Annual Securities Report(Report based on Article 24, Paragraph 1 of the
Financial Instruments and Exchange Act)
Fiscal year
Started October 1, 2015
(50th Term)
Ended September 30, 2016

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

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Contents[Front cover].............................................................................................................................................................................................. 3
Section 1[Information on the Company] ........................................................................................................................................... 4
Part 1[Overview of the Company] ............................................................................................................................................... 4
1[Key Financial Data] ............................................................................................................................................................... 42[History] .................................................................................................................................................................................. 6
3[Description of Business] ........................................................................................................................................................ 8
4[Information on Affiliates] .................................................................................................................................................... 11
5[Employees] .......................................................................................................................................................................... 11Part 2[Business Overview] ........................................................................................................................................................ 13
1[Summary of Business Results] ............................................................................................................................................ 13
2[Production, Orders Received and Sales] .............................................................................................................................. 24
3[Challenges Facing the Company] ........................................................................................................................................ 24
4[Risk Factors] ........................................................................................................................................................................ 27
5[Material Agreements, etc.] ................................................................................................................................................... 28
6[Research and Development Activities] ................................................................................................................................ 29
7[Analysis of Consolidated Financial Conditions, Operating Results, and Cash Flows] ........................................................ 29
Part 3[Property, Plants and Equipment] ..................................................................................................................................... 31
1[Summary of Capital Investments] ....................................................................................................................................... 31
2[Major Property, Plants and Equipment] ............................................................................................................................... 31
3[Plans for Capital Investments, Disposals of Property, Plants and Equipment] .................................................................... 34
Part 4[Information on the Company] ......................................................................................................................................... 35
1[Information on the Company's Stock] ................................................................................................................................. 35(1)[Total number of shares, etc.] ...................................................................................................................................... 35(2)[Information on Share Subscription Rights] ................................................................................................................ 35(3)[Exercise of Corporate Bonds with Share Subscription Rights Containing a Clause for Exercise Price Adjustment] . 43
(4)[Rights Plan] ................................................................................................................................................................ 43(5)[Changes in Total Number of Issued Shares, Common Stock, etc.] ............................................................................. 43(6)[Shareholders Composition] ........................................................................................................................................ 44(7)[Major Shareholders] ................................................................................................................................................... 44(8)[Status of Voting Rights] .............................................................................................................................................. 45(9)[Stock Option Scheme] ................................................................................................................................................ 46
2[Acquisition, etc. of Treasury Stock] .................................................................................................................................... 52
3[Dividend Policy] .................................................................................................................................................................. 53
4[Changes in Share Prices]................................................................................................................................................. 53
5[Board of Directors] .............................................................................................................................................................. 55
6[Corporate Governance] ........................................................................................................................................................ 60
Part 5[Financial Information] .................................................................................................................................................... 85
1[Consolidated Financial Statements] ..................................................................................................................................... 86(1)[Consolidated Financial Statements]............................................................................................................................ 86(2)[Other] ....................................................................................................................................................................... 133
2[Financial Statements, etc.] ................................................................................................................................................. 134(1)[Financial Statements] ............................................................................................................................................... 134(2)[Major Assets and Liabilities] .................................................................................................................................... 149(3)[Other] ....................................................................................................................................................................... 149
Part 6[Stock-related Administration of the Company] ............................................................................................................. 150
Part 7[Reference Information on the Company] ...................................................................................................................... 151
1[Information on the Parent Company] ................................................................................................................................ 151
2[Other Reference Information] ............................................................................................................................................ 151
Section 2[Information on Guarantors, etc. of the Company] ......................................................................................................... 152[Independent Auditor's Report] [Confirmation Letter] [Internal Control Report]

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[Front cover][Document filed]Annual Securities Report[Applicable laws]

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

Director-General, Kanto Local Finance Bureau[Date filed]December 26, 2016

[Fiscal year]

50th term (From October 1, 2015 to September 30, 2016)[Company name]

株式会社TKC (Kabushiki Kaisha TKC)[Company name in English]

TKC Corporation[Title and name of representative]

Kazuyuki Sumi, Representative Director and President[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, Chief Director of Business Administration[Contact address]

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

03-3235-5511[Contact person]

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

Officer, Chief Director of Business Administration
TKC Corporation Tokyo Head Office(2-1 Ageba-cho, Shinjuku-ku, Tokyo)
Tokyo Stock Exchange, Inc.
(2-1 Nihonbashikabutocho, Chuo-ku, Tokyo)

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Section 1[Information on the Company]

Part 1 [Overview of the Company]
1[Key Financial Data](1) Consolidated Financial Data, etc.
Fiscal year

46th Term

47th Term

48th Term

49th Term

50th Term

Year end

September
2012

September
2013

September
2014

September
2015

September
2016

53,387

53,11554,502

54,92857,750

6,431

6,186

6,401

7,042

7,604

3,112

3,685

3,604

4,011

4,770

3,232

4,674

3,827

4,149

3,958

53,95857,421

59,906

62,63064,556

69,58872,72375,266

76,836

81,116

Net sales
Ordinary profit
Net income attributableto owners of parent
Comprehensive income
Total net assets
Total assets(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)(Millions ofyen)

Net assets per share(Yen)

1,975.33

2,106.23

2,205.39

2,304.38

2,374.07

Net income per share(Yen)

116.66138.44135.55151.18179.65

Diluted net income per
share

(Yen)

116.60138.19135.15150.63178.88Equity ratio

(%)

75.6

77.1

77.7

79.6

77.7

Return on equity

(%)

6.0

6.8

6.3

6.7

7.7

Price earnings ratio(Times)

13.7

12.2

16.0

20.3

17.5

6,889

3,926

4,402

6,485

9,181

(2,634)(2,026)(2,873)(4,558)(7,022)(1,324)(1,291)(1,125)(1,333)(2,225)15,014

15,622

16,025

16,61916,552

2,558

2,521

2,503

2,500

2,547

Cash flows from
(Millions ofoperating activities
yen)
Cash flows from
(Millions ofinvesting activities
yen)
Cash flows from
(Millions offinancing activities
yen)
Cash and cash
(Millions ofequivalents at end of year
yen)
(No. ofNo. of employees
people)(Notes) 1.
2.

Net sales do not include consumption taxes (consumption tax and local consumption tax; hereinafter thesame).
The Company has adopted the "Accounting Standard for Business Combinations" (ASBJ Statement No.
21, September 13, 2013) etc. and therefore previous "Net income" is now renamed "Net income
attributable to owners of parent" from the current consolidated fiscal year.

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

46th Term

47th Term

48th Term

49th Term

50th Term

Year end

September
2012

September
2013

September
2014

September
2015

September
2016

50,08249,35550,61650,95753,361

6,352

6,056

6,367

7,032

7,665

3,110

3,626

3,581

4,073

4,542

5,700

5,700

5,700

5,700

5,700

26,731

26,731

26,731

26,731

26,731

51,11254,47956,934

59,694

61,37064,76567,81969,882

71,23475,0301,916.60

2,044.87

2,142.76

2,243.29

2,304.61

44

44

44

71

80

(22)

(22)

(22)

(33)

(40)

(Millions ofyen)(Millions of
Ordinary profit
yen)(Millions of
Net income
yen)(Millions ofCapitalyen)(Thousands
Total number of shares issuedof shares)(Millions of
Total net assets
yen)(Millions of
Total assets
yen)
Net sales

Net assets per share(Yen)

Dividends per share(Of the above interim
dividends per share)(Yen)

Net income per share(Yen)

116.57136.22134.68153.50171.08

Diluted net income per share(Yen)

116.51135.98134.28152.94170.34Equity ratio

(%)

78.9

80.2

81.3

83.6

81.6

Return on equity

(%)

6.2

6.9

6.4

7.0

7.5

Price earnings ratio(Times)

13.7

12.4

16.1

20.0

18.3

Dividend payout ratio

(%)

37.75

32.30

32.67

46.25

46.76

(No. ofpeople)

2,266

2,231

2,203

2,201

2,234

No. of employees(Notes) 1.
2.

Net sales do not include consumption taxes.
Dividends per share for the 49th term and the 50th term include a dividend of 5 yen and 10 yen incommemoration of the Company's 50th anniversary, respectively.

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2 [History]
Date

Company History

October 1966

The Company was established in Utsunomiya City, Tochigi Prefecture on October 22, 1966, asa data processing center to defend the business domains and maintain control over the fate ofaccounting firms, and to improve the administrative efficiency of local governments.
Established Kabushiki Kaisha Tochigi-ken Keisan Center.
Established TKC Tokyo Keisan Center and deployed data processing centers nationwide.
Established TKC Tokyo Yohin Center K.K. (a subsidiary, changed name to TKC Tokyo Supply
Center K.K. in December 1993). [Merged and absorbed into the Company in January 2000]
Established TKC Osaka Keisan Center K.K. (a subsidiary, changed name to TKC Osaka Yohin
Center K.K. in July 1987, and to TKC Osaka Supply Center K.K. in December 1993). [Merged
and absorbed into the Company in January 2000]
Established TKC Okayama Keisan Center K.K. (a subsidiary, changed name to TKC
Chushikoku Yohin Center K.K. in July 1987, and to TKC Chushikoku Supply Center K.K. in
December 1993). [Merged and absorbed into the Company in January 2000]
Changed corporate name to Kabushiki Kaisha TKC.
Established TKC Tohoku Keisan Center K.K. (a subsidiary, changed name to TKC Tohoku
Yohin Center K.K. in July 1987, and to TKC Tohoku Supply Center K.K. in December 1993).
[Merged and absorbed into the Company in January 2000]
Established TKC Nagoya Keisan Center K.K. (a subsidiary, changed name to TKC Chubu
Yohin Center K.K. in July 1987, and to TKC Chubu Supply Center K.K. in December 1993).
[Merged and absorbed into the Company in January 2000]
Established TKC Kyushu Keisan Center K.K. (a subsidiary, changed name to TKC Kyushu
Yohin Center K.K. in July 1987, and to TKC Kyushu Supply Center K.K. in December 1993).
[Merged and absorbed into the Company in January 2000]
Established Tokyo Line Printer Company K.K. (currently a consolidated subsidiary).
Established TKC Saitama Keisan Center K.K. (a subsidiary, changed name to TKC Kanshin
Yohin Center K.K. in July 1987, and to TKC Kanshin Supply Center K.K. in December 1993).
[Merged and absorbed into the Company in January 2000]
Opened TKC Systems Development Research Center.
Established TKC Security Services K.K. (currently a consolidated subsidiary).
Opened TKC Tax Research Center.
Established TKC Management Consulting K.K. (a subsidiary).
[Merged and absorbed into the Company in May 2011]
Opened TKC Okinawa Information Service Center and thereafter deployed information service
centers nationwide.
Opened OA Technology Development Center.
Changed corporate name in the Articles of Incorporation to TKC Corporation.
Changed names of Keisan Centers to Information Centers.
Listed on the Second Section of the Tokyo Stock Exchange.
Opened TASK Technology Development Center.

August 1971
September 1972

November 1972

December 1972

November 1973

August 1975
February 1976

January 1978
October 1982
October 1984
February 1985
April 1985
August 1985
December 1986
June 1987
July 1987
September 1987

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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 toform TKC Tokyo Consolidated Information Center.
Established TKC Corporation Strategic Management Research Center. [Merged and absorbed
into the Company in October 2000]
Opened TKC Data Entry Center.
Opened TKC Precedent Retrieval Service Center.
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.
Opened Systems Development Center.
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.
Acquired shares in SKYCOM Corporation (currently a consolidated subsidiary).
The systems development division obtained ISO9001 quality management systems
certification.
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 thecorporate name in the Articles of Incorporation.
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 AuditingStandards 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).
Became the first company in Japan to obtain third party accreditation for ISO/IEC 27018:2014,"Code of practice for protection of personally identifiable information (PII) in public cloud
acting as PII processors" (October 12).
Opened System Engineering Center (SEC) Building.

April 1990
June 1991
January 1992
November 1992

February 1994
March 1996
January 1998

June 1998
June 1999
July 1999
March 2001

November 2002
March 2003
July 2003

October 2003

April 2004
June 2005
December 2008

September 2010
October 2015
April 2016

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3 [Description of Business]
The TKC Group (TKC Corporation and affiliated companies) consists of the Company, four subsidiaries and two
affiliated companies. 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 officeequipment), and printing 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
the Notes to Consolidated Financial Statements under Part 5 Financial Information, 1. Consolidated Financial
Statements, etc., (1) Consolidated Financial Statements.
1

Accounting Firm Business
Main services/products

Positioning of the Company and affiliated companies

1. Information processing services(i)Computer services by the TKC
Consolidated Information
Centers(ii) Computer services by the TKCInternet Service Center (TISC)(Services and sales)
The Company provides information processing services, software andconsulting services, and sales of office equipment and office supplies
for computer-based accounting to customers including accounting firms
and their clients.

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(Manufacturing and production)
1. Tokyo Line Printer Company, a subsidiary of the Company, offers
printed continuous business forms for TKC's computer-based
accounting for information processing service applications, andmanufacturing of office supplies for use with TKC's computer-based
accounting systems.
2. SKYCOM Corporation, a subsidiary of the Company, is engaged in
the development and sales of software.
3. TKC Shuppan Corporation, an affiliated company, publishes books
and monthly magazines on business management, taxing andaccounting to provide useful business information to TKC member
accounting firms and their clients.
4. iMobile Inc., an affiliated company, is engaged in the development
and maintenance of website services.
(Others)
TKC Security Services K.K., a subsidiary of the Company, provides
security, maintenance and repair services for buildings owned by theCompany.

4. Sales of supplies
Sales of office supplies forcomputer-based accounting

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2

Local Governments Business
Main services/products

Positioning of the Company and affiliated companies

1. Information processing services(i) Computer services by the TKC
Consolidated Information
Centers(ii) Computer services by the TKCInternet Service Center (TISC)(Services and sales)
The Company provides information processing services, software andconsulting services, and sales of office equipment and office supplies tolocal governments (local municipalities, etc.).
(Manufacturing)
1. Tokyo Line Printer Company, 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
the development 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
Main products

Positioning of the Company and affiliated companies

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

(Manufacturing and sales)
Tokyo Line Printer Company, a subsidiary of the Company, isengaged in the manufacturing and sales of continuous business forms
for PCs, general office forms and data printing services (DPS).

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A structural diagram of the Group's business activities is as follows:
TKC National
Federation partnercompanies

Clients ofaccounting firms

Law schools, etc.

Medium/largesized companies

Clients

Accounting firms

Local governments(municipalities, etc.)

General companies

Non-consolidated
subsidiary
TKK Corporation

Sales of monthly
magazines

Sales of supplies for
TKC computer-based
accounting systems

TKC
Purchasing of
supplies for TKC
computer-based
accounting systems

Software andconsulting
services, etc.

Information processing services

Sales of officeequipment

Local Governments
Business Division

Accounting Firm Business Division

Purchasing ofmonthlymagazines,
etc.

Equity method affiliated company:
TKC Shuppan Corporation

Entrustment ofdevelopment/
maintenance ofwebsite services

Outsourcing ofsystems
development/maintenance

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

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Printing Business
Division

Purchasing ofcontinuous business
forms for TKC PC
systems

Consolidated
subsidiary:
SKYCOM
Corporation

Equity method
affiliated company:iMobile, Inc.

Sales of continuous
business forms for
TKC PC systems

Consolidated subsidiary:Tokyo Line Printer Company

4 [Information on Affiliates](1) Consolidated subsidiaries
Name

Tokyo Line PrinterCompany

TKC Security
Services K.K.

SKYCOM
Corporation

Address

Capital(Millions ofyen)Itabashi-ku,
Tokyo

Utsunomiya
City, Tochigi

Taito-ku, Tokyo

Principal line ofbusiness

Percentage ofvoting rights(%)

Printing business,
manufacture andsales of100
continuous
business forms for
PCs

55.0

Security,
maintenance &10
repairs, andcleaning services

100.0

Development andsales of systems

100

100.0

Related activities
Purchasing ofprinted continuous
business forms for
PCs; lease of officespaces.
Executive positions
are held concurrently.
Security,
maintenance &repairs, packaging
and shipping
services.
Executive positions
are held concurrently.
Outsourcing ofsystems
development.
Executive positions
are held concurrently.

(Notes) 1. Tokyo Line Printer Company is a specified subsidiary.
2. None of the companies currently submit Securities Registration Statements or Annual Securities Reports.

(2) Equity Method Affiliated Companies

Name

TKC Shuppan
Corporation

iMobile Inc.

(Note)

Address

Chiyoda-ku,
Tokyo

Chiyoda-ku,
Tokyo

Capital(Millions ofyen)

Principal line ofbusiness

Percentage ofvoting rights(%)

Production of
166 monthly
magazines, etc.

32.8

Development and262 maintenance ofwebsite services

30.0

Related activities
Purchasing ofmonthly magazines,
etc.
Executive positions
are held concurrently.
Outsourcing ofdevelopment andmaintenance ofwebsite services.

Executive positions
are held concurrently.
None of the companies currently submit Securities Registration Statements or Annual Securities Reports.

5 [Employees]
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(1) Consolidated Basis
As of September 30, 2016
Name of segment

Number of employees

Accounting Firm Business Division

1,599

Local Governments Business Division542

Printing Business Division

182

Corporate (shared)

224
Total

2,547

(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, 2016
Number of employees

Average age (years of age)

Average years of service(years)Average annual salary (yen)

38.9

15.7

6,665,062

2,234

Number of employees

Name of segment
Accounting Firm Business Division

1,489

Local Governments Business Division542

Corporate (shared)

203
Total

2,234

(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.

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Part 2 [Business Overview]
1 [Summary of Business Results]
I

Operating Results

The consolidated Group comprising of TKC Corporation and its five consolidated subsidiaries recorded a net salesof 57,750 million yen (increased 5.1% year-on-year), operating income of 7,642 million yen (increased 13.4%
year-on-year), ordinary income of 7,604 million yen (increased 8.0% year-on-year), and net income attributable toowners of parent of 4,770 million yen (increased 18.9% year-on-year).
The Group's net sales, operating income, ordinary income and net income attributable to owners of parent all
exceeded the previous fiscal year's performance with record-breaking figures. The main reasons for the growth
include the steady growth of orders that has continued from the previous fiscal year for cloud services in both the
Accounting Firm and Local Governments Business Divisions (BDs), as well as the new orders with respect to thestrengthening of information security measures due to the commencement of the My Number system(strengthening security of the internal network) in the Local Governments BD.
Net sales by business division are shown below.
1.

Results of Operation of the Group for the Fiscal Year

(1) Net sales of the Accounting Firm Business Division(i) Net sales of the Accounting Firm BD were 40,636 million yen (increased 4.0% year-on-year); operating
income was 6,479 million yen (increased 16.1% year-on-year).
(ii) Computer service sales increased 4.0% year-on-year. The growth was driven by the increasing number ofusers of the Company's cloud services, such as FX4 Cloud, an Integrated Accounting Information System
for mid-sized companies, PX My Portal providing support for the appropriate management of the My
Numbers, and Tax Accountants Office Management System (OMS).
(iii) Software sales increased by 7.4% year-on-year. This increase was the result of the fact that increasing
number of users has also occurred in FX4 Cloud and e21-Meister.
(iv) Sales from consulting services decreased 10.1% year-on-year. This was due to the decrease in revenue
from client/server system launch support services and the hardware maintenance business as a result of
increasing number of users of FX4 Cloud system, etc.
(v) Sales in PCs, servers and other hardware increased 3.0% year-on-year. This was due to the increase in thenumber of Windows 10 personal computers sold, which the Company started selling from the first quarterof the term.
(2) Net sales of the Local Governments Business Division(i) Net sales of the Local Governments BD were 13,455 million yen (increased 7.9% year-on-year); operating
income was 1,016 million yen (decreased 7.7% year-on-year).
(ii) Sales from computer services increased 1.3% year-on-year. This was due to the increase in the service feeof the New Generation TASK Cloud driven by the growing number of our client agencies using the service.
(iii) Software sales increased by 4.2% year-on-year. This increase was driven by the increase in the number ofthe client agencies using the Children and Child-rearing Support System in line with the government's
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implementation of the new Comprehensive Children and Child-rearing Support System in April 2015, as
well as the revision of Basic Resident Register System in response to the commencement of My Number
system and the development and release of systems compatible with the Revised Long-term Care
Insurance System; and by the increase in the number of the agencies using New Generation TASK Cloud.
(iv) Sales from consulting services increased 36.1% year-on-year. This was due to the replacement of theinspection servers for the inspection service for electronic filing of local taxes, and the increase of sales
regarding the implementation support services associated with the expansion of the said service.
(v) Sales in PCs, servers and other hardware increased 29.7% year-on-year. This growth was driven by theincrease in the sales units of servers and network devices in response to the increasing need forstrengthening the information security systems in the client agencies where the My Number system wasput into use.
(3) Net sales of the Printing Business Division (Subsidiary: Tokyo Line Printer Company)(i) Net sales of the Printing BD were 3,658 million yen (increased 8.0% year-on-year); operating income was
143 million yen (increased 166.0% year-on-year).
(ii) Sales of data printing service-related products increased 22.3% year-on-year. This was due to winninglarge orders from major companies such as creating materials for direct mails, and the increase in orders
from government agencies because of the elections for the House of Councillors and the Governor ofTokyo.
(3) Business form-related sales decreased by 7.0% year-on-year. This was due to the continuous decline in the
demands for business forms, and the absence of large once-off orders from government offices that theCompany had enjoyed during the previous fiscal year.
2.

Important matters with respect to the Company as a whole(1) Completion of System Engineering Center (SEC) Building
On April 5, 2016, the construction of the SEC Building (four-story building with total floor space of 3,871.3 square
meters) was completed in the premises of the Company's Tochigi Head Office. The building began its operations on
April 11 as a site for engineering research in system development, operation of the TKC Internet Service Center(TISC), and education and training of employees.
(2) Coping with the Kumamoto earthquake
The Kumamoto earthquakes that occurred in succession in Kumamoto and Oita prefectures in April 2016 caused
severe damage to the accounting firms, which are our customers, and their clients, and to the municipalities that use
our system through our alliance partners. Although our sales office (Kumamoto SCG Service Center) was also
affected by the damage, there were no human injuries.
In response to the occurrence of the earthquake, the Company carried out the following support activities toprovide assistance in the recovery and revitalization of the affected customers.
(i)

Confirmation of safety of our employees and customers and gathering information about the disastersituation(ii)

Donation of relief money to the members of the TKC National Federation who were affected by theearthquake(iii) Contribution of 10 million yen from our employees and the Company
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(iv) Providing assistance in the resumption of operations to the affected members of the TKC National
Federation(v)

Offering support to our alliance partners(vi) Providing free-of-charge service of reprinting accounting records, etc. to the companies which lost them
due to the earthquake(vii) Free-of-charge rental of personal computers, etc.
(viii) Deferring the invoicing for the month of April 2016 by one month3.

Business Activities and Operating Results of the Accounting Firm Business Division

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 (hereinafter, "TKC Members").
(Note) For more information on the TKC National Federation, see "All About the TKC National Federation" or visit the
TKC Group website (http://www.tkc.jp/).

(1) Activities of the TKC National Federation ("TKCNF")(i)

Policy and strategic targets in view of TKCNF's 50th anniversary (Year 2021)
Under its "Policy and strategic targets of TKCNF in view of its 50th anniversary," the TKC National
Federation has set a strategic target to expand TKC member basis and achieve one million TKC
Members' clients, and works proactively towards "providing support for the business continuity andprosperity of SMEs."
Specific strategic goals are as follows:1)

Number of TKC Member firms: Over 10,000 offices2)

Number of certified public tax accountants at TKC Member firms: 15,000 accountants

3)

The "KFS Campaign": 500,000 companies for each project
K: (utilization of Keizoku MAS system)
F: (expansion of TKC's Self-accounting systems)
S: (implementation of "Shomen-tempu (tax audit report)" (Article 33-2 of CPTA Act); attachment anddisclosure of "Certificate of Bookkeeping Timeliness" in financial statements; diffusion of "Chusho
Kaikei Yoryo (Guidelines for SME accounting)")4)

Number of TKC auditors conducting Field Audit: 20,000 auditors

5)

Number of subscribers of TKC Corporate Defense Plan: 300,000 companies(ii) Important activity themes of TKCNF
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TKCNF developed a roadmap to achieve these strategic goals under a universal theme, "Chance, Change
and Challenge—Creating the Path to the Future. New Growth Strategy 2021 for TKC Accountants." Theroadmap divides the years leading up to the 50th anniversary into 3 stages, and sets forth the following
action plans for the first stage ending in December 2016:
1)

Enhance accounting leadership and contribute to the prosperity and success of companies;

2)

Promote the attachment of tax audit reports and strive to deliver flawless tax accounting;3)

Improve the reliability of financial statements and strengthen ties with financial institutions;

4)

Participate in activities to expand the membership base and work to vitalize the organization.

Such activities of TKCNF utilize the systems and services provided by the Company. The Company
supports the activities of TKCNF and is actively engaged in the development and provision of computer
services and software that are to the benefit of the prosperity and success of SMEs.
(2) TKC Management Strategy 2021
The Company announced the "TKC Management Strategy 2021" in January 2014. The strategy designed to support
TKCNF achieve their strategic goals includes the Company's two priority initiatives to achieve over 10,000 TKC
Member firms and 500,000 companies using TKC's self-accounting systems, and describes specific actions to betaken.
(i)

Support activities to achieve "Over 10,000 TKC Member Firms"
TKCNF is actively working on its Project 9501 in order to increase TKC membership to 9,501 or more
offices by the end of September 2017. The Company is working closely with TKCNF in soliciting newmembers to achieve this.
In the fiscal year under review, we highlighted our company's activities for the My Number system,
amended Consumption Tax Act, and FinTech to non-member accountants, and invited more than 1,400 ofthem who sent inquiries to us to join TKCNF.
In addition, under the cooperation of TKCNF, we conducted the Accounting Firm Management Seminar,
which changed the highlighting points for each target, for medium- and large-scale accounting firms,
certified public accountants, certified public tax accountants with less than five years of registration, andretired officials from tax authorities. A total of about 2,150 non-member accountants participated in theseminars. Among others, more than 220 non-member accountants participated in the seminars for
medium- and large-scale accounting firms which highlighted; the rationalization of accounting work at
clients through the effective use of the Data Receiving Functionality from Banks and Credit Card
Companies which is our FinTech service for enterprises, and the TKC Monitoring Information Service
which is our FinTech service for financial institutions; support for management decisions by providing
financial information early; and improvements in the credibility of the financial statements.
As a result of these activities, the number of members of TKC is 11,000 as of September 30, 2016, andthe number of member firms is approximately 9,300.

