[Translation]

June 12, 2017

To Shareholders with Voting Rights:

Disclosures on the Internet pursuant to Laws and Regulations and the Articles of Incorporation
regarding the Notice of the 156th Ordinary General Meeting of Shareholders■ Notes to Consolidated Financial Statements
for Consolidated Financial Statements ……………………… Pages 1 through 11■ Notes to Non-Consolidated Financial Statements
for Non-Consolidated Financial Statements ………………… Pages 12 through 18

The above-mentioned documents are provided to our shareholders by posting on the Company’s
website (English: http://www.seiko.co.jp/en/ir/) (Japanese: http://www.seiko.co.jp/ir/) via the Internet
pursuant to laws and regulations and Article 16 of the Articles of Incorporation of the Company.

SEIKO HOLDINGS CORPORATION

-1Notes to Consolidated Financial Statements
1.

Notes to Important Matters that are the Basis for Preparation of Consolidated Financial
Statements(1)

Matters relating to scope of consolidation
Number of consolidated subsidiaries: 63
SEIKO WATCH CORPORATION, Seiko Instruments Inc., .Morioka Seiko Instruments,
Seiko Precision Inc., SEIKO Solutions Inc.,.Seiko Clock Inc, WAKO Co., Ltd., SEIKO
Corporation of America, SEIKO U.K. Limited, SEIKO Hong Kong Ltd., Dalian Seiko
Instruments Inc., Seiko Instruments (Thailand) Ltd., Seiko Instruments Singapore Pte. Ltd.,SEIKO Precision (Thailand) Co., Ltd., and others.
SII Semiconductor Taiwan Corporation was included in the scope of consolidation as fromthe 4th quarterly consolidated accounting period due to incorporation.
SEIKO SOLUTIONS (THAILAND) Co., Ltd. was excluded from the scope of consolidation
as from the 3rd quarterly consolidated accounting period, as it became of little significancedue to the commencement of dissolution.
Non-consolidated subsidiaries:,. .AOBA WATCH SERVICE Co. Ltd and others are of a small scale in terms of net sales, total
assets, profit and loss, and retained earnings, and none of them have any material impact on
the consolidated financial statements. Therefore, they were excluded from the scope of
consolidation.

(2)

Matters relating to the application of the equity method
Number of affiliates accounted for by the equity method:
4
SEIKO OPTICAL PRODUCTS CO., LTD., OHARA INC., and others.
Non-consolidated subsidiaries and affiliates not accounted for by the equity method:. AOBA WATCH SERVICE Co. Ltd, I.B.L. Electroplating Co., Ltd., and others have aminimal impact on the consolidated net income and loss and retained earnings and are of little
significance. Therefore, the equity method has not been applied to these companies.

(3)

Standards and methods for evaluating significant assets(i) Inventories
Basically stated at cost using the moving-averagemethod (for values stated on the balance sheet,writing down the book values in response to
decreased profitability)(ii) Securities
Available-for-sale securities
Market value method based on the market price
Securities with market value
as of the consolidated closing date (differences invaluation are included directly in net assets andthe costs of securities sold are calculated using
the moving-average method)
Stated at cost using the moving-average method
Securities without market value(iii) Derivatives
Market value method

-2(4)

Depreciation methods for significant depreciable assets(i) Property, plant and equipment
As for domestic consolidated companies, basically(excluding leased assets)
the straight-line method is used for buildings(excluding equipment attached to buildings), and thedeclining-balance method for those other thanbuildings (except that the straight-line method isused for the equipment attached to buildings, andstructures that were acquired on or after April 1,
2016); as for consolidated subsidiaries outside Japan,
basically the straight-line method is used. As fordomestic consolidated companies, a useful life and aresidue value are basically evaluated using the same
standards as set forth in the Corporation Tax Act.
(ii) Intangible non-current assets
The straight-line method is used. A useful life is(excluding leased assets)
basically evaluated using the same standards as set
forth in the Corporation Tax Act. However, as forsoftware for in-house use, the straight-line method isused with a usable period of 5 years.
(iii) Leased assets
The same depreciation method as applied to the
Leased assets relating to financeproperty, etc. owned by the Company is used.
lease with transfer of ownership
Lease assets relating to financelease without transfer of ownership(5)

The straight-line method is used with a useful life of
the lease period and with a residue value of zero.

