The Electronic Provision Measures Matters(The Matters Omitted from the Document for Delivery)for
The 62nd Ordinary General Meeting of Shareholders

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

1
27

Pursuant to the relevant law and ordinance, and Article 16, Paragraph 2 of the Articles ofIncorporation of SECOM CO., LTD., the aforementioned Matters are not included in the
document that is to be issued to a shareholder who requested the issuance of such a
document.

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

Scope of Consolidation(1) Number of Consolidated Subsidiaries: 158
Names of major consolidated subsidiaries:
Secom Joshinetsu Co., Ltd., Asahi Security Co., Ltd., Nohmi Bosai Ltd.,
Nittan Co., Ltd., Secom Medical System Co., Ltd., Secom General
Insurance Co., Ltd., Pasco Corporation, Secom Trust Systems Co., Ltd., At
Tokyo Corporation, TMJ, Inc., The Westec Security Group, Inc., SecomPlc, Secom Medical System (Singapore) Pte. Ltd., Takshasila Hospitals
Operating Pvt. Ltd.
(2) Descriptions of Non-Consolidated Subsidiaries:
Eishin Denshi Co., Ltd., Kyoudou Setubi Ltd. and 8 other companies(The reason for exclusion from scope of consolidation)
All of these 10 non-consolidated subsidiaries are of a small size, so that theaggregate amounts of total assets, revenue, net income/loss (an amountprorated to ownership) and retained earnings (an amount prorated toownership) and others do not have a significant effect on the consolidated
financial statements.
(3) Names of Other Companies Owing Majority of Voting Rights not Regarded
as Subsidiaries:
Katzkin Holdings, LLC, United Tactical Systems Holdings, LLC, CLP
Legal Services, LLC, PF Holdco, LLC, Austin Fitness Holdings, LLC,
Handel’s Holdco, LLC, CLP ICS Holdings, LLC.
(The reason for not regarded as subsidiaries)
These companies were acquired by subsidiaries of The Westec Security
Group, Inc. through normal course of business with the objective ofinvestment, not with the objective of control.
2.

Equity Method(1) Number of equity method affiliates: 16
Names of major affiliates accounted for under the equity method:
S1 Corporation, Toyo Tec Co., Ltd., Taiwan Secom Co., Ltd.
(2) Number of non-equity method non-consolidated subsidiaries and affiliates:
18
Eishin Denshi Co., Ltd., Kyoudou Setubi Ltd. and 16 other companies(The reason for not applying the equity method)
These 10 non-consolidated subsidiaries and 8 non-equity method affiliates
are not accounted for under the equity method because their effect on net
income/loss (an amount prorated to ownership) and retained earnings (anamount prorated to ownership) is insignificant and immaterial as a whole.

[English Translation]
1

3.

Changes in Scope of Consolidation and Companies Accounted for under the
Equity Method
Consolidation
Newly consolidated subsidiaries: 5
Senon Ltd. and 4 other companies (Share acquisition)
Excluded from consolidation: 8
Nittan Denko Co., Ltd. and another company (Merger)
Value Communication Services (Shanghai), Inc. and anothercompany (Divesture)
Secom Vietnam Co., Ltd. and 3 other companies (Liquidation)
Equity Method: None

4.

Closing Dates of Consolidated Subsidiaries and Equity Method Affiliates
With respect to overseas consolidated subsidiaries, 5 U.S. subsidiaries suchas The Westec Security Group Inc., 7 Australia and New Zealandsubsidiaries such as Secom Australia Pty., Ltd., , 5 U.K. subsidiaries such as
Secom Plc, 14 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.,
Takshasila Hospitals Operating Pvt. Ltd., Takshasila Healthcare andResearch Service Pvt. Ltd., PT. Nusantara Secom Infotech, PT. Secom
Indonesia, PT. Secom Bhayangkara, PT. Secom Realty Indonesia, Pasco
Thailand Co., Ltd., Thai Secom Security Co., Ltd., Pasco Philippines Corp.,
Nohmi Taiwan Ltd., TMJP BPO SERVICES, INC., Secom Aktif Güvenlik
Yatirim A.S., Secom Aktif Elektronik Güvenlik Çözümleri A.S., and Scan
Alarms and Security Systems (Ireland) Ltd. close their book as of December
31 each year, and the financial statements as of this date are used for
preparation of the consolidated financial statements. Also, while Secom
Smart (Malaysia) Sdn. Bhd., Secom Smart (Singapore) Pte. Ltd. and ADT
Alarm Monitoring Hong Kong Limited closes its book as of September 30,
the financial statements prepared pursuant to the provisional closing ofbooks conducted as of December 31 are used.
With respect to equity method affiliates, 6 companies such as S1
Corporation and Taiwan Secom Co., Ltd. close their book as of December
31 each year, and the financial statements as of this date are used for
preparation of the consolidated financial statements. While Koatsu Co., Ltd.
closes its book as of September 30 each year, the financial statements
prepared pursuant to the provisional closing of books conducted as of March
31 are used for preparation of the consolidated financial statements.
The necessary adjustments related to the consolidation are made for any
major transactions which arise between the consolidated closing dates. The
closing dates of other consolidated subsidiaries and equity method affiliates
are the same as the consolidated closing date.

5.

Significant Accounting Policies(1) Valuation Policies and Methods for Significant Assets
1) Securities
a. Held-to-maturity debt securities are carried at amortized cost.

