Internet Disclosure Accompanying
the Notice of the Convocation of
The 57th Ordinary General Meeting of Shareholders

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

1
19

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: 179
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., Secom Home Life Co., Ltd., The Westec
Security Group, Inc., Secom Plc(2) Descriptions of Non-Consolidated Subsidiaries:
Eishin Denshi Co., Ltd., Kyoudou Setubi Ltd. and 10 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:
Global Sales Training, Inc., CLP Auto Interior Corp., US Water, LLC, CLP
Consumer Products, LLC, Taymax Group Holdings, LLC, United Tactical
System Holdings, LLC, CLP Legal Services, LLC, CLP LandscapeServices, LLC, PF Holdco 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: 18
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: 6(The reason for not applying the equity method)
These 6 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: 9
TMJ, Inc. and 6 other companies (Acquisition)
PT. Secom Bhayangkara and 1 other company (Change from equity
method affiliate)Excluded from consolidation: 6
TES Co., Ltd. and 4 other companies (Liquidation)
Kumagai Industries Co., Ltd. (Merger)
Equity Method
Excluded from affiliates accounted for under the equity method: 3
PT. Secom Bhayangkara and 1 other company (Change toconsolidated subsidiaries)
Dynamic Map Platform Co., Ltd. (Control Approach)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., 8 Australia and New Zealandsubsidiaries such as Secom Australia Pty. Ltd., , 5 U.K. subsidiaries such as
Secom Plc, 20 Chinese subsidiaries such as Secom (China) Co., Ltd., 5
Vietnam subsidiaries such as Secom Vietnam Security Service JSC,
Secom (Singapore) Pte Ltd., Secom Medical System (Singapore) Pte Ltd.,D’Garde Security Pte Ltd., Takshasila Hospitals Operating Pvt. Ltd.,
Takshasila Healthcare and Research Service Pvt. Ltd., PT. Nusantara Secom
Infotech, PT. Secom Indonesia, PT. Secom Bhayangkara, Pasco Thailand
Co., Ltd., Thai Secom Security Co., Ltd., Pasco Philippines Corp., Nohmi
Taiwan Ltd., Pasco Do Brasil Consultoria Technica Ltda., Aerodata
International Surveys BVBA, Pasco Europe B.V. and TMJP BPO Services,
Inc. 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.
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, 8 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.

[English Translation]
2

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 the
average market 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 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: 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 thestraight-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 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) Revenue and Cost Recognition Policies
1) Revenue Recognition Policies for Construction Contracts and Costof Completed Work
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[English Translation]4

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.
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.
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 EffectivenessHedge 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.

[English Translation]54) Accounting for Consumption Tax etc.
Tax-exclusive method is adopted.
6.

Changes in the Presentation(Notes to Consolidated Balance Sheet)
In order to ensure consistency with the consolidated financial statements
prepared pursuant to the provisions of the Regulations Concerning
Consolidated Financial Statements, the presentation methods have beenchanged as follows, starting from the current fiscal year.
In the previous fiscal year, “Merchandise and products”, “Work inprocess”, “Costs on uncompleted construction contracts” and “Rawmaterials and supplies”, all of which were collectively presented as“Inventories” of current assets, are separately presented from the current
fiscal year. In the previous fiscal year, the amount of “Merchandise andproducts”, that of “Work in process”, that of “Costs on uncompleted
construction contracts” and that of “Raw materials and supplies” were
YEN 11,915 million, 4,913 YEN million, YEN 8,979 million, and YEN
8,385 million, respectively.
In the previous fiscal year, “Work in process for real estate inventories”
and “Real estate inventories”, both of which were collectively presented
as “Real estate inventories” of current assets, are separately presented
from the current fiscal year. In the previous fiscal year, the amount of“Work in process for real estate inventories” and that of “Real estate
inventories” were YEN 22,283 million and YEN 5,223 million,
respectively.
In the previous fiscal year, “Machinery and equipment and automobiles”,“Tools, furniture and fixtures” and “Construction in progress”, all ofwhich were collectively presented as “Other, net” of tangible fixed
assets, are separately presented from the current fiscal year. In theprevious fiscal year, the amount of “Machinery and equipment andautomobiles”, that of “Tools, furniture and fixtures” and that of“Construction in progress” were YEN 9,208 million, YEN 23,519
million and YEN 7,157 million, respectively.
In the previous fiscal year, “Lease deposits” included in “Other” ofinvestments and other assets is separately presented from the current
fiscal year. The amount of “Lease deposits” in the previous fiscal year
was YEN 13,023 million.