(ii)

Activities to achieve "500,000 firms using TKC self-accounting systems"
The Company focuses on promoting the use of its self-accounting systems FX2 and e21-Meister(hereinafter, "the FX series") which provide owners of SMEs the tools to understand the financial
conditions of their business and to review the progress of their business plans in a timely manner.
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During the fiscal year under review, as a result of the following promotional activities, the TKC Member
firms' promotional activities for the self-accounting became active, making remarkable achievements
such as the annual number of new system orders exceeding 30,000. Approximately 230,000 companies
use the FX series as of September 30, 2016.
1) Providing support to small- and medium-sized enterprises in complying with My Number system
Leveraging the implementation of the My Number system in January 2016, the Company promoted theuse of the Strategic Salary Information System (PX series) and PX My Portal, a cloud system launched in
November 2015, that supports the appropriate management of My Numbers. These activities aim at; a)enabling TKC Members to provide support to their clients for complying with the My Number system in
an appropriate and efficient manner, b) preventing the clients from leaving our members triggered by theuse of competitor's system for complying with the My Number system as well as increasing the revenues
earned by the TKC Member firms; and c) introduction of our FX series triggered by the introduction of
PX My Portal.
Approximately 35,000 companies use PX My Portal as of September 30, 2016.
2) FinTech service for enterprises
As part of the efforts to enhance the functionality of FX series, the Company started providing from June
1, 2016 the FinTech service Data Receiving Functionality from Banks and Credit Card Companies to theclients of TKC Members. This is to receive transaction data from more than 99% of financial
institutions* (corporate accounts) and major credit sales companies nationwide, so that the users caneasily and accurately post journal entries based on preset rules. The functionality supports therationalization of accounting tasks related to banking transactions, which accounts for about 40% ofjournal entries (according to our survey).
Approximately 6,000 companies use the Data Receiving Functionality from Banks and Credit Card
Companies as of September 30, 2016.
* City Banks, Regional Banks, Second Regional Banks, and Shinkin Banks
3) FinTech service for financial institutions
In October 2016, the Company started providing the TKC Monitoring Information Service, our FinTech
service for financial institutions. This is a service in which the TKC Member firms provide financial data,
the reliability of which is secured by the monthly Field Audits conducted by the TKC Members, tofinancial institutions upon request by their clients.
The purpose of the provision is to highlight the excellent quality of work performed by the TKC
Members to financial institutions and to strengthen the mutual engagement, through providing support tofinancial institutions for complying with the requirement by the Financial Services Agency in its
Financial Administration Policy (FSA announced in September 2015) calling for financial institutions toadapt to the Business Feasibility Evaluation and FinTech.
Beginning in June 2016, the Company actively promoted publicity and advertising activities related tocooperation with Joyo Bank and Seibu Shinkin Bank, which are both the forerunners in this initiative,
and worked with 20 regional associations nationwide for organizing the briefing sessions on this service
for financial institutions in each region. As a result of this activity, the Company received the intentions
to use this service from 214 financial institutions nationwide by September 30, and 123 of them madeofficial applications.
4) Self-accounting step-up workshop by the TKC methods
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In order to support the TKC Member firms that began activities for the realization of self-accounting by
the TKC method, the Company organized the Self-accounting Step-up Workshop by the TKC Methods at
56 locations nationwide from April 2016.
This workshop consists of six courses with "Introduction" and "Actual Operations" sections, and theparticipants learn various functions of the TKC System that are useful for self-accounting, management
advice and office management. This aims to contribute to strengthening "Overall Capability of the Firm",
which is the target of TKCNF, through supporting the smooth utilization of the TKC self-accounting
system.
In the fiscal year under review, the Company introduced the above-mentioned functions of FinTech
service for enterprises at those workshops in order to promote the self-accounting as quickly as possible,and helped TKC Member firms to hold the Workshop for Supporting the Ramp-up of the Data Receiving
Functionality from Banks and Credit Card Companies.
(iii) Self-accounting promotion activities targeting mid-size companies (Promotion of FX4 Cloud)
The Company offers an integrated accounting information system FX4 Cloud designed for medium-scale
corporation (with annual turnover of 500 million to 5 billion yen) to support TKC Members in their effort
to retain good-standing mid-size clients and expand their client base. In the fiscal year under review, theCompany was engaged in various activities based on the concepts of : 1) more efficient accounting workby utilizing the Data Receiving Functionality from Banks and Credit Card Companies; 2) more efficientaccounting work through utilizing the coordinated journal entries functionality which loads the data frombusiness systems of other companies; and 3) effective usage of MR design tools that enable performance
management by setting the divisional system in multiple stages.
In addition, as part of this activity, the FX4 Cloud Step-up Workshop was held for the staff of TKC
Member firms who already had one or more past experiences of introduction experience. The aim of theworkshop is to encourage the staff of TKC Member firms who directly support user companies to realize
the effect of introducing the system and to promote further introduction.
As a result of these activities, the number of FX4 Cloud users totaled approximately 9,100 companies asof September 30, 2016.
(3) Support activities for the TKCNF 7000 Project
TKCNF launched the TKJCF 7000 Project in April 2014 targeting to carry out 7,000 cases of the Support Project
for the Drafting of Business Improvement Plans, and encouraged TKC Members, who are among authorized
supporting organizations, to participate in this project. As a result, TKC Members have so far carried out
approximately 5,600 support cases (as of September 30, 2016), accounting for about 50% of the total number ofuses and leading to TKCNF being highly acclaimed by the Small and Medium Enterprise Agency and financial
institutions etc.
In order to support these activities, the Company established the TKC 7000 Project Promotion Support
Headquarters, and supported strengthening ties with credit guarantee corporations and financial institutions.
(4) Activities to "support the preparation of highly reliable financial statements based on timely and accurate
bookkeeping"
The Company issues a Certificate of Bookkeeping Timeliness in an aim to increase reliability of financial
statements prepared by 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
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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 of accounts
and electronic tax filings have been completed in a timely manner.
The Certificate of Bookkeeping Timeliness has been highly acclaimed by financial institutions across Japan, and it
is used to make judgments about loan plans and preferential interest rates for financial products such as "Kiwame"
introduced by The Bank of Tokyo-Mitsubishi UFJ, and other financial products offered by the Shoko Chukin Bankand many other financial institutions in Japan.
(5) Promotion of Tax Accountants Office Management System (OMS)(i)

Support for complying with the My Number system
In order to support the TKC Member firms in complying with the My Number system, the Company
revised and provided the Tax Accountants Office Management System (OMS) in October 2015. This
revision incorporated such mechanisms as input restrictions, browsing restrictions, output restrictions,offline usage authority, and built a mechanism in which My Numbers are stored safely and securely in
the Company's data centers, preventing data that includes My Numbers from being stored in the servers
or personal computers at TKC Member's offices, in an aim to comply with the safety management
measures of specific personal information stipulated in the laws and regulations concerning the My
Number system and the Guidelines for the Appropriate Handling of Specific Personal Information (forBusiness Operators).

(ii) Support for the improvements in productivity and quality of work through the promotion of OMS
In an aim to support the firms that promote self-accounting by the TKC methods in a new manner, theCompany carried out from June 2016 the Self-accounting Step-up Workshop (Actual Operations) tointroduce the function of OMS, and encouraged the firms to participate in the "Visit the Firms Already in
Action" program to promote the use of OMS.
As a result of these activities, 6,500 firms use the OMS as of September 30, 2016.
(6) Support for the expansion of client base of TKC Members serving large-size companies
By utilizing the TKC system, the Company contributes to the rationalization of tax and accounting operationsof large enterprises, mainly listed companies, and are actively working to make these companies clients of
TKC Members.
Publicly listed companies and other large-size enterprises are recently required to comply with and adapt to
the revisions of laws and systems implemented one after other, such as the staged reduction of effective
statutory corporation tax rates in accordance with the recent tax system revisions, the need to find solutions to
the increasing complexity of tax effect accounting in relation to the Implementation Guidance on
Recoverability of Deferred Tax Assets announced by the Accounting Standards Board of Japan, andcomplying with the My Number system and the revision of consumption tax and with the reporting systems(submissions of reports by country and the master files now becoming mandatory) with respect to information
about multi-national enterprises that are introduced along with the system for documenting requirements forthe transfer pricing taxation. Such companies are facing the trend in which increasing number of companies,
mainly listed companies, are adopting IFRS (International Financial Reporting Standards) due to therelaxation of requirements for its voluntary adoption; heightened requests for earlier closing of accounts; andincreasing needs for storing the evidence documents electrically due to the relaxation in the system of storing
the electrically scanned documents relating to national taxes. While more and more companies are preparing
for overseas expansion as part of their consolidated group's growth strategies, those that have alreadyexpanded abroad are facing issues on securing the adequateness, accuracy and timely procurement of financial
information from its overseas subsidiaries, and have a pressing need to strengthen the group's global
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performance management structures.
In light of these environmental changes, the Company actively promotes the TKC Consolidated Group
Solution package for large-size companies (which includes: the eCA-DRIVER consolidated accounting
system; the eConsoliTax consolidated tax payment system, the eTaxEffect tax effect accounting system, theASP1000R electronic tax filing system for corporations, the FX5 integrated accounting information system,
the e-TAX series electronic tax filing system, the FAManager fixed assets management system, and the
OBMonitor overseas business monitoring system, etc.).
In the fiscal year under review, the Company collaborated with the TKCNF's Medium and Large-size Support
Research Committee (consisting of nearly 1,240 members as of September 30, 2016), TKCNF's Overseas
Deployment Support Research Committee (consisting of nearly 430 members as of September 30, 2016) inhosting seminars to discuss themes such as "tax system revisions," "corporate governance in tax-related
operations," "system for storing the electrically scanned document relating to national taxes," and "accelerated
closing of accounts," and seminars that introduced "case studies about payment of taxes on a consolidated
basis," "case studies about checking and discovering errors and wrongdoings experienced by subsidiaries in
Asia," "case studies about transfer pricing taxation," and "case studies about the failures and successes in theactual vs. budget comparison experienced by overseas subsidiaries." We also made comprehensive proposals
targeting the companies using our system by leveraging the advantages of the Company's systems, which
encompass all aspects of account settlements and tax declaration on corporate group level. The Company also
started providing the TKC Documented Evidence Storage Service (TDS), our cloud service for large-size
enterprises in compliance with Article 4, Paragraph 3 of the Electronic Ledger Storage Act (rules for storing
electrically scanned documents) from June 30, 2016, and, from July 1, a cloud service e-Tax Legal Statements(optional functionality for My Number regarding remuneration/real estate) specialized for managing the My
Number of the payees of remunerations and real estate lease fee, etc.
As a result, the number of companies using the TKC Consolidated Group Solution counted approximately
2,500 corporate groups (or about 16,600 companies) as of September 30, 2016, adopted by more than 70% of
the 100 largest Japanese listed companies by sales amount.
To these companies, more than 800 TKC Members are appointed as system consultants.
(7) Expansion of markets for legal information database services
The LEX/DB Internet legal information database maintains an archive of over 275,000 judicial precedents, etc.
(as of September 30, 2016) covering all legal fields from precedents set in the former Supreme Court datingback to 1875 to those most recently announced. The TKC Law Library is a comprehensive legal information
database which uses the LEX/DB Internet as its core content and contains over 895,000 bibliographic
information references with links to 46 of the Databases of Professional Journals, with total items of
information now exceeding 2,328,900. As of September 30, 2016, the Library is used by over 16,600
institutions, including TKC Member firms, universities, law schools, government offices, law firms, patentoffices and corporate legal departments.
In the current fiscal year, the Company promoted the sales of the TKC Law Library basic service set alongwith practical contents on traffic accident-related and business-related legal affairs. We successfully hosted thePractical Training Seminars for Law Firms targeting lawyers (including in-house lawyers) with five years orless experience for nine times with six different themes. By combining "Interpretations on Supreme Court
Precedent," "NBL (New Business Law)" and "References to Commercial-related Judicial Affairs" into a one
set of product and promoting its sales, the Company aims to bolster the sales to attorneys, corporate legal
offices and other practitioners of the law.
In the academic field, we continued to provide highly cost-efficient TKC Law School Educational Support
System—Law School Package to law schools that are struggling in the tough managing environment. This
package is currently in use at 67 schools. In addition, the exercise systems included in the package to aid
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students in self-study (Basic Skill Tests, Study Drills of Short Answer Questions from Past Exams and theEssay Writing Seminar), as well as the effective use of "Learning Support NAVI" and "Study Drills of Past
Exams" provided new functions enabling more students to create study plans, check their progress and study
the necessary precedents in the lead up to the bar exam, leading to the increasing number of users.
As for the sales of TKC Law Library (Overseas Edition) through agents, we have received inquiries fromcourts, governmental agencies, universities and law firms in South Korea, Taiwan, China and other Asian
countries as well as other countries including Germany, the U.K. and the U.S. As of September 30, 2016, over
60 licenses are in use worldwide, with further growth anticipated in the future, particularly in the Asian
regions.
4.

Business Activities and Operating Results of the Local Governments Business Division

The Local Governments BD operates in accordance with the business objectives set forth in the Articles ofIncorporation (Article 2, Paragraph 2: "Management of electronic data processing centers to improve theadministrative efficiency of local governments") and offers specialized information services in order to help
promote the welfare of residents by improving administrative efficiency.
(1) Development and provision of cloud services designed for local municipalities
The Company provides TKC Government Cloud Service to municipalities nationwide. This Cloud Service consistsof the TASK Cloud Service which supports a range of services for residents, mission-critical functions andinformation services within agencies, and the TASK Outsourcing Service which supports massive batch output andprocessing of tax papers and other documents.
In particular, the TASK Cloud Service is a common platform package system operated at TKC data centers andshared by all municipalities across Japan (offered both for individual use and shared use by multiple organizations),
and serves as a model for local government cloud systems that the Japanese government seeks to establish. This has
led to the adoptions of our services in the mission-critical operational systems (such as Basic Resident Register
System, taxation and welfare) including; Saitama Municipal Information System Standardization Promotion
Council (18 municipalities); Ibaraki Municipal Cloud-based Mission-critical Task Operation Council (4municipalities); Gunma Agatsuma Municipal Information System Standardization Promotion Council (6municipalities); Noda Village, Fudai Village and Otsuchi Town Municipality Cloud (3 municipalities); Kawazu
Town, Minami-izu Town, Matsuzaki Town and Nishi-izu Town Municipal Cloud Promotion Council (4municipalities); totaling about 130 organizations nationwide as of September 30, 2016.
The Company also released the New Generation TASK Cloud (compatible with My Number system) missioncritical operation system in March 2015, offering support for the My Number system and enhanced functionalities
to ensure proper task processing even by new or temporary staff who are unfamiliar with the tasks. In the fiscal
year under review, we began preparation for supporting information coordination between the national andmunicipalities that will begin in July 2017, and carried out the transition works to the New Generation TASKCloud at 66 municipalities in total (as of September 30, 2016). By January 2017, we expect to complete thetransition works at all of the municipalities using our mission-critical operation systems.
(2) Expansion of cloud services for residents
As the issuance of My Number Cards began in January 2016 and the cards are widely used, more and more
municipalities are introducing "Issuance of Certificates at Convenience Store" service promoted by the Ministry ofInternal Affairs and Communications. In response, the Company provides the TASK Cloud Convenience Store
Certificate Issuing System as the system to realize this service.
Our extensive track record as the first cloud service for municipalities across Japan has attracted the interest of
many local governments including government ordinance-designated cities, and we have received orders from 25
municipalities during the current fiscal year. This has led to 54 municipalities having adopted the TASK Cloud
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Convenience Store Certificate Issuing System as of September 30, 2016.
(3) Support for electronic filing of local taxes
The Company is an authorized contractor of the Council for the Digitization of Local Taxes, and provides cloudbased service for electronic filing of local taxes and the electronic tax payment offered by the Council. We also
develop and provide data connection services to connect the individual tax systems of various municipalities with
the Council's platform. These services are proposed in collaboration with over 40 system vendors with whom wehave signed alliance partner agreements, and the Support Service for TASK Cloud Electronic Filing of Local
Taxes" is currently used by more than 720 agencies which account for approximately 40% of all municipalities (asof September 30, 2016).
Our TASK Cloud Taxation Document Image Management Service is drawing attention as means of preventing
information leakage caused by paper media, as well as streamlining taxation-related affairs and reducing associatedcosts. This service is used by 53 municipalities as of September 30, 2016.
(4) Support for the development of standardized local public accounting
With the announcement of the "Development and Promotion of Standardized Local Public Accounting (notice by
the Ministry of Internal Affairs and Communications on January 23, 2015)," local governments are required toprepare financial statements in accordance with a set of uniform standards based on the introduction of double
entry bookkeeping and creation of a fixed assets ledger in principle by FY2017. The Company provides the TASKCloud Public Accounting System which complies with this requirement, and the associated TASK Cloud Fixed
Assets Control System.
As its first user, operations using the daily journalizing system (real time conversion) in Kashiba City, Nara
Prefecture and Mashiko Town in Tochigi Prefecture from April 1, 2016, the first of its kind across Japan. In
addition to these introduction records, the attentions to our unique functions have brought us a great deal ofinquiries into the system from our customers, and we received orders from 25 new municipalities during the fiscal
year under review. This has led to approximately 150 municipalities having adopted the TASK Cloud Public
Accounting System as of September 30, 2016.
(5) Compliance with other laws and revisions of governmental systems
The Company added new system functions in connection with the introduction of the My Number system. We also
actively presented solutions to ensure information security that local agencies need to establish necessary measures
to appropriately manage Individual Numbers (security control measures).
Furthermore, with a view to information coordination between the national and local governments starting in July
2017, we carried out survey and analysis on related systems and measures to strengthen and enhance various
functions.
5.

Business Activities and Operating Results of the Printing Business Division

The Group's Printing BD is engaged in the printing of business forms and manufacturing and sales of service andproducts around its data printing services.
In the field of business form printing, although sales of business forms are generally on a downward trend, we
received orders from large customers and sales are making just a small decline in the fiscal year under review.
In the field of data printing services, we received such large orders as relating to public tenders and bidding items
for government agencies, the House of Councillors election, direct mail printing and shipping from privatecompanies, as well as business process outsourcing (BPO) projects, moving the sales of the entire printing businessup 8.0% over the previous year.
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II

Cash flows

The balance of cash and cash equivalents as of the end of the current consolidated fiscal year decreased by 66
million yen from the end of the previous consolidated fiscal year amounting to 16,552 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 9,181 million yen (2,696 million yen increase in revenue yearon-year). Major factors include the recognition of 7,573 million yen in net income before taxes and adjustments.
2.

Cash Flows from Investing Activities

Cash flows from investing activities decreased by 7,022 million yen (2,464 million yen increase in spending yearon-year). Major factors include the payment of 16,163 million yen for the purchase of investment securities and theproceeds of 7,500 million yen from the redemption of investment securities.
3.

Cash Flows from Financing Activities

Cash flows from financing activities decreased by 2,225 million yen (892 million yen increase in spending year-onyear). Major factors include payment of 2,069 million yen for year-end dividends as of end of September 2015 andfor interim dividends for the period ended September 2016.

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2 [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:
Segment nameAmount (Millions of yen)

Year-on-year rate (%)

Accounting Firm Business Division

40,636104.0

Local Governments Business
Division

13,455

107.9

Printing Business Division

3,658

108.0

57,750

105.1

Total
(Notes)1.
2.

Transactions between segments have been offset.
Figures shown do not include consumption taxes.

3 [Challenges Facing the Company]
Challenges faced by each division are as follows:
1.

Challenges Faced by the Accounting Firm Business Division

The Accounting Firm BD considers contributing to the prosperity of accounting firms and their clients the businesschallenge with the highest priority, and will continue to collaborate closely with TKCNF on the various TKCNF
activities as well as develop and provide systems and services to support the operation of TKC Members.
(1) Strengthen the competitive power of the systems we provide
We will take the following actions to increase competitiveness of its systems and differentiate ourselves from othercompanies by appealing the advantages of our systems.
(i) The strengths of the Company's systems lie in the one-stop support from tax affairs to accounting. The
advantage is the capability to provide a one-stop, full line of accounting, tax affairs and electronic tax
filing with links to related tax returns while maintaining complete compliance with laws, regulations andaccounting standards. Looking ahead, the Company will continue to respond promptly and accurately torevisions of laws/regulations and system modifications, and strive to enhance these strengths.
(ii) The most important feature of the Company's systems is that they are not merely offering of systems andservices. Our systems come with the meticulous support, from implementation to operation, by TKC
Members that have extensive experience in tax- and accounting-related practices, to enable clients toperform legitimate and appropriate tax and accounting. The Company will provide enhanced support forsuch TKC Members to assist them in offering greater added-value services.
(2) Self-accounting promotion activities
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In order to support the achievement of the TKCNF's 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 retroactive insertions, deletions and corrections.
(3) Provide support to achieve the target of over 10,000 TKC Member firms
To achieve the strategic targets of TKCNF, it is essential to increase TKC membership to exceed 10,000 offices as
put forth by the TKCNF New Members & Services Committee. The Company will solicit membership incooperation with TKC Members to contribute to the achievement of TKCNF's strategic targets.
(4) Increase the use base of TKC Law Library
The Company will increase the use base of the TKC Law Library by enhancing the functions of LEX/DB Internet
and other major contents, expanding the databases for law practitioners and creating new databases of professional
journals and other useful contents to provide support to law firms.
2.

Challenges Faced by the Local Governments Business Division

The Local Governments BD considers providing support for improving resident convenience and improving theefficiency of local governments a vital business challenge to be achieved through the development and provision of
innovative products and services that leverage the latest in ICT, and will implement the following initiatives to thisend.
(1) Development of new resident services designed in anticipation of the My Number system
With the introduction of the My Number system in January 2016 and the commencement of information sharing inJuly 2017, municipalities are expected to provide new resident services using the My Number system to further
improve convenience. The Company will develop new resident-orientated services in close connection with the
New Generation TASK Cloud using the latest ICT (in tablet devices and smartphones) while keeping an eye on
government actions.
(2) Realization of optimal business processes
The Company's strength in the local government's field lies in the accessibility to TKC data centers where local
governments across Japan can share a common system that our data centers operate (offered both for individual use
and shared use by multiple agencies). The Company will leverage on this strength, and continue to develop systems
to deliver optimal business processes at optimal costs by incorporating the benefits of cloud computing such as
flexibility, extensibility and safety.
3.

Challenges Faced by the Printing Business Division

The Company's Printing BD aims to "contribute to the direct communication capabilities of customers" and to"secure outsourcing contracts for back-office operations of customer." We have established our order receiving andproduction systems combining our analog and digital printing technologies to implement the following actions toincrease sales from data print services (DPS) and business process outsourcing (BPO).
(1) We will focus on promoting sales of products related to data print services through the acquisition of new
customers.
(2) We will submit proposals combining our analog and digital printing technologies to loyal customers toachieve direct communication with such customers.
(3) We will handle back-office operations of customers in the form of business process outsourcing, andcontribute to streamlining the customers' business operations by enhancing work efficiency and reducing costs
－

25

－

and information security risks while maintaining high quality.
(4) We will strengthen ties with existing customers to increase market share.
(5) We will continue to respond to customer needs, submit unique proposals to differentiate ourselves fromcompetitors, and develop new technologies to reduce production costs.
(6) We will strive to improve and maintain consistent quality, and enhance our quality inspections to prevent
quality defects.
(7) We will increase self-manufacturing and reduce the percentage of subcontracting in order to save costs.
(8) We will acquire trust from customers and business partners and further strengthen the information security
system based on Privacy Mark and ISMS in response to the implementation of the My Number Act.
(9) As ISO14001 certified, environmentally-friendly company, we will further our efforts to reduce wasted paper,
purify used pastes and switch to using soybean-derived inks.
4.

Challenges Faced by the Entire Company(1) Providing systems in complete compliance with laws and regulations
The business operations of the Company are to provide support for works performed by certified public tax
accountants, certified public accountants and local public officers, all bearing high levels of social accountability,
by engaging deeply in the legal areas related to Tax Code, the Companies Act, the Civil Code, the Financial
Instruments and Exchange Act, and the Local Autonomy Act, and drawing upon the latest ICT. The Company willcontinue to pursue system developments that will enable us to promptly respond to revisions to such laws andregulations.
(2) Establishing the Group governance system
The Company will establish an internal controls system in compliance with the requirements of the Companies Act
as well as the Financial Instruments and Exchange Act, compile the Company's management philosophy, various
board structures and corporate rules and regulations in a systematic manner to improve the Group governancesystem.
(3) Fostering an organizational culture that bolsters job satisfaction
The Company will promote the fostering of an organizational culture that bolsters job satisfaction in accordancewith the Company's Management Principles, develop a workplace that respects individuals and team work, andactively develop the capabilities of employees necessary to deliver value to our customers.
(4) Ensuring business continuity
The Company will continue to strengthen and expand existing services to ensure the continuity or early recovery of
the business operations of all of our customers in the event of large-scale natural disaster and other unforeseen
circumstances.
(5) Efforts toward information security
As a provider of information services for accounting firms and their clients and local governments through the useof latest ICT, ensuring information security is our highest priority and also a social responsibility in conducting ourbusiness activities.
－

26

－

With the introduction of the My Number system in October 2015, the personal information entrusted to theCompany from our customers now includes individual numbers used for identifying individuals, and reducing therisk of personal information leakage is all the more important.
It is with this awareness that the Group acquired third party accreditations including the Information Security
Management System (ISMS) Conformity Assessment Scheme and JIS Q 15001 Personal Information Protection
Management Systems - Requirements (Privacy Mark) for the cloud services offered by the Company, so that ourcustomers can use our cloud services with a peace of mind. TISC also acquired the Assurance Reports on Controls
at a Service Organization (Audit Report No. 86) based on JICPA Auditing and Assurance Practice Committee
Practical Guideline No. 86.
Additionally, on October 12, 2015 the Company was among the first in Japan to acquire ISO/IEC27018
certification, an international standard specializing in the protection of personal information in relation to cloudservices. Acquiring this certification shows objectively that the Company uses and manages personal information
including My Number of executives and employees of SMEs and residents that the Company receives fromaccounting firms and local governments in a safe and secure manner under information security systems that are of
the highest international level, and we feel that this will help raise the trust that our customers have in our cloudservices.
The Group will continue to strive to provide environments where customers can use cloud services safely, securely
and conveniently.
4 [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 our investors are described below. It is also our policy to disclose information on other risk factors that
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
respond promptly should they occur. However, we feel it necessary that investment decisions concerning theCompany securities should be made after thorough review in light of this section and also in reference to thecontents of this entire report. Note that this section does not cover all risk factors related to investment in the
Company securities.
Statements with regards the future are based on the Group's decision made as of the end of the current consolidated
fiscal year (September 30, 2016).
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 theeffects of 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 affectthe financial 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.
The application of fixed asset impairment accounting may affect the financial standing and operating results of theGroup.
－

27

－

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 andtightening of supply and demand in international markets. Should such circumstances prevail, the Group will aim
to respond through 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 security measures.
The Company shall also strengthen its information protection management systems by obtaining accreditations
such as Information Security Management System (ISMS) Conformity Assessment Scheme and JIS Q 15001
Personal Information Protection Management Systems - Requirements (Privacy Mark), and acquiring
ISO/IEC27018 certification, an international standard specializing in the protecting of personal information in
relation to cloud services.
However, the potential for such information leaking due to unforeseen circumstances cannot be eliminatedcompletely, 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
results of the Group.
5.

Contentious Cases

While there are no contentious cases that could affect the financial standing and operating results of the Group,
such contentious cases could occur in the future.
5 [Material Agreements, etc.]
Not applicable.

－

28

－

6 [Research and Development Activities]
The Group conducts research and development of software to provide innovative information and management
tools to accounting firms and their clients, and to promote the streamlining, standardization and networking ofadministrative affairs performed by local governments.
Divisions involved in R&D acquired Quality Management Systems - Model for Quality Assurance in Design,
Development, Production, Installation and Servicing (ISO9001) certification—an international quality assurance
standard—in July 1999 for the purpose of establishing and strengthening quality control and quality assurance
systems within our system development operations. Additionally, the certificate's scope of application was
expanded in September 2010 to include the system development headquarters of our Local Governments BD.
An amount of 74 million yen was spent on R&D in the current consolidated fiscal year, yielding the following
results:(1) Accounting Firm BD
Software developed by the Company includes PX My Portal, an optional add-on to the TKC payroll processing
system (PX series) that enables users to manage My Numbers (individual numbers) in a safe, secure and easymanner.
Total research and development cost associated with this BD was 73 million yen.
(2) Local Governments BD
The Company developed the TASK Cloud Welfare Information Entry System, a cloud system used to enter welfare
information.
Total research and development cost associated with this BD was 1 million yen.
7 [Analysis of Consolidated Financial Conditions, Operating Results, and Cash Flows](1) Analysis of Consolidated Financial Conditions
1.

AssetsTotal assets as of the end of the current consolidated fiscal year amounted to 81,116 million yen, a 4,279 million
yen increase compared to 76,836 million yen as of the previous consolidated fiscal year.
(i) Current assets
Current assets as of the end of the current consolidated fiscal year amounted to 29,554 million yen, a 2,112
million yen decrease from 31,666 million yen of the previous consolidated fiscal year.
This was mainly attributable to 2,366 million yen decrease in Cash and deposits.
(ii) Non-current assets
Non-current assets as of the end of the current consolidated fiscal year amounted to 51,562 million yen, a6,392 million yen increase compared to 45,169 million yen as of the previous consolidated fiscal year.
This was mainly attributable to an increase of 6,891 million yen in Investment securities, despite a 149
million yen decrease in Guarantee deposits.
－

29

－

2.

Liabilities

Total liabilities as of the end of the current consolidated fiscal year amounted to 16,559 million yen, a 2,353 million
yen increase compared to 14,206 million yen as of the previous consolidated fiscal year.
(i) Current liabilities
Current liabilities as of the end of the current consolidated fiscal year amounted to 13,419 million yen, a
1,669 million yen increase compared to 11,749 million yen as of the previous consolidated fiscal year.
This was mainly attributable to an increase of 959 million yen in Income taxes payable, and an increase of
581 million yen in Advances received which is included in Other.
(ii) Fixed liabilities
Fixed liabilities as of the end of the current consolidated fiscal year amounted to 3,140 million yen, a 683
million yen increase compared to 2,456 million yen as of the previous consolidated fiscal year.
This was mainly attributable to an increase of 764 million yen in Retirement benefit liabilities.
3.

Net assets

Total net assets as of the end of the current consolidated fiscal year amounted to 64,556 million yen, a 1,926
million yen increase compared to 62,630 million yen as of the previous consolidated fiscal year.
This was mainly attributable to an increase of 2,699 million yen in Retained earnings, despite an 848 million yen
decrease in Valuation difference on available-for-sale securities.
Capital-to-asset ratio as of the end of the current consolidated fiscal year was 77.7%, a 1.9% decrease compared to
the ratio of 79.6% as of the end of the previous consolidated fiscal year.
(2) Analysis of Operating Results
Refer to "Part 2 Business Overview, 1 Summary of Business Results, I Operating Results."(3) Analysis of Cash Flows
Refer to "Part 2 Business Overview, 1 Summary of Business Results, II Cash Flows."

