AUDITED FINANCIAL STATEMENTS

Contents
Consolidated Financial Statements ............................................................................ 50
Consolidated Balance Sheets.................................................................................... 50
Consolidated Statements of Income ................................................................... 52
Consolidated Statements of Comprehensive Income.............................. 52
Consolidated Statements of Changes in Equity ........................................... 53
Consolidated Statements of Cash Flows .......................................................... 54
Notes to Consolidated Financial Statements ................................................. 55
Independent Auditors’ Report ........................................................................................ 81

SECOM Annual Report 201849

Consolidated Financial Statements
Consolidated Balance Sheets
SECOM CO., LTD. and Subsidiaries
March 31, 2018 and 2017
Translation into thousandsof U.S. dollars (Note 3)

March 31

March 31

2018

2017

2018

Current assets:
Cash and Cash equivalents (Notes 5 and 22) ............................................................................................................ ¥ 316,729
Time deposits (Note 13) .........................................................................................................................................................
9,593
Cash deposits for armored car services (Note 6).....................................................................................................
135,809
Short-term investments (Notes 7 and 22) ...................................................................................................................
17,211
Notes and accounts receivable, trade ...........................................................................................................................
144,657
Due from subscribers ...............................................................................................................................................................
49,789Inventories (Note 8) ...................................................................................................................................................................
82,058
Short-term receivables (Notes 9, 13, 20 and 21)......................................................................................................
27,930Allowance for doubtful accounts (Note 9) .................................................................................................................
(1,807)
Deferred insurance acquisition costs (Note 14).......................................................................................................
6,540
Deferred income taxes (Note 17)......................................................................................................................................
—
Other current assets ..................................................................................................................................................................
19,368¥ 299,600
9,562
130,620
29,224
134,794
46,467
62,686
26,074(1,821)
6,440
12,611
17,595$ 2,988,009
90,5001,281,217
162,368
1,364,689
469,708
774,132
263,491(17,047)
61,698—
182,717ASSETS

Total current assets ........................................................................................................................................................

807,877

773,852

7,621,482

Investments and long-term receivables:
Investment securities (Notes 2 (7), 7, 13 and 22) ....................................................................................................
Investments in affiliated companies (Note 10) ........................................................................................................
Long-term receivables (Notes 9, 13, 20 and 21) ......................................................................................................
Lease deposits ..............................................................................................................................................................................
Other investments .....................................................................................................................................................................
Allowance for doubtful accounts (Note 9) .................................................................................................................

227,255
64,62043,281
17,264
10,086(4,298)227,245
57,922
42,407
15,675
10,510(4,178)2,143,915
609,623
408,311
162,868
95,151(40,547)

358,208

349,5813,379,321

Property, plant and equipment (Notes 11, 13, 19 and 20):Land
Buildings and improvements..............................................................................................................................................
Security equipment and control stations ....................................................................................................................
Machinery, equipment and automobiles ....................................................................................................................
Construction in progress .......................................................................................................................................................

113,916
340,822329,655
150,528
7,479

115,210
329,631317,352
143,789
7,683

1,074,679
3,215,302
3,109,953
1,420,075
70,557

Accumulated depreciation...................................................................................................................................................

942,400(530,052)

913,665(499,597)

8,890,566(5,000,491)

412,348

414,068

3,890,075

42,325
106,51257,02741,40913,23942,606
88,95050,72635,2828,213

399,292
1,004,830
537,991
390,651
124,896

Other assets:
Deferred charges (Note 2 (12)) ...........................................................................................................................................
Goodwill (Note 12) .....................................................................................................................................................................
Other intangible assets (Notes 12, 13, 19 and 20) ..................................................................................................
Prepaid pension and severance costs (Note 15) .....................................................................................................
Deferred income taxes (Note 17)......................................................................................................................................

260,512

225,777

2,457,660

Total assets .......................................................................................................................................................................... ¥1,838,945¥1,763,278$17,348,538

See accompanying notes to consolidated financial statements.

50

In millions of yen

SECOM Annual Report 2018

LIABILITIES AND EQUITY

In millions of yen

Translation into thousandsof U.S. dollars (Note 3)

March 31

March 31

2017

2018

2018

Current liabilities:
Bank loans (Notes 6 and 13)................................................................................................................................................. ¥ 38,969
Current portion of long-term debt (Notes 13, 19 and 21) ................................................................................
19,632
Notes and accounts payable, trade.................................................................................................................................
44,901Other payables .............................................................................................................................................................................
41,546
Deposits received (Note 6) ...................................................................................................................................................
118,897
Deferred revenue........................................................................................................................................................................
38,395
Accrued income taxes .............................................................................................................................................................
25,994
Accrued payroll ............................................................................................................................................................................
36,531Other current liabilities (Note 17) .....................................................................................................................................
34,792¥42,09919,61546,28038,612
112,053
38,732
27,61532,08436,822$367,632
185,208
423,594
391,943
1,121,670
362,217245,226
344,632
328,226

Total current liabilities ..................................................................................................................................................

399,657

393,9123,770,348

Long-term liabilities:
Long-term debt (Notes 13, 19 and 21) ..........................................................................................................................
Guarantee deposits received .............................................................................................................................................
Accrued pension and severance costs (Note 15) ...................................................................................................
Long-term deferred revenue ..............................................................................................................................................
Unearned premiums and other insurance liabilities (Note 14)......................................................................
Investment deposits by policyholders (Notes 14 and 21).................................................................................
Deferred income taxes (Note 17)......................................................................................................................................
Other long-term liabilities (Notes 21, 22 and 23) ....................................................................................................

50,29932,10929,384
15,194
114,814
25,20826,53014,44554,14932,52929,636
15,444110,018
27,69133,815
14,616474,519
302,915
277,208
143,340
1,083,151
237,811250,283
136,274

Total long-term liabilities............................................................................................................................................

307,983

317,898

2,905,501

Total liabilities ....................................................................................................................................................................

707,640

711,810

6,675,849

66,385
73,133
10,733
896,586

66,37873,102
10,632
832,785

626,274
689,934
101,255
8,458,358

22,797
—
1,578
2,814

22,529—(3,492)
1,039

215,066—
14,887
26,547

27,18920,076

256,500

Commitments and contingent liabilities (Note 24)
Equity:SECOM CO., LTD. shareholders’ equity (Note 18):
Common stock
Authorized—900,000,000 shares, issued 233,290,441 shares in 2018
Authorized—900,000,000 shares, issued 233,288,717 shares in 2017 .................................................
Additional paid-in capital ......................................................................................................................................................
Legal reserve ..................................................................................................................................................................................
Retained earnings.......................................................................................................................................................................
Accumulated other comprehensive income (loss):
Unrealized gains on securities (Note 7)...................................................................................................................
Unrealized gains on derivative instruments (Note 23) ..................................................................................
Pension liability adjustments (Note 15) ..................................................................................................................
Foreign currency translation adjustments ............................................................................................................
Common stock in treasury, at cost:
15,030,573 shares in 2018 and 15,028,470 shares in 2017 ..............................................................................

(73,749)(73,731)(695,745)

Total SECOM CO., LTD. shareholders’ equity ..................................................................................................

1,000,277

929,2429,436,576

Noncontrolling interests ..............................................................................................................................................................

131,028

122,226

1,236,113

Total equity .........................................................................................................................................................................

1,131,305

1,051,468

10,672,689

Total liabilities and equity .......................................................................................................................................... ¥1,838,945¥1,763,278$17,348,538

See accompanying notes to consolidated financial statements.

SECOM Annual Report 201851

Consolidated Statements of Income
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 20182018

In millions of yen

Translation into thousandsof U.S. dollars (Note 3)

Years ended March 31

Year ended March 31

2017

2016

2018

Net sales and operating revenue (Notes 14 ,18 and 22)¥1,082,792 ¥1,031,261
Costs and expenses:
Cost of sales (Note 8) .............................................................................................................................................................................
750,422709,962
Selling, general and administrative expenses (Notes 2 (17), 2 (18), 2 (19) and 4) ............................................
190,187
184,487
Impairment loss on long-lived assets (Note 11) ...................................................................................................................
841
2,689
Impairment loss on goodwill (Note 12) .....................................................................................................................................
11
1,193
Gain and loss on sales and disposal of fixed assets, net ..................................................................................................
(1,504)2,752
901,083
939,957
Operating income................................................................................................................................................................
142,835
130,178
Other income:Interest and dividends ..........................................................................................................................................................................
1,637
1,286
Gain on sales of securities, net (Notes 7 and 18) ..................................................................................................................
237
391
Gain on private equity investments (Note 22).......................................................................................................................
5,884
13,887
Other (Notes 16, 18 and 23) ..............................................................................................................................................................
2,972
2,571
10,73018,135
Other expenses:
Interest ..........................................................................................................................................................................................................
1,236
1,369
Loss on other-than-temporary impairment of investment securities (Notes 18 and 22) ...........................
57
77
Other (Note 16) ........................................................................................................................................................................................
1,482
1,644
2,775
3,090
Income from continuing operations before income taxes and equity
in net income of affiliated companies ..................................................................................................................
150,790145,223
Income taxes (Note 17):
Current ..........................................................................................................................................................................................................
54,22543,449Deferred .........................................................................................................................................................................................................
(6,118)
3,563
48,10747,012
Income from continuing operations before equity in net income ofaffiliated companies .........................................................................................................................................................
102,683
98,211
7,179
5,178
Equity in net income of affiliated companies (Note 18) ...............................................................................................
Net income...............................................................................................................................................................................
109,862
103,389
Less: Net income attributable to noncontrolling interests ......................................................................................
(13,239)(12,002)
Net income attributable to SECOM CO., LTD. .................................................................................................... ¥ 96,623 ¥ 91,387¥983,428$10,215,019

674,533
176,269
11,814—
1,907
864,523
118,905

7,079,453
1,794,217
7,934
104(14,189)
8,867,519
1,347,500

1,440
1,480
1,718
3,041
7,679

15,443
2,236
55,50928,038101,226

1,388
402
2,333
4,123

11,660538
13,981
26,179122,461

1,422,547

39,135
1,177
40,312

511,557(57,717)453,840

82,1497,162
89,311(5,239)¥ 84,072

968,70767,726
1,036,433(124,896)$ 911,537

In yenTranslation into
U.S. dollars (Note 3)

Years ended March 31

Year ended March 31

Per share data (Note 2 (21)):
Net income attributable to SECOM CO., LTD. ........................................................................................................................
Cash dividends per share (Note 18) ..............................................................................................................................................

2018

2017

2016

2018

¥442.70¥150.00¥418.71¥140.00¥385.19¥130.00

$4.18
$1.42

In millions of yen

Translation into thousandsof U.S. dollars (Note 3)

Years ended March 31

Year ended March 31

Consolidated Statements of Comprehensive Income
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2018

Comprehensive income:Net income ..................................................................................................................................................................................................
Other comprehensive income (loss), net of tax:
Unrealized gains and losses on securities ..........................................................................................................................
Unrealized gains on derivative instruments .....................................................................................................................
Pension liability adjustments .....................................................................................................................................................
Foreign currency translation adjustments.........................................................................................................................
Total comprehensive income...........................................................................................................................................................
Less: Comprehensive income attributable to noncontrolling interests..........................................................
Comprehensive income attributable to SECOM CO., LTD.....................................................................................................
See accompanying notes to consolidated financial statements.

52

SECOM Annual Report 2018

2018

2017

2016

2018

¥109,862¥103,389¥89,311$1,036,434

256
—
5,376
1,952
117,446(13,710)¥103,736

4,600
—
4,675
(5,726)
106,938(12,388)¥ 94,550(7,823)(9)(6,402)(3,234)
71,843(3,820)¥68,023

2,415—
50,717
18,416
1,107,982(129,340)$ 978,642

Consolidated Statements of Changes in Equity
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2018

In millions of yen
Commonstock intreasury,
at costTotal
SECOM CO., LTD.
shareholders’equityNoncontrollinginterests

Total

Number ofsharesissuedCommonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings

Accumulated
other comprehensive
income (loss)

Balance, March 31, 2015 ...........................................................................................
Comprehensive income:Net income.....................................................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized gains on securities....................................................................
Unrealized gains on derivative instruments ......................................
Pension liability adjustments ......................................................................
Foreign currency translation adjustments .........................................
Total comprehensive income .............................................................................
Cash dividends paid to SECOM CO., LTD. shareholders ..............................
Cash dividends paid to noncontrolling interests ...........................................
Transfer to legal reserve..................................................................................................
Equity transactions with noncontrolling interests and other(Note 18)
Gains on disposal of treasury stock .........................................................................
Net changes in treasury stock ....................................................................................

233,288,717¥66,378¥73,442¥10,401¥716,487¥32,962(¥73,701)¥ 825,969¥113,198¥ 939,167

—

—

—

—

84,072——

84,072

5,239

89,311

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

(7,411)(5)(5,752)(2,881)

—
—
—
—

—
—
—

—
—
—

—
—
—

—
—
125

(28,373)
—
(125)

—
—
—

—
—
—

(7,411)(5)(5,752)(2,881)
68,023(28,373)
—
—

(412)
(4)
(650)
(353)
3,820
—
(2,943)—(7,823)(9)(6,402)(3,234)
71,843(28,373)(2,943)
—

—
—
—

—
—
—

(324)
0
—

—
—
—

—
—
—

—
—
—

—
—
(17)

(324)
0
(17)

(2,756)——(3,080)0(17)Balance, March 31, 2016 ...........................................................................................
Comprehensive income:Net income.....................................................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized gains on securities....................................................................
Unrealized gains on derivative instruments ......................................
Pension liability adjustments ......................................................................
Foreign currency translation adjustments .........................................
Total comprehensive income .............................................................................
Cash dividends paid to SECOM CO., LTD. shareholders ..............................
Cash dividends paid to noncontrolling interests ...........................................
Transfer to legal reserve..................................................................................................
Equity transactions with noncontrolling interests and other(Note 18)
Gains on disposal of treasury stock .........................................................................
Net changes in treasury stock ....................................................................................

233,288,717

66,37873,118

10,526772,061

16,913(73,718)

865,278

111,319

976,597

—

—

—

—

91,387——

91,387

12,002

103,389

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

4,376
—
4,400
(5,613)

—
—
—
—

—
—
—

—
—
—

—
—
—

—
—
106

(30,557)
—
(106)

—
—
—

—
—
—

4,376
—
4,400
(5,613)
94,550(30,557)
—
—

224
—
275
(113)
12,388—(2,941)
—

4,600
—
4,675
(5,726)
106,938(30,557)(2,941)
—

—
—
—

—
—
—

(16)
0
—

—
—
—

—
—
—

—
—
—

—
—
(13)

(16)
0
(13)

1,460
—
—

1,444
0
(13)

Balance, March 31, 2017 ...........................................................................................
Comprehensive income:Net income.....................................................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized gains on securities....................................................................
Unrealized gains on derivative instruments ......................................
Pension liability adjustments ......................................................................
Foreign currency translation adjustments .........................................
Total comprehensive income .............................................................................
Issuance of new stocks....................................................................................................
Cash dividends paid to SECOM CO., LTD. shareholders ..............................
Cash dividends paid to noncontrolling interests ...........................................
Transfer to legal reserve..................................................................................................
Equity transactions with noncontrolling interests and other(Note 18)
Changes in the scope of application of the equity method ...................
Gains on disposal of treasury stock .........................................................................
Net changes in treasury stock ....................................................................................

233,288,717

66,37873,102

10,632

832,785

20,076(73,731)929,242

122,226

1,051,468

—

—

—

—

96,623——96,623

13,239109,862

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

268
—
5,070
1,775

—
—
—
—

1,724
—
—
—

7
—
—
—

7
—
—
—

—
—
—
101

—
(32,738)
—
(101)

—
—
—
—

—
—
—
—

268
—
5,070
1,775
103,736
14(32,738)
—
—

(12)
—
306
177
13,710——(5,381)
—

256
—
5,376
1,952
117,446
14(32,738))(5,381))
—

—
—
—
—

—
—
—
—

24
—
0
—

—
—
—
—

—
17
—
—

—
—
—
—

—
—
—
(18)

24
17
0
(18)

473
—
—
—

497
17
0
(18))

Balance, March 31, 2018 ........................................................................................... 233,290,441¥66,385¥73,133¥10,733¥896,586¥27,189(¥73,749)¥1,000,277¥131,028¥1,131,305

Commonstock intreasury,
at costTotal
SECOM CO., LTD.
shareholders’equityNoncontrollinginterests

Total

Translation into thousands of U.S. dollars (Note 3)

Balance, March 31, 2017
Comprehensive income:Net income.......................................................................................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized gains on securities......................................................................................................
Unrealized gains on derivative instruments ........................................................................
Pension liability adjustments ........................................................................................................
Foreign currency translation adjustments ...........................................................................
Total comprehensive income ...............................................................................................................
Issuance of new stocks......................................................................................................................................
Cash dividends paid to SECOM CO., LTD. shareholders ................................................................
Cash dividends paid to noncontrolling interests .............................................................................
Transfer to legal reserve....................................................................................................................................
Equity transactions with noncontrolling interests and other(Notes 18) ................................................................................................................................................................
Changes in the scope of application of the equity method .....................................................
Gains on disposal of treasury stock ...........................................................................................................
Net changes in treasury stock ......................................................................................................................

Commonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings

Accumulated
other comprehensive
income (loss)$626,208$689,642$100,302$7,856,462$189,396($695,575)$8,766,435$1,153,075$ 9,919,510

—

—

—

911,538——

911,538

124,896

1,036,434

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

2,528
—
47,83016,746

—
—
—
—

66
—
—
—

66
—
—
—

—
—
—
953

—
(308,849)
—
(953)

—
—
—
—

—
—
—
—

2,528
—
47,83016,746
978,642132(308,849)
—
—

(113)
—
2,887
1,670
129,340——(50,764)—

2,415—
50,717
18,416
1,107,982
132(308,849)(50,764)
—

—
—
—
—

226
—
0
—

—
—
—
—

—
160
—
—

—
—
—
—

—
—
—
(170)

226
160
0
(170)

4,462
—
—
—

4,688
160
0
(170)

$256,500 ($695,745)$9,436,576

Balance, March 31, 2018 ........................................................................................................................... $626,274 $689,934$101,255 $8,458,358$1,236,113 $10,672,689

See accompanying notes to consolidated financial statements.

SECOM Annual Report 201853

Consolidated Statements of Cash Flows
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 20182018

Cash flows from operating activities:
Net income ..................................................................................................................................................................................................... ¥109,862
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization, including amortization of deferred charges
78,955(Notes 2 (11), 2 (12) and 12)..........................................................................................................................................................
Accrual for pension and severance costs, less payments ............................................................................................
977
Deferred income taxes .......................................................................................................................................................................
(6,118)Gain and loss on sales and disposal of fixed assets, net ................................................................................................
(1,541)
Impairment loss on long-lived assets (Note 11).................................................................................................................
841
Write-down on real estate inventories (Note 8) .................................................................................................................
865
Gain on private equity investments (Note 22) ....................................................................................................................
(5,884)
Impairment loss on goodwill (Note 12) ..................................................................................................................................
11
Gain on sales of securities, net (Notes 7 and 14) ...............................................................................................................
(1,073)
Loss on other-than-temporary impairment of investment securities (Notes 14 and 22) ........................
199
Equity in net income of affiliated companies ......................................................................................................................
(7,179)Changes in assets and liabilities, net of effects from acquisitions and disposals:(5,189)(Increase) decrease in cash deposits for armored car services...........................................................................
(Increase) decrease in receivables and due from subscribers, net of allowances ..................................
(8,292)(Increase) decrease in inventories ........................................................................................................................................ (18,639)
Increase in deferred charges.................................................................................................................................................... (15,902)
Increase (decrease) in notes and accounts payable .................................................................................................
(378)
Increase (decrease) in deposits received .........................................................................................................................
5,962
Decrease in deferred revenue .................................................................................................................................................
(779)
Increase (decrease) in accrued income taxes................................................................................................................
(2,441)
Increase (decrease) in guarantee deposits received .................................................................................................
(474)
Increase in unearned premiums and other insurance liabilities .......................................................................
4,796
Increase (decrease) in accrued consumption tax .......................................................................................................
1,924
Other, net .............................................................................................................................................................................................
2,754
Net cash provided by operating activities ................................................................................................................ 133,257
Cash flows from investing activities:(Increase) decrease in time deposits ...............................................................................................................................................
172
Proceeds from sales of property, plant and equipment ......................................................................................................
6,166
Payments for purchases of property, plant and equipment ............................................................................................. (53,751)
Payments for purchases of intangible assets..............................................................................................................................
(7,859)Proceeds from sales and redemptions of investment securities (Note 7) ................................................................
69,365
Payments for purchases of investment securities ................................................................................................................... (51,098)(Increase) decrease in short-term investments .........................................................................................................................
(1,150)Acquisitions, net of cash acquired (Note 4) ................................................................................................................................. (23,283)(Increase) decrease in short-term receivables, net .................................................................................................................
(457)
Payments for long-term receivables ................................................................................................................................................
(840)
Proceeds from long-term receivables .............................................................................................................................................
1,224
Other, net ..........................................................................................................................................................................................................
50
Net cash used in investing activities ............................................................................................................................ (61,461)
Cash flows from financing activities:
Proceeds from long-term debt ...........................................................................................................................................................
9,613
Repayments of long-term debt .......................................................................................................................................................... (20,582)
Increase (decrease) in bank loans, net ............................................................................................................................................
(3,378)
Increase (decrease) in investment deposits by policyholders .........................................................................................
(2,483)
Dividends paid to SECOM CO., LTD. shareholders ................................................................................................................... (32,738)
Dividends paid to noncontrolling interests.................................................................................................................................
(5,426)
Payments for acquisition of shares of consolidated subsidiaries from noncontrolling(120)
interest holders ...........................................................................................................................................................................................
Proceeds from sales of shares of consolidated subsidiaries to noncontrolling—interest holders ...........................................................................................................................................................................................
Increase in treasury stock, net ..............................................................................................................................................................
(17)
Other, net ..........................................................................................................................................................................................................
94
Net cash used in financing activities ............................................................................................................................ (55,037)
Effect of exchange rate changes on cash and cash equivalents ..............................................................................
370
17,129Net increase in cash and cash equivalents ................................................................................................................................
Cash and cash equivalents at beginning of year .................................................................................................................. 299,600
Cash and cash equivalents at end of year .................................................................................................................................. ¥316,729
See accompanying notes to consolidated financial statements.

54

SECOM Annual Report 2018

In millions of yen

Translation into thousandsof U.S. dollars (Note 3)

Years ended March 31

Year ended March 31

2017

2016

2018

¥103,389¥ 89,311$1,036,434

78,183
754
3,563
2,712
2,689
1,164
(13,887)
1,193(1,500)182(5,178)72,481(2,246)
1,177
1,815
11,814
1,463(1,718)—(2,101)549(7,162)744,858
9,217(57,717)(14,538)
7,934
8,160
(55,509)104(10,123)
1,877(67,726)(2,352)(1,268)187(15,887)
3,435
6,627
(1,560)4,334(1,023)
4,449
(879)
9,296
178,623

3,642(9,741)(2,445)(15,501)
646
2,985
(515)
959
(1,070)
5,984(7,003)(473)
142,851(48,953)(78,226)(175,840)(150,019)(3,566)56,245(7,349)(23,028)(4,472)45,245
18,151
25,983
1,257,142

(70)
1,465
(51,222)(7,338)43,290(32,613)(2,283)
(167)
(62)
(760)
1,721
839
(47,200)

(517)
3,030
(59,454)(8,409)55,036(49,361)(241)(73,540)
(7)
(639)
1,218
190
(132,694)

1,623
58,170(507,085)(74,142)654,387(482,057)(10,849)(219,651)(4,311)(7,925)
11,547472(579,821)

8,407(20,059)(13,528)(2,112)(30,557)(3,556)

9,357(15,197)
8,691
(469)
(28,373)(2,208)90,689(194,170)(31,868)(23,425)(308,849)(51,189)

(489)

(846)

(1,132)

618
(13)
1,464
(59,825)(980)
70,618228,982¥299,600—(16)65(28,996)(806)(19,645)
248,627¥228,982

—
(160)
887
(519,217)
3,490
161,594
2,826,415$2,988,009

Notes to Consolidated Financial Statements
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2018

1. Nature of Operations
The parent company and its subsidiaries (collectively “the Company”)
are engaged in the businesses of security services, fire protection
services, medical services, insurance services, geographic information
services, BPO and ICT services, and real estate and other services. With
these services combined, the Company is focusing on the establishmentof a Social System Industry, a network of integrated services and systems,
targeted at the needs of people and business.
The Company’s principal business activities are security services,
including on-line security systems for commercial and residential premises, static guard services, armored car services for cash collection anddeposit and sales of security merchandise. The Company has also been
diversifying its services covering: fire protection services, including automatic fire alarm systems and fire extinguishing systems; medical services,
including home and other medical services and the operations of variable interest entities of which the Company is the primary beneficiarythrough managing hospitals and health care-related institutions; non-life
insurance services; geographic information services using geographic
information systems (GIS) and surveying and measuring technology;
BPO and ICT services, including data center services, business continuity
plan support, information security services and cloud-based services; aswell as Business Process Outsourcing (“BPO”) related services; real estateand other services, including the development and sale of condominiums equipped with security and contingency planning features, lease ofreal estate, construction and installation services and other services.
2. Significant Accounting Policies
The parent company and its Japanese subsidiaries maintain theirrecords and prepare their statutory financial statements in accordancewith accounting principles generally accepted in Japan (“Japanese
GAAP”). Certain adjustments and reclassifications have been incorporated in the accompanying financial statements to conform with U.S.
generally accepted accounting principles (“U.S. GAAP”). These
adjustments were not recorded in the statutory books of account.
Significant accounting policies used in the preparation of theaccompanying consolidated financial statements are summarized
below:(1) Basis of Consolidation and Investments in Affiliated Companies
The consolidated financial statements include the accounts of theparent company and those of its majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated inconsolidation.
Investments in companies in which the ability to exercise significant
influence exists (generally 20 to 50 percent owned companies), areaccounted for under the equity method. Consolidated income includes
the Company’s current equity in the net income of affiliated companies,
after elimination of intercompany profits.

(2) Consolidation of Variable Interest Entities
The consolidated financial statements also include variable interest
entities (“VIEs”) of which the Company is the primary beneficiary.
The Accounting Standards Codification (“ASC”) 810, “Consolidation,”
issued by the Financial Accounting Standards Board (“FASB”) requires
the reporting entity to consolidate a variable interest entity (“VIE”) as its
primary beneficiary when it is deemed to have a controlling financial
interest in a VIE, meeting both of the following characteristics:• The power to direct activities of a VIE that most significantly impact
the VIE’s economic performance.
• The obligation to absorb losses of the VIE that could potentially besignificant to the VIE or the right to receive benefits from the VIE that
could potentially be significant to the VIE.
The Company provides investments, loans and guarantees toorganizations managing hospitals and health care-related institutions, toa company holding real estate, and to a PFI (Private Finance Initiative)
organization which was established to build, maintain and operate correctional facilities. Certain of these organizations are considered VIEs
under ASC 810.
Total assets and liabilities held by VIEs of which the Company is theprimary beneficiary were ¥74,539 million ($703,198 thousand) and¥84,029 million ($792,726 thousand), respectively, at March 31, 2018, and¥73,742 million and ¥85,325 million, respectively, at March 31, 2017. The
creditors of VIEs do not have recourse to the Company’s general credit
with the exception of debts guaranteed by the Company. Total assets
and liabilities held by VIEs of which the Company holds significant variable interests but is not the primary beneficiary were ¥29,232 million($275,774 thousand) and ¥27,699 million ($261,311 thousand), respectively, at March 31, 2018, and ¥29,778 million and ¥28,628 million,
respectively, at March 31, 2017. The Company’s assets in the consolidated balance sheets and the Company’s maximum exposure to losses
related to VIEs at March 31, 2018 and 2017 were ¥6,415 million ($60,519
thousand) and ¥5,997 million, respectively.
(3) Revenue Recognition
The Company generates revenue principally through the sales ofmerchandise and services in the areas of security services, fire protection
services, medical services, insurance services, geographic information
services, BPO and ICT services, and real estate and other services under
separate contractual arrangements. The Company recognizes revenue
when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, title and risk of loss have beentransferred to the customer, the sales price is fixed or determinable, andcollectibility is probable.
Revenue from term service contracts, including security services, isrecognized over the contractual period or, in the case of specific services, when such services are rendered. Subscribers are generally
requested to prepay a portion of service charges, especially for security
services, which are credited to deferred revenue and recognized inincome ratably over the covered service period. Revenue from theinstallation of security equipment used to provide on-line centralized
security services is deferred and recognized over the contractual periodof security services after completion of the installation. The related
installation costs are also deferred and amortized over the contractual
period (Note 2 (12)).

SECOM Annual Report 2018

55

The Company enters into arrangements with multiple elements,
which may include any combination of security equipment, installationand security services. The Company allocates revenue to each element
based on its relative fair value if such element meets criteria for treatment as a separate unit of accounting as prescribed in ASC 605,
“Revenue Recognition.” Otherwise, revenue is deferred until theundelivered elements are fulfilled as a single unit of accounting.
Revenue from sales of merchandise and software is recognized whenthe merchandise and software are received by the customer and, in thecase of installations, when such installations are completed.
Revenue from construction contracts is principally recognized whenconstruction is completed.
Revenue from long-term contracts for fire protection services andgeographic information services is principally recognized under thepercentage-of-completion method.
Property and casualty insurance premiums are earned ratably over theterms of the related insurance contracts. Unearned premiums are earned
ratably over the terms of the unexpired portion of premiums written.
Revenue from sales of real estate is recognized when the title of thereal estate is transferred to the customer.
Revenue from sales of equipment under sales-type leases is recognized at the inception of the lease. Unearned income on sales-typeleases and direct-financing leases is recognized over the life of each
respective lease using the interest method. Leases not qualifying as
sales-type leases or direct-financing leases are accounted for as operating leases and the related revenue is recognized over the lease term.
Taxes collected from customers and remitted to governmental
authorities on revenue-producing transactions are accounted for on a
net basis and therefore are excluded from net sales and operating
revenue in the consolidated statements of income.
(4) Foreign Currency Translation
All asset and liability accounts of foreign subsidiaries and affiliates aretranslated into Japanese yen at the rates of exchange in effect at yearend and all income and expense accounts are translated at average rates
of exchange during the year. The resulting translation adjustments areaccumulated and reported as part of other comprehensive income(loss).
Foreign currency receivables and payables of the Company aretranslated into yen at the rate in effect at the balance sheet date and theresulting translation gains and losses are credited or charged to foreign
currency income/expenses for the year.
(5) Cash Equivalents
For the purpose of the consolidated statements of cash flows, theCompany considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents.
(6) Investments in Debt and Equity Securities
The Company classifies investments in debt and equity securities as“available-for-sale” or “held-to-maturity.” The Company has no securities
classified as “trading.” “Held-to-maturity” securities are those securities inwhich the Company has the ability and intent to hold the security until
maturity. All securities not included in “trading” or “held-to-maturity” areclassified as “available-for-sale” securities. Marketable debt and equity
securities which are classified as “available-for-sale” are recorded at fairvalue. Unrealized holding gains and losses on securities classified as“available-for-sale” are reported as part of accumulated other comprehensive income (loss), net of tax. Debt securities classified as “held-tomaturity” are reported at amortized cost.

56

SECOM Annual Report 2018

A decline in the fair value of any available-for-sale securities below
cost that is deemed to be other-than-temporary results in a reduction in
the carrying amount to fair value. The impairment is charged to income
and a new cost basis for the securities is established. To determine
whether an impairment is other-than-temporary, the Company considers the length of time and extent to which the market value of the
security has been less than its original cost, the financial condition, otherspecific factors affecting the market value, deterioration of the credit
condition of the issuers, and whether or not the Company is able toretain the investment for a period of time sufficient to allow for the
anticipated recovery in market value.
Other investments in non-public companies, except for private equity
investments, are recorded at cost as fair value is not readily determinable.
The Company periodically evaluates the values of other investments in
non-public companies for possible impairment by taking into consideration the financial and operating conditions of the issuer, the generalmarket conditions in the issuer’s industry and the period of the decline
in the estimated fair value and other relevant factors. If the impairment isdetermined to be other-than-temporary, other investments in nonpublic companies are written down to their impaired value through acharge to income.
Realized gains or losses on the sale of investments are based on themoving-average cost method and are credited or charged to income.
(7) Private Equity Investments
The Company accounts for private equity investments in accordancewith ASC 946, “Financial Services—Investment Companies,” in whichinvestments are accounted for at fair value based on the Company’s
assessment of each underlying investment. The investments, by theirnature, have little or no price transparency.
Investments are initially carried at cost as an approximation of fairvalue. Adjustments to carrying value are made if there is evidence of achange in fair value. Downward adjustments are also made, in theabsence of third-party transactions, if it is determined that the expected
realizable value of the investment has declined below the carrying value.
The carrying value of private equity investments was ¥29,815 million($281,274 thousand) and ¥49,738 million at March 31, 2018 and 2017,
respectively.
Private equity investments are included in investment securities in the
consolidated balance sheets.
(8) Inventories
Inventories, consisting of security-related products, fire protectionrelated products, real estate and other related products, are stated at thelower of cost or market. Cost is determined, in the case of real estate,based on the specific identification method and, in the case of otherinventories, primarily using the moving-average method.
(9) Allowance for Doubtful Accounts
The Company recognizes an allowance for doubtful accounts toensure trade, short-term and long-term receivables, and other receivables are not overstated due to uncollectibility. Allowance for doubtful
accounts is maintained for all customers based on a variety of factors,
including the length of time receivables are past due, macroeconomic
conditions, significant one-time events and historical experience. An
additional reserve for individual accounts is recorded when the
Company becomes aware of a customer’s inability to meet its financial
obligations, such as in the case of bankruptcy filings or deterioration in
the customer’s operating results or financial position. If circumstances
related to customers change, estimates of the recoverability ofreceivables would be further adjusted.

