AUDITED FINANCIAL STATEMENTS

Contents
Consolidated Financial Statements ............................................................................ 60
Consolidated Balance Sheets.................................................................................... 60
Consolidated Statements of Income ................................................................... 62
Consolidated Statements of Comprehensive Income.............................. 62
Consolidated Statements of Changes in Equity ........................................... 63
Consolidated Statements of Cash Flows .......................................................... 64
Notes to Consolidated Financial Statements ................................................. 65
Independent Auditors’ Report ........................................................................................ 91

SECOM Annual Report 201959

Consolidated Financial Statements
Consolidated Balance Sheets
SECOM CO., LTD. and Subsidiaries
March 31, 2019 and 2018
Translation into thousandsof U.S. dollars (Note 3)

March 31

March 31

2019

2018

2019

Current assets:
Cash and Cash equivalents (Notes 5 and 22) ........................................................................................................ ¥ 349,730
Time deposits (Note 13)......................................................................................................................................................
10,619Cash deposits for armored car services (Note 6).................................................................................................
142,336
Short-term investments (Notes 7 and 22) ...............................................................................................................
25,294
Notes and accounts receivable, trade........................................................................................................................
156,869
Due from subscribers ...........................................................................................................................................................
63,012Inventories (Note 8) ...............................................................................................................................................................
65,945
Short-term receivables (Notes 9, 13, 20 and 21)..................................................................................................
27,111
Allowance for doubtful accounts (Note 9)..............................................................................................................
(1,738)Deferred insurance acquisition costs (Note 14)...................................................................................................
6,809
Other current assets ..............................................................................................................................................................
24,301¥ 316,729
9,593
135,80917,211
144,657
49,78982,05827,930(1,807)
6,540
19,368$ 3,150,721
95,667
1,282,306
227,874
1,413,234
567,676
594,099244,243(15,658)
61,342
218,927ASSETS

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

870,288807,877

7,840,431

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) .............................................................................................................

212,641
63,69740,095
17,245
11,952(4,218)227,255
64,62043,281
17,264
10,086(4,298)

1,915,685
573,847
361,216
155,360
107,676(38,000)

341,412358,208

3,075,784

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....................................................................................................................................................

116,540
351,947
337,756
155,944
6,759

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

1,049,910
3,170,694
3,042,847
1,404,901
60,892

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

968,946(552,719)

942,400(530,052)

8,729,244(4,979,450)

416,227

412,348

3,749,794

25,220108,12257,89238,48922,06042,325
106,51257,02741,40913,239227,207974,072
521,549
346,748
198,739

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)..................................................................................................................................

251,783

260,5122,268,315

Total assets ...................................................................................................................................................................... ¥1,879,710¥1,838,945$16,934,324

See accompanying notes to consolidated financial statements.

60

In millions of yen

SECOM Annual Report 2019

LIABILITIES AND EQUITY

In millions of yen

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

March 31

March 31

2018

2019

2019

Current liabilities:
Bank loans (Notes 6 and 13)............................................................................................................................................. ¥ 38,658
Current portion of long-term debt (Notes 13, 19 and 21).............................................................................
18,447
Notes and accounts payable, trade.............................................................................................................................
46,606
Other payables .........................................................................................................................................................................
44,208Deposits received (Note 6) ...............................................................................................................................................
127,619
Deferred revenue....................................................................................................................................................................
35,947
Accrued income taxes .........................................................................................................................................................
22,904
Accrued payroll ........................................................................................................................................................................
37,987
Other current liabilities (Note 17) .................................................................................................................................
32,992¥38,96919,632
44,901
41,546
118,897
38,39525,99436,531
34,792$

348,270
166,189
419,874
398,270
1,149,721
323,847
206,342
342,225
297,225

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

405,368

399,657

3,651,963

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) ................................................................................................

45,342
31,88730,913
11,623
124,30923,615
16,041
14,71050,29932,10929,384
15,194
114,814
25,20826,53014,445

408,486
287,270
278,495
104,712
1,119,901
212,748
144,514132,523

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

298,440

307,983

2,688,649

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

703,808

707,640

6,340,612

66,39373,166
10,783
967,679

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

598,135
659,153
97,144
8,717,829

2,309
(742)
(1,645)

22,797
1,578
2,814

20,802(6,685)(14,820)(78)

27,189(703)

Commitments and contingent liabilities (Note 24)
Equity:SECOM CO., LTD. shareholders’ equity (Note 18):
Common stock
Authorized—900,000,000 shares, issued 233,292,219 shares in 2019
Authorized—900,000,000 shares, issued 233,290,441 shares in 2018 .............................................
Additional paid-in capital ..................................................................................................................................................
Legal reserve ..............................................................................................................................................................................
Retained earnings...................................................................................................................................................................
Accumulated other comprehensive income (loss):
Unrealized gains on securities (Note 7)...............................................................................................................
Pension liability adjustments (Note 15)...............................................................................................................
Foreign currency translation adjustments ........................................................................................................
Common stock in treasury, at cost:
15,031,867 shares in 2019 and 15,030,573 shares in 2018 ..........................................................................

(73,759)(73,749)(664,495)

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

1,044,184

1,000,277

9,407,063

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

131,718

131,028

1,186,649

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

1,175,902

1,131,305

10,593,712

Total liabilities and equity ...................................................................................................................................... ¥1,879,710¥1,838,945$16,934,324

See accompanying notes to consolidated financial statements.

SECOM Annual Report 201961

Consolidated Statements of Income
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 20192019

In millions of yen

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

Years ended March 31

Year ended March 31

2017

2019

Net sales and operating revenue (Notes 14 ,18 and 22)¥1,111,600 ¥1,082,792 ¥1,031,261
Costs and expenses:
Cost of sales (Note 8) ........................................................................................................................................................................
784,918
751,944711,511
Selling, general and administrative expenses (Notes 2 (17), 2 (18), 2 (19) and 4) .......................................
200,932
191,389
185,721
Impairment loss on long-lived assets (Note 11) ..............................................................................................................
595
841
2,689
Impairment loss on goodwill (Note 12) ................................................................................................................................
—
11
1,193
Gain and loss on sales and disposal of fixed assets, net .............................................................................................
1,444(1,504)
2,752
987,889
942,681
903,866
Operating income...........................................................................................................................................................
123,711140,111
127,395
Other income:Interest and dividends .....................................................................................................................................................................
1,807
1,637
1,286
Gain and loss on sales of securities, net (Notes 7 and 18) .........................................................................................
—
237
391
Gain on private equity investments (Note 22)..................................................................................................................
4,673
5,884
13,887
Other (Notes 15, 16, 18 and 23)..................................................................................................................................................
4,766
5,696
5,354
11,246
13,454
20,918Other expenses:
Interest .......................................................................................................................................................................................................
1,184
1,236
1,369
Gain and loss on sales of securities, net (Notes 7 and 18) .........................................................................................
115——
Loss on other-than-temporary impairment of investment securities (Notes 18 and 22) ......................
3,959
57
77
Other (Note 16) ....................................................................................................................................................................................
1,136
1,482
1,644
6,394
2,775
3,090
Income from continuing operations before income taxes and equity
in net income of affiliated companies .............................................................................................................
128,563
150,790145,223
Income taxes (Note 17):
Current .......................................................................................................................................................................................................
47,21054,22543,449Deferred ....................................................................................................................................................................................................
(12,086)(6,118)3,563
35,124
48,10747,012
Income from continuing operations before equity in net income ofaffiliated companies ....................................................................................................................................................
93,439102,683
98,211Equity in net income of affiliated companies (Note 18) ...........................................................................................
7,002
7,179
5,178
Net income..........................................................................................................................................................................
100,441
109,862
103,389
Less: Net income attributable to noncontrolling interests...................................................................................
(10,755)(13,239)(12,002)
Net income attributable to SECOM CO., LTD. ............................................................................................... ¥ 89,686 ¥ 96,623 ¥ 91,387$10,014,414

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

2018

62

SECOM Annual Report 201910,666
1,036
35,667
10,23457,603
1,158,225
425,315(108,883)
316,432$

841,793
63,081
904,874(96,892)
807,982

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

Years ended March 31

Year ended March 31

2018

2017

2019

¥410.91¥160.00¥442.70¥150.00¥418.71¥140.00

$3.70
$1.44

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

See accompanying notes to consolidated financial statements.

16,278—42,09942,937
101,3142019

SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2019

Comprehensive income:Net income .............................................................................................................................................................................................
Other comprehensive income (loss), net of tax:
Unrealized gains on securities ..............................................................................................................................................
Pension liability adjustments ................................................................................................................................................
Foreign currency translation adjustments....................................................................................................................
Total comprehensive income......................................................................................................................................................
Less: Comprehensive income attributable to noncontrolling interests.....................................................
Comprehensive income attributable to SECOM CO., LTD. .............................................................................................

7,071,333
1,810,198
5,360—
13,0098,899,900
1,114,514

2019

2018

2017

2019

¥100,441¥109,862¥103,389$904,874

274(2,566)(4,908)93,241(10,060)¥ 83,181

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

4,600
4,675
(5,726)
106,938(12,388)¥ 94,550

2,468(23,117)(44,216)
840,009(90,631)$749,378

Consolidated Statements of Changes in Equity
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2019

In millions of yen
Number ofsharesissuedCommonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings

Accumulated
other comprehensive
income (loss)

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

Balance, March 31, 2016 ......................................................................................
Comprehensive income:Net income...............................................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized gains on securities..............................................................
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¥73,118¥10,526¥772,061¥16,913(¥73,718)¥ 865,278¥111,319¥ 976,597

Total

—

—

—

—

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..............................................................
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 ......................................................................................
Cumulative effect adjustments resulting from adoption of
new accounting standards, net of tax (Note 2 (23)) .............................
Comprehensive income:Net income...............................................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized gains on securities..............................................................
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 ..............................................................................

233,290,441

66,385

73,133

10,733

896,586

27,189(73,749)

1,000,277

131,028

1,131,305

—

—

—

—

16,379(20,762)—(4,383)(421)(4,804)

—

—

—

—

89,686——

89,686

10,755

100,441

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

274
(2,320)(4,459)

—
—
—

1,778
—
—
—

8
—
—
—

7
—
—
—

—
—
—
50

—
(34,922)
—
(50)

—
—
—
—

—
—
—
—

274
(2,320)(4,459)83,181
15(34,922)
—
—

—
(246)
(449)
10,060——(6,252)—274(2,566)(4,908)93,241
15(34,922)(6,252)
—

—
—
—
—

—
—
—
—

26
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
(10)

26
—
—
(10)

(2,697)———(2,671)——(10)

Balance, March 31, 2019 ...................................................................................... 233,292,219¥66,393¥73,166¥10,783¥967,679

78)(¥73,759)¥1,044,184¥131,718¥1,175,902(¥

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

Commonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings

Accumulated
other comprehensive
income (loss)

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

Total

Balance, March 31, 2018 .........................................................................................
Cumulative effect adjustments resulting from adoption of
new accounting standards, net of tax (Note 2 (23)) .............................
Comprehensive income:Net income..................................................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized gains on securities.................................................................
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 .................................................................................