－

30

－

Part 3 [Property, Plants 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 4,559 million yen were made in the current
consolidated fiscal year.
(1) Accounting Firm Business Division
Capital investment of 2,586 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 1,829 million yen was made for the development of software to provide services over the
cloud system.
(3) Printing Business Division
Capital investment of 144 million yen was made for the purchase of high speed printers, etc.
2 [Major Property, Plants and Equipment](1) The Company
As of September 30, 2016
Book values (Millions of yen)
Name of office(Address)

Segments

Research Center
TKC Internet Service Center(TISC)TKC Tochigi Consolidated
Information Center

TKC Systems Development
Research Center Tokyo Branch(Shinjuku-ku, Tokyo, etc.)
TKC Tokyo Consolidated
Information Center(Nerima-ku, Tokyo)
TKC Chubu Consolidated
Information Center(Kasugai City, Aichi)

Machinery,equipment
andvehicles

4,636

0

136

-

241

-

56

-

Tools,
Land
furniture and(Area in m2)
fixtures

Other

Total

Number of
employees

facilities,
Accounting

information

Firm BD,

communication

Local

service

Governments

facilities,

BD

Information

2,696(29,418.00)

830

3,512

11,676

1,068

127

-

263

329

7

-

2,473

25

6

-

260

19

processing(Utsunomiya City, Tochigi, etc.) *1
TKC Tokyo Head Office

Buildings
andstructures

Development

TKC Tochigi Head Office
TKC Systems Development

Facilities

facilities
Accounting
Firm BD,
Local

Office facilities-

Governments
BD
Accounting
Firm BD
Accounting
Firm BD

Information
processing
facilities
Information
processing
facilities

－

31

－

2,224
(1,447.44)
196(3,017.47)

Accounting
TKC Kansai Consolidated

Firm BD,

Information Center

Local(Ibaraki City, Osaka)

GovernmentsBD

TKC Chushikoku Consolidated
Information Center

Accounting(Kita-ku, Okayama City,

Firm BD

Okayama)
TKC Kyushu Consolidated
Information Center(Koga City, Fukuoka)

Accounting
Firm BD

Information
processing
facilities,

103

-

-

9

-

113

32

19

-

-

4

-

24

10

183

-

6

-

394

12

31

-

-

8

-

40

32

9

-

-

6

-

15

28

office facilities
Information
processing
facilities
Information
processing
facilities

203(2,341.48)

TKC Hokkaido Consolidated
Information Center
TKC Hokkaido SCG Service

Accounting

CenterFirm BD(Chuo-ku, Sapporo City,

Information
processing
facilities

Hokkaido)
TKC Tohoku Consolidated
Information Center

Accounting

TKC Tohoku SCG Service Center

Firm BD(Aoba-ku, Sendai City, Miyagi)

Information
processing
facilities

－

32

－

As of September 30, 2016
Book values (Millions of yen)
Name of office(Address)

Segments

TKC Okinawa Consolidated
Information Center

Accounting

TKC Okinawa SCG Service Center

Firm BD(Naha City, Okinawa)

Facilities

Machinery,equipment
andvehiclesBuildings
andstructures

Tools,
Land
furniture and(Area in m2)
fixtures

Other

Number of
employees

Total

Information
processing

7-

Office facilities

31-

Office facilities

23

-

261

-

-

3

-

10

10

1

-

180

22

1

-

222

6

4

-

657

-

facilities

Accounting
TKC Ibaraki SCG Service Center(Tsukuba City, Ibaraki)

Firm BD,
Local
Governments

147(1,120.00)

BD
TKC Yamaguchi SCG Service
Center(Yamaguchi City, Yamaguchi)

Accounting
Firm BD197(814.00)

Accounting
Dormitories, company housing(Utsunomiya City, Tochigi)

Firm BD,
Local
Governments

Welfarefacilities

391(5,326.69)

BD(2) Domestic subsidiaries
As of September 30, 2016
Book values (Millions of yen)Company nameName of office(Address)

Tokyo Line

Hanyu Plant

Printer(Hanyu City,

Company

Saitama)Printing BD

Facilities

Buildings
andstructures

75

133

540

285

Printing
facilities

Tools,
Land
furniture and(Area in m2) fixtures

145(7,275.17)

Other

Total

Number of
employees

6

42

402

65

9

79

1,025

43

DPS Solution

Tokyo Line

CenterPrinter(Hanyu City,

Company(Notes)Segments

Machinery,equipment
andvehiclesPrinting BD

Printing
facilities

110(5,776.00)

Saitama)

1.
2.
3.
4.
5.

The figures above do not include consumption taxes.
The status of equipment and facilities held by consolidated companies other than those described above
are small in scale and have been omitted.
The "Other" field under book value represents leased assets and software (including work in progress).
*1 includes some of the welfare facilities.
Major leased facilities and equipment other than those described above are as follows.
(The Company)
Annual office rent
738 million yen

－

33

－

3 [Plans for Capital Investments, Disposals of Property, Plants 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.
Plans for the establishment or disposal of major facilities and equipment as of the end of the current consolidated
fiscal year (September 30, 2016), excluding routine updates of facilities and equipment, were as follows.
Establishment of major facilities and equipment
Planned investments
Company nameName of office

Address

TKC Corporation
Customer Support
CenterKanumaCity,
Tochigi(Note)

Segments

Accounting
Firm BD

Facilities

Acquisition of
office building

Planned start and completion dates

FinancingAmountTotal amountmethodinvested(Millions of(Millions of
yen)
yen)

1,717

105

The figures above do not include consumption taxes.

－

34

－

Self-funded

Floor area
Start

Completion

March 2017

January 2018

4,969 m2

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

Total number shares authorized to be issued (Shares)

Common stock

60,000,000

Total

60,000,000(ii) [Issued shares]
Name of stock
exchange on which
Number of shares issued Number of shares issued the Company is
as of end of current fiscal as of the filing datelisted, or name ofClass
year (Shares)(Shares)
Authorized(September 30, 2016)(December 26, 2016) Financial
Instruments Firms
Association
First Section of theCommon stock
26,731,033
26,731,033
Tokyo Stock
Exchange
Total

26,731,033

Description

Number of sharesconsisting a unit is 100
shares.

－

26,731,033－(2)[Information on Share Subscription Rights]
Share subscription rights issued based on the Companies Act are as follows:(i) First Stock Option (Resolution of the Board of Directors on February 10, 2012)
As of end of current fiscal year
(September 30, 2016)
Number of subscription rights to shares
Number of own subscription rights to shares among all
subscription rights to sharesClass of shares to be issued upon exercise of subscription
rights to shares
Number of shares to be issued upon exercise ofsubscription rights to shares
Amount to be paid in upon exercise of subscription rights
to shares

175

175

－

－

Common stock

Same as left

17,500 (Notes) 1

17,500 (Notes) 1

1 yen
From March 13, 2012 toMarch 12, 2047
Price of issuing shares:
1,146 yenAmount of capitalization:
573 yen(Notes) 2

Period to exercise subscription rights to shares

Price of issuing shares and amount of capitalization upon
exercise of subscription rights to shares－

35

As of the end of the month prior
to the filing date(November 30, 2016)－

Same as left
Same as left

Same as left

Conditions for exercise of subscription rights to shares(Notes) 3

Same as left

Matters concerning the transfer of subscription rights tosharesAcquisition of subscription
rights to shares throughtransfers shall be subject toapproval by resolution of theBoard of Directors.

Same as left－－

(Notes) 4

Same as left

Matters concerning substitute payments
Matters concerning the grant of subscription rights toshares upon reorganization(Notes) 1

When performing a share split (including gratis allotment of common shares of the Company; the same
shall apply to all share splits described hereinafter) or share consolidation with respect to common sharesof the Company after the allotment date of subscription rights to shares, the number of shares granted
will be adjusted using the following formula:
Number of shares granted after adjustment = Number of shares granted before adjustment × ratio ofshare split or share consolidation
Fractions of less than one share resulting from the foregoing adjustment shall be disregarded.
In addition, when the number of shares granted needs to be adjusted after the allotment date due toreasons other than those listed above, such as when the Company is engaged in a merger, a company split,a share exchange, or for any other reason where such an adjustment is required, the Company may adjust
the number of shares granted as deemed necessary by the Board of Directors.
2
The price of issuing shares is the sum of the amount to be paid upon subscription and the amount to be
paid in upon exercise of subscription rights to shares.
3
Conditions for exercise of subscription rights to shares(1) A holder of subscription rights may only exercise the share option rights within 10 days (or the next
business day if the 10th day falls on a holiday) from the date following the day such holder loses his/her
position as a Director or Auditor of the Company.
(2) Notwithstanding (1) above, should a proposal for the approval of a merger agreement where theCompany would become dissolved, a proposal for the approval of a company split agreement or acompany split plan where the Company would become a split company, or a proposal for the approvalof a share exchange agreement or a share transfer plan where the Company would become a wholly
owned subsidiary were to be approved at a General Meeting of Shareholders of the Company (or if a
Board of Directors resolution is passed in case a resolution of General Meeting of Shareholders is not
required), subscription rights to shares may be exercised within 30 days from the date following the dateof such approval or resolution. However, this shall exclude cases where subscription rights to shares of a
restructured company are to be issued in accordance with the matters concerning the issuing ofsubscription rights to shares upon reorganization.
(3) All other applicable conditions shall be as set forth in the "Stock Option Allocation Agreement"
concluded between the Company and holders of subscription rights to shares.
4 If the Company is to engage in a merger with another (limited to cases where the Company is to bedissolved as a result of the merger), an absorption-type split or incorporation-type split (both limited tocases where the Company is to be a split company), or a share exchange or a share transfer (both limited
to cases where the Company is to be a wholly owned subsidiary) (hereinafter jointly referred to as a"restructuring transaction"), subscription rights to shares in the entity set forth in Article 236, Paragraph 1,
Item 8 (a) to (e) of the Companies Act (hereinafter, the "restructured company") shall be issued to theholders of the subscription rights to shares remaining in effect at a time immediately before the effective
date of the restructuring transaction (hereinafter respectively referring to the date an absorption-typemerger comes into effect, the date the new corporation is incorporated following a consolidation-typemerger, the date an absorption-type split comes into effect, the date the new corporation is incorporated
following an incorporation-type company split, the date a share exchange comes into effect, or the date
the new joint-stock corporation is incorporated following a share transfer) (hereinafter the "remaining
subscription rights to shares"). However, such rights may be granted only if provisions for issuing thesubscription rights to shares of the restructured company in accordance with the items described below
are included in an absorption-type merger agreement, a consolidation-type merger agreement, anabsorption-type split agreement, an incorporation-type split plan, a share exchange agreement or a sharetransfer plan.
(1) The number of subscription rights to shares of the restructured company to be issued
－

36

－

The same number of subscription rights to shares as the number of remaining subscription rights toshares held by respective holders of subscription rights to shares.
(2) Class of shares of the restructured company shares to be issued upon exercise of subscription rights tosharesCommon shares of the restructured company.
(3) The number of shares of the restructured company shares to be issued upon exercise of subscription
rights to shares
To be determined in proportion to the class and number of shares to be issued upon exercise ofsubscription rights to shares defined in (Notes) 1 above upon considering the conditions, etc. of therestructuring transactions.
(4) The amount of assets to be contributed upon exercise of subscription rights to shares
The amount shall be obtained by multiplying the amount to be paid in after restructuring as prescribed
below by the number of shares of the restructured company to be issued upon exercise of each
subscription right to shares as determined in accordance with (3) above. The amount to be paid in after
restructuring shall be 1 yen per share of the restructured company to be issued upon exercise of each
subscription rights to shares to be issued.
(5) Period in which subscription rights to shares can be exercised
The period shall start on the start date of the exercise period listed in the "Period to exercise subscription
rights to shares" in the table above, or the date the restructuring transactions come into effect, whichever
the later, and shall last until the expiration date of the period in which subscription rights to shares canbe exercised.
(6) Matters concerning increases in capital stock and capital reserve occurring when issuing shares upon
exercise of subscription rights to shares:
To be determined in conformity with the matters concerning increases in capital stock and capitalreserve occurring when issuing shares upon exercise of subscription of rights to shares as set forth in the"Price of issuing shares and amount of capitalization upon exercise of subscription rights to shares" inthe table above.
(7) Restrictions on the acquisition of subscription rights to shares through transfers
Acquisition of subscription rights to shares through transfers shall require the approval by resolution of
the Board of Directors of the restructured company.
(8) Other conditions for exercise of subscription rights to shares
To be determined in conformity with (Notes) 3 above.
(9) Provisions for the acquisition of subscription rights to shares
Subscription rights to shares may be acquired without compensation on a date separately specified by
the Board of Directors should the following resolutions (i), (ii), (iii), (iv) or (v) be approved at a General
Meeting of Shareholders of the Company (or through a resolution by the Board of Directors of theCompany, or upon the decision of an executive officer entrusted with such a matter pursuant to theprovisions set forth in Article 416, Paragraph 4 of the Companies Act in case a resolution of the General
Meeting of Shareholders is not required):(i) Resolution approving a merger agreement where the Company would become a dissolved company;(ii) Resolution approving a company split agreement or a company split plan where the Company
would become a split company;(iii) Resolution approving a share exchange agreement or a share transfer plan where the Company
would become a wholly owned subsidiary;(iv) Resolution approving an amendment to the Articles of Incorporation to establish a provision
requiring the approval of the Company for the acquisition of all shares issued by the Company
through a transfer;(v) Resolution approving an amendment to the Articles of Incorporation to establish a provision
requiring the approval of the Company for the acquisition of the class of shares to be issued upon
exercise of subscription rights to shares, or a provision to acquire all of such class of shares byresolution of the General Meeting of Shareholders of the Company.

－

37

－

(ii) Second Stock Option (Resolution of the Board of Directors on November 5, 2012)
As of end of current fiscal year
(September 30, 2016)
Number of subscription rights to shares
Number of own subscription rights to shares among all
subscription rights to sharesClass of shares to be issued upon exercise of subscription
rights to shares
Number of shares to be issued upon exercise ofsubscription rights to shares
Amount to be paid in upon exercise of subscription rights
to shares

267

267

－

－

Common stock

Same as left

26,700 (Notes) 1

26,700 (Notes) 1

1 yen
From December 8, 2012 to
December 7, 2047
Price of issuing shares:
1,033 yenAmount of capitalization:
517 yen(Notes) 2

Period to exercise subscription rights to shares

Price of issuing shares and amount of capitalization upon
exercise of subscription rights to shares

As of the end of the month prior
to the filing date(November 30, 2016)

Same as left
Same as left

Same as left

Conditions for exercise of subscription rights to shares(Notes) 3

Same as left

Matters concerning the transfer of subscription rights tosharesAcquisition of subscription
rights to shares throughtransfers shall be subject toapproval by resolution of theBoard of Directors.

Same as left－－

(Notes) 4

Same as left

Matters concerning substitute payments
Matters concerning the grant of subscription rights toshares upon reorganization(Notes)123Refer to (Notes) 1 under the section, "First Stock Option."
Refer to (Notes) 2 under the section, "First Stock Option."
Conditions for exercise of subscription rights to shares(1) A holder of subscription rights may only exercise the share option rights within 10 days (or the next business day if
the 10th day falls on a holiday) from the date following the day such holder loses his/her position as a Director or
Auditor, or as an Executive Officer of the Company.
(2) Notwithstanding (1) above, should a proposal for the approval of a merger agreement where the Company would
become dissolved, a proposal for the approval of a company split agreement or a company split plan where theCompany would become a split company, or a proposal for the approval of a share exchange agreement or a sharetransfer plan where the Company would become a wholly owned subsidiary were to be approved at a General
Meeting of Shareholders of the Company (or if a Board of Directors resolution is passed in case a resolution ofGeneral Meeting of Shareholders is not required), subscription rights to shares may be exercised within 30 days
from the date following the date of such approval or resolution. However, this shall exclude cases wheresubscription rights to shares of a restructured company are to be issued in accordance with the matters concerning
the issuing of subscription rights to shares upon reorganization.
(3) All other applicable conditions shall be as set forth in the "Stock Option Allocation Agreement" concluded between
the Company and holders of subscription rights to shares.
4
Refer to (Notes) 4 under the section, "First Stock Option."

－

38

－

(iii) Third Stock Option (Resolution of the Board of Directors on November 12, 2013)
As of end of current fiscal year
(September 30, 2016)
Number of subscription rights to shares
Number of own subscription rights to shares among all
subscription rights to sharesClass of shares to be issued upon exercise of subscription
rights to shares
Number of shares to be issued upon exercise ofsubscription rights to shares
Amount to be paid in upon exercise of subscription rights
to shares

308

308

－

－

Common stock

Same as left

30,800 (Notes) 1

30,800 (Notes) 1

1 yen
From December 10, 2013 to
December 9, 2048
Price of issuing shares:
1,324 yenAmount of capitalization:
662 yen(Notes) 2

Period to exercise subscription rights to shares

Price of issuing shares and amount of capitalization upon
exercise of subscription rights to shares

As of the end of the month prior
to the filing date(November 30, 2016)

Same as left
Same as left

Same as left

Conditions for exercise of subscription rights to shares(Notes) 3

Same as left

Matters concerning the transfer of subscription rights tosharesAcquisition of subscription
rights to shares throughtransfers shall be subject toapproval by resolution of theBoard of Directors.

Same as left－－

(Notes) 4

Same as left

Matters concerning substitute payments
Matters concerning the grant of subscription rights toshares upon reorganization(Notes) 1. When performing a share split (including gratis allotment of common shares of the Company; the same shall apply to allshare splits described hereinafter) or share consolidation with respect to common shares of the Company after the
allotment date of subscription rights to shares, the number of shares granted will be adjusted using the following formula:
Number of shares granted after adjustment = Number of shares granted before adjustment × ratio of share split or shareconsolidation
Fractions of less than one share resulting from the foregoing adjustment shall be disregarded.
In addition, when the number of shares granted needs to be adjusted after the allotment date due to reasons other than thoselisted above, such as when the Company is engaged in a merger, a company split, a share exchange, or for any other reason
where such an adjustment is required, the Company may adjust the number of shares granted as deemed necessary by the
Board of Directors.
2. The price of issuing shares is the sum of the amount to be paid upon subscription and the amount to be paid in upon
exercise of subscription rights to shares.
3. Conditions for exercise of subscription rights to shares(1) A holder of subscription rights to shares may only exercise the share option rights within 10 days (or the next
business day if the 10th day falls on a holiday) from the date following the day such holder loses his/her position asa Director or Auditor or as an employee of the Company. However, if a person who has lost his/her position as
Director or Auditor or as an employee of the Company is appointed Director of the Company or employed by theCompany with certain or specific entrustment within 10 days of having lost his/her original position, such person
shall not be entitled to exercise the subscription rights to shares.
(2) Notwithstanding (1) above, should a proposal for the approval of a merger agreement where the Company would
become dissolved, a proposal for the approval of a company split agreement or a company split plan where theCompany would become a split company, or a proposal for the approval of a share exchange agreement or a sharetransfer plan where the Company would become a wholly owned subsidiary were to be approved at a General
Meeting of Shareholders of the Company (or if a Board of Directors resolution is passed in case a resolution ofGeneral Meeting of Shareholders is not required), subscription rights to shares may be exercised within 30 days
from the date following the date of such approval or resolution. However, this shall exclude cases where
－

39

－

4.

subscription rights to shares of a restructured company are to be issued in accordance with the matters concerning
the issuing of subscription rights to shares upon reorganization.
(3) All other applicable conditions shall be as set forth in the "Stock Option Allocation Agreement" concluded between
the Company and holders of subscription rights to shares.
If the Company is to engage in a merger with another (limited to cases where the Company is to be dissolved as a result of
the merger), an absorption-type split or incorporation-type split (both limited to cases where the Company is to be a split
company), or a share exchange or a share transfer (both limited to cases where the Company is to be a wholly owned
subsidiary) (hereinafter jointly referred to as a "restructuring transaction"), subscription rights to shares in the entity set
forth in Article 236, Paragraph 1, Item 8 (a) to (e) of the Companies Act (hereinafter, the "restructured company") shall be
issued to the holders of the subscription rights to shares remaining in effect at a time immediately before the effective dateof the restructuring transaction (hereinafter respectively referring to the date an absorption-type merger comes into effect,
the date the new corporation is incorporated following a consolidation-type merger, the date an absorption-type split comes
into effect, the date the new corporation is incorporated following an incorporation-type company split, the date a shareexchange comes into effect, or the date the new joint-stock corporation is incorporated following a share transfer)(hereinafter the "remaining subscription rights to shares"). However, such rights may be granted only if provisions for
issuing the subscription rights to shares of the restructured company in accordance with the items described below are
included in an absorption-type merger agreement, a consolidation-type merger agreement, an absorption-type split
agreement, an incorporation-type split plan, a share exchange agreement or a share transfer plan.
(1) The number of subscription rights to shares of the restructured company to be issued
The same number of subscription rights to shares as the number of remaining subscription rights to shares held byrespective holders of subscription rights to shares.
(2) Class of shares of the restructured company shares to be issued upon exercise of subscription rights to shares
Common shares of the restructured company.
(3) The number of shares of the restructured company shares to be issued upon exercise of subscription rights to shares
To be determined in proportion to the class and number of shares to be issued upon exercise of subscription rights toshares defined in (Notes) 1 above upon considering the conditions, etc. of the restructuring transactions.
(4) The amount of assets to be contributed upon exercise of subscription rights to shares
The amount shall be obtained by multiplying the amount to be paid in after restructuring as prescribed below by the
number of shares of the restructured company to be issued upon exercise of each subscription right to shares as
determined in accordance with (3) above. The amount to be paid in after restructuring shall be 1 yen per share of therestructured company to be issued upon exercise of each subscription rights to shares to be issued.
(5) Period in which subscription rights to shares can be exercised
The period shall start on the start date of the exercise period listed in the "Period to exercise subscription rights toshares" in the table above, or the date the restructuring transactions come into effect, whichever the later, and shalllast until the expiration date of the period in which subscription rights to shares can be exercised.
(6) Matters concerning increases in capital stock and capital reserve occurring when issuing shares upon exercise ofsubscription rights to shares:(i) The amount of capital to be increased shall be one half of the amount of the maximum increase in capital
calculated in accordance with the provisions of Article 17, Paragraph 1 of the Ordinance on Company
Accounting. Fractions under 1 yen resulting from these calculations shall be rounded up.
(ii) The amount of capital reserve to be increased shall be the amount calculated by subtracting the amount of
capital increase stipulated in (i) above from the amount of maximum increase in capital described in (i) above.
(7) Restrictions on the acquisition of subscription rights to shares through transfers
Acquisition of subscription rights to shares through transfers shall require the approval by resolution of the Board of
Directors of the restructured company.
(8) Other conditions for exercise of subscription rights to shares
To be determined in conformity with (Notes) 3 above.
(9) Provisions for the acquisition of subscription rights to shares
Subscription rights to shares may be acquired without compensation on a date separately specified by the Board of
Directors should the following resolutions (i), (ii), (iii), (iv) or (v) be approved at a General Meeting of
Shareholders of the Company (or through a resolution by the Board of Directors of the Company, or upon thedecision of an executive officer entrusted with such a matter pursuant to the provisions set forth in Article 416,
Paragraph 4 of the Companies Act in case a resolution of the General Meeting of Shareholders is not required):(i) Resolution approving a merger agreement where the Company would become a dissolved company;(ii) Resolution approving a company split agreement or a company split plan where the Company would become asplit company;(iii) Resolution approving a share exchange agreement or a share transfer plan where the Company would become
a wholly owned subsidiary;(iv) Resolution approving an amendment to the Articles of Incorporation to establish a provision requiring theapproval of the Company for the acquisition of all shares issued by the Company through a transfer;(v) Resolution approving an amendment to the Articles of Incorporation to establish a provision requiring the
－

40

－

approval of the Company for the acquisition of the class of shares to be issued upon exercise of subscription
rights to shares, or a provision to acquire all of such class of shares by resolution of the General Meeting of
Shareholders of the Company.

－

41

－

(iv) Fourth Stock Option (Resolution of the Board of Directors on November 11, 2014)
As of end of current fiscal year
(September 30, 2016)
Number of subscription rights to shares
Number of own subscription rights to shares among all
subscription rights to sharesClass of shares to be issued upon exercise of subscription
rights to shares
Number of shares to be issued upon exercise ofsubscription rights to shares
Amount to be paid in upon exercise of subscription rights
to shares

251

251

－

－

Common stock

Same as left

25,100 (Notes) 1

25,100 (Notes) 1

1 yen
From December 13, 2014 toDecember 12, 2049
Price of issuing shares:
1,570 yenAmount of capitalization:
785 yen(Notes) 2

Period to exercise subscription rights to shares

Price of issuing shares and amount of capitalization upon
exercise of subscription rights to shares

As of the end of the month prior
to the filing date(November 30, 2016)

Same as left
Same as left

Same as left

Conditions for exercise of subscription rights to shares(Notes) 3

Same as left

Matters concerning the transfer of subscription rights tosharesAcquisition of subscription
rights to shares throughtransfers shall be subject toapproval by resolution of theBoard of Directors.

Same as left－－

(Notes) 4

Same as left

Matters concerning substitute payments
Matters concerning the grant of subscription rights toshares upon reorganization(Notes) 1. Refer to (Notes) 1 under the section, "Third Stock Option."
2. Refer to (Notes) 2 under the section, "Third Stock Option."
3. Refer to (Notes) 3 under the section, "Third Stock Option."
4. Refer to (Notes) 4 under the section, "Third Stock Option."

－

42

－

(v) Fifth Stock Option (Resolution of the Board of Directors on November 10, 2015)
As of end of current fiscal year
(September 30, 2016)
Number of subscription rights to shares
Number of own subscription rights to shares among all
subscription rights to sharesClass of shares to be issued upon exercise of subscription
rights to shares
Number of shares to be issued upon exercise ofsubscription rights to shares
Amount to be paid in upon exercise of subscription rights
to shares

182

182

－

－

Common stock

Same as left

18,200 (Notes) 1

18,200 (Notes) 1

1 yen

Same as left

From December 12, 2015 to
December 11, 2050
Price of issuing shares:
2,671 yenAmount of capitalization:
1,336 yen
(Notes) 2

Period to exercise subscription rights to shares

Price of issuing shares and amount of capitalization upon
exercise of subscription rights to shares

As of the end of the month prior
to the filing date(November 30, 2016)

Same as left

Same as left

Conditions for exercise of subscription rights to shares(Notes) 3

Same as left

Matters concerning the transfer of subscription rights tosharesAcquisition of subscription
rights to shares throughtransfers shall be subject toapproval by resolution of theBoard of Directors.

Same as left－－

(Notes) 4

Same as left

Matters concerning substitute payments
Matters concerning the grant of subscription rights toshares upon reorganization(Notes) 1. Refer to (Notes) 1 under the section, "Third Stock Option."
2. Refer to (Notes) 2 under the section, "Third Stock Option."
3. Refer to (Notes) 3 under the section, "Third Stock Option."
4. Refer to (Notes) 4 under the section, "Third Stock Option."(3)[Exercise of Corporate Bonds with Share Subscription Rights Containing a Clause for Exercise Price
Adjustment]
Not applicable.
(4)[Rights Plan]
Not applicable.
(5)[Changes in Total Number of Issued Shares, Common Stock, etc.]

Date(November 30, 2009)(Note)(Note)

Increase or
decrease intotal number ofissued shares(Shares)

Balance of
total number ofissued shares(Shares)

Increase or
decrease incapital stock(Millions ofyen)

Balance ofcapital stock(Millions ofyen)

Increase or
decrease incapital reserve(Millions ofyen)

Balance ofcapital reserve(Millions ofyen)(1,185,800)

26,731,033

－

5,700

－

5,409

Decrease caused by cancellation of treasury stock.
－

43

－

(6)[Shareholders Composition]
As of September 30, 2016
Status of shares (100 shares in one unit of shares)
Classification

Government&municipalitiesNumber ofshareholders
Number ofshares held
(Unites)
Percentage ofshares held(%)

Foreign corporate bodies,
etc.
NonIndividuals
individuals

Number ofshares lessthan oneunit(Shares)

Financial
institutions

Financial
instruments
business
operators

Other
corporatebodies

－

30

28

117

124

2

8,366

8,667

－

－

80,734

3,038

61,87735,067

6

86,185

266,907

40,333

－

30.3

1.1

23.2

13.1

0.0

32.3

100.0

－

Individuals
and others

Total(Notes) 1. Of the 178,042 shares held as treasury stock, 1,780 share units are included in "Individuals and others" and 42 shares areincluded 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."(7)[Major Shareholders]Names of shareholders
Iizuka Takeshi ScholarshipFoundation
Daido Life Insurance Company
TKC Employee Shareholding
Association
Sozeishiryokan (Institute of Tax
Research and Literature)
Masaharu Iizuka

As of September 30, 2016
Percentage of
Number of shares held shares held to the(Thousands of shares) total number ofissued shares (%)

Address1758 Tsurutamachi, Utsunomiya-shi, Tochigi

3,652

13.7

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

2,569

9.6

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

1,607

6.0

3-45-13 Minamidai, Nakano-ku, Tokyo

1,246

4.7

Utsunomiya City, Tochigi

1,128

4.2

3-11-1 Nihonbashi, Chuo-ku, Tokyo

919

3.4

Kamakura-shi, Kanagawa

698

2.6

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

666

2.5

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

598

2.2

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

598

2.2

13,684

51.2

The Hongkong and Shanghai
Banking Corporation, Tokyo
Branch, standing proxy of the State
Street Bank and Trust Company
Kazuaki Iizuka
Tokio Marine & Nichido Fire
Insurance Co., Ltd.
Aioi Nissay Dowa Insurance Co.,Ltd.
Sompo Japan Nipponkoa Insurance
Inc.
Total

－

－

44

－

(8)[Status of Voting Rights](i) [Shares Issued]
As of September 30, 2016
Classification
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.)
Shares with full voting right (others)
Shares less than one unit
Total number of shares issued
Total voting rights held by all shareholders(Note)

Number of shares (Shares)

Number of voting rights(Units)Description

－

－

－

－

－

－

－

－

－

Common stock: 183,500－－

265,072－

Common stock: 40,333－－

26,731,033

－

－

－

265,072－

Common stock:
26,507,200"Shares with full voting right (others)" includes 600 shares registered in the name of Japan Securities Depository Center, Inc.
"Number of voting rights" includes 6 units of voting rights held under the name of Japan Securities Depository Center, Inc.

(ii) [Treasury Stock, etc.]