(10) Deferred Insurance Acquisition Costs
Costs that vary with and are primarily related to acquiring new insurance policies are deferred and amortized principally over the premiumpaying period of the related insurance policies applying a percentage
relationship of cost incurred to premiums from contracts issued toapplicable unearned premiums throughout the period of the contract.
(11) Property, Plant and Equipment and Depreciation
Property, plant and equipment, including significant leasehold
improvements, are carried at cost and depreciated at rates based on theestimated useful lives of the assets. Depreciation is computed using thestraight-line method for assets other than security equipment and control stations. Security equipment and control stations are depreciatedusing the declining-balance method. Assets leased to others underoperating leases are depreciated using the straight-line method over theestimated useful lives. Depreciation expense was ¥54,127 million($510,632 thousand), ¥53,677 million and ¥50,098 million for the years
ended March 31, 2018, 2017 and 2016, respectively. Maintenance, repairs
and renewals are charged to income as incurred.
The estimated useful lives of depreciable assets are as follows:
Buildings
22 to 50 years
Security equipment and control stations
5 to 8 years
Machinery, equipment and automobiles
2 to 20 years
The Company recognizes asset retirement obligations if the fair valueof the obligations can be reasonably estimated. Asset retirement obligations include those for which an entity has a legal obligation to perform
an asset retirement activity, however, the timing and/or method of settling the obligation are conditional on a future event that may or may
not be within the control of the entity.
Performance of a contractual asset retirement obligation is required
for the building leased by a certain subsidiary when the lease matures
and the Company returns the leased building to its owner. However, theCompany plans not to relocate from the building and to continue to use
it until it will be demolished without restoration. As such, the executionof such obligation is not expected. The Company evaluated all the available evidence as of March 31, 2018 and performed efforts to establish
the best estimate. However, the scope and the amount of execution of
the obligation cannot be reasonably estimated. Therefore, an asset
retirement obligation for that building lease is not recognized.
(12) Deferred Charges
Deferred charges primarily consist of costs related to installation services of security equipment used to provide on-line security systems. The
installation costs are deferred and amortized using the straight-line
method over the contractual period of security services after completionof the installation. Amortization expense was ¥15,529 million ($146,500
thousand), ¥15,596 million and ¥15,129 million for the years ended
March 31, 2018, 2017 and 2016, respectively.
(13) Impairment or Disposal of Long-Lived Assets
In accordance with ASC 360, “Property, Plant and Equipment,” theCompany reviews the carrying amount of its long-lived assets held andused, other than goodwill and intangible assets with indefinite lives, andassets to be disposed of, whenever events or changes in circumstancesindicate that the carrying amount may not be recoverable. Long-lived
assets to be held and used are reviewed for impairment by comparing
the carrying amount of the assets with their estimated future

undiscounted cash flows. If it is determined that an impairment loss has
occurred, the loss would be recognized during the period, and calculated as the difference between the assets’ carrying amount and the fairvalue. Long-lived assets that are to be disposed of other than by sale areconsidered held and used until they are disposed of. Long-lived assetsthat are to be disposed of by sale are reported at the lower of theircarrying amount or fair value less cost to sell. Reductions in the carrying
amount are recognized in the period in which the long-lived assets areclassified as held for sale.
(14) Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over the fair value of assets ofbusiness acquired. Pursuant to ASC 350, “Intangibles—Goodwill andOther,” goodwill and intangible assets acquired in a purchase businesscombination and determined to have an indefinite useful life are notamortized, but instead tested for impairment at least annually. Thisaccounting standard also requires that intangible assets with estimableuseful lives be amortized over their respective estimated useful lives totheir estimated residual values, and reviewed for impairment in accordance with ASC 360. The Company conducts its annual impairment test
each fiscal year.
(15) Unearned Premiums and Other Insurance Liabilities
Unearned premiums are related to unexpired periods of insurance
contracts and are earned on a pro-rata basis over the remaining contract
period. Other insurance liabilities consist principally of liabilities for
unpaid claims and adjustment expenses, which are estimates of payments to be made on reported claims and incurred but not reported
claims, which are computed based on past experience for unpaid losses.
(16) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases, and operating loss carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences and carryforwards are expected to be realized or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Valuation allowances arerecorded to reduce deferred tax assets when it is more likely than notthat a tax benefit will not be realized.
The Company recognizes in the consolidated financial statements
the impact of a tax position, if any, based on the technical merits of theposition, when that position is more likely than not to be sustained upon
examination. The benefit of the tax position is measured at the largest
amount of benefit that has greater than 50 percent likelihood of being
realized upon settlement with the appropriate tax authority.
The Company recognizes interest and penalties accrued related tounrecognized tax benefits in income taxes in the consolidated statements of income.
(17) Research and Development
Research and development costs are charged to income as incurred.
Research and development expenses included in selling, general andadministrative expenses for the years ended March 31, 2018, 2017 and2016 were ¥6,383 million ($60,217 thousand), ¥6,491 million and ¥6,771
million, respectively.

SECOM Annual Report 201857

(18) Advertising Costs
Advertising costs are charged to income as incurred, except for thecosts related to insurance policies. Advertising costs for acquiring new
insurance policies are deferred and amortized as part of insurance
acquisition costs. Advertising expenses included in selling, general andadministrative expenses for the years ended March 31, 2018, 2017 and2016 were ¥5,011 million ($47,274 thousand), ¥5,072 million and ¥4,388
million, respectively.
(19) Shipping and Handling Costs
Shipping and handling costs included in selling, general andadministrative expenses for the years ended March 31, 2018, 2017 and2016 were ¥1,380 million ($13,019 thousand), ¥1,220 million and ¥1,213
million, respectively.
(20) Derivative Financial Instruments
The Company accounts for derivative financial instruments inaccordance with ASC 815, “Derivatives and Hedging.”
The Company recognizes all derivative financial instruments in the
consolidated financial statements at fair value regardless of the purpose
or intent for holding them. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or inequity as a component of accumulated other comprehensive income(loss) depending on whether the derivative financial instruments qualify
for hedge accounting, and if so, whether they qualify as a fair value
hedge or a cash flow hedge. Changes in the fair values of derivative
financial instruments accounted for as a fair value hedge are recorded
in income along with the portion of the change in the fair value of thehedged item that relates to the hedged risk. Changes in the fair value ofderivative financial instruments accounted for as a cash flow hedge, tothe extent it is effective as a hedge, are recorded in accumulated othercomprehensive income (loss), net of tax. Changes in the fair value ofderivative financial instruments not qualifying as a hedge are reported
in income.
The Company meets the documentation requirements necessaryfor effective hedges which include the risk management objective andstrategy for undertaking various hedge transactions. In addition, formal
assessment is made at inception of the hedge and periodically on an
on-going basis, as to whether the derivatives used in hedging activities
are highly effective in offsetting changes in fair values or cash flows ofhedged items. Hedge accounting is discontinued for ineffective hedges,
if any. Changes in fair value of discontinued hedges are recognized
in income.
(21) Per Share Data
Basic Earnings per Share (“EPS”) is computed based on the average
number of shares of common stock outstanding for the period. The average number of shares of common stock outstanding for the years ended
March 31, 2018, 2017 and 2016 was 218,260 thousand shares, 218,261
thousand shares and 218,263 thousand shares, respectively. There wereno potentially dilutive shares outstanding during the years ended March
31, 2018, 2017 or 2016.
Cash dividends per share shown in the accompanying consolidated
statements of income are computed based on dividends approved andpaid in each fiscal year.

58

SECOM Annual Report 2018(22) Use of Estimates
The preparation of the consolidated financial statements requires
management of the Company to make a number of estimates andassumptions relating to the reported amounts of assets and liabilities,
the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from thoseestimates. Significant items subject to such estimates and assumptions
include the carrying amounts of inventories, deferred insurance acquisition costs, investment securities, other investments, property, plant andequipment, goodwill, other intangible assets, unearned premiums andother insurance liabilities, valuation of receivables, valuation allowances
for deferred income taxes, valuation of derivative instruments, assets andobligations related to employee benefits, asset retirement obligations,income tax uncertainties, and other contingencies.
(23) Recent Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue fromContracts with Customers.” This accounting standard requires an entity
to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to beentitled in exchange for those goods or services. This accounting standard also requires an entity to disclose sufficient information to enable
users of financial statements to understand the nature, amount, timing,and uncertainty of revenue and cash flows arising from contracts withcustomers. Both qualitative and quantitative information is required. Thisaccounting standard was originally planned to be effective for fiscal
years beginning after December 15, 2016, however, in August 2015,
the FASB issued ASU No. 2015-14, which defers the effective date of ASU
No. 2014-09 for one year. Therefore, this accounting standard is effective
for fiscal years beginning after December 15, 2017, including interim
periods within that reporting period, and will be adopted by theCompany in the fiscal year beginning April 1, 2018. This accounting
standard may be applied retrospectively to each prior period presented
or retrospectively with the cumulative effect recognized at the date ofinitial application. The Company is currently evaluating the transition
method and the effect of adopting this accounting standard on its
consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, “Balance SheetClassification of Deferred Taxes.” This accounting standard requires
deferred tax assets and liabilities be classified as noncurrent on thebalance sheet. This accounting standard is effective for fiscal years
beginning after December 15, 2016, and was adopted by the Company
in the fiscal year beginning April 1, 2017. Prior periods were notretrospectively adjusted.
In January 2016, the FASB issued ASU No. 2016-01 “Recognition andMeasurement of Financial Assets and Financial Liabilities.” This accounting standard significantly changes the income statement impact ofequity investments, and the recognition of changes in fair value of financial liabilities when the fair value is elected. This accounting standard iseffective for fiscal years beginning after December 15, 2017, includinginterim periods within that reporting period, and will be adopted by theCompany in the fiscal year beginning April 1, 2018. The Company is currently evaluating the effect of adopting this accounting standard on its
consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 “Leases.” Thisaccounting standard requires lessees to recognize almost all lease assets
and lease liabilities on the balance sheet that arise from lease contracts
which are classified as operating leases. This accounting standard iseffective for fiscal years beginning after December 15, 2018, includinginterim periods within that reporting period, and will be adopted by theCompany in the fiscal year beginning April 1, 2019.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement ofCredit Losses on Financial Instruments.” This accounting standard
replaces the current incurred loss methodology that delays recognitionof the full amount of credit losses until the loss was probable of occurring with a methodology that reflects expected credit losses andrequires consideration of a broader range of reasonable and supportable
information to inform credit loss estimates. This accounting standard iseffective for fiscal years beginning after December 15, 2020, includinginterim periods within that reporting period, and will be adopted by theCompany in the fiscal year beginning April 1, 2021.
In October 2016, the FASB issued ASU No. 2016-16, “Intra-Entity
Transfers of Assets Other Than Inventory.” This accounting standard eliminates the exception for an intra-entity transfer of an asset other thaninventory which prohibits the recognition of current and deferredincome tax until the asset has been sold to an outside party and requires
an entity to recognize the income tax consequences when the transfer
occurs. This accounting standard is effective for fiscal years beginning
after December 15, 2017, including interim periods within that reporting
period, and will be adopted by the Company in the fiscal year beginning
April 1, 2018.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying theTest for Goodwill Impairment.” This accounting standard eliminates Step
2 from the goodwill impairment test. Instead, the amendments require
an entity to perform its annual, or interim, goodwill impairment test bycomparing the fair value of a reporting unit with its carrying amount andrecognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value. This accounting standard
is effective for fiscal years beginning after December 15, 2020, includinginterim periods within that reporting period, and will be adopted by theCompany in the fiscal year beginning April 1, 2021.
In March 2017, the FASB issued ASU No. 2017-07, “Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost.” This accounting standard requires an entity
to disaggregate the service cost component from the other components
of net benefit cost, and present the service cost component in the sameline item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income
statement separately from the service cost component, such as in otherincome (expenses). This accounting standard allows only the service cost
component to be eligible for capitalization. This accounting standard iseffective for fiscal years beginning after December 15, 2017, includinginterim periods within that reporting period, and will be adopted by theCompany in the fiscal year beginning April 1, 2018.

(25) Reclassifications
Certain amounts in the accompanying consolidated financial
statements for the years ended March 31, 2017 and 2016 have been
reclassified to conform to the presentation used for the year ended
March 31, 2018.
3. U.S. Dollar Amounts
U.S. dollar amounts have been included in these financial statements
solely for the convenience of the reader. The translations of yen into U.S.
dollars have been made at the rate of ¥106=US$1, the approximate rate
prevailing on the Tokyo Foreign Exchange Market on March 31, 2018.
These translations should not be construed as representing that the yenamounts actually constitute, or have been or could be converted into
U.S. dollars at that rate.
4. Acquisitions
Acquisition of TMJ, Inc.
On October 2, 2017, the Company acquired 100% of common shares
outstanding of TMJ, Inc. for ¥26,550 million ($250,472 thousand) in cash.
The purpose of this acquisition is to increase corporate value throughgenerating various synergies including further improvements in qualityof existing business and development and provision of new BPO(Business Process Outsourcing) services by taking full advantage of thecollective strengths of SECOM and TMJ.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.
In millions of yen

In thousands of
U.S. dollars

Cash and cash equivalents ..........................................
Cash deposits for armored car services ...............
Other current assets.........................................................
Investments and long-term receivables .............
Property, plant and equipment ................................
Intangible assets, including goodwill ...................

¥ 2,654
3,803
290
1,642
1,262
24,919$ 25,038
35,877
2,736
15,49011,906
235,085

Total assets acquired .......................................................

34,570326,132

Current liabilities ................................................................
Long-term liabilities .........................................................

5,075
2,945

47,877
27,783

Total liabilities assumed .................................................

8,020

75,660Net assets acquired ..........................................................

¥26,550$250,472

Intangible assets of ¥7,448 million ($70,264 thousand) subject toamortization include customer relationships of ¥6,796 million ($64,113
thousand) with a 15-year useful life. The goodwill of ¥17,471 million($164,821 thousand) represents expected excess earnings power basedon the future business operations. It is not deductible for tax purposes
and has been assigned to the BPO and ICT services segment.
The Company recorded the acquisition costs of ¥274 million ($2,585
thousand) related to this acquisition in selling, general and administrative
expenses for the year ended March 31, 2018.

(24) Discontinued Operations
ASC 205-20, “Discontinued Operations,” requires the operating resultsof any component of an entity with its own identifiable operations andcash flows which is disposed of or is classified as held for sale, and withwhich the Company will not have significant continuing involvement tobe reported in discontinued operations.

SECOM Annual Report 2018

59

The following unaudited pro forma information shows the Company’s
consolidated results of operations for the years ended March 31, 2018and 2017 as if the newly consolidated subsidiaries acquired in the year
ended March 31, 2018, were consolidated on April 1,2016.

Unaudited

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2017

2018

2018

Pro forma net sales andoperating revenue.................................... ¥1,099,655 ¥1,066,938
Pro forma net income attributable
to SECOM Co., Ltd. ....................................
97,714
92,070

Unaudited

Pro forma net income attributable
to SECOM Co., Ltd. per share..............

$10,374,104
921,830

In yenIn U.S. dollars

Years ended
March 31

Year ended
March 31

2018

2017

2018

¥447.69¥421.83$4.22

The unaudited pro forma data is not necessarily indicative of theCompany’s consolidated results of operations that would actually havebeen reported if the transaction in fact had occurred on April 1, 2016,
and is not necessarily representative of the Company’s consolidated
results of operations for any future period.
5. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2018 and 2017 comprise thefollowing:

Cash ....................................................................
Time deposits.................................................
Call loan .............................................................
Investment securities ................................

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2017

2018

¥304,415
12,165—149¥316,729¥281,433
18,004—
163¥299,600$2,871,839
114,764—
1,406$2,988,009

Investment securities include negotiable certificates of deposit andmoney management funds. These agreements mature within threemonths and their carrying values approximate fair value. The Company
has not experienced any losses through default of the financial institutions and does not anticipate default of any outstanding agreements.