$598,063$658,856$96,694$8,077,351$244,946($664,405)$9,011,505$1,180,432$10,191,937

Balance, March 31, 2019 .........................................................................................

$598,135 $659,153

—

—

—

147,559(187,045)—(39,486)(3,793)(43,279)———

807,982——

807,982

96,892904,874

—
—
—

—
—
—

—
—
—

—
—
—

2,468
(20,901)(40,171)

—
—
—

72
—
—
—

63
—
—
—

—
—
—
450

—
(314,613)
—
(450)

—
—
—
—

—
—
—
—

2,468
(20,901)(40,171)749,378135(314,613)———(2,216)(4,045)90,631——(56,324)—

2,468(23,117)(44,216)
840,009135(314,613)(56,324)
—

—
—
—
—

234
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
(90)

234
—
—
(90)

(24,297)———(24,063)——(90)703) ($664,495)$9,407,063$97,144 $8,717,829($$1,186,649 $10,593,712

See accompanying notes to consolidated financial statements.

SECOM Annual Report 201963

Consolidated Statements of Cash Flows
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 20192019

Cash flows from operating activities:
Net income .................................................................................................................................................................................................. ¥100,441
Adjustments to reconcile net income to net cash provided by operating activities—
Depreciation and amortization, including amortization of deferred charges(Notes 2 (11), 2 (12) and 12)......................................................................................................................................................
75,300Accrual for pension and severance costs, less payments.........................................................................................
614
Deferred income taxes ................................................................................................................................................................... (12,086)
Gain and loss on sales and disposal of fixed assets, net ............................................................................................
1,444
Impairment loss on long-lived assets (Note 11).............................................................................................................
595
Write-down on real estate inventories (Note 8) .............................................................................................................
580
Gain on private equity investments (Note 22) ................................................................................................................
(4,673)
Impairment loss on goodwill (Note 12) ..............................................................................................................................
—
Gain on sales of securities, net (Notes 7 and 14) ...........................................................................................................
(901)
Loss on other-than-temporary impairment of investment securities (Notes 14 and 22) ....................
8,991
Equity in net income of affiliated companies ..................................................................................................................
(7,002)
Changes in assets and liabilities, net of effects from acquisitions and disposals:(Increase) decrease in cash deposits for armored car services.......................................................................
(6,527)(Increase) decrease in receivables and due from subscribers, net of allowances .............................. (17,404)(Increase) decrease in inventories ....................................................................................................................................
4,285
Increase in deferred charges................................................................................................................................................ (10,716)
Increase (decrease) in notes and accounts payable..............................................................................................
3,388
Increase (decrease) in deposits received......................................................................................................................
8,690
Decrease in deferred revenue .............................................................................................................................................
938
Increase (decrease) in accrued income taxes............................................................................................................
(4,914)
Increase (decrease) in guarantee deposits received .............................................................................................
(164)
Increase in unearned premiums and other insurance liabilities ...................................................................
9,495
Increase (decrease) in accrued consumption tax ...................................................................................................
(831)
Other, net .........................................................................................................................................................................................
8,784
Net cash provided by operating activities ............................................................................................................ 158,327
Cash flows from investing activities:(Increase) decrease in time deposits............................................................................................................................................
(1,251)
Proceeds from sales of property, plant and equipment ..................................................................................................
3,379
Payments for purchases of property, plant and equipment ......................................................................................... (56,401)
Payments for purchases of intangible assets.......................................................................................................................... (11,454)
Proceeds from sales and redemptions of investment securities (Note 7) ............................................................
43,597
Payments for purchases of investment securities ............................................................................................................... (36,686)(Increase) decrease in short-term investments .....................................................................................................................
(4,256)
Acquisitions, net of cash acquired (Note 4) .............................................................................................................................
(3,133)(Increase) decrease in short-term receivables, net..............................................................................................................
62
Payments for long-term receivables ............................................................................................................................................
(1,024)
Proceeds from long-term receivables .........................................................................................................................................
1,685
Other, net ......................................................................................................................................................................................................
1,052
Net cash used in investing activities ........................................................................................................................ (64,430)
Cash flows from financing activities:
Proceeds from long-term debt........................................................................................................................................................
7,161
Repayments of long-term debt ...................................................................................................................................................... (20,184)
Increase (decrease) in bank loans, net ........................................................................................................................................
(1,789)
Increase (decrease) in investment deposits by policyholders .....................................................................................
(1,592)
Dividends paid to SECOM CO., LTD. shareholders ............................................................................................................... (34,922)
Dividends paid to noncontrolling interests.............................................................................................................................
(6,263)
Payments for acquisition of shares of consolidated subsidiaries from noncontrollinginterest holders .......................................................................................................................................................................................
(3,033)
Proceeds from sales of shares of consolidated subsidiaries to noncontrollinginterest holders .......................................................................................................................................................................................
—
Increase in treasury stock, net ..........................................................................................................................................................
(10)
Other, net ......................................................................................................................................................................................................
331
Net cash used in financing activities ........................................................................................................................ (60,301)(595)
Effect of exchange rate changes on cash and cash equivalents............................................................................
33,001
Net increase in cash and cash equivalents .............................................................................................................................
Cash and cash equivalents at beginning of year ............................................................................................................... 316,729
Cash and cash equivalents at end of year ............................................................................................................................... ¥349,730
See accompanying notes to consolidated financial statements.

64

SECOM Annual Report 2019

In millions of yen

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

Years ended March 31

Year ended March 31

2018

2017

2019

¥109,862¥103,389$ 904,874

78,955977(6,118)(1,541)841
865(5,884)11(1,073)
199(7,179)78,183
754
3,563
2,712
2,689
1,164
(13,887)
1,193(1,500)182(5,178)678,378
5,532(108,883)
13,0095,360
5,225(42,099)—(8,117)81,000(63,081)(5,189)(8,292)(18,639)(15,902)
(378)
5,962
(779)
(2,441)
(474)
4,796
1,924
2,754
133,257(2,352)(1,268)187(15,887)
3,435
6,627
(1,560)4,334(1,023)
4,449
(879)
9,296
178,623(58,802)(156,793)
38,604(96,541)
30,52378,2888,450(44,270)(1,477)85,541(7,486)
79,134
1,426,369

172
6,166
(53,751)(7,859)69,365(51,098)(1,150)(23,283)
(457)
(840)
1,224
50
(61,461)

(70)
1,465
(51,222)(7,338)43,290(32,613)(2,283)
(167)
(62)
(760)
1,721
839
(47,200)(11,270)
30,441(508,117)(103,189)
392,766(330,505)(38,342)(28,225)559(9,225)
15,1809,477(580,450)

9,613(20,582)(3,378)(2,483)(32,738)(5,426)

8,407(20,059)(13,528)(2,112)(30,557)(3,556)64,514(181,838)(16,117)(14,342)(314,613)(56,423)

(120)

(489)

(27,324)—(17)
94(55,037)370
17,129299,600¥316,729

618
(13)
1,464
(59,825)(980)
70,618228,982¥299,600

—
(90)
2,982
(543,251)(5,361)
297,3072,853,414$3,150,721

Notes to Consolidated Financial Statements
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2019

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, geospatial 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; geospatial information services using geospatial
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; as wellas Business Process Outsourcing (“BPO”) related services; real estate andother services, including the development and sale of condominiums
equipped with security and contingency planning features, lease of realestate, 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 ¥73,396 million ($661,225 thousand) and¥82,725 million ($745,270 thousand), respectively, at March 31, 2019, and¥74,539 million and ¥84,029 million, respectively, at March 31, 2018. 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 ¥28,531 million($257,036 thousand) and ¥26,610 million ($239,730 thousand), respectively, at March 31, 2019, and ¥29,232 million and ¥27,699 million, respectively, at March 31, 2018. The Company’s assets in the consolidatedbalance sheets and the Company’s maximum exposure to losses related
to VIEs at March 31, 2019 and 2018 were ¥6,851 million ($61,721
thousand) and ¥6,415 million, respectively.
(3) Revenue Recognition
The Company recognizes revenue based on the following five steps inaccordance with ASC 606, “Revenue from Contracts with Customers.”
Step 1: Identify the contracts with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligationsin the contract
Step 5: Recognize revenue when (or as) the entity satisfies a
performance obligation
The Company generates revenue principally through the sales ofmerchandise and services in the areas of security services, fire protection
services, medical services, insurance services, geospatial information
services, BPO and ICT services, and real estate and other services under
separate contractual arrangements.
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 toprepay a portion of service charges, especially for security services, which
are credited to deferred revenue and recognized in income ratably overthe covered service period. Revenue from the installation of security
equipment used to provide on-line centralized security services isdeferred and recognized over the contractual period of security services
after completion of the installation. The related installation costs are alsodeferred and amortized over the contractual period (Note 2 (12)).
The Company enters into arrangements with multiple elements, which
may include any combination of security equipment, installation andsecurity services. The Company allocates revenue to each element basedon its relative fair value if such element meets criteria for treatment as aseparate unit of accounting as prescribed in ASC 606, “Revenue fromContracts with Customers.” 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 recognized on the basis of the
progress of the performance obligation, which is mainly measured by
input methods based on costs incurred.

SECOM Annual Report 201965

Revenue from sales of real estate is recognized when the title of thereal estate is transferred to the customer.
Excluding the aforementioned policy, the policies as specificallydescribed hereinafter are applied for each of revenue items.
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 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 operatingleases 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 equity securities
classified as “available-for-sale” are measured at fair value with unrealized
gains and losses included in income. Marketable debt securities classified
as “available-for-sale” are measured at fair value, and unrealized holding
gains and losses are reported as part of accumulated other comprehensive income (loss), net of tax. Debt securities classified as “held-tomaturity” are reported at amortized cost.
A decline in the fair value of any marketable debt securities classified
as “available-for-sale” below cost that is deemed to be other-thantemporary 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 otherthan-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, other specific factors affecting the market
value, deterioration of the credit condition of the issuers, and whether
or not the Company is able to retain the investment for a period of time
sufficient to allow for the anticipated recovery in market value.
Realized gain or losses on the sale of marketable debt securities
classified as “available-for-sale” are based on the moving-average cost
method and are credited or charged to income.