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 219 million) and other (YEN
103 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[English Translation]
6

services includes cash on hand and cash in banks representing a total of
YEN 17,030 million connected with cash filling services, which is restricted
in use by the Group. The short-term bank loan balance includes YEN 4,162
million financed for the cash filling services.
The balance of cash deposits for armored car services includes YEN 23,457
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 17,777 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 95,320 million connectedwith cash collection and delivery services, which is restricted in use by theGroup and also the balance of deposits received for armored car services
includes deposits received representing a total of YEN 95,301 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

1,436
21
701
21,192
21,190
818
1,332
685
47,378(2) Collateral-related Liabilities(Millions of Yen)

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

3,193
734
4,638
6,048
14,615In 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.

Accumulated Depreciation of Tangible Assets:
YEN 487,750 million

5.

Investment in Non-Consolidated Subsidiaries and Affiliates:(Fixed assets)
Investment securities (stocks)
YEN 57,537 million

6.

Contingent Liabilities:
Guarantees of liabilities of entities and individuals
YEN 2,021 million[English Translation]
7

Notes to Consolidated Statement of Income
1.

Write-down on Real Estate Inventories Included in Cost of Revenue(including write-down on work in process for real estate inventories)
YEN 865 million

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

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

1,724

-

233,290,441

15,028,470

2,137

34

15,030,573(Outline of reasons for change)
The increase of 1,724 in the number of common stocks of issued shares isdue to the issuance of shares with limited transfer.
The increase of 2,137 in the number of common stocks of treasury stocks
is due to the purchase of shares constituting less than one unit.
The decrease of 34 in the number of common stocks of treasury stocks isdue to requests to sell such number of shares as will constitute, together
with the shares constituting 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 27, 2017

Common stock

16,36975

March 31, 2017

June 28, 2017

Board of Directors
Meeting on
November 9, 2017

Common stock

16,36975

September 30,
2017

December 7,
2017(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
26, 2018

Commonstock

Retainedearnings

17,46080

March 31,2018

June 27,2018[English Translation]
8

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]9

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, 2018 are listed below. Items
whose fair value has been deemed extremely difficult to identify are notincluded in the table below. (See Note 2)(Millions of Yen)
Amountrecognized on the
consolidatedbalance sheet

Fair value

Difference

317,267
135,808
129,984
35,272

317,267
135,808
129,984
35,272-

13,02748,801
216,970
45,544

14,552
141,738
216,970
45,618

1,525
92,936
74

5,196

-

23,86814,184
1,080,463
43,92941,55840,10225,896
113,830

364(102)
94,797-(1)Cash on hand and in banks(2)Cash deposits for armored car services(3)Notes and accounts receivable, trade(4)Due from subscribers(5)Short-term investments and investment
Securities(i) Held-to-maturity debt securities(ii) Investment securities in affiliates(iii) Available-for-sale securities(6)Lease receivables and investment inleased assets(7)Short-term loans receivable
Allowance for doubtful accounts

5,196
5,196
35,284(11,780)
23,504
14,286985,665
43,92941,55840,10225,896
113,830(8)Long-term loans receivable
Allowance for doubtful accounts (*1)(9)Lease deposits
Total assets(1)Notes and accounts payable, trade(2)Bank loans(3)Payables - other(4)Accrued income taxes(5)Deposits received for armored car
services(6)Straight bonds
6,118
6,121
2
(7)Long-term loans
12,721
12,724
3(8)Guarantee deposits received
4,114
4,112
(1)
Total liabilities
288,271288,276
4
Derivative transactions (*2)(i) Hedge accounting not applied(ii) Hedge accounting applied
0
<32>
(32)
Total derivative transactions
0
<32>
(32)
*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)Notes and accounts receivable, trade, (4) Due from subscribers and (7)Short-term loans receivable[English Translation]
10