7. Short-Term Investments and Investment Securities
Short-term investments (current) and investment securities(noncurrent) include debt and equity securities. The related aggregate
fair value, gross unrealized gains, gross unrealized losses and costs
pertaining to “available-for-sale” and “held-to-maturity” investments at
March 31, 2018 and 2017 are as follows:
In millions of yen
March 31, 2018
Gross unrealized
Cost

Short-term investments:
Available-for-sale:
Debt securities ....................... ¥ 16,319
Held-to-maturity:—
Debt securities .......................
¥ 16,319
Investment securities:
Available-for-sale:
Equity securities .................... ¥ 35,071
Debt securities ....................... 105,423
Held-to-maturity:
13,006
Debt securities .......................
¥153,500

Gains

60

SECOM Annual Report 2018

Fair value

¥

902 ¥

10

¥ 17,211

¥

—
902 ¥

—
10

—
¥ 17,211¥31,714 ¥ 175
2,799
913

¥ 66,610
107,309

1,546—¥36,059 ¥1,088

14,552¥188,471
In millions of yen
March 31, 2017

Gross unrealized
Cost

Short-term investments:
Available-for-sale:
Debt securities ....................... ¥ 28,051
Held-to-maturity:
Debt securities .......................
—¥ 28,051
Investment securities:
Available-for-sale:
Equity securities .................... ¥ 33,892
Debt securities .......................
88,199Held-to-maturity:
Debt securities .......................
13,058¥135,149

Gains

LossesFair value¥ 1,174¥ 1¥ 29,224—¥ 1,174—¥ 1—¥ 29,224¥27,885
5,347

¥ 57
231

¥ 61,720
93,315

1,404¥34,636—¥288

14,462¥169,497

In thousands of U.S. dollars
March 31, 2018
Gross unrealized
Cost

6. Cash Deposits for Armored Car Services
The Company operates cash collection and deposit services forfinancial institutions relating to cash dispensers located outside offinancial institution facilities and also operates cash collection anddelivery services for entities other than financial institutions. Cashdeposit for armored car services balances are segregated from cash andcash equivalents and are restricted as to use by the Company. The
Company funds most of the cash for such operations through bankoverdrafts and deposits. Bank loans and deposits received, which relate
to these operations, were ¥21,940 million ($206,981 thousand) and¥113,830 million ($1,073,868 thousand), respectively, at March 31, 2018,and ¥22,704 million and ¥107,878 million, respectively, at March 31,
2017. As part of its fee arrangement, the Company is reimbursed for theinterest cost of the related overdrafts.

LossesShort-term investments:
Available-for-sale:
Debt securities ................ $ 153,953 $Held-to-maturity:—
Debt securities ................
$ 153,953 $Gains

LossesFair value

8,509 $

94

$ 162,368—
8,509 $—
94—
$ 162,368

Investment securities:
Available-for-sale:
Equity securities ............. $ 330,858 $299,189 $ 1,651
Debt securities ................
994,557
26,405
8,613
Held-to-maturity:
122,698
14,585—
Debt securities ................
$1,448,113 $340,179 $10,264$ 628,396
1,012,349
137,283$1,778,028

Gross unrealized losses on, and fair value of, “available-for-sale” and“held-to-maturity” securities, aggregated by investment category andthe length of time that individual securities have been in a continuous
unrealized loss position at March 31, 2018 are as follows:

In thousands of U.S. dollars
March 31, 2018
Available-for-sale
Cost

In millions of yen
March 31, 2018
Less than 12 months

Available-for-sale:
Equity securities ...................
Debt securities ......................
Held-to-maturity:
Debt securities ......................

12 months or longer

Fair valueGrossunrealized
lossesFair valueGrossunrealized
losses¥ 1,482
45,507¥46,989¥ 157
923¥1,080

¥—
—
¥—

¥—
—
¥—

¥

¥

¥—

¥—

—

—

In thousands of U.S. dollars
March 31, 2018
Less than 12 months

Available-for-sale:
Equity securities ...................
Debt securities ......................
Held-to-maturity:
Debt securities ......................

12 months or longer

Fair valueGrossunrealized
lossesFair valueGrossunrealized
losses$ 13,981
429,311$443,292$ 1,481
8,708$10,189

$—
—
$—

$—
—
$—

$

$

$—

$—

—

—

Based on the Company’s ability and intent to hold the investments fora reasonable period of time sufficient for a recovery of fair value, thecredit condition of the issuers and other relevant factors, the Company
does not consider these investments to be other-than-temporarily
impaired at March 31, 2018.
At March 31, 2018, debt securities principally consisted of short-term
investments in monetary trusts, Japanese government bonds, corporate
bonds, U.S. treasury securities and U.S. Government Agency Bonds.
The cost and fair value of “available-for-sale” and ”held-to-maturity”
debt securities by contractual maturity at March 31, 2018 are as follows:
In millions of yen
March 31, 2018
Available-for-saleDue within 1 year ............
Due after 1 year
through 5 years ..............
Due after 5 years
through 10 years ...........
Due after 10 years ..........

Cost

Fair value¥ 16,319¥ 17,211

80,476
7,335
17,612¥121,742

81,122
7,480
18,707¥124,520

Held-to-maturity

¥

Cost

Fair value

—

¥

1,510
—
11,496¥13,006

Held-to-maturity

Fair value

Due within 1 year ............ $ 153,953 $ 162,368
Due after 1 year
through 5 years ..............
759,208
765,302
Due after 5 years
through 10 years ...........
69,19870,566
Due after 10 years ..........
166,151
176,481$1,148,510 $1,174,717

Cost

$

—

—

14,245

14,698—108,453$122,698—
122,585$137,283

During the years ended March 31, 2018, 2017 and 2016, the net
unrealized gains and losses on “available-for-sale” securities included aspart of accumulated other comprehensive income (loss), net of tax,
increased by ¥268 million ($2,528 thousand), increased by ¥4,376 million
and decreased by ¥7,411 million, respectively.
Proceeds from the sale of “available-for-sale” securities for the years
ended March 31, 2018, 2017 and 2016 were ¥26,488 million ($249,887
thousand), ¥15,574 million and ¥21,397 million, respectively. On thosesales, the gross realized gains and gross realized losses, using a movingaverage cost basis, for the years ended March 31, 2018, 2017 and 2016
are as follows:

Gross realized gains......................
Gross realized losses ....................

In millions of yen

In thousands of U.S.
dollars

Years ended
March 31

Year ended
March 31

2018

2017

2016

2018

¥1,689268¥1,62372¥1,921
110$15,934
2,528

The Company maintains long-term investment securities, issued by anumber of non-public companies, included as investment securities in
the consolidated balance sheets. The aggregate carrying amount of theinvestments in non-public companies, at cost net of other-than-temporary impairment, was ¥10,515 million ($99,198 thousand) and ¥9,414 million at March 31, 2018 and 2017, respectively. The corresponding fairvalue at that date was not computed as such estimation was not practicable and no significant events or changes that might have affected thefair value of the investments were observed.
8. Inventories
Inventories at March 31, 2018 and 2017 comprise the following:—
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

1,558—
12,994¥14,552

Fair value

$

2018

2017

2018

Security-related products................................. ¥ 7,433
Fire protection-related products.................. 20,476
Real estate .................................................................. 44,455
Other-related products ......................................
9,694¥82,058¥ 6,961
18,13527,507
10,083¥62,686$ 70,123
193,170419,387
91,452$774,132

Work in process for real estate inventories at March 31, 2018 and 2017,
amounting to ¥39,689 million ($374,425 thousand) and ¥22,284 million,
respectively, are included in real estate.
Costs on uncompleted construction contracts at March 31, 2018 and2017, amounting to ¥10,974 million ($103,528 thousand) and ¥9,053
million, respectively, are included in fire protection-related products.

SECOM Annual Report 2018

61

In millions of yen

The amount of write-down on real estate inventories included in costof sales for the years ended March 31, 2018, 2017 and 2016 were ¥865
million ($8,160 thousand), ¥1,164 million and ¥1,463 million, respectively.
9. Credit Quality of Financing Receivables and Allowance for
Doubtful Accounts
The Company has financing receivables and classifies them into four
categories: “lease receivables,”“loans receivable resulting from medical
services,”“other loans receivable” and “other.” Financing receivables classified
as “lease receivables” are resulting from lease transactions of security
merchandise and security systems.
The Company continuously monitors overdue financing receivables
which, the Company considers, have a risk of uncollectability. For
financing receivables with specific customer collection issues, theCompany individually evaluates their collectability in order to determine
the amount of allowance for doubtful accounts. For other financing
receivables, the Company categorizes these receivables into groups by
their nature and characteristics. The Company collectively evaluates thecollectability of each group, using its historical experience of write-offs
and determines the amount of allowance for doubtful accounts.
Financing receivables and allowance for doubtful accounts at March
31, 2018 and 2017 are as follows:
In millions of yen
Year ended March 31, 2018

Lease
receivables

Allowance for
doubtful accounts:
Balance at
beginning of year................. ¥ 356
Provision (Reversal) .........
(133)
Charge off .............................
52
Other* .....................................
—
Balance at
end of year ...............................
Individually
evaluated............................
Collectively
evaluated............................ ¥Loansreceivable
resulting frommedicalservices

Other
loans
receivable

Other

Other
loans
receivable

Other

Total

368
(71)
59
—

¥1,995
395
—
—

¥ 705
64
(7)
(64)

¥1,688
(124)
(714)
0

¥ 4,756
264
(662)
(64)

356

2,390

698

850

4,294

133

2,390

698

850

4,071

Lease
receivables

Allowance for
doubtful accounts:
Balance at
beginning of year.................
Provision (Reversal) .........
Charge off .............................
Other* .....................................
Balance at
end of year ...............................
Individually
evaluated............................
Collectively
evaluated............................
Financing receivables:
Individually
evaluated............................
Collectively
evaluated............................

¥

¥

223

¥

—

¥

¥

152

¥5,856¥ 803¥1,098¥ 7,90952,287

546

932

149

53,914¥52,439¥6,402¥1,735¥1,247¥61,823

Total

0

¥

—

¥

223

In thousands of U.S. dollars
Year ended March 31, 2018

¥ 698
(143)
—
(16)

275

2,373

539

1,216

4,403

119

2,373

539

1,216

4,247

156

¥

¥54,400

Loans
receivable
resulting frommedicalservices* “Other” principally includes the effect of changes in foreign currency exchange rates and thescope of consolidation.

¥2,390(17)——

Financing receivables:
Individually
evaluated............................ ¥ 197
Collectively
evaluated............................ 54,203

Year ended March 31, 2017

—

¥

0

¥ 850 ¥ 4,294
366
73
(0)
52
0
(16)

¥

—

¥

156

¥5,666¥ 948¥1,404¥ 8,215

548

921

143

55,815¥6,214¥1,869¥1,547¥64,030* “Other” principally includes the effect of changes in foreign currency exchange rates and thescope of consolidation.

Lease
receivables

Allowance for
doubtful accounts:
Balance at
beginning of year................. $ 3,358
Provision (Reversal) .........
(1,255)Charge off .............................
491
Other* .....................................
—
Balance at
end of year ...............................
2,594
Individually
evaluated............................
1,122
Collectively
evaluated............................ $ 1,472

Loans
receivable
resulting frommedicalservices

Other loans
receivable

Other

Total

$22,547 $ 6,585 $ 8,019 $ 40,509(160)(1,349)
3,453
689
—
—
(0)
491
—
(151)
0
(151)
22,387

5,085

11,472

41,53822,387

5,085

11,47240,066$—$0Financing receivables:
Individually
evaluated............................ $ 1,858
Collectively
evaluated............................ 511,350$53,453
5,170

8,689

$513,208$58,623$17,632$ 8,943$— $ 1,472$13,245 $ 77,499
1,349

526,558$14,594 $604,057* “Other” principally includes the effect of changes in foreign currency exchange rates and thescope of consolidation.

62

SECOM Annual Report 2018

The Company considers receivables are past due and the financial
position of the debtor to be credit quality indicators and classifies
financing receivables into Overdue and Current. Financing receivables
determined to have no prospects for collecting contractual intereston the basis of being past due and other factors are placed on
nonaccrual status.
The aging analysis of the recorded financing receivables and financing
receivables on nonaccrual status at March 31, 2018 and 2017 are as
follows:
In millions of yen
March 31, 2018

Current ............................................
Overdue..........................................

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

¥54,203
197¥6,177
37

¥ 953
916

¥ 843
704

¥62,176
1,854¥54,400¥6,214¥1,869¥1,547¥64,030

Financing receivables
on nonaccrual status ...........

¥

¥

¥ 948

¥

¥

4

In millions of yen
March 31, 2018

Impaired receivables ..............
Related allowance for
doubtful accounts .................

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

¥197

¥5,666¥948¥1,404¥8,215

119

2,373

539

1,216

4,247

In millions of yen

Total:
Financing receivables ..........

—

Impaired receivables and the related allowance for doubtful accounts
at March 31, 2018 and 2017 are as follows:—

952

March 31, 2017

Impaired receivables ..............
Related allowance for
doubtful accounts .................

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

¥152

¥5,856¥803¥1,098¥7,909

133

2,390

698

850

4,071

In millions of yen

In thousands of U.S. dollars

March 31, 2017

Leasereceivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

Current ............................................
Overdue..........................................

¥52,287
152¥6,362
40

¥ 989
746

¥ 880
367

¥60,518
1,305

Total:
Financing receivables ..........

¥52,439¥6,402¥1,735¥1,247¥61,823

Financing receivables
on nonaccrual status ...........

¥

¥

¥ 803

¥

¥

—

7

—

810

March 31, 2018

Impaired receivables ..............
Related allowance for
doubtful accounts .................

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other

Total

$1,858$53,453$8,943 $13,245$77,499

1,122

24,387

5,085

40,066Otherloans
receivable

11,472

The average amounts of impaired receivables for the year ended
March 31, 2018 are as follows:
In millions of yen

In thousands of U.S. dollars
Lease
receivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

¥175

¥5,760¥876¥1,251¥8,062Lease
receivables

Loans
receivable
resulting frommedicalservices$1,651$54,340

March 31, 2018

Lease
receivables

Current ............................................ $511,350
Overdue..........................................
1,858

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

$58,274 $ 8,990 $ 7,952 $586,566
349
8,642
6,642
17,491

Total:
Financing receivables .......... $513,208$58,623 $17,632 $14,594 $604,057

Financing receivables
on nonaccrual status ........... $$—Average amounts of
impaired receivables ............

38 $ 8,943 $— $ 8,981

In thousands of U.S. dollars

Average amounts of
impaired receivables ............

Other
loans
receivable

Other

Total

$8,264 $11,802$76,057

SECOM Annual Report 201863

10. Investments in Affiliated Companies
The Company has investments in affiliated companies that are
accounted for under the equity method. Investments principally consistof Taiwan Secom Co., Ltd., a 28.7 percent owned affiliate, which is listedon the Taiwan Stock Exchange; S1 Corporation, a 28.8 percent owned
affiliate, which is listed on the Korea Exchange; and Toyo Tech Co., Ltd., a27.1 percent owned affiliate, which is listed on the Second Section of theTokyo Securities Exchange.
Combined financial information for the affiliated companies
accounted for under the equity method is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2017

2018

Current assets ...................................................... ¥127,793
Noncurrent assets ............................................. 196,908¥104,780
183,063$1,205,594
1,857,623

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2018

2017

2016

2018

Sales ...............................................

¥1,371¥1,455¥1,398$12,934

Purchases ....................................

¥6,293¥4,749¥5,527$59,368

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2017

2018

Notes and accounts
receivable, trade...................................................

¥ 475

¥ 526

$ 4,481

¥ 492

¥ 693

$ 4,642

Total assets....................................................... ¥324,701¥287,843$3,063,217

Loans receivable.....................................................

Current liabilities ................................................ ¥ 79,246
Long-term liabilities .........................................
42,160Equity ........................................................................ 203,295¥ 68,683
39,477
179,683$ 747,604
397,736
1,917,877

Notes and accounts payable..........................

¥2,406¥2,668$22,698

Guarantees for bank loans ...............................

¥

¥

$

Total liabilities and equity....................... ¥324,701¥287,843$3,063,217

In millions of yen

In thousands of
U.S. dollars

The Company’s equity in undistributed income of affiliates at
March 31, 2018 and 2017 included in retained earnings was ¥37,763
million ($356,255 thousand) and ¥34,888 million, respectively.

Years ended
March 31

Year ended
March 31

2018

2017

2016

2018

Net sales ...................................... ¥283,066¥255,263¥289,131$2,670,434

Gross profit ................................ ¥ 83,626¥ 78,246¥ 89,152$ 788,925

Net income
attributable toaffiliated companies .......... ¥ 25,266¥ 17,320¥ 25,012$ 238,358

Dividends received from affiliated companies for the years ended
March 31, 2018, 2017 and 2016 were ¥4,199 million ($39,613 thousand),¥3,036 million and ¥3,614 million, respectively.
Three listed affiliated companies accounted for under the equity
method with an aggregated carrying amount of ¥51,410 million($485,000 thousand) and ¥48,971 million at March 31, 2018 and 2017,
respectively, had a quoted market value of ¥141,738 million ($1,337,151
thousand) and ¥133,190 million at March 31, 2018 and 2017,
respectively.
The amounts of goodwill included in the carrying amount of investments in affiliated companies were ¥4,836 million ($45,623 thousand)and ¥4,600 million at March 31, 2018 and 2017, respectively.