Name ofshareholder

Address of shareholder

As of September 30, 2016
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)

178,000－

178,000

0.67

5,500

－

5,500

0.02

183,500－

183,500

0.69

1758 Tsurutamachi,
TKC Corporation

Utsunomiya-shi,
Tochigi

TKC Shuppan

4-8-8 Kudanminami,

Corporation

Chiyoda-ku, Tokyo

Total

－

－

45

－

(9)[Stock Option Scheme]
The Company has adopted a stock-based compensation stock option scheme that issues subscription rights toshares in accordance with the provisions of the Companies Act.
The contents of the scheme are as follows:First Stock Option (Resolution of the Board of Directors on February 10, 2012)
Date of Resolution

February 10, 2012

Class and number of persons eligible for subscription rights to

9 Directors of the Company (excluding Outside Directors)

shares2 Auditors of the Company (excluding Outside Auditors)

Class of shares to be issued upon exercise of subscription rights
to shares
Number of shares

As described in (2) Information on Share Subscription Rights
Same as above

Amount to be paid in upon exercise of subscription rights toSame as above

sharesPeriod to exercise subscription rights to shares

Same as above

Conditions for exercise of subscription rights to shares

Same as above

Matters concerning the transfer of subscription rights to shares

Same as above

Matters concerning substitute payments

Same as above

Matters concerning the grant of subscription rights to shares

Same as above

upon reorganization

Second Stock Option (Resolution of the Board of Directors on November 5, 2012)
Date of Resolution

November 5, 2012

Class and number of persons eligible for subscription rights toshares10 Directors of the Company (excluding Outside Directors)
2 Auditors of the Company (excluding Outside Auditors)
13 Executive Officers of the Company

Class of shares to be issued upon exercise of subscription rights
to shares
Number of shares

As described in (2) Information on Share Subscription Rights
Same as above

Amount to be paid in upon exercise of subscription rights toSame as above

sharesPeriod to exercise subscription rights to shares

Same as above

Conditions for exercise of subscription rights to shares

Same as above

Matters concerning the transfer of subscription rights to shares

Same as above

Matters concerning substitute payments

Same as above

Matters concerning the grant of subscription rights to shares

Same as above

upon reorganization

－

46

－

Third Stock Option (Resolution of the Board of Directors on November 12, 2013)
Date of Resolution

November 12, 2013

Class and number of persons eligible for subscription rights toshares10 Directors of the Company (excluding Outside Directors)
2 Auditors of the Company (excluding Outside Auditors)
13 Executive Officers of the Company

Class of shares to be issued upon exercise of subscription rights
to shares
Number of shares

As described in (2) Information on Share Subscription Rights
Same as above

Amount to be paid in upon exercise of subscription rights toSame as above

sharesPeriod to exercise subscription rights to shares

Same as above

Conditions for exercise of subscription rights to shares

Same as above

Matters concerning the transfer of subscription rights to shares

Same as above

Matters concerning substitute payments

Same as above

Matters concerning the grant of subscription rights to shares

Same as above

upon reorganization

Fourth Stock Option (Resolution of the Board of Directors on November 11, 2014)
Date of Resolution

November 11, 2014

Class and number of persons eligible for subscription rights toshares11 Directors of the Company (excluding Outside Directors)
2 Auditors of the Company (excluding Outside Auditors)
17 Executive Officers of the Company

Class of shares to be issued upon exercise of subscription rights
to shares
Number of shares

As described in (2) Information on Share Subscription Rights
Same as above

Amount to be paid in upon exercise of subscription rights toSame as above

sharesPeriod to exercise subscription rights to shares

Same as above

Conditions for exercise of subscription rights to shares

Same as above

Matters concerning the transfer of subscription rights to shares

Same as above

Matters concerning substitute payments

Same as above

Matters concerning the grant of subscription rights to shares

Same as above

upon reorganization

－

47

－

Fifth Stock Option (Resolution of the Board of Directors on November 10, 2015)
Date of Resolution

November 10, 2015

Class and number of persons eligible for subscription rights toshares

9 Directors of the Company (excluding Outside Directors)
2 Auditors of the Company (excluding Outside Auditors)
21 Executive Officers of the Company

Class of shares to be issued upon exercise of subscription rights
to shares
Number of shares

As described in (2) Information on Share Subscription Rights
Same as above

Amount to be paid in upon exercise of subscription rights toSame as above

sharesPeriod to exercise subscription rights to shares

Same as above

Conditions for exercise of subscription rights to shares

Same as above

Matters concerning the transfer of subscription rights to shares

Same as above

Matters concerning substitute payments

Same as above

Matters concerning the grant of subscription rights to shares

Same as above

upon reorganization

－

48

－

Sixth Stock Option (Resolution of the Board of Directors on November 8, 2016)
Date of Resolution
Class and number of persons eligible for subscription rights tosharesClass of shares to be issued upon exercise of subscription rights
to shares

November 8, 2016
9 Directors of the Company (excluding Outside Directors)
2 Auditors of the Company (excluding Outside Auditors)
22 Executive Officers of the Company
Common stock
Common stocks: 18,100 shares (Note) 1
The number of shares per one unit of subscription right of shares(hereinafter, the "number of shares granted") shall be 100 shares.
The number of shares described above is the prescribed number

Number of shares

to be allotted, and if the total number of allotted subscription
rights to shares should decrease due to absence of applications
for subscriptions, the total number of common stocks to beissued shall be 100 times the total number of subscription rights
to shares to be allotted.
The amount of assets to be contributed upon exercise ofAmount to be paid in upon exercise of subscription rights tosharessubscription rights to shares shall be the amount determined bymultiplying the amount of 1 yen per share to be paid in to havesuch shares issued upon exercise of each subscription right toshares, by the number of shares granted.

Period to exercise subscription rights to shares

From December 13, 2016
To December 12, 2051

Conditions for exercise of subscription rights to shares(Notes) 2
The acquisition of subscription rights to shares through transfers

Matters concerning the transfer of subscription rights to sharesshall require the approval of the Board of Directors of theCompany.

Matters concerning substitute payments
Matters concerning the grant of subscription rights to shares－(Notes) 3
upon reorganization(Notes) 1. When performing a share split (including gratis allotment of common shares of the Company; the same shall apply to allshare splits described hereinafter) or share consolidation with respect to common shares of the Company after the
allotment date of subscription rights to shares, the number of shares granted will be adjusted using the following formula:
Number of shares granted after adjustment = Number of shares granted before adjustment × ratio of share split or shareconsolidation
Fractions of less than one share resulting from the foregoing adjustment shall be disregarded.
In addition, when the number of shares granted needs to be adjusted after the allotment date due to reasons other thanthose listed above, such as when the Company is engaged in a merger, a company split, a share exchange, or for any otherreason where such an adjustment is required, the Company may adjust the number of shares granted as deemed necessary
by the Board of Directors.
2. Conditions for exercise of subscription rights to shares(1) A holder of subscription rights to shares may only exercise the share option rights within 10 days (or the next business
day if the 10th day falls on a holiday) from the date following the day such holder loses his/her position as a Directoror Auditor or as an employee of the Company. However, if a person who has lost his/her position as Director or
Auditor or as an employee of the Company is appointed Director of the Company or employed by the Company withcertain or specific entrustment within 10 days of having lost his/her original position, such person shall not be entitled
to exercise the subscription rights to shares.
(2) Notwithstanding (1) above, should a proposal for the approval of a merger agreement where the Company would
become dissolved, a proposal for the approval of a company split agreement or a company split plan where theCompany would become a split company, or a proposal for the approval of a share exchange agreement or a sharetransfer plan where the Company would become a wholly owned subsidiary were to be approved at a General Meetingof Shareholders of the Company (or if a Board of Directors resolution is passed in case a resolution of General
Meeting of Shareholders is not required), subscription rights to shares may be exercised within 30 days from the datefollowing the date of such approval or resolution. However, this shall exclude cases where subscription rights to－ 49 －

shares of a restructured company are to be issued in accordance with the matters concerning the issuing ofsubscription rights to shares upon reorganization.
(3) All other applicable conditions shall be as set forth in the "Stock Option Allocation Agreement" concluded between
the Company and holders of subscription rights to shares.
3. If the Company is to engage in a merger with another (limited to cases where the Company is to be dissolved as a result of
the merger), an absorption-type split or incorporation-type split (both limited to cases where the Company is to be a split
company), or a share exchange or a share transfer (both limited to cases where the Company is to be a wholly owned
subsidiary) (hereinafter jointly referred to as a "restructuring transaction"), subscription rights to shares in the entity set
forth in Article 236, Paragraph 1, Item 8 (a) to (e) of the Companies Act (hereinafter, the "restructured company") shall be
issued to the holders of the subscription rights to shares remaining in effect at a time immediately before the effective dateof the restructuring transaction (hereinafter respectively referring to the date an absorption-type merger comes into effect,
the date the new corporation is incorporated following a consolidation-type merger, the date an absorption-type split comes
into effect, the date the new corporation is incorporated following an incorporation-type company split, the date a shareexchange comes into effect, or the date the new joint-stock corporation is incorporated following a share transfer)(hereinafter the "remaining subscription rights to shares"). However, such rights may be granted only if provisions for
issuing the subscription rights to shares of the restructured company in accordance with the items described below are
included in an absorption-type merger agreement, a consolidation-type merger agreement, an absorption-type split
agreement, an incorporation-type split plan, a share exchange agreement or a share transfer plan.
(1) The number of subscription rights to shares of the restructured company to be issued
The same number of subscription rights to shares as the number of remaining subscription rights to shares held byrespective holders of subscription rights to shares.
(2) Class of shares of the restructured company shares to be issued upon exercise of subscription rights to shares
Common shares of the restructured company.
(3) The number of shares of the restructured company shares to be issued upon exercise of subscription rights to shares
To be determined in proportion to the class and number of shares to be issued upon exercise of subscription rights toshares defined in (Notes) 1 above upon considering the conditions, etc. of the restructuring transactions.
(4) The amount of assets to be contributed upon exercise of subscription rights to shares
The amount shall be obtained by multiplying the amount to be paid in after restructuring as prescribed below by the
number of shares of the restructured company to be issued upon exercise of each subscription right to shares as
determined in accordance with (3) above. The amount to be paid in after restructuring shall be 1 yen per share of therestructured company to be issued upon exercise of each subscription rights to shares to be issued.
(5) Period in which subscription rights to shares can be exercised
The period shall start on the start date of the exercise period listed in the "Period to exercise subscription rights toshares" in the table above, or the date the restructuring transactions come into effect, whichever the later, and shall last
until the expiration date of the period in which subscription rights to shares can be exercised.
(6) Matters concerning increases in capital stock and capital reserve occurring when issuing shares upon exercise ofsubscription rights to shares:(i) The amount of capital to be increased shall be one half of the amount of the maximum increase in capital
calculated in accordance with the provisions of Article 17, Paragraph 1 of the Ordinance on Company
Accounting. Fractions under 1 yen resulting from these calculations shall be rounded up.
(ii) The amount of capital reserve to be increased shall be the amount calculated by subtracting the amount of capitalincrease stipulated in (i) above from the amount of maximum increase in capital described in (i) above.
(7) Restrictions on the acquisition of subscription rights to shares through transfers
Acquisition of subscription rights to shares through transfers shall require the approval by resolution of the Board of
Directors of the restructured company.
(8) Other conditions for exercise of subscription rights to shares
To be determined in conformity with (Notes) 2 above.
(9) Provisions for the acquisition of subscription rights to shares
Subscription rights to shares may be acquired without compensation on a date separately specified by the Board of
Directors should the following resolutions (i), (ii), (iii), (iv) or (v) be approved at a General Meeting of Shareholdersof the Company (or through a resolution by the Board of Directors of the Company, or upon the decision of an
executive officer entrusted with such a matter pursuant to the provisions set forth in Article 416, Paragraph 4 of theCompanies Act in case a resolution of the General Meeting of Shareholders is not required):(i) Resolution approving a merger agreement where the Company would become a dissolved company;(ii) Resolution approving a company split agreement or a company split plan where the Company would become asplit company;(iii) Resolution approving a share exchange agreement or a share transfer plan where the Company would become awholly owned subsidiary;(iv) Resolution approving an amendment to the Articles of Incorporation to establish a provision requiring theapproval of the Company for the acquisition of all shares issued by the Company through a transfer;(v) Resolution approving an amendment to the Articles of Incorporation to establish a provision requiring the
－

50

－

approval of the Company for the acquisition of the class of shares to be issued upon exercise of subscription
rights to shares, or a provision to acquire all of such class of shares by resolution of the General Meeting of
Shareholders of the Company.

－

51

－

2 [Acquisition, etc. of Treasury Stock][Class of shares] Acquisition of shares of common stock under Article 155, Item 7 of the Companies Act(1) [Acquisition of Treasury Stock Based on Resolution at the General Meeting of Shareholders]
Not applicable.
(2) [Acquisition of Treasury Stock Based on Resolution of the Board of Directors]
Not applicable.
(3) [Acquisitions of Treasury Stock not Based on Resolutions of General Meeting of Shareholders or Board of
Directors]
Classification

Number of shares (Shares)

Total amount (Yen)Treasury stock acquired during the current fiscal
year

440

1,331,781

Treasury stock acquired during the current period
for acquisition

20

61,200(Note) Treasury stock acquired during the current period of acquisition does not include shares constituting less than one unit
purchased during the period from December 1, 2016, up to the date on which this Annual Securities Report was filed.

(4) [Disposition and Holding of Acquired Treasury Stock]
Current fiscal year

Current period for acquisition

Number ofshares(Shares)

Total amountdisposed(Yen)

Number ofshares(Shares)

Total amountdisposed(Yen)

Acquired treasury stock for which
subscribers were solicited

－

－

－

－

Acquired treasury stock canceled

－

－

－

－

－

－

－

－

－
51

－
99,427－－－－

178,042－

178,062－Classification

Acquired treasury stock transferred due tomerger, share exchange, or company split
Other(Transferred by the exercise of subscription
rights to shares)(Sold due to demand for sales of fractional
unit shares)
Number of shares of treasury stock held
(Note)The disposition and holding of treasury stock acquired during the current period does not include shares transferred throughthe exercise of subscription rights to shares, shares obtained through the purchase of shares constituting less than one unit,
and shares sold through demand for sales during the period from December 1, 2016 up to the date on which this Annual
Securities Report was filed.

－

52

－

3 [Dividend Policy]
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
each fiscal year in order to meet the expectation of our shareholders. With the rapid advancement of ICT and majorchanges in social systems, it is essential to make advance investments in research and development efforts and toactively pursue other capital investments to enhance customer support to accounting 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.
The Company announced on April 27, 2016 its expected interim and year-end dividends would be 40 yen (ordinary
dividend of 35 yen and a dividend of 5 yen in commemoration of the Company's 50th anniversary). This aims tomeet the expectation of our shareholders in light of the fact that the individual shareholders' equity ratio exceeded80%.
The basic policy of the Company is to pay two annual dividends of retained earnings, an interim dividend and a
year-end dividend. Year-end dividends are resolved at the General Meeting of Shareholders and interim dividends
by resolution of the Board of Directors.
Further, the Company provides in its Articles of Incorporation that interim dividends as set forth in Article 454,
Paragraph 5 of the Companies Act as of March 31 each year may be paid by resolution of the Board of Directors.
The dividends of retained earnings for the current fiscal year were as follows. As a result, the annual payout ratio
was 46.8%.

Date of Resolution
May 13, 2016
Resolution of theBoard of Directors
December 22, 2016
Resolution of theOrdinary General
Meeting of
Shareholders

Total amount of cash
Dividends per share
dividends(Yen)(Millions of yen)
1,062

40

1,062

40

4 [Changes in Share Prices](1) [Highest and Lowest Prices for the Past Five Fiscal Years]
Fiscal year

46th Term

47th Term

48th Term

49th Term

50th Term

Year end

September 2012

September 2013

September 2014

September 2015

September 2016

Highest (Yen)

1,814

1,800

2,359

3,690

3,365

Lowest (Yen)

1,475

1,390

1,576

1,841

2,393

(Note) The highest and lowest share prices are based on the market prices on the First Section of the Tokyo Stock Exchange.

－

53

－

(2) [Highest and Lowest Prices by Month for the Past Six Months]
MonthApril 2016

May 2016

June 2016

July 2016

August 2016

September 2016

Highest (Yen)

3,145

3,090

2,935

2,950

3,220

3,145

Lowest (Yen)

2,821

2,840

2,393

2,651

2,867

2,873

(Note) The highest and lowest share prices are based on the market prices on the First Section of the Tokyo Stock Exchange.

－

54

－

5 [Board of Directors]
15 male and 0 female Directors (Percentage of female directors: 0%)

Official title

Position

Name

Date of Birth

Brief biography

March 1972

TermofofficeNumberof shares
held(Hundreds ofshares)Joined TKC

December 1990 Director, Deputy Chief Director of Sales
April 1997

Director, Deputy Director of Local
Governments Business Division

May 1997

Managing Director, Deputy Director of
Local Governments Business DivisionDecember 1998 Managing Director, Director of Local
Governments Business Division
July 2001

Representative Director, President, TKC
Security Services K.K. (current position)

December 2001 Senior Managing Director, Director ofRepresentative
Director

President andLocal Governments Business Division

Executive

December 2006 Director, Senior Managing Director andKazuyuki Sumi

September 28, 1948

Executive Officer, Director of Local

Officer(Notes)6

215

Governments Business DivisionDecember 2008 Representative Director, Vice President
and Executive Officer, Director of Local
Governments Business DivisionDecember 2011 Representative Director, President andExecutive Officer, Director of
Accounting Firm Business Division
June 2012

Representative Director, Chairman,
SKYCOM Corporation (current
position)

October 2016

Representative Director, President andExecutive Officer (current position)

March 31, 1957

April 1980
Joined TKC
December 2000 Director, Chief Director of General
Affairs
September
Director, Chief Director of Business
2004
Administration
December 2005 Managing Director, Chief Director of
Business Administration
December 2006 Director, Managing Director andExecutive Officer, Chief Director of theBusiness Administration
December 2008 Representative Director, Vice President
and Executive Officer, Chief Director of
Business Administration (current
position)
August 2014 Representative Director, Vice Chairman,
TKC Financial Assurance K.K. (current
position)

March 12, 1975

April 2002
Joined TKC
December 2010 Director, Executive Officer, Sales ofCorporate Information Systems, Chief
Director of G Project of Sales, Corporate
Information Systems, Accounting Firm
Business Division
October 2012 Director, Executive Officer, Chief
Director of Sales of Corporate
Information Systems, Accounting Firm
Business DivisionDecember 2012 Director, Managing Director andExecutive Officer, Chief Director of
Sales, Corporate Information Systems,

Vice President
and Executive
Representative

Officer, Chief

Director

Director of
Business

Hitoshi Iwata

Administration

SeniorManaging
Director andRepresentative
Director

Executive
Officer,

Masanori Iizuka

Director of
Accounting
Firm Business
Division－

55－(Notes)6(Notes)66168

Accounting Firm Business Division

April 2014

Director, Managing Director andExecutive Officer, Chief Director of
Sales, Accounting Firm Business
Division
December 2014 Representative Director, Senior
Managing Director and Executive
October 2016 Officer, Chief Director of Sales,
Accounting Firm Business Division
Representative Director, Senior
Managing Director and Executive
Officer, Director of Accounting Firm
Business Division (current position)

－

56

－

Official title

Position

Name

Date of Birth

Brief biography

September 2, 1956

Joined National Tax Agency
Deputy Commissioner (Collection),
National Tax Agency
July 2014
Resigns from National Tax Agency
September
Joined TKC, Deputy Chief, Tax
2014
Research Center
December 2014 Director, Managing Director andExecutive Officer, Chief of Tax
Research Center (current position)

January 16, 1959

April 1979
Joined TKC
December 2006 Executive Officer, Chief Director of
Sales Planning, Local Governments
Business DivisionDecember 2011 Director, Executive Officer, Local
Governments Business Division
January 2012 Director, Executive Officer, Director of
Local Governments Business DivisionDecember 2014 Director, Managing Director andExecutive Officer, Director of Local
Governments Business Division (current
position)

Director andExecutive
Officer, Chiefof the Tax

Makoto Ito

ResearchCenterManaging
Director andExecutive
Officer,
Director

Director of

Numberof shares
held(Hundreds ofshares)(Notes)6

6April 1979
June 2013

Managing

DirectorTermofofficeMasao Yuzawa

Local
Governments
Business
Division

August 3, 1967

Joined TKC
Executive Officer, Chief of Corporate
Information Systems Development
Center, Systems Development ResearchCenterOctober 2012 Executive Officer, Chief of Systems
Development Research Center,Accounting Firm Business DivisionDecember 2012 Director, Executive Officer, Chief ofSystems Development Research Center,Accounting Firm Business DivisionDecember 2014 Director, Managing Director andExecutive Officer, Chief of Systems
Development Research Center,Accounting Firm Business DivisionDecember 2016 Director, Executive Officer, Chief ofSystems Development Research Center,Accounting Firm Business Division(current position)

January 19, 1971

April 2003
Joined TKC
December 2010 Executive Officer, Director of ASP
Service Promotion, Sales Planning,
Local Governments Business DivisionDecember 2011 Director, Executive Officer, New
Business Strategy, Local Governments
Business Division
January 2012 Director, Executive Officer, Chief
Director of Cloud Business Promotion,
Local Governments Business Division(current position)(Notes)641

April 1991
June 2012

Executive
Officer, Chiefof Systems
Development
Director

Research

Hitoshi Uotani

Center,Accounting
Firm Business
Division

Executive
Officer, Chiefof CloudBusiness
Director

Promotion,

Satoshi Hitaka

Local
Governments
Business
Division
Executive
Director of
Director

SystemDevelopment,
Local

HiroshiNakamura

March 2, 1961

Yasuo Igarashi

January 4, 1967

Governments
Business
Division
Executive
Director

Officer, Chief

6(Notes)620

17

April 1983
January 2009

Officer, Chief

Joined TKC
Executive Officer, Chief Director of
System Development, Local
Governments Business DivisionDecember 2016 Director, Executive Officer, Chief
Director of System Development, Local
Governments Business Division (current
position)(Notes)April 1989
August 2012

Director of

－

57

－

Joined TKC
Executive Officer, Chief of Accounting
Information Systems Development(Notes)6(Notes)6－－

Center, Systems Development ResearchCenter, Accounting Firm Business
Division
October 2012 Executive Officer, Chief of Financial
Host System Development Center,
Systems Development Research Center,Accounting Firm Business Division
January 2015 Executive Officer, Chief of Accounting
Information Systems Design Center,
Systems Development Research Center,Accounting Firm Business DivisionDecember 2016 Director, Executive Officer, Director of
Sales Planning, Sales, Accounting Firm
Business Division (current position)

Sales
Planning,
Accounting
Firm Business
Sales Division

July 1986

Director－

HiroshiAshikawa

October 17, 1960－

Registered as certified public tax
accountant
July 1986
Started business as certified public tax
accountant
Chief of Ashikawa Accounting Firm
(current position)
Representative Director, K.K. MACOS(current position)
December 2014 Director, TKC (current position)

58－(Notes)610Official title

Position

Name

Date of Birth

Brief biography

October 1990

TermofofficeNumberof shares
held(Hundreds ofshares)Registered as certified public tax

accountant
November 1990 Started business as certified public tax－

Director

Misao Taguchi

June 15, 1960

accountant
June 2011

Representative Partner, certified public(Notes)10

6

tax accounting firm Taguchi Partners
Kaikei (current position)
December 2016 Director, TKC (current position)
April 1979
April 2004
Auditor (fulltime)

Joined TKC
Section Chief of Internal Audit
Department－

Masataka Iida

December 8, 1954

October 2005

Deputy Director of Internal Audit

January 2011

Department
Director of Internal Audit Department(Notes)38

4

December 2014 Full-time Auditor (current position)
March 1975
Auditor (fulltime)－

TsuneoMiyashita

May 28, 1949

Joined TKC

December 2006 Executive Officer, Director of TKCNF
Research Committee Support Division
October 2010

Director of Chairman's Office(Notes)98

7

December 2016 Full-time Auditor (current position)－

AuditorKenji Matsumoto

March 10, 1947

September

Registered as certified public tax

1986

accountant

SeptemberStarted business as certified public tax

1986
accountant
November 2010 Representative Partner and Certified(Notes)10

5Public Tax Accountant, Aoyama
Accounting Firm (current position)
December 2015 Auditor (current position)－

AuditorYoshikiTakashima

April 18, 1959

April 1990

Registered as attorney

January 2003

Partner, Shibata, Yamaguchi &Takashima Law Firm (current position)
December 2008 Auditor (current position)
September

Outside Auditor, Atomlivintech Co., Ltd.

2015

(current position)
Total(Notes)－7600(Notes) 1. Director Satoshi Hitaka is the spouse of the elder sister of Masanori Iizuka, Representative Director, Senior Managing
Director and Executive Officer.
2.

Directors Hiroshi Ashikawa and Misao Taguchi are Outside Directors.

3.

Auditors Kenji Matsumoto and Yoshiki Takashima are Outside Auditors.

4.

Four years from the close of the Ordinary General Meeting of Shareholders held December 19, 2014.

5.

Four years from the close of the Ordinary General Meeting of Shareholders held December 22, 2015.

6.

Two years from the close of the Ordinary General Meeting of Shareholders held December 22, 2016.

7.

Four years from the close of the Ordinary General Meeting of Shareholders held December 22, 2016.

－

59

－

6 [Corporate Governance](1) [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 domains and maintain control overthe fate 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 or 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 resourcesthat will enable us to develop and supply software products and services that can drive our customers' businessto 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 tothe original 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, undertake information disclosure andaccountability in a timely manner to continue enhancing our corporate values.
II

Corporate Governance System

1.

Reasons for Selecting the Current Corporate Governance System
－

60

－

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 are in violation of laws and regulations.
We also have two Outside Directors and two Outside Auditors, all four of whom 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.
2. Execution of Business, Auditing and Supervision, Nominations, Decisions on Remuneration andOther Functions (Overview of the Current Corporate Governance System)(i) Execution of business
The Representative Director & President chairs the meetings of the Board of Directors, which are held atleast 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 2 Outside Directors,
each Director represents a business unit as operating officer in charge and participates in deliberations andexpress their opinions. The Company adopts an executive officer system since December 22, 2006.
(ii) Supervision
The Board of Directors oversees the operations of the Company and supervises the execution of businessby each Director by receiving monthly business reports from the executive officers and heads of the major
business units of the Head Office.
(iii) Auditing
Auditors attend monthly meetings of the Board of Directors and other major internal meetings andexpress their opinions on general managerial or individual issues. The Board of Auditors audits theperformance of duties by Directors in accordance with the Company's audit policy and annual audit plansestablished in reference to the "Code of Kansayaku Auditing Standards" by the Japan Audit &Supervisory Members Association.
Accounting Auditors perform accounting audits based on the annual audit plan, and report to the Auditors
and Representative Directors and exchange opinions on methods and results of accounting audit.
(iv) Nomination
When submitting proposals on the appointment of Directors, a temporary Directors Nomination
Committee, consisting of the Representative Directors and Outside Directors and chaired by the
President, shall take into consideration such factors as the candidates' records on business planning,
contributions to past business performances, personalities and depth of knowledge, and propose thepromotions and reappointments of Directors to be resolved at General Meetings of Shareholders.
－

61

－

(v) Remuneration
The Company implements a performance-based compensation scheme. Director compensation consistsof two parts: fixed-amount compensation and performance-based compensation. Fixed-amountcompensation is determined in January each year based on the level of achievement of the Company's
performance goals in previous fiscal year and the performance targets for the current fiscal year;
performance-based compensation is determined based on the level of achievement of the Company's
performance goals in previous fiscal year, and the level of achievement of performance goals by eachbusiness unit that each Director oversaw during previous fiscal year. Proposals on remuneration aredeveloped at the meeting of Representative Directors and approved by resolution of the Board of
Directors. Compensation for Auditors consists of fixed amount compensation and is determined byconsultation among Auditors.
3.

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, limiting their liabilities to the amounts set forth by
law if they are without knowledge and not grossly negligent with regards to their responsibilities set forth in Article
423, Paragraph 1.
4.

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 holddiscussions promptly after quarterly and annual financial settlements.

5.

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. The outline of the policy is summarized 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, Item 6 of the Companies Act)(i)

Directors must comply with all laws and regulations, the Articles of Incorporation, and the Resolutions ofGeneral Meetings of Shareholders (hereinafter "laws and regulations"), keep in mind at all times that thebusiness 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 and maintaincontrol 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 to achieve theseobjectives.

(ii)

Directors must perform their duties based on the Company's Rules of Administrative Authority and
Dividing the Duties of Directors established by the Board of Directors, and cooperate with other
Directors in improving corporate performance.

(iii) 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 (hereinafter, the "President"), and
－

62

－

full-time Auditors and outside company attorneys and receive their guidance as well as report theparticulars to the Board of Directors.
(iv) 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 and receive guidance.
(v)

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, "mattersto be deliberated") to make sure that there are no omissions in view of the scope of matters to bedeliberated under the regulations concerning the duties of the Board of Directors (Article 362) andauthority of Directors (Article 363) as stipulated in the Companies Act and the Company's Rules of theBoard of Directors. If there are other matters to be deliberated, they must be brought to the Director(s) incharge of the meetings of the Board of Directors without delay.

(vi) 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.
(vii) 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 along with any materials used for explanations and theminutes of meeting of the Board of Directors.
(viii) 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.
(ix) 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 of laws
and regulations. In the event an Auditor finds in the course of sitting in the meetings of the Board of
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.
(x)

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.

