In response to changing customer needs,
SECOM is working to realize its vision for the future—
the Social System Industry—by providing comprehensive,
integrated services and systems that make life
more secure, convenient and comfortable.

PROFILE

E

stablished in 1962 as Japan’s first security services firm, SECOM CO., LTD., has earned a reputation
as a pioneer in the market by developing innovative products and services that truly benefit society. The
Company’s achievements to date have supported solid growth and transformed SECOM into a providerof security and peace of mind.
In 1989, SECOM introduced its vision for the future—the Social System Industry, a new frameworkof services created by integrating its products and services into distinctive, comprehensive packages thatmake life more secure, convenient and comfortable. To achieve this vision, SECOM has expanded its focus
beyond security services to include medical, insurance, information, geographic information system (GIS)
and education services. From this foundation, SECOM is now aiming to take the Social System Industry
to the next level, the focus of which will be to maximize synergies among its diverse businesses anddevelop groundbreaking new products and services, thereby positioning the Company for further growth.
SECOM has also established an extensive network of security services subsidiaries and joint ventures
overseas. This network currently encompasses companies in Taiwan, the Republic of Korea, Thailand,
Malaysia, Singapore, Indonesia, the People’s Republic of China, the United States, the United Kingdom
and Australia.

CONTENTSHIGHLIGHTS .............................................................................................. 1
TO OUR SHAREHOLDERS.......................................................................... 2
SPECIAL FEATURE..................................................................................... 5
REVIEW OF OPERATIONS .......................................................................... 16
FINANCIAL SECTION.................................................................................. 21
SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA(BASED ON JAPANESE GAAP) ............................................................. 57
SUPPLEMENTAL NONCONSOLIDATED FINANCIAL DATA(BASED ON JAPANESE GAAP) ............................................................. 61
CORPORATE INFORMATION ..................................................................... 65
SECOM GROUP’S BASIC BUSINESS AREAS ............................................. 67
DIRECTORS, CORPORATE AUDITORS AND EXECUTIVE OFFICERS ........... 69

SECOM—Social System Industry

HIGHLIGHTSSECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2004

This table shows key financial highlights calculated using accounting principles generally accepted in the United States (U.S. GAAP).

U.S. GAAP

In millions of yen
Years ended March 31

In thousandsof U.S. dollars
Year ended
March 31

2004

2003

2002

2004

Revenue and other income................................................ ¥0,537,859
Net income ........................................................................
23,479Total assets........................................................................
1,165,105
Total shareholders’ equity..................................................
415,852¥0,520,743
30,275
1,158,082
372,518¥0,493,526
34,082
1,166,113
401,326$05,074,141
221,500
10,991,557
3,923,134

In yenIn U.S. dollars¥0,146.19
40.00
1,720.57$ 0.980.38
17.43

Per share of common stock:
Net income (basic)........................................................
Cash dividends paid......................................................
Shareholders’ equity.....................................................

¥0,132.87
40.00
1,655.04¥0,104.32
40.00
1,847.80

Notes: 1. Yen amounts have been translated into U.S. dollars, solely for the convenience of the reader, at the rate of ¥106=US$1, the rate prevailingon the Tokyo Foreign Exchange Market on March 31, 2004.
2. Net income per share of common stock is based on the average number of shares outstanding during each period.
3. Shareholders’ equity per share of common stock is based on the number of shares outstanding at the end of each period, minus treasury stock.
4. Subsequent to March 31, 2004, cash dividends per share of ¥45.00 were approved at the general shareholders’ meeting on June 29, 2004
(see Note 18 of the accompanying notes to the consolidated financial statements).

Accounting principles generally accepted in Japan (Japanese GAAP) yield significantly different results for net income. Accordingly,
key financial highlights calculated using Japanese GAAP are shown below for reference.

Japanese GAAP

In millions of yen
Years ended March 31

In thousandsof U.S. dollars
Year ended
March 31

2004

2003

2002

2004

Revenue............................................................................. ¥0,527,409
Operating profit..................................................................
81,286
Ordinary profit....................................................................
76,243
Net income ........................................................................
41,111
Total assets........................................................................
1,092,067
Total shareholders’ equity..................................................
403,257¥0,523,271
72,90270,06335,583
1,090,131
369,753¥0,497,921
43,022
41,5419,583
1,071,190
392,149$04,975,557
766,849
719,274
387,840
10,302,519
3,804,311

In yenIn U.S. dollars¥0,041.11
40.00
1,681.23$ 1.71
0.38
16.89

Per share of common stock:
Net income (basic)........................................................
Cash dividends paid......................................................
Shareholders’ equity.....................................................

