Internet Disclosure Accompanying
the Notice of the Convocation of
The 52nd Ordinary General Meeting of
Shareholders

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

1
18

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(http://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: 171
Names of major consolidated subsidiaries:
Secom Joshinetsu Co., Ltd., Nohmi Bosai Ltd., Nittan Co., Ltd., Secom
Medical System Co., Ltd., Secom General Insurance Co., Ltd., Pasco
Corporation, Secom Home Life Co., Ltd., Secom Trust Systems Co.,
Ltd., At Tokyo Corporation, The Westec Security Group, Inc., Secom Plc(2) Descriptions of Non-Consolidated Subsidiaries:
FM-International Laos Co., Ltd., Nohmi Kosaku Co., Ltd., Nohmi Facilities
Co., Ltd., Nohmi Baoli (Beijing) Intelligent Fire Protection Co., Ltd., Eishin
Denshi Co., Ltd. and 7 other companies(The reason for exclusion from scope of consolidation)
All of these 12 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:
US Collections, Inc., Global Sales Training, Inc., CLP Auto Interior Corp.,
US Juice Partners, LLC, Gold Canyon Mining & Construction, LLC, US
Water, LLC, CLP Consumer Products, LLC, Consumer Safety Technology,
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: 26
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: 10(The reason for not applying the equity method)
These 10 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.
(3) Names of other companies owing between 20% and 50% of voting rights
not regarded as affiliates:
Global T&M Holdings, LLC[English Translation]
1

(The reason for not regarded as an affiliate)This company was acquired by a subsidiary of The Westec Security Group,
Inc. through normal course of business with the objective of investment, notwith the objective of control.
3.

Changes in Scope of Consolidation and Companies Accounted for under the
Equity Method
Consolidation
Newly consolidated subsidiaries: 21
Japan Nuclear Security System Co., Ltd (Control Approach)
Nittan Co., Ltd, At Tokyo Corporation and 17 other companies(Acquisition)
Secom Medipharma Co., Ltd. (New establishment)
Excluded from consolidation: 22
Secom Jastic Akita Co., Ltd. and 14 other companies (Merger)
Pasco Road Center Co., Ltd. and 6 other companies (Liquidation)
Equity Method
New companies accounted for under the equity method: 3
Consilium Nittan Marine Ltd. and 1 other company (Acquisition)
Takshasila Hospitals Operating Pvt. Ltd. (New establishment)
Excluded from affiliates accounted for under the equity method: 3
Secom Kochi Co., Ltd. and 1 other company (Change toconsolidated subsidiary)
Gain Inc. (Divestiture)

4.

Closing Dates of Consolidated Subsidiaries and Equity Method Affiliates
With respect to overseas consolidated subsidiaries, 7 U.S. subsidiaries suchas The Westec Security Group Inc., 9 Australia and New Zealandsubsidiaries such as Secom Australia Pty. Ltd., 6 U.K. subsidiaries such as
Secom Plc, 18 Chinese subsidiaries such as Secom (China) Co., Ltd., PT.
Nusantara Secom Infotech, PT. Secom Indonesia, Pasco Thailand Co., Ltd.,
Thaisecom Pitakkij Co., Ltd., Secom Vietnam Co., Ltd., Pasco Philippines
Corp., FM-International Oy, Nohmi Taiwan Ltd., Nittan Taiwan Fire &Safety Co., Ltd, Base Aerofotogrametria E Projetos S.A., Pasco Do Brasil
Participacoes Ltda., Aerodata International Surveys BVBA, Pasco
International Europe B.V. and Secom Trading Co., Ltd. close their book as
of December 31 each year, and the financial statements as of this date areused for preparation of the consolidated financial statements.
With respect to domestic consolidated subsidiaries, while 2 companies such
as Zao Urbane Properties Co., Ltd. close their book as of December 31 eachyear, the financial statements prepared pursuant to the provisional closing ofbooks conducted as of March 31 are used for preparation of the consolidated
financial statements.
With respect to equity method affiliates, 11 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[English Translation]2

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 with fair value
Stock and beneficiary securities: At fair value based on themarket price one month prior to the fiscal year-end
Others: At fair value based on market price at fiscal year-end
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.
Securities with no fair 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 over theiraverage 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: 22-50 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 the straight-line
method based on the useful lives within the Company (5 years).