(xi) 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 with legal
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, Item 6 of the Companies Act)
－

63

－

(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 theCompanies Act)(i) Of the information relating to the execution of duties by Directors (hereinafter, "information on Directors'
duty"), information pertaining to the minutes of General Meetings of Shareholders shall be stored andmanaged in accordance with the Company's Rules of Management of Information Concerning the Minutesof General Meetings of Shareholders.
(ii) Of the information on Directors' duty, information pertaining to deliberations at the meetings of the Boardof Directors shall be stored and managed in accordance with the Company's Rules of Management ofInformation Concerning Decision-making Processes of the Board of Directors as described in [1] (vii)
above.
(iii) 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 shall be stored andmanaged based on the Company's Rules of Management of Information Concerning Legal Affairs.
(iv) Information on Directors' duty not included above shall be divided into the following three categories andstored and managed based on the Company's Rules of Management of Information Concerning the Daily
Operations of Directors:
1. of the meetings called by a Director (excluding the General Meetings of Shareholders and meetings ofthe Board of Directors), minutes and relevant documents of meetings in which matters that may havesignificant impact on the Company's operation are deliberated, and meeting in which matters directly
related to the interest of specific customers, clients or employees are deliberated;
2. written applications for approval and relevant documents settled by the Directors based on the
Company's Rules Concerning Requests for Decisions;
3. other important information pertaining to the execution of duties by Directors.
(v) All information on Directors' duty set forth in the preceding four items shall be stored in a database so that
their presence or absence and contents are immediately searchable. The operating status of said databaseshall 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 loss for the Company (in relation to Article 100,
Paragraph 1, Item 2 of the Ordinance for Enforcement of the Companies Act)
(2-1) Regulations for the management of strategic risks(i) 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 of managing
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 of Shareholders.
(ii) In order to prevent the loss of business opportunities, all Directors must actively gather information andretain unrelenting spirit of inquiry to capture business opportunities that contribute to our customers'
success ahead of others, exhibit outstanding intuition to make the best of such business opportunities, anddevelop timely and optimal schematic plans and propose the execution to the President.
(iii) Upon receiving such proposals from Directors (including employees) as set forth above, the President mustevaluate the contents from the following perspectives, and if it is determined that a proposal should beexecuted, he/she shall report to the Board of Directors and cause for the Director (including employees) incharge to announce an implementation plan at the meetings of the Board of Directors:
1. Conformances with the management philosophy of the Company;
2. Compliances;
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64

－

3. Expected degree of contributions to customers' business;
4. Anticipated feedback from customers;
5. Technical feasibilities;
6. Funds and costs necessary;
7. Other matters, such as the principle of good faith with business partners.
(iv) When submitting proposals on the appointment of Directors, a temporary Directors Nomination
Committee, consisting of the Representative Directors and Outside Directors and chaired by the President,
shall take into consideration such factors as the candidates' records on the preceding two items,
contributions to past business performances, personalities and depth of knowledge, and propose thepromotions and reappointments of Directors to be resolved at General Meetings of Shareholders.
(v) Promotion of a Director to an executive position of managing director or above or demotion of an
executive director to a Director shall be determined by the Representative Director & President throughdiscussion with other Representative Directors and finally decided by approval of the Board of Directors.
(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(i) Operational risks are risks related to the performance of business activities that arise out of uncertainties ofthe performance of appropriate and efficient operations. These risks shall be divided and controlled under
the following two categories:
1. risks that may occur across all divisions (hereinafter, "common risks");
2. risks that may occur in specific divisions (hereinafter, "division-specific risks").
This section provides for regulations for the management of common risks.
(ii) The Board of Directors shall elect a Director in charge of risk management, who shall be in charge ofinvestigating and identifying the following common risks from among all employees of the Company:
1. Risks that have high degree of urgency;
2. Risks associated with compliance;
3. Risks associated with confidentiality obligations of the Company;
4. Risks associated with the preservation of assets and accounting;
5. Risks associated with the preparation of regulations and manuals for operation of business;
6. Risks associated with the workplace environment and labor management;
7. Other risks deemed necessary.
(iii) 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 suchfindings to the President and discuss the actions to be taken.
(iv) The Director in charge shall sort and classify unresolved risks and formulate a basic policy on how tohandle 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 Board of Directors. The
approved Regulations shall be announced and distributed to all employees as guidelines from the President.
(v) 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.
(vi)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 the Board of
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Directors within two months and undertake any revisions to the Regulations.
(vii) 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.
(viii) 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 toprevent recurrence of apparent risks.
(2-2-2) Regulations for the management of operational risks that may occur in specific divisions(i) Division-specific risks include cases in which division-specific operational risks need to be controlled andcases in which highly advanced, specialized knowledge is required to control certain common risks. The
following committees (including committees to be newly established) shall be in charge controlling risks
involving multiple divisions, and the relevant division shall be responsible for controlling any risk
involving that single division:
1. Systems Development Research Center Operation Improvement Committee;
2. Municipality Systems Development & Operations Division Operation Improvement Committee;
3. Consolidated Information Centers Operation Improvement Committee;
4. SCG Service Centers Operation Improvement Committee;
5. Municipality Sales Division Operation Improvement Committee;
6. Supplier Business Operation Improvement Committee;
7. Tokyo Head Office Operation Improvement Committee;
8. Personnel & Salary Systems Improvement Committee;
9. Risk Management Committee;
10. Other committees that the Board of Directors deems necessary to establish.
(ii) 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 shallattend the meeting of the Board of Directors and report on the matters to be reported by the committee, andmay request deliberations as necessary by the Board of Directors.
(iii) Division-specific risks involving an individual committee or a specific division shall be controlled in thesame manner as controlling common risks as prescribed in (2-2-1). Division-specific risks shall beidentified by each committee and reported to the Board of Directors.
(2-2-3)

Regulations for the management of hazard and other risks(i) 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 headquarter headed 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 teamincluding the company attorneys and to establish a system to respond promptly, prevent and minimize thespread of damages.
(ii) In the event of any matters that may be in violation of the laws and regulations, the Business
Administration Headquarters under the responsibility of the Director in charge of legal affairs shallbecome the supervising division to take actions. Any legal compliance issue of significant importance shallbe consulted with outside attorneys as external legal advisors.
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(3) Systems to ensure the efficient execution of Directors' duties of the Company (in relation to Article 100,
Paragraph 1, Item 3 of the Ordinance for Enforcement of the Companies Act)(i)

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 of 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 theupcoming fiscal year formulated in light of the management philosophy of the Company and a mediumterm 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 their strategic rationalities inaccordance with the Company's Rules of 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 shall be submitted by the President, andthe Board of Directors shall deliberate upon their feasibilities in accordance with the Company's Rules of
the Board of Directors.
(iv) At the monthly regular meetings of the Board of Directors, the targeted and actual P/L statements for theentire company and each business unit as of the end of the previous month shall be reported, and theBoard of Directors shall analyze the differences in target and actual results, and discuss actions to betaken to achieve the targeted sales and current profits for the fiscal year.
(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 effect of the projects in lightof the current management policy, and approve the use of president's strategic reserve funds to the extent
approved by the Board of Director.

(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 ensure that they have correct
awareness of the fiscal management policy and strategic goals for their division and that the PDCA cycleis thoroughly implemented to achieve these goals, and shall monitor the progress and achievements ofthe entire division at all times and strive to achieve the sales and 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 workplaceorganized, and must exhibit leadership to create a workplace environment in which all employees aresafe and comfortable, inspired and satisfied.
(4) Systems to ensure that performance of duties by employees of the Company is in conformance with laws andregulations and the Articles of Incorporation (in relation to Article 100, Paragraph 1, Item 4 of the Ordinancefor Enforcement of the Companies Act)(i) 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 theapproval of the Board of Directors, distribute them to all employees as guidelines from the President.
(ii) Regular training sessions for all employees of the Company to further understanding of the Compliance
Regulations and Compliance Manual as set forth above shall be conducted in accordance with the plans of
the Internal Audit Department.
(iii) When performing an internal audit on internal business units, the Internal Audit Department must always
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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.
(iv) 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.
(v) In order to prevent the leaking of customer information and other confidential information, the body text
and attached files of all electronic mails sent from internal PCs to outside the Company shall be stored fora certain period of time.
(vi) 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 first learnsof such information gives emergency notification to the President or the Director in charge of legal affairs
informing them of the facts and other relevant information.
(5) Other systems to ensure the appropriateness of operations of the Group consisting of the Company and its
subsidiaries (in relation to Article 100, Paragraph 1, Item 5 of the Ordinance for Enforcement of the Companies
Act)(A) Systems concerning reports to the Company on matters pertaining to the execution of duties by directors,
executive officers, employees executing operations, persons performing the duties under Article 598,
Paragraph 1 of the Companies Act, and those equivalent (hereinafter "Directors, etc." in items (C) and (D)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 establish a Group Audit Office headedby the chief of the Business Administration Headquarters.
(ii) The Group Audit Office shall establish a system whereby, upon identifying any incidents that may causesignificant damage to the Subsidiaries, the President, the Business Administration Headquarters and theheads of relevant business divisions are notified of the risks causing such incident, the degree of damage
expected and impacts on the Company.
(iii) The Group Audit Office shall periodically and 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 the Subsidiaries toserve as Directors in order to communicate the management policy and requests of the Company in writing
to the Subsidiaries' Board of Directors. The Company shall request the presidents of the subsidiaries tosubmit monthly reports on the latest business results, business forecast and risk management issues.
(B) 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 the Companies Act)
Efforts shall be made to raise awareness on risks which may impact the Company's operation, and to promote early
discovery, preventive measures, and prompt and appropriate responses in the event of an emergency in accordancewith the separate Compliance Regulations, Compliance Manual and other internal rules.
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(C) Systems to ensure the efficient execution of Directors' duties of Subsidiaries (in relation to Article 100,
Paragraph 1, Item 5(c) of the Ordinance for Enforcement of the Companies Act)(i)

The Board of Directors of Subsidiaries (referred to as "Board of Directors" in this section) shall holdregular 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 theapproval of financial statements or in relation to the General Meetings of Shareholders shall be plannedat 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 theupcoming fiscal year formulated in light of the management philosophy of the Subsidiaries and a
medium-term management plan covering the next three years starting from the upcoming fiscal year shallbe submitted by the president of the Subsidiaries (referred to as "President" in this section and the next
section), and the Board of Directors shall deliberate 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 shall be submitted by the President, andthe Board of Directors shall deliberate upon their feasibilities in accordance with the Company's Rules of
the Board of Directors.
(iv) At the monthly regular meetings of the Board of Directors, the targeted and actual P/L statements for theentire company and each business unit as of the end of the previous month shall be reported, and theBoard of Directors shall analyze the differences in target and actual results, and discuss actions to betaken to achieve the targeted sales and current profits for the fiscal year.
(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 effect of the projects in lightof 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 or managers under his/her immediate control to ensure that they have correct
awareness of the fiscal management policy and strategic goals for their division and that the PDCA cycleis thoroughly implemented to achieve these goals, and shall monitor the progress and achievements ofthe entire division at all times and strive to achieve the sales and 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 workplaceorganized, and must exhibit leadership to create a workplace environment in which all employees aresafe and comfortable, inspired and satisfied.
(D) 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 the Companies Act)(i) In order to ensure compliance with laws and regulations by the directors and employees of the Subsidiaries(referred to as "Directors and employees" in this section), the division in charge of internal audit under the
direct control of the President shall develop Compliance Regulations and Compliance Manual based on
guidance provided by Auditors and outside company attorneys.
(ii) Regular training sessions for all Directors and employees to further understanding on the Compliance
Regulations and Compliance Manual as set forth above shall be conducted in accordance with the plans of
the division in charge of internal audit.
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(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 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.
(iv) 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.
(v) In order to prevent the leaking of customer information and other confidential information, the body text
and attached files of all electronic mails sent from internal PCs to outside the Company shall be stored fora 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 Auditors of a company with company auditors (in relation to
Article 100, Paragraph 3, Item 1 of the Ordinance for Enforcement of the Companies Act)(i) The Company shall establish an Auditor Office to assist the duties of the Auditors and assign one or more
dedicated employees.
(ii) In determining the specific details pertaining to the preceding item, the Company shall respect the opinionsof the Board of Auditors and take into consideration the opinions of the Director in charge of humanresources and other relevant personnel.
(7) Independence of employees assisting duties of Auditors from Directors of a company with company auditors(in relation to Article 100, Paragraph 3, Item 2 of the Ordinance for Enforcement of the Companies Act)(i) The appointment, transfer, personnel evaluation and disciplinary punishment of employees assisting theduties of Auditors shall be subject to prior consent of the Board of Auditors.
(ii) Employees assisting the duties of Auditors shall not hold concurrent posts that involve the execution of theCompany's business, and shall perform their duties under the direct command of the Board of Auditors,
and their performance shall be evaluated by the Board of Auditors.
(iii) Business units executing the Company's business shall cooperate with employees assisting the duties of
Auditors and allow attendance of such employees at the necessary meetings for them to conduct necessary
investigations and gather necessary information.
(8) Ensuring effectiveness of directions to employees assisting duties of Auditors of a company with company
auditors (in relation to Article 100, Paragraph 3, Item 3 of the Ordinance for Enforcement of the Companies
Act)
Employees assisting the duties of Auditors shall report to Auditors as appropriate on the status of duties performedin accordance with the directions and commands given by Auditors.
(9-1) Systems for reporting to Auditors of a company with company auditors including the systems stipulated
below (in relation to Article 100, Paragraph 3, Item 4 of the Ordinance for Enforcement of the Companies
Act)
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(A) Systems for reporting to Auditors of a company with company auditors by the Directors, accounting advisorsand employees in a company with company auditors (in relation to Article 100, Paragraph 3, Item 4(a) of theOrdinance for Enforcement of the Companies Act)(i) All Directors and employees of the Company shall promptly submit the necessary reports and information
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 thefollowing:
1.
2.
3.
4.

Status of activities of business units involved in the risk management of the Company;
Status of activities pertaining to audits and internal audits of the Subsidiaries of the Company;
Important accounting policies and accounting standards of the Company and any changes thereto;Contents of announcements and important disclosure documents on the Company's latest businessresults and earnings forecasts announcements 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 shall immediately 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 the chairman or caller of suchmeetings.
(B) Systems for reporting to Auditors of a company with company auditors by the directors, accounting advisors,
auditors, executive officers, employees executing operations, persons performing the duties under Article 598,
Paragraph 1 of the Companies Act and other persons equivalent to the above, employees or any persons
receiving reports from the above in the Subsidiaries of a company with company auditors (in relation to
Article 100, Paragraph 3, Item 4(b) of the Ordinance for Enforcement of the Companies Act)(i) All directors, auditors and employees of Subsidiaries shall promptly submit the necessary reports andinformation requested by each Auditor of the Company as established by the Board of Auditors of theCompany.
(ii) The reports and information to be submitted as set forth in the preceding item shall mainly include thefollowing:
1.
2.
3.
4.

Status of activities of business units involved in the risk management of the Subsidiaries;
Status of activities pertaining to the audits by auditors of the Subsidiaries;
Important accounting policies and accounting standards of the Subsidiaries and any changes thereto;
Circulation of internal approval documents and meeting minutes of Subsidiaries requested by Auditors.

(iii) In the event a director, auditor 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, auditor or employee shallimmediately 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 other important
meetings of Subsidiaries, and are expected to voice their opinions freely without being requested to do soby the chairman or caller of such meetings.
(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 Article 100, Paragraph 3, Item 5 of theOrdinance for Enforcement of the Companies Act)
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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 the Company.
(9-3) Policy on prepayment or reimbursement of expenses arising from the execution of duties of Auditors of acompany with company auditors and the processing of expenses or debts arising from the performance ofother duties (in relation to Article 100, Paragraph 3, Item 6 of the Ordinance for Enforcement of theCompanies Act)The Company shall bear sufficient amounts to cover the procedures on prepayment or reimbursement of expenses
arising from the execution of duties of Auditors and for the processing of expenses or debts arising from theperformance of other duties so as to allow Auditors to sufficiently achieve the execution of the Auditors' duties.
(i) Ordinary auditing expenses shall be budgeted in the current fiscal year based on the business plan of theCompany and the audit plan of the Board of Auditors.
(ii) Other emergency auditing expenses and contingency expenses shall be estimated in advance by the Board
of Auditors and establish a policy on such expenses. The Board of Directors shall execute the measures
under said determined policy as notified by the Board of Auditors after deliberation and review of suchmeasures in light of the status of execution of the budget for the fiscal year.
(10) Other systems to ensure that audits by the Auditors of a company with company auditors are implemented
effectively (in relation to Article 100, Paragraph 3, Item 7 of the Ordinance for Enforcement of the Companies
Act)(i) Auditors shall receive explanations in advance on the annual internal auditing plan to be performed by theInternal Audit Department and express their opinions to the President if they deem that the plan needs tobe corrected or changed, and the President must respect such opinions.
(ii) 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.
(iii) Auditors shall receive explanations in advance on the auditing plans from Accounting Auditors, andreceive reports on auditing methods and audit results and have the exchange of opinions whenever audits
on quarterly settlements and audits on full year settlements are performed.
(iv) 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, the Company shallestablish an Audit System Improvement Committee headed by the Director in charge of Business
Administration Headquarters 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 suchreports to the Board of Directors.
6.

Basic Policy on the Control of the Company

The Company has no particular policy on matters concerning the persons controlling the decisions on the financial
and business policies of the Company. A schematic diagram of the Company's internal control system is shown
below:－

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General Meeting of Shareholders
Appointment/
Dismissal

Reports

Appointment/Dis
missalAppointment/
Dismissal
Reports

Audit

Collaboration

Board of Directors
11 Directors(Including 2 Outside Directors)

Board of Auditors
4 Auditors(Including 2 Outside Auditors)
Reports

Appointment/
Dismissal/
Supervision

Accounting
Auditors
Approval for
Appointment/
Dismissal/ Decision
on re-appointment

Reports

Reports

Instructions

Business Improvement Committee
Representative Directors

Internal Audit Department
Reports

Instructions,Supervision

Audit

Reports

Requests

Executive Officers (30)Instructions, Orders

Instructions, Orders

All Divisions, Group Companies

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Instructions, Orders

III

Internal Audits and Audits by Auditors

The Company has four Auditors, one of which, Kenji Matsumoto, an Auditor, is a qualified public tax accountant
and has extensive expertise in the areas of finance and accounting. Yoshiki Takashima, an Auditor, is a qualified
attorney, and has extensive expertise in the areas of finance and accounting.
The Internal Audit Department, coordinating closely with the Auditors, audits the operation of all business units ina systematic manner to assess the effectiveness of internal controls and the actual business operations, and reports
the results of auditing directly to the President. Highly effective internal audits are implemented by providing thebusiness divisions indication and guidance on items required to be improved based on the auditing results, andrequiring them to report the progress of improvements after the auditing. As a department under the direct controlof the President, the Internal Audit Department audits the operation of each business units within the Company
from the perspectives of appropriateness of operation and compliance in accordance with the laws and regulations,
the Articles of Incorporation, guidelines from the President, and work regulations and other internal rules andregulations. Auditors receive reports on internal audit plans for the fiscal year and reports on internal audit methods
and results for the first and second half-years from the Internal Audit Department and exchanges opinions on
relevant matters.
The Company conducts evaluations on the internal auditing systems to ensure the appropriateness of financial
reporting documents and related information in accordance with Article 24-4-4, Paragraph 1of the Financial
Instruments and Exchange Act, and holds discussions regularly and as-needed on the three auditing functions—internal audits, audits by Auditors and accounting audits by accounting auditors—to improve the reliability of our
financial reporting. Information on the respective audit plans and audit results are shared and closely coordinated toachieve highly efficient and effective auditing.
IV Basic Approach and Countermeasures to Eliminate Anti-social Forces1.

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(i) Establishment of a Response Control Division and appointment of managers in charge of preventing
unreasonable demands
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 andTokyo 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 byanti-social forces.
(ii) Coordination with external expert organizations
The Company maintains close ties with external expert organizations, for example, by taking part inliaison groups organized by the police and receiving guidance on how to deal with anti-social forces.
(iii) Collecting and managing information on anti-social forces
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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.
(iv) Preparation of response manuals3
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.
(v) 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 with
the Company and at Group companies.

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V

Outside Directors and Outside Auditors

1.

Status and reasons for appointment of Outside Directors and Outside Auditors
Category

Name

Functions, roles and appointment
Mr. Taguchi is a representative partner of a certified public tax accounting 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 to enhance
the supervisory functions of the Board of Directors in order to increase transparency, andprovide 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 generalshareholders, and the Company deems that this would not affect the independence of Mr.
Taguchi.
Mr. Taguchi has no special interest in the Company.
Mr. Ashikawa is the head of Ashikawa Accounting Firm and representative director of K.K.
MACOS, 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 ofaccounting firms. From an independent standpoint, he is expected to enhance the supervisory
functions of the Board of Directors in order to increase transparency, and provide valuable
input to ensure the legality and validity of decisions made and resolved by the Board of
Directors.

Director

Hiroshi Ashikawa
While Ashikawa Accounting Firm and MACOS are 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.
Ashikawa and general shareholders, and the Company deems that this would not affect theindependence of Mr. Ashikawa.
Mr. Ashikawa has no special interest in the Company.
Mr. Matsumoto has been appointed to enhance the supervisory functions of the Board of
Directors in order to increase transparency, and to give opinions on compliance issues and as
to whether the resolutions of the Board of Directors may be in violation of laws andregulations, and to provide opinions, advice and suggestions in order to ensure the legality,
appropriateness, and validity of the decisions made and resolved by the Board of Directors.

AuditorKenji Matsumoto

While Mr. Matsumoto and the certified public tax accounting firm, Aoyama Accounting Firm
where Mr. Matsumoto serves as Representative Partner and Certified Public Tax Accountant
are engaged in a business relationship with the Company, transactions are based on the sameterms and conditions as with other third parties. Therefore, it is not likely that any conflict ofinterest should occur between Mr. Matsumoto and general shareholders, and the Company
deems that this would not affect the independence of Mr. Matsumoto.
Mr. Matsumoto has no special interest in the Company.
Mr. Takashima is a certified attorney and has been appointed to provide compliance-related
audits and advise from a legal perspective on the execution of duties by the Directors of the

AuditorYoshiki TakashimaCompany.
Mr. Takashima has no special interest in the Company.

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2.

Support systems for Outside Directors and Outside Auditors(i) The Company appoints the head of the Business Administration Headquarters, General Affairs Department
as a point of liaison to provide assistance to Outside Directors and Outside Auditors. The head of General
Affairs Department notifies the Outside Directors and Outside Auditors of the schedule of the meetings ofthe 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.
(ii) Outside Directors attend any major meetings of TKCNF, the customer organization of the Accounting FirmBD.
(iii) 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.
(iv) Remunerations for Auditors shall be determined each January upon discussion among Auditors based on
the business results for the preceding fiscal year.

3.

Standards concerning the independence of Outside Directors and Outside Auditors of the Company(1) For the Board of Directors of the Company to recognize the independence of Outside Directors or Outside
Auditors of the Company (hereinafter, "outside executives"), he/she must maintain a neutral stance,
independent of the Company's management without falling under any of the following (independent outside
executives shall be referred to as "independent executives" hereinafter):(i)

executive member of the Company or the Company's affiliate companies (hereinafter, "the Group");(ii) an important trade partner of the Group or its executing member;(iii) a major shareholder of the Company (holding voting rights in excess of 10% of the total voting rights,
directly or indirectly) or its executing member;(iv) an executing member of an entity in which the Group is a major investor (holding voting rights in excess
of 10% of the total voting rights, directly or indirectly);(v) certified public accountant, certified public tax accountant or other accounting specialists, an attorney orother legal specialist receiving large sums of money or other assets from the Group other than director
compensation (or, any person affiliated with the corporation, association or other bodies receiving suchmonies or assets);(vi) a person belonging to an audit firm that performs accounting audits for the Company, or a certified public
tax accountant or person belonging to a tax firm that performs tax audits for the Company;(vii) any person falling under items (i) to (vi) within the last three years;(viii) near relatives of the following:
1) Persons falling under items (ii) to (vi) above (provided that an "executing member" in items (ii) to (iv)shall be limited to a person executing important duties, and "person affiliated with the corporation,
association or other bodies" in item (v) shall be limited to a person executing important duties, or incase of an audit firm, a tax accounting firm, law firm or other organization of accounting and legal
specialists, only certified public accountants, certified public tax accountants or attorneys and persons
with specialized qualifications, and "persons belonging to an audit firm" and "persons belonging to a
tax firm" in item (vi) shall be limited to persons executing important duties and certified public
accountants, certified public tax accountants and other persons with specialized qualifications);
－

77

－

2) Persons executing important duties of the Group;3) Persons falling under item (ii) above within the last three years.
(2) In addition to the criteria in the preceding item, independent executives shall not have any condition that could
be reasonably interpreted as his/her inability to perform the duties of an independent outside executive.
(3) Independent executives shall strive to maintain the independence set forth in these standards until theirresignation, and shall immediately notify the Company if said independence as defined in these standards is
lost.
Note 1:

An Outside Director refers to Outside Directors as defined in Article 2, Item 15 of the Companies Act.
"An Outside Director means a director of any stock company who is neither an executive director(hereinafter referring to a director of a stock company listed in any item of Article 363(1), and any otherdirector who has executed operation of such stock company) nor an executive officer, nor an employee,
including a manager, of such stock company or any of its subsidiaries, and who has neither ever servedin the past as an executive director nor executive officer, nor as an employee, including a manager, ofsuch sock company or any of its subsidiaries."

Note 2:

An Outside Auditor refers to Outside Company Auditors as defined in Article 2, Item 16 of theCompanies Act.
"An Outside Company Auditor means an auditor of any stock company who has neither ever served in
the past as a director, accounting advisor (or, in cases where the accounting advisor is a juridical person,
any member thereof who was in charge of its advisory affairs) or executive officer, nor as an employee,
including a manager, of such stock company or any of its Subsidiaries."

Note 3:

An executing member refers to Directors (excluding Outside Directors), executive officers as defined in
Article 418 of the Companies Act (hereinafter "executive officers"), and corporate executive officers andemployees executing the operation.

Note 4:

Persons for which the Group is an important trade partner refers to those falling under either of thefollowing:(i) a trade partner group that provides products or services to the Group (referring to companies
belonging to consolidated groups to which the direct trade partner is affiliated, hereinafter the same)that has received from the Group in the immediately preceding fiscal year an amount in excess of
100 million yen or 2% of the consolidated net sales of said trade partner group, whichever thehigher;(ii) a trade partner group to which the Group is indebted to and owed in the immediately preceding
fiscal year a total amount in excess of 100 million yen or 2% of the consolidated total assets of the
trade partner group, whichever the higher.

Note 5:

Important trade partners for the Group refers to those falling under either of the following:(i) a trade partner group to which the Group provides products and services from which the Group hasreceived in the immediately preceding fiscal year an amount in excess of 100 million yen or 2% of
the consolidated net sales of said trade partner group, whichever the higher;(ii) a trade partner group indebted to the Group, that owed the Group in the immediately preceding
fiscal year a total amount in excess of 100 million yen or 2% of the consolidated total assets of the
trade partner group, whichever the higher;(iii) a financial institution group from which the Group is borrowing (referring to companies belonging
－

78

－

to consolidated groups to which the direct lender is affiliated) and borrowed in the immediately
preceding fiscal year a total amount in excess of 2% of the consolidated total assets of the Group.
Note 6:

Certified public accountants, certified public tax accountants or other accounting specialists, andattorneys or other legal specialists receiving large sums of money or other assets from the Group otherthan director compensation shall refer to persons who received from the Group, an amount in excess of
10 million yen or any property in the amount in excess of 2% of said person's total sales or gross income,whichever the higher, in the immediately preceding fiscal year in addition to the director compensation.

Note 7:

Near relatives shall refer to relatives within the second degree and other interested parties that shareliving expenses.

Note 8:Persons executing important duties shall refer to persons executing important business operations,
including Directors (excluding Outside Directors), executive officers, corporate executive officers andheads of business units.

Note 9:The term "fiscal year" used above can be replaced for individuals to read the year subject to income tax
calculations.

－

79

－

Ⅵ Accounting Audits
1.

Accounting Auditors

The Company has an audit agreement with Ernst & Young ShinNihon LLC, and receives accounting audits fromthe firm.
The names of certified public accountants that executed the accounting audit for the fiscal year ended September
2016 are as follows:
Designated Limited Liability Partner, Executing Partner:
Designated Limited Liability Partner, Executing Partner:
Number of assistants assisting auditing:
Certified public accountant: 8
Others:29
2.

Atsuo Mori
Yuichi Noda

Policy for determining the dismissal or refusal to reappoint accounting auditors

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. In such event, an Auditor selected by the Board of Auditors shall report thedismissal 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
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.
3.

Matters concerning the suspension of operations by accounting auditors

Not applicable.
VII Other Stipulations
1.

Number of Directors

The Articles of Incorporation stipulate that the Company may have a maximum of 15 Directors.
2.

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.
3.

Exemption from liability for Directors and Auditors

In order to limit the liabilities of Directors and Auditors to a reasonable extent in performing their duties, theCompany 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 theextent allowed by law in accordance with Article 426, Paragraph 1 of the Companies Act.
－

80

－

4.

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, Paragraph 5 of the Companies Act.
5.

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 resolution of
the Board of Directors pursuant to the provisions of Article 165, Paragraph 2 of the Companies Act.
6.

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 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 that can exercise
voting rights. This has been established to ensure smooth handling of special resolutions at General Meetings ofShareholders by easing the quorum for special resolutions by General Meetings of Shareholders.

－

81

－

VIII Compensation to Executive Directors
1.

Total amount of compensation, total by type, and number of eligible executives, by executive category

Executive category

Total amount ofcompensation(Millions ofyen)

Total compensation by type (Millions of yen)

Number of
eligible
executives

Basic
compensationStock
options

Executive
bonuses

265

205

39

20

-

9

30

24

3

2

-

2

58

53

-

4

-

5

Retirement
benefits

Director(Excluding Outside
Directors)
Auditors(Excluding Outside
Auditors)
Outside executives

2.

Policy on determining the amount of executive remuneration or calculation method

Director compensation consists of two parts: fixed-amount compensation and performance-based compensation.
Fixed-amount compensation is determined in January each year based on the level of achievement of theCompany's performance goals in previous fiscal year and the performance targets for the current fiscal year;
performance-based compensation is determined based on the level of achievement of the Company's performancegoals in previous fiscal year, and the level of achievement of performance goals by each business unit that each
Director oversaw during previous fiscal year. Proposals on remuneration are developed at the meeting ofRepresentative Directors and approved by resolution of the Board of Directors. Compensation for Auditors consistsof fixed amount compensation and is determined by consultation among Auditors.

－

82

－

IX Status of shareholdings
1.

Equity securities held for purposes other than pure investment and the total amount recorded in thebalance sheet
14 stock names, 3,500 million yen

2.

Stock name, number of shares, amount recorded in the balance sheet and purpose of holding of equity
securities held for purposes other than pure investments
Previous fiscal year
Specified investment securities
Stock name

Number of shares(Shares)Amount recorded inbalance sheet(Millions of yen)

T&D Holdings, Inc.

1,780,000

2,500

Mitsubishi UFJ Financial Group, Inc.

2,322,180

1,663

Joyo Bank, Ltd.

235,321

147

Nippon Paper Industries Co., Ltd.

