Internet Disclosure Accompanying
the Notice of the Convocation of
The 53rd Ordinary General Meeting of
Shareholders

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

1
17

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: 174
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 Trust Systems Co., Ltd., At Tokyo Corporation,
Secom Home Life Co., Ltd., 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 10 other companies(The reason for exclusion from scope of consolidation)
All of these 15 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 Juice Partners,
LLC, US Water, LLC, CLP Consumer Products, LLC, Consumer Safety
Technology, LLC, Taymax Group Holdings, LLC(The reason for not regarded as subsidiaries)
These companies were acquired by subsidiaries of The Westec Security
Group, Inc. through normal course of business with the objective ofinvestment, not with the objective of control.
2.

Equity Method(1) Number of equity method affiliates: 25
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: 7(The reason for not applying the equity method)
These 7 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: 8
Toko Create Co., Ltd. and 1 other company (Acquisition)
Secom Vietnam Security Service JSC and 5 other companies (Newestablishment)
Excluded from consolidation: 5
Tohoku Nohmi, Co., Ltd. (Merger)
Nihon Security System Co., Ltd. and 2 other companies(Liquidation)
Base Aerofotogrametria E Projetos S.A. (Change to equity method
affiliate)
Equity Method
New companies accounted for under the equity method: 1
Base Aerofotogrametria E Projetos S.A. (Change from consolidated
subsidiary)
Excluded from affiliates accounted for under the equity method: 2
NAA Narita Airport Secom Co., Ltd. (Liquidation)
Shanghai Guanlin Secom Intelligence Technology Co., Ltd.
(Divestiture)

4.

Closing Dates of Consolidated Subsidiaries and Equity Method Affiliates
With respect to overseas consolidated subsidiaries, 8 U.S. subsidiaries suchas The Westec Security Group Inc., 10 Australia and New Zealandsubsidiaries such as Secom Australia Pty. Ltd., 4 U.K. subsidiaries such as
Secom Plc, 18 Chinese subsidiaries such as Secom (China) Co., Ltd., PT.
Nusantara Secom Infotech, PT. Secom Indonesia, Secom Medical System(Singapore) Private Limited, Pasco Thailand Co., Ltd., Thaisecom Pitakkij
Co., Ltd., Secom Vietnam Co., Ltd., Secom Vietnam Security Service JSC,
Pasco Philippines Corp., FM-International Oy, Nohmi Taiwan Ltd., Nittan
Taiwan Fire & Safety Co., Ltd, Pasco Do Brasil Participacoes Ltda.,
Aerodata International Surveys BVBA, Pasco Europe B.V., Pasco Laos SoleCo., Ltd., and Secom Trading 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.
With respect to domestic consolidated subsidiaries, while 3 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.

[English Translation]
2

The necessary adjustments related to the consolidation are made for any
major transactions which arise between the consolidated closing dates. The
closing dates of other consolidated subsidiaries and equity method affiliates
are the same as the consolidated closing date.
5.

Significant Accounting Policies(1) Valuation policies and methods for significant assets
1) Securities
a. Held-to-maturity debt securities are carried at amortized cost.
b. Available-for-sale
Securities 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.

[English Translation]
3

The software used in the Company is amortized by thestraight-line method based on the useful lives within the Company(5 years).
3) Leased Assets
a. Leased assets related to ownership-transfer finance leasetransactions
Depreciated, using the same depreciation method applied to
fixed assets in possession.
b. Leased assets related to non-ownership-transfer finance leasetransactions
Depreciated, using the straight-line method over a useful life
equal to the lease period with a residual value of zero.
In addition, non-ownership-transfer finance leases entered into
on or before March 31, 2008 are treated using the method
applicable to operating lease transactions.
4) Long-term Prepaid Expenses
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) Reserve for Losses 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[English Translation]4

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.
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) Basis for Recognizing Net Defined Benefit Asset and Net Defined
Benefit Liability
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[English Translation]
5

Goodwill, and negative goodwill incurred on or before March 31,
2010 are amortized by the straight-line method over 5-15 years.
4) Accounting for Consumption Tax etc.
Tax-exclusive method is adopted.
6.