[English Translation]3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
Long-term prepaid expenses are amortized by the straight-line
method. With respect to the installation costs related to security
equipment at the customer premises, any portion exceeding theamount received from the customer is included in “long-term
prepaid expenses” and amortized by the straight-line method overthe contract period (5 years).
(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 determined based on thehistorical loss rate with respect to ordinary accounts, and an estimateof uncollectable amounts respectively determined by reference tospecific doubtful accounts from customers who are 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) Reserve for Losses on Construction Contracts
To prepare for future losses on construction contracts etc., an accrualis provided based on the estimated losses on construction contracts
etc. that are undelivered at the end of the current fiscal year.
4) Accrued Pension and Severance Costs
To prepare for the retirement benefits of employees, the Company
and its domestic consolidated subsidiaries provide an amount of
accrued pension and severance costs and prepaid pension andseverance costs at the end of the current fiscal year, based on theestimated amount of projected retirement benefit obligations andplan assets as of the end of the current fiscal year.
Prior service liability 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).
5) Accrued Retirement Benefits for Directors and Audit & Supervisory
Board Members
To prepare for payment for retirement benefits of Directors andAudit & Supervisory Board Members of the Company and certain
domestic consolidated subsidiaries, a necessary amount at the end of[English Translation]4

the current fiscal year is accrued based on the rules of the Directors
and Audit & Supervisory Board Members’ retirement benefits.
(4) Revenue and Cost Recognition Policies
1) Revenue Recognition Policies for Construction Contracts
Percentage-of-completion method is applied to construction
contracts whose outcomes are deemed certain for progress until theend of the current fiscal year, and the completed-contract method isapplied to other construction contracts. The percentage of costs
incurred to the estimated total cost is used for estimating thepercentage of completion.
2) Recognition Policies for Revenue and Costs 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. Theinterest rate swaps that fulfill requirements for exceptional
treatments permitted for interest rate swaps are accounted for using
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 EffectivenessHedge effectiveness is assessed by comparing the cumulative totals
of price fluctuations of the hedged items and hedging instrumentsfrom the beginning of hedging to the effective point of assessment,
taking the changes of both the hedged items and hedging
instruments into account. However, when an item is judged tofulfill requirements for exceptional treatments, the assessment ofhedge effectiveness is omitted.
2) Amortization of Goodwill and Negative Goodwill
Goodwill, and negative goodwill incurred on or before March 31,
2010 are amortized by the straight-line method over 5-15 years.
3) Accounting for Consumption Tax etc.
Tax-exclusive method is adopted.

[English Translation]
5Notes to Consolidated Balance Sheet
1.

Cash Deposits for Armored Car Services and Short-term Bank Loans
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. The balanceof cash deposits for armored car services includes cash on hand and cash inbanks representing a total of YEN 28,255 million connected with cash
filling services, which is restricted in use by the Group. The short-term bankloan balance includes YEN 8,383 million financed for the cash filling
services.
Furthermore, the balance of cash deposits for armored car services includes
YEN 27,833 million connected with cash collection administration services,which is also restricted in use by the Group. Also, the short-term bank loanbalance includes YEN 18,214 million financed for the cash collection
administration services.

2. 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
Other - investments and others (long-term deposit)
Total

1,860
19
709
26,70824,542
818
1,083
768
350
56,859(2) Collateral-related Liabilities(Millions of Yen)

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

5,732
4,487
8,847
15,61934,687

In addition to the above liabilities, investment securities and long-term loans
receivable are pledged as collateral for the debts of affiliates and otherdebts.
3.

Accumulated Depreciation of Tangible Assets
YEN 377,441 million

4.

Change of purpose of holding assets
YEN 1,414 million in land was transferred to real estate inventories due tochange of purpose of holding.