17,00030

Toyo Securities Co., Ltd.

51,00018

Mito Securities Co., Ltd.

31,46012

Fujitsu Limited

11,8806

Tokai Tokyo Financial Holdings, Inc.

9,187

6

Purpose of holding
To maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationship

Current fiscal year
Specified investment securities
Stock name

Number of shares(Shares)Amount recorded inbalance sheet(Millions of yen)

T&D Holdings, Inc.

1,780,000

2,010

Mitsubishi UFJ Financial Group, Inc.

2,322,180

1,172

Joyo Bank, Ltd.

235,321

102

Nippon Paper Industries Co., Ltd.

17,00031

Toyo Securities Co., Ltd.

51,0009Mito Securities Co., Ltd.

31,4607

Fujitsu Limited

11,880

6

－

83

－

Purpose of holding
To maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationshipTo maintain and strengthenbusiness relationship
Tokai Tokyo Financial Holdings, Inc.

3.

9,187

4

To maintain and strengthenbusiness relationship

Equity securities held for the pure investment

Not applicable.
(2)[Audit Fees](i) [Compensation paid to Auditors and certified public accountants]
Previous consolidated fiscal year

Current consolidated fiscal year

Category

Compensation for audit
and attestation services(Millions of yen)Compensation for nonaudit services (Millionsof yen)Compensation for audit
and attestation services(Millions of yen)Compensation for nonaudit services (Millionsof yen)The Company

44

9

45

9

－

－

－

－

44

9

45

9

Consolidated
subsidiaries
Total(ii) [Other important fees](For the previous consolidated fiscal year and the current consolidated fiscal year)
Not applicable.
(iii) [Descriptions on non-audit services performed for the Company by Auditors and certified public
accountants](For the previous consolidated fiscal year and the current consolidated fiscal year)
The Company pays its Auditors and certified public accountants compensation for assurance services forinternal controls pertaining to the Company's ASP service based on the Auditing and Assurance PracticeCommittee Practical Guideline No. 86 "Assurance Reports on Controls at a Service Organization(Japanese Institute of Certified Public Accountants dated December 22, 2011)" covering services otherthan the services prescribed in Article 2, Paragraph 1 of the Certified Public Accountants Act.
(iv) [Policy for determining Audit fees]
Auditor compensations paid to Auditors and certified public accountants are determined by discussion
based on the number days of auditing works performed.

－

84

－

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 Ordinanceon Terminology, Forms, and Preparation Methods of Consolidated Financial Statements (Ordinance of the
Ministry of 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 thefinancial 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, 2015 to September 30,2016) and financial statements for the fiscal year (from October 1, 2015 to September 30, 2016) have been auditedby Ernst & Young ShinNihon LLC pursuant to Article 193-2, Paragraph 1 of the Financial Instruments andExchange Act.
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 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.

－

85

－

1 [Consolidated Financial Statements](1)[Consolidated Financial Statements](i) [Consolidated Balance Sheet]Previous consolidated fiscal
year(September 30, 2015)(Unit: Millions of yen)
Current consolidated fiscal
year(September 30, 2016)

21,919
6,411
174
308
189
139
1,894
663
(34)
31,666

19,552
6,335
238
360
112
158
2,079
751
(36)
29,554

5,561

6,554

547

425

996
6,346
163
880
14,495

1,188
6,607
129
14,906

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable
Lease investment assets
Finished good inventory
Work in progress
Raw materials and stored items
Deferred tax assets
Other
Provisions for bad debts
Total current assets
Non-current assets
Property, plants and equipment
Buildings and structures (net amount)
Machinery, equipment and vehicles (netamount)Tools, furniture and fixtures (net amount)Land
Lease assets (net amount)
Construction in progress
Total property, plants and equipment
Intangible assets
Software
Software in progress
Other
Total intangible assets
Investments and other assets
Investment securities
Long-term loans
Deferred tax assets
Long-term deposits
Guarantee deposits
Long-term lease investment assets
Other
Total investments and other assets
Total non-current assets
Total assets

*1

*1

2,611
724
30
3,365
*2

－

86

－

13,326
4
2,431
9,400
1,453
547
146
27,30845,16976,836

2,976
706
29
3,712
*2

20,216
175
3,190
7,000
1,303
601
454
32,94351,562
81,116

Previous consolidated fiscal
year(September 30, 2015)(Unit: Millions of yen)
Current consolidated fiscal
year(September 30, 2016)

2,540
60
71
225
3,525
1,243
769
2,450
862
11,749

2,602
40
71
290
3,371
2,203
529
2,853
1,457
13,419

366
673
818
598
2,456
14,206

295
689
1,583
572
3,140
16,5595,700
5,419
49,906(349)
60,6765,700
5,419
52,606(350)
63,374

508

(339)

508

(339)

127
1,317
62,63076,836

176
1,345
64,556
81,116

Liabilities
Current liabilities
Accounts payable – trade
Short-term debts
Current portion of long-term debts
Lease obligations
Accounts payable
Income taxes payable
Consumption taxes payable
Provisions for bonuses
Other
Total current liabilities
Fixed liabilities
Long-term debts
Lease obligations
Retirement benefit liabilities
Other
Total fixed 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-salesecurities
Total accumulated other comprehensive
incomeSubscription rights to shares
Non-controlling interests
Total net assets
Total liabilities and net assets

－

87

－

(ii) [Consolidated Statements of Income and Comprehensive Income][Consolidated Statements of Income]Net Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Non-operating income
Interest income
Dividend income
Land & rent income
Compensations received
Other
Total non-operating income
Non-operating expenses
Interest paid
Equity in loss of affiliates
Other
Total non-operating expenses
Ordinary profit
Extraordinary profit
Gains on sale of non-current assets
Subsidy income
Total extraordinary profit
Extraordinary losses
Losses on sale of non-current assets
Loss on disposal of non-current assets
Impairment losses
Loss on valuation of golf club membership
Total extraordinary losses
Net income before taxes and adjustments
Income taxes – current
Income taxes – deferred
Total income taxes
Net income
Net income attributable to the non-controllingshareholders
Net income attributable to owners of parent(Unit: Millions of yen)Previous consolidated fiscal
Current consolidated fiscal
year
year
(Started October 1, 2014;(Started October 1, 2015;
ended September 30, 2015)
ended September 30, 2016)
54,92857,75019,18020,34435,74737,406*1, *2 29,006*1, *2 29,764
6,741
7,642
30
148
38
56
37
310

39
106
37
46
230

5
4
0
9
7,042

5
262
0
268
7,604

*3

1
10
11

83
2
*6
5
91
6,962
2,448
486
2,934
4,027

*5

－

88

－

11
11

*3

0
41
1
*6
42
7,573
3,316
(553)
2,762
4,810
*4

*5

16

40

4,011

4,770

[Consolidated Statements of Comprehensive Income]Net income
Other comprehensive income
Valuation difference on available-for-salesecurities
Share of other comprehensive income ofassociates accounted for using the equity method
Total other comprehensive income
Comprehensive income(Breakdown)Comprehensive income attributable to owners of
the parent
Comprehensive income attributable to noncontrolling shareholders(Unit: Millions of yen)Previous consolidated fiscal
Current consolidated fiscal
year
year
(Started October 1, 2014;(Started October 1, 2015;
ended September 30, 2015)
ended September 30, 2016)
4,027
4,810

*1

－

89

－

121

(852)

(0)

0

121
4,149

*1

(852)
3,958

4,131

3,922

18

36

(iii) [Consolidated Statements of Changes in Equity]
Previous consolidated fiscal year (Started October 1, 2014; ended September 30, 2015)(Unit: Millions of yen)
Shareholders' equity
Capital stock
Balance at beginning ofyear
Accumulated financial
impact due to changes inaccounting policy
Balance at beginning ofyear reflecting changes inaccounting policy
Changes of items during
the period

Capital surplus

5,700

Retained earnings

5,409

47,399Treasury stock
(406)

(44)
5,700

5,409

47,354

Total shareholders'equity58,102(44)(406)

58,057

Dividends of surplus(1,459)(1,459)Net income attributableto owners of parent

4,011

4,011

Acquisition of treasury
stock
Disposal of treasury
stock
Changes of items otherthan shareholders' equity(net)
Total changes of items
during the period
Balance at end of year

Balance at beginning ofyear
Accumulated financial
impact due to changes inaccounting policy
Balance at beginning ofyear reflecting changes inaccounting policy
Changes of items during
the period

10

(3)

(3)

60

70

－

10

2,552

57

2,619

5,700

5,419

49,906(349)

60,676

Accumulated other comprehensive
incomeValuation
Total accumulateddifference on
otheravailable-for-salecomprehensive
securities
incomeSubscription rights
to shares

Non-controllinginterests

100

1,315

59,906

11

(33)

1,326

59,872

388

388

388

388

100

Total net assets

Dividends of surplus(1,459)Net income attributableto owners of parent

4,011

Acquisition of treasury
stock
Disposal of treasury
stock
Changes of items otherthan shareholders' equity(net)
Total changes of items
during the period
Balance at end of year

(3)
70
119

119

26

(8)

137

119

119

26

(8)

2,757

508

508

127

1,317

62,630－90－Current consolidated fiscal year (Started October 1, 2015; ended September 30, 2016)(Unit: Millions of yen)
Shareholders' equity
Capital stock
Balance at beginning ofyear
Changes of items during
the period

Capital surplus

5,700

Retained earnings

5,419

49,906

Total shareholders'equityTreasury stock(349)

60,676

Dividends of surplus(2,071)(2,071)

Net income attributableto owners of parent

4,770

4,770

Acquisition of treasury
stock
Disposal of treasury
stock
Changes of items otherthan shareholders' equity(net)
Total changes of items
during the period
Balance at end of year

Balance at beginning ofyear
Changes of items during
the period

(1)

(1)

0

0

0

－

0

2,699

(1)

2,697

5,700

5,419

52,606(350)

63,374

Accumulated other comprehensive
incomeValuation
Total accumulateddifference on
otheravailable-for-salecomprehensive
securities
incomeSubscription rights
to shares

Non-controllinginterests

127

1,317

508

508

Total net assets

62,630

Dividends of surplus(2,071)

Net income attributableto owners of parent

4,770

Acquisition of treasury
stock
Disposal of treasury
stock
Changes of items otherthan shareholders' equity(net)
Total changes of items
during the period
Balance at end of year

(1)
0
(848)

(848)

48

28

(771)

(848)

(848)

48

28

1,926

(339)

(339)

176

1,345

64,556－91－

(iv) [Consolidated Statements of Cash Flows]
Previous consolidated fiscal
year(Started October 1, 2014;
ended September 30, 2015)(Unit: Millions of yen)
Current consolidated fiscal
year(Started October 1, 2015;
ended September 30, 2016)

6,962
2,239

7,573
2,449

(2)

1

(258)

403

482

764

(800)

－

(179)
5

(145)
5

4

262

83

41

(1)

(11)

2
44
1,385
233
50
(783)
(370)

1
48
656
5
(366)
9
(0)

136

(240)

43
9,278
191
(4)
(2,979)6,485

3
11,463153(5)(2,430)9,181(4,000)9,600(1,966)(3,000)7,700(1,612)

14

20

(59)

－

(1,709)(6,338)(1,668)(16,163)

－

7,500

－

250

(135)
32
－
12
(16)
6
(4,558)

(15)
164
(300)
116
(16)
2
(7,022)

Cash flows from operating activities
Net income before taxes and adjustments
Depreciation
Change in provision for bad debts (( ):decrease)
Change in provisions for bonuses (( ): decrease)
Change in retirement benefit liabilities (( ):decrease)
Contribution of securities to retirement benefit
trustInterest and dividends received
Interest paid
Share of profits of investments accounted forusing the equity method (( ): gain)
Loss on disposal of non-current assets
Gain/loss on sales of non-current assets (( ):gain)Impairment losses
Share-based payment expenses
Change in trade receivables (( ): increase)
Change in inventories (( ): increase)
Change in other assets (( ): increase)
Change in trade payables (( ): decrease)
Change in other liabilities (( ): decrease)
Change in accrued consumption taxes (( ):decrease)
Other
SubtotalInterest and dividends received
Interest 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, plants and equipment
Proceeds from sales of property, plants andequipment
Payments for retirement of property, plants andequipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from redemption of investment
securities
Proceeds from sales of stocks of subsidiaries andaffiliates
Payments for guarantee deposits
Proceeds from collection of guarantee deposits
Payments of loans receivableCollection of loan receivables
Other payments
Other proceeds
Cash flows from investing activities
－

92

－

Previous consolidated fiscal
year(Started October 1, 2014;
ended September 30, 2015)(Unit: Millions of yen)
Current consolidated fiscal
year(Started October 1, 2015;
ended September 30, 2016)

(268)

(20)

500
(61)
(40)
(3)
(1,459)－0(1,333)593
16,025
16,619

－
(71)
(55)
(1)
(2,069)(8)
0(2,225)(66)
16,61916,552

Cash flows from financing activities
Increase/decrease in short-term loans payable(( ): decrease)
Proceeds from long-term loans payable
Repayment of long-term loans payable
Repayment of lease obligations
Purchase of treasury stock
Dividends paid
Dividends paid to non-controlling shareholders
Other
Cash flows from financing activities
Change in cash and cash equivalents (( ): decrease)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

*1

－

93

－

*1

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

Scope of Consolidation
Consolidated subsidiaries (3 companies):
Tokyo Line Printer Company
TKC Security Services K.K.
SKYCOM Corporation
Non-consolidated subsidiary (1 company):
TKC Financial Assurance K.K.
(Reason for excluding this company from the scope of consolidation)
TKC Financial Assurance K.K. is excluded from the scope of consolidation because it neither has any material
impact on the consolidated financial statements of the Company in terms of total assets, sales, net income/loss(allocable to the Company in proportion to the share ownership) or retained earnings (allocable to theCompany in proportion to the share ownership), nor has material importance to the Company as a whole.

2.

Application of the Equity Method
Affiliated companies under the equity method (2 companies)
TKC Shuppan Corporation
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.
Number of non-consolidated subsidiary not under the equity method (1 company)
TKC Financial Assurance K.K.
Reason for excluding this company from the scope of equity method)
TKC Financial Assurance K.K. is excluded from the scope of equity method because, even though it is
excluded from the scope of equity method, it has minor impact on the consolidated financial statements of theCompany in terms of, among others, net income (allocable to the Company in proportion to the shareownership) and retained earnings (allocable to the Company in proportion to the share ownership), and has nomaterial importance to the Company as a whole.

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(i) Marketable and investment securities
1) 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
－

94

－

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(ii) Inventory assets
1) Merchandise, raw materials
Cost determined by first-in, first-out method (with balance sheet values reflecting write-downs for
decreased profitability)
2) Finished goods
Cost determined by cost percentage method and adjusted based on percentage of completion (withbalance sheet values reflecting write-downs for decreased profitability)
3) Work in progress
Cost determined by cost percentage method or specific identification method and adjusted based on
percentage of completion (with balance sheet values reflecting write-downs for decreased profitability)4) Supplies
Last purchase price method (with balance sheet values reflecting write-downs for decreased profitability)(2) Depreciation of major depreciable assets(i) Property, plants and equipment (excluding lease assets)
Calculated based on declining balance method, except for buildings acquired after April 1, 1998 (excluding
accompanying facilities), and accompanying facilities and structures acquired after April 1, 2016, which
are calculated based on straight-line method.
Primary useful life figures are as follows:
Buildings and structures:
10 to 50 years
Machinery, equipment and vehicles: 4 to 10 years
Tools, furniture and fixtures:
2 to 20 years(ii) Intangible assets (excluding lease assets)
1) Software
a. Software for sale
Software for sale is 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.
－

95

－

2) Other intangible assets
Amortized using the straight-line method.
(iii) 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 atzero.
(3) Accounting standards for recognizing significant provisions(i) Provisions for bad debts
In setting aside provisions for possible losses due to uncollectible 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.
(ii) Provisions for bonuses
Provisions for bonuses are recognized based on the estimated amounts of payment.
(4) Accounting procedure for retirement benefits(i) Method of attributing expected benefits to dateIn calculating retirement benefit obligations, expected benefits are attributed to the period up until the endof the consolidated fiscal year based on benefit formula standards.
(ii) Recognizing actuarial differences as expenses
Actuarial differences are recognized as expense for the consolidated fiscal year in which they occur.
(5) Accounting standards for recognizing significant revenues and expenses
Accounting standards for recognizing revenues and cost of sales of made-to-order software (software development
contracts)(i) 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 is estimated basedon the construction cost percentage method).
(ii) Other projects
Accounted for upon conclusion of contracts.
(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:
－

96

－

(i)

Cash on hand;(ii) Demand deposits;(iii) 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(i) Accounting method for consumption taxes and local consumption taxes
Consumption taxes are accounted for using the tax-exclusion method.
(ii) Application of the consolidated taxation system
The consolidated taxation system is applied.

－

97

－

(Changes in Accounting Policies)(Application of accounting standards for business combinations)
The Accounting Standard for Business Combinations (ASBJ Statement No. 21, September 13, 2013) (hereinafterreferred to as the "Accounting Standard for Business Combinations"), the Accounting Standard for Consolidated
Financial Statements (ASBJ Statement No. 22, September 13, 2013) (hereinafter referred to as the "AccountingStandard for the Consolidated Accounting"), and the Accounting Standard for Business Divestitures (ASBJ
Statement No. 7, September 13, 2013) (hereinafter referred to as the "Accounting Standard for Business
Divestitures") etc. have been applied from the consolidated fiscal year under review, whereby increase or decreasein capital due to changes in the Company's ownership interest in its controlling subsidiaries is now recorded as its
capital surplus, and all expenses incurred in the course of acquisitions are now recognized as the expenses for the
consolidated fiscal year in which they are incurred. Accounting methods with respect to business combinations
taking place after the beginning of a consolidated fiscal year are now changed to reflect the revisions to theallocated acquisition costs due to the finalization of the provisional accounting in the consolidated financial
statements for the consolidated fiscal year in which such business combination takes place. Further, additionalchanges are made to the way in which the net income, etc. are presented, as well as that the numbers under"minority interest" are presented under "non-controlling interests." In order to reflect the above changes to thepresentation methods, any affected accounts in the consolidated financial statements for the previous consolidated
fiscal year are reclassified.
Application of the Accounting Standard for Business Combinations, etc. has been in conformance with theprovisions for the transitional treatment stipulated in Article 58-2(4) of the Accounting Standard for Business
Combinations and Article 44-5(4) of the Accounting Standard for Consolidated Accounting, and Article 57-4(4) of
the Accounting Standard for Business Divestitures, and has been made from the beginning of the current
consolidated fiscal year and thereafter.
There is no financial impact in the consolidated financial statements for the current consolidated fiscal year as
caused by the application mentioned above.
(Application of the Practical Solution on a change in depreciation method due to Tax Reform 2016)
In connection with the revisions to the Corporation Tax Act, the depreciation method for the accompanying
facilities and structures acquired on and after April 1, 2016 has been changed from the declining balance method tothe straight-line method, by applying the Practical Solution on a change in depreciation method due to Tax Reform
2016 (PITF No. 32, June 17, 2016).
There are only minor impacts in the consolidated financial statements caused by the application mentioned above.
(Changes to the presentation methods)(Consolidated Statements of Income)
Foreign exchange losses, which was presented as an independent item in the previous consolidated fiscal year, is
now included in Other in the Non-operating expenses in the current consolidated fiscal year, because its amount isimmaterial. In order to reflect the above changes to the presentation methods, certain accounts in the consolidated
statement of income for the previous consolidated fiscal year are reclassified.
As a result, the sum of 0 million yen which was presented as Foreign exchange losses in the previous consolidated
fiscal year is now reclassified into Other in the Non-operating expenses.
(Accounting Standards Not Yet Applied)
Information has been omitted as it was immaterial.
－

98

－

(Notes to Consolidated Balance Sheets)*1. Accumulated depreciation of property, plants and equipment
Previous consolidated fiscal year
(September 30, 2015)

Current consolidated fiscal year
(September 30, 2016)

21,369 million yen

21,268 million yen*2. Items pertaining to non-consolidated subsidiaries and affiliated companies are as follows:
Previous consolidated fiscal year
(September 30, 2015)
Investment securities (Shares)

Current consolidated fiscal year
(September 30, 2016)

424 million yen

261 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, 2014;
ended September 30, 2015)
Salaries

Current consolidated fiscal year
(Started October 1, 2015;
ended September 30, 2016)

9,112 million yen

9,569 million yen

2,134

2,462

867

1,150

Provision for bonuses
Retirement benefit expenses
Depreciation

569

557

Rent expenses

2,026

2,091

124

74

Research and development expenses*2. Total amount of research and development expenses included in general administrative expenses
Previous consolidated fiscal year
(Started October 1, 2014;
ended September 30, 2015)

Current consolidated fiscal year
(Started October 1, 2015;
ended September 30, 2016)
124 million yen

74 million yen*3. Breakdown of gains on sale of non-current assets is as follows:
Previous consolidated fiscal year
(Started October 1, 2014;
ended September 30, 2015)
Land
Machinery, equipment and vehicles
Tools, furniture and fixtures
Total

Current consolidated fiscal year
(Started October 1, 2015;
ended September 30, 2016)- million yen－

10 million yen

1

1

1

11

0

*4. Breakdown of loss on sale of non-current assets is as follows:
Previous consolidated fiscal year
(Started October 1, 2014;
ended September 30, 2015)
Buildings and structures

Current consolidated fiscal year
(Started October 1, 2015;
ended September 30, 2016)- million yen－

0 million yen

99－

*5. Breakdown of loss on disposal of non-current assets is as follows:
Previous consolidated fiscal year
(Started October 1, 2014;
ended September 30, 2015)
Buildings and structures

Current consolidated fiscal year
(Started October 1, 2015;
ended September 30, 2016)15 million yen

16 million yen

Machinery, equipment and vehicles

07

Tools, furniture and fixtures

8

17

Other (Investments and other assets)

1

Other (Asset retirement expenses)

59

0
－

Total

83

41

*6. Impairment losses
Previous consolidated fiscal year (Started October 1, 2014; ended September 30, 2015)
The Group recorded an impairment loss for the following asset group for the current consolidated fiscal year:
Location

Usage

Classification

Impairment losses(Millions of yen)

Telephone subscription
rightsUtsunomiya City, Tochigi, and others Idle assets

2

The Group, in principle, groups its business assets based on management accounting units, and idle assets aregrouped 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 losses (2 million yen) under
extraordinary losses.
Recoverable amounts were measured based on the net selling prices. Telephone subscription rights were evaluatedbased on their expected disposal prices.
Current consolidated fiscal year (Started October 1, 2015; ended September 30, 2016)
The Group recorded an impairment loss for the following asset group for the current consolidated fiscal year:
Location
Itabashi-ku, Tokyo and others

Usage

Classification
Telephone subscription
rightsIdle assets

Impairment losses(Millions of yen)
1

The Group, in principle, groups its business assets based on management accounting units, and idle assets aregrouped 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 losses (1 million yen) under
extraordinary losses.
Recoverable amounts were measured based on the net selling prices. Telephone subscription rights were evaluatedbased on their expected disposal prices.

－

100

－

(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, 2014;
ended September 30, 2015)

Current consolidated fiscal year
(Started October 1, 2015;
ended September 30, 2016)

151 million yen－(1,243) million yen－

Amount before tax

151(1,243)Tax expense (

(30)

390

121

(852)

(0)

0

(0)

0

121

(852)

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

Valuation difference on available-for-sale securities
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

－

101

－

(Notes to Consolidated Statements of Changes in Equity)
Previous consolidated fiscal year (Started October 1, 2014; ended September 30, 2015)
1.

Class and number of issued stocks and treasury stock
Number of shares at
beginning of current
consolidated FY(Thousands of shares)

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

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

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

Common stock

26,731－－

26,731

Total

26,731－－

26,731

Common stock (Note)

209

1

31

179

Total

209

1

31

179

Issued shares

Treasury stock(Note)

2.

The 1,000 share increase in common treasury stock resulted from increase due to purchase of fractional unit shares.
The 31,000 share decrease in common treasury stock resulted from a 13,000 share decrease due to exercise of stock
options, a 17,000 decrease due to share exchange, and a 0 share decrease due to sale of fractional unit shares.

Subscription rights to shares and treasury subscription rights to shares

Number of shares to be issued upon exercise of

Balance at

subscription rights to shares (Shares)

end ofClass of shares
Description of subscription

Category

rights to shares

to be issued
upon exerciseof subscription
rights to shares

The Company

Subscription rights to shares(Parent company)

as stock options
Total

3.

Beginning ofcurrent
consolidated
fiscal year

Increase

Decreaseduringduringcurrent

current

consolidated consolidated
fiscal year

fiscal year

current

End ofconsolidated

current
consolidated
fiscal year

fiscal year
(Millions of
yen)

－

－

－

－

－

127

－

－

－

－

－

127

Dividends(1) Dividend payments
Resolution

Class of shares

Total amount of cash
dividends(Millions of yen)

Dividend per share
(Yen)

583

875

Record date

Effective date

22

September 30, 2014

December 22, 201433

March 31, 2015

June 15, 2015

December 19, 2014
Ordinary General
Meeting ofCommonstock

Shareholders
May 12, 2015
Meeting of theBoard of Directors

Common
stock

－

102

－

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

Resolution

Total amount ofcash dividends
Class of shares(Millions ofyen)

Source ofdividends

Dividend pershare (Yen)Record date

Effective date

September 30, 2015

December 24, 2015

December 22, 2015
Ordinary General
Meeting ofCommon stock

1,009

Retained38

earnings

Shareholders

－

103

－

Current consolidated fiscal year (Started October 1, 2015; ended September 30, 2016)
1.

Class and number of issued stocks and treasury stock
Number of shares at
beginning of current
consolidated FY(Thousands of shares)

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

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

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

Common stock

26,731－－

26,731

Total

26,731－－

26,731

Common stock (Note)

179

0

0

179

Total

179

0

0

179

Issued shares

Treasury stock(Note)

2.

The 0 share increase in common treasury stock resulted from increase due to purchase of fractional unit
shares.
The 0 share decrease in common treasury stock resulted from decrease due to sale of fractional unit
shares.

Subscription rights to shares and treasury subscription rights to shares

Number of shares to be issued upon exercise ofsubscription rights to shares (Shares)

Class of shares
Description of subscription

Category

rights to shares

to be issued
upon exerciseof subscription
rights to shares

The Company

Subscription rights to shares(Parent company)

as stock options
Total

3.

Beginning ofcurrent
consolidated
fiscal year

Increase

Decreaseduringduringcurrent

current

consolidated consolidated
fiscal year

fiscal year

Balance at
end ofcurrent

End ofconsolidated

current
consolidated
fiscal year

fiscal year
(Millions of
yen)

－

－

－

－

－

176

－

－

－

－

－

176

Dividends(1) Dividend payments
Resolution

Class of shares

Total amount of cash
dividends(Millions of yen)

Dividend per share
(Yen)

1,009

1,062

Record date

Effective date38

September 30, 2015

December 24, 201540

March 31, 2016

June 13, 2016

December 22, 2015
Ordinary General
Meeting ofCommonstock

Shareholders
May 13, 2016
Meeting of theBoard of Directors

Common
stock

－

104

－

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

Resolution

Total amount ofcash dividends
Class of shares(Millions ofyen)

Source ofdividends

Dividend pershare (Yen)Record date

Effective date

September 30, 2016

December 26, 2016

December 22, 2016
Ordinary General
Meeting ofCommon stock

1,062

Retained40

earnings

Shareholders(Notes to Consolidated Statements of Cash Flows)*1. Relationship between the ending balance of cash and cash equivalents and the amounts under the accountitems stated in the consolidated balance sheets
Previous consolidated fiscal year
(Started October 1, 2014;
ended September 30, 2015)

Current consolidated fiscal year
(Started October 1, 2015;
ended September 30, 2016)

21,919 million yen

19,552 million yen

Time deposits with deposit period greater than three months(5,300)(3,000)Cash and cash equivalents

16,61916,552

Cash and deposits

－

105

－

(Notes to Lease Transactions)1.

Finance lease transactions (Lessee)

Finance lease transactions that do not involve transfer of ownership(i) Description of lease assets
Property, plants and equipment
Mainly include machinery and equipment, tools, furniture and fixtures.
(ii) Depreciation of lease assets
Lease assets are amortized in accordance with Basis of Presenting the Consolidated Financial
Statements, 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, 2015)

Current consolidated fiscal year
(September 30, 2016)

Within one year

141

145

After one year

226

255

367

400

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, 2015)

Current consolidated fiscal year
(September 30, 2016)

Current assets

174

238

Investments and other assets

547

601

(2) Lease obligations(Unit: Millions of yen)Previous consolidated fiscal year
(September 30, 2015)

Current consolidated fiscal year
(September 30, 2016)

Current liabilities

174

238

Fixed liabilities

547

601

－

106

－

(Notes to 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 thecustomers. 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.
Marketable securities and investment securities are exposed to market fluctuation risk, and the Company
periodically checks the fair market values and financial conditions of issuing bodies and conducts reviews of its
holdings on an ongoing basis.
Long-term deposits include deposits with special provisions concerning early termination (callable certificates ofdeposit).
The majority of trade payables and accounts payable resulting from operating activities are due within three months.
(3) Supplementary information on fair market value of financial instruments
The fair market value of financial instruments is based on quoted market prices or on reasonable calculations in theabsence of market quotations. Since certain assumptions that contain fluctuation factors were used in estimating thefair market value, results may fluctuate when a different set of assumptions is used.
2.

Fair market value of financial instruments

The book value in consolidated balance sheets, fair market value and differences are as follows. Financial
instruments for which the fair market value is extremely difficult to measure are not included. (See (Notes) 2.).