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) 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.
(6) 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.
(8) 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 losses from loan, as the estimated losses
from loan is calculated based on the discounted present value of estimatedcash flow or the expected recoverable amount with collateral and guarantee
etc.; therefore, the said value is stated as fair value. Certain consolidated
subsidiaries calculate the present value of future cash flow by discounting thefuture cash flow at an interest rate equal to an appropriate index such as theyield of government bonds plus the credit spread according to the residual
period.
(9) Lease deposits
Lease deposits are stated at present value calculated by discounting the future
cash flow at risk-free interest rate.
Liabilities:(1) Notes and accounts payable, trade, (2) Bank loans, (3) Payables – other,(4) Accrued income taxes and (5) Deposits received for armored car services
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) 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.
(7) 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.
(8) Guarantee deposits received
Guarantee deposits received are stated at present value calculated bydiscounting the future cash flow at risk-free interest rate.

[English Translation]11

Derivative transactions:
Derivatives are stated at the price presented by the financial institution withwhich the Group has concluded an agreement.
(Note 2) Financial instruments whose fair value is deemed extremely difficult to
identify(Millions of Yen)
Amount recognizedon the consolidated balance
sheet

Item
Unlisted stock (*1)

3,640

Unlisted stock of affiliates (*1)

8,735Investments in limited
investment, etc. (*1)

partnerships

for

6,844

Deposit from business activities (*2)

29,066*1 Not included in “(5) Short-term investments and investment securities” due to lack ofmarket price and extreme difficulty in identifying fair value.
*2 Not included in “(8) 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

Fair value at theend of the fiscal
year

Office buildings

40,169(3,934)36,23467,517

Medicalfacilities

57,857(2,454)55,40258,939

Other

9,108

(97)

9,011

10,282

Total

107,135(6,486)100,648

136,740(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,
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 the[English Translation]12

acquisition 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.

Profit or loss on rental properties and other real estate for the fiscal year ended
March 31, 2018 is as follows:

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

Rental income

Rental expenses

Office buildings

3,347

1,441

1,905

338

Medicalfacilities

6,895

3,018

3,877

108

Other

425

176

249

(1)

Total

10,668

4,635

6,032

445

(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, impairment
loss on fixed assets recognized as extraordinary losses, etc.

Notes to Deferred Income Tax Accounting
1. The Significant Components of Deferred Income Tax Assets and Deferred
Income Tax Liabilities:
Deferred income tax assets:
Investment deposits by policyholders, unearned premiums and other insurance
liabilities
Operating loss carry-forwards
Net defined benefit liability
Eliminations of unrealized gain
Impairment loss
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (land and buildings)
Accrued bonuses
Allowance for doubtful accounts
Write-down on fixed assets
Write-down on work in process for real estate inventories
Other
Gross deferred income tax assets
Valuation allowance
Total deferred income tax assets[English Translation]
13(Millions of Yen)
11,608
6,866
6,716
6,547
6,103
5,486
4,991
4,715
4,376
630
12,36470,408(24,615)
45,792

Deferred income tax liabilities:
Net defined benefit asset
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 (land and buildings)
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

2.

(12,646)(9,690)(8,793)(5,438)(1,003)(780)(38,352)
7,440

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.

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 contribution 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[English Translation]
14

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
Increment by recent consolidation
Ending balance of retirement benefit obligations(Millions of Yen)
94,2685,707
373(1,230)(4,881)577
94,814(2) Reconciliation of beginning and ending balances of plan assets (excluding
those pertaining to plans to which the simplified method is applied)(Millions of Yen)
110,180
3,221
6,070
1,489
(3,724)
388
117,625

Beginning balance of plan assets
Expected rate of return
Actuarial gains and losses incurred
Contributions from the employer
Retirement benefits paid
Increment by recent consolidation
Ending balance of plan assets(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
Increment by recent consolidation
Ending balance of net defined benefit liability(Millions of Yen)
3,058
697
(323)
(195)
14
3,251

(4) Reconciliation of ending balances of retirement benefit obligations and plan
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)
81,365(120,051)(38,686)
19,126(19,560)(Millions of Yen)
21,849(41,409)(19,560)(Note) Including plans to which the simplified method is applied.

[English Translation]15

(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)
5,707
373
(3,221)
769
697
4,325

(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)
(13,960)(13,960)

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 0.4%
Mainly 3.0%

Defined contribution plans
The amount of contribution required for the Company and its consolidated
subsidiaries is YEN 1,851 million in total.

