Annual Securities Report(Report based on Article 24, Paragraph 1 of the
Financial Instruments and Exchange Act of Japan)
Fiscal year
Started October 1, 2018
(53rd Term)
Ended September 30, 2019

TKC Corporation
1758 Tsurutamachi, Utsunomiya-shi, Tochigi(E04807)
This report (from the Cover onward) is a print out of the English translationof the (electronic) disclosure document filed with EDINET.

– 1 –Contents
Cover

Page

Section 1 [Information on the Company] ............................................................................................................................ 4
Part 1 [Overview of the Company] .................................................................................................................................. 4
1
2
3
4
5

[Key Financial Data] ........................................................................................................................................... 4[History] .............................................................................................................................................................. 6[Description of Business] .................................................................................................................................... 8[Information on Affiliates] ................................................................................................................................ 11[Employees]....................................................................................................................................................... 12Part 2 [Business Overview] ........................................................................................................................................... 13
1
2
3
4
5

[Management Policy, Economic Environment and Challenges Faced by the Company].................................. 13[Risk Factors] .................................................................................................................................................... 17[Management Analysis of Consolidated Financial Conditions, Operating Results, and Cash Flows] .............. 19[Material Agreements, etc.] ............................................................................................................................... 29[Research and Development Activities] ............................................................................................................ 29

Part 3 [Property, Plant and Equipment] ......................................................................................................................... 30
1
2
3[Summary of Capital Investments] .................................................................................................................... 30[Major Property, Plant and Equipment]............................................................................................................. 30[Plans for Establishments and Disposals of Property, Plant and Equipment].................................................... 32

Part 4 [Information on the Company] ............................................................................................................................ 33
1

2
3
4

[Information on the Company’s Stock] ............................................................................................................. 33(1) [Total Number of Shares, etc.] ................................................................................................................... 33(2) [Information on Share Subscription Rights] ............................................................................................... 33(3) [Exercise of Bonds with Share Subscription Rights Containing a Clause for Exercise Price Adjustment] 33(4) [Changes in Total Number of Issued Shares, Capital Stocks, etc.] ............................................................ 33(5) [Shareholders Composition] ....................................................................................................................... 34(6) [Major Shareholders].................................................................................................................................. 34(7) [Status of Voting Rights]............................................................................................................................ 35(8) [Information on Employee Stock Ownership Plan].................................................................................... 36[Acquisition, etc. of Treasury Stock] ................................................................................................................. 37[Dividend Policy] .............................................................................................................................................. 38[Corporate Governance] .................................................................................................................................... 39(1) [Overview of Corporate Governance] ........................................................................................................ 39(2) [Officers] .................................................................................................................................................... 53(3) [Audits] ...................................................................................................................................................... 59(4) [Director Compensation, etc.] .................................................................................................................... 62(5) [Status of Shareholdings] ........................................................................................................................... 64

Part 5 [Financial Information] ....................................................................................................................................... 66
1. [Consolidated Financial Statements] ................................................................................................................. 67(1) [Consolidated Financial Statements] .......................................................................................................... 67(2) [Other] ...................................................................................................................................................... 108
2 [Financial Statements, etc.] ............................................................................................................................. 109(1) [Financial Statements] .............................................................................................................................. 109(2) [Major Assets and Liabilities] .................................................................................................................. 119(3) [Other] ...................................................................................................................................................... 119
Part 6 [Stock-related Administration of the Company] ................................................................................................ 120
Part 7 [Reference Information on the Company].......................................................................................................... 121
1
2[Information on the Parent Company] ............................................................................................................. 121[Other Reference Information] ........................................................................................................................ 121

Section 2 [Information on Guarantors, etc. of the Company].......................................................................................... 122[Independent Auditor’s Report] [Confirmation Letter] [Internal Control Report]– 2 –[Front Cover][Document filed]Annual Securities Report[Applicable law]

Article 24, Paragraph 1 of the Financial Instruments and Exchange Act of Japan[Filed with]

Director, Kanto Local Finance Bureau[Date filed]December 23, 2019

[Fiscal year]

53rd term (From October 1, 2018 to September 30, 2019)[Company name]

Kabushiki Kaisha TKC[Company name in English]

TKC Corporation[Title and name of representative]

Masanori Iizuka, Representative Director, President and Executive Officer[Address of head office]1758 Tsurutamachi, Utsunomiya-shi, Tochigi[Phone number]

028-648-2111[Contact person]

Hitoshi Iwata, Representative Director, Vice President and Executive Officer[Contact address]

2-1 Ageba-cho, Shinjuku-ku, Tokyo[Phone number]

03-3235-5511[Contact person]

Hitoshi Iwata, Representative Director, Vice President and Executive Officer[Place available for public
inspection]

TKC Corporation, Tokyo Head Office(2-1 Ageba-cho, Shinjuku-ku, Tokyo)
Tokyo Stock Exchange, Inc.
(2-1 Nihonbashikabutocho, Chuo-ku, Tokyo)– 3 –Section 1 [Information on the Company]
Part 1 [Overview of the Company]
1 [Key Financial Data](1) Consolidated Financial Data, etc.
Fiscal year

49th Term

50th Term

51st Term

52nd Term

53rd Term

Year end

September
2015

September
2016

September
2017

September
2018

September
2019

Net sales(millions of yen)

54,92857,75059,70561,621

66,120Ordinary income(millions of yen)

7,042

7,604

8,792

8,961

9,669

Net income attributable toowners of parent(millions of yen)

4,011

4,770

6,071

6,158

6,721

Comprehensive income(millions of yen)

4,149

3,958

7,097

6,517

4,082

Total net assets(millions of yen)

62,63064,556

68,892

72,55073,121

Total assets(millions of yen)

76,836

81,11685,42890,202

96,989Net assets per share(yen)

2,304.38

2,374.07

2,551.70

2,686.32

2,724.78

Net income per share(yen)

151.18179.65229.13233.46255.52

Diluted net income per share(yen)

150.63178.88228.16232.41

255.01Equity ratio

(%)

79.6

77.7

78.8

78.6

73.8

Return on equity

(%)

6.7

7.7

9.3

8.9

9.4

Price earnings ratio(times)

20.3

17.5

15.1

20.4

18.3

(millions of yen)

6,485

9,181

8,123

8,810

10,550(millions of yen)

(4,558)(7,022)(4,617)(4,013)411(millions of yen)

(1,333)(2,225)(3,019)(2,567)(3,792)(millions of yen)

16,61916,552

17,03919,26826,810(No. of people)

2,500

2,547

2,588

2,625

2,701

Cash flows from operating
activities
Cash flows from investing
activities
Cash flows from financing
activities
Cash and cash equivalents at
end of year
No. of employees(Notes) 1. Net sales do not include consumption taxes (consumption tax and local consumption tax; hereinafter thesame).
2. The Company introduced the Board Incentive Plan (BIP) Trust starting from the 2nd quarter consolidated
accounting period, and recorded the stocks held by said Trust as treasury stocks. Accordingly, for the
purpose of calculating the quarterly net income per share, they are included in the treasury stocks to be
deducted in calculating the average number of shares outstanding.
3. The Company applies the partially amended Accounting Standard for Tax Effect Accounting (ASBJ
Standard No. 28, February 16, 2018), etc. as of the beginning of the current 53rd Term. Accordingly, said
accounting standard has been applied retroactively to the key financial data and other indicators for the
52nd Term shown herein.

– 4 –(2) Financial Data, etc. of the Company
Fiscal year

49th Term

50th Term

51st Term

52nd Term

53rd Term

Year end

September
2015

September
2016

September
2017

September
2018

September,
2019

Net sales(millions of yen)

+50,957

53,361

55,17556,76960,897

Ordinary income(millions of yen)

7,032

7,665

8,473

8,577

8,972

Net income(millions of yen)

4,073

4,542

5,900

5,959

6,262

Capital stock(millions of yen)

5,700

5,700

5,700

5,700

5,700

(hundreds of shares)

267,310

267,310

267,310

267,310

267,310

Total net assets(millions of yen)

59,694

61,37065,466

68,86370,622

Total assets(millions of yen)

71,23475,03079,03482,737

88,192

Net assets per share(yen)

2,243.29

2,304.61

2,474.82

2,601.49

2,686.94

Dividend per share(Of the above, interim dividends
per share)

71

80

100

105

110

(yen)

(33)

(40)

(40)

(50)

(55)

Net income per share(yen)

153.50171.08222.67225.92238.07

Diluted net income per share(yen)

152.94170.34221.73224.90237.59Equity ratio

(%)

83.6

81.6

82.6

82.9

80.1

Return on equity

(%)

7.0

7.5

9.3

8.9

9.0

Price earnings ratio(times)

20.0

18.3

15.5

21.0

19.7

Dividend payout ratio

(%)

46.25

46.76

44.91

46.48

46.20

(No. of people)

2,201

2,234

2,269

2,225

2,288

Total shareholder return

(%)

145.3

151.8

170.9

236.1

237.7

(Benchmark index: TOPIX total
return index)(%)(108.4)(103.9)(134.3)(148.9)(133.5)

Stock price - high

(yen)

3,690

3,365

3,530

4,875

5,030

Stock price - low

(yen)

1,841

2,393

2,716

3,305

3,350

Total number of shares issued

No. of employees(Notes) 1. Net Sales do not include consumption taxes, etc.
2. Dividends per share include a dividend of 5 yen for the 49th term and 10 yen for the 50th term incommemoration of the Company’s 50th anniversary.
3. The Company introduced the Board Incentive Plan (BIP) Trust starting from the 2nd quarter consolidated
accounting period, and recorded the stocks held by said Trust as treasury stocks. Accordingly, for the
purpose of calculating the quarterly net income per share, they are included in the treasury stocks to be
deducted in calculating the average number of shares outstanding.
4. The Company applies the partially amended Accounting Standard for Tax Effect Accounting (ASBJ
Standard No. 28, February 16, 2018), etc. as of the beginning of the current 53rd Term. Accordingly, said
accounting standard has been applied retroactively to the key financial data and other indicators for the
52nd Term shown herein.
5. The highest and lowest share prices are based on the market prices on the First Section of the Tokyo Stock
Exchange.

– 5 –2 [History]
Date

Company History

October 1966

The Company was established in Utsunomiya-shi, Tochigi Prefecture on October 22, 1966 as a dataprocessing center to defend the business domains and maintain control over the fate of accounting firms,
and to improve the administrative efficiency of local governments.
Established Kabushiki Kaisha Tochigi-ken Keisan Center.

August 1971
September 1972

Established TKC Tokyo Keisan Center and deployed data processing centers nationwide.
Established TKC Tokyo Youhin Center Co., Ltd. (a subsidiary, changed name to TKC Tokyo Supply
Center Co., Ltd. in December 1993). [Merged and absorbed into the Company in January 2000]
Established TKC Osaka Keisan Center Co., Ltd. (a subsidiary, changed name to TKC Osaka Youhin
Center Co., Ltd. in July 1987, and to TKC Osaka Supply Center Co., Ltd. in December 1993). [Merged
and absorbed into the Company in January 2000]
Established TKC Okayama Keisan Center Co., Ltd. (a subsidiary, changed name to TKC Chushikoku
Youhin Center Co., Ltd. in July 1987, and to TKC Chushikoku Supply Center Co., Ltd. in December
1993). [Merged and absorbed into the Company in January 2000]

November 1972

December 1972

November 1973

August 1975
February 1976

January 1978

Changed corporate name to Kabushiki Kaisha TKC.
Established TKC Tohoku Keisan Center Co., Ltd. (a subsidiary, changed name to TKC Tohoku Yohin
Center Co., Ltd. in July 1987, and to TKC Tohoku Supply Center Co., Ltd. in December 1993). [Merged
and absorbed into the Company in January 2000]
Established TKC Nagoya Keisan Center Co., Ltd. (a subsidiary, changed name to TKC Chubu Youhin
Center Co., Ltd. in July 1987, and to TKC Chubu Supply Center Co., Ltd. in December 1993). [Merged
and absorbed into the Company in January 2000]
Established TKC Kyushu Keisan Center Co., Ltd. (a subsidiary, changed name to TKC Kyushu Yohin
Center Co., Ltd. in July 1987, and to TKC Kyushu Supply Center Co., Ltd. in December 1993). [Merged
and absorbed into the Company in January 2000]
Established Tokyo Line Printer Company (currently a consolidated subsidiary).
Established TKC Saitama Keisan Center Co., Ltd. (a subsidiary, changed name to TKC Kanshin Yohin
Center Co., Ltd. in July 1987, and to TKC Kanshin Supply Center Co., Ltd. in December 1993). [Merged
and absorbed into the Company in January 2000]
Opened TKC Systems Development Research Center.

October 1982
October 1984
February 1985

Established TKC Security Services Co., Ltd. (currently a consolidated subsidiary).
Opened TKC Tax Research Center.
Established TKC Management Consulting Co., Ltd. (a subsidiary).
[Merged and absorbed into the Company in May 2011]

April 1985
August 1985

Opened TKC Okinawa Information Service Center and deployed information service centers nationwide.
Opened OA Technology Development Center.

December 1986

Changed corporate name in the Articles of Incorporation to Kabushiki Kaisha TKC (TKC Corporation).

June 1987

Changed names of Keisan Centers to Information Centers.

July 1987

Listed on the Second Section of the Tokyo Stock Exchange.

September 1987

Opened TASK Technology Development Center.

– 6 –

Date

Company History

March 1990

Integrated the information processing service divisions of TKC Tokyo Second Information Center, TKC
Shinjuku-Minami Information Center and TKC Ikebukuro Information Center to form TKC Tokyo
Consolidated Information Center.
Established TKC Corporation Strategic Management Research Center. [Merged and absorbed into theCompany in October 2000]

April 1990
June 1991

Opened TKC Data Entry Center.

January 1992

Opened TKC Precedent Retrieval Service Center.

November 1992

Integrated the information processing service divisions of TKC Osaka Information Center, TKC Kyoto
Information Center and TKC Hyogo Information Center to form TKC Kansai Consolidated Information
Center.

February 1994

Opened Systems Development Center.

March 1996
January 1998

Listed on the First Section of the Tokyo Stock Exchange.
Integrated the information processing service divisions of TKC Nagoya Information Center, TKC
Shizuoka Information Center and TKC Nagano Information Center to form TKC Chubu Consolidated
Information Center.
Opened New Systems Development Center.

June 1998
June 1999

Acquired shares in SKYCOM Corporation (currently a consolidated subsidiary).

July 1999

The systems development division obtained ISO9001 quality management systems certification.

March 2001

Integrated the information processing service division of TKC Kyushu Information Center, TKC
Kumamoto Information Center and TKC Kagoshima Information Center to form TKC Kyushu
Consolidated Information Center.
Changed the company name in the company registry to TKC Corporation to match the corporate name in
the Articles of Incorporation.

November 2002
March 2003
July 2003

October 2003

April 2004
June 2005
December 2008

September 2010
September 2015
October 2015

April 2016
October 2017
March 2018
October 2018
March 2019

September 2019
September 2019

Tokyo Line Printer Company obtained “PrivacyMark” accreditation from the Japan Information
Processing Development Center (JIPDEC).
Integrated the information processing service divisions of TKC Okayama Information Center, TKC
Hiroshima Information Center and TKC Shikoku Information Center to form TKC Chushikoku
Consolidated Information Center.
Reorganized the information processing service divisions of TKC Hokkaido Information Center, TKC
Tohoku Information Center, TKC Tochigi Information Center, and TKC Okinawa Information Center into
TKC Consolidated Information Center, and their SCG departments into TKCSCG Service Center.
Changed the name of TKC Information Service Center (Accounting Firm BD) to TKCSCG Service Center.
Opened TKC Internet Service Center (TISC).
Became the first private company to pass the LGWAN (Local Government Wide Area Network) - ASP
connection qualification test.
Obtained PrivacyMark accreditation from JIPDEC (Local Governments BD).
Obtained PrivacyMark accreditation from JIPDEC (company-wide).
Obtained a report on the effectiveness of the implementation and operation of internal controls related to
ASP services prepared by Ernst & Young ShinNihon LLC based on JICPA Auditing Standards Committee
Report 18, “Assessment of Control Risks relating to an Entity using Service Organizations” (currently,
Auditing and Assurance Practice Committee Practical Guideline No. 86, “Assurance Reports on Controls
at a Service Organization”).
Opened Innovation & Technology Center (I&TC).
Acquired 100% ownership of SKYCOM Corporation as wholly-owned subsidiary.
Became the first company in Japan to obtain third party accreditation for ISO/IEC 27018:2014, “Code ofpractice for protection of personally identifiable information (PII) in public cloud acting as PII processors”(October 12).
Opened System Engineering Center (SEC).
Established TKC Customer Support Service Co., Ltd. (currently a consolidated subsidiary).
Completed the construction of TKC Customer Support Service building.
Tokyo Line Printer Company changed the company name to TLP Corporation.
Became the first company to acquire certification under the Electronic Books Software Legal Compliance
Certification System by Japan Image and Information Management Association (JIIMA) for its financial
accounting systems that are offered to the clients of accounting firms.
Acquired 100% ownership of TKC Shuppan Corporation as wholly-owned subsidiary.
Established a voluntary Nomination and Compensation Advisory Committee.

– 7 –3 [Description of Business]
The TKC Group (TKC Corporation and affiliated companies) consists of the Company, six subsidiaries and one
affiliated company. The Group is engaged in business activities including accounting firm business (information
processing services, software and consulting services, and sales of office equipment and supplies), local governments
business (information processing services, software and consulting services, and sales of office equipment), andprinting business.
The positioning of each company in each business segment is as follows.
Note that the three business divisions below are the same as the categories in the segment information set forth in theNotes to Financial Statements under Part 5 Financial Information, 1. Consolidated Financial Statements, etc., (1)Consolidated Financial Statements.

1 Accounting Firm Business Division
Key services/products
1. Information processing services(i) Computer services by the TKC
Consolidated Information Center(ii) Computer services by the TKCInternet Service Center (TISC)
2. Software and consulting services(i) Development and provision ofsoftware to be installed on system
devices for information service
applications

Positioning of the Company and affiliated companies(Services and sales)
1. The Company provides information processing services, software and consulting
services, and sales of office equipment and office supplies for computer-based
accounting to customers including accounting firms and their clients.
2. TKC Customer Support Service Co., Ltd., a subsidiary of the Company, offers
help desk services to accounting firms and their clients, and for medium andlarge-size companies.
(Manufacturing and production)
1. TLP Corporation, a subsidiary of the Company, offers printed continuous
business forms for TKC’s computer-based accounting for information processing
service applications, and manufacturing of office supplies for use with TKC’scomputer-based accounting systems.
2. SKYCOM Corporation, a subsidiary of the Company, is engaged in thedevelopment and sales of software.
3. TKC Shuppan Corporation, a subsidiary of the Company, publishes books andmonthly magazines on business management, taxing and accounting to provide
useful business information to TKC member accounting firms and their clients.
4. iMobile Inc., an affiliated company, is engaged in the development andmaintenance of website services.

(ii) Systems consulting services byspecialized staff
3. Sales of office equipment(Others)
TKC Security Services Co., Ltd., a subsidiary of the Company, provides security,
maintenance and repair services for buildings owned by the Company.

Sales of system devices for information
service applications
4. Sales of supplies
Sales of office supplies for computerbased accounting– 8 –2 Local Governments Business
Key services/products
1. Information processing services(i) Computer services by the TKC
Consolidated Information Center(ii) Computer services by the TKCInternet Service Center (TISC)

Positioning of the Company and affiliated companies(Services and sales)
1. The Company provides information processing services, software and consulting
services, and sales of office equipment to local governments (local
municipalities, etc.).
2. TKC Customer Support Service Co., Ltd., a subsidiary of the Company, offers
help desk services to local governments (local municipalities, etc.).
(Manufacturing)
1. TLP Corporation, a subsidiary of the Company, offers printed continuous
business forms for TKC’s computer-based accounting for information processing
service applications.
2. SKYCOM Corporation, a subsidiary of the Company, is engaged in thedevelopment and sales of software.

2. Software and consulting services(i) Development and provision ofsoftware to be installed on system
devices for information service
applications(ii) Systems consulting services byspecialized staff
3. Sales of office equipment
Sales of system devices for information
service applications

3 Printing Business
Key products

Positioning of the Company and affiliated companies

Continuous business forms for PCs,
general office forms, data printing services,brochures, etc.

(Manufacturing and sales)
TLP Corporation, a subsidiary of the Company, is engaged in the manufacturing andsales of continuous business forms for PCs, general office forms and data printing
services (DPS).

– 9 –A structural diagram of the Group’s business activities is as follows:

TKC National
Federation partnercompanies

Law schools, etc.

Medium/largesized companies

Clients

Clients ofaccounting firms

Accounting firms

Local governments(municipalities, etc.)

General companies

Non-consolidated
subsidiary
TKC Financial
Guarantee Co., Ltd.

Sales of monthly
magazines

Sales of supplies for
TKC computerbased accounting
systems

Software andconsulting
services, etc.

Help desk
services

Information
processing services

TKC

Accounting Firm Business Division

Entrustment ofdevelopment/
maintenance ofwebsite services

Equity method
affiliated company:iMobile Inc.

Purchasing ofmonthlymagazines, etc.

Purchasing of
supplies for TKC
computer-based
accounting systems

Consolidated
subsidiary:
TKC Shuppan
Corporation

Outsourcing ofhelp desk
services

Consolidated
subsidiary:
TKC Customer
Support Service
Co., Ltd.

Accounting Firm
Business Division,consolidated subsidiary:
TKC Security Services
Co., Ltd.

– 10 –

Sales of officeequipment

Sales of continuous
business forms for
TKC PC systems

Local Governments
Business Division

Printing Business
Division

Outsourcing ofsystems
development/ma
intenance

Consolidated
subsidiary:
SKYCOM
Corporation

Purchasing ofcontinuous
business forms
for TKC PC
systems

Consolidated
subsidiary:
TLP Corporation

4 [Information on Affiliates](1) Consolidated SubsidiariesName

TLP Corporation

TKC Security
Services Co., Ltd.

SKYCOM
Corporation

TKC Customer
Support Service Co.,Ltd.

TKC Shuppan
Corporation

Address

Capital(millions of yen)

Principal line ofbusiness

100

Printing business,
manufacture andsales of continuous
business forms for
PCs

Itabashi-ku,
Tokyo

Utsunomiyashi, Tochigi

10

Chiyoda-ku,
Tokyo

100

Security,
maintenance &repairs, and cleaning
services

Development andsales of systems

Percentage of voting
rights held
(%)

55.0

Related activities
Purchasing of printed
continuous business
forms for PCs;
lease of office spaces.
Executive positions areheld concurrently.

100.0

Security, maintenance& repairs, packaging
and shipping services.
Executive positions areheld concurrently.
Outsourcing ofsystems development.

100.0
Executive positions areheld concurrently.
Outsourcing of help
desk services.

Kanuma-shi,
Tochigi

25

Help desk services

100.0
Executive positions areheld concurrently.

Chiyoda-ku,
Tokyo

83

Production ofmonthly magazines,
etc.

Purchasing of monthly
magazines, etc.
100.0
Executive positions areheld concurrently.

(Notes) 1. TLP Corporation is a specified subsidiary. Effective as of October 1, 2018, the company name waschanged from Tokyo Line Printer Company aiming to enhance its DPS operation and expand its sales
channels westward beyond the Kansai region.
2. As of September 24, 2019, a share exchange was conducted with the Company as the wholly owningparent company and TKC Shuppan Corporation as the wholly owned subsidiary company, thereby making
TKC Shuppan Corporation a wholly owned subsidiary of the Company.
3. None of the companies currently submit Securities Registration Statements or Annual Securities Reports.
(2) Equity Method Affiliated Companies
NameiMobile Inc.

Address

Chiyoda-ku,
Tokyo

Capital(millions of yen)100

Principal line ofbusiness

Development andmaintenance ofwebsite services

Percentage of voting
rights held
(%)

30.0

Related activities
Outsourcing ofdevelopment andmaintenance ofwebsite services.
Executive positions areheld concurrently.

(Note) None of the companies currently submit Securities Registration Statements or Annual Securities Reports.

– 11 –

5 [Employees](1) Consolidated Basis
As of September 30, 2019
Name of segment

Number of employees

Accounting Firm BD

1,660

Local Governments BD

594

Printing BD

186

Corporate (shared)

261
Total

2,701

(Notes) 1. Number of employees represents the number of working persons.
2. Number of employees listed under Corporate (shared) belongs to the management division.
(2) Status of the Company
As of September 30, 2019
Number of employees

Average age (years)

Average years of service (years)

Average annual salary (yen)

39.5

16.1

7,291,333

2,288

Name of segment

Number of employees

Accounting Firm BD

1,480

Local Governments BD

576

Corporate (shared)

232
Total

2,288

(Notes) 1. Number of employees represents the number of working persons.
2. Average annual salary includes bonuses and extra wages.
3. Number of employees listed under Corporate (shared) belongs to the management division.
(3) Status of Labor Unions
There are no labor unions.

– 12 –

Part 2 [Business Overview]
1 [Management Policy, Economic Environment and Challenges Faced by the Company]
1. Management Policy, Economic Environment and Challenges Faced by the Company(1) Management policy, management strategy
The Company is managed to achieve the following two business objectives as set forth in our Articles ofIncorporation (Article 2) under the company motto of “Jiri Rita (“self-interest is in the realization of other’sinterest”) and management principle of “Contribution to our Customers.”(i)Management of electronic data processing centers to defend the business domain and maintain control overthe fate of accounting firms(ii)Management of electronic data processing centers to improve the administrative efficiency of local
governments
This basic principle has been inscribed in our Articles of Incorporation since the incorporation of the Company(October 22, 1966). With the expansion of our business scope, other business objectives have been added to
the Articles, although they merely supplement these two business objectives and our basic policy for
management has never changed.

(2) Business environment
There are various changes in the business climate surrounding the Company, but in particular, revisions to thelaws and advancements in ICT have the greatest impacts on the products and services offered by the Company.
Legal reforms to which we must respond include the revised Consumption Tax Act, the JIIMA certification
system under the Electronic Books Maintenance Act, electronic filing of income taxes now mandated to large
corporations, digitalization of administrative operations (the Digital Administrative Procedures Act), andstandardized local public accounting.
Advancements in ICT such as cloud computing, FinTech, AI and RPA continue to evolve rapidly.
We believe it is critical to become responsive to these changes in the environment and reflect such knowledge inthe products and services offered by the Company.
(3) Challenges faced by the Company(i)

Providing systems in complete compliance with laws and regulations
The Company provides support for the operation of accounting firms and local governments by achieving
complete compliance with relevant laws and regulations and offering systems developed based upon the latest
ICT. As such, the Company will continue to enhance system developments that will enable us to promptly
respond to revisions to such laws and regulations.

(ii)

Establishing the Group governance system
The Company will establish an internal controls system in compliance with the requirements of theCompanies Act as well as the Financial Instruments and Exchange Act of Japan, compile the Company’s
management philosophy, various board structures and corporate rules and regulations in a systematic manner
to improve the Group governance system.
In particular, the Company established and launched a Group governance system in response to the Practical
Guidelines for Group Governance System formulated by the Ministry of Economy, Trade and Industry(METI) in June 2019.

(iii) Fostering an organizational culture that bolsters job satisfaction
The Company will work to develop a workplace that respects individuals and team work, support efforts todevelop the capabilities of employees necessary to deliver value to our customers in accordance with theCompany’s Management Principles, and foster an organizational culture that bolsters job satisfaction.
(iv) Ensuring business continuity
The Company will continue to strengthen and expand existing services to ensure the continuity or earlyrecovery of the business operations of all of our customers in the event of large-scale natural disaster andother unforeseen circumstances.

– 13 –

(v)Rapid response to system failure
In the rare event that the Company’s system fails, the Company will strive to respond rapidly to investigate
the impacts on all users and report the results, as well as establish a system to provide 100% support to afflicted
users.

(vi) Efforts toward information security
The Group always provides various information services for accounting firms and their clients and local
governments through the use of latest ICT. Ensuring information security is our highest priority and also asocial responsibility in conducting our business activities.
It is with this awareness that the Group acquired third party accreditations including the ISO/IEC 27001
Information Security Management Systems certification and the JIS Q 15001 Personal Information Protection
Management Systems (PrivacyMark) in order to develop a technical environment that enables our customers
to use our cloud services with a peace of mind.
In addition, the TKC Internet Service Center (TISC) also acquired certifications under ISO/IEC 27018, codeof practice for protection of personally identifiable data in the public cloud on October 12, 2015, andISO/IEC27017, code of practice for information security controls for cloud services on June 19, 2017.
The Company will continue to strive to develop environments where customers can use cloud services safely,
securely and conveniently.

2. Management Policy, Economic Environment and Challenges Faced by the Accounting Firm Business Division(1) Management policy, management strategy
The Accounting Firm BD operates in accordance with the business objectives set forth in the Articles ofIncorporation (Article 2, Paragraph 1: Management of electronic data processing centers to defend the businessdomain and maintain control over the fate of accounting firms) and works under close ties with the TKC National
Federation, which consists of certified public tax accountants and certified public accountants that are customers
of TKC (11,400 members).
TKCNF announced its 3-year activity policy from 2019 to 2021 as follows based on the policy agenda in view of
its 50th anniversary (in 2021).
[Activity policy to change society with the TKC brand](i)

Promote Shomen-tempu (attachment of tax audit reports) by the TKC methods (FY2019 year-end target:
Corporate Shomen-tempu by 134,000 companies)(ii)

Promote TKC Monitoring Information Service (FY2019 year-end target: 120,000 companies, 240,000
cases)(iii) Promote self-accounting practice by the TKC methods (FY2019 year-end target: 277,000 companies)
Based on the activity policy of TKCNF, the Company conducts activities to achieve its strategic targets for
FY2019.
In addition, the Company supports the expansion of clients of TKC Members by providing tax and accounting
systems for listed companies and other large enterprises in close collaboration with the TKCNF’s Medium
and Large-size Support Research Committee and the Overseas Deployment Support Research Committee.
(2) Economic environment
Starting on October 1, 2019, the standard rate of consumption tax was changed to 10% and at the same time, areduced tax rate of 8% was introduced. However, the proportions of distribution of the old 8% tax rate and the
reduced 8% tax rate to local consumption tax are different. Therefore, it is necessary to distinguish these two 8%
clearly in the book. Furthermore, with regard to invoices issued by companies, a new Qualified Invoice
Preservation Method will be introduced starting on April 1, 2021 in place of the Classified Invoice Preservation
Method. There will be more requirements in issuing invoices and more items to record in the book, andbusinesses need to register as Registered Business Operator. For clients of accounting firms, the consumption tax
reform is not just about revision of the tax rate, but involves various factors including issuing of invoices, changes
in accounting systems, changes in register system, and employee training.
Also, the Electronic Books Software Legal Compliance Certification System by Japan Image and Information
Management Association (JIIMA) began as of September 30, 2019. The process of approval application to the tax
authorities is greatly simplified for users of a certified software. The JIIMA Certification System is a system
under which accounting software vendors ask JIIMA in advance to check whether their commercial software
complies with the requirements of the Electronic Books Maintenance Act of Japan, and JIIMA issues a certificate
for the software that meet such requirements. As such, users who begin using a certified software do not have to– 14 –

provide evidence on whether they meet the function requirements of the Electronic Books Maintenance Act, andcan begin using it only by registering such software.
Meanwhile, under the FY2018 tax reforms, large enterprises with a capital of 100 million yen or greater will bemandated to use electronic filing of income taxes starting from the fiscal year beginning after April 1, 2020. Also
for local taxes, certain corporations including large enterprises with a capital of 100 million yen or greater, mustfile the tax returns and attachments for corporate inhabitant tax and corporate income taxes through an electronic
data processing system. The Company considers such legal and social system reforms as an opportunity todevelop markets and to expand the client base of TKC Members.
(3) Challenges faced by the Accounting Firm BD
The Accounting Firm BD considers contributing to the prosperity of accounting firms and their clients the mostvital business challenge, and will continue to collaborate closely with the TKCNF on the various TKCNF
activities as well as develop and provide systems and services to support the operation of TKC Members.
(i)Increase system competitivenessWe will take the following actions to increase competitiveness of its systems and differentiate ourselves fromother companies by appealing the advantages of our systems.

1) The strengths of the Company’s systems lie in the one-stop, full line of tax affairs and accounting. The
advantage is the capability to provide a one-stop, full line of accounting, tax affairs and electronic tax filing withfully compatible links to related tax information systems while maintaining complete compliance with laws,
regulations and accounting standards in our financial accounting systems. Looking ahead, the Company willcontinue to respond promptly and accurately to revisions of laws/regulations and system modifications, andstrive to enhance these strengths.
2) The most important feature of the Company’s systems is that they are not mere offering of systems and services.
Our systems come with the meticulous support, from implementation to operation, by TKC Members that haveextensive experience in tax- and accounting-related practices, to enable clients to perform legitimate andappropriate tax and accounting.
The Company will provide enhanced support for such TKC Members to assist them in offering greater addedvalue services.
(ii)

Activities to promote the use of self-accounting
In order to support TKCNF achieve their strategic targets, the Company will enhance and expand functions
that support corporate executives’ quick decision making, and carry out promotional activities taking
advantage of the strengths of systems that prevent any retroactive insertions, deletions and corrections which
may lead to falsification of accounting data.

(iii) Support to achieve “Over 10,000 TKC Member Firms”
To achieve TKCNF’s target of achieving over 10,000 TKC Member firms, the Company will solicit
membership in cooperation with TKC Members and contribute to the achievement of TKCNF’s strategic
target.
(iv) Increase of user base of TKC Law Library
The Company will increase the convenience of users by enhancing the functions and contents of LEX/DB
Internet and Publishers’ Database consisting the TKC Law Library. Through such efforts, we aim todifferentiate the TKC Law Library from the services offered by competitors in order to further increase theuse by law firms.