Accounting standards for significant allowances and provisions(i) Allowance for doubtful accounts
In order to prepare for possible losses on
uncollectible receivables held, estimateduncollectible amounts are posted: for general
receivables, according to the historical percentage of
uncollectibles, and for doubtful receivables,
considering the probability of collection.
(ii) Provision for loss on investments In order to prepare for possible losses on
to subsidiaries and affiliates
investments to subsidiaries and affiliates, an amountdeemed necessary is provided after considering thefinancial position of each company and based on arespective review. The provision for loss on
investments to subsidiaries and affiliates of 4 million
yen is directly reduced from the amount ofinvestment securities.
(iii) Provision for bonuses
In order to prepare for payment of bonuses to
employees, a provision is made based on theestimated bonus payments, which are attributable tothe consolidated fiscal year under review.
(iv) Provision for goods warranties
As for some of the consolidated subsidiaries outside
Japan, an amount estimated according to theirrespective historical percentages is posted.
(v) Provision for environmental
In order to prepare for possible expenditure aimed atmeasuresfuture environmental measures, an estimated amountto be incurred is posted.
(vi) Provision for gift certificate
In order to prepare for possible losses relating to giftexchange losses
certificates collected after cancelling their inclusion
in liabilities, provision is made for an estimatedredemption amount according to the historicalpercentage of collection of such gift certificates.

-3(vii) Provision for loss on businesswithdrawal(viii) Provision for directors’
retirement benefits(6)

In order to prepare for possible losses relating to thebusiness withdrawal, an estimated loss amount isposted.
Some of the domestic consolidated companies
passed a resolution to discontinue their respective
directors’ retirement benefit systems during the fiscal
year ended March 2005 and that ended March 2014.
Accordingly, the amount of retirement benefits forincumbent officers is posted corresponding to theterms of office till the end of the Ordinary General
Meeting of Shareholders during the relevant
consolidated fiscal year.

Accounting standards for significant income and expenses
Accounting standards for the amount of completed work and cost of completed work
Regarding the portions of work that were definitely completed by the end of the consolidated
fiscal year under review, a percentage-of-completion method is used, and for other portions ofwork, a work-completion method is used.

(7)

Standards for translation of significant foreign currency-denominated assets or liabilities into
Japanese yen
Foreign currency receivables/payables are translated into yen using the spot foreign exchange
rate on the consolidated closing date, and translation differences are treated as income or loss.
The assets and liabilities of subsidiaries outside Japan are translated into yen using the spot
foreign exchange rate on the consolidated closing date; income and expenses are translated
into yen using an average market rate during the period, and translation differences areincluded in “Foreign currency translation adjustment” and “Non-controlling interests” of the“Net assets”.

(8)Significant hedge accounting methods(i) Hedge accounting method(ii) Means of hedging and hedged items(iii) Hedging policy

Deferred hedge accounting is employed.
However, regarding domestic consolidated
companies, basically deferral hedge accounting(“furiate-shori”) is employed for foreign currency
receivables/payables with forward exchange
contracts, and with regard to interest-rate swaps
that meet the requirements for exceptional
accounting (“tokurei-shori”), exceptional
accounting is employed.
Forward exchange transactions to hedge foreignexchange-rate fluctuation risks regarding foreign
currency-denominated trade payables andreceivables; and interest-rate swaps to avoid
fluctuation risks regarding loans payable on
floating interest rates.
Derivatives are used to avoid exchange-ratefluctuation risks present in foreign currency
receivables/payables, and interest fluctuation
risks present in loans payable, to the extent of
actual demands, and are not used to conduct
speculative transactions. Derivatives aremanaged in accordance with the internal rules of

-4-(iv) Assessment of hedge effectiveness(9)each company.
For interest-rate swaps, hedge effectiveness is
assessed by analysis of the percentage between
the accumulated cash flow changes of hedged
items and the accumulated cash flow changes bymeans of hedging.

Accounting for employees’ retirement benefits
In order to prepare to pay retirement benefits to employees, the net defined benefit liability isposted based on the estimated amount of retirement benefit obligations minus the amount ofplan assets as of the end of the consolidated fiscal year under review. To calculate retirement
benefit obligations, the benefit formula method is adopted as a method to attribute theestimated retirement benefits to the periods up to the end of the consolidated fiscal year underreview. The actuarial differences that resulted are recognized in the following consolidated
fiscal year by the straight-line method over various periods (5 to 10 years) that are not morethan the average remaining service period of employees at the time of the accrual of adifference. Prior service costs are basically recognized by the straight-line method overvarious periods that are not more than the average remaining service period of employees at
the time of the accrual thereof. Unrecognized actuarial differences and unrecognized priorservice costs after tax effect adjustment are posted in “Remeasurements of defined benefit
plans”, “Accumulated other comprehensive income” in “Net assets”.