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]
16

Notes to Business Combination
Business Combination by Share Acquisition
1. Outline of Business Combination(1) Name and Business Description of the Acquired Company
Name: TMJ Inc.
Business Description: Operation/temporary employee placement, design andanalysis of contact centers, outsourcing services ofcontact center-related businesses and outsourcing
services of back office.
(2) Purpose of Acquisition
TMJ was established as an in-house call center for the Benesse Group.
Today, the company provides high-quality outsourcing services including
operation of call centers to leading companies in a wide range of industries.
SECOM is aiming to increase corporate value through generating various
synergies including further improvements in quality of existing business anddevelopment and provision of new BPO (Business Process Outsourcing)
services by taking full advantage of the collective strengths of SECOM andTMJ.
(3) Date of Business Combination
October 2, 2017(4) Legal Form of Business Combination
Share acquisition(5) Name of Company after Business Combination
TMJ, Inc.
(6) Percentage of Voting Rights Acquired
100%(7) Principal Reason for Determining Acquiring Company
Since the Company delivered the consideration of the acquired shares which
consisted of cash only, the Company is determined as the acquiring
company.
2. Period Included in Consolidated Financial Statements
From October 1, 2017 to March 31, 2018
3. Acquisition Cost of Company Subject to Business Combination andBreakdown Thereof(Millions of Yen)
Consideration for Acquisition: Cash on hand and in banks
26,550Acquisition Cost:
26,5504. Details and amount of acquisition related costs
Advisory fees, etc.
273 million yen
5. Amount and Cause of Goodwill, Amortization Method and Period(1) Amount of Goodwill
17,065 million yen(2) Cause of Goodwill
Estimated future excess earning power being expected based on the futurebusiness operation.
(3) Amortization Method and Period
Amortization by the straight-line method over 15years[English Translation]
17

6. Amount of Assets Acquired and Liabilities Assumed on the Day of Business
Combination
Current asset
Fixed assets
Total assets(Millions of Yen)
6,953
9,583
16,536

Current liabilities
Long-term liabilities
Total liabilities

4,458
2,593
7,051

7. Amount Allocated to Intangible Assets and Amortization Period Thereof[Amount]
Customer Relationships YEN 6,796 million[Amortization Period]
15 years

Notes to Per-Share Information
Net assets per share:

YEN 4,364.63

Net income per share:

YEN[English Translation]
18398.58

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 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
Depreciated, using the straight-line method over a useful life equal to
the lease period with a residual value of zero.

[English Translation]
19

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.
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
Revenue Recognition Policies for Construction Contracts and Cost ofCompleted Work
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) Accounting for retirement benefits
The accounting for unrecognized actuarial gains and losses to retirement
benefits is different from the accounting for those items in the consolidated
financial statements.
(2) Accounting for Consumption Tax etc.
Tax-exclusive method is adopted.

[English Translation]
20

6. Changes in the Presentation(Notes to Non-Consolidated Balance Sheet)
In order to ensure consistency with the financial statements preparedpursuant to the provisions of the Regulations Concerning Financial
Statements, etc., “Investments in subsidiaries” and “Investments inaffiliates”, both of which were collectively presented as “Investments in
subsidiaries and affiliates” of “Investments and others” in the previous
fiscal year, are separately presented, starting from the current fiscal year.
In the previous fiscal year, the amount of “Investments in subsidiaries”
and “Investments in affiliates” were YEN 323,993 million and YEN
2,098 million, respectively.

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 14,901 million connectedwith cash filling services, which is restricted in use by the Company. The
short-term bank loan balance includes YEN 4,162 million financed for the
cash filling services.
The balance of cash deposits for armored car services includes YEN 23,445
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 17,777 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
21
Investment securities
1,087
Investment securities in subsidiaries and affiliates
45
Long-term loans receivable
685
Total
1,839
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 284,233 million[English Translation]21

4. Contingent Liabilities(1) Guarantees
Liabilities of the below entities and employees are guaranteed.
(Millions of Yen)
Alive Medicare Co., Ltd.
1,331
Takshasila Hospitals Operating Pvt. Ltd.
623
Secom Fort West Co., Ltd.
415
Secom Home Life Co., Ltd.
300
Others9
Employees
197
Purchaser of merchandises by leasing
73
transactions etc.
Total
2,952