5.

Investment in Non-Consolidated Subsidiaries and Affiliates:(Fixed assets)
Investment securities (stocks)
YEN 037,819 million[English Translation]
6

6.
7.

Contingent Liabilities:
Guarantees of liabilities of entities and individuals

YEN 2,600 million

Presentation of Goodwill and Negative Goodwill
Goodwill and negative goodwill are presented in netted amount. Listed
below are the amounts before the offset.
(Millions of Yen)
22,572806
21,765

Goodwill
Negative goodwill
Net amountNotes to Consolidated Statement of Income
1.

Write-down on Real Estate Inventories Included in Cost of Revenue
YEN 1,791 million

Notes to Consolidated Statement of Changes in Net Assets
1.

Items Related to Issued Shares and Treasury Stocks
Number of shares atthe beginning of the
fiscal year

Increase in thenumber of shares in
the fiscal year

Decrease in thenumber of shares in
the fiscal year

(Unit：1 share)
Number of sharesat the end of the
fiscal year-

233,288,717

120

15,018,951

Issued shares
Common stocks

233,288,717-

Treasury stocks
Common stocks

15,017,691

1,380(Outline of reasons for change)
The increase of 1,380 in the number of common stocks is due to thepurchase of shares constituting less than one unit.
The decrease of 120 in the number of common stocks is due to requests tosell such number of shares as will constitute, together with the sharesconstituting less than one unit of shares already held, one full 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
26, 2012

Common stock

19,64490

March 31, 2012

June 27, 2012[English Translation]7

(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 ofYen)

Ordinary General
Meeting of
Shareholders on June25, 2013

Commonstock

Retainedearnings

22,9183.

Cashdividend per
share
(Yen)

Record date

Effective date

105

March 31,2013

June 26,
2013

Minority interests in subsidiaries
The main reason of increase in minority interests in subsidiaries is due toacquisition of consolidated subsidiaries.

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, except for its insurance services segment, 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.

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, 2013 are listed below. Items
whose fair value has been deemed extremely difficult to identify are notincluded in the table below. (See Note 2)[English Translation]
8

(Millions of Yen)

(1)Cash on hand and in banks(2)Cash deposits for armored car services(3)Call loans(4)Notes and accounts receivable, trade(5)Due from subscribers(6)Short-term investments and investment
Securities(i) Held-to-maturity debt securities(ii) Investment securities in affiliates(iii) Available-for-sale securities(7)Lease receivables and investment inleased assets(8)Short-term loans receivable
Allowance for doubtful accounts (*1)

Amountrecognized ontheconsolidatedbalance sheet
175,427
56,08946,500106,638
24,0593,066
30,912
152,740
27,569
4,158
(76)
4,081
42,338(15,775)
26,562653,648
43,68442,35031,40629,282
13,33519,8285,223
185,111(9)Long-term loans receivable
Allowance for doubtful accounts (*1)

Fair value

Difference

175,427
56,08946,500106,638
24,059-2,906
79,750152,740
27,784(160)
48,837
215

4,081

-

26,973702,951
43,68442,35031,40629,282
13,35419,921
5,137
185,138411
49,303
19
93
(85)
26

Total assets(1)Notes and accounts payable, trade(2)Bank loans(3)Payables - other(4)Accrued income taxes(5)Straight bonds(6)Long-term loans(7)Guarantee deposits received
Total liabilities
Derivative transactions (*2)(i) Hedge accounting not applied
5959(ii) Hedge accounting applied
(228)
(228)
Total derivative transactions
59
(169)
(228)
*1 Allowance for doubtful accounts for loans receivable is deducted.
*2 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.

(Note 1) Calculation method of fair value of financial instruments and mattersconcerning securities and derivative transactions
Assets:(1) Cash on hand and in banks, (2) Cash deposits for armored car services, (3)Call loans, (4) Notes and accounts receivable, trade, (5) Due from subscribersand (8) Short-term loans receivable
These items are stated at their book value, as these items are mainly settled ina short period of time and their fair value approximates their book value.
(6) 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.