3. Management Policy, Economic Environment and Challenges Faced by the Local Governments Business
Division(1) Management policy, management strategy
The Local Governments BD operates in accordance with the business objectives set forth in the Articles ofIncorporation (Article 2 Item 2: “Management of electronic data processing centers to improve the administrative
efficiency of local governments”) and offers specialized information services in order to help promote the welfareof residents by improving administrative efficiency.
Also, as a medium- to long-term business vision, the Company established a policy to “contribute to theprosperity and development of local communities by improving administrative efficiency, improving resident
services and reducing administrative costs through optimal use of TKC systems, and is now in the process of
executing the strategies to that end.
– 15 –

(2) Economic environment
Informatization of local governments (municipalities, in particular) is at a major turning point. Their new goal is
to become a “smart municipality.” Against the backdrop of labor shortages due to declining birthrate/aging
population and depopulation in the local community, municipalities are facing an important issue of transitioning
to a smart municipality that could provide administrative services in a sustainable manner with half the number ofstaff.
Also on May 31, 2019, the Law for Partial Revision to the Act on Use of Information and Communications
Technology in Administrative Procedure, etc. for the Improvement of Convenience of Related Parties Engaged in
Administrative Procedure Using Information and Communications Technology and for the Promotion of
Simplifying and Streamlining Administrative Operations (“Digital Administrative Procedures Act” for short) was
promulgated, under which policies for the Three Principles of Digitalization (digital first, once-only andconnected one-stop) and Principles of On-line Administrative Procedures were introduced and municipalities are
obliged to make best efforts to conduct administrative procedures on-line.
As such, in promoting smart municipalities, it is critical for administrative procedures to go on-line, and to
improve efficiency of counter services. At the same time, developing an environment that enables one-stop digitalprocessing of back-of-office tasks related to administrative services from reception, assessment, approval tostoring of documents is also an urgent issue. Moreover, because it is inefficient for each municipality to build
these essential systems individually, it is expected that demands for shared use on the cloud (local government
cloud system) will continue to grow more rapidly.
In addition, while governments and municipalities face increasingly serious financial conditions, reform ofadministrative and financial services to increase financial transparency, efficiency and appropriateness willcontinue to gain speed. Thus, it is imperative that municipalities conduct appropriate updates and disclosure offinancial documents based on standardized local public accounting, while incorporating public accounting
information into their daily financial activities and administrative and financial operations, and further utilizing
such information in the budgeting and administrative assessments.
Meanwhile, looking toward the market trends of business vendors supplying for local governments, there has
been some major industry reorganization following the so-called “great merger of municipalities in the Heiseiera,” and since the introduction of the My Number system, more and more vendors are withdrawing from inhouse system development and focusing on specific business areas. Trends seem to imply that the world isshifting to a place where only those system suppliers who have the ability to respond flexibly to the changing
business environment could survive.
(3) Challenges faced by the Local Governments BD
As corporate effort to achieve smart municipalities and digitalization of administrative services, and to support
the reform of administrative and financial services, the Local Governments BD considers providing support for
improving resident convenience and improving the administrative efficiency of local governments a vital businesschallenge, to be achieved through the development and provision of innovative products and services thatleverage the latest in ICT, and will implement the following five priority activities to this end.
(i)

We will develop new municipality customers of mission-critical operational systems and further promote
government cloud systems to propel digitalization of administrative services and minimize costs;(ii)

We will support the realization of evidence-based policy making (EBPM) based on public accounting
information by providing systems that allows analysis of administrative efficiency through multilateral use
of financial data;(iii) We will support the enhancement of convenience of users (governments and residents) throughdissemination and expansion of eLTAX-related services and digitization of tax administration;(iv) We will engage in the development and provision of new, user-oriented administrative service digitization
support systems;(v)

We will establish mutual software product supply relationship with local vendors providing services to local
municipalities in order to promote alliance strategies to achieve expansion of sales area and multiplexing ofservices.

4. Management Policy, Economic Environment and Challenges Faced by the Printing Business Division(1) Management policy, management strategy
The Printing BD operates under the management philosophy to contribute to client companies and theircustomers by securely providing printed materials. To respond to the diversified needs of clients in the highly
advanced information society, from data output to mailing services, the Printing BD offers high added-value
services utilizing the latest equipment and technologies. As a good partner to our clients, we will strive to further– 16 –

improve corporate value through the development of a communication environment where printed materials are
utilized to convey information.
(2) Economic environment
Our key products, data print services (DPS) and business process outsourcing (BPO) continue to grow each year
despite the rise of Internet advertisements and wide-spread digitalization of administrative services. The market islooking upon the creation of a new value called cross-media in which contents are distributed appropriately
among different media including paper and digital. We will offer proposals in view of this trend to improvecustomer satisfaction.
While demands for business forms continue to decline, we will work to expand our shares within the market
through elimination and consolidation of facilities and increase in production efficiency.
(3) Challenges faced by the Printing BD
The Group’s Printing BD implements the following actions to increase sales mainly from data print services(DPS) and business process outsourcing (BPO).
(i)

We will focus on promoting sales of DPS-related products through the acquisition of new customers.

(ii)With the opening of the Kansai Plant and Kansai sales office, we will explore new business opportunities in
the West Japan area to increase sales.

(iii) We will submit proposals combining our analog and digital printing technologies to loyal customers toachieve direct communication with such customers.
(iv) We will handle back-office operations of customers as part of our BPO (business process outsourcing), andcontribute to streamlining the customers’ business operations by enhancing work efficiency and reducing
costs and information security risks while maintaining high quality.
(v)

We will strengthen ties with existing customers to increase market share.

(vi) We will continue to respond to customer needs, submit unique proposals to differentiate ourselves fromcompetitors, and develop new technologies to reduce production costs.
(vii) We will propose strengthening the quality checking systems by mechanizing process of all products, andshortening delivery times by improving manufacturing efficiency in order to increase our market share ofgovernmental and municipal projects.
(viii) We will strive to improve and maintain consistent quality, and enhance our quality inspections of eachprocess for all products to prevent quality defects.
(ix) We will increase self-manufacturing and reduce the percentage of subcontracting in order to save costs.
(x)

We will further strengthen our information security systems based on Privacy Mark and ISMS in order to
win trust from customers and business partners and to ensure My Number management.

(xi) As ISO14001 certified, environmentally-friendly company, we will reduce wasted paper and further put ourefforts into reducing energy consumption through increased productivity and efficiency.

2 [Risk Factors]
Major risks pertaining to the business operations of the Company and the Group, in reference to the sections Business
Overview and Financial Information in this Annual Securities Reports, that we consider are worth informing ourinvestors are described below. It is also our policy to be forthcoming in disclosing information on other risk factorsthat may be deemed material to investors.
The Company is aware of the possibility that these risks may occur and strives to prevent them in advance or respondpromptly should they occur. However, we feel it necessary that investment decisions concerning the Company
securities should be made after thorough review in light of this section and also in reference to the contents of thisentire report. Note that this section does not cover all risk factors related to investment in the Company securities.
Statements with regard to the future are based on the Group’s decision made as of the end of the current consolidated
fiscal year (September 30, 2019).

1. Retirement Benefit Obligations
Retirement benefit obligations and related costs for employees of the Group are recognized based on certain
assumptions (base rates) used in actuarial discount rate calculations. Fluctuation in these base rates may affect thefinancial standing and operating results of the Group. While the Group implements measures to minimize the effectsof such fluctuation, for example, moving parts of the retirement plan to a defined contribution pension management
scheme, the impact of these changes cannot be completely eliminated. Base rate changes may affect the financial– 17 –

standing and operating results of the Group.

2. Decline in Value of Fixed Assets
The Accounting Standard for the Impairment of Fixed Assets has been applicable since the fiscal year started
September 2006 in accordance with the Financial Instruments and Exchange Act of Japan.
The application of fixed asset impairment accounting may affect the financial standing and operating results of theGroup.

3. Fluctuations in Raw Material Procurement Costs for Printing BD
Direct purchasing of base paper from paper manufacturers accounts for the bulk of raw material procurement by the
Printing BD, and the division strives to ensure the stable provision of raw materials and to maintain optimal pricing.
However, there are concerns for possible imbalance in demand and supply due to oil price increases and tighteningof supply and demand in international markets. Should such circumstances prevail, the Group will aim to respondthrough price negotiations with its customers. However, such circumstances may still affect the financial standing
and operating results of the Group in the event the procurement of raw materials becomes extremely difficult, or
when purchase prices rise significantly.

4. Protection of Personal Information
The Group is entrusted with a large amount of information on companies and individuals held by our customers(accounting firms, local governments) as well as internal information for the execution of its business.
In order to ensure that such information is managed properly, the Company will review its policies and procedures
related to information management on an on-going basis, and educate its directors and employees, disseminate theimportance of information management and implement system-based information security measures.
The Company also strengthens its information protection management systems by obtaining accreditations such as
ISO/IEC27001 Information Security Management System (ISMS) and JIS Q 15001 Personal Information Protection
Management Systems (Privacy Mark). TKC Internet Service Center also acquired ISO/IEC27018 certification, astandard specializing in the protecting of personal information in relation to ISMS and public cloud services, andISO/IEC27017 certification for information security controls for cloud services.
However, the potential for such information leaking due to unforeseen circumstances cannot be eliminatedcompletely, and such an event could have negative impacts on the Company’s social standing and may require
enormous costs in response or reduce the brand value which could affect the financial standing and operating resultsof the Group.

5. Contentious Cases
While there are no contentious cases that could affect the financial standing and operating results of the Group, suchcontentious cases could occur in the future.

– 18 –

3 [Management Analysis of Consolidated Financial Conditions, Operating Results, and Cash Flows]I.

Analysis of the Group’s consolidated operating results for the current consolidated fiscal year

1. Operating Results across the GroupThe consolidated Group comprising of TKC Corporation and its six consolidated subsidiaries recorded a net sales of
66,120 million yen (increased 7.3% year-on-year), operating income of 9,347 million yen (increased 7.7% year-onyear), ordinary income of 9,669 million yen (increased 7.9% year-on-year), and current net income attributable toowners of parent of 6,721 million yen (increased 9.1% year-on-year).
The Group’s net sales, operating income, ordinary income and current net income attributable to owners of parent
exceeded the previous fiscal year’s performance with record-breaking figures. This was mainly attributable toincrease in sales from computer services and software sales earned by the Accounting Firm Business Division due toincrease in the number of users of financial accounting systems that meet the requirements of the Electronic Books
Maintenance Act of Japan as well as increase in the number of users of ASP1000R electronic tax filing system forcorporations in response to the electronic filing of income taxes now mandated to large corporations. The Local
Governments Business Division saw increase in sales from computer services resulting from increase in number oforganizations using our mission-critical systems, and increase in sales from consulting services related to system
renewal projects of the Local Taxes Electronic Filing Support Service (eLTAX).

2. Business Activities and Operating Results of the Accounting Firm Business Division(1) Business activities of the Accounting Firm BD
The Accounting Firm BD operates in accordance with the business objectives set forth in the Articles ofIncorporation (Article 2, Paragraph 1: Management of electronic data processing centers to defend the businessdomain and maintain control over the fate of accounting firms) and works under close ties with the TKC National
Federation, which consists of 11,400 certified public tax accountants and certified public accountants (as of
September 30, 2019) that are customers of TKC (hereinafter, “TKC Members”).
TKCNF was established in 1971 and is engaged in various activities in an aim to realize the following six
business objectives:
1) Realize tax justice;2) Conduct tax consultant business on compliance completely;3) Support SMEs for their prosperity and success;4) Enhance managerial infrastructure of TKC Member firms;
5) Make full use of TKC systems;
6) Promote mutual enlightenment, support and friendship.
(Note) For more information on the TKC National Federation, see the booklet “All About TKC National
Federation” or visit the TKC Group website (http://www.tkc.jp/).
[Activities of the TKC National Federation (“TKCNF”)]
TKCNF announced its 3-year activity policy from 2019 to 2021 and strategic targets for FY2019 based on thepolicy agenda in view of its 50th anniversary (in 2021). The content is as follows:[Activity policy to change society with the TKC brand](i)

Promote Shomen-tempu (attachment of tax audit reports) by the TKC methods (FY2019 year-end target:
Corporate Shomen-tempu by 134,000 companies)(ii)

Promote TKC Monitoring Information Service (FY2019 year-end target: 120,000 companies, 240,000
cases)(iii) Promote self-accounting practice by the TKC methods (FY2019 year-end target: 277,000 companies)
In addition, as the initiatives of TKCNF began to draw attention of many financial institutions, the following
policies have been launched to take advantage of this opportunity to enhance the managerial infrastructure of
TKC Member firms.
(i)Understand and practice the Standards of Conduct for TKC Accountants(ii)

Increase the numbers of Field Auditors and Assistant Field Auditors(iii) Enhance the managerial advisory services as a Certified Support Agency– 19 –

[Activities to achieve the strategic goals of the Accounting Firm Business Division]
The Company operates to achieve its strategic targets for FY2019 in collaboration with TKCNF.
(i)

Promotion of TKC Monitoring Information Service
During the fiscal year under review, we established the promotion of TKC Monitoring Information Services
as our Accounting Firm BD’s most important strategic target, and worked towards diffusing the services to
TKC Member firms and financial institutions. TKC Monitoring Information Service is a free cloud-based
service in which the TKC Members, upon request by the management of their clients, provide to financial
institutions such information as monthly trial balance sheets, financial statements and tax returns prepared by
TKC Member firms after monthly field audits and monthly settlements. Monthly trial balance sheets will bemade available immediately upon completion of the monthly settlement, and financial statements and tax
returns are disclosed immediately after the client electronically files its financial documents to the tax
authorities.
We promoted the TKC Monitoring Information Service and at the same time, communicated to financial
institutions that the reliability of financial statements prepared by SMEs can be verified by the following threedocuments:

1) Supporting documents submitted by TKC Members as provided for under Article 33-2 of the Certified
Public Tax Accountant Act of Japan
2) Certificate of Bookkeeping Timeliness, with which TKC Corporation certifies the timeliness in the
preparation of accounting books as required under Article 432 of the Companies Act of Japan and theconnection between the financial statements and tax returns for the past three years3) The Chusho Kaikei Yoryo checklist developed by the Japan Federation of Certified Public Tax Accountants’
Associations and Japan Federation of Credit Guarantee Corporations
As a result of these activities, the number of financial institutions adopting this Service is increasing rapidly,
adopted by 418 financial institutions including all local banks throughout Japan (64 institutions) as of
September 30, 2019. This year, more than 150,000 companies provided their financial information to financial
institutions through this Service.
(ii)

Promotion of self-accounting by the TKC methods (promotion of FX series)
During the current fiscal year under review, the Company provided TKC Member firms with seminars
throughout Japan in order to support compliance with the change of the era name from Heisei to Reiwa, andrevisions to the consumption tax law enforced in October 2019. The Company also provided TKC Member
firms with information on practical issues that require attention in applying the reduced tax rate and complying
with the cashless payment system, and supported them in holding seminars for their clients. We also provide
support for each firm in setting and identifying targets for the promotion of self-accounting and support for
hosting self-accounting promotion meetings to determine specific action plans. As a result of these activities,
the number of FX series users exceeded 270,000 companies as of September 30, 2019.

(iii) Supporting complete compliance with the Electronic Books Maintenance Act of Japan
Under the FY 2018 tax reform, provisions were added in which a tax benefit of 100,000 yen in special
reduction for blue income tax returns shall be offered if the declarer 1) is subject to the Electronic Books
Maintenance Act of Japan for bookkeeping, or 2) files the income tax return electronically. This is agroundbreaking revision that offers favorable tax treatment for business entities that keep the history ofrevisions and deletions to the book record, which serves as basis of tax returns in accordance with theElectronic Books Maintenance Act of Japan. We anticipate that the same treatment will be applied to thefiling of corporate taxes in the future.
Also, the Company became the first among its competitors to acquire the certification under the Electronic
Books Software Legal Compliance Certification System by Japan Image and Information Management
Association (JIIMA) for its FX series and other systems. The system is described under “(3) Acquisition ofcertification for electronic books software legal compliance” in the “5. Important Matters with respect to theCompany as a Whole” section. Through the promotion of the certified FX series, etc., we support complete
compliance with the Electronic Books Maintenance Act of Japan.
(iv) Soliciting new members (promotion of joining TKCNF)
TKCNF is engaged in a project to increase TKC membership to over 10,000 firms by the end of September
2021. The Company is working closely with the New Members Service Committee of TKCNF in soliciting
new members to achieve this goal.
During the fiscal year, we solicited new members through seminars held for non-members targeting mediumand large-sized firms as well as certified public tax accountants and certified public accountants who plan to– 20 –

begin private practice.
As a result of these activities, the number of TKC Members totaled approximately 9,700 accounting firms
and 11,400 accountants as of September 30, 2019. The difference in numbers of firms and accountants arebecause some firms have multiple accountants who are members.
[Activities to “support the preparation of highly reliable financial statements based on timely and accurate
bookkeeping”](i)Support activities for diffusion of Chusho Kaikei Yoryo (Guidelines for SME accounting)
The TKCNF recommends the use of Basic Guidelines with Respect to the Accounting Procedures at Smalland Medium-sized Enterprises (hereinafter, “Chusho Kaikei Yoryo” (Guidelines for SME Accounting))
formulated in February 2012 with which SME clients should comply.
These Guidelines have been formulated based on the following principles: 1) accounting that helps to grasp
the company’s business situation; 2) accounting that contributes to providing information to stakeholders(financial institutions, etc.); 3) accounting that complies with the Ordinance on Company Accounting whileachieving harmony between accounting and taxation system; and 4) accounting that does not place excessive
burden on SMEs.
In order to support the activities of the TKCNF towards the diffusion and utilization of the Guidelines, theCompany continues to promote the development of training materials and to strengthen collaboration withother organizations supporting SMEs.

(ii)

Issuance of Certificate of Bookkeeping Timeliness
The Company utilizes the processing log data and historical time series data that are automatically saved at
the TKC Internet Service Center when TKC Members access our accounting system to issue a Certificate ofBookkeeping Timeliness free of charge. This Certificate serves as reference for financial institutions and otherthird parties to objectively evaluate the business performance of TKC Member firms.
This service was developed in an aim to improve reliability of financial statements and tax returns preparedby TKC Members and to provide a passport for smooth financing to the clients of TKC Members. This utilizes
the features of the Company’s financial accounting processing at TKC data centers, which prohibits any
retroactive insertions, deletions and corrections to past data, and TKC Corporation proves, as a third party,
that TKC Members have visited clients on a monthly basis to provide guidance on accurate bookkeeping(monthly Field Audits), and that all work processes from monthly settlements to the final settlement ofaccounts and electronic tax filings have been completed by a one-stop, full line process in a timely manner.

[Expansion into large-scale enterprise market]
By utilizing the TKC systems, the Company contributes to the compliance and rationalization of tax and accounting
operations of large enterprises, mainly of listed companies, and is actively working to solicit these companies andtheir affiliates to become clients of TKC Members.
As systems to supplement these activities, the Company provide the TKC Consolidated Group Solution package(which includes: the eCA-DRIVER consolidated accounting system, the eConsoliTax consolidated tax payment
system, the eTaxEffect tax effect accounting system, the ASP1000R electronic tax filing system for corporations,
the FX5 integrated accounting information system, the e-TAX series electronic tax filing system, the FAManager
non-current asset management system, the TDS documented evidence storage service, and the OBMonitor overseas
business monitoring system, etc.).
Under the FY2018 tax reforms, large enterprises with a capital of 100 million yen or greater will be mandated touse electronic filing of income tax, local taxes and consumption tax starting April 2020. With this reform, large
sized companies must file their income tax returns electronically, as well as submit any attachments to the tax
returns (financial statements, statement classified by accounting items) in electronic data form. According tostatistics of the National Tax Agency, electronic filing of corporate income tax was conducted by 2,085,431
companies in FY2016. While the percentage of companies using the electronic filing system was 79.3％, only
56.9％ of large sized companies uses electronic tax filings. This means that many of the large enterprises will beusing the electronic filing system for the first time. To enable these companies to switch smoothly to the mandated
electronic filing system, the Company released the Guidebook on Complying with Mandatory Electronic Filing on
the Company’s website and held seminars and offered opportunities to experience electronic tax filing incollaboration with TKCNF’s Medium- and Large-sized Companies Support Council (1,349 members as of
September 30, 2019). We also entered into alliance agreements with four ERP vendors, working on thedevelopment of systems linking to financial statements data. As a result, the number of users of ASP1000R
electronic tax filing system for corporations reached 2,700 companies as of September 30, 2019.

– 21 –

We also hosted seminars on complying with the accounting standard for revenue recognition and dealing with noncompliance risks of foreign subsidiaries to propose system consulting services using our systems and TKC
Members.
As a result of these activities, the number of corporate groups using the TKC Consolidated Group Solution counted
approximately 3,700 corporate groups as of September 30, 2019. Our taxation-related information systems are
adopted by over 88% of the 100 largest Japanese listed companies by sales amount. The market shares among
Japanese listed companies reached 30%.
[Expansion of markets for legal information database services]
The LEX/DB Internet legal information database, developed originally by the Company, maintains an archive ofover 302,000 judicial precedents and decisions as of September 30, 2019, covering all legal fields from precedents,
etc. set in the former Supreme Court dating back to 1875 to those most recently published, being the largest
database of its kind in Japan.
The TKC Law Library is a comprehensive legal information database which uses the LEX/DB Internet as its corecontent and contains over 940,000 bibliographic information references with links to 60 of the legal information
databases operated by 18 specialized legal publishers (including Gyosei Corporation, Nippon Hyoron-Sha Co., Ltd.,
Yuhikaku Publishing Co., Ltd., Chuokeizai-Sha Holdings, Inc., and Hanrei Times Holdings Co., Ltd.) withaccessible number of information now exceeding 2,620,000 items.
(i)Increase of user base of TKC Law Library
The Company engaged in sales promotions for the TKC Law Library, highlighting its usefulness in business
operations and putting the contents that are useful for business practices into customer-specific packages (Law
Firm Package for law firms, Corporate Legal Package for corporate legal departments).
In the current fiscal year, as a result of active promotional activities towards TKC Member firms, universities,
law schools, government offices, law firms, patent offices and corporate legal departments, the number ofusers exceeded 50,000 IDs and the Library is used by over 21,000 institutions as of September 30, 2019.

(ii)

Promotion in the academic market
The Company proposes the implementation of system-based early learning support programs to 54 law
schools using the TKC Law School Education and Research Support System and supports such schools inapplying for the Public Support Program for Law Schools Concerning the Revision of Budget Distribution
initiative by the Ministry of Education, Culture, Sports, Science and Technology.
Also, starting this fiscal year, we made a full-scale launch of the promotional activities for Civil Service
Examination Study Tool for undergraduates and concluded contracts with 25 universities as of September 30,
2019. The Company will continue to expand the number of monitor user universities and promote switching
to full use.

(2) Analysis of Accounting Firm BD’s operating results
Net sales of the Accounting Firm BD was 45,899 million yen (increased 4.8% year-on-year); operating income
was 8,725 million yen (increased 2.6% year-on-year).
(i)

Sales from computer services increased by 4.1% year-on-year. This was attributable to the growth innumber of users of the FX4 Cloud Integrated Accounting Information System for mid-sized companies,
Office Management System (OMS Cloud) for Tax Accounting Firms, and OMS Mobile which allows
accounting firms to access and perform works using the OMS from outside the office with a highly secureenvironment.

(ii)

Software sales increased by 3.1% year-on-year. As described above, this is the result of increase in thenumber of users of financial accounting systems that meet the requirements of the Electronic Books
Maintenance Act of Japan as well as increase in the number of users of our electronic tax filing system forcorporations (ASP1000R) in response to the electronic filing of income taxes now mandated to large
corporations.

(iii) Sales from consulting services decreased 3.0% year-on-year. This was due to decrease in revenues fromconventional client/server system launch support services and hardware maintenance as a result of growth in
the number of users of FX4 Cloud, OMS Cloud and other systems.
(iv) Hardware sales increased by 15.9% year-on-year. This was caused by increasing demands for PC
replacements prior to the consumption tax hike and in response to the scheduled termination of Windows 7
support in January 2020.

– 22 –

3. Business Activities and Operating Results of the Local Governments Business Division(1) Business activities of the Local Governments BD
The Local Governments BD operates in accordance with the business objectives set forth in the Articles ofIncorporation (Article 2 Item 2: “Management of electronic data processing centers to improve the administrative
efficiency of local governments”) and offers specialized information services in order to help promote the welfareof residents by improving administrative efficiency.
(i)

Development and provision of mission-critical system-related services
The Japanese government is accelerating its actions to promote the implementation of cloud systems, setting
a target to have approximately 1,600 institutions using cloud (of which, approximately 1,100 institutions to
be users of local government cloud systems) by the end of 2023.
The Company provides TKC Government Cloud Service to local governments (mainly for municipalities)
nationwide. This Cloud Service consists of the TASK Cloud Service which supports mission-critical functions
and information services within agencies, and the TASK Outsourcing Service which supports massive batch
output and processing of tax papers and other documents.
In particular, the TASK Cloud Service is a common platform package system operated at TKC data centersthat allows the shared use of cloud across Japan, attracting attention from the perspective of a local
government cloud system promoted by the Ministry of Internal Affairs and Communications, and is adopted
by eight groups for shared use.
In the current fiscal year, we supported municipalities that newly implemented our services and are scheduled
for a full-scale launch after autumn of 2019 in enabling smooth system transition, while enhancing thefunctions of various systems, including compliance with the change of the era name and revisions to theconsumption tax law. As a result of the aggressive promotional activities, our mission-critical systems are
adopted by over 150 municipalities nationwide as of September 30, 2019.

(ii)

Expansion of cloud services for residents
To promote the utilization of My Number Cards, there has been an increase in the number of municipalities
introducing or considering adopting the services of Issuance of Certificates at Convenience Store.
In response, the Company provides the TASK Cloud Convenience Store Certificate Issuing System as thesystem to realize this service. The System has an extensive track record as the first cloud service formunicipalities across Japan and has been adopted in over 100 agencies nationwide including government
ordinance-designated cities such as Kobe and Kitakyushu as of September 30, 2019.
The TASK Cloud Easy Counter Service System that uses the features of the System is attracting greaterattention from the perspective of enhanced resident services and counter service reforms, and is adopted byapproximately 10 municipalities as of September 30, 2019.
In the current fiscal year, we worked to enhance the functions of the Easy Counter Service System andconducted active promotional activities for the Convenience Store Certificate Issuing System.

(iii) Support for cloud-based electronic filing of local taxes
The Company is an authorized contractor of the Local Tax Agency, and provides a cloud-based service forthe standard systems such as inspection system for eLTAX (local tax portal system) offered by the Agency.
We also develop and provide Data Connection Services as our own functionality to connect the individual tax
systems with the Agency’s platform.
These services are proposed in collaboration with 50 partner companies nationwide with whom we have ongoing alliance partner agreements. As a result, the TASK Cloud Local Taxes Electronic Filing Support
Service is currently used by more than 770 agencies which account for more than 40% of all prefectures andmunicipalities as of September 30, 2019.
In the current fiscal year, we supported the preparation to implement the Common Tax Payment System for
Local Taxes launched nationwide in October 2019, and engaged in the enhancement of functionalities andactive promotional activities for data connection services.
(iv) Support for the development of standardized local public accounting
Municipalities are required to adopt the system of accrual basis accounting (double entry bookkeeping) toreplace the current cash basis accounting (single entry bookkeeping), and to prepare and disclose theirfinancial documents as well as to utilize such data for administrative operations.
In order to support this, the Company provides the TASK Cloud Public Accounting System, which is– 23 –

compatible with the daily journalizing method encouraged by the Japanese government, and its related
systems TASK Cloud Non-current Assets Control System and TASK Cloud Consolidated Financial
Statement Preparing System.
In the current fiscal year, the Company provided support for the preparation of transitional procedures to 13
municipalities undergoing transition of their financial accounting systems starting October 2019 (scheduledto switch in sequence over the next two years), ahead of the 51 agencies (7 cities, 26 towns, 4 villages, and14 partial-affairs associations) that are members of the Kagoshima Prefecture Municipal Association,
Kumamoto Prefecture Municipal Association, Nagasaki Prefecture Municipal Administration Promotion
Council, and Kyoto Prefecture Municipal Information Promotion Council. We also engaged in thedevelopment and enhancement of various functions to support the visualization and utilization of local public
accounting. As a result of the aggressive promotional activities, our public accounting systems are adopted
by approximately 250 agencies as of September 30, 2019.
(v)

Support for digitalization of administrative services
In May 2019, the Law for Partial Revision to the Act on Use of Information and Communications Technology
in Administrative Procedure, etc. for the Improvement of Convenience of Related Parties Engaged in
Administrative Procedure Using Information and Communications Technology and for the Promotion of
Simplifying and Streamlining Administrative Operations (Digital Administrative Procedures Act) was
enacted, which allows all administrative procedures in general to be conducted on-line.
The Company has been working to further accelerate the planning and development of new products andservices as well as to strengthen customer support including the collection and communication of the latest
information. In the current fiscal year, our sales, development and operation divisions collaborated under theleadership of the System Planning Department in gathering and communicating information related to thedigitalization of administrative services, as well as conducting surveys, research and development of the
TASK Cloud My Number Card Issuance Administrative Support System and other systems of support for
digitalization of administrative services which support efforts of improving resident services and improving
administrative efficiency and standardization.

(2) Analysis of Local Governments BD’s operating results
Net sales of the Local Governments BD was 16,413 million yen (increased 16.3% year-on-year); operating
income was 425 million yen (increased 422 million yen year-on-year).
The major improvement in operating income over the previous fiscal year was due to absence of purchases suchas outsourcing of development tasks in relation to system transition projects of new municipalities that wereclosed during the previous fiscal year, and from orders for implementation tasks for system renewal projects of
the Local Taxes Electronic Filing Support Service (eLTAX).
(i)

Sales from computer services increased by 10.5% year-on-year. This was driven by outsourcing services
contracts with users of mission-critical systems newly ordered in the previous fiscal year, increased use of
TKC data centers, and the increase in the number of users of LGWAN cloud services such as theConvenience Store Certificate Issuing System and the Taxation Document Image Management System.

(ii)

Software sales decreased 8.9% year-on-year. This was due to the absence of sales from system revision
works in response to legal amendments such as amendments to the My Number, National Health Insurance
and long-term care insurance systems which existed in the previous fiscal year.

(iii) Sales from consulting services increased 97.0% year-on-year. This was attributable to new orders for system
implementation to mission-critical system users won during the first half, as well as orders for system
renewal projects of the Local Taxes Electronic Filing Support Service (eLTAX) and implementation ofCommon Tax Payment System for Local Taxes.
(iv) Hardware sales increased by 55.4% year-on-year. This was derived from increase in the sales of servers andnetwork devices in relation to the renewal of Registration Network System-related devices.

4. Business Activities and Operating Results of the Printing Business Division(1) Business activities of the Printing Business BD
The Group’s Printing BD operates with the main focus on data print services (DPS) and business form printing.
In the area of DPS, while orders for promotional direct mail productions for private enterprises tend to be insmaller lots, we worked to expand orders by proposing technologies for both offset printing and digital variabledata output. For governmental organizations and municipalities, we provided specifications of machines andequipment prior to the bidding process in an aim to ensure the protection of personally identifiable information
and accuracy for the service users as well as to provide enhanced services in shorter lead-time. In the area of
business form printing, we strived to increase productivity and promote plans for high value-added products.
– 24 –

(2) Analysis of Printing Business BD’s operating results(i)

Net sales of the Printing BD was 3,808 million yen (increased 2.2% year-on-year); operating income was
189 million yen (increased 12.4% year-on-year).

(ii)

Sales of data printing service (DPS) related products increased by 10.3% year-on-year. This was attributable
to winning of greater orders for direct mail productions from private enterprises, stable orders for businessprocess outsourcing projects, orders related to nationwide local elections in April, orders related to theUpper House election in July, orders for notice-related services from municipalities, and orders for noticerelated services from extra-governmental organizations.

(iii) Business form-related sales decreased by 1.1% year-on-year. This is due to ongoing decline in demands forbusiness forms in recent years.

5. Important Matters with Respect to the Company as a Whole(1) Establishment of a Nomination and Compensation Advisory Committee
In September 2019, the Company established a voluntary Nomination and Compensation Advisory Committee
consisting of Outside Directors and Directors of the Company. Functioning as an advisory body to the Board of
Directors, the Committee aims to further enhance the corporate governance system by ensuring that independent
Outside Directors etc. are given the opportunity to engage in and provide advice on the decision-making
pertaining to the appointment and dismissal of Directors, etc., nomination of candidates and determination ofcompensation for Directors, etc., and by strengthening the independence, objectivity, and accountability of theBoard of Directors.
(2) Acquisition of 100% ownership of TKC Shuppan Corporation as wholly-owned subsidiary
On September 24, 2019, the Company conducted a share exchange and acquired 100% ownership of its affiliatedcompany, TKC Shuppan Corporation as its wholly-owned subsidiary. TKC Shuppan Corporation was establishedin 1972 for the purpose of engaging in the public relations and publishing activities in order to communicate
information to TKC Members and contribute to the rationalization of operations of Member firms andimprovement of trust by clients. The Company expects that, by making TKC Shuppan Corporation its wholly
owned subsidiary, it can leverage TKC Shuppan’s accumulated publishing know-how, and combining them with
the Company’s business activities and projects, greatly enhance public relations and publishing activities.
(3) Acquisition of certification for electronic books software legal compliance
On March 29, 2019, the Company became the first among its competitors to acquire the certification under theElectronic Books Software Legal Compliance Certification System by Japan Image and Information Management
Association (JIIMA) for its financial accounting systems (FX2, FX4 Cloud, e21-Meister, etc.) that are offered tothe clients of accounting firms. This Electronic Books Software Legal Compliance Certification System is asystem under which JIIMA checks whether a commercial software for the bookkeeping and recording for national
taxes complies with the requirements of the Electronic Books Maintenance Act of Japan, and issues a certificate
for those that meet the legal requirements. Certified financial accounting systems are listed in the National Tax
Agency’s website.
Companies that wish to use the electronic book maintenance system must apply to the local tax authorities.
Conventionally, when applying for electronic books, companies had to declare that the financial accounting
systems used by the company comply with the requirements of the Electronic Books Maintenance Act. Under the
FY2019 Tax Reforms, companies that use a financial accounting system certified by JIIMA no longer have to
make this declaration, reducing the amount of application documents for electronic books by half.
Today, while many financial accounting systems are used by companies in Japan, only a few of them are in total
compliance with the Electronic Books Maintenance Act of Japan. The Company considers business entities as
taxpayers, and designs its financial accounting systems to comply with the blue income tax return system. We
anticipate that our systems will draw greater attention looking forward.
(4) Acquisition of patent for internal audit support functions of Overseas Business Monitor
On January 11, 2019, the Company acquired a patent (Patent No. 6463532) for the internal audit support
functions of the Overseas Business Monitor (hereinafter, “OBM”).
OBM is a cloud-based service that enables parent companies in Japan to monitor the business results of theJapanese affiliated companies operating abroad (overseas subsidiaries). When an overseas subsidiary extracts its
accounting data from the accounting system and uploads it to TISC (the TKC Internet Service Center), the parent
company in Japan can check the business results of that overseas subsidiary which are automatically translated
from the local language into Japanese or English under standardized account titles.

