Translation]8

amount to the recoverable amount and recognizes the amount ofwrite-down as an impairment loss.
An indication of impairment is considered to exist, for example,
when operating activities continue to make losses or when there has
been or there is expected to be a significant deterioration in thebusiness environment.
The carrying amounts of goodwill and other intangible fixed assets
reflect the consolidated subsidiaries’ excess earnings power, valueof their customer base, etc., based on the expectations for the future
growth of their business as at the time of the acquisition of eachconsolidated subsidiary. For this reason, in such cases where thebusiness growth expected at the time of acquisition of eachconsolidated subsidiary is not achieved or where there has been or
there is expected to be a significant deterioration in the businessenvironment on which the business plan was based, an indicationof impairment is considered to exist and goodwill and otherintangible assets may need to be tested for the recognition of an
impairment loss, even if its operating activities in which the asset
group containing these intangible fixed assets is used are notmaking continuous losses.
Additional Information(Accounting estimates of the impact of the COVID-19 pandemic)
The Company has developed accounting estimates in such areas as
impairment accounting for fixed assets and allowance for doubtful accounts
based on the assumption that the effect of the COVID-19 pandemic will lastat least for some time, and has determined that it does not have a significant
impact on its consolidated financial statements at this point. However, as theimpact of COVID-19 is subject to a number of uncertain elements, theGroup’s financial condition and operating results from the next year onward
may be significantly affected.
Notes to Consolidated Balance Sheet
1.

Cash on Hand and in Banks, and “Other” in Investments and others
Under certain provisions on sales agreements for investment securities that
apply to certain consolidated subsidiaries, restrictions are imposed on theuse of part of cash on hand and in banks (YEN 61 million) and other (YEN
18 million) in investments and others.

2.

Cash Deposits for Armored Car Services and Short-term Bank Loans, andDeposits Received for Armored Car Services
For financial institutions, the Company and some of the domestic
consolidated subsidiaries provide cash collection from and cash filling tocash dispensers located outside of financial institution facilities, and cash
collection and delivery. The balance of cash deposits for armored car
services includes cash on hand and cash in banks representing a total of
YEN 17,253 million connected with cash filling services, which is restricted
in use by the Group. The short-term bank loan balance includes YEN 817
million financed for the cash filling services.
The balance of cash deposits for armored car services includes YEN 19,174
million connected with cash collection administration services, which is also
restricted in use by the Group. Also, the short-term bank loan balance
includes YEN 16,650 million financed for the cash collection administration
services.
The balance of cash deposits for armored car services includes cash on handand cash in banks representing a total of YEN 100,049 million connectedwith cash collection and delivery services, which is restricted in use by the[English Translation]
9Group and also the balance of deposits received for armored car services
includes deposits received representing a total of YEN 100,031 million
connected with cash collection and delivery services.
3. Assets Pledged as Collateral and Collateral-related Liabilities:(1) Assets Pledged as Collateral(Millions of Yen)

Cash on hand and in banks (time deposit)
Short-term loans receivables
Other - current assets (receivable - other)
Buildings and improvements
Land
Other - intangible assets (leasehold)Investment securities
Long-term loans receivable
Total

1,619
17
689
20,75825,606
818
1,590
576
51,676(2) Collateral-related Liabilities(Millions of Yen)

Bank loans
Current portion of straight bonds
Straight bonds
Long-term loans
Total

1,635
398
3,480
8,362
13,876

In addition to the above liabilities, short-term loans receivable, investment
securities and long-term loans receivable are pledged as collateral for the
debts of affiliates and other debts.
4. Receivables from Contracts with Customers and Contract Assets andContract Liabilities(1) The amounts of receivables from contracts with customers and contract
assets included in notes and accounts receivable-trade and contract assets,due from subscribers, and other of current assets are as follows.
(Millions of Yen)

Notes receivable
Accounts receivable
Due from subscribers
Other
Contract assets

11,449114,776
32,902894
23,434(2) The amount of contract liabilities included in deferred revenue, other ofcurrent liabilities, and long-term deferred revenue is as follows.
Contract liabilities
YEN 56,158 million(Note) The amounts of contract liabilities included in deferred revenue,
other of current liabilities, and long-term deferred revenue are YEN
37,762 million, YEN 1,851 million, and YEN 16,545 million,
respectively.
5. Accumulated Depreciation of Tangible Assets
YEN 563,581 million
6.

Investment in Non-Consolidated Subsidiaries and Affiliates:(Fixed assets)
Investment securities (stocks)
YEN 62,484 million[English Translation]
10

7.

Contingent Liabilities:
Guarantees of liabilities of entities and individuals

YEN

404 million

Notes to Consolidated Statement of Income
1. Revenue from Contracts with Customers
Revenue stated in the Consolidated Statements of Income has not beenclassified into revenue from contracts with customers and other revenue.
The amount of revenue from contracts with customers has been stated in “1.
Information on the breakdown of revenue from contracts with customers” of“Notes on Revenue Recognition” of “Notes to Consolidated Financial
Statements.”
2. Amortization of Goodwill in Extraordinary Losses
Part of Goodwill was amortized pursuant to Paragraph 32 of the “Practical
Guidelines for Capital Consolidation Procedures in Consolidated Financial
Statements” (Japanese Institute of Certified Public Accountants (JICPA),
last revised February 16, 2018, Accounting System Committee Report No.
7)
Notes to Consolidated Statement of Changes in Net Assets
1.

Items Related to Issued Shares and Treasury Stocks

Issued shares
Common stocks
Treasury stocks
Common stocks(Unit：1 share)
Number of shares atthe end of the fiscal
year

Number of shares atthe beginning of the
fiscal year

Increase in thenumber of sharesin the fiscal year

Decrease in thenumber of sharesin the fiscal year

233,295,926

2,123

-

233,298,049

15,034,565

1,319,647

1,138,994

15,215,218(Outline of reasons for change)
The increase of 2,123 in the number of common stocks of issued shares isdue to the issuance of restricted shares.
The increase of 1,319,647 in the number of common stocks of treasury
stocks is due to the repurchase of 1,318,500 own shares resolved by the
Board of Directors and the purchase of 1,147 shares constituting less than
one unit.
The decrease of 1,138,994 in the number of common stocks of treasury
stocks is due to the share exchange of 1,138,992 own shares and requests tosell 2 shares constituting less than one unit.
2. Items Related to Dividends(1) Amount of Dividends Paid
Resolution

Classes ofSharesTotal amount ofcash dividend(Millions of Yen)

Cash dividend pershare(Yen)Record date

Effective dateOrdinary General
Meeting of
Shareholders
on June 25, 2021

Common stock

18,55285

March 31, 2021

June 28, 2021

Board of Directors
Meeting on
November 10, 2021

Common stock

19,64390

September 30,
2021

December 8,
2021[English Translation]11

(2) Of the dividends whose record date belongs to the current fiscal year, thefollowing are those dividends whose effective date belongs to the next fiscal
year.
The matters planned to be resolved on the general meeting of shareholders
are as follows:
Resolution

Classes ofShares

Source ofdividend

Total amount ofcash dividend(Millions of
Yen)

Cash
dividend per
share
(Yen)

Record date

Effective dateOrdinary General
Meeting of
Shareholders on June
28, 2022

Commonstock

Retainedearnings

19,62790

March 31,2022

June 29,
2022

Notes to Financial Instruments
1.

