Securities report_2022_ENGLISH

Annual Securities Report (Pursuant to Article 24, Paragraph 1 of the Financial Instruments and Exchange Act of Japan) Fiscal Year From April 1, 2021 (57th business term) to March 31, 2022 SOHGO SECURITY SERVICES CO., LTD. 1-6-6 Motoakasaka, Minato-ku, Tokyo, Japan NOTE TO READERS: The following is an English translation of the Annual Securities Report originally issued in the Japanese language. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. Contents Page Cover page Part 1. Company Information 1 I. Overview of Company 1 1. Selected financial data 1 2. History 4 3. Description of business 7 4. Subsidiaries and associates 10 5. Employees 16 II. Business Overview 17 1. Management policy, business environment and pressing issues 17 2. Risk factors 18 3. Management analysis of financial position, operating results and cash flows 24 4. Material business contracts, etc. 36 5. Research and development 37 III. Facilities 38 1. Overview of capital investment 38 2. Major facilities 39 3. Plan for establishment or disposal of facilities 41 IV. Information on Reporting Company 42 1. Information on shares, etc. 42 (1) Total number of shares, etc. 42 (2) Subscription rights to shares, etc. 42 (3) Exercises of moving strike convertible bonds, etc. 42 (4) Changes in number of shares issued and capital stock, etc. 42 (5) Shareholding 43 (6) Major shareholders 43 (7) Voting rights 44 2. Purchase of treasury stock 44 3. Dividend policy 45 4. Corporate governance 46 V. Financial Condition 87 1. Consolidated financial statements 88 (1) Consolidated financial statements 88 i. Consolidated balance sheet 88 ii. Consolidated statement of income and consolidated statement of comprehensive income 90 Consolidated statement of income 90 Consolidated statement of comprehensive income 91 iii. Consolidated statement of changes in net assets 92 iv. Consolidated statement of cash flows 93 v. Supplementary schedules 136 (2) Other 136 2. Non-consolidated financial statements 137 (1) Non-consolidated financial statements 137 i. Non-consolidated balance sheet 137 ii. Non-consolidated statement of income 139 iii. Non-consolidated statement of changes in net assets 141 iv. Supplementary schedules 150 (2) Major assets and liabilities 151 (3) Other 151 VI. Stock-Related Administration of Reporting Company 152 VII. Reference Information of Reporting Company 153 1. Information on parent company of reporting company 153 2. Other reference information 153 Part 2. Information on Guarantors of the Company, etc. 153 [Independent auditor’s report] [Cover page] [Document filed] Annual Securities Report [Applicable law] Article 24, Paragraph 1 of the Financial Instruments and Exchange Act of Japan [Place of filing] Director-General, Kanto Local Finance Bureau [Filing date] June 24, 2022 [Fiscal Year] 57th business term (from April 1, 2021 to March 31, 2022) [Company name] 綜合警備保障株式会社 (Sogo Keibi Hosho Kabushiki Kaisha) [Company name in English] SOHGO SECURITY SERVICES CO., LTD. [Name and title of representative] Ikuji Kayaki, Representative Director Group COO [Address of head office] 1-6-6 Motoakasaka, Minato-ku, Tokyo, Japan [Telephone number] +81-3-3470-6811 (Main telephone number) [Contact person] Koji Kishimoto, Director and Senior Executive Officer [Nearest contact place] 1-6-6 Motoakasaka, Minato-ku, Tokyo, Japan [Telephone number] +81-3-3470-6811 (Main telephone number) [Contact person] Koji Kishimoto, Director and Senior Executive Officer [Place for public inspection] Tokyo Stock Exchange, Inc. (2-1, Nihonbashi Kabutocho, Chuo-ku, Tokyo, Japan) - 1 - Part 1. [Company Information] Ⅰ. [Overview of Company] 1. [Selected financial data] (1) Consolidated financial data Fiscal year 53rd business term 54th business term 55th business term 56th business term 57th business term Ended March 2018 March 2019 March 2020 March 2021 March 2022 Net sales (Millions of yen) 435,982 443,535 460,118 469,920 489,092 Ordinary income (Millions of yen) 31,913 33,881 38,880 39,212 44,796 Profit attributable to owners of parent (Millions of yen) 19,344 22,269 24,163 25,014 28,964 Comprehensive income (Millions of yen) 25,514 22,346 20,712 41,541 31,890 Net assets (Millions of yen) 241,382 257,098 270,432 304,427 327,509 Total assets (Millions of yen) 396,635 410,113 428,796 481,465 488,278 Net assets per share (Yen) 2,155.74 2,302.38 2,425.02 2,741.27 2,964.85 Net income per share (Yen) 191.93 219.98 238.69 247.09 286.11 Diluted net income per share (Yen) － － － － － Equity capital ratio (%) 55.0 56.8 57.3 57.6 61.5 Return on equity (%) 9.3 9.9 10.1 9.6 10.0 Price earnings ratio (Times) 27.5 21.9 22.0 21.2 14.0 Net cash provided by (used in) operating activities (Millions of yen) 25,496 28,771 33,896 55,522 42,736 Net cash provided by (used in) investing activities (Millions of yen) (19,125) (14,911) (13,395) (38,452) (14,093) Net cash provided by (used in) financing activities (Millions of yen) (13,429) (10,934) (15,113) (12,714) (18,183) Cash and cash equivalents at end of year (Millions of yen) 40,484 43,435 48,790 53,143 63,644 Number of employees (Number of people) 37,519 37,417 37,902 38,444 38,192 [Average number of temporary employees not included in the above] [6,542] [6,506] [6,379] [6,838] [6,782] (Note) 1. Diluted net income per share is not disclosed as there are no potentially dilutive shares. 2. SOHGO SECURITY SERVICES CO., LTD. (the “Company”) applied “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020), etc. from the beginning of the fiscal year ended March 31, 2022. Selected financial data for the current fiscal year is based on the figures after applying the standard, etc. - 2 - (2) Non-consolidated financial data Fiscal year 53rd business term 54th business term 55th business term 56th business term 57th business term Ended March 2018 March 2019 March 2020 March 2021 March 2022 Net sales (Millions of yen) 232,697 235,938 243,265 244,367 256,449 Ordinary income (Millions of yen) 23,720 24,326 28,625 29,169 30,856 Net income (Millions of yen) 17,971 19,374 21,979 23,086 24,571 Capital stock (Millions of yen) 18,675 18,675 18,675 18,675 18,675 Total number of shares issued (Shares) 102,040,042 102,040,042 102,040,042 102,040,042 102,040,042 Net assets (Millions of yen) 180,363 192,758 206,558 224,311 241,342 Total assets (Millions of yen) 270,418 281,811 299,151 319,591 326,625 Net assets per share (Yen) 1,781.22 1,903.63 2,039.93 2,215.25 2,388.89 Dividends per share (Yen) 60 66 70 72 82 (of which, interim dividends per share) (30.0) (31.0) (34.5) (35.0) (38.0) Net income per share (Yen) 178.26 191.33 217.06 228.00 242.66 Diluted net income per share (Yen) － － － － － Equity capital ratio (%) 66.7 68.4 69.0 70.2 73.9 Return on equity (%) 10.4 10.4 11.0 10.7 10.6 Price earnings ratio (Times) 29.6 25.2 24.2 22.9 16.5 Dividend payout ratio (%) 33.7 34.5 32.2 31.6 33.8 Number of employees (Number of people) 11,976 11,793 11,704 11,861 12,002 Total shareholder return (%) 128.0 119.0 131.3 132.3 104.7 (Comparative index: TOPIX) (%) (113.5) (105.2) (92.8) (129.2) (128.7) Highest stock price (Yen) 6,520 5,690 6,090 5,720 5,320 Lowest stock price (Yen) 4,205 4,560 3,890 4,795 3,975 (Note) 1. Diluted net income per share is not disclosed as there are no potentially dilutive shares. 2. Highest stock price and lowest stock price are those recorded on the First Section of the Tokyo Stock Exchange. 3. The Company applied “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020), etc. from the beginning of the fiscal year ended March 31, 2022. Selected financial data for the current fiscal year is based on the figures after applying the standard, etc. - 3 - 4. Changes in the total shareholder return and the comparative index over the last five years are as follows: 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 Mar. 2018 Mar. 2019 Mar. 2020 Mar. 2021 Mar. 2022 Total shareholder return Comparative index: TOPIX (%) (Fiscal year-end) - 4 - 2. [History] Month and Year Overview July 1965 Establish Sohgo Security Services Co., Ltd. with a capital of ¥25 million at 2-20 Uchisaiwai-cho, Chiyoda-ku, Tokyo, mainly engaging in security services August 1966 Establish Sohgo Kanzai Co., Ltd. (currently ALSOK Facilities Co., Ltd.) at Chiyoda-ku, Tokyo, engaging in general property management services September 1967 Develop and launch SOK GUARD SYSTEM, electronic security services for corporate customers December 1968 Establish Kita-Kanto Sohgo Security Services Co., Ltd. in Utsunomiya city, Tochigi, mainly engaging in security services June 1969 Establish Hiroshima Sohgo Security Services Co., Ltd. in Hiroshima city, Hiroshima, mainly engaging in security services March 1970 Provide security services at Japan World Expo June 1972 Establish Tokyo Sohgo Security Services Co., Ltd. (currently ALSOK Tokyo Co., Ltd.) in Minato-ku, Tokyo, engaging in stationed security services January 1975 Develop and launch AMAND SYSTEM featuring automated management of ATMs May 1975 Establish Hokkaido Sohgo Security Services Co., Ltd. (currently ALSOK Hokkaido Co., Ltd.) in Chuo-ku, Sapporo city, mainly engaging in security services September 1975 Develop and launch OLM SYSTEM, which incorporates control and monitoring equipment into stationed security February 1978 Relocate head office to 1-6-6 Motoakasaka, Minato-ku, Tokyo, Japan October 1979 Launch regular inspection services for fire equipment December 1982 Form a business alliance with Ryoden Services Co., Ltd. (currently Mitsubishi Electric Building Solutions Corporation) in the property management business March 1983 Receive first security business certification from the Tokyo Metropolitan Public Safety Commission September 1984 Establish SOK Electric Work Co., Ltd. in Minato-ku, Tokyo, engaging in security equipment installation services (merged in August 2013) April 1988 Develop and launch TAKURUSU, electronic home security service August 1995 Launch TOKYO Operations Center providing centralized monitoring and command system for electronic security in Tokyo April 1997 Develop and launch MMK, multi-function ATM, featuring payment receiving agency service and information search function October 1997 Develop and launch CASH DEPOSIT MACHINE ON-LINE SYSTEM, featuring streamlined cash management and manpower and facility cost savings for cash management April 1998 Develop and Launch SOK HOME SECURITY system, featuring convenient functions for daily life, such as emergency information, online banking and health consultation as well as home security September 2002 Obtain ISO 9001 certification for the design and provision of Electronic Security Services and Stationed Security Services October 2002 List stock on the First Section of the Tokyo Stock Exchange April 2003 Spin-off a part of stationed security division to establish Sohkei Stationed Security Co., Ltd. (currently ALSOK Stationed Security Co., Ltd.), mainly engaging in security services July 2003 Establish new brand name ALSOK August 2003 Develop and launch ALSOK SAFETY CONFIRMATION SERVICE, risk management tool for corporate customers May 2004 Form a business alliance with HOCHIKI Corporation in the security and disaster prevention business November 2004 Develop and launch ALSOK HOME SECURITY 7, affordable home security system featuring wireless sensors, highly urgent intrusion detection, emergency report and fire detection April 2005 Expand ALSOK ANSHIN KYOSHITSU, a CSR program to teach children how to protect themselves, to all of Japan June 2005 Develop and launch new automated patrolling robot for stationed security services November 2005 Develop and launch ALSOK HOME SECURITY X7 with expanded functions for large-scale private homes June 2008 Launch PC MONITORING service featuring monitoring and reporting of information leak October 2008 Launch MAMOLOOK, mobile watching over service for children December 2008 Develop and launch ALSOK HOME SECURITY α, featuring safe and convenience functions developed from the customer perspectives, such as standardized online security services July 2009 Develop and launch CHANGE MACHINE SYSTEM, all-inclusive service related to change machines such as installation of the machines, preparation, transportation and loading of coins and bills, as well as troubleshooting December 2009 Develop and launch GUARD ONE, featuring security service for vehicles-related emergencies such as prevention of damage and early detection of stolen vehicles by reporting to customers and providing location information April 2010 Launch ALSOK DENPO, telegram service utilizing security service infrastructure November 2010 Launch ALSOK SILVER PACK that includes all home security functions necessary for senior citizens February 2011 Convert Japan Facilio Co., Ltd., mainly engaging in piping or electrical construction services, into a subsidiary April 2011 Launch ALSOK-GV, security system for corporate customers - 5 - Month and Year Overview February 2012 Commence providing stationed security services at TOKYO SKYTREE TOWN ® October 2012 Launch HOME ALSOK brand of services for individual users Develop and launch HOME ALSOK Premium, featuring imaged-based intruder monitoring service and IoT remote control security and lock November 2012 Acquire shares of HOCHIKI Corporation, engaging in a disaster prevention service, which becomes an equity- method associate May 2013 Launch HOME ALSOK LADY’S SUPPORT to protect women from stalkers August 2013 Merge with SOK Electric Work Co., Ltd. Launch HOME ALSOK APARTMENT AND CONDOMINIUM PLAN, security system for rental housing September 2013 Launch HOME ALSOK MIMAMORI SUPPORT, emergency reporting and consultation service for senior citizens April 2014 Convert ALSOK Souei Co., Ltd., engaging in security services and general property management services, into a subsidiary Convert Nippon Building Maintenance Co., Ltd. (currently ALSOK Facilities Co., Ltd.), engaging in general property management services, into a subsidiary Merge with Sohkei Information System Co., Ltd. May 2014 Launch ALSOK-FM (FACILITY MANAGEMENT) SUPPORT, security system for medium- to large-scale facilities August 2014 Form a business alliance with Sompo Japan Nipponkoa Group to jointly develop businesses targeted for the aging society with declining birthrate September 2014 Convert Antei Care Co., Ltd. (currently ALSOK Care Co., Ltd.), engaging in home-visit nursing care services, into a subsidiary October 2014 Convert HCM Corporation (currently ALSOK Care Co., Ltd.), engaging in home-visit nursing care and long-term care services, into a subsidiary February 2015 Convert ALSOK Care & Support Co., Ltd., engaging in emergency reporting and long-term care services, into a subsidiary May 2015 Develop and launch CASH DEPOSIT AND DISPENSER MACHINE ON-LINE SYSTEM, featuring cash management without involvement of banks including cash withdrawal, money change and cash transfer June 2015 Launch MAMOLOOK, mobile security terminal for senior citizens, women and children October 2015 Develop and launch HOME SECURITY Basic equipped with latest functions such as support for diversifying telecommunication networks Launch ALSOK IMAGE CLOUD SERVICE, which provides cloud storage for surveillance camera images February 2016 Form a business alliance with Nippon Dry-Chemical Co., Ltd., engaging in disaster prevention services, etc. May 2016 Convert Wisnet Co., Ltd. (currently ALSOK Care Co., Ltd.), engaging in long-term care and the related services, into a subsidiary June 2016 Acquire shares of Nippon Dry-Chemical Co., Ltd., which becomes an equity-method associate November 2016 Convert PT. ALSOK BASS Indonesia Security Services, engaging in security services in Indonesia, into a subsidiary December 2016 Convert ALSOK Vietnam Security Services Joint Stock Company, engaging in security services in Vietnam, into a subsidiary February 2017 Convert ALSOK Shojitsu Security Service Co., Ltd., engaging in security services, into a subsidiary April 2017 ALSOK-TW East Japan Co., Ltd., engaging in security services, acquire security business of TelWel East Japan Corporation Acquire shares of Keihanshin Security Service Co., Ltd., which becomes an equity-method associate June 2017 Launch MIMAMORI PACK, featuring security services for wandering in senior citizens with dementia July 2017 Convert ALSOK Kanto Delivery Co., Ltd., engaging in security services, into a subsidiary April 2018 Establish Security Joint Venture for the Tokyo 2020 Olympic and Paralympic Games ALSOK Myanmar Security Services Co., Ltd., engaging in security services in Myanmar, start operations and convert it into a consolidated subsidiary June 2018 Convert Care Plus, Inc., engaging in home-visit medical massages, into a subsidiary July 2018 Launch 3D LASER RADAR SENSOR equipped with high-precision detection function January 2019 Convert Sohgo Kanzai Co., Ltd., engaging in property management services, into a subsidiary Convert Health Support Co., Ltd. (currently Sohgo Kanzai Co., Ltd.), engaging in medical waste collection and transportation services, into a subsidiary May 2019 Convert Keihanshin Security Service Co., Ltd., engaging in security services, into a consolidated subsidiary September 2019 Provide security services at Rugby World Cup Japan 2019 February 2020 Form a capital and business alliance with Mitsubishi Corporation to expand facility management business both in Japan and overseas Launch ALSOK-G7, security system for corporate customers April 2020 Convert Life Holdings Co., Ltd., engaging in long-term care services, into a consolidated subsidiary Commence providing stationed security services to nationally and locally-operated accommodation facilities for the novel coronavirus (“COVID-19”) patients with mild symptoms June 2020 Launch AIR BUSTER, ozone deodorizer sanitizing and deodorizing by generating ozone July 2020 ALSOK Chiba Co., Ltd. launch Gibier Kohboh Mobara, facility for meat processing - 6 - Month and Year Overview October 2020 Merge HCM Corporation, the long-term care services division of ALSOK Care & Support Co., Ltd., and Antei Care Co., Ltd., with ALSOK Care Co., Ltd. (formerly Wisnet Co., Ltd.) being the surviving company December 2020 Form a capital and business alliance with Mitsubishi Corporation and Nippon Care Supply Co., Ltd. pertaining to long-term care services and lifestyle support services for the senior citizens Acquire shares of Nippon Care Supply Co., Ltd., engaging in lifestyle support services for the senior citizens, which becomes an equity-method associate April 2021 Merge ALSOK Building Services Co., Ltd. and Nippon Building Maintenance Co., Ltd. to establish ALSOK Facilities Co., Ltd. July 2021 Provide security services for the Tokyo 2020 Olympic and Paralympic Games from July to September August 2021 Launch office security services using My Number Card September 2021 Launch ALSOK AI CAMERA SYSTEM, which sends real-time alerts using AI-equipped surveillance cameras with high-precision human detection December 2021 Launch ALSOK OFFICE DOCTOR PACKAGE and ALSOK HEALTH CONSULTATION PACKAGE, health security service to protect companies from risks of labor shortage and work-related accidents resulting from employees’ poor health March 2022 Launch HOME ALSOK OUTDOOR WIRELESS IP CAMERA April 2022 Move from the First Section of the Tokyo Stock Exchange to Prime Market as a result of Japan’s stock market restructuring April 2022 Merge with ALSOK Leasing Co., Ltd. June 2022 Convert ALSOK Joy Life Co., Ltd. and ALSOK Life Support Co., Ltd. both engaging in long-term care services, into a subsidiary - 7 - 3. [Description of business] The Group consists of SOHGO SECURITY SERVICES CO., LTD. (the “Company”), 74 consolidated subsidiaries (including 10 overseas) and 14 equity-method companies (including 3 overseas) and engages in Security Services, General Property Management and Fire Protection Services and Long-Term Care Services, etc. In addition to the companies mentioned above, the Group has established a mutual cooperation in sales and operations with a company that operates similar businesses overseas, Taiwan Shin Kong Security Co., Ltd., which is not a consolidated subsidiary or an equity-method company. Details of businesses for each segment are described below: (1) Security Services A. Electronic Security Services In the Electronic Security Services, we set up a security alarm system on a customer’s premise, which allows us to monitor the premise remotely from a security center via telecommunication lines. The system detects intrusions, fires, equipment failures and others and dispatches a security guard to respond to emergency situations. For corporate customers, “ALSOK-G7” was launched in February 2020, a new-age security system that uses high-quality live images. This is an on-line security service that uses image monitoring technology. The service lineup includes “Live Image Confirmation System”, which enables customers to view live images from anywhere at any time with call features. Another service, “ALSOK Information Sharing Service”, allows customers to view security system status (arming/disarming) and to receive notifications by email when they fail to set up an alarm or the alarm goes off. Optional services include cloud storage of images captured by an image censor or a surveillance camera, as well as online access to employee attendance record, room entry and others. These services contribute not only to security management but also to labor management and efficient operation. Also, we have focused on upgrading facility management features for medium to large-scale facilities. Among others, “ALSOK-FM (Facility Management) Support” enables increased facility values at low cost, and “AMAND SYSTEM” automates management of ATMs. In addition, “ALSOK Crowds Notification Service” was launched in June 2021, which analyzes images of a facility captured by an image sensor or a surveillance camera in the cloud and streams congestion data on the facility’s website. Subsequently, in September 2021, “ALSOK AI Camera System” was launched, which analyzes recorded images in the cloud with high-precision detection capabilities and sends real-time detection alerts. For individual customers, we have “Home Security Basic”, which is a system controllable via smartphones or cell phones, such as arming or disarming of the system and selecting security mode depending on stay or away situations. In addition to these functions, “HOME ALSOK Premium” is equipped with outdoor image features. The service lineup also includes “HOME ALSOK APARTMENT AND CONDOMINIUM PLAN” for a communal building, “HOME ALSOK MIMAMORI SUPPORT ® ”, a service for senior citizens that allows for emergency calls and telephone health consultation and “MIMAMORI Tag”, a GPS for your loved ones. In August 2021, a new monthly membership plan for “HOME ALSOK House Support” was launched. This service includes housekeeping and cleaning services available with special discount offers and other discount coupons. In March 2022, “HOME ALSOK Outdoor Wireless IP Camera” was launched, which allows users to view live or recorded images from a remote location via a smartphone app. In case of emergency, security guard dispatching is also available as an optional service. We also provide “Monitoring System for Harmful Birds and Beasts” to help customers protect their crops from harmful birds or beasts. B. Stationed Security Services In the Stationed Security Services, security guards are assigned to properties of customers for entrance/exit management, patrol and inspection to prevent and respond to various accidents and emergencies. In addition, we meet different needs of our customers, including security for various events such as international conferences, sporting events and parades, as well as security for celebrities and corporate officers in Japan and abroad. Our security service uses equipment, such as metal detection equipment and X-ray inspection equipment, to make it more efficient and effective. C. Transportation Security Services In the Transportation Security Services, we transport cash, securities and other valuables to any designated location of our customers using cash transportation vehicles. In addition to the safe transportation of cash, securities and others, “Cash Deposit and Dispenser Machine On-Line System” contributes to operational efficiency of our customers through sales proceeds management and full support utilizing our security transportation network. “Total ATM Management System” provides comprehensive support for operation and management of ATMs located in financial institutions and convenience stores, including cash replenishment and collection and troubleshoot. - 8 - (2) General Property Management and Fire Protection Services In the General Property Management and Fire Protection Services, we provide a wide range of services for building construction, operation and management, including piping or electrical construction, repair and replacement, fire and disaster prevention, facility management, cleaning and sanitizing and call center services. Through these services, we contribute to reducing building management cost and improving property value. The Group also sells emergency supplies, infection control products and AEDs. In the Fire Protection Service, we have entered into a capital and business alliance with HOCHIKI Corporation and Nippon Dry- Chemical Co., Ltd., both of which are providers of disaster prevention services. These companies have become equity-method associates of the Company. The purpose of the alliance is to strengthen a system to drive the fire and disaster prevention business forward and to jointly develop and launch new products and services that match diversifying needs of our customers. In addition, on February 28, 2020, we have entered into a capital and business alliance with Mitsubishi Corporation for the domestic and overseas facility management operations, further strengthening our efforts to expand the facility management business. (3) Long-Term Care Services In the Long-Term Care Services, we provide a wide range of services, including home care support (development of care plans), in-home care services, such as home-visit nursing and day care, to provide support for senior citizens living at home, care services for senior citizens living in a nursing home (fee-based with long-term care) and people with dementia (group homes), and care services provided at certain facilities such as elderly housing with living support services. We also sell and lease welfare equipment and also provide home-visit medical massage services for home care patients. In December 2020, we have entered into a capital and business alliance with Nippon Care Supply Co., Ltd., pertaining to long-term care services and lifestyle support services for the senior citizens, with the intention to strengthen our welfare equipment sales and leasing business. We have also expanded our services for long-term care providers and living support services for care receivers and senior citizens with the launch of nutritionally balanced frozen meals,. (4) Other As we move toward a cashless society, we, as a cashless payment provider, offer “ALSOK Multi-QR Payment Solution”, which allows customers to use multiple QR codes provided by different service providers with just one app and one terminal. We also provide a variety of information security solutions. As more people work from home, “Soliton SecureDesktop” is introduced to respond to growing importance of work-from-home applications with strong security functions. “ALSOK PC Management Service” provides security for terminal equipment, which has become more important than ever as a means to prevent cyber- attacks or phishing. In addition, “ALSOK Office Doctor Package”, which is an employee health management system optimized for businesses with fewer than 50 employees with no obligation to appoint an occupational health physician, and “ALSOK Health Consultation Package”, which provides telephone consultations on health, mental health and harassment as part of employee benefits, were launched. - 9 - [Group structure] The Group’s major companies by segment and the structure of these companies for the fiscal year ended March 31, 2022 are as follows. Only representative transactions are described below. (Note) Following a shareholder agreement, effective May 13, 2022, Tokai Sohgo Security Services Co., Ltd., an equity-method associate, became a subsidiary of the Company. *1 The Company merged with ALSOK Leasing Co., Ltd., a wholly owned subsidiary of the Company, with the Company as the surviving company effective April 1, 2022. ALSOK Leasing Co., Ltd. has engaged in leasing and installment sales of various properties to customers of the Group, including security equipment such as security cameras and access control devices, and disaster prevention equipment such as automatic fire alarms. For the purpose of structural efficiency of the Group, the Company merged with ALSOK Leasing Co., Ltd. with the Company as the surviving company. *2 Effective June 22, 2022, the Company acquired all shares of Kanden Joy Life Co., Ltd. and Kanden Life Support Co., Ltd., which has converted these companies into the Company’s consolidated subsidiaries, ALSOK Joy Life Co., Ltd. and ALSOK Life Support Co., Ltd.. Provision of services Provision of services Provision of services Provision of services Consolidated subsidiaries (6 companies) Honest Co., Ltd. Consolidated subsidiaries (18 companies) M edica Care Comfort Co., Ltd. ALSOK Hokkaido Co., Ltd. Care Plus, Inc. ALSOK Akita Co., Ltd. Life Holdings Co., Ltd. ALSOK Iwate Co., Ltd. Life Co., Ltd. ALSOK Yamagata Co., Ltd. Equity-method associates (1 company) ・ Receipt of services ALSOK Fukushima Co., Ltd. ・ Provision of services Kita-Kanto Sohgo Security Services Co., Ltd. ALSOK Gunma Co., Ltd. ALSOK Shojitsu Security Service Co., Ltd. ALSOK Souei Co., Ltd. Toyama Prefecture Sohgo Security Services, Co., Ltd. ・ Sale of Chukyo Sohgo Security Services Co., Ltd. equipment for security M ie Sohgo Security Services Co., Ltd. ・ Receipt of services ALSOK Sanin Co., Ltd. Divisional subsidiaries, etc. ・ Provision of services Hiroshima Sohgo Security Services Co., Ltd. Ehime Sohgo Security Services Co., Ltd. ・ M aintenance of ATM s ALSOK Saga Co., Ltd. ・ Leasing of Nagasaki Sohgo Security Services Co., Ltd. equipment for security Keihanshin Security Service Co., Ltd ・ Insurance contract Equity-method associates (8 companies) ・ Call center Aomori Sohgo Security Services Co., Ltd. ALSOK Care & Support Co., Ltd. Niigata Sohgo Security Services Co., Ltd. Hokuriku Sohgo Security Services Co., Ltd. Nihon Guard Co., Ltd. Tokai Sohgo Security Services Co., Ltd. (Note) ALSOK Vietnam Security Services Joint Stock Company M iyazaki Sohgo Security Services Co., Ltd. ALSOK Trading. Co., Ltd. Kagoshima Sohgo Security Services Co., Ltd. ALSOK M ALAYSIA SDN. BHD. Okinawa Sohgo Security Services Co., Ltd. PT. ALSOK BASS Indonesia Security Services ALSOK India Private Limited ALSOK M yanmar Security Services Co., Ltd Other 2 companies Consolidated subsidiaries (33 companies) Sale of equipment ALSOK M iyagi Co., Ltd. ALSOK Saitama Co., Ltd. ALSOK Chiba Co., Ltd. Services and General Property ALSOK Tokyo Co., Ltd. ALSOK Tohshin Co., Ltd. Equity-method associates (2 companies) ALSOK Stationed Security Co., Ltd. HOCHIKI Corporation Urban Security Co., Ltd. Nippon Dry-Chemical Co., Ltd. ALSOK-TW East Japan Co., Ltd. ALSOK Kanto Delivery Co., Ltd. ALSOK Kanagawa Co., Ltd. ・ Installation of equipment for security ALSOK Shizuoka Co., Ltd. ・ M aintenance of ATM s ALSOK Aichi Co., Ltd. ・ Leasing of equipment for security ALSOK Osaka Co., Ltd. ・ Insurance contract ALSOK Kinki Co., Ltd. Sohgo Kanzai Co., Ltd. ALSOK Fukuoka Co., Ltd. Other 17 companies Consolidated subsidiaries (2 companies) ALSOK Facilities Co., Ltd. Japan Facilio Co., Ltd. Equity-method associates (3 companies) General Property M anagement and Fire Protection Services ALSOK Care Co., Ltd. Security Services and General Property M anagement and Fire Protection Services or other support services Security Services Electronic Security Services Nippon Care Supply Co., Ltd. Stationed Security Services Transporta tion Security Services Long-Term Care Services M BIC Life Co., Ltd. ALSOK Consulting (Thailand) Co., Ltd. Parties to contracts Long-Term Care Services Security Services, General Property M anagement and Fire Protection Services and Other Services ALSOK ALSOK Thai Security Services Co., Ltd. Consolidated subsidiaries (15 companies) General Property M anagement and Fire Protection Services ALSOK Insurance Services Co., Ltd. ALSOK Leasing Co., Ltd. Japan Financial Logistics Co., Ltd. Other Services (Stationed Security Services) (Transportation Security Services) General Property M anagement and Fire Protection Services Sale of equipment for Security Security Services M anagement and Fire Protection Services - 10 - 4. [Subsidiaries and associates] Name Address Capital stock (Millions of yen) Description of main business Ownership ratio of voting rights (%) Relationship (Consolidated subsidiary) ALSOK Hokkaido Co., Ltd. Kita-ku, Sapporo city 20 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Akita Co., Ltd. Akita city, Akita 30 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 ALSOK Iwate Co., Ltd. Morioka city, Iwate 30 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Yamagata Co., Ltd. Yamagata city, Yamagata 30 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Fukushima Co., Ltd. Koriyama city, Fukushima 200 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 Kita-Kanto Sohgo Security Services Co., Ltd. (Note 4) Utsunomiya city, Tochigi 100 Security services 50.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 ALSOK Gunma Co., Ltd. Maebashi city, Gunma 10 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Souei Co., Ltd. Totsuka-ku, Yokohama city 30 Security services 66.6 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 Toyama Prefecture Sohgo Security Services, Co., Ltd. (Note 4) Toyama city, Toyama 64 Security services 50.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 Chukyo Sohgo Security Services Co., Ltd. (Note 4) Naka-ku, Nagoya city 50 Security services 50.0 Receipt and provision of services Management guidance Rental of facilities Mie Sohgo Security Services Co., Ltd. (Note 4, 7) Yokkaichi city, Mie 10 Security services 50.0 (20.0) Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Sanin Co., Ltd. Matsue city, Shimane 30 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 - 11 - Name Address Capital stock (Millions of yen) Description of main business Ownership ratio of voting rights (%) Relationship Hiroshima Sohgo Security Services Co., Ltd. (Note 4) Asaminami-ku, Hiroshima city 90 Security services 50.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 2 Ehime Sohgo Security Services Co., Ltd. (Note 4) Matsuyama city, Ehime 90 Security services 50.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 Nagasaki Sohgo Security Services Co., Ltd. (Note 9) Nagasaki city, Nagasaki 20 Security services 68.8 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Miyagi Co., Ltd. Miyagino-ku, Sendai city 20 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Ibaraki Co., Ltd. Mito city, Ibaraki 30 Security services 100.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 ALSOK Saitama Co., Ltd. Chuo-ku, Saitama city 20 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Chiba Co., Ltd. Hanamigawa-ku, Chiba city 20 Security services 100.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 ALSOK Tokyo Co., Ltd. Chiyoda-ku, Tokyo 30 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities ALSOK Tohshin Co., Ltd. Fuchu city, Tokyo 18 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Stationed Security Co., Ltd. Sumida-ku, Tokyo 300 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Urban Security Co., Ltd. Chiyoda-ku, Tokyo 100 Security services 51.4 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Shojitsu Security Service Co., Ltd. Chiyoda-ku, Tokyo 100 Security services 100.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 ALSOK-TW East Japan Co., Ltd. Chuo-ku, Tokyo 100 Security services 80.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 ALSOK Kanto Delivery Co., Ltd. Adachi-ku, Tokyo 10 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities ALSOK Kanagawa Co., Ltd. Nishi-ku, Yokohama city 30 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities - 12 - Name Address Capital stock (Millions of yen) Description of main business Ownership ratio of voting rights (%) Relationship ALSOK Shizuoka Co., Ltd. Aoi-ku, Shizuoka city 30 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Aichi Co., Ltd. Nishi-ku, Nagoya city 30 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities ALSOK Keiji Co., Ltd. Shimogyo-ku, Kyoto city 20 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Osaka Co., Ltd. Chuo-ku, Osaka city 20 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 ALSOK Kinki Co., Ltd. Chuo-ku, Osaka city 50 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 3 ALSOK Hyogo Co., Ltd. Chuo-ku, Kobe city 10 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 ALSOK Asahi Harima Co., Ltd. (Note 7) Hamada city, Shimane 20 Security services 90.0 (30.0) Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Yamaguchi Co., Ltd. Yamaguchi city, Yamaguchi 10 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 ALSOK Tokushima Co., Ltd. Tokushima city, Tokushima 10 Security services 100.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 ALSOK Kochi Co., Ltd. Kochi city, Kochi 15 Security services 100.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 ALSOK Fukuoka Co., Ltd. Hakata-ku, Fukuoka city 20 Security services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 Hiroshima Sohkei Services Co., Ltd. (Note 4, 7) Asaminami-ku, Hiroshima city 30 Security services 50.0 (50.0) Receipt of services ALSOK Care & Support Co., Ltd. Ota-ku, Tokyo 100 Security services 100.0 Management guidance Rental of facilities Number of officers holding concurrent positions: 1 Keihanshin Security Service Co., Ltd Ikeda city, Osaka 35 Security services 60.6 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 2 - 13 - Name Address Capital stock (Millions of yen) Description of main business Ownership ratio of voting rights (%) Relationship ALSOK Facilities Co., Ltd. (Note 8) Chiyoda-ku, Tokyo 72 General Property Management and Fire Protection Services 100.0 Receipt and provision of services Management guidance Rental of facilities Number of officers holding concurrent positions: 2 Japan Facilio Co., Ltd. (Note 3) Minato-ku, Tokyo 2,500 General Property Management and Fire Protection Services 91.6 Management guidance Number of officers holding concurrent positions: 2 ALSOK Leasing Co., Ltd. Chiyoda-ku, Tokyo 100 Security support services 100.0 Management guidance Number of officers holding concurrent positions: 1 Japan Financial Logistics Co., Ltd. Minato-ku, Tokyo 40 Security support services 60.0 Provision of services Rental of facilities Number of officers holding concurrent positions: 1 ALSOK Care Co., Ltd. Omiya-ku, Saitama city 100 Long-Term Care Services 100.0 Management guidance Rental of facilities Number of officers holding concurrent positions: 2 Honest Co., Ltd. (Note 7) Taisho-ku, Osaka city 3 Long-Term Care Services 100.0 (100.0) Management guidance Number of officers holding concurrent positions: 1 Care Plus, Inc. Minato-ku, Tokyo 69 Long-Term Care Services 100.0 Management guidance Rental of facilities Life Holdings Co., Ltd. Shinagawa-ku, Tokyo 100 Long-Term Care Services 100.0 Management guidance Rental of facilities Number of officers holding concurrent positions: 2 Life Co., Ltd. (Note 7) Shinagawa-ku, Tokyo 100 Long-Term Care Services 100.0 (100.0) Management guidance Rental of facilities Number of officers holding concurrent positions: 2 MBIC Life Co., Ltd. (Note 7) Shinagawa-ku, Tokyo 1 Food inspection business 100.0 (100.0) Management guidance Rental of facilities Number of officers holding concurrent positions: 3 PT. ALSOK BASS Indonesia Security Services (Note 4) Jakarta, Indonesia 11,000 million Indonesian Rupia Security Services 49.0 Management guidance Number of officers holding concurrent positions: 1 ALSOK Thai Security Services Co., Ltd. (Note 4, 7) Bangkok, Thailand 69 million Thai Baht Security Services 100.0 (51.0) Management guidance ALSOK Vietnam Security Services Joint Stock Company (Note 4) Hai Phong City, Vietnam 11,000 million Vietnamese Dong Security Services 49.0 Management guidance Number of officers holding concurrent positions: 1 Other 20 companies ― ― ― ― ― - 14 - Name Address Capital stock (Millions of yen) Description of main business Ownership ratio of voting rights (%) Relationship (Equity-method associates) HOCHIKI Corporation (Note 5, 6) Shinagawa-ku, Tokyo 3,798 Sales of equipment related to Security Services and General Property Management and Fire Protection Services 17.3 Equipment purchase Nippon Dry-Chemical Co., Ltd. (Note 5, 6) Kita-ku, Tokyo 700 Sales of equipment related to Security Services and General Property Management and Fire Protection Services 15.7 Equipment purchase Aomori Sohgo Security Services Co., Ltd. Aomori city, Aomori 30 Security Services 30.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 Niigata Sohgo Security Services Co., Ltd. (Note 5) Higashi-ku, Niigata city 48 Security Services 15.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 Hokuriku Sohgo Security Services Co., Ltd. (Note 5) Kanazawa city, Ishikawa 60 Security Services 15.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 Nihon Guard Co., Ltd. Gifu city, Gifu 51 Security Services 31.3 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 2 Tokai Sohgo Security Services Co., Ltd. Ito city, Shizuoka 10 Security services 50.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 2 Miyazaki Sohgo Security Services Co., Ltd. (Note 5) Miyazaki city, Miyazaki 20 Security services 15.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 Kagoshima Sohgo Security Services Co., Ltd. Kagoshima city, Kagoshima 20 Security services 20.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 Okinawa Sohgo Security Services Co., Ltd. (Note 5) Ginowan city, Okinawa 40 Security services 15.0 Receipt and provision of services Management guidance Number of officers holding concurrent positions: 1 Nippon Care Supply Co., Ltd. (Note 6) Minato-ku, Tokyo 2,897 Life support for senior citizens 32.1 Management guidance Rental of facilities Other 3 companies ― ― ― ― ― (Note) 1. The segment name is described in the description of main business. 2. Selected profit/loss information is not disclosed for the consolidated subsidiaries as no single consolidated subsidiary accounted for more than 10% of the consolidated net sales (excluding intercompany sales). 3. This is a specified subsidiary. 4. Although the ownership interest is less than 50/100, this is considered as a subsidiary as we substantially control the company. 5. Although the ownership interest is less than 20/100, this is considered as an equity-method associate as we have significant influence over the company. 6. Annual Securities Report has been submitted. 7. The percentage in parentheses under ownership ratio of voting rights represents indirect ownership ratio and is included in the percentage described above. 8. On April 1, 2021, a merger was concluded between ALSOK Building Services Co., Ltd. and Nippon Building Maintenance - 15 - Co., Ltd., both of which are the Company’s consolidated subsidiaries engaging mainly in the General Property Management and Fire Protection Services business. Upon conclusion of the merger, the trade name of the surviving company, Nippon Building Maintenance Co., Ltd., was changed to ALSOK Facilities Co., Ltd. 9. Additional shares were acquired during the fiscal year ended March 31, 2022, resulting in the ownership ratio of voting rights of 68.8%. - 16 - 5. [Employees] (1) Consolidated companies As of March 31, 2022 Segment Number of employees Security Services 29,824 [3,498] General Property Management and Fire Protection Services 1,851 [690] Long-Term Care Services 2,612 [2,407] Total for reportable segments 34,288 [6,595] Other Services 250 [54] Corporate 3,654 [133] Total 38,192 [6,782] (Note) The number of employees includes permanent employees. The number in square brackets represents the average number of temporary employees during the fiscal year ended March 31, 2022. (2) Reporting company As of March 31, 2022 Number of employees Average age Average years of service Average yearly salary (Yen) 12,002 40.7 17.6 5,797,600 Segment Number of employees Security Services 9,736 General Property Management and Fire Protection Services 101 Long-Term Care Services 8 Total for reportable segments 9,845 Other Services 30 Corporate 2,127 Total 12,002 (Note) 1. The number of employees includes permanent employees. 