(10)

Matters relating to accounting for consumption taxes, etc.
Consumption taxes and local consumption taxes payable by domestic consolidated companies
are accounted for by the tax exclusion method.

(11)

Matters relating to application of consolidated tax system
Consolidated tax system is applied.

(12)

Method and period of amortization of goodwill
Goodwill is equally amortized for 5 to 20 years; minor goodwill is entirely amortized upon
accrual.

2.

Notes to Changes in Accounting Policy<Application of Practical Solution regarding a Change in Depreciation Method due to Tax
Reform 2016>
Incidental to the reform of the Corporation Tax Act, the Company has applied the “Practical
Solution regarding a Change in Depreciation Method due to Tax Reform 2016” (Practical
Issues Task Force No. 32; June 17, 2016) to the consolidated fiscal year under review. As aresult, the depreciation method for buildings and equipment attached to buildings, andstructures acquired on or after April 1, 2016 has been switched from the declining balancemethod to the straight line method.
None of these changes has any material impact on the Consolidated Financial Statements
during the consolidated fiscal year under review.

-53.

Additional Information<Application of Implementation Guidance on Recoverability of Deferred Tax Assets>
The “Implementation Guidance on Recoverability of Deferred Tax Assets” (The AccountingStandards Board of Japan (ASBJ) Implementation Guidance No. 26 of March 28, 2016) has
been applied from the consolidated fiscal year under review.
<Board Benefit Trust (BBT) for Executive Directors>
The Company adopted on August 26, 2016 a BBT (Board Benefit Trust), a new performancebased stock compensation plan (the “Plan”) for its Executive Directors (excluding NonExecutive Directors and Outside Directors) pursuant to a resolution of the 155th Ordinary
General Meeting of Shareholders held on June 29, 2016, in order to enhance their awarenessof contributing to better business performance and higher corporate value in the middle- tolong-term.
(i) Outline of the scheme
The Plan allows the Company’s Executive Directors who satisfy certain requirements toreceive the Company shares, in accordance with the Rules for Delivery of Shares to
Officerspre-established by the Company.
The Company awards points to each Executive Director based on such factors as his or her
position, and the degree of achievement of the medium- and long-term performance target
during the relevant fiscal year, and delivers Company shares in proportion to the number ofpoints determined at the time of his or her retirement from office. However, if an Executive
Director satisfies the relevant requirements stipulated in the Rules for Delivery of Shares to
Officers, the Company will pay him or her cash equivalent to the market value of theCompany shares for a certain percentage of his or her points, in lieu of delivering such shares.
Shares to be delivered to the Executive Directors, including shares to be granted in the future,
will be purchased with funds placed in trust in advance, and managed separately as trust
assets.
(ii) Company shares remaining in trust
In conjunction with the introduction of the Plan during the 2nd quarterly consolidated
accounting period, Trust & Custody Services Bank, Ltd. (trust E account) acquired 540,000
shares in the Company.
The Company has posted its shares remaining in trust as treasury shares in the “Net assets”
section, at the book value in trust (excluding the amount of incidental expenses). The bookvalue and the number of such treasury shares as at the end of the consolidated fiscal year
under review are 170 million yen and 540,000 shares, respectively.

4.

Notes to Changes in Presentation Method<Consolidated Statements of Income>(1)“Royalty revenue” that was included in “Other” of “Non-operating income” in the previous
consolidated fiscal year was separately itemized as from the consolidated fiscal year underreview because the amount became more significant.
“Royalty revenue” in the previous consolidated fiscal year was 322 million yen.

-6(2)“Foreign exchange losses” in “Non-operating expenses,” which was separately itemized in theprevious consolidated fiscal year is included in “Non-operating expenses” and presented as“Other” as from the consolidated fiscal year under review because the amount became lesssignificant.
“Foreign exchange losses” in the consolidated fiscal year under review was 294 million yen.

5.