– 25 –

Furthermore, the OBM is equipped with internal audit support functions that automatically analyzes theaccounting data and extracts transactions that appear to be mistaken or falsified. These functions were granted apatent as an invention related to the “Internal Audit Support Device, Internal Audit Support Method, and Internal
Audit Support Program.”(5) Transfer of shares without charge by the Chairman Emeritus of the Company to TKC Members
In March 2019, Masaharu Iizuka, Chairman Emeritus, transferred without charge, the common shares of theCompany owned by himself to 222 TKC Members who practice Shomen-tempu (attachment of tax audit reports)
pursuant to Article 33-2 of the Certified Public Tax Accountant Act of Japan. This transfer without charge will be
conducted for five years from March 2018 to March 2022, transferring up to one million shares of the Company.
This was the second transfer following last year’s transfer.
Masaharu Iizuka, together with his brother late Kazuaki Iizuka (former vice president of the Company), had alsotransferred a total of three million shares of the Company owned in person to 6,657 TKC Members in 2006.

6. Analysis of the Group’s Consolidated Financial Conditions for the Current Consolidated Fiscal Year
(1) Assets
Total assets as of the end of the current consolidated fiscal year amounted to 96,989 million yen, a 6,787 million
yen increase compared to 90,202 million yen as of end of the previous consolidated fiscal year.
(i)

Current assets
Current assets as of the end of the current consolidated fiscal year amounted to 41,073 million yen, a 9,325
million yen increase from 31,747 million yen as of end of the previous consolidated fiscal year.
This was mainly attributable to 7,541 million yen increase in cash and deposits, and 1,064 million yen increasein notes and accounts receivable.

(ii)

Non-current assets
Non-current assets as of the end of the current consolidated fiscal year amounted to 55,915 million yen, a2,538 million yen decrease compared to 58,454 million yen as of end of the previous consolidated fiscal year.
This was mainly due to 8,499 million yen decrease in investment securities, despite a 3,500 million yen
increase in long-term deposits, 1,803 million yen increase in deferred tax assets, and a 682 million yen
increase in long-term lease investment assets.

(2) Liabilities
Total liabilities as of the end of the current consolidated fiscal year amounted to 23,868 million yen, a 6,217
million yen increase compared to 17,651 million yen as of end of the previous consolidated fiscal year.
(i)

Current liabilities
Current liabilities as of the end of the current consolidated fiscal year amounted to 16,278 million yen, a 2,322
million yen increase from 13,955 million yen as of end of the previous consolidated fiscal year.
This was mainly due to a 761 million yen increase in income taxes payable, 430 million yen increase inprovisions for bonuses, and 331 million yen increase in advances received included in Other.

(ii)

Non-current liabilities
Non-current liabilities as of the end of the current consolidated fiscal year amounted to 7,590 million yen, a
3,894 million yen increase from 3,696 million yen as of end of the previous consolidated fiscal year.
This was mainly attributable to 2,728 million yen increase in net defined benefit liability and 756 million yen
increase in lease obligations.

(3) Net assets
Total net assets as of the end of the current consolidated fiscal year amounted to 73,121 million yen, a 570 million
yen increase compared to 72,550 million yen as of end of the previous consolidated fiscal year.
This was mainly attributable to a 1,704 million yen decrease in remeasurements of defined benefit plans, 1,001
million yen decrease in valuation difference on available-for-sale securities, and 235 million yen decrease insubscription rights to shares, despite a 3,816 million yen increase in retained earnings.
Capital-to-asset ratio as of the end of the current consolidated fiscal year was 73.8%, a 4.7 point decrease
compared to the ratio of 78.6% as of the end of the previous consolidated fiscal year.

– 26 –

7. Analysis of the Group’s Cash Flows for the Current Consolidated Fiscal YearThe balance of cash and cash equivalents as of the end of the current consolidated fiscal year increased by 7,541
million yen from the end of the previous consolidated fiscal year amounting to 26,810 million yen.
The overview of cash flows for the current fiscal year and major factors contributing to the results are as follows:(1) Cash flows from operating activities
Cash flows from operating activities increased by 10,550 million yen (1,740 million yen increase in revenue yearon-year). Major factors include the recognition of 10,004 million yen in net income before taxes and adjustments.
(2) Cash flows from investing activities
Cash flows from investing activities increased by 411 million yen (4,424 million yen decrease in spending yearon-year). Major factors include the payment of 6,500 million yen into time deposits, and payment of 3,001
million yen for the acquisition of investment securities, while there was 10,000 million yen proceeds fromredemption of investment securities.
(3) Cash flows from financing activities
Cash flows from financing activities decreased by 3,792 million yen (1,224 million yen increase in spending yearon-year). Major factors include payment of 2,900 million yen for year-end dividends as of end of September 2018
and interim dividends for the term ended September 2019, and payment of 1,387 million yen for the acquisitionof treasury stock.

– 27 –

II. Production, Orders Received and Sales
1. Production
Not applicable.

2. Orders Received
Not applicable.

3. Sales Results
Sales results by segment for the current consolidated fiscal year were as follows:
Name of segment

Amount (millions of yen)

Year-on-year rate (%)

Accounting Firm BD

45,899104.8

Local Governments BD

16,413

116.3

Printing BD

3,808

102.2

66,120

107.3

Total
(Notes) 1. Transactions between segments have been offset.
2. Figures shown do not include consumption taxes.

III. Analysis and Discussions on Operating Results, etc. from Management’s Perspective
1. Important Accounting Policies and Estimates
The Group’s consolidated financial statements have been prepared in accordance with accounting standards that are
generally accepted as fair and appropriate in Japan. The preparation of the consolidated financial statements requires
our management to select and apply the accounting policies, and make estimates that affect the reported amounts
and disclosure of assets and liabilities, and revenue and expenses. While management has used reasonable
judgments based on historical performance and current conditions in making these estimates, there are specificuncertainties in estimates that could cause actual results to differ from such estimates. Details of importantaccounting policies adopted in preparing the Group’s consolidated financial statements are described in the Notes toConsolidated Financial Statements (Basis of Presenting the Consolidated Financial Statements) under Part 5[Financial Information] 1. Consolidated Financial Statements, (1) Consolidated Financial Statements.

2. Factors Having Material Impacts on the Group’s Operating Results
Refer to 2 [Risk Factors].

3. The Group’s Capital Resources and Liquidity of Funds
In strengthening the Group’s management to achieve sustainable growth of its corporate value, the Group makes it abasic policy to fund its business operation primarily by its own capital. Under this policy, we believe that we holdadequate cash-on-hand to maintain our business operation and to ensure a sufficient level of liquidity.
With the rapid advancement of information and communication technology (ICT) and major changes in social
systems, we strive to make advance investments in research and development efforts and to actively pursue othercapital investments to respond quickly to the changing market environment and achieve competitive advantage tolead our customers’ business to success.

4. Objective Indicators to Measure the Status of Achievement of the Group’s Management Policy, Management
Strategy, and Management Goals
The Company maintains the principle of attributing the source of dividend for each fiscal year to the profit earned in
the same fiscal year, on the premise of a company as going concern. Based on this policy, we establish and manage
the following items as important management indicators:(i)Management indicators based on consolidated figures
1) Year-on-year sales ratio: 3% or greater
2) Return on equity: 8% or greater– 28 –

(ii)Management indicators based on non-consolidated figures
1) Equity ratio: 80% or greater
2) Recurring profit margin: 8% or greater3) Total marginal profit ratio: 60% or greater* Marginal profit is the amount derived by deducting the costs that change in proportion to sales (variable costs) fromthe amount of sales. Marginal profit will vary depending on product mix. Total marginal profit ratio means the ratioof the amount of this marginal profit in relation to the amount of sales.
In such situation, the consolidated year-on-year sales ratio of the current fiscal year under review was 7.3% (anincrease of 4.1 points year-on-year), and consolidated return on equity was 9.4% (an increase of 0.5 points year-onyear).
The non-consolidated equity ratio was 80.1% (a decrease of 2.8 points year-on-year), non-consolidated recurring
profit margin was 14.7% (a decrease of 0.4 points year-on-year), and non-consolidated total marginal profit ratio
was 73.1％ (a decrease of 0.9 points year-on-year).
In order to maintain the high level of performance, we will work to improve the Company’s earnings structure andcapital efficiency.

4 [Material Agreements, etc.]
None to be disclosed.

5 [Research and Development Activities]
There were no research and development expenses spent by the TKC Group during the current consolidated fiscal
year.
There are no significant changes in the status of research and development activities of the TKC Group during thecurrent consolidated fiscal year.

– 29 –

Part 3 [Property, Plant and Equipment]
1 [Summary of Capital Investments]
The Group (the Company and its consolidated subsidiaries) makes capital investments on an ongoing basis in both
software development and information processing services.
Capital investments (including intangible assets and adjustments) of 4,438 million yen were made in the current
consolidated fiscal year.
(1) Accounting Firm Business Division
Capital investment of 1,515 million yen was made for reinforcement of the common cloud infrastructure toenhance the cloud environment for the Company’s systems, and in the development of software for sale.
(2) Local Governments Business Division
Capital investment of 1,450 million yen was made for the development of software to provide services over the
cloud system.
(3) Printing Business Division
Capital investment of 1,472 million yen was made for the purchase of ink-jet printing machines at the Kansai
Plant and expansion of plants.

2 [Major Property, Plant and Equipment](1) The Company
As of September 30, 2019
Book values (millions of yen)
Name of office(Address)

Name ofsegment

Facilities

TKC Tochigi Head Office
TKC Systems Development
Research Center
TKC Internet Service Center(TISC)TKC Tochigi Consolidated
Information Center(Utsunomiya-shi, Tochigi,etc.)*1, *2

Accounting
Firm BD
Local
Governments
BD

Development
facilities
Information
communication
servicefacilities
Information
processing
facilities

5,749

TKC Tokyo Head Office
TKC Systems Development
Research Center Tokyo Branch(Shinjuku-ku, Tokyo, etc.)

Accounting
Firm BD
Local
Governments
BD

Office facilities

TKC Tokyo Consolidated
Information Center(Nerima-ku, Tokyo)

Accounting
Firm BDTKC Chubu Consolidated
Information Center(Kasugai-shi, Aichi)
TKC Kansai Consolidated
Information Center(Ibaraki-shi, Osaka)
TKC Chushikoku Consolidated
Information Center(Kita-ku, Okayama-shi,
Okayama)
TKC Kyushu Consolidated
Information Center(Koga-shi, Fukuoka)
TKC Hokkaido Consolidated
Information Center
TKC Hokkaido SCG Service
Center(Chuo-ku, Sapporo-shi,
Hokkaido)
TKC Tohoku Consolidated
Information Center
TKC Tohoku SCG Service
Center(Aoba-ku, Sendai-shi, Miyagi)

Buildings&
structures

Machinery,equipment& vehicles

No. ofemployees(No. ofpeople)Land(Area in m2)

Tools,
furniture &fixtures

Other

Total

0

2,694
(29,365.21)

1,083

3,154

12,682

1,139

100

－

－

51

－

151

363

Information
processing
facilities

204

－

2,224
(1,447.44)

121

－

2,550

21

Accounting
Firm BD

Information
processing
facilities

46

－

196
(3,017.47)

73

－

316

18

Accounting
Firm BD
Local
Governments
BD

Information
processing
facilities
Office facilities

497

－

286
(1,808.03)

74

－

858

35

Accounting
Firm BD

Information
processing
facilities

15

－

－

72

－

88

11

Accounting
Firm BD

Information
processing
facilities

159

－

203
(2,341.48)

52

－

415

12

Accounting
Firm BD

Information
processing
facilities

20

－

－

5

－

26

32

Accounting
Firm BD

Information
processing
facilities

6

－

－

3

－

9

28

– 30 –

As of September 30, 2019
Book values (millions of yen)
Name of office(Address)

Machinery,equipment& vehicles

Name ofsegment

Facilities

Accounting
Firm BD

Information
processing
facilities

4－

Accounting
Firm BD

Information
processing
facilities

4

TKC Ibaraki SCG Service
Center(Tsukuba-shi, Ibaraki)

Accounting
Firm BD
Local
Governments
BD

Office facilities

TKC Yamaguchi SCG Service
Center(Yamaguchi-shi, Yamaguchi)

Accounting
Firm BD

Dormitories, company housing(Utsunomiya-shi, Tochigi)

Accounting
Firm BD
Local
GovernmentsBD

TKC Okinawa Consolidated
Information Center
TKC Okinawa SCG Service
Center(Naha-shi, Okinawa)
TKC Okinawa Consolidated
Information Center
TKC Okinawa SCG Service
Center(Naha-shi, Okinawa)

Buildings&
structures

No. ofemployees(No. ofpeople)Tools,
furniture &fixtures

Other

Total

－

7

－

12

9

－

－

7

－

12

9

25

－

147
(1,120.00)

1

－

173

21

Office facilities

19

－

197
(814.00)

0

－

217

6

Welfarefacilities

221

－

391

2

－

615

－

– 31 –

Land(Area in m2)

(2) Domestic subsidiaries
As of September 30, 2019
Book values (millions of yen)Company nameName of office(Address)

TLP
Corporation

Hanyu Plant(Hanyu-shi,
Saitama)

TLP
Corporation

Name ofsegment

Facilities

Printing BD

Printing BD

No. ofemployees(No. ofpeople)Buildings&
structures

Machinery,equipment& vehicles

Land(Area inm2)

Tools,
furniture &fixtures

Other

Total

Printing facilities

61

215

145
(7,275.17)

4

11

439

62

Printing facilities

1,088

168

110
(5,776.00)

33

349

1,749

53

DPS Solutions
Center(Hanyu-shi,
Saitama)(Notes) 1. The figures above do not include consumption taxes.
2. The status of equipment and facilities held by consolidated companies other than those described above aresmall in scale and have been omitted.
3. The “Other” field under book value represents leased assets and software (including work in progress).
4. *1 includes some of the welfare facilities.
*2 includes 1,478 million yen for leased buildings and 80 million yen for leased tools, furniture &fixtures, which are leased to our subsidiary TKC Customer Support Service Co., Ltd.
5. Major leased facilities and equipment other than those described above are as follows.
(The Company)
Annual office rent
701 million yen

3 [Plans for Establishments and Disposals of Property, Plant and Equipment]
Capital investments of the Group are planned based on comprehensive review of economic forecast, industry trends,
investment efficiencies and other factors.
While, in principle, capital projects are formulated individually by each consolidated company, the Company takes
initiative in making Group-wide adjustments.
There are no plans for the establishment or disposal of major facilities and equipment as of the end of the current
consolidated fiscal year (September 30, 2019), except for routine updates of facilities and equipment and disposals
and/or sales related thereto.

– 32 –

Part 4 [Information on the Company]
1 [Information on the Company’s Stock](1) [Total Number of Shares, etc.](i)[Total number of shares]
Class

(ii)

Total number of shares authorized to be issued (shares)

Common stock

60,000,000

Total

60,000,000[Issued shares]
Name of stock
Number of shares issued as
Number of shares issued as exchange on which theof end of current fiscal yearof the filing date (shares) Company is listed, or(shares)name of Authorized
December 23, 2019
Financial Instruments(September 30, 2019)
Firms Association

Class

Common stock

26,731,033

26,731,033

Total

26,731,033

26,731,033

First Section of the

Description

Number of shares consisting

Tokyo Stock Exchange

a unit: 100 shares－－(2) [Information on Share Subscription Rights](i)[Stock option scheme]
None to be disclosed.

(Note) With the introduction of the stock-based compensation plan (BIP Trust), the Directors (excluding Outside
Directors) and Auditors (excluding Outside Auditors) of the Company waived their subscription rights toshares that were granted as stock options, and points equivalent to the number of shares subject to thewaived subscription rights will be granted under the new stock-based compensation plan (BIP Trust) as
special measures to be taken for the transition from the stock-based compensation stock option scheme.
The content of the new stock-based compensation plan is also described under (8) [Information on
Employee Stock Ownership Plan].
(ii)[Rights Plan]
None to be disclosed.

(iii) [Information on other share subscription rights]
None to be disclosed.

(3) [Exercise of Bonds with Share Subscription Rights Containing a Clause for Exercise Price Adjustment]
None to be disclosed.

(4) [Changes in Total Number of Issued Shares, Capital Stocks, etc.]

Date
November 30, 2009
(Note)

Increase or
Increase or
Balance of total
Balance of capital
Increase or
decrease in total
decrease inBalance of
number of issued
stock
decrease in
number of issued
capital stock
capital reserve
sharescapital reserve
shares(millions of yen)(shares)(millions of yen) (millions of yen)(shares)(millions of yen)
(1,185,800)

26,731,033－(Note) Decrease caused by cancellation of treasury stock.

– 33 –

5,700

－

5,409

(5) [Shareholders Composition]
As of September 30, 2019
Status of shares (100 shares in one unit of shares)
Classification

Number ofshares lessthan oneunit(shares)

Government&
municipalities

Financial
institutions

Financial
instruments
business
operators

－

34

28

113

150

2

7,607

7,934

－

－

88,834

1,941

66,09136,6042

73,047

266,519

79,133

－

33.3

0.7

24.8

13.7

0.0

27.4

100.0

－

Number ofshareholders
Number ofshares held
(share units)
Percentage ofshares held
(%)

Other
corporatebodiesForeign corporate bodies, etc.
Nonindividuals

Individuals

Other
individuals

Total(Notes) 1. Of the 257,086 shares held as treasury stock, 2,570 share units are included in “Other individuals” and 86
shares are included in “Number of shares less than one unit.”
2. Of the shares registered under the name of Japan Securities Depository Center, Inc., 6 units are included in“Other corporate bodies” and 87 shares are included in “Number of shares less than one unit.”
3. The “Financial Institutions” column includes 1,905 units of the Company’s stocks owned by the BIP Trust.

(6) [Major Shareholders]
As of September 30, 2019

Names of shareholders

Address

Percentage ofshares held to total
Number of shares heldnumber of issued(hundreds of shares)
shares (excluding
treasury stock) (%)

Iizuka Takeshi ScholarshipFoundation

1758 Tsurutamachi, Utsunomiya-shi, Tochigi

37,53014.2

Daido Life Insurance Company

1-2-1 Edobori, Nishi-ku, Osaka-shi, Osaka

25,690

9.7

2-1 Ageba-cho, Shinjuku-ku, Tokyo

15,5195.93-45-13 Minamidai, Nakano-ku, Tokyo

15,4655.8

2-11-3 Hamamatsucho, Minato-ku, Tokyo

11,823

4.5

50 Bank Street, Canary Wharf, London E14
5NT, UK(3-11-1 Nihonbashi, Chuo-ku, Tokyo)

10,594

4.0

Utsunomiya-shi, Tochigi

8,598

3.2

1-8-11 Harumi, Chuo-ku, Tokyo

7,792

2.9

1-2-1 Marunouchi, Chiyoda-ku, Tokyo

6,664

2.5

1-28-1 Ebisu, Shibuya-ku, Tokyo

5,983

2.3

1-26-1 Nishishinjuku, Shinjuku-ku, Tokyo

5,983

2.3

151,643

57.3

TKC Employee Shareholding
Association
Sozeishiryokan (Institute of Tax
Research and Literature)
The Master Trust Bank of Japan,
Ltd. (Trust account)
NORTHERN TRUST CO. (AVFC)
RE FIDELITY FUNDS(Standing proxy: The Hong Kong &Shanghai Banking Corporation,
Tokyo Branch)
Masaharu Iizuka
Japan Trustee Services Bank, Ltd.
(Trust account)
Tokio Marine & Nichido Fire
Insurance Co., Ltd.
Aioi Nissay Dowa Insurance Co.,Ltd.
Sompo Japan Nipponkoa Insurance
Inc.
Total

－

(Note) The 190,500 shares of the Company held by the BIP Trust are not included in the treasury stocks to be
deducted in calculating the percentage of shares held to the total number of issued shares.

– 34 –

(7) [Status of Voting Rights]
1) [Shares issued]
Classification

As of September 30, 2019
Number of voting rights
Description(units)Number of shares (shares)

Shares without voting right

－

－

－

Shares with restricted voting right (treasury
stock, etc.)

－

－

－

Shares with restricted voting right (others)

－

－

－

Shares with full voting right (treasury stock,etc.)

Common stock

257,000－－

Shares with full voting right (others)

Common stock

26,394,900

263,949－

Shares less than one share unit

Common stock

79,133－－

26,731,033

－

－

－

263,949－

Total number of shares issued
Total voting rights held by all shareholders(Note) Shares with full voting right (others) includes 600 shares (6 units of voting rights) registered in the name ofJapan Securities Depository Center, Inc., and 190,500 shares (1,905 units of voting rights) owned by the BIP
Trust.
(ii)[Treasury stock, etc.]
As of September 30, 2019
Percentage ofTotal shares held
shares held to the(shares)
total number ofissued shares (%)

Number of shares
held under own
name (shares)

Number of shares
held under othernames (shares)

1758 Tsurutamachi,
Utsunomiya-shi,
Tochigi

257,000－

257,000

0.96－

257,000－

257,000

0.96

Name ofshareholder

Address of shareholder

TKC Corporation
Total(Note) In addition to the above, the 190,500 shares owned by the BIP Trust are recorded as treasury stocks in thequarterly consolidated financial statements.

– 35 –

(8) [Information on Employee Stock Ownership Plan]
The Company introduced this Plan with the objectives to clarify the linkage between the Company’s
shareholder value and the compensation for directors (excluding outside directors and expatriates), executive
officers (excluding expatriates), and auditors (excluding outside directors and expatriates) (hereinafter referred
to collectively as “Directors, etc.”), and to motivate Directors to contribute more to enhancing the medium- tolong-term corporate value by sharing common interest with shareholders, including not only the merit derived
from the rising share price, but also the risk associated with the decline in share price. The introduction of thePlan was approved by resolution at the 52nd Ordinary General Meeting of Shareholders held on December 21,
2018.
(i)

Description of the Plan
The Plan uses a structure called Board Incentive Plant trust (hereinafter “BIP Trust”). The Plan is similar tothe performance-linked share compensation (Performance Share) and share compensation with transfer
restriction (Restricted Stock) in the US and Europe, and delivers and provides the Company’s shares and cash
equivalent to the amount to convert and dispose the Company’s shares (collectively, “the Company’s Shares,etc.”) to Directors, etc.

(ii)

Total number of shares subject to delivery to eligible Directors, etc.
The Company will contribute a total amount not exceeding 1,549 million yen in total to the Trust for a periodof three fiscal years between the fiscal year ending September 30, 2019 and the fiscal year ending September
30, 2021 (“Initial Trust Period”). An amount not exceeding 977 million yen in total will be included in theInitial Trust Period as the amount for measures to be taken for the transition from the stock-based
compensation stock option scheme.
Overview of Trust Agreement
Category of trust

Money trust other than a specific individually operated money trust (third
party benefit trust)Objective of trust

To provide incentive for Directors, etc.

Assignor

TKC Corporation

Trustee

Mitsubishi UFJ Trust and Banking Corporation(Joint trustee: The Master Trust Bank of Japan, Ltd.)

Beneficiary

Directors, etc., who satisfy the beneficiary conditions

Trust administrator

A third party professional expert having no interest in the Company

Date of trust agreement

February 26, 2019

Trust period

February 26, 2019 to February 28, 2022 (scheduled)Start of plan

March 1, 2019

Execution of voting
rightsType of shares to beacquired
Maximum amount oftrust fundAcquisition of shares

Not to be executedCommon stock of the Company
Directors and executive officers: 1,470 million yen (scheduled)(Including trust fees and expenses)
Auditors: 79 million yen (scheduled) (same as above)
To be acquired in the stock market or from the Company (disposal of treasury
stock)

Holder of vested rights

TKC Corporation

Residual property

The residual property that the Company (as holder of vested rights) may
receive shall be within the amount of trust expense reserve, which is the trust
fund less the fund for share acquisition.

(iii) Persons eligible for the delivery of the Company’s shares
Directors, etc., who satisfy the beneficiary conditions– 36 –

2 [Acquisition, etc. of Treasury Stock][Class of shares] Acquisition of shares of common stock under Article 155, Item 3 and Article 155, Item 7 of theCompanies Act of Japan(1) [Acquisition of treasury stock based on resolution at the General Meeting of Shareholders]None to be disclosed.
(2) [Acquisition of treasury stock based on resolution of the Board of Directors]
Classification

Number of shares (shares)

Resolution at the Board of Directors meeting (March 12,
2019)(Acquisition period: March 13, 2019)

Total amount (yen)150,000

605,250,000

Treasury stock acquired prior to the current fiscal year－－

Treasury stock acquired during the current fiscal year

150,000

605,250,000

－

－

－

－

Treasury stock acquired during the current period－－

Percentage of un-exercised acquisition as of the date offiling (%)－－

Total number and value of remaining shares subject toresolution
Percentage of un-exercised acquisition as of the last date of
the current fiscal year (%)

Classification

Number of shares (shares)

Resolution at the Board of Directors meeting (September 24,
2019)(Acquisition period: September 25, 2019)

Total amount (yen)10,00046,850,000

Treasury stock acquired prior to the current fiscal year－－

Treasury stock acquired during the current fiscal year

5,500

25,767,500

4,500

21,082,500

45.0

45.0

－

－

45.0

45.0

Total number and value of remaining shares subject toresolution
Percentage of un-exercised acquisition as of the last date of
the current fiscal year (%)
Treasury stock acquired during the current period
Percentage of un-exercised acquisition as of the date offiling (%)(3) [Acquisitions of treasury stock not based on resolutions of General Meeting of Shareholders or Board of
Directors]
Classification

Number of shares (shares)

Treasury stock acquired during the current fiscal year
Treasury stock acquired during the current period

Total amount (yen)634

2,764,915

1,100

5,137,985(Note) Treasury stock acquired during the current period does not include shares constituting less than one unit
purchased during the period from December 1, 2019 to the date on which this Annual Securities Report was
filed.

– 37 –

(4) [Disposition and holding of acquired treasury stock]
Current fiscal year
Classification

Number of shares(shares)

Current period for acquisition

Total amountdisposed(yen)

Number of shares(shares)

Total amountdisposed(yen)

Acquired treasury stock for which subscribers
were solicited

－

－

－

－

Acquired treasury stock canceled

－

－

－

－

57,150

193,301,874

－

－

2,200

6,073,342－－

257,086－

258,111－

Acquired treasury stock transferred due to merger,
share exchange, or company split
Other(Transferred by the exercise of subscription rights
to shares)
Number of shares of treasury stock held

(Notes) 1. The disposition and holding of treasury stock acquired during the current period does not include sharestransferred through the exercise of subscription rights to shares, shares obtained through the purchase ofshares constituting less than one unit, and shares sold through demand for sales during the period from
December 1, 2019 up to the date on which this Annual Securities Report was filed.
2. The number of treasury stock held does not include the 190,500 shares of the Company’s stocks owned by
the BIP Trust.

3 [Dividend Policy]
The basic policy of the Company is to pay two annual dividends of retained earnings, an interim dividend and a yearend dividend. Year-end dividends are resolved at the General Meeting of Shareholders and interim dividends areresolved by the Board of Directors.
The Company further provides in its Articles of Incorporation that interim dividends as set forth in Article 454 Item 5of the Companies Act of Japan as of March 31 every year may be paid by resolution of the Board of Directors.
The basic policy of the Company is to pay out dividends that exceed the industry average in accordance with themedium-term management plan set forth by the Board of Directors while continuing to maintain optimal profit eachfiscal year in order to meet the expectation of our shareholders. With the rapid advancement of ICT (information andcommunication technology) and major changes in social systems, it is essential to make advance investments inresearch and development efforts and to actively pursue other capital investments to enhance customer support toaccounting firms and local governments and lead them to success while remaining competitive in the marketplace.
Thus, dividends to be paid to shareholders are determined by taking into full consideration such factors as theCompany’s financial standing, operating results and payout ratios as we seek to maintain a balance between
strengthening our capital base to provide adequate funding in R&D and making funds available for stable dividend
payouts over the long-term.
To respond to the expectations of shareholders, the Company announced on April 26, 2019 that the estimatedamounts for interim and year-end dividends for the 53rd term would be 55 yen as ordinary dividends (for the 52nd
term, 50 yen for interim dividends and 55 yen for year-end dividends), and has paid the interim dividends of 55 yen
after the resolution of the Board of Directors.
During the fiscal year under review, the Group’s net sales, operating income, ordinary income and current net income
attributable to owners of parent exceeded the previous fiscal year’s performance with record-breaking figures at thesame time. Based on these results, to express our respect and gratitude to our shareholders, we decided that the yearend dividend per share would be 55 yen as ordinary dividends, as announced on April 26, 2019.
As a result, the annual payout ratio was 46.2%.
Date of Resolution

Total amount of cash dividends(millions of yen)

Dividend per share
(yen)

1,453

55

1,456

55

May 8, 2019
Meeting of the Board of Directors
December 20, 2019
Ordinary General Meeting of Shareholders– 38 –

4 [Corporate Governance](1) [Overview of Corporate Governance]I.

Basic Approach to Corporate GovernanceThe core of the Group, TKC Corporation, was established on October 22, 1966 listing the following two charters in
Article 2 of the Articles of Incorporation:

1. Management of electronic data processing centers to defend the business domain and maintain control over thefate of accounting firms
2. Management of electronic data processing centers to improve the administrative efficiency of local
governments
While other business objectives were later added as business operations expanded, our management policy offocusing our target on accounting firms and local governments and specializing in the field of ICT (information andcommunication technology) to guide our customers’ business to success remains unchanged, and this has led theGroup to occupy a unique position in Japan’s IT industries.
The Group (excluding the Printing BD) has a unique customer base – the Accounting Firm BD serves certified
public tax accountants, certified public accountants, tax accounting firms and audit corporations while the Local
Governments BD provides services to prefectural and municipal offices and affiliated public service corporations.
So from a compliance perspective, our customers are required by vocation-based laws (Certified Public Tax
Accountant Act or Certified Public Accountants Act) or administrative laws (Local Autonomy Act and the Local
Public Service Act) to follow much stricter levels of compliance than other business categories in performing theirbusiness activities.
Thus, it is our utmost priority to ensure that all software products and services designed, produced and sold by theGroup are in full compliance with the laws and regulations pertaining to our customer’s business, and the Group
strives diligently to ensure total compliance in managing each Group companies as well as the Group as a whole inorder to earn the trust of such customers.
As such, the Group understands corporate governance as follows:
1. in order to achieve the business objectives of the Company in compliance with the laws and regulations, theArticles of Incorporation and the resolutions of the General Meetings of Shareholders,
2. the Group shall formulate strategic medium-term management plans and foster competent human resources thatwill enable us to develop and supply software products and services that can drive our customers’ business to
success,
3. strive to earn the gratitude, trust, and hopefully the respect of our customers,
4. and as a result, secure good operating results and sound financial standing so that we can return the fruits to theoriginal owners of the Group, our shareholders.
Through such corporate governance process, we aim to improve the transparency of our decision-making andbusiness processes, implement effective risk management measures, and undertake information disclosure andaccountability in a timely manner to continue enhancing our corporate values.

Ⅱ. Overview of the Corporate Governance System and Reasons for Selecting the Current System
1. Overview of the Corporate Governance System(1) Board of Directors
The Representative Director & President chairs the meetings of the Board of Directors, which are held at least
once a month and attended by other Directors where they share information and make decisions in a prompt
manner.
The Board of Directors currently consists of 11 members and, with the exception of three Outside Directors, each
Director represents a business unit as executive officer in charge and participates in deliberations and express
their opinions. The Company adopts an executive officer system since December 22, 2006.
(2) Nomination and Compensation Advisory Committee
At the Meeting of the Board of Directors held on September 10, 2019, the Company resolved to establish a
Nomination and Compensation Advisory Committee as a voluntary advisory body to the Board of Directors.
– 39 –

The chairperson and half of the committee members are independent Outside Directors and outside experts, andfunctioning as an advisory body to the Board of Directors, the Committee was established in an aim to further
enhance the corporate governance system by ensuring that independent Outside Directors etc. are given theopportunity to engage in and provide advice on the decision-making of the following matters, thereby
strengthening the independence, objectivity, and accountability of the Board of Directors;(i)

Policy and procedure for the nomination of candidates for Directors and executive officers holding
executive position;(ii)

Appointment and dismissal of Directors and executive officers holding executive position;(iii) Policy for the determination of compensations for Directors and executive officers holding executive
position;(iv) Policy for the determination of individual compensations for Directors and executive officers holding
executive position;(v)

Individual compensations for Directors and executive officers holding executive position;(vi) Appointment and dismissal of representative directors and auditors of subsidiaries and their individualcompensations;(vii) Other matters that the Board of Directors deem necessary in relation to any of the above items.

2. Reasons for Selecting the Current Corporate Governance System
The Company implements an auditor system and also appoints Outside Directors. Outside Directors are appointed
and installed from the perspective of improving the transparency of the Board of Directors and enhancing its
supervisory functions. This ensures the legality, appropriateness, and validity of the decision-making processes andresolutions by the Board of Directors.
Outside Auditors primarily give advice and make suggestions in order to ensure the legality, appropriateness, andvalidity of the decision-making processes and resolutions by the Board of Directors by expressing their opinions oncompliance issues and whether the resolutions of the Board of Directors may be in violation of laws and regulations.
We also have three Outside Directors and two Outside Auditors, a total of five members who meet the requirements
of independent directors/auditors and are notified to the Tokyo Stock Exchange.
Through the implementation of these measures the Company ensures objectivity and neutrality of the supervision
over the management of the Company.
Therefore, we feel that the functions to supervise the management activities are in place, which enables us toinstitute a highly efficient, highly transparent management system that the Company aims for.