64

A summary of transactions and balances with the affiliated companies
accounted for under the equity method is presented below:

SECOM Annual Report 2018

—

50

—

11. Long-Lived Assets
The Company has assessed the potential impairment of its long-lived
assets. As a result of a significant decrease in revenue forecasts, theCompany principally recognized impairment losses on certain businessassets of the BPO and ICT services segment for the year ended March 31,
2018, on certain business assets of the geographic information services
segment for the year ended March 31, 2017, and on certain businessassets of the BPO and ICT services segment and certain real estateincluded as corporate items for the year ended March 31, 2016. The fairvalue was determined based on the estimated present value of future
cash flows or appraisal value.
Impairment losses on long-lived assets by business segment for theyears ended March 31, 2018, 2017 and 2016 are as follows:2018

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2017

2016

2018

42 ¥
62
556
—

—
—
329
—

$ 443
142
—
—

364
415

1,473
485

1,152
5,637

3,434
3,915

—
—

71
—

—
4,696

—
—

¥2,689 ¥11,814$7,934

Security services ...................................
Fire protection services....................
Medical services ...................................
Insurance services ...............................
Geographic information
services ....................................................
BPO and ICT services .........................
Real estate andother services ......................................
Corporate items....................................

¥ 47
15
—
—

¥

Total .................................................

¥841

12. Goodwill and Other Intangible Assets
The components of acquired intangible assets, excluding goodwill, atMarch 31, 2018 and 2017 are as follows:

The changes in the carrying amount of goodwill by business segment
for the years ended March 31, 2018 and 2017 are as follows:
In millions of yen

In millions of yen
March 31, 2018
Gross
carrying
amountAccumulated
amortization

Net
carrying
amountAmortized intangible assets:
Software ................................................................ ¥53,535
Other ....................................................................... 40,228¥93,763(¥33,380)(9,307)(¥42,687)¥20,155
30,921¥51,076

Unamortized intangible assets ..................... ¥ 5,951¥¥ 5,951—

In millions of yen
March 31, 2017

Amortized intangible assets:
Software ................................................................
Other .......................................................................

Unamortized intangible assets .....................

Gross
carrying
amountAccumulated
amortization

Net
carrying
amount¥50,386
33,115¥83,501(¥29,699)(7,299)(¥36,998)¥20,687
25,816¥46,503¥ 4,223¥¥ 4,223—

In thousands of U.S. dollars
March 31, 2018
Gross
carrying
amountAmortized intangible assets:
Software ................................................................ $505,047
Other ....................................................................... 379,509$884,556
Unamortized intangible assets ..................... $ 56,143

Accumulated
amortization

Net
carrying
amount($314,906) $190,141(87,802) 291,707($402,708) $481,848$— $ 56,143

Aggregate amortization expense for the years ended March 31, 2018,2017 and 2016 was ¥9,299 million ($87,726 thousand), ¥8,910 million and¥7,254 million, respectively. Amortized intangible assets are amortizedusing the straight-line method over their estimated useful lives. The
weighted average amortization period for internal use software isapproximately five years.
The estimated aggregate amortization expense for intangible assets
for the next five years is as follows:
Years ending March 31

2019 .......................................................................................
2020 .......................................................................................
2021 .......................................................................................
2022 .......................................................................................
2023 .......................................................................................

In millions of yen

In thousands of
U.S. dollars¥9,777
8,340
6,622
4,813
3,367

$92,236
78,67962,47245,406
31,764

Security
services

Goodwill .......................... ¥62,877
Accumulated
impairment
losses............................... (1,723)
March 31, 2016 ............ 61,154
Goodwill acquired
during the year .........
110
Disposal ...........................
—
Impairment
losses............................... (1,156)
Translation
adjustment..................
(246)
Goodwill .......................... 62,741
Accumulated
impairment
losses............................... (2,879)
March 31, 2017 ............ 59,862
Goodwill acquired38
during the year .........
Disposal ...........................
—
Impairment
losses...............................
—
Translation
adjustment..................
9
Goodwill .......................... 62,788
Accumulated
impairment
losses............................... (2,879)
March 31, 2018 ......... ¥59,909

Fire
protection
services

Medicalservices

Geographic
information
services

BPO and ICT
services

Real estateand otherservices¥1,942¥9,399

Total¥4,580¥17,643¥1,962¥ 98,403—
1,942(5,350)
4,049

(738)
3,842

(175)
17,468

(135)
1,827

(8,121)90,282

—
—

—
—

—
—

—
—

—
—

110
—

—

—

(37)

—

—

(1,193)

—
1,942

—
9,399

(3)
4,577

—
17,643

—
1,962

(249)
98,264—
1,942(5,350)
4,049

(775)
3,802

(175)
17,468

(135)
1,827

(9,314)
88,950

57
—

—
—

—
—

17,471———

17,566
—

—

(11)

—

—

—

(11)

—
1,999

—
9,399

(2)
4,575

—
35,114—
1,962

7
115,837— (5,361)¥1,999 ¥4,038(775)(175) (135)(9,325)¥3,800 ¥34,939 ¥1,827 ¥106,512

Fireprotection
services

Geographic
information
services

In thousands of U.S. dollars
Security
services

Medicalservices

BPO and ICT
services

Real estateand otherservices

Total

Goodwill .......................... $591,896 $18,321 $88,670 $43,179 $166,443 $18,510 $ 927,019
Accumulated
impairment
losses............................... (27,160)— (50,472) (7,311)(1,651) (1,274)(87,868)
March 31, 2017 ............ 564,736 18,321 38,198 35,868 164,792 17,236
839,151
Goodwill acquired
during the year .........
358
538
—
— 164,821—
165,717
Disposal ...........................
—
—
—
—
—
—
—
Impairment
losses...............................
—
—
(104)
—
—
—
(104)
Translation
adjustment..................
85
—
—
(19)
—
—
66
Goodwill .......................... 592,339 18,859 88,670 43,160 331,264 18,510 1,092,802
Accumulated
impairment
losses............................... (27,160)— (50,576) (7,311)(1,651) (1,274)(87,972)
March 31, 2018 ......... $565,179 $18,859 $38,094 $35,849 $329,613 $17,236 $1,004,830

Impairment losses on goodwill recognized in the above table aremainly due to decreases in the estimated fair value of reporting units ineach segment mainly caused by decreases in projected cash flows. The
fair value is determined based on the estimated present value of future
cash flows.

SECOM Annual Report 201865

13. Bank Loans and Long-Term Debt
Bank loans of ¥38,965 million ($367,594 thousand) and ¥42,099 million
at March 31, 2018 and 2017, respectively, are generally comprised of 30
to 365 day notes. The weighted average interest rate was 0.76 percent
and 0.87 percent at March 31, 2018 and 2017, respectively. Substantiallyall of these loans are borrowed from banks. The Company has enteredinto basic agreements with these banks which state that, with respect toall present or future loans with such banks, collateral (including sums on
deposit with such banks) or guarantors shall be provided immediately
upon request. Further, any collateral furnished pursuant to such agreements or otherwise will be applicable to all indebtedness to such banks.
The Company has not been requested to submit such additional
security.
At March 31, 2018, Nohmi Bosai Ltd., a subsidiary of the parent company, had an unused committed line of credit from a short-term arrangement of ¥4,000 million ($37,736 thousand). The line of credit expires inMarch 2021. Under the agreement, Nohmi Bosai Ltd. is required to pay
commitment fees, at an annual rate of 0.15 percent, on the unused portion of the line of credit. At March 31, 2018, the Company had overdraft
agreements with 35 banks and its unused lines of credit amounted to¥66,547 million ($627,802 thousand). The Company incurs no fee on theunused portion of these overdraft agreements. The overdraft agreements expire in the period from April 2018 to March 2019. The Company
has the ability and intent to extend these overdraft agreements undersimilar terms and conditions.
Long-term debt at March 31, 2018 and 2017 comprises the following:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2017

2018

2018

Loans, principally from banks due
2017–2033 with interest rates
ranging from 0.08% to 14.00%:
Secured ....................................................................... ¥14,545 ¥16,799
Unsecured................................................................. 25,106
24,435
0.43% unsecured bonds due 2018 ..................
—
100
0.38% unsecured bonds due 2021 ..................
490
486
0.26% unsecured bonds due 2021 ..................
70—
0.25% unsecured bonds due 2021 ..................
70—
0.31% unsecured bonds due 2023 ..................
40—
0.40% unsecured bonds due 2024 ..................
26—
0.29% unsecured bonds due 2022 ..................
40—
Unsecured bonds due 2017–2027
with floating interest rates basedon 6-month Japanese yen TIBOR ................... 5,299
7,752
Obligations under capital leases,
due 2017–2043 (Note 19) ................................... 24,246
24,19273,764............................................................................. 69,932
Less: Portion due within one year .................... (19,632) (19,615)............................................................................. ¥50,300 ¥54,149$137,217
236,849
—
4,623
660
660
377
245
377
49,992
228,736
659,736(185,208)$474,528

Assets pledged as collateral for bank loans and long-term debt at
March 31, 2018 and 2017 are as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

66

2017

2018

Time deposits................................................................. ¥ 1,437 ¥ 1,654
Short-term and long-term receivables ..........
6,130
6,209
Investment securities ................................................
1,332
1,321
Property, plant and equipment .......................... 43,510 49,575
Other intangible assets ............................................ ¥ 818 ¥ 818$ 13,557
57,83012,566
410,472$ 7,717

SECOM Annual Report 2018

The aggregate annual maturities on long-term debt at March 31, 2018
are as follows:
Years ending March 31

2019 .....................................................................................
2020 .....................................................................................
2021 .....................................................................................
2022 .....................................................................................
2023 .....................................................................................
Thereafter .........................................................................
...............................................................................................

In millions of yen

In thousands of
U.S. dollars¥19,632
16,123
12,330
6,899
5,071
9,877
¥69,932$185,208
152,104
116,32165,08547,84093,178$659,736

14. Insurance-Related Operations
Secom General Insurance Co., Ltd. (“Secom Insurance”), a subsidiary of
the parent company, maintains accounting records as noted in Note 2 inaccordance with Japanese GAAP, which vary in certain respects from U.S.
GAAP. Those differences are principally, (a) that insurance acquisition
costs are charged to expense when incurred under Japanese GAAP
whereas under U.S. GAAP, those costs are deferred and amortized generally over the premium-paying period of the insurance policies, (b) thatliabilities related to incurred but not reported claims are computed
based on related regulations in Japan whereas under U.S. GAAP, thoseliabilities are computed based on past experience for unreported losses,and (c) that unearned premiums are calculated based on the documents
authorized by the Supervisory Authorities in Japan whereas under U.S.
GAAP, unearned premiums are reflected based on the lapse andsurrender over the contract period.
In addition, under certain property and casualty insurance contracts
with a refund clause and long-term insurance policies that provide
refunds at maturity, such as personal accident and fire, the policyholder
receives a refund if premiums have been fully paid unless a substantial
settlement (as defined in the policy) has occurred. The Company has
provided for such refundable amounts by classifying a portion of the net
premiums written, together with interest thereon, as investment deposits by policyholders. Contract and policy terms are principally five years.
For purposes of preparing the consolidated financial statements,
appropriate adjustments have been made to reflect such items inaccordance with U.S. GAAP.
The net equity of Secom Insurance at March 31, 2018 and 2017 was¥75,968 million ($716,679 thousand) and ¥73,757 million, respectively.
Net sales and operating revenue of Secom Insurance include net realized investment gains and losses, including gains and losses on sales of
securities, losses on other-than-temporary impairment of investment
securities and impairment losses on long-lived assets. Net realized investment gains and losses, including losses on other-than-temporary impairments, for the years ended March 31, 2018, 2017 and 2016 were gains of¥694 million ($6,547 thousand), ¥1,004 million and ¥473 million, respectively. Losses on other-than-temporary impairments of investment securities for the years ended March 31, 2018, 2017 and 2016 were ¥142
million ($1,340 thousand), ¥105 million and ¥147 million, respectively.
15. Pension and Severance Costs
Employees of the parent company and its domestic subsidiaries
whose services are terminated are, under most circumstances, eligible
for lump-sum benefits and/or eligible for pension benefits.

The parent company and certain domestic subsidiaries have adopted
a cash balance pension plan and a defined contribution pension plan.
Benefits under the cash balance pension plan are calculated as a certain
percentage of employees’ annual income over their period of service,plus interest calculated as the 3-year average yield for 10-year government bonds. The defined contribution pension plan was established in
April 2003, by transferring a portion equivalent to 20 percent of the cash
balance pension plan, including portions funded in prior periods. A
specified percentage of employees’ annual income is contributed to thedefined contribution pension plan.
In April 2005, the parent company and certain domestic subsidiaries
transferred an additional portion of the cash balance pension plan to thedefined contribution pension plan. Accordingly, the ratio of the accumulated amount in the cash balance pension plan and the amount of contributions to the defined contribution pension plan changed to 70
percent and 30 percent, including portions funded in prior periods.
Net periodic pension and severance costs for the years ended
March 31, 2018, 2017 and 2016 are as follows:
In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2018

2017

2016

Net periodic pension andseverance costs:
Service cost .......................................... ¥7,996 ¥7,889 ¥7,739
Interest cost .........................................
404
349
718
Expected return onplan assets .......................................... (3,109) (2,919) (2,756)
Amortization of priorservice benefit .................................
(306)(966) (1,504)
Recognized actuarial loss ............
287
754
714
Net periodic pension
and severance costs ............... ¥5,272 ¥5,107 ¥4,911

2018

In thousands of
U.S. dollars

March 31

March 31

2018

2017

2018

¥41,409¥35,282$390,651(29,384)¥12,025(29,636)¥ 5,646(277,208)$113,443

Other changes in plan assets and benefit obligations recognized inother comprehensive income (loss) for the year ended March 31, 2018
are summarized as follows:
In millions of yen

In thousands of
U.S. dollars(¥7,597)(287)
306(¥7,578)($71,670)(2,708)2,887($71,491)

Current year actuarial gain .........................................
Amortization of actuarial loss ...................................
Amortization of prior service benefit ...................

Amounts recognized in accumulated other comprehensive income(loss) at March 31, 2018 and 2017 consist of:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

(29,330)

2018

2017

2018

¥751
227
¥978

¥8,635(79)¥8,556$7,0842,142$9,226(2,887)
2,708$49,736

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2017

2018

¥111,032
7,889
349(2,189)(5,449)—$1,053,132
75,435
3,811(12,085)(56,774)
5,575

111,632

1,069,094

2018

Prepaid pension andseverance costs ................................................
Accrued pension andseverance costs ................................................
Net amount recognized..............

In millions of yen$75,437
3,811

The changes in benefit obligation, plan assets and funded status are
as follows:

Change in benefit obligation:
Benefit obligation
at beginning of year ............................ ¥111,632
Service cost .................................................
7,996
Interest cost ................................................
404
Actuarial (gain) loss ................................
(1,281)
Benefits paid ...............................................
(6,018)Acquisition ...................................................
591
Benefit obligation
at end of year........................................... 113,324
Change in plan assets:
Fair value of plan assets
at beginning of year ............................ 117,278
Actual return on plan assets .............
9,425
Employer contribution.........................
2,396
Benefits paid ...............................................
(4,139)Acquisition ...................................................
389
Fair value of plan assets
at end of year........................................... 125,349
Funded status
at the end of year ........................................ ¥ 12,025

Amounts recognized in the consolidated balance sheets at March 31,2018 and 2017 consist of:Actuarial loss...............................................................
Prior service benefit ...............................................
Net amount recognized....................

The estimated prior service benefit and actuarial loss for the defined
benefit pension plans that will be amortized from accumulated othercomprehensive income (loss) into net periodic benefit cost over the
next year are ¥2 million ($19 thousand) and ¥197 million ($1,858
thousand), respectively.
The accumulated benefit obligation for the pension plan was¥113,039 million ($1,066,406 thousand) and ¥111,278 million at March
31, 2018 and 2017, respectively.
The projected benefit obligation, accumulated benefit obligation andfair value of plan assets for the pension plans with accumulated benefit
obligation in excess of plan assets were ¥49,470 million ($466,698
thousand), ¥49,186 million ($464,019 thousand) and ¥29,006 million($273,642 thousand), respectively, at March 31, 2018, and ¥47,779 million,¥47,425 million and ¥25,367 million, respectively, at March 31, 2017.
The Company uses March 31 as the measurement date for thedomestic pension plan.
Weighted-average assumptions used to determine the benefit
obligation at March 31, 2018 and 2017 are as follows:
March 31111,761
6,797
2,343(3,623)—

1,106,396
88,91522,603(39,047)
3,670

117,278

1,182,537¥ 5,646$ 113,443

Discount rate .....................................................................................................
Rate of compensation increase .............................................................