Notes to Consolidated Balance Sheet(1)

Assets provided as security and secured obligations
Assets provided as security
Cash and deposits
Accounts receivables - trade
Merchandise and finished
goodsWork in process
Investment securities
Deposits (Investments andother assets)
Total

4,936 million yen
4,580 million yen
1,667 million yen
3,322 million yen
35,101 million yen
438 million yen
50,045 million yen

Other than the above items, shares in consolidated subsidiaries (11,569 million yen) that wereoffset and deleted due to consolidation are provided as security.
Secured obligations
Short-term loans payable
Current portion of long-termloans payable
Long-term loans payable
Accounts payable - other
Gift certificates (Current
liabilities; Other)
Total
(2)

8,000 million yen
6,300 million yen
32,400 million yen
2 million yen
85 million yen
46,787 million yen

Guarantee obligation
Guarantees and quasi-guarantees

28 million yen(3)

Amount of discount on negotiable instruments receivable(4)

Land for business use was revaluated pursuant to the “Act on Revaluation of Land” (Act No.
34 promulgated on March 31, 1998), and valuation differences which correspond to taxes areposted as “Deferred tax liabilities for land revaluation” of “Liabilities” and the balance thereofis posted as “Revaluation reserve for land” of “Net assets”.
(i)699 million yen

Method of revaluation

Land for business use was evaluated based on the main-street land price set forth in Article 2,
item 4 of the “Order for Enforcement of the Act on Revaluation of Land (Cabinet Order No.
119 promulgated on March 31, 1998), and that land without a main-street land price was
evaluated based on the assessed value of fixed assets as set forth in item 3 thereof, withreasonable adjustment.

-7-

(ii)

Date of revaluation:

March 31, 2001

(5)

Out of investment securities, 377 million yen is for lending stock.

6.

Notes to Consolidated Statements of Changes in Equity(1)

Matters relating to type and total number of issued shares, and type and number of treasury
shares(Thousands of shares)
Number of shares Number of shares Number of shares Number of shares
increased during decreased during at the end of theat the beginningconsolidated
the consolidated
the consolidatedof theconsolidated
fiscal year under fiscal year under fiscal year underreview
review
fiscal year underreview
review
Issued shares
CommonsharesTotal

207,021――207,021207,021――207,021

Treasury shares
Common
387
544
―
931
shares (Note)
Total
387
544
―
931
(Note) The number of common shares held as treasury shares at the end of the consolidated fiscal
year under review includes 540,000 shares of the Company held in the Board Benefit Trust (BBT) as aresult of the introduction of the BBT plan. The increase in common shares (544,000 shares) held astreasury shares is the result of the purchase of fraction shares, and the acquisition of treasury shares by
the Board Benefit Trust (BBT).
(2)

Matters relating to dividend(i)Amount of dividend paid
Total
Dividend
Type ofdividend
per share
Record date
Effective date
Resolution
shares(million(yen)
yen)
Ordinary
GeneralCommonMarch 31,
Meeting of
1,550
7.50
June 30, 2016
share
2016
Shareholders on
June 29, 2016
Board ofDirectors
CommonSeptember 30,
December 5,
1,550
7.50
meeting on
share
2016
2016
November 8,
2016(Note) The total amount of dividend approved by a resolution of the Board of Directors meeting on
November 8, 2016 includes a dividend of 4 million yen payable for the Company shares held in the
Board Benefit Trust (BBT).

-8(ii)Dividend for which the record date falls in the consolidated fiscal year under review
but the effective date comes after the end of that consolidated fiscal year
Total
Dividend
SourceType ofdividend
per share
Record date
Effective date
Resolution
forshares(million(yen)
dividendyen)
Ordinary
GeneralCommonRetained
March 31,
1,550
7.50
June 30, 2017
Meeting ofstock
earnings
2017
Shareholders on
June 29, 2017
(Note) The total amount of dividend proposed for approval by a resolution of the Ordinary General
Meeting of Shareholders on June 29, 2017 includes a dividend of 4 million yen payable for theCompany shares held in the Board Benefit Trust (BBT).
7.

Notes to Financial Instruments(1)

Matters relating to status of financial instruments
The Company Group raises funds (mainly borrowing from banks) necessary in light ofrespective business plans of business companies. Temporary surplus funds are invested in
more safe financial assets.
Notes and accounts receivables - trade (which are operating receivables) are exposed tocustomers’ credit risks; as such, the Company controls each customer’s due date and balance,
and understands major customers’ credit status. Exchange-rate fluctuation risks for foreign
currency operating receivables due to the Company’s global development are almost set off by
the risks resulting from foreign currency operating payables, some of which are hedged using
forward exchange contracts. Investment securities are mainly shares of customers, andexposed to market price fluctuation risks.
Most of the notes and accounts payable - trade (which are operating payables) are due within
one year. Loans payable are mainly to raise funds for operating transactions, and interest-rate
swaps are used to hedge part of exchange-rate fluctuation risks.
Derivatives include forward exchange contracts to hedge exchange-rate fluctuation riskspresent in foreign currency receivables/payables, and interest-rate swaps to hedge fluctuation
risks of interest rates payable on loans payable.