[English Translation]2

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

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

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

[English Translation]5

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.
6. Notes on Changes in Accounting Policies(Application of Implementation Guidance on Accounting Standard for Fair
Value Measurement, etc.)
From the beginning of the current fiscal year, we have applied“Implementation Guidance on Accounting Standard for Fair Value
Measurement” (ASBJ Statement No.31, June 17, 2021; hereinafter,“Implementation Guidance on Fair Value Accounting Standards”), etc. In
accordance with the transitional treatment set forth in Article 27-2 of“Implementation Guidance on Accounting Standard for Fair Value
Measurement”, we have applied prospectively new accounting policies
prescribed by the Implementation Guidance on Fair Value AccountingStandards, etc. There is no impact of this application on the consolidated
financial statements.
7. Notes on Accounting Estimates(1) Allowance for Doubtful Accounts
1) Amounts stated in the consolidated financial statements
The Company has recognized short-term loans receivable of YEN
2,408 million, long-term loans receivable of YEN 25,692 million,
an allowance for doubtful accounts of YEN 2,163 million for
current assets, and an allowance for doubtful accounts of YEN[English Translation]
6

10,900 million for fixed assets in the consolidated balance sheet forthe current fiscal year.
2) Other information to facilitate the understanding of accounting
estimates
As stated in the above 5. (3) 1) Allowance for Doubtful Accounts,
to provide for doubtful accounts such as trade accounts receivableand loans receivable, provisions are recognized as allowance for
doubtful accounts. The amount of such an allowance for general
receivables is determined based on historical default rates and theamount for specific receivables such as delinquent claims isdetermined as the expected non-recoverable amount based on
recoverability assessment on an individual basis.
In identifying specific loans that are required to be assessed forrecoverability on an individual basis, the Company takes into
consideration the status of delinquency in repaying debts as well as
the financial condition, past operating results, and future businessplans of the debtors.
Among these factors, business plans are subject to uncertainty as
they are affected by unforeseeable changes in businessassumptions.
The non-recoverable amount of specific loans identified isestimated based on the debtors’ financial condition and futurebusiness plans and involves significant judgment of the
management on whether the plans for future revenue and expenses
developed as part of the business plans are feasible, including
whether the impact of unforeseeable changes in businessassumptions is properly considered in these plans.
(2) Goodwill and Other Intangible Assets
1) Amounts stated in the consolidated financial statements
The Company has recognized goodwill of YEN 70,496 million andother intangible assets of YEN 41,256 million in the consolidatedbalance sheet for the current fiscal year.
2) Other information to facilitate the understanding of accounting
estimates
Goodwill and other intangible fixed assets are amortized in a
regular manner. However, if there is an indication of impairment
for the asset group containing these intangible assets, they need to
be tested to determine whether an impairment loss needs to berecognized by comparing the total amount of undiscounted future
cash flows arising from the asset group with their carrying amount.
If it is determined that an impairment loss needs to be recognized
as a result of such a test, the Company writes down the carrying
amount to the recoverable amount and recognizes the amount ofwrite-down as an impairment loss.
An indication of impairment is considered to exist, for example,
when operating activities continue to make losses or when there has
been or there is expected to be a significant deterioration in thebusiness environment.
The carrying amounts of goodwill and other intangible fixed assets
reflect the consolidated subsidiaries’ excess earnings power, valueof their customer base, etc., based on the expectations for the future
growth of their business as at the time of the acquisition of eachconsolidated subsidiary. For this reason, in such cases where thebusiness growth expected at the time of acquisition of eachconsolidated subsidiary is not achieved or where there has been or
there is expected to be a significant deterioration in the business[English Translation]
7

environment on which the business plan was based, an indicationof impairment is considered to exist and goodwill and otherintangible assets may need to be tested for the recognition of an
impairment loss, even if its operating activities in which the asset
group containing these intangible fixed assets is used are notmaking continuous losses.
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 66 million) and other (YEN
52 million) in investments and others.

2.

Cash Deposits for Armored Car Services and Short-term Bank Loans, andDeposits Received for Armored Car Services
For financial institutions, the Company and some of the domestic
consolidated subsidiaries provide cash collection from and cash filling tocash dispensers located outside of financial institution facilities, and cash
collection and delivery. The balance of cash deposits for armored car
services includes cash on hand and cash in banks representing a total of
YEN 16,009 million connected with cash filling services, which is restricted
in use by the Group. The short-term bank loan balance includes YEN 34
million financed for the cash filling services.
The balance of cash deposits for armored car services includes YEN 18,559
million connected with cash collection administration services, which is also
restricted in use by the Group. Also, the short-term bank loan balance
includes YEN 16,145 million financed for the cash collection administration
services.
The balance of cash deposits for armored car services includes cash on handand cash in banks representing a total of YEN 100,891 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 100,549 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)

Short-term loans receivables
Buildings and improvements
Land
Other - intangible assets (leasehold)Investment securities
Long-term loans receivable
Total

614,94625,967
507
1,398
570
43,396(2) Collateral-related Liabilities(Millions of Yen)

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

1,086
398
3,081
8,662
13,228[English Translation]
8

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

Notes receivable
Accounts receivable
Due from subscribers
Other
Contract assets

12,722122,091
37,404948
22,476(2) The amount of contract liabilities included in deferred revenue, other ofcurrent liabilities, and long-term deferred revenue is as follows.
Contract liabilities
YEN 55,052 million(Note) The amounts of contract liabilities included in deferred revenue,
other of current liabilities, and long-term deferred revenue are YEN
37,170 million, YEN 1,760 million, and YEN 16,121 million,
respectively.
5. Accumulated Depreciation of Tangible Assets
YEN 582,086 million
6.

Investment in Non-Consolidated Subsidiaries and Affiliates:(Fixed assets)
Investment securities (stocks)
YEN 68,942 million

7.

Contingent Liabilities:
Guarantees of liabilities of entities and individuals

YEN

316 million

Notes to Consolidated Statement of Income
1. Revenue from Contracts with Customers
Revenue stated in the Consolidated Statements of Income has not beenclassified into revenue from contracts with customers and other revenue.
The amount of revenue from contracts with customers has been stated in “1.
Information on the breakdown of revenue from contracts with customers” of“Notes on Revenue Recognition” of “Notes to Consolidated Financial
Statements.”
2. Impairment Losses
The Group recognized impairment losses (YEN 3,182 million) in thefollowing groups of assets for the current fiscal year. The Company and its
subsidiaries determine the grouping of assets in accordance with thecategories used for management accounting purposes for operating assets
and on the basis of individual assets for idle assets. With regard to operating
assets and idle assets whose profitability fell significantly for the current
fiscal year due to sluggish business performance, etc., the Group reduced
their book values to the recoverable amounts.

[English Translation]
9

Impairment loss
Use

Type

Region(Millions of Yen)
Kanto 5

Operating assets

Software and goodwill, etc.