2018

2017

0.4%
2.6%

0.4%
2.7%

SECOM Annual Report 2018

67

In millions of yen

Weighted-average assumptions used to determine net pension andseverance costs for the years ended March 31, 2018, 2017 and 2016 are
as follows:
Years ended March 31

Discount rate ..........................................................................
Expected return on plan assets ..................................
Rate of compensation increase ..................................

2018

2017

2016

0.4%
3.0%
2.7%

0.3%
3.0%
2.6%

0.8%
3.0%
2.7%

The Company determines the expected long-term rate of return
based on the expected long-term return of the various asset categories
in which it invests. The Company considers the current expectations for
future returns and the actual historical returns of each plan asset
category.
The Company’s investment policy is designed to ensure that sufficientplan assets are available to provide future payments of pension benefits
to the eligible plan participants. The policy uses target allocations for theindividual asset categories. Plan assets are invested primarily in equity
and debt securities, and pooled funds with the objective to minimize risk
and achieve the expected rate of return. The investment results are
periodically checked and asset allocation is adjusted as necessary.
The following table represents the fair value of the Company’s pension
plan assets at March 31, 2018 and 2017. The three levels of inputs used tomeasure fair value are more fully described in Note 22.

March 31, 2017
Level 1

Cash and cash
equivalents...........................
Equity securities
Japanesecompanies......................
Foreigncompanies......................
Debt securities
Government
bonds ................................
Non-government
bonds ................................
Pooled funds .........................
Call loans ..................................
Insurance contracts...........
Other ..........................................

Level 2

¥ 6,482¥—¥

Level 3

Total—

¥ 6,482

25,495424—

25,919

3,626

—

—

3,626

2,128

571

—

2,699

—
731
—
—
—
¥38,462

2,055
32,977
3,256
12,251
231¥51,765—
26,273——778¥27,051

2,055
59,981
3,256
12,251
1,009¥117,278* The plan’s government bonds include approximately 5% Japanese bonds and 95%
foreign bonds. The non-goverment bonds are all foreign bonds.
* The pension investment trust fund included in the plan’s pooled funds is classified as
Level 2, and invests approximately 60% in equity securities, 30% in debt securities and
10% in other investments. The unquoted beneficial certificate of security investment
trust included in the plan’s pooled funds is classified as Level 3.

In millions of yen

In thousands of U.S. dollars

March 31, 2018
Level 1

Cash and cash
equivalents...........................
Equity securities
Japanesecompanies......................
Foreigncompanies......................
Debt securities
Government
bonds ................................
Non-government
bonds ................................
Pooled funds .........................
Call loans ..................................
Insurance contracts...........
Other ..........................................

¥ 8,142

Level 2¥—

Level 3

¥

—

¥

8,142

23,703434—

24,137

3,837

—

—

3,837

2,515

494

—

3,009

—
595
—
—
—
¥38,792

2,032
39,134
5,314
13,127355¥60,890—
24,433——
1,234¥25,667

2,032
64,162
5,314
13,127
1,589¥125,349* The plan’s government bonds include approximately 5% Japanese bonds and 95%
foreign bonds. The non-goverment bonds are all foreign bonds.
* The pension investment trust fund included in the plan’s pooled funds is classified as
Level 2, and invests approximately 50% in equity securities, 40% in debt securities and
10% in other investments. The unquoted beneficial certificate of security investment
trust included in the plan’s pooled funds is classified as Level 3.

68

SECOM Annual Report 2018

March 31, 2018

Total

Level 1

Cash and cash
equivalents...........................
Equity securities
Japanesecompanies......................
Foreigncompanies......................
Debt securities
Government
bonds ................................
Non-government
bonds ................................
Pooled funds .........................
Call loans ..................................
Insurance contracts...........
Other ..........................................

$ 76,811

Level 2$

— $Level 3

—

Total

$

76,811

223,613

4,095—

227,708

36,198——36,19823,727

4,660—

28,387

19,170—369,188 230,500
50,132—
123,839—
3,349
11,642$574,433 $242,142

19,170605,301
50,132
123,839
14,991$1,182,537

—
5,613
—
—
—
$365,962* The plan’s government bonds include approximately 5% Japanese bonds and 95%
foreign bonds. The non-goverment bonds are all foreign bonds.
* The pension investment trust fund included in the plan’s pooled funds is classified as
Level 2, and invests approximately 50% in equity securities, 40% in debt securities and
10% in other investments. The unquoted beneficial certificate of security investment
trust included in the plan’s pooled funds is classified as Level 3.

The following table represents the changes in Level 3 investments forthe years ended March 31, 2018 and 2017.
Level 3 investments, mainly in unquoted certificates of beneficial
interests in securities investment trust included in the plan’s pooled
funds, are at the discretion of the administrator of the fund. Their fairvalues are estimated based on unobservable inputs provided by theadministrator of the fund.
In millions of yen

16. Exchange Gains and Losses
Other expenses for the years ended March 31, 2018, 2017 and 2016
includes net exchange losses of ¥213 million ($2,009 thousand), ¥454
million and ¥557 million, respectively.
17. Income Taxes
Total income taxes for the years ended March 31, 2018, 2017 and 2016
are allocated as follows:Year ended March 31, 2018
Pooled
funds

Other

Total

Balance at beginning of year ................................... ¥26,273 ¥ 778 ¥27,051
Actual return on plan assets:
Relating to assets sold during the year........
(1,047)68(979)
Relating to assets held at end of year ...........
615
(78)
537
Purchases, sales and settlements, net.................
(1,408)466(942)
Transfer to Level 3, net..................................................
———
Balance at end of year .................................................. ¥24,433 ¥1,234 ¥25,667
In millions of yen
Year ended March 31, 2017

Balance at beginning of year ...................................
Actual return on plan assets:
Relating to assets sold during the year........
Relating to assets held at end of year ...........
Purchases, sales and settlements, net.................
Transfer to Level 3, net..................................................
Balance at end of year ..................................................

Pooled
funds

Other

Total

¥26,749¥465¥27,214595(1,849)473
305¥26,273

54
(25)
284
—
¥778

649
(1,874)757
305¥27,051

2018

Consolidated income taxes
from continuing
operations ............................................. ¥48,107
Shareholders’ equity—
accumulated othercomprehensive
income (loss):
Unrealized gains
on securities ...................................
155
Unrealized gains
on derivative
instruments.....................................
—
Pension liability
adjustments.................................... 2,332
Foreign currencytranslation
adjustments....................................
662............................................................ ¥51,256

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2016

2018

¥47,012 ¥40,312$453,840

2017

1,244

(3,447)

1,462

—

(5)

—

1,876

(2,926)22,000(358)(783)¥49,774 ¥33,151

6,245$483,547

In thousands of U.S. dollars
Year ended March 31, 2018
Pooled
funds

Other

Total

Balance at beginning of year ................................... $247,858 $ 7,340 $255,198
Actual return on plan assets:
Relating to assets sold during the year........
(9,877)642(9,235)
Relating to assets held at end of year ...........
5,802
(736)
5,066
Purchases, sales and settlements, net................. (13,283)
4,396(8,887)
Transfer to Level 3, net..................................................
———
Balance at end of year .................................................. $230,500 $11,642 $242,142

The Company expects to contribute ¥2,235 million ($21,085 thousand)to its domestic defined benefit plans in the year ending March 31, 2019.
The following benefit payments, which reflect future service, as
appropriate, are expected to be paid.
Years ending March 31

2019 .....................................................................................
2020 .....................................................................................
2021 .....................................................................................
2022 .....................................................................................
2023 .....................................................................................
2024–2028 .......................................................................

In millions of yen

In thousands of
U.S. dollars¥ 5,551
5,371
5,535
5,659
5,824
29,942¥ 52,368
50,67052,21753,38754,943
282,472

The parent company and certain subsidiaries have defined contribution pension plans. The contributions to the defined contribution pension plans for the years ended March 31, 2018, 2017 and 2016 were
¥1,851 million ($17,462 thousand), ¥2,192 million and ¥1,796 million,
respectively.

The parent company and its domestic subsidiaries are subject to anumber of income taxes. As a result of revisions to domestic laws during
the third quarter ended December 31, 2015, and the fourth quarters
ended March 31, 2016, the statutory income tax rate in Japan, which wasapproximately 32.9 percent for the year ended March 31, 2016,
decreased to approximately 30.7 percent for the years ended March 31,2017 and 2018.
Reconciliations of the differences between income taxes computed atstatutory tax rates and consolidated income taxes from continuing
operations are as follows:2018

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2016

2018

2017

Income taxes computed
at statutory tax rate.......................... ¥46,293 ¥44,584 ¥40,290
Increase (decrease)resulting from:
Provision of valuation
allowance......................................... 2,116
714
1,104
Per capita tax ....................................
882
867
845
Reversal of valuation
allowance.........................................
(835) (1,048) (3,697)
Net effect of changes incorporate tax rates .....................
660
512
464
Other, net............................................ (1,009)
1,383
1,306
Consolidated income
taxes from continuing
operations ................................. ¥48,107 ¥47,012 ¥40,312$436,726

19,962
8,321(7,877)
6,227(9,519)$453,840

SECOM Annual Report 2018

69

The significant components of deferred tax assets and liabilities at
March 31, 2018 and 2017 are as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2017

2018

2018

Deferred tax assets:
Loss carryforwards ........................................
Accrued pension andseverance costs ............................................
Property, plant and equipment ............
Deferred revenue ..........................................
Adjustment of book value atthe date of acquisition
Land and buildings ................................
Other assets ................................................
Accrued bonus................................................
Vacation accrual .............................................
Investment securities ..................................
Intangible assets ............................................
Allowance for doubtful accounts........
Write-down on real estate
inventories.......................................................
Other .....................................................................
Gross deferred tax assets ....................
Less: Valuation allowance ...................
Total deferred tax assets ......................
Deferred tax liabilities:
Adjustment of book value atthe date of acquisition
Intangible assets ......................................
Land and buildings ................................
Other assets ................................................
Prepaid pension andseverance costs ............................................
Unrealized gains on securities...............
Investments in affiliatedcompanies.......................................................
Deferred installation costs .......................
Other .....................................................................
Gross deferred tax liabilities ..............
Net deferred tax assets(liabilities) ............................................

¥ 9,138¥ 9,393$ 86,208

8,637
7,448
7,176

8,851
8,300
7,328

81,481
70,264
67,698

6,153
399
5,813
4,289
2,139
1,798
1,774

5,995
402
5,623
3,585
—
1,772
1,831

58,047
3,764
54,84040,462
20,17916,962
16,736631
12,00367,398(27,509)39,889837
10,97564,892(25,647)
39,245

5,953
113,236
635,830(259,519)
376,311(9,690)(4,117)(951)(7,858)(4,211)(868)(91,415)(38,840)(8,972)(12,646)(9,570)(10,820)(9,419)(119,302)(90,283)(6,458)(5,204)(4,544)(53,180)(5,303)(5,276)(10,000)(53,755)(60,925)(49,094)(42,867)(501,698)(¥13,291) (¥14,510)($125,387)

The valuation allowance principally relates to deferred tax assets ofsubsidiaries with operating loss carryforwards, for tax purposes, that are
not expected to be realized. The net change in the total valuation allowance for the years ended March 31, 2018, 2017 and 2016 was an increaseof ¥1,862 million ($17,566 thousand), and an increase of ¥599 million anda decrease of ¥1,514 million, respectively.
In assessing the realizability of deferred tax assets, the Company’s
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of futuretaxable income during the periods in which those temporary differences
become deductible. The Company’s management considered thescheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Basedupon the level of historical taxable income and projections for futuretaxable income over the periods in which the deferred tax assets are
deductible, the Company’s management believes it is more likely than
not that the Company will realize the benefits of these deductible
differences, net of the existing valuation allowance at March 31, 2018and 2017.

70

SECOM Annual Report 2018

Net deferred tax assets (liabilities) at March 31, 2018 and 2017 arereflected in the accompanying consolidated balance sheets under thefollowing captions:Deferred income taxes(Current assets) .............................................
Deferred income taxes(Other assets) .................................................
Other current liabilities(Current liabilities) .......................................
Deferred income taxes(Long-term liabilities)................................
Net deferred tax assets(liabilities) ............................................

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2017

2018

—

¥12,611

13,2398,213

124,896—(1,519)—(26,530)(33,815)(250,283)(¥13,291)(¥14,510)($125,387)

¥

$

—

The Company has not recognized deferred tax liabilities for a portionof undistributed earnings of foreign subsidiaries of ¥32,875 million($310,142 thousand) totaling ¥608 million ($5,736 thousand) at
March 31, 2018 as they are not expected to be remitted in theforeseeable future.
At March 31, 2018, the operating loss carryforwards of domestic
subsidiaries amounted to ¥18,942 million ($178,698 thousand) and areavailable for offsetting against future taxable earnings of such
subsidiaries for up to nine years, as follows:
Expires in the years ending March 31

2019 .......................................................................................
2020 .......................................................................................
2021 .......................................................................................
2022 .......................................................................................
2023 .......................................................................................
2024 .......................................................................................
2025 .......................................................................................
2026 .......................................................................................
2027 .......................................................................................
...................................................................................................

In millions of yen

In thousands of
U.S. dollars¥ 5,256
327
197
2,302
1,300
2,304
3,477
2,266
1,513
¥18,942$ 49,585
3,085
1,858
21,717
12,264
21,73632,802
21,377
14,274$178,698

The operating loss carryforwards of overseas subsidiaries at March 31,2018 amounted to ¥10,273 million ($96,915 thousand), a part of which will
begin to expire in the year ending March 31, 2019.
The total amount of unrecognized tax benefits for the years ended
March 31, 2018, 2017 and 2016 was insignificant. Also, there were no
significant movements in the gross amounts of unrealized tax benefits
and the amounts of interest and penalties recognized due to theunrecognized tax benefits during the years ended March 31, 2018, 2017and 2016.
Although the Company believes its estimates of unrecognized tax
benefits are reasonable, uncertainties regarding the final determinationof income tax audit settlements and any related litigation could affectthe total amount of unrecognized tax benefits in future periods. Basedon the information available as of March 31, 2018, the Company does
not expect significant changes to the unrecognized tax benefits within
the next twelve months.
The Company files tax returns in Japan and various foreign jurisdictions. In Japan, the Company is no longer subject to regular income tax
examinations by the tax authorities for years before 2012. In other foreign tax jurisdictions, major subsidiaries are no longer subject to income
tax examinations by tax authorities for years before 2017, with some
exceptions.

18. Shareholders’ Equity(1) Additional Paid-In Capital
The change in additional paid-in capital includes the effect of changes
in the Company’s ownership interest in its consolidated subsidiaries.
The net income attributable to SECOM CO., LTD. and transfers from (to)noncontrolling interests for the years ended March 31, 2018, 2017 and2016 are as follows:2018

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2016

2018

2017

Net income attributable
to SECOM CO., LTD. ............................ ¥96,623 ¥91,387 ¥84,072
Net transfers from (to)noncontrolling interests .............
24
(16)
(324)
Change from net income
attributable to SECOM CO.,LTD. and transfers from (to)noncontrolling interests ................. ¥96,647 ¥91,371 ¥83,748$911,537
226$911,763(2) Retained Earnings
The Japanese Companies Act provides that an amount equal to 10
percent of surplus distributed by the parent company and its Japanesesubsidiaries be appropriated as a legal reserve until the aggregate
amount of additional paid-in capital and legal reserve equals 25 percentof the common stock account.
The amount available for dividends under the Japanese Companies
Act is based on the amount recorded in the parent company’s nonconsolidated statutory financial statements in accordance with Japanese
GAAP. Such amount was ¥583,102 million ($5,500,962 thousand) at
March 31, 2018.
Subsequent to March 31, 2018, the parent company’s Board of
Directors declared a year-end cash dividend of ¥80 ($0.75) per share,
totaling ¥17,461 million ($164,726 thousand), to shareholders of record
on March 31, 2018. The dividend declared was approved at the generalshareholders’ meeting held on June 26, 2018. Dividends are recorded in
the year they are declared.
The Company has made it a basic policy to distribute dividends twicea year, the interim dividend whose record date is September 30 eachyear and commenced from the year ended March 31, 2015, and theyear-end dividend whose record date is March 31 each year. The interim
dividend is determined by the Board of Directors and the year-end
dividend is determined by the General Meeting of Shareholders.
Cash dividends per share are computed based on dividends paid forthe year.
(3) Common Stock in Treasury
The Company may repurchase its common stock from the market
pursuant to the Japanese Companies Act. There are certain restrictions
on payment of dividends in connection with the treasury stock repurchased.