-9(2)

Matters relating to market value, etc. of financial instruments
Amounts posted on the Consolidated Balance Sheet, market values, and the corresponding
differences between the two as of March 31, 2017, are as follows.
Items, for which ascertaining market values are extremely difficult, are not included in thetable below.
(Millions of yen)Amounts posted on
Market value
the Consolidated
Difference(*)
Balance Sheet (*)(1) Cash and deposits
35,35535,355(2) Notes and accounts receivable trade

39,73039,730-(3) Accounts receivable - other

3,679

3,679

-

(4) Investment securities(i) Shares in subsidiaries and affiliates(ii) Available-for-sale securities

15,69328,507

12,74628,507-2,946-(5) Notes and accounts payable - trade(21,196)(21,196)-(6) Electronically recorded obligations- operating(7,021)(7,021)-(7) Short-term loans payable(49,468)(49,468)-(8) Current portion of long-term loans
payable(30,038)(30,100)-62(9) Accounts payable - other(13,311)(13,311)-(10) Long-term loans payable(54,055)(54,281)

-225

98

98

-

(11) Derivatives(*) Items posted as liabilities are enclosed in brackets.

(Note 1)
Calculation methods for the market value of financial instruments and transactions involving
securities and derivatives(1) Cash and deposits, (2) Notes and accounts receivable - trade, and (3) Accounts receivable other:
These are settled within a short time frame and therefore have a market value nearly
equivalent to their book value; as such, these are posted according to their book value.
(4) Investment securities:
Equities are based on their value on exchanges.
(5) Notes and accounts payable - trade, (6) Electronically recorded obligations - operating, (7)Short-term loans payable, and (9) Accounts payable - other:
These are settled within a short time frame and therefore have a market value nearly
equivalent to their book value; as such, these are posted according to their book value.

- 10 -

(8) Current portion of long-term loans payable, and (10) Long-term loans payable:
The market value of long-term loans payable is calculated by taking into account the total
amount of principal and interest and discounting it by the assumed interest rate that would beapplied when new borrowings are conducted. The market value of long-term loans payablethat are subject to exceptional accounting treatment for interest-rate swaps is calculated bydiscounting the total amount of principal and interest, which is treated as one with the interestrate swap in question, by a logically estimated interest rate that would be applied when similarborrowings are conducted.
(11) Derivatives
Derivatives conducted through exceptional accounting treatment of interest-rate swaps aretreated as being one with the long-term loans payable under the relevant hedge. As such, themarket value of such transactions is presented as being included in the market value for the
long-term loans payable concerned.
(Note 2)Unlisted shares (posted as 1,008 million yen on the Consolidated Balance Sheet) and shares in
unlisted subsidiaries and affiliates (posted as 2,922 million yen on the Consolidated Balance
Sheet) have no market price, and it is recognized that ascertaining their market value isextremely difficult. As such, these items are not included in “(4) Investment securities”.
8.

Notes to Leased Property
The Company and some of its subsidiaries own real property for lease and others in Tokyo andother regions. Income or expenses from the leased property during the fiscal year ended
March 2017 was 322 million yen (rent income was posted as non-operating income andexpenses are posted as non-operating expenses), and gain on sales of non-current assets was 6
million yen (posted as non-operating income).
The amount posted on the Consolidated Balance Sheet, major changes during the consolidated
fiscal year under review, market value on the consolidated closing date, and the calculation
method of such market value are as follows:(Millions of yen)Amounts posted on the Consolidated Balance Sheet
Amount ofincreases/decreases
during theconsolidated fiscal
year under review

Balance at the
beginning of theconsolidated fiscal
year under review
14,047(Note 1)
(Note 2)

(Note 3)

‐94

Balance at the end of
the consolidated fiscal
year under review
13,953Market value on the
consolidated closing
date
13,649Amounts posted on the Consolidated Balance Sheet were the acquisition costs
minus accumulated depreciation and accumulated impaired loss.
Major reasons for increases/decreases during the consolidated fiscal year
under review are an increase due to the acquisition of leased property (1,424
million yen), and a decrease due to transfers from leased property to assets forbusiness use (1,470 million yen).
Calculation method of market value
Basically the amount based on a real-estate appraisal report prepared by a realestate appraiser.

- 11 -

9.