3,027
Other 2
Kanto 1

Idle assets

Buildings and land

154
Other 1

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 disposal price or
the appraisal value provided by real estate appraisers. Value in use iscalculated mainly based on future cash flows discounted by the rate of 5.0%.
Notes to Consolidated Statement of Changes in Net Assets
1.

Items Related to Issued Shares and Treasury Stocks

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

Number of shares atthe beginning of the
fiscal year

Increase in thenumber of sharesin the fiscal year

Decrease in thenumber of sharesin the fiscal year

233,298,049

1,849

-

233,299,898

15,215,218

3,547,936

44

18,763,110(Outline of reasons for change)
The increase of 1,849 in the number of common stocks of issued shares isdue to the issuance of restricted shares.
The increase of 3,547,936 in the number of common stocks of treasury
stocks is due to the repurchase of 3,547,000 own shares resolved by the
Board of Directors and the purchase of 936 shares constituting less than one
unit.
The decrease of 44 in the number of common stocks of treasury stocks isdue to requests to sell 44 shares constituting less than one unit.
2. Items Related to Dividends(1) Amount of Dividends Paid
Resolution

Classes ofSharesTotal amount ofcash dividend(Millions of Yen)

Cash dividend pershare(Yen)Record date

Effective dateOrdinary General
Meeting of
Shareholders
on June 28, 2022

Common stock

19,62790

March 31, 2022

June 29, 2022

Board of Directors
Meeting on
November 10, 2022

Common stock

19,43390

September 30,
2022

December 8,
2022(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 June27, 2023

Commonstock

Retainedearnings

20,38095

March 31,2023

June 28,
2023[English Translation]
10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.

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, 2023 are listed below.
(Millions of Yen)
Amountrecognized on the
consolidatedbalance sheet

Fair value

Difference

11,78857,624
237,038
41,12012,381
116,913
237,038
40,984592
59,288(135)

25,692(10,156)
15,535
18,579381,687
3,489
12,34923,66239,501

15,557
18,461
441,336
3,489
12,336
23,661
39,48721(117)
59,649
(0)
(12)
(1)
(13)

(1)Short-term investments and investment
securities(i) Held-to-maturity debt securities(ii) Investment securities in affiliates(iii) Available-for-sale securities(2)Lease receivables and investment inleased assets(3)Long-term loans receivable
Allowance for doubtful accounts (*3)(4)Lease deposits
Total assets(1)Straight bonds(2)Long-term loans(3)Guarantee deposits received
Total liabilities*1 “Cash on hand and in banks,” “Cash deposits for armored car services,” “Notes and accounts
receivable-trade and contract assets,” “Due from subscribers,” “Short-term loans receivable,”“Notes and accounts payable, trade,” “Bank loans,” “Payables - other,” “Accrued income
taxes, ” and “Deposits received for armored car services” are not included, as they fall undercash or they are settled in a short period of time and their fair values approximate their bookvalues.
*2 Shares that do not have a market value are not included in “(1) Short-term investments andinvestment securities”. The amounts of these financial instruments recognized on theConsolidated Balance Sheet are as follows[English Translation]
11

(Millions of Yen)
Amount recognizedon the consolidated balance
sheet

Item
Unlisted stock

5,411

Unlisted stock of affiliates

11,318*3 Allowance for doubtful accounts for long-term loans receivable is deducted.
*4 The Company's shares in Investments in partnerships and similar entities, which arerecognized in net amounts in the Consolidated Balance Sheet are not included. The amountof such investments recognized in the Consolidated Balance Sheet is YEN 1,508 million.

3.

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

(1) Financial instruments at fair value on the Consolidated Balance Sheet(Millions of Yen)
Item
Short-term investments andinvestment securities
Available-for-salesecurities
StocksGovernment bonds andMunicipal bonds
Straight bonds
Other
Total assets

Fair value
Level2
Level3

Level1

Total

58,028--58,02812,07435,981-

48,05537,321
107,423

64,994
3,327
104,304

25,31025,31064,99465,959237,038[English Translation]
12

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

Fair value
Level2
Level3

Level1

Total

11,350--11,350116,913

439
-

591
-

591
439
116,913-40,984-40,984

128,263-

7,027
18,461
66,913
3,489
12,336
23,661
39,487

8,530
9,121
-

15,557
18,461
204,298
3,489
12,336
23,661
39,487(Note 1) Description of the valuation techniques and inputs used to measure fair
value
Assets:Short-term investments and investment securities
The fair value of stocks is based on the price quoted on the exchange whereas
the fair value of straight bonds, investment trusts, etc. is based on the pricequoted on the exchange or the price presented by the corresponding financial
institution. As listed stock, government bonds and exchange-traded funds aretraded on active markets, they are classified into Level 1 fair value. Other
bonds, etc. are less frequently traded on the market and their prices are notdeemed to be quoted prices on an active market, and their fair values are,therefore, classified into Level 2 fair value. For investment trusts which do
not have prices quoted on the market, the net asset value per unit is deemed
their fair value and they are classified into Level 2 fair value provided that
there are no significant restrictions to the extent that compensation for risks isdemanded by market participants concerning a cancellation or a buyback
request. If their values are calculated using techniques such as the present
value technique based on significant unobservable inputs, they are classified
into Level 3 fair value.
Lease receivables and investment in leased assets
These items are stated at present value calculated by discounting the sum of
the principal and interest at the interest rate assumed when a new similar leasetransaction is performed, and classified into Level 2 fair value.
Long-term loans
Long-term loans are stated at present value calculated by discounting the sumof the principal and interest at the interest rate assumed when a new similarloan transaction is performed with respect to each category based on type,internal rating and period of the loans receivable, and are therefore classified
into Level 2 fair value. The fair value of doubtful accounts is approximately
the same as the value on the balance sheet as of the fiscal year-end less thecurrent estimated losses from the loan, as the estimated losses from the loan