(4) Other Comprehensive Income (Loss)
Components of other comprehensive income (loss) for the years
ended March 31, 2018, 2017 and 2016 are as follows:
In millions of yen
Tax(expense)or benefit

Net-of-tax
amount(¥ 413)

¥ 906

258

(650)

—

—

—

—

(2,315)

5,380

(17)

(4)

(662)

1,952

(¥3,149)¥7,584¥7,048(¥1,586)¥5,462(1,204)

342

(862)

—

—

—

—

—

—

6,656

(1,869)

4,787

(105)

(7)

(112)

(6,084)358(5,726)¥6,311(¥2,762)¥3,549Pre-tax
amount

For the year ended March 31, 2018:
Unrealized gains on securities—
Unrealized gains or losses
arising during the period ......................... ¥ 1,319
Less: Reclassification
Less: adjustment for gains
Less: or losses realized in
Less: net income............................................
(908)
Unrealized gains on derivative
instruments—
Unrealized gains or losses—
arising during the year ..............................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized in
Less: net income............................................
—
Pension liability adjustments—
Unrealized gains or losses
arising during the period .........................
7,695
Less: Reclassification
adjustment for gains
or losses realized
13
in net income ........................................
Foreign currencytranslation adjustments ..................................
2,614
Other comprehensive
income (loss) ............................................. ¥10,733
For the year ended March 31, 2017:
Unrealized gains on securities—
Unrealized gains or losses
arising during the period .........................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized in
Less: net income............................................
Unrealized gains on derivative
instruments—
Unrealized gains or losses
arising during the year ..............................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized in
Less: net income............................................
Pension liability adjustments—
Unrealized gains or losses
arising during the period .........................
Less: Reclassification
adjustment for gains
or losses realized
in net income ........................................
Foreign currencytranslation adjustments ..................................
Other comprehensive
income (loss) .............................................

SECOM Annual Report 2018

71

In millions of yen
Pre-tax
amount

For the year ended March 31, 2016:
Unrealized gains on securities—
Unrealized gains or losses
arising during the period .........................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized in
Less: net income............................................
Unrealized gains on derivative
instruments—
Unrealized gains or losses
arising during the year ..............................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized in
Less: net income............................................
Pension liability adjustments—
Unrealized gains or losses
arising during the period .........................
Less: Reclassification
adjustment for gains
or losses realized
in net income ........................................
Foreign currencytranslation adjustments ..................................
Other comprehensive
income (loss) .............................................

(¥ 9,756)

Tax(expense)or benefit¥2,991Net-of-tax
amountReclassification adjustments for gains or losses realized in net income(pre-tax amount) included in the consolidated statements of income forthe years ended March 31, 2018, 2017 and 2016 are as follows:
In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2017

2016

2018

(¥694) (¥1,007)(¥981)($6,547)

(269)

(268)

(929)

(2,538)

55

71

396

519

—

—

(14)

—

(19)

(212)

(790)

(179)

¥ 32

¥ 107

¥ 73

$ 301

(¥ 6,765)
2018(1,514)456(1,058)

—

—

—

(14)

5

(9)

(8,611)

2,551(6,060)

(717)

375

(342)

(4,017)783(3,234)(¥24,629)¥7,161(¥17,468)

In thousands of U.S. dollars
Pre-tax
amountTax(expense)or benefit

Net-of-tax
amount

For the year ended March 31, 2018:
Unrealized gains on securities—
Unrealized gains or losses
arising during the period ...................... $ 12,443 ($ 3,896) $ 8,547
Less: Reclassification
Less: adjustment for gains
Less: or losses realized in
Less: net income.........................................
(8,566)2,434(6,132)
Unrealized gains on derivative
instruments—
Unrealized gains or losses
arising during the year ...........................
———
Less: Reclassification
Less: adjustment for gains
Less: or losses realized in
Less: net income.........................................
———
Pension liability adjustments—
Unrealized gains or losses
72,595(21,840)
50,755arising during the period ......................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized
Less: in net income ...................................
122
(160)
(38)
Foreign currencytranslation adjustments ...............................
24,660(6,245)
18,415
Other comprehensive
income (loss) .......................................... $101,254 ($29,707) $71,547

Unrealized gains on
securities—
Net sales andoperating revenue .....................
Gain on sales of
securities, net.................................
Loss on other-thantemporary impairment ofinvestment securities ...............
Unrealized gains onderivative instruments—
Other income ..................................
Pension liability
adjustments—
Net periodic pension
and severance costs(Note 15) ...........................................
Equity in net income ofaffiliated companies ........................

19. Lessee
The Company leases certain office space, employee residential facilities, equipment for armored car services and transportation equipment.
Some leased buildings, and equipment for armored car services andtransportation equipment are held under capital leases. Other leases areclassified as operating leases.
On April 23, 1996, the Company entered into a long-term lease agreement for a building and land in Mitaka, Tokyo. The lease term is 30 years
beginning May 1, 1996. On July 15, 2010, the Company also entered intoa long-term lease agreement for the adjoining land and buildings. The
lease term is also 30 years beginning July 15, 2010. For financial reporting
purposes, the portion of these lease arrangements relating to the building has been classified as a capital lease; accordingly, an asset of approximately ¥7,209 million ($68,009 thousand) has been recorded in thebuildings and improvements account. The portion of the lease relating
to the land has been classified as an operating lease. The future minimum lease payment for the site at March 31, 2018 was ¥4,254 million($40,132 thousand).
A summary of leased assets under capital leases at March 31, 2018 and2017 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

Buildings and improvements.........................
Machinery, equipment
and automobiles .................................................
Other intangible assets ......................................
Accumulated depreciation
and amortization.................................................
..............................................................................

2017

2018

¥ 8,452 ¥ 8,452$ 79,736

32,664298

31,930125

308,151
2,811(21,723) (20,816)¥19,691 ¥19,691(204,934)$185,764

Depreciation and amortization expenses for assets under capitalleases for the years ended March 31, 2018, 2017 and 2016 were ¥6,313
million ($59,557 thousand), ¥6,785 million and ¥3,495 million,
respectively.
72

SECOM Annual Report 2018

The following is a schedule by year of future minimum lease payments
under capital leases and the present value of the net minimum lease
payments at March 31, 2018:
Years ending March 31

2019 ...........................................................................................
2020 ...........................................................................................
2021 ...........................................................................................
2022 ...........................................................................................
2023 ...........................................................................................
Thereafter ...............................................................................
Total minimum lease payments ...............................
Less: Amount representing interest .......................
Present value of net minimum
lease payments (Note 13) ..........................................
Less: Current portion .......................................................
Long-term capital leaseobligations ....................................................................

In millions of yen

In thousands of
U.S. dollars¥ 6,967
5,489
3,968
2,692
1,694
10,96331,773(7,527)$ 65,726
51,78337,43425,396
15,981
103,425
299,745(71,009)24,246(6,386)

228,736(60,245)¥17,860$168,491

Rental expenses under operating leases for the years ended March 31,
2018, 2017 and 2016 were ¥25,513 million ($240,689 thousand), ¥25,359
million and ¥24,619 million, respectively. A significant portion of suchrentals relates to cancelable short-term leases for office space andemployee residential facilities, many of which are renewed upon
expiration.
On December 8, 2000, the Company entered into a lease agreement
for a building and land in Shibuya, Tokyo. The lease term is 20 years
beginning December 8, 2000. For financial reporting purposes, the leasehas been classified as an operating lease. Based on the agreement, theannual lease payment for the site is approximately ¥1,312 million($12,377 thousand) over a 20-year period.
The future minimum lease payments required under operating leases
that have initial or remaining noncancelable lease terms in excess of one
year at March 31, 2018 are as follows:
Years ending March 31

2019 ..........................................................................................
2020 ..........................................................................................
2021 ..........................................................................................
2022 ..........................................................................................
2023 ..........................................................................................
Thereafter ..............................................................................
Total future minimum lease
payments ......................................................................

In millions of yen

In thousands of
U.S. dollars¥10,979
9,180
8,334
7,342
7,053
24,623$103,575
86,60478,623
69,264
66,538232,292¥67,511$636,896

20. Lessor
The Company’s leasing operations consist principally of leasing of
security merchandise, security systems and real estate for offices andmedical institutions. Most of the security merchandise and security
systems on lease are classified as sales-type leases or direct-financing
leases. Other leases are classified as operating leases.

A summary of lease receivables under sales-type and direct-financing
leases at March 31, 2018 and 2017 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2017

2018

¥63,766 ¥62,137(5,839) (4,787)(3,527) (4,911)
54,400 52,439(17,899) (16,769)¥36,501 ¥35,670$601,566(55,085)(33,273)
513,208(168,859)$344,349

2018

Total minimum lease payments
to be received .......................................................
Estimated executory cost .................................
Unearned income .................................................
Lease receivables, net .........................................
Less: Current portion ...........................................
Long-term lease receivables, net...........

The following is a schedule by year of future minimum lease payments
to be received under sales-type leases and direct-financing leases at
March 31, 2018:
Years ending March 31

In millions of yen

In thousands of
U.S. dollars¥20,251
16,317
11,666
8,456
4,879
2,197

$191,047
153,934
110,057
79,77446,02820,726¥63,766$601,566

2019 ..........................................................................................
2020 ..........................................................................................
2021 ..........................................................................................
2022 ..........................................................................................
2023 ..........................................................................................
Thereafter ..............................................................................
Total future minimum lease
payments to be received ....................................

A summary of investment in property under operating leases andproperty held for lease at March 31, 2018 and 2017 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 312018Land ..............................................................................
Buildings and improvements.........................
Other intangible assets ......................................
Accumulated depreciation
and amortization.................................................
..............................................................................

2017

2018

¥31,499 ¥33,754
30,578 32,160
662
662$297,160
288,472
6,245(12,725) (12,572)¥50,014 ¥54,004(120,047)$471,830

The future minimum rentals under noncancelable operating leases at
March 31, 2018 are as follows:
Years ending March 31

2019 ..........................................................................................
2020 ..........................................................................................
2021 ..........................................................................................
2022 ..........................................................................................
2023 ..........................................................................................
Thereafter ..............................................................................
Total future minimum rentals .............................

In millions of yen

In thousands of
U.S. dollars¥1,942
162
162
162
162
2,748
¥5,338$18,321
1,528
1,528
1,528
1,528
25,925$50,358

SECOM Annual Report 201873

21. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate thefair value of financial instruments in cases for which it is practicable. The
three levels of inputs used to measure fair value are more fully describedin Note 22.

The carrying amounts and estimated fair values of financial instruments, excluding, debt and equity securities, which are disclosed in
Notes 2 (7) and 7, at March 31, 2018 and 2017 are as follows:
In millions of yen
March 31

(1) Cash and Cash Equivalents; Time Deposits; Cash Deposits for armoredcar services; Notes and Accounts Receivable, Trade; Due from Subscribers;
Short-Term Receivables; Bank Loans; Notes and Accounts Payable, Trade;
Other Payables; Deposits Received; Accrued Income Taxes; and Accrued
Payroll
The carrying amounts approximate fair value because of the shortterm maturities of such instruments.
(2) Short-Term Investments; Investment Securities
The fair values of short-term investments and investment securities
are principally based on quoted market prices.
(3) Long-Term Receivables Including Current PortionLong-term receivables, including the current portion, are classified as
Level 2 and fair value is estimated based on the present value of future
cash flows through estimated maturity, discounted using estimatedmarket discount rates.
(4) Long-Term Debt Including Current PortionLong-term debt, including the current portion, is classified as Level
2 and fair value is estimated based on the present value of future cash
flows of each instrument discounted using the Company’s current
incremental borrowing rates for similar liabilities.

2018
Carrying
amountNon-derivatives:
Assets—Long-term receivables
including current
portion (Less allowancefor doubtful accounts) .......... ¥58,996
Liabilities—
Long-term debt
including current
portion............................................ 69,931
Investment deposits
by policyholders ....................... 25,208
Derivatives:
Assets—Forward exchange
contract(Other current assets) ............
—
Liabilities—
Interest rate swaps(Other long-term
liabilities)........................................
33

2017

Estimated
fair value

Carrying
amountEstimated
fair value¥59,356¥56,638¥57,440

69,93773,76473,794

26,212

27,691

29,023

—

2

2

33

59

59

In thousands of U.S. dollars(5) Investment Deposits by Policyholders
The fair values of investment deposits by policyholders are classified
as Level 3 and estimated based on the present value of future cash flows,
discounted using the interest rates currently being offered for similar
contracts.
(6) Derivatives
The fair values of derivatives are estimated using current market
pricing models by obtaining quotes from financial institutions.

March 31, 2018
Carrying
amountNon-derivatives:
Assets—Long-term receivables including current
portion (Less allowance for doubtful
accounts) .............................................................................
Liabilities—
Long-term debt including current
portion...................................................................................
Investment deposits
by policyholders ..............................................................
Derivatives:
Assets—Forward exchange contract(Other current assets) ...................................................
Liabilities—
Interest rate swaps (Other long-term
liabilities)...............................................................................

Estimated
fair value$556,566 $559,962
659,726

659,783

237,811247,283

—

—

311

311

Limitation:
Fair value estimates are made at a specific point in time based on
relevant market information and information about financial
instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.

74

SECOM Annual Report 201822. Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as
the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for theasset or liability in an orderly transaction between market participants at
the measurement date. This accounting standard establishes a three-level
fair value hierarchy that prioritizes the inputs used to measure fair value asfollows:
Level 1— Inputs are quoted prices in active markets for identicalassets or liabilities.
Level 2— Inputs are quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, inputs otherthan quoted prices that are observable, and inputs that arederived principally from or corroborated by observable
market data by correlation or other means.
Level 3— Inputs are derived from valuation techniques in which one
or more significant inputs or value drivers are unobservable, which reflect the reporting entity’s own assumptions
about the assumptions that market participants would use
in establishing a price.
The following table represents the Company’s assets and liabilities
that are measured at fair value on a recurring basis at March 31, 2018and 2017. Transfers between levels are recognized at the end of therespective reporting periods.
In millions of yen
March 31, 2018
Level 1

Assets:Cash equivalents ...........
Short-term
investments andinvestment
securities..........................
Derivatives(Other current
assets) ................................
Total assets ..............................
Liabilities:
Derivatives(Other long-term
liabilities)..........................
Total liabilities........................

¥

149

Level 2¥—

Level 3

¥

—

Total

¥

149

In millions of yen
March 31, 2017
Level 1

Level 2

Level 3

Total

Assets:Cash equivalents ...........
Short-term
investments andinvestment
securities..........................
Derivatives(Other current
assets) ................................
Total assets ..............................

152,088

31,74649,738233,572—¥152,2512¥31,748—¥49,7382¥233,737

Liabilities:
Derivatives(Other long-term
liabilities)..........................
Total liabilities........................

¥
¥

¥
¥

¥
¥

¥
¥

¥

163

¥

—
—

—

¥

59
59

—

¥

—
—

163

59
59

In thousands of U.S. dollars
March 31, 2018
Level 1

Level 2

Level 3

Total

Assets:Cash equivalents ........... $1,406
Short-term
investments andinvestment
securities.......................... 1,409,103
Derivatives(Other current
assets) ................................
—
Total assets ............................... $1,410,509

281,274

2,081,254——$390,877 $281,274—$2,082,660

Liabilities:
Derivatives(Other long-term
liabilities)........................... $Total liabilities......................... $

$
$

$
$

—
—

$

— $

390,877

311 $
311 $

—

—
—

$

1,406

311
311

149,365

41,43329,815

220,613—¥149,514—¥41,433—¥29,815—¥220,762

Cash Equivalents
All highly liquid investments with initial maturities of three months or lessare considered to be cash equivalents, and principally valued using quoted
prices for identical assets in markets that are not active.

¥
¥

¥
¥

¥
¥

¥
¥

Short-Term Investments and Investment Securities
Equity securities and debt securities classified as Level 1 assets are valued
using unadjusted quoted market prices in active markets with sufficientvolume and frequency of transactions.
Level 2 assets comprise principally debt securities, which are valued
using quoted prices for similar assets in active markets, or quoted prices
for identical or similar assets in markets that are not active.
Non-marketable securities classified as Level 3 assets are valued basedon unobservable inputs as the market for the assets was not active at themeasurement date. The fair value is determined by using a valuation
technique, such as the discounted cash flow model, which best reflects
the nature, characteristics and risks of each asset. These significant
unobservable inputs contain discount rates, exit timing and an EBITDA
multiple. An increase (decrease) in the discount rates, the later (earlier)exit and a decrease (increase) in the EBITDA multiple would result in adecrease (increase) in the fair value of non-marketable securities.