Changes in Significant Matters underlying the Preparation of Consolidated
Financial Statements(Application of the Accounting Standard for Retirement Benefits)“Accounting Standard for Retirement Benefits” (ASBJ Statement No.26,
issued on May 17, 2012, hereinafter referred to as the “Retirement Benefits
Accounting Standard”) and the “Guidance on Accounting Standard for
Retirement Benefits” (ASBJ Guidance No. 25, issued on May 17, 2012,
hereafter referred as the Guidance on Retirement Benefits) have been
applied from this fiscal year except for the section 35 of the Retirement
Benefits Accounting Standard and the section 67 of the Guidance on
Retirement Benefits. Accordingly, net defined benefit asset and liability arerecorded by deducting plan assets from defined benefit obligations andunrecognized actuarial gains and losses are recorded in net defined benefit
asset and liability.
With regard to application of Accounting Standard for Retirement Benefits,
the effect of changes is adjusted to remeasurement of defined benefit plan in
the other comprehensive income at the end of this fiscal year in accordancewith the transitional treatment stipulated in section 37 of the Retirement
Benefits Accounting Standard.
As a result, in the current fiscal year, net defined benefit asset was YEN
17,612 million, net defined benefit liability was YEN 18,569 million andother comprehensive income declined by YEN 3,506 million. The impact of
this change on per share data can be found under relevant sections.

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 860 million) and other(YEN 1,831 million) in investments and other assets.

2.

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 26,592 million connected with cash
filling services, which is restricted in use by the Group. The short-term bankloan balance includes YEN 8,891 million financed for the cash filling
services.
Furthermore, the balance of cash deposits for armored car services includes
YEN 32,004 million connected with cash collection administration services,which is also restricted in use by the Group. Also, the short-term bank loanbalance includes YEN 27,811 million financed for the cash collection
administration services.

3. Assets Pledged as Collateral and Collateral-related Liabilities:(1) Assets Pledged as Collateral[English Translation]
6

(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

1,965
14
722
26,682
24,460
818
1,525
753
350
57,292(2) Collateral-related Liabilities(Millions of Yen)

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

5,573
4,576
7,492
14,272
31,915In 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 396,686 million

5.

Investment in Non-Consolidated Subsidiaries and Affiliates:(Fixed assets)
Investment securities (stocks)
YEN 046,996 million

6.

Contingent Liabilities:
Guarantees of liabilities of entities and individuals

7.

YEN 2,081 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)
20,424473
19,951

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

Write-down on Real Estate Inventories Included in Cost of Revenue
YEN 1,121 million

2.

Impairment Loss
The Group recognized impairment losses on the following groups of assets
for the current fiscal year (YEN 3,081 million):
The Company and its consolidated subsidiaries determine the grouping ofassets in accordance with the categories used for managerial accounting
purposes for operating assets and on the basis of individual assets for idle
assets. Estimated future cash flows of certain operating assets fellsignificantly during the current fiscal year and the Group wrote down thebook value of those assets and idle assets to their recoverable amount.

[English Translation]
7

Use

Type

Operating assets

Buildings, land, etc.

Idle assets

Buildings, land, etc.

Impairment loss
(Millions of Yen)

Region
Kanto
Other
Kanto
Other

3
7
1
1

2,462
618

The net realized value of the asset groups is measured at net selling price orvalue in use. Net selling price is determined based on the expected sales
price or the appraisal value provided by real estate appraisers. Value in use
is calculated based on discounted future cash flow by the rate of 5.0%.
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

Issued shares
Common stocks
Treasury stocks
Common stocks

Increase in thenumber of shares in
the fiscal year

233,288,717

Decrease in thenumber of shares in
the fiscal year

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

233,288,717

93

15,022,012-

15,018,951

3,154(Outline of reasons for change)
The increase of 3,154 in the number of common stocks is due to thepurchase of shares constituting less than one unit.
The decrease of 93 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 June25, 2013