Items Related to Status of Financial Instruments
The Group (excluding its insurance services segment) raises necessary
funds, with the aim of establishing “Social System Industry,” by means ofprocuring funds from markets and borrowing money from financial
institutions. The Group also holds financial instruments for promoting its
business and investment. Derivatives are primarily used for averting market
risks associated with loans, etc., and it is the Group’s policy not to perform
speculative transactions.
The Group’s insurance services segment manages funds using financial
instruments for the purpose of safely and carefully holding and managing
insurance premiums received from policyholders for underwriting insurance
policies as a source of funds for paying for future insurance claims. As thefinancial instruments in which the Group’s insurance services segment
invests are exposed to market risks including interest rate fluctuation risks,
the Group’s insurance services segment performs asset-liability
management (ALM) to prevent any adverse impact of such risks fromarising.

[English Translation]12

2.

Items Related to Fair Values of Financial Instruments etc.
The amounts recognized on the consolidated balance sheet, fair values andcorresponding differences as of March 31, 2022 are listed below.
(Millions of Yen)
Amountrecognized on the
consolidatedbalance sheet

Fair value

Difference

11,82352,008214,127
37,51812,728132,508
214,127
37,511905
80,499(7)

29,494(11,491)
18,002
17,335350,815
3,899
11,65023,66939,21818,03817,265432,179
3,899
11,647
23,66839,21436(69)
81,364
(0)
(3)
(0)
(4)

-

<0>
<0>

(0)
(0)

(1)Short-term investments and investment
securities(i) Held-to-maturity debt securities(ii) Investment securities in affiliates(iii) Available-for-sale securities(2)Lease receivables and investment inleased assets(3)Long-term loans receivable
Allowance for doubtful accounts (*3)(4)Lease deposits
Total assets(1)Straight bonds(2)Long-term loans(3)Guarantee deposits received
Total liabilities
Derivative transactions (*4)(i) Hedge accounting not applied(ii) Hedge accounting applied
Total derivative transactions*1 “Cash on hand and in banks,” “Cash deposits for armored car services,” “Notes and accounts
receivable-trade and contract assets,” “Due from subscribers,” “Short-term loans receivable,”“Notes and accounts payable, trade,” “Bank loans,” “Payables - other,” “Accrued income
taxes, ” and “Deposits received for armored car services” are not included, as they fall undercash or they are settled in a short period of time and their fair values approximate their bookvalues.
*2 Shares that do not have a market value are not included in “(1) Short-term investments andinvestment securities”. The amounts of these financial instruments recognized on theConsolidated Balance Sheet are as follows(Millions of Yen)
Amount recognizedItemon the consolidated balance
sheet
Unlisted stock

5,533

Unlisted stock of affiliates

10,476*3 Allowance for doubtful accounts for long-term loans receivable is deducted.
*4 Net claims and obligations arising from derivative transactions are shown as net values. Items
for which the total is a net obligation are shown in parentheses < >.
*5 The Company's shares in Investments in partnerships and similar entities, which arerecognized in net amounts in the Consolidated Balance Sheet are not included. The amountof such investments recognized in the Consolidated Balance Sheet is YEN 9,283 million.

[English Translation]13

3.

Matters Related to the Breakdown of the Fair Value of Financial
Instruments by Level
The fair value hierarchy of financial instruments is categorized into thefollowing three levels according to the degree of observability andimportance of the inputs used in the calculation of fair value.
Level 1 fair value: The fair value calculated based on quoted market
prices of assets and liabilities for fair values in active
markets among the observable inputs for calculating
fair value
Level 2 fair value: The fair value calculated using inputs other than thoseincluded in Level 1 inputs, among the observable
inputs for calculating fair value
Level 3 fair value: The fair value calculated using unobservable inputs
If multiple inputs with significant impact are used for the fair value
measurement of a financial instrument, the financial instrument is classified
into the lowest priority level of fair value measurement to which each input
belongs.

(1) Financial instruments at fair value on the Consolidated Balance Sheet(Millions of Yen)
Fair value
Level2
Level3

Item

Level1
Total
Short-term investments and investment
securities
Available-for-sale securities
Stocks52,63052,630Government bonds and Municipal bonds
12,291
26,834
39,125Straight bonds
64,90364,903
Other
27,625
1,052
15,112
43,790Total assets
92,547
92,78915,112200,449
Derivative transactions (*1)
Interest rates related<0><0>
Total derivative transactions<0><0>*1 Net claims and obligations arising from derivative transactions are shown as net values.
Items for which the total is a net debt are shown in parentheses < >.
*2 The fair values of investment trust funds are not included. The amount of investment trust
funds recognized in the Consolidated Balance Sheet is YEN 13,677 million.

[English Translation]14

(2) Financial instruments which other than stated at fair value on theConsolidated Balance Sheet(Millions of Yen)
Item
Short-term investments and investment
securities
Held-to-maturity debt securities
Government bonds and Municipal
bonds
Straight bonds
Other
Investment securities in affiliates
Lease receivables and investment inleased assets
Long-term loans receivable
Lease deposits
Total assets
Straight bonds
Long-term loans
Guarantee deposits received
Total liabilities

Fair value
Level2
Level3

Level1

Total

11,722--

11,722

132,508

432
-

573
-

573
432
132,508-

37,511-

37,511

144,230-

8,566
17,265
63,775
3,899
11,647
23,66839,214

9,472
10,046-18,03817,265
218,052
3,899
11,647
23,66839,214(Note 1) Description of the valuation techniques and inputs used to measure fair
value
Assets:Short-term investments and investment securities
The fair value of stocks is based on the price quoted on the exchange whereas
the fair value of straight bonds etc. is based on the price quoted on theexchange or the price presented by the corresponding financial institution. As
listed stock and government bonds are traded on active markets, they areclassified into Level 1 fair value. Other bonds, etc. are less frequently tradedon the market and their prices are not deemed to be quoted prices on an active
market, and their fair values are, therefore, classified into Level 2 fair value.
If their values are calculated using techniques such as the present value
technique based on significant unobservable inputs, they are classified into
Level 3 fair value.
Lease receivables and investment in leased assets
These items are stated at present value calculated by discounting the sum of
the principal and interest at the interest rate assumed when a new similar leasetransaction is performed, and classified into Level 2 fair value.
Long-term loans
Long-term loans are stated at present value calculated by discounting the sumof the principal and interest at the interest rate assumed when a new similarloan transaction is performed with respect to each category based on type,internal rating and period of the loans receivable, and are therefore classified
into Level 2 fair value. The fair value of doubtful accounts is approximately
the same as the value on the balance sheet as of the fiscal year-end less thecurrent estimated losses from the loan, as the estimated losses from the loan
are calculated based on the discounted present value of the estimated cash
flow or upon separately considering the expected recoverable amount;
therefore, the said value is stated as fair value, and their fair values are,therefore, classified into Level 3 fair value. Certain consolidated subsidiaries
calculate the present value of future cash flow by discounting the future cash