66

SECOM Annual Report 2019

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
is determined to be other-than-temporary, other investments in nonpublic companies are written down to their impaired value through acharge 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 ¥13,372 million($120,468 thousand) and ¥29,815 million at March 31, 2019 and 2018,
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 tocustomers change, estimates of the recoverability of receivables 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 ¥54,474 million($490,757 thousand), ¥54,127 million and ¥53,677 million for the years
ended March 31, 2019, 2018 and 2017, respectively. Maintenance, repairs
and renewals are charged to income as incurred.

combination 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.

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(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.

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 forthe building leased by a certain subsidiary when the lease matures andthe 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 thebest estimate. However, the scope and the amount of execution of theobligation 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 ¥10,310 million ($92,882
thousand), ¥15,529 million and ¥15,596 million for the years ended March
31, 2019, 2018 and 2017, 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 fair value.
Long-lived assets that are to be disposed of other than by sale are considered held and used until they are disposed of. Long-lived assets thatare to be disposed of by sale are reported at the lower of their carrying
amount or fair value less cost to sell. Reductions in the carrying amountare recognized in the period in which the long-lived assets are classified
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 business(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, 2019, 2018 and2017 were ¥7,345 million ($66,171 thousand), ¥6,383 million and ¥6,491
million, respectively.
(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, 2019, 2018 and2017 were ¥5,374 million ($48,414 thousand), ¥5,011 million and ¥5,072
million, respectively.
(19) Shipping and Handling Costs
Shipping and handling costs included in selling, general andadministrative expenses for the years ended March 31, 2019, 2018 and2017 were ¥1,430 million ($12,883 thousand), ¥1,380 million and ¥1,220
million, respectively.

SECOM Annual Report 201967

(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, 2019, 2018 and 2017 was 218,261 thousand shares, 218,260
thousand shares and 218,261 thousand shares, respectively. There wereno potentially dilutive shares outstanding during the years ended March
31, 2019, 2018 or 2017.
Cash dividends per share shown in the accompanying consolidated
statements of income are computed based on dividends approved andpaid in each fiscal year.
(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 be

68

SECOM Annual Report 2019

entitled 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 was adopted by the Company
in the fiscal year beginning April 1, 2018, using the cumulative-effectmethod, for only those contracts that are not completed at the date ofinitial adoption. The effect of adopting this accounting standard on the
Company’s consolidated financial statements at the adoption date was adecrease of ¥18,044 million ($162,559 thousand) in assets, a decrease of¥13,408 million ($120,793 thousand) in liabilities, and a decrease of ¥4,353
million ($39,216 thousand) in retained earnings. The difference comparedto the results of applying the previous guidance was a decrease of¥3,333 million ($30,027 thousand) in net sales and operating revenue, adecrease of ¥2,911 million ($26,225 thousand) in costs and expenses, anda decrease of ¥185 million ($1,667 thousand) in net income attributable
to noncontrolling interests on the Company’s consolidated financial
statements for the year ended at March 31, 2019.
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 of equity
investments and the recognition of changes in fair value of financial liabilities when the fair value is elected. This accounting standard is effective
for fiscal years beginning after December 15, 2017, including interim periods within that reporting period, and was adopted by the Company inthe fiscal year beginning April 1, 2018. The Company recognized cumulative-effect adjustment from unrealized gains on securities of ¥20,762 million ($187,045 thousand) at March 31, 2018 which had been recognizedas other comprehensive income as a transfer to retained earnings.
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. The Company iscurrently evaluating the effect of adopting this accounting standard on
its consolidated financial statements.
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 and requiresconsideration of a broader range of reasonable and supportable information to inform credit loss estimates. This accounting standard is effective
for fiscal years beginning after December 15, 2020, including interim
periods within that reporting period, and will be adopted by theCompany in the fiscal year beginning April 1, 2021. The Company iscurrently evaluating the effect of adopting this accounting standard
on its consolidated financial statements.
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 otherthan inventory 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 was adopted by the Company in the fiscal year beginning
April 1, 2018. The adoption did not have a material impact on the
Company’s consolidated results of operations or financial position.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test
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. The Company is currently evaluating the effect of adopting this accounting standard on its
consolidated financial statements.
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 was adopted by theCompany in the fiscal year beginning April 1, 2018. The adoption of thisaccounting standard resulted in reclassification of ¥1,522 million fromcost of sales and ¥1,202 million from selling, general and administrative
expenses into other income for the year ended March 31, 2018, and¥1,549 million from cost of sales and ¥1,234 million from selling, generaland administrative expenses into other income for the year ended March
31, 2017. Please refer to note 15 for further information. The adoption of
the capitalization of the service cost component of net benefit cost did
not have a material impact on the Company’s consolidated financial
statements.
In August 2018, the FASB issued ASU No. 2018-12, “Targeted
Improvements to the Accounting for Long-Duration Contracts.” Thisaccounting standard changes the recognition, measurement, presentation and disclosure requirements for long-duration contracts. Thisaccounting standard is effective for fiscal years beginning after December
15, 2020, and will be adopted by the Company in the fiscal year beginning April 1, 2021. The Company is currently evaluating the effect of
adopting this accounting standard on its consolidated financial
statements.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure
Framework—Changes to the Disclosure Requirements for Fair Value
Measurement.” This accounting standard adds, removes and modifies thedisclosure requirements for fair value measurements. This accounting
standard is effective for fiscal years beginning after December 15, 2019,
and will be adopted by the Company in the fiscal year beginning April 1,
2020. Early adoption is permitted, and the Company is currently evaluating the timing of its adoption. As this accounting standard is a provision
for presentation only, the adoption will not have an impact on the
Company’s consolidated financial statements..
In August 2018, the FASB issued ASU No. 2018-14, “Disclosure
Framework—Changes to the Disclosure Requirements for Defined
Benefit Plans.” This accounting standard adds, removes and clarifies thedisclosure requirements for defined benefit pension or other postretirement plans. This accounting standard is effective for fiscal years beginning after December 15, 2020, and will be adopted by the Company inthe fiscal year beginning April 1, 2021. Early adoption is permitted, andthe Company is currently evaluating the timing of its adoption. As thisaccounting standard is a provision for presentation only, the adoption will
not have an impact on the Company’s consolidated financial statements.
(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.
(25) Reclassifications
Certain amounts in the accompanying consolidated financial
statements for the years ended March 31, 2018 and 2017 have been
reclassified to conform to the presentation used for the year ended
March 31, 2019.
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 ¥111=US$1, the approximate rate
prevailing on the Tokyo Foreign Exchange Market on March 31, 2019.
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 in cash. The purpose of thisacquisition is to increase corporate value through generating various synergies including further improvements in quality of existing business anddevelopment and provision of new BPO (Business Process Outsourcing)
services by taking full advantage of the collective 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

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
24,919Total assets acquired ..............................................................................................

34,570Current liabilities .......................................................................................................
Long-term liabilities ................................................................................................

5,075
2,945

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

8,020

Net assets acquired .................................................................................................

¥26,550

Intangible assets of ¥7,448 million subject to amortization include
customer relationships of ¥6,796 million with a 15-year useful life. The
goodwill of ¥17,471 million represents expected excess earnings power
based on the future business operations. It is not deductible for tax
purposes and has been assigned to the BPO and ICT services segment.

SECOM Annual Report 2019

69

The Company recorded the acquisition costs of ¥274 million related tothis acquisition in selling, general and administrative expenses for theyear ended March 31, 2018.
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.

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, 2019 and 2018 are as follows:
In millions of yen
March 31, 2019

In millions of yen
Gross unrealized

Years ended
March 31
Unaudited2018

Pro forma net sales and operating revenue ..................
Pro forma net income attributable
to SECOM Co., Ltd. ......................................................................

2017¥1,099,655 ¥1,066,938
97,714

92,070In yenYears ended
March 31

Unaudited

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

2018

2017

¥447.69¥421.83

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.

Cost

Short-term investments:
Available-for-sale:
Debt securities ....................... ¥ 24,460
Held-to-maturity:—
Debt securities .......................
¥ 24,460
Investment securities:
Available-for-sale:
Equity securities* .................. ¥—Debt securities ....................... 111,534
Held-to-maturity:
12,954
Debt securities .......................
¥124,488

Gains

LossesFair value

¥

865 ¥

31

¥ 25,294

¥

—
865 ¥

—
31

—
¥ 25,294

¥

— ¥ —
2,644
320

1,743
—
¥ 4,387 ¥ 320¥—
113,858

14,697¥128,555*After the adoption of ASU No. 2016-01, equity investments are measured at fair value
with changes in the fair value recognized in net income at March 31, 2019.
In millions of yen
March 31, 2018

5. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2019 and 2018 comprise thefollowing:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2019

2019

Cash......................................................................
Time deposits.................................................
Call loans ...........................................................
Investment securities ................................

¥337,195
12,447—
88¥349,730¥304,415
12,165—149¥316,729$3,037,793
112,135—
793$3,150,721

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.
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. Cash deposit
for armored car services balances are segregated from cash and cash
equivalents and are restricted as to use by the Company. The Company
funds most of the cash for such operations through bank overdrafts anddeposits. Bank loans and deposits received, which relate to these operations, were ¥21,211 million ($191,090 thousand) and ¥121,087 million($1,090,874 thousand), respectively, at March 31, 2019, and ¥21,940 million and ¥113,830 million, respectively, at March 31, 2018. As part of its
fee arrangement, the Company is reimbursed for the interest cost of therelated overdrafts.

70

SECOM Annual Report 2019

Gross unrealized
Cost

Short-term investments:
Available-for-sale:
Debt securities .......................
Held-to-maturity:
Debt securities .......................
Investment securities:
Available-for-sale:
Equity securities ....................
Debt securities .......................
Held-to-maturity:
Debt securities .......................

Gains

LossesFair value¥ 16,319

¥

902

¥

10

¥ 17,211—¥ 16,319

¥

—
902

¥

—
10

—
¥ 17,211¥ 35,071
105,423¥31,714
2,799

¥ 175
913

¥ 66,610
107,309

13,006¥153,500

1,546¥36,059—¥1,08814,552¥188,471

In thousands of U.S. dollars
March 31, 2019
Gross unrealized
Cost

Short-term investments:
Available-for-sale:
Debt securities ................
Held-to-maturity:
Debt securities ................
Investment securities:
Available-for-sale:
Equity securities .............
Debt securities ................
Held-to-maturity:
Debt securities ................

Gains

LossesFair value$ 220,360$ 7,793 $ 279$ 227,874—$ 220,360——$ 7,793 $ 279—$ 227,874$—
1,004,811$—
23,820

$ —
2,883

$
—
1,025,748

116,703$1,121,514

15,702—$39,522 $2,883

132,405$1,158,153

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, 2019 are as follows:
In millions of yen

Proceeds from the sale of “available-for-sale” securities for the years
ended March 31, 2019, 2018 and 2017 were ¥11,603 million ($104,532
thousand), ¥26,488 million and ¥15,574 million, respectively. On thosesales, the gross realized gains and gross realized losses, using a movingaverage cost basis, for the years ended March 31, 2019, 2018 and 2017
are as follows:

March 31, 2019
Less than 12 months

Available-for-sale:
Debt securities ......................