Common stock

22,918105

March 31, 2013

June 26, 2013

(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 June25, 2014

Commonstock

Retainedearnings

25,100115

March 31,2014

June 26,2014

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[English Translation]
8

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, 2014 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)

(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

Amountrecognized ontheconsolidatedbalance sheet
210,51458,597
20,500115,318
25,174

12,72839,056
190,862
33,1882,699
2,699
45,701(15,389)
30,311
738,951
49,40952,12031,316
27,744
12,436
17,256
5,250
195,536(9)Long-term loans receivable
Allowance for doubtful accounts (*1)

Fair value

Difference

210,51458,597
20,500115,318
25,174-

12,806
119,637
190,862
33,25278
80,580
63

2,699

-

30,628819,991
49,40952,12031,316
27,744
12,445
17,296
5,182
195,515316
81,039
8
39
(68)
(20)

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(ii) Hedge accounting applied
(156)
(156)
Total derivative transactions
(156)
(156)
*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[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.
(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.
(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 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.
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,[English Translation]
11and included in “(i) held-to-maturity debt securities” in “(6) Short-term
investments and investment securities.”(Note 2) Financial instruments whose fair value is deemed extremely difficult to
identify(Millions of Yen)
Amount recognizedon the consolidated balance
sheet
3,252
7,939

Item

Unlisted stock (*1)
Unlisted stock of affiliates (*1)
Investments in limited partnerships for
5,349
investment etc. (*1)
Deposit from business activities (*2)
31,292*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
44,325(403)
43,922

Fair value at theend of the fiscal
year

Office buildings
60,195
Medical49,532(637)
48,89445,173facilities
Other
7,703
(356)
7,347
7,389
Total
101,561(1,397)100,164
112,759(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 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.

Profit or loss on rental properties and other real estate for the fiscal year ended
March 31, 2014 is as follows:(Millions of Yen)

[English Translation]
12

Rental income

Rental expenses

Difference

Other(gains/losses onsale etc.)
12

Office buildings
3,645
1,544
2,101
Medical
5,810
2,616
3,193
6
facilities
Other
466
172
294
(66)
Total
9,922
4,334
5,588
(46)
(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
Investment deposits by policyholders, unearned premiums and other insurance
liabilities and provision for outstanding claims
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (land and buildings)
Net defined benefit liability
Allowance for doubtful accounts
Impairment loss
Accrued bonuses
Write-down on fixed assets
Write-down on real estate inventories
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets(Millions of Yen)
8,680
7,859
7,577
7,110
6,539
6,397
5,943
5,127
4,392
2,781
9,278
71,686(29,704)
41,982

Deferred tax liabilities:
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (land and buildings)
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 (other fixed assets)
Other
Total deferred tax liabilities
Net deferred tax assets

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.

[English Translation]
13(6,889)(6,288)(5,160)(5,137)(2,284)(615)(26,376)
15,606

3.

Adjustment to the Amount of Deferred Tax Assets and Deferred Tax
Liabilities due to a Change in the Corporate Income Tax Rate
The Act on Partial Revision of the Income Tax Act, etc. (Act No. 10 of2014) was promulgated on March 31, 2014 and as a result, the special
restoration surtax will be abolished from fiscal years starting on or after
April 1, 2014. As a result, the statutory effective tax rate used to calculatedeferred tax assets and deferred tax liabilities has been changed from 37.8%
in the previous fiscal year to 35.4% in the current fiscal year for the
temporary differences that are expected to reverse in the fiscal year startingon April 1, 2014.
The impact of this change on the consolidated financial statements is
insignificant.

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 % 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.

2.