－

107

－

Previous consolidated fiscal year (September 30, 2015)
Book value inconsolidated balance
sheets(Millions of yen)

Fair market value(Millions of yen)

Differences (Millions ofyen)

21,919

－

6,376

6,376

－

(3) Investment securities

12,397

12,397－(4) Long-term deposits

9,400

9,401

1

Total assets

50,09350,095

1(1) Accounts payable – trade

2,540

2,540

－

(2) Accounts payable

3,525

3,525

－

Total liabilities

6,066

6,066

－

(1) Cash and deposits

21,919(2) Notes and accounts receivable

6,411

Provisions for bad debts

(34)

－

108

－

Current consolidated fiscal year (September 30, 2016)
Book value inconsolidated balance
sheets(Millions of yen)

Fair market value(Millions of yen)

Differences (Millions ofyen)

19,552

－

6,299

6,299

－

(3) Investment securities

19,79819,798－(4) Long-term deposits

7,000

7,004

4

Total assets

52,651

52,655

4(1) Accounts payable – trade

2,602

2,602

－

(2) Accounts payable

3,371

3,371

－

Total liabilities

5,973

5,973

－

(1) Cash and deposits

19,552(2) Notes and accounts receivable

6,335

Provisions for bad debts(36)(Notes) 1. Methods of calculating the fair market value of financial instruments and securities transactions
Assets(1) Cash and deposits, (2) Notes and accounts receivable
The book value approximates the fair market value because of the short maturity of these instruments.
(3) Investment securities
The fair market value of equity securities is based on quoted market prices on the stock exchange; andthe fair market 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 to Securities of the Notes to Consolidated Financial Statements.
(4) Long-term deposits
The fair market 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
The book value approximates the fair market value because of the short maturity of these instruments.
2.

Financial instruments for which the fair market value is extremely difficult to measure(Unit: Millions of yen)Classification

Previous consolidated fiscal year
(September 30, 2015)

Other securities (unlisted equity
securities)
Stocks of subsidiaries and affiliates
Total

Current consolidated fiscal year
(September 30, 2016)

503

156

424

261

928

418

The fair market value of these financial instruments is deemed to be extremely difficult to measure sincequoted 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
－

109

－

securities for the current consolidated fiscal year.
3. Redemption scheduled for monetary claims and securities with maturity dates subsequent to the consolidated
settlement datePrevious consolidated fiscal year (September 30, 2015)
Within 1 year
(Millions of yen)Over 1 years andwithin 5 years(Millions of yen)Over 5 years andwithin 10 years(Millions of yen)Over 10 years(Millions of yen)

Cash and deposits

21,915－－－

Notes and accounts receivable

6,411

－

－

－

Corporate bonds

－

－

8,000

－

Long-term deposits

－

9,400

－

－

Total

28,326

9,400

8,000

－

Within 1 year
(Millions of yen)Over 1 years andwithin 5 years(Millions of yen)Over 5 years andwithin 10 years(Millions of yen)Over 10 years(Millions of yen)

Cash and deposits

19,549－－－Notes and accounts receivable

6,335

－

－

－

Corporate bonds

－

－

4,500

12,000Long-term deposits

－

7,000

－

－

Total

25,885

7,000

4,500

12,000Investment securities

Current consolidated fiscal year (September 30, 2016)

Investment securities

－

110

－

(Notes to Securities)
1.

Other securities

Previous consolidated fiscal year (September 30, 2015)

Classification
Securities for which the(1) Stocks

amounts in the(2) Bonds

consolidated balance sheets
exceeds the original

Corporate bondspurchase value

Subtotal

Securities for which the(1) Stocks

amounts in the(2) Bonds

consolidated balance sheets

Book value inOriginal purchase value
consolidated balance(Millions of yen)sheets (Millions of yen)

Differences(Millions of yen)

4,494

3,637

857

505

500

5

5,000

4,137

862

6

6

(0)

do not exceed the original

Corporate bonds

7,391

7,503

(112)

purchase value

Subtotal

7,397

7,509

(112)

12,397

11,647750

Total(Note) Unlisted shares (503 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, 2016)

Classification
Securities for which the(1) Stocks

amounts in the(2) Bonds

consolidated balance sheets
exceeds the original

Corporate bondspurchase value

Subtotal

Securities for which the(1) Stocks

amounts in the(2) Bonds

consolidated balance sheets

Book value inOriginal purchase value
consolidated balance(Millions of yen)sheets (Millions of yen)

Differences(Millions of yen)

1,420

1,244

176

503

500

3

1,924

1,744

179

2,024

2,400

(376)

do not exceed the original

Corporate bonds

15,84916,146(296)

purchase value

Subtotal

17,874

18,547(673)

19,79820,291

(493)

Total

(Note) Unlisted shares (156 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.

－

111

－

2.

Other securities sold

Previous consolidated fiscal year (September 30, 2015)
Classification

Proceeds from sale

Total gains on sale

Total losses on sale(Millions of yen)

(Millions of yen)

(Millions of yen)

－

－

－

－

－

－

－

－

－

Proceeds from sale (Millions

Total gains on sale (Millions

Total losses on sale (Millionsof yen)of yen)of yen)(1) Stocks(2) Bonds
Corporate bonds
Total

Current consolidated fiscal year (September 30, 2016)
Classification(1) Stocks

250

－

－

－

－

－

250

－

－

(2) Bonds
Corporate bonds
Total

3.

Securities for which impairment losses are recognizedNot applicable.
(Notes to Derivatives)
1.

Derivative transactions for which hedge accounting is not applied

Not applicable.
2.

Derivative transactions for which hedge accounting is applied

Not applicable.
(Notes to Retirement Benefits)
1.

Overview of the retirement benefit system in use

The Company and its two 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 toemployees.
Under the retirement lump-sum plan, the Company pays a lump-sum retirement benefit based on employees' salaryand 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 recognized similar
to the defined benefit plan because the amount cannot be reasonably calculated.

－

112

－

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, 2014;
ended September 30, 2015)

Current consolidated fiscal year
(Started October 1, 2015;
ended September 30, 2016)

4,084 million yen

4,619 million yen

Balance of retirement benefit obligations at beginningof yearAccumulated financial impact due to changes inaccounting policy
Balance at beginning of year reflecting changes inaccounting policy
Service costs
Interest costs
Actuarial differences
Retirement benefits paid
Balance of retirement benefit obligations at end of
year

51

－

4,135

4,619

272
41
314
(144)

283
46
723
(159)

4,619

5,512

(2) Adjustment of balance of pension assets at the beginning and end of fiscal years
Previous consolidated fiscal year Current consolidated fiscal year
(Started October 1, 2014;(Started October 1, 2015;
ended September 30, 2015)
ended September 30, 2016)
3,000 million yen
3,801 million yen
－
－
0
128
－
800
－
－
3,801
3,929

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

(3) Adjustment of balance of retirement benefit obligations and pension assets at the end of the fiscal years, andnet retirement benefit obligations and assets recognized in the consolidated balance sheets

Contributory retirement benefit obligations
Pension assets
Non-contributory retirement benefit obligations
Net obligations and assets in the consolidated balance
sheetsPrevious consolidated fiscal year Current consolidated fiscal year
(September 30, 2015)(September 30, 2016)
4,209 million yen
5,045 million yen(3,801)(3,929)
408
1,115
410
467

Retirement benefit liabilities
Net obligations and assets in the consolidated balance
sheets

818

1,583

818

1,583

818

1,583

(4) Retirement benefit expenses and breakdown

Service costs
Interest costs
Expected returns
Amount of actuarial differences treated as expenses
Retirement benefit expenses under the defined
retirement benefit plan－Previous consolidated fiscal year Current consolidated fiscal year
(Started October 1, 2014;(Started October 1, 2015;
ended September 30, 2015)
ended September 30, 2016)
272 million yen
283 million yen
41
46
－
－
313
723
627

113

－

1,053

(5) Pension assets(i) Major pension assets
Previous consolidated fiscal year Current consolidated fiscal year
(September 30, 2015)(September 30, 2016)
Cash and deposits
100%
100%
Total
100
100
(Note)All pension assets are the retirement benefit trust established for the Company's defined retirement benefit plan.

(ii) 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.
(6) Basis for actuarial calculations
Basis for major actuarial calculations
Previous consolidated fiscal year
(September 30, 2015)
1.00%－%
1.00-1.85%

Discount rate
Expected long-term rate of return
Expected increase in salary3.

Current consolidated fiscal year
(September 30, 2016)
0.00%－%
1.00-1.85%

Defined contribution plan

The amount of necessary contributions to the defined contribution plan of the Company and its consolidated
subsidiaries was 227 million yen for the previous consolidated fiscal year, and 237 million yen for the current
consolidated fiscal year.
4.

Multiemployer pension plan

The amount of necessary contributions to the employees pension fund plan under the multiemployer pension plan,
which is recognized in the same manner as the defined contribution plan, was 115 million yen in the previous
consolidated fiscal year and 120 million yen for the current consolidated fiscal year, respectively.
(1) Reserve fund for multiemployer pension planPrevious consolidated fiscal year

Current consolidated fiscal year

(March 31, 2015)
735,622 million yen(March 31, 2016)
727,403 million yen

Pension assets
Total of actuarial liabilities based on pension plan
finance calculation and minimum policy reserves
Differences

729,355

706,662

6,266

20,740(2) Coverage ratio of the Group in the multiemployer pension planPrevious consolidated fiscal year: 1.47% (Started April 1, 2014; ended March 31, 2015)
Current consolidated fiscal year: 1.52% (Started April 1, 2015; ended March 31, 2016)(3) Supplementary information
The ratio in (2) above does not match the actual self-pay ratio of the Company.

－

114

－

(Notes to Stock Option Plans)
1.

Expenses related to stock options(Unit: Millions of yen)Previous consolidated fiscal year
(Started October 1, 2014;
ended September 30, 2015)

Selling, general and administrative

44

expenses2.

Current consolidated fiscal year
(Started October 1, 2015;
ended September 30, 2016)
48

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

2nd subscription rights

3rd subscription rights

4th subscription rights

to shares

to shares

to shares

to shares

10 Directors of the

10 Directors of the

11 Directors of the

9 Directors of theCompany (excluding

Company (excluding

Company (excluding

Company (excluding

Outside Directors)

Outside Directors)

Outside Directors)

Position and number of

Outside Directors)

2 Auditors of the

2 Auditors of the

2 Auditors of the

grantees

2 Auditors of theCompany (excluding

Company (excluding

Company (excluding

Company (excluding

Outside Auditors)

Outside Auditors)

Outside Auditors)

Outside Auditors)

13 Executive Officers of 13 Executive Officers of 17 Executive Officers of
the Company

the Company

the Company

Common stock: 27,000

Common stock: 37,600

Common stock: 34,400

Common stock: 28,100

sharessharessharessharesDate 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

Period stock options can be

From March 13, 2012 to From December 8, 2012

From December 10,

From December 13,

exercised

March 12, 2047

2013 to December 9,2014 to December 12,

2048

2049

Number of stock options by
class(Note)to December 7, 2047

－

115

－

5th subscription rights
to shares
9 Directors of theCompany (excluding
Outside Directors)
Position and number of

2 Auditors of the

grantees

Company (excluding
Outside Auditors)
21 Executive Officers of
the Company

Number of stock options by
class

Common stock: 18,200
shares(Note)
Date of grant

December 11, 2015

Conditions for vestingn/aRequired period of service

Not provided

Period stock options can be
exercised(Note)

From December 12,2015 to December 11,
2050

Number of stock options is exchanged to the number of common stock.

(2) Scale and fluctuation of stock options
The following summarizes the stock options that existed during the current consolidated fiscal year (year ended
September 2016). Number of stock options is exchanged to the number of common stock.
(i) 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

－

－

－

－

Granted

－

－

－

－

Forfeited

－

－

－

－

Vested－－－－Balance not vested

－

－

－

－

17,50026,70030,80025,100

Vested－－－－Exercised

－

－

－

－

Forfeited

－

－

－

－

17,50026,70030,80025,100consolidated fiscal year

After vesting (shares)
At end of previous
consolidated fiscal year

Balance not vested

－

116

－

5th subscription rights toshares
Before vesting (shares)
At end of previous
consolidated fiscal year－

Granted

18,200Forfeited－

VestedBalance not vested

18,200－After vesting (shares)
At end of previous
consolidated fiscal year
Vested－18,200Exercised－

Forfeited－

Balance not vested

18,200－117－

(ii) Per unit information
1st subscription rights to 2nd subscription rights to 3rd subscription rights to 4th subscription rights tosharessharessharesshares

－

－

－

－

－

－

－

－

1,145

1,032

1,323

1,569

Exercise price (Yen)
Average market price ofstock at time of exercise(Yen)
Fair value per unit as of grant
date (Yen)

5th subscription rights tosharesExercise price (Yen)－

Average market price ofstock at time of exercise

－

(Yen)
Fair value per unit as of grant
date (Yen)

2,670

－

118

－

3.

Method used to estimate the fair value of stock options

The fair value of the 5th issue of subscription rights to shares (stock options) granted in the current consolidated
fiscal year was measured as follows.
(i) Valuation method used: The Black-Scholes model(ii) Major base figures and estimations
5th subscription rights to shares (stock options)
Expected volatility of stock (Notes) 1

22.874%

Expected option life (Notes) 2

9.2 years

Expected dividends (Notes) 3

55 yen/share

Risk-free interest rate (Notes) 4

0.229%(Notes) 1.Expected volatility of stock is calculated based on the actual stock price data over the 9.2-year period (from October
2006 to December 2015).
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 their status.
3. Expected dividends are based on a total of 55 yen of actual dividends made, consisting of the year-end dividend of
22 yen for the period ended September 2014 and the interim dividend of 33 yen for the period ended September
2015.
4. Risk-free interest rate is calculated based on the yield of government bonds having a remaining life equal to the
expected option life.

4.

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 theactual number of forfeited stock options is used in the estimation.

－

119

－

(Notes to Tax Effect Accounting)1.

Major factors of deferred tax assets and deferred tax liabilities
Previous consolidated fiscal
year(September 30, 2015)

Current consolidated fiscal
year(September 30, 2016)

1,877 million yen
807

1,989 million yen
883

Deferred tax assets
Software development costs
Provisions for bonuses
Retirement benefit liabilities

276

501

Retirement benefit trust

1,220

1,198

24
96
51

18
151
136

130

141

112
135
－
215
4,942
(362)

113
116
172
206
5,629
(319)

4,583

5,310

29

29

229
0

10
0

258

40

Retirement bonuses for directors payable
Accrued business tax
Valuation loss on investment securities
Legal welfare expenses corresponding to provisions
for bonuses
Asset retirement obligations
Impairment losses
Valuation difference on available-for-sale securities
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Retirement expenses corresponding to asset
retirement costs
Valuation difference on available-for-sale securities
Other
Total deferred tax liabilities

Net deferred tax assets
4,325
5,269
(Note) Net deferred tax assets for the previous and current consolidated fiscal years are included in the following itemsin the consolidated balance sheets.
Previous consolidated fiscal
year(September 30, 2015)

Current consolidated fiscal
year(September 30, 2016)

1,894 million yen
2,431
(0)

2,079 million yen
3,190－

Current assets - Deferred tax assets
Non-current assets - Deferred tax assets
Fixed liabilities - Other

2.

Major items causing significant difference between statutory income tax rate and effective income tax rate
after applying tax effect accounting
Previous consolidated fiscal
year(September 30, 2015)
Statutory income tax rate
(Adjusted)
Inhabitant tax on per capita basis
Entertainment expenses, etc. not deductible for tax
purposes for an indefinite period
Tax credits for salary growth taxation system
Changes in assessment of year end deferred tax
assets due to changes in tax rate
Other
Income tax rate after applying tax effect accounting

－

120

－

Current consolidated fiscal
year(September 30, 2016)

35.4%

32.8%

0.8

0.9

1.2

1.0

(1.4)

(1.7)

5.9

3.2

0.2

0.3

42.2

36.5

3.

Increase and decrease of deferred tax assets and deferred tax liabilities due to changes in income tax rate, etc.

On March 29, 2016, the Diet enacted the Act for Partial Revision of the Income Tax Act, etc. (Act No. 15 of 2016)
and the Act for Partial Revision of the Local Tax Act, etc. (Act No. 13 of 2016), and, accordingly, the income tax
rates were changed effective from the consolidated fiscal years starting on and after October 1, 2016.
In conjunction with this, the statutory effective tax rate used to calculate deferred tax assets and deferred tax
liabilities was changed as follows, in accordance with the expected period for reversing the temporary differences.
From October 1, 2016 to September 30, 2018: 30.7%
On and after October 1, 2018: 30.5%
As a result, the amount of deferred tax assets (after deducting deferred tax liabilities) decreased by 249 million
yen, valuation difference on available-for-sale securities decreased by 8 million yen, and income taxes-deferredincreased by 240 million yen.

－

121

－

(Notes to Asset Retirement Obligations)
Previous consolidated fiscal year (ended September 30, 2015) and current consolidated fiscal year (ended
September 30, 2016)
Information has been omitted as it was immaterial in terms of the amount of asset retirement obligations.
(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 is available
and which are subject to regular review by management for the purpose of determining the allocation 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 the 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.

－

122

－

3.

Information on net sales, profit or loss, assets, and other items by reportable segments

Previous consolidated fiscal year (Started October 1, 2014; ended September 30, 2015)(Unit: Millions of yen)Amounts inconsolidated
Adjustments
financial(Notes) 1
statements(Notes) 2

Reportable segment
Accounting
Firm BD

Local
Governments
BD

Printing BD

39,067

12,472

3,388

54,928－54,928

10

0

1,986

1,997

(1,997)－39,077

12,473

5,374

56,925(1,997)54,928Segment profit

5,579

1,100

54

6,734

6

6,741

Segment assets

19,560

9,165

5,547

34,27442,562

76,836

1,075

860

305

2,241

(2)

2,239

424

－

－

424

－

424

938

2,970

1,292

5,200

－

5,200

Total

Sales
Sales to outside customers
Inter-segment sales or transfers
Total

Other items
Depreciation (Notes) 3
Investments in affiliated company
under the equity method
Increase in property, plants andequipment and intangible assets(Notes) 3(Notes) 1.

Adjustments are as follows:(1) Adjustments of segment profit of 6 million yen include 7 million yen for elimination of inter-segment transactions
and 1 million yen for adjustments of inventory assets.
(2) Adjustments of segment assets of 42,562 million yen include 43,013 million yen of corporate assets that are notallocated to specific reportable segments, and -451 million yen for elimination of inter-segment transactions.
Corporate assets are primarily surplus funds of the parent company (cash and cash equivalents), and long-term
investment funds (investments securities).
(3) Adjustments of depreciation of -2 million yen represent the unrealized profits.

2.

Segment profit is adjusted with the operating profit presented in the Consolidated Statements of Income.

3.

Increases in depreciation, property, plants and equipment and intangible assets include depreciation long-term
prepaid expenses and depreciation of such expenses.

－

123

－

Current consolidated fiscal year (Started October 1, 2015; ended September 30, 2016)(Unit: Millions of yen)Amounts inconsolidated
Adjustments
financial(Notes) 1
statements(Notes) 2

Reportable segment
Accounting
Firm BD

Local
Governments
BD

Printing BD

40,636

13,455

3,658

57,750－57,750

10

0

1,930

1,942

(1,942)－40,647

13,456

5,589

59,693(1,942)57,750

Segment profit

6,479

1,016

143

7,639

3

7,642

Segment assets

22,665

8,872

5,715

37,25343,862

81,116

1,020

1,134

294

2,450

(1)

2,449

261

－

－

261

－

261

2,586

1,829

144

4,559

－

4,559

Total

Sales
Sales to outside customers
Inter-segment sales or transfers
Total

Other items
Depreciation (Notes) 3
Investments in affiliated company
under the equity method
Increase in property, plants andequipment and intangible assets(Notes) 3(Notes) 1.

Adjustments are as follows:(1) Adjustments of segment profit of 3 million yen include 7 million yen for elimination of inter-segment transactions
and -3 million yen for adjustments of non-current assets.
(2) Adjustments of segment assets of 43,862 million yen include 44,246 million yen of corporate assets that are notallocated to specific reportable segments, and -384 million yen for elimination of inter-segment transactions.
Corporate assets are primarily surplus funds of the parent company (cash and cash equivalents), and long-term
investment funds (investments securities).
(3) Adjustments of depreciation of -1 million yen represent the unrealized profits.

2.
3.

Segment profit is adjusted with the operating profit presented in the Consolidated Statements of Income.
Increases in depreciation, property, plants and equipment and intangible assets include depreciation long-term
prepaid expenses and depreciation of such expenses.

－

124

－

[Related information]
Previous consolidated fiscal year (Started October 1, 2014; ended September 30, 2015)
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) Sales
Information is omitted since more than 90% of sales in the Consolidated Statements of Income are sales to outside
customers in Japan.
(2) Property, plants and equipment
Information is omitted since the Company has no property, plants and equipment in regions outside Japan.
3.

Information by major customers

Information is omitted since there are no sales to external customers that account for 10% or more of the sales in
the Consolidated Statements of Income.
Current consolidated fiscal year (Started October 1, 2015; ended September 30, 2016)
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) Sales
Information is omitted since more than 90% of sales in the Consolidated Statements of Income are sales to outside
customers in Japan.
(2) Property, plants and equipment
Information is omitted since the Company has no property, plants and equipment in regions outside Japan.
3.

Information by major customers

Information is omitted since there are no sales to external customers that account for 10% or more of the sales in
the Consolidated Statements of Income.

－

125

－

[Information on impairment losses of non-current assets by reportable segments]
Previous consolidated fiscal year (Started October 1, 2014; ended September 30, 2015)(Unit: Millions of yen)
Reportable segment
Accounting
Firm BD
Impairment losses

Local
Governments
BD

Printing BD

0

－

2

Total

Adjustments

Amounts inconsolidated
financialstatements

－

2

2

Current consolidated fiscal year (Started October 1, 2015; ended September 30, 2016)(Unit: Millions of yen)
Reportable segment

Impairment losses

Accounting
Firm BD

Local
Governments
BD

Printing BD

Total

－

－

1

Adjustments

Amounts inconsolidated
financialstatements

－

1

1

[Information on amortization of goodwill and balance of goodwill by reportable segments]
Previous consolidated fiscal year (Started October 1, 2014; ended September 30, 2015)
Information has been omitted as it was immaterial.
Current consolidated fiscal year (Started October 1, 2015; ended September 30, 2016)
Not applicable.
[Information on gain on negative goodwill by reportable segments]
Previous consolidated fiscal year (Started October 1, 2014; ended September 30, 2015)
Not applicable.
Current consolidated fiscal year (Started October 1, 2015; ended September 30, 2016)
Not applicable.

－

126

－

[Related Parties Information]
1.

Related Parties Transactions(1) Transactions between the Company and related parties
Previous consolidated fiscal year (Started October 1, 2014; ended September 30, 2015)
Directors and major shareholders (individuals only) of the Company
Capital orCompany nameinvestments Business oror name of Address(Millions of occupationindividual
yen)

Type

Holding (held)
voting rights
ratio (%)

Relationship withrelated party

publicDirector－

Nagata－tax
accounta

Transaction
amount(Millions of

Account

yen)

Certified
Tomohiko

Details oftransaction

Outsourcing of(Held)

information

Direct (0.0)

processing, etc.

ntYear-endbalance(Millions ofyen)

Outsourcing of
information
processing, etc.

17

Accounts

1

receivable(Notes) 2

RunakoIizuka(Near relativeofRepresentativ
Near

Leasing ofe Director,

relative ofSeniordirector

Managing

－

－

－

－

Leasing of buildings buildings

98

－

－

(Notes) 2

Director andExecutive
Officer,
Masanori
Iizuka)CertifiedCompaniesin whichdirectors
and nearrelatives
holdmajority
votingrightspublic tax
accounting
firm TOP(Notes) 3

CertifiedNumazuCity,
Shizuokpublic6tax

Outsourcing of－

informationaccountinaprocessing, etc.

g firmOutsourcing of
information
processing, etc.

15

Accounts
receivable1(Notes) 2

Certifiedpublic tax

Miyagin

Certifiedaccountingo-ku,

publicfirm Ofuji

Sendai

AccountingCity,

accountin

OfficeMiyagig firm9tax

Outsourcing of－

information
processing, etc.

Outsourcing of
information
processing, etc.

15

Accounts
receivable1(Notes) 2(Notes) 4(Notes) 1. Consumption taxes are not included in the transaction amounts. Consumption taxes are included in the year-end balance.
2. Terms of transaction or policies on determining the terms of transaction(i) Rent expenses have been determined based on the result of survey by real estate agencies on rent expenses of othernearby buildings.
(ii) Terms of transaction for the outsourcing of information processing are similar to the terms between other counterparts.
3. The company was co-founded with Mr. Yasuyuki Saito, Director of the Company.
4. The company was co-founded with a near relative of Mr. Kazuyuki Sumi, Representative Director and President of theCompany.

－

127

－

Current consolidated fiscal year (Started October 1, 2015; ended September 30, 2016)(i)

Non-consolidated subsidiaries and affiliated companies of the Company

Type

Capital orCompany nameinvestments Business oror name of Address(Millions of occupationindividual
yen)
TKC

Subsidiary

Financial
Assurance
K.K.

Affiliatedcompanies(Note)

iMobile Inc.

Shinjuku-ku,

Financin
100

g

Tokyo

business

ChiyodaInformation

-ku,
Tokyo

262

providingservices

Holding (held)
voting rights
ratio (%)

Relationship withrelated party

Details oftransaction

Transaction
amount(Millions of

Account

yen)(Holding)
Direct (73.9)

Collaborations inbusiness related tofinancingOutsourcing of(Holding)

development andDirect (30.0)

maintenance ofwebsite services.

Sale of shares(Note 1(i))

250

Provision offunds(Note 1(ii))

250Year-endbalance(Millions of
yen)

－

Loan
receivables－

146

1. Terms of transaction or policies on determining the terms of transaction(i) The price at which the stocks were sold was approved by the resolution of the Board of Directors of TKC Financial
Assurance K.K. (August 28, 2015), and is the same as that to other shareholders.
(ii) The interest rates for the loan was determined in a reasonable manner, taking the market interest rates into account.

－

128

－

(ii) Directors and major shareholders (individuals only) of the Company
Capital orCompany nameinvestments Business oror name of Address(Millions of occupationindividual
yen)

Type

Holding (held)
voting rights
ratio (%)

Relationship withrelated party

publicDirector－

Ashikawa－tax
accounta(Millions of

Account

yen)

Certified
Hiroshi

Details oftransaction

Transaction
amountOutsourcing of(Held)

information

Direct (0.0)

processing, etc.

ntYear-endbalance(Millions ofyen)

Outsourcing of
information
processing, etc.

10

Accounts
receivable1(Notes 1(i))

RunakoIizukaLeasing of(Near relativebuildings (Notes

of

－

－

126

－

－

e Director,

Near
relative of
director

Senior－Managing－－－

Leasing of buildings

Director andPurchase of

Executive

building and

Officer,land

Masanori(Notes 1 (iii))

Iizuka)Certifiedpublic tax
accounting
firm TOP(Notes 2)

CertifiedNumazuCity,
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public tax

directors

accounting

Minato-and nearfirm Aoyamaku,relatives

Accounting

Tokyo

hold

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tax

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informationaccountinaCompanies

majority

98

1(ii))

Representativ

processing, etc.

g firmCertifiedpublic8tax

Outsourcing of－

informationaccountin

processing, etc.

g firmOutsourcing of
information
processing, etc.

12

Accounts
receivable1(Notes 1(i))

Outsourcing of
information
processing, etc.

17

Accounts
receivable1(Notes 1(i))(Notes 3)

voting

Certifiedrightspublic tax

Miyagin

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publicfirm Ofuji

Sendai

AccountingCity,

accountin

OfficeMiyagig firm9tax

Outsourcing of－

information
processing, etc.

Outsourcing of
information
processing, etc.

14

Accounts
receivable1(Notes 1(i))(Notes 4)(Notes) 1.

Terms of transaction or policies on determining the terms of transaction(i) Terms of transaction for the outsourcing of information processing are similar to the terms between other counterparts.
(ii) Rent expenses have been determined based on the result of survey by real estate agencies on rent expenses of other nearbybuildings.
(iii) The purchase price of the building and land was determined by referring to the appraisal value assessed by a real estateappraiser.

2. The company was co-founded with Mr. Yasuyuki Saito, Director of the Company.
3. The company was co-founded with Mr. Kenji Matsumoto, Auditor of the Company.
4. The company was co-founded with a near relative of Mr. Kazuyuki Sumi, Representative Director, President and Executive
Officer of the Company.
5. Consumption taxes are not included in the transaction amounts. Consumption taxes are included in the year-end balance.

(2) Transactions with consolidated subsidiaries and related parties to the Company
Not applicable.
2

Notes on the parent company and important affiliated companies
－

129

－

(1) Information on the parent company
Not applicable.
(2) Summary of financial information of important affiliated companies
Not applicable.

－

130

－

(Earnings Per Share Information)
Previous consolidated fiscal year
(Started October 1, 2014; ended
September 30, 2015)

Current consolidated fiscal year
(Started October 1, 2015; ended
September 30, 2016)

Net assets per share

2,304.38 yen

2,374.07 yen

Net income per share151.18 yen

179.65 yen

Diluted net income per share

150.63 yen

178.88 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, 2014; ended
September 30, 2015)

Current consolidated fiscal year
(Started October 1, 2015; ended
September 30, 2016)

Net income per share
Net income attributable to owners of parent(Millions of yen)Amount not attributable to common shareholders(Millions of yen)
Net income attributable to owners of parent having
the common shares
Average number of shares outstanding (thousandsof shares)

4,011

4,770

－

－

4,011

4,770

26,532

26,551

－

－

97

114

(97)

(114)

Diluted net income per share
Adjustments to net income attributable to owners ofparent(Millions of yen)
Number of common shares increased (thousands ofshares)(Subscription rights to shares included in theabove (thousands of shares))
Outline of diluted shares not included in thecalculation of diluted net income per share for not――――――――――

having dilutive effect(Subsequent Events)
Not applicable.