12 months or longer

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

Fair valueGrossunrealized
lossesFair valueGrossunrealized
losses¥33,725¥33,725

¥351
¥351

¥—
¥—

¥—
¥—

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

¥

¥ —

¥—

¥—

The Company maintains long-term investment securities, issued bya number of non-public companies, included as investment securities
in the consolidated balance sheets. The aggregate carrying amount of
the investments in non-public companies, at cost net of other-thantemporary impairment, was ¥10,890 million ($98,108 thousand) and¥10,515 million at March 31, 2019 and 2018, respectively. The corresponding fair value at that date was not computed as such estimation
was not practicable and no significant events or changes that might
have affected the fair value of the investments were observed.

Held-to-maturity:
Debt securities ......................

—In thousands of U.S. dollars
March 31, 2019

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

Less than 12 months

12 months or longer

Fair valueGrossunrealized
lossesFair valueGrossunrealized
losses$303,829$303,829$3,162$3,162

$—
$—

$—
$—

$

$

$—

$—

—

—

Based on the Company’s ability and intent to hold the investments
for a 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, 2019.
At March 31, 2019, 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, 2019 are as follows:
In millions of yen
March 31, 2019
Available-for-saleDue within 1 year ............
Due after 1 year
through 5 years ..............
Due after 5 years
through 10 years ...........
Due after 10 years............

Held-to-maturity

Cost

Fair value¥ 24,460¥ 25,294

90,477

91,589

1,510

1,540

2,875
18,182¥135,994

3,148
19,121¥139,152—
11,444¥12,954—
13,157¥14,697¥

Cost

Fair value—¥

March 31, 2019

Cost

Held-to-maturity

Fair value

Due within 1 year ............ $ 220,360 $ 227,874
Due after 1 year
through 5 years ..............
815,108
825,126
Due after 5 years
through 10 years ...........
25,901
28,360Due after 10 years............
163,802172,262$1,225,171 $1,253,622

Cost

$

—

Fair value

$

2018

2017

2019

¥1,689268¥1,62372$13,126477

8. Inventories
Inventories at March 31, 2019 and 2018 comprise the following:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2019

2018

2019

Security-related products................................. ¥ 8,611
Fire protection-related products.................. 12,160
Real estate .................................................................. 36,607
Other-related products ......................................
8,567¥65,945¥ 7,433
20,47644,455
9,694¥82,058$ 77,577
109,549
329,793
77,180$594,099

Work in process for real estate inventories at March 31, 2019 and 2018,
amounting to ¥30,743 million ($276,964 thousand) and ¥39,689 million,
respectively, are included in real estate.
The amount of write-down on real estate inventories included in costof sales for the years ended March 31, 2019, 2018 and 2017 were ¥580
million ($5,225 thousand), ¥865 million and ¥1,164 million, respectively.

—

In thousands of U.S. dollars

Available-for-sale2019¥1,45753—

13,604

13,874—
103,099$116,703—
118,531$132,405

9. Credit Quality of Financing Receivables and Allowancefor 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.

SECOM Annual Report 201971

In thousands of U.S. dollars

Financing receivables and allowance for doubtful accounts at March
31, 2019 and 2018 are as follows:Year ended March 31, 2019

In millions of yen
Year ended March 31, 2019

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............................

¥

¥

¥

Loans
receivable
resulting frommedicalservices

Lease
receivables
Other
loans
receivable

Other

Total

275
(70)
32
—

¥2,373
(6)
—
—

¥ 539
(55)
—
—

237

2,367

484

1,162

4,250

169

2,367

484

1,162

4,182

68

¥

—

¥

0

¥1,216 ¥ 4,403
(54)
(185)
(0)
32
—
—

¥

—

¥

68

277

¥5,142¥ 832¥1,407¥ 7,658

50,374

579

1,277

199

52,429¥50,651¥5,721¥2,109¥1,606¥60,087

In millions of yen
Year ended March 31, 2018

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............................

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

¥2,390
(17)
—
—

¥ 698
(143)
—
(16)

¥ 850
366
(0)
0

¥ 4,29473
52(16)

Balance at
end of year ...............................
2,135
Individually
evaluated............................
1,522
Collectively
evaluated............................ $613

Other loans
receivable

Other

Total

$21,378 $ 4,856 $10,954 $ 39,666
(54)
(496)
(486)
(1,667)
—
—
(0)
288
—
—
—
—
21,324

4,360

10,46838,287

21,324

4,360

10,46837,674$—$0Financing receivables:
Individually
evaluated............................ $ 2,495
Collectively
evaluated............................ 453,820$46,324$ 7,495

5,217

11,505$456,315$51,541$19,000

$

— $

613

$12,676 $ 68,990
1,792

472,334$14,468 $541,324

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, 2019 and 2018 are as
follows:
In millions of yen

¥

¥

356
(133)
52
—

March 31, 2019

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

¥50,374277¥5,68536¥1,310
799

¥ 957
649

¥58,326
1,761

275

2,373

539

1,216

4,403

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

119

2,373

539

1,216

4,247

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

¥50,651¥5,721¥2,109¥1,606¥60,087

156

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

¥

¥

¥ 833

¥

¥

156

¥

—

¥

0

¥

—

¥

—

3

—

836

In millions of yen¥

197¥5,666¥ 948¥1,404¥ 8,215

54,203

548

921

143

55,815¥54,400¥6,214¥1,869¥1,547¥64,030* “Other” principally includes the effect of changes in foreign currency exchange rates and thescope of consolidation.

72

Allowance for
doubtful accounts:
Balance at
beginning of year................. $ 2,478
Provision (Reversal) .........
(631)
Charge off .............................
288
Other .......................................
—

Loans
receivable
resulting frommedicalservices

SECOM Annual Report 2019

March 31, 2018

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

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

¥54,203
197¥6,177
37

¥ 953
916

¥ 843
704

¥62,176
1,854

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

¥54,400¥6,214¥1,869¥1,547¥64,030

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

¥

¥

¥ 948

¥

¥

—

4

—

952

In thousands of U.S. dollars
March 31, 2019

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

Current ............................................ $453,820
Overdue..........................................
2,495$51,216 $11,802 $ 8,621 $525,459
325
7,198
5,847
15,865

Total:
Financing receivables .......... $456,315$51,541 $19,000 $14,468 $541,324

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

$

$

—

27 $ 7,505 $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., a27.6 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:— $ 7,532

Impaired receivables and the related allowance for doubtful accounts
at March 31, 2019 and 2018 are as follows:
In millions of yen
March 31, 2019

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

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

¥277

¥5,142¥832¥1,407¥7,658

169

2,367

484

1,162

4,182

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2019

2018

2019

Current assets....................................................... ¥133,699
Noncurrent assets ............................................. 188,009¥127,793
196,908$1,204,495
1,693,775

Total assets....................................................... ¥321,708¥324,701$2,898,270

Current liabilities ................................................ ¥ 78,969
Long-term liabilities .........................................
40,801Equity ........................................................................ 201,938¥ 79,246
42,160203,295$ 711,432
367,577
1,819,261

Total liabilities and equity....................... ¥321,708¥324,701$2,898,270

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

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

2019

2018

2017

2019

Net sales ...................................... ¥289,172¥283,066¥255,263$2,605,153

Gross profit ................................ ¥ 81,096¥ 83,626¥ 78,246$ 730,595

Net income
attributable toaffiliated companies .......... ¥ 20,435¥ 25,266¥ 17,320$ 184,099

In thousands of U.S. dollars
March 31, 2019

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

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other

Total

$2,495$46,324$7,495 $12,676$68,990

1,522

21,324

4,360

37,674Otherloans
receivable

10,468The average amounts of impaired receivables for the year ended
March 31, 2019 are as follows:
In millions of yen

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

Lease
receivables

Loans
receivable
resulting frommedicalservices

Other
loans
receivable

Other

Total

¥214

¥5,499¥818¥1,253¥7,784Lease
receivables

Loans
receivable
resulting frommedicalservices$1,928$49,541

Dividends received from affiliated companies for the years ended
March 31, 2019, 2018 and 2017 were ¥4,390 million ($39,550 thousand),¥4,199 million and ¥3,036 million, respectively.
Three listed affiliated companies accounted for under the equity
method with an aggregated carrying amount of ¥54,608 million($491,964 thousand) and ¥51,410 million at March 31, 2019 and 2018,
respectively, had a quoted market value of ¥138,854 million ($1,250,937
thousand) and ¥141,738 million at March 31, 2019 and 2018, respectively.
The amounts of goodwill included in the carrying amount of investments in affiliated companies were ¥4,665 million ($42,027 thousand)and ¥4,836 million at March 31, 2019 and 2018, respectively.

In thousands of U.S. dollars

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

Other
loans
receivable

Other

Total

$7,369 $11,288$70,126

SECOM Annual Report 201973

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

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2019

2018

2017

2019

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

¥1,422¥1,371¥1,455$12,811Purchases ....................................

¥6,965¥6,293¥4,749$62,748

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2019

2018

2019

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

¥ 490

¥ 475

$ 4,414Loans receivable.....................................................

¥ 331

¥ 492

$ 2,982

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

¥3,128¥2,406$28,180

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

¥

¥

$

—

—

—

The Company’s equity in undistributed income of affiliates at
March 31, 2019 and 2018 included in retained earnings was ¥39,466
million ($355,550 thousand) and ¥37,763 million, respectively.