[English Translation]15

flow at an interest rate equal to an appropriate index such as the yield ofgovernment bonds plus the credit spread according to the residual period, andtheir fair values are, therefore, classified into Level 2 fair value.
Lease deposits
Lease deposits are stated at present value calculated by discounting the future
cash flow at risk-free interest rate and classified into Level 2 fair value.
Liabilities:
Straight bonds
These items are stated at present value calculated by discounting the sumof the principal and interest at the interest rate assumed when new similar
straight bonds are issued, according to the residual period of the straightbonds, and classified into Level 2 fair value.
Long-term loans
These items are stated at present value calculated by discounting the sumof the principal and interest at the interest rate assumed when a newsimilar debt is taken on, and classified into Level 2 fair value.
Guarantee deposits received
Guarantee deposits received are stated at present value calculated bydiscounting the future cash flow at risk-free interest rate, and classified
into Level 2 fair value.
Derivative transactions
Interest Rate Swap are stated at the price presented by the financial
institution with which the Group has concluded an agreement, andclassified into Level 2 fair value.
(Note 2) Information about financial assets and liabilities measured and stated on
the consolidated balance sheet at fair value and classified into Level 3(1) Quantitative information on significant unobservable inputs
Item

Valuation
TechniqueSignificant
Unobservable Inputs

Present value
Technique

Discount rate
Year of disposal
EBITDA multiples

Scope of Input

Short-term investments andinvestment securities
Available-for-sale securities
Other

15% - 30%2022 - 2025
0 - 9.9x(2) Description of the fair value valuation process
The Group has established policies and procedures for measuring the fairvalue approved by an appropriate person of authority. In the measurement offair value, the validity of the valuation technique and inputs used in themeasurement of fair value, and the appropriateness of the classification of thefair value level are verified. The verification results are reported in an
appropriate manner to the person of authority, thereby ensuring theappropriateness of the policies and procedures for measuring fair value.
In the measurement of fair value, a valuation model that most suitablyreflects the nature, characteristics and risks of the individual assets is used. In
addition, when using the quoted market prices obtained from a third party as
fair value, the validity of the prices is verified by appropriate methods such

[English Translation]16

as confirmation of the valuation technique and inputs used and comparison
with the fair value of similar financial instruments.
(3) Description of the impact on fair values where significant unobservable
inputs are varied
Significant unobservable inputs include the discount rate, the time ofdisposal, and EBITDA multiples. Generally, fair values decrease when the
discount rate is raised, the time of disposal is extended, and the EBITDA
multiples are lowered. Fair values increase when the discount rate is lowered,
the time of disposal is shortened, and the EBITDA multiples are raised.
Notes to Rental Property and Other Real Estate
The Company and some of its consolidated subsidiaries own rental officebuildings and medical facilities such as hospitals, in addition to rental housing
etc. mainly in Tokyo and other major cities across the country.
The amount recognized on the consolidated balance sheet, the amount of
increase/decrease during the current fiscal year and the fair value of such rental
properties are as follows:(Millions of Yen)
Amount recognized on the consolidated balance sheet
Balance at the
Increase/decrease
Balance at the
beginning of theduring the fiscal
end of the fiscal
fiscal year
year
year

Fair value atthe end of the
fiscal year

Office buildings

44,0203,092

47,11386,130

Medicalfacilities

52,737(1,572)

51,16463,900Other

12,738(2,950)9,787

11,717

Total

109,495(1,430)108,065

161,749(Note 1) The amount recognized on the consolidated balance sheet equals the acquisition costless accumulated depreciation and accumulated impairment loss.
(Note 2) The fair value at the end of the current fiscal year is, in the case of major properties, theamount based on real-estate appraisal by an external real-estate appraiser, and in thecase of other properties, the amount calculated in-house based on the Real EstateAppraisal Standard. However, if no significant fluctuations have occurred in a certain
valuation or an index that is deemed to properly reflect the market price since theacquisition of the property from a third party or the most recent external valuation, thefair value is based on such valuation or the amount adjusted by using the index.

[English Translation]
17

Profit or loss on rental properties and other real estate for the fiscal year ended
March 31, 2022 is as follows:(Millions of Yen)
Other(gains/losses onsale etc.)

Rental income

Rental expenses

Difference

Office buildings

4,191

2,103

2,088

(85)

Medicalfacilities

7,037

3,272

3,765

-

Other

565

304

261

183

Total

11,794

5,679

6,114

97

(Note 1) The rental expenses include depreciation, repair costs, insurance premium, taxes andpublic imposts, etc.
(Note 2) Other includes gain on tangible assets recognized as extraordinary profit, etc.

Notes on Revenue Recognition
1. Information on the Breakdown of Revenue from Contracts with Customers(Millions of Yen)
Reportable segments
Security
services

Fire protection
services

Medicalservices

Geospatial
information
services

Insuranceservices

Revenue fromsecurity contracts

475,476

-

-

-

-

Other

73,786

148,803

67,161

634

56,371

Revenue fromcontracts withcustomers

549,262

148,803

67,161

634

56,371Other revenue

8,830

-

7,413

52,056-

Revenue from
customers

558,093

148,80374,57552,691

56,371

Reportable segments
BPO and ICT
services
Revenue fromsecurity contracts

Subtotal

Other services

Total

-

475,476-

475,476

Other

115,683

462,441

26,957489,399

Revenue fromcontracts withcustomers

115,683

937,918

26,957

964,875

Other revenue-

68,301

16,682

84,983

Revenue from
customers

115,683

1,006,219

43,6401,049,859(Note) “Other services” is an operating segment not designated as a reportable segment, andcomprises real estate leasing, construction and installation services, etc.