[English Translation]9(7) 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.
(9) Long-term loans receivable
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 loantransaction is performed with respect to each category based on type, internalrating and period of the loans receivable. The fair value of doubtful accounts
is approximately the same as the value on the balance sheet as of the fiscal
year-end less the current estimated loan loss, as the estimated loan loss iscalculated based on the discounted present value of estimated cash flow or the
expected recoverable amount with collateral and guarantee etc.; therefore, thesaid value is stated as fair value. Certain consolidated subsidiaries calculate
the present value of future cash flow by discounting the future cash flow at aninterest rate equal to an appropriate index such as the yield of government
bonds plus the credit spread according to the residual period.
Liabilities:(1) Notes and accounts payable, trade, (2) Bank loans, (3) Payables - otherand (4) Accrued income taxes
These items are stated at their book value, as these items are mainly settled ina short period of time and their fair value approximates their book value.
(5) Straight bonds
These items are stated at present value calculated by discounting the sum of
the principal and interest at the interest rate assumed when new similar
straight bonds are issued, according to the residual period of the straightbonds.
(6) Long-term loans
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 debt
is taken on.
(7) Guarantee deposits received
Guarantee deposits received are stated at present value calculated bydiscounting the future cash flow at risk-free interest rate.
Derivative transactions:
Derivatives are stated at the price presented by the financial institution withwhich the Group has concluded an agreement.
For hybrid instruments which do not separate the fair value of the embedded
derivatives, the fair value of the hybrid instruments is calculated as a whole,and included in “(i) held-to-maturity debt securities” in “(6) Short-term
investments and investment securities.”[English Translation]
10

(Note 2) Financial instruments whose fair value is deemed extremely difficult to
identify(Millions of Yen)
Amount recognizedon the consolidated balance
sheet
4,821
6,907

Item

Unlisted stock (*1)
Unlisted stock of affiliates (*1)
Investments in limited partnerships for
5,318
investment etc. (*1)
Deposit from business activities (*2)
30,901*1 Not included in “(6) Short-term investments and investment securities” due to lack ofmarket price and extreme difficulty in identifying fair value.
*2 Not included in “(7) Guarantee deposits received” because reasonable estimation of cash
flow is deemed extremely difficult due to lack of market price and difficulty incalculating the effective depositing period.

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
45,127(801)
44,325

Fair value at theend of the fiscal
year

Office buildings
58,539
Medical45,6073,924
49,532
44,960facilities
Other
9,305
(1,602)
7,703
7,587
Total
100,041
1,520
101,561
111,087(Note 1) The amount recognized on the consolidated balance sheet equals the acquisition costless accumulated depreciation and accumulated impairment loss.
(Note 2) The increase of medical facilities during the current fiscal year is mainly due to thepurchase of New Tokyo Hospital by Secom Medical System Co., Ltd., a subsidiary of
the Company, amounting to YEN 4,046 million.
(Note 3) The fair value at the end of the current fiscal year is, in the case of major properties,
the amount based on real-estate appraisal by an external real-estate appraiser, and in
the case 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]
11

Profit or loss on rental properties and other real estate for the fiscal year ended
March 31, 2013 is as follows:

Rental income

Rental expenses

Difference(Millions of Yen)
Other(gains/losses onsale etc.)
20

Office buildings
3,396
1,417
1,979
Medical
5,425
2,366
3,058
4
facilities
Other
572
210
361
57
Total
9,394
3,994
5,399
82
(Note) The rental expenses include depreciation, repair costs, insurance premium, taxes andpublic imposts, etc.