12. Goodwill and Other Intangible Assets
The components of acquired intangible assets, excluding goodwill, atMarch 31, 2019 and 2018 are as follows:
In millions of yen
March 31, 2019
Gross
carrying
amountAccumulated
amortization

Net
carrying
amountAmortized intangible assets:
Software ................................................................ ¥ 63,865
Other ....................................................................... 40,765¥104,630(¥38,759)(12,156)(¥50,915)¥25,106
28,609¥53,715

Unamortized intangible assets ..................... ¥¥¥ 4,177

74

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2019

2018

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

¥ 11
23
—
—

¥ 47 ¥ 42
15
62
—
556
—
—

$

545
16

364
415

1,473
485

4,910
144

—
—

—
—

71
—

—
—

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

¥595¥841 ¥2,689$5,360

SECOM Annual Report 2019

2017

2019

99
207
—
—

—

In millions of yen
March 31, 2018

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

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

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 geospatial information services segment for the year ended
March 31, 2019, on certain business assets of the BPO and ICT services
segment for the year ended March 31, 2018, and on certain businessassets of the geospatial information services segment for the year ended
March 31, 2017. The fair value was determined based on the estimatedpresent value of future cash flows or appraisal value.
Impairment losses on long-lived assets by business segment for theyears ended March 31, 2019, 2018 and 2017 are as follows:

4,177

Gross
carrying
amountAccumulated
amortization

Net
carrying
amount¥53,535
40,228¥93,763(¥33,380)(9,307)(¥42,687)¥20,155
30,921¥51,076¥ 5,951¥¥ 5,951—

In thousands of U.S. dollars
March 31, 2019
Gross
carrying
amountAccumulated
amortization

Net
carrying
amountAmortized intangible assets:
Software ................................................................ $575,360
Other ....................................................................... 367,252$942,612($349,180) $226,180(109,514) 257,738($458,694) $483,918

Unamortized intangible assets ..................... $ 37,632$—$ 37,632

Aggregate amortization expense for the years ended March 31, 2019,2018 and 2017 was ¥10,516 million ($94,739 thousand), ¥9,299 millionand ¥8,910 million, respectively. Amortized intangible assets are amortized using 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 312020 .......................................................................................
2021 .......................................................................................
2022 .......................................................................................
2023 .......................................................................................
2024 .......................................................................................

In millions of yen

In thousands of
U.S. dollars¥10,898
9,006
7,296
5,862
4,475

$98,180
81,13565,73052,811
40,315

The changes in the carrying amount of goodwill by business segment
for the years ended March 31, 2019 and 2018 are as follows:
In millions of yen
Security
services

Goodwill .......................... ¥62,741
Accumulated
impairment
losses............................... (2,879)
March 31, 2017 ............ 59,862
Goodwill acquired
during the year .........
38
Disposal ...........................
—
Impairment
losses...............................
—
Translation
adjustment..................
9
Goodwill .......................... 62,788
Accumulated
impairment
losses............................... (2,879)
March 31, 2018 ............ 59,909
Goodwill acquired
during the year ......... 1,623
Disposal ...........................
—
Impairment
losses...............................
—
Translation
adjustment..................
(12)
Goodwill .......................... 64,399
Accumulated
impairment
losses............................... (2,879)
March 31, 2019 ......... ¥61,520

Fire
protection
services

Medicalservices

Geospatial
information
services

BPO and ICT
services

Real estateand otherservices¥1,942¥9,399Total¥4,577¥17,643¥1,962¥ 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—
1,999(5,361)
4,038

(775)
3,800

(175)
34,939

(135)
1,827

(9,325)
106,512

—
—

—
—

—
—

—
—

—
—

1,623
—

—

—

—

—

—

—

—
1,999

—
9,399

(1)
4,574

—
35,114

—
1,962

(13)
117,447— (5,361)¥1,999 ¥4,038(775)(175) (135)(9,325)¥3,799 ¥34,939 ¥1,827 ¥108,122
In thousands of U.S. dollars

Security
services

Fire
protection
services

Medicalservices

Geospatial
information
services

BPO and ICT
services

Real estateand otherservices

Total

Goodwill .......................... $565,658 $18,009 $84,675 $41,216 $316,343 $17,675 $1,043,576
Accumulated
impairment
losses............................... (25,937)— (48,297) (6,982)(1,577) (1,216)(84,009)
March 31, 2018 ............ 539,721 18,009 36,378 34,234 314,766 16,459
959,567
Goodwill acquired
during the year ......... 14,622
—
—
—
—
—
14,622
Disposal ...........................
—
—
—
—
—
—
—
Impairment
losses...............................
—
—
—
—
—
—
—
Translation
adjustment..................
(108)
—
—
(9)
—
—
(117)
Goodwill .......................... 580,172 18,009 84,675 41,207 316,343 17,675 1,058,081
Accumulated
impairment
losses............................... (25,937)— (48,297) (6,982)(1,577) (1,216)(84,009)
March 31, 2019 ......... $554,235 $18,009 $36,378 $34,225 $314,766 $16,459 $ 974,072

13. Bank Loans and Long-Term Debt
Bank loans of ¥38,658 million ($348,270 thousand) and ¥38,969 million
at March 31, 2019 and 2018, respectively, are generally comprised of 30
to 365 day notes. The weighted average interest rate was 0.68 percent
and 0.76 percent at March 31, 2019 and 2018, 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, 2019, Nohmi Bosai Ltd. and Arai & Co., Ltd., subsidiariesof the parent company, had an unused committed line of credit from ashort-term arrangement of ¥6,800 million ($61,261 thousand). The line ofcredit expires in March 2021. Under the agreement, Nohmi Bosai Ltd. isrequired to pay commitment fees, at an annual rate of 0.15 percent, on
the unused portion of the line of credit. The line of credit expires in April
2041. Under the agreement, Arai & Co., Ltd. is required to pay commitment fees, at an annual rate of 0.55 percent and Japanese yen one
month Tokyo Interbank Offered Rate (tibor), on the unused portion of
the line of credit. At March 31, 2019, the Company had overdraft agreements with 44 banks and its unused lines of credit amounted to ¥73,867
million ($665,468 thousand). The Company incurs no fee on the unused
portion of these overdraft agreements. The overdraft agreements expire
in the period from April 2019 to March 2020. The Company has the ability
and intent to extend these overdraft agreements under similar terms
and conditions.
Long-term debt at March 31, 2019 and 2018 comprises the following:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2019

2019

Loans, principally from banks due
2017–2033 with interest rates
ranging from 0.10% to 10.90%:
Secured ....................................................................... ¥12,270 ¥14,545
Unsecured................................................................. 20,426
25,106
0.38% unsecured bonds due 2021 ..................
493
490
0.26% unsecured bonds due 2021 ..................
50
70
0.25% unsecured bonds due 2021 ..................
50
70
0.31% unsecured bonds due 2023 ..................
33
40
0.40% unsecured bonds due 2024 ..................
22
26
0.29% unsecured bonds due 2022 ..................
30
40
Unsecured bonds due 2017–2027
with floating interest rates basedon 6-month Japanese yen TIBOR ................... 5,946
5,299
Obligations under capital leases,
due 2017–2043 (Note 19) ................................... 24,469
24,246............................................................................. 63,789
69,932
Less: Portion due within one year .................... (18,447) (19,632)............................................................................. ¥45,342 ¥50,300$110,541
184,018
4,441
450
450
297
198
270
53,568220,442574,675(166,189)$408,486

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 201975

Assets pledged as collateral for bank loans and long-term debt at
March 31, 2019 and 2018 are as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2019

2018

2019

Time deposits................................................................. ¥ 1,349 ¥ 1,437
Short-term and long-term receivables ..........
6,166
6,130
Investment securities ................................................
1,319
1,332
Property, plant and equipment .......................... 43,637 43,510
Other intangible assets ............................................ ¥ 818 ¥ 818$ 12,153
55,55011,883393,126$ 7,369

The aggregate annual maturities on long-term debt at March 31, 2019are as follows:
Years ending March 312020 .....................................................................................
2021 .....................................................................................
2022 .....................................................................................
2023 .....................................................................................
2024 .....................................................................................
Thereafter .........................................................................
...............................................................................................

In millions of yen

In thousands of
U.S. dollars¥18,447
14,529
9,137
7,277
3,716
10,683¥63,789$166,189
130,892
82,31565,55933,477
96,243$574,675

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 basedon related regulations in Japan whereas under U.S. GAAP, those liabilities
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, 2019 and 2018 was¥72,174 million ($650,216 thousand) and ¥75,968 million, respectively.

76

SECOM Annual Report 2019

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 otherthan-temporary impairments, for the years ended March 31, 2019, 2018and 2017 were losses of ¥4,016 million ($36,180 thousand), and gainsof ¥694 million and ¥1,004 million, respectively. Losses on other-thantemporary impairments of investment securities for the years ended
March 31, 2019, 2018 and 2017 were ¥5,032 million ($45,333 thousand),¥142 million and ¥105 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 forlump-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, 2019, 2018 and 2017 are as follows.
The service cost component of net periodic pension cost and severance cost for the Company’s cash balance pension plan is included incost of sales and selling, general and administrative expenses in the consolidated statements of income. The components other than the service
cost component are included in other income in the consolidated
statements of income.

2019

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2018

2017

Net periodic pension andseverance costs:
Service cost .......................................... ¥7,787 ¥7,996 ¥7,889
Interest cost .........................................
398
404
349
Expected return onplan assets .......................................... (3,254) (3,109) (2,919)
Amortization of priorservice benefit .................................
(4)
(306)
(966)
Recognized actuarial loss ............
176
287
754
Net periodic pension
and severance costs ............... ¥5,103 ¥5,272 ¥5,107

2019$70,1523,586(29,315)(36)
1,586$45,973

The changes in benefit obligation, plan assets and funded status are
as follows:
In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2018

2019

¥111,632
7,996
404(1,281)(6,018)591$1,020,937
70,152
3,586(1,387)(59,334)
15,523—(1,261)—(1,847)

113,324

1,046,369

117,2789,425
2,396(4,139)389

1,129,270(1,279)20,324(41,189)
9,153

—
—

(2,342)685

2019

Change in benefit obligation:
Benefit obligation
at beginning of year ............................ ¥113,324
Service cost .................................................
7,787
Interest cost ................................................
398
Actuarial (gain) loss ................................
(154)
Benefits paid ...............................................
(6,586)
Acquisition ...................................................
1,723
Transfer to the defined
contribution pension plan ..............
(140)
Transfer of the substitutional
portion of the welfare
pension fund ...........................................
(205)
Benefit obligation
at end of year........................................... 116,147
Change in plan assets:
Fair value of plan assets
at beginning of year ............................ 125,349
Actual return on plan assets .............
(142)
Employer contribution.........................
2,256
Benefits paid ...............................................
(4,572)Acquisition ...................................................
1,016
Transfer of the substitutional
portion of the welfare
pension fund ...........................................
(260)
Other ...............................................................
76
Fair value of plan assets
at end of year........................................... 123,723
Funded status
at the end of year ........................................ ¥ 7,576

125,349¥ 12,025

1,114,622$

68,253

Amounts recognized in the consolidated balance sheets at March 31,
2019 and 2018 consist of:Prepaid pension andseverance costs ................................................
Accrued pension andseverance costs ................................................
Net amount recognized..............

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2019

2018

2019

¥38,489¥41,409$346,748(30,913)¥ 7,576(29,384)¥12,025(278,495)$ 68,253

Other changes in plan assets and benefit obligations recognized inother comprehensive income (loss) for the year ended March 31, 2019are summarized as follows:

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

In millions of yen

In thousands of
U.S. dollars¥3,241(176)
4¥3,069$29,199(1,586)36$27,649

Amounts recognized in accumulated other comprehensive income(loss) at March 31, 2019 and 2018 consist of:Actuarial loss...............................................................
Prior service benefit ...............................................
Net amount recognized....................