[English Translation]13

are calculated based on the discounted present value of the estimated cash
flow or upon separately considering the expected recoverable amount;
therefore, the said value is stated as fair value, and their fair values are,therefore, classified into Level 3 fair value. Certain consolidated subsidiaries
calculate the present value of future cash flow by discounting the future cash
flow at an interest rate equal to an appropriate index such as the yield ofgovernment bonds plus the credit spread according to the residual period, andtheir fair values are, therefore, classified into Level 2 fair value.
Lease deposits
Lease deposits are stated at present value calculated by discounting the future
cash flow at risk-free interest rate and classified into Level 2 fair value.
Liabilities:
Straight bonds
These items are stated at present value calculated by discounting the sumof the principal and interest at the interest rate assumed when new similar
straight bonds are issued, according to the residual period of the straightbonds, and classified into Level 2 fair value.
Long-term loans
These items are stated at present value calculated by discounting the sumof the principal and interest at the interest rate assumed when a newsimilar debt is taken on, and classified into Level 2 fair value.
Guarantee deposits received
Guarantee deposits received are stated at present value calculated bydiscounting the future cash flow at risk-free interest rate, and classified
into Level 2 fair value.
(Note 2) Information about financial assets and liabilities measured and stated on
the consolidated balance sheet at fair value and classified into Level 3(1) Quantitative information on significant unobservable inputs
Item

Valuation
TechniqueSignificant
Unobservable Inputs

Present value
Technique

Discount rate
Year of disposal
EBITDA multiples

Scope of Input

Short-term investments andinvestment securities
Available-for-sale securities
Other[English Translation]
1415% - 30%2023 - 2025
5 - 8.4x

(2) Reconciliation from beginning balance to ending balance, and net evaluation
gains or losses recognized in profit or loss for the current fiscal year
(Millions of Yen)
Short-term investments andinvestment securities
Available-for-sale securities
OthersBeginning balance

15,500

Profit or loss or other comprehensive income for thecurrent fiscal year
Profit or loss (*2)

7,312Other comprehensive income

2,114

Net changes due to purchases, sales, issues and383
settlements
Ending balance

25,310Of the amounts recorded as gains or losses for the current
fiscal year, net evaluation gains or losses on financial
6,740
assets and liabilities held on the date of consolidatedbalance sheet (*2)(*1) Investment trusts have been included from the beginning of the fiscal year
in conjunction with the application of the Implementation Guidance on
Accounting Standard for Fair Value Measurement(*2) Included in loss or gain on investment partnerships in the Consolidated
Statements of Income(3) Description of the fair value valuation process
The Group has established policies and procedures for measuring the fairvalue approved by an appropriate person of authority. In the measurement offair value, the validity of the valuation technique and inputs used in themeasurement of fair value, and the appropriateness of the classification of thefair value level are verified. The verification results are reported in an
appropriate manner to the person of authority, thereby ensuring theappropriateness of the policies and procedures for measuring fair value.
In the measurement of fair value, a valuation model that most suitablyreflects the nature, characteristics and risks of the individual assets is used. In
addition, when using the quoted market prices obtained from a third party as
fair value, the validity of the prices is verified by appropriate methods suchas confirmation of the valuation technique and inputs used and comparison
with the fair value of similar financial instruments.
(4) Description of the impact on fair values where significant unobservable
inputs are varied
Significant unobservable inputs include the discount rate, the time ofdisposal, and EBITDA multiples. Generally, fair values decrease when the
discount rate is raised, the time of disposal is extended, and the EBITDA
multiples are lowered. Fair values increase when the discount rate is lowered,
the time of disposal is shortened, and the EBITDA multiples are raised.

[English Translation]
15

Notes to Rental Property and Other Real Estate
The Company and some of its consolidated subsidiaries own rental officebuildings and medical facilities such as hospitals, in addition to rental housing
etc. mainly in Tokyo and other major cities across the country.
The amount recognized on the consolidated balance sheet, the amount of
increase/decrease during the current fiscal year and the fair value of such rental
properties are as follows:(Millions of Yen)
Amount recognized on the consolidated balance sheet
Balance at the
Increase/decrease
Balance at the
beginning of theduring the fiscal
end of the fiscal
fiscal year
year
year

Fair value atthe end of the
fiscal year

Office buildings

47,113

181

47,29487,443

Medicalfacilities

51,164(1,564)49,60064,589

Other

9,787

147

9,934

12,167

Total

108,065(1,235)

106,829

164,200(Note 1) The amount recognized on the consolidated balance sheet equals the acquisition costless accumulated depreciation and accumulated impairment loss.
(Note 2) The fair value at the end of the current fiscal year is, in the case of major properties, theamount based on real-estate appraisal by an external real-estate appraiser, and in thecase of other properties, the amount calculated in-house based on the Real EstateAppraisal Standard. However, if no significant fluctuations have occurred in a certain
valuation or an index that is deemed to properly reflect the market price since theacquisition of the property from a third party or the most recent external valuation, thefair value is based on such valuation or the amount adjusted by using the index.

Profit or loss on rental properties and other real estate for the fiscal year ended
March 31, 2023 is as follows:

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

Rental income

Rental expenses

Office buildings

4,079

1,908

2,171

428

Medicalfacilities

7,049

3,292

3,756

-

Other

451

244

206

(154)

Total

11,580

5,445

6,134

273

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

[English Translation]
16

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

Fire protection
services

Medicalservices

Geospatial
information
services

Insuranceservices

Revenue fromsecurity contracts

495,314

-

-

-

-

Other

79,497

145,662

70,189664

62,085

Revenue fromcontracts withcustomers

574,812

145,662

70,189664

62,085

Other revenue

8,526

-

7,433

54,896-

Revenue from
customers

583,338

145,662

77,62355,56062,085

Reportable segments
BPO and ICT
services
Revenue fromsecurity contracts

Subtotal

Other services

Total

-

495,314-495,314

Other

128,082

486,182

32,248518,431

Revenue fromcontracts withcustomers

128,082

981,497

32,2481,013,745

Other revenue-

70,856

16,70587,562

Revenue from
customers

128,082

1,052,353

48,953

1,101,307(Note) “Other services” is an operating segment not designated as a reportable segment, andcomprises real estate leasing, construction and installation services, etc.