– 40 –

A schematic diagram of the Company’s business execution and management oversight is shown below:

General Meeting of Shareholders

Appointment/
Dismissal

Appointment/
Dismissal

Reports

Appointment/
Dismissal

Reports

Consult
Nomination&
Compensation Advisory
Committee
8 members

Board of Directors
11 Directors(Including 3 Outside
Directors)

Board ofAuditors
4 Auditors(Including 2
OutsideAuditors)

Audit

ReportAccounting
Auditors

Setting the Agenda for Appointment/
Dismissal/Refusal of Reappointment

Appointment/
Dismissal/
Supervision

Reports
Reports
Business
Improvement
Committee

Instructions

Representative
Directors

Reports

Internal Audit
Department

Instructions,Supervision

Audit

37 Executive Officers

Instructions, Orders

All Divisions, Group Companies– 41 –

Reports

Requests

3. Other Matters Concerning Corporate Governance(1) Outline of resolutions on the development of systems to ensure the appropriateness of operations
The Company establishes a basic policy by resolution of the Board of Directors concerning “the development ofsystems necessary to ensure that the execution of duties by directors complies with laws and regulations and thearticles of incorporation, and other systems prescribed by the applicable Ordinance of the Ministry of Justice assystems necessary to ensure the properness of operations of a Stock Company” as stipulated in Article 362,
Paragraph 5 of the Companies Act of Japan. The outline is described below:[1] Basic policy concerning the development of systems necessary to ensure that the execution of duties bydirectors complies with laws and regulations and the Articles of Incorporation(in relation to the first half of Article 362, Paragraph 4(vi) of the Companies Act of Japan)
1. Directors must comply with all laws and regulations, the Articles of Incorporation, and the Resolutionsof General Meetings of Shareholders (hereafter “laws and regulations”), keep in mind at all times thatthe business objectives of the Company are as set forth in Article 2 of our Articles of Incorporation,
namely the “management of electronic data processing centers to defend the business domains andmaintain control over the fate of accounting firms,” and the “management of electronic data processing
centers to improve the administrative efficiency of local governments,” and perform their duties toachieve these objectives.
2. Directors must perform their duties based on the Company’s Rules on Administrative Authority and
Dividing Duties of Directors established by the Board of Directors, and cooperate with other Directors
in improving corporate performance.
3. In the event a Director finds that his/her decision (including approvals given to proposals made bysubordinates) may be in violation of the laws and regulations, he/she must, without delay, consult with
the Director in charge of legal affairs and act based on said Director’s decision to prevent the occurrenceof any illegal conduct. If such matter is of significant importance, the Director in charge of legal affairs
shall immediately report to the Representative Director and President (hereafter, the “President”), andfull-time Corporate Auditors and outside company attorneys and receive their guidance as well as report
the particulars to the Board of Directors.
4. In the event a Director finds that an act or a plan of another Director or an employee may be in violationof the laws and regulations, he/she must, without delay, give warning to such Director or employee as
joint bearer of managerial responsibilities.
If such matter is of significant importance, said Director must immediately report to the President andreceive guidance.
5. Prior to attending any meetings of the Board of Directors, Directors must review the matters to bedeliberated, reported and/or discussed at the next meeting of the Board of Directors (hereinafter,“matters to be deliberated”) to make sure that there are no omissions in view of the scope of matters tobe deliberated under the regulations concerning the Duties (Articles 362) and Authority (Articles 363) of
Directors as stipulated in the Companies Act of Japan and the Company’s Rules on the Board of
Directors. If there are other matters to be deliberated, they must be brought to the Director(s) in chargeof the meetings of the Board of Directors without delay.
6. Directors must attend the meetings of the Board of Directors and voice their opinions and exercise theirvoting rights on all matters to be deliberated based on their conscience and responsibility. Directors must
give a true account of the execution of their duties, speak frankly of any anticipated strategic risks andoperational risks, and give the opportunity and time for the Board of Directors to review
countermeasures for such issues in advance.
7. The entire process of deliberations at the meetings of the Board of Directors shall be recorded inaccordance with the Company’s Rules on Management of Information Concerning the Decision-making
Process of the Board of Directors. The recordings must be kept in the form of electromagnetic records as
specified in Article 371 of the Companies Act of Japan along with any materials used for explanations
and the minutes of meeting of the Board of Directors.
8. Directors must attend the General Meeting of Shareholders, and provide answers in a sincere manner toany questions pertaining to the execution of their duties when asked by shareholders and instructed by
the Chairman to provide such answers.
9. Upon deliberations at the meetings of the Board of Directors, the Chairman of the Board of Directors
must seek the opinions of Auditors in attendance as to whether any resolution may be in violation oflaws and regulations. In the event an Auditor finds in the course of sitting in the meetings of the Boardof Directors, that any resolution may be in violation of the laws and regulations, he/she must, without
delay, give warning to the Chairman of the Board.
– 42 –

10. As the highest authority of the Company, Directors are obliged to be acutely aware of the social
responsibilities of the Company under the principles set forth in the “TKC Charter of Corporate Code2006,” work to improve their characters and insight, strictly observe all laws and regulations andcompany rules, eliminate ego and put aside personal affairs, exhibit discerning judgments to achievebusiness objectives, take lead in setting good examples, and strive to gain utmost trust of employees
under their charge.
11. It is the basic policy of the Company to have no involvement with antisocial forces, bodies andindividuals, and to not comply with unjust and unlawful requests. The Company shall develop anddisseminate this policy among all Directors and employees, and shall establish systems to share all
pertinent information within the TKC Group and to develop appropriate countermeasures. Further, theCompany shall collaborate closely with the police and other external expert organizations, and withlegal advisors and company attorneys.
[2] Basic policy concerning the development of systems ensuring the appropriateness of the Company’s
operations(in relation to the latter half of Article 362 Paragraph 4(vi) of the Companies Act of Japan)
1. Development of systems for the storage and management of information relating to the execution of
Directors’ duties of the Company(in relation to Article 100, Paragraph 1, Item 1 of the Ordinance for Enforcement of the Companies Act
of Japan)(1) Of the information relating to the execution of duties by Directors (hereafter, “information on
Directors’ duty”), information pertaining to the minutes of General Meetings of Shareholders shallbe stored and managed in accordance with the Company’s Rules on Management of Information
Concerning the Minutes of General Meetings of Shareholders.
(2) Of the information on Directors’ duty, information pertaining to deliberations at the meetings of theBoard of Directors shall be stored and managed in accordance with the Company’s Rules on
Management of Information Concerning Decision-making Processes of the Board of Directors as
described (in [1] 7.) above.
(3) Of the information on Directors’ duty, information submitted to or received from government
authorities and information sent to or received from outside parties in relation to legal affairs shallbe stored and managed based on the Company’s Rules on Management of Information Concerning
Legal Affairs.
(4) Information on Directors’ duty not included in the preceding three items shall be divided into thefollowing three categories and stored and managed based on the Company’s Rules on Managementof Information Concerning the Daily Operations of Directors:(i) of the meetings called by a Director (excluding the General Meetings of Shareholders andmeetings of the Board of Directors), minutes and relevant documents of meetings in whichmatters that may have significant impact on the Company’s operation are deliberated, andmeeting in which matters directly related to the interest of specific customers, clients or
employees are deliberated;(ii) written applications for approval and relevant documents settled by the Directors based on the
Company’s Rules Concerning Requests for Decisions;(iii) other important information pertaining to the execution of duties by Directors.
(5) All information on Directors’ duty set forth in the preceding four items shall be stored in a databaseso that their presence or absence and contents are immediately searchable. The operating status ofsaid database shall be verified and rules shall be revised as necessary and reported to the Board of
Directors.
2. Regulations and other systems for the management of risks of losses to the Company(in relation to the provisions of Article 100 Paragraph 1 Item 2 of the Ordinance for Enforcement of theCompanies Act of Japan)
2-1. Regulations for the management of strategic risks(1) Strategic risks are risks related to business opportunities that arise out of uncertainties of strategic
managerial decision-making. In light of the current situation of the Company, the objective ofmanaging such strategic risks shall be limited for the time being to “preventing the loss of business
opportunities” and to “appointment of Directors” to be submitted to the General Meetings ofShareholders.

– 43 –

(2) In order to prevent the loss of business opportunities, all Directors must actively gather information
and retain unrelenting spirit of inquiry to capture business opportunities that contribute to ourcustomers’ success ahead of others, exhibit outstanding intuition to make the best of such business
opportunities, and develop timely and optimal schematic plans and propose the execution to the
President.
(3) Upon receiving the such proposals from Directors (including employees) as set forth above, thePresident must evaluate the contents from the following perspectives, and if it is determined that a
proposal should be executed, he/she shall report to the Board of Directors and cause for the Director(including employees) in charge to announce an implementation plan at the meetings of the Boardof Directors:(i) Conformances with the management philosophy of the Company;(ii) Compliances;(iii) Expected degree of contributions to customers’ business;(iv) Anticipated feedback from customers;(v) Technical feasibilities;(vi) Funds and costs necessary;(vii) Other matters, such as principle of good faith with business partners.
(4) When submitting proposals on the appointment of Directors to the General Meeting of
Shareholders, it shall be made in accordance with the Company’s Rules on the Nomination andCompensation Advisory Committee.
Proposals shall be deliberated and decided at the Nomination and Compensation Advisory
Committee chaired by an independent Outside Director, etc. based on the standards for theappointment and dismissal of directors, which shall be reported to the Board of Directors.
The Board of Directors shall deliberate and decide on the matters reported by the Nomination andCompensation Advisory Committee.
2-2. Regulations for the management of operational risks
2-2-1. Regulations for the management of operational risks that may occur across all divisions(1) Operational risks are risks related to the performance of business activities that arise out of
uncertainties of performance of appropriate and efficient operations. These risks shall be divided
and controlled under the following two categories:(i) risks that may occur across all divisions (hereinafter, “common risks”);(ii) risks that may occur in specific divisions (hereinafter, “division-specific risks”).
This section provides for regulations for the management of common risks.
(2) The Board of Directors shall elect a Director in charge of risk management, who shall be in chargeof investigating and identifying the following common risks from among all employees of theCompany:(i) Risks that have high degree of urgency;(ii) Risks associated with compliance;(iii) Risks associated with confidentiality obligations of the Company;(iv) Risks associated with the preservation of assets and accounting;(v) Risks associated with the preparation of regulations and manuals for operation of business;(vi) Risks associated with the workplace environment and labor management;(vii) Other risks deemed necessary.
(3) In the event the Director in charge finds, as a result of the inspections in the preceding paragraph,that there are measures to completely eliminate any of the common risks, he/she shall promptly
report such findings to the President and discuss the actions to be taken.
(4) The Director in charge shall sort and classify unresolved risks and formulate a basic policy on how
to handle such risks, and submit it to the Board of Directors as Regulations for the Prevention of
Operational Risks (hereinafter referred to as “Regulations” in this section) for approval by the Boardof Directors. The approved Regulations shall be announced and distributed to all employees as
guidelines from the President.
(5) In the event a major risk becomes apparent, the Director in charge shall immediately take actions toprevent and minimize the spread of damages in accordance with the Regulations.

– 44 –

(6) The Director in charge shall, within one month of completing the actions in the preceding item,
investigate the true cause of the risk and formulate measures to prevent recurrence, and report to theBoard of Directors within two months and undertake any revisions to the Regulations.
(7) All heads of business units shall verify the compliance with the Regulations within their own
business units either on a daily or regular basis in accordance with the Regulations and report to the
Director in charge.
(8) The Director in charge shall submit to the President applications for special award money to those
uncovering major common risks that were previously unnoticed or those proposing effective
measures to prevent recurrence of apparent risks.
2-2-2. Regulations for the management of operational risks that may occur in specific divisions(1) Division-specific risks include cases in which division-specific operational risks need to becontrolled and cases in which highly advanced, specialized knowledge is required to control certain
common risks. The following committees (including committees to be newly established) shall be incharge controlling risks involving multiple divisions, and the relevant division shall be responsible
for controlling any risk involving that single division:(i) Systems Development Research Center Operation Improvement Committee(ii) Municipality Systems Development & Operations Division Operation Improvement
Committee(iii) Consolidated Information Centers Operation Improvement Committee(iv) SCG Service Centers Operation Improvement Committee(v) Municipality Sales Division Operation Improvement Committee(vi) Supplier Business Operation Improvement Committee(vii) Tokyo Head Office Operation Improvement Committee(viii) Personnel & Salary Systems Improvement Committee(ix) Risk Management Committee(x) Other committees that the Board of Directors deems necessary to establish.
(2) The committees listed in the preceding item shall serve as assisting body to the President or the
Director in charge of the division, the executive officer heading each committee with a fixed
number of committee members as determined by the Board of Directors. The Director in charge or
the head of committee shall attend the meeting of the Board of Directors and report on the matters to
be reported by the committee, and may request deliberations as necessary by the Board of Directors.
(3) Division-specific risks involving an individual committee or a specific division shall be controlled
in the same manner as controlling common risks as prescribed in 2-2-1. Division-specific risks shallbe identified by each committee and reported to the Board of Directors.
2-2-3. Regulations for the management of hazards and other risks(1) In the event of large-scale earthquakes, flood damages, fire and other disasters, or long power
outage, water stoppage, the disconnection of communication lines and other circumstances that may
cause substantial damage, the Company will immediately set up an emergency response headquarterheaded by the President, and form an information communication team responsible for contacting
customers, employees and their families, shareholders, clients and external press, and an external
advisory team including the company attorneys and to establish a system to respond promptly,
prevent and minimize the spread of damages.
(2) In the event of any matters that may be in violation of the laws and regulations, the General Affairs
Headquarters under the responsibility of the Director in charge of legal affairs shall become thesupervising division to take actions.
Any legal compliance issue of significant importance shall be consulted with outside attorneys as
external legal advisors.
3. Systems to ensure the efficient execution of Directors’ duties of the Company(in relation to the provisions of Article 100 Paragraph 1 Item 3 of the Ordinance for Enforcement of theCompanies Act of Japan)(1) The Company holds regular meetings of the Board of Directors generally on the 10th day of every
month, as well as ad hoc meetings when necessary. The date and time of meetings of the Board of
Directors called for the disclosure of financial statements or in relation to the General Meetings ofShareholders shall be planned at least six months in advance.

– 45 –

(2) At the meetings of the Board of Directors held at the end of each fiscal year, a management policy
for the upcoming fiscal year formulated in light of the management philosophy of the Company anda medium-term management plan covering the next three years starting from the upcoming fiscal
year shall be submitted by the President, and the Board of Directors shall deliberate upon theirstrategic rationalities in accordance with the Company’s Rules on the Board of Directors.
(3) At the meetings of the Board of Directors held on the second month of each new fiscal year, theTargeted Profit and Loss Statements for the entire company and each business unit for the new
fiscal year, and a proposed List of Dividing Duties of Directors and Strategic Goals shall be
submitted by the President, and the Board of Directors shall deliberate upon their feasibilities inaccordance with the Company’s Rules on the Board of Directors.
(4) At the monthly regular meetings of the Board of Directors, the targeted and actual P/L statements
for the entire company and each business unit as of the end of the previous month shall be reported,and the Board of Directors shall analyze the differences in target and actual results, and discuss
actions to be to taken to achieve the targeted sales and current profits for the fiscal year.
(5) In executing his/her daily duties, the President shall inspect the details of individual projects plannedby the Directors in charge of each business unit and coordinate to maximize the effect the projects inlight of the current management policy, and approve the use of president’s strategic reserve funds tothe extent approved by the Board of Director.
(6) In executing his/her daily duties, Directors in charge of each business unit shall provide instructions
to the executive officers and managers under his/her immediate control to ensure that they havecorrect awareness of the fiscal management policy and strategic goals for their division and that the
PDCA cycle is thoroughly implemented to achieve these goals, and shall monitor the progress andachievements of the entire division at all times and strive to achieve the sales and current profit
goals for the fiscal year.
(7) In managing the business unit under his/her charge, Directors in charge of each business unit shallstrive to reduce unnecessary expenses, improve work quality and productivity, and keep theworkplace organized, and must exhibit leadership to create a workplace environment in which all
employees are safe and comfortable, inspired and satisfied.
4. Systems to ensure that performance of duties by employees of the Company is in conformance withlaws and regulations and the Articles of Incorporation(in relation to the provisions of Article 100 Paragraph 1 Item 4 of the Ordinance for Enforcement of theCompanies Act of Japan)(1) In order to ensure compliance with laws and regulations by employees, the Internal Audit
Department under the direct control of the President shall prepare drafts of Compliance Regulations
and Compliance Manual based on guidance provided by Auditors and outside company attorneys
and, upon obtaining the approval of the Board of Directors, distribute them to all employees as
guidelines from the President.
(2) Regular training sessions for all employees of the Company to further understand the Compliance
Regulations and Compliance Manual as set forth above shall be conducted in accordance with theplans of the Internal Audit Department.
(3) When performing an internal audit on internal business units, the Internal Audit Department must
always inspect the awareness on Compliance Regulations and implementation of Compliance
Manual among employees of the business unit being audited, and submit an Internal Audit Report to
the President within one week after the completion of the audit.
(4) Directors in charge of each division shall appoint a compliance manager within each business unit inaccordance with the Compliance Regulations, and conduct training on the Compliance Manual for
employees within the business unit in a timely and appropriate manner.
(5) In order to prevent the leaking of customer information and other confidential information, the bodytext and attached files of all electronic mails sent from internal PCs to outside the company shall be
stored for a certain period of time.
(6) In preparation for the unlikely event that a Company employee violates any laws or regulations, theCompany shall establish a system whereby the Internal Audit Department or the employee that firstlearns of such information gives emergency notification to the President or the Director in charge oflegal affairs informing them of the facts and other relevant information.

– 46 –

5. Other systems to ensure the appropriateness of operations of the Group consisting of the Company andits subsidiaries(in relation to the provisions of Article 100 Paragraph 1 Item 5 of the Ordinance for Enforcement of theCompanies Act of Japan)(1) Systems concerning reports to the Company on matters pertaining to the execution of duties bydirectors, executive officers, employees executing operations, persons performing the duties under
Article 598, Paragraph 1 of the Companies Act, and those equivalent (hereinafter “Directors, etc.” initems (2) and (3) below) of the Company’s subsidiaries (in relation to Article 100, Paragraph 1, Item
5(a) of the Ordinance for Enforcement of the Companies Act)(i) In order for the Company to perform quarterly audits on the presence or absence of risk
information pertaining to its subsidiary companies and affiliated companies (hereinafter,“Subsidiaries”), the Company shall conclude an internal audit agreement with its Subsidiaries
and the Internal Audit Department shall conduct audits.
(ii) The Internal Audit Department shall establish a system whereby, upon identifying any
incidents that may cause significant damage to the Subsidiaries, the President and the heads of
relevant business divisions are immediately notified of the risks causing such incident, thedegree of damage expected and impacts on the Company.
(iii) The Internal Audit Department shall thoroughly exchange information with the Subsidiaries’
divisions in charge of internal audits on a regular basis to prevent any inappropriate
transactions (including using corporate expenses for private entertainment purposes) or
inappropriate accounting between the Company and Subsidiaries.
(iv) The Company shall assign Directors or employees of Deputy Manager or higher to theSubsidiaries to serve as Directors in order to communicate the management policy andrequests of the Company in writing to the Subsidiaries’ Board of Directors. The Company
shall request the presidents of the Subsidiaries to submit monthly reports on the latest businessresults, business forecast and risk management issues.
(2) Regulations and other systems for the management of risks of loss for the Subsidiaries(in relation to Article 100, Paragraph 1, Item 5(b) of the Ordinance for Enforcement of theCompanies Act of Japan)
Efforts shall be made to raise awareness on risks which may impact the Company’s operation, andto promote early discovery, preventive measures, and prompt and appropriate responses in the eventof an emergency in accordance with the separate Compliance Regulations, Compliance Manual andother internal rules.
(3) Systems to ensure the efficient execution of Directors’ duties of the Subsidiaries(in relation to Article 100, Paragraph 1, Item 5(c) of the Ordinance for Enforcement of theCompanies Act of Japan)(i) The Board of Directors of Subsidiaries (referred to as “Board of Directors” in this section)
shall hold regular meetings of the Board of Directors generally on a given day of every month,
as well as ad hoc meetings when necessary. The date and time of meetings of the Board of
Directors called for the approval of financial statements or in relation to the General Meetingsof Shareholders shall be planned at least six months in advance.
(ii) At the meetings of the Board of Directors held at the end of each fiscal year, a management
policy for the upcoming fiscal year formulated in light of the Management Philosophy of theSubsidiaries and a Medium-Term Management Plan covering the next three years startingfrom the upcoming fiscal year shall be submitted by the president of the Subsidiaries (referred
to as “President” in this section and the next section), and the Board of Directors shalldeliberate upon their strategic rationalities in accordance with the Company’s Rules on the
Board of Directors.
(iii) At the meetings of the Board of Directors held on the second month of each new fiscal year,
the Targeted Profit and Loss Statements for the entire company and each business unit for the
new fiscal year, and a proposed List of Dividing Duties of Directors and Strategic Goals shallbe submitted by the President, and the Board of Directors shall deliberate upon theirfeasibilities in accordance with the Company’s Rules on the Board of Directors.
(iv) At the monthly regular meetings of the Board of Directors, the targeted and actual P/Lstatements for the entire company and each business unit as of the end of the previous monthshall be reported, and the Board of Directors shall analyze the differences in target and actual
results, and discuss actions to be to taken to achieve the targeted sales and current profits forthe fiscal year.

– 47 –

(v)In executing his/her daily duties, the President shall inspect the details of individual projects
planned by the Directors in charge of each business unit and coordinate to maximize the effectthe projects in light of the current management policy.
(vi) In executing his/her daily duties, Directors in charge of each business unit shall provide
instructions to the executive officers and managers under his/her immediate control to ensurethat they have correct awareness of the fiscal management policy and strategic goals for theirdivision and that the PDCA cycle is thoroughly implemented to achieve these goals, and shallmonitor the progress and achievements of the entire division at all times and strive to achieve
the sales and current profit goals for the fiscal year.
(vii) In managing the business unit under his/her charge, Directors in charge of each business unit
shall strive to reduce unnecessary expenses, improve work quality and productivity, and keep
the workplace organized, and must exhibit leadership to create a workplace environment inwhich all employees are safe and comfortable, inspired and satisfied.
(4) Systems to ensure that performance of duties by Directors and employees of the Subsidiaries is inconformance with laws and regulations and the Articles of Incorporation(in relation to Article 100, Paragraph 1, Item 5(d) of the Ordinance for Enforcement of theCompanies Act of Japan)(i) In order to ensure compliance with laws and regulations by the directors and employees of theSubsidiaries (referred to as “Directors and employees” in this section), the division in chargeof internal audit under the direct control of the President shall develop Compliance
Regulations and Compliance Manual based on guidance provided by Auditors and outsidecompany attorneys.
(ii) Regular training sessions for all Directors and employees to further understand theCompliance Regulations and Compliance Manual as set forth above shall be conducted inaccordance with the plans of the division in charge of internal audit.
(iii) When performing an internal audit on internal business units, the division in charge of internal
audit must always inspect the awareness on Compliance Regulations and implementation ofCompliance Manual among employees of the business unit being audited, and submit anInternal Audit Report to the President within one week after the completion of the audit.
(iv) Directors in charge of each division shall appoint a compliance manager within each business
unit in accordance with the Compliance Regulations, and conduct training on the Compliance
Manual for employees within the business unit in a timely and appropriate manner.
(v) In order to prevent the leaking of customer information and other confidential information, thebody text and attached files of all electronic mails sent from internal PCs to outside thecompany shall be stored for a certain period of time.
(vi) In preparation for the unlikely event that a Director or employee violates any laws or
regulations, Subsidiaries shall establish a system whereby the division in charge of internal
audit or the Director or employee that first learns of such information gives emergency
notification to the President informing him/her of the facts and other relevant information.
6. Assignment of employees to assist the duties of Corporate Auditors(in relation to the provisions of Article 100 Paragraph 3 Item 1 of the Ordinance for Enforcement of theCompanies Act of Japan)(1) The Company shall establish an Auditor Office to assist the duties of the Auditors and assign one ormore dedicated employees.
(2) In determining the specific details pertaining to the preceding item, the Company shall respect theopinions of the Board of Auditors and take into consideration the opinions of the Director in chargeof human resources and other relevant personnel.
7. Independence of employees assisting duties of Corporate Auditors from Directors(in relation to the provisions of Article 100 Paragraph 3 Item 2 of the Ordinance for Enforcement of theCompanies Act of Japan)(1) The appointment, transfer, personnel evaluation and disciplinary punishment of employees assisting
the duties of Auditors shall be subject to prior consent of the Board of Auditors.
(2) Employees assisting the duties of Auditors shall not hold concurrent posts that involve the executionof the Company’s business, and shall perform their duties under the direct command of the Board ofAuditors, and their performance shall be evaluated by the Board of Auditors.
(3) Business units executing the Company’s business shall cooperate with employees assisting theduties of Auditors and allow attendance of such employees at the necessary meetings for them toconduct necessary investigations and gather necessary information.
– 48 –

8. Ensuring effectiveness of directions to employees assisting duties of Corporate Auditors(in relation to the provisions of Article 100 Paragraph 3 Item 3 of the Ordinance for Enforcement of theCompanies Act of Japan)
Employees assisting the duties of Auditors shall report to Auditors as appropriate on the status of duties
performed in accordance with the directions and commands given by Auditors.
9-1. The systems listed below and other systems for reporting to Corporate Auditors(in relation to the provisions of Article 100 Paragraph 3 Item 4 of the Ordinance for Enforcement of theCompanies Act of Japan)(1) Systems for reporting to Corporate Auditors by the Company’s Directors, accounting advisors andemployees(in relation to Article 100, Paragraph 3, Item 4(a) of the Ordinance for Enforcement of theCompanies Act of Japan)(i) All Directors and employees of the Company shall promptly submit the necessary reports andinformation requested by Auditors as established by the Board of Auditors.
(ii) The reports and information to be submitted as set forth in the preceding item shall mainly
include the following:
1) Status of activities of business units involved in the risk management of the Company;
2) Status of activities pertaining to audits and internal audits of the Subsidiaries of theCompany;3) Important accounting policies and accounting standards of the Company and any changes
thereto;4) Contents of announcements and important disclosure documents on the Company’s latest
business results and earnings forecasts on both non-consolidated and consolidated basis;
5) Circulation of internal approval documents and meeting minutes requested by Auditors.
(iii) In the event a Director or employee learns of any fact of violations of laws and regulations or
any fact that could cause significant damage to the Company, such Director or employee shallimmediately report matters pertaining to such fact to Auditors.
(iv) Auditors shall attend all the meetings of the Board of Directors and other important meetings,
and are expected to voice their opinions freely without being requested to do so by thechairman or caller of such meetings.
(2) Systems for reporting to Corporate Auditors of the Company by the Subsidiaries’ directors,
accounting advisors, auditors, executive officers, employees executing operations, persons
performing the duties under Article 598, Paragraph 1 of the Companies Act of Japan and otherpersons equivalent to the above, employees or any persons receiving reports from the above(in relation to Article 100, Paragraph 3, Item 4(b) of the Ordinance for Enforcement of theCompanies Act of Japan)(i) All directors, auditors and employees of Subsidiaries shall promptly submit the necessary
reports and information requested by each Corporate Auditor of the Company as establishedby the Board of Auditors of the Company.
(ii) The reports and information to be submitted as set forth in the preceding item shall mainly
include the following:
1) Status of activities of business units involved in the risk management of the Subsidiaries;2) Status of activities pertaining to the audits by auditors of the Subsidiaries;3) Important accounting policies and accounting standards of the Subsidiaries and anychanges thereto;4) Circulation of internal approval documents and meeting minutes of the Subsidiaries
requested by Auditors.
(iii) In the event a director, auditor or employee of Subsidiaries learns of any fact of violations oflaws and regulations or any fact that could cause significant damage to the Company, suchdirector, auditor or employee shall immediately report matters pertaining to such fact to the
Auditors of the Company.
(iv) The Company’s Auditors shall attend all the meetings of the Board of Directors and otherimportant meetings of Subsidiaries, and are expected to voice their opinions freely without
being requested to do so by the chairman or caller of such meetings.

– 49 –

9-2. Systems to ensure that persons making reports as stated in the preceding item do not receive
disadvantageous treatment for providing such reports(in relation to the provisions of Article 100 Paragraph 3 Item 5 of the Ordinance for Enforcement of theCompanies Act of Japan)
The Company and Subsidiaries must not treat any persons making reports stated in the preceding item
in a disadvantageous manner due to grounds of providing such reports to the Board of Auditors of theCompany.
9-3. Policy on prepayment or reimbursement of expenses arising from the execution of duties of Corporate
Auditors and the processing of expenses or debts arising from the performance of other duties(in relation to the provisions of Article 100 Paragraph 3 Item 6 of the Ordinance for Enforcement of theCompanies Act of Japan)
The Company shall secure sufficient amounts to cover for the procedures on prepayment or
reimbursement of expenses arising from the execution of duties of Auditors and for the processing ofexpenses or debts arising from the performance of other duties so as to allow Auditors to sufficiently
achieve the execution of the Auditors’ duties.
(1) Ordinary auditing expenses shall be budgeted in the current fiscal year based on the business plan of
the Company and the audit plan of the Board of Auditors.
(2) Other emergency auditing expenses and contingency expenses shall be estimated in advance by the
Board of Auditors and the Board of Auditors shall establish a policy on such expenses. The Boardof Directors shall execute the measures under said determined policy as notified by the Board ofAuditors after deliberation and review of such measures in light of the status of execution of thebudget for the fiscal year.
10. Other systems to ensure that audits by the Corporate Auditors are implemented effectively(in relation to the provisions of Article 100 Paragraph 3 Item 7 of the Ordinance for Enforcement of theCompanies Act of Japan)(1) Auditors shall receive advanced explanations on the annual internal auditing plan to be performedby the Internal Audit Department and express their opinions to the President if they deem that theplan needs to be corrected or changed, and the President must respect such opinions.
(2) Auditors shall receive reports, as appropriate, on the status of implementation of internal audits, andexpress their opinions to the President if they deem necessary that additional audits be implemented
or operation improvement measures be developed. The President must respect such opinions.
(3) Auditors shall receive advance explanations on the accounting audit plans from accounting auditors,
and reports on auditing methods and audit results whenever accounting audits on quarterly
settlements and audits on full year settlements are performed, and shall exchange opinions.
(4) For the purpose of increasing the effectiveness of the Company’s auditing system by achieving
coordination between the Company’s auditing system and the risk management system, theCompany shall establish an Audit System Improvement Committee headed by the Director in
charge of legal affairs and consisting of the head of the Internal Audit Department and deputy
managers or higher nominated by said Director and Auditors. The Committee is expected to prepare
reports on the auditing systems that should be created by the Company in the future, and to submit
such reports to the Board of Directors.
(2) Number of Directors
The Articles of Incorporation stipulate that the Company may have a maximum of 15 Directors.
(3) Criteria for the election or dismissal of Directors
The Articles of Incorporation stipulate that Directors shall be elected by a majority vote of shareholders at theGeneral Meeting of Shareholders with the attendance of at least one-third of shareholders that can exercise voting
rights, and that election of Directors shall not to be based on cumulative voting.
The Articles of Incorporation further stipulate that Directors shall be dismissed by a vote of two-thirds or more ofshareholders at the meeting with the attendance of at least half of the shareholders that can exercise voting rights.
(4) Exemption from liability for Directors and Auditors
In order to limit the responsibilities of Directors and Auditors to a reasonable extent in performing their duties,
the Company stipulates in its Articles of Incorporation that the Company may, by resolution of the Board of
Directors, exempt Directors (including former Directors) and Auditors (including former Auditors) from liabilities
to the extent allowed by law in accordance with Article 426 Paragraph 1 of the Companies Act of Japan.
– 50 –

(5) Outline of Limited Liability Agreement
The Company concludes agreements with Outside Directors and Outside Auditors in accordance with theprovisions of Article 427, Paragraph 1 of the Companies Act of Japan, limiting their liabilities to the amounts set
forth by law if they are without knowledge and not grossly negligent with regard to their responsibilities set forthin Article 423, Paragraph 1.
(6) Interim dividends
In order to maintain flexible redistribution of profits to shareholders, the Company stipulates in its Articles ofIncorporation that the Company may, by resolution of the Board of Directors, pay interim dividends as of March
31 every year pursuant to the provisions of Article 454, Item 5 of the Companies Act of Japan.
(7) Acquisition of treasury stock
In order to allow for flexible implementation of capital policies on improving capital efficiency and shareholderinterest, the Company stipulates in its Articles of Incorporation that treasury stock may be acquired by resolutionof the Board of Directors pursuant to the provisions of Article 165, Paragraph 2 of the Companies Act of Japan.
(8) Special resolutions
The Company stipulates in its Articles of Incorporation that special resolutions of the General Meetings ofShareholders as specified in Article 309, Paragraph 2 of the Companies Act of Japan shall be passed by a vote of
two-thirds or more of shareholders at meetings with the attendance of at least one-third of the shareholders thatcan exercise voting rights. This has been established to ensure smooth handling of special resolutions at General
Meetings of Shareholders by easing the quorum for special resolutions by General Meetings of Shareholders.
(9) Collaboration with outside experts
The Company consults with company attorneys concerning important legal issues and compliance-related
matters, and conducts reviews as necessary. The Company consults with the Accounting Auditors and reviews
important accounting issues from time to time in addition to the regular accounting audits, and hold discussions
promptly after quarterly and annual financial settlements.
(10) Basic policy on the control of the Company
The Company has no particular policy on matters concerning the persons controlling the decisions on thefinancial and business policies of the Company. A schematic diagram of the Company’s internal control system isshown under 2. Reasons for Selecting the Current Corporate Governance System.

III. Basic Approach and Countermeasures to Eliminate Anti-social Forces
1. Basic approach to eliminate anti-social forces
The basic policy of the Company is to have absolutely no engagement with anti-social forces under “Strict
Implementation of Compliance Management” as stated in the TKC Charter of Corporate Code. The Company fully
disseminates that it will maintain a resolute, organization-wide response against any and all unreasonable demands
and approaches from anti-social forces and bodies.

2. Countermeasures to eliminate anti-social forces(1) Establishment of a Response Control Division and appointment of managers
The Company has established a division to control responses to anti-social forces (the Response Control
Division) and appointed managers in charge of preventing unreasonable demands within its Tochigi and Tokyo
Head Offices.
The Company has also established a system for immediate reporting and consultation with the Response Control
Division on matters concerning unreasonable demands, organized violence, and criminal acts by anti-social
forces.
(2) Coordination with external expert organizations
The Company maintains close ties with external expert organizations, for example, by taking part in liaisongroups organized by the police and receiving guidance on how to deal with anti-social forces.
(3) Collecting and managing information on anti-social forces
The Response Control Division coordinates with experts and the police in sharing the latest information
pertaining to anti-social forces and using such information to give warning to the employees within the Company.
(4) Preparation of response manuals– 51 –

The Company has prepared training materials on compliance-related case studies including topics on how to deal
with anti-social forces, which are distributed and used in compliance training sessions.
(5) Training activities
The Company promotes activities to prevent damages from anti-social forces before they occur by sharing
information on anti-social forces within the Company and conducting compliance training sessions at theCompany and Group companies.