Notes to Per-Share Information
Net assets per share
Profit per share(Calculation basis) Profit attributable to owners ofparentProfit attributable to owners ofparent, available to common shares
Average number of shares during
the fiscal year under review

476.10 yen
26.14 yen
5,392 million yen
5,392 million yen
206,294 thousand
shares(Note) For the purpose of calculating the profit per share, the treasury shares remaining intrust posted as treasury shares in the “Shareholders’ equity” section are included in thetreasury shares deducted in the calculation of the average number of shares during the
fiscal year under review. For the purpose of calculating the net assets per share, thetreasury shares so remaining in trust are included in the treasury shares deducted fromthe total number of shares issued and outstanding at the end of the fiscal year underreview.
For the purpose of calculating the profit per share, the average number of treasury
shares, so deducted, during the fiscal year under review was 337,000 shares, and forthe purpose of calculating the net assets per share, the number of treasury shares, so
deducted, as at the end of the fiscal year under review was 540,000 shares.

10.

Notes to Significant Post-Balance Sheet Events
Not applicable.

11.

Presentation of Amounts
In the Consolidated Balance Sheet, Consolidated Statement of Income, Consolidated
Statements of Changes in Equity, and Notes to Consolidated Financial Statements, any amountless than one million yen is discarded.

- 12 Notes to Non-Consolidated Financial Statements
1.

Notes to Significant Accounting Policies(1)Standards and methods for evaluating securities(i)

Shares in subsidiaries and affiliates:
Stated at cost using the moving-average method(ii)

Available-for-sale securities:
Securities with market value:
Market value method based on the market price as of the closing date (differences invaluation are included directly in net assets and the costs of securities sold are
calculated using the moving-average method)
Securities without market value:
Stated at cost using the moving-average method(2)Standards and methods for evaluating derivatives
(i)

(3)

(4)

Derivatives:
Market value method

Depreciation methods for non-current assets(i)

Property, plant and equipment (excluding leased assets):
The straight-line method is used for buildings (excluding equipment attached tobuildings), and equipment attached to buildings, and structures acquired on or after
April 1, 2016, and the declining-balance method for other property, plant andequipment. A useful life and a residue value are evaluated using the same standards
as set forth in the Corporation Tax Act.

(ii)

Intangible non-current assets (excluding leased assets)
The straight-line method is used. A useful life is evaluated using the same standards
as set forth in the Corporation Tax Act. However, as for software for in-house use,
the straight-line method is used with a usable period of 5 years.

(iii)

Leased assets
Lease assets relating to finance lease without transfer of ownership:
The straight-line method is used with a useful life of the lease period and with aresidue value of zero.

Accounting standards for significant allowances and provisions(i)

Allowance for doubtful accounts:
In order to prepare for possible losses on uncollectible receivables held, estimateduncollectible amounts are posted: for general receivables, according to the historicalpercentage of uncollectibles, and for doubtful receivables, considering the probabilityof collection.

(ii)

Provision for bonuses:
In order to prepare for payment of bonuses to employees, a provision is made based on
the estimated bonus payments, which are attributable to the fiscal year under review.

- 13 -

(5)

(6)

(iii)

Provision for Board Benefit Trust
The Company has posted an estimated amount, as of the end of the fiscal year underreview, of the obligation to deliver shares, as a provision for the delivery of its shares
to its Executive Directors in accordance with the Rules for Delivery of Shares to
Officers.

(iv)

Provision for loss on investments to subsidiaries and affiliates:
In order to prepare for possible losses on investments to subsidiaries and affiliates, anamount deemed necessary is provided after considering the financial position of eachcompany and based on a respective review. The provision for loss on investments to
subsidiaries and affiliates of 2,414 million yen is directly reduced from the amount ofshares in subsidiaries and affiliates.

(v)

Provision for loss on subsidiaries and affiliates:
In order to prepare for possible losses exceeding the book value of investments to any
subsidiary or affiliate, an amount deemed necessary is provided for the loss exceeding
the amount of receivables from such subsidiary or affiliate.

(vi)

Provision for environmental measures:
In order to prepare for possible expenditure aimed at future environmental measures,
an estimated amount to be incurred is posted.

Hedge accounting method(i)

Hedge accounting method
Deferred hedge accounting is employed. However, with regard to forward exchange
contracts that meet the requirements for deferral hedge accounting (“furiate-shori”),
deferral hedge accounting is employed; with regard to interest-rate swaps that meet therequirements for exceptional accounting (“tokurei-shori”), exceptional accounting is
employed.

(ii)

Means of hedging and hedged items:
Forward exchange transactions to hedge foreign exchange-rate fluctuation risks
regarding foreign currency-denominated trade payables and receivables; and interestrate swaps to avoid fluctuation risks regarding borrowings on floating interest rate.