2. Average yearly salary includes bonuses and overtime pay. (3) Labor union A labor union has been established for the following consolidated subsidiaries: Japan Facilio Co., Ltd., (178 members), ALSOK Souei Co., Ltd. (302 members), ALSOK-TW East Japan Co., Ltd. (151 members) and Care Plus, Inc. (255 members). No labor union has been established for other companies. The labor-management relations are well-managed. - 17 - Ⅱ. [Business Overview] 1. [Management policy, business environment and pressing issues] (1) Basic corporate management policy Our management philosophy is “Based on two core principles exemplified by ‘arigato no kokoro’ (a feeling of gratefulness and gratitude) and ‘bushi no seishin’ (a samurai spirit), we devote ourselves to protecting the safety and security of our customers and of society as a whole.” Based on this management philosophy, we have established a management policy that encourages us to act in accordance with a fundamental spirit driving us to ensure that ALSOK is a principled company and stating that our top priority is to provide services and products of the first rank. This policy calls on us to make ALSOK a company that offers employees fulfillment in their work while growing earnings, providing services and products in an ever-expanding range of new fields based around our core security services business, and developing services and products that contribute to the advancement of society. (2) Target management indicators The ALSOK Group believes that expanding its security services and other operations as well as streamlining and improving efficiency of all of its business activities are essential tasks for increasing profitability. Accordingly, it is focusing on the ordinary income margin as an important management indicator. We also emphasize the ratio of net income to equity, otherwise known as return on equity (“ROE”), as an indicator of how optimally shareholders’ equity is being utilized. Accordingly, we have set the medium-term target of achieving both ordinary income margin and ROE of 10% or more. (3) Medium- and long-term corporate strategy To meet expanding safety and security needs of society with diversified risks, the ALSOK Group aims to become a resilient integrated safety and security solutions provider by promoting the innovation of security business model. To achieve this, we will enhance the capacity to respond to diverse safety and security needs of society, promote digitization and utilization of data, establish a work environment where employees play an active role, and strengthen the efforts of sustainability. (4) Business environment and pressing issues for the Company The ALSOK Group is one of Japan’s leading security services conglomerates. Recognizing the responsibility this represents, we are actively working to help protect the safety and security of society while practicing stringent compliance and acting as a principled company to improve corporate value. Additionally, in a society where risks are diversifying, as a provider of an important form of social infrastructure related to safety and security, ALSOK will promote the transformation of its security service business model by strengthening integration in existing business areas and expanding new business areas to accurately respond to the growing safety and security needs of customers and society. A. Responding to soaring prices of resources, shortage of parts supply and fluctuations in financial markets Despite the formulation of comprehensive emergency policy measures against price hikes in crude oil and other goods, the weaker yen, soaring raw material prices, such as crude oil, and increasing production costs, such as wages, are expected to continue. Even in such environment, we, as a company declaring partnership building under the Japanese government initiative, will strive to work and stay together with our business partners and to undertake initiatives focusing on multi- stakeholders including our business partners. Also, in order to address the supply shortage of semiconductors and other parts, we will appropriately manage our inventory based on supply and demand forecasts, seek new suppliers and promote reusage to minimize the impact on the procurement of equipment used by the Company. B. Implementing measures against COVID-19 In accordance with the national government’s basic policy and action plans and municipal guidelines for businesses on preventing the spread of COVID-19, the ALSOK Group is taking appropriate measures to prevent the spread of infection and maintain business continuity. The Group also makes every effort to appropriately address emerging needs for safety and security of customers and society. C. Responding to diverse safety and security needs of customers and society Risks surrounding society are increasingly diversified, such as the risk of COVID-19 infection, increasing risk of cyber- attacks on critical infrastructure and supply chains for which international countermeasures need to be strengthened based on geopolitical risks, increasing number of crimes targeting senior citizens, women, children and other vulnerable members of society, ongoing natural disasters and aging infrastructure. We are aware that it is highly important to respond to safety and security needs of society appropriately and with the highest possible quality as well as to respond to the recently-enacted economic security act. The ALSOK Group will respond to these risks by strengthening internal and external infrastructure built by its security and facility management businesses and by developing new solutions through external alliances that combine various features from its services such as services for cyber security, services that protect the safety and security of individual customers, services such as BCP solutions to address natural disaster risks, services to meet various outsourcing needs and - 18 - comprehensive management services for buildings, facilities and infrastructure. D. Expanding business scope The ALSOK Group has been addressing the various safety and security needs of customers arising from diversified risks and providing multifaceted support for corporate customers’ business activities. To this end, the Group has continued to actively develop new businesses and services that have the potential for synergies with its security services operations, such as its long-term care and property management businesses. Efforts to expand the Company’s business scope from this perspective will be accelerated going forward. E. Operational reforms through digitization and data utilization (DX) Amid massive changes in the business environment surrounding the ALSOK Group, including advances in digital technologies, the Company is focusing efforts on improving service quality through enhanced communications with customers and data utilization and increasing productivity as well as creating added value by streamlining and saving labor in front- and back-office operations. F. Creating environments in which employees can play active roles The ALSOK Group will further promote workstyle reforms throughout the Group while improving employee engagement. This includes employing the diverse array of human resources who can drive the Security Services, General Property Management and Fire Protection Services and Long-Term Care and Lifestyle Support Services, facilitating a wide range of workstyles to employees and developing systems and environments that enable individual employees to develop their skills and maximize their capabilities, such as initiatives for employees to obtain certificates or take more paid leaves. G. Initiatives to drive sustainability The ALSOK Group will strive to achieve sustainable growth and the medium- to long-term enhancement of corporate value by strengthening corporate governance. Further, the Company will contribute to attaining the SDGs through its CSR activities. At the same time, in recognition of global climate problems as issues affecting all humanity, with the aim of realizing a sustainable society, ALSOK will contribute to the spread of electronic vehicle (“EV”) and EV charging facilities through sales, installation and maintenance of such facilities as an initiative to reduce CO2 emissions (GX). In addition, as an initiative to conserve the ecosystem, eight companies in the Group have been certified as a “business operator for capturing birds and beasts”, and ALSOK Chiba Co., Ltd. opened a meat processing facility in July 2020 to sell gibier meat. Furthermore, as an initiative to forming a circulating society, “Social Contribution Type Emergency Supplies Service” was launched in April 2022. This is a subscription service for emergency supplies. Unused emergency supplies are collected six months before the expiration date and donated to various social welfare facilities, thereby contributing to solve a social problem such as food loss. The Company considers that the environmental issue is one of the diversified risks and will make efforts to tackle the issue. H. Developing overseas operations The ALSOK Group is responding to mounting needs for safety and security overseas as well. Based on the expertise we have cultivated in Japan, we will offer products and services optimized for individual countries as we proactively expand our operations to support the overseas businesses of our customers. 2. [Risk factors] In relation to matters described in Risk Factors and Financial Condition of the Annual Securities Report, the following items are the major risks that, in management’s opinion, may have a significant impact on financial position, operating results and cash flows of the Group. Any forward looking information included in this report is based on the best estimates of the Group as of the date of filing of this report. (1) Risk related to soaring prices of resources, shortage of parts supply and fluctuations in financial markets If the weaker yen, soaring prices of raw materials such as crude oil, and rising production costs such as wages continue due to the prolonged effect of Russia’s invasion of Ukraine, we may not be able to provide services on an ongoing basis. To address this risk, we, as a company declaring partnership building under the Japanese government initiative, have worked and stayed together with our business partners and undertaken initiatives focusing on multi-stakeholders including our business partners. Also, the supply shortage of semiconductors and other parts may affect the procurement of equipment used by the Company. To minimize the impact, the Company has appropriately managed its inventory based on supply and demand forecasts, sought new suppliers and promoted reusage. - 19 - (2) Risk related to outbreak of the infectious disease As a provider of services concerning safety and security of society (Security Services, General Property Management and Fire Protection Services, Long-Term Care Services), the Group will make efforts to provide appropriate services and continue the business. If any employee guarding important facilities gets infected or when any outbreak occurs at long-term care facilities the Group operates, it may affect the Company’s ability to provide services continuously. To address this risk, the Group established a “task force” as a measure to prevent the spread of infection, and also, a contingency plan was formulated to be able to provide various services continuously. We have the following measures to prevent the spread of infection: (Measures to prevent the spread of infection) ・ Ensure taking temperature by thermography, wearing face mask, washing hands and promoting vaccination including work- site vaccination. ・ Ensure wearing face mask, restricting admission and cleaning at the Group’s facilities, especially the long-term care facilities, to prevent the spread of infection. The Group will take appropriate measures to prevent the spread of infectious diseases and continue our business, and will accurately meet the safety and security needs of our customers and society in accordance with the government’s COVID-19 basic action policy and local government’s guidelines. (3) Risk related to business environment If the Group could not meet the customers’ expectations for increasing risk of cyber-attacks on critical infrastructure, increasing number of crimes targeting senior citizens, women, children and other vulnerable members of society, ongoing natural disasters and aging infrastructure, it may lead to loss of trust of customers and affect the Group’s operating results. The ALSOK Group has responded to the risk by strengthening internal and external infrastructure built by its security and facility management businesses and by developing new solutions through external alliances that combine various features from its services such as services for cyber security, services that protect the safety and security of individual customers, services such as BCP solutions to address natural disaster risks, services to meet various outsourcing needs and comprehensive management services for buildings, facilities and infrastructure. - 20 - (4) Risk related to massive disasters If a massive disaster occurs and the Group's employees or facilities are suffered from the disaster, it may affect the business operations. Therefore, the Group prepares for massive disasters with the expertise built on experiences by taking measures such as development of a business continuity plan and disaster preparedness manuals based on disaster countermeasures regulations, emergency supplies, nationwide mobile correspondence system and periodic education and training. If a massive disaster and the prolonged power outage associated with the disaster disrupt the Group’s network, it may affect the Group’s ability to provide services continuously. To address this risk, the Group locates two data centers each in Eastern Japan and Western Japan as a backup for critical systems, which enables to mutually monitor the systems to prepare for massive disasters. (5) Risk related to human resources recruitment and development The Group has developed a wide variety of businesses such as Security Services, General Property Management and Fire Protection Services (including facility management and construction) and lifestyle support services for the senior citizens. Under the circumstance of decreasing working-age population, if retaining high quality human resources becomes difficult, leading to shortage of staff and managers who operate these businesses, it may affect the Group's operating results. To address this risk, we will further promote workstyle reforms and improve working conditions within the Group and improve employee engagement by creating a system and environment that allows employees to maximize their abilities, such as increasing basic salary (now for nine consecutive years), hiring diverse human resources, providing diverse workstyle options, and providing support for employees to obtain certificates to develop their skills and initiatives to take more paid leaves. Furthermore, with the aim of revitalizing the organization and developing employees, we make efforts to improve communication within the Group, increase the opportunities for female employees, establish flexible human resource management by multi- tasking and place the right person in the right place. We also make efforts to improve productivity by streamlining operations and saving labor in the front and back offices. This includes retention of high quality human resources such as introducing a system for retirees with abundant practical experiences to play an active role in the Group even after the retirement, as well as digital transformation and data utilization. (6) Risk related to changes in technological environment In order to meet the safety and security needs of customers and society, development of new products and services utilizing AI, 5G and IoT technologies is essential. If the Group could not respond to these changes in the technological environment, it may affect the Group’s operating results. Therefore, we strive to avoid this risk by understanding the latest trends of technology and driving digital transformation with the active use of AI, 5G and IoT technologies. (7) Risk related to system development and operation In some cases, the Group outsources development of new products, services and enterprise system to external vendors. If the development work of the Company or the vendor is delayed and the product, service or system is not released as planned, it may affect the Group’s operating results or business plan. To address this risk, the Group closely works with the vendor to monitor the progress, and if necessary, takes appropriate measures immediately to prevent the delay. Also, we have an option to conduct system migration in phases by function in order to mitigate the risk. We have appropriate internal controls in place for acceptance tests and system repair/improvement. Moreover, by strengthening the recruitment and development of human resources with advanced expertise such as project management skills, the progress and quality of the vendor will be appropriately managed. If a system trouble occurs after the implementation during the development of the enterprise system used by the Company, it may affect the Group’s operating results or internal controls. To prepare for such system trouble, the Group has established a system with an external vendor to deal with such trouble and appropriate internal controls. In addition, if a network failure or system trouble occurs for the operation of a system or enterprise system related to products and services, it may affect the Group’s ability to provide the services. To address this risk, the Group has a backup system in place including multiplex network equipment at each location and multiple backup servers at remote locations. The Group also conducts drills for system failures to ensure stable system operations. - 21 - (8) Risk related to information management The Group handles personal information and confidential information. If any malicious attack to the information assets by third parties or any accidental or intentional leakage of the assets by the Group’s employees or vendors occurs, it may lead to deterioration of the Group’s social credibility and brand image, the payment of damages and legal punishment, which may affect the Group’s operating results. To address this risk, the Group has established “Basic Policy for Information Security” as a cornerstone to ensure information security, which is applied to all employees including officers and all information assets held. Based on Information Assets Management Rule, a company-wide management system for information assets has been established and promoted, and drills have been conducted to prepare for incidents related to information assets. Furthermore, if a critical incident occurs, the Group sets up ALSOK-CSIRT (Computer Security Incident Response Team), which is a framework to respond to the incident and develop and execute the preventative measures. (9) Risk related to reputation In providing products and services, the Group shares common corporate brand among multiple companies. Under the circumstance, if any incident or scandal occurs at the Group or its subsidiaries and associates, not only may the Company be suspended from bidding, but it may also damage the brand image and affect the operating results. For the purpose of enhancing group governance, the Company has established a specialized department to provide strict supervision and oversight of subsidiaries and associates. The department reports to the Company on performance of duties and critical information related to risk of loss of subsidiaries and associates on a timely basis. The Company sends directors or Audit and Supervisory Board members to the subsidiaries and associates. Based on “Internal Audit Regulation”, Inspection Department is working to ensure compliance of the Group by managing overall business activities of subsidiaries and associates, as well as by providing supervision, advice and recommendation for operational systems and business process improvements. The information on the Company’s internal control system and audit by the Audit and Supervisory Board and internal audit is described in “IV. Information on Reporting Company, 4. Corporate governance” in the Annual Securities Report. (10) Risk related to environmental issues In recent years, extreme weathers, such as heat waves, heavy rains and droughts, have frequently occurred all over the world. In Japan as well, extreme weathers, such as heavy rains exceeding 100 mm per hour and intense heat exceeding 40℃, have been observed in various places, which has a great impact not only on the Group but also on corporate activities and citizens’ lives. The Group has responded to such climate change by taking various initiatives and providing products and services from both risk and opportunity perspectives to address issues, such as mitigating and adapting to climate change, conserving water, ocean and forest resources, responding to circulating society, preventing pollution and managing waste and conserving biodiversity, to create more sustainable society. In addition, we are working on CO2 reductions (GX) as a global environmental measure through our initiatives including switching the lighting of our facilities to LED and promoting electric and hybrid vehicles. We also support and participate in JCI Climate Change Initiative, a domestic initiative on climate change. Furthermore, in January 2020, we became a member of Global Environmental Action, an NGO established for the purpose of contributing to the solution of global environmental issues and sustainable development. Our initiatives also include endorsement of “Task Force on Climate-related Financial Information Disclosures” in February 2022. We communicate these initiatives on our website and ALSOK Report (Integrated Report) published annually. (11) Risk related to legal regulations In providing the customers with security services, etc., the Group is subject to various regulatory requirements, including major ones described below. If any of these regulatory requirements is amended or abolished, or any new requirement is established, it may affect the Group’s operating results. To address this risk, each department of the Company as well as subsidiaries and associates confirms whether there is any amendment to or abolishment of regulatory requirements or newly established requirement and takes appropriate actions. Such risk information is reported to the Company’s Legal Office on a regular basis. Going forward, we will pay close attention to the regulatory developments and take appropriate actions in order to avoid the impact of such changes on our operating results. - 22 - Relevant laws or ordinances Regulatory agency, etc. Security Services Security Business Act National Public Safety Commission (National Police Agency) Road Traffic Act Telecommunications Business Act Ministry of Internal Affairs and Communications Radio Act Act on Ensuring Fair Electric Business Practices Ministry of Economy, Trade and Industry Act on Electrical Appliance and Material Safety Act on Specified Commercial Transaction Ministry of Economy, Trade and Industry, Consumer Affairs Agency Consumer Contract Act Consumer Affairs Agency Construction Business Act Ministry of Land, Infrastructure, Transport and Tourism Act on Promotion of Proper Tendering and Contracting for Public Works Motor Truck Transportation Business Act Consigned Freight Forwarding Business Act Road Trucking Vehicle Act Warehousing Business Act Act on Special Districts for Structural Reform Cabinet Office Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors Japan Fair Trade Commission, Small and Medium Enterprise Agency Act on Penal Detention Facilities and Treatment of Inmates and Detainees Ministry of Justice General Property Management and Fire Protection Services Construction Business Act Ministry of Land, Infrastructure, Transport and Tourism Act on Promotion of Proper Tendering and Contracting for Public Works Building Lots and Buildings Transaction Business Act Architect Act Act on Advancement of Proper Condominium Management Pharmaceutical and Medical Device Act Ministry of Health, Labor and Welfare Act on Maintenance of Sanitation in Building Waste Disposal Act Ministry of the Environment Air Pollution Control Act Electricity Business Act Ministry of Economy, Trade and Industry Act on Ensuring Fair Electric Business Practices Act on Securing of Safety and the Optimization of Transaction of Liquefied Petroleum Gas Fire and Disaster Management Act Ministry of Internal Affairs and Communications Fire Prevention Ordinance Municipality Long-Term Care Services Long-Term Care Insurance Act Ministry of Health, Labor and Welfare, Prefecture, Municipality Act on Social Welfare for the Elderly Act on Massage and Finger Pressure Practitioners, Acupuncturists, Moxibustion Practitioners, etc. - 23 - Relevant laws or ordinances Regulatory agency, etc. Other Services Correspondence Delivery Act Ministry of Internal Affairs and Communications Worker Dispatching Act Ministry of Health, Labor and Welfare Employment Security Act Insurance Business Act Financial Services Agency Act on Sales, etc. of Financial Instruments Act on Prevention of Transfer of Criminal Proceeds National Public Safety Commission (National Police Agency) Act on Adequacy of Duties of the Detective Business Secondhand Articles Business Act Personal Information Protection Act Personal Information Protection Commission Act on Special Measures to Prevent and Correct Shift for Consumption Tax Japan Fair Trade Commission, Small and Medium Enterprise Agency, Consumer Affairs Agency Act against Unjustifiable Premiums and Misleading Representations Consumer Affairs Agency Act on Countermeasures Against Novel Influenza Ministry of Health, Labor and Welfare Act on Maintenance of Sanitation in Buildings Food Sanitation Act Act on Special Measures concerning the Handling of Pollution by Radioactive Materials Ministry of the Environment Act on Prohibition of Private Monopolization and Maintenance of Fair Trade Japan Fair Trade Commission (12) Risk related to impairment of goodwill, etc. At times, the Group acquires companies to expand its security business to enter into related fields of the business. Under the circumstance, if the operating results of the acquired company deviate from the business plan at the time of acquisition or if the organizational restructuring such as merger is carried out, it may give rise to impairment losses of intangible assets such as goodwill and customer-related assets and other property, plant and equipment, affecting the Group’s operating results. To address this risk, the Company has established a system to monitor the performance of the acquired company and report to the Board of Directors on a regular basis. If the business plan at the time of acquisition deviates from the actual results, related departments immediately develop and take appropriate measures. - 24 - 3. [Management analysis of financial position, operating results and cash flows] (1) Overview of operating results, etc. The Group’s financial position, operating results and cash flows (“operating results, etc.”) for the fiscal year ended March 31, 2022 are as follows: A. Financial position and operating results (Overview of performance) During the fiscal year under review, the Japanese economy continued its overall movement toward recovery after September 2021 when the fifth wave of COVID-19 infection rapidly subsided, although many prefectures declared state of emergency and implemented priority measures to prevent the spread of COVID-19 which has been ongoing since the year before last. Although further recovery was expected due to the prevalence of vaccinations, the spread of the highly infectious Omicron variant from January caused 35 prefectures to implement quasi-emergency measures that were finally lifted entirely on March 21, with the outlook remaining uncertain. In addition, a drastic uptrend in prices of resources and raw materials due to the logistical disruption caused by the COVID-19 pandemic was accelerated by Russia’s invasion of Ukraine in February, bringing on a different set of circumstances surrounding prices from those of the 30-year period of stagnation and deflationary economy. Despite the formulation of comprehensive emergency policy measures against price hikes in crude oil and other goods, the impact that will be exerted on the Japanese economy by the weak yen, soaring prices of crude oil and other raw materials, and rising production costs including higher wages is unpredictable. Cautious observation is further required of overseas situations such as rising inflation and monetary policy trends in the United States, the slowdown of the Chinese economy due to the zero-corona policy and other factors, the situation in Ukraine, and geopolitical risks such as North Korean missile test launches. In the field of security, customers' needs for safety and security are expanding to encompass measures to prevent infectious diseases, particularly in manufacturing industries. In recent years, there has been an increase in the number of cyber-attacks on critical infrastructure and supply chains, for which international countermeasures need to be strengthened. Other sources of concern include the declining birthrate, aging population and declining workforce, as well as the safety and security of the elderly, women, children, and other vulnerable social groups. The arson-murder case in Osaka last December that caused numerous casualties and the Shiretoko sightseeing boat accident have been among the crimes and accidents close to people's daily lives, which have been on the rise. Against a backdrop of successive natural disasters, aging infrastructure, calls for regional development and responses to the recently-enacted economic security act, society's needs for safety and security are diversifying, and environmental needs, such as the formation of a carbon-neutral and circulating society, are increasing. Therefore, the expectations on our Group to continue to provide integrated services for security, facilities, and long-term care remain high. Amid these conditions, the ALSOK Group has continued to provide appropriate services as an operator of service businesses related to the safety and security of society (the Security Services business, General Property Management and Fire Protection Services business, and Long-Term Care Services business), which are indispensable for ensuring the stability of the lives of the people and the national economy, while taking sufficient infection prevention measures. In addition to playing a central role in security for the Olympic and Paralympic Games Tokyo 2020, we have contributed to the response to the COVID-19 contagion by providing security at vaccination sites and other locations. As stated in “Grand Design 2025,” our medium-term management plan, we aim to become a resilient integrated safety and security solutions provider that supports the safety and security of our customers and society. To meet the expanding safety and security needs of our customers and society amid diversifying risks, we are working to provide new services that combine a variety of service functions, including security, facilities, and long-term care. As a result, consolidated net sales during the fiscal year under review increased 4.1% year on year to ¥489,092 million, operating income increased 15.3% to ¥42,865 million, ordinary income increased 14.2% to ¥44,796 million, and profit attributable to owners of parent increased 15.8% to ¥28,964 million. - 25 - The following is the Group's consolidated statement of income by item compared to the previous fiscal year: Item Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Year on year change Amount Percentage Amount Percentage Change in amount Percentage change (Millions of yen) (%) (Millions of yen) (%) (Millions of yen) (%) Net sales 469,920 100.0 489,092 100.0 19,172 4.1 Cost of sales 352,811 75.1 363,511 74.3 10,699 3.0 Gross profit 117,108 24.9 125,581 25.7 8,472 7.2 Selling, general and administrative expenses 79,926 17.0 82,715 16.9 2,788 3.5 Operating income 37,182 7.9 42,865 8.8 5,683 15.3 Non-operating income 5,184 1.1 5,158 1.1 (25) (0.5) Non-operating expenses 3,154 0.7 3,227 0.7 73 2.3 Ordinary income 39,212 8.3 44,796 9.2 5,584 14.2 Extraordinary income 178 0.0 1,309 0.3 1,131 632.2 Extraordinary loss 529 0.1 376 0.1 (152) (28.8) Income taxes 12,006 2.6 15,003 3.1 2,997 25.0 Profit attributable to non-controlling interests 1,841 0.4 1,762 0.4 (78) (4.3) Profit attributable to owners of parent 25,014 5.3 28,964 5.9 3,949 15.8 The net sales for the fiscal year ended March 31, 2022 was ¥489,092 million, ¥19,172 million or 4.1% increase year on year. The cost of sales was ¥363,511 million, resulting mainly from ¥15,080 million increase in expenses such as outsourcing expenses due to higher sales. The selling, general and administrative expenses was ¥82,715 million. The outsourcing fees of ¥2,392 million related to the new sales administrative system and depreciation expenses of ¥903 million contributed to the increase. The ordinary income was ¥44,796 million, ¥5,584 million or 14.2% increase due to the increase in operating income. The increase in extraordinary income resulted from ¥1,017 million increase in compensation income and ¥124 million increase in gain on sales of noncurrent assets. The decrease in extraordinary loss resulted from ¥79 million decrease in loss on retirement of noncurrent assets and ¥36 million decrease in impairment losses. The profit attributable to owners of parent increased by ¥3,949 million or 15.8% to ¥28,964 million due to the increase in operating income. The comprehensive income was ¥31,890 million, ¥9,650 million or 23.2% decrease. The decrease resulted from ¥10,934 million decrease in changes in remeasurements of defined benefit plans and ¥2,546 million decrease in changes in valuation difference on available-for-sale securities due to weak financial markets, which was partially offset by ¥3,870 million increase in net income. Refer to “(2) Management’s analysis of operating results, etc., A. View and analysis of operating results, etc. for the fiscal year ended March 31, 2022” for operating results by segment. - 26 - (Consolidated balance sheet by item) The following is the Group's consolidated balance sheet by item compared to the previous fiscal year: Item As of March 31, 2021 As of March 31, 2022 Year on year change Amount Ratio Amount Ratio Change in amount Percentage change (Millions of yen) (%) (Millions of yen) (%) (Millions of yen) (%) Assets Current assets 227,617 47.3 233,872 47.9 6,255 2.7 Noncurrent assets 253,847 52.7 254,405 52.1 557 0.2 Total assets 481,465 100.0 488,278 100.0 6,812 1.4 Liabilities Current liabilities 103,793 21.6 90,384 18.5 (13,408) (12.9) Noncurrent liabilities 73,243 15.2 70,383 14.4 (2,860) (3.9) Total liabilities 177,037 36.8 160,768 32.9 (16,269) (9.2) Net Assets 304,427 63.2 327,509 67.1 23,081 7.6 Total assets as of March 31, 2022 was ¥488,278 million, ¥6,812 million or 1.4% increase from March 31, 2021. The current assets increased by ¥6,255 million or 2.7% to ¥233,872 million, and the noncurrent assets increased by ¥557 million or 0.2% to ¥254,405 million. The increase in current assets resulted from ¥10,523 million increase in cash and deposits, ¥2,174 million increase in notes and accounts receivable - trade, and contract assets (compared with notes and accounts receivable - trade as of March 31, 2021), which was partially offset by ¥6,051 million decrease in cash for Transportation Security Services. The increase in noncurrent assets resulted from ¥5,057 million increase in retirement benefit asset, which was partially offset by ¥2,581 million decrease in goodwill, ¥1,347 million decrease in deferred tax assets and ¥765 million decrease in lease assets. Total liabilities as of March 31, 2022 was ¥160,768 million, ¥16,269 million or 9.2% decrease from March 31, 2021. The current liabilities decreased by ¥13,408 million or 12.9% to ¥90,384 million, and the noncurrent liabilities decreased by ¥2,860 million or 3.9% to ¥70,383 million. The decrease in current liabilities resulted from ¥12,466 million decrease in short-term loans payable. The decrease in noncurrent liabilities resulted from ¥2,383 million decrease in long-term loans payable. Net assets as of March 31, 2022 was ¥327,509 million, ¥23,081 million or 7.6% increase from March 31, 2021. - 27 - B. Cash flows Cash and cash equivalents (“cash”) as of March 31, 2022 was ¥63,644 million, 19.8% increase year on year. (Millions of yen) Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Year on year change (%) (From April 1, 2020 to March 31, 2021) (From April 1, 2021 to March 31, 2022) Net cash provided by (used in) operating activities 55,522 42,736 (23.0) Net cash provided by (used in) investing activities (38,452) (14,093) (63.3) Net cash provided by (used in) financing activities (12,714) (18,183) 43.0 Effect of exchange rate change on cash and cash equivalents (2) 41 － Net increase (decrease) in cash and cash equivalents 4,353 10,500 141.2 Cash and cash equivalents at beginning of year 48,790 53,143 8.9 Cash and cash equivalents at end of year 53,143 63,644 19.8 The cash flows for the fiscal year ended March 31, 2022 are as follows: (Cash flows from operating activities) Net cash provided in operating activities was ¥42,736 million (23.0% decrease year on year) during the fiscal year ended March 31, 2022. The cash increased mainly due to ¥45,729 million of income before income taxes (17.7% increase year on year) and ¥16,861 million of depreciation expenses added back (6.5% increase year on year). The cash decreased mainly due to ¥12,593 million income tax payment (2.1% increase year on year) and ¥5,904 million decrease in changes in assets and liabilities of Transportation Security Services (¥8,894 million increase for the previous fiscal year). The changes in assets and liabilities of Transportation Security Services include changes in cash raised for Transportation Security Services within cash and short-term loans payable for Transportation Security Services. (Cash flows from investing activities) Net cash used in investing activities was ¥14,093 million (63.3% decrease year on year) during the fiscal year ended March 31, 2022. This mainly resulted from ¥13,109 million (9.8% increase year on year) used for acquisition of property, plant and equipment. (Cash flows from financing activities) Net cash used in financing activities was ¥18,183 million (43.0% increase year on year) during the fiscal year ended March 31, 2022. The cash decreased due to ¥7,594 million used for dividends payment (6.4% increase year on year), ¥5,302 million used for repayment of lease obligations (1.0% increase year on year) and ¥2,980 million used for repayment of long-term loans payable (8.7% decrease year on year). - 28 - C. Production, orders and sales (Production) The Group is not engaged in production activities. The number of contracts in progress as of March 31, 2022 is as follows: Segment As of March 31, 2021 (Thousands of contracts) As of March 31, 2022 (Thousands of contracts) Year on year change (%) Security Services Electronic Security Services 990 1,009 1.9 Stationed Security Services 4 4 4.9 Transportation Security Services 79 79 0.4 Total 1,073 1,093 1.8 General Property Management and Fire Protection Services 113 123 8.5 Long-Term Care Services 27 27 (1.4) Total for reportable segments 1,215 1,244 2.4 Other Services 29 34 17.1 Total 1,244 1,278 2.7 (Note) The number of contracts above represents the total number of long-term contracts with the customers (contracts to provide services on an ongoing basis for a certain period of time), not the total number of parties to the contract the Group provides services to. Major services provided by each segment are as follows: Electronic Security Services ALSOK Guard System for corporate customers, home securities for individual customers, etc. Stationed Security Services Stationed security services to assign security guards to facilities of the customers Transportation Security Services Cash transportation services including transportation of securities, and Cash Deposit and Dispenser Machine On-Line System General Property Management and Fire Protection Services Facility management, cleaning services, call center services, maintenance, management and operation of various facilities, inspection of fire equipment and AED rental, etc. Long-Term Care Services Home-visit nursing care, day care services, fee-based long-term care facilities, group homes, etc. Other Services ALSOK PC Management Service, Website Tampering Detection Service, cashless payment service including QR Code payment - 29 - (Sales) The sales results for each segment are described below: Segment Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) (Millions of yen) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) (Millions of yen) Year on year change (%) Security Services Electronic Security Services 176,711 177,210 0.3 Stationed Security Services 113,168 128,894 13.9 Transportation Security Services 65,680 67,870 3.3 Total 355,559 373,975 5.2 General Property Management and Fire Protection Services 68,173 67,435 (1.1) Long- Term Care Services 40,375 41,649 3.2 Total for reportable segments 464,108 483,060 4.1 Other Services 5,812 6,032 3.8 Total 469,920 489,092 4.1 (Note) No single customer accounted for more than 10% of total net sales. - 30 - (2) Management’s analysis of operating results, etc. The management’s view and analysis of the Group’s operating results, etc. are as follows. Any forward looking information included in this report is based on the best estimates of the Group as of the date of filing of this report. A. View and analysis of operating results, etc. for the fiscal year ended March 31, 2022 (Management’s analysis) The Group’s consolidated operating results for the fiscal year ended March 31, 2022 is described in “(1) Overview of operating results, etc., A. Financial position and operating results”. The sales has increased for the 12th consecutive years and hit a record high for the 11th consecutive years. Each profit level has reached a record high, and the profit attributable to owners of parent has increased for the 10th consecutive years. By strengthening the Security Services through M&A and driving growth of the General Property Management and Fire Protection Services and the Long-Term Care Services (which are compatible with the Security Services), the Group is focused on accurately meeting growing safety and security needs of society where risks are becoming much more diverse. The Group is focused on two performance indicators, ordinary income margin and consolidated return on equity (ROE), as these indicators can provide objective assessment of our business targets. As described in the Medium-Term Management Plan “Grand Design 2025”, the Group’s target for both ordinary income margin and ROE is 10.0% or more. The actual result for the fiscal year ended March 31, 2022 was 9.2% and 10.0% for ordinary income margin and ROE, respectively. The management’s view and analysis of the operating results by segment are as follows. As no asset is allocated to business segments, the management’s view and analysis of the financial position by segment are omitted. Net sales by segment Segment Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Year on year change Amount (Millions of yen) Ratio (%) Amount (Millions of yen) Ratio (%) Amount (Millions of yen) Percentage change (%) Security Services Electronic Security Services 176,711 37.6 177,210 36.2 499 0.3 Stationed Security Services 113,168 24.1 128,894 26.4 15,726 13.9 Transportation Security Services 65,680 14.0 67,870 13.9 2,190 3.3 Total 355,559 75.7 373,975 76.5 18,415 5.2 General Property Management and Fire Protection Services 68,173 14.5 67,435 13.8 (737) (1.1) Long-Term Care Services 40,375 8.6 41,649 8.5 1,274 3.2 Total for reportable segments 464,108 98.8 483,060 98.8 18,952 4.1 Other Services 5,812 1.2 6,032 1.2 219 3.8 Total 469,920 100.0 489,092 100.0 19,172 4.1 Within the Security Services segment, the Company has provided services for corporate customers through our Electronic Security Services business, which promoted sales of ALSOK-G7 (read as “ALSOK G-seven”), equipped with live video monitoring as a standard feature, providing optional services such as image storage and remote monitoring using images, as well as remote equipment control and contributes to customers’ manpower-saving needs by linking with a central monitoring system. We will continue to expand our services for corporate customers by utilizing ALSOK-G7. The Company offers a range of services for individual customers, which includes Home Security Basic, the standard solution for private homes that is easy-to install. We also promote sales of HOME ALSOK MIMAMORI SUPPORT, a monitoring service for the elderly that uses built-in temperature and humidity sensors to monitor for heat stroke in the home, and a standard function that notifies family members by e-mail when the customer goes out or comes home. In August 2021, we updated the dedicated Home Security Basic app, adding Health Consultation service available to subscribers free of charge at the touch of a button. In addition, customers can now easily apply for HOME ALSOK House Support Monthly Membership Plan, a service for convenient - 31 - living that offers housekeeping, housecleaning and other preferential services. In March 2022, we began offering HOME ALSOK Outdoor Wireless IP Camera, which allows users to check real-time video and recorded video from remote locations via a smartphone app, with the option of requesting ALSOK to rush to the scene in the event of an emergency. We will continue to broaden our product and service offerings to meet the increasingly diverse safety and security needs of individuals. In the area of Stationed Security Services, we played a central role as co-representative in the Olympic and Paralympic Games Tokyo 2020 Security Consortium, contributing to the successful conclusion of the Games. In addition, while providing security at places such as vaccination centers and recovery accommodation facilities for people with light symptoms of COVID-19 infection, we will expand robotic functions to replace security guards in patrol and monitoring services, where human resources are in short supply. In Transportation Security Services, the need to streamline cash management operations in the public and private sectors remains as strong as ever. We continue to expand sales of our Cash Deposit and Dispenser Machine Online System, which has been well received by a wide range of local governments as a solution to improve efficiency in collection operations for taxes and public funds. In addition, as a new solution to support regional financial institutions and others in improving operational efficiency and reducing costs, we have been commissioned to provide centralized operations of an electronic clearinghouse for bills and checks, and have already launched a joint center where some operations began in April 2022. We will continue our efforts to further expand outsourcing contracts with financial institutions and local public sector bodies. As a result, sales in the Security Services segment increased 5.2% year on year to ¥373,975 million, while operating income increased 9.7% year on year to ¥40,758 million. In the General Property Management and Fire Protection Services segment, sales related to COVID-19, such as vaccination center operational support, were robust, as were sales related to the Tokyo 2020 Games. Due to the impact of a decline in completions in the construction work sector, however, sales decreased 1.1% year-on-year to ¥67,435 million, while operating income was ¥8,244 million, up 5.2% year-on-year. Moreover, in addition to the facilities management capital and business alliance between the Company and Mitsubishi Corporation initiated on February 28, 2020, the Company will further expand its facilities management operations in Japan and overseas led by ALSOK Facilities Co., Ltd., launched on April 1, 2021, as a merger between consolidated subsidiaries (former ALSOK Building Services Co., Ltd. and Nippon Building Maintenance Co., Ltd.) based on the concept of integrating security, facilities and construction. Also, we will continue to provide various services utilizing drones to inspect and survey aging infrastructure such as bridges, exterior walls, and various other facilities in addition to panel inspections of vast solar facilities, thereby contributing to operational efficiency and labor savings. In