[English Translation]18

2. Basic Information for Understanding Revenue from Contracts with Customers
Please refer to “5. (4) Recognition Policies for Significant Revenue andCost” of “Notes to Significant Items for Preparation of Consolidated
Financial Statements” of “Notes to Consolidated Financial Statements.”
3. Information for Understanding the Amounts of Revenue in and after the Fiscal
Year Ended March 31, 2022
(1) Balance, etc. of contract assets and contract liabilities(Millions of Yen)
Fiscal year ended
March 31, 2022
Claims arising from contracts with customers (beginning balance of the year)

150,904

Claims arising from contracts with customers (ending balance of the year)

160,023

Contract assets (beginning balance of the year)

20,388Contract assets (ending balance of the year)

23,434Contract liabilities (beginning balance of the year)

57,105Contract liabilities (ending balance of the year)

56,158Contract assets comprise rights to claim consideration on construction contracts,
etc., by the Company and its consolidated subsidiaries that have been completed
by the fiscal year-end but remain unclaimed. Contract assets are transferred toreceivables from contracts with customers at the point in time when the rights toclaim consideration by the Company and its consolidated subsidiaries become
unconditional.
Contract liabilities mainly comprise deferred revenue received from customers
concerning service contracts, etc., and are reversed upon the recognition ofrevenue.
For the fiscal year ended March 31, 2022, most of the YEN 39,161 million of
the beginning balance of contract liabilities of one year or less has beenrecognized as revenue in the current fiscal year.
(2) Transaction price allocated to remaining performance obligations
In the notes to the transaction price allocated to remaining performanceobligations, the Company and its consolidated subsidiaries apply thepractical expedient, and contracts with terms initially expected to be one year
or less are not included in the notes.
The total transaction price allocated to remaining performance obligations
and the expected time of revenue recognition are as follows.
(Millions of Yen)
Fiscal year ended
March 31, 2022
One year or less

146,867

More than one year

196,270

Total

343,138[English Translation]
19

Notes to Deferred Income Tax Accounting
1. The Significant Components of Deferred Income Tax Assets and Deferred
Income Tax Liabilities:
Deferred income tax assets:(Millions of Yen)

Investment deposits by policyholders, unearned premiums and other insurance
liabilities
Net defined benefit liability
Accrued bonuses
Eliminations of unrealized gain
Write-down on fixed assets
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (land and buildings)
Allowance for doubtful accounts
Impairment loss
Effect from the application of Accounting Standard for Revenue Recognition(deferred revenue)
Operating loss carryforwards
Effect from the application of Accounting Standard for Revenue Recognition(prepaid expenses)
Other
Gross deferred income tax assets
Valuation allowance
Total deferred income tax assets

16,118
6,516
5,535
5,524
4,981
4,710
4,587
4,530
3,221
2,360
2,206
13,29673,590(15,000)
58,589Deferred income tax liabilities:
Net defined benefit asset
Unrealized gains on securities
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (intangible assets)
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (land and buildings)
Effect from the application of Accounting Standard for Revenue Recognition(prepaid expenses)
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (other fixed assets)
Other
Total deferred income tax liabilities
Net deferred income tax assets(14,522)(7,895)(6,663)(4,680)(2,328)(941)(1,007)(38,040)
20,548

2. Summary of the Reconciliation between the Statutory Tax Rate and the
Effective Tax Rate after the Application of Deferred Income Tax
Accounting
In the current fiscal year, difference between the statutory tax rate and theeffective tax rate after the application of deferred income tax accounting
accounted for less than 5% to the statutory tax rate. Accordingly the note isomitted.

[English Translation]
20

Notes to Retirement Benefits
1.

Outline of the Retirement Benefit Plan Adopted:
Employees of the Company and its consolidated domestic subsidiaries
whose services are terminated are, under most circumstances, eligible forlump-sum severance indemnities and/or eligible for pension benefits.
The Company and its domestic consolidated subsidiaries with the sameretirement benefit plan have adopted a severance indemnity plan and adefined contribution pension plan, and have also implemented a matching
contribution plan since July 2012. The method of calculating the severance
indemnity under the severance indemnity plan is to pay out to theemployees an amount equal to a certain percentage of their annual income
over their period of service, plus interest which is calculated as the 3-year
average yield of applicants for 10-year government bonds. The defined
contribution pension plan was established in April 2003, a portion
equivalent to 20 % of the severance indemnity plan so far accumulated wastransferred to the new plan, and a specified percentage of annual income iscontributed thereto. The Company transferred an additional portion of theseverance indemnity plan funds to the defined contribution pension plan in
April 2005, and accordingly, the ratio of the accumulated amount in theseverance indemnity plan and the amount of contributions to the defined
contribution pension plan, including the past reserve, changed to 70 % and
30 %, respectively.
The majority of the consolidated overseas subsidiaries have adopted avariety of pension plans that essentially cover all employees. Most of theseplans are defined contribution pension plans.
In defined benefit pension plans and lump-sum severance indemnity plans
for some consolidated subsidiaries, net defined benefit liabilities andretirement benefit expenses are calculated using the simplified method.

2.

Defined Benefit Plans(1) Reconciliation of beginning and ending balances of retirement benefit
obligations (excluding those pertaining to plans to which the simplified
method is applied)
Beginning balance of retirement benefit obligations
Service cost
Interest cost
Actuarial gains and losses incurred
Retirement benefits paid
Ending balance of retirement benefit obligations(Millions of Yen)
104,227
5,955
411
(322)
(5,578)104,693(2) Reconciliation of beginning and ending balances of plan assets(excluding those pertaining to plans to which the simplified method isapplied)(Millions of Yen)
124,762
3,520
4,680
5,198
(4,559)133,603

Beginning balance of plan assets
Expected rate of return
Actuarial gains and losses incurred
Contributions from the employer
Retirement benefits paid
Ending balance of plan assets[English Translation]21

(3) Reconciliation of beginning and ending balances of net defined benefit
liability pertaining to plans to which the simplified method is applied
Beginning balance of net defined benefit liability
Retirement benefit expenses
Retirement benefits paid
Contributions to the plan
Ending balance of net defined benefit liability(Millions of Yen)
3,102
523
(529)
(141)
2,955

(4) Reconciliation of ending balances of retirement benefit obligations andplan assets with net defined benefit liability and net defined benefit asset
recognized in the consolidated balance sheet
Retirement benefit obligations of funded plans
Plan assets
Retirement benefit obligations of non-funded plans
Net amount of assets and liabilities recognized in the
consolidated balance sheet

Net defined benefit liability
Net defined benefit asset
Net amount of assets and liabilities recognized in the
consolidated balance sheet(Millions of Yen)
89,769(136,289)(46,519)
20,564(25,955)(Millions of Yen)
21,896(47,852)(25,955)(Note) Including plans to which the simplified method is applied.
(5) Retirement benefit expenses and their breakdown
Service cost
Interest cost
Expected rate of return
Amortization of actuarial gains and losses
Retirement benefit expenses calculated using thesimplified method
Retirement benefit expenses pertaining to defined
benefit plans(Millions of Yen)
5,955
411
(3,520)(1,408)523
1,960(6) Remeasurements of defined benefit plans
The breakdown of the amount recognized in remeasurements of defined
benefit plans (before the tax effect) is as follows:(Millions of Yen)
(10,284)(10,284)

Unrecognized actuarial gains and losses
Total(7) Matters concerning actuarial assumptions
Major actuarial assumptions applied at the end of the current fiscal year
Discount rateLong-term expected rate of return
3.

Mainly 0.5%
Mainly 3.0%

Defined Contribution Plans
The amount of contribution required for the Company and its consolidated
subsidiaries is YEN 2,225 million in total.