– 52 –

(2) [Officers]
1. List of Officers
14 male and 1 female (percentage of female directors: 6.7%)
Position and Title

Name

Date of Birth

Brief biography

March 1972

Joined the Company

December 1990

Director, Deputy Chief Director of Sales

April 1997

Director, Deputy Director of Local Governments
BD
Managing Director, Deputy Director of Local
Governments BD
Managing Director, Director of Local
Governments BD
Representative Director, President, TKC Security
Services Co., Ltd. (current position)
Senior Managing Director, Director of Local
Governments BD
Director, Senior Managing Director andExecutive Officer, Director of Local
Governments BD
Representative Director, Vice President andExecutive Officer, Director of Local
Governments BD
Representative Director, President and Executive
Officer, Director of Accounting Firm BD

May 1997
December 1998
July 2001
December 2001
Director andChairman of theBoard

December 2006
Kazuyuki Sumi

September 28, 1948
December 2008
December 2011

Term ofofficeNumber ofshares held
(hundreds ofshares)(Note 5)218

(Note 5)73

June 2012

Representative Director, Chairman of SKYCOM
Corporation (current position)
October 2016
Representative Director, President and Executive
Officer of the Company
October 2017
Representative Director, President of TKC
Customer Support Service Co., Ltd.
December, 2019 Director, Chairman of the Company (current
position)
April 2002
December 2010

Representative
Director
President andExecutive Officer
Director of
Accounting Firm
BD

Masanori Iizuka

March 12, 1975

Joined the Company
Director, Executive Officer, Sales of Corporate
Information Systems, Chief Director of G Projectof Sales, Corporate Information Systems,
Accounting Firm BD
October 2012
Director, Executive Officer, Chief Director of
Sales of Corporate Information Systems,
Accounting Firm BD
December 2012 Director, Managing Director and Executive
Officer, Chief Director of Sales, Corporate
Information Systems, Accounting Firm BD
April 2014
Director, Managing Director and Executive
Officer, Chief Director of Sales, Accounting Firm
BD
December 2014 Representative Director, Senior Managing
Director and Executive Officer, Chief Director of
Sales, Accounting Firm BD
October 2016
Representative Director, Senior Managing
Director and Executive Officer, Chief Director of
Accounting Firm BD
December, 2019 Representative Director, President and Executive
Officer, Director of Accounting Firm BD (current
position)
December, 2019 Representative Director, President of TKC
Customer Support Service Co., Ltd. (current
position)– 53 –

Position and Title

Name

Date of BirthRepresentative
Director
Hitoshi Iwata
Vice President andExecutive Officer

March 31, 1957

Director
Managing
Director andExecutive Officer,
Chief of the Tax
Research Center

Makoto Ito

September 2, 1956

Director
Managing
Director andExecutive Officer,
Director of Local
Governments BD

Masao Yusawa

January 16, 1959

Brief biography
April 1980
Joined the Company
December 2000 Director, Chief Director of General Affairs
September 2004 Director, Chief Director of Business
Administration
December 2005 Managing Director, Chief Director of Business
Administration
December 2006 Director, Managing Director and Executive
Officer, Chief Director of the Business
Administration
December 2008 Representative Director, Vice President andExecutive Officer, Chief Director of Business
Administration
August 2014
Representative Director, Vice Chairman of TKC
Financial Guarantee Co., Ltd. (current position)
December 2017 Representative Director, Vice Chairman of TKC
Corporate Mutual Aid Association (current
October 2018
position)
Representative Director, Vice President andExecutive Officer of the Company (current
position)
April 1979
Joined National Tax Agency
June 2013
Deputy Commissioner (Collection) of National
Tax Agency
July 2014
Resigned from National Tax Agency
September 2014 Joined the Company, Deputy Chief of Tax
Research Center
December 2014 Director, Managing Director and Executive
Officer, Chief of Tax Research Center (current
position)
April 1979
Joined the Company
December 2006 Executive Officer, Chief Director of Sales
Planning, Local Governments BD
December 2011 Director, Executive Officer, Local Governments
BD
January 2012
Director, Executive Officer, Director of Local
Governments BD
December 2014
April 1989
August 2012

Director
Managing
Director andExecutive Officer,
Chief of Systems
Development
Research Center,Accounting Firm
BD

October 2012

Yasuo Igarashi

January 4, 1967

December 2016

December 2017
January 2018
April 2003
December 2010

Director
Managing
Director andExecutive Officer,
Chief Director of
Sales, Local
Governments BD

December 2011
Satoshi Hitaka

January 19, 1971

January 2012
October 2018
December 2018

Director
Executive Officer,
Chief of System
Engineering
CenterApril 1989
June 2011
Takehiro Kariya October 8, 1964

October 2012
December 2018

Director, Managing Director and Executive
Officer, Director of Local Governments BD(current position)
Joined the Company
Executive Officer, Chief of Account Information
Systems Development Center, Systems
Development Research Center, Accounting Firm
BD
Executive Officer, Chief of Financial Host
System Development Center, Systems
Development Research Center, Accounting Firm
BD
Director, Executive Officer, Chief of AccountInformation Systems Design Center, Systems
Development Research Center, Accounting Firm
BD
Director, Managing Director and Executive
Officer, Director of Sales Planning, Sales,
Accounting Firm BD
Director, Managing Director and Executive
Officer, Chief of Systems Development ResearchCenter, Accounting Firm BD (current position)
Joined the Company
Executive Officer, Director of ASP Service
Promotion, Sales Planning, Local Governments
BD
Director, Executive Officer, New Business
Strategy, Local Governments BD
Director, Executive Officer, Chief Director of
Cloud Business Promotion, Local Governments
BD
Director, Executive Officer, Chief Director of
Sales, Local Governments BD
Director, Managing Director and Executive
Officer, Chief Director of Sales, Local
Governments BD (current position)
Joined the Company
Executive Officer, Chief of Network Systems
Development Center, Systems Development
Research Center, Accounting Firm BD
Executive Officer, Chief of System Engineering
Center, Business Administration Headquarters
Director, Executive Officer, Chief of System
Engineering Center (current position)– 54 –

Term ofofficeNumber ofshares held
(hundreds ofshares)(Note 5)66

(Note 5)16

(Note 5)46

(Note 5)29

(Note 5)22

(Note 5)52

Position and Title

Name

Date of BirthDirector

Misao Taguchi

June 15, 1960

Director

Yoshimasa
OshidaAugust 17, 1956

Director

Junko Iijima

August 3, 1967

Auditor (full-time)

TsuneoMiyashita

May 28, 1949

Brief biography
October 1990
Registered as certified tax accountant
November 1990 Started business as certified tax accountant
June 2011
Representative Partner of certified public tax
accounting firm Taguchi Partners Kaikei (current
position)
December 2016 Director of the Company (current position)
November 1988 Registered as certified tax accountant
November 1991 Started business as certified tax accountant
July 2002
Representative Partner of Oshida Accounting
Office (current position)
December 2018 Director of the Company (current position)
October 2001
Registered as attorney
October 2001
Joined Tokyo Toranomon Law Office(current position)
December, 2019 Director of the Company (current position)
March 1975
Joined the Company
December 2006 Executive Officer, Director of TKCNF
Research Committee Support Division
October 2010
Director of Chairman’s Office
December 2016 Full-time Auditor of the Company (current
position)
Auditor of TKC Security Services Co., Ltd.
(current position)
October 2017
Auditor of TKC Customer Support Service
Co., Ltd.(current position)
April 1979
Joined the Company

Kiyotsugu
Nakanishi

August 27, 1956

Auditor

HidekiTomonaga

February 15, 1956

April 1990
January 2003

AuditorYoshikiTakashima

Number ofshares held
(hundreds ofshares)(Note 5)10(Note 5)10(Note 7)－(Note 4)98

(Note 6)137

(Note 8)－(Note 4)

－

Total

787

April 1988
January 1996

Auditor (full-time)

Section Chief of General Affairs Department
Deputy Director of General Affairs
Department
January 2006
Director of General Affairs Department
January 2015
Director of Internal Audit Department
December 2018 Full-time Auditor of the Company (current
position)
April 1982
Joined Tokyo Regional Taxation Bureau
July 2006
Resigned from National Tax College
August 2006
Registered as certified tax accountant
March 2007
Representative Director of Taxation Institute ofJapan (current position)
December 2018 Representative Partner of Tomonaga Hideki
Licensed Tax Accountant Office (current
position)
December, 2019 Auditor of the Company (current position)

Term ofofficeApril 18, 1959

December 2008
December 2016

December 2017

Registered as attorney
Partner of Shibata, Yamaguchi & Takashima
Law Firm (current position)
Auditor of the Company (current position)
Auditor of TLP Co., Ltd. (current position)
Auditor of TKC Financial Guarantee Co., Ltd.
(current position)
Auditor of TKC Corporate Mutual Aid
Association (current position)(Notes) 1. Director Satoshi Hitaka is the spouse of the elder sister of Masanori Iizuka, Representative Director,
President and Executive Officer.
2. Directors Misao Taguchi, Yoshimasa Oshida and Junko Iijima are Outside Directors.
3. Auditors Hideki Tomonaga and Yoshiki Takashima are Outside Auditors.
4. Four years from the close of the Ordinary General Meeting of Shareholders held December 22, 2016.
5. Two years from the close of the Ordinary General Meeting of Shareholders held December 21, 2018.
6. Four years from the close of the Ordinary General Meeting of Shareholders held December 21, 2018.
7. One year from the close of the Ordinary General Meeting of Shareholders held December 20, 2019.
8. Four years from the close of the Ordinary General Meeting of Shareholders held December 20, 2019.

– 55 –

2. Procedures and policy on the nomination of Directors(1) For the appointment and dismissal of Directors, the Board of Directors shall consult with the Nomination andCompensation Advisory Committee, and respecting the report from said Committee, prepare the original
proposals to be submitted for resolution at the General Meeting of Shareholders.
(2) The Nomination and Compensation Advisory Committee shall nominate a candidate for a new Director who
satisfies one of the following qualifications:(i)a person who is an Executive Officer or of higher rank, who has engaged in the timely development of new
products or new services (emergence of innovation) or, as person in charge of such marketing strategy, leadsuch projects to success in line with the business objectives of the Company while anticipating the rapidly
moving trends of a digital society, thereby winning a large number of clients, etc., improving the social
reputation of the Company, and contributing notably to the sustainable growth of the Company.

(ii)

a person who is an Executive Officer or of higher rank, who has eliminated unreasonableness, waste, andinconsistency within his/her business division in compliance with the laws, developed a business plan toachieve increased income and increased profit on an ongoing basis, improve the treatment of employees,
and implement risk measures, and in executing such plan, contributed notably to improving the mediumand long-term corporate value through aggressive information sharing and provision of opinions to the
Director in charge.

– 56 –

3. [Outside Officers]
Category

Name

Functions, roles and appointment
Mr. Taguchi is a representative partner of a certified public tax accountants firm Taguchi
Partners Kaikei, and has been appointed as Outside Director so that the Company’s
Accounting Firm Business can benefit from his extensive experience and insights in the
management of accounting firms. From an independent standpoint, he is expected toenhance the supervisory functions of the Board of Directors in order to increasetransparency, and provide valuable input to ensure the legality and validity of decisions
made and resolved by the Board of Directors.

Director

Misao Taguchi

While Taguchi Partners Kaikei is engaged in a business relationship with the Company,
transactions are based on the same terms and conditions as with other third parties.
Therefore, it is not likely that any conflict of interest shall occur between Mr. Taguchi
and general shareholders, and the Company deems that this would not affect theindependence of Mr. Taguchi.
Mr. Taguchi has no special interest in the Company. The number of shares of theCompany held is as indicated in the “Number of shares held” column under 1. List of
Officers.
Mr. Oshida is a representative partner of a certified public tax accountants firm Oshida
Accounting Office, and has been appointed as Outside Director so that the Company’s
Accounting Firm Business can benefit from his extensive experience and insights in the
management of accounting firms. From an independent standpoint, he is expected toenhance the supervisory functions of the Board of Directors in order to increasetransparency, and provide valuable input to ensure the legality and validity of decisions
made and resolved by the Board of Directors.

Director

Director

Yoshimasa Oshida

Junko Iijima

While Oshida Accounting Office is engaged in a business relationship with theCompany, transactions are based on the same terms and conditions as with other third
parties. Therefore, it is not likely that any conflict of interest shall occur between Mr.
Oshida and general shareholders, and the Company deems that this would not affect theindependence of Mr. Oshida.
Mr. Oshida has no special interest in the Company. The number of shares of theCompany held is as indicated in the “Number of shares held” column under 1. List of
Officers.
As a certified attorney, Ms Iijima possesses expertise and extensive experience, and, inparticular, deep insight into corporate governance. She served as lecturer of the corporate
governance training for the Board of Directors of the Company on four occasions, and, as
chairperson of the Nomination and Compensation Advisory Committee established by
the Company on October 10, 2019, displayed strong leadership in deliberating anddesigning the policies and procedures for the appointment and dismissal of Directors,
etc., and the director’s compensation plan in accordance with the principles of thecorporate governance code. She has been appointed for she is expected to contribute to
the sustainable growth and medium- to long-term improvement in the corporate value of
the Company through enhanced corporate governance, and to provide valuable input
from the perspective of a female.
Ms Iijima has no special interest in the Company. The number of shares of theCompany held is as indicated in the “Number of shares held” column under 1. List of
Officers.
Mr. Tomonaga is a representative partner of a certified public tax accounting firmTomonaga Hideki Licensed Tax Accountant Office, and has the expertise and extensive
experience as a tax specialist on consolidated taxation system, corporate reorganization
taxation system and international trade. He has been appointed for he is expected toprovide appropriate guidance and audits from his professional perspective in improving
tax compliance of the Company.

Auditor

Hideki Tomonaga

While Tomonaga Hideki Licensed Tax Accountant Office is engaged in a business
relationship with the Company, transactions are based on the same terms and conditions
as with other third parties. Therefore, it is not likely that any conflict of interest shalloccur between Mr. Tomonaga and general shareholders, and the Company deems that
this would not affect the independence of Mr. Tomonaga.
Mr. Tomonaga has no special interest in the Company. The number of shares of theCompany held is as indicated in the “Number of shares held” column under 1. List of
Officers.

– 57 –

Auditor

Yoshiki Takashima

Mr. Takashima is a certified attorney and has been appointed to provide compliancerelated audits and advise from a legal perspective on execution of duties by the Directorsof the Company.
Mr. Takashima has no special interest in the Company. The number of shares of theCompany held is as indicated in the “Number of shares held” column under 1. List of
Officers.

4. Support systems for Outside Directors and Outside Auditors(1) The Company appoints the Chief Director of General Affairs Department as a point of liaison to provide
assistance to Outside Directors and Outside Auditors. The Chief Director of General Affairs Department notifies
in advance the Outside Directors and Outside Auditors of the schedule of the meetings of the Board of Directors
or meetings of the Board of Auditors and send any related materials thereto, and if necessary, provides
explanations in advance on such materials.
(2) Outside Directors attends any major meetings of the TKCNF, the customer organization of the Accounting Firm
BD.
(3) Once a month, Outside Auditors review the approval request documents, accounting books and major evidence
documents, and receive reports from the heads of Departments and give their opinions.
(4) Compensations for Auditors shall be determined each January upon discussion among Auditors based on thebusiness results for the preceding fiscal year.

5. Standards concerning the independence of Outside Directors and Outside Auditors of the Company(1) A person who is currently not, or has not been for the past ten years, an executive member of the Company or theCompany’s subsidiaries;(2) A person for which the Company is currently not, or was recently not, an important trade partner or its executing
member, or an important trade partner of the Company or its executing member;(3) A person for which the Company is currently not, or was recently not, a consultant, accounting specialist, or legal
specialist receiving large sums of money or other assets other than executive compensation from the Company;(4) A person who is currently not, or has not recently been, a near relative of an executive member of the Company
or the Company’s subsidiaries, or a near relative of any of the persons falling under items (2) or (3);(5) Any other person whose independence is clear of doubt in executing the duties of an Outside Director.

– 58 –

(3) [Audits]
The provisions of Notes (56)a(b) and (56)d(a)ⅱ in Form No. 2 of the Cabinet Office Ordinance on Disclosureof Corporate Information, etc., as amended under the Cabinet Office Ordinance on Partial Amendments to the
Cabinet Ordinance on Disclosure of Corporate Information, etc. (Cabinet Office Ordinance No. 3 of January
31, 2019) are applied starting from the Annual Securities Report for the current fiscal year.
Since its founding in 1966, the Company has adopted the so-called “management based on rules.” All directors
and employees were required to ensure compliance, and any illegal act or violation of internal rules have been
dealt with strictly and impartially without exceptions, even if the motivation was for the interest of theCompany or for the customers, shareholders, business partners or employees. The main objective of this“management based on rules” is to protect our employees, clients and company through strict compliance. That
is why our Directors and employees have a correct understanding on the standards that they need to abide by in
the process of fulfilling their basic responsibilities and performing their day-to-day work, and strive to act
according to these standards.
(i) Audits by Auditors
The Company has four Auditors, consisting of two Standing Auditors and two Outside Auditors. Hideki
Tomonaga, Outside Auditor, is a qualified tax accountant who has extensive expertise in the areas of finance,accounting and tax accounting. Yoshiki Takashima, Outside Auditor, is a qualified attorney who has considerable
expertise mainly on the Companies Act and Financial Instruments and Exchange Act of Japan.
Standing auditors Tsuneo Miyashita and Kiyotsugu Nakanishi have served as head of Business Administration in
charge of general affairs, accounting and financing and have considerable expertise on financing, accounting andtax affairs.
Auditors shall attend the meetings of the Board of Directors and other important management meetings inaccordance with the Code of Kansayaku Auditing Standards. They shall strive to oversee the material decisionmaking process and execution of business, and receive reports from the accounting auditors, Directors andemployees to form their audit opinions through deliberation.
The attendance of each Auditor to the meetings of the Board of Auditors is shown below:
Name
Tsuneo Miyashita
Kiyotsugu Nakanishi (Note 2)
Kenji Matsumoto (Note 3)
Yoshiki Takashima
Masataka Iida (Note 4)

Number of days
attended/number of meetings(Note 1)
9/9
7/7
8/9
9/9
2/2

Attendance rate
(Note 1)
100%
100%
89%
100%
100%

(Note 1) The number of days on which the meeting of the Board of Auditor was held is based on thenumber of days held the during the fiscal year.
(Note 2) Assumed office on December 21, 2018.
(Note 3) Resigned on December 20, 2019.
(Note 4) Resigned on December 21, 2018.
(ii) Internal audits
1) Organization, personnel and procedures of internal audits
Internal audits of the Company are conducted based on the Resolution on Internal Control, Operational Risk
Management Regulations, Internal Audit Regulations, and Regulations for the Management of Affiliates. Internal
audits are aimed to establish an appropriate internal control system covering the entire TKC Group, and conductedfrom a standpoint independent from the line of business execution in order to determine the effectiveness.
The Internal Audit Department is an independent organization under the direct control of the President. There are
five internal auditors in the Internal Audit Department, of which two hold the qualification of Certified Internal
Auditors, the only globally recognized certification for internal auditors.
In June every year, the Company conducts a risk survey for all of its employees. Based on the assessment of thissurvey and risk-related information of affiliates, the Internal Audit Department formulates the annual internal
auditing plan, taking into consideration any special assignments from the Board or Directors and results ofdeliberation with the Auditors. The audit plan is reported to the Board of Directors after approval by the President.
Prior to conducting the audit, the internal auditors will undertake preliminary surveys and develop individual audit
plans. After obtaining approval from the head of the Internal Audit Department, the internal auditors will notify– 59 –

the divisions to be audited. Site visits are conducted by several internal auditors. Within one week from thecompletion of the audit, the head of the Internal Audit Department shall prepare and submit an Internal Audit
Report to the President. Based on the approved Internal Audit Report, the President will order the heads of audited
divisions to take actions and report on any matters that need to be improved.
In addition, the head of the Internal Audit Department will provide copies of the Internal Audit Report to the
Directors in charge of each division and Auditors. Directors in charge of each division shall control any divisionspecific operational risks.
2) Coordination among internal audits, audits by Auditors, and accounting audits, and the relationship between
these audits and the internal control division
The head of the Internal Audit Department must ensure an appropriate scope of audits and shall consider
coordinating with the Auditors and accounting auditors in order to minimize the redundancy of tasks. To this end,
the head of the Internal Audit Department holds monthly meetings with the Auditors and quarterly meetings withthe accounting auditor, to report on the status of the internal control system and results of internal audits asrequested and to exchange opinions.
The Auditors receive reports on the implementation and operation of internal controls of the TKC Group by theInternal Audit Department, reports on the progress of the internal audit plans, and reports on the results ofassessment of internal control over financial reporting.
The Company has an audit agreement with the accounting auditor, and receives audit of the financial statements
and internal control audit over financial reporting from the firm. In that process, the Internal Audit Department
provides necessary information to the accounting auditor.
While the Auditors, accounting auditor, and internal auditors each have their own objectives of audits, standpointsof the auditing body, and duties, during the current fiscal year under review, they worked to strengthen thecoordination and information sharing between the three different audits (audits by Auditors, audits by theaccounting auditor, and internal audits), to improve the effectiveness and efficiency of each audit, and to maintainand improve the governance of the TKC group by complementing each other.
(iii) Accounting audits
1) Name of audit firm
Ernst & Young ShinNihon LLC
2) Continuous audit period
36 years(Note) The Company had an audit agreement with Misuzu Audit Corporation (Chuo Audit Corporation at
the time) from 1983 to 2007 (including the period from July 1, 2006 to August 31, 2006 when the
Company temporarily appointed an accounting auditor instead of Misuzu Audit Corporation (Chuo
Audit Corporation at the time)). Upon dissolution of Misuzu Audit Corporation, the Company hasentered into an audit agreement with Ernst & Young ShinNihon LLC since 2007 (Shin Nihon LLC at
the time). However, the certified public accountant who was providing the audit services to theCompany also transferred to Ernst & Young ShinNihon LLC (Shin Nihon LLC at the time) andcontinued to provide audit services to the Company. As such, it could be deemed that the same
auditing firm has been providing audit services to the Company on a continuous basis, and therefore,
the audit period of the auditing firm prior to the transfer of said certified public accountant is also
added and included.
3) Certified public accountants that executed the accounting audit
Kanji Tako, Yuichi Noda
4) Number of assistants assisting auditing
The number of assistants assisting the accounting audit of the Company was 9 certified public accountants and 13
other personnel.
5) Policy and reasons for appointing the audit firm
It is the policy of the Company for the Board of Auditors to dismiss accounting auditors, with the consent of all
Auditors, should it be deemed that said accounting auditor falls under any of the items prescribed in Article 340
Paragraph 1 of the Companies Act of Japan. In such event, an Auditor selected by the Board of Auditors shallreport the dismissal of the accounting auditor and the reason for dismissal at the first General Meeting of
Shareholders convened following the dismissal.
If there is a reason or a need to prevent the accounting auditor’s execution of his/her duties, the Board of Auditors– 60 –

shall develop a proposal on the dismissal or refusal of reappointment of said accounting auditor, and the Board of
Directors shall present such proposal for resolution at the General Meeting of Shareholders.
6) Assessment of Accounting Auditors by Auditors and Board of Auditors
Based on the Practical Guidelines on the Assessment of Accounting Auditors and the Formulation of Selection
Standards issued by the Japan Audit & Supervisory Board Members Association, the Board of Auditors assessed
the auditing activities of Ernst & Young ShinNihon LLC during the past year, including such items as the quality
control system of the auditing firm, auditing team, audit fees, communication with Auditors, etc., relationshipwith management, and non-compliance risks. As a result of assessment, the Board of Auditors has determinedthat it is appropriate to reappoint said auditing firm as accounting auditor.
(iv) Content of audit fees
1) Content of compensation to certified public accountants engaged in audits
Previous consolidated fiscal year
Category

The Company

Current consolidated fiscal year

Compensation for audit Compensation for nonCompensation for audit Compensation for nonand attestation services
audit services (millions and attestation services
audit services (millions(millions of yen)of yen)(millions of yen)of yen)
43
10
44
17

Consolidated
subsidiaries
Total

－

－

－

－

43

10

44

17

(Note) The Company pays certified public accountants engaged in audits compensation for assurance services
for internal controls pertaining to the Company’s ASP service based on the Auditing and Assurance
Practice Committee Practical Guideline No. 86 “Assurance Reports on Controls at a Service
Organization (Japanese Institute of Certified Public Accountants dated December 22, 2011)” covering
services other than the services prescribed in Article 2 Paragraph 1 of the Certified Public Accountants
Act. In addition, during the current consolidated fiscal year, the Company paid compensation, etc. forconsulting services in relation to compliance with ASBJ Standard No. 29 “Accounting Standard for
Revenue Recognition.”
2) Policy for determining audit fees
Audit fees are determined with the consent of the Board of Auditors, taking into account such factors as scale andbusiness characteristics of the Company and number of days of auditing works performed.
3) Reasons for Board of Auditors giving consent to the audit fees to the accounting auditor
The Board of Auditors has checked the audit plan, content of audit, man-hours required for the audit, and the unit
price per man-hour, and reviewed the appropriateness of the amount of compensation in comparison to theconventional amounts and planned amounts. As a result, it has determined that the decision by the Board of
Directors with respect to the compensation for the accounting auditor is appropriate, and has given consent inaccordance with Article 339 Paragraph 1 of the Companies Act of Japan.
4) Other important fees
(For the previous consolidated fiscal year and the current consolidated fiscal year)
None to be disclosed.

– 61 –

(4) [Director Compensation, etc.]
1. Policy on determining the amount of executive compensation and calculation method(1) Executive compensation system
Directors' and Auditors’ compensation consists of monetary compensation and stock-based compensation (BIP
Trust).
(2) Maximum amounts of executive compensation
The amount of compensation for executive officers of the Company was established by resolution of the 43rd
Ordinary General Meeting of Shareholders convened on December 22, 2009, at an annual amount of up to 480
million yen for Directors' compensation and up to 80 million yen for Auditors' compensation. Separate from thesemaximum amounts of compensation, Directors (excluding outside directors and expatriates), executive officers(excluding expatriates), and Auditors (excluding outside directors and expatriates) are entitled to a stock-based
compensation plan (BIP Trust) established by resolution of the 52nd Ordinary General Meeting of Shareholders
convened on December 21, 2018, at an amount of up to 500 million yen for Directors and executive officers, andup to 72 million yen for Auditors for three fiscal years.
(3) Policy on determining the amount of executive compensation(i) Basic policy on compensation for Directors who are executive officers and Full-time Auditors
1) Compensation for Directors who are executive officers and Full-time Auditors shall consist of two parts:
monetary compensation and stock-based compensation (BIP Trust). The total amount to be paid in a fiscal year
shall be the total of compensation for Directors who are not executive officers and compensation for Outside
Auditors as set forth in (ii), plus executive officers’ allowance for executive officers who are not directors as set
forth in (iii), which shall be within the maximum amounts of executive compensation determined by resolutionof the Ordinary General Meeting of Shareholders pursuant to the provisions of Article 361 of the Companies
Act of Japan, and also within 1% of amount of marginal profits of the entire Company achieved during the firsthalf of such fiscal year.
2) The amounts of compensation may be increased if both of the following two conditions are met.
Provided that, unless there are amendments to the executive positions, the increase rate of compensation shall not
exceed the increase rate of marginal profits.
a. On a non-consolidated, year-on-year basis, the net sales, marginal profits and ordinary income of the entire
Company increased.
b. On a non-consolidated basis, an equity ratio of 83% or greater has been achieved.
In calculating the equity ratio, the effects of valuation difference on available-for-sale securities are to be
excluded.
3) Compensation, etc. shall be determined at the meeting of the Board of Directors, taking into consideration thefollowing four points and assessing the business results.
a. Achievement of business results of divisions in charge;
b. Individual accomplishments in marketing or innovation;c. Expertness of duties and individual contribution in improving corporate-wide business results;
d. Executive position held and number of years holding such position.
If the divisions in charge continues to show poor business results, or causes a material accident or major loss,
the amounts of compensation for the next fiscal year may be decreased.
(ii) Outside Directors and Outside Auditors shall be excluded from the assessment of business results.
However, if the Company makes a request to perform matters beyond the normal responsibilities of an outside
executives, it shall pay an advisory fee based on a separately entered agreement in compliance with theindependence standards (compensation other than executive compensation must be less than 10 million yen peryear).
(iii) Basic policy on compensation for executive officers who are not Directors
1) The annual salary of an executive officer shall consist of a standard annual salary (fixed annual salary andstandard bonuses) determined in April every year based on the Regulations on the Annual Salary System, andexecutive officers’ allowance.
2) Executive officers’ allowance shall be determined at the meeting of the Board of Directors, taking into
consideration the following four points and assessing the business results.
a. Achievement of business results of divisions in charge;– 62 –

b. Individual accomplishments in marketing or innovation;c. Expertness of duties and individual contribution in improving the division’s business results;
d. Executive position held and number of years holding such position.
If the divisions in charge continues to be unsuccessful in achieving the goals, or causes a material accident or
major loss, the Company may suspend the payment of executive officers’ allowance in the middle of a fiscal
year.
(4) Method of determining the amount of executive compensation
For the amount of executive compensation, the Board of Directors shall consult with the Nomination andCompensation Advisory Committee, and respecting the report from said Committee, determine the amount.
Compensation for Auditors is determined by consultation among Auditors within the maximum amount approvedat the General Meeting of Shareholders.
(5) Partial changes to the stock-based compensation plan using a trust
At the 53rd Ordinary General Meeting of Shareholders held on December 20, 2019, the proposal to change thestock-based compensation (BIP Trust) from the conventional system of granting points based on executive
positions held, to a performance-linked system was approved.
Under the new system, points will be granted to each individual within the range of 0% to 120% of the basic
number of issued shares depending on the year-on-year ratio of the company-wide performance goals (marginal
profits and ordinary income) for a given period of each fiscal year during the trust period, subject that, during the
fiscal year ended September 30 of the same year, (1) the sales and ordinary income of the entire Company bothincrease, and (2) the non-consolidated equity ratio exceeds 80%.
The maximum number of total points granted to Directors, etc. in a single fiscal year shall remain at 34,000
points, and the number of total points granted to Full-time Auditors in a single fiscal year shall remain at 4,800
points, as approved at the 52nd Ordinary General Meeting of Shareholders held on December 21, 2018.

2. Total amount of compensation, total by type, and number of eligible executives, by executive category
Total compensation by type (millions of yen)

Total amount ofcompensation(millions of yen)

Monetary
compensation

Stock-based
compensation(BIP Trust)

705

267

437

－

10

38

30

8

－

3

Outside Directors

26

26

－

－

3

Outside Auditors

28

28

－

－

2

Executive category
Directors (excluding
Outside Directors)
Auditors (excluding
Outside Auditors)

Number of eligible
executives

Retirement
benefits(Note) The Company abolished the stock-based compensation stock option scheme and introduced a stockbased compensation plan (BIP Trust) in accordance with the resolution at the 52nd Ordinary General
Meeting of Shareholders held on December 21, 2018. The amounts of stock-based compensation
indicated above include: expenses recognized in relation to the issuance of the 8th subscription rights
to shares, expenses recognized in relation to the transition from the stock-based compensation stock
option scheme (the number of stock options forfeited as a result of transition is shown in the Notes toConsolidated Financial Statements (Stock Option Plans) under Part 5 Financial Information, 1.
Consolidated Financial Statements, (1) Consolidated Financial Statements), and expenses recognized
in relation to points granted in accordance with the stock-based compensation BIP Trust).

3. Total consolidated compensation for persons whose total consolidated compensation is in excess of 100 million
yen
Total consolidated
compensation(millions of yen)

Executive
category

Company
category

Total consolidated compensation, by type(millions of yen)
Stock-based
Monetary
compensationcompensation(BIP Trust)Kazuyuki Sumi

199

Director

The Company

58

140

Hitoshi Iwata

157

Director

The Company

46

110

Name

– 63 –

(5)[Status of Shareholdings](i) Standards and approach to the classification of equity securities
The Company make it a general rule not to hold equity securities for the purpose of pure investments.
(ii) Equity securities held for purposes other than pure investments (hereinafter “cross-shareholdings”)
1) Policy on cross-shareholding and methods to assess its rationality, and results of assessment of theappropriateness of each holding by Directors, etc.
a) Policy on cross-shareholdings
The purposes of cross-shareholding of share of other listed companies are to maintain and strengthen longterm, stable business relationships, or to maintain and strengthen business partnerships.
b) Methods to assess the rationality of cross-shareholding, and assessment of the appropriateness of eachholding by Directors, etc.
The Boards of Directors of the Company and its Group companies annually assess the major cross-holdings
taking into consideration the returns and risks and examining the medium- to long-term economic rationality
and future prospects. As a result of such assessment, any cross-holdings that do not necessarily havesignificance shall be reduced through dialogue and negotiation with such business partners.
2) Number of securities and amounts recorded in the balance sheet
Number of securities
Total amount recorded in(Securities name) balance sheet (millions of yen)
Unlisted stock

6

101

Securities other thanunlisted stock

6

3,424

(Securities that increased in number of shares in the current fiscal year)
Total amount acquired byNumber of securities
increase in number of shares(Securities name)(millions of yen)

Reasons for increasein number of shares

Unlisted stock

－

－

－

Securities other thanunlisted stock

－

－

－

(Securities that decreased in number of shares in the current fiscal year)
Number of securities(Securities name)

Total amount sold by decrease in
number of shares (millions of yen)

Unlisted stock－－

Securities other thanunlisted stock2

15– 64 –

3) Numbers of securities and amounts recorded in the balance sheet for equity holdings for specific purpose anddeemed equity holdings
Specified investment securities

Securities nameCurrent fiscal year

Previous fiscal year

Number of shares(shares)Amount recorded inbalance sheet(millions of yen)

Number of shares(shares)Amount recorded inbalance sheet(millions of yen)

1,780,000

1,780,000

2,038

3,337

2,322,180

2,322,180

1,273

1,646

275,400

275,400

73

108

17,00017,00029

35

31,46031,460

7

12

9,187

9,187

2

6

－

51,000－13－

11,880－

9

T&D Holdings,
Inc.

Mitsubishi UFJ
Financial Group,Inc.

Mebuki Financial
Group, Inc.

Nippon Paper
Industries Co.,Ltd.

Mito Securities
Co., Ltd.

Tokai Tokyo
Financial
Holdings, Inc.

Toyo Securities
Co., Ltd.

Fujitsu Limited

Purpose of holding, quantitative effect of holding,reason for increase in number of shares

To maintain and strengthen the partnership forthe purpose of supporting the prosperity andsuccess of SMEs.
Figures on the effect of holding are not disclosed
as they contain business secrets of said company.
However, the Company assesses whether the
benefits and risks from the holding cover thecosts of capital, quantitatively on a regular basis.
To maintain and strengthen the long-term, stablebusiness relationship.
Figures on the effect of holding are not disclosed
as they contain business secrets of said company.
However, the Company assesses whether the
benefits and risks from the holding cover thecosts of capital, quantitatively on a regular basis.
To maintain and strengthen the long-term, stablebusiness relationship.
Figures on the effect of holding are not disclosed
as they contain business secrets of said company.
However, the Company assesses whether the
benefits and risks from the holding cover thecosts of capital, quantitatively on a regular basis.
To maintain and strengthen the long-term, stablebusiness partnership.
Figures on the effect of holding are not disclosed
as they contain business secrets of said company.
However, the Company assesses whether the
benefits and risks from the holding cover thecosts of capital, quantitatively on a regular basis.
To maintain and strengthen the long-term, stablebusiness relationship.
Figures on the effect of holding are not disclosed
as they contain business secrets of said company.
However, the Company assesses whether the
benefits and risks from the holding cover thecosts of capital, quantitatively on a regular basis.
To maintain and strengthen the long-term, stablebusiness relationship.
Figures on the effect of holding are not disclosed
as they contain business secrets of said company.
However, the Company assesses whether the
benefits and risks from the holding cover thecosts of capital, quantitatively on a regular basis.
As a result of assessment of whether or not tohold the cross-shareholding by comparing thebenefits of the business relationship and holding
with the costs of capital, the Board of Directors
decided on selling, and shares were sold in July
2019.
As a result of assessment of whether or not tohold the cross-shareholding by comparing thebenefits of the business relationship and holding
with the costs of capital, the Board of Directors
decided on selling, and shares were sold in June
2019.