2. Basic Information for Understanding Revenue from Contracts with Customers
Please refer to “5. (4) Recognition Policies for Significant Revenue andCost” of “Notes to Significant Items for Preparation of Consolidated
Financial Statements” of “Notes to Consolidated Financial Statements.”[English Translation]17

3. Information for Understanding the Amounts of Revenue in and after the Fiscal
Year Ended March 31, 2023
(1) Balance, etc. of contract assets and contract liabilities(Millions of Yen)
Fiscal year ended
March 31, 2023
Claims arising from contracts with customers (beginning balance of the year)

160,023

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

173,166

Contract assets (beginning balance of the year)

23,434Contract assets (ending balance of the year)

22,476

Contract liabilities (beginning balance of the year)

56,158Contract liabilities (ending balance of the year)

55,052Contract assets comprise rights to claim consideration on construction contracts,
etc., by the Company and its consolidated subsidiaries that have been completed
by the fiscal year-end but remain unclaimed. Contract assets are transferred toreceivables from contracts with customers at the point in time when the rights toclaim consideration by the Company and its consolidated subsidiaries become
unconditional.
Contract liabilities mainly comprise deferred revenue received from customers
concerning service contracts, etc., and are reversed upon the recognition ofrevenue.
For the fiscal year ended March 31, 2023, most of the YEN 39,613 million of
the beginning balance of contract liabilities of one year or less has beenrecognized as revenue in the current fiscal year.
(2) Transaction price allocated to remaining performance obligations
In the notes to the transaction price allocated to remaining performanceobligations, the Company and its consolidated subsidiaries apply thepractical expedient, and contracts with terms initially expected to be one year
or less are not included in the notes.
The total transaction price allocated to remaining performance obligations
and the expected time of revenue recognition are as follows.
(Millions of Yen)
Fiscal year ended
March 31, 2023
One year or less

148,801

More than one year

186,547

Total

335,348[English Translation]
18

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

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

17,201
7,239
6,118
5,368
4,856
4,681
4,579
4,175
3,043
1,888
1,259
11,48371,896(14,702)57,193

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)
Effect from the application of Accounting Standard for Revenue Recognition(prepaid expenses)
Adjustment of book value of fixed assets of subsidiaries at fair value at thedate of consolidation (other fixed assets)
Other
Total deferred income tax liabilities
Net deferred income tax assets(17,002)(8,447)(7,299)(4,607)(1,282)(978)(1,055)(40,673)
16,5202. 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.

[English Translation]
19

The Company and its domestic consolidated subsidiaries with the sameretirement benefit plan have adopted a severance indemnity plan and adefined contribution pension plan, and have also implemented a matching
contribution plan since July 2012. The method of calculating the severance
indemnity under the severance indemnity plan is to pay out to theemployees an amount equal to a certain percentage of their annual income
over their period of service, plus interest which is calculated as the 3-year
average yield of applicants for 10-year government bonds. The defined
contribution pension plan was established in April 2003, a portion
equivalent to 20 % of the severance indemnity plan so far accumulated wastransferred to the new plan, and a specified percentage of annual income iscontributed thereto. The Company transferred an additional portion of theseverance indemnity plan funds to the defined contribution pension plan in
April 2005, and accordingly, the ratio of the accumulated amount in theseverance indemnity plan and the amount of contributions to the defined
contribution pension plan, including the past reserve, changed to 70 % and
30 %, respectively.
The majority of the consolidated overseas subsidiaries have adopted avariety of pension plans that essentially cover all employees. Most of theseplans are defined contribution pension plans.
In defined benefit pension plans and lump-sum severance indemnity plans
for some consolidated subsidiaries, net defined benefit liabilities andretirement benefit expenses are calculated using the simplified method.
2.

Defined Benefit Plans(1) Reconciliation of beginning and ending balances of retirement benefit
obligations (excluding those pertaining to plans to which the simplified
method is applied)
Beginning balance of retirement benefit obligations
Service cost
Interest cost
Actuarial gains and losses incurred
Retirement benefits paid
Increment by recent consolidation
Increase due to merger
Ending balance of retirement benefit obligations(Millions of Yen)
104,693
6,177
485(3,660)(5,931)2,885
18
104,667(2) Reconciliation of beginning and ending balances of plan assets(excluding those pertaining to plans to which the simplified method isapplied)(Millions of Yen)
133,603
3,829(2,616)
5,180(4,881)
4,274
7
139,398

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
Increase due to merger
Ending balance of plan assets[English Translation]20

(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
Decrease due to merger
Ending balance of net defined benefit liability(Millions of Yen)
2,955
664
(375)
(142)
22
(10)
3,114

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

Net defined benefit liability
Net defined benefit asset
Net amount of assets and liabilities recognized in the
consolidated balance sheet(Millions of Yen)
87,995(142,069)(54,074)
22,457(31,616)(Millions of Yen)
23,935(55,551)(31,616)(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)
6,177
485
(3,829)(2,049)664
1,448(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)
(9,279)(9,279)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 0.9%
Mainly 3.0%

Defined Contribution Plans
The amount of contribution required for the Company and its consolidated
subsidiaries is YEN 2,332 million in total.

[English Translation]
21

Notes to Asset Retirement Obligation
1. Asset Retirement Obligations Recognized in Consolidated Balance Sheet
Footnote information of asset retirement obligations recognized in the
consolidated balance sheet is omitted as they are immaterial.
2. Asset Retirement Obligations not Recognized in Consolidated Balance Sheet
A certain building of a consolidated subsidiary must be restored to its
original state under the building lease agreement upon returning the building
at the expiry of the lease. However, the Company does not plan to relocatefrom the building in its business strategies and it is assumed to be used until
the building is demolished through the renewal of the agreement. In cases
where the building is demolished, it is not expected to execute thecontractual obligation to restore the building to its original state. For thisreason, though the Company tried to establish best estimates, considering
evidence available as at the closing date, asset retirement obligations havenot been recognized with respect to such obligations, since it isimpracticable to forecast the probability regarding the scope and the amountof asset retirement obligations.
Notes to Business Combination
Business Combination by Share Acquisition
1. Outline of Business Combination(1) Name and Business Description of the Acquired Company
Name: Senon Ltd.
Business Description : Security Services(2) Purpose of Acquisition
Senon provides a wide range of security services nationwide as a total
security company. Its business includes security guard services, electronic
security services, airport security services, and vehicle fleet operation
services. SECOM believes that Senon’s strengths as a total security
company combined with SECOM’s technological advantages and expertise
will enable us to provide more customers with higher quality and optimized
security services.
(3) Date of Business Combination
July 1, 2022
(4) Legal Form of Business Combination
Share acquisition(5) Name of Company after Business Combination
Senon Ltd.
(6) Percentage of Voting Rights Acquired
55.1%(7) Principal Reason for Determining Acquiring Company
Since the Company delivered the consideration of the 55.1% of the voting
rights consisted of cash only, the Company is determined as the acquiring
company.
2. Period Included in Consolidated Financial Statements
July 1, 2022 – March 31, 2023