[English Translation]
22

Notes to Asset Retirement Obligation
1. Asset Retirement Obligations Recognized in Consolidated Balance Sheet
Footnote information of asset retirement obligations recognized in the
consolidated balance sheet is omitted as they are immaterial.
2. Asset Retirement Obligations not Recognized in Consolidated Balance Sheet
A certain building of a consolidated subsidiary must be restored to its
original state under the building lease agreement upon returning the building
at the expiry of the lease. However, the Company does not plan to relocatefrom the building in its business strategies and it is assumed to be used until
the building is demolished through the renewal of the agreement. In cases
where the building is demolished, it is not expected to execute thecontractual obligation to restore the building to its original state. For thisreason, though the Company tried to establish best estimates, considering
evidence available as at the closing date, asset retirement obligations havenot been recognized with respect to such obligations, since it isimpracticable to forecast the probability regarding the scope and the amountof asset retirement obligations.
Notes to Business Combination
Transactions under Common Control, etc.
(Acquisition of additional shares of the consolidated subsidiary)
1. The Outline of Transactions(1) The Name of the Combined Company and its Business
The name of the combined company: The consolidated subsidiary of
the Company, Secom Joshinetsu
Co., Ltd.
Business description: Security business centering on
on-line security system and otherbusiness(2) Date of Business Combination
July 15, 2021
(3)

Legal Form of Business Combination
Acquisition of shares from non-controlling shareholders(4) Name of Company after Business Combination
Not changed(5) Other Matters Relating to the Transactions
The Company resolved in the meeting of the Board of Directors on May
28, 2021 to acquire shares of Secom Joshinetsu through the tender offer
and make Secom Joshinetsu a wholly owned subsidiary of the Company,in order to achieve quick and highly flexible decision-making throughintegration of the Company and Secom Joshinetsu and concentratenecessary management resources on the security service business alongwith strong coordination with Secom Joshinetsu, leading to theachievement of the sustainable development and pursuing the further
enhancement of both companies’ corporate values. The Company
implemented the tender offer from May 31, 2021 to July 9, 2021.
As a result, the Company’s ownership ratio of the total number of issued
shares of Secom Joshinetsu (excluding the number of treasury shares
owned by Secom Joshinetsu) increased from 54.03% (as of May 28,[English Translation]23

2021) to 88.03%.
On November 1, 2021, the share exchange was implemented in which
the Company became a wholly owning parent company in shareexchange and Secom Joshinetsu became a wholly owned subsidiary inshare exchange, and Secom Joshinetsu became a wholly owned
subsidiary of the Company.
2. Summary of Accounting Treatment
Based on the “Accounting Standards for Business Combinations” (ASBJ
Statement No.21, January 16, 2019) and “Implementation Guidance on
Accounting Standard for Business Combinations and Accounting Standard forBusiness Divestures” (ASBJ Statement No.10, January 16, 2019), the Share
Exchange was accounted for as a transaction under common control, etc.
3. Matters Related to the Additional Acquisition of Shares of the Consolidated
Subsidiary
Acquisition Cost and Breakdown Thereof
Consideration for the Acquisition Cash on hand andin banks
Acquisition Cost

27,442 million yen
27,442 million yen

4. Matters Related to Changes in Shares of the Company Arising fromTransactions with Non-controlling Shareholders(1) Major Factors in Changes in Capital Surplus
Acquisition of additional shares of a subsidiary(2)

Amount of Capital Surplus
Non-controlling Shareholders
11,518 million yen

decreasedbyTransactions

with(Wholly Owning a Subsidiary through the Share Exchange)
1. The Outline of the Transaction(1) The Name of the Combined Company and its Business
The name of the combined company: The consolidated subsidiary of
the Company, Secom Joshinetsu
Co., Ltd.
Business description: Security business centering on
on-line security system and otherbusiness(2) Date of Business Combination
November 1, 2021
(3)

Legal Form of Business Combination
Share Exchange, in which the Company was a wholly owning parent
company in share exchange and Secom Joshinetsu was a wholly owned
subsidiary in share exchange(4) Name of Company after Business Combination
Not changed(5) Other Matters Relating to the Transactions
Through the tender offer the Company implemented from May 31, 2021
to July 9, 2021, and the Share Exchange, the Company made Secom
Joshinetsu a wholly owned subsidiary in order to achieve quick andhighly flexible decision-making through integration of the Company and
Secom Joshinetsu, and concentrate necessary management resources on
the security service business along with strong coordination with Secom[English Translation]24

Joshinetsu, leading to the achievement of the sustainable development
and pursuing further enhancement of both companies’ corporate values.
2. Summary of Accounting Treatment
Based on the “Accounting Standards for Business Combinations” (ASBJ
Statement No.21, January 16, 2019) and “Implementation Guidance on
Accounting Standard for Business Combinations and Accounting Standard forBusiness Divestures” (ASBJ Statement No.10, January 16, 2019), the Share
Exchange was accounted for as a transaction under common control, etc.
3. Matters Related to the Additional Acquisition of Shares of the Subsidiary(1) Cost of Acquisition and Breakdown by Type of Consideration
Acquisition Cost and Breakdown Thereof
Consideration for the Acquisition Common shares of
9,021 million yen
the Company
Acquisition Cost
9,021 million yen(2) Allotment Ratio in the Share Exchange
SECOM(wholly owning parent
company in share exchange)

Secom Joshinetsu(wholly owned subsidiary inshare exchange)

1

0.74

Allotment ratio pertaining
to the Share Exchange

The Company allotted 0.74 common shares per 1 common share ofSecom Joshinetsu.
(3) Shares Allotted by the Share Exchange
The Company allotted 1,138,992 common shares in the Share Exchange.
Upon the allotment, the Company allotted 1,138,992 treasury shares it
owned.
(4) Calculation Method of Share Exchange Ratio
Based on the valuation report for the Share Exchange by SMBC Nikko
Securities Inc. as the Company’s financial advisor and a third-party
valuation organization as well as advice from URYU & ITOGA as its
legal advisor, both of whom being respectively independent from theCompany and Secom Joshinetsu, and after repeated discussions andnegotiations with Secom Joshinetsu, it was decided that the Share
Exchange would not harm the interests of the shareholders of theCompany and Secom Joshinetsu, and we came to the conclusion that it isappropriate to carry out the Share Exchange with the Share Exchange
ratio.
4. Matters Related to Changes in Shares of the Company Arising fromTransactions with Non-controlling Shareholders(1) Major Factors in Changes in Capital Surplus
Acquisition of additional shares of a subsidiary(2)

Amount of Capital Surplus
Non-controlling Shareholders
214 million yen

decreasedbyNotes to Per-Share Information
Net assets per share:
Net income per share:

YEN
YEN

[English Translation]
25

5,147.30
431.27

TransactionswithAs stated in “6. Notes on Changes in Accounting Policies” under “Notes to
Significant Items for Preparation of Consolidated Financial Statements” of“Notes to Consolidated Financial Statements,” the Company has applied the“Accounting Standard for Revenue Recognition.”
As a result, for the fiscal year ended March 31, 2022, net assets per share andbasic net income per share decreased by YEN 50.22 and YEN 1.08,
respectively.
Notes to Significant Subsequent Events
SECOM entered into the share purchase agreement on May 12, 2022 to acquire
55.1%, or 7,612,000 shares of the common shares outstanding of SENON
LIMITED on July 1, 2022.
1. Purpose of Acquisition
SENON provides a wide range of security services nationwide as a total
security company. Its business includes security guard services, electronic
security services, airport security services, and vehicle fleet operation
services. SECOM believes that SENON’s strengths as a total security
company combined with SECOM’s technological advantages and expertise
will enable us to provide more customers with higher quality and optimized
security services.
2. The Transferors for the Share Purchase
Hironobu Koyano, 1 corporation and 14 individuals
3. Outline of a Subsidiary to be Acquired(1) Name: SENON LIMITED(2) Business description: Security(3) Size: Capital 100 million yen (as of March 31, 2022)
4. Schedule for the Share Purchase(1) Execution of share purchase agreement(2) Date of acquisition: May 12, 2022
: July 1, 2022 (planned)

5. The Number of Shares to be Acquired and Conditions of Shares Held before
and after the Acquisition(1) The number of shares held before the acquisition: － shares(Shareholding ratio : －%)(2) The number of shares to be acquired: 7,612,000 shares(Acquisition price : 26,999 million yen)
(3) The number of shares to be held after the acquisition: 7,612,000 shares(Shareholding ratio : 55.1%)
6. Funding Method
Fund on hand (planned)[English Translation]
26

Notes to Non-Consolidated Financial Statements
Notes to Significant Accounting Policies
1.

Valuation Policies and Methods for Assets(1) Valuation Policies and Methods for Securities
1) Held-to-maturity debt securities
Amortized cost method
2) Investment Securities in Subsidiaries and Affiliates
At cost, based on the moving average method
3) Available-for-sale Securities
Securities other than shares that do not have a market value
At fair value
Net unrealized gains and losses of securities are reported directly in net
assets. The cost of securities sold is calculated by the moving averagemethod.
Shares that do not have a market value
At cost, principally based on the moving average method.
(2) Valuation Policies and Methods for Inventories
Merchandise and supplies are stated at cost determined by the moving
average method (or at the net realizable value (NRV) calculated by writing
down the book value to reflect a decrease in the NRV).
2.

Depreciation and Amortization of Depreciable and Amortizable Fixed
Assets(1) Tangible Assets: (except for leased assets)
1) Security equipment and control stations
Security equipment and control stations are depreciated over theiraverage estimated useful lives (5-8 years) by the declining-balancemethod.
2) Other tangible fixed assets
Other tangible fixed assets are depreciated by the straight-line method.
Their main useful lives are as follows:
Buildings and improvements: 33-50 years(2) Intangible Assets
Intangible fixed assets are amortized by the straight-line method.
The software used in the Company is amortized by the straight-line method
based on the useful lives within the Company (5 years).
(3) Leased Assets
1) Leased assets related to ownership-transfer finance lease transactions
Depreciated, using the same depreciation method applied to fixed
assets in possession.
2) Leased assets related to non-ownership-transfer finance leasetransactions
Depreciated, using the straight-line method over a useful life equal to
the lease period with a residual value of zero.
In addition, non-ownership-transfer finance leases entered into on or
before March 31, 2008 are treated using the method applicable tooperating lease transactions.

[English Translation]27

(4) Long-term Prepaid Expenses:
Long-term prepaid expenses are amortized by the straight-line method.
3.

Basis for Significant Allowances(1) Allowance for Doubtful Accounts
To prepare for losses from bad debts such as losses on trade receivables
and loans, the allowance for doubtful accounts provides an estimatedamount of uncollectables. It is determined based on historical loss ratewith respect to ordinary accounts, and an estimate of uncollectableamounts, respectively determined by reference to specific doubtful
accounts from customers who are experiencing financial difficulties.
(2) Accrued Bonuses
Accrued bonuses are provided for the bonus payments to employees, at
an amount incurred during the current fiscal year.
(3) Accrued Pension and Severance Costs
To prepare for the retirement benefits of employees, the Company
provides an amount of accrued pension and severance costs and prepaid
pension and severance costs at the end of the current fiscal year, based on
the estimated amount of projected benefit obligation and plan assets as ofthe end of the current fiscal year.
In calculating retirement benefit liabilities, the benefit formula basis isadopted to attribute the estimate amount of retirement benefit to thecurrent fiscal year end.
Prior service liability is recognized as profit or loss in the year ofoccurrence.
Actuarial gains and losses are amortized from the following fiscal year ofoccurrence, using the straight-line method over certain years within the
average remaining service period (10 years).
4.

Revenue and Cost Recognition Policies
In the Company’s major businesses related to revenue from contracts withcustomers, the details of major performance obligations, as well as the normal
point in time when such performance obligations are satisfied (i.e., the normal
point in time when revenue is recognized) are as follows.
In Security Services including the centralized systems for businesses andhomes, the static guard services, and the armored car services, theCompany identifies the performance obligation to provide services basedon the security contract with the customer.
Such security contracts represent transactions in which the performanceobligation is satisfied over a certain period, and the Company recognizes
revenue in line with the performance of the contract. Equipment
installation work fees received in a lump sum at the start of services forcentralized systems and other points in time are allocated on a straight-line
basis over the same period as the period in which the service is provided
and revenue is recognized in the amount corresponding to the current
fiscal year, if the customer is thought to receive the benefits as theperformance obligations in the security contract is satisfied.
It should be noted that security equipment installation work expenses areallocated on a straight line over the same period as the period in which theservice is provided and recognized as expenses in the amountcorresponding to the current fiscal year.
Additionally, consideration for these performance obligations is generallycollected within one year from the time the performance obligations are
satisfied, unless they are received as contract liabilities prior to thesatisfaction of the performance obligations, and the amount ofconsideration contains no significant financing components.

[English Translation]28

5.

Other Significant Accounting Policies
Accounting for retirement benefits
The accounting for unrecognized actuarial gains and losses toretirement benefits is different from the accounting for those items in
the consolidated financial statements.

6.

Changes to Disclosure Method(Notes to Statements of Income)“Loss on disposal of intangible assets,” which was included in “Other”
under extraordinary losses in the previous fiscal year, is presented as aseparate line item from the current fiscal year due to its increased
importance. “Loss on disposal of intangible assets” for the previous fiscal
year was 66 million yen.