(Note) Column with “－” indicates that the Company does not hold said securities.
(iii) Equity securities held for the pure investment
None to be disclosed.
– 65 –

Holding of theCompany’s
shares

Yes

Yes

Yes

Yes

Yes

No

No

No

Part 5 [Financial Information]
1. Method of Preparing Consolidated Financial Statements and Financial Statements(1) The consolidated financial statements of the Company have been prepared in accordance with the Ordinance on
Terminology, Forms, and Preparation Methods of Consolidated Financial Statements (Ordinance of the Ministryof Finance No. 28 of 1976).
(2) The financial statements of the Company have been prepared in accordance with the Ordinance on the
Terminology, Forms, and Preparation Methods of Financial Statements (Ordinance of the Ministry of Finance No.
59 of 1963; hereinafter, the “Ordinance on Financial Statements”).
Further, as the Company is a Specified Company Submitting Financial Statements, we have prepared the financial
statements in accordance with the provisions of Article 127 of the Ordinance on Financial Statements.

2. Auditing and Attestation
The consolidated financial statements for the consolidated fiscal year (from October 1, 2018 to September 30, 2019)and financial statements for the fiscal year (from October 1, 2018 to September 30, 2019) have been audited by
Ernst & Young ShinNihon LLC pursuant to the first paragraph of Article 193-2 of the Financial Instruments andExchange Act of Japan.

3. Special Efforts to Ensure the Appropriateness of its Consolidated Financial Statements
The Company makes exceptional efforts to ensure the appropriateness of our consolidated financial statements.
Specifically, in order to understand the contents of accounting standards correctly and to develop a system thatwould enable us to respond properly to changes in accounting standards, we maintain membership of the Financial
Accounting Standards Foundation and attend seminars held by the Accounting Standards Board of Japan.

– 66 –

1. [Consolidated Financial Statements](1) [Consolidated Financial Statements]
1) [Consolidated Balance Sheet](Unit: millions of yen)Previous consolidated fiscal year Current consolidated fiscal year
(September 30, 2018)(September 30, 2019)
AssetsCurrent assets
Cash and deposits
Notes and accounts receivable–trade
Lease investment assets
Merchandise and finished goods
Work in progress
Raw materials and supplies
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment
Buildings and structures (net amount)
Machinery, equipment and vehicles (net amount)
Tools, furniture and fixtures (net amount)Land
Lease assets (net amount)
Construction in progress
Total property, plant and equipment
Intangible assets
Software
Software in progress
Other
Total intangible assets
Investments and other assets
Investment securities
Long-term loans receivable
Deferred tax assets
Long-term time deposits
Guarantee deposits
Long-term lease investment assets
Other
Total investments and other assets
Total non-current assets
Total assets

22,268
7,690
290
200
255
163
914
(35)
31,747

29,810
8,755
443
308
634
147
1,015
(41)
41,073

7,991
596
1,418
6,922
275
259
*1 17,464

8,404
503
1,793
6,892
369
－
*1 17,963

2,983
698
26
3,707

2,456
807
26
3,290

*2

– 67 –

24,026
87
5,211
6,000
1,318
350
286
37,28258,45490,202*2

15,527
38
7,015
9,500
1,339
1,033
206
34,661
55,91596,989(Unit: millions of yen)Previous consolidated fiscal year Current consolidated fiscal year
(September 30, 2018)(September 30, 2019)
Liabilities
Current liabilities
Accounts payable–trade
Electronically recorded obligations–operating
Current portion of long-term loans payable
Lease obligations
Accounts payable–other
Income taxes payable
Accrued consumption taxes
Provision for bonuses
Other
Total current liabilities
Non-current liabilities
Long-term loans payable
Lease obligations
Retirement benefit obligations
Provision for stocks payment
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Accumulated remeasurements of defined benefit plans
Total accumulated other comprehensive income
Subscription rights to shares
Non-controlling interests
Total net assets
Total liabilities and net assets– 68 –

2,824
1,080
142
363
2,805
1,689
492
3,169
1,387
13,955

3,602
916
142
541
2,661
2,450
721
3,600
1,640
16,278

580
576
2,036
－
501
3,696
17,651

438
1,333
4,764
562
492
7,590
23,8685,700
5,409
59,806(971)
69,944

5,700
5,711
63,623(1,630)73,404

917
－
917
235
1,453
72,55090,202(83)(1,704)(1,787)－
1,504
73,121
96,9892) [Consolidated Statements of Income and Comprehensive Income][Consolidated Statements of Income](Unit: millions of yen)Previous consolidated fiscal year Current consolidated fiscal year
(Started October 1, 2017;(Started October 1, 2018;
ended September 30, 2018)
ended September 30, 2019)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Dividends income
Land and house rent received
Subsidy income
Equity in earnings of affiliates
Other
Total non-operating income
Non-operating expenses
Interest expenses
Other
Total non-operating expenses
Ordinary income
Extraordinary income
Gain on sales of non-current assets
Gain on negative goodwill
Gain on reversal of subscription rights to shares
Other
Total extraordinary income
Extraordinary loss
Loss on sale of non-current assets
Loss on retirement of non-current assets
Loss on valuation of investment securities
Impairment loss
Loss on step acquisitions
Other
Total extraordinary loss
Net income before taxes and adjustments
Income taxes–current
Income taxes - deferred
Total income taxes
Net income
Profit attributable to non-controlling interests
Profit attributable to owners of parent*1, *2

61,621
21,002
40,61931,939
8,679
31
122
46
40
12
31
284

31
135
52
13
27
64
325

2
0
3
8,961

2
0
3
9,669

*1

3
－
－
－
3

3
9
53
*6 0
－
－
66
8,897
3,032
(347)
2,685
6,212
54
6,158
*4
*5

– 69 –*1, *2

66,12022,822
43,29833,951
9,347

1
88
274
8
373

*3

10
7
－
－
20
0
38
10,004
3,776
(556)
3,220
6,784
63
6,721
*4
*5

[Consolidated Statements of Comprehensive Income](Unit: millions of yen)Previous consolidated fiscal year Current consolidated fiscal year
(Started October 1, 2017;(Started October 1, 2018;
ended September 30, 2018)
ended September 30, 2019)
Net income
Other comprehensive income
Valuation difference on available-for-sale securities
Remeasurements of defined benefit plans
Share of other comprehensive income of entities
accounted for using equity method
Total other comprehensive income
Comprehensive income(Breakdown)Comprehensive income attributable to owners ofparentComprehensive income attributable to non-controllinginterests

6,212

6,784

304
－

(996)
(1,704)

0

(0)

304
6,517

*1

– 70 –*1(2,701)
4,082

6,454

4,015

63

66

3) [Consolidated Statement of Changes in Net Assets]
Previous consolidated fiscal year (started October 1, 2017; ended September 30, 2018)(Unit: millions of yen)
Shareholders’ equity
Capital stock
Balance at beginning of
year

5,700

Capital surplus

Retained earnings

5,409

56,549Treasury stock(968)

Total shareholders’equity66,690Changes during fiscal year
Dividends of surplus(2,901)(2,901)

Profit attributable toowners of parent

6,158

6,158

Acquisition of treasury
stock

(3)

(3)

Changes in items otherthan equity (net)Total changes during fiscal
year
Balance at end of year

Balance at beginning of
year

－

－

3,256

(3)

3,253

5,700

5,409

59,806(971)

69,944

Accumulated other comprehensive
incomeValuation
Total accumulated Subscription rights
to shares
difference on
otheravailable-for-salecomprehensive
securities
incomeNon-controllinginterests

Total net assets

1,401

68,892

621

621

178

Changes during fiscal year
Dividends of surplus(2,901)

Profit attributable toowners of parent

6,158

Acquisition of treasury
stock

(3)

Changes in items otherthan equity (net)

295

295

57

52

405

Total changes during fiscal
year

295

295

57

52

3,658

Balance at end of year

917

917

235

1,453

72,550– 71 –

Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)(Unit: millions of yen)
Shareholders’ equity

Balance at beginning ofyear

Total shareholders’equityCapital stock

Capital surplus

Retained earnings

Treasury stock

5,700

5,409

59,806(971)

69,944

Changes during fiscal year
Dividends of surplus
Profit attributable toowners of parent
Acquisition of treasury
stock
Disposal of treasury
stock
Increase due to shareexchange(2,904)(2,904)

6,721

6,721
(1,387)(1,387)

228

535

763

74

193

267

Changes in items otherthan equity (net)Total changes during fiscal
year
Balance at end of year

－

302

3,816

(658)

3,460

5,700

5,711

63,623(1,630)73,404

Accumulated other comprehensive income
Valuationdifference on
available-forsale securities
Balance at beginning of
year

917

Total
Accumulated
Subscription Non-controlling
accumulated
Total net assets
remeasurements
rights to sharesinterests
otherof definedcomprehensive
benefit plansincome
917

－

235

1,453

72,550Changes during fiscal year
Dividends of surplus(2,904)

Profit attributable toowners of parent

6,721

Acquisition of treasury
stock
Disposal of treasury
stock
Increase due to shareexchange(1,387)763
267

Changes in items otherthan equity (net)(1,001)(1,704)(2,705)(235)

50(2,890)Total changes during fiscal
year(1,001)(1,704)(2,705)

(235)

50

570

(83)

(1,704)(1,787)－

1,504

73,121

Balance at end of year

– 72 –

4) [Consolidated Statements of Cash Flows](Unit: millions of yen)Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)
Cash Flows from Operating Activities
Net income before taxes and adjustments
Depreciation
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provisions for bonuses
Increase (decrease) in retirement benefit obligations
Increase (decrease) in provisions for stocks payment
Interest and dividends income
Interest paid
Equity in losses (earnings) of affiliates
Loss on retirement of non-current assets
Loss (gain) on sale of non-current assets
Impairment losses
Loss (gain) on valuation of investment securities
Share-based payment expenses
Gain on reversal of subscription rights to shares
Gain on negative goodwill
Loss (gain) on step acquisitions
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Decrease (increase) in other assets
Increase (decrease) in trade payables
Increase (decrease) in other liabilities
Increase (decrease) in accrued consumption taxes
Other
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Cash Flows from Operating Activities
Cash Flows from Investing Activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Proceeds from redemption of investments in capital
Purchase of investment securities
Proceeds from sales of investment securities
Proceeds from redemption of investment securities
Payments for guarantee deposits
Proceeds from collection of guarantee deposits
Payments of loans receivables
Collection of loans receivables
Other payments
Other proceeds
Cash Flows from Investing Activities– 73 –

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

8,897
2,646
2
140
368
－
(154)
2
(12)
9
0
0
53
57
－
－
－
(1,422)
136
(74)
736
(89)
(50)
105
11,353192(2)(2,733)8,810

10,004
3,006
(8)
402
170
562
(103)
2
(27)
7
9
－
－
44
(274)
(88)
20
(566)
(372)
179
566
(272)
215
(17)
13,458200(2)(3,106)
10,550(3,000)3,000(2,552)
5(1,395)
－
(1)
－
－
(31)
23
(150)
139
(49)
0
(4,013)(6,500)3,000(1,929)25(1,249)0(3,001)
15
10,000
(8)
15
－
49
(5)
－
411

(Unit: millions of yen)Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)
Cash Flows from Financing Activities
Proceeds from long-term loans payable
Repayment of long-term loans payable
Repayment of lease obligations
Purchase of treasury stock
Proceeds from disposal of treasury stock
Cash dividends paid
Cash dividends paid to non-controlling interests
Other
Cash Flows from Financing Activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents from newly
consolidated subsidiaries
Cash and cash equivalents at end of year*1

– 74 –

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

500
(71)
(86)
(3)
－
(2,895)(10)－(2,567)2,229
17,039

－
(142)
(101)
(1,387)756(2,900)(16)
0(3,792)
7,169
19,268－372

19,268*1

26,810[Notes to Financial Statements](Basis of Presenting the Consolidated Financial Statements)
1.

Scope of Consolidation
Consolidated subsidiaries (5 companies):
TLP Corporation
TKC Security Services Co., Ltd.
SKYCOM Corporation
TKC Customer Support Service Co., Ltd.
TKC Shuppan Corporation
Of the above, TKC Shuppan Corporation has become a wholly owned subsidiary company through shareexchange in the current consolidated fiscal year and has been included in the consolidated group.
Non-consolidated subsidiaries (1 company):
TKC Financial Guarantee Co., Ltd.
(Reason for excluding the company from the consolidated group)
TKC Financial Guarantee Co., Ltd. is excluded from the consolidated group because it does not have any
material impact on the consolidated financial statements of the Company in terms of total assets, net
sales, net income (amount in proportion to equity held) or retained earnings (amount in proportion toequity held), nor does it have material importance as a whole.

2.

Scope of Application of the Equity Method
Affiliated companies under the equity method: (1 company):
iMobile Inc.
Because the fiscal year-end of iMobile Inc. is March 31, a provisional settlement of accounts similar to a
final settlement has been performed as of the closing date of the consolidated financial statements.
Non-consolidated subsidiaries not under the equity method (1 company):
TKC Financial Guarantee Co., Ltd.
(Reason for excluding the company from the scope of application of the equity method)
TKC Financial Guarantee Co., Ltd. is excluded from the scope of application of the equity method
because such exclusion does not have any material impact on the consolidated financial statements of theCompany in terms of net income (amount in proportion to equity held) or retained earnings (amount inproportion to equity held), nor does it have material importance as a whole.
Furthermore, TKC Shuppan Corporation, which was an equity-method affiliated company in the previous
consolidated fiscal year, is excluded from the scope of application of the equity method because it has
become a consolidated subsidiary.

3.

Fiscal Year-ends of Consolidated Subsidiaries
The closing dates of all consolidated subsidiaries are the same as the closing date of the consolidated
financial statements.

4.

Accounting Policies(1) Valuation standards and methods for major assets
1) Marketable and investment securities
a. Available-for-sale securitiesa) Available-for-sale securities with market value
Stated at fair market value based on the quoted market price as of the fiscal year-end (related
valuation differences are directly charged or credited to the shareholders’ equity, and cost of
securities sold is calculated by the moving average method)– 75 –b) Available-for-sale securities without market value
Stated at cost determined by the moving average method
2) Inventory assets
a. Merchandise, raw materials
Cost determined by first-in, first-out method (with balance sheet values reflecting write downs for
decreased profitability).
b. Finished goods
Cost determined mainly by cost percentage method (with balance sheet values reflecting write
downs for decreased profitability).
c. Work in progress
Cost determined by specific identification method (with balance sheet values reflecting write
downs for decreased profitability).
d. Supplies
Last purchase price method (with balance sheet values reflecting write downs for decreased
profitability).
(2) Depreciation of major depreciable assets
1) Property, plant and equipment (excluding lease assets)
Calculated based on declining balance method.
Provided, buildings acquired after April 1, 1998 (excluding accompanying facilities), andaccompanying facilities and structures acquired after April 1, 2016 are calculated based on straightline method.
Primary useful lives are as follows:
Buildings & structures
Machinery, equipment & vehicles
Tools, furniture & fixtures

10 to 50 years
4 to 10 years
2 to 20 years

2) Intangible assets (excluding lease assets)
a. Softwarea) Software for sale
Software for sale are amortized and stated at the higher of amortization based on estimated sales
volume in the future, and amortization at a constant periodic rate based on remaining effective
life (within 3 years).
b) Software for internal use
Amortized using straight-line method with an estimated in-house useful life of five years.
b. Other intangible assets
Amortized using the straight-line method.
3) Leased assets
Leased assets relating to finance lease transactions that do not involve transfer of ownership
Amortized using the straight-line method with useful lives equal to lease terms and residual values
at zero.
(3) Standards for recognizing significant provisions
1) Allowance for doubtful accounts
In setting aside provisions for possible losses due to uncollectable receivables, provisions arerecognized at the amounts calculated based on the historical rate of credit loss with respect tonormal receivables, and at the amounts determined in consideration of collectability of individual
receivables with respect to doubtful accounts and certain other receivables.

– 76 –

2) Provisions for bonuses
Provisions for bonuses are recognized based on the estimated amounts of payment.
3) Provisions for stocks payment
In setting aside provisions for payment of the Company’s shares to Directors, etc., provisions arerecognized at estimated amounts of stocks payment determined based on the points allocated to
Directors, etc. in accordance with the rules on issuance of shares under the Board Incentive Plan
(BIP) Trust.
(4) Accounting procedure for retirement benefits
1) Method of attributing expected benefits to dateIn calculating retirement benefit obligations, expected benefits are attributed to the period up until
the end of the consolidated fiscal year based on benefit formula standards.
2) Recognizing actuarial differences as expenses and past service costs
Past service costs are recognized as expenses for certain years (10 years) within the averageremaining years of service of employees in which they occur using the straight-line method.
Actuarial differences are recognized as expenses for the consolidated fiscal year in which theyoccur.
3) Unrecognized past service costs
Unrecognized past service costs are recognized on a tax-adjusted basis at the amount ofaccumulated remeasurements of defined benefit plans under accumulated other comprehensive
income in net assets.
(5) Standards for recognizing significant revenues and expenses
Accounting standards for recognizing revenues and cost of sales of made-to-order software (softwaredevelopment contracts)
1) Projects for which the progress up to the end of the current consolidated fiscal year can be measured
reliably
Accounted for by percentage-of-completion method (whereas, the degree of completion isestimated based on the construction cost percentage method).
2) Other projects
Accounted for upon completion of construction works.
(6) Scope of funds covered by the consolidated statements of cash flows
The scope of funds (cash and cash equivalents) covered by the consolidated statements of cash flows
includes:1) Cash on hand2) Demand deposits3) Short-term investments that mature within three months and are easily convertible to cash and bear
very little value fluctuation risk.
(7) Other important matters regarding the preparation of consolidated financial statements
1) Accounting method for consumption taxes and local consumption taxes
Consumption taxes are accounted for using the tax-exclusion method.
2) Application of the consolidated taxation system
The consolidated taxation system is applied.

– 77 –

(Accounting Standards Not Yet Applied)(Application of Accounting Standards for Revenue Recognition, etc.)
・ Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 30, 2018, ASBJ)・ Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30, March 30,
2018, ASBJ)(1) Summary
The International Accounting Standards Board (IASB) and the U.S, Financial Accounting Standards Board(FASB) jointly developed a comprehensive accounting standard on the recognition of revenue and issued the“Revenue From Contracts With Customers” (IASB’s IFRS 15 and FASB’s Topic 606) in May 2014. IFRS 15 has
been adopted from the fiscal year beginning after January 1, 2018, and Topic 606 has been adopted from the fiscal
year beginning after December 15, 2017. In line with this adoption, ASBJ developed a comprehensive accounting
standard on the recognition of revenue and issued it together with the implementation guidance.
The basic approach in developing the accounting standard on the recognition of revenue was to set forth theaccounting standards that incorporates the basic principles of IFRS 15 so as to allow comparability among
financial statements which is an advantage to ensure consistency with IFRS 15, and to add alternative treatments
to the extent not to compromise such comparability in case there are matters to be considered with respect topractices that have been conducted in Japan up to date.
(2) Planned date of application
We plan to apply the standards as of the beginning of the fiscal year ending September 2022.
(3) Impacts of application of said accounting standards
The impacts from the application of the Accounting Standard for Revenue Recognition, etc., on the consolidated
financial statements are currently under evaluation.
(Additional Information)(Stock-based Compensation Plan for Officers)
The Company introduced a stock-based compensation plan for its Directors (excluding Outside Directors andexpatriates), Auditors (excluding Outside Auditors and expatriates), and Executive Officers (excluding expatriates;
hereinafter referred to collectively as “Directors, etc.”).
1. Outline of transaction
Based on the resolution of the Board of Directors’ Meeting held on October 31, 2018 followed by approval at theOrdinary General Meeting of Shareholders held on December 21, 2018, the Company introduced a stock-based
compensation plan called “BIP Trust.” The objectives of the plan are to clarify the linkage between the
Company’s shareholder value and the compensation for Directors, etc. and to motivate Directors, etc. tocontribute more to enhancing the medium- to long-term corporate value by sharing common interest withshareholders, including not only the merit derived from the rising share price, but also the risk associated with the
decline in share price.
2. Stocks of the Company remaining in trust
The stocks of the Company remaining in trust are recorded as treasury stock under Net Assets with the bookvalues in the trust (not including expenses attributable thereto). The book value of said treasury stocks was 753
million yen for 190,500 shares as of the end of the consolidated fiscal accounting period under review.
(Implementation of the “Partial Amendments to Accounting Standard for Tax Effect Accounting,” etc.)
The Company applies the partially amended Accounting Standard for Tax Effect Accounting (ASBJ Standard No. 28,
February 16, 2018), etc. as of the beginning of the consolidated fiscal accounting period. Accordingly, changes weremade so that deferred tax assets are indicated under the investments and other assets category, and deferred tax
liabilities are indicated under the non-current liabilities category. Notes to Tax Effecting have also been revised.

– 78 –

(Notes to Consolidated Balance Sheets)*1. Accumulated depreciation of property, plant and equipment
Previous consolidated fiscal year
(September 30, 2018)

Current consolidated fiscal year
(September 30, 2019)22,141 million yen

20,951 million yen*2. Items pertaining to non-consolidated subsidiaries and affiliated companies are as follows:
Previous consolidated fiscal year
(September 30, 2018)
Investment securities (shares)

Current consolidated fiscal year
(September 30, 2019)

284 million yen

100 million yen(Notes to Consolidated Statements of Income)*1. Major items included in selling, general and administrative expenses are as follows:
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

Salaries

10,706 million yen

11,300 million yen

Provisions for bonuses
Retirement benefit expenses

2,709
767
－

2,981
648

Provisions for stocks payment
Depreciation
Rent expenses
Research and development expenses

688

562
692

2,105
82

2,158
－

*2. Total amount of research and development expenses included in general administrative expenses
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)
82 million yen

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)－ million yen*3. Breakdown of gains on sales of non-current assets is as follows:
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

Machinery, equipment & vehicles

1 million yen

0 million yen

Tools, furniture & fixtures

1

1

Total

3

1

*4. Breakdown of loss on sale of non-current assets is as follows:
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)Land－ million yen

Machinery, equipment & vehicles

3

10 million yen
－

3

10

Total

– 79 –

*5. Breakdown of loss on retirement of non-current assets is as follows:
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

Buildings & structures
Machinery, equipment & vehicles

0 million yen－

5 million yen
0Tools, furniture & fixtures
Intangible assets

4
4
－

1
0

9

7

Other (Investments and other assets)
Total

0

*6. Impairment loss
Previous consolidated fiscal year (started October 1, 2017; ended September 30, 2018)
The Group recorded an impairment loss for the following asset group for the current consolidated fiscal
year:
Location
Shinjuku-ku, Tokyo, etc.

Usage

Class

Idle assets

Impairment loss
(millions of yen)

Telephone subscription rights

0

The Group, in principle, groups its business assets based on management accounting units, and idle
assets are grouped by types of asset.
For the current consolidated fiscal year, the book values of idle assets not used for business purposes
were reduced to recoverable amounts, and such reduced amounts were recorded as impairment loss (0million yen) under extraordinary loss.
Recoverable amounts were measured based on the net selling prices. Telephone subscription rights were
evaluated based on their expected disposal prices.
Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)
None to be disclosed.

– 80 –

(Notes to Consolidated Statements of Comprehensive Income)*1. Reclassification adjustments and tax expense or benefits on other comprehensive income
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

Valuation difference on available-for-sale securities:
Increase/decrease during the fiscal year
Reclassification adjustments

439－

million yen(1,432)
1

Amount before tax

439(1,430)Tax effect

(135)

434

Valuation difference on available-for-sale securities

304

(996)

－
－

(2,451)－

Amount before tax
Tax effect－－(2,451)
747

Remeasurements of defined benefit plans－(1,704)

0

(0)

0

(0)

304

(2,701)Remeasurements of defined benefit plans:
Increase/decrease during the fiscal year
Reclassification adjustments

Share of other comprehensive income of associates
accounted for using the equity method:
Increase/decrease during the fiscal year
Share of other comprehensive income of associates
accounted for using the equity method
Total other comprehensive income– 81 –

million yen

(Notes to Consolidated Statements of Changes in Equity)
Previous consolidated fiscal year (started October 1, 2017; ended September 30, 2018)
1. Type and number of issued stocks and treasury stock
Number of shares at
beginning of current
consolidated FY(hundreds of shares)

Increase in number ofshares during current
consolidated FY(hundreds of shares)

Decrease in number ofshares during current
consolidated FY(hundreds of shares)

Number of shares at
end of current
consolidated FY(hundreds of shares)

Common stock

267,310－－

267,310

Total

267,310－－

267,310

Common stock (Note)

3,517

8

－

3,525

Total

3,517

8

－

3,525

Issued shares

Treasury stock(Note) The 800 share increase in common treasury stock resulted from purchase of 800 fractional unit shares.
2. Subscription rights to shares and treasury subscription rights to shares

Category

Number of shares to be issued upon exercise of rights
Balance at end(shares)
Type of sharesof current
Increase
Breakdown of subscription to be issued
consolidated
Beginning
DecreaseduringEnd of current
rights to shares
upon exercise of of current
fiscal year
during current
current
consolidated
rights(millions ofconsolidated
consolidated
consolidated
fiscal year
yen)fiscal year
fiscal year
fiscal year

The Company
Subscription rights to(Parent
shares as stock options
company)

－

－

－

－

－

235

Total

－

－

－

－

－

235

3. Dividends(1) Dividend payments
Resolution

Type of shares

Total amount of cash
dividends(millions of yen)

Dividend per share(yen)

December 22, 2017
Ordinary General
Meeting of
Shareholders

Common stock

1,582

May 2, 2018
Meeting of theBoard of Directors

Common stock

1,319

Record date

Effective date

60

September 30, 2017

December 25, 201750

March 31, 2018

June 11, 2018

(2) Of the dividends with record dates during this consolidated fiscal year, those with effective dates in thefollowing consolidated fiscal year
Resolution

Type of shares

Total amount ofcash dividends(millions of yen)

December 21, 2018
Ordinary General
Meeting of
Shareholders

Common stock

1,450

Source ofdividends
Retainedearnings– 82 –

Dividend pershare (yen)Record date

Effective date

55 September 30, 2018 December 25, 2018

Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)
1. Type and number of issued stocks and treasury stock
Number of shares at
beginning of current
consolidated FY(hundreds of shares)

Increase in number ofshares during current
consolidated FY(hundreds of shares)

Decrease in number ofshares during current
consolidated FY(hundreds of shares)

Number of shares at
end of current
consolidated FY(hundreds of shares)

Common stock

267,310－－

267,310

Total

267,310－－

267,310

3,525

3,466

2,515

4,475

3,525

3,466

2,515

4,475

Issued shares

Treasury stock
Common stock(Note)

Total(Note) 1. The 3,466 hundred of share increase in common treasury stock resulted from 1,555 hundred of sharesthrough acquisition of treasury stock based on resolution of the Board of Directors, 6 hundred of sharesfrom purchase of fractional unit shares, and 1,905 hundred of shares from purchase by the BIP Trust.
2. The 2,515 hundred of share decrease in common treasury stock consist of 22 hundred of shares fromexercise of stock options, 571 hundred of shares from share exchange, 17 hundred of shares from
disposal of shares of parent company held by the equity-method affiliated company, and 1,905
hundred of shares contributed to the BIP Trust.
3. The number of treasury stock at the end of the current consolidated fiscal year includes the 1,905
hundred of shares of treasury stock of the Company held by the BIP Trust.
2. Subscription rights to shares and treasury subscription rights to shares
None to be disclosed.
3. Dividends(1) Dividend payments
Resolution
December 21, 2018
Ordinary General
Meeting of
Shareholders
May 8, 2019
Meeting of theBoard of Directors

Type of shares

Total amount of cash
dividends(millions of yen)

Dividend per share(yen)

Common stock

1,450

Common stock

1,453

Record date

Effective date

55

September 30, 2018

December 25, 201855

March 31, 2019

June 10, 2019

(Note) The total amount of cash dividends determined by resolution of the Board of Directors on May 8, 2019
includes a cash dividend of 10 million yen to the stocks of the Company owned by the BIP Trust.
(2) Of the dividends with record dates during this consolidated fiscal year, those with effective dates in thefollowing consolidated fiscal year
Resolution
December 20, 2019
Ordinary General
Meeting of
Shareholders

Total amount ofType of shares cash dividends(millions of yen)

Source ofdividends

Common stock

Retainedearnings

1,456

Dividend pershare (yen)Record date

55 (September 30, 2019)

Effective date

December 23, 2019

(Note) The total amount of cash dividends determined by resolution of the Ordinary General Meeting of
Shareholders on December 20, 2019 includes a cash dividend of 10 million yen to the stocks of theCompany owned by the BIP Trust.

– 83 –

(Notes to Consolidated Statements of Cash Flows)*1. Relationship between the ending balance of cash and cash equivalents and account items stated in the
consolidated balance sheets
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

Cash and deposits

22,268 million yen

29,810 million yen

Time deposits with deposit period greater than three months(3,000)(3,000)Cash and cash equivalents

19,26826,810(Lease Transactions)1. Finance lease transactions (Lessee)
Finance lease transactions that do not involve transfer of ownership
1) Description of lease assets
Property, Plants and Equipment
Mainly include machinery and equipment, tools, furniture and fixtures.
2) Depreciation of lease assets
Lease assets are depreciated in accordance with the basis of presenting the consolidated financial
statements as described in 4. Accounting Policies, (2) Depreciation of major depreciable assets.
2. Operating lease transactions (Lessee)
Unexpired lease payments for non-cancellable operating lease transactions(Unit: millions of yen)Previous consolidated fiscal year
(September 30, 2018)

Current consolidated fiscal year
(September 30, 2019)

Within one year

166

170

Over one year

328

318

494

488

Total

3. Amounts of sublease transactions that are recorded in the consolidated balance sheets in amounts before
deduction of interests(1)

Lease investment assets(Unit: millions of yen)Previous consolidated fiscal year
(September 30, 2018)

Current consolidated fiscal year
(September 30, 2019)

Current assets

290

443

Investments and other assets

350

1,033

(2) Lease obligations(Unit: millions of yen)Previous consolidated fiscal year
(September 30, 2018)

Current consolidated fiscal year
(September 30, 2019)

Current liabilities

290

443

Non-current liabilities

350

1,033

– 84 –

(Financial Instruments)
1. Status of financial instruments(1)

Policy for the handling of financial instruments
The Group manages its funds in the form of low risk, highly safe financial assets such as bank deposits
and bonds. It is the policy of the Group not to enter into derivative transactions for speculative trading
purposes.

(2)

Description of financial instruments, risks and risk management policies
Notes and accounts receivable resulting from operating activities of the Company are exposed to credit
risk of the customers. To reduce credit risk, the Company manages such risk as appropriate based on
payment terms and credit ratings of customers in accordance with internal credit management
regulations.
Investment securities are exposed to market fluctuation risk, and the Company periodically checks thefair values and financial conditions of issuing bodies and conducts reviews of its holdings on an ongoingbasis.
Long-term deposits include deposits with special provisions concerning early termination (callable
certificates of deposit).
The majority of trade payables and accounts payable resulting from operating activities are due within
three months.

(3)

Supplementary information on fair value of financial instruments
The fair value of financial instruments is based on quoted market prices or on reasonable calculations in
the absence of market quotations. Since certain assumptions that contain fluctuation factors were used inestimating the fair value, results may fluctuate when a different set of assumptions is used.

2. Fair value of financial instruments
The book value in consolidated balance sheets, fair value and differences are as follows. Financial
instruments for which the fair value is extremely difficult to measure are not included (see Note 2).
Previous consolidated fiscal year (September 30, 2018)
Book value inconsolidated balance
sheets(millions of yen)

Fair value (millions ofyen)(1) Cash and deposits

22,26822,268－(2) Notes and accounts receivable

7,690

7,654

7,654

－

(3) Investment securities

23,63823,638－(4) Long-term deposits

6,000

5,999

(0)

59,56259,562(0)(1) Accounts payable–trade

2,824

2,824

－

(2) Accounts payable–other

2,805

2,805

－

5,629

5,629

－

Allowance for doubtful accounts

Total assets

Total liabilities

Differences (millions of
yen)

(35)

– 85 –

Current consolidated fiscal year (September 30, 2019)
Book value in consolidatedbalance sheets(millions of yen)

Fair value(millions of yen)

Differences(millions of yen)

29,810

－

8,713

8,713

－

(3) Investment securities

15,324

15,324－(4) Long-term deposits

9,500

9,470

(29)

63,34863,319(29)(1) Accounts payable–trade

3,602

3,602

－

(2) Accounts payable–other

2,661

2,661

－

6,263

6,263

－

(1) Cash and deposits

29,810(2) Notes and accounts receivable

8,755

Allowance for doubtful accounts

Total assets

Total liabilities(41)(Notes) 1. Methods of calculating the fair value of financial instruments and securities transactions
Assets(1) Cash and deposits, (2) Notes and accounts receivable
The book value approximates the fair value because of the short maturity of these instruments.
(3) Investment securities
The fair value of equity securities is based on quoted market prices on the stock exchange; and thefair value of bonds is based on the market prices quoted on the stock exchange or provided byfinancial institutions. These securities categorized by purpose of holding are described further in theNotes on Securities.
(4) Long-term deposits
The fair value of long-term deposits is estimated based on the present value discounted using theinterest rate applicable to new deposits in the total amount of principal and interest, and on the fairmarket value provided by financial institutions for the derivative portions.
Liabilities(1) Accounts payable - trade, (2) Accounts payable - other
The book value approximates the fair value because of the short maturity of these instruments.
2. Financial instruments for which the fair value is extremely difficult to measure(Unit: millions of yen)Previous consolidated fiscal year
(September 30, 2018)

Current consolidated fiscal year
(September 30, 2019)

Other securities (unlisted equity securities)

102

102

Stocks of subsidiaries and affiliates

284

100

387

202

Category

Total

The fair value of these financial instruments are deemed to be extremely difficult to measure since quoted market
value is not available and future cash flows cannot be reliably estimated, and thus the above are not included in "(3)Investment securities" for the previous consolidated fiscal year nor in "(3) Investment securities" for the current
consolidated fiscal year.