¥0,154.96
40.00
1,641.53¥0,181.40
40.00
1,790.58

Net Income (Japanese GAAP)Net Income (U.S. GAAP)(In billions of yen)

(In billions of yen)

50

50

40

40

30

30

20

20

10

10
0

0
00

01

02

03

04

00

01

02

03

04

The Company reported record-high revenue, operating profit and ordinary profit based on Japanese GAAP in the year ended
March 31, 2004. Cash dividends of ¥45.00 per share were declared in the year ended March 31, 2005, an increase of ¥5.00 fromthe year ended March 31, 2004.
Note: Japanese GAAP were amended in the year ended March 31, 2001, with the adoption of accounting standards for pension benefits.
In the year ended March 31, 2002, the Company revised its pension plans and changed the accounting method for unrecognized actuarial gains and losses. Unrecognized actuarial gains and losses, which had been amortized using the straightline method over the average remaining service period prior to the year ended March 31, 2002, were charged to income on
an “as-incurred” basis. The Company also recorded unrecognized transition assets/obligations as a one-time charge toincome. In addition, prior service costs were charged to income on an as-incurred basis. This resulted in a decrease inincome before income taxes of ¥35.0 billion.
One-time recognition on an as-incurred basis for pension benefits is not permitted under U.S. GAAP. Accordingly, unrecognized actuarial gains and losses, unrecognized transition assets/obligations and prior service costs were amortized in theaccompanying consolidated financial statements prepared under U.S. GAAP.
In the year ended March 31, 2000, the Company recorded a ¥4.3 billion gain on sales of securities resulting from an initialpublic offering by a subsidiary.
1

TO OUR SHAREHOLDERS

The Japanese economy has begun

this network we are adding layers of

to show some encouraging signs ofservices and systems that make life

improvement, despite muted personal

more secure, convenient and comfort-

consumption, as exports and private-

able. Rather than providing services

sector capital investment picked up.

individually, we offer them in compre-

Against this backdrop, the SECOM

hensive packages that increase security

Group is forging ahead with measuresand convenience. We are committed to

to take the Social System Industry toensuring SECOM is a company tothe next level.

which people can turn with confidence
to meet a wide range of needs.

In the year ended March 31, 2004,

To this end, we are communicating

we concentrated on enhancing existing
services while developing and offering
new services and products to satisfy

with customers to learn what would

Makoto Iida
Founderemerging needs. We also strove to capitalize on Grouphelp them in their daily lives, and using

their perspectives to develop creative new offerings.

synergies to create innovative service packages. These

As society’s needs diversify, we have responded byefforts resulted in a 3.3% increase in consolidated rev-

expanding from security services, our starting point, toenue and other income, to ¥537.9 billion. Net income

encompass medical, insurance, information, GIS and edu-

amounted to ¥23.5 billion, owing to such factors as an

cation services. Now we are devoting our full energies

impairment loss on property, plant and equipment andinto tapping the synergies of the emerging Social Systema revision of our pension plans. Net income per share

Industry to achieve further growth. New products andwas ¥104.32.

services must be competitive and unique, and must com-

Calculated using Japanese GAAP, SECOM recorded
consolidated revenue of ¥527.4 billion, an increase ofplement the Group’s existing offerings to contribute to
the provision of peace of mind to customers.

0.8%; operating profit and ordinary profit of ¥81.3 billionand ¥76.2 billion—both record highs; and net income ofService Differentiation and Packaging¥41.1 billion, an increase of 15.5%. Net income per share

During the period under review, we continued to use

was ¥181.40. Cash dividends per share of ¥45.00, an

our accumulated expertise and leading-edge technologies

increase of ¥5.00, were proposed and approved at thein the security services segment to offer distinctive

general shareholders’ meeting on June 29, 2004.

product and service packages. We provided security
services for commercial establishments by stepping up

Taking the Social System Industry to
the Next Levelefforts to market centralized systems SECOM AX and

The vision of the SECOM Group is to help build a society

SECOM DX, a centralized system that features monitor-that is free from concerns about safety and security,

ing functions; and the fully digital D-CCTV surveillancethrough the establishment of the Social System Industry.

camera system.

The foundation of the Social System Industry is the network we have created to deliver our security services. To

2

SECOM IX, which employ advanced image monitoring;

In the home security area, we made real progress
toward evolving SECOM Home Security into a

SECOM—Social System Industry

comprehensive residential system that

Medical institutions are also the target

provides peace of mind. We augmented

market for a medical personnel solutions

our home security lineup by releasing

service, as well as Medical Risk

such physical safeguards as SECOMManagement System, a new system thatAnshin Glass, a high-impact window

helps analyze risks associated withglass with built-in sensors, and theproviding medical care.