[English Translation]
22

3. Acquisition Cost of Company Subject to Business Combination andBreakdown Thereof
Consideration for Acquisition
Cash on hand and in banks
26,999 million yen
Acquisition Cost
26,999 million yen
4. Details and Amount of Acquisition Related Costs
Advisory fees etc.
63 million yen
5. Amount and Cause of Goodwill, Amortization Method and Period(1) Amount of Goodwill
17,497 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 15 years
6. Amount of Assets Acquired and Liabilities Assumed on the Day of Business
Combination
Current assets
12,874 million yen
Fixed assets
16,415 million yen
Total assets

29,289 million yen

Current liabilities
Long-term liabilities

6,846 million yen
5,195 million yen

Total liabilities

12,041 million yen

7. Amount and Amortization Period Allocated to Intangible Assets[Amount][Amortization Period]
Customer Relationships
7,685 million yen
10-15 years
Notes to Per-Share Information
Net assets per share:
Net income per share:

YEN
YEN

5,427.63
445.02

Notes to Significant Subsequent Events(Tender offer for ARTERIA Networks Corporation)
As of May 11, 2023, the Company determined to enter into a Joint Tender Offer
Agreement with Marubeni Corporation (“Marubeni” hereinafter and theCompany together with Marubeni collectively referred to as the “Tender
Offerors” hereinafter) and to implement a tender offer (the “Tender Offer”
hereinafter) for the shares of common stock of ARTERIA Networks Corporation(the “Target Company” hereinafter), pursuant to the Financial Instruments andExchange Act.
1. Purpose of the Tender Offer
The Tender Offer shall be implemented as part of a series of transactions (the“Transactions” hereinafter) aimed at making the Tender Offerors the only
shareholders of the Target Company with the percentage of voting rights held by
Marubeni and the Company in the Target Company after privatization to be[English Translation]
23

66.66% and 33.34%, respectively. After the Transactions, the Target Company
will become an equity-method affiliate of the Company.
2. Profile of the Target Company of the Tender Offer
Company Name
ARTERIA Networks Corporation
Address

6-9-8 Shimbashi, Minato-ku, Tokyo

Position and Name ofRepresentative

Representative Director, President & CEO:Koji Kabumoto

Description of BusinessTelecommunications business under the
Telecommunications Business Law

Capital Stock

5,150 million yen (as of March 31, 2023)

Date of Establishment

February 12, 2016

3. Schedule, etc.
The Tender Offer will be implemented promptly after certain conditions such as
the completion of certain necessary procedures and measures under domestic
and foreign competition laws have been satisfied (or waived by the Tender
Offerors). The Tender Offerors aim to commence the Tender Offer around
August 2023, however, it is difficult to accurately estimate how long it will taketo complete the procedures at the domestic and foreign competition regulators.
4. Price of Tender Offer
1,980 yen per common stock
5. Number of Shares, etc. to Be Purchased
Minimum Number ofMaximum Number of

Shares to Be

Shares to Be

Purchased

Purchased

Number of Shares toClass of shares, etc.
Be Purchased
Common stock

24,940,358

8,293,500

-

Total

24,940,358

8,293,500-(Note 1) Marubeni will purchase up to 8,293,500 shares of the Tendered
Shares, while the remaining Tendered Shares will be purchased by theCompany.
(Note 2) The “Number of Shares to Be Purchased” and “Minimum Number of
Shares to Be Purchased,” indicated above, are provisional numbers
relying on information available as of May 11, 2023, and the actual
figures in the Tender Offer established based on the latest information
available at the time of commencement of the Tender Offer may differ
from the figures above due to changes, etc. thereafter. Prior to thecommencement of the Tender Offer, the final “Number of Shares to
Be Purchased” and “Minimum Number of Shares to Be Purchased”
will be determined in consideration of the latest information available
at the time of commencement of the Tender Offer.
6. Major Impact on the Company’s Profit/Loss of the Tender Offer
The impact on the Company’s profits and losses will be insignificant.
(Significant Events Regarding Investment)
On May 17, 2023, the Company reached agreements to make investments inEagle Eye Networks, Inc. (“Eagle Eye Networks” hereinafter) and Brivo, Inc.

[English Translation]
24

(“Brivo” hereinafter) by way of a third-party allotment. Both companies areglobal leaders of cloud based physical security solution providers owned by Mr.
Dean Drako, a US entrepreneur, which provide their solutions mainly in North
America.
1. Purpose of the investment
In May 2023, the Company formulated the “SECOM Group Road Map 2027” inorder to realize the goals of the “SECOM Group’s Vision for 2030” with the aimof striving to continuously deliver safety and peace of mind to its customers inan ever-changing society. Expansion of its overseas business is one of theimportant strategic initiatives on the Road Map and the Company has been
exploring investment opportunities in United States with priority, which is oneof the largest single markets for security services and incubates various newtechnologies.
Eagle Eye Networks and Brivo are the leading U.S. companies in Video
Surveillance as a Service (“VSaaS”) and Access Control as a Service (“ACaaS”)
industries. Using these investments, both companies will accelerate enhancing
their Artificial Intelligence (“AI”) analytics capabilities and expanding theirglobal business.
SECOM will build a new business portfolio with high growth potential, realize
mid- and long-term business synergies, and expand its global business in USA
and other overseas markets through the investments. Furthermore, bycollaborating with both companies which have state-of-the-art technologies andunique solutions, the Company will enhance the capability to provide solutions
to its global customers.
2. Outline of the companies to be invested
Name
Eagle Eye Networks, Inc.

Brivo, Inc.

Business Description

Eagle Eye Networks, Inc.
is the global leader incloud video surveillance,
delivering
cyber-secure
cloud-based video withartificial intelligence (AI)and analytics to makebusinesses more efficientand the world a safer
place.