– 86 –

3. Redemption scheduled for monetary claims and securities with maturity dates subsequent to the consolidated
settlement datePrevious consolidated fiscal year (September 30, 2018)
Within 1 year
(millions of yen)Over 1 year andwithin 5 years(millions of yen)Over 5 years andwithin 10 years(millions of yen)Over 10 years(millions of yen)

Cash and deposits

22,263－－－

Notes and accounts receivable–trade

7,690

－

－

－

Corporate bonds

－

2,000

2,500

14,000Long-term time deposits

－

6,000

－

－

Total

29,953

8,000

2,500

14,000Within 1 year
(millions of yen)Over 1 year andwithin 5 years(millions of yen)Over 5 years andwithin 10 years(millions of yen)Over 10 years(millions of yen)

Cash and deposits

29,805－－－

Notes and accounts receivable–trade

8,755

－

－

－

Corporate bonds

－

2,000

2,500

7,000

Long-term time deposits

－

6,000

3,500

－

Total

38,560

8,000

6,000

7,000

Investment securities

Current consolidated fiscal year (September 30, 2019)

Investment securities– 87 –

(Securities)
1. Other securities
Previous consolidated fiscal year (September 30, 2018)

Securities for which theamounts in the
consolidated balance sheets
exceeds the original
purchase value
Securities for which theamounts in the
consolidated balance sheets
do not exceed the original
purchase value

Book value inconsolidated balance
sheets (millions of yen)

Original purchasevalue (millions of yen)

Differences (millionsof yen)

5,336

3,647

1,688

Corporate
bonds

－

－

－

Subtotal

5,336

3,647

1,688

－

－

－

Corporatebonds

18,302

18,647(344)

Subtotal

18,302

18,647(344)

23,63822,295

1,343

Class
(1) Stocks(2) Bonds(1) Stocks(2) Bonds

Total(Note) Unlisted shares (102 million yen in the consolidated balance sheets) are not included under “Other
securities” in the table above since quoted market value is not available and is deemed to be extremely
difficult to measure.
Current consolidated fiscal year (September 30, 2019)

Securities for which theamounts in the
consolidated balance sheets
exceeds the original
purchase value
Securities for which theamounts in the
consolidated balance sheets
do not exceed the original
purchase value

Book value inconsolidated balance
sheets (millions of yen)

Original purchasevalue (millions of yen)

Differences (millionsof yen)

1,486

1,145

340

Corporate
bonds

5,182

5,171

11

Subtotal

6,669

6,317

351

2,126

2,498

(371)

Corporate
bonds

6,528

6,596

(67)

Subtotal

8,654

9,094

(439)

15,324

15,411(87)

Class(1) Stocks(2) Bonds(1) Stocks(2) Bonds

Total(Note) Unlisted shares (102 million yen in the consolidated balance sheets) are not included under “Other
securities” in the table above since quoted market value is not available and is deemed to be extremely
difficult to measure.
2. Other securities sold
Previous consolidated fiscal year (started October 1, 2017; ended September 30, 2018)
None to be disclosed.

– 88 –

Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)
Class

Price sold (millions of yen)

(1) Stocks

Total gain from sales(millions of yen)

Total loss from sales(millions of yen)

15

2

0

Corporate bonds

－

－

－

Subtotal

1520(2) Bonds

3. Securities for which impairment loss are recognized
For the previous fiscal year, the Group recorded an impairment loss of 53 million yen on securities (53million yen on shares of other securities).
In recording the impairment loss, if the market value at year-end has dropped more than 50% compared tothe original purchase value, the entire amount has been recorded as impairment loss; if the market value has
dropped about 30-50%, the amount deemed necessary considering the recoverability has been recorded as
impairment loss.
(Derivatives)
1. Derivative transactions for which hedge accounting is not applied
None to be disclosed.
2. Derivative transactions for which hedge accounting is applied
None to be disclosed.
(Retirement Benefits)
1. Overview of the retirement benefit system in use
The Company and its four consolidated subsidiaries have contributory and non-contributory defined benefit
retirement plans (retirement lump-sum plan) and a defined contribution pension plan to cover retirement
benefits to employees.
Under the retirement lump-sum plan, the Company pays a lump-sum retirement benefit based on employees’salary and period of service. The Company establishes a retirement benefit trust for the retirement lump-sum
plan.
Although the Company is a member of a multiemployer pension plan called the Japan Computer Information
Service Employees’ Pension Fund, the portion of pension assets that the Company contributes is recognizedsimilar to the defined benefit plan because the amount cannot be reasonably calculated.
2. Defined benefit retirement plan
(1) Adjustment of balance of retirement benefit obligations at the beginning and end of fiscal years
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)
Retirement benefit obligations at beginning of year
Increase due to new consolidations
Service costs
Interest costs
Actuarial differences
Retirement benefits paid
Amount of past service costs accrued
Balance of retirement benefit obligations
at end of year

5,595
－
389
－
15
(114)
71
5,957

million yen

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)
5,957 million yen
105
397
－
(53)
(175)
2,472
8,704

(Note) Past service costs were accrued as a result of amendments to the Company’s retirement benefit rules
made during the current consolidated fiscal year.
– 89 –

(2) Adjustment of balance of pension assets at the beginning and end of fiscal years
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

3,927
－
(6)
－
－
3,921

3,921
－
18
－
－
3,939

Balance of pension assets at beginning of year
Expected returns
Actuarial differences
Contributions by employer
Retirement benefits paid
Balance of pension assets at end of year

million yen

million yen(3) Adjustment of balance of retirement benefit obligations and pension assets at the end of the fiscal years,
and net retirement benefit obligations and assets recognized in the consolidated balance sheets
Previous consolidated fiscal year
(September 30, 2018)
Contributory retirement benefit obligations
Pension assets

Current consolidated fiscal year
(September 30, 2019)

5,390 million yen(3,921)
1,469
567

8,026 million yen(3,939)4,087
677

Net obligations and assets in the consolidatedbalance sheets

2,036

4,764

Retirement benefit obligations

2,036

4,764

Net obligations and assets in the consolidatedbalance sheets

2,036

4,764

Non-contributory retirement benefit obligations(4) Retirement benefit expenses and breakdown
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)
Service costs
Interest costs
Expected returns
Amount of actuarial differences treated as
expenses
Amount of past service costs treated as expenses

389
－
－

Retirement benefit expenses under the defined
retirement benefit plan

million yen

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)
397
－
－

15

(71)

71

20

476

345

million yen(5) Remeasurements of defined benefit plans
Items that were recorded under remeasurements of defined benefit plans (amount before tax) are as
follows:
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)
Past service costs

－

Total

－

– 90 –

million yen

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)(2,451) million yen(2,451)

(6) Accumulated remeasurements of defined benefit plans
Items that were recorded under remeasurements of defined benefit plans (amount before tax) are as
follows:
Previous consolidated fiscal year
(September 30, 2018)

Current consolidated fiscal year
(September 30, 2019)

Unrecognized past service costs－ million yen(2,451) million yen

Total

－

(2,451)(7) Pension assets
1) Major pension assets
The percentages of each major classification in comparison to the amount of total pension assets are as
follows:
Previous consolidated fiscal year
(September 30, 2018)

Current consolidated fiscal year
(September 30, 2019)

Bonds

26%

41%

Cash and deposits

51

51

Other

24

8

100

100

Total

(Note) All pension assets are the retirement benefit trust established for the Company’s defined retirement
benefit plan.
2) Basis for expected long-term rate of return on pension assets
The Company has a basic policy to cover the trust expenses with operation profit and does not have an
expected long-term rate of return on pension assets.
(8) Basis for actuarial calculations
Basis for major actuarial calculations
Previous consolidated fiscal year
(September 30, 2018)
Discount rate
Expected long-term rate of return
Expected increase in salary

Current consolidated fiscal year
(September 30, 2019)

0.00%

0.00%

－%

－%

1.00 - 1.85%

1.00 - 1.85%

3. Defined contribution plan
The amount of necessary contributions to the defined contribution plan of the Company and its consolidated
subsidiaries was 262 million yen for the previous consolidated fiscal year, and 271 million yen for thecurrent consolidated fiscal year.
4. Multiemployer pension plan
The amounts of necessary contributions to the corporate pension fund plan under the multiemployer pension
plan, which are recognized in the same manner as the defined contribution plan, were 117 million yen in theprevious consolidated fiscal year and 126 million yen in the current consolidated fiscal year.
(1) Reserve fund for multiemployer pension planPrevious consolidated fiscal year
(March 31, 2018)

Current consolidated fiscal year
(March 31, 2019)

Pension assets

238,026 million yen

234,785 million yen

Actuarial liabilities based on pension plan financecalculation

195,467

192,041

Differences

42,55842,744– 91 –

(2) Coverage ratio of the Group in the multiemployer pension planPrevious consolidated fiscal year: 1.97% (Started April 1, 2017; ended March 31, 2018)
Current consolidated fiscal year: 2.13% (Started April 1, 2018; ended March 31, 2019)(3) Supplementary information
The ratio in (2) above does not match the actual self-pay ratio of the Company(Stock Option Plans)
1. Expenses related to stock options(Unit: millions of yen)Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)
Selling, general and administrative
expenses

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)57

44

2. Amount recognized as profit from forfeiture due to non-exercise of stock options(Unit: millions of yen)Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)
Gain on reversal of subscription
rights to shares

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)－– 92 –

274

3. Description, scale and fluctuation of stock option plans(1) Details of stock options
1st subscription rights
to shares

2nd subscription rights
to shares

3rd subscription rights
to shares

4th subscription rights
to shares

10 Directors of theCompany (excluding
Outside Directors)

10 Directors of theCompany (excluding
Outside Directors)

11 Directors of theCompany (excluding
Outside Directors)

2 Auditors of theCompany (excluding
Outside Auditors)

2 Auditors of theCompany (excluding
Outside Auditors)

2 Auditors of theCompany (excluding
Outside Auditors)

13 Executive Officers

13 Executive Officers

17 Executive Officers

Number of stock options by
Common stock: 27,000
type
shares(Note)

Common stock: 37,600
sharesCommon stock: 34,400
sharesCommon stock: 28,100
sharesDate of grant

March 12, 2012

December 7, 2012

December 9, 2013

December 12, 2014

Conditions for vesting

n/a

n/a

n/a

n/a

Required period of service

Not provided

Not provided

Not provided

Not provided

Position and number ofgrantees

9 Directors of theCompany (excluding
Outside Directors)
2 Auditors of theCompany (excluding
Outside Auditors)

From December 10,
From December 8, 20122013
to December 7, 2047
to December 9, 2048

From December 13,
2014
to December 12, 2049

5th subscription rights
to shares

6th subscription rights
to shares

7th subscription rights
to shares

8th subscription rights
to shares

9 Directors of theCompany (excluding
Outside Directors)

9 Directors of theCompany (excluding
Outside Directors)

9 Directors of theCompany (excluding
Outside Directors)

9 Directors of theCompany (excluding
Outside Directors)

2 Auditors of theCompany (excluding
Outside Auditors)

2 Auditors of theCompany (excluding
Outside Auditors)

2 Auditors of theCompany (excluding
Outside Auditors)

2 Auditors of theCompany (excluding
Outside Auditors)

21 Executive Officers

22 Executive Officers

21 Executive Officers

23 Executive Officers

Number of stock options by
Common stock:
type
18,200 shares(Note)

Common stock:
18,100 shares

Common stock:
16,500 shares

Common stock:
13,300 shares

Date of grant

December 11, 2015

December 12, 2016

December 10, 2017

December 10, 2018

Conditions for vesting

n/a

n/a

n/a

n/a

Required period of service

Not provided

Not provided

Not provided

Not provided

From December 13,
2016
to December 12, 2051

From December 11,
2017
to December 10, 2052

From December 11,
2018
to December 10, 2053

Period stock options can be From March 13, 2012
exercised
to March 12, 2047

Position and number ofgrantees

From December 12,
Period stock options can be2015
exercised
to December 11, 2050

(Note) Number of stock options is converted to the number of common stocks.

– 93 –

(2) Scale and fluctuation of stock options
The following summarizes the stock options that existed during the current consolidated fiscal year (yearended September 2019). Number of stock options is converted to the number of common stocks.
1) Number of stock options
1st subscription rights to 2nd subscription rights to 3rd subscription rights to 4th subscription rights tosharessharessharesshares
Before vesting (shares)
At end of previous
consolidated fiscal year

－

－

－

－

Granted

－

－

－

－

Forfeited

－

－

－

－

Vested－－－－Balance not vested

－

－

－

－

12,20020,00022,40019,100

Vested－－－－Exercised

－

－

－

－

Forfeited

12,20020,00022,40019,100－－－－After vesting (shares)
At end of previous
consolidated fiscal year

Balance not vested

5th subscription rights to 6th subscription rights to 7th subscription rights to 8th subscription rights tosharessharessharesshares
Before vesting (shares)
At end of previous
consolidated fiscal year

－

－

－

－

Granted

－－－13,300Forfeited

－

－

－

－

Vested－－－13,300

Balance not vested

－

－

－

－

16,20016,00016,500－

Vested－－－13,300Exercised

600

600

600

400

Forfeited

15,60015,40015,90012,900－－－－After vesting (shares)
At end of previous
consolidated fiscal year

Balance not vested– 94 –

2) Per unit information
1st subscription rights to 2nd subscription rights to 3rd subscription rights to 4th subscription rights tosharessharessharessharesExercise price (yen)Average market price ofstock at time of exercise(yen)
Fair value per unit as ofgrant date (yen)

1

1

1

1

－

－

－

－

1,145

1,032

1,323

1,569

5th subscription rights to 6th subscription rights to 7th subscription rights to 8th subscription rights tosharessharessharessharesExercise price (yen)

1

1

1

1

Average market price ofstock at time of exercise
(yen)

3,415

3,415

3,415

3,415

Fair value per unit as ofgrant date (yen)

2,670

2,557

3,477

3,372

4. Method used to estimate the fair value of stock options
The fair value of the 8th issue of subscription rights to shares (stock options) granted in the current
consolidated fiscal year was measured as follows.
1) Valuation method used: The Black-Scholes model2) Major base figures and estimations
Expected volatility of stock (Note 1)

8th subscription rights to shares (stock options)26.146%

Expected option life (Note 2)

6.5 years

Expected dividends (Note 3)

110 yen/share

Risk-free interest rate (Note 4)(0.105%)(Notes) 1. Expected volatility of stock is calculated based on the actual stock price data over the 6.5year period (from June 2012 to December 2018).
2. Expected option life is calculated based on the period of time from the allotment date to
the date on which the Directors, Auditors and Executive Officers are expected to lose theirstatus.
3. Expected dividends are based on a total of 110 yen of actual dividends made, consisting of
the year-end dividend of 60 yen for the period ended September 2017 and the interim
dividend of 50 yen for the period ended September 2018.
4. Risk-free interest rate is calculated based on the yield of government bonds having aremaining life equal to the expected option life.
5. Method used to estimate the number of stock options to be vested
Because it is difficult to rationally estimate the number of stock options that will be forfeited in the future,
only the actual number of forfeited stock options is used in the estimation.

– 95 –(Tax Effect Accounting)
1. Major factors of deferred tax assets and deferred tax liabilities
Previous consolidated fiscal
year(September 30, 2018)
Deferred tax assets
Software development costs
Provision for bonuses
Retirement benefit obligations
Retirement benefit trust
Accumulated remeasurements of defined benefit
plans
Retirement bonuses for directors payable
Accrued business tax
Loss on valuation of investment securities
Legal welfare expenses corresponding to provisions
for bonuses
Asset retirement obligations
Impairment losses
Provisions for stocks payment
Valuation difference on available-for-sale securities
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Business tax refund
Retirement expenses corresponding to asset
retirement obligations
Valuation difference on available-for-sale securities
Other
Total deferred tax liabilities
Net deferred tax assets

2,268 million yen
978
643
1,195

Current consolidated fiscal
year(September 30, 2019)
2,471 million yen
1,112
732
1,201

－

747

18
112
154

32
145
156

145

165

110
116
－
－
243
5,988
(349)
5,638

112
115
171
71
186
7,424
(346)
7,077

－

0

26

24

399
0
426
5,211

37
－
62
7,015

2. Major items causing significant difference between statutory income tax rate and effective income tax rate
after applying tax effect accounting

Statutory income tax rate
(Adjusted)
Inhabitant tax on per capita basis
Entertainment expenses, etc. not deductible for tax
purposes
Tax credits for salary growth
Other
Income tax rate after applying tax effect accounting– 96 –

Previous consolidated fiscal
year(September 30, 2018)
30.7%

Current consolidated fiscal
year(September 30, 2019)
30.5%

0.8

0.7

0.7

1.1

(2.6)
0.6
30.2

－
(0.2)
32.2

(Business Combinations, etc.)
Business Combinations through Acquisition
1. Overview of the business combination(1) Name of acquiree and description of business
Name of acquiree
Description of business

TKC Shuppan Corporation
Production of monthly magazines, etc.

(2) Reasons for the business combination
Through its publishing activities, TKC Shuppan has publicized the activities of the TKC National
Federation (“TKCNF”) which consists of TKC Members, as well as provided TKC Members with
operational know-how on tax accounting, financial accounting, managerial advice and guarantee held byfellow TKC Members. The Company expects that, by making TKC Shuppan its wholly owned
subsidiary, it can leverage TKC Shuppan’s accumulated publishing know-how, and combining them with
the Company’s business activities and projects, greatly enhance public relations and publishing activities
towards its customers.
(3) Date of business combination
September 24, 2019(4) Legal form of business combination
Share exchange with TKC as the wholly owning parent company and TKC Shuppan as the wholly owned
subsidiary company(5) Name of the company after business combination
There is no change in the company name after business combination.
(6) Percentage of voting rights acquired
Percentage of voting rights held immediately before the share exchange
Percentage of voting rights acquired on the date of business combination
Percentage of voting rights after acquisition

31.14%
68.86%
100.00%(7) Primary basis in identifying the acquirer
The Company acquired 100% of the voting rights of TKC Shuppan Corporation, thereby making TKC
Shuppan Corporation its wholly owned subsidiary.
2. Period of acquiree’s business results included in the consolidated financial statements
The business results from October 1, 2018 through September 30, 2019 are recognized as Equity inlosses/earnings of affiliates.
3. Acquisition costs of the acquiree and breakdown of consideration by class
Consideration for
acquisition

Fair value of the Company’s common stock on the date ofbusiness combination

Acquisition costs

267 million yen
267 million yen– 97 –

4. Share exchange ratio by type, calculation method, and number of shares issued(1) Share exchange ratio by typeCompany name

TKC Corporation(Wholly owning parent company
in the Share Exchange)

TKC Shuppan Corporation(Wholly owned subsidiary company
in the Share Exchange)

Exchange ratio

15(2) Methods of calculating the share exchange ratio
In order to ensure fairness and validity in determining the exchange ratio for the Share Exchange, thestock values of TKC and TKC Shuppan were calculated by Business Valuation & Consulting Japan(hereinafter, “BVCJ”), a third party independent from both companies. The calculating institution BVCJ
does not fall under a related party to either TKC or TKC Shuppan, and does not have any materialinterest in the Share Exchange to be disclosed.
Based on such calculation results and as a result of negotiation and deliberation between the parties, theCompany concluded that said share exchange ratio is adequate and does not harm the interest ofshareholders of each party, thus reaching an agreement.
(3) Number of shares issued
57,150 shares
5. Major costs associated with the acquisition
Advisory and other professional fees and charges

2 million yen

6. Difference between acquisition costs of the acquiree and total of acquisition costs of transactions foracquisition
Loss on step acquisitions

20 million yen

7. Amount of negative goodwill, cause, amortization method and amortization period(1) Amount of negative goodwill
88 million yen(2) Cause
Because the market value of net assets at the time of business combination exceeded the acquisition
costs, the difference was recognized as gain on negative goodwill.
8. Amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed
Current assets
Non-current assets
Total assets
Current liabilities
Total liabilities

633 million yen
263 million yen
896 million yen
265 million yen
418 million yen

9. Assuming that the business combination was completed on the first day of the consolidated fiscal year, theestimated amount of financial effects to the Consolidated Statements of Income for the current consolidated
fiscal year and method of calculation
Information is omitted since the financial effects to the Consolidated Statements of Income for the current
consolidated fiscal year is minimal.

– 98 –

(Asset Retirement Obligations)
Previous consolidated fiscal year (ended September 30, 2018) and current consolidated fiscal year (ended
September 30, 2019)
Information has been omitted as it was immaterial.
(Segment Information, etc.)[Segment information]
1. Overview of reportable segments
The Group’s reportable segments are components of the Group for which separate financial information isavailable and which are subject to regular review by management for the purpose of determining theallocation of managerial resources and evaluating business performance.
The Group has three reportable segments for each of its business divisions: the Accounting Firm Business
Division, the Local Governments Business Division, and Printing Business Division.
Major services and products of each reportable segment are as follows:[Accounting Firm BD] (Providing services & products to accounting firms and their clients)
Information processing service, software and consulting service, sales of office equipment and supplies.
[Local Governments BD] (Providing services & products to local governments (municipalities, etc.))
Information processing service, software and consulting service, sales of office equipment.
[Printing BD]
Computer-generated business forms, general office forms, data printing services, etc.
2. Methods of calculating net sales, profit or loss, assets and other items by reportable segments
Accounting methods for reported business segments are largely consistent with that methods described in the“Basis of Presenting the Consolidated Financial Statements” section.
Profits by reportable segments are figures of operating income of the segments.
Inter-segment sales and transfers are based on prevailing market values.

– 99 –

3. Information on net sales, profit or loss, assets, and other items by reportable segments
Previous consolidated fiscal year (Started October 1, 2017; ended September 30, 2018)
Reportable segment
Accounting
Firm BD

Local
Governments Printing BD
BD

Total

(Unit: millions of yen)Amounts inconsolidated
Adjustments
financial(Note 1)statements(Note 2)

Net sales
Sales to outside customers

43,781

14,113

3,726

61,621－

61,621

35

－

1,871

1,906

(1,906)－43,816

14,113

5,597

63,528(1,906)

61,621

Segment profit

8,501

3

168

8,673

6

8,679

Segment assets

25,801

9,638

6,474

41,91348,28890,202

1,221

1,172

294

2,688

(1)

2,686

Investments in affiliated company
under the equity method

284

－

－

284

－

284

Increase in property, plant andequipment and intangible assets(Note 3)

2,985

1,818

556

5,359

－

5,359

Inter-segment sales or transfers
Total

Other items
Depreciation (Note 3)(Notes) 1. Adjustments are as follows:(1) Adjustments of segment profit of 6 million yen include 5 million yen for elimination of inter-segment
transactions and 1 million yen for adjustments of non-current assets.
(2) Adjustments of segment assets of 48,288 million yen include 48,706 million yen of corporate assetsthat are not allocated to specific reportable segments, and -417 million yen for elimination of intersegment transactions. Corporate assets are primarily surplus funds of the parent company (cash anddeposits), and long-term investment funds (investment securities).
(3) Adjustments of depreciation of -1 million yen represent to unrealized profits.
2. Segment profit is adjusted with the operating profit presented in the Consolidated Statements of Income.
3. Increases in depreciation, property, plant and equipment and intangible assets include depreciation longterm prepaid expenses and depreciation of such expenses.

– 100 –

Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)
Reportable segment
Accounting
Firm BD

Local
Governments Printing BD
BD

Total

(Unit: millions of yen)Amounts inconsolidated
Adjustments
financial(Note 1)statements(Note 2)

Net sales
Sales to outside customers

45,89916,413

3,808

66,120－66,120

8

－

2,118

2,126

(2,126)－45,907

16,413

5,926

68,247(2,126)

66,120

Segment profit

8,725

425

189

9,339

7

9,347

Segment assets

27,58912,051

6,343

45,98451,00596,989

1,325

1,341

341

3,008

(1)

3,006

Investments in affiliated company
under the equity method

100

－

－

100

－

100

Increase in property, plant andequipment and intangible assets(Note 3)

1,515

1,450

1,472

4,438

－

4,438

Inter-segment sales or transfers
Total

Other items
Depreciation (Note 3)(Notes) 1. Adjustments are as follows:(1) Adjustments of segment profit of 7 million yen include 6 million yen for elimination of inter-segment
transactions and 1 million yen for adjustments of non-current assets.
(2) Adjustments of segment assets of 51,005 million yen include 51,452 million yen of corporate assets thatare not allocated to specific reportable segments, and -447 million yen for elimination of inter-segment
transactions. Corporate assets are primarily surplus funds of the parent company (cash and deposits), andlong-term investment funds (investment securities).
(3) Adjustments of depreciation of -1 million yen represent to unrealized profits.
2. Segment profit is adjusted with the operating profit presented in the Consolidated Statements of Income.
3. Increases in depreciation, property, plant and equipment and intangible assets include depreciation longterm prepaid expenses and depreciation of such expenses.

– 101 –

[Related information]
Previous consolidated fiscal year (Started October 1, 2017; ended September 30, 2018)
1. Information by product and service
Information is omitted since the same information is disclosed under the segment information.
2. Information by geographic area
(1) Net sales
Information is omitted since more than 90% of sales in the Consolidated Statements of Income aresales to outside customers in Japan.
(2) Property, Plant & Equipment
Information is omitted since the Company has no property, plant and equipment in regions outside
Japan.
3. Information by major customer
Information is omitted since there are no sales to external customers that account for 10% or more of thesales in the Consolidated Statements of Income.
Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)
1. Information by product and service
Information is omitted since the same information is disclosed under the segment information.
2. Information by geographic area
(1) Net sales
Information is omitted since more than 90% of sales in the Consolidated Statements of Income aresales to outside customers in Japan.
(2) Property, Plant & Equipment
Information is omitted since the Company has no property, plant and equipment in regions outside
Japan.
3. Information by major customer
Information is omitted since there are no sales to external customers that account for 10% or more of thesales in the Consolidated Statements of Income.
[Information on impairment losses of fixed assets by reportable segments]
Previous consolidated fiscal year (Started October 1, 2017; ended September 30, 2018)(Unit: millions of yen)
Reportable segment
Accounting
Firm BD
Impairment losses

0

Local
Governments
BD

Total

Adjustments

Amounts inconsolidated
financialstatements－

0

Printing BD

－

－

0

Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)
None to be disclosed.

– 102 –

[Information on amortization of goodwill and balance of goodwill by reportable segments]
Previous consolidated fiscal year (Started October 1, 2017; ended September 30, 2018)
None to be disclosed.
Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)
None to be disclosed.
[Information on gain on negative goodwill by reportable segments]
Previous consolidated fiscal year (Started October 1, 2017; ended September 30, 2018)
None to be disclosed.
Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)
Gain on negative goodwill of 88 million yen has been recognized under the Accounting Firm BD segment asa result of a share exchange between the Company as wholly owning parent company and TKC Shuppan
Corporation as wholly owned subsidiary company in said share exchange.

– 103 –

[Related Parties Information]
1 Related Parties Transactions(1) Transactions between the Company and related parties
Previous consolidated fiscal year (Started October 1, 2017; ended September 30, 2018)
1) Non-consolidated subsidiaries and affiliated companies of the Company
Type

Affiliatedcompanies

Company
name orname ofindividual

Address

Capital orinvestments(millions ofyen)

Business or
occupation

Holding (held)
Relationship withvoting rights
related party
ratio (%)

Details oftransaction

100

Information
provision
services(Holding)
Direct (30.0)

Outsourcing ofdevelopment andmaintenance ofwebsite services

Loan of funds(Note)
Receiving ofinterests(Note)

Chiyoda-ku,
iMobile Inc.
Tokyo

Transaction
amount(millions of
yen)
150
2

Item

Year-endbalance(millions of
yen)

Loans
receivables

134(Note) Terms of transaction or policies on determining the terms of transaction
The interest rates for the loans are determined in a reasonable manner based on the market interest rates.
2) Directors and major shareholders (individuals only) of the Company
Type

Director

Capital orCompany
investments Business orname or name Address(millions of occupationof individual
yen)

HiroshiAshikawa－

Certifiedpublic tax
accounting
Edogaw
firm Taguchi a-ku,
Partners
Tokyo
Kaikei(Note 2)Companiesin whichdirectors
and nearrelatives
holdmajority
votingrightsCertifiedpublic tax
accounting
Minatofirm Aoyama ku,
Accounting
Tokyo
Firm
(Note 3)
Certifiedpublic tax
Miyaginaccounting
o-ku,
firm Ofuji
SendaiAccounting
shi,
OfficeMiyagi(Note 4)

－

5

8

9

Tax
accountant

Certifiedpublic tax
accounting
firm

Certifiedpublic tax
accounting
firm

Certifiedpublic tax
accounting
firmTransaction
amount(millions ofyen)

Year-endbalance(millions ofyen)

Holding (held)
voting rights
ratio (%)

Relationship withrelated party(Held)
Direct (0.0)

Rendering ofRendering of
information
information
processing
processing services services(Note 1)

10

Accounts
receivable

0－

Rendering ofRendering of
information
information
processing
processing services services(Note 1)

12

Accounts
receivable

2－

Rendering ofRendering of
information
information
processing
processing services services(Note 1)21

Accounts
receivable

4－

Rendering ofRendering of
information
information
processing
processing services services(Note 1)

15

Accounts
receivable1

Details oftransaction

Item(Notes) 1. Terms of transaction or policies on determining the terms of transaction
Terms of transaction for the rendering of information processing are similar to the terms between othercounterparts.
2. The company was co-founded by Mr. Misao Taguchi, Director of the Company.
3. The company was co-founded by Mr. Kenji Matsumoto, Auditor of the Company.
4. The company was co-founded with a near relative of Mr. Kazuyuki Sumi, Director and Chairman of theBoard of the Company.
5. Consumption taxes are not included in the transaction amounts. Consumption taxes are included in the
year-end balance.

– 104 –

Current consolidated fiscal year (Started October 1, 2018; ended September 30, 2019)1) Non-consolidated subsidiaries and affiliated companies of the Company
Type

Capital orCompany
investments Business orname or name Address(millions of occupationof individualyen)AffiliatediMobile Inc.
companies

Chiyoda
-ku,
Tokyo

100

Information
provision
services

Holding (held)
voting rights
ratio (%)

Relationship withrelated party

Details oftransaction(Holding)
Direct (30.0)

Outsourcing ofdevelopment andmaintenance ofwebsite services

Recovery of funds(Note)
Receiving ofinterests(Note)

Transaction
amount(millions of
yen)
48
3

Item

Year-endbalance(millions of
yen)

Loans
receivables

86(Note) Terms of transaction or policies on determining the terms of transaction
The interest rates for the loans are determined in a reasonable manner based on the market interest rates.
2) Directors and major shareholders (individuals only) of the Company
Capital orCompany nameinvestments Business oror name of Address(millions of occupationindividualyen)
CertifiedCertifiedpublic tax
publicaccounting
Edogawtax
firm Taguchi a-ku,
5accountin
PartnersTokyo
g firmKaikei(Note 2)
CertifiedCertifiedpublic tax
Yokohapublicaccounting
ma-shi,tax
Companies
firm Oshida
4
Kanagaaccountin
in which
Accountingwa
g firmdirectors
Officeand near(Note 3)
relatives
Certifiedhold
Certifiedpublic tax
majority
publicaccounting
Minatovoting
tax
firm Aoyama ku,
8rightsaccountin
AccountingTokyo
g firmFirm(Note 4)
CertifiedCertifiedpublic tax
Miyaginpublicaccounting
o-ku,
tax
firm Ofuji
Sendai9
accountin
Accountingshi,
g firmOfficeMiyagi(Note 5)
Type

Holding (held)
voting rights
ratio (%)

－

－

－

－

Transaction
amount(millions of
yen)

Item

Year-endbalance(millions ofyen)

Rendering of
information
processing
services(Note 1)54

Accounts
receivable

1

Rendering of
information
processing
services(Note 1)

23

Accounts
receivable

1

Rendering of
information
processing
services(Note 1)30

Accounts
receivable

2

Rendering of
information
processing
services(Note 1)

23

Accounts
receivable

1

Relationship withrelated party

Rendering of
information
processing services

Rendering of
information
processing services

Rendering of
information
processing services

Rendering of
information
processing services

Details oftransaction(Notes) 1. Terms of transaction or policies on determining the terms of transaction
Terms of transaction for the rendering of information processing are similar to the terms between othercounterparts.
2. The company was co-founded by Mr. Misao Taguchi, Director of the Company.
3. The company was co-founded by Mr. Yoshimasa Oshida, Director of the Company.
4. The company was co-founded by Mr. Kenji Matsumoto, Auditor of the Company.
5. The company was co-founded with a near relative of Mr. Kazuyuki Sumi, Director and Chairman of theBoard of the Company.
6. Consumption taxes are not included in the transaction amounts. Consumption taxes are included in the
year-end balance.
(2) Transactions with consolidated subsidiaries of the Company and related parties
None to be disclosed.
2 Notes on the Parent Company and Important Affiliated Companies(1) Information on the parent company
None to be disclosed.
(2) Summary of financial information of important affiliated companies
None to be disclosed.

– 105 –

(Earnings per share information)
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

Net assets per share

2,686.32 yen

2,724.78 yen

Net income per share

233.46 yen

255.52 yen

Diluted net income per share

232.41 yen

255.01 yen(Note) The basis for calculating net income per share and diluted net income per share is as follows.
Previous consolidated fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current consolidated fiscal year
(Started October 1, 2018;
ended September 30, 2019)

Net income per share
Net income attributable to owners of parent(millions of yen)

6,158

6,721

Amount not attributable to common shareholders(millions of yen)－－

Net income from common stocks attributable toowners of parent (millions of yen)

6,158

6,721

Average number of common stocks outstanding(hundreds of shares)

263,789

263,028

Adjustments to net income attributable to owners ofparent(millions of yen)－－

Number of common stocks increased (hundreds ofshares)

1,191

531

(Subscription rights to shares (hundreds ofshares))(1,191)(531)

Diluted net income per share

Outline of diluted shares not included in thecalculation of diluted net income per share for nothaving dilutive effect――――――――――(Note) The average number of stocks outstanding used in the calculation of earnings per share information has
been determined by including the stocks of the Company owned by the BIP Trust, which has been
established with the introduction of the BIP Trust plan, as deductible treasury stocks.
The average number of said treasury stocks deducted for the calculation of net income per share anddiluted net income per share was 112,212 shares for the current consolidated fiscal year under review.