Notes on Changes in Accounting Policies(Application of Accounting Standard for Revenue Recognition, etc.)
From the beginning of the fiscal year ended March 31, 2022, we have applied“Accounting Standard for Revenue Recognition” (ASBJ Statement No.29,
March 31, 2020; hereinafter, “Accounting Standard for Revenue
Recognition”), etc. Accordingly, we recognize revenue to describe thetransfer of promised goods or services to customers in the amount thatreflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.
The major changes due to the application of Accounting Standard for
Revenue Recognition etc. are as follows:
Revenue related to security equipment installation work
With respect to the initial lump-sum revenue from installation fees received
at the start of services of the Centralized security systems, the Company
previously recognized revenue at the time when the construction iscompleted and accepted by the customer. However, the Company recognizes
revenue over the contract period of time, when the customer receives thebenefits as the performance obligations under the security contract aresatisfied, and the amount is evenly allocated over the same period as theservice period.
The application of the Accounting Standard for the Revenue Recognition,etc. is subject to the transitional treatment provided for in the proviso of
Paragraph 84 of the Accounting Standard for Revenue Recognition. The
cumulative effect of the retrospective application, assuming the new
accounting policy had been applied to periods prior to the beginning ofcurrent fiscal year, was added to or subtracted from the beginning balance ofretained earnings of the current fiscal year, and thus the new accounting
policy has been applied from the beginning balance. In addition, theCompany has applied the method prescribed in proviso (1) of Paragraph 86of the Accounting Standard for Revenue Recognition. The cumulative effect,
after accounting procedures for contract changes made prior to thebeginning of the current fiscal year based on the contract terms afterreflecting all contract changes, was added to or subtracted from the
beginning balance of retained earnings of the current fiscal year.
In addition, “Accounts receivable, trade,” which was a part of “Current
assets” in the nonconsolidated balance sheet for the previous fiscal year, is
included in “Accounts receivable – trade and contract assets” from thecurrent fiscal year.

[English Translation]29

As a result, for Nonconsolidated Statements of Income for the current fiscal
year, revenue decreased by 2,003 million yen, costs of revenue decreased by
1,097 million yen, operating profit decreased by 906 million yen,
non-operating expenses decreased by 413 million yen, ordinary profit andincome before income taxes decreased by 492 million yen, respectively,
compared to those before Accounting Standard for Revenue Recognition,etc. being applied.
Accumulated earnings carried forward of Nonconsolidated Statements of
Changes in Net Assets at the beginning of the current period decreased by
7,836 million yen as the cumulative effect of applying the policy to all priorperiods was reflected to net assets at the beginning of the current fiscal year,
compared to those before Accounting Standard for Revenue Recognition,etc. being applied.
These effects on the per-share information are described in thecorresponding parts.
(Application of Accounting Standard for Fair Value Measurement, etc.)
From the beginning of the current fiscal year, we have applied “AccountingStandard for Fair Value Measurement” (ASBJ Statement No.30, July 4, 2019;
hereinafter, “Fair Value Accounting Standards”), etc. In accordance with thetransitional treatment set forth in Paragraph 19 of Fair Value AccountingStandards and Paragraph 44-2 of “Accounting Standard for Financial
Instruments” (ASBJ Statement No. 10, July 4, 2019), we have applied
prospectively new accounting policies prescribed by Fair Value AccountingStandards, etc. Consequently, from the current fiscal year, we have adopted
the valuation method based on the market price on the closing date of stocks
and beneficiary securities with market value that are among other securities,
from the previous method that was based on the average market price over a
one-month period prior to the closing date.
Notes on Accounting Estimates
Investment Securities in Subsidiaries and Affiliated Companies(1) Amounts Stated in Financial Statements
The amount of investment securities in subsidiaries and affiliatedcompanies of YEN 393,659 million stated in the balance sheet for thecurrent fiscal year includes investments in unlisted subsidiaries that theCompany has acquired through an acquisition transaction.
(2) Other Information to Facilitate the Understanding of Accounting Estimates
Shares for which market prices are not available acquired throughinvestments in unlisted subsidiaries are stated in the balance sheet atacquisition costs. If the net asset value of an issuer of these shares isjudged to have declined significantly due to the deterioration in thefinancial condition of the issuer, a valuation loss on these securities needs
to be recognized unless the recoverability of the net asset value is
supported by sufficient evidence.
In the case where the Company acquires shares of an investee at a pricethat is considerably higher than its net assets per share as per its financial
statements reflecting the excess earnings power and the like of the investee,
if the net asset value subsequently declines significantly due to a decline inexcess earnings power and the like, a valuation loss on the investment in
the investee needs to be recognized even if there has been no deteriorationin its financial condition.
The acquisition cost of shares pertaining to the investment in unlisted
subsidiaries acquired through an acquisition reflects their excess earnings
power, value of their customer base, etc., based on the expectations for the
future growth of their business as at the time of the acquisition of eachsubsidiary. For this reason, if the excess earnings power and the like has[English Translation]
30

been impaired because the business growth expected at the time ofacquisition is not achieved and/or there has been or there is expected to bea significant deterioration in the business environment on which thebusiness plan was based, a valuation loss may need to be recognized oninvestments in these subsidiaries, even if there has been no deterioration in
their financial condition since the acquisition.
Notes to the Non-Consolidated Balance Sheet
1. Cash Deposits for Armored Car Services and Short-term Bank Loans
For financial institutions, the Company provides cash filling to and cash
collection from cash dispensers located outside of financial institution
facilities.
The balance of cash deposits for armored car services includes cash on handand cash in banks of representing a total of YEN 14,616 million connectedwith cash filling services, which is restricted in use by the Company. The
short-term bank loan balance includes YEN 817 million financed for the
cash filling services.
The balance of cash deposits for armored car services includes YEN 19,161
million connected with cash collection administration services, which is also
restricted in use by the Company. Also, the short-term bank loan balance
includes YEN 16,650 million financed for the cash collection administration
services.
2.

Assets Pledged as Collateral and Collateral-related Liabilities
Assets Pledged as Collateral(Millions of Yen)
Short-term loans receivable
17
Investment securities
1,358
Investment securities in subsidiaries and affiliates
45
Long-term loans receivable
576
Total
1,997
Collateral-related Liabilities—
Short-term loans receivables, investment securities, investment securities
in subsidiaries and affiliates, and long-term loans receivable are pledged
as collateral for the debts of subsidiaries and affiliates and other debts.

3.

Accumulated Depreciation of Assets
Accumulated depreciation of tangible assets: YEN 310,561 million[English Translation]31

4. Contingent Liabilities(1) Guarantees
Liabilities of the below entities and employees are guaranteed.
(Millions of Yen)
Secom Aktif Güvenlik Yatirim A.S.
1,084
Alive Medicare Co., Ltd.
940
Secom Aktif Elektronik Güvenlik Çözümleri
459
A.S.
Purchasers of real estate the Company sold
193
Secom Fort West Co., Ltd.
187
Employees
164
Purchasers of merchandises by leasing
51
transactions etc.
Others
19
Total

3,100

(2) Net Assets Maintaining Agreement
The Company entered into a net assets maintaining agreement with Secom
General Insurance Co., Ltd., under which the Company is obligated toprovide funds to Secom General Insurance Co., Ltd. if and when the net
assets of Secom General Insurance Co., Ltd. become lower than thespecified amount or its current assets necessary for the payment of its
liabilities are insufficient.
The total liabilities of Secom General Insurance Co., Ltd. at the end of thecurrent fiscal year are YEN 199,034 million, including YEN 186,078
million of investment deposits by policyholders, unearned premiums andother insurance liabilities, and the total assets are YEN 234,443 million.
However, this agreement is not construed as the Company’s guarantee withrespect to payment obligations of Secom General Insurance Co., Ltd. Secom
General Insurance Co., Ltd. maintained net assets above the required level,
and its current assets were not insufficient at the end of the current fiscal
year.
5.