Defined Benefit Plans(1) Reconciliation of beginning and ending balances of retirement benefit
obligations (excluding those pertaining to plans to which the simplified
method is applied)
Beginning balance of retirement benefit obligations
Service cost
Interest cost
Actuarial gains and losses incurred
Retirement benefits paid
Ending balance of retirement benefit obligations[English Translation]
14(Millions of Yen)
83,341
4,422
1,248
43
(4,591)
84,463

(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)
78,756
2,303
3,496
5,494
(3,348)86,702Beginning balance of plan assets
Expected rate of return
Actuarial gains and losses incurred
Contributions from the employer
Retirement benefits paid
Ending balance of plan assets(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
Other
Ending balance of net defined benefit liability(Millions of Yen)
3,234
610
(292)
(181)
(175)
3,196

(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)
73,760(88,556)(14,796)
15,753956(Millions of Yen)
18,569(17,612)956(Note) Including plans to which the simplified method is applied.
(5) Retirement benefit expenses and their breakdown
Service cost
Interest cost
Expected rate of return
Amortization of actuarial gains and losses
Retirement benefit expenses calculated using thesimplified method
Retirement benefit expenses pertaining to defined
benefit plans(Millions of Yen)
4,422
1,248
(2,303)
2,041
610
6,019

(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)
4,759
4,759

Unrecognized actuarial gains and losses
Total[English Translation]15

(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 1.4%
Mainly 3.0%

Defined contribution plans
The amount of contribution required for the Company and its consolidated
subsidiaries is YEN 1,679 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.
Notes to Per-Share Information
Net assets per share:

YEN 3,345.06

Net income per share:

YEN

320.14

As noted in “Changes in Significant Matters underlying the Preparation ofConsolidated Financial Statements,” the Group applies the transition provisionsof paragraph 37 of the Retirement Benefits Standard in applying the Retirement
Benefits Standard and Guidance.
As a result, net assets per share for the current fiscal year decreased by YEN
16.07.

[English Translation]
16

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]17

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 (10 years).
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) Accounting for retirement benefits
The accounting for unrecognized actuarial gains and losses andunrecognized past service costs pertaining to retirement benefits is different
from the accounting for those items in the consolidated financial statements.
(2) Amortization of Goodwill
Goodwill is amortized by the straight-line method over 10 years.
(3) Accounting for Consumption Tax etc.
Tax-exclusive method is adopted.

[English Translation]
18

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 24,813 million connectedwith cash filling services, which is restricted in use by the Company. The
short-term bank loan balance includes YEN 8,891 million financed for the
cash filling services.
The balance of cash deposits for armored car services includes YEN 32,004
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 27,811 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
14
Investment securities
1,087
Investment securities in subsidiaries and45
affiliates
Long-term loans receivable
753
Total
1,901
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 258,003 million

4. Contingent Liabilities(1) Guarantees
Liabilities of the below entities and employees are guaranteed.
(Millions of Yen)
Secom Home Life Co., Ltd.
2,366
Alive Medicare Co., Ltd.
1,348
Secom Fort West Co., Ltd.
608
Takshasila Hospitals Operating Pvt. Ltd.
472
Prime Stage Co., Ltd.
193
Others81
Employees
214
Purchaser of merchandises by leasing
486
transactions etc.
Total
5,771

[English Translation]19

(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 150,485 million,
including YEN 145,070 million of investment deposits by policyholders,
unearned premiums and other insurance liabilities, and the total assets are
YEN 178,506 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)
25,178
Short-term receivables
145,555
Long-term receivables
6,021
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
17,055
Amount of purchased costs and sub-contract costs
33,488Non-operating transactions
9,333

Notes to Non-Consolidated Statements of Changes in Net Assets
Items Related to Classes and Total Number of Treasury Stocks
Classes ofsharesCommon stock

Number ofshares at the
beginning of
the fiscal year
15,018,951

Increase in
number ofshares in thefiscal year
3,154

Decrease in
number ofshares in thefiscal year

93

(Unit: 1 share)
Number ofshares at theend of the
fiscal year
15,022,012(Outline of reasons for change)
The increase of 3,154 in the number of common stocks is due to thepurchase of shares constituting less than one unit.
The decrease of 93 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.