Brivo, Inc. created thecloud-based access control
category over 20 years
ago and remains theglobal leader serving
commercial real estate,
multifamily
residential,
and
large
distributed
enterprises.

Location

Texas, USA

Maryland, USA

Name ofRepresentative

Dean Drako (Founder &CEO)

Steve Van Till (Founder& CEO)

Year of Establishment

2012

1999

[English Translation]25

3. Outline of the investment
Eagle Eye Networks, Inc.

Brivo, Inc.

Method of acquisition

Third-party allotment

Third-party allotment

Amount of investment

USD 192.5 million(total of the investments in the two companies)[English Translation]
26

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

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

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

[English Translation]27

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

Basis for Significant Allowances(1) Allowance for Doubtful Accounts
To prepare for losses from bad debts such as losses on trade receivables andloans, the allowance for doubtful accounts provides an estimated amount of
uncollectables. It is determined based on historical loss rate with respect toordinary accounts, and an estimate of uncollectable amounts, respectively
determined by reference to specific doubtful accounts from customers whoare 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 andseverance costs at the end of the current fiscal year, based on the estimatedamount of projected benefit obligation and plan assets as of the end of thecurrent fiscal year.
In calculating retirement benefit liabilities, the benefit formula basis isadopted to attribute the estimate amount of retirement benefit to the current
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) Allowance for Loss on Contracts
To prepare for future losses relating to the performance of contracts, anaccrual is provided in the amount of the estimated future loss for thosecontracts for which future losses are estimated at the end of the current
fiscal year and for which the amount of such losses can be reasonably
estimated.
4.

Revenue and Cost Recognition Policies
In the Company’s major businesses related to revenue from contracts withcustomers, the details of major performance obligations, as well as the normal
point in time when such performance obligations are satisfied (i.e., the normal
point in time when revenue is recognized) are as follows.
In Security Services including the centralized systems for businesses andhomes, the static guard services, and the armored car services, theCompany identifies the performance obligation to provide services basedon the security contract with the customer.
As such security contracts represent contracts in which services arecontinuously provided over the contract period, based on the contract withthe customer, and it has been determined that the performance obligations
are satisfied over a certain period, the Company recognizes revenue
through allocation on a straight line over the period stipulated by thecontract in which the service is provided. Equipment installation work fees
received in a lump sum at the start of services for centralized systems andother points in time are allocated on a straight-line basis over the same
period as the period in which the service is provided and revenue isrecognized in the amount corresponding to the current fiscal year, if the[English Translation]28

customer is thought to receive the benefits as the performance obligationsin the security contract is satisfied.
It should be noted that security equipment installation work expenses areallocated on a straight line over the same period as the period in which theservice is provided and recognized as expenses in the amountcorresponding to the current fiscal year.
Additionally, consideration for these performance obligations is generallycollected within one year from the time the performance obligations are
satisfied, unless they are received as contract liabilities prior to thesatisfaction of the performance obligations, and the amount ofconsideration contains no significant financing components.
5.

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

6.

Changes to Disclosure Method(Notes to Statements of Income)“Reversal of allowance for doubtful accounts,” which was included in“Other” under extraordinary profit in the previous fiscal year, is presented
as a separate line item from the current fiscal year due to its increased
importance. “Reversal of allowance for doubtful accounts” for theprevious fiscal year was 3 million yen.

Notes on Changes in Accounting Policies(Application of Implementation Guidance on Accounting Standard for Fair
Value Measurement, etc.)
From the beginning of the current fiscal year, we have applied“Implementation Guidance on Accounting Standard for Fair Value
Measurement” (ASBJ Statement No.31, June 17, 2021; hereinafter,“Implementation Guidance on Fair Value Accounting Standards”), etc. In
accordance with the transitional treatment set forth in Article 27-2 of“Implementation Guidance on Accounting Standard for Fair Value
Measurement”, we have applied prospectively new accounting policies
prescribed by the Implementation Guidance on Fair Value AccountingStandards, etc. There is no impact of this application on the financial
statements.
Notes on Accounting Estimates
Investment Securities in Subsidiaries and Affiliated Companies(1) Amounts Stated in Financial Statements
The amount of investment securities in subsidiaries and affiliatedcompanies of YEN 420,624 million stated in the balance sheet for thecurrent fiscal year includes investments in unlisted subsidiaries that theCompany has acquired through an acquisition transaction.
(2) Other Information to Facilitate the Understanding of Accounting Estimates
Shares for which market prices are not available acquired throughinvestments in unlisted subsidiaries are stated in the balance sheet atacquisition costs. If the net asset value of an issuer of these shares isjudged to have declined significantly due to the deterioration in thefinancial condition of the issuer, a valuation loss on these securities needs
to be recognized unless the recoverability of the net asset value is[English Translation]29

supported by sufficient evidence.
In the case where the Company acquires shares of an investee at a pricethat is considerably higher than its net assets per share as per its financial
statements reflecting the excess earnings power and the like of the investee,
if the net asset value subsequently declines significantly due to a decline inexcess earnings power and the like, a valuation loss on the investment in
the investee needs to be recognized even if there has been no deteriorationin its financial condition.
The acquisition cost of shares pertaining to the investment in unlisted
subsidiaries acquired through an acquisition reflects their excess earnings
power, value of their customer base, etc., based on the expectations for the
future growth of their business as at the time of the acquisition of eachsubsidiary. For this reason, if the excess earnings power and the like has
been impaired because the business growth expected at the time ofacquisition is not achieved and/or there has been or there is expected to bea significant deterioration in the business environment on which thebusiness plan was based, a valuation loss may need to be recognized oninvestments in these subsidiaries, even if there has been no deterioration in
their financial condition since the acquisition.
Notes to the Non-Consolidated Balance Sheet
1. Cash Deposits for Armored Car Services and Short-term Bank Loans
For financial institutions, the Company provides cash filling to and cash
collection from cash dispensers located outside of financial institution
facilities.
The balance of cash deposits for armored car services includes cash on handand cash in banks of representing a total of YEN 13,541 million connectedwith cash filling services, which is restricted in use by the Company. The
short-term bank loan balance includes YEN 34 million financed for the cash
filling services.
The balance of cash deposits for armored car services includes YEN 18,546
million connected with cash collection administration services, which is also
restricted in use by the Company. Also, the short-term bank loan balance
includes YEN 16,145 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
6
Investment securities
1,358
Investment securities in subsidiaries and affiliates
40
Long-term loans receivable
570
Total
1,974
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 311,060 million[English Translation]30

4.