Notes to Deferred Tax Accounting
1. The Significant Components of Deferred Tax Assets and Deferred Tax
Liabilities:
Deferred tax assets:
Operating loss carry-forwards
Eliminations of unrealized gain
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (land and buildings)
Investment deposits by policyholders, unearned premiums and other insurance
liabilities and provision for outstanding claims
Allowance for doubtful accounts
Accrued pension and severance costs
Accrued bonuses
Impairment loss
Write-down on real estate inventories
Write-down on fixed assets
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets(Millions of Yen)
9,262
7,984
7,749
7,512
6,437
5,895
5,312
5,234
4,536
3,726
8,751
72,403(31,056)
41,346

Deferred tax liabilities:
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (land and buildings)
Prepaid pension and severance costs
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (intangible assets)
Unrealized gains on securities
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (other fixed assets)
Other
Total deferred tax liabilities
Net deferred tax assets[English Translation]
12(7,320)(6,861)(5,447)(4,474)(2,977)(1,569)(28,651)
12,695

2.

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

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. 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 percent of the severance indemnity plan so far accumulated
was transferred to the new plan, and a specified percentage of annual
income is contributed thereto. The Company transferred an additional
portion of the severance indemnity plan funds to the defined contribution
pension plan in April 2005, and accordingly, the ratio of the accumulated
amount in the severance 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.

2.

Items Concerning the Retirement Benefit Obligation (As of March 31, 2013):(1) Projected benefit obligation(2) Plan assets(3) Unfunded projected benefit obligation ((1)+(2))(4) Unappropriated difference at the time of change inaccounting standard(5) Unrecognized actuarial gains or losses(6) Unrecognized prior service liability(7) Net retirement benefit obligation recognized in the
consolidated balance sheet((3)+(4)+(5)+(6))(8) Prepaid pension and severance costs(9) Accrued pension and severance costs ((7)-(8))[English Translation]
13(Millions of Yen)
(88,021)
80,203(7,818)
10,253
2,435
19,572(17,137)

3.

Components of Pension and Severance Costs (from April 1, 2012 to March
31, 2013)(Millions of Yen)
Service cost *1
5,009
Interest cost
1,506
Expected return on plan assets(2,113)
Amortization of actuarial gains or losses
2,112
Amortization of prior service benefit
473
Pension and severance costs
6,989((1)+(2)+(3)+(4)+(5))(7) Loss due to transfer to defined contribution plan
(8) Other *2
1,645
Total
8,634
(Notes) *1. Pension and severance costs for consolidated subsidiaries adopting thesimplified method are included in (1) “Service cost.”*2. “Other” represents the amount payable as premiums to the defined
contribution pension plan.
(1)
(2)
(3)
(4)
(5)
(6)

4.

Assumptions Used in Accounting for Retirement Benefits(1) Attribution of projected benefit
obligation(2) Discount rates(3) Expected rates of return on plan
assets(4) Amortization period of priorservice liability(5) Amortization period of actuarial
gains or losses

Straight-line method over the estimated years ofservices of the eligible employees
Principally 1.8% at beginning of fiscal year
Principally 1.4% at end of fiscal year
Principally 3.0% for plan assets
Prior service liability is amortized in the year
incurred.
Amortizing actuarial gains and losses from thefollowing fiscal year of occurrence, using thestraight-line method over certain years within the
average remaining service period (mainly 10 years).

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.

[English Translation]
14

Notes to Business Combination
Business Combination by share acquisition
1.

Acquisition of Nittan Co., Ltd.

(1) Outline of Business Combination
1) Name and Business Description of the Acquired Company(a) Name: LIXIL NITTAN Co., Ltd.
(b) Business Description: Installation, sales, maintenance and check-up
of various fire extinguishers
2) Purpose of Acquisition(a) To enhance the fire protection services, including flexible response toenvironmental changes, such as change of awareness for disasterprevention due to the Great East Japan Earthquake (domestic) andincreasing demand for disaster prevention in emerging countries(overseas).
(b) Research and development of next-generation systems for disasterprevention
3) Date of Business Combination
April 1, 2012
4) Legal Form of Business Combination
Share acquisition
5) Name of Company after Business Combination
Nittan Co., Ltd.
6) Percentage of Voting Rights Acquired
100%7) Principal Reason for Determining Acquiring Company
Since the Company acquired 100% of the voting rights by the sharepurchase in cash only, the Company is determined as the acquiring
company.
(2) Period Included in Consolidated Financial Statements
From April 1, 2012 to March 31, 2013
(3) Acquisition Cost of Company Subject to Business Combination andBreakdown Thereof
Consideration for Acquisition
Costs Directly Associated withAcquisition
Acquisition Cost

Cash on hand
Advisory fees etc.