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2019

2018

2019

¥3,816231¥4,047

¥751
227
¥978

$34,378
2,081$36,459

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 ¥–1 million ($–9 thousand) and ¥207 million ($1,865 thousand),
respectively.
The accumulated benefit obligation for the pension plan was ¥115,843
million ($1,043,631 thousand) and ¥113,039 million at March 31, 2019and 2018, 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 ¥51,666 million ($465,459
thousand), ¥51,362 million ($462,721 thousand) and ¥18,580 million($167,387 thousand), respectively, at March 31, 2019, and ¥49,470 million,¥49,186 million and ¥29,006 million, respectively, at March 31, 2018.
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, 2019 and 2018 are as follows:
March 31

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

2019

2018

0.3%
2.2%

0.4%
2.6%

Weighted-average assumptions used to determine net pension andseverance costs for the years ended March 31, 2019, 2018 and 2017 are
as follows:
Years ended March 31

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

2019

2018

2017

0.4%
3.0%
2.6%

0.4%
3.0%
2.7%

0.3%
3.0%
2.6%

The Company determines the expected long-term rate of return basedon the expected long-term return of the various asset categories inwhich 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.

SECOM Annual Report 201977

In thousands of U.S. dollars

The following table represents the fair value of the Company’s pension
plan assets at March 31, 2019 and 2018. The three levels of inputs used tomeasure fair value are more fully described in Note 22.
In millions of yen
March 31, 2019
Level 1

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

¥ 6,618

Level 2¥—

Level 3

¥

—

Total

¥

6,618

22,944—424

23,368

5,240

—

—

5,240

2,485

414

—

2,899

—
411
—
—
2
¥37,700—
47,3453,770
13,493448¥65,470—
19,545——584¥20,553—
67,301
3,770
13,493
1,034¥123,723* The plan’s government bonds include approximately 10% Japanese bonds and 90%
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.
In millions of yen
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 ..........................................

Level 2

Level 3

Total—

¥ 8,142

SECOM Annual Report 2019

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

$ 59,622

Level 2$

Level 3

— $

Total

—

$

59,622

206,703—

3,820

210,523

47,207——

47,20722,387

3,730—

26,117——426,531 176,081
33,964—
121,559
—
4,036
5,261
$589,820 $185,162—
606,315
33,964
121,559
9,315$1,114,622

—
3,703
—
—
18
$339,640* The plan’s government bonds include approximately 10% Japanese bonds and 90%
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, 2019 and 2018.
Level 3 investments, mainly in unquoted certificates of beneficial interests in securities investment trust included in the plan’s pooled funds, areat the discretion of the administrator of the fund. Their fair values are estimated based on unobservable inputs provided by the administrator of
the fund.
In millions of yen¥ 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.

78

March 31, 2019
Level 1

Year ended March 31, 2019
Equitysecurities

Balance at beginning of year .......
Actual return on plan assets:
Relating to assets soldduring the year .............................
Relating to assets heldat end of year.................................
Purchases, sales andsettlements, net .................................
Transfer to (from) Level 3, net ......
Balance at end of year ......................

Japanesecompanies

Pooled
funds

Other

Total

¥ —

¥24,433¥1,234¥25,667

—

552

79

631

—

141

(1)

140

—
424
¥424

(1,533)(4,048)¥19,545

(728)
—
¥ 584

(2,261)(3,624)¥20,553

In millions of yen
Year ended March 31, 2018
Equitysecurities

In millions of yen

In thousands of
U.S. dollars¥27,051

Years ended
March 31

Year ended
March 31

2017

2019

68

(979)

615

(78)

537

(1,408)—¥24,433

466—¥1,234(942)—¥25,667

Consolidated income taxes
from continuing
operations ............................................. ¥35,124 ¥48,107 ¥47,012
Shareholders’ equity—
accumulated othercomprehensive
income (loss):
Unrealized gains
on securities ...................................
139
155
1,244
Pension liability
adjustments....................................
(986)
2,332
1,876
Foreign currencytranslation
adjustments....................................
(662)
662
(358)
............................................................ ¥33,615 ¥51,256 ¥49,774

Japanesecompanies

Pooled
funds

Other

Total

¥—

¥26,273¥ 778—(1,047)———¥—

Balance at beginning of year........
Actual return on plan assets:
Relating to assets soldduring the year .............................
Relating to assets heldat end of year.................................
Purchases, sales andsettlements, net .................................
Transfer to (from) Level 3, net ......
Balance at end of year.......................

2019

In thousands of U.S. dollars
Year ended March 31, 2019
Equitysecurities
Japanesecompanies

Balance at beginning of year .......
Actual return on plan assets:
Relating to assets soldduring the year .............................
Relating to assets heldat end of year.................................
Purchases, sales andsettlements, net .................................
Transfer to (from) Level 3, net ......
Balance at end of year ......................

17. Income Taxes
Total income taxes for the years ended March 31, 2019, 2018 and 2017
are allocated as follows:$

Pooled
funds

Other

Total

— $220,117 $11,117 $231,234
—

4,973

712

5,685

—

1,270

(9)

1,261

—
(13,811) (6,559) (20,370)
3,820(36,468)—(32,648)$3,820 $176,081 $ 5,261 $185,162

The Company expects to contribute ¥2,669 million ($24,045 thousand)to its domestic defined benefit plans in the year ending March 31, 2020.
The following benefit payments, which reflect future service, as
appropriate, are expected to be paid.
Years ending March 312020 .....................................................................................
2021 .....................................................................................
2022 .....................................................................................
2023 .....................................................................................
2024 .....................................................................................
2025–2029 .......................................................................

In millions of yen

In thousands of
U.S. dollars¥ 5,451
5,615
5,806
6,009
6,177
31,347$ 49,108
50,58652,30654,13555,649282,405

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, 2019, 2018 and 2017 were
¥1,963 million ($17,685 thousand), ¥1,851 million and ¥2,192 million,
respectively.
16. Exchange Gains and Losses
Other expenses for the years ended March 31, 2019, 2018 and 2017
includes net exchange losses of ¥169 million ($1,523 thousand), ¥213
million and ¥454 million, respectively.

2018$316,432

1,253(8,884)(5,964)$302,837

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 quarter
ended March 31, 2016, the statutory income tax rate in Japan, which
was approximately 30.7 percent for the years ended March 31, 2017 and2018, decreased to approximately 30.5 percent for the year ended March
31, 2019.
Reconciliations of the differences between income taxes computed atstatutory tax rates and consolidated income taxes from continuing
operations are as follows:2019

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2017

2019

2018

Income taxes computed
at statutory tax rate.......................... ¥39,212 ¥46,293 ¥44,584
Increase (decrease)resulting from:
Provision of valuation
allowance.........................................
215
2,116
714
Per capita tax ....................................
882
882
867
Reversal of valuation
allowance......................................... (3,959)(835) (1,048)
Net effect of changes incorporate tax rates .....................
139
660
512
Other, net............................................ (1,365) (1,009)
1,383
Consolidated income
taxes from continuing
operations ................................. ¥35,124 ¥48,107 ¥47,012$353,261

1,935
7,946
(35,665)
1,252(12,297)$316,432

SECOM Annual Report 201979

The significant components of deferred tax assets and liabilities at
March 31, 2019 and 2018 are as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2019

2019

Deferred tax assets:
Accrued pension andseverance costs ............................................
Property, plant and equipment ............
Loss carryforwards ........................................
Adjustment of book value atthe date of acquisition
Land and buildings ................................
Other assets ................................................
Accrued bonus................................................
Deferred revenue ..........................................
Vacation accrual .............................................
Investment securities ..................................
Unrealized intra-entity profit
on assets ...........................................................
Allowance for doubtful accounts........
Intangible assets ............................................
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) .............................................

¥ 8,354
6,749
6,527

¥ 8,637
7,448
9,138

$ 75,261
60,80258,802

6,073
399
6,181
5,382
4,441
4,307

6,153
399
5,813
7,176
4,289
2,139

54,712
3,595
55,68548,48640,00938,802

3,521
1,714
1,549

—
1,774
1,798

31,721
15,441
13,955595
14,25570,047(20,649)
49,398631
12,00367,398(27,509)39,8895,360
128,423
631,054(186,027)
445,027(8,826)(3,904)(920)(9,690)(4,117)(951)(79,514)(35,171)(8,288)(11,014)(7,494)(12,646)(9,570)(99,225)(67,514)(6,021)(888)(4,312)(43,379)(6,458)(5,204)(4,544)(53,180)(54,243)(8,000)(38,847)(390,802)¥ 6,019(¥13,291)$ 54,225

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, 2019, 2018 and 2017 was a decreaseof ¥6,860 million ($61,802 thousand), and an increase of ¥1,862 millionand ¥599 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 the scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon thelevel of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
the Company’s management believes it is more likely than not that the80

SECOM Annual Report 2019

Company will realize the benefits of these deductible differences, net ofthe existing valuation allowance at March 31, 2019 and 2018.
Net deferred tax assets (liabilities) at March 31, 2019 and 2018 arereflected in the accompanying consolidated balance sheets under thefollowing captions:Deferred income taxes(Other assets) .................................................
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

2019

2018

2019

¥22,060¥13,239$198,739(16,041)(26,530)(144,514)¥ 6,019(¥13,291)$ 54,225

The Company has not recognized deferred tax liabilities for a portionof undistributed earnings of foreign subsidiaries of ¥36,749 million($331,072 thousand) totaling ¥646 million ($5,820 thousand) at March 31,
2019 as they are not expected to be remitted in the foreseeable future.
At March 31, 2019, the operating loss carryforwards of domestic
subsidiaries amounted to ¥13,442 million ($121,099 thousand) and areavailable for offsetting against future taxable earnings of such
subsidiaries for up to ten years, as follows:
Expires in the years ending March 312020 .......................................................................................
2021 .......................................................................................
2022 .......................................................................................
2023 .......................................................................................
2024 .......................................................................................
2025 .......................................................................................
2026 .......................................................................................
2027 .......................................................................................
2028 .......................................................................................
2029 .......................................................................................
...................................................................................................