the Long-Term Care Services segment, net sales were up 3.2% year-on-year at ¥41,649 million, and operating income was up 130.8% year-on-year at ¥1,621 million due to improved facility occupancy rates and a recovery in the number of home-visit massage therapy users. We will continue to strengthen our management base and expand our facilities by streamlining Long- Term Care Services operations through the use of nursing care support AI robots, etc., while providing total care that no other company can match under the unified “ALSOK’s Care” Long-Term Care Services brand. In line with the capital and business alliance between ALSOK, Mitsubishi Corporation and Nippon Care Supply Co., Ltd., pertaining to long-term care services and lifestyle support services for the elderly that commenced in December 2020, the Company will also strive to further expand services for long-term care providers and lifestyle support services for long-term care service users and the elderly. By utilizing this customer base, we will strive to expand sales of the Group's products and services. In March 2022, we began collaborating with the SOMPO Group to work on solving social issues in the long-term care industry. Based on the system established by the SOMPO Group for optimizing long-term care business processes, we will jointly create solutions that can contribute to solving various issues in the long-term care services industry by utilizing data and other resources held by our nursing care facilities. Furthermore, an agreement was reached to provide services including those related to long-term care at the Senior Service Residence facilities of Mitsui Fudosan Residential Co., Ltd. We will continue to improve the efficiency and quality of our Long- Term Care Services as we implement the business operations targeting a wide range of users including independent and active seniors. In other areas, sales of PCR testing services have been strong, and we have introduced ALSOK Multi QR Payment Solution, a proprietary QR code payment service that has steadily expanded in response to the trend toward a cashless society. In August 2021, we began offering the ALSOK Office Doctor Package, which provides optimized employee health management support for workplaces which are not required to appoint an occupational physician because they have fewer than 50 employees. In December 2021, we began offering the ALSOK Health Consultation Package, which provides a telephone hotline for consultation on health, mental health, and harassment issues as a job benefit for employees. In a society where risks are diversifying, the Group will continue to aptly meet the expanding safety and security needs of society by continuing to utilize new technologies and improve productivity, while fulfilling our responsibilities as a provider of services related to the safety and security of society. - 32 - (Capital resources and liquidity) i. Basic policy for fiscal discipline As set forth in the Medium-Term Management Plan “Grand Design 2025”, one of our mid-term financial goals is ROE of 10% or more. Our basic policy is to boost ROE with a target of raising the consolidated ordinary income margin to 10% or more in the medium term while paying out a stable dividend with a goal of maintaining a dividend payout ratio of 30%. Under these circumstances, our equity capital ratios at the end of the last five consolidated fiscal years have been stable. We believe that this is a result of our efforts to maintain fiscal discipline by giving due consideration to both shareholders and creditors in a well-balanced manner. (Equity capital ratio at the end of the last five consolidated fiscal years) Fiscal year ended March 31, 2018 March 31, 2019 March 31, 2020 March 31, 2021 March 31, 2022 Equity capital ratio [Consolidated] (%) 55.0 56.8 57.3 57.6 61.5 ii. Management's view on outlook of capital needs and methods of financing The Group's primary source of funds is the monthly fees received from customers, mainly in the security business, which is stable income with a clear future outlook. As the Group’s expenditure plan is based on this stable source of funds, the Group believes there is little concern that it will face a shortage of funds in the predictable future. The Group also believes that it can obtain external financing at a relatively low cost due to this stable source of funds, the recent trend of the equity capital ratio and the good relationships with its key financial institutions. The Group’s primary capital needs and methods of financing are as follows: (Working capital needs) The working capital needs of the Group are mainly comprised of cost of sales, such as labor costs and outsourcing costs, selling, general and administrative expenses, such as personnel expenses, and cash required for deposit of sales proceeds into the customers’ bank accounts through Cash Deposit and Dispenser Machine On-Line System in the Transportation Security Services. While the cost of sales and selling, general and administrative expenses are generally paid out of its own funds as the payment occurs regularly throughout the year, the Group also uses short-term loans from financial institutions as necessary to meet the capital needs. The Group uses both its own funds and short-term loans from financial institutions for deposit of sales proceeds into the customers’ bank accounts through Cash Deposit and Dispenser Machine On-Line System. Such short-term loans are available through overdrafts and can be executed immediately based on the cash needs. The amount of sales proceeds that the Group deposits into customers’ bank accounts on a certain day represents the amount of sales proceeds deposited into the Cash Deposit and Dispenser Machine by customers on the previous day, which fluctuates significantly. The amount of deposits increases especially on Monday or any business day after national holidays because such amount includes the amount deposited by customers into the Machine during the weekends and holidays, resulting in increasing use of short- term loans from financial institutions. (Investment capital needs) The investment capital needs of the Group are mainly comprised of mergers and acquisitions (“M&A”). This is generally paid out of its own funds, and the Group also uses short-term and long-term loans from financial institutions as necessary to meet the needs. In addition, the recurring acquisition of security alarm equipment related to the electronic security is also included in capital investment. The Group considers the acquisition of security alarm equipment is similar in nature to the acquisition of inventories as a component of working capital since the amount per acquisition is small and it occurs as orders are received. As the acquisition of alarm equipment occurs regularly throughout the year, it is generally paid out of its own funds, which is similar to the working capital needs. Refer to “III. Facilities, 3. Plan for establishment or disposal of facilities” for the Group’s capital investment plan including capital expenditures for a period of one year following March 31, 2022. - 33 - (Shareholder return policy) Distributing returns to shareholders is one of the Group’s important management policies. It is our basic policy to return profits in a manner supported by actual financial results, while maintaining an adequate amount of internal reserves. Our basic policy is to pay dividends twice a year as interim dividend and year-end dividend. Under the Medium-Term Management Plan “Grand Design 2025”, we aim to maintain stable dividend payments with a target dividend payout ratio of 30% as well as raising dividends, which has continued since the 48th business term (the fiscal year ended March 31, 2013), through business expansion. (Cash on hand) For the cash and deposits excluding cash for Transportation Security Services, we have no clear guideline for the minimum required amount of cash on hand in the Group’s financing practice. However, we believe that it is appropriate to hold the amount of cash equivalent to approximately one to two months of monthly sales as the cash demand associated with expenditures is fairly stable over the year. The cash for Transportation Security Services is procured in line with actual demand through overdrafts. (Management's view on future outlook of capital needs and methods of financing) The Group has mostly used its own funds to meet the capital needs during the fiscal year ended March 31, 2022, except for Transportation Security Services. At this point, the Group does not expect any significant change in the capital needs during the period of one year following March 31, 2022 and believes that its capital needs will be satisfied by its own funds. iii. Cash flows and financing for the fiscal year ended March 31, 2022 are as follows: Refer to “(1) Overview of operating results, etc., B. Cash flows” for cash flows for the fiscal year ended March 31, 2022. Refer to supplementary schedules for bonds and loans payable described in “V. Financial Condition, 1. Consolidated financial statements, v. Supplementary schedules” for debt financing as of March 31, 2022. The major lenders include Mizuho Bank, Ltd., Sumitomo Mitsui Banking Corporation and MUFG Bank, Ltd., to which we have loans payable of ¥4,870 million, ¥877 million and ¥702 million as of March 31, 2022, respectively. B. Significant accounting policies and estimates The consolidated financial statements of the Group are prepared in accordance with the accounting principles generally accepted in Japan. Significant accounting policies applied in preparing the consolidated financial statements are described in “V. Financial Condition, 1. Consolidated financial statements, (1) Consolidated financial statements, Notes, Significant matters underlying the preparation of the consolidated financial statements.” In preparing the consolidated financial statements, the Group makes reasonable estimates based on currently available assumptions for impairment of noncurrent assets, estimation of various allowances and recoverability of deferred tax assets, etc. However, these estimates may significantly differ from actual results in the future. We consider that the following significant accounting policies are more affected by these estimates and assumptions: (Impairment of noncurrent assets) We assess whether or not a noncurrent asset should be impaired in accordance with “Accounting Standard for Impairment of Fixed Assets” (August 9, 2002) and “Guidance on Accounting Standard for Impairment of Fixed Assets” (Accounting Standards Board of Japan (“ASBJ”) Guidance No.26, last amended on March 27, 2009). Recognition of impairment losses may become necessary when the recoverable amount falls below the carrying amount due to changes in the business environment, etc. in the future. i. Goodwill and customer-related assets (Source of value of goodwill and customer-related assets) The Group records ¥27,097 million of goodwill as of March 31, 2022, which arose from past business combinations and represents excess earning power that is expected from combining an acquiree’s business with the Group’s business. There is also goodwill that resulted from the effect of synergies that is expected to arise at the Company. In certain business combinations, we recognize customer-related assets with goodwill at the value related to a contract with an existing customer determined at the time of business combination. - 34 - (Business plan underlying future cash flows) In assessing the Group’s goodwill for impairment, we are focused on whether the excess earning power and the effect of synergies (which give rise to goodwill) will arise over the future periods. Generally, we monitor, on a monthly basis, whether a business plan of a company from which the goodwill arose (including a plan of the effect of synergies expected to arise at the Company) is in line with the actual profit or cash flows recorded. If there is any indication of impairment, such as a situation where business targets are not likely to be met, we review the business plan for its reasonableness. We use the revised business plan to determine undiscounted future cash flows. The future cash flows are then used to determine whether an impairment loss should be recognized. If recognized, the amount of impairment losses is measured based on value in use calculated using discounted future cash flows. The impairment assessment of customer-related assets is performed in conjunction with the impairment assessment of goodwill. The customer-related assets are assessed for indications of impairment by comparing related business plan with actual profit or cash flows recorded, and if any such indication exists, an impairment loss is recognized and measured based on the revised business plan. The following significant assumptions are incorporated into the business plans used in the impairment assessment. These business plans involve, by nature, judgements based on certain estimates or assumptions. The estimates and assumptions may have a significant impact on the assessment for impairment indications or recognition of impairment losses as well as the amount of impairment losses recognized. ・ Companies engaging in Security Services and General Property Management and Fire Protection Services Orders, human resource planning and sales growth ・ Companies engaging in Long-Term Care Services Category Significant assumptions considered In-home care services Net sales per employee, profit margin of existing locations, human resource planning, etc. Facility care services Business projections for existing facilities, new facilities opening, occupancy rate for new and existing facilities, human resource planning, etc. Residential care home for senior citizens Business projections for new and existing facilities, new facilities opening, human resource planning, etc. In addition to these significant assumptions, for the current fiscal year, we considered the impact COVID-19 had on the operating results and assessed the impact that COVID-19 would have on the business plans in the future. As a result, we recognized ¥192 million of impairment loss on certain goodwill determined to be unrecoverable. No impairment loss is determined to be necessary for the rest of goodwill and customer-related assets as sufficient future cash flows are expected. The business plans are also used to assess shares of subsidiaries and associates related to combined companies recorded on the non-consolidated financial statements of the Company. If such shares of subsidiaries and associates are determined to be unrecoverable, the write-down is recognized in the statement of income of the Company. (Discount rate) The discount rate used is the weighted average cost of capital by term according to remaining amortization period of goodwill, which is calculated based on historical data on stock prices and interest rates since the listing of the Company. This rate is used because most companies of the Group can raise funds through intra-group borrowings under the conditions that are substantially similar to the Company. If the stock price or the interest rate rises significantly, the weighted average cost of capital calculated also increases, resulting in lower discounted future cash flows. In this case, the amount of impairment loss is likely to be substantial. - 35 - ii. Other tangible and intangible assets (Business plan underlying future cash flows) For tangible and intangible assets other than goodwill and customer-related assets, the impairment assessment is performed using profit or cash flows based on a business plan. In assessing impairment for tangible and intangible noncurrent assets, the assets are grouped in line with our business operations. The assets are mainly grouped as follows: Category Major line items Grouping method Security guard center facility Security equipment installed at customers Disaster prevention equipment, etc. Buildings and structures Machinery, equipment and vehicles These assets are grouped into asset groups used for managerial accounting purposes. This is because our services are divided into regions and investment decisions are made for each region, which constitutes a separate units for managerial accounting. Specifically, for the Company, head office and regional divisions described in “III. Facilities, 2. Major facilities, (1) Reporting company” are grouped into one asset group. For subsidiaries and associates, each company is treated as one asset group. Care facilities Lease assets Each care facility is treated as one asset group. This is because each facility provides services independently and investment decisions are made for each facility, which constitutes a stand-alone unit for managerial accounting. As in the case of goodwill and customer-related assets, certain estimates or assumptions are made when including significant assumptions in the business plan for each asset group. Such estimates and assumptions may have a significant impact on the assessment for impairment indications or recognition of impairment losses as well as the amount of impairment losses recognized. (Discount rate) As in the case of goodwill and customer-related assets, the discount rate used is the weighted average cost of capital by term, which is calculated based on historical data on stock prices and interest rates since the listing of the Company. Depending on movements of the stock price or the interest rate, the weighted average cost of capital calculated may increase, resulting in substantial amount of impairment loss. (Retirement benefits) The Company and its subsidiaries and associates have defined benefit corporate pension plans and retirement benefit plans. The defined benefit obligation and pension asset related to these plans are determined using actuarial assumptions, excluding certain consolidated subsidiaries with a limited number of employees. These assumptions include discount rate, expected long-term rate of return on plan assets, lump sum election rate, mortality rate, employee turnover and expected rate of salary increase. The Group believes that these actuarial assumptions were reasonably determined based on the currently available data such as the most recent results. If these assumptions significantly differ from the actual results, the actuarial gains and losses are amortized over certain service years within the employees’ average remaining service years (generally 10 years) using the straight-line method starting from the fiscal year following the year in which they occur, which may have a significant impact on the Group’s operating expenses, etc. The discount rate is determined based on the yields on high quality corporate bonds or the Japanese government bonds as of the end of the fiscal year. The discount rate is revised when there is over 10% change in defined benefit obligation from using different discount rates at the current and previous fiscal year-ends in accordance with “Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26, last amended on December 16, 2016) and “Implementation Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25, last amended on March 25, 2015). The expected long-term rate of return on plan assets is determined based on the latest allocation of the plan asset and historical investment yields on each financial instrument group such as stocks and bonds. The expected long-term rate of return on plan assets is revised when the revision is determined to have a significant impact on the retirement benefit expenses for the following fiscal years in accordance with “Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26, last amended on December 16, 2016) and “Implementation Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25, last amended on March 25, 2015). - 36 - (Deferred tax assets) The Company and each of its subsidiaries and associates file its corporate tax return separately. In assessing the recoverability of deferred tax assets, the companies are classified into “Category 1” to “Category 5” according to their earning power in accordance with “Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26, amended on March 28, 2016). The classification is revised according to each company’s situation at the end of the fiscal year. Certain assumptions are used to determine this classification, including future changes in the business environment and estimates for taxable income (before adjusted for temporary differences), which may have a significant impact on the assessment of recoverability of deferred tax assets. The forward-looking estimates are made using the same business plan as the impairment assessment of noncurrent assets, and therefore, the risk of variance between the estimates and actual results is considered to be generally similar. For those companies classified into “Category 2” to “Category 5”, the deferred tax asset is recognized only for deductible temporary differences that are expected to be recoverable. In assessing for recoverability, the availability of taxable income (before adjusted for temporary differences) supported by the sufficient earning power is the most important factor to consider. The availability of taxable income (before adjusted for temporary differences) supported by tax planning, such as planned disposal of noncurrent assets or securities with unrealized gains, is considered only when it is highly feasible. The timing of reversal of deductible temporary differences and its amount are considered only when it is highly likely to occur. For example, an unrealized loss on valuation of land is included in the scheduling only when the land sales contract is concluded, etc. As certain estimates or assumptions are used in a series of processes for the assessment of recoverability, the judgements may have a significant impact on the amount of deferred tax assets. A tax rate stipulated in the tax law enacted as of closing date is applied to calculation of deferred taxes in accordance with “Implementation Guidance on Tax Rates Used in Applying Tax Effect Accounting” (ASBJ Guidance No. 27, March 14, 2016). Therefore, a change in the tax rate may have a significant impact on the amount of deferred tax assets. The Company’s deferred tax asset recognized is mostly related to deductible temporary differences for companies located in Japan. There is little uncertainty about transfer pricing between consolidated companies. 4. [Material business contracts, etc.] (1) On April 1, 2021, a merger was concluded between ALSOK Building Services Co., Ltd. and Nippon Building Maintenance Co., Ltd., both of which are the Company’s consolidated subsidiaries engaging mainly in the General Property Management and Fire Protection Services business. Upon conclusion of the merger, the trade name of the surviving company, Nippon Building Maintenance Co., Ltd., was changed to ALSOK Facilities Co., Ltd. (2) On April 1, 2022, the Company merged with ALSOK Leasing Co., Ltd., a consolidated subsidiary of the Company engaging in leasing and installment sales, with the Company as the surviving company, for the purpose of structural efficiency of the Group. (3) On June 6, 2022, the Company entered into a contract with Kansai Electric Power Co., Inc. to acquire all shares of Kanden Joy Life Co., Ltd. and Kanden Life Support Co., Ltd., which are consolidated subsidiaries of Kansai Electric Power Co., Inc. engaging in the long-term care business. The shares were acquired on June 22, 2022. - 37 - 5. [Research and development] The Group’s research and development activities are mainly carried out by the reporting company. Our research and development aims to contribute to the improvement of profitability and its basic policy is to capture diversifying market needs and promote the development of market-competitive technologies and products. The research and development cost was ¥565 million for the fiscal year ended March 31, 2022, which was mainly related to security business. As part of the research and development activities, the Company’s research and development department conducts activities such as investigation, planning, intellectual property management, quality control, etc. that do not constitute research and development. Including costs for such activities, the total research and development cost was ¥1,401 million. In a society where risks are diversifying, in order to meet the expanding safety and security needs of society, the Company conducts the following research in order to address “labor shortages due to declining birthrate and aging population”, “increasing natural disasters”, “diversifying crimes close to people's daily lives”, “sophisticated cyber-attacks” and “environmental changes such as infectious diseases.” We will also drive open innovation and promote industry-academia-government collaboration on advanced technologies to respond to the ever-changing social situation. (1) Security for individual customers Beyond home security services, we will promote research and development for comprehensive security services that support the safety and security of people’s daily lives in order to acquire a new home security user base as well as to respond to the elderly market, where demand will continue to grow in the future. (2) Unique security system using the latest technology We aim to realize “prediction and prevention of damage” including detection of a suspicious person and prevention of crimes and terrorism. For this purpose, we conduct research and development using AI, 5G and advanced sensing technology. Amid the growing labor shortage due to the declining birthrate and aging population, we are actively working to create the next- generation security system contributing to labor savings. We are also pursuing advanced security that is constantly adopting to the social environment, such as the improvement of existing security sensors. (3) Robotics Since we started research and development of security robots in 1982, we have developed security robots equipped with autonomous driving functions, security functions, guidance functions, etc., and have provided them to commercial facilities and office buildings nationwide. We will continue to research and develop robots equipped with new technologies such as detectors for toxic gas or suspicious objects. We will also drive the development of drones, such as for video-based indoor and outdoor patrols. (4) Information security Under the concept of guarding “information” in addition to “life and property”, we will develop and enhance “information security”, an information security solution, from both physical security and cyber security perspectives. (5) Other By incorporating new technologies such as AI and 5G and sophisticatedly combining cyber and physical securities, we will work to realize remote security and develop new products and services with high added value. - 38 - III. [Facilities] 1. [Overview of capital investment] In order to expand the security business and enhance capabilities for such growth, the Group made ¥16,280 million of capital investment in tangible and intangible assets during the fiscal year ended March 31, 2022. The details of the capital investment are as follows: Equipment for electronic security ¥6,824 million Buildings and structures ¥321 million Furniture and fixtures ¥1,483 million Software ¥2,561 million The amount of capital investment is not allocated to business segments. - 39 - 2. [Major facilities] The major facilities for the fiscal year ended March 31, 2022 are as follows: (1) Reporting company As of March 31, 2022 Office (Location) Segment Facilities Carrying amount (Millions of yen) Number of employees Buildings and structures Machinery and equipment and vehicles Land (m 2 ) Lease assets Other Total Head office (Minato-ku, Tokyo) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, tools, furniture and fixtures 150 916 － ( － ) 22 735 1,824 2,346 Chuo branch and others 8 branches within Regional Division (I) (Chuo-ku, Tokyo and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, security alarm equipment 510 2,800 － ( － ) 465 308 4,086 1,899 Osaka Chuo branch and others 6 branches within Regional Division (II) (Chuo-ku, Osaka city and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, security alarm equipment 142 1,266 － ( － ) 301 269 1,979 895 Nagoya branch and others 4 branches within Regional Division (III) (Nakamura-ku, Nagoya city and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 165 1,052 197 (1,071.60) 291 97 1,803 762 Miyagi branch and others 3 branches within Regional Division (IV) (Aoba-ku, Sendai city and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 555 856 228 (2,943.40) 90 63 1,794 581 Chiba branch and others 10 branches within Regional Division (V) (Mihama-ku, Chiba city and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 2,000 2,388 1,208 (6,244.37) 383 174 6,154 1,582 Yokohama branch and others 5 branches within Regional Division (VI) (Nishi-ku, Yokohama city and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, security alarm equipment 122 1,073 － ( － ) 347 88 1,632 810 Shizuoka branch and others 4 branches within Regional Division (VII) (Aoi-ku, Shizuoka city and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 1,350 899 1,109 (3,305.80) 193 85 3,637 780 - 40 - Office (Location) Segment Facilities Carrying amount (Millions of yen) Number of employees Buildings and structures Machinery and equipment and vehicles Land (m 2 ) Lease assets Other Total Okayama branch and others 3 branches within Regional Division (VIII) (Kita-ku, Okayama city and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 211 547 272 (6,101.00) 54 58 1,145 477 Fukuoka branch and others 5 branches within Regional Division (IX) (Shime-machi Kasuya-gun, Fukuoka and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 682 1,160 248 (4,338.83) 183 113 2,387 913 Kyoto branch and others 6 branches within Regional Division (X) (Shimogyo-ku, Kyoto city and others) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 1,080 1,645 930 (4,373.60) 144 77 3,878 957 (2) Subsidiaries As of March 31, 2022 Office (Location) Segment Facilities Carrying amount (Millions of yen) Number of employees [Temporary employees not included in the above] Buildings and structures Machinery and equipment and vehicles Land (m 2 ) Lease assets Other Total Life Co., Ltd. (Shinagawa-ku, Tokyo) Long-Term Care Services Care facilities 347 0 52 (512.39) 14,253 209 14,863 456 [605] ALSOK Care Co., Ltd. (Omiya-ku, Saitama city) Long-Term Care Services Care facilities 434 1 172 (666.93) 7,361 125 8,094 1,803 [1,532] Kita-Kanto Sohgo Security Services Co., Ltd. (Utsunomiya city, Tochigi) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 2,845 224 1,674 (25,666.78) 1,041 279 6,066 790 [95] Hiroshima Sohgo Security Services Co., Ltd. (Asaminami-ku, Hiroshima city) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 1,149 591 2,866 (25,385.00) 48 118 4,773 643 [52] ALSOK Fukushima Co., Ltd. (Koriyama city, Fukushima) Security Services General Property Management and Fire Protection Services Other Services Buildings and structures, land, security alarm equipment 235 503 699 (9,424.96) 2,755 148 4,343 711 [68] (Note) 1. Carrying amount of “Other” represents construction in progress and other property plant and equipment. 2. In addition to the above, the Group also has rented assets such as machinery and equipment, sales offices and offices. The Group’s rent expense is ¥25,541 million for the fiscal year ended March 31, 2022. 3. Assets are not allocated to business segments. - 41 - 3. [Plan for establishment or disposal of facilities] As the Group has a wide range of plans for new establishment and expansion of facilities, the amount is disclosed by nature and purpose of the facilities. The Group’s capital investment plan for one year after March 31, 2022 is ¥20,454 million comprising the following: Nature and purpose of facilities Planned amount of capital investment (Millions of yen) Guard center facilities, security equipment installed at customers 11,844 Cash center facilities, security transportation vehicles, etc. 4,081 Disaster prevention equipment, etc. 878 Network system, etc. 3,650 Total 20,454 (Note) 1. The capital investment is paid out of own funds and bank borrowings. 2. There is no plan for disposal of significant facilities, except for disposals associated with recurring renewal of the facilities. - 42 - IV. [Information on Reporting Company] 1. [Information on shares, etc.] (1) [Total number of shares, etc.] i. [Total number of shares] Class Total number of issuable shares (Shares) Common stock 300,000,000 Total 300,000,000 ii. [Shares issued] Class Number of shares issued as of fiscal year-end (Shares) (As of March 31, 2022) Number of shares issued as of filing date (Shares) (As of June 24, 2022) Name of stock exchange on which the Company is listed or name of Authorized Financial Instruments Firms Association where the Company is registered Description Common stock 102,040,042 102,040,042 Tokyo Stock Exchange (The First Section) (As of March 31, 2022) Prime market (As of June 24, 2022) Standard share of the Company with no restrictions on the content of rights. Number of shares per one unit of share is 100 shares. Total 102,040,042 102,040,042 － － (2) [Subscription rights to shares, etc.] i. [Details of stock option plans] Nothing to report. ii. [Details of rights plan] Nothing to report. iii. [Other subscription rights to shares, etc.] Nothing to report. (3) [Exercises of moving strike convertible bonds, etc.] Nothing to report. (4) [Changes in number of shares issued and capital stock, etc.] Period Changes in the total number of shares issued (Shares) Total number of shares issued (Shares) Changes in capital stock (Millions of yen) Amount of capital stock (Millions of yen) Changes in capital surplus (Millions of yen) Amount of capital surplus (Millions of yen) Note From April 1, 2008 to March 31, 2009 1,000 102,040,042 0 18,675 0 29,320 Exercise of stock options (1 class) Issue price 1,338 yen Capital increase 669 yen Share increase 1,000 shares - 43 - (5) [Shareholding] As of March 31, 2022 Category Shareholding (1 unit = 100 shares) Shares less than one unit (Shares) National and local governments Financial institutions Financial instruments dealers Other institutions Foreign institutions, etc. Individuals and others Total Non- individual Individual Number of shareholders － 71 34 128 552 10 9,621 10,416 － Number of shares held (Unit) － 337,385 10,864 239,315 242,998 22 189,615 1,020,199 20,142 Ratio of shares held (%) － 33.07 1.06 23.45 23.81 0.00 18.58 100.00 － (Note) 782,282 shares of treasury stock comprise 7,822 units included “Individuals and others” and 82 units included in “Shares less than one unit.” (6) [Major shareholders] As of March 31, 2022 Name Address Number of shares held (Thousands of shares) Ownership percentage to the total number of shares issued (excluding treasury stock) (%) The Master Trust Bank of Japan, Ltd. (Trust account) (Note) 2-11-3 Hamamatsucho, Minato-ku, Tokyo, Japan 12,218 12.06 SOHGO CORPORATION 130-16 Yamabukicho, Shinjuku-ku, Tokyo, Japan 7,388 7.29 Custody Bank of Japan, Ltd. (Trust account) (Note) 1-8-12, Harumi, Chuo-ku, Tokyo, Japan 5,352 5.28 Saitama Kiki Co., Ltd. 7-1-3 Shimoochiai, Chuo-ku, Saitama, Japan 5,283 5.21 Kamakura Corporation 130-16 Yamabukicho, Shinjuku-ku, Tokyo, Japan 4,150 4.09 SOHGO SECURITY SERVICES CO., LTD. Employee Stockholding Association 1-6-6 Motoakasaka, Minato-ku, Tokyo, Japan 3,558 3.51 Custody Bank of Japan, Ltd. as Trustee for Mizuho Bank Retirement Benefit Trust Account Re-entrusted by Mizuho Trust and Banking Co., Ltd. 1-8-12, Harumi, Chuo-ku, Tokyo, Japan 2,961 2.92 Kizuna Corporation 130-16 Yamabukicho, Shinjuku-ku, Tokyo, Japan 2,950 2.91 Atsushi Murai Suginami-ku, Tokyo, Japan 2,885 2.84 SMBC Trust Bank Ltd. (as trustee for Sumitomo Mitsui Banking Corporation Retirement Benefits Trust Account) 1-3-2 Marunouchi, Chiyoda-ku, Tokyo 2,735 2.70 Total － 49,483 48.87 (Note) Of the number of shares held above, the number of shares related to the trust business is as follows: The Master Trust Bank of Japan, Ltd. (Trust account) 4,468 thousand shares Custody Bank of Japan, Ltd. (Trust account) 1,678 thousand shares - 44 - (7) [Voting rights] i. [Shares issued] As of March 31, 2022 Category Number of shares (Shares) Number of voting rights (Unit) Description Shares without voting rights － － － Shares with restricted voting rights (treasury stock, etc.) － － － Shares with restricted voting rights (others) － － － Shares with full voting rights (treasury stock, etc.) Common stock 782,200 － Standard share of the Company with no restrictions on the content of rights. Number of shares per one unit of share is 100 shares. Shares with full voting rights (others) Common stock 101,237,700 1,012,377 Same as above Shares less than one unit Common stock 20,142 － Shares less than one unit (100 shares) Total number of shares issued 102,040,042 － － Total number of voting rights － 1,012,377 － ii. [Treasury stock, etc.] As of March 31, 2022 Name of shareholders Address of shareholders Number of shares held under own name (Shares) Number of shares held under the name of others (Shares) Total number of shares held (Shares) Ownership percentage to the total number of shares issued (%) SOHGO SECURITY SERVICES CO., LTD. 1-6-6 Motoakasaka, Minato-ku, Tokyo, Japan 782,200 － 782,200 0.76 Total ― 782,200 － 782,200 0.76 2. [Purchase of treasury stock] [Class of stocks, etc.] Purchase of common stock pursuant to Article 155, No.7 of the Companies Act (1) [Purchase of stock by resolution of the General Meeting of Shareholders] Nothing to report. (2) [Purchase of stock by resolution of the Board of Directors ’ meeting] Nothing to report. (3) [Purchase not based on resolution of the General Meeting of Shareholders or the Board of Directors ’ meeting] Category Number of shares (Shares) Total amount (Yen) Treasury stock purchased during the fiscal year ended March 31, 2022 160 761,065 Treasury stock purchased during the current period 80 305,500 (Note) Treasury stock purchased during the current period excludes shares less than one unit purchased during the period between June 1, 2022 and the date of filing of this report. - 45 - (4) [Disposal and holding of treasury stock] Category Fiscal year ended March 31, 2022 Current period Number of shares (Shares) Total amount of disposal (Yen) Number of shares (Shares) Total amount of disposal (Yen) Treasury stock purchased for which subscribers were solicited － － － － Treasury stock purchased that has been cancelled － － － － Treasury stock purchased that has been transferred in merger, share swap or company split － － － － Other － － － － Number of treasury stock held 782,282 － 782,362 － (Note) Treasury stock held during the current period excludes shares less than one unit purchased during the period between June 1, 2022 and the date of filing of this report. 3. [Dividend policy] Distributing returns to shareholders is one of the Company’s important management policies. It is our basic policy to distribute profits in a manner supported by actual financial results, while maintaining an adequate amount of internal reserves. We apply internal reserves to research and development expenses necessary for future growth and development and capital investments in enhancement of information systems and new businesses to further improve our operating results. Our basic policy is to pay dividends twice a year, as interim dividend and year-end dividend, which are subject to the approval of the Board of Directors and the General Meeting of Shareholders, respectively. For the fiscal year ended March 31, 2022, the annual dividend was 82.00 yen per share including the interim dividend of 38.00 yen, which was determined based the consideration of the operating results for the current fiscal year, forecasts for the future years and capital investment plans. The dividend payout ratio was 28.7%. It is specified in the Articles of Incorporation that “The Company shall pay an interim dividend to shareholders or registered pledgees of shares recorded or registered in the shareholder register as of September 30 every year by a resolution of the Board of Directors.” Dividends from surplus for the fiscal year ended March 31, 2022 are as follows: Resolution date Total dividends (Millions of yen) Dividends per share (Yen) October 29, 2021 3,847 38.0 Resolution by the Board of Directors’ meeting June 24, 2022 4,455 44.0 Resolution by the Ordinary General Meeting of Shareholders - 46 - 4. [Corporate governance] (1) [Overview of corporate governance] A. Basic concept of corporate governance The ALSOK Group includes “Based on two core principles exemplified by ‘arigato no kokoro’ (a feeling of gratefulness and gratitude) and ‘bushi no seishin’ (a samurai spirit), we devote ourselves to protecting the safety and security of our customers and of society as whole.” in its management philosophy and includes “Contributing to Society” in its management policies. In line with this philosophy and policy, we are working to fulfill corporate governance through our operations, such as performance of management and separation of duties, swift decision making, establishment of corporate ethics and provision of management transparency, while endeavoring to continue to be the corporate group trusted by all stakeholders. Moreover, we place emphasis on information disclosure and are committed to proactive IR activities such as visiting institutional investors and holding analyst meetings for investors and analysts. The ALSOK Group conducts inspections and reviews of its organizational structure in accordance with principles in “Corporate Governance Code” developed by Tokyo Stock Exchange as a guideline for corporate governance. We submit “Corporate Governance Report” including our measures to address “Corporate Governance Code” to Tokyo Stock Exchange every year, which is posted on the Tokyo Stock Exchange and ALSOK websites. The ALSOK Group aims to establish the organizational structure to which the corporate governance functions more effectively, and will continue to examine the measures for various systems. B. Corporate bodies and internal control system (A) Overview of corporate governance system and reason for adoption We adopt the Audit and Supervisory Board members system and are aware that its full audit is operating effectively to improve governance of our management team. ALSOK’s directors consist of 12 members, including 4 outside directors, and Audit and Supervisory Board members consist of 4 members, including 3 outside Audit and Supervisory Board members. The Board of Directors meets generally once a month to make important management decisions on basic management policy and important matters concerning business execution. The board also oversees execution of duties of the directors and executive officers. The Management Committee, headed by the Chairperson and Representative Director, meets generally twice a month to discuss matters to be presented to the Board of Directors and the business execution policy based on the resolutions of the Board of Directors. The Audit and Supervisory Board meets generally once a month to consult, discuss or resolve important matters concerning audit. Also, one of the Audit and Supervisory Board members attends the Management Committee and monitors execution of duties of management. We have been adopting this current system as the fairness and transparency of business management are properly ensured by the system. Pursuant to provisions of Article 427, Paragraph 1 of the Companies Act, the Company and the outside directors and Audit and Supervisory Board members enter into a contract to limit the liability for damages under Article 423, Paragraph 1 of the Companies Act. The maximum liability based on the concerned contract is higher of ¥10 million or the minimum liability specified in Article 425, Paragraph 1 of the Companies Act. This is intended for outside directors and outside Audit and Supervisory Board members to sufficiently fulfill the expected role. In addition, the Company enters into a liability insurance contract for officers, etc. as stipulated in Article 430-3, Paragraph 1 of the Companies Act with an insurance company, with the Company’s directors, Audit and Supervisory Board members and executive officers as an insured person. If the insured person is liable for damages due to the execution of duties, legal damages and litigation costs will be covered by the insurance contract. The entire amount of insurance premiums is borne by the Company. In order to prevent the insured person’s proper execution of duties from being impaired, the insured person is not covered for damages caused by personal gains or benefits illegally obtained by the insured, criminal acts of the insured and acts performed by the insured knowing that they violate the law. (B) Internal control system Based on the Companies Act and the Financial Instruments and Exchange Act of Japan, the Company has a system in place to ensure the execution of duties by directors complies with laws and regulations and the Articles of Incorporation and the adequacy of the business of other corporation and a corporate group consisting of the corporation and its subsidiaries. a. System to ensure the compliance of execution of duties by the Company’s directors and employees with laws and regulations and the Articles of Incorporation (a) Establish “ALSOK Charter”, the basic principle compiling the founder’s spirit and corporate philosophy, which is the basis for every business activity of the Company. - 47 - (b) Monitor the execution of duties by establishing “Board Regulations”, “Internal Memo Regulations”, “Policies of Dividing Duties” and “Policies of Administrative Authority”, appropriately separating duties and requiring approval for matters beyond authority. (c) Establish “Ethical Rule” as a standard for acts built on the execution of duties and ethics with integrity. (d) Establish “Compliance Rule” and appoint the officer in charge of compliance, who reports to the Board of Directors and the Management Committee, if necessary. (e) Establish “Internal Report Rule” to implement a whistleblowing system and operate it appropriately. (f) Establish a department specialized in internal audit under the direct control of the President. The department regularly monitors business activities of all departments in the head office and branches and reports the results to the directors and Audit and Supervisory Board members. (g) Establish and operate a system for appropriate financial reporting based on the Financial Instruments and Exchange Act of Japan and other laws and regulations. (h) Provide appropriate trainings for laws and regulations, the Articles of Incorporation and internal rules for directors and employees. b. System to preserve and manage information