(iii)

Hedging policy
Derivatives are used to avoid exchange-rate fluctuation risk present in trade payables
and interest fluctuation risk present in borrowings and other means of fund raising, tothe extent of actual demands, and are not used to conduct speculative transactions.
Derivative transactions are managed in accordance with internal rules of eachcompany.

(iv)

Assessment of hedge effectivenessFor interest-rate swaps, hedge effectiveness is assessed by analysis of the percentage
between the accumulated cash flow changes of hedged items and the accumulated
cash flow changes by means of hedging.

Accounting for consumption tax, etc.
Consumption taxes and local consumption taxes are accounted for by the tax exclusion
method.

- 14 (7)Other Important Matters that are the Basis for Preparation of Financial Statements
Consolidated tax system is applied.

2.

Notes to Changes in Accounting Policy<Application of Practical Solution regarding a Change in Depreciation Method due to Tax
Reform 2016>
Incidental to the reform of the Corporation Tax Act, the Company has applied the “Practical
Solution regarding a Change in Depreciation Method due to Tax Reform 2016” (Practical
Issues Task Force No. 32; June 17, 2016) to the fiscal year under review. As a result, thedepreciation method for buildings and equipment attached to buildings, and structuresacquired on or after April 1, 2016 has been switched from the declining balance method to thestraight line method Due to these changes, the operating income, ordinary income, and profit
before income taxes for the fiscal year under review increased by 19 million yen, respectively,
compared to those under the previous method.

3.

Additional Information<Application of Implementation Guidance on Recoverability of Deferred Tax Assets>
The “Implementation Guidance on Recoverability of Deferred Tax Assets” (The AccountingStandards Board of Japan (ASBJ) Implementation Guidance No. 26 of March 28, 2016) has
been applied from the fiscal year under review<Board Benefit Trust (BBT) for Executive Directors>
We have omitted this information, as we have included the same information in the“Additional Information” section of the Notes to Consolidated Financial Statements.

4.

Notes to Non-Consolidated Balance Sheet, Statements of Income, and Statements of Changes
in Equity(1)

Assets provided as security and secured obligations
Assets provided as security
Investment securities
Shares in subsidiaries and affiliates
Total

28,128 million yen
2,131 million yen
30,259 million yen

Secured obligations
Short-term loans payable
Current portion of long-term loans payable
Long-term loans payable
Total

8,000 million yen
4,300 million yen
17,900 million yen
30,200 million yen(2)

Accumulated depreciation of Property, plant and equipment

8,192 million yen

- 15 (3)Monetary claims, monetary debts and transactions with subsidiaries and affiliates
Short-term receivables
30,594 million yen
Short-term payables
3,573 million yen
Long-term receivables
9,100 million yen
Long-term payable
1,453 million yen
Operating income
10,087 million yen
Operating expenses
1,954 million yen
Transactions other than operating transactions
2,579 million yen(4)

Revaluation of land for business use
Land for business use was revaluated pursuant to the “Act on Revaluation of Land” (Act No.
34 promulgated on March 31, 1998), and valuation differences which correspond to taxes areposted as “Deferred tax liabilities for land revaluation” of “Liabilities” and the balance thereofis posted as “Revaluation reserve for land” of “Net assets”.

(5)

(i)

Date of revaluation:

March 31, 2001

(ii)

Method of revaluation:
Land for business use was evaluated based on the main-street land price set forth in
Article 2, item 4 of the “Order for Enforcement of the Act on Revaluation of Land
(Cabinet Order No. 119 promulgated on March 31, 1998), and that land without amain-street land price was evaluated based on the assessed value of fixed assets as set
forth in item 3 thereof, with reasonable adjustment.

Notes to lending stock
Out of shares in subsidiaries and affiliates, 46 million yen is for lending stock.

(6)

Notes to Statements of Income“Transfers to provision for loss on investments to subsidiaries and affiliates” of “Extraordinary
losses” consists of: transfers to provision for loss on investments to subsidiaries and affiliates(290 million yen) and an allowance for doubtful accounts of subsidiaries and affiliates (10million yen); reversal of an allowance for doubtful accounts of subsidiaries and affiliates(1,710 million yen); andtransfers to provision for loss on subsidiaries and affiliates (1,530
million yen).

(7)

Notes to Statements of Changes in Equity
Type and number of treasury shares at the end of the fiscal year under review
Common shares
826,538 shares
The number of shares above includes 540,000 shares of the Company held in the Board
Benefit Trust (BBT) as a result of the introduction of the BBT plan.