In millions of yen

¥

249
116
2,209
1,419
2,396
3,473
1,813
1,615
—
152
¥13,442In thousands of
U.S. dollars$ 2,243
1,045
19,901
12,784
21,586
31,28816,333
14,550—1,369$121,099

The operating loss carryforwards of overseas subsidiaries at March 31,
2019 amounted to ¥8,736 million ($78,703 thousand), a part of which will
begin to expire in the year ending March 31, 2020.
The total amount of unrecognized tax benefits for the years ended
March 31, 2019, 2018 and 2017 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, 2019, 2018and 2017.
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, 2019, the Company does notexpect significant changes to the unrecognized tax benefits within thenext 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 2018, 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, 2019, 2018 and2017 are as follows:2019

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2017

2019

2018

Net income attributable
to SECOM CO., LTD. ............................ ¥89,686 ¥96,623 ¥91,387
Net transfers from (to)noncontrolling interests .............
26
24
(16)
Change from net income
attributable to SECOM CO.,LTD. and transfers from (to)noncontrolling interests ................. ¥89,712 ¥96,647 ¥91,371$807,982
234$808,216(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 ¥622,185 million ($5,605,270 thousand) at
March 31, 2019.
Subsequent to March 31, 2019, the parent company’s Board of
Directors declared a year-end cash dividend of ¥85 ($0.77) per share,
totaling ¥18,552 million ($167,135 thousand), to shareholders of record
on March 31, 2019. The dividend declared was approved at the generalshareholders’ meeting held on June 26, 2019. 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 each year
and commenced from the year ended March 31, 2015, and the year-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 isdetermined by the General Meeting of Shareholders.
Cash dividends per share are computed based on dividends paid forthe year.

(4) Other Comprehensive Income (Loss)
Components of other comprehensive income (loss) for the years
ended March 31, 2019, 2018 and 2017 are as follows:
In millions of yen

For the year ended March 31, 2019:
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............................................
Pension liability adjustments—
Unrealized gains or losses
arising during the period .........................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized
Less: in net income ......................................
Foreign currencytranslation adjustments ..................................
Other comprehensive
income (loss) .............................................
For the year ended March 31, 2018:
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............................................
Pension liability adjustments—
Unrealized gains or losses
arising during the period .........................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized
Less: in net income ......................................
Foreign currencytranslation adjustments ..................................
Other comprehensive
income (loss) .............................................

Pre-tax
amountTax(expense)or benefit

Net-of-tax
amount¥1,236(¥ 359)

¥ 877

(823)

220

(603)

(3,756)

1,030(2,726)

204

(44)

160

(5,570)662(4,908)(¥8,709)¥1,509(¥7,200)¥ 1,319(¥ 413)

¥ 906

(908)

258

(650)

7,695

(2,315)

5,380

13

(17)

(4)

2,614

(662)

1,952

¥10,733(¥3,149)¥7,584(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.

SECOM Annual Report 201981

In millions of yen
Pre-tax
amount

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............................................
Pension liability adjustments—
Unrealized gains or losses
arising during the period .........................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized
Less: in net income ......................................
Foreign currencytranslation adjustments ..................................
Other comprehensive
income (loss) .............................................

¥7,048Tax(expense)or benefit(¥1,586)

Net-of-tax
amount

342

(862)

6,656

(1,869)

4,787

(105)

(7)

(112)

(6,084)358(5,726)¥6,311(¥2,762)¥3,549In thousands of U.S. dollars

For the year ended March 31, 2019:
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.........................................
Pension liability adjustments—
Unrealized gains or losses
arising during the period ......................
Less: Reclassification
Less: adjustment for gains
Less: or losses realized
Less: in net income ...................................
Foreign currencytranslation adjustments ...............................
Other comprehensive
income (loss) ..........................................

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

¥5,462(1,204)Tax(expense)or benefit

Net-of-tax
amount$11,135 ($ 3,235)$ 7,900

Pre-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, 2019, 2018 and 2017 are as follows:(7,414)

1,982(5,432)(33,838)

9,280(24,558)

1,837

(396)

1,441

(50,180)

5,964(44,216)($78,460) $13,595($64,865)

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

2019

2018

2017

2019

(¥825)(¥694) (¥1,007)($7,432)

(2)

(269)

(268)

(18)

4

55

71

36

172

(19)

(212)

1,550

¥ 32

¥ 32

¥ 107

$ 287

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 ($64,946 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, 2019 was ¥3,854 million ($34,721
thousand).
A summary of leased assets under capital leases at March 31, 2019and 2018 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2019

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

2018

2019

¥ 8,504 ¥ 8,452$ 76,613

36,008173

32,664298

324,396
1,559(23,107) (21,723)¥21,578 ¥19,691(208,171)$194,397

Depreciation and amortization expenses for assets under capital leases
for the years ended March 31, 2019, 2018 and 2017 were ¥6,856 million($61,766 thousand), ¥6,313 million and ¥6,785 million, respectively.

82

SECOM Annual Report 2019

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, 2019:Years ending March 312020 ...........................................................................................
2021 ...........................................................................................
2022 ...........................................................................................
2023 ...........................................................................................
2024 ...........................................................................................
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¥ 7,041
5,418
4,093
2,948
1,795
10,32931,624(7,155)$ 63,432
48,81136,87426,55916,171
93,054284,901(64,459)

24,469(6,414)

220,442(57,784)¥18,055$162,658

Rental expenses under operating leases for the years ended March 31,
2019, 2018 and 2017 were ¥27,924 million ($251,568 thousand), ¥25,513
million and ¥25,359 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($11,820 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, 2019 are as follows:
Years ending March 312020 ..........................................................................................
2021 ..........................................................................................
2022 ..........................................................................................
2023 ..........................................................................................
2024 ..........................................................................................
Thereafter ..............................................................................
Total future minimum lease
payments ......................................................................

In millions of yen

In thousands of
U.S. dollars¥11,707
8,609
7,326
7,017
2,872
21,975$105,468
77,55966,00063,21625,874
197,973¥59,506$536,090

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, 2019 and 2018 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2018

2019

¥59,332 ¥63,766(5,004) (5,839)(3,678) (3,527)
50,650 54,400(17,257) (17,899)¥33,393 ¥36,501$534,523(45,081)(33,136)456,306(155,468)$300,838

2019

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, 2019:Years ending March 31

In millions of yen

In thousands of
U.S. dollars¥19,446
14,829
11,638
8,044
4,004
1,371

$175,189
133,595
104,847
72,46836,072
12,352¥59,332$534,523

2020 ..........................................................................................
2021 ..........................................................................................
2022 ..........................................................................................
2023 ..........................................................................................
2024 ..........................................................................................
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, 2019 and 2018 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 312019Land ...............................................................................
Buildings and improvements.........................
Other intangible assets ......................................
Accumulated depreciation
and amortization.................................................
..............................................................................

2018

2019

¥34,353 ¥31,499
30,258 30,578
662
662$309,486
272,595
5,964(13,398) (12,725)¥51,875 ¥50,014(120,703)$467,342

The future minimum rentals under noncancelable operating leases at
March 31, 2019 are as follows:
Years ending March 312020 ..........................................................................................
2021 ..........................................................................................
2022 ..........................................................................................
2023 ..........................................................................................
2024 ..........................................................................................
Thereafter ..............................................................................
Total future minimum rentals .............................

In millions of yen

In thousands of
U.S. dollars¥2,062
253
162
162
162
2,586
¥5,387$18,577
2,279
1,459
1,459
1,459
23,299$48,532

SECOM Annual Report 201983

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, 2019 and 2018 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.

2019
Carrying
amountNon-derivatives:
Assets—Long-term receivables
including current
portion (Less allowancefor doubtful accounts) .......... ¥54,995
Liabilities—
Long-term debt
including current
portion............................................ 63,789
Investment deposits
by policyholders ....................... 23,615
Derivatives:
Assets—Forward exchange
contract(Other current assets) ............
—
Liabilities—
Interest rate swaps(Other long-term
liabilities)........................................
15

2018

Estimated
fair value

Carrying
amountEstimated
fair value¥55,414¥58,996¥59,356

63,786

69,931

69,937

24,42725,20826,212

—

—

—

15

33

33

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, 2019
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$495,450 $499,225
574,676574,649

212,748

220,063

—

—

135

135

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 andmatters of significant judgment and therefore cannot be determinedwith precision. Changes in assumptions could significantly affectthe estimates.

84

SECOM Annual Report 2019

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 the asset 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 as follows:
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 other thanquoted 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.

In millions of yen
March 31, 2018
Level 1

Level 2In millions of yen
March 31, 2019
Level 1

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

¥

88

Level 2¥—

Level 3

¥

—

Total

¥

88

147,516

52,84013,372

213,728—¥147,604—¥52,840—¥13,372—¥213,816

¥
¥

¥
¥

¥
¥

¥
¥

—
—

15
15

—
—

15
15

Total

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

149,365

41,43329,815

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

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

¥
¥

¥
¥

¥
¥

¥
¥

¥

149

¥

—
—

—

¥

33
33

—

¥

—
—

149

33
33

In thousands of U.S. dollars
March 31, 2019
Level 1

The following table represents the Company’s assets and liabilities thatare measured at fair value on a recurring basis at March 31, 2019and 2018. Transfers between levels are recognized at the end of therespective reporting periods.

Level 3

Level 2

Level 3

Total

Assets:Cash equivalents ........... $793
Short-term
investments andinvestment
securities.......................... 1,328,972
Derivatives(Other current
assets) ................................
—
Total assets .............................. $1,329,765

120,468

1,925,476——$476,036 $120,468—$1,926,269

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

$
$

$
$

—
—

$

— $

476,036

135 $
135 $

—

—
—

$

793

135
135

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.

SECOM Annual Report 201985

The Company’s Level 3 investment securities that are measured at fairvalue on a recurring basis at March 31, 2019 and 2018, amounting to¥13,372 million ($120,468 thousand) and ¥29,815 million, respectively,
are primarily private equity investments. The valuation technique andsignificant unobservable inputs are as follows:
March 31, 2019
Valuation techniqueSignificant unobservable inputs

Range

Discounted cash flows

Discount rate
Exit timing
EBITDA multiple

15%–30%2019–2023
3.4x–26.6x

Valuation techniqueSignificant unobservable inputs

Range

Discounted cash flows

Discount rate
Exit timing
EBITDA multiple

20%–30%2018–2022
3.2x–8xMarch 31, 2018

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, 2019 and 2018.
In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2018

2019

Balance at beginning of year............................. ¥29,815 ¥49,738
Total gains or losses(realized and unrealized):
Included in earnings...................................
5,285
5,964
Included in othercomprehensive income.........................
——
Purchases.................................................................
6,048
5,270
Sales ............................................................................ (27,243) (29,479)
Redemptions.........................................................
——
Cancellation of contract.................................
——
Foreign currency translation
adjustments.........................................................
(533) (1,678)
Balance at end of year............................................ ¥13,372 ¥29,815

2019$268,604

Changes in unrealized gains
or losses relating to instruments
still held at end of year:
Included in earnings................................... (¥776) ¥

399

47,612—54,486(245,432)——(4,802)$120,468($

6,991)

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.