SECURIFACE intercom system, which

Insurance is another area in which

employs face detection technologies to

we are capitalizing on synergies between

alert occupants to unauthorized visitors.

multiple fields to offer precedent-setting

We also launched Tomahawk Jet Alpha,products. Our insurance services lineup

an automated fire extinguishing system
for home kitchens; SECOM Medical Club,

Toshitaka Sugimachi
Chairman

includes New SECOM Anshin My Car, acomprehensive automobile insurance pol-a membership-based service for homeicy; Security Discount Fire Policy for com-security subscribers that offers access tomercial users of security systems; SECOM

the latest preventive treatments andAnshin My Home for residential security

health care-related services; and SECOM

system subscribers; and MEDCOM, an

Anshin My Home, a comprehensive fireunrestricted cancer treatment policy.
Our information and communication

insurance policy that offers a discount for

related and other services segment

home security subscribers.

includes cyber security and otherWe began selling SECOM MS-3, asecurity system for condominiums that

information-related services, GIS services,can be used for buildings of various

education services, real estate sales andtypes and sizes as a retrofit or a newreal estate leasing. To enhance our infor-

installation. In addition, we added asafety-confirmation function to COCOSECOM with Emergency Call, which

Shohei Kimura
President andRepresentative Director

mation product lineup, we launched salesof a noncontact integrated circuit (IC)card-based security system that combines

helped to expand our menu of COCO-SECOM mobile

office access control with cyber security using the same

security services.

card. We also augmented our Secure Data Center, which

In our medical services segment, we focused on mak-offers high-level security for both the physical and cybering our core home medical care services more efficient,realms, by launching a new service that prevents cus-launched SECOM Medical Club as noted above, and intomer information and insider information leaks. In the

May 2004 began offering adult day services for seniorarea of GIS services, we promoted sales of packaged sys-

citizens. We continued to expand sales of the SECOM

tems to the private sector. We also used the concept ofUbiquitous Electronic Medical Report (EMR) system for

packaging products and services together in our real

medical institutions. This system combines our medical,

estate sales, offering attractive condominiums that

information security and IT expertise to secure and effi-

include security systems, management services andciently manage large volumes of medical report data.

telephone-based home-related consulting services.

3

TO OUR SHAREHOLDERS

A New Executive System and Enhanced
Compliancephilosophy. We firmly believe in breaking throughAt its meeting on May 13, 2004, the Board of Directors of

nurturing radical new business ideas, while also asking,

SECOM passed a resolution to adopt an executive officer“Is this good for society?” This philosophy and these highsystem, a move that will clarify administrative responsibil-

standards of conduct, universal among our personnel,

ities and authority, thereby strengthening the Company’s

have made it possible for SECOM to create the services

management structure and ultimately improving cus-and systems that solve problems in society that were

tomer services. In addition, we established a Compliancepreviously considered intractable.

stereotypes, shedding old practices and continually

Division to oversee compliance issues throughout the

As security and peace of mind professionals, theSECOM Group. We also produced and distributed thefuture is bright for the SECOM Group. We will continue

SECOM Group Compliance Manual, which sets out inter-to grow our various business segments by seeking newnal guidelines for employee conduct, and set up a hotline

synergies among them and developing integrated pack-to handle queries and provide information and advice onages that inspire customers to turn to us for solutions torelated issues.

a wide range of problems.
Our pledge is to accurately grasp the diverse needs ofSecurity and Peace of Mind Professionals

society, swiftly roll out services that satisfy those needs,

The SECOM Group has entered various business areas—

and in doing so, continue to create value for our share-including security, medical, insurance, information, GIS

holders. We ask for your continued understanding andand education services—in pursuit of its vision of con-support as we transform our vision into reality.

tributing to a society in which all people can live safely
and with peace of mind. The principal factor binding
these disparate disciplines is the unwavering SECOM

Makoto Iida
Founder4

July 31, 2004

Toshitaka Sugimachi
Chairman

Shohei Kimura
President and Representative Director

SPECIAL FEATURE

Systems that Provide Security and Peace of Mind—
The Next Step toward the Social System Industry

SECOM started as a security services company that offered security and peace of mind. It subsequently expanded
services to meet customer demand for security, convenience and comfort by entering the medical, insurance,
information, GIS and education fields.
The SECOM Group’s mission is to establish the Social System Industry, and in doing so contribute to a society free from apprehension. To this end, we must offer innovative products and services that respond to society’s
needs and have the potential to generate synergy. This is important because we provide our products and services
as packages or systems, rather than individually—an approach that enables us to offer peace of mind, convenienceand comfort at appropriate prices. We can achieve this because of the wide scope of our operations.
By further integrating products and services into coordinated systems and offering them to the world, we will
ensure SECOM is a company to which people can turn with confidence to meet a wide range of needs.
The following pages introduce some of the main steps we have taken in recent years to develop these synergies.