—
—

33
33

—
—

33
33

SECOM Annual Report 201875

The Company’s Level 3 investment securities that are measured at fairvalue on a recurring basis at March 31, 2018 and 2017, amounting to¥29,815 million ($281,274 thousand) and ¥49,738 million, respectively,
are primarily private equity investments. The valuation technique andsignificant unobservable inputs are as follows:
March 31, 2018
Valuation techniqueSignificant unobservable inputs

Range

Discounted cash flows

Discount rate
Exit timing
EBITDA multiple

20%–30%2018–2022
3.2x–8x

Valuation techniqueSignificant unobservable inputs

Range

Discounted cash flows

Discount rate
Exit timing
EBITDA multiple

20%–30%2017–2020
1.1x–42.2x

March 31, 2017

Derivative Financial Investments
Derivative financial instruments comprise forward exchange contracts,
interest rate swaps and others. These derivative instruments are valued
using observable market data and classified as Level 2 liabilities.
The following table represents the changes in Level 3 assets measured
on a recurring basis for the years ended March 31, 2018 and 2017.
In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2017

2018

Balance at beginning of year ............................ ¥49,738 ¥34,852
Total gains or losses(realized and unrealized):
Included in earnings...................................
5,964 14,016
Included in othercomprehensive income.........................
——
Purchases.................................................................
5,270
1,132
Sales ............................................................................ (29,479)(99)
Redemptions.........................................................
——
Cancellation of contract.................................
——
Foreign currency translation
adjustments......................................................... (1,678)(163)
Balance at end of year ........................................... ¥29,815 ¥49,738

2018$469,226

Changes in unrealized gains
or losses relating to instruments
still held at end of year:
Included in earnings................................... ¥399 ¥15,051

56,265—49,717(278,104)——(15,830)$281,274$

3,764

Total gains or losses (realized or unrealized) related to short-term
investments and investment securities are primarily included in net sales
and operating revenue or gain/loss on private equity investments, in the
consolidated statements of income.

76

SECOM Annual Report 2018

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Non-marketable equity securities with a carrying amount of ¥10,517
million ($99,217 thousand) were written down to their fair value of¥10,515 million ($99,198 thousand), resulting in an other-than-temporary
impairment charge of ¥2 million ($19 thousand), which was includedin earnings for the year ended March 31, 2018. For the year ended
March 31, 2017, non-marketable equity securities with a carrying
amount of ¥9,424 million were written down to their fair value of ¥9,414
million, resulting in an other-than-temporary impairment charge of¥10 million, which was included in earnings. All impaired non-marketable equity securities were classified as Level 3 assets as the Company
uses unobservable inputs such as future cash flows to value theseinvestments.
Long-lived assets (Note 11) and goodwill (Note 12) are also measured
at fair value on a nonrecurring basis. All impaired long-lived assets
and goodwill were classified as Level 3 assets as the Company uses
unobservable inputs to value these assets. These Level 3 assets are notsignificant.
23. Derivative Financial Instruments(1) Risk Management Policy
The Company utilizes derivative financial instruments in the normal
course of business to reduce exposure to fluctuations in interest rates.
The Company assesses interest rate risk by continually monitoringchanges in the exposure and by evaluating hedging opportunities. The
Company does not hold or issue derivative financial instruments for
trading purposes. The Company is also exposed to credit-related losses
in the event of non-perfomance by counterparties to derivative financial
instruments, but it is not expected that any counterparties will fail tomeet their obligations, because most of the counterparties are internationally recognized financial institutions and contracts are diversified
amongst a number of major financial institutions.
(2) Risk Management
The Company has exposure to the market risk of changes in interest
rates which relates primarily to its debt obligations. The Company
principally enters into interest rate swap agreements to manage fluctuations in cash flows resulting from changes in interest rates. Interest rate
swaps are used to change floating rates on debt obligations to fixed
rates by entering into receive-floating, pay-fixed interest rate swaps
under which the Company receives floating interest rate proceeds andmakes fixed interest rate payments, thereby effectively creating fixed-rate
debt.
(3) Cash Flow Hedges
The Company designates interest rate swap agreements as cash flow
hedges for variability of cash flows originating from floating rate borrowings. The effective portion of changes in fair values of derivative instruments designated as cash flow hedges of these debt obligations arereported in other comprehensive income (loss). These amounts arereclassified into current income in the same period that hedged items
affect current income. The ineffective portion of changes in fair values
are reported in income immediately.

(4) Derivative Instruments Not Designated as Hedges
The Company enters into interest rate swap agreements to reduce
exposure to fluctuations in interest rates relating primarily to debt
obligations and other agreements. Changes in fair value of these derivative financial instruments, which are not designated as hedges, arereported in current income.
Fair values of derivative instruments reflected in the consolidatedbalance sheets as of March 31, 2018 and 2017 are as follows:
Derivatives not designated as hedging instruments

Assets:Forward exchange
contract
Liabilities:
Interest rate swaps

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

Location

2018

2017

2018

Other current
assets

¥ 0

¥ 2

$

Other long-term
liabilities

33

59

311

0

24. Commitments and Contingent Liabilities
The Company has commitments outstanding at March 31, 2018 forthe purchase of property, plant and equipment of approximately ¥2,061
million ($19,443 thousand).
The Company provides guarantees to third parties mainly with respect
to bank loans extended to its affiliated companies and other entities.
Such guarantees are provided to enhance the credit standing of the affiliated companies and other entities. For each guarantee provided, theCompany would have to per form under the guarantee if the affiliatedcompanies and other entities default on a payment within the guaranteed period of one to five years. The maximum amount of undiscounted
payments the Company would have to make in the event of default
amounts to ¥1,853 million ($17,481 thousand) at March 31, 2018. The
carrying amounts of the liabilities recognized as the Company’s obligations under these guarantees at March 31, 2018 and 2017 were deemed
insignificant.
It is not anticipated that damages, if any, resulting from legal actions
will have a material impact on the Company’s consolidated financial
statements.
25. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:

Effects of derivative instruments on the consolidated statements
of income for the years ended March 31, 2018, 2017 and 2016 are
as follows:
Gains (losses) reclassified from accumulated other comprehensive
income (loss) into income (effective portion)

Interest rate swaps

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2016

2018

¥ 1,379 ¥ 1,408
40,16538,832$ 12,057
528,0192018

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

Location

2018

2017

2016

2018

Other income

¥—

¥—

¥14

$—

Derivatives not designated as hedging instruments

Forward exchange
contract
Interest rate swaps

In millions of yen

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

Location

2018

2017

2016

2018

Other income
Other income

¥—
27

¥ 2
38

¥—
16

$ —
255

Cash paid during theyear for:
Interest ..............................................
Income taxes .................................
Non-cash investing andfinancing activities:
Additions to obligations
under capital leases ................
Increase in land, buildings
and improvements byoffsetting long-term
receivables ...................................
Significant acquisitions(Note 4)—
Assets acquired ........................
Liabilities assumed.................
Considerations forequity ..........................................
Cash and cash
equivalents on hand ..........
Total considerations..............

¥ 1,278
55,970

2017

6,355

6,035

2,543

59,953————34,570(8,020)——188,136(107,136)

326,132(75,660)

26,550—81,000250,472—(11,565)— ¥ 69,435(25,038)$225,434(2,654)¥23,896¥

SECOM Annual Report 201877

26. Segment Information
The Company discloses financial and descriptive information about
the Company’s reportable operating segments. The operating segments
reported below are the segments of the Company for which separate
financial information is available and for which operating profit/loss
amounts are evaluated regularly by management in deciding how toallocate resources and assess performance.
The Company has seven reportable business segments: security services, fire protection services, medical services, insurance services, geographic information services, BPO and ICT services, and real estate andother services.
The Company changed the designation of information and communication related services, which focused primarily on ICT related services
and data center services, to BPO and ICT services with the acquisitionof TMJ, Inc., a subsidiary newly consolidated from October 2017. The
Company acquired all shares in TMJ, Inc. which provides various BPO
related services including operation of call center services with the aimof expanding its business capabilities through integrating BPO related
services with existing information and communication related services.
Reportable segments are not reclassified by this change.
The security services segment provides various types of security services by utilizing the Company’s unique security systems and manufacturing and selling security merchandise. The fire protection services
segment provides various types of fire protection equipment, such as
automatic fire alarm and fire extinguishing and other fire protection systems for office buildings, plants, tunnels, ships, residences and culturalmonuments. The medical services segment provides intravenous solutions to patients at home, home-based nursing care services, medical
data transmission services by utilizing the Company’s network and leasing of real estate for medical institutions. In addition, the VIE, of which
the Company is the primary beneficiary manage hospitals and healthcare-related institutions. The insurance services segment includes the
non-life insurance-related underwriting business in the Japanese market.
The geographic information services segment includes surveying andmeasuring services and GIS services. The BPO and ICT services segment
includes various BPO related services, data center services, business continuity plan support, information security services and cloud services.
The real estate and other services segment includes development andsales of condominiums equipped with security and contingency planning features, leasing of real estate, construction and installation services
and other services.
Corporate expenses consist principally of general and administrative
expenses of the planning, personnel and administrative departments ofthe parent company and administrative departments of the foreign
holding company.
Intersegment sales are priced on a basis intended to approximate
amounts charged to unaffiliated customers.
Identifiable assets are those assets used exclusively in the operationsof each segment or which are allocated when used jointly. Corporate
assets, which are held by the parent company and the foreign holding
company for general and administrative facilities, consist principally ofcash and cash equivalents, short-term investments, investment securities, land, buildings and improvements, machinery, equipment andautomobiles.

78

SECOM Annual Report 2018

Information by business and geographic segments for the years
ended and as of March 31, 2018, 2017 and 2016 is as follows:(1) Business Segment Information

2018

Net sales andoperating revenue:
Security services—
External customers ............ ¥ 562,272
Intersegment.........................
3,144...................................................
565,416
Fire protection services—
External customers ............
136,559
Intersegment.........................
4,170...................................................
140,729
Medical services—
External customers ............
175,318
Intersegment.........................
185...................................................
175,503
Insurance services—
External customers ............
44,683
Intersegment.........................
3,034...................................................
47,717
Geographic information
services—
50,906External customers ............
Intersegment.........................
176...................................................
51,082
BPO and ICT services—
External customers ............
69,569Intersegment.........................
7,275...................................................
76,844
Real estate andother services—
External customers ............
43,485Intersegment.........................
2,004...................................................
45,489Total ................................................. 1,102,780
Eliminations ................................
(19,988)
Total net sales andoperating revenue........... ¥1,082,792

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2016

2018

¥ 543,524 ¥ 505,058
2,968
3,028
546,492
508,086$ 5,304,453
29,6605,334,113

2017

126,232
3,459
129,691

131,743
3,764
135,507

1,288,292
39,3401,327,632

168,819182
169,001

163,538
178
163,716

1,653,943
1,745
1,655,688

43,7803,094
46,87440,654
2,945
43,599421,538
28,623450,161

51,609231
51,84052,553183
52,736480,245
1,660
481,905

49,681
7,126
56,807

48,2947,550
55,844

656,311
68,632724,943

47,616
41,5881,923
2,479
49,53944,0671,050,244 1,003,555(18,983) (20,127)

410,236
18,906429,142
10,403,584(188,566)¥1,031,261 ¥ 983,428$10,215,018

2018

Operating income (loss):
Security services .....................
Fire protection
services ......................................
Medical services......................
Insurance services .................
Geographic information
services ......................................
BPO and ICT services ...........
Real estate andother services .........................
Total ................................................
Corporate expenses
and eliminations ..................
Operating income .................
Other income ...........................
Other expenses .......................
Income before income
taxes and equity in net
income of affiliatedcompanies...........................

Assets:Security services .....................
Fire protection
services ......................................
Medical services......................
Insurance services .................
Geographic information
services ......................................
BPO and ICT services ...........
Real estate andother services .........................
Total ................................................
Corporate items ......................
Investments inaffiliated companies ..........
Total assets .................................

In millions of yen

In thousands of
U.S. dollars

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

Years ended
March 31

Year ended
March 31

2016

2018

2017

¥116,639¥112,734¥110,919$1,100,368

15,760
4,090
6,233

13,1291,732
7,289

13,654
2,921
6,842

148,679
38,58558,802

1,923
8,241

(944)
7,288

(268)
308

18,14277,745

6,920
159,806

5,241
146,469

4,900
139,276

65,283
1,507,604(16,971)¥142,835
10,730(2,775)(16,291)¥130,178
18,135(3,090)(20,371)¥118,905
7,679(4,123)(160,104)$1,347,500
101,226(26,179)¥150,790¥145,223¥122,461$1,422,547

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2017

2018

¥ 727,449¥ 707,640$ 6,862,726

159,114
180,594
233,618

148,642
185,799
230,455

1,501,075
1,703,717
2,203,943

69,306
149,553

69,042
115,537

653,830
1,410,877

145,289
1,664,923
109,402130,365
1,587,480
117,876

1,370,651
15,706,819
1,032,096

64,620¥1,838,945

57,922¥1,763,278

609,623$17,348,538

Depreciation andamortization:
Security services .....................
Fire protection
services ......................................
Medical services......................
Insurance services .................
Geographic information
services ......................................
BPO and ICT services ...........
Real estate andother services .........................
Total ................................................
Corporate items ......................
Total depreciation
and amortization.............
Capital expenditure:
Security services .....................
Fire protection
services ......................................
Medical services......................
Insurance services .................
Geographic information
services ......................................
BPO and ICT services ...........
Real estate andother services .........................
Total ................................................
Corporate items ......................
Total capital
expenditures ......................

2018

2017

2016

2018

¥54,091¥54,770¥ 50,007$510,292

2,128
8,675
1,808

1,837
8,433
1,521

1,663
8,293
1,319

20,075
81,84017,057

2,540
7,813

3,011
6,824

2,998
6,592

23,96273,708

1,066
78,121
834

868
77,264919

951
71,823658

10,057736,991
7,868¥78,955¥78,183¥ 72,481$744,859¥44,404¥39,956¥130,686$418,906

3,910
5,276
1,900

4,678
9,646
2,087

5,026
14,9082,307

36,887
49,774
17,925

1,701
31,987

1,904
7,686

2,124
7,708

16,047
301,764

1,690
90,868349

233
66,190856

229
162,988409

15,943
857,246
3,292¥91,217¥67,046¥163,397$860,538

The capital expenditures in the above table represent the additions toproperty, plant and equipment and intangible assets of each segment.
The Company has no single customer that accounts for more than 10
percent of total revenues.

SECOM Annual Report 2018

79

The following table is a breakdown of security services revenue toexternal customers by service category. The security services businessis managed as a single operating segment by the Company’s
management.

Electronic security
services .......................................
Other security services:
Static guard
services .................................
Armored car
services .................................
Merchandise andother .........................................
Total security
services ................................

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2018

2017

2016

2018

¥341,157¥338,744¥330,843$3,218,462

59,03056,41755,907556,887

61,08957,87332,990576,311

100,996

90,49085,318952,793¥562,272¥543,524¥505,058$5,304,453(2) Geographic Segment Information
Net sales and operating revenue attributed to countries based on
the geographical location of customers for the years ended 2018, 2017and 2016 and long-lived assets as of March 31, 2018 and 2017 wereas follows:2018

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2016

2018

2017

Net sales andoperating revenue:
Japan ................................... ¥1,034,228 ¥ 985,366
Other ...................................
48,56445,895
Total ............................... ¥1,082,792 ¥1,031,261

Long-lived assets:
Japan ......................................
Other ......................................
Total ..................................

¥936,392 $ 9,756,868
47,036458,151¥983,428 $10,215,019

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2017

2018

¥629,069
11,239¥640,308¥606,302
10,558¥616,860$5,934,613
106,028$6,040,641

There are no individually material countries other than Japan withrespect to net sales and operating revenue and long-lived assets.

80

SECOM Annual Report 201827. Subsequent Events
The Company entered into a share transfer agreement in July 2018
to sell certain investment securities held by a consolidated subsidiary,
Westec Security Group Inc. This transaction will generate a gain on
sales of securities, which will be included in gains on private equity
investments in the consolidated financial statements for the year ending
March 31, 2019. The amount of the gain is under calculation.

Independent Auditors’ Report

The Board of Directors and Shareholders
SECOM CO., LTD.:

We have audited the accompanying consolidated financial statements of SECOM CO., LTD. and its subsidiaries, which comprise the consolidatedbalance sheets as of March 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in equity, andcash flows for each of the years in the three-year period ended March 31, 2018, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally
accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fairpresentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordancewith auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable 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 auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SECOM CO.,LTD. and its subsidiaries as of March 31, 2018 and 2017 and the results of their operations and their cash flows for each of the years in the three-year
period ended March 31, 2018, in accordance with U.S. generally accepted accounting principles.
Convenience Translations
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2018 are presented
solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been
made on the basis described in Note 3 to the consolidated financial statements.

Tokyo, Japan
July 30, 2018

SECOM Annual Report 201881