－

131

－

(v) [Consolidated Supplementary Schedules][Schedule – Corporate Bonds]
Not applicable.
[Schedule – Borrowings]
Balance at
beginning of year
(Millions of yen)

Balance at end ofyear(Millions of yen)

Average interest
rate
(%)

Short-term debts

60

40

1.00

－

Current portion of long-term debts

71

71

0.83

－

Current portion of lease obligations

225

290

－

－

366

295

0.83

673

689

－

200

149

0.53

1,597

1,551

Category

Long-term debts (excluding current portionof long-term debts)
Lease obligations (excluding current
portion of lease obligations)Terms of repayment

October 5, 2017 to
October 29, 2021
From October 22, 2017
to May 22, 2020

Other interest-bearing debts
Accounts payable – installment
purchases
Total(Notes) 1.

－

From October 22, 2016
to May 22, 2020－

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 consolidatedbalance sheets represents the total amount of lease payment before deducting interest.

3.

Repayment of long-term debts, lease obligations (excluding current portion) and other interest-bearing debts (excluding
current portion) scheduled within 5 years from the consolidated settlement date is as follows.
After 1 year but within 2 After 2 years but within 3 After 3 years but within 4 After 4 years but within 5
years
years
years
years
(Millions of yen)
(Millions of yen)
(Millions of yen)
(Millions of yen)

Long-term debts

71

71

71

71

Lease obligations

276

243

128

40

38

36

24

－

Other interest-bearing
debts[Schedule – Asset Retirement Obligations]

Information has been omitted as it was immaterial in terms of the amount of asset retirement obligations.

－

132

－

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

1st quarter2nd quarter3rd quarter

Current consolidated
fiscal year

14,06529,70843,70257,750

2,542

5,236

7,838

7,573

1,720

3,364

4,959

4,770

64.80

126.71

186.78179.65

Quarterly net income before
income taxes (current FY)(Millions of yen)
Quarterly net income
attributable to owners of parent(Current FY)(Millions of yen)
Quarterly net income per share(current FY) (Yen)(Accounting period)
Quarterly net income per share(Yen)

1st quarter2nd quarter
64.80

61.91

－

133

－

3rd quarter
60.06

4th quarter(7.12)

2 [Financial Statements, etc.](1)[Financial Statements](i) [Balance Sheets](Unit: Millions of yen)Previous fiscal year
(September 30, 2015)
AssetsCurrent assets
Cash and deposits
Accounts receivable
Lease investment assets
MerchandiseWork in progress
Raw materials and stored items
Prepaid expenses
Accounts receivable – other
Deferred tax assets
Other
Provisions for bad debts
Total current assets
Non-current assets
Property, plants and equipment
Buildings
Structures
VehiclesTools, furniture and fixtures
Land
Construction in progress
Total property, plants and 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
Long-term prepaid expenses
Deferred tax assets
Long-term deposits
Guarantee deposits
Long-term lease investment assets
Other
Total investments and other assets
Total non-current assets
Total assets

*1

－

134

－

Current fiscal year
(September 30, 2016)

19,424
5,495
174
117
150
109
252
84
*1
1,822
288
*1
(33)
27,886*1

16,575
5,383
238
198
69
124
341
76
*1
1,909
325
*1
(35)
25,207

4,788
101
1
972
6,091
880
12,834

5,772
154
0
1,159
6,352
－
13,439

2,497
697
26
0
3,221

2,817
694
26
0
3,538

12,786
690
100
－
29
2,311
9,400
1,414
547
13
27,292
43,347
71,23419,853
502
100
172
*1
340
2,998
7,000
1,265
601
10
32,84549,82275,030(Unit: Millions of yen)Previous fiscal year
(September 30, 2015)
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
Provisions for bonuses
Accounts payable – facilities
Other
Total current liabilities
Fixed liabilities
Lease obligations
Provisions for retirement benefits
Other
Total fixed liabilities
Total liabilities
Net assets
Shareholders' equity
Capital 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 shareholders' equity
Valuation and translation adjustments
Valuation difference on available-for-sale securities
Total valuation and translation adjustments
Subscription rights to shares
Total net assets
Total liabilities and net assets－

Current fiscal year
(September 30, 2016)

2,406
174
2,204
*1
1,215
50
753
382
305
2,305
365
*1
15
10,180
*1

135

－

*1

*1

*1

2,468
238
1,916
2,127
51
397
978
331
2,660
329
－
11,500

547
408
403
1,359
11,539

601
1,115
442
2,159
13,660

5,700

5,700

5,409
10
5,419

5,409
10
5,419

688

688

44,457
3,155
48,301(346)
59,07446,557
3,527
50,773(347)
61,545492
492
127
59,694
71,234

(351)
(351)
176
61,37075,030(ii) [Profit and Loss Statement](Unit: Millions of yen)Previous fiscal year
(Started October 1, 2014; ended
September 30, 2015)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Non-operating income
Interest income
Dividend income
Land & rent income
Compensations received
Other
Total non-operating income
Non-operating expenses
Foreign exchange losses
Total non-operating expenses
Ordinary profit
Extraordinary profit
Gains on sale of non-current assets
Total extraordinary profit
Extraordinary losses
Loss on disposal of non-current assets
Valuation loss on stocks of subsidiaries and affiliates
Impairment losses
Total extraordinary losses
Net income before taxes
Income taxes – current
Income taxes – deferred
Total income taxes
Net income

50,957
16,83634,12027,401
6,719

*1
*1

*1, *2

*1
*1
*1

*1

－

136

－

29
154
38
56
34
313

Current fiscal year
(Started October 1, 2015; ended
September 30, 2016)
53,361
17,86235,49928,069
7,429

*1
*1

*1, *2

*1
*1
*1

*1

39
113
38
－
45
236

0
0
7,032

0
0
7,665

1
1

11
11

81
－
2
83
6,949
2,412
463
2,876
4,073

33
287
－
321
7,355
3,201
(388)
2,813
4,542

[Report on cost of sales](A) Cost of sales on information processing, software and consulting services
49th Term(Started October 1, 2014; ended
September 30, 2015)
Category

Note

Amount (Millions of yen)

I Materials costs
II Labor costs*150th Term(Started October 1, 2015; ended
September 30, 2016)
Ratio
(%)

Ratio
(%)

Amount (Millions of yen)

3,264

27.8

3,347

27.7

2,093

17.8

2,176

18.0

6,549

54.2

12,074

100.0

III Expenses
1. Computer rental expenses

322

350

2. Maintenance contracts

1,459

1,377

3. Depreciation

563

529

4. Repairs and maintenanceexpenses639

641

5. Supplies expenses

1,397

1,493

6. Other

2,011

Total expenses

6,394

54.4

11,752100.0

Works in progress andinventories at beginning ofyear
Transfers from other accounts

376

150

788

1,052

12,917

13,276

150

69

1,411

1,131

11,356

12,076*2

Total
Works in progress andinventories at end of year
Transfers to other accounts*3

Cost of sales on information
processing, software andconsulting services(Notes)2,157

1. Labor costs include the following provisions. Figures in (parentheses) denote amounts for the previous fiscal year.
Provision for bonuses: 438 million yen (390 million yen)
Retirement benefit expenses: 89 million yen (79 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 software in progress
accounts.
4. Costs are determined using job order costing by project.

－

137

－

(B) Cost of sales on office equipment and supplies
49th Term(Started October 1, 2014; ended
September 30, 2015)
Category

Note

Ratio
(%)

Amount (Millions of yen)

I Inventories at beginning of year

50th Term(Started October 1, 2015; ended
September 30, 2016)
Ratio
(%)

Amount (Millions of yen)

110

2.0

117

2.0

II Purchases

5,488

98.0

5,866

98.0

Total

5,598

100.0

5,984

100.0

III Inventories at end of year

117

198

Cost of sales on officeequipment and supplies

5,480

5,786

－

138

－

(iii) [Statement of Changes in Equity]
Previous fiscal year (Started October 1, 2014; ended September 30, 2015)(Unit: Millions of yen)
Shareholders' equity
Capital surplus

Retained earnings
Other retained earnings

Capital stock Legal capitalsurplus
Balance at
beginning ofyear
Accumulated
financial
impact due tochanges inaccounting
policyBalance at
beginning ofyear reflectingchanges inaccounting
policyChanges of items
during the period
Provision ofgeneral reserve
Dividends ofsurplus

5,700

5,700

5,409

5,409

Other
capitalsurplusTotal
capitalsurplus

5,409

－

5,409

－

Legal
retainedearnings

688

688

Generalreserve
42,057

10

10

Total
retainedearnings

3,007

45,753(65)(65)

42,057

2,941

45,6872,400(2,400)－(1,459)(1,459)

4,073

4,073

Net income
Acquisition oftreasury stock
Disposal oftreasury stock
Changes of
items otherthanshareholders'equity (net)Total changes of
items during theperiodBalance at end ofyear

Retainedearnings
brought
forward

－

－

10

10

－

2,400

213

2,613

5,700

5,409

10

5,419

688

44,457

3,155

48,301－139－

Valuation and translation
adjustments
Subscription
Valuation
Total
rights to
Total
difference on valuation andsharesshareholders'available-for- translation
equitysale securities adjustments

Shareholders' equity
Treasurystock
Balance at
beginning ofyear
Accumulated
financial
impact due tochanges inaccounting
policyBalance at
beginning ofyear reflectingchanges inaccounting
policyChanges of items
during the period
Provision ofgeneral reserve
Dividends ofsurplus

(403)

374

374

100

(65)

(403)

56,39356,934

(65)

374

374

100

56,868－－(1,459)(1,459)

4,073

4,073

(3)

(3)

(3)

60

70

70

Net income
Acquisition oftreasury stock
Disposal oftreasury stock
Changes of
items otherthanshareholders'equity (net)Total changes of
items during theperiodBalance at end ofyear

56,458

Total net
assets

117

117

26

144

57

2,681

117

117

26

2,825

(346)

59,074

492

492

127

59,694－140－

Current fiscal year (Started October 1, 2015; ended September 30, 2016)(Unit: Millions of yen)
Shareholders' equity
Capital surplus

Retained earnings
Other retained earnings

Capital stock Legal capitalsurplus
Balance at
beginning ofyear
Changes of items
during the period
Provision ofgeneral reserve
Dividends ofsurplus

5,700

5,409

Other
capitalsurplusTotal
capitalsurplus10

Legalretainedearnings

5,419

688

Generalreserve

0

0

Total
retainedearnings

44,457

3,155

48,301

2,100(2,100)－(2,071)(2,071)

4,542

4,542

Net income
Acquisition oftreasury stock
Disposal oftreasury stock
Changes of
items otherthanshareholders'equity (net)Total changes of
items during theperiodBalance at end ofyear

Retainedearnings
brought
forward

－

－

0

0

－

2,100

371

2,471

5,700

5,409

10

5,419

688

46,557

3,527

50,773－141－

Valuation and translation
adjustments
Subscription
Valuation
Total
rights to
Total
difference on valuation andsharesshareholders'available-for- translation
equitysale securities adjustments

Shareholders' equity
Treasurystock
Balance at
beginning ofyear
Changes of items
during the period
Provision ofgeneral reserve
Dividends ofsurplus

(346)

492

492

127

59,694－－(2,071)(2,071)

4,542

4,542

(1)

(1)

(1)

0

0

0

Net income
Acquisition oftreasury stock
Disposal oftreasury stock
Changes of
items otherthanshareholders'equity (net)Total changes of
items during theperiodBalance at end ofyear

59,074

Total net
assets

(843)

(843)

48

(794)

(1)

2,470

(843)

(843)

48

1,675

(347)

61,545

(351)

(351)

176

61,370[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(i) Stocks of subsidiaries and affiliates
Stated at cost determined by the moving average method(ii) Available-for-sale securities
1)

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 valuationdifferences are directly charged or credited to the shareholders' equity, and cost of securities sold is
calculated by the moving average method)

2)

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(i) Merchandise, raw materials
Cost determined by first-in, first-out method (with balance sheet values reflecting write-downs for
－

142

－

decreased profitability).
(ii) Work in progress
Cost determined by cost percentage method or specific identification method and adjusted based on
percentage of completion (with balance sheet values reflecting write-downs for decreased profitability).
(iii) Supplies
Last purchase price method (with balance sheet values reflecting write-downs for decreased profitability).
2.

Depreciation of non-current assets(1) Property, plants and equipment
Calculated based on declining balance method, except for buildings acquired after April 1, 1998 (excluding
accompanying facilities) and accompanying facilities and structures acquired after April 1, 2016, which arecalculated based on straight-line method.
(2) Intangible Assets(i) Software
1) 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).
2) Software for internal use
Amortized using straight-line method with an estimated in-house useful life of five years.
(ii) Other intangible assets
Amortized using the straight-line method.
3.

Accounting standards for provisions(1) Provisions for bad debts
In setting aside provisions for possible losses due to uncollectible receivables, provisions are recognized at theamounts 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.
(3) Provisions for retirement benefits
In setting aside allowances for employees' retirement benefits, retirement benefit obligations and expected pension
assets payable as of the end of the current fiscal year are recognized.
(i) Method of attributing expected benefits to dateIn calculating retirement benefit obligations, expected benefits are attributed to the period up until the end
－

143

－

of the fiscal year based on benefit formula standards.
(ii) Recognizing actuarial differences as expenses
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 (software development
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 based on theconstruction cost percentage method).
(2) Other projects
Accounted for upon conclusion of contracts.
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.

－

144

－

(Changes in Accounting Policies)(Application of accounting standards for business combinations)
The Accounting Standard for Business Combinations (ASBJ Statement No. 21, September 13, 2013) (hereinafterreferred to as the "Accounting Standard for Business Combinations") and the Accounting Standard for Business
Divestitures (ASBJ Statement No. 7, September 13, 2013) (hereinafter referred to as the "Accounting Standard forBusiness Divestitures") etc. have been applied from the fiscal year under review, whereby all expenses incurred in
the course of acquisitions are now recognized as the expenses for the fiscal year in which they are incurred.
Accounting methods with respect to business combinations taking place after the beginning of the current fiscal
year are now changed to reflect the revisions to the allocated acquisition costs due to the finalization of theprovisional accounting in the financial statements for the fiscal year in which such business combination takes
place.
Application of the Accounting Standard for Business Combinations, etc. has been in conformance with theprovisions for the transitional treatment stipulated in Article 58-2(4) of the Accounting Standard for Business
Combinations and Article 57-4(4) of the Accounting Standard for Business Divestitures, and has been made fromthe beginning of the current fiscal year and thereafter.
There is no financial impact in the financial statements for the current fiscal year as caused by the application
mentioned above.
(Application of the Practical Solution on a change in depreciation method due to Tax Reform 2016)
In connection with the revisions to the Corporation Tax Act, the depreciation method for the accompanying
facilities and structures acquired on and after April 1, 2016 has been changed from the declining balance method tothe straight-line method, by applying the Practical Solution on a change in depreciation method due to Tax Reform
2016 (PITF No. 32, June 17, 2016).
There are only minor impacts in the financial statements caused by the application mentioned above.
(Notes to Balance Sheets)*1. Monetary claims and monetary liabilities on affiliated companies
Previous fiscal year
(September 30, 2015)
Short-term monetary claims on affiliatedcompanies
Long-term monetary claims on affiliatedcompanies
Short-term monetary liabilities on affiliatedcompanies

－

145

－

Current fiscal year
(September 30, 2016)

33 million yen

72 million yen

---

122

600

523

(Notes to Income Statements)*1. Volume of transactions with affiliated companies
Previous fiscal year
(Started October 1, 2014; ended September 30, 2015)

Current fiscal year
(Started October 1, 2015; ended September 30, 2016)

Volume of trading transactions
Sales

32 million yen

66 million yen

Purchases

2,282

2,667

Operating expenses

1,415

1,173

16

10

Volume of non-operating transactions*2. The approximate percentages of selling expenses were 57.4% for the previous fiscal year and 56.4%
for the current fiscal year; percentages of general and administrative expenses were 42.6% and 43.6%,
respectively.
Major items included in selling, general and administrative expenses are as follows.
Previous fiscal year
(Started October 1, 2014; ended
September 30, 2015)

Current fiscal year
(Started October 1, 2015; ended
September 30, 2016)

Salaries

8,297 million yen

8,721 million yen

Provision for bonuses

2,031

2,325

828

1,086

Retirement benefit expenses
Depreciation

546

529

Rent expenses

1,919

1,988

124

74

Research and development expenses(Notes to Securities)
Stocks of subsidiaries and affiliates (the amounts in the previous fiscal year's balance sheet are 348 million yen forthe stocks of subsidiaries and 341 million yen for the stocks of affiliates; and the amounts in the current fiscal
year's balance sheet are 448 million yen for the stocks of subsidiaries and 54 million yen for the stocks of affiliates)
are not presented here since quoted market value is not available and is deemed to be extremely difficult to measure.

－

146

－

(Notes to Tax Effect Accounting)1.

Major factors of deferred tax assets and deferred tax liabilities
Previous fiscal year
(September 30, 2015)

Current fiscal year
(September 30, 2016)

Deferred tax assets
Software development costs

1,774 million yen

1,862 million yen

Provisions for bonuses

756

816

Provisions for retirement benefits

131

340

1,220

1,198

Accrued business tax

93

141

Valuation loss on investment securities

91

174

Retirement bonuses for directors payable

18

17

122

131

Asset retirement obligations

107

103

Impairment losses

133

112

Other

210

380

4,660

5,280

Valuation allowance

(286)

(345)

Total deferred tax assets

4,373

4,935

213

－

26

27

Total deferred tax liabilities

239

27

Net deferred tax assets

4,133

4,907

Retirement benefit trust

Legal welfare expenses corresponding to provisions
for bonuses

Subtotal

Deferred tax liabilities
Valuation difference on available-for-sale securities
Retirement expenses corresponding to asset
retirement costs

2.

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

Statutory income tax rate

Previous fiscal year
(September 30, 2015)

Current fiscal year
(September 30, 2016)

35.4%

32.8%

0.8

1.0

1.2

1.0

(0.4)

(0.1)

(1.4)

(1.6)

5.8

3.1

(Adjusted)
Inhabitant tax on per capita basis
Entertainment expenses, etc. not deductible for tax
purposes for an indefinite period
Dividends received, etc. to be excluded from grossrevenue for an indefinite period
Tax credits for salary growth taxation system
Reduction in assessment of year end deferred tax
assets due to changes in tax rate
Other
Income tax rate after applying tax effect accounting

3.

0.0

2.0

41.4

38.2

Increase and decrease of deferred tax assets and deferred tax liabilities due to changes in income tax rate, etc.

On March 29, 2016, the Diet enacted the Act for Partial Revision of the Income Tax Act, etc. (Act No. 15 of 2016)
and the Act for Partial Revision of the Local Tax Act, etc. (Act No. 13 of 2016), and, accordingly, the income tax
rates were changed effective from the fiscal years starting on and after October 1, 2016.
－

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In conjunction with this, the statutory effective tax rate used to calculate deferred tax assets and deferred tax
liabilities was changed as follows, in accordance with the expected period for reversing the temporary differences.
From October 1, 2016 to September 30, 2018: 30.7%
On and after October 1, 2018: 30.5%
As a result, the amount of deferred tax assets (after deducting deferred tax liabilities) decreased by 239 million
yen, valuation difference on available-for-sale securities decreased by 9 million yen, and income taxes-deferredincreased by 230 million yen.
(Subsequent Events)
Not applicable.

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

Increase incurrent year

Buildings

4,788

1,349

10

354

5,772

10,341

Structures

101

67

0

14

154

430

CategoryType of asset

equipment

Property, plants andVehiclesTools, furniture and fixtures
Land
Construction in progress
Total property, plants andequipment
SoftwareIntangible assets

Software in progress
Telephone subscription
rights
Other
Total intangible assets(Note)

Accumulate
Decrease in Depreciation Balance at end
dcurrent year in current yearof yeardepreciation

1

－

－

1

0

44

972

687

17

483

1,159

5,420

6,091

269

8

－

6,352

－

880

459

1,339

－

－

－

12,834

2,833

1,375

854

13,43916,237

2,497

1,569

－

1,249

2,817

2,745

694

－

697

723

726

－

26

－

－

－

26

－

0

－

－

0

0

0

3,221

2,293

726

1,249

3,538

2,745

Major increase in tangible assets during the current fiscal year were attributable to the following:
Buildings

New SEC Building

SoftwareDevelopment costs of software for sale

509 million yen

Development costs of software for internal use

625 million yen

Software purchased from outside

435 million yen

1,148 million yen[Schedule – Provisions](Unit: Millions of yen)
Balance at beginningof yearIncrease in current
year

Decrease in current
year

Provisions for bad debts

33

35

33

35

Provisions for bonuses

2,305

2,660

2,305

2,660

Item

(2)[Major Assets and Liabilities]
This item is omitted as information has been disclosed in the consolidated financial statements.
(3)[Other]
Not applicable.

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Balance at end of year

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 ofsurplus

September 30
March 31

Number of shares in one unit

100 shares

Buyback and increase of sharesless than one unit
Place of handling(Special account)
Sumitomo Mitsui Trust Bank, Limited
1-4-1 Marunouchi, Chiyoda-ku, Tokyo

Administrator of shareholder
registry

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

Forwarding office――――――

Handling charges for buyback
and increase

Amount stipulated separately as commission for entrusting sale orpurchase of stock
By means of electronic public notice. However, in the event that electronic
notice is not possible due to incidents or other unavoidable circumstances,public notices will be posted in the Nihon Keizai Shimbun.
TKC's website for public notices: http://www.tkc.jp/

Method of giving public notice

Shareholder privileges(Note)

Not applicable.

In accordance with the provisions of TKC Corporation's Articles of Incorporation, holders of shares less than one unit shallhave no rights other than: rights listed in the items of Article 189, Paragraph 2 of the Companies Act; rights to receive
allotment of shares for subscription and subscription rights to shares based on the number of shares they hold; and rights torequest the sale of shares less than one unit.

－

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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.
2 [Other Reference Information]
TKC Corporation has filed the following documents between the beginning of the current fiscal year and the filingdate of this Annual Securities Report.
(1) Annual Securities Report, Appendices and Confirmation Letter
Fiscal year (49th term) from October 1, 2014 to September 30, 2015, filed to the Director-General of the Kanto
Local Finance Bureau on December 25, 2015.
(2) Internal Control Report and AppendicesSubmitted to the Director-General of the Kanto Local Finance Bureau on December 25, 2015.
(3) Quarterly Securities Reports and Confirmation Letter
First quarter of 50th term (From October 1, 2015 to December 31, 2015), filed to the Director-General of the Kanto
Local Finance Bureau on February 12, 2016.
Second quarter of 50th term (From January 1, 2016 to March 31, 2016), filed to the Director-General of the Kanto
Local Finance Bureau on May 16, 2016.
Third quarter of 50th term (From April 1, 2016 to June 30, 2016), filed to the Director-General of the Kanto Local
Finance Bureau on August 12, 2016.
(4) Extraordinary Reports
Submitted to the Director-General of the Kanto Local Finance Bureau on December 26, 2016.
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 Affairs.

－

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Section 2[Information on Guarantors, etc. of the Company]

Not applicable.

－

152

－

Independent Auditors' Audit Report and Internal Control Audit Report

December 22, 2016
To: The Board of Directors
TKC Corporation
Ernst & Young ShinNihon LLC
Designated Limited Liability Partner
Atsuo Mori (Seal)
Executing Partner
Certified Public Accountant
Designated Limited Liability Partner
Executing Partner
Yuichi Noda (Seal)
Certified Public Accountant[Audit of financial statements]
Pursuant to Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we have audited theconsolidated financial statements included in the Financial Information Section, namely, the consolidated
statements of financial position of TKC Corporation and consolidated subsidiaries for the fiscal year from October
1, 2015 to September 30, 2016, which consists of the consolidated balance sheets, consolidated statements ofincome, consolidated statements of comprehensive income, consolidated statements of changes in equity,
consolidated statements of cash flows, a basis of presenting the consolidated financial statements, and 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 accounting principles generally accepted in Japan, and for designing and operating such internal
control as management determines necessary to enable the preparation and fair presentation of the consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an independent opinion on these consolidated financial statements based on our
audit. 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 theassessment of the risks of material 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 theeffectiveness 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 the consolidated financial statements in order todesign audit procedures that are appropriate in the circumstances. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements.
－

153

－

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Audit Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, thefinancial position of TKC Corporation and consolidated subsidiaries as of September 30, 2016, and theirconsolidated financial performance and cash flows for the year then ended in conformity with accounting
principles generally accepted in Japan.
[Audit of internal control]
Pursuant to Article 193-2, Paragraph 2 of the Financial Instruments and Exchange Act, we have audited
management's report on internal control over financial reporting of TKC Corporation as of September 30, 2016.
Management's Responsibility for the Report on Internal Control
The Company's management is responsible for designing and operating effective internal control over financial
reporting and for the preparation and fair presentation of its report on internal control in conformity withassessment standards for internal control over financial reporting generally accepted in Japan.
There is a possibility that misstatements may not be completely prevented or detected by internal control overfinancial reporting.
Auditor's 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 weplan and perform the internal control audit to obtain reasonable assurance about whether the management's reporton internal control is free from 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
depend on the auditors' judgment, including the significance of effects on reliability of financial reporting. Aninternal control audit includes, including examining representations on the scope, procedures and results of theassessment of internal control over financial reporting made by management, as well as evaluating the overall
presentation of the management's report on internal control.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Audit Opinion
In 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, 2016 is effectively maintained, andpresents fairly, in all material respects, the result of the assessment of internal control over financial reporting inconformity with the assessments 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.
－

154

－

End of document
(*)

1.
2.

The above is a digitized version of the original copy of the Audit Report which is held in the custody by TKC
Corporation (the Company filing this Annual Securities Report).
XBRL data is not included in the scope of audit.

－

155

－

Independent Auditors' Audit Report
December 22, 2016
To: The Board of Directors
TKC Corporation
Ernst & Young ShinNihon LLC
Designated Limited Liability Partner
Executing Partner
Atsuo Mori (Seal)
Certified Public Accountant
Designated Limited Liability Partner
Executing Partner
Yuichi Noda (Seal)
Certified Public Accountant

Pursuant to Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we have audited thefinancial statements included in the Financial Information Section, namely, the statements of financial position of
TKC Corporation for the 50th fiscal year from October 1, 2015 to September 30, 2016, which consists of thebalance sheets, statements of income, statements of changes in equity, important accounting policies, and otherrelated notes and supplementary schedules.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordancewith accounting principles generally accepted in Japan and for designing and operating such internal control as
management determines necessary to enable the preparation and fair presentation of the financial statements thatare free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an independent opinion on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are freefrom material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditors' judgment, including the assessment of therisks 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 inmaking these risk assessments the auditor considers internal controls relevant to the entity's preparation and fairpresentation of the financial 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 ofaccounting estimates made by management, 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.
Audit Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of TKC Corporation as of September 30, 2016, and its financial performance for the year then ended inconformity with accounting principles generally accepted in Japan.
－

156

－

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.
End of document
(*)

1.
2.

The above is a digitized version of the original copy of the Audit Report which is held in the custody by TKC
Corporation (the Company filing this Annual Securities Report).
XBRL data is not included in the scope of audit.

－

157

－

[Front cover][Document filed]Management's Report on Internal Control[Applicable laws]

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

Director-General, Kanto Local Finance Bureau[Date filed]December 26, 2016

[Company name]

株式会社TKC (Kabushiki Kaisha TKC)[Company name in English]

TKC Corporation[Title and name of representative]

Kazuyuki Sumi, Representative Director and President[Title and name of Chief Financial

Hitoshi Iwata, Representative Director, Vice President and Executive

Officer]

Officer, Chief Director of Business Administration[Address of head office]1758 Tsurutamachi, Utsunomiya-shi, Tochigi
TKC Corporation Tokyo Head Office(2-1 Ageba-cho, Shinjuku-ku, Tokyo)
Tokyo Stock Exchange, Inc.
(2-1 Nihonbashikabutocho, Chuo-ku, Tokyo)[Place available for public inspection]

－

158

－

1

[Matters concerning the basic framework for internal control over financial reporting]Kazuyuki Sumi, 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 reportingin accordance with the basic framework for internal control set forth in "On the Setting of the Standards andPractice Standards 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, 2016, which is the endof 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 aswell as its consolidated subsidiaries and equity-method affiliated companies based on the materiality that may
affect the reliability 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 businessprocesses. The two other consolidated subsidiaries and two equity-method affiliated companies determined to haveinsignificant quantitative and qualitative influence on the reliability of financial reporting were not included in thescope of assessment of entity-level controls.
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 companies whose net sales reached 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, with respect to the selected Significant Locations/Business Units and other locations and 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, andprocesses concerning businesses or operations dealing with high-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 if the last day of the fiscal year.
－

159

－

4

[Supplementary Information]

Not applicable.
5[Special Notes]

Not applicable.

－

160

－

[Front cover][Document filed][Filed with]Written Confirmation
Article 24-4-2, Paragraph 1 of the Financial Instruments and ExchangeAct
Director-General, Kanto Local Finance Bureau[Date filed]December 26, 2016

[Company name]

株式会社TKC (Kabushiki Kaisha TKC)[Company name in English]

TKC Corporation[Title and name of representative][Title and name of Chief Financial
Officer][Address of head office]Kazuyuki Sumi, Representative Director and President
Hitoshi Iwata, Representative Director, Vice President and Executive
Officer, Chief Director of Business Administration
1758 Tsurutamachi, Utsunomiya-shi, Tochigi[Place available for public inspection]

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

－

161

－

1

[Matters Related to Adequacy of Statements Contained in the Annual Securities Report]

Kazuyuki Sumi, 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 50th fiscal year (from October 1, 2015 to September 30, 2016) are adequate under the Financial Instruments
and Exchange Act.
2

[Special Notes]

None.

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162

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