86

SECOM Annual Report 2019

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Non-marketable equity securities with a carrying amount of ¥10,891 million ($98,117 thousand) were written down to their fair value of ¥10,890
million ($98,108 thousand), resulting in an other-than-temporary impairment charge of ¥1 million ($9 thousand), which was included in earnings
for the year ended March 31, 2019. For the year ended March 31, 2018,non-marketable equity securities with a carrying amount of ¥10,517 million were written down to their fair value of ¥10,515 million, resulting inan other-than-temporary impairment charge of ¥2 million, which was
included in earnings. All impaired non-marketable equity securities wereclassified as Level 3 assets as the Company uses unobservable inputs
such as future cash flows to value these investments.
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 inthe 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 underwhich the Company receives floating interest rate proceeds and makes
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 arereported 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.

25. Revenue(1) Disaggregation of revenue
Revenue from contracts with customers and other sources for the year
ended March 31, 2019 is as follows:

Fair values of derivative instruments reflected in the consolidatedbalance sheets as of March 31, 2019 and 2018 are as follows:

In millions of yen

In thousands of
U.S. dollars

Revenue recognized from contracts
with customers......................................................................
Revenue recognized from other sources ................

March 31

March 31

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

2018

2019

Derivatives not designated as hedging instruments

Location

Assets:Forward exchange
contract
Liabilities:
Interest rate swaps

2019

Other current
assets

¥—

¥ 0

$ —

Other long-term
liabilities

15

33

135

Effects of derivative instruments on the consolidated statements
of income for the years ended March 31, 2019, 2018 and 2017 are
as follows:

Forward exchange
contract
Interest rate swaps

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

Location

2019

2018

2017

2019

Other income
Other income

¥—
17

¥—
27

¥ 2
38

$ —
153

24. Commitments and Contingent Liabilities
The Company has commitments outstanding at March 31, 2019 forthe purchase of property, plant and equipment of approximately ¥8,316
million ($74,919 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 ¥969 million ($8,730 thousand) at March 31, 2019. The carrying amounts of the liabilities recognized as the Company’s obligations
under these guarantees at March 31, 2019 and 2018 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.

In thousands of
U.S. dollars

Year ended
March 31

Year ended
March 31

2019

2019

¥1,045,995
65,605$ 9,423,378
591,036¥1,111,600$10,014,414

The disaggregation of revenue by operating segments is describedin Note 27.
Revenue recognized from other sources primarily comprises revenue
recognized from lease contracts and insurance contracts.
(2) Contract balances
Contract balances arising from contracts with customers at March 31,
2019 and at April 1, 2018 are as follows:

Derivatives not designated as hedging instruments
In millions of yen

In millions of yen

Receivables*1 ............................................
Contract assets*2 ....................................
Contract liabilities*3 ..............................

In millions of yen

In thousands of
U.S. dollars

March 31

April 1March 31

2019

2018

2019

¥188,182
31,69950,116¥173,603
28,39048,307$1,695,333
285,577
451,495*1 Receivables are included in notes and accounts receivable, trade, due from subscribers in the accompanying consolidated balance sheets. These amounts are before
deducting allowance for doubtful accounts.
2* Contract assets are included in notes and accounts receivable, trade, in the accompanying consolidated balance sheets. These amounts are before deducting allowancefor doubtful accounts.
3* Contract liabilities are included in deferred revenue, other current liabilities andlong-term deferred revenue in the accompanying consolidated balance sheets.

Revenue recognized for the fiscal year ended March 31, 2019 thatwas included in the contract liability balance as of April 1, 2018 was¥37,129 million.
(3) Transaction price allocated to the remaining performance obligations
The aggregate amounts of transaction price allocated to unsatisfied
performance obligations related to contracts that have original expected
durations in excess of one year at March 31, 2019 are as follows:

Due within 1 year ...................................................................
Due after 1 year .......................................................................

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2019

2019

¥156,933
221,605$1,413,811
1,996,441¥378,538$3,410,252

SECOM Annual Report 201987

26. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:

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..............

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2019

2018

2017

2019

¥ 1,11452,021¥ 1,278
55,970¥ 1,379
40,165$ 10,036
468,658

7,225

6,355

6,035

65,090

—

—

—

—

—
—

34,570(8,020)

—
—

—
—

—

26,550————(2,654)¥23,896

¥

¥

—
—

$

—
—

27. 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, geospatial information services, BPO and ICT services, and real estate andother services.
Pasco Corporation, the principal company in the geographic information services, released “Pasco Group’s Medium-Term Management Plan
2018–2022” on May 9, 2018, expressing its aim to become a comprehensive company in geospatial information industry pursuing the businessmodel that capitalizes positional information including various related
events. Accordingly, the segment name was changed from geographic

88

SECOM Annual Report 2019

information services to geospatial information services from the year
ended March 31, 2019. Reportable segments are not reclassified bythis change.
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 geospatial 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 operations ofeach 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 of cash andcash equivalents, short-term investments, investment securities, land,buildings and improvements, machinery, equipment and automobiles.

Information by business and geographic segments for the years ended
and as of March 31, 2019, 2018 and 2017 is as follows:

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

(1) Business Segment Information

2019

Net sales andoperating revenue:
Security services—
Customers ............................... ¥ 563,739
Intersegment.........................
3,428...................................................
567,167
Fire protection services—
Customers ...............................
140,139
Intersegment.........................
3,942...................................................
144,081
Medical services—
181,705
Customers ...............................
Intersegment.........................
168...................................................
181,873
Insurance services—
41,637
Customers ...............................
Intersegment.........................
3,120...................................................
44,757
Geospatial information
services—
Customers ...............................
51,510Intersegment.........................
386...................................................
51,896
BPO and ICT services—
Customers ...............................
88,065Intersegment.........................
13,209...................................................
101,274
Real estate andother services—
Customers ...............................
44,805Intersegment.........................
1,787...................................................
46,592
Total ................................................. 1,137,640
Eliminations ................................
(26,040)
Total net sales andoperating revenue........... ¥1,111,600

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2017

2019

¥ 562,272 ¥ 543,524
3,144
2,968
565,416
546,492$ 5,078,730
30,883
5,109,613

2018

136,559
4,170
140,729

126,232
3,459
129,691

1,262,514
35,514
1,298,028

175,318
185
175,503

168,819182
169,001

1,636,981
1,514
1,638,495

44,683
3,034
47,71743,7803,094
46,874375,108
28,108403,216

50,906
176
51,08251,609231
51,840464,0543,477
467,531

69,5697,275
76,844

49,681
7,126
56,807

793,378
119,000
912,378

43,48547,6162,004
1,923
45,48949,5391,102,780 1,050,244(19,988) (18,983)

403,649
16,099419,748
10,249,009(234,595)¥1,082,792 ¥1,031,261$10,014,414

Operating income (loss):
Security services......................
Fire protection
services.......................................
Medical services......................
Insurance services..................
Geospatial information
services.......................................
BPO and ICT services............
Real estate andother services .........................
Total ................................................
Corporate expenses
and eliminations...................
Operating income .................
Other income ...........................
Other expenses .......................
Income fromcontinuing operations
before income taxes......

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

2019

2018

2017

2019

¥110,146¥114,469¥110,370$ 992,306

14,188
5,782(4,856)

15,7304,034
6,221

13,146
1,680
7,268

127,820
52,090(43,748)

1,878
9,390

1,676
8,133

(1,119)
7,175

16,91984,595

5,084
141,612

6,910
157,173

5,241
143,761

45,802
1,275,784(17,901)¥123,711
11,246(6,394)(17,062)¥140,111
13,454(2,775)(16,366)¥127,395
20,918(3,090)(161,270)$1,114,514
101,314(57,603)¥128,563¥150,790¥145,223$1,158,225

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2019

2018

2019

¥ 768,128¥ 727,449$ 6,920,072

162,549
178,755
235,773

159,114
180,594
233,618

1,464,405
1,610,405
2,124,081

67,768
152,777

69,306
149,553

610,523
1,376,369

142,750
1,708,500
107,513145,289
1,664,923
109,402

1,286,036
15,391,891
968,586

63,697¥1,879,710

64,620¥1,838,945

573,847$16,934,324

SECOM Annual Report 201989

Depreciation andamortization:
Security services .....................
Fire protection
services ......................................
Medical services......................
Insurance services .................
Geospatial 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 .................
Geospatial information
services.......................................
BPO and ICT services ...........
Real estate andother services .........................
Total ................................................
Corporate items ......................
Total capital
expenditures ......................

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2019

2018

2017

2019

¥49,409¥54,091¥54,770$445,126

2,375
8,684
1,792

2,128
8,675
1,808

1,837
8,433
1,521

21,39678,234
16,144

2,249
9,075

2,540
7,813

3,011
6,824

20,26181,757953
74,537763

1,066
78,121
834

868
77,264
919

8,586
671,504
6,874¥75,300¥78,955¥78,183$678,378¥48,451¥44,404¥39,956$436,495

2,269
4,750
2,972

3,910
5,276
1,900

4,678
9,646
2,087

20,44142,793
26,775

2,420
9,085

1,701
31,987

1,904
7,686

21,802
81,8474,550
74,4971,291

1,690
90,868349

233
66,190856

40,991
671,144
11,631¥75,788¥91,217¥67,046$682,775

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.
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 .................................

90

SECOM Annual Report 2019

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2019

2018

2017

2019

¥344,297¥341,157¥338,744$3,101,775

66,26559,03056,417596,982

62,41761,08957,873562,315

90,760100,996

90,490817,658¥563,739¥562,272¥543,524$5,078,730(2) Geographic Segment Information
Net sales and operating revenue attributed to countries based on
the geographical location of customers for the years ended 2019, 2018and 2017 and long-lived assets as of March 31, 2019 and 2018 wereas follows:2019

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2017

2019

Net sales andoperating revenue:
Japan ................................... ¥1,063,223 ¥1,034,228 ¥ 985,366
Other ...................................
48,37748,56445,895
Total ............................... ¥1,111,600 ¥1,082,792 ¥1,031,261$ 9,578,585
435,829$10,014,414

In millions of yen

In thousands of
U.S. dollars

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

2018

March 31

March 31

2019

2018

2019

¥618,061
11,699¥629,760¥629,069
11,239¥640,308$5,568,117
105,396$5,673,513

There are no individually material countries other than Japan withrespect to net sales and operating revenue and long-lived assets.
28. Subsequent Events
The Company has evaluated subsequent events through July 30, 2019,
the date at which the financial statements were available to be issued,
and determined there is no item to disclose.

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, 2019 and 2018, 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, 2019, 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 accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the 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, 2019 and 2018 and the results of their operations and their cash flows for each of the years in the three-year
period ended March 31, 2019, 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, 2019 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, 2019

SECOM Annual Report 201991