– 106 –

5) [Supplementary Schedules][Schedule – Corporate Bonds]
None to be disclosed.
[Schedule – Borrowings]
Category

Balance at
beginning of year
(millions of yen)

Balance at end ofyear(millions of yen)

Average interest
rate
(%)

Terms of repayment

－

－

－

－

Short-term loans payable
Current portion of long-term loans payable

142

142

Current portion of lease obligations

363

541

Long-term loans payable (excluding
current portion)

580

438

Lease obligations (excluding current
portion)

576

1,333

60

38

1,724

2,494

0.28
－

－
－

0.28

October 5, 2019
to September 10, 2025
October 9, 2019
to March 22, 2024－

Other interest-bearing debts
Accounts payable – installment
purchases
Total

0.57
－

October 22, 2019
to February 28, 2023－

(Notes) 1. The weighted average interest rates applicable to the year-end balance of borrowings are indicated for
average interest rates.
2. The average interest rate for lease obligations is not included because the amount of lease obligations in
the consolidated balance sheets represents the total amount of lease payment before deducting interest.
3. Repayments of long-term loans, lease obligations (excluding current portion) and other interest-bearing
debts (excluding current portion) scheduled within 5 years from the consolidated settlement date are as
follows.
After 1 year but within 2 After 2 year but within 3 After 3 year but within 4 After 4 year but within 5
years
years
years
years
(millions of yen)(millions of yen)(millions of yen)(millions of yen)
Long-term loans payable

142

80

71

71

Lease obligations

450

385

355

114

4

4

1

－

Other interest-bearing
debts[Schedule – Asset Retirement Obligations]
Information has been omitted as it was immaterial.

– 107 –

(2) [Other]
Quarterly financial information for the current consolidated fiscal year
(Cumulative period)

1st quarter2nd quarter3rd quarter

Current consolidated
fiscal year

Sales (millions of yen)

14,141

31,93647,721

66,120Quarterly net income before
income taxes (current FY)(millions of yen)

1,729

5,114

7,832

10,004

Quarterly net income
attributable to owners of parent(current FY) (millions of yen)

1,170

3,466

5,171

6,721

Quarterly net income per share(current FY) (yen)44.38

131.45

196.46255.52(Accounting period)
Quarterly net income per share(yen)

1st quarter2nd quarter
44.38

87.09

– 108 –

3rd quarter
65.00

4th quarter
59.04

2 [Financial Statements, etc.](1) [Financial Statements]
1) [Balance Sheets](Unit: millions of yen)Previous fiscal year
(September 30, 2018)
AssetsCurrent assets
Cash and deposits
Accounts receivable
Lease investment assets
MerchandiseWork in progress
Raw materials and supplies
Prepaid expenses
Accounts receivable–other
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property, Plants & Equipment
Buildings
Structures
VehiclesTools, furniture & fixtures
Land
Total property, plant & equipment
Intangible assets
Software
Software in progress
Telephone subscription rights
Other
Total intangible assets
Investments and other assets
Investment securities
Stocks of subsidiaries and affiliates
Investments in capital
Long-term loans receivable
Long-term prepaid expenses
Deferred tax assets
Long-term time deposits
Guarantee deposits
Long-term lease investment assets
Other
Total investments and other assets
Total non-current assets
Total assets(*1)– 109 –

18,461
6,758
290
54
209
133
540
(*1) 131(*1) 302(34)
26,847

Current fiscal year
(September 30, 2019)(*1)

25,775
7,813
443
70
595
109
495
(*1) 172(*1) 364(25)
35,813

7,226
227
0
1,383
6,667
15,504

7,028
205
0
1,724
6,636
15,595

2,846
692
22
0
3,561

2,347
807
22
0
3,177

23,5735270(*1) 86
200
4,754
6,000
1,270
350
58
36,82355,88982,73715,0847950(*1) 38
138
5,687
9,500
1,263
1,033
63
33,60552,37888,192

(Unit: millions of yen)Previous fiscal year
(September 30, 2018)
Liabilities
Current liabilities
Accounts payable–trade
Lease obligations
Accounts payable–other
Income taxes payable
Accrued business office taxes
Consumption taxes payable
Advances received
Deposits received
Provision for bonuses
Accounts payable–facilities
Other
Total current liabilities
Non-current liabilities
Lease obligations
Provisions for retirement benefits
Provisions for stocks payment
Other
Total non-current liabilities
Total liabilities
Net assets
EquityCapital stock
Capital surplus
Legal capital surplus
Other capital surplus
Total capital surplus
Retained earnings
Legal retained earnings
Other retained earnings
General reserve
Retained earnings brought forward
Total retained earnings
Treasury stock
Total equity
Valuation and translation adjustments
Valuation difference on available-for-salesecurities
Total valuation and translation adjustments
Subscription rights to shares
Total net assets
Total liabilities and net assets

2,704
290
(*1) 2,213
1,605
54
374
708
438
2,870
(*1)
374
－
11,634(*1)– 110 –

Current fiscal year
(September 30, 2019)

3,402
443
(*1) 2,133
2,340
54
599
994
364
3,222
(*1)
373
12
13,941
(*1)

350
1,469
－
418
2,239
13,873

1,033
1,635
562
398
3,629
17,570

5,700

5,700

5,409
－
5,409

5,409
302
5,711

688

688

52,257
4,658
57,604(968)
67,74555,457
4,816
60,962(1,630)70,744

882

(121)

882
235
68,86382,737(121)－
70,622
88,192

2) [Profit and Loss Statement](Unit: millions of yen)

Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Dividends income
Land & rent income
Subsidy income
Other
Total non-operating income
Non-operating expenses
Foreign exchange losses
Cost of lease revenue
Other
Total non-operating expenses
Ordinary income
Extraordinary income
Gain on sales of non-current assets
Gain on reversal of subscription rights to shares
Other
Total extraordinary income
Extraordinary loss
Loss on sale of non-current assets
Loss on retirement of non-current assets
Loss on valuation of investment securities
Impairment losses
Other
Total extraordinary loss
Net income before taxes
Income taxes–current
Income taxes–deferred
Total income taxes
Net income

Previous fiscal year
(Started October 1, 2017;
ended September 30, 2018)(*1) 56,769(*1) 18,497
38,271(*1)(*2) 30,008
8,263
31
168
(*1) 9640(*1) 31368– 111 –

Current fiscal year
(Started October 1, 2018;
ended September 30, 2019)(*1) 60,897(*1) 20,318
40,579(*1)(*2) 31,979
8,600
31
217
(*1) 157
13(*1) 62
481

(*1)

(*1)

(*1)

(*1)

0
53
－
54
8,577

0
108
0
109
8,972

1
－
－
1

1
274
8
283

－
9
53
0
－
63
8,516
2,808
(251)
2,556
5,959

10
7
－
－
0
18
9,238
3,469
(493)
2,975
6,262

[Report on cost of sales](a) Cost of sales on information processing, software and consulting services
52nd Term(Started October 1, 2017;
ended September 30, 2018)
Category

Note

II Labor costs

Ratio
(%)

Amount (millions of yen)

I Materials costs*1

53rd Term(Started October 1, 2018;
ended September 30, 2019)
Ratio
(%)

Amount (millions of yen)

3,507

27.5

3,798

27.6

2,378

18.7

2,314

16.8

7,668

55.6

13,781

100.0

III Expenses
1. Computer rental expenses

352

382

2. Maintenance contracts

1,275

1,230

3. Depreciation
4. Repairs and maintenanceexpenses
5. Supplies expenses

554

638

593

604

2,034

6. Other

2,039

Total expenses
Works in progress andinventories at beginning ofyear
Transfers from other accounts
Total
Works in progress andinventories at end of year
Transfers to other accounts

1,743

*2

*3

Cost of sales on information
processing, software andconsulting services

6,849

53.8

12,735

100.0

3,069

243

209

1,137

1,318

14,11515,309

209

595

1,185

1,072

12,721

13,640(Notes) 1. Labor costs include the following provisions. Figures in (parentheses) denote amounts for the previous
fiscal year.
Provision for bonuses:
517 million yen (536 million yen)
Retirement benefit expenses: 52 million yen (60 million yen)
2. Transfers from other accounts represent the transfer of depreciation of software.
3. Transfers to other accounts represent the transfer of software development costs into software and softwarein progress accounts.
4. Costs are determined using job order costing by project.
(b) Cost of sales on office equipment and supplies
52nd Term(Started October 1, 2017;
ended September 30, 2018)
Category

Note

53rd Term(Started October 1, 2018;
ended September 30, 2019)

Amount (millions of yen)

Ratio
(%)

Amount (millions of yen)

Ratio
(%)

125

2.2

54

0.8

I

Inventories at beginning of year

II

Purchases

5,704

97.8

6,693

99.2

Total

5,830

100.0

6,747

100.0

III Inventories at end of year
Cost of sales on office equipment
and supplies– 112 –

54

70

5,776

6,677

3) [Statement of Changes in Equity]
Previous fiscal year (started October 1, 2017; ended September 30, 2018)(Unit: millions of yen)
Shareholders’ equity
Capital surplus
Capitalstock

Retained earnings
Other retained earnings
Generalreserve

Retainedearnings
brought
forwardTotal
retainedearnings

48,9574,900

54,5463,300(3,300)－

Dividends ofsurplus(2,901)(2,901)

Net income

5,959

5,959

Balance at
beginning of year
Changes during
fiscal year

5,700

Legal capitalsurplus

OthercapitalsurplusTotal
capitalsurplusLegalretainedearnings

5,409

－

5,409

688

General reserve

Acquisition oftreasury stock
Changes in items
other than equity(net)
Total changes
during fiscal year
Balance at end of
year

－

－

－

－

－

3,300

(241)

3,058

5,700

5,409

－

5,409

688

52,257

4,658

57,604

Valuation and translation
adjustments
Subscription
Totalrights to
Totalvaluation andsharesshareholders’Othertranslation
equityadjustments

Total net
assetsShareholders’ equity
Treasurystock
Balance at
beginning of year
Changes during
fiscal year(964)

64,690

597

597

178

65,466

General reserve－－

Dividends ofsurplus(2,901)(2,901)

Net income

5,959

5,959

(3)

(3)

Acquisition oftreasury stock
Changes in items
other than equity(net)
Total changes
during fiscal year
Balance at end of
year

(3)

284

284

57

342

(3)

3,054

284

284

57

3,396

(968)

67,745

882

882

235

68,863– 113 –

Current fiscal year (Started October 1, 2018; ended September 30, 2019)(Unit: millions of yen)
Shareholders’ equity
Capital surplus
Capitalstock

Retained earnings
Other retained earnings

Legal capitalsurplus

OthercapitalsurplusTotal
capitalsurplusLegalretainedearnings

Generalreserve

Retainedearnings
brought
forwardTotal
retainedearnings

5,409

－

5,409

688

52,257

4,658

57,604

3,200(3,200)－

Dividends ofsurplus(2,904)(2,904)

Net income

6,262

6,262

Balance at
beginning of year
Changes during
fiscal year

5,700

General reserve

Acquisition oftreasury stock
Disposal oftreasury stock
Increase due toshare exchange
Changes in items
other than equity(net)
Total changes
during fiscal year
Balance at end of
year

228

228

74

74

－

－

302

302

－

3,200

158

3,358

5,700

5,409

302

5,711

688

55,457

4,816

60,962

Subscription
rights tosharesTotal net
assets235

68,863

Shareholders’ equity

Valuation and translation
adjustments

Valuation
Shareholders’
Total valuation
Treasurydifference on
equityand translation
stock
available-forTotal
adjustments
sale securities
Balance at beginning of year

(968)

67,745882

882

Changes during fiscal year
General reserve－－

Dividends of surplus(2,904)(2,904)

Net income

6,262

6,262

Acquisition of treasury stock(1,387)(1,387)(1,387)

Disposal of treasury stock

531

760

760

Increase due to share exchange

193

267

267

Changes in items other than equity (net)Total changes during fiscal year
Balance at end of year

(1,004)(1,004)(235)(1,240)

(661)

2,998

(1,004)(1,004)

(235)

1,758

(1,630)70,744

(121)

(121)

－

70,622– 114 –

[Notes to Financial Statements](Principal Accounting Policies)
1. Standards and methods used for the valuation of assets(1) Standards and methods used for the valuation of securities
a. Stocks of subsidiaries and affiliates
Stated at cost determined by the moving average method
b. Available-for-sale securitiesa) Available-for-sale securities with market value
Stated at fair market value based on the quoted market price as of the fiscal year-end (related
valuation differences are directly charged or credited to the shareholders’ equity, and cost of
securities sold is calculated by the moving average method)b) Available-for-sale securities without market value
Stated at cost determined by the moving average method(2) Standards and methods used for the valuation of inventory assets
a. Merchandise, raw materials
Cost determined by first-in, first-out method (with balance sheet values reflecting write downs for
decreased profitability)b. Work in progress
Cost determined by specific identification method (with balance sheet values reflecting write downs for
decreased profitability)c. Supplies
Last purchase price method (with balance sheet values reflecting write downs for decreased
profitability)
2. Depreciation of non-current assets(1) Property, plant and equipment
Calculated based on declining balance method
Provided, buildings acquired after April 1, 1998 (excluding accompanying facilities), and accompanying
facilities and structures acquired after April 1, 2016 are calculated based on straight-line method(2) Intangible assets
a. Softwarea) Software for sale
Software for sale are amortized and stated at the higher of amortization based on estimated sales
volume in the future, and amortization at a constant periodic rate based on remaining effective life
(within 3 years)b) Software for internal use
Amortized using straight-line method with an estimated in-house useful life of five years.
b. Other intangible assets
Amortized using the straight-line method.
3. Accounting standards for provisions(1) Allowance for doubtful accounts
In setting aside provisions for possible losses due to uncollectable receivables, provisions are recognized at
the amounts calculated based on the historical rate of credit loss with respect to normal receivables, and at
the amounts determined in consideration of collectability of individual receivables with respect to doubtful
accounts and certain other receivables.
(2) Provisions for bonuses
Provisions for bonuses are recognized based on the estimated amounts of payment.
– 115 –

(3) Provisions for stocks payment
In setting aside provisions for payment of the Company’s shares to Directors, etc., provisions arerecognized at estimated amounts of stocks payment determined based on the points allocated to Directors,
etc. in accordance with the rules on issuance of shares under the Board Incentive Plan (BIP) Trust.
(4) Provisions for retirement benefits
In setting aside allowances for employees’ retirement benefits, retirement benefit obligations and expectedpension assets payable as of the end of the current fiscal year are recognized.
a. Method of attributing expected benefits to dateIn calculating retirement benefit obligations, expected benefits are attributed to the period up until theend of the fiscal year based on benefit formula standards.
b. Recognizing actuarial differences as expenses and past service costs
Past service costs are recognized as expenses for certain years (10 years) within the average remaining
years of service of employees in which they occur using the straight-line method.
Actuarial differences are recognized as expense for the fiscal year in which they occur.
4. Accounting standards for revenues and expenses
Accounting standards for recognizing revenues and cost of sales of made-to-order software (softwaredevelopment contracts)(1) Projects for which the progress up to the end of the current fiscal year can be measured reliably
Accounted for by percentage-of-completion method (whereas, the degree of completion is estimated basedon the construction cost percentage method)(2) Other projects
Accounted for upon completion of construction works
5. Other important matters regarding the preparation of financial statements(1) Accounting method for consumption taxes and local consumption taxes
Consumption taxes are accounted for using the tax-exclusion method.
(2) Application of the consolidated taxation system
The consolidated taxation system is applied.
(Notes to Balance Sheets)*1. Monetary claims and monetary liabilities on affiliated companies
Previous fiscal year
(September 30, 2018)

Current fiscal year
(September 30, 2019)

Short-term monetary claims on affiliated companies

203 million yen

212 million yen

Long-term monetary claims on affiliated companies
Short-term monetary liabilities on affiliated

86

38

527

544

companies(Notes to Income Statements)*1. Volume of transactions with affiliated companies
Previous fiscal year
(Started October 1, 2017;
ended September 30, 2018)

Current fiscal year
(Started October 1, 2018;
ended September 30, 2019)

Volume of trading transactions
Sales

110 million yen

Purchases
Operating expenses
Volume of non-operating transactions– 116 –

60 million yen

2,701

2,966

1,786
161

2,413
227

*2. The approximate percentages of selling expenses were 53.4% for the previous fiscal year and 51.3% for
the current fiscal year; the approximate percentages of general and administrative expenses were 46.6%
and 48.7%, respectively.
Major items included in selling, general and administrative expenses are as follows.
Previous fiscal year
(Started October 1, 2017;
ended September 30, 2018)
Salaries
Provisions for bonuses

9,548 million yen
2,470

Retirement benefit expenses
Provisions for stocks payment
Depreciation
Rent expenses
Research and development expenses

Current fiscal year
(Started October 1, 2018;
ended September 30, 2019)
9,767 million yen
2,704

651
－

585
562

602
1,982
82

575
2,032
－

(Securities)
Stocks of subsidiaries and affiliates (the amounts in the previous fiscal year’s balance sheet were 473 million
yen for stocks of subsidiaries and 54 million yen for stocks of affiliates; the amounts in the current fiscal year’sbalance sheet are 795 million yen for stocks of subsidiaries and 0 million yen for stocks of affiliates) are notpresented here since quoted market values are not available and are deemed to be extremely difficult tomeasure.

– 117 –(Tax Effect Accounting)
1 Major factors of deferred tax assets and deferred tax liabilities
Previous fiscal year
(September 30, 2018)
Deferred tax assets
Software development costs
Provision for bonuses
Provisions for retirement benefits
Retirement benefit trust
Accrued business tax
Valuation loss on investment securities
Retirement bonuses for directors payable
Legal welfare expenses corresponding toprovisions for bonuses
Asset retirement obligations
Impairment losses
Provisions for stocks payment
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Valuation difference on available-for-salesecurities
Retirement expenses corresponding to asset
retirement obligations
Other
Total deferred tax liabilities
Net deferred tax assets

2,115 million yen
875
448
1,195
96
193
17

Current fiscal year
(September 30, 2019)
2,290 million yen
982
498
1,201
126
195
17

130

146

99
112
－
235
5,519
(375)
5,144

99
112
171
238
6,081
(373)
5,707

367

－

22

20

0
389
4,754

－
20
5,687

2. Major items causing difference between statutory income tax rate and effective income tax rate after applying
tax effect accounting
Previous fiscal year
(September 30, 2018)

Current fiscal year
(September 30, 2019)30.7 %

30.5 %

0.8

0.8

0.7

1.2

(0.2)

(0.3)

(2.4)

－

0.5

0.0

30.0

32.2

Statutory income tax rate
(Adjusted)
Inhabitant tax on per capita basis
Entertainment expenses, etc. not deductible fortax purposes
Dividends received, etc. to be excluded fromgross revenue
Tax credits for salary growth
Other
Income tax rate after applying tax effect accounting– 118 –

4) [Supplementary Schedules][Schedule – Tangible Assets](Unit: millions of yen)
Balance at
beginning ofyear

Decrease incurrent year

Depreciationin current
year

Increase incurrent year

Balance at
end of year

Accumulated
depreciation

Buildings

7,226

215

5

408

7,028

10,547Structures

227

－

－

21

205

488

Property, Vehicles
Plants &Equipment Tools, furniture & fixtures

0

－

－

0

0

44

1,383

986

1

644

1,724

4,691

6,667

－

30

－

6,636

－

15,504

1,202

37

1,074

15,595

15,772

2,846

1,031

－

1,530

2,347

3,910

Software in progress

692

721

606

－

807

－

Telephone subscription
rights

22

－

－

－

22

－

Other

0

－

－

0

0

0

3,561

1,753

606

1,530

3,177

3,910

Category

Type of asset

Land
Total property, plants& equipment
SoftwareIntangible
assetsTotal intangible assets(Notes) Major increase during the current fiscal year were attributable to the following:
Acquisition of HVAC systems for Tochigi main building and annex
Buildings
Software

190 million yen

Development costs of software for sale

328 million yen

Development costs of software for internal use

629 million yen

Software purchased from outside

73 million yen[Schedule – Provisions](Unit: millions of yen)
Item

Balance at
beginning of year

Increase incurrent year

Decrease incurrent year

Balance at end of year

Allowance for doubtful accounts

34

25

34

25

Provision for bonuses

2,870

3,222

2,870

3,222

Provisions for stocks payment

－

562

－

562

(2) [Major Assets and Liabilities]
This item is omitted as information has been disclosed in the consolidated financial statements.

(3) [Other]
None to be disclosed.

– 119 –

Part 6 [Stock-related Administration of the Company]
Fiscal year

From October 1 to September 30

Ordinary General Meeting of
Shareholders

December

Record date

September 30

Record dates for dividends of surplus

September 30
March 31

Number of shares in one unit

100 shares

Buyback and increase of shares lessthan one unit
Place of handling(Special account)
1-4-5 Marunouchi, Chiyoda-ku, Tokyo
Mitsubishi UFJ Trust and Banking Corporation, Stock Transfer Agency Division

Administrator of shareholder registry

1-4-5 Marunouchi, Chiyoda-ku, Tokyo
Mitsubishi UFJ Trust and Banking Corporation

Forwarding office――――――――――

Handling charges for buyback andincreaseAmount stipulated separately as commission for entrusting sale or purchase of stocks

Method of giving public notice

By means of electronic public notice. However, in the event that electronic notice is notpossible due to incidents or other unavoidable circumstances, public notices will be posted
in the Nihon Keizai Shimbun.
TKC’s website for public notices: https://www.tkc.jp/

Shareholder privileges

None to be disclosed.

(Note) In accordance with the provisions of TKC Corporation’s Articles of Incorporation, holders of shares less than
one unit shall have no rights other than: rights listed in the items of Article 189, Paragraph 2 of the Companies
Act of Japan; rights to receive allotment of shares for subscription and subscription rights to shares based on thenumber of shares they hold; and rights to request the sale of shares less than one unit.

– 120 –

Part 7 [Reference Information on the Company]
1 [Information on the Parent Company]
TKC Corporation does not have a parent company as defined in Article 24-7, Paragraph 1 of the Financial
Instruments and Exchange Act of Japan.

2 [Other Reference Information]
TKC Corporation has filed the following documents, originally written in Japanese, between the beginning of thecurrent fiscal year and the filing date of this Annual Securities Report.
(1) Annual Securities Report, Appendices and Confirmation Letter
Fiscal year (52nd term) from October 1, 2017 to September 30, 2018, filed to the Director-General of the Kanto
Local Finance Bureau, Japan, on December 25, 2018.
(2) Internal Control Report and AppendicesSubmitted to the Director-General of the Kanto Local Finance Bureau, Japan, on December 25, 2018.
(3) Quarterly Securities Reports and Confirmation Letter
First quarter of 53rd term (From October 1, 2018 to December 31, 2018), filed to the Director-General of the
Kanto Local Finance Bureau, Japan, on February 7, 2019.
Second quarter of 53rd term (From January 1, 2019 to March 31, 2019), filed to the Director-General of the Kanto
Local Finance Bureau, Japan, on May 9, 2019.
Third quarter of 53rd term (From April 1, 2019 to June 30, 2019), filed to the Director-General of the Kanto Local
Finance Bureau, Japan, on August 13, 2019.
(4) Correction Reports for the Annual Securities Reports and Confirmation Letters
Submitted to the Director-General of the Kanto Local Finance Bureau, Japan, on January 7, 2019.
Correction Reports for the Annual Securities Reports for the Fiscal Year (52nd Term) (Started October 1, 2017;
ended September 30, 2018) and Confirmation Letter thereto.
(5) Securities Registration Statements (Third-party Allocation of Shares) and Appendices Thereto
Submitted to the Director-General of the Kanto Local Finance Bureau, Japan, on February 6, 2019.
(6) Correction Statements for the Securities Registration Statements
Submitted to the Director-General of the Kanto Local Finance Bureau, Japan, on February 7, 2019.
(7) Reports on Status of Acquisition of Treasury Stock
Reporting period (from March 13, 2019 to March 29, 2019); filed to the Director-General of the Kanto Local
Finance Bureau, Japan, on April 11, 2019.
Reporting period (from September 24, 2019 to September 30, 2019); filed to the Director-General of the Kanto
Local Finance Bureau, Japan, on October 11, 2019.
(8) Extraordinary Reports
Submitted to the Director-General of the Kanto Local Finance Bureau, Japan, on December 25, 2018.
Extraordinary Report based on Article 19, Paragraph 2, Item 9-2 (Results of Exercise of Voting Rights at General
Meeting of Shareholders) of the Cabinet Office Ordinance on Disclosure of Corporate Information, etc.

– 121 –

Section 2 [Information on Guarantors, etc. of the Company]
None to be disclosed.

– 122 –

Independent Auditors’ Audit Reportand Internal Control Audit Report

December 20, 2019

TKC Corporation
To: The Board of Directors
Ernst & Young ShinNihon LLC
Designated Limited
Liability Partner
Executing Partner

Certified Public
Kanji Tako (Seal)
Accountant

Designated Limited
Liability Partner
Executing Partner

Certified Public
Yuichi Noda
Accountant(Seal)[Audit of financial statements]
Pursuant to Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, we have audited theconsolidated financial statements included in the Financial Information Section, namely, the consolidated statements offinancial position of TKC Corporation and consolidated subsidiaries for the fiscal year from October 1, 2018 toSeptember 30, 2019, which consists of the consolidated balance sheets, consolidated statements of profit or loss,
comprehensive income, change in consolidated equity, consolidated cash flows, and a summary of significant accounting
policies, other related notes and consolidated supplementary schedules.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance with principles setting forth the preparation and properly presentation of the consolidated financial statements
generally accepted in Japan. Responsibilities include those for designing and operating an internal control system as the
management deems necessary in order to prepare and properly present the consolidated financial statements that are freefrom material misstatement due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit as independent
auditors. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks ofmaterial misstatement of the consolidated financial statements, whether due to fraud or error. The purpose of an audit of
the consolidated financial statements is not to express an opinion on the effectiveness of the entity’s internal control, but
in making these risk assessments the auditor considers internal controls relevant to the entity’s preparation and fairpresentation of the consolidated financial statements in order to design audit procedures that are appropriate in thecircumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonablenessof accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

– 123 –

Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of TKC Corporation and consolidated subsidiaries as of September 30, 2019, and their consolidated financial
performance and cash flows for the year then ended in conformity with accounting principles generally accepted inJapan.

[Audit of internal control]
Pursuant to Article 193-2, Paragraph 2 of the Financial Instruments and Exchange Act of Japan, we have audited
management’s report on internal control over financial reporting of TKC Corporation as of September 30, 2019.
Management’s Responsibility for the Report on Internal Control
The Company’s management is responsible for designing and operating effective internal control over financial reportingand for the preparation and fair presentation of its report on internal control in conformity with assessment standards forinternal control over financial reporting generally accepted in Japan.
There is a possibility that misstatements may not be completely prevented or detected by internal control over financial
reporting.
Auditors’ Responsibility
Our responsibility is to express an opinion on the management’s report on internal control based on our internal control
audit as independent auditors. We conducted our internal control audit in accordance with auditing standards for internal
control over financial reporting generally accepted in Japan. Those standards require that we plan and perform theinternal control audit to obtain reasonable assurance about whether the management’s report on internal control is freefrom material misstatement.
An internal control audit involves performing procedures to obtain audit evidence about the result of assessment oninternal control over financial reporting in the management’s report on internal control. The procedures selected dependon the auditors’ judgment, including the significance of effects on reliability of financial reporting. An internal control
audit includes, including examining representations on the scope, procedures and results of the assessment of internal
control over financial reporting made by management, evaluating the overall presentation of the management’s report oninternal control.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the management’s report on internal control referred to above, which represents that the internal control
over financial reporting of TKC Corporation as of September 30, 2019 is effectively maintained, presents fairly, in allmaterial respects, the result of the assessment of internal control over financial reporting in conformity with theassessments standards for internal control over financial reporting generally accepted in Japan.
Interest
Our firm and the executing partners have no interest in the Company for which disclosure is required under theprovisions of the Certified Public Accountants Act of Japan.
End of document(*) 1. The above represents a translation, for convenience only, of the original copy of the Audit Report issued in theJapanese language, which is held in the custody by TKC Corporation (the Company filing this Annual Securities
Report).
2. XBRL data is not included in the scope of audit.

– 124 –

Independent Auditors’
Audit Report
December 20, 2019

TKC Corporation
To: The Board of
Directors
Ernst & Young ShinNihon LLC

Designated Limited
Liability Partner
Executing Partner

Certified Public
Kanji Tako (Seal)
Accountant

Designated Limited
Liability Partner
Executing Partner

Certified Public
Yuichi Noda
Accountant(Seal)

Pursuant to the Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, we have audited thefinancial statements included in the Financial Information Section, namely, the statements of financial position of TKC
Corporation for the 53rd fiscal year from October 1, 2018 to September 30, 2019, which consists of the balance sheets,
statements of profit or loss, change in equity, and significant accounting policies, other related notes and supplementaryschedules.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance withprinciples setting forth the preparation and properly presentation of the financial statements generally accepted in Japan.
Responsibilities include those for designing and operating an internal control system as the management deems
necessary in order to prepare and properly present the financial statements that are free from material misstatement due
to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit as independent auditors. We
conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. The purpose of an audit of the financial
statements is not to express an opinion on the effectiveness of the entity’s internal control, but in making these risk
assessments the auditor considers internal controls relevant to the entity’s preparation and fair presentation of thefinancial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
TKC Corporation as of September 30, 2019, and its financial performance for the year then ended in conformity withaccounting principles generally accepted in Japan.
– 125 –

Interest
Our firm and the executing partners have no interest in the Company for which disclosure is required under theprovisions of the Certified Public Accountants Act of Japan.
End of document(*) 1. The above represents a translation, for convenience only, of the original copy of the Audit Report issued in theJapanese language, which is held in the custody by TKC Corporation (the Company filing this Annual Securities
Report).
2. XBRL data is not included in the scope of audit.

– 126 –

[Cover][Document filed]Management’s Report on Internal Control[Applicable law]

Article 24-4-4, Paragraph 1 of the Financial Instruments and Exchange Act
of Japan[Filed with]

Director, Kanto Local Finance Bureau[Date filed]December 23, 2019

[Company name]

Kabushiki Kaisha TKC[Company name in English]

TKC Corporation[Title and name of representative]

Masanori Iizuka, Representative Director, President and Executive Officer[Title and name of Chief Financial
Officer]

Hitoshi Iwata, Representative Director, Vice President and Executive
Officer[Address of head office]1758 Tsurutamachi, Utsunomiya-shi, Tochigi[Place available for public inspection]

TKC Corporation, Tokyo Head Office(2-1 Ageba-cho, Shinjuku-ku, Tokyo)
Tokyo Stock Exchange, Inc.
(2-1 Nihonbashikabutocho, Chuo-ku, Tokyo)

1 [Matters concerning the basic framework for internal control over financial reporting]Masanori Iizuka, Representative Director, President and Executive Officer, and Hitoshi Iwata, Chief Financial
Officer of TKC Corporation (the “Company”), are responsible for designing and operating effective internal control
over financial reporting of the Company, and have designed and operated internal control over financial reporting inaccordance with the basic framework for internal control set forth in “Establishing the Standards and PracticeStandards for Management Assessment and Audit Concerning Internal Control Over Financial Reporting (Council
Opinions)” released by the Business Accounting Council.
Internal control, by nature, may not function effectively due to errors in judgment or negligence of those
implementing internal control, or may not respond to unanticipated changes in internal and external environments.
Therefore, there is a possibility that misstatements may not be completely prevented or detected by internal control
over financial reporting.

2 [Matters concerning the scope of assessment, assessment date and assessment procedures]
Assessment of internal control over financial reporting was performed as of September 30, 2019, which is the end of
this fiscal year, in accordance with assessment standards for internal control over financial reporting generally
accepted in Japan.
In conducting this assessment, we first assessed internal controls which may have material impact on the entire
financial reporting on a consolidated basis (entity-level controls), and based on the results of such assessment, weselected the business processes to be assessed. In the process-level assessment, we analyzed the selected businessprocesses, identified key controls that may have material impact on the reliability of the financial reporting, andassessed the design and operation of these key controls to determine the effectiveness of our internal controls.
We determined the required scope of assessment of internal control over financial reporting for the Company as wellas its consolidated subsidiaries and equity-method affiliated companies based on the materiality that may affect thereliability of the Company’s financial reporting. The materiality that may affect the reliability of financial reporting
was determined by taking into account the materiality of quantitative and qualitative impacts on financial reporting.
Based on the results of assessment of entity-level controls conducted for the Company and one of its consolidated
subsidiaries, we reasonably determined the scope of assessment of internal controls over business processes. The fourother consolidated subsidiaries and one equity-method affiliated company determined to have insignificant
quantitative and qualitative influence on the reliability of financial reporting were not included in the scope ofassessment of entity-level controls.
– 127 –

For the purpose of determining the scope of assessment of internal control over business processes, we selected
locations and business units to be tested based on the fiscal year’s nets sales (after elimination of transactions
between consolidated companies), and the Company, whose net sales reached about two-thirds of total amount on the
Company’s consolidated net sales, were selected as "Significant Locations/Business Units." At such Significant
Locations/Business Units, we included in the scope of assessment, business processes that lead to sales, accounts
receivable, purchases and inventories that may have material impact on the business objectives of the Company.
Further, in addition to the selected Significant Locations/Business Units, we also included in the scope of assessment,
certain business processes having greater likelihood of material misstatements, processes having significant accounts
involving estimates and management’s judgment, and processes concerning businesses or operations dealing withhigh-risk transactions, as business processes that may have material impacts on financial reporting.

3 [Matters concerning the results of assessment]
As a result of the above assessments, the Company determined that the internal control over financial reporting was
effective as of the last day of the fiscal year.

4 [Supplementary Information]
None to be disclosed.

5 [Special Notes]
None to be disclosed– 128 –

[Cover][Document filed]

Written Confirmation[Applicable law]

Article 24-4-2, Paragraph 1 of the Financial Instruments and Exchange Act
of Japan[Filed with]

Director, Kanto Local Finance Bureau[Date filed]December 23, 2019

[Company name]

Kabushiki Kaisha TKC[Company name in English]

TKC Corporation[Title and name of representative]

Masanori Iizuka, Representative Director, President and Executive Officer[Title and name of Chief Financial
Officer]

Hitoshi Iwata, Representative Director, Vice President and Executive
Officer[Address of head office]1758 Tsurutamachi, Utsunomiya-shi, Tochigi[Place available for public inspection]

TKC Corporation, Tokyo Head Office(2-1 Ageba-cho, Shinjuku-ku, Tokyo)
Tokyo Stock Exchange, Inc.
(2-1 Nihonbashikabutocho, Chuo-ku, Tokyo)– 129 –

1 [Matters Related to Adequacy of Statements Contained in the Annual Securities Report]
Masanori Iizuka, Representative Director, President and Executive Officer of the Company and Hitoshi Iwata, Chief
Financial Officer of the Company hereby confirm that the statements contained in the Annual Securities Report for
the 53rd fiscal year (from October 1, 2018 to September 30, 2019) are adequate under the Financial Instruments andExchange Act of Japan.

2 [Special Notes]
None to be disclosed.

– 130 –