- 16 5.

Notes to Tax Effect Accounting
Breakdown by major reason for incurring deferred tax assets and deferred tax liabilities
Deferred tax assets
Provision for bonuses
Allowance for doubtful accounts
Loss on valuation of shares insubsidiaries
Provision for loss on investments to
subsidiaries and affiliates
Provision for loss on subsidiaries andaffiliates
Impaired loss on non-current assets
Assets for adjustment of profit and loss
due to transfer
Long-term accounts payable - other
Loss carried forward
Other
Deferred tax assets - subtotal
Valuation-related reserves
Deferred tax assets - total

30 million yen
2,811 million yen
5,368 million yen
739 million yen
722 million yen
713 million yen
1,234 million yen
38 million yen
1,913 million yen
161 million yen
13,732 million yen-12,732 million yen
1,000 million yen

Deferred tax liabilities
Assets for adjustment of profit and loss
due to transfer
Valuation difference on available-for-salesecurities
Other
Deferred tax liabilities - total
Net deferred tax assets (liabilities)

20 million yen
6,320 million yen
32 million yen

6,374 million yen-5,374 million yen

Other than the above items, “deferred tax liabilities” concerning “revaluation reserve for land”
was 3,614 million yen.

6.

Notes to Transactions with Related Parties(1)

Parent company and major corporate shareholders

Attributes Name of company

Ratio of voting
rights held (%)

Relationshipwith related
party(Direct)
Major
11.5
Property
shareholder
Sanko Kigyo K.K. (Closer parties orlease, etc.
(company,
agreed parties)
etc.)
5.3

Content oftransaction

Property
lease

Transaction
amount(million yen)

Item

963

Accruedexpenses

Term-endbalance(millionyen)

1

- 17 (2)Subsidiaries and affiliates, etc.

Ratio of holding Relationship
Attributes Name of company of voting rights, with related
etc. (%)
party

SEIKO WATCHCORPORATION(direct) 100.0

Interlocking
directorate

Subsidiary

WAKO Co., Ltd.

(direct) 100.0

Interlocking
directorate

Content oftransaction

Transaction
amount(million yen)

Item

Term-endbalance(millionyen)

Royaltyrevenue

Accounts
2,035 receivable other

1,084

Proceeds
frommanagement
guidance

Accounts
1,156 payable other242

Accruedincome112

Property
rents

795

(Note) 1. Transaction terms and policies to determine them
1)
The terms for property lease are determined based on the same standards as forgeneral transaction terms after considering market price. In the Statements ofIncome, the property lease is offset with property rents, and posted as expenses forleased property.
2)Royalty revenue is determined based on the standards similar to general transaction
terms.
3)
Proceeds from management guidance are determined by the Company and relevant
consolidated subsidiary upon mutual consultation after considering the content ofbusiness operations.
4)Regarding property rents, those of owned property leased for business use aredetermined linked to relevant income, and those leased as office are determined basedon a professional valuation. In the Statements of Income, property rents are offset
with expenses for leased properties.
2. Transaction amounts do not include consumption tax, etc.; the term-end balance includes
consumption tax, etc.

7.

Notes to Per-Share Information
Net assets per share
Profit per share(Calculation basis) Profit
Profit available to common shares
Average number of shares during the fiscal
year under review

287.82 yen
15.85 yen
3,271 million yen
3,271 million yen
206,399 thousand shares(Note) For the purpose of calculating the profit per share, the treasury shares remaining intrust posted as treasury shares in the “Shareholders’ equity” section are included in thetreasury shares deducted in the calculation of the average number of shares during the
fiscal year under review. For the purpose of calculating the net assets per share, thetreasury shares so remaining in trust are included in the treasury shares deducted fromthe total number of shares issued and outstanding at the end of the fiscal year underreview.
For the purpose of calculating the profit per share, the average number of treasury
shares, so deducted, during the fiscal year under review was 337,000 shares, and for- 18 the purpose of calculating the net assets per share, the number of treasury shares, so
deducted, as at the end of the fiscal year under review was 540,000 shares.
8.

Notes to Companies subject to Restriction on Consolidated Dividend
The Company will become a company subject to restriction on consolidated dividend fromwhen the last day of the fiscal year under review is the last day of the last fiscal year.

9.

Presentation of Amounts
In the Non-Consolidated Balance Sheet, Non-Consolidated Statements of Income, NonConsolidated Statements of Changes in Equity, and Notes to Non-Consolidated Financial
Statements, any amount less than one million yen is discarded.