5

SPECIAL FEATURE■ Peace of Mind for the Homevariety of home medical services to protect family

The SECOM Group strives to contribute toward ahealth. Together, these services offer a comprehensive

society free from anxiety. We aim to provide solutions

system that aims to provide subscribers with peace ofto all the apprehensions that may exist in a home andmind at home.

earn the trust of householders so they will turn to us
when they have concerns. This is why we broadened

Residential Anti-Crime Solutions

our focus from narrowly defined “security systems,”

Public security has eroded in recent years and plannedsuch as crime prevention and fire prevention systems,

robberies and new types of home intrusion are occur-

to products and services that enable us to provide

ring more frequently. To protect homes from crimes

peace of mind.

such as these, SECOM has launched a rapid succession

The centerpiece of such a system for the home isof new crime prevention products.

our SECOM Home Security systems, which provide

One such product is SECOM Anshin Glass,on-line monitoring around-the-clock to respond toa high-impact window glass with built-in sensors

intruders, fires, gas leaks and medical emergencies.

developed to prevent thieves from breaking windows

We also offer additional anti-intrusion devices and fireand gaining entry into homes. The window’s breakage-detection and extinguishing systems. Further protec-

resistant glass and sensor functions have combined totion is afforded by our insurance policies, as well as amake it extremely effective against intrusions. If

SECOM control center

SECOM Home Security

6

SECOM—Social System Industry

an attempt to break the glass isfeaturing built-in face detection

made, not only does it make a loudtechnology with SECOM’s Home

sound but breaking it takes an

Camera System to create a complete

extended period of time. If the home-

image monitoring system with alert,

owner is a subscriber to SECOM

monitoring, recording and control

Home Security, a SECOM control

functions. The face detection func-

center will be alerted the instant thetion recognizes whether or not a

SECURIFACE

breakage occurs and will dispatch

person’s face appears in the field of

emergency response personnel. SECOM Anshin Glassthe camera in the interphone. If the person intention-

has been highly evaluated by purchasers, particularly

ally hides his or her face or stays out of the camera’s

SECOM Home Security subscribers.

field of view, suspicious intent is assumed and the

Criminals are demonstrating increasingly sophisti-

occupants are alerted to exercise diligence at the door.

cated methodology, such as impersonating delivery

The know-how gained through operating security ser-personnel to gain entry or using a home’s intercom tovices and the advanced image processing technologies

confirm the occupants’ absence. To combat resourcefulthat went into the creation of this unique system illus-

criminals such as these, we released SECURIFACE.

trates how SECOM solves the challenges of modern

This intercom system combines an interphone

life for its customers.

Centralized Security Services

SECOM
SE
OM
ControlC
tro
Center
err
C
Cente
tr Ce

(2) Alert Emergency Services
and Utilities as Necessaryy(2) Alert the SECOM
Emergency Depot

Fire Dept.
Dept

SE OM
SECOM
Em
ge y Depot
po
EmergencyEmergency

Police Dept.
Dept Gas Comp
Company(1) Telephone
Circuit Alert
POLIC
CE
C

Subscriber(3) Dispatch SECOM
Emergency Response Personnel

7

SPECIAL FEATURE■ Ground-Breaking Medical

To combat forced entries, we cameup with Strong Door, a reinforced door

Servicesthat can withstand an assault for an

SECOM Medical Club—Easing

extended period of time. If bedroom

Anxiety about Health Issues

doors are replaced with Strong Door,

Eliminating fears about family healthcustomers are protected from intruders

is one aspect of how we are offering

while they are asleep.

security and peace of mind in the

Similarly, SECOM Window Framecan be installed on window exteriors tohome. This is why we combined
Tomahawk Jet Alphaaspects of our security business withprevent entry. These attractive reinforced stainlessthe medical business to create SECOM Medical Club

bars are designed to resist tampering for an extendedin November 2003. To date, we have offered My

period of time and if they are broken or removed, their

Doctor, an emergency medical alert system, as anintegrated sensors alert a SECOM control center.

option to SECOM Home Security subscribers. SECOM

In this way, SECOM has taken decisive steps toprovide products and services to protect customers
and their families at home from rapidly increasing
incidence of intrusion.