YEN
YEN

12,700 million
13 million

YEN

12,713 million(4) Amount and Cause of Goodwill, Amortization Method and Period
1) Amount of Goodwill
YEN 1,464 million
2) Cause of Goodwill
The goodwill is attributable to the excess future profitability.
3) Amortization Method and Period
Amortization by the straight-line method over 10 years[English Translation]15

(5) Amount of Assets and Liabilities Acquired on the Day of Business
Combination
Current assets
YEN 20,827 million
Fixed assets
YEN 8,600 million
Total assets
YEN 29,427 million
Current liabilities
Long-term liabilities
Total liabilities

YEN 13,232 million
YEN 4,811 million
YEN 18,043 million

2. Acquisition of At Tokyo Corporation(1)Outline of Business Combination
1) Name and Business Description of the Acquired Company(a) Name: At Tokyo Corporation(b) Business Description: Data center business
2) Purpose of Acquisition
To accelerate its data center business and realize a variety of businesssynergies by further improving data center service quality and developing
new information security services.
3) Date of Business Combination
October 31, 2012
4) Legal Form of Business Combination
Share acquisition
5) Name of Company after Business Combination
At Tokyo Corporation
6) Percentage of Voting Rights Acquired
50.882%
7) Principal Reason for Determining Acquiring Company
Since the Company acquired 50.882% of the voting rights by the sharepurchase in cash only, the Company is determined as the acquiring
company.
(2) Period Included in Consolidated Financial Statements
From November 1, 2012 to March 31, 2013
(3) Acquisition Cost of Company Subject to Business Combination andBreakdown Thereof
Consideration for Acquisition
Cash on hand
YEN
Costs Directly Associated with
Advisory fees etc. YEN
Acquisition
Acquisition Cost
YEN(4) Amount and Cause of Goodwill, Amortization Method and Period
1) Amount of Goodwill
YEN 14,310 million
2) Cause of Goodwill
The goodwill is attributable to the excess future profitability.
3) Amortization Method and Period
Amortization by the straight-line method over 15 years[English Translation]
16

33,327 million
212 million
33,539 million

(5) Amount of Assets and Liabilities Acquired on the Day of Business
Combination
Current assets
YEN 09,769 million
Fixed assets
YEN 72,559 million
Total assets
YEN 82,328 million
Current liabilities
Long-term liabilities
Total liabilities

YEN 06,769 million
YEN 37,766 million
YEN 44,535 million(6) Amount Allocated to Intangible Assets and Amortization Period Thereof
AmountAmortization Period
YEN 12,158 million
20 years
YEN 03,072 million
15 years

Customer Relationships
TrademarkNotes to Per-Share Information
Net assets per share:

YEN 3,065.13

Net income per share:

YEN[English Translation]
17291.65

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 with fair value
Stock and beneficiary securities: At fair value based on the average
market price in one month prior to the fiscal year-end.
Others: At fair value based on market price at fiscal year-end
Net unrealized gains and losses of securities are reported directly in net
assets. The cost of securities sold is calculated by the moving averagemethod.
Securities with no fair value
At cost, based on the moving average method or amortized cost
method.
(2) Valuation Policies and Methods for Derivatives
Derivatives are stated at fair value.
(3) 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: 22-50 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[English Translation]18

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.
(4) Long-term Prepaid Expenses:
Long-term prepaid expenses are amortized by the straight-line method.
With respect to the installation costs related to security equipment at thecustomer premises, any portion exceeding the amount received from thecustomer is included in “long-term prepaid expenses” and amortized by
the straight-line method over the contract period (5 years).
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.
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 (mainly 10 years).
(4) Accrued Retirement Benefits for Directors and Audit & Supervisory Board
Members
To prepare for payment for retirement benefits of Directors and Audit &Supervisory Board Members of the Company, a necessary amount at theend of the current fiscal year is accrued based on the rules of the Directors
and Audit & Supervisory Board Members’ retirement benefits.
4.