related to execution of duties of the Company’s directors (a) Establish regulations for handling of critical information indicating the execution of business such as minutes of the General Meeting of Shareholders, minutes of the Board of Directors’ meeting, minutes of the Management Committee, request for approval, contracts, accounting books/financial statements, etc., and properly preserve and manage such information. (b) Provide directors and Audit and Supervisory Board members with access to the information anytime. c. Regulations related to management of risk of loss and other systems (a) Establish “Risk Management Rule”, appoint the officer in charge of risk management, who projects and assesses risks to prevent, mitigate, transfer the risks, takes appropriate measures as necessary or develops measures taken in case of risk occurrence and reports to the Board of Directors and the Management Committee, as necessary. (b) Establish “Business Continuity Plan” to build a system that enables business continuity and early recovery and resumption even in the event of unforeseen situations such as major disasters, accidents or epidemic. (c) Establish “Information Asset Management Rule”, appoint the officer in charge of information asset management, who builds a system to protect the information asset from threats such as theft, leakage, falsification, damages and disasters and reports to the Board of Directors and the Management Committee, as necessary. d. System to ensure efficient execution of duties by the Company’s directors (a) Develop the Medium-Term and Annual Management Plans based on the business objectives. (b) Monitor the progress of Annual Management Plan and report to the Board of Directors and the Management Committee on a monthly basis. (c) Establish “Administrative Authority Regulation” to make decisions efficiently by separating duties. (d) Simplify business processes by the enterprise system that uses IT to streamline business management and operation to achieve efficiency. e. System to ensure adequacy of businesses of corporate group consisting of the Company and its subsidiaries. (a) Establish regulations for management of subsidiaries’ businesses and a department specialized in the subsidiary management, require reporting of matters related to execution of duties, send directors and Audit and Supervisory Board members from the Company, to provide strict supervision and oversight. (b) Require reporting of critical information related to risk of loss of subsidiaries based on the regulations for the subsidiaries’ business management to address the risk in cooperation with the Company. (c) Require subsidiaries to share information with the Company through various meetings and intranet and improve efficiency of business processes using common operation system. Develop the Group’s Medium-Term and Annual Management Plans and require subsidiaries to report the progress on a monthly basis for monitoring purposes. (d) Cooperate with subsidiaries to implement compliance activities and operate the whistleblowing system, completely block relationships with antisocial forces, establish an internal system necessary for that purpose and work with external specialized institutions. Also, cooperate with subsidiaries and conduct annual internal audit of significant subsidiaries. f. System to ensure effective audit by Audit and Supervisory Board members (a) Establish the Audit and Supervisory Board secretariat and arrange employees who assist the execution of duties of the Audit and Supervisory Board members. (b) Obtain an approval from the Audit and Supervisory Board on the secretariat member’s personnel affairs. The secretariat members follow the orders of the Audit and Supervisory Board members. - 48 - (c) Require the Company’s directors and employees to report to the Audit and Supervisory Board members regarding important matters related to businesses and the department specialized in internal audit cooperates with the Audit and Supervisory Board members and exchanges information including situations of subsidiaries. Audit and Supervisory Board members attend the meetings of the Board of Directors and the Management Committee. (d) Require directors and employees of subsidiaries to report to the Audit and Supervisory Board immediately on the execution of businesses, if requested. The Company’s whistleblowing department reports critical information to the Audit and Supervisory Board. It is prohibited to give the Company’s directors, employees and subsidiaries’ directors, etc. who have reported to the Audit and Supervisory Board members disadvantageous treatment. (e) Secure a certain amount of budget every year to pay for expenses incurred in the execution of duties by the Audit and Supervisory Board members. Properly process the invoices from the Audit and Supervisory Board members for such expenses. (f) Audit and Supervisory Board members regularly exchange opinions or interview with the Representative Director and Chief Officers and make visits to offices and subsidiaries. Exchange opinions with the independent auditor on a regular basis. (C) Risk management system The Company places particular importance on risk management due to the nature of its business to ensure safety of society. The Risk Management Committee is organized, headed by the officer in charge of risk management, in accordance with the Risk Management Rule established in 2002 as amended according to the current risk situations. Also, the risk management examination organization is established for the head office and each office, to manage risk on a company-wide basis such as identification and assessment of risks and development of preventative and responsive measures. In addition, a risk examination task force is set up within the Risk Management Committee for each field, which collects, analyzes and assesses risk information to develop measures to mitigate the risks. We have established systems to respond promptly to critical emergency situations, such as emergency contact and establishment of task force. With respect to compliance, the Compliance Committee, headed by the officer in charge of compliance, is organized to achieve compliance with laws and regulations. The Compliance Committee strives to improve compliance awareness across officers and employees in accordance with Compliance Regulation established in 2002 (currently Compliance Rule) and monitors the activities on a regular basis. For earlier detection and prevention of problems surrounding corporate ethics, “ALSOK Hotline” was established in 2004, which is a whistleblowing system for officers and employees to report illegal, fraudulent or unethical acts within the company through emails, phones and documentation without being treated disadvantageously. In addition to the help desk within the company, we set up a help desk outside the company in 2016 for reporting. Furthermore, in December 2021, “ALSOK Business Partner Hotline”, a whistleblowing system for business partners, was established with the aim of ensuring self-cleaning, social trust, maintenance and improvement of corporate value and sustainable development with business partners. The Group has established “Basic Policy for Information Security” as a cornerstone to ensure information security, which is applied to all employees including officers and all information assets held. Based on Information Asset Management Rule, a company-wide management system for information assets has been established and promoted, and drills have been conducted to prepare for incidents related to information assets. Furthermore, if a critical incident occurs, the Group sets up ALSOK-CSIRT (Computer Security Incident Response Team), which is a framework to respond to the incident and develop and execute the preventative measures. For risks related to lawsuits, disputes and other laws and regulations, the Company has established Legal Office to address such risks in cooperation with various departments. We have entered into advisory contracts with seven law firms and received appropriate advice and guidance on critical legal issues and compliance-related events to establish a system to prevent risks. We have engaged lawyers in our corporate governance by maintaining compliance and seeking such advice and guidance. In response to the occurrence of cash-related misconduct, the Company has taken measures such as rigorous cash management, enhancement of guidance and education for employees and thorough personnel management to reinforce legal compliance. In February 2022, two subsidiaries of the Company received a cease and desist order and a surcharge payment order based on the results of an investigation by the Japan Fair Trade Commission for antitrust violations. Immediately after the on-site inspection of the Japan Fair Trade Commission, the Group strengthened the legal consulting system by establishing a specialized department, enhanced in-house training, developed a legal compliance manual on fair trade, reminded the whistleblowing system, strengthened audits to ensure thorough compliance with laws and regulations. (D) Bodies and internal controls of the Company The following is a chart of management organization describing decision-making, execution and supervision of the - 49 - Company, as well as other corporate governance systems as of the date of filing of this report. General Meeting of Shareholders Board of Directors’ meeting: Once a month 4 outside directors 8 directors Total of 12 Management Committee: Twice Risk Management Committee Compliance Committee Group CEO (Chief Executive Officer) Group COO (Chief Operating Officer) Operating Committee: Twice a month Internal Control Department Discussion of business Discussion of business execution Executive Officers 7 directors and executive officers 17 executive officers Total of 24 Inspection Department Internal Audit Legal Office Legal Various Committees Audit and Supervisory Board 3 outside Audit and Supervisory Board members 1 Audit and Supervisory Board member Total of 4 Audit by the independent auditor Audit by Grant Thornton Taiyo LLC Advisory contracts with attorney in specialized fields - 50 - C. Number of directors The Articles of Incorporation stipulate that the number of directors of the Company shall be 12 or less. D. Requirements for appointment of directors The Company stipulates in the Articles of Incorporation that, for a resolution of appointment of directors, shareholders with voting rights representing one-third or more of the total voting rights of all shareholders shall be in attendance at the meeting, and the majority of votes of the shareholders with voting rights who attend the meeting is required. E. Matters to be resolved at the General Meeting of Shareholders that may be resolved at the Board of Directors’ meeting (A) Decision-making body for purchase of treasury stock According to provisions of Article 165, Paragraph 2 of the Companies Act, it is stipulated in the Articles of Incorporation that the Company may purchase its own shares by a resolution of the Board of Directors without a resolution of the shareholders. This is intended to build flexibility in capital decision making by granting the authority related to treasury stock to the Board of Directors. (B) Indemnification of directors According to provisions of Article 426, Paragraph 1 of the Companies Act, it is stipulated in the Articles of Incorporation that the Company may indemnify its directors (including former directors) as specified in Article 423, Paragraph 1 of the Companies Act, within the limit stipulated by laws and by a resolution of the Board of Directors, for any damages caused by their actions if they acted in good faith and were not grossly negligent. This is intended for directors to sufficiently fulfill the expected role. (C) Indemnification of Audit and Supervisory Board members According to provisions of Article 426, Paragraph 1 of the Companies Act, it is stipulated in the Articles of Incorporation that the Company may indemnify its Audit and Supervisory Board members (including former members) as specified in Article 423, Paragraph 1 of the Companies Act, within the limit stipulated by laws and by a resolution of the Board of Directors, for any damages caused by their actions if they acted in good faith and were not grossly negligent. This is intended for Audit and Supervisory Board members to sufficiently fulfill the expected role. (D) Decision-making body for interim dividends According to provisions of Article 454, Paragraph 5 of the Companies Act, it is stipulated in the Articles of Incorporation that the Company may decide on interim dividends by a resolution of the Board of Directors without a resolution of the shareholders. This is intended to build flexibility in distributing returns to shareholders depending on the circumstances and operating results of the Company, by granting the decision-making authority related to interim dividends to the Board of Directors. F. Special matters to be resolved at the General Meeting of Shareholders The Company stipulates in the Articles of Incorporation that, for special matters to be resolved at the General Meeting of Shareholders as specified in Article 309, Paragraph 2 of the Companies Act, shareholders with voting rights representing one- third or more of the total voting rights of all shareholders shall be in attendance at the meeting, and two-thirds of votes of the shareholders with voting rights who attend the meeting is required. This is intended to facilitate the smooth operation of the General Meeting of Shareholders by relaxing the quorum of a special resolution by the shareholders. G. Basic policy for control over corporation (A) Basic policy Nothing to report. (B) Measures to prevent inappropriate control Nothing to report. (C) The Board of Directors’ decision on measures to prevent inappropriate control Nothing to report. - 51 - (2) [Information on directors and officers] A. Directors and officers 14 males and 2 females (12.5% of directors and officers is female) Position Name Date of birth Biography Term Number of shares held (Shares) Representative Director Group CEO CTO (Note 8) Tsuyoshi Murai August 15, 1969 Jul. 1999: Joined the Company Jun. 2007: Chief Officer of Home Marketing Division Apr. 2010: Executive Officer Chief Officer of Regional Division (I) Feb. 2011: In charge of General Property Management Mar. 2011: Japan Facilio Co., Ltd. President and Representative Director (Resigned in Mar. 2014) Apr. 2014: Senior Executive Officer Deputy Chief Officer of Business Promotion Division in charge of Business Planning & Management In charge of Local Financial Institution Services Apr. 2016: Chief Officer of Human Resources Affairs In charge of Corporate Ethics Jun. 2016: Director and Senior Executive Officer Apr. 2018: In charge of General Affairs/PR In charge of Compliance In charge of Risk Management In charge of Information Asset Management Chief Officer of Tokyo 2020 Olympic and Paralympic Games Promotion Affairs May 2018: In charge of Central Japan Area Deputy Chief Officer of Business Promotion Division in charge of Business Promotion Division (Central Japan Area) Apr. 2019: Director and Executive Vice President In charge of Tokyo 2020 Olympic and Paralympic Games Promotion Affairs Apr. 2020: In charge of Management Company Apr. 2022: Chief Officer of Development & Technologies Jun. 2022: Representative Director (Current) Group CEO (Current) CTO (Current) (Main concurrent positions) Jun. 2019: Vice Chairperson, All Japan Security Service Association (Current) Dec. 2021: Representative Director, SOHGO CORPORATION (Current) Jun. 2022: Chairperson, Tokyo Security Service Association (Current) (Note 3) 671,800 - 52 - Position Name Date of birth Biography Term Number of shares held (Shares) Representative Director Group COO Head of ALSOK In-house Company Chief Officer of Business Promotion Division in charge of East Japan Area In charge of Business Promotion Division (East Japan Area) (Note 8) Ikuji Kayaki January 3, 1960 Apr. 1982: Joined the Company Apr. 2011: Chief Officer of Regional Division (IV) Apr. 2012: Executive Officer Apr. 2014: Deputy Chief Officer of Security Operations In charge of Structural Reform (Transportation Security Services) Apr. 2015: Senior Executive Officer Chief Officer of Security Operations Jun. 2017: Director and Senior Executive Officer Apr. 2018: Executive Vice President and Representative Director Head of ALSOK In-house Company (Current) In charge of East Japan Area (Current) Deputy Chief Officer of Business Promotion Division in charge of Corporate Customers Apr. 2019: Vice President and Representative Director Vice President and Executive Officer Chief Officer of Business Promotion Division (Current) In charge of Corporate Customers In charge of Business Promotion Division (East Japan Area) (Current) Apr. 2021: Chief Officer of Regional Division (VI) Jun. 2022: Representative Director (Current) Group COO (Current) President and Executive Officer (Current) (Note 3) 4,900 Director (Senior Executive Officer) In charge of General Affairs/PR In charge of Compliance In charge of Risk Management In charge of Information Asset Management In charge of Management Company In charge of International Affairs Chief Officer of International Affairs Motohisa Suzuki October 17, 1959 Jan. 2015: Director of Traffic Bureau, National Police Agency (Resigned in Jan. 2016) Apr. 2016: Senior Executive Officer of the Company In charge of General Affairs/PR In charge of Procurement Deputy Chief Officer of Security Operations In charge of HOME ALSOK In charge of Compliance In charge of Risk Management In charge of Information Asset Management Deputy Chief Officer of Business Promotion Division Apr. 2018: Chief Officer of Security Operations In charge of Structural Reform (Transportation Security Services) Deputy Chief Officer of Tokyo 2020 Olympic and Paralympic Games Promotion Affairs Apr. 2019: Chief Officer of Tokyo 2020 Olympic and Paralympic Games Promotion Affairs Jun. 2019: Director and Senior Executive Officer (Current) Jun. 2022: In charge of General Affairs/PR (Current) In charge of Compliance (Current) In charge of Risk Management (Current) In charge of Information Asset Management (Current) In charge of Management Company (Current) In charge of International Affairs (Current) Chief Officer of International Affairs (Current) (Note 3) 2,700 - 53 - Position Name Date of birth Biography Term Number of shares held (Shares) Director (Senior Executive Officer) In charge of Financial & Accounting In charge of Internal Control In charge of Procurement Koji Kishimoto May 30, 1958 Nov. 1985: Joined the Company Oct. 2012: General Manager of Financial & Accounting Department Apr. 2016: Executive Officer Second in Charge of Financial & Accounting Department Apr. 2018: Senior Executive Officer In charge of Financial & Accounting (Current) In charge of Internal Control (Current) Apr. 2019: In charge of Procurement (Current) Jun. 2020: Director and Senior Executive Officer (Current) (Note 3) 4,100 Director (Senior Executive Officer) In charge of Long-Term Care Services Deputy Chief Officer of Business Promotion Division President and Representative Director of Life Holdings Co., Ltd. President and Representative Director of Life Co., Ltd. President and Representative Director of MBIC Life Co., Ltd. President and Representative Director of ALSOK Care Co., Ltd. Takashi Kumagai December 15, 1958 Jul. 2014: Director General for Reconstruction Agency (Resigned in Jun. 2016) Oct. 2016: Executive Officer of the Company Second in charge of Management Company Second in charge of Regional Control Deputy Chief Officer of Development & Technologies Deputy Chief Officer of Business Promotion Division second in charge of Sales Promotion Second in charge of Corporate Customers Apr. 2017: Senior Executive Officer In charge of Long-Term Care Services (Current) In charge of Management Company In charge of Regional Control Deputy Chief Officer of Business Promotion Division second in charge of Sales Promotion Apr. 2018: Deputy Chief Officer of Business Promotion Division in charge of HOME ALSOK Apr. 2020: Deputy Chief Officer of Business Promotion Division (Current) President and Representative Director of Life Holdings Co., Ltd. (Current) President and Representative Director of Life Co., Ltd. (Current) President and Representative Director of MBIC Life Co., Ltd. (Current) Apr. 2022: Jun. 2022: President and Representative Director of ALSOK Care Co., Ltd. (Current) Director and Senior Executive Officer (Current) (Note 3) 1,000 Director (Senior Executive Officer) In charge of Corporate Planning & Administration In charge of Strategic Business Kazuhide Shigemi December 25, 1959 Apr. 2009: General Manager of Osaka Sales Division (II) of Mizuho Corporate Bank, Ltd. (currently Mizuho Bank, Ltd.) (Resigned in Apr. 2012) May 2011: General Manager of Regional Control of the Company Apr. 2013: Group General Manager Apr. 2015: General Manager of Corporate Planning & Administration Apr. 2017: Executive Officer Second in charge of Corporate Planning & Administration Second in charge of Strategic Business Apr. 2019: Senior Executive Officer In charge of Corporate Planning & Administration (Current) In charge of Strategic Business (Current) Jun. 2022: Director and Senior Executive Officer (Current) (Note 3) 700 - 54 - Position Name Date of birth Biography Term Number of shares held (Shares) Director (Senior Executive Officer) Chief Officer of Human Resources Affairs In charge of Corporate Ethics Naoki Hyakutake May 15, 1964 Apr. 1989: Joined the Company Apr. 2016: President and Representative Director of ALSOK Care & Support Co., Ltd. (Resigned in Mar. 2017) Apr. 2017: General Manager of Human Resources Department Apr. 2019: Executive Officer In charge of Human Resources Affairs Apr. 2022: Senior Executive Officer Deputy Chief Officer of Human Resources Affairs Jun. 2022: Director and Senior Executive Officer (Current) Chief Officer of Human Resources Affairs (Current) In charge of Corporate Ethics (Current) (Note 3) 2,400 Director (Senior Executive Officer) Secondment to Kansai area In charge of West Japan Area In charge of Expo 2025 Osaka, Kansai, Japan (General) Deputy Chief Officer of Business Promotion Division In charge of Business Promotion Division (West Japan Area) Chief Officer of Regional Division (II) Yutaka Komatsu November 3, 1958 Mar. 1981: Joined the Company Apr. 2008: General Manager in charge of Corporate Sales (I) Oct. 2014: President and Representative Director of Hokkaido Sohgo Security Services Co., Ltd. (currently ALSOK Hokkaido Co., Ltd.) Apr. 2020: Executive Officer President and Representative Director of ALSOK Hokkaido Co., Ltd. Apr. 2022: Senior Executive Officer Chairperson and Representative Director of ALSOK Hokkaido Co., Ltd. Jun. 2022: Director and Senior Executive Officer (Current) In charge of West Japan Area (Current) In charge of Expo 2025 Osaka, Kansai, Japan (General) (Current) Deputy Chief Officer of Business Promotion Division in charge of Business Promotion Division (West Japan Area) (Current) Chief Officer of Regional Division (II) (Current) Chairperson, President and Representative Director of ALSOK Kinki Co., Ltd (Current) Chairperson and Representative Director of ALSOK Osaka Co., Ltd (Current) (Note 3) 1,400 Director Hirotomo Suetsugu December 30, 1953 Apr. 2009: Executive Officer of Nippon Steel Corporation (currently Nippon Steel Corporation) (Resigned in Jun. 2012) Jun. 2012: Audit and Supervisory Board member of Nippon Steel Corporation (Resigned in Jun. 2016) Jun. 2016: Advisor of Nippon Steel & Sumitomo Metal Corporation (currently Nippon Steel Corporation) (Resigned in Jun. 2019) Advisor of Nippon Denko Co., Ltd. (Resigned in Jun. 2021) Jun. 2020: Director of the Company (Current) (Note 3) 300 - 55 - Position Name Date of birth Biography Term Number of shares held (Shares) Director Toshie Ikenaga January 23, 1961 Apr. 1987: Joined the Economic Planning Agency Sep. 2010: Director of Policy Evaluation and Public Relations Division, Minister’s Secretariat, Cabinet Office Apr. 2012: Professor of Hosei Graduate School of Regional Policy Design Apr. 2014: Director of Cabinet Office Sep. 2014: Director of General Affairs Division, Gender Equality Bureau, Cabinet Office Jan. 2016: Vice-Governor of Shiga Prefecture (Resigned in Jul. 2018) Jul. 2018: Director-General of General Affairs Division, Gender Equality Bureau, Cabinet Office (Resigned in Aug. 2020) Jun. 2021: Director of the Company (Current) (Main concurrent positions) Jun. 2021: Outside Audit and Supervisory Board member of Shimizu Corporation (Current) － Director Masahiko Mishima July 14, 1956 Apr. 2016: Executive Officer of Mitsubishi Heavy Industries, Ltd. Oct. 2018 Senior Executive Officer of Mitsubishi Heavy Industries, Ltd. Jun. 2019: Representative Director and Senior Executive Officer of Mitsubishi Heavy Industries, Ltd. Jun. 2021: Senior Executive Officer of Mitsubishi Heavy Industries, Ltd. (Resigned in Sep. 2021) Oct. 2021: Advisor of Mitsubishi Heavy Industries, Ltd. (Current) Jun. 2022: Director of the Company (Current) (Note 3) － Director Kenji Iwasaki January 3, 1955 Jun. 2009: Executive Officer of Tokio Marine & Nichido Fire Insurance Co., Ltd. Jun. 2010: Managing Director of Tokio Marine & Nichido Fire Insurance Co., Ltd. Apr. 2014: Senior Managing Director of Tokio Marine & Nichido Fire Insurance Co., Ltd. Apr. 2017: Vice President and Director of Tokio Marine & Nichido Fire Insurance Co., Ltd. (Resigned in Mar. 2018) Vice President and Executive Officer of Tokio Marine Holdings, Inc. Jun. 2017: Vice President and Director of Tokio Marine Holdings, Inc. (Resigned in Jun. 2018) Jun. 2018: Executive Director of the General Insurance Association of Japan (Resigned in Jun. 2022) Jun. 2022: Director of the Company (Current) (Main concurrent positions) Jun. 2022: President and Representative Director of HMS Holdings Corporation (Note 3) － Standing Audit and Supervisory Board member Juichiro Mochizuki January 25, 1960 Apr. 1982: Joined the Company Aug. 2012: General Manager (I) of Security Services Apr. 2014: President and Representative Director of Ibaraki Sohgo Security Services Co., Ltd. (currently ALSOK Ibaraki Co., Ltd) (Resigned in Mar. 2020) Apr. 2020: Chief Officer of Regional Division (VI) Apr. 2021: Chief Officer of Regional Division (VII) Jun. 2022: Standing Audit and Supervisory Board member (Current) (Note 4) － - 56 - Position Name Date of birth Biography Term Number of shares held (Shares) Standing Audit and Supervisory Board member Shinichiro Nakano December 15, 1959 Jun. 2008: General Manager in charge of Enterprise Risk Management of the Norinchukin Bank Jun. 2012: General Manager in charge of Corporate Planning Management of the Norinchukin Bank Jun. 2014: Managing Director of the Norinchukin Bank (Resigned in Mar. 2019) Director of Norinchukin Value Investments Co., Ltd. (Resigned in Mar. 2018) Director of the Norinchukin Trust & Banking Co., Ltd. (Resigned in Mar. 2019) Audit and Supervisory Board member of Kyodo Housing Loan Co., Ltd. (Resigned in Jun. 2019) Apr. 2019: Standing Counselor of the Norinchukin Bank (Resigned in Jun. 2019) Jun. 2019: Standing Audit and Supervisory Board member of the Company (Current) (Note 5) 500 Audit and Supervisory Board member Michiko Nagasawa August 26, 1951 Apr. 1984: Registered as an attorney-at-law Apr. 2007: Professor of Law of Gakushuin University Law School (Resigned in Mar. 2013) Apr. 2012: Auditor of Daini Tokyo Bar Association (Resigned in Mar. 2013) Mar. 2013: Outside Board Director of Otsuka Kagu, Ltd. (Resigned in Mar. 2019) * Audit and Supervisory Board member since Mar. 2017 Jul. 2018: Audit and Supervisory Committee member of Building Research Institute, National Research and Development Agency, Japan, Ministry of Land, Infrastructure, Transport and Tourism (Current) Apr. 2020: Audit and Supervisory Committee member of Japan Federation of Bar Associations (Resigned in Mar. 2021) Jun. 2020: Audit and Supervisory Board member of the Company (Current) Jul. 2020: Vice Chairperson of Finance Committee of Japan Federation of Bar Associations (Resigned in Jun. 2022) (Main concurrent positions) Jan. 2008: Partner of the Tokyo-Marunouchi Law Offices (Current) Jun. 2019: Outside Board Director of SB Players Corp. (Current) Jun. 2020: Outside Audit and Supervisory Board member of Sojitz Corporation (Current) (Note 6) 100 - 57 - Position Name Date of birth Biography Term Number of shares held (Shares) Audit and Supervisory Board member Yoshiaki Nakagawa February 14, 1954 Sep. 1990: Director and CFO of Matsushita Radio Singapore Pte. Ltd. (Resigned in May 1996) Jan. 2001: Chief Accountant of China Hualu Matsushita AVC Co., Ltd. (Resigned in Jan. 2004) Apr. 2009: Executive Officer of Panasonic Corporation (currently Panasonic Holdings Corporation) Jun. 2011: Managing Director of Panasonic Corporation (currently Panasonic Holdings Corporation) (Resigned in Jun. 2014) Apr. 2014: President and Representative Director of Sanyo Electric Co., Ltd. (Resigned in Mar. 2017) Apr. 2017: Advisor of Panasonic Corporation (currently Panasonic Holdings Corporation) (Resigned in Mar. 2018) Apr. 2018: Special Advisor of Hardlock Industry Co., Ltd. (Current) Aug. 2020: Advisor of Uokuni Sohonsha Co., Ltd. (Current) Jun. 2021: Audit and Supervisory Board member of the Company (Current) (Main concurrent positions) Jun. 2020: Outside Audit and Supervisory Board member of Asanuma Corporation (Current) (Note 7) 100 Total 690,000 (Note) 1. Hirotomo Suetsugu, Toshie Ikenaga, Masahiko Mishima and Kenji Iwasaki are outside directors. Shinichiro Nakano, Michiko Nagasawa and Yoshiaki Nakagawa are outside Audit and Supervisory Board members. A legal name of Toshie Ikenaga is Toshie Kobayashi. 2. The Company has implemented an executive officers system in order to expedite decision making and engaged the Board of Directors by separating supervision and execution. 3. One year from the conclusion of the Ordinary General Meeting of Shareholders held on June 24, 2022 4. Four years from the conclusion of the Ordinary General Meeting of Shareholders held on June 24, 2022 5. Four years from the conclusion of the Ordinary General Meeting of Shareholders held on June 25, 2019 6. Four years from the conclusion of the Ordinary General Meeting of Shareholders held on June 24, 2020 7. Four years from the conclusion of the Ordinary General Meeting of Shareholders held on June 24, 2021 8. CEO is Chief Executive Officer, COO is Chief Operating Officer and CTO is Chief Technology Officer. - 58 - ALSOK’s executive officers consist of the following 24 members: Post Name Title President and Executive Officer Ikuji Kayaki Group COO Head of ALSOK In-house Company In charge of East Japan Area Chief Officer of Business Promotion Division In charge of Business Promotion Division (East Japan Area) Senior Executive Officer Motohisa Suzuki In charge of General Affairs/PR In charge of Compliance In charge of Risk Management In charge of Information Asset Management In charge of Management Company In charge of International Affairs Chief Officer of International Affairs Senior Executive Officer Koji Kishimoto In charge of Financial & Accounting In charge of Internal Control In charge of Procurement Senior Executive Officer Takashi Kumagai In charge of Long-Term Care Services Deputy Chief Officer of Business Promotion Division President and Representative Director of Life Holdings Co., Ltd. President and Representative Director of Life Co., Ltd. President and Representative Director of MBIC Life Co., Ltd. President and Representative Director of ALSOK Care Co., Ltd. Senior Executive Officer Kazuhide Shigemi In charge of Corporate Planning & Administration In charge of Strategic Business Senior Executive Officer Naoki Hyakutake Chief Officer of Human Resources Affairs In charge of Corporate Ethics Senior Executive Officer Yutaka Komatsu In charge of West Japan Area In charge of Expo 2025 Osaka, Kansai, Japan (General) Deputy Chief Officer of Business Promotion Division In charge of Business Promotion Division (West Japan Area) Chief Officer of Regional Division (II) Chairman, President and Representative Director of ALSOK Kinki Co., Ltd President and Representative Director of ALSOK Osaka Co., Ltd Senior Executive Officer Hiroyoshi Yoshida Chief Officer of Security Operations In charge of Structural Reform (Transportation Security Services) In charge of Expo 2025 Osaka, Kansai, Japan (PR) Senior Executive Officer Seiji Ono Deputy Chief Officer of Business Promotion Division In charge of Corporate Customers In charge of Business Planning & Management In charge of Sales Promotion Senior Executive Officer Ken Takahashi In charge of Central Japan Area Deputy Chief Officer of Business Promotion Division In charge of FM In charge of HOME ALSOK In charge of Business Promotion Division (Central Japan Area) Senior Executive Officer Yoshio Kumazaki Chief Officer of Regional Division (I) Deputy Chief Officer of Business Promotion Division In charge of Greater Tokyo Area Executive Officer Tetsuya Tsuburaya Second in charge of General Affairs General Manager of General Affairs Department Executive Officer Yutaka Miyajima Second in charge of Corporate Planning & Administration General Manager of Corporate Planning & Administration Executive Officer Masahiro Kikukawa Second in charge of Strategic Business General Manger in charge of Strategic Business Executive Officer Wataru Saito Deputy Chief Officer of Development & Technologies Executive Officer Eiji Kuwabara In charge of Research - 59 - Post Name Title Executive Officer Kiyoshi Yoneda Second in charge of Sales Promotion Second in charge of Corporate Customers Executive Officer Tomoyuki Arita Second in charge of Corporate Customers General Manager in charge of Corporate Sales (I) Executive Officer Shinichiro Hayashi In charge of Finance Second in charge of Business Planning & Management Executive Officer Hiroyuki Ono Chief Officer of Regional Division (III) Executive Officer Masayuki Chikaoka Chief Officer of Regional Division (IV) Executive Officer Kenichi Kakimoto Chief Officer of Regional Division (V) Executive Officer Kengo Takeda Chief Officer of Regional Division (IX) Executive Officer Shigeki Nomura In charge of Stationed Security Services (Tokyo) President and Representative Director of ALSOK Stationed Security Co., Ltd. B. Outside directors and Audit and Supervisory Board members ALSOK’s outside directors consist of four members and outside Audit and Supervisory Board members consist of three members. The outside directors and the Audit and Supervisory Board members who have the Company’s stocks are listed in “A. Directors and officers.” The Company has security service transactions, etc. with Nippon Steel Corporation where Hirotomo Suetsugu, outside director, had worked for until June 2019. The transactions for the most recent fiscal year represent less than 2% of the Company’s net sales. The Company has security service transactions, etc. with Hosei University where Toshie Ikenaga, outside director, had worked for until March 2014, and with Shimizu Corporation where she currently works for. The transactions for the most recent fiscal year represent less than 2% of the Company’s net sales. The Company has security service transactions, etc. with Mitsubishi Heavy Industries, Ltd. where Masahiko Mishima, outside director, currently works for. The transactions for the most recent fiscal year represent less than 2% of the Company’s net sales. The Company has security service transactions, etc. with Tokio Marine & Nichido Fire Insurance Co., Ltd. where Kenji Iwasaki, outside director, had worked for until March 2018. The transactions for the most recent fiscal year represent less than 2% of the Company’s net sales. The Company has security service transactions, etc. with the Norinchukin Bank where Shinichiro Nakano, outside director, had worked for until March 2019. The transactions for the most recent fiscal year represent less than 2% of the Company’s net sales. The Company has security service transactions, etc. with Otsuka Kagu, Ltd. where Michiko Nagasawa, outside director, had served as outside Board Director until March 2019, with Tokyo-Marunouchi Law Offices, National Research and Development Agency, Japan, Ministry of Land, Infrastructure, Transport and Tourism and Japan Federation of Bar Associations where she currently works for, and with Sojitz Corporation where she currently serves as outside Audit and Supervisory Board member. The transactions for the most recent fiscal year represent less than 2% of the Company’s net sales. The Company has security service transactions, etc. with Panasonic Corporation (currently Panasonic Holdings Corporation) where Yoshiaki Nakagawa, outside director, had worked for until March 2018, with Sanyo Electric Co., Ltd. where he had worked for until March 2017, with Hardlock Industry Co., Ltd. where he currently serves as Special Advisor, with Uokuni Sohonsha Co., Ltd. where he currently serves as Advisor and with Asanuma Corporation where he currently serves as outside Audit and Supervisory Board member. The transactions for the most recent fiscal year represent less than 2% of the Company’s net sales. The outside directors and outside Audit and Supervisory Board members are expected to cover the function of observation and supervision of the management team by objective and neutral standpoint. Although we do not have any explicitly stated basis or policy for independence related to appointment of outside directors and outside Audit and Supervisory Board members, we refer to requirements of independent officers stipulated by Tokyo Stock Exchange to confirm whether independent is maintained. Four outside directors and three outside Audit and Supervisory Board members are reported to Tokyo Stock Exchange as the Company’s independent officers. - 60 - C. Relationship between oversight or audit by outside directors or outside Audit and Supervisory Board members and internal audit, mutual cooperation of audit by the Audit and Supervisory Board and independent audit and its relationship with Internal Control Department Outside directors attend meetings of the Board of Directors with outside Audit and Supervisory Board members to provide their opinions, as necessary. Before the meetings, outside directors and outside Audit and Supervisory Board members are reported from managers of departments on the matters to be discussed at the meetings to achieve effective monitoring of management. In addition, outside Audit and Supervisory Board members make visits to branches and subsidiaries as with other Audit and Supervisory Board members, and regularly exchange information and opinions with Inspection Department and the independent auditor, thereby ensuring oversight by outside directors, audit by Audit and Supervisory Board members and mutual cooperation among the Audit and Supervisory Board, internal auditors and the independent auditor. A relationship between such oversight or audit and Internal Control Department is described as follows. By participating in the meetings of the Board of Directors, outside directors supervise execution of duties of other directors in Internal Control Department, etc. from an independent standpoint. Outside Audit and Supervisory Board members assess the legality of operations of Internal Control Department by conducting business and financial audits of Internal Control Department and inspecting various documents. (3) [Status of audit] A. Audit by Audit and Supervisory Board members (A) Organization and members The Company is a company with the Audit and Supervisory Board and as of the date of filing of this report, the Audit and Supervisory Board consists of four members (including three outside Audit and Supervisory Board members), including one member who has considerable knowledge of finance and accounting. Two employees are assigned to the secretariat of the Audit and Supervisory Board to assist the duties of the members. The consent of the Audit and Supervisory Board is required for personnel changes and performance evaluations of those employees, which maintains independence from directors and ensures the effectiveness of direction of the Audit and Supervisory Board members. (B) Frequency and attendance of the Audit and Supervisory Board During the fiscal year ended March 31, 2022, 18 meetings of the Audit and Supervisory Board were held. In the meetings, audit policy, audit plan and other critical matters related to audit were reported, discussed and resolved. Activities of standing Audit and Supervisory Board members and results of visits by the Audit and Supervisory Board members were reported to other members at the meetings of the Audit and Supervisory Board, etc. <Attendance of Audit and Supervisory Board members> Position Name Attendance Standing Audit and Supervisory Board member Akira Kono 18 out of 18 Standing Audit and Supervisory Board member (Outside) Shinichiro Nakano 18 out of 18 Audit and Supervisory Board member (Outside) Michiko Nagasawa 18 out of 18 Audit and Supervisory Board member (Outside) Yoshiaki Nakagawa 13 out of 13 (Note) The attendance of Yoshiaki Nakagawa is based on the meetings held after his appointment on June 24, 2021. (C) Status of audit Each Audit and Supervisory Board member conducts audit of execution of duties of directors, such as whether the execution of duties of directors, executive officers and employees complies with laws and regulations and the Articles of Incorporation, from an independent standpoint in accordance with Regulation of Audit and Supervisory Board and audit plans. Specifically, the execution of duties is monitored through reporting from directors and employees on critical matters related to businesses, reporting from Inspection Department on audit and reporting from the whistleblowing department on critical matters. Each Audit and Supervisory Board member is reported from the independent auditor on status and results of audit so that they can monitor and verify the execution of duties of the auditor, such as whether the financial statements are properly audited, to assess the adequacy of the auditor. In order to achieve these, Audit and Supervisory Board members regularly exchange opinions with the Representative Director and outside directors and hold meetings with Inspection Department and the independent auditor to discuss audit- related matters. Also, Audit and Supervisory Board members attend the meetings of the Board of Directors and the - 61 - Management Committee to appropriately monitor the execution of duties of management, as well as make visits to the Company’s branches, subsidiaries and associates on a regular basis. Audit and Supervisory Board members are also appointed as Audit and Supervisory Board members of subsidiaries and associates, and hold meetings with other officers of the Company who also serve as Audit and Supervisory Board members of subsidiaries and associates. B. Internal audit (A) Organization, members and procedures As a department specialized in internal audit, Inspection Department (39 members as of the date of filing of this report) is established within the Company under the direct control of the President. Based on “Internal Audit Regulation”, Inspection Department makes efforts to examine and assess overall management of business activities of the Company and its subsidiaries and associates, operational systems and execution of duties in terms of its legality, necessity and reasonableness, and provides guidance, advice and recommendation for improvement. (B) Mutual cooperation among internal audit, audit by Audit and Supervisory Board members and audit by the independent auditor, as well as relationship between these audits and Internal Control Department Inspection Department, Audit and Supervisory Board members and the independent auditor meet generally once a month in “three-way audit meeting.” Inspection Department, Audit and Supervisory Board members and the independent auditor cooperate with each other by sharing and exchanging opinions on information on audits performed by these auditors. Four Audit and Supervisory Board members regularly meet with the independent auditor to exchange opinions on matters discussed in the meetings of the Board of Directors and issues recognized by them to cooperate with each other. A relationship between these audits and Internal Control Department is described as follows: As part of evaluation procedures for entity-level controls and business process controls, Inspection Department performs control testing over business activities, such as promotion of compliance led by Internal Control Department of General Affairs Department and Financial & Accounting Department, risk management and financial closing and reporting. Results of the internal control testing performed by Inspection Department are reported to the President and the officer in charge of internal controls, as necessary, which includes a list of deficiencies that Inspection Department determined to be remediated. The officer in charge of internal controls then requests related departments to remediate those deficiencies by certain due dates, which helps to strengthen the management by Internal Control Department. In addition, the internal audit conducted by Inspection Department consists of audit of the management departments and audit of operating departments and covers all business activities of the Company including Internal Control Department. Results of the internal audit are reported to the President, and are also notified to related officers, Audit and Supervisory Board members and managers of related departments. General Manager of Inspection Department requests the managers to remediate the matters by certain due dates, which helps to improve the business processes. Audit and Supervisory Board members assess legality of the work performed by Internal Control Department through business audit, consideration of business issues recognized during the financial audit, inspection of documents related to the Risk Management Committee and participation in various meetings such as Board of Directors’ meeting, and provides advice to Internal Control Department, as necessary. The independent auditor conducts internal control audit, audit under the Companies Act and the financial statements audit and quarterly review. In the internal control audit, the independent auditor evaluates design and operation of internal controls implemented by Internal Control Department through inspection of results of control testing performed over Internal Control Department by Inspection Department, control testing performed by the independent auditor and inspection of related documents. In the financial statements audit performed in conjunction with the internal control