Medical Club is offered to subscribers as part of an
integrated service package.
SECOM Medical Club offers three main services—preventive medical services, emergency medical

We have also directed our creativity to fire prevention. Tomahawk Jet Alpha is an automatic fire extinguishing system attached to range hoods in residential
kitchens. This system does not require pipes to beinstalled and protects the home from stove-top fires bydirecting a jet of fire suppressant on the burners if its
sensors detect temperatures above 96°C (205°F).

My Doctor emergency medical alert system
8

SECOM—Social System Industry

For those who may be experienc-

services and referral services for
medical institutions anding symptoms of a medical ailment

specialists—to accommodate

or condition, we offer advice on pos-family health management needs.

sible causes. People who are anxious

Subscribers can evaluate theirabout whether they have a heart

health status and living habitscondition can use our electrocardio-

over the Internet or by mail withgram service to rent a self-adminis-

SECOM Medical Club nurse center

tered mobile electrocardiograph andan easy-to-use Living Habits Check
function, which includes a health checklist, asend in their data, which is converted to an electrocar-

questionnaire on living habits to assess health anddiogram and faxed back. We will continue to add newprovide advice, and a prevention and treatment

services that help people maintain and promote theirprogram for osteoporosis. These services are wellhealth as we evolve our SECOM Medical Club services.

utilized by subscribers.
Quality Home Medical Services

In addition, we offer a toll-free hotline staffed byqualified nurses, who provide telephone health consul-

The SECOM Group is keeping an eye firmly on thetation, health check referral and medical institution

future of medical care in Japan while rolling out ainformation search services.

precedent-setting series of medical services. Patients

Home Medical Services
Outpatient Care
Physician Guidance

Prescription

Medical C
Care Institution
stitu nPha
Pharmaceuticalarmaceutical Dispensing
a
and
a
an
nd Home Delivery Servicesnd(SECOM Pharmacy)
Pharmacy)

Nurse Report

Co
Coordination
oordinatiion

Home Nursing Services
es(SECOM Nurse Station)

Consultingg

Prescription
Visiting Nurse
Pharmaceutical Delivery

Patient

9

SPECIAL FEATURE

convalescing at home, for example, can obtain 24-hourlong-term care insurance scheme. The SECOM Seniorpeace of mind with our nursing care and home per-Club Tama Plaza was conceived to provide seniors

sonal care services. SECOM was the first company

who require care with an enhanced lifestyle throughin Japan to offer a full-fledged home nursing service

the opportunity to meet others and enjoy various pro-

employing highly skilled and experienced nurses tograms while providing respite to family members

attend to patients at their homes at regular intervals.

during the day.

With patients expressing much appreciation for these
services, we have expanded the nationwide network of
SECOM visiting nurse stations to 32. Home personal■ The Ever-Expanding
COCO-SECOM Lineup

care services for individuals include assistance with daily

SECOM began offering security services to corporate

activities, such as bathing, exercising, meal preparationclients and then expanded to the home. We are now

and housework.

going one step further to focus on individuals, throughUsing the experience gained in home medical ser-our precedent-setting COCO-SECOM mobile security

vices, in May 2004 we opened the SECOM Seniorservices, which combine security, information and GIS

Club Tama Plaza, an adult day service facility forservices. These services use Global Positioning Systemsenior citizens. As with the visiting nurse and home(GPS) satellites and cellular telephone base stations tocare services, adult day services are covered by the

pinpoint locations with high precision, providing asolution to people concerned about automobile or
motorcycle theft, elderly family members who may
wander and get lost or children who might be abducted.

SECOM Senior Club Tama Plaza
10

SECOM—Social System Industry

Since we launched COCO-SECOM insummon SECOM to an emergency situ-

April 2001, we have continually added

ation with the press of a single button,

to the menu of services in response tousers can opt to use the services COCO-

customer needs. We presently offer

SECOM Inquiry Call or COCO-SECOM

services for people, motorcycles, auto-

Watch Me Call. With COCO-SECOM

mobiles, cash and valuables cases, con-

Inquiry Call, for example, a parent canstruction machinery, safes, automatedconfirm the safety of a child carrying

teller machines (ATMs), pets andthe special transmitter by using the

motorized bicycles. The COCO-SECOM

COCO-SECOM

Internet to send a signal to the trans-

lineup also includes a service that enables subscribers

mitter, which vibrates when it receives the signal. The

to pinpoint the location of several vehicles or individu-

child can then reassure the parent that they are safe

als simultaneously, making it suitable for tracking

simply by activating a switch on the transmitter. With

commercial vehicle fleets and employees.

COCO-SECOM Watch Me Call, a woman walking alone

Child abductions and assaults on women are

down a dark road, for example, can activate the trans-

increasing. To counter this, we began offering new

mitter and if she does not