Revenue and Cost Recognition Policies
Revenue Recognition Policies for Construction Contracts
Percentage-of-completion method is applied to construction contracts whose
outcomes are deemed certain for progress until the end of the current fiscal
year, and the completed-contract method is applied to other construction
contracts. The percentage of costs incurred to the estimated total cost is used
for estimating the percentage of completion.

5.

Other Significant Accounting Policies(1) Amortization of Goodwill
Goodwill is amortized by the straight-line method over 10 years.

[English Translation]19

(2) Accounting for Consumption Tax etc.
Tax-exclusive method is adopted.
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 25,718 million connectedwith cash filling services, which is restricted in use by the Company. The
short-term bank loan balance includes YEN 8,383 million financed for the
cash filling services.
The balance of cash deposits for armored car services includes YEN 27,833
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 18,214 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
19
Investment securities
655
Investment securities in subsidiaries and45
affiliates
Long-term loans receivable
768
Total
1,488
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:[English Translation]
20

YEN 250,966 million

4. Contingent Liabilities(1) Guarantees
Liabilities of the below entities and employees are guaranteed.
(Millions of Yen)
Alive Medicare Co., Ltd.
1,557
Secom Fort West Co., Ltd.
654
Secom Home Life Co., Ltd.
439
Prime Stage Co., Ltd.
139
The Windsor Hotels International Co., Ltd
101
Others21
Employees
215
Purchaser of merchandises by leasing
720
transactions etc.
Total
3,849
(2) Net Assets Maintaining Agreement
The Company entered into a net assets maintaining agreement with
Secom General Insurance Co., Ltd., under which the Company isobligated to provide funds to Secom General Insurance Co., Ltd. if andwhen the net assets of Secom General Insurance Co., Ltd. become lower
than the specified amount or its current assets necessary for the paymentof its liabilities are insufficient. The total liabilities of Secom General
Insurance Co., Ltd. at the end of the current fiscal year are YEN 142,661
million, including YEN 137,608 million of investment deposits bypolicyholders, unearned premiums and other insurance liabilities, and thetotal assets are YEN 169,713 million.
However, this agreement is not construed as the Company’s guaranteewith respect to payment obligations of Secom General Insurance Co., Ltd.
Secom General Insurance Co., Ltd. maintained net assets above therequired 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)
23,968
Short-term receivables
157,405
Long-term receivables
6,051
Short-term payables
1,244
Long-term payables

Notes to Non-Consolidated Statement of Income
1.

Transactions with Subsidiaries and Affiliates
Operating transactions(Millions of Yen)
Revenue
15,667
Amount of purchased costs and sub-contract costs
32,178Non-operating transactions
9,010[English Translation]
21

Notes to Non-Consolidated Statements of Changes in Net Assets
Items Related to Classes and Total Number of Treasury Stocks
Classes ofsharesNumber ofshares at the
beginning of
the fiscal year

Increase in
number ofshares in thefiscal year

Decrease in
number ofshares in thefiscal year

(Unit: 1 share)
Number ofshares at theend of the
fiscal year

Commonstock

15,017,691

1,380

120

15,018,951(Outline of reasons for change)
The increase of 1,380 in the number of common stocks is due to thepurchase of shares constituting less than one unit.
The decrease of 120 in the number of common stocks is due to requests tosell such number of shares as will constitute, together with the sharesconstituting less than one unit of shares already held, one full unit.