Contingent Liabilities(1) Guarantees
Liabilities of the below entities and employees are guaranteed.
(Millions of Yen)
Secom Aktif Güvenlik Yatirim A.S.
1,084
Alive Medicare Co., Ltd.
936
Purchasers of real estate the Company sold
167
Employees
154
Secom Fort West Co., Ltd.
152
Purchasers of merchandises by leasing72
transactions etc.
Others
25
Total
2,593
(2) Net Assets Maintaining Agreement
The Company entered into a net assets maintaining agreement with Secom
General Insurance Co., Ltd., under which the Company is obligated toprovide funds to Secom General Insurance Co., Ltd. if and when the net
assets of Secom General Insurance Co., Ltd. become lower than thespecified amount or its current assets necessary for the payment of its
liabilities are insufficient.
The total liabilities of Secom General Insurance Co., Ltd. at the end of thecurrent fiscal year are YEN 197,263 million, including YEN 185,960
million of investment deposits by policyholders, unearned premiums andother insurance liabilities, and the total assets are YEN 234,045 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)
Short-term receivables
21,258Long-term receivables
37,655
Short-term payables
7,304
Long-term payables
2,472[English Translation]31Notes to Non-Consolidated Statement of Income
Operating Transactions and Non-operating Transactions with Subsidiaries
and Affiliates(Millions of Yen)
Operating transactions (Revenue)
17,178Operating transactions (Expense)
39,315Non-operating transactions (Income)
19,872
Notes to Non-Consolidated Statements of Changes in Net Assets
Items Related to Classes and Total Number of Treasury Stocks(Unit: 1 share)
Classes ofsharesCommonstock

Number ofshares at the
beginning of
the fiscal year
15,215,218

Increase in
number ofshares in thefiscal year
3,547,936

Decrease in
number ofshares in thefiscal year
44

Number ofshares at theend of the fiscal
year
18,763,110(Outline of reasons for change)
The increase of 3,547,936 in the number of common stocks of treasury
stocks is due to the repurchase of 3,547,000 own shares resolved by the
Board of Directors and the purchase of 936 shares constituting less than one
unit.
The decrease of 44 in the number of common stocks of treasury stocks isdue to requests to sell 44 shares constituting less than one unit.
Notes to Revenue Recognition
Basic Information for Understanding Revenue
Please refer to “4 Revenue and Cost Recognition Policies” of “Notes to
Significant Accounting Policies.”
Notes to Deferred Income Tax Accounting
1. The Significant Components of Deferred Income Tax Assets and Deferred
Income Tax Liabilities:
Deferred income tax assets:(Millions of Yen)
Loss on impairment of investment securities in subsidiaries and affiliates
7,903
Impairment loss
2,307
Accrued bonuses
1,921
Write-down on fixed assets
1,298
Effect from the application of Accounting Standard for Revenue
1,111
Recognition (prepaid expenses)
Effect from the application of Accounting Standard for Revenue
1,085
Recognition (deferred revenue)
Write-down on inventories
606
Other
3,060
Gross deferred income tax assets
19,294
Valuation allowance(1,264)
Total deferred income tax assets
18,030[English Translation]
32

Deferred income tax liabilities:
Prepaid pension and severance costs
Other
Total deferred income tax liabilities(10,372)(3,808)(14,180)

Net deferred income tax assets (liabilities)
2.

3,849

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

30.5 (%)
(5.9)
0.6
(0.5)
0.3
0.0
25.0 (%)

Notes to Fixed Assets under Leases
Besides the ones booked as fixed assets on the balance sheet of theCompany, some of buildings are used based on the finance lease contracts
other than those deemed to transfer the ownership of the leased assets to thelessees.
Notes to Business Combination
Such notes are omitted because the same notes are described in
Consolidated Financial Statements, “Consolidated Financial Statements(Notes to Business Combination).”[English Translation]
33

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

Type

Name ofCompany

VotingRightsHeld by theCompany(%)

Subsidiary

SecomCredit Co.,
Ltd.

100.0

Loan of funds

Subsidiary

Secom
MedicalSystem Co.,
Ltd.

100.0

Loan of funds
Concurrent appointment ofofficers

Subsidiary

Arai & Co.,
Ltd.

92.5

Loan of funds
Concurrent appointment ofofficers

Relationship with the Related
PartyTransactions

Amount ofTransactions(Millions of Yen)

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

9,830
(21,120)
11

Secom
MedicalSystem Co.,
Ltd.

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

5,070
(8,742)
233

Arai & Co.,
Ltd.

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

1,567
(1,707)
183

Name ofCompany

Secom Credit
Co., Ltd.

Account

Short-term loans
receivable200

Long-term loans
receivable

1,730

Short-term loans
receivable

10,329Long-term loans
receivable

17,968

Short-term loans
receivable

2,201

Long-term loans
receivable

10,194(Notes)1. The interest rates for the loans above are determined, referring to market interest rates
etc.

[English Translation]
34

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

Type

Voting Rights
Held by theCompany(%)

Name of Company

Provision of services

Company whose majority

such as security services

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

Relationship with theRelated Party

Watanabe Pipe Co., Ltd.
(Note 1)

Merchandise sales-

Concurrent appointment

relatives (including itsof an officer

subsidiary)Year-end
Amount ofBalance
Name of Company

Transactions

Transactions

Account(Millions of(Millions of Yen)
Yen)

Accruedservice0

fee
Accounts

Electronic security service
Watanabe Pipe Co., Ltd.

and maintenance, etc., and(Note 1)

Merchandise salesreceivable
58-trade and13

contract(Note 2)

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

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

YEN
YEN

[English Translation]
35

4,010.07
317.950Notes to Significant Subsequent Events
Such notes are omitted because the same notes are described in
Consolidated Financial Statements, “Consolidated Financial Statements(Notes to Significant Subsequent Events).”[English Translation]
36