Financial Receivables/Payables to Subsidiaries and Affiliates (excluding
those separately presented)(Millions of Yen)
21,616
Short-term receivables
56,666Long-term receivables
6,285
2,553

Short-term payables
Long-term payables[English Translation]
32

Notes to Non-Consolidated Statement of Income
Operating Transactions and Non-operating Transactions with Subsidiaries
and Affiliates(Millions of Yen)
Operating transactions (Revenue)
17,150Operating transactions (Expense)
39,246
Non-operating transactions (Income)
17,657
Notes to Non-Consolidated Statements of Changes in Net Assets
Items Related to Classes and Total Number of Treasury Stocks(Unit: 1 share)
Classes ofsharesCommonstock

Number ofshares at the
beginning of
the fiscal year
15,034,565

Increase in
number ofshares in thefiscal year
1,319,647

Decrease in
number ofshares in thefiscal year
1,138,994

Number ofshares at theend of the fiscal
year
15,215,218(Outline of reasons for change)
The increase of 1,319,647 in the number of common stocks of treasury
stocks is due to the repurchase of 1,318,500 own shares resolved by the
Board of Directors and the purchase of 1,147 shares constituting less than
one unit.
The decrease of 1,138,994 in the number of common stocks of treasury
stocks is due to the share exchange of 1,138,992 own shares and requests tosell 2 shares constituting less than one unit.
Notes to Revenue Recognition
Basic Information for Understanding Revenue
Please refer to “4 Revenue and Cost Recognition Policies” of “Notes to
Significant Accounting Policies.”
Notes to Deferred Income Tax Accounting
1. The Significant Components of Deferred Income Tax Assets and Deferred
Income Tax Liabilities:
Deferred income tax assets:(Millions of Yen)
Loss on impairment of investment securities in subsidiaries and affiliates
7,284
Impairment loss
2,262
Accrued bonuses
1,961
Effect from the application of Accounting Standard for Revenue
1,940
Recognition (prepaid expenses)
Effect from the application of Accounting Standard for Revenue
1,933
Recognition (deferred revenue)
Write-down on fixed assets
1,279
Write-down on inventories
552
Other
2,917
Gross deferred income tax assets
20,132
Valuation allowance(1,264)
Total deferred income tax assets
18,868[English Translation]
33

Deferred income tax liabilities:
Prepaid pension and severance costs
Other
Total deferred income tax liabilities(9,029)(4,289)(13,319)

Net deferred income tax assets (liabilities)
2.

5,548

Summary of the Reconciliation between the Statutory Tax Rate and the
Effective Tax Rate after the Application of Deferred Income Tax
Accounting:Statutory tax rate
(Reconciliation)
Permanently non-taxable income such as
dividends income
Per capita levy of corporate inhabitant tax
Research and development tax credits
Permanently non-taxable expenses such asentertainment expenses
Other
Effective tax rate after the application ofdeferred income tax accounting

30.5 (%)
(5.0)
0.6
(0.5)
0.2
(0.1)
25.7 (%)

Notes to Fixed Assets under Leases
Besides the ones booked as fixed assets on the balance sheet of theCompany, some of buildings are used based on the finance lease contracts
other than those deemed to transfer the ownership of the leased assets to thelessees.
Notes to Business Combination
Such notes are omitted because the same notes are described in
Consolidated Financial Statements, “Consolidated Financial Statements(Notes to Business Combination).”[English Translation]
34

Notes to Transactions with Related Parties
1. Subsidiaries, affiliates etc.

Type

Name ofCompany

VotingRightsHeld by theCompany(%)

Subsidiary

SecomCredit Co.,
Ltd.

100.0

Loan of funds

Subsidiary

Secom
MedicalSystem Co.,
Ltd.

100.0

Loan of funds
Concurrent appointment ofofficers

Subsidiary

Arai & Co.,
Ltd.

92.5

Loan of funds
Concurrent appointment ofofficers

Name ofCompany

Transactions

Amount ofTransactions(Millions of
Yen)

Secom Credit
Co., Ltd.

Execution of loans(Collection of loans)
Receipt of interests (Note 1)

32,450(34,180)
37

Secom Medical
System Co.,
Ltd.

Execution of loans(Collection of loans)
Receipt of interests (Note 1)

750(7,434)303

Arai & Co.,
Ltd.

Execution of loans(Collection of loans)
Receipt of interests (Note 1)

1,700(2,787)
206

Relationship with the Related
Party

Account

Short-term loans
receivable

1,000

Long-term loans
receivable

12,220

Short-term loans
receivable

11,654Long-term loans
receivable

20,315

Short-term loans
receivable699

Long-term loans
receivable

11,837(Notes)1. The interest rates for the loans above are determined, referring to market interest rates
etc.

[English Translation]
35

Year-end
Balance(Millions ofYen)2. Officers (Directors/audit and supervisory board members), major individual shareholders,
etc.

Type

Voting Rights
Held by theCompany(%)

Name of Company

Provision of services

Company whose majority

such as security services

voting rights are owned by
an officer and his/her close

Relationship with theRelated Party

Watanabe Pipe Co., Ltd.
(Note 1)

Concurrent appointment

relatives (including itsof an officer

subsidiary)Year-end
Amount ofBalance
Name of Company

Transactions

Transactions

Account(Millions of(Millions of Yen)
Yen)

Accruedservice
Watanabe Pipe Co., Ltd.

Electronic security service(Note 1)and maintenancefee
31
Unearned(Note 2)

service
fee
Notes:
1. A company 100% of whose voting rights are directly held by a company whose majority
voting rights are held by Mr. Hajime Watanabe, a Director of the Company, and his close
relatives.
2. The transactions are carried out under standard terms and conditions similar to those
applied to arms-length transactions.

Notes to Per-Share Information
Net assets per share:
Net income per share:

0

YEN
YEN

3,943.23
319.70As stated in “Notes on Changes in Accounting Policies” of “Notes toConsolidated Financial Statements,” the Company has applied the“Accounting Standard for Revenue Recognition.”
As a result, for the fiscal year ended March 31, 2022, net assets per share andbasic net income per share decreased by YEN 37.51 and YEN 1.57,
respectively.
Notes to Significant Subsequent Events
Such notes are omitted because the same notes are described in
Consolidated Financial Statements, “Consolidated Financial Statements(Notes to Significant Subsequent Events).”[English Translation]
360