Notes to Deferred Tax Accounting
1. The Significant Components of Deferred Tax Assets and Deferred Tax
Liabilities:
Deferred tax assets:(Millions of Yen)
Allowance for doubtful accounts
7,101
Loss on impairment of investment securities in subsidiaries and
5,711
affiliates
Impairment loss
4,545
Accrued bonuses
2,301
Write-down on fixed assets
1,744
Accrued pension and severance costs
1,451
Other
4,998
Gross deferred tax assets
27,855
Valuation allowance(16,012)
Total deferred tax assets
11,843
Deferred tax liabilities:
Prepaid pension and severance costs
Other
Total deferred tax liabilities
Net deferred tax assets(5,757)(1,605)(7,363)4,480[English Translation]22

2.

Summary of the Reconciliation between the Statutory Tax Rate and the
Effective Tax Rate after the Application of Deferred 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 as entertainment expenses
Other
Effective tax rate after theapplication of deferred tax
accounting

37.8 (%)
(3.1)
0.5
(0.5)
0.4
0.7
35.8 (%)

Notes to Fixed Assets under Leases
Besides the ones booked as fixed assets on the balance sheet of theCompany, some of buildings and improvements, automobiles and tools,
furniture and fixtures are used based on the finance lease contracts otherthan those deemed to transfer the ownership of the leased assets to thelessees.

[English Translation]
23

Notes to Transactions with Related Parties

Type

Name ofCompany

Address

Subsidiary

Secom
Home Life
Co., Ltd.

Shibuya-ku,
Tokyo

Subsidiary

SecomCredit Co.,Ltd.

Shibuya-ku,
Tokyo

Subsidiary

Secom
MedicalSystem Co.,Ltd.

Shibuya-ku,
Tokyo

Subsidiary

Pasco
Corporation

Meguro-ku,TokyoSubsidiary

Arai & Co.,Ltd.

Shibuya-ku,
Tokyo

Subsidiary

At Tokyo
Corporation

Koto
-ku,
Tokyo

Capital(Millionsof
Yen)

Business
Content

3,700

Real estatedevelopment
and sales

400

Leasing
service etc.

6,545

Medicalservice

8,758

Geographic
information
service

3,000

Real estateleasing

13,378

Data center
business[English Translation]
24

VotingRights Heldby theCompany
(%)

99.9

100.0

100.0

72.8

92.5

50.8

Relationship
Concurrent
Posts ofDirectors
and Audit
Business&
RelationshipSupervisory
Board
Members

1

Loan
and
investmentof funds

1

Loan
and
investmentof funds

1

Loan
and
investmentof funds

-

Loan
and
investmentof funds

2

Loan
and
investmentof funds

2

Loan
and
investmentof funds

Name ofCompany

Transactions

Amount ofTransactions(Millions of
Yen)

Secom Home
Life Co., Ltd.

Execution of loans(Collection of loans)
Receipt of interests (Note 2)

25,030(40,468)
217

Secom Credit
Co., Ltd.

Execution of loans(Collection of loans)
Receipt of interests (Note 2)

1,700
(200)
299

Secom Medical
System Co.,
Ltd.

Execution of loans(Collection of loans)
Receipt of interests (Note 2)

8,138(5,763)562

Pasco
Corporation

Execution of loans(Collection of loans)
Receipt of interests (Note 2)

8,500(4,000)101

Arai & Co.,
Ltd.

Execution of loans(Collection of loans)
Receipt of interests (Note 2)

2,000
(751)
285

Execution of loans(Collection of loans)
Receipt of interests (Note 2)

36,244(44)
107

At Tokyo
Corporation

Account

Long-term loans
receivable (Note 3)

29,409

Short-term loans
receivable

500

Long-term loans
receivable

20,500

Short-term loans
receivable

3,532

Long-term loans
receivable

37,103

Short-term loans
receivable

14,500

Short-term loans
receivable366

Long-term loans
receivable

18,933Long-term loans
receivable

36,200(Notes)1. Consumption taxes are not included in the amounts listed above.
2. The interest rates for the loans above are determined, referring to market interest ratesetc.
3. The amount of YEN 10,505 million has been recorded as allowance for doubtful
accounts for the long-term loans receivable to Secom Home Life Co., Ltd.

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

YEN 2,744.83
YEN 225.08[English Translation]
25

Year-end
Balance(Millions ofYen)