(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 InsuranceCo., Ltd. at the end of the current fiscal year are YEN 183,698 million,
including YEN 173,151 million of investment deposits by policyholders,
unearned premiums and other insurance liabilities, and the total assets are
YEN 220,344 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)
34,590
Short-term receivables
142,770
Long-term receivables
6,736
Short-term payables
1,225
Long-term payables[English Translation]
22

Notes to Non-Consolidated Statement of Income
1. Operating Transactions and Non-operating Transactions with Subsidiaries
and Affiliates(Millions of Yen)
Operating transactions (Revenue)
17,747
Operating transactions (Expense)
44,945Non-operating transactions (Income)
13,933
Notes to Non-Consolidated Statements of Changes in Net Assets
Items Related to Classes and Total Number of Treasury Stocks(Unit: 1 share)
Classes ofsharesCommon stock

Number ofshares at the
beginning of
the fiscal year
15,028,470

Increase in
number ofshares in thefiscal year
2,137

Decrease in
number ofshares in thefiscal year
34

Number ofshares at theend of the fiscal
year
15,030,573(Outline of reasons for change)
The increase of 2,137 in the number of common stocks is due to thepurchase of shares constituting less than one unit.
The decrease of 34 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 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
4,992
Impairment loss
2,272
Accrued bonuses
1,921
Allowance for doubtful accounts
1,386
Write-down on fixed assets
1,188
Accrued pension and severance costs
660
Other
2,843
Gross deferred income tax assets
15,264
Valuation allowance(9,583)
Total deferred income tax assets
5,681
Deferred income tax liabilities:
Prepaid pension and severance costs
Other
Total deferred income tax liabilities(6,332)(2,924)(9,257)

Net deferred income tax assets (liabilities)(3,575)[English Translation]23

2.

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
Research and development tax credits
Per capita levy of corporate inhabitant tax
Decrease in valuation allowance
Permanently non-taxable expenses such asentertainment expenses
Other
Effective tax rate after the application ofdeferred income tax accounting

30.7 (%)
(3.8)
(0.5)
0.4
(0.3)
0.2
0.2
26.9 (%)

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.

[English Translation]
24

Notes to Transactions with Related Parties

Type

Name ofCompany

VotingRightsHeld by theCompany(%)

Subsidiary

Secom
Home Life
Co., Ltd.

99.9

Loan of funds
Concurrent appointment ofofficers

Subsidiary

SecomCredit Co.,
Ltd.

100.0

Loan of funds
Concurrent appointment ofofficers

Subsidiary

Secom
MedicalSystem Co.,
Ltd.

100.0

Loan of funds
Concurrent appointment ofofficers

Subsidiary

Pasco
Corporation

72.6

Loan of funds

Subsidiary

Arai & Co.,
Ltd.

92.5

Loan of funds
Concurrent appointment ofofficers

Subsidiary

At Tokyo
Corporation

50.8

Loan of funds
Concurrent appointment ofofficers

Relationship with the Related
Party[English Translation]
25

Name ofCompany

Transactions

Amount ofTransactions(Millions of
Yen)

Secom Home
Life Co., Ltd.

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

46,710(32,340)
77

Secom Credit
Co., Ltd.

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

15,400(16,000)307

Secom Medical
System Co.,
Ltd.

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

11,534(15,014)577

Pasco
Corporation

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

15,000(15,000)
14

Arai & Co.,Ltd.

At Tokyo
Corporation(Collection of loans)
Receipt of interests (Note 2)(Collection of loans)
Receipt of interests (Note 2)

(400)
313

(7,000)98

Account

Long-term loans
receivable (Note 3)

32,540

Short-term loans
receivable

3,300

Long-term loans
receivable

22,900

Short-term loans
receivable

7,107

Long-term loans
receivable

41,256

Short-term loans
receivable

15,000

Short-term loans
receivable

400

Long-term loans
receivable

20,137Long-term loans
receivable

18,200(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 3,629 million has been recorded as allowance for doubtful
accounts for the loans receivable from Secom Home Life Co., Ltd. Also the amountof YEN 1,000 has been recorded as reversal of allowance for doubtful accounts forthe current fiscal year.

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

YEN 3,431.64
YEN 310.15[English Translation]
26

Year-end
Balance(Millions ofYen)