audit, the independent auditor performs procedures over Internal Control Department, including confirmation of significant accounts, examination of accounting estimates and presentation of financial statements. The independent auditor assesses adequacy of the financial statements by making inquiries of managers under the audit and interviews with directors including the officer in charge of Internal Control Department based on the full consideration of control environment and business risks of the Company. The independent auditor reports the results of audit performed to directors, Audit and Supervisory Board members and Internal Control Department, as necessary, as well as the follow-up of findings in the previous audits. - 62 - C. Financial audit (A) Name of the independent auditor Grant Thornton Taiyo LLC (B) Term 39 consecutive business terms from the period ended June 1984 (C) Certified public accountant Tatsuya Arai Takeshi Iwasaki Takayuki Uenishi (D) Composition of audit assistants The audit assistants for the Company’s financial audit comprise 8 certified public accountants and 21 other members. (E) Reason and policy for selecting the independent auditor In selecting an auditor, the Company comprehensively analyzes and assesses the following factors: a. Reasons for disqualification based on laws and regulations b. Quality control system implemented by the independent auditor c. Independence from the Group that should be maintained as an external auditor d. Audit fees e. Communication with management and Audit and Supervisory Board members f. Procedures to address and assess fraud risk g. Appropriateness of audit performed for the previous fiscal year h. Appropriateness of planned hours and assignment in the audit plan for the current fiscal year Based on the analysis and assessment of these factors above, we have determined that Grant Thornton Taiyo LLC has no reason to be disqualified, maintains independence and has sufficient ability to conduct effective and efficient audit. Based on these reasons, Grant Thornton Taiyo LLC has been appointed as the independent auditor. (F) Assessment of the independent auditor The Company’s Audit and Supervisory Board assesses the independent auditor as described below: Based on the “Practical Guidelines for Audit and Supervisory Board Members, etc. regarding Evaluation of Independent Auditors and Development of Selection Criteria” published by the Japan Audit & Supervisory Board Members Association, the following three items are evaluated: ・ The grounds for dismissal of the independent auditors specified in Article 340, Paragraph 1 of the Companies Act do not apply to the independent auditor and the independent auditor does not conflict with qualifications of the independent auditor under Article 337 of the Companies Act ・ Assessment by accounting department under audit ・ Assessment based on practical guidelines by the Japan Audit & Supervisory Board Members Association Based on the above, the Audit and Supervisory Board discusses appropriateness of the reappointment of the auditor in accordance with “Policy for dismissal or non-reappointment of the auditor.” - 63 - D. Audit fees, etc. (A) Fees to the independent auditor Category Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Fees for audit and attestation services (Millions of yen) Fees for non-audit services (Millions of yen) Fees for audit and attestation services (Millions of yen) Fees for non-audit services (Millions of yen) Reporting company 98 － 99 － Consolidated subsidiaries 17 － 10 － Total 115 － 109 － (B) Fees to entities within the same network as the independent auditor (Grant Thornton International Ltd) (excluding (A)) Category Fiscal year ended March 31, 2021 Fiscal year ended March 31, 2022 Fees for audit and attestation services (Millions of yen) Fees for non-audit services (Millions of yen) Fees for audit and attestation services (Millions of yen) Fees for non-audit services (Millions of yen) Reporting company 0 － 0 － Consolidated subsidiaries － － － 2 Total 0 － 0 2 The details of the non-audit services provided to the Company are described below: (Fiscal year ended March 31, 2021) Nothing to report. (Fiscal year ended March 31, 2022) The Company paid ¥2 million to entities within the same network as the independent auditor of the Company for non-audit services (advisory services related to M&A). (C) Fees for other significant audit and attestation services Nothing to report. (D) Policy for determining audit fees Audit fees to the Company’s independent auditor are determined based on the consideration of factors such as days required for audit, the size and nature of businesses of the Company, etc., which requires the consent of the Audit and Supervisory Board. (E) Reason for the Audit and Supervisory Board’s consent to audit fees In accordance with “Practical Guidelines for Cooperation with the Independent Auditor” published by the Japan Audit & Supervisory Board Members Association, the Audit and Supervisory Board of the Company confirms the audit plan and actual hours incurred for the previous fiscal year to assess the reasonableness of planned hours and audit fees for the current fiscal year. Based on the consideration, the Audit and Supervisory Board consents to the audit fees for the independent auditor, etc. under Article 399, Paragraph 1 of the Companies Act. - 64 - (4) [Compensation of directors and officers] A. Total amount of compensation by category of directors and officers, the total amount by type of compensation and the number of directors and officers covered Category of directors and officers Total amount of compensation (Millions of yen) Total amount of compensation by type of compensation (Millions of yen) Number of directors and officers covered Fixed compensation Performance- linked compensation Retirement benefits Directors (excluding outside directors) 317 259 58 － 8 Audit and Supervisory Board members (excluding outside Audit and Supervisory Board members) 23 23 － － 1 Outside directors and Audit and Supervisory Board members 68 66 2 － 9 B. Total amount of compensation by director and officer of the reporting company, etc. on a consolidated basis This is omitted as no director or officer receives total amount of compensation of ¥100 million or more on a consolidated basis. C. Policy related to amount of compensation for directors and officers, etc. Based on the resolution of the 37th Ordinary General Meeting of Shareholders on June 27, 2002, the Company decided that the maximum compensation paid to directors shall be ¥400 million in total (the number of directors involved in the resolution is seven). Based on the resolution of the 33rd Ordinary General Meeting of Shareholders on June 30, 1998, the maximum compensation paid to Audit and Supervisory Board members shall be ¥120 million in total (the number of Audit and Supervisory Board members involved in the resolution is four). The compensation paid to directors of the Company consists of fixed amount determined for officers and outside directors, and for other directors, as well as performance-linked compensation determined based on performance assessment for execution of duties of each director by certain standards based on the following policies decided by the resolution of the Board of Directors. The compensation paid to Audit and Supervisory Board members is fixed amount, which is predetermined based on the standard decided at the meeting of the Audit and Supervisory Board. D. Policy for determining payment ratio for performance-linked compensation and non-performance-linked compensation The compensation of the directors (excluding outside directors) includes the fixed compensation notified in advance (so- called bonuses) paid in June every year, which is performance-linked compensation. If the company performance payment rate and the individual performance payment rate are both 100%, the payment ratio will be 45% of the total annual compensation (short-term incentive : 30%, medium- to long-term incentive: 15%). Fixed monthly compensation represents non-performance-linked compensation, and if the company performance payment rate and the individual performance payment rate are both 100%, the payment ratio will be 55% of the total annual compensation. E. Policy for determining compensation for directors and officers or its calculation method by position The monthly compensation for the Company's directors (excluding outside directors) is calculated by adding “role Non-performance-linked compensation 55% Performance-linked compensation 45% Fixed compensation (Monthly amount * 12 months) 55% Short-term incentives 30% M edium- to long- term incentives 15% - 65 - allowance” and “director's allowance” to the basic salary, which is predetermined for each position. In addition, the fixed compensation notified in advance is determined according to the monthly compensation. F. Index related to performance-linked compensation, reason for selecting the index, and method used to determine performance- linked compensation In calculating fixed compensation notified in advance, which is performance-linked compensation, the company performance payment rate is calculated using the standard index (consolidated operating income + equity method investment income + consolidated bonus) for short-term incentives. In contrast, the company performance payment rate for medium- to long-term incentives, the company performance payment rate is calculated based on the three-year average growth rate of the standard index. In addition, the individual performance payment rate is determined by the degree of achievement of the goals set for each individual. The amount of payment is determined by multiplying the standard amount by each payment rate. [Formula to calculate average growth rate of the standard index] [Formula for short-term and medium- to long-term incentives] The reasons for adopting the above standard index are as follows: (A) Improving performance of the entire group, including equity method entities, is the main role of directors and officers. (B) Consolidated operating income excluding the effect of fluctuations in bonus payments is considered to be a better indicator of company’s performance. G. Name of the person who has the authority to determine compensation etc. for directors and officers or policy for determining the calculation method, as well as details and scope of that authority In determining performance-linked compensation to be paid to directors in the relevant fiscal year, it is considered that the Board of Directors of the Company is in a position to conduct performance evaluation most appropriately for each director to determine individual performance payment rate. Therefore, Atsushi Murai and Yukiyasu Aoyama, both Representative Director at that time, were delegated to determine the payment rate based on the achievements of each director’s goals and targets (KPI) for the relevant fiscal year. The Board of Directors of the Company has determined that compensation determined for each director is in line with the decision policy as it is determined by the above method. H. Activities of the Board of Directors in the process of determining compensation amount for directors and officers in the most recent fiscal year Compensation for directors of the Company is a matter to be resolved by the Board of Directors in accordance with the Board Regulations. We have deliberated on the compensation system, revision of calculation method for the fixed compensation notified in advance, and company performance payment rate and individual performance payment rate for the fixed compensation notified in advance. In the current fiscal year, the Board of Directors’ meeting held on May 11, 2021 discussed the company performance payment rate and individual performance payment rate for the fixed compensation notified in advance scheduled to be paid in June of the same year. In the deliberation of the company performance payment rate for the current fiscal year, the actual standard index was ¥69,275 million (achievement rate 97.6%) against the plan of ¥70,976 million. Annual average growth rate= ― 1 Standard index Standard index for the three 1 − 3 ＝ × × Compensation amount for individual Standard amount Company performance payment rate Individual performance payment rate - 66 - (5) [Stocks held] A. Basis and approach for classification of investment stocks Based on “Regulation for purchase and sale of stocks” established by the Company, the Company invests in stocks to strengthen and expand business transactions with stock issuers and their associates as well as to expand into other businesses, not for speculative purposes (stock investment mainly for the purpose of generating capital gains and income gains). Accordingly, all shares held by the Company are investment stocks not held for trading. B. Investment stocks not held for trading (A) Policy for stock holding, method to assess reasonableness of stock holding and the Board of Directors’ assessment for holding of individual share Based on “Regulation for purchase and sale of stocks”, the Company measures the benefits of holding investment stocks once a year by taking into account annual sales to stock issuers and their associates, contributions to the Company as service providers and suppliers and the status of business development, etc. The measurement of benefits of holding stocks is reported to the Board of Directors every year. For the current fiscal year, all shares will be continued to be held. (B) Number of issuers and carrying amount Number of issuers Total carrying amount (Millions of yen) Unlisted shares 43 1,048 Shares other than unlisted shares 86 13,394 (Issuers for which number of shares increased during the current fiscal year) Number of issuers Total acquisition cost of the number of shares increased (Millions of yen) Reason for increase Unlisted shares 3 35 Acquired for the purpose of strengthening and expanding transactions with the issuer. Shares other than unlisted shares 9 3 Mainly acquired for the purpose of strengthening and expanding transactions with the issuer. (Issuers for which number of shares decreased during the current fiscal year) Number of issuers Total sales value of the number of shares decreased (Millions of yen) Unlisted shares 2 30 Shares other than unlisted shares 2 138 - 67 - (C) Information on the number of shares and carrying amount of specified investment stocks and deemed-owned stocks by issuer Specified investment stocks Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Taiwan Shin Kong Security Co., Ltd 35,778,823 35,778,823 The shares are held for the purpose of expanding businesses overseas. Although it is difficult to unambiguously determine the quantitative benefits of holding the shares, the company has established a mutual cooperation system with the Group in terms of sales and operation, and we assess the benefits of holding the shares based on the degree of contribution to the Group's business operations. No 6,124 5,296 Mizuho Financial Group, Inc. 856,343 856,343 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are benefits of holding these shares. Yes 1,341 1,369 Seven Bank, Ltd. 5,000,000 5,000,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 1,195 1,265 - 68 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Hulic Co., Ltd. 659,100 659,100 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 725 860 FAST RETAILING CO., LTD. 9,600 9,600 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 604 846 LIXIL Group 148,600 148,600 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 340 456 - 69 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) OMRON Corporation 30,000 30,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 246 259 The Shiga Bank, Ltd. 100,000 100,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 221 239 The Kiyo Bank, Ltd. 148,900 148,900 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 205 246 - 70 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) KOTOBUKI SPIRITS Co., LTD. 30,000 30,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 195 215 DAIWA HOUSE INDUSTRY CO., LTD. 60,000 60,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 192 194 Nitori Holdings Co., Ltd. 12,500 12,500 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 192 267 - 71 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Mitsubishi UFJ Financial Group, Inc. 137,300 274,500 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 104 162 DYNAM JAPAN HOLDINGS Co., Ltd. 800,000 800,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 93 86 Mitsubishi Electric Corporation 60,000 60,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 84 101 - 72 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Sumitomo Realty & Development Co., Ltd. 24,000 24,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 81 93 Suruga Bank Ltd. 196,000 196,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 80 83 Sumitomo Mitsui Trust Holdings, Inc. 19,327 19,327 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 77 74 - 73 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Daiwa Securities Group Inc. 103,000 103,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 71 58 Dai-ichi Life Holdings, Inc. 28,200 28,200 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 70 53 Kintetsu Group Holdings Co., Ltd. 20,000 20,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 70 84 - 74 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Tokyu Fudosan Holdings Corporation 95,400 95,400 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 64 62 Sumitomo Corporation 28,600 28,600 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 60 45 Sumitomo Mitsui Financial Group, Inc. 15,200 15,200 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 59 60 - 75 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Credit Saison Co., Ltd. 37,100 37,100 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 48 49 Mebuki Financial Group, Inc. 171,990 171,990 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 44 44 DUSKIN CO., LTD. 15,500 15,500 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 41 43 - 76 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) The Shimizu Bank, Ltd. 24,800 24,800 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 39 42 Seven & i Holdings Co., Ltd. 5,900 5,900 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 34 26 Yamaguchi Financial Group, Inc. 50,000 50,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 34 36 - 77 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) TOMONY Holdings, Inc. 93,500 93,500 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 30 30 RETAIL PARTNERS CO., LTD. 20,000 20,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 28 27 The Keiyo Bank, Ltd. 58,000 58,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 28 26 - 78 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Tokyo Kiraboshi Financial Group, Inc. 16,307 16,307 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 28 22 East Japan Railway Company 4,000 4,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 28 31 EDION Corporation 23,464 22,601 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. As further expansion of transactions with the company was expected, additional shares were acquired during the current fiscal year through participation in client stock ownership association. No 26 28 - 79 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Alleanza Holdings Co., Ltd. 27,000 27,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 26 35 The Chiba Bank, Ltd. 36,000 36,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 26 26 T-Gaia Corporation 15,700 15,700 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 25 30 - 80 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) THE HACHIJUNI BANK, LTD. 55,000 55,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 22 22 The Awa Bank, Ltd. 10,000 10,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 21 24 The Shikoku Bank, Ltd. 26,400 26,400 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 19 20 - 81 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Nomura Holdings, Inc. 34,800 34,800 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 17 20 SHIMAMURA Co., Ltd. 1,600 1,600 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 17 20 The Musashino Bank, Ltd. 9,300 9,300 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 16 16 - 82 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) THE BANK OF KOCHI, LTD. 20,000 20,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 15 17 Hokuhoku Financial Group, Inc. 16,800 16,800 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 15 17 North Pacific Bank, Ltd. 62,500 62,500 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 15 20 - 83 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) NIPPON TELEGRAPH AND TELEPHONE CORPORATION 4,000 4,000 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 14 11 The Hyakujushi Bank, Ltd. 8,300 8,300 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 13 14 Fuji Co., Ltd. 5,756 5,740 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. As further expansion of transactions with the company was expected, additional shares were acquired during the current fiscal year through participation in client stock ownership association. No 13 12 - 84 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) The Howa Bank, Ltd. 20,400 20,400 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 11 13 Senshu Ikeda Holdings, Inc. 67,030 67,030 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 11 11 Takara Standard Co., Ltd. 8,597 8,194 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. As further expansion of transactions with the company was expected, additional shares were acquired during the current fiscal year through participation in client stock ownership association. No 10 13 - 85 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Tsukuba Bank, Ltd. 51,400 51,400 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 10 9 Yamanaka Co., Ltd. 14,160 14,061 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. As further expansion of transactions with the company was expected, additional shares were acquired during the current fiscal year through participation in client stock ownership association. No 9 10 The Shimane Bank, Ltd. 17,500 17,500 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 9 12 - 86 - Issuer Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 Purpose of holding shares, its quantitative benefit and reasons for increase in the number of shares Holding of shares of the Company Number of shares (Shares) Number of shares (Shares) Carrying amount (Millions of yen) Carrying amount (Millions of yen) Heiwado Co., Ltd. 4,628 4,499 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. As further expansion of transactions with the company was expected, additional shares were acquired during the current fiscal year through participation in client stock ownership association. No 8 10 Olympic Group Corporation 12,100 12,100 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. No 8 10 Ogaki Kyoritsu Bank, Ltd. 4,300 4,300 The shares are held for the purpose of strengthening and expanding transactions. The Company and its associates have concluded contracts for security services with the company and its associates, and the benefits of holding the shares are verified by the annual sales, etc. Although the amount of sales to the company is not disclosed due to confidential nature of the information, most of the sales to the company and its associates are based on long-term contracts that are expected, in the future years, to generate the amount of revenue equivalent to the current fiscal year. Based on this reason, we have determined that there are the benefits of holding these shares. Yes 8 9 - 87 - V. [Financial Condition] 1. Preparation method of consolidated and non-consolidated financial statements (1) The consolidated financial statements of the Company are prepared in accordance with “Ordinance on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements” (Cabinet Office Ordinance No. 28 of 1976, “Ordinance on Consolidated Financial Statements”). (2) The non-consolidated financial statements of the Company are prepared in accordance with “Ordinance on Terminology, Forms, and Preparation Methods of Financial Statements, etc.” (Cabinet Office Ordinance No. 59 of 1963, “Ordinance on Financial Statements”). The Company is a special company submitting financial statements and prepares the financial statements in accordance with provisions of Article 127 of the Ordinance on Financial Statements. 2. Audit attestation In accordance with provisions of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, the consolidated and non-consolidated financial statements for the fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) have been audited by Grant Thornton Taiyo LLC. 3. Special measure to ensure appropriateness of the consolidated financial statements, etc. The Company undertakes special measure to ensure appropriateness of the consolidated financial statements, etc. Specifically, in order to properly understand the details of accounting standards and other relevant information and to establish a framework to accurately respond to changes in the standards, the Company participates in the Financial Accounting Standards Foundation (“FASF”). The Company proactively participates in lectures and seminars held by the FASF. - 88 - 1. [Consolidated financial statements] (1) [Consolidated financial statements] i. [Consolidated balance sheet] (Millions of yen) As of March 31, 2021 As of March 31, 2022 Assets Current assets Cash and deposits *3 60,833 *3 71,357 Cash for Transportation Security Services *1 82,819 *1 76,768 Notes and accounts receivable - trade 54,283 － Notes and accounts receivable - trade, and contract assets － *5 56,458 Lease receivables and investment assets 5,311 5,100 Securities 598 380 Raw materials and supplies 7,551 7,509 Costs on uncompleted construction contracts 348 222 Advances paid 5,670 6,892 Other 10,380 9,324 Allowance for doubtful accounts (180) (140) Total current assets 227,617 233,872 Noncurrent assets Property, plant and equipment Buildings and structures *3 50,190 *3 51,338 Accumulated depreciation (27,398) (28,337) Buildings and structures, net 22,792 23,001 Machinery, equipment and vehicles 144,246 145,372 Accumulated depreciation (125,114) (126,660) Machinery, equipment and vehicles, net 19,132 18,712 Land *2,*3 21,728 *2,*3 22,034 Lease assets 52,682 53,439 Accumulated depreciation (21,295) (22,817) Lease assets, net 31,387 30,621 Construction in progress 2,782 2,951 Other 20,324 22,221 Accumulated depreciation (14,765) (16,167) Other, net 5,559 6,054 Total property, plant and equipment 103,383 103,376 Intangible assets Software 4,469 9,476 Goodwill 29,678 27,097 Other 9,099 3,174 Total intangible assets 43,247 39,747 Investments and other assets Investment securities *3,*4 55,639 *3,*4 56,148 Long-term loans receivable 327 411 Leasehold and guarantee deposits 8,254 8,015 Insurance funds 1,549 1,434 Retirement benefit asset 19,938 24,995 Deferred tax assets 8,449 7,102 Other 13,506 13,603 Allowance for doubtful accounts (447) (429) Total investments and other assets 107,217 111,281 Total noncurrent assets 253,847 254,405 Total assets 481,465 488,278 - 89 - (Millions of yen) As of March 31, 2021 As of March 31, 2022 Liabilities Current liabilities Notes and accounts payable - trade 24,084 23,098 Short-term loans payable *1 20,950 *1 8,483 Current portion of long-term loans payable *3 2,929 *3 2,795 Accounts payable - other 20,393 22,425 Lease obligations 5,260 5,306 Income taxes payable 6,585 6,751 Accrued consumption taxes 6,137 4,573 Provision for bonuses 2,419 2,065 Provision for bonuses for directors (and other officers) 96 98 Other 14,935 *6 14,785 Total current liabilities 103,793 90,384 Noncurrent liabilities Long-term loans payable *3 4,528 *3 2,145 Lease obligations 36,313 35,529 Deferred tax liabilities 748 991 Deferred tax liabilities for land revaluation 128 314 Retirement benefit liability 26,974 27,175 Provision for retirement benefits for directors (and other officers) 1,673 1,540 Asset retirement obligations 480 486 Provision for loss on litigation 57 57 Other 2,339 2,142 Total noncurrent liabilities 73,243 70,383 Total liabilities 177,037 160,768 Net Assets Shareholders’ equity Capital stock 18,675 18,675 Capital surplus 34,026 34,129 Retained earnings 220,464 241,718 Treasury stock (1,071) (1,072) Total shareholders’ equity 272,094 293,450 Accumulated other comprehensive income Valuation difference on available-for-sale securities 7,026 6,917 Revaluation reserve for land *2 (3,494) *2 (3,378) Foreign currency translation adjustment (29) 321 Remeasurements of defined benefit plans, net of tax 1,915 2,836 Total accumulated other comprehensive income 5,417 6,696 Non-controlling interests 26,915 27,362 Total net assets 304,427 327,509 Total liabilities and net assets 481,465 488,278 - 90 - ii. [Consolidated statement of income and consolidated statement of comprehensive income] [Consolidated statement of income] (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Net sales 469,920 489,092 Cost of sales *7 352,811 *7 363,511 Gross profit 117,108 125,581 Selling, general and administrative expenses *1,*2 79,926 *1,*2 82,715 Operating income 37,182 42,865 Non-operating income Interest income 171 181 Dividends income 702 666 Gain on sales of investment securities 15 126 Rent income 352 345 Gain from insurance claim 44 76 Share of profit of entities accounted for using equity method 1,399 1,588 Dividend income of insurance 289 247 Penalty income 734 724 Other 1,472 1,201 Total non-operating income 5,184 5,158 Non-operating expenses Interest expenses 2,036 1,913 Loss on sales of investment securities － 5 Loss on sales of noncurrent assets 8 4 Loss on retirement of noncurrent assets *3 237 *3 271 Financing expenses 272 266 Other 599 766 Total non-operating expenses 3,154 3,227 Ordinary income 39,212 44,796 Extraordinary income Gain on sales of investment securities 24 17 Gain on sales of noncurrent assets *4 99 *4 224 Gain on liquidation of subsidiaries 4 － Compensation income 50 1,067 Total extraordinary income 178 1,309 Extraordinary loss Loss on valuation of investment securities 39 65 Loss on sales of investment securities 0 0 Impairment losses *6 344 *6 307 Loss on sales of noncurrent assets *5 8 *5 3 Loss on retirement of noncurrent assets 79 － Provision for loss on litigation 57 － Total extraordinary loss 529 376 Income before income taxes 38,862 45,729 Income taxes - current 12,848 13,587 Income taxes - deferred (842) 1,415 Total income taxes 12,006 15,003 Net income 26,855 30,726 Profit attributable to non-controlling interests 1,841 1,762 Profit attributable to owners of parent 25,014 28,964 - 91 - [Consolidated statement of comprehensive income] (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Net income 26,855 30,726 Other comprehensive income Valuation difference on available-for-sale securities 2,480 (65) Foreign currency translation adjustment (41) 148 Remeasurements of defined benefit plans 11,825 891 Share of other comprehensive income (loss) of entities accounted for using equity method 421 190 Total other comprehensive income (loss) * 14,686 * 1,164 Comprehensive income 41,541 31,890 (Contents) Comprehensive income attributable to owners of parent 39,371 30,127 Comprehensive income attributable to non-controlling interests 2,170 1,763 - 92 - iii. [Consolidated statement of changes in net assets] Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) (Millions of yen) Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Balance at beginning of year 18,675 34,243 203,375 (1,070) 255,222 Changes of items during the period Dividends from surplus (7,138) (7,138) Profit attributable to owners of parent 25,014 25,014 Change in ownership interest of parent due to transactions with non- controlling interests (216) (216) Purchase of treasury stock (0) (0) Reversal of revaluation reserve for land (786) (786) Purchase of consolidated subsidiary shares resulting in increase or decrease of interest － Net changes of items other than shareholders’ equity Total changes of items during the period － (216) 17,089 (0) 16,872 Balance at end of year 18,675 34,026 220,464 (1,071) 272,094 Accumulated other comprehensive income Non-controlling interests Total net assets Valuation difference on available-for-sale securities Revaluation reserve for land Foreign currency translation adjustment Remeasurements of defined benefit plans, net of tax Total accumulated other comprehensive income Balance at beginning of year 4,609 (4,281) (167) (9,886) (9,725) 24,935 270,432 Changes of items during the period Dividends from surplus (7,138) Profit attributable to owners of parent 25,014 Change in ownership interest of parent due to transactions with non- controlling interests (216) Purchase of treasury stock (0) Reversal of revaluation reserve for land (786) Purchase of consolidated subsidiary shares resulting in increase or decrease of interest － Net changes of items other than shareholders’ equity 2,416 786 137 11,802 15,143 1,980 17,123 Total changes of items during the period 2,416 786 137 11,802 15,143 1,980 33,995 Balance at end of year 7,026 (3,494) (29) 1,915 5,417 26,915 304,427 - 93 - Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) (Millions of yen) Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Balance at beginning of year 18,675 34,026 220,464 (1,071) 272,094 Changes of items during the period Dividends from surplus (7,594) (7,594) Profit attributable to owners of parent 28,964 28,964 Change in ownership interest of parent due to transactions with non- controlling interests － Purchase of treasury stock (0) (0) Reversal of revaluation reserve for land (115) (115) Purchase of consolidated subsidiary shares resulting in increase or decrease of interest 103 103 Net changes of items other than shareholders’ equity Total changes of items during the period － 103 21,253 (0) 21,356 Balance at end of year 18,675 34,129 241,718 (1,072) 293,450 Accumulated other comprehensive income Non-controlling interests Total net assets Valuation difference on available-for-sale securities Revaluation reserve for land Foreign currency translation adjustment Remeasurements of defined benefit plans, net of tax Total accumulated other comprehensive income Balance at beginning of year 7,026 (3,494) (29) 1,915 5,417 26,915 304,427 Changes of items during the period Dividends from surplus (7,594) Profit attributable to owners of parent 28,964 Change in ownership interest of parent due to transactions with non- controlling interests － Purchase of treasury stock (0) Reversal of revaluation reserve for land (115) Purchase of consolidated subsidiary shares resulting in increase or decrease of interest 103 Net changes of items other than shareholders’ equity (108) 115 351 920 1,279 446 1,725 Total changes of items during the period (108) 115 351 920 1,279 446 23,081 Balance at end of year 6,917 (3,378) 321 2,836 6,696 27,362 327,509 - 94 - iv. [Consolidated statement of cash flows] (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Net cash provided by (used in) operating activities Income before income taxes 38,862 45,729 Depreciation and amortization 15,828 16,861 Impairment losses 344 307 Amortization of goodwill 2,452 2,427 Increase (decrease) in allowance for doubtful accounts (51) (57) Increase (decrease) in net defined benefit liability 106 (253) Increase (decrease) in provision for bonuses 8 (358) Increase (decrease) in provision for bonuses for directors (and other officers) (5) 1 Interest and dividends income (874) (847) Interest expenses 2,036 1,913 Share of loss (profit) of entities accounted for using equity method (1,399) (1,588) Loss (gain) on sales of noncurrent assets (85) (219) Loss on retirement of noncurrent assets 316 271 Loss (gain) on sales of investment securities (39) (138) Loss (gain) on valuation of investment securities 39 65 Loss (gain) on valuation of derivatives (7) 254 Decrease (increase) in notes and accounts receivable - trade 3,222 (2,126) Decrease (increase) in inventories (480) 175 Increase (decrease) in notes and accounts payable - trade (1,483) 485 Decrease (increase) in net defined benefit asset (1,021) (3,324) Changes in assets and liabilities of Transportation Security Services 8,894 (5,904) Other 2,054 2,189 Subtotal 68,716 55,862 Interest and dividends income received 1,160 1,377 Interest expenses paid (2,030) (1,918) Income taxes paid (12,337) (12,593) Income taxes refund 13 9 Net cash provided by (used in) operating activities 55,522 42,736 - 95 - (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Net cash provided by (used in) investing activities Decrease (increase) in time deposits (131) 105 Payments into long-term time deposits (2,017) (200) Proceeds from withdrawal of long-term time deposits 20 50 Purchase of property, plant and equipment (11,937) (13,109) Proceeds from sales of property, plant and equipment 358 584 Purchase of intangible assets (1,502) (2,695) Purchase of investment securities (2,785) (2,095) Proceeds from sales of investment securities 585 1,522 Purchase of shares of subsidiaries resulting in change in scope of consolidation (13,689) － Purchase of shares of subsidiaries and associates (9,164) － Decrease (increase) in short-term loans receivable 15 14 Payments of long-term loans receivable (101) (233) Collection of long-term loans receivable 125 66 Proceeds from refund of leasehold and guarantee deposits 1,096 259 Other 673 1,638 Net cash provided by (used in) investing activities (38,452) (14,093) Net cash provided by (used in) financing activities Net increase (decrease) in short-term loans payable 948 (1,553) Proceeds from long-term loans payable 2,247 462 Repayment of long-term loans payable (3,264) (2,980) Redemption of bonds (9) － Purchase of treasury stock (0) (0) Repayments of lease obligations (5,248) (5,302) Cash dividends paid (7,138) (7,594) Cash dividends paid to non-controlling interests (471) (539) Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation (628) (675) Proceeds from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation 850 － Net cash provided by (used in) financing activities (12,714) (18,183) Effect of exchange rate change on cash and cash equivalents (2) 41 Net increase (decrease) in cash and cash equivalents 4,353 10,500 Cash and cash equivalents at beginning of year 48,790 53,143 Cash and cash equivalents at end of year *1 53,143 *1 63,644 - 96 - [Notes] (Significant matters forming the basis for the preparation of the consolidated financial statements) 1. Scope of consolidation (1) Number of consolidated subsidiaries: 74 Major consolidated subsidiaries ALSOK Care Co., Ltd. ALSOK Facilities Co., Ltd. Japan Facilio Co., Ltd. ALSOK Stationed Security Co., Ltd. Life Co., Ltd. During the fiscal year ended March 31, 2022, Nippon Building Maintenance Co., Ltd. merged with ALSOK Building Services Co., Ltd. The name of the surviving company was changed to ALSOK Facilities Co., Ltd. (2) Major non-consolidated subsidiaries ALSOK Business Support Co., Ltd. (Reason for excluding from the consolidation) All of the non-consolidated subsidiaries are small-sized companies, and total assets, net sales, net income (equity pro rata amount) and retained earnings (equity pro rata amount) in aggregate do not have a significant impact on the consolidated financial statements. 2. Application of equity method (1) Number of equity method associates: 14 Major companies HOCHIKI Corporation Nippon Dry-Chemical Co., Ltd. Nippon Care Supply Co., Ltd. (2) Major non-consolidated subsidiaries and associates that do not apply equity method ALSOK Business Support Co., Ltd. (Reason for not applying equity method) Considering the net income (equity pro rata amount) and retained earnings (equity pro rata amount) of the non-consolidated subsidiaries and associates not applying equity method, excluding these companies from the consolidation does not have a significant impact on the consolidated financial statements, and these companies are not material in aggregate. 