[English Translation]
20

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
6,299
Loss on impairment of investment securities in subsidiaries and
5,711
affiliates
Impairment loss
4,506
Accrued bonuses
2,211
Write-down on fixed assets
1,654
Accrued pension and severance costs
1,258
Other
4,514
Gross deferred tax assets
26,154
Valuation allowance(14,719)
Total deferred tax assets
11,435
Deferred tax liabilities:
Prepaid pension and severance costs
Other
Total deferred tax liabilities
Net deferred tax assets
2.

(6,004)(1,355)(7,360)
4,075

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
Decrease in valuation allowance
Per capita levy of corporate
inhabitant tax
Research and development tax
credits
Permanently non-taxable expenses
such as entertainment expenses
Downward adjustment to ending
deferred tax assets due to change inthe tax rate
Other
Effective tax rate after theapplication of deferred tax
accounting

3.

37.8 (%)
(3.2)
(1.7)
0.5
(0.5)
0.4
0.4
0.1
33.8 (%)

Adjustment to the Amount of Deferred Tax Assets and Deferred Tax
Liabilities due to a Change in the Corporate Income Tax Rate
The Act on Partial Revision of the Income Tax Act, etc. (Act No. 10 of2014) was promulgated on March 31, 2014 and as a result, the special
restoration surtax will be abolished from fiscal years starting on or after
April 1, 2014. As a result, the statutory effective tax rate used to calculatedeferred tax assets and deferred tax liabilities has been changed from 37.8%
in the previous fiscal year to 35.4% in the current fiscal year for the
temporary differences that are expected to reverse in the fiscal year startingon April 1, 2014.
The impact of this change on the financial statements is insignificant.

[English Translation]
21

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.
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

72.8

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

Subsidiary

The
WindsorHotelsInternational
Co., Ltd.

100.0

Loan of funds
Concurrent appointment ofofficers

Relationship with the Related
Party[English Translation]
22

Name ofCompany

Transactions

Amount ofTransactions(Millions of
Yen)

Secom Home
Life Co., Ltd.

Execution of loans(Collection of loans)
Receipt of interests (Note 2)Loans (Note 3)

18,420(29,092)
106(3,800)

Secom Credit
Co., Ltd.

Execution of loans
Receipt of interests (Note 2)

1,700
325

Secom Medical
System Co.,
Ltd.

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

7,676(7,429)569

Pasco
Corporation

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

11,000(10,500)
84

Arai & Co.,
Ltd.

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

1,000
(700)
297

At Tokyo
Corporation

Receipt of interests (Note 2)

230

The Windsor
HotelsInternational
Co., Ltd.

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

700
(19)
76

Account

Long-term loans
receivable (Note 4)

14,937

Short-term loans
receivable

500

Long-term loans
receivable

22,200

Short-term loans
receivable

3,765

Long-term loans
receivable

37,117

Short-term loans
receivable

15,000

Short-term loans
receivable366

Long-term loans
receivable

19,233Long-term loans
receivable

36,200

Short-term loans
receivable (Note 5)19Long-term loans
receivable (Note 5)

7,953(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 Company carried out a debt-equity swap for the long-term loans receivable from
Secom Home Life Co., Ltd. in the amount of YEN 3,800 million and the related
allowance for doubtful accounts was reversed for the same amount.
4. The amount of YEN 6,705 million has been recorded as allowance for doubtful
accounts for the long-term loans receivable from Secom Home Life Co., Ltd.
5. The amount of YEN 7,956 million has been recorded as allowance for doubtful
accounts for the loans receivable from The Windsor Hotels International Co., Ltd. In
the current fiscal year, the Company recognized a provision of allowance for doubtful
accounts of YEN 1,198 million.

[English Translation]
23

Year-end
Balance(Millions ofYen)Notes to Per-Share Information
Net assets per share:
Net income per share:

YEN 2,873.74
YEN 235.94[English Translation]
24