3. Closing dates of consolidated subsidiaries The closing date of the consolidated subsidiaries, ALSOK (Vietnam) Co., Ltd., ALSOK (Shanghai) Co., Ltd., ALSOK MALAYSIA SDN.BHD., PT. ALSOK INDONESIA, PT. ALSOK BASS Indonesia Security Services and ALSOK Vietnam Security Services Joint Stock Company, is December 31. In preparing the consolidated statements, the financial statements of these companies as of December 31 are used. The consolidated financial statements are adjusted for any significant transactions occurred during the period between January 1 and March 31. - 97 - 4. Accounting policies (1) Valuation basis and method for significant assets i. Valuation basis and method for securities Available-for-sale securities Securities other than equity securities with no quoted prices It is stated at fair market value based on the quoted market price at the fiscal year-end (with any unrealized gains or losses being recognized directly in equity and the cost of securities sold being generally calculated based on the moving average method). Securities with embedded derivatives that cannot be bifurcated are stated at fair market value (with the cost of securities sold being generally calculated based on the moving average method). Equity securities with no quoted prices It is generally stated at cost based on the moving average method. ii. Valuation basis and method for derivatives It is stated at fair market value. iii. Inventories Raw materials and supplies It is generally stated at cost based on the first in first out method (the balance sheet carrying amount is reduced to reflect write-downs for decreased profitability). Costs on uncompleted construction contracts It is generally stated at cost based on specific identification method. (2) Depreciation and amortization method for significant depreciable and amortizable assets i. Property, plant and equipment (excluding lease assets) It is generally depreciated using the straight-line method. The useful lives of major assets are as follows: Buildings and structures 15 to 50 years Machinery, equipment and vehicles 3 to 5 years ii. Intangible assets (excluding lease assets) It is amortized using the straight-line method. Internal-use software is amortized using the straight-line method over the useful life of five years. Customer-related assets are amortized using the straight-line method based on the period over which its effect is extended (8 to 15 years). iii. Lease assets under finance leases that do not involve transfer of ownership It is depreciated using the straight-line method over the useful lives equal to lease terms with zero residual values. (3) Basis for recognition of significant provisions i. Allowance for doubtful accounts To provide for losses due to bad debt including trade receivables and loans, allowance for doubtful accounts is recognized based on default rates for normal receivables and based on recoverability of each receivable for certain doubtful receivables. ii. Provision for bonuses To provide for payment of bonuses to employees, certain consolidated subsidiaries recognize a provision for the expected amount of future bonuses that is related to the current period. iii. Provision for bonuses for directors (and other officers) To provide for payment of bonuses to directors and other officers, certain consolidated subsidiaries recognize a provision for the expected amount of future bonuses that is related to the current period. iv. Provision for retirement benefits for directors (and other officers) To provide for payment of retirement benefits to directors and other officers, certain consolidated subsidiaries recognize a provision for the amount of future benefits required by company rules that is related to the current period. - 98 - (4) Accounting for retirement benefits i. Method of attributing estimated retirement benefits to the periods In calculating defined benefit obligation, the total projected benefits are attributed to the current and prior fiscal years using the benefit formula basis. ii. Method of amortizing actuarial gains and losses and past service costs Past service cost is amortized using the straight-line method over a certain period not exceeding the average remaining service period of employees, which is generally five years. Actuarial gains and losses are amortized using the straight-line method from the following fiscal year over a certain period not exceeding the average remaining service period of employees, which is generally 10 years. iii. Simplified method for small-sized companies Certain consolidated subsidiaries apply a simplified method in calculating retirement benefit liability and retirement benefit expenses, under which the amount of required voluntary termination benefits at the fiscal year-end is recognized as defined benefit obligation. (5) Basis for recognition of significant revenue and expense The Company and its consolidated subsidiaries recognize revenue and expense from contracts with customers as follows: i. Contract revenue For contract revenue earned as a result of providing services, the net sales and cost of sales are recognized over time as performance obligations in the contract with the customers are satisfied. ii. Construction revenue For construction revenue earned as a result of installation of security alarm equipment leased or rented to the customers as well as repair/renewal constructions and piping or electrical constructions of various building equipment, the net sales and cost of sales are recognized over time as performance obligations in the contract with the customers are satisfied. For contracts that have very short construction period, such as installation of security alarm equipment, which account for most of the construction revenue, the net sales and cost of sales are recognized at a point in time at completion of construction. iii. Sales revenue For sales revenue earned as a result of product sales (including installation of products sold), the net sales and cost of sales are recognized at a point in time on delivery to the customers. (6) Basis for translation of significant assets and liabilities denominated in foreign currencies into Japanese yen Receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at the fiscal year-end, and differences arising from the translation are recognized in profit or loss. Assets and liabilities of foreign subsidiaries are translated into Japanese yen at the exchange rates prevailing at the fiscal year-end, and income and expenses are translated at the average exchange rates during the period. Differences arising from the translation are recognized in foreign currency translation adjustment and non-controlling interests under net assets. (7) Significant hedge accounting i. Hedge accounting Hedging transactions are accounted for on a deferred basis. Interest rate swaps are accounted for using the special method if it meets certain conditions. ii. Hedging instruments and hedged items The hedge accounting was applied to the following hedging instruments and hedged items during the current fiscal year: Hedging instruments: Interest rate swaps Hedged items: Bank loans iii. Hedging policy In accordance with the internal rules, the risk of interest rate fluctuations is hedged to reduce such risk and to improve financial return. iv. Method of assessing hedge effectiveness The assessment for effectiveness of interest rate swaps accounted for by the special method is not performed as the hedge is considered to be highly effective. (8) Method and period of goodwill amortization Generally, goodwill is amortized using the straight-line method over an expected investment recovery period not exceeding 20 years, taking the nature of each investment into account. - 99 - (9) Cash and cash equivalents in the consolidated statement of cash flows The cash and cash equivalents in the consolidated statement of cash flows consist of cash on hand, cash at banks which can be withdrawn at any time, and short-term investments with a maturity of three months or less from the date of acquisition which can easily be converted to cash and are subject to little risk of change in value. - 100 - (Significant accounting estimates) Goodwill 1. Amount recorded in the consolidated financial statements for the fiscal year ended March 31, 2022 (Millions of yen) As of March 31, 2021 As of March 31, 2022 Goodwill 29,678 27,097 2. Significant accounting estimates related to identified items The goodwill recorded as of March 31, 2022, which arose from past business combinations, represents excess earning power that is expected from combining an acquiree with the Group. There is also goodwill that resulted from the effect of synergies that is expected to arise at the Company. In assessing goodwill for impairment, we are focused on whether the excess earning power and the effect of synergies (which give rise to goodwill) will arise over the future periods. We monitor, on a monthly basis, whether a business plan of a company from which the goodwill arose (including a plan of the effect of synergies expected to arise at the Company) is in line with the actual profit or cash flows recorded. The business plan includes orders, human resource or new care facilities opening plans developed based on certain assumptions. If the business plan may not be achieved for some reason, resulting in changes in the original assumptions, an impairment loss may need to be recorded and it may have a significant impact on the amount of goodwill recorded in the consolidated financial statements for the following fiscal year. (Change in accounting policies) (Application of Accounting Standard for Revenue Recognition, etc.) The Group applied “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020, “Revenue Recognition Accounting Standard”), etc. from the beginning of the fiscal year ended March 31, 2022. The Group recognizes revenue when control of the promised goods or services is transferred to the customer in an amount that the Group expects to receive in exchange for those goods or services. Based on the above, revenue generated from the Group is recognized as follows: i. Contract revenue Contract revenue earned as a result of providing services is recognized over time as performance obligations in the contract with the customers are satisfied. ii. Construction revenue Construction revenue earned as a result of installation of security alarm equipment leased or rented to the customer as well as repair/renewal constructions and piping or electrical constructions of various building equipment is recognized over time as performance obligations in the contract with the customers are satisfied. In contrast, revenue is recognized at a point in time at completion of construction for contracts that have very short construction period, which mainly include installation of security alarm equipment. Revenue from contracts with short construction period accounts for most of the construction revenue. iii. Sales revenue Sales revenue earned as a result of product sales (including installation of products sold) is recognized at a point in time on delivery to the customer. In applying the Revenue Recognition Accounting Standard etc., the Company calculated the cumulative effect of retrospective application of the new standard to the periods prior to the beginning of the fiscal year ended March 31, 2022 in accordance with the transitional treatment provided in the proviso to Paragraph 84 of the Revenue Recognition Accounting Standard. However, as the amount of cumulative effect was immaterial, the Company applied the new standard without making any adjustment to retained earnings at the beginning of the fiscal year ended March 31, 2022. Due to the application of the Revenue Recognition Accounting Standard etc., “Notes and accounts receivable - trade” presented under “Current assets” in the consolidated balance sheet as of March 31, 2021 is now included in “Notes and accounts receivable - trade, and contract assets” as of March 31, 2022. In accordance with the transitional treatment provided in Paragraph 89-2 of the Revenue Recognition Accounting Standard, the prior year amounts are not reclassified. In accordance with the transitional treatment provided in Paragraph 89-3 of the Revenue Recognition Accounting Standard, the notes on “Revenue recognition” related to the previous fiscal year are omitted. (Application of Accounting Standard for Fair Value Measurement) The Group applied “Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, July 4, 2019, “Fair Value - 101 - Measurement Accounting Standard”) etc. from the beginning of the fiscal year ended March 31, 2022. The Group decided to apply new accounting policies based on the Fair Value Measurement Accounting Standard etc. prospectively in accordance with the transitional treatment provided in Paragraph 19 of the Fair Value Measurement Accounting Standard and Paragraph 44-2 of “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, July 4, 2019). The impact on the consolidated financial statements for the fiscal year ended March 31, 2022 is immaterial. In the notes on “Financial instruments”, the fair values of financial instruments by level, etc. are disclosed. In accordance with the transitional treatment provided in Paragraph 7-4 of “Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19, July 4, 2019), the notes related to the previous fiscal year are omitted. (Accounting standards, etc. that are not applied yet) ・ “Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No. 31, June 17, 2021) (1) Overview Effective June 17, 2021, “Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No. 31) was revised to include “fair value measurement of investment trusts” and the notes on fair value measurement of “share of investments in partnerships recorded in the balance sheet at net.” These topics were not included in the guidance issued on July 4, 2019 due to time constraints. (2) Scheduled date of application From the beginning of the fiscal year ending March 31, 2023 (3) Effect of application of the accounting standard We are currently assessing the impact that application of “Implementation Guidance on Accounting Standard for Fair Value Measurement” will have on the consolidated financial statements. (Matters related to consolidated balance sheet) *1 Cash for Transportation Security Services As of March 31, 2021 This represents cash for transportation security services, and its use for other purposes is restricted. In addition, the short-term loans payable balance includes ¥14,613 million of funds borrowed for the services. As of March 31, 2022 This represents cash for transportation security services, and its use for other purposes is restricted. In addition, the short-term loans payable balance includes ¥3,700 million of funds borrowed for the services. *2 In accordance with the Act on Revaluation of Land (Act No. 34 promulgated on March 31, 1998) and the Partial Amendment to Act on Revaluation of Land (Act No. 24 promulgated on March 31, 1999), the Group revalued its land for business use as of March 31, 2002 and recorded revaluation reserve for land in net assets. ・ Method of revaluation In determining the value of land, which is the calculation basis for the taxable value of the land value tax as prescribed in Article 16 of the Land Price Tax Act (Act No. 69 of 1991) as set forth in Article 2, Item 4 of the Order to Enforce the Act on Revaluation of Land (Cabinet Order No. 119 promulgated on March 31, 1998), the Group makes reasonable adjustments (such as land depth adjustment) to the value calculated by the method designated and published by the Commissioner of the National Tax Agency. (Millions of yen) As of March 31, 2021 As of March 31, 2022 The amount by which the fair value of revalued land at the end of the fiscal year is below its carrying amount 285 327 - 102 - *3 Pledged assets and secured obligations Pledged assets comprise the following: (Millions of yen) As of March 31, 2021 As of March 31, 2022 Cash and deposits 210 210 Buildings and structures 2,384 1,150 Land 498 1,711 Investment securities 16 16 Total 3,108 3,088 Secured obligations comprise the following: (Millions of yen) As of March 31, 2021 As of March 31, 2022 Current portion of long-term loans payable 255 200 Long-term loans payable 298 255 Total 553 455 *4 The following amount relates to non-consolidated subsidiaries and associates: (Millions of yen) As of March 31, 2021 As of March 31, 2022 Investments in securities (stock) 27,409 28,674 *5 The amount of receivables and contract assets arising from contracts with customers is as follows: (Millions of yen) As of March 31, 2022 Notes receivable - trade 1,737 Accounts receivable - trade 53,668 Contract assets 1,052 *6 The amount of contract liabilities is as follows: (Millions of yen) As of March 31, 2022 Contract liabilities 11,211 - 103 - (Matters related to consolidated statement of income) *1 Selling, general and administrative expenses mainly comprise the following: (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021to March 31, 2022) Advertising expenses 2,500 2,896 Salary allowances 40,849 40,963 Provision for bonuses 452 353 Provision for bonuses for directors (and other officers) 97 99 Provision for retirement benefits for directors (and other officers) 101 166 Provision for allowance for doubtful accounts (27) 36 Welfare expenses 7,549 7,488 Retirement benefit expenses 2,412 1,494 Rent expenses 5,862 5,741 Depreciation and amortization 2,267 3,061 Taxes and dues 3,237 3,278 Communication expenses 1,551 1,584 Amortization of goodwill 2,452 2,427 *2 Total research and development costs Research and development costs included in selling, general and administrative expenses (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) 575 565 *3 Loss on retirement of noncurrent assets (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Machinery and equipment 88 102 Other 148 169 Total 237 271 *4 Gain on sales of noncurrent assets Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) During the fiscal year ended March 31, 2021, the Group recorded ¥99 million gain on sale of a building (Hachioji city, Tokyo). Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) During the fiscal year ended March 31, 2022, the Group recorded ¥224 million gain on sales of buildings (Yokohama city, Kanagawa, etc.). *5 Loss on sales of noncurrent assets Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) During the fiscal year ended March 31, 2021, the Group recorded ¥8 million loss on sale of a building (Uwajima city, Ehime). Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) During the fiscal year ended March 31, 2022, the Group recorded ¥3 million loss on sale of a building (Saijo city, Ehime). - 104 - *6 Impairment loss The Group recognized impairment losses on the following assets: Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) (Millions of yen) Class Intended use Impairment losses Other intangible assets such as land and land leasehold Idle assets 3 Land Rental properties 279 Other property, plant and equipment, such as furniture and fixtures Assets for sale 47 Other property, plant and equipment, such as buildings and structures, software, furniture and fixtures, and other investments and other assets, such as long-term prepaid expenses Care facilities 14 For idle assets, assets for sale and rental properties, the Company and its consolidated subsidiaries consider each asset as one asset group. For business assets, the grouping for managerial accounting is used. For idle assets, assets for sale and rental properties whose fair values had declined and for which future use was no longer expected, the carrying amounts were reduced to the recoverable amounts and an impairment loss (¥330 million) was recognized as an extraordinary loss. The recoverable amount of the asset group was calculated based on the net realizable value. The net realizable values of idle assets and rental properties are calculated by deducting the estimated cost of disposal from the value calculated by making reasonable adjustments (such as land depth adjustment) based on the land assessments or the appraised value. For assets for sale, the net realizable value is determined based on the sales contract amount. We assessed the recoverability of one long-term care facility owned by ALSOK Care Co., Ltd. (Shiki city, Saitama) based on future cash flows. Based on the assessment, we reduced the carrying amounts of certain items of property, plant and equipment related to the facility to the memorandum value and the impairment loss of ¥14 million was recognized as an extraordinary loss. As the undiscounted cash flows were negative, the discount rate information is omitted. Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) (Millions of yen) Class Intended use Impairment losses Other intangible assets such as land and land leasehold Idle assets 1 Goodwill － 192 Buildings and structures, furniture and fixtures, lease assets Care facilities 107 Software Internal-use 6 For idle assets, assets for sale and rental properties, the Company and its consolidated subsidiaries consider each asset as one asset group. For business assets, the grouping for managerial accounting is used. For idle assets whose fair values had declined and for which future use was no longer expected, the carrying amounts were reduced to the recoverable amounts and an impairment loss (¥1 million) was recognized as an extraordinary loss. The recoverable amount of the asset group was calculated based on the net realizable value. The net realizable values of idle assets and rental properties are calculated by deducting the estimated cost of disposal from the value calculated by making reasonable adjustments (such as land depth adjustment) based on the land assessments or the appraised value. For assets for sale, the net realizable value is determined based on the sales contract amount. We assessed the recoverability of certain goodwill based on future cash flows. Based on the assessment, we reduced the carrying amount of the goodwill to the recoverable amount based on its value in use and the impairment loss of ¥192 million was recognized as an extraordinary loss. The value in use was determined by discounting the future cash flows using 6.17% discount rate. We also assessed the recoverability of long-term care facilities owned by ALSOK Care Co., Ltd. (Kasukabe city, Saitama, etc.) based on future cash flows. Based on the assessment, we reduced the carrying amounts of certain items of property, plant and equipment related to the facilities to the memorandum value and the impairment loss of ¥107 million was recognized as an extraordinary loss. As the undiscounted cash flows were negative, the discount rate information is omitted. As the future use of the Company’s certain software was no longer expected, the carrying amount was reduced to zero and an impairment loss of ¥6 million was recognized as an extraordinary loss. As the undiscounted cash flows were zero, the discount rate information is omitted. - 105 - *7 The inventory balance at the end of fiscal year is after writing down the carrying amount due to the decrease in profitability, and the following losses on valuation of inventories are included in cost of sales: (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) 80 26 - 106 - (Matters related to consolidated statement of comprehensive income) * Reclassification adjustments and tax effects related to other comprehensive income (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Valuation difference on available-for-sale securities: Gain (loss) during the fiscal year 3,644 (13) Reclassification adjustments (22) (82) Before tax effect 3,622 (96) Tax effect (1,141) 30 Valuation difference on available-for-sale securities 2,480 (65) Foreign currency translation adjustment: Gain (loss) during the fiscal year (41) 148 Remeasurements of defined benefit plans Gain (loss) during the fiscal year 14,825 1,102 Reclassification adjustments 2,390 180 Before tax effect 17,216 1,282 Tax effect (5,390) (391) Remeasurements of defined benefit plans 11,825 891 Share of other comprehensive income (loss) of entities accounted for using equity method: Gain (loss) during the fiscal year 422 185 Reclassification adjustments (1) 5 Share of other comprehensive income (loss) of entities accounted for using equity method 421 190 Total other comprehensive income (loss) 14,686 1,164 - 107 - (Matters related to consolidated statement of changes in net assets) Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) 1. Class and number of shares issued and treasury stock Number of shares at beginning of year (Shares) Increase in number of shares during the year (Shares) Decrease in number of shares during the year (Shares) Number of shares at end of year (Shares) Number of shares issued Common stock 102,040,042 － － 102,040,042 Total 102,040,042 － － 102,040,042 Treasury stock Common stock (Note) 804,877 144 － 805,021 Total 804,877 144 － 805,021 (Note) The increase of 144 shares of common stock held in treasury is due to repurchase of shares less than one unit and an increase in the number of shares held by associates. 2. Subscription rights to shares and subscription rights to shares held in treasury Nothing to report. 3. Dividends (1) Cash dividends (Resolution) Class Total dividends (Millions of yen) Dividends per share (Yen) Record date Effective date Ordinary General Meeting of Shareholders on June 24, 2020 Common stock 3,594 35.5 March 31, 2020 June 25, 2020 Board of Directors’ meeting on October 29, 2020 Common stock 3,544 35.0 September 30, 2020 December 3, 2020 (2) Dividends that have record date during the fiscal year ended March 31, 2021 and effective date of which is in the following fiscal year (Resolution) Class Total dividends (Millions of yen) Source of dividends Dividends per share (Yen) Record date Effective date Ordinary General Meeting of Shareholders on June 24, 2021 Common stock 3,746 Retained earnings 37.0 March 31, 2021 June 25, 2021 - 108 - Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) 1. Class and number of shares issued and treasury stock Number of shares at beginning of year (Shares) Increase in number of shares during the year (Shares) Decrease in number of shares during the year (Shares) Number of shares at end of year (Shares) Number of shares issued Common stock 102,040,042 － － 102,040,042 Total 102,040,042 － － 102,040,042 Treasury stock Common stock (Note) 805,021 160 330 804,851 Total 805,021 160 330 804,851 (Note) The increase of 160 shares of common stock held in treasury is due to repurchase of shares less than one unit. The decrease of 330 shares of common stock held in treasury is due to a decrease in the number of shares held by associates. 2. Subscription rights to shares and subscription rights to shares held in treasury Nothing to report. 3. Dividends (1) Cash dividends (Resolution) Class Total dividends (Millions of yen) Dividends per share (Yen) Record date Effective date Ordinary General Meeting of Shareholders on June 24, 2021 Common stock 3,746 37.0 March 31, 2021 June 25, 2021 Board of Directors’ meeting on October 29, 2021 Common stock 3,847 38.0 September 30, 2021 December 3, 2021 (2) Dividends that have record date during the fiscal year ended March 31, 2022 and effective date of which is in the following fiscal year (Resolution) Class Total dividends (Millions of yen) Source of dividends Dividends per share (Yen) Record date Effective date Ordinary General Meeting of Shareholders on June 24, 2022 Common stock 4,455 Retained earnings 44.0 March 31, 2022 June 27, 2022 - 109 - (Matters related to consolidated statement of cash flows) *1 Reconciliation between the cash and cash equivalents balance at the fiscal year-end and the amount presented on the consolidated balance sheet (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Cash and deposits accounts 60,833 71,357 Deposits with deposit term of over three months (7,789) (7,713) Short-term investment (securities) whose redemption is due within three months from the acquisition date 100 － Other (deposit at securities company) 0 0 Cash and cash equivalents 53,143 63,644 *2 Major components of assets and liabilities of the companies that became consolidated subsidiaries due to the acquisition of shares during the fiscal year ended March 31, 2022 The assets and liabilities of newly acquired consolidated subsidiaries at the time of inclusion into the Group comprise the following, and the reconciliation between the acquisition cost of shares and the expenditures related to the acquisition (net) is as follows: Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) (Life Holdings Co., Ltd. and its two subsidiaries) (Millions of yen) Current assets 3,736 Noncurrent assets 17,124 Goodwill 12,770 Current liabilities (2,217) Noncurrent liabilities (15,913) Acquisition cost of shares 15,500 Cash and cash equivalents (1,810) Less: Proceeds from acquisition 13,689 Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) Nothing to report. (Matters related to lease transactions) 1. Finance lease transactions (lessee) Finance lease transactions without transfer of ownership i. Lease assets Property, plant and equipment It primarily consists of buildings (long-term care facilities), security alarm equipment and vehicles (machinery, equipment and vehicles). ii. Depreciation method for lease assets It is described in “4. Significant matters forming the basis for the preparation of the consolidated financial statements, (2) Depreciation and amortization method for major depreciable and amortizable assets.” 2. Operating lease transactions Future minimum lease payments under non-cancellable operating lease transactions (Millions of yen) As of March 31, 2021 As of March 31, 2022 Due within one year 3,663 3,434 Due after one year 16,895 19,136 Total 20,559 22,570 - 110 - (Matters related to financial instruments) 1. Financial instruments (1) Policy for financial instruments The Group limits its fund management to long-term and stable management within the amount of surplus funds. The Group’s policy is to obtain funding mainly through bank borrowings. Derivative instruments are used to hedge the risk of future fluctuations in interest rates. In addition, certain consolidated subsidiaries hold available-for-sale securities with embedded derivatives (such as FX-linked bonds) and use equity options as part of their fund management. (2) Details of financial instruments, risks and risk management structure Notes and accounts receivable - trade, and contract assets are exposed to the credit risk of customers. To address the risk, the Group makes efforts to prevent loans to become non-performing, select quality business partners and strengthen its business infrastructure in accordance with the Group's Credit Management Rule. In addition, the Group manages the due dates and balances of receivables for each customer in accordance with Trade Receivables Management Rule. Stocks, which are investment securities, are exposed to the risk of fluctuations in market prices. However, they are mainly companies’ shares with which we have business relationships, and their fair market values are reported to the Board of Directors on a regular basis. Furthermore, embedded derivatives are exposed to the risk of fluctuations in interest rates and impairment of principal arising from future foreign currency fluctuations. However, the counterparties to the transactions are financial institutions with high credit ratings and therefore, the Group does not expect any credit losses arising from default of the counterparties. The majority of notes and accounts payable - trade, which are trade payables, are due within one year. Short-term loans payable mainly represent the funding for Transportation Security Services, while long-term loans payable are primarily for capital expenditures. Loans payable with variable interest rates are exposed to the risk of fluctuations in interest rates. For certain long-term loans payable, derivative transactions (interest rate swaps) are used as hedging instruments for each contract in order to avoid the risk of fluctuations in interest rates and to fix interest expenses. Assessment of hedge effectiveness may be omitted when an interest rate swap meets certain conditions to be accounted for using the special method. The interest rate swaps qualifies for the special method and the assessment of hedge effectiveness is omitted. The execution and management of derivative transactions are conducted in accordance with internal rules that stipulate trading authorizations and transaction limits, etc. When using derivatives, the Group conducts transactions only with highly rated financial institutions in order to mitigate credit risk. Trade payables and loan payables are exposed to liquidity risk. In order to manage the risk, the Group has each company prepare a consolidated management plan. Lease obligations under finance lease transactions have fixed interest rates, and therefore, are not subject to interest rate fluctuation risk. (3) Supplementary explanation on fair value of financial instruments The contract amounts of derivative transactions described in “2. Fair value of financial instruments” below do not represent the market risk related to derivative transactions. - 111 - 2. Fair value of financial instruments Carrying amount, fair value and the difference between these are as follows. The table below does not include financial instruments whose fair values are extremely difficult to determine and equity securities with no quoted prices (see Note 1). As of March 31, 2021 Carrying amount (Millions of yen) Fair value (Millions of yen) Difference (Millions of yen) (1) Notes and accounts receivable - trade 54,283 54,281 (2) (2) Securities 503 503 － (3) Investment securities Shares of subsidiaries and associates 17,020 16,734 (285) Available-for-sale securities 26,272 26,272 － Total assets 98,080 97,793 (287) (1) Long-term loans payable *4 7,458 7,459 0 (2) Lease obligations *5 41,574 41,426 (148) Total liabilities 49,033 48,885 (147) *1 Cash is not included as it is cash, and deposits are not included as these are settled in a short period of time and the fair value approximates its carrying amount. *2 Cash for Transportation Security Services is not included as it is cash. *3 Notes and accounts payable - trade, short-term loans payable and accounts payable - other are not included as these are settled in a short period of time and the fair value approximates its carrying amount. *4 Long-term loans payable include current portion of long-term loans payable. *5 Lease obligations include current portion of lease obligations. As of March 31, 2022 Carrying amount (Millions of yen) Fair value (Millions of yen) Difference (Millions of yen) (1) Notes and accounts receivable - trade, and contract assets 56,458 56,455 (2) (2) Securities 380 380 － (3) Investment securities Shares of subsidiaries and associates 17,825 14,394 (3,431) Available-for-sale securities 25,998 25,998 － Total assets 100,663 97,229 (3,434) (1) Derivative transactions 111 111 － (2) Long-term loans payable *4 4,940 4,939 (0) (3) Lease obligations *5 40,836 40,388 (447) Total liabilities 45,887 45,439 (447) *1 Cash is not included as it is cash, and deposits are not included as these are settled in a short period of time and the fair value approximates its carrying amount. *2 Cash for Transportation Security Services is not included as it is cash. *3 Notes and accounts payable - trade, short-term loans payable and accounts payable - other are not included as these are settled in a short period of time and the fair value approximates its carrying amount. *4 Long-term loans payable include current portion of long-term loans payable. *5 Lease obligations include current portion of lease obligations. *6 Share of investments in partnerships and similar entities recorded in the consolidated balance sheet at net is not included. The share of investments in partnerships recorded in the consolidated balance sheet is ¥500 million. - 112 - (Note 1) Unlisted shares and unlisted shares of subsidiaries and associates As of March 31, 2021 Financial instruments whose fair value is extremely difficult to determine Category Carrying amount (Millions of yen) Unlisted shares 1,855 Unlisted shares of subsidiaries and associates 10,388 Total 12,244 As of March 31, 2022 Equity securities with no quoted prices Category Carrying amount (Millions of yen) Unlisted shares 1,475 Unlisted shares of subsidiaries and associates 10,848 Total 12,324 (Note 2) Scheduled redemption of monetary receivables and securities with maturity dates after the fiscal year-end As of March 31, 2021 Within 1 year (Millions of yen) 1 year to 5 years (Millions of yen) 5 years to 10 years (Millions of yen) Over 10 years (Millions of yen) Cash and deposits 60,833 － － － Cash for Transportation Security Services 82,819 － － － Notes and accounts receivable - trade 54,219 64 － － Available-for-sale securities with maturity dates (1) Government bonds, municipal bonds, etc. － － － － (2) Corporate bonds 607 1,479 2,821 2,411 (3) Other 191 52 311 － Total 198,671 1,597 3,133 2,411 As of March 31, 2022 Within 1 year (Millions of yen) 1 year to 5 years (Millions of yen) 5 years to 10 years (Millions of yen) Over 10 years (Millions of yen) Cash and deposits 71,357 － － － Cash for Transportation Security Services 76,768 － － － Notes receivable - trade 1,737 － － － Accounts receivable - trade 53,577 90 0 － Available-for-sale securities with maturity dates (1) Government bonds, municipal bonds, etc. － － － － (2) Corporate bonds 290 2,275 1,465 2,699 (3) Other 90 241 306 － Total 203,821 2,607 1,772 2,699 - 113 - (Note 3) Scheduled repayment of long-term loans payable, lease obligations and other interest-bearing liabilities after the fiscal year- end As of March 31, 2021 Within 1 year (Millions of yen) 1 year to 2 years (Millions of yen) 2 years to 3 years (Millions of yen) 3 years to 4 years (Millions of yen) 4 years to 5 years (Millions of yen) Over 5 years (Millions of yen) Short-term loans payable 20,950 － － － － － Long-term loans payable 2,929 2,694 588 382 236 625 Lease obligations 5,260 4,714 3,446 2,467 1,861 23,824 Total 29,140 7,409 4,035 2,850 2,097 24,449 As of March 31, 2022 Within 1 year (Millions of yen) 1 year to 2 years (Millions of yen) 2 years to 3 years (Millions of yen) 3 years to 4 years (Millions of yen) 4 years to 5 years (Millions of yen) Over 5 years (Millions of yen) Short-term loans payable 8,483 － － － － － Long-term loans payable 2,795 672 475 328 193 475 Lease obligations 5,306 4,532 3,323 2,540 2,007 23,125 Total 16,585 5,205 3,798 2,869 2,200 23,600 3. Fair value of financial instruments by level The fair values of financial instruments are categorized into the following three levels based on observability of input to the fair value measurement and its significance: Level 1: Quoted prices for assets or liabilities subject to the fair value measurement in active markets Level 2: Inputs other than inputs included within Level 1 Level 3: Unobservable inputs When significant inputs from multiple levels are used, the fair value is categorized in the lowest level of a significant input. (1) Financial instruments recognized at fair value in the consolidated balance sheet As of March 31, 2022 Category Fair value (Millions of yen) Level 1 Level 2 Level 3 Total Securities and investment securities Available-for-sale securities Stocks 17,863 － － 17,863 Government and municipal bonds － － － － Corporate bonds － 6,734 － 6,734 Other － 1,781 － 1,781 Total assets 17,863 8,515 － 26,379 Derivative transactions Equity options － 111 － 111 Total liabilities － 111 － 111 - 114 - (2) Other financial instruments recognized at fair value in the consolidated balance sheet As of March 31, 2022 Category Fair value (Millions of yen) Level 1 Level 2 Level 3 Total Notes and accounts receivable - trade, and contract assets － 56,455 － 56,455 Securities and investment securities Shares of subsidiaries and associates 14,394 － － 14,394 Total assets 14,394 56,455 － 70,849 Long-term loans payable － 4,939 － 4,939 Lease obligations － 40,388 － 40,388 Total liabilities － 45,328 － 45,328 (Note) Explanation of valuation technique used and input to the fair value measurement Securities and investment securities The fair value of listed shares is determined based on quoted prices. As these are traded in an active market, the fair value is categorized as Level 1. The fair value of available-for-sale securities, such as corporate bonds and investment trusts, is determined based on quoted prices from financial institutions. As these are less actively traded and do not have quoted prices in an active market, the fair value is categorized as Level 2. Derivative transactions The fair value of derivative transactions, such as equity options and interest rate swaps, is determined based on quoted prices from financial institutions. As these are less actively traded and do not have quoted prices in an active market, the fair value is categorized as Level 2. A hybrid financial instrument that contains an embedded derivative is measured at fair value in its entirety as securities and investment securities with changes in fair value recognized in profit or loss. This is because the embedded derivative cannot be separately measured at fair value on a reasonable basis. Notes and accounts receivable - trade, and contract assets The fair values are determined, for each group of receivables categorized by term, based on the present value of receivables discounted using the interest rate adjusted for the period to maturity and credit risk. The fair value is categorized as Level 2. Long-term loans payable The fair value of long-term loans payable with variable interest rates is its carrying amount as these reflect market interest rates in a short period of time. The fair value of long-term loans payable with fixed interest rates is determined based on the present value of principal and interest discounted using the interest rate that would be applied to new loans. This fair value is categorized as Level 2. Lease obligations The fair value of lease obligations is determined based on the present value of principal and interest discounted using the interest rate that would be applied to new leases. This fair value is categorized as Level 2. - 115 - (Matters related to securities) 1. Available-for-sale securities As of March 31, 2021 Class Carrying amount (Millions of yen) Cost or amortized cost (Millions of yen) Difference (Millions of yen) Carrying amount exceeds cost or amortized cost (1) Shares 16,497 5,966 10,530 (2) Bonds Government bonds, municipal bonds, etc. － － － Corporate bonds 4,479 4,411 67 (3) Other 1,127 1,005 122 Subtotal 22,105 11,384 10,721 Carrying amount does not exceed cost or amortized cost (1) Shares 1,432 1,778 (346) (2) Bonds Government bonds, municipal bonds, etc. － － － Corporate bonds 2,742 2,794 (52) (3) Other 496 538 (42) Subtotal 4,671 5,112 (441) Total 26,776 16,496 10,279 As of March 31, 2022 Class Carrying amount (Millions of yen) Cost or amortized cost (Millions of yen) Difference (Millions of yen) Carrying amount exceeds cost or amortized cost (1) Shares 16,440 5,932 10,508 (2) Bonds Government bonds, municipal bonds, etc. － － － Corporate bonds 2,939 2,882 56 (3) Other 749 642 106 Subtotal 20,129 9,457 10,671 Carrying amount does not exceed cost or amortized cost (1) Shares 1,422 1,783 (361) (2) Bonds Government bonds, municipal bonds, etc. － － － Corporate bonds 3,794 3,855 (60) (3) Other 1,032 1,078 (46) Subtotal 6,249 6,717 (468) Total 26,379 16,175 10,203 - 116 - 2. Available-for-sale securities sold Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) Class Proceeds from sales (Millions of yen) Total gain on sales (Millions of yen) Total loss on sales (Millions of yen) (1) Shares 104 26 0 (2) Bonds Government bonds, municipal bonds, etc. － － － Corporate bonds 100 0 － (3) Other － － － Total 204 26 0 Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) Class Proceeds from sales (Millions of yen) Total gain on sales (Millions of yen) Total loss on sales (Millions of yen) (1) Shares 343 31 0 (2) Bonds Government bonds, municipal bonds, etc. － － － Corporate bonds 1,720 0 2 (3) Other 525 112 2 Total 2,589 144 5 3. Securities impaired Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) An impairment loss of ¥39 million (shares of ¥39 million) was recognized on available-for-sale securities. Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) An impairment loss of ¥65 million (shares of ¥65 million) was recognized on available-for-sale securities. - 117 - (Matters related to derivative transactions) Derivative transactions to which hedge accounting is not applied As of March 31, 2021 Class Contract amount (Millions of yen) Fair value (Millions of yen) Unrealized gains or losses (Millions of yen) Transactions other than market transactions Hybrid financial instruments 199 187 (12) Total 199 187 (12) (Note) A hybrid financial instrument that contains an embedded derivative is measured at fair value in its entirety with changes in fair value recognized in profit or loss. This is because the embedded derivative cannot be separately measured at fair value on a reasonable basis. As of March 31, 2022 Class Contract amount (Millions of yen) Fair value (Millions of yen) Unrealized gains or losses (Millions of yen) Transactions other than market transactions Hybrid financial instruments 199 197 (2) Equity options 153 (111) (264) Total 353 86 (267) (Note) A hybrid financial instrument that contains an embedded derivative is measured at fair value in its entirety with changes in fair value recognized in profit or loss. This is because the embedded derivative cannot be separately measured at fair value on a reasonable basis. (Matters related to retirement benefits) 1. Overview of adopted retirement benefit plans The Company has defined benefit plans, including corporate pension plan and lump-sum payment plan, as well as defined contribution plans. In addition to these plans, certain consolidated subsidiaries have defined benefit plans and defined contribution plans such as Smaller Enterprise Retirement Allowance Mutual Aid System. Certain consolidated subsidiaries apply a simplified method in calculating retirement benefit liability and retirement benefit expenses, under which the amount of required voluntary termination benefits at the fiscal year-end is recognized as defined benefit obligation. 2. Defined benefit plans (1) Reconciliation of beginning to ending balance of define benefit obligation (excluding plans accounted for under the simplified method as described in (3)) (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Defined benefit obligation at beginning of year 117,457 119,485 Service cost 5,254 5,313 Interest cost 789 803 Actuarial gains and losses 788 36 Past service cost － 138 Retirement benefits paid (4,805) (4,583) Reclassification due to changes from the simplified method to the principle method － 5 Increase due to business combination 0 － Defined benefit obligation at end of year 119,485 121,199 - 118 - (2) Reconciliation of beginning to ending balance of plan asset (excluding plans accounted for under the simplified method as described in (3)) (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Plan assets at beginning of year 94,728 115,002 Expected return on plan assets 2,332 2,836 Actuarial gains and losses 15,614 1,276 Contributions from employers 4,902 4,893 Retirement benefits paid (2,575) (2,390) Plan assets at end of year 115,002 121,618 (3) Reconciliation of beginning to ending balance of retirement benefit liability under the simplified method (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Retirement benefit liability at beginning of year 2,440 2,553 Retirement benefit expenses 374 383 Retirement benefits paid (231) (306) Contributions to the plans (30) (25) Reclassification due to changes from the simplified method to the principle method － (5) Retirement benefit liability at end of year 2,553 2,599 (4) Reconciliation of ending balances of defined benefit obligation and plan assets to retirement benefit liability and retirement benefit asset reported on the consolidated balance sheet (Millions of yen) As of March 31, 2021 As of March 31, 2022 Defined benefit obligation for funded plans 95,295 97,050 Plan assets 115,198 121,809 (19,903) (24,758) Defined benefit obligation for unfunded plans 26,939 26,938 Net retirement benefit liability (asset) 7,036 2,180 Retirement benefit liability 26,974 27,175 Retirement benefit asset (19,938) (24,995) Net retirement benefit liability (asset) 7,036 2,180 (Note) Include plans accounted for under the simplified method. - 119 - (5) Retirement benefit expense and its components (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Service cost 5,254 5,313 Interest cost 789 803 Expected return on plan assets (2,332) (2,836) Amortization of actuarial gains and losses 2,390 175 Amortization of past service cost － 4 Retirement benefit expenses calculated under the simplified method 374 383 Other 132 126 Retirement benefit expenses related to defined benefit plans 6,609 3,971 (6) Reclassification adjustments of defined benefit plans Reclassification adjustments of defined benefit plans, net of tax, comprise the following: (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Past service cost － 133 Actuarial gains and losses (17,216) (1,416) Total (17,216) (1,282) (7) Remeasurements of defined benefit plans Remeasurements of defined benefit plans, net of tax, comprise the following: (Millions of yen) As of March 31, 2021 As of March 31, 2022 Unrecognized past service cost － 133 Unrecognized actuarial gains and losses (2,537) (3,953) Total (2,537) (3,820) (8) Plan assets i. Major categories of plan assets Major categories of plan assets and its percentage allocation are as follows: As of March 31, 2021 As of March 31, 2022 Bonds 31% 35% Stocks 41 42 Cash and deposits 1 1 General accounts 15 10 Other 12 12 Total 100 100 ii. Method of determining expected long-term rate of return on plan assets The expected long-term rate of return on plan assets is determined by taking into account the existing and future plan asset portfolios and the current and expected long-term rates of return from the various components of those plan assets. - 120 - (9) Actuarial assumptions Key actuarial assumptions (in weighted average) are as follows: As of March 31, 2021 As of March 31, 2022 Discount rate 0.68% 0.68% Expected long-term rate of return on plan assets 2.50 2.50 Expected rate of future salary increase 1.1 to 1.9 1.1 to 1.9 3. Defined contribution plans The required amount of contribution to the defined contribution plans of the Company and its consolidated subsidiaries is ¥644 million for the fiscal year ended March 31, 2021 and ¥661 million for the fiscal year ended March 31, 2022. - 121 - (Matters related to tax-effect accounting) 1. Major components of deferred tax assets and liabilities (Millions of yen) As of March 31, 2021 As of March 31, 2022 Deferred tax assets: Accrued business taxes 600 698 Provision for bonuses 819 688 Allowance for doubtful accounts 247 213 Retirement benefit liability 8,473 8,543 Accrued retirement benefits for directors (and other officers) 597 551 Depreciation and amortization 1,859 2,353 Disallowed expenses related to installation of security alarm equipment 3,503 3,486 Loss on valuation of investment securities 297 308 Net operating loss carryforwards 1,671 1,631 Revaluation reserve for land 1,455 1,302 Asset adjustment account 326 65 Other 1,343 1,114 Deferred tax assets - subtotal 21,195 20,958 Valuation allowance related to net operating loss carryforwards (813) (714) Valuation allowance related to aggregation of deductible temporary differences and others (2,802) (2,891) Less: Valuation allowance (3,616) (3,606) Total deferred tax assets, net 17,579 17,352 Deferred tax liabilities: Valuation difference on available-for-sale securities (3,166) (3,138) Retirement benefit asset (6,286) (7,871) Foreign stock dividends (115) (115) Revaluation reserve for land (314) (314) Reserve for advanced depreciation of noncurrent assets (7) (6) Liability adjustment account (115) (109) Total deferred tax liabilities (10,007) (11,556) Net deferred tax assets 7,572 5,795 - 122 - (Note) 1. Net operating loss carryforwards and the amount of related deferred tax assets by carryforward period As of March 31, 2021 (Millions of yen) Within 1 year 1 year to 2 years 2 years to 3 years 3 years to 4 years 4 years to 5 years Over 5 years Total Net operating loss carryforwards (*1) － － － 179 361 1,131 1,671 Valuation allowance － － － － (89) (724) (813) Deferred tax assets (*2) － － － 179 271 407 858 (*1) Net operating loss carryforward is the amount after multiplied by the statutory tax rate. (*2) Deferred tax asset is recognized for net operating loss carryforwards of certain consolidated subsidiaries. We determined that the deferred tax asset is recoverable because it is likely that taxable income (before adjusted for temporary differences) will be available in the future based on the consideration of recent actual taxable income and achievement of business plans. As of March 31, 2022 (Millions of yen) Within 1 year 1 year to 2 years 2 years to 3 years 3 years to 4 years 4 years to 5 years Over 5 years Total Net operating loss carryforwards (*1) － － 40 358 298 933 1,631 Valuation allowance － － － (30) (69) (614) (714) Deferred tax assets (*2) － － 40 327 229 319 916 (*1) Net operating loss carryforward is the amount after multiplied by the statutory tax rate. (*2) Deferred tax asset is recognized for net operating loss carryforwards of certain consolidated subsidiaries. We determined that the deferred tax asset is recoverable because it is likely that taxable income (before adjusted for temporary differences) will be available in the future based on the consideration of recent actual taxable income and achievement of business plans. (Note) 2. Net deferred tax assets are included in the following accounts on the consolidated balance sheet: (Millions of yen) As of March 31, 2021 As of March 31, 2022 Noncurrent assets - Deferred tax assets 8,449 7,102 Noncurrent liabilities - Deferred tax liabilities (748) (991) Noncurrent liabilities - Deferred tax liabilities for revaluation (128) (314) 2. Reconciliation of significant differences between the statutory tax rate and the effective tax rate after applying tax effect accounting As of March 31, 2021 As of March 31, 2022 Statutory tax rate 30.6 % 30.6 % (Adjustment) Non-deductible permanent differences such as entertainment expenses 0.2 0.2 Non-taxable permanent differences such as dividend income (0.1) (0.2) Equal division of municipal tax 1.3 1.0 Amortization of goodwill 1.9 1.6 Share of profit of entities accounted for using equity method (1.1) (1.1) Difference in tax rates among subsidiaries 1.1 1.3 Special corporate tax credit (0.2) (0.9) Valuation allowance (the amount deducted from deferred tax assets) (3.2) 0.0 Other 0.3 0.3 Effective tax rate after applying tax effect accounting 30.9 32.8 - 123 - (Matters related to business combination) Business combination under common control Merger of ALSOK Building Services Co., Ltd. with Nippon Building Maintenance Co., Ltd. as the surviving company 1. Overview (1) Name of the company and its business Surviving company Name Nippon Building Maintenance Co., Ltd. Business General property management and fire protection service (building maintenance) Merged company Name ALSOK Building Services Co., Ltd. Business General property management and fire protection service (building maintenance) (2) Date of business combination April 1, 2021 (3) Legal form of business combination Merger of ALSOK Building Services Co., Ltd. (merged company) by Nippon Building Maintenance Co., Ltd. (surviving company) (4) Name of the surviving company after the merger ALSOK Facilities Co., Ltd. (5) Other Since its establishment in 1966, ALSOK Building Services Co., Ltd. has played a central role in providing building maintenance services to the Group's customers. Nippon Building Maintenance Co., Ltd., which joined the Group in 2014, has made efforts to provide high-quality building maintenance services since its establishment in 1955. By integrating the sales and operation capabilities of both companies, this merger will strengthen the Group's infrastructure for building maintenance services and provide more flexible and wide-ranging services to meet the needs of customers for the maintenance and management of buildings and equipment. 2. Accounting treatment This merger was accounted for as a business combination under common control in accordance with “Accounting Standard for Business Combinations” (ASBJ Statement No. 21) and “Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10). - 124 - (Matters related to asset retirement obligations) Asset retirement obligations reported on the consolidated balance sheet 1. Overview of asset retirement obligations It is an obligation to restore the site to its original state in accordance with real estate lease agreements such as offices. 2. Method to determine the amount of asset retirement obligations The amount of asset retirement obligations is generally determined based on the expected usage period of 50 years from the acquisition with the discount rate of 0.0% to 2.3% depending on the expected remaining usage period. 3. Changes in asset retirement obligations (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Balance at beginning of year 465 480 Purchase of property, plant and equipment － 4 Adjustment due to passage of time 2 2 Other 12 － Balance at end of year 480 486 (Matters related to revenue recognition) 1. Disaggregation of revenue from contracts with customers The information on disaggregation of revenue from contract with customers is described in “Notes (Segment information).” 2. Information relating to revenue from contracts with customers (1) Contract revenue Contract revenue is earned as a result of the Company or its consolidated subsidiaries providing services to customers such as security services. In most cases, considerations for providing such services are collected in a lump sum in cash in the following month. Considerations for providing Electronic Security Services to individual customers are collected on monthly basis in the form of advance payment before the service is provided. A performance obligation related to the contract revenue is to provide the service specified in the contract to a customer. The Company and its consolidated subsidiaries recognize revenue as the performance obligation is satisfied over time. A transaction price is specified in the contract and does not contain significant variable consideration or financing component. If a single contract has multiple performance obligations, the transaction price is allocated based on the price specified in the contract. (2) Construction revenue Construction revenue is earned as a result of installation of security alarm equipment leased or rented to the customer as well as repair/renewal constructions and piping or electrical constructions of various building equipment. In most cases, considerations for providing such services are collected in a lump sum in cash in the following month. A partial payment is received for long-term construction contract by reference to the stage of completion. A performance obligation related to the construction revenue is to provide the construction service specified in the contract. Generally, revenue from construction contracts is recognized as the performance obligation is satisfied over time. This is because the partially-completed contract is an asset that cannot be used for other purposes and gives rise to a right to receive consideration. As the completion of a contract corresponds to costs incurred for the construction, the percentage of completion for the performance obligation can be reasonably estimated based on the costs incurred. Therefore, the percentage of completion is determined, for each contract, based on the costs incurred to the fiscal year- end to the estimated total cost to complete. For contracts that have a very short construction period, such as installation of security alarm equipment, which accounts for most of the construction revenue, revenue is recognized at a point in time at completion of contract when a right to receive consideration is confirmed. A transaction price is specified in the contract and does not contain significant variable consideration or financing - 125 - component. If a single contract has multiple performance obligations, the transaction price is allocated based on the price specified in the contract. (3) Sales revenue Sales revenue is earned as a result of product sales (including installation of products sold). In most cases, considerations for transferring such products are collected in a lump sum in cash in the following month. For only a few contracts, considerations are received in installments approximately over two to five years. A performance obligation related to the sales revenue is to transfer products to a customer. The performance obligation is satisfied at a point in time when a customer accepts the product and the legal title, physical possession and significant risk and rewards of ownership of the product are transferred to the customer. Therefore, the revenue is recognized at a point in time of delivery. A transaction price is specified in the contract and does not contain significant variable consideration or financing component. If a single contract has multiple performance obligations, the transaction price is allocated based on the price specified in the contract. 3. Relationship between satisfaction of performance obligations based on contracts with customers and cash flows arising from such contracts, and the amount and timing of revenue expected to arise in the following years from contracts with customers existed as of March 31, 2022 (1) Contract assets and liabilities (Millions of yen) As of March 31, 2022 Receivables arising from contracts with customers (beginning balance) 52,675 Receivables arising from contracts with customers (ending balance) 55,406 Contract assets (beginning balance) 1,608 Contract assets (ending balance) 1,052 Contract liabilities (beginning balance) 11,258 Contract liabilities (ending balance) 11,211 A contract asset is the Company’s and its consolidated subsidiaries’ right to unbilled consideration in exchange for construction contract partially completed as of the fiscal year-end. When the Company’s and its consolidated subsidiaries’ right to consideration becomes unconditional, the contract asset is reclassified to a receivable from contracts with customers. A contract liability represents payments received in advance related to Electronic Security Services and Transportation Security Services, which is debited mainly within one year as the revenue is recognized. (2) Transaction price allocated to remaining performance obligation The Company and its consolidated subsidiaries apply practical expedient to the notes on transaction price allocated to remaining performance obligation. Notes on a contract with initial expected contract term of less than one year are not included. The performance obligation is related to construction revenue from General Property Management and Fire Protection Services. Total transaction price to which remaining performance obligations are allocated and the periods for which revenue is expected to be recognized are as follows: (Millions of yen) As of March 31, 2022 Within 1 year 7,828 1 to 2 years 5,174 2 to 3 years 1,768 Over 3 years 548 Total 15,320 - 126 - (Segment information etc.) [Segment information] 1. Overview of reportable segment (1) How reportable segment is determined The Group’s reportable segments are components of the group for which discrete financial information is available and which are reviewed by the Board of Directors on a regular basis to make decisions about resources and assess their performance. The Group has three reportable segments: “Security Services”, which includes Electronic Security Services, Stationed Security Services and Transportation Security Services, “General Property Management and Fire Protection Services”, which includes equipment installation (such as piping or electrical construction services), facility management, environmental hygiene management, janitorial services, inspection and installation of fire equipment and sales of various disaster prevention equipment, and “Long-Term Care Services”, which includes home care support, home-visit care, day care and facility care. “Other services” category includes business segments not included in other reportable segments, including information security, PCR test and food inspection services. (2) Changes in reportable segment Segment information for the fiscal year ended March 31, 2021 has been prepared based on the reportable segments and the allocation method of income and expenses used for the fiscal year ended March 31, 2022. 2. Method to determine the amount of net sales, income (loss) and other items Accounting treatment used for reportable segments is mostly the same as the accounting treatment applied in preparing the consolidated financial statements. Segment income is based on operating income. Intersegment sales and transfers are based on prevailing market prices. - 127 - 3. Information on the amount of net sales and income (loss) by reportable segment I. Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) (Millions of yen) Reportable segment Other Services (Note 1) Total Adjustment (Note 2) Amount recorded in the consolidated statement of income (Note 3) Security Services General Property Management and Fire Protection Services Long-Term Care Services Total Net sales Sales to external customers 355,559 68,173 40,375 464,108 5,812 469,920 － 469,920 Intersegment sales and transfers 228 117 8 353 227 581 (581) － Total 355,788 68,290 40,383 464,461 6,040 470,502 (581) 469,920 Income by reportable segment 37,149 7,835 702 45,687 981 46,669 (9,486) 37,182 Depreciation and amortization 12,562 1,166 1,683 15,412 388 15,800 27 15,828 Amortization of goodwill 887 24 1,462 2,375 77 2,452 － 2,452 (Note) 1. “Other services” category includes business segments not included in other reportable segments, including information security, PCR test and food inspection services. 2. ¥(9,486) million adjustment to income by reportable segment represents common expenses that cannot be allocated to any specific reportable segment. These expenses are primarily general and administrative expenses not associated with specific reportable segment. 3. Income by reportable segment is adjusted for the operating income per the consolidated statement of income. 4. Assets are not allocated to business segments. - 128 - 4. Information on the amount of net sales and income (loss) and disaggregation of revenue by reportable segment I. Fiscal year ended (From April 1, 2021 to March 31, 2022) (Millions of yen) Reportable segment Other Services (Note 1) Total Adjustment (Note 2) Amount recorded in the consolidated statement of income (Note 3) Security Services General Property Management and Fire Protection Services Long-Term Care Services Total Net sales Contract revenue 339,880 35,165 41,557 416,603 5,569 422,173 － 422,173 Construction revenue 5,797 19,441 26 25,265 3 25,269 － 25,269 Sales revenue 28,297 12,827 65 41,190 459 41,649 － 41,649 Revenue from contracts with customers 373,975 67,435 41,649 483,060 6,032 489,092 － 489,092 Sales to external customers 373,975 67,435 41,649 483,060 6,032 489,092 － 489,092 Intersegment sales and transfers 200 152 9 362 276 639 (639) － Total 374,176 67,587 41,659 483,423 6,309 489,732 (639) 489,092 Income by reportable segment 40,758 8,244 1,621 50,624 1,368 51,993 (9,127) 42,865 Depreciation and amortization 13,511 1,246 1,695 16,453 384 16,838 23 16,861 Amortization of goodwill 865 23 1,460 2,350 77 2,427 － 2,427 (Note) 1. “Other services” category includes business segments not included in other reportable segments, including information security, PCR test and food inspection services. 2. ¥(9,127) million adjustment to income by reportable segment represents common expenses that cannot be allocated to any specific reportable segment. These expenses are primarily general and administrative expenses not associated with specific reportable segment. 3. Income by reportable segment is adjusted for the operating income per the consolidated statement of income. 4. Assets are not allocated to business segments. - 129 - [Related information] I. Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) 1. Information by product and service It is omitted as the information is described in the segment information. 2. Information by region (1) Net sales It is omitted as the net sales to domestic customers account for more than 90% of net sales on the consolidated statement of income. (2) Property, plant and equipment It is omitted as the amount of property, plant and equipment located in Japan account for more than 90% of property, plant and equipment on the consolidated balance sheet. 3. Information by major customer It is omitted as no single external customer accounts for more than 10% of net sales on the consolidated statement of income. II. Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) 1. Information by product and service It is omitted as the information is described in the segment information. 2. Information by region (1) Net sales It is omitted as the net sales to domestic customers account for more than 90% of net sales on the consolidated statement of income. (2) Property, plant and equipment It is omitted as the amount of property, plant and equipment located in Japan account for more than 90% of property, plant and equipment on the consolidated balance sheet. 3. Information by major customer It is omitted as no single external customer accounts for more than 10% of net sales on the consolidated statement of income. - 130 - [Information on impairment losses of noncurrent assets by reportable segment] I. Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) No impairment loss was allocated to any of the reportable segments. Impairment losses not allocated to reportable segments were ¥344 million, which comprised ¥281 million for land, ¥51 million for other tangible assets such as furniture and fixtures, ¥5 million for buildings and structures, ¥3 million for software, ¥1 million for other intangible assets such as land leasehold and ¥1 million for other investments and other assets such as long-term prepaid expenses. II. Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) No impairment loss was allocated to any of the reportable segments. Impairment losses not allocated to reportable segments were ¥307 million, which mainly comprised ¥192 million for goodwill, ¥106 million for leased assets and ¥6 million for software. [Information on amortized and unamortized goodwill by reportable segment] I. Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) (Amortized and unamortized goodwill) It is omitted as the information on amortized goodwill is described in the segment information. Unamortized goodwill as of March 31, 2021 is ¥29,678 million. As assets are not allocated to business segments, the unamortized goodwill is not included in the reportable segments as of March 31, 2021. II. Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) (Amortized and unamortized goodwill) It is omitted as the information on amortized goodwill is described in the segment information. Unamortized goodwill as of March 31, 2022 is ¥27,097 million. As assets are not allocated to business segments, the unamortized goodwill is not included in the reportable segments as of March 31, 2022. [Information on negative goodwill by reportable segment] I. Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) Nothing to report. II. Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) Nothing to report. - 131 - [Related parties] Fiscal year ended March 31, 2021 (from April 1, 2020 to March 31, 2021) Related party transactions 1. Transactions between the reporting company and its related parties Directors and officers of the reporting company and major shareholders (individuals) Type Name of company or individual Location Capital stock or paid-in capital (Millions of yen) Business or occupation Ratio of voting rights holding (held) (%) Relationship Transaction Transaction amount (Millions of yen) Account Balance at end of year (Millions of yen) Director Atsushi Murai － － Chairperson of Jun Murai Memorial Scholarship Foundation (Public Interest Incorporated Foundation) (Held) Direct ownership 2.8 Donation Donation 13 － － (Note) 1. This is a transaction conducted by Atsushi Murai (former Representative Director) as the Chairperson of Jun Murai Memorial Scholarship Foundation (Public Interest Incorporated Foundation). The foundation provides non-refundable scholarships for students enrolled in engineering universities (including engineering faculties) or engineering graduate schools in Kanagawa prefecture. 2. Conditions attached to transactions and how the conditions are determined The amount of donation to the Foundation is determined based on the consideration of the need for contribution to society and the annual scholarships deemed necessary to achieve the purpose of the foundation. 2. Transactions between consolidated subsidiary of the reporting company and its related parties Directors and officers of the reporting company and major shareholders (individuals) Type Name of company or individual Location Capital stock or paid-in capital (Millions of yen) Business or occupation Ratio of voting rights holding (held) (%) Relationship Transaction Transaction amount (Millions of yen) Account Balance at end of year (Millions of yen) Director Atsushi Murai － － Chairperson of Jun Murai Memorial Scholarship Foundation (Public Interest Incorporated Foundation) (Held) Direct ownership 2.8 Donation Donation 2 － － (Note) 1. This is a transaction conducted by Atsushi Murai (former Representative Director) as the Chairperson of Jun Murai Memorial Scholarship Foundation (Public Interest Incorporated Foundation). The foundation provides non-refundable scholarships for students enrolled in engineering universities (including engineering faculties) or engineering graduate schools in Kanagawa prefecture. 2. Conditions attached to transactions and how the conditions are determined The amount of donation to the Foundation is determined based on the consideration of the need for contribution to society and the annual scholarships deemed necessary to achieve the purpose of the foundation. - 132 - Fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) Related party transactions 1. Transactions between the reporting company and its related parties Directors and officers of the reporting company and major shareholders (individuals) Type Name of company or individual Location Capital stock or paid-in capital (Millions of yen) Business or occupation Ratio of voting rights holding (held) (%) Relationship Transaction Transaction amount (Millions of yen) Account Balance at end of year (Millions of yen) Director Atsushi Murai － － Chairperson of Jun Murai Memorial Scholarship Foundation (Public Interest Incorporated Foundation) (Held) Direct ownership 2.8 Donation Donation 13 － － (Note) 1. This is a transaction conducted by Atsushi Murai (former Representative Director) as the Chairperson of Jun Murai Memorial Scholarship Foundation (Public Interest Incorporated Foundation). The foundation provides non-refundable scholarships for students enrolled in engineering universities (including engineering faculties) or engineering graduate schools in Kanagawa prefecture. 2. Conditions attached to transactions and how the conditions are determined The amount of donation to the Foundation is determined based on the consideration of the need for contribution to society and the annual scholarships deemed necessary to achieve the purpose of the foundation. 2. Transactions between consolidated subsidiary of the reporting company and its related parties Directors and officers of the reporting company and major shareholders (individuals) Type Name of company or individual Location Capital stock or paid-in capital (Millions of yen) Business or occupation Ratio of voting rights holding (held) (%) Relationship Transaction Transaction amount (Millions of yen) Account Balance at end of year (Millions of yen) Director Atsushi Murai － － Chairperson of Jun Murai Memorial Scholarship Foundation (Public Interest Incorporated Foundation) (Held) Direct ownership 2.8 Donation Donation 2 － － (Note) 1. This is a transaction conducted by Atsushi Murai (former Representative Director) as the Chairperson of Jun Murai Memorial Scholarship Foundation (Public Interest Incorporated Foundation). The foundation provides non-refundable scholarships for students enrolled in engineering universities (including engineering faculties) or engineering graduate schools in Kanagawa prefecture. 2. Conditions attached to transactions and how the conditions are determined The amount of donation to the Foundation is determined based on the consideration of the need for contribution to society and the annual scholarships deemed necessary to achieve the purpose of the foundation. (Special purpose entities subject to disclosure) Nothing to report. - 133 - (Per share information) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Net assets per share 2,741.27 (Yen) 2,964.85 (Yen) Net income per share 247.09 (Yen) 286.11 (Yen) (Note) 1. Diluted net income per share is not disclosed as there are no potentially dilutive shares. 2. The following is the basis of calculating net income per share: Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Net income per share Profit attributable to owners of parent (Millions of yen) 25,014 28,964 Amount not attributable to ordinary shareholders (Millions of yen) － － Profit attributable to ordinary shareholders of parent (Millions of yen) 25,014 28,964 Average number of shares during the period (Thousands of shares) 101,235 101,235 3. The following is the basis of calculating net assets per share: As of March 31, 2021 As of March 31, 2022 Total net assets (Millions of yen) 304,427 327,509 Amount deducted from total net assets (Millions of yen) 26,915 27,362 (Of which, non-controlling interests) (Millions of yen) (26,915) (27,362) Net assets related to common stocks at fiscal year-end (Millions of yen) 277,512 300,147 Number of common stocks at fiscal year-end used to calculate net assets per share (Thousands of shares) 101,235 101,235 - 134 - (Significant subsequent events) Business combination by way of acquisition Effective June 22, 2022, the Company acquired all shares of Kanden Joy Life Co., Ltd. and Kanden Life Support Co., Ltd., which has converted these companies into the Company’s consolidated subsidiaries. After the acquisition, Kanden Joy Life Co., Ltd. became ALSOK Joy Life Co., Ltd. and Kanden Life Support Co., Ltd. became ALSOK Life Support Co., Ltd. 1. Overview of business combination (1) Name of acquired company and its business Name of acquired company Kanden Joy Life Co., Ltd. Kanden Life Support Co., Ltd. Business Long-term care service (2) Reason for business combination The Company has provided a wide variety of security services to the national and local governments, various financial institutions and business operators, and made efforts to provide safety, security and convenience to individual customers, such as home security. Currently, we are focused on expanding our security business to enter into related fields of the business. In order to provide safety and security to individuals, especially the senior citizens, we established ALSOK Care Co., Ltd. in 2012 to enter into a long-term care business. Subsequently, HCM Corporation became the Company’s subsidiary in 2014, ALSOK Care & Support Co., Ltd. in 2015, Wisnet Co., Ltd. in 2016, Care Plus, Inc. engaging in visiting massage services in 2018 and Life Holdings Co., Ltd. in 2020. Also in 2020, Nippon Care Supply Co., Ltd., engaging in lifestyle support services for the senior citizens, became the Company’s equity-method associate through the capital and business alliance with Mitsubishi Corporation, which further strengthened the long-term care and its related businesses. ALSOK Joy Life Co., Ltd. and ALSOK Life Support Co., Ltd., the Company’s newly consolidated subsidiaries, have developed care facilities and housing (mainly specified facilities) for the senior citizens with more than 1,200 rooms and built powerful brand in four prefectures in the Kansai area, Kyoto, Osaka, Hyogo and Nara. Both companies have provided high-quality long-term care services, including those for independent senior citizens, focusing on management policies such as “realization of a lively aging society” and “three principles of care (continuity of life, respect for self-determination, utilization of potential)” with an emphasis on users being able to continue a lifestyle that is right for them. We believe that the inclusion of the two companies would not only expand and strengthen the Group's long-term care business but would also contribute to build on the Group’s collective strengths by adding new services. (3) Date of business combination June 22, 2022 (4) Legal form of business combination Acquisition of stocks (5) Name of the company after the business combination ALSOK Joy Life Co., Ltd. ALSOK Life Support Co., Ltd. (6) Share of voting rights to be acquired 100% (7) Reason for selecting company to acquire The Company acquires stock in exchange for cash consideration. 2. Acquisition cost of the business and type of consideration paid Consideration Cash and deposits ¥10,004 million Acquisition cost ¥10,004 million 3. Major components and amount of acquisition related costs Advisory fees ¥98 million * This is provisional amount as the amount has not been determined yet. 4. Amount of goodwill, its causes and the method and period of amortization These have not been determined yet. 5. Amount of assets acquired and liabilities assumed and the major components as of the date of business combination - 135 - These have not been determined yet. - 136 - v. [Supplementary schedules] [Schedule of corporate bonds] Nothing to report. [Schedule of borrowings] Category Balance at beginning of year (Millions of yen) Balance at end of year (Millions of yen) Average interest rate (%) Repayment date Short-term loans payable 20,950 8,483 1.06 － Current portion of long-term loans payable 2,929 2,795 0.45 － Current portion of lease obligations 5,260 5,306 3.25 － Long-term loans payable (excluding current portion) 4,528 2,145 0.62 April 30, 2023 to June 3, 2030 Lease obligations (excluding current portion) 36,313 35,529 3.99 － Other interest bearing liabilities － － － － Total 69,983 54,260 － － (Note) 1. “Average interest rate” is weighted average rate for borrowings outstanding at the fiscal year-end. 2. Scheduled repayment amount of long-term loans payable and lease obligations (excluding current portion) within five years after the fiscal year-end is as follows: 1 to 2 years (Millions of yen) 2 to 3 years (Millions of yen) 3 to 4 years (Millions of yen) 4 to 5 years (Millions of yen) Long-term loans payable 672 475 328 193 Lease obligations 4,532 3,323 2,540 2,007 [Schedule of asset retirement obligations] The amounts of asset retirement obligations as of the beginning and ending of the current fiscal year are less than 1/100 of total liabilities and net assets as of the beginning and ending of the current fiscal year, respectively. In accordance with Article 92-2 of the Ordinance on Consolidated Financial Statements, this disclosure is omitted. (2) [Other] Quarterly information for the fiscal year ended March 31, 2022 Period Three months ended June 30 Six months ended September 30 Nine months ended December 31 Fiscal year ended March 31 Net sales (Millions of yen) 117,012 245,290 363,783 489,092 Income before income taxes (Millions of yen) 10,042 25,730 37,106 45,729 Profit attributable to owners of parent (Millions of yen) 6,098 16,097 23,136 28,964 Net income per share (Yen) 60.24 159.01 228.54 286.11 Period Three months ended June 30 Three months ended September 30 Three months ended December 31 Three months ended March 31 Net income per share (Yen) 60.24 98.77 69.53 57.57 - 137 - 2. [Non-consolidated financial statements] (1) [Non-consolidated financial statements] i. [Non-consolidated balance sheet] (Millions of yen) As of March 31, 2021 As of March 31, 2022 Assets Current assets Cash and deposits 10,527 19,288 Cash for Transportation Security Services *1 79,980 *1 73,717 Notes receivable - trade 126 171 Accounts receivable - trade *2 24,805 *2 28,713 Supplies 5,701 5,455 Advance payments to suppliers 830 － Prepaid expenses 1,804 1,737 Advances paid *2 5,394 *2 6,522 Other *2 8,466 *2 8,517 Allowance for doubtful accounts (42) (47) Total current assets 137,596 144,076 Noncurrent assets Property, plant and equipment Buildings 12,642 12,033 Structures 393 358 Machinery and equipment 15,047 14,601 Vehicles 7 5 Tools, furniture and fixtures 2,318 2,489 Land 9,750 9,494 Lease assets 2,336 2,477 Construction in progress 1,142 2,597 Total property, plant and equipment 43,639 44,058 Intangible assets Software 3,599 8,597 Software in progress 6,225 396 Right to use telecommunication facilities 0 0 Other 1 － Total intangible assets 9,826 8,993 Investments and other assets Investment securities *3 14,824 *3 14,442 Shares of subsidiaries and associates 83,042 83,099 Long-term loans receivable *2 468 *2 455 Long-term prepaid expenses 161 123 Leasehold and guarantee deposits 5,456 5,316 Insurance funds 289 232 Prepaid pension costs 9,479 11,797 Deferred tax assets 3,564 2,784 Other 11,512 11,504 Allowance for doubtful accounts (270) (259) Total investments and other assets 128,529 129,496 Total noncurrent assets 181,995 182,548 Total assets 319,591 326,625 - 138 - (Millions of yen) As of March 31, 2021 As of March 31, 2022 Liabilities Current liabilities Accounts payable - trade *2 13,164 *2 13,111 Short-term loans payable *1,*2 33,841 *1,*2 24,465 Current portion of long-term loans payable 1,714 1,716 Lease obligations 807 870 Accounts payable - other *2 4,707 *2 7,111 Accrued expenses 3,198 3,291 Income taxes payable 2,925 2,432 Accrued consumption taxes 3,039 1,771 Advances received 8,382 － Contract liabilities － 8,868 Deposits received *2 747 *2 1,879 Other 1,749 470 Total current liabilities 74,277 65,989 Noncurrent liabilities Long-term loans payable 1,716 － Lease obligations 1,695 1,790 Deferred tax liabilities for land revaluation 128 314 Provision for retirement benefits 15,439 15,286 Guarantee deposits received 1,520 1,469 Long-term accounts payable - other 82 － Asset retirement obligations 420 426 Other － 5 Total noncurrent liabilities 21,002 19,293 Total liabilities 95,280 85,282 Net Assets Shareholders’ equity Capital stock 18,675 18,675 Capital surplus Legal capital surplus 29,320 29,320 Other capital surplus 3,422 3,422 Total capital surplus 32,742 32,742 Retained earnings Legal retained earnings 792 792 Other retained earnings General reserve 14,000 14,000 Retained earnings brought forward 156,647 173,508 Total retained earnings 171,439 188,301 Treasury stock (1,029) (1,030) Total shareholders’ equity 221,828 238,688 Valuation and translation adjustments Valuation difference on available-for-sale securities 5,983 6,038 Revaluation reserve for land (3,500) (3,384) Total valuation and translation adjustments 2,483 2,653 Total net assets 224,311 241,342 Total liabilities and net assets 319,591 326,625 - 139 - ii. [Non-consolidated statement of income] (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Net sales *2 244,367 *2 256,449 Cost of sales *2 176,900 *2 184,609 Gross profit 67,467 71,840 Selling, general and administrative expenses *1,*2 48,759 *1,*2 52,068 Operating income 18,707 19,772 Non-operating income Interest and dividends income *2 9,228 *2 9,962 Other *2 2,479 *2 2,373 Total non-operating income 11,707 12,336 Non-operating expenses Interest expenses *2 558 *2 508 Other *2 687 *2 744 Total non-operating expenses 1,246 1,252 Ordinary income 29,169 30,856 Extraordinary income Gain on sales of investment securities 24 17 Gain on sale of shares of subsidiaries 510 － Compensation income － 1,067 Gain on sales of noncurrent assets 99 224 Gain on liquidation of subsidiaries 4 － Total extraordinary income 639 1,309 Extraordinary loss Loss on valuation of investment securities 37 38 Loss on valuation of shares of subsidiaries 29 550 Loss on sales of investment securities 0 0 Impairment losses 49 6 Total extraordinary loss 116 595 Income before income taxes 29,691 31,570 Income taxes - current 6,409 6,057 Income taxes - deferred 195 941 Total income taxes 6,605 6,999 Net income 23,086 24,571 - 140 - (Statement of cost of sales) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Category Note Amount (Millions of yen) Ratio (%) Amount (Millions of yen) Ratio (%) I. Labor cost Salaries 36,101 37,831 Bonuses 10,090 9,964 Retirement benefit expenses 2,437 1,380 Legal welfare expenses 7,172 7,321 Other 146 55,949 31.6 184 56,682 30.7 II. Expenses Outsourcing expenses 40,194 46,445 Depreciation and amortization 8,551 8,567 Rent expenses 10,922 11,417 Fuel expenses 791 977 Security-related communication expenses 6,006 6,110 Other 17,268 83,734 47.3 19,460 92,979 50.4 Cost of security services 139,684 79.0 149,662 81.1 Cost of equipment and construction 37,216 21.0 34,946 18.9 Cost of sales 176,900 100.0 184,609 100.0 - 141 - iii. [Non-consolidated statement of changes in net assets] Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) (Millions of yen) Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholders ’ equity Legal capital surplus Other capital surplus Total capital surplus Legal retained earnings Other retained earnings Total retained earnings General reserve Retained earnings brought forward Balance at beginning of year 18,675 29,320 3,422 32,742 792 14,000 141,485 156,278 (1,028) 206,667 Changes during period Dividends from surplus (7,138) (7,138) (7,138) Net income 23,086 23,086 23,086 Purchase of treasury stock (0) (0) Reversal of revaluation reserve for land (786) (786) (786) Net changes of items other than shareholders’ equity Total changes of items during the period － － － － － － 15,161 15,161 (0) 15,161 Balance at end of year 18,675 29,320 3,422 32,742 792 14,000 156,647 171,439 (1,029) 221,828 Valuation and translation adjustments Total net assets Valuation difference on available-for-sale securities Revaluation reserve for land Total valuation and translation adjustments Balance at beginning of year 4,178 (4,287) (108) 206,558 Changes during period Dividends from surplus (7,138) Net income 23,086 Purchase of treasury stock (0) Reversal of revaluation reserve for land (786) Net changes of items other than shareholders’ equity 1,805 786 2,591 2,591 Total changes of items during the period 1,805 786 2,591 17,752 Balance at end of year 5,983 (3,500) 2,483 224,311 - 142 - Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) (Millions of yen) Shareholders’ equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholders ’ equity Legal capital surplus Other capital surplus Total capital surplus Legal retained earnings Other retained earnings Total retained earnings General reserve Retained earnings brought forward Balance at beginning of year 18,675 29,320 3,422 32,742 792 14,000 156,647 171,439 (1,029) 221,828 Changes during period Dividends from surplus (7,594) (7,594) (7,594) Net income 24,571 24,571 24,571 Purchase of treasury stock (0) (0) Reversal of revaluation reserve for land (115) (115) (115) Net changes of items other than shareholders’ equity Total changes of items during the period － － － － － － 16,861 16,861 (0) 16,860 Balance at end of year 18,675 29,320 3,422 32,742 792 14,000 173,508 188,301 (1,030) 238,688 Valuation and translation adjustments Total net assets Valuation difference on available-for-sale securities Revaluation reserve for land Total valuation and translation adjustments Balance at beginning of year 5,983 (3,500) 2,483 224,311 Changes during period Dividends from surplus (7,594) Net income 24,571 Purchase of treasury stock (0) Reversal of revaluation reserve for land (115) Net changes of items other than shareholders’ equity 54 115 170 170 Total changes of items during the period 54 115 170 17,031 Balance at end of year 6,038 (3,384) 2,653 241,342 - 143 - [Notes] (Significant accounting policies) 1. Valuation basis and method for securities (1) Shares of subsidiaries and associates It is stated at cost based on the moving average method. (2) Available-for-sale securities Securities other than equity securities with no quoted prices It is stated at fair market value based on the quoted market price at the fiscal year-end (with any unrealized gains or losses being recognized directly in equity and the cost of securities sold being generally calculated based on the moving average method). Equity securities with no quoted prices It is stated at cost based on the moving average method. 2. Valuation basis and method for derivatives It is stated at fair market value. 3. Valuation basis and method for inventories It is generally stated at cost based on the first in first out method (the balance sheet carrying amount is reduced to reflect write- downs for decreased profitability). 4. Depreciation method for property, plant and equipment (1) Property, plant and equipment (excluding lease assets) It is depreciated using the straight-line method. The useful lives of major assets are as follows: Buildings and structures 15 to 50 years Machinery and equipment 5 years (2) Intangible assets (excluding lease assets) It is amortized using the straight-line method. Internal-use software is amortized using the straight-line method over the useful life of five years. (3) Lease assets under finance leases that do not involve transfer of ownership It is depreciated using the straight-line method over the useful lives equal to lease terms with zero residual values. 5. Basis for recognition of provisions (1) Allowance for doubtful accounts To provide for losses due to bad debt including trade receivables and loans, allowance for doubtful accounts is recognized based on default rates for normal receivables and based on recoverability of each receivable for certain doubtful receivables. (2) Provision for retirement benefits To provide for employee retirement benefits, provision for retirement benefits is recorded based on the estimated amount of retirement benefit obligations and pension assets at the end of the current fiscal year. In calculating defined benefit obligation, the total projected benefits are attributed to the current and prior fiscal years using the benefit formula basis. Past service cost is amortized using the straight-line method over a certain period not exceeding the average remaining service period of employees, which is five years. Actuarial gains and losses are amortized using the straight-line method from the following fiscal year over a certain period not exceeding the average remaining service period of employees, which is 10 years. 6. Basis for recognition of revenue and expense (1) Contract revenue For contract revenue earned as a result of providing services, the net sales and cost of sales are recognized over time as performance obligations in the contract with the customers are satisfied. (2) Construction revenue Construction revenue earned from contracts that have a very short construction period, such as installation of security alarm equipment leased or rented to customers, is recognized at a point in time at completion of the construction. (3) Sales revenue For sales revenue earned as a result of product sales (including installation of products sold), the net sales and cost of sales are recognized at a point in time on delivery to the customers. - 144 - 7. Other significant matters in the preparation of consolidated financial statements (1) Accounting treatment for deferred assets Share issuance costs The entire amount is expensed at the time of expenditure. (2) Hedge accounting A. Hedge accounting Hedging transactions are accounted for on a deferred basis. Interest rate swaps are accounted for using the special method if it meets certain conditions. B. Hedging instruments and hedged items Hedging instruments: Interest rate swaps Hedged items: Bank loans C. Hedging policy In accordance with the internal rules, the risk of interest rate fluctuations is hedged to reduce such risk and to improve financial return. D. Method of assessing hedge effectiveness The assessment for effectiveness of interest rate swaps accounted for by the special method is not performed as the hedge is considered to be highly effective. (Significant accounting estimates) Shares of subsidiaries and associates 1. Amount recorded in the financial statements for the fiscal year ended March 31, 2022 (Millions of yen) As of March 31, 2021 As of March 31, 2022 Shares of subsidiaries and associates 83,042 83,099 2. Significant accounting estimates related to identified items Shares of subsidiaries and associates recorded as of March 31, 2022 include shares acquired in past M&A transactions, and the acquisition costs are determined based on the excess earning power that is expected from inclusion of the company into the Group. The acquisition costs of certain shares of subsidiaries and associates are determined based on the effect of synergies that is expected to arise at the Company, not the company included into the Group. In evaluating shares of subsidiaries and associates, we are focused on whether the excess earning power and the effect of synergies will arise over the future periods. We monitor, on a monthly basis, whether a business plan of a company included into the Group (including a plan of the effect of synergies expected to arise at the Company) is in line with the actual profit or cash flows recorded. The business plan includes orders, human resource or new care facilities opening plans developed based on certain assumptions. If the business plan may not be achieved for some reason, resulting in changes in the original assumptions, a loss on valuation of shares of subsidiaries and associates may need to be recorded and it may have a significant impact on the amount of shares of subsidiaries and associates recorded in the non-consolidated financial statements for the following fiscal year. - 145 - (Change in accounting policies) (Application of Accounting Standard for Revenue Recognition, etc.) The Group applied “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020, “Revenue Recognition Accounting Standard”), etc. from the beginning of the fiscal year ended March 31, 2022. The Group recognizes revenue when control of the promised goods or services is transferred to the customer in an amount that the Group expects to receive in exchange for those goods or services. Based on the above, revenue generated from the Company is recognized as follows: i. Contract revenue Contract revenue earned as a result of providing services is recognized over time as performance obligations in the contract with the customers are satisfied. ii. Construction revenue Construction revenue earned from contracts that have a very short construction period, such as installation of security alarm equipment leased or rented to customers, is recognized at a point in time at completion of the construction. iii. Sales revenue Sales revenue earned as a result of product sales (including installation of products sold) is recognized at a point in time on delivery to the customer. In applying Revenue Recognition Accounting Standard etc., the Company calculated the cumulative effect of retrospective application of the new standard to the periods prior to the beginning of the fiscal year ended March 31, 2022 in accordance with the transitional treatment provided in the proviso to Paragraph 84 of the Revenue Recognition Accounting Standard. However, as the amount of cumulative effect was immaterial, the Company applied the new standard without making any adjustment to retained earnings at the beginning of the fiscal year ended March 31, 2022. Due to the application of the Revenue Recognition Accounting Standard etc., “Advances received” presented under “Current liabilities” in the non-consolidated balance sheet as of March 31, 2021 is now included in “Contract liabilities” as of March 31, 2022. In accordance with the transitional treatment provided in Paragraph 89-2 of the Revenue Recognition Accounting Standard, the prior year amounts are not reclassified. In accordance with the transitional treatment provided in Paragraph 89- 3 of the Revenue Recognition Accounting Standard, the notes on “Revenue recognition” related to the previous fiscal year are omitted. (Application of Accounting Standard for Fair Value Measurement) The Group applied “Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, July 4, 2019, “Fair Value Measurement Accounting Standard”) etc. from the beginning of the fiscal year ended March 31, 2022. The Group decided to apply new accounting policies based on the Fair Value Measurement Accounting Standard etc. prospectively in accordance with the transitional treatment provided in Paragraph 19 of the Fair Value Measurement Accounting Standard and Paragraph 44-2 of “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, July 4, 2019). The impact on the non- consolidated financial statements for the fiscal year ended March 31, 2022 is immaterial. - 146 - (Matters related to non-consolidated balance sheet) *1 Cash for Transportation Security Services As of March 31, 2021 This represents cash for transportation security services, and its use for other purposes is restricted. In addition, the short-term loans payable balance includes ¥13,833 million of funds borrowed for the services. As of March 31, 2022 This represents cash for transportation security services, and its use for other purposes is restricted. In addition, the short-term loans payable balance includes ¥3,000 million of funds borrowed for the services. *2 Monetary claims and obligations to subsidiaries and associates The monetary claims and obligations to subsidiaries and associates are as follows: (Millions of yen) As of March 31, 2021 As of March 31, 2022 Short-term monetary claims 8,144 7,370 Long-term monetary claims 353 288 Short-term monetary obligations 19,648 22,567 *3 Pledged assets The following assets are pledged as collateral for the borrowings of investing companies: (Millions of yen) As of March 31, 2021 As of March 31, 2022 Investment securities 16 16 *4. Guarantee obligations Obligations of the following subsidiaries are guaranteed by the Company: (Millions of yen) As of March 31, 2021 As of March 31, 2022 Future minimum lease payments of ALSOK Care Co., Ltd.’s rental property 1,616 1,159 - 147 - (Matters related to non-consolidated statement of income) *1 Selling expense account for approximately 40.0% and 37.6% and general and administrative expenses account for approximately 60.0% and 62.4% of the total selling, general and administrative expenses for the fiscal year ended March 31, 2021 and 2022, respectively. Major expenses comprise the following: (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Advertising expenses 2,074 2,469 Salaries 18,161 18,919 Bonuses 6,511 6,194 Provision for allowance for doubtful accounts (8) 13 Welfare expenses 5,028 5,016 Retirement benefit expenses 1,927 1,113 Rent expenses 3,710 3,574 Depreciation and amortization 1,356 2,146 Taxes and dues 1,783 1,779 Communication expenses 981 1,010 Outsourcing expenses 2,406 4,762 *2 Total amount related to transactions with subsidiaries and associates is as follows: (Millions of yen) Fiscal year ended March 31, 2021 (From April 1, 2020 to March 31, 2021) Fiscal year ended March 31, 2022 (From April 1, 2021 to March 31, 2022) Amount of transactions from operating transactions Net sales 14,011 14,391 Operating expenses 39,103 43,161 Amount of transactions from non- operating transactions 8,898 9,456 - 148 - (Matters related to securities) Shares of subsidiaries and associates As of March 31, 2021 Category Carrying amount (Millions of yen) Fair value (Millions of yen) Difference (Millions of yen) Shares of associates 10,844 16,734 5,890 (Note) Carrying amount of shares of subsidiaries and associates whose fair value is extremely difficult to determine Category As of March 31, 2021 (Millions of yen) Shares of subsidiaries 69,894 Shares of associates 2,304 These do not have quoted market prices and it is extremely difficult to determine their fair values. Therefore, these are not included in “Shares of subsidiaries and associates.” As of March 31, 2022 Category Carrying amount (Millions of yen) Fair value (Millions of yen) Difference (Millions of yen) Shares of associates 10,844 14,394 3,549 (Note) Carrying amount of equity securities with no quoted prices not included in the above: Category As of March 31, 2022 (Millions of yen) Shares of subsidiaries 69,951 Shares of associates 2,304 - 149 - (Matters related to tax-effect accounting) 1. Major components of deferred tax assets and liabilities (Millions of yen) As of March 31, 2021 As of March 31, 2022 Deferred tax assets Accrued business taxes 297 304 Allowance for doubtful accounts 95 94 Provision for retirement benefits 4,727 4,680 Accrued retirement benefits for directors (and other officers) 25 25 Depreciation and amortization 489 929 Disallowed expenses related to installation of security alarm equipment 3,008 2,907 Loss on valuation of investment securities 86 98 Revaluation reserve for land 1,455 1,302 Other 1,077 830 Deferred tax assets - subtotal 11,264 11,172 Valuation allowance related to aggregation of deductible temporary differences (1,848) (1,990) Total deferred tax assets, net 9,415 9,182 Deferred tax liabilities Valuation difference on available-for-sale securities (2,640) (2,665) Prepaid pension costs (2,902) (3,612) Foreign stock dividends (115) (115) Revaluation reserve for land Other (314) (314) (6) (4) Total deferred tax liabilities (5,979) (6,712) Net deferred tax assets 3,435 2,469 (Note) Net deferred tax assets are included in the following accounts on the non-consolidated balance sheet: (Millions of yen) As of March 31, 2021 As of March 31, 2022 Noncurrent assets - Deferred tax assets 3,564 2,784 Noncurrent liabilities - Deferred tax liabilities for revaluation (128) (314) 2. Reconciliation of significant differences between the statutory tax rate and the effective tax rate after applying tax effect accounting As of March 31, 2021 As of March 31, 2022 Statutory tax rate 30.6 % 30.6 % (Adjustment) Non-deductible permanent differences such as entertainment expenses 0.1 0.1 Non-taxable permanent differences such as dividend income (8.8) (8.9) Equal division of municipal tax 1.1 1.1 Special corporate tax credit (0.2) (1.1) Valuation allowance (the amount deducted from deferred tax assets) (0.5) 0.4 Other (0.0) 0.0 Effective tax rate after applying tax effect accounting 22.2 22.2 - 150 - (Matters related to business combination) Business combination under common control This is omitted as it is described in “Notes (Matters related to business combination)” in the consolidated financial statements. (Matters related to revenue recognition) Information relating to revenue from contracts with customers is omitted as it is described in “Notes (Matters related to revenue recognition)” in the consolidated financial statements. (Significant subsequent events) Business combination by way of acquisition This is omitted as it is described in “Notes (Significant subsequent events)” in the consolidated financial statements. iv. [Supplementary schedules] [Schedule of property, plant and equipment, etc.] (Millions of yen) Category Class Balance at beginning of year Increase during the period Decrease during the period Depreciation and amortization during the period Balance at end of year Accumulated depreciation and amortization Property, plant and equipment Buildings 27,061 146 255 676 26,952 14,918 Structures 1,036 4 1 40 1,039 681 Machinery and equipment 113,206 5,948 5,002 6,159 114,152 99,551 Vehicles 528 5 39 2 494 488 Tools, furniture and fixtures 12,082 883 424 (0) 700 12,541 10,052 Land 9,750 [(3,185)] － 255 － 9,494 [(3,070)] － Lease assets 4,665 1,079 914 928 4,830 2,352 Construction in progress 1,142 2,563 1,108 － 2,597 － Total 169,473 [(3,185)] 10,631 8,001 8,507 172,103 [(3,070)] 128,045 Intangible assets Software 6,214 8,594 2,072 (6) 2,132 12,736 4,139 Software in progress 6,225 369 6,198 － 396 － Right to use telecommunication facilities 1 － 0 0 1 1 Other 2 － 2 0 － － Total 12,444 8,963 8,272 2,132 13,135 4,141 (Note) 1. “Increase during the period” of “Machinery and equipment” mainly comprises a large number of insignificant security alarm equipment installed for electronic security services. “Decrease during the period” comprises disposal of a large number of insignificant security alarm equipment resulting from cancellation of electronic security service contracts. 2. Amounts in parentheses under “Decrease during the period” represent impairment losses recognized and included in the amount described above. 3. Amounts in square brackets under “Balance at beginning of year” and “Balance at end of year” represent the amount of difference in carrying amounts before and after the revaluation of land performed pursuant to the Act on Revaluation of Land (Act No. 34 of 1998). The amounts are included in the amount described above. 4. “Balance at beginning of year” and “Balance at end of year” represent acquisition costs. - 151 - [Schedule of provisions] (Millions of yen) Account Balance at beginning of year Increase during the period Decrease during the period (Intended use) Decrease during the period (Other) Balance at end of year Allowance for doubtful accounts 312 20 26 － 306 (2) [Major assets and liabilities] This is omitted as the consolidated financial statements are prepared. (3) [Other] Nothing to report. - 152 - VI. [Stock-Related Administration of Reporting Company] Fiscal Year From April 1 to March 31 Ordinary General Meeting of Shareholders In June Record date March 31 Record date for dividends from surplus September 30 March 31 Number of shares in one unit 100 shares Purchase of shares less than one unit Handling office (Special account) 1-4-1 Marunouchi, Chiyoda-ku, Tokyo Securities Agent Department, Sumitomo Mitsui Trust Bank, Limited Custodian of shareholder register (Special account) 1-4-1 Marunouchi, Chiyoda-ku, Tokyo Sumitomo Mitsui Trust Bank, Limited Handling location ─────── Commissions Amount equivalent to commissions related to sales and purchase of stocks Public notice The public notice is given electronically. If the public notice cannot be given electronically due to the event of an accident or other unavoidable reason, it is published in the Nihon Keizai Shimbun (newspaper). Public notice URL https://www.alsok.co.jp/ Shareholder privileges Nothing to report. (Note) In accordance with the Articles of Incorporation of the Company, shareholders of less than one unit do not have rights other than those set forth in Article 189, Paragraph 2 of the Companies Act. - 153 - VII. [Reference Information of Reporting Company] 1. [Information on parent company of reporting company] The Company has no parent company, etc. as stipulated in Article 24-7, Paragraph 1 of the Financial Instruments and Exchange Act of Japan. 2. [Other reference information] The following documents were filed during the period between the beginning of the current fiscal year and the date of filing of this report. (1) Annual Securities Report and its supplementary documents and representation letter The 56th business term (from April 1, 2020 to March 31, 2021), filed with Director-General, Kanto Local Finance Bureau on June 24, 2021 (2) Internal control report and its supplementary documents Filed with Director-General, Kanto Local Finance Bureau on June 24, 2021 (3) Quarterly Securities Report and representation letter The 1st quarter of 57th business term (from April 1, 2021 to June 30, 2021), filed with Director-General, Kanto Local Finance Bureau on August 3, 2021 The 2nd quarter of 57th business term (from July 1, 2021 to September 30, 2021), filed with Director-General, Kanto Local Finance Bureau on November 9, 2021 The 3rd quarter of 57th business term (from October 1, 2021 to December 31, 2021), filed with Director-General, Kanto Local Finance Bureau on February 8, 2022 (4) Extraordinary report ・ Filed with Director-General, Kanto Local Finance Bureau on June 29, 2021 Under Article 19, Paragraph 2, Item 9-2 of Cabinet Office Order on Disclosure of Corporate Affairs (results of exercise of voting rights at the General Meeting of Shareholders) ・ Filed with Director-General, Kanto Local Finance Bureau on April 13, 2022 Under Article 19, Paragraph 2, Item 9 of Cabinet Office Order on Disclosure of Corporate Affairs (transfer of Representative Director) Part 2. [Information on Guarantors of the Company, etc.] Nothing to report. INDEPENDENT AUDITOR’S REPORT ON THE FINANCIAL STATEMENTS AND INTERNAL CONTROL OVER FINANCIAL REPORTING June 24, 2022 To the Board of Directors of SOHGO SECURITY SERVICES CO., LTD. Grant Thornton Taiyo LLC Tokyo Office Tatsuya Arai Designated Limited Liability Partner Engagement Partner Certified Public Accountant Takeshi Iwasaki Designated Limited Liability Partner Engagement Partner Certified Public Accountant Takayuki Uenishi Designated Limited Liability Partner Engagement Partner Certified Public Accountant <Financial Statements Audit> Opinion We have audited, pursuant to the provisions of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, the accompanying consolidated financial statements of SOHGO SECURITY SERVICES CO., LTD. and its consolidated subsidiaries (the “Group”) in “Financial Condition”, which comprise the consolidated balance sheet as of March 31, 2022, and the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in net assets and the consolidated statement of cash flows for the year then ended, significant matters forming the basis of preparation of the consolidated financial statements, the notes to the consolidated financial statements, as well as supplementary schedules. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of March 31, 2022 and its consolidated financial performance and cash flows for the year then ended in accordance with the accounting principles generally accepted in Japan. Basis for Opinion We conducted our audit in accordance with the auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements” section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Accuracy and completeness of sales and trade receivables recoded in new sales administrative system Description of key audit matter How the matter was addressed in our audit For the purpose of simplifying administrative tasks with an enterprise system that uses IT and streamlining management and operation to improve efficiency, the Group has engaged an external vendor and implemented a new sales administrative system since September 2021 to replace the old system. The implementation of a new system generally involves risks such as system failures. In order to mitigate the risk, the Group has conducted the system migration in phases by function. For areas where the new sales administrative system has not been implemented yet, the Group has separate internal controls in place, which will be used until the migration is completed. The accounts in the consolidated financial statements covered by this new system are significant accounts such as sales and trade receivables, and if the data migration to the new system fails or the internal controls in place are not operating properly, it may affect the reliability of financial information and may cause errors in the relevant accounts and disclosures in the consolidated financial statements. We determined that the following factors should be mainly considered: ・ For areas where the new sales administrative system has and has not been implemented, whether the related internal controls are operating effectively ・ Whether the sales and trade receivables recorded by relying on the internal controls are properly recorded Based on the above, we determined that the accuracy and completeness of the sales and trade receivables recorded in the new sales administrative system is a key audit matter. We mainly performed the following procedures to assess the accuracy and completeness of the sales and trade receivables recoded in the new sales administrative system: (Procedures to assess risk) ・ We evaluated the design and operating effectiveness of the internal controls for areas where the new sales administrative system had and had not been implemented. In evaluating these internal controls, we involved our IT specialists, as necessary. The internal controls evaluated included the following: ・ Documentation of the data migration plan and approval by an appropriate manager ・ Approval related to the new system operation by a responsible person from a certain department or an administrator from the system department who had an authority to verify that the data migration was accurate and complete ・ We inquired of the director in charge of accounting and the information system manager regarding the status of implementation of the new sales administrative system as well as internal controls over financial reporting in place for areas where the new sales administrative system had not been implemented. (Procedures to address risk) ・ We recalculated the contract revenue and agreed to the trial balance based on the contracts information registered in the new sales administrative system. ・ We agreed, on a sample basis, the sales transactions to the related contracts, acceptance forms, and evidence of cash receipts. ・ We performed, on a sample basis, the balance confirmation procedure for trade receivables from customers and examined whether the confirmed amounts agreed to the amounts recorded in the financial statements. ・ We performed the trend analysis of sales, profits, and profit margins by business as well as trade receivables turnover, etc. to examine whether there was an unusual increase or decrease in sales and profits, thereby verifying the accuracy and completeness of sales transactions. Valuation of goodwill ([Notes] (Significant accounting estimates)) Description of key audit matter How the matter was addressed in our audit In recent years, the Group has strengthened its businesses by means of M&A, and the acquisition of shares of subsidiaries and associates gave rise to goodwill. As of March 31, 2022, the Group records goodwill of 27,097 million yen. The amount is considered to be financially material and mostly related to M&A of companies engaging especially in Security Services and Long-Term Care Services. The Group determines whether there is any indication of impairment and whether the goodwill should be impaired for each group of assets to which the goodwill is allocated by considering whether the excess earning power will arise over the future periods and by monitoring the operating income and undiscounted future cash flows based on a business plan. The business plan may include a business plan of a combined company and the effect of synergies arising from the company. In assessing the reasonableness of the business plan, the Group considers the following significant assumptions used in the plan: (1) Security Services Orders for stationed security, electronic security, and transportation security services, human resource planning, sales growth, etc. (2) Long-Term Care Services Long-Term Care Services is classified into in-home care services, facility care services, and residential care home for senior citizens, and the significant assumptions used for each category are as follows: In-home care services Net sales per employee, profit margin of existing locations, human resource planning, etc. Facility care services Business projections for existing facilities, new facilities opening, occupancy rate for new and existing facilities, human resource planning, etc. Residential care home for senior citizens Business projections for new and existing facilities, new facilities opening, human resource planning, etc. The identification of indications of goodwill impairment and assessment for recognition of impairment losses are significantly affected by the management’s assumptions and judgements incorporated into the business plan. In addition, the estimates based on these assumptions involve a high degree of uncertainty due to the spread of COVID-19 over the past few years. Based on the above, we determined that this is a key audit matter. We mainly performed the following procedures to assess the valuation of goodwill: ・ Evaluation of internal controls We evaluated the design and operating effectiveness of the internal controls related to the grouping of assets, identification of indications of impairment as well as recognition and measurement of impairment losses. The internal controls evaluated included review of the business plans used in the valuation of goodwill and the approval process. ・ Identification of indications of impairment In order to confirm whether the indications of impairment were properly identified, we compared the business plans used in the valuation of goodwill in the past with the actual results, and if there was any variance, we performed an analysis to understand its cause. If the effect of synergies was reflected in the business plans, we performed a comparative analysis to determine whether the effect of synergies arose as planned. In addition, for the significant assumptions considered in the business plans, we compared them with the actual results, current economic situations and other related factors for consistency. If necessary, we discussed with the financial reporting manager as to whether the assumptions should be revised to verify the reasonableness. ・ Recognition of impairment losses If an indication of impairment was identified, we assessed the reasonableness of the business plans, including the significant assumptions considered in the business plans, to confirm whether the assessment for impairment loss recognition was properly performed. We mainly performed the following procedures to assess the reasonableness of the business plans: ・ We assessed the estimation uncertainty related to the business plans by comparing the business plans used in the valuation of goodwill in the past with the actual results. This included the assessment of the impact that COVID-19 had on the operating results and the impact on the business plans in the future. ・ We reviewed supporting documents for the business plans and significant assumptions considered in the plans to assess the reasonableness. Emphasis of Matter We draw attention to the significant subsequent event which describes that the Group acquired all shares of Kanden Joy Life Co., Ltd. and Kanden Life Support Co., Ltd., both engaging in the long-term care business, on June 22, 2022. Our opinion is not modified in respect of this matter. Other Information The other information comprises the information included in Annual Securities Report, but does not include the consolidated and non- consolidated financial statements and our auditor’s report thereon. Management is responsible for the preparation and disclosure of the other information. The Audit and Supervisory Board Members and Audit and Supervisory Board are responsible for overseeing performance of duties of directors in the design, implementation, and maintenance of the Group’s reporting process for the other information. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management, Audit and Supervisory Board Members, and Audit and Supervisory Board for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in Japan. This responsibility includes the design, implementation, and maintenance of internal control as management determines is necessary to enable the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern and disclosing matters related to going concern as applicable in accordance with the accounting principles generally accepted in Japan. The Audit and Supervisory Board Members and Audit and Supervisory Board are responsible for overseeing performance of duties of directors in the design, implementation, and maintenance of the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our responsibilities are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, based on our audit and to issue an auditor’s report that includes our opinion from an independent point of view. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit, in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: ・ Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. We also design and perform audit procedures responsive to those risks. The audit procedures are selected and performed based on the auditor’s judgment. We also obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. ・ In assessing risks, obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, while the purpose of the consolidated financial statement audit is not to express an opinion on the effectiveness of the Group’s internal control. ・ Evaluate the appropriateness of accounting policies used by management and the reasonableness of accounting estimates and related disclosures made by management. ・ Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion on the consolidated financial statements. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ・ Evaluate whether the presentation and disclosures of the consolidated financial statements are in accordance with accounting principles generally accepted in Japan, the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. ・ Obtain sufficient and appropriate audit evidence regarding the financial information of the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate the Audit and Supervisory Board Members and Audit and Supervisory Board regarding the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit, as well as other matters that are required in accordance with auditing standards. We also provide the Audit and Supervisory Board Members and Audit and Supervisory Board with a statement that we have complied with the relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Audit and Supervisory Board Members and Audit and Supervisory Board, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. <Internal Control Audit> Opinion We have audited, pursuant to the provisions of Article 193-2, Paragraph 2 of the Financial Instruments and Exchange Act of Japan, the accompanying internal control report of SOHGO SECURITY SERVICES CO., LTD. as of March 31, 2022. In our opinion, the accompanying internal control report, which represents that the internal control over financial reporting as of March 31, 2022, of SOHGO SECURITY SERVICES CO., LTD. is effective, presents fairly, in all material respects, the results of the assessments of internal control over financial reporting in accordance with the assessment standards for internal control over financial reporting generally accepted in Japan. Basis for Opinion We conducted our audit of internal control report in accordance with the auditing standards for internal control over financial reporting generally accepted in Japan. Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Internal Control Report” section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management, Audit and Supervisory Board Members, and Audit and Supervisory Board for the Internal Control Report Management is responsible for the design, implementation, and maintenance of internal control over financial reporting and the preparation and fair presentation of the internal control report in accordance with the assessment standards for internal control over financial reporting generally accepted in Japan. The Audit and Supervisory Board Members and Audit and Supervisory Board are responsible for overseeing and examining the design, implementation, and maintenance of internal control over financial reporting. Internal control over financial reporting may not completely prevent or detect financial statement misstatements. Auditor’s Responsibilities for the Audit of the Internal Control Report Our responsibilities are to obtain reasonable assurance about whether the internal control report is free from material misstatement based on our audit of internal control report and to issue an auditor’s report that includes our opinion from an independent point of view. As part of our audit in accordance with the auditing standards for internal control over financial reporting generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: ・ Perform audit procedures to obtain audit evidence regarding the results of the management assessment of internal control over financial reporting in the internal control report. The procedures for the audit of the internal control report are selected and performed, depending on the auditor’s judgment, based on significance of effect on the reliability of financial reporting. ・ Evaluate the overall presentation of the internal control report, including the management presentation of scope, assessment procedures, and results of the assessments of internal control over financial reporting. ・ Obtain sufficient appropriate audit evidence regarding the results of the management assessment of internal control over financial reporting in the internal control report. We are responsible for the direction, supervision, and performance of the audit of the internal control report. We remain solely responsible for our audit opinion. We communicate the Audit and Supervisory Board Members and Audit and Supervisory Board regarding, the planned scope and timing of the audit of internal control report, the results thereof, significant deficiencies in internal control that we identify during our audit of internal control report, those that were remediated, as well as other matters that are required in accordance with auditing standards for internal control over financial reporting. We also provide the Audit and Supervisory Board Members and Audit and Supervisory Board with a statement that we have complied with the relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Interest Required to be Disclosed by the Certified Public Accounting Act of Japan Our firm and its engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan. Notes: 1. The above is a digitization of the text contained in the original copy of the Independent Auditor’s Report on the Financial Statements and Internal Control over Financial Reporting, which is in the custody of SOHGO SECURITY SERVICES CO., LTD. (the submitter of this Annual Securities Report). 2. The XBRL data is not in the scope of the audit. 3. The English version of the consolidated financial statements consists of an English translation of the audited Japanese consolidated financial statements. The actual text of the English translation of the consolidated financial statements is not in the scope of the audit. Consequently, for the auditor’s report of the English consolidated financial statements, the Japanese original is the official text, and the English version is a translation of that text. INDEPENDENT AUDITOR’S REPORT June 24, 2022 To the Board of Directors of SOHGO SECURITY SERVICES CO., LTD. Grant Thornton Taiyo LLC Tokyo Office Tatsuya Arai Designated Limited Liability Partner Engagement Partner Certified Public Accountant Takeshi Iwasaki Designated Limited Liability Partner Engagement Partner Certified Public Accountant Takayuki Uenishi Designated Limited Liability Partner Engagement Partner Certified Public Accountant Opinion We have audited, pursuant to the provisions of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, the accompanying non-consolidated financial statements of SOHGO SECURITY SERVICES CO., LTD. (the “Company”) in “Financial Condition”, which comprise the non-consolidated balance sheet as of March 31, 2022, and the non-consolidated statement of income and the non-consolidated statement of changes in net assets for the year then ended, the significant accounting policies, and the notes to the non-consolidated financial statements, as well as supplementary schedules. In our opinion, the accompanying non-consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and its financial performance for the year then ended in accordance with the accounting principles generally accepted in Japan. Basis for Opinion We conducted our audit in accordance with the auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the non-consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Accuracy and completeness of sales and trade receivables recoded in new sales administrative system Refer to Key Audit Matters (Accuracy and completeness of sales and trade receivables recoded in new sales administrative system) described in the INDEPENDENT AUDITOR’S REPORT ON THE FINANCIAL STATEMENTS AND INTERNAL CONTROL OVER FINANCIAL REPORTING. Valuation of shares of subsidiaries and associates ([Notes] (Significant accounting estimates)) Description of key audit matter How the matter was addressed in our audit In recent years, the Company has strengthened its businesses by means of M&A and acquired shares of subsidiaries and associates. As of March 31, 2022, the Company records 83,099 million yen of shares of subsidiaries and associates. The amount is considered to be financially material and mostly related to M&A of companies engaging especially in Security Services and Long- Term Care Services. The Company evaluates the growth potential of a company at the time of acquisition based on the business plan, and determines the acquisition price based on the consideration of excess earning power arising from the acquisition. The Company determines whether the excess earning power initially expected is impaired by monitoring the operating income and undiscounted future cash flows based on the business plan. The business plan may include a business plan of a combined company and the effect of synergies expected to arise from the acquisition. In assessing the reasonableness of the business plan, the Company considers the following significant assumptions used in the plan: (1) Security Services Orders for stationed security, electronic security and transportation security services, human resource planning, sales growth, etc. (2) Long-Term Care Services Long-Term Care Services is classified into in-home care services, facility care services and residential care home for senior citizens, and the significant assumptions used for each category are as follows: In-home care services Net sales per employee, profit margin of existing locations, human resource planning, etc. Facility care services Business projections for existing facilities, new facilities opening, occupancy rate for new and existing facilities, human resource planning, etc. Residential care home for senior citizens Business projections for new and existing facilities, new facilities opening, human resource planning, etc. The assessment of impairment of excess earning power is significantly affected by the management’s assumptions and We mainly performed the following procedures to assess the valuation of shares of subsidiaries and associates: ・ Evaluation of internal controls We evaluated the design and operating effectiveness of the internal controls related to the shares of subsidiaries and associates. The internal controls evaluated included review of the business plans used in the valuation of shares of subsidiaries and associates and the approval process. ・ Valuation of shares of subsidiaries and associates We assessed the reasonableness of the business plans used in the valuation of shares of subsidiaries and associates including the significant assumptions considered in the plans. The assessment included the effect of synergies. We mainly performed the following procedures to assess the reasonableness of the business plans: ・ We assessed the estimation uncertainty related to the business plans by comparing the business plans used in the valuation of shares of subsidiaries and associates in the past with the actual results. This included the assessment of the impact that COVID-19 had on the operating results and the impact on the business plans in the future. ・ We reviewed supporting documents for the business plans and significant assumptions considered in the plans to assess the reasonableness. ・ For the significant assumptions considered in the business plans, we compared them with the actual results, current economic situations and other related factors for consistency. If necessary, we discussed with the financial reporting manager as to whether the assumptions should be revised to verify the reasonableness. judgements incorporated into the business plan. In addition, these assumptions involve a high degree of uncertainty due to the spread of COVID-19 over the past few years. Based on the above, we determined that this is a key audit matter. Emphasis of Matter We draw attention to the significant subsequent event which describes that the Company acquired all shares of Kanden Joy Life Co., Ltd. and Kanden Life Support Co., Ltd., both engaging in the long-term care business, on June 22, 2022. Our opinion is not modified in respect of this matter. Other Information The other information comprises the information included in Annual Securities Report, but does not include the consolidated and non- consolidated financial statements and our auditor’s report thereon. Management is responsible for the preparation and disclosure of the other information. The Audit and Supervisory Board Members and Audit and Supervisory Board are responsible for overseeing performance of duties of directors in the design, implementation, and maintenance of the Company’s reporting process for the other information. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management, Audit and Supervisory Board Members, and Audit and Supervisory Board for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in Japan. This responsibility includes the design, implementation, and maintenance of internal control as management determines is necessary to enable the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern and disclosing matters related to going concern as applicable in accordance with the accounting principles generally accepted in Japan. The Audit and Supervisory Board Members and Audit and Supervisory Board are responsible for overseeing performance of duties of directors in the design, implementation, and maintenance of the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our responsibilities are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, based on our audit and to issue an auditor’s report that includes our opinion from an independent point of view. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit, in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: ・ Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. We also design and perform audit procedures responsive to those risks. The audit procedures are selected and performed based on the auditor’s judgment. We also obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. ・ In assessing risks, obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, while the purpose of the financial statement audit is not to express an opinion on the effectiveness of the Company’s internal control. ・ Evaluate the appropriateness of accounting policies used by management and the reasonableness of accounting estimates and related disclosures made by management. ・ Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion on the financial statements. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. ・ Evaluate whether the presentation and disclosures of the financial statements are in accordance with accounting principles generally accepted in Japan, the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate the Audit and Supervisory Board Members and Audit and Supervisory Board regarding the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit, as well as other matters that are required in accordance with auditing standards. We also provide the Audit and Supervisory Board Members and Audit and Supervisory Board with a statement that we have complied with the relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Audit and Supervisory Board Members and Audit and Supervisory Board, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Interest Required to be Disclosed by the Certified Public Accounting Act of Japan Our firm and its engagement partners do not have any interest in the Company which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan. Notes: 1. The above is a digitization of the text contained in the original copy of the Independent Auditor’s Report, which is in the custody of the Company (the submitter of this Annual Securities Report). 2. The XBRL data is not in the scope of the audit. 3. The English version of the non-consolidated financial statements consists of an English translation of the audited Japanese non- consolidated financial statements. The actual text of the English translation of the non-consolidated financial statements is not in the scope of the audit. Consequently, for the auditor’s report of the English non-consolidated financial statements, the Japanese original is the official text, and the English version is a translation of that text. [Cover page] [Document filed] Confirmation [Applicable law] Article 24-4-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan [Place of filing] Director-General, Kanto Local Finance Bureau [Filing date] June 24, 2022 [Company name] 綜合警備保障株式会社 (Sogo Keibi Hosho Kabushiki Kaisha) [Company name in English] SOHGO SECURITY SERVICES CO., LTD. [Name and title of representative] Ikuji Kayaki, Representative Director Group COO [Name and title of Chief Financial Officer] Koji Kishimoto, Director and Senior Executive Officer [Address of head office] 1-6-6 Motoakasaka, Minato-ku, Tokyo, Japan [Place for public inspection] Tokyo Stock Exchange, Inc. (2-1, Nihonbashi Kabutocho, Chuo-ku, Tokyo, Japan) 1. Matters related to the appropriateness of the contents of the Annual Securities Report Ikuji Kayaki, Representative Director Group COO, and Koji Kishimoto, Director and Senior Executive Officer, confirmed that the contents in the Annual Securities Report for the 57th business term (From April 1, 2021 to March 31, 2022) are appropriately disclosed in accordance with the Financial Instruments and Exchange Act of Japan. 2. [Special note] There is nothing special to note. [Cover page] [Document filed] Internal control report [Applicable law] Article 24-4-4, Paragraph 1 of the Financial Instruments and Exchange Act of Japan [Place of filing] Director-General, Kanto Local Finance Bureau [Filing date] June 24, 2022 [Company name] 綜合警備保障株式会社 (Sogo Keibi Hosho Kabushiki Kaisha) [Company name in English] SOHGO SECURITY SERVICES CO., LTD. [Name and title of representative] Ikuji Kayaki, Representative Director Group COO [Name and title of Chief Financial Officer] Koji Kishimoto, Director and Senior Executive Officer [Address of head office] 1-6-6 Motoakasaka, Minato-ku, Tokyo, Japan [Place for public inspection] Tokyo Stock Exchange, Inc. (2-1, Nihonbashi Kabutocho, Chuo-ku, Tokyo, Japan) 1. [Basic framework of internal control over financial reporting] Ikuji Kayaki, Representative Director Group COO, and Koji Kishimoto, Director and Senior Executive Officer, are responsible for the design and operation of internal control over financial reporting of the Company. In fulfilling the responsibilities, the Company has designed and operated internal control over financial reporting pursuant to the basic framework of internal control set forth in “Standards and Practical Standards for Management Assessment and Audit concerning Internal Control Over Financial Reporting” published by Business Accounting Council. Generally, internal controls may not operate effectively due to the inherent limitations. Therefore, internal control over financial reporting may not completely prevent or detect financial statement misstatements. 2. [Scope of assessment, base date and assessment procedures] Management assessment of internal control over financial reporting was conducted as of March 31, 2022 or the fiscal year-end in accordance with the assessment standards for internal control over financial reporting generally accepted in Japan. In this assessment, internal controls (entity-level controls) that had a significant impact on the overall financial reporting on a consolidated basis were evaluated, and based on the results, the business processes to be evaluated were selected. In assessing operating effectiveness of business process controls, key controls that had a significant impact on the reliability of financial reporting were identified after analyzing the selected business processes, and the design and operation of those key controls were assessed. The scope of assessment of internal control over financial reporting was determined based on the materiality of the impact on the reliability of financial reporting for the Company, its consolidated subsidiaries and equity-method associates. The materiality of the impact on the reliability of financial reporting was determined in consideration of the materiality of both quantitative and qualitative impact. Based on the results of assessment of entity-level controls conducted for the Company, 56 consolidated subsidiaries and 3 equity-method associates, the scope of assessment of business process controls was reasonably determined. 18 consolidated subsidiaries and 11 equity-method associates were not included in the scope of assessment of entity-level controls because they were considered insignificant quantitatively and qualitatively. The scope of business process controls was determined based on “Significant locations” selected in order of net sales (after eliminating intercompany sales) of each location for the previous fiscal year, which accounts for approximately 2/3 of the consolidated net sales for the previous fiscal year. For significant locations selected, sales, trade receivables and inventories were included in the scope of assessment of business process controls as accounts significantly related to the company’s business purpose. In addition, regardless of the significant locations selected, significant business processes of other locations were included in the assessment in consideration of impact on the financial reporting of business processes related to significant accounts that involved estimates and forecasts with high possibility of material misstatements or business processes related to businesses or operations with high risk transactions. 3. [Results of assessment] Based on the assessment procedures above, the Company’s internal control over financial reporting is effective as of March 31, 2022. 4. [Note] There was no significant subsequent event that had significant impact on the assessment of effectiveness of internal control over financial reporting. 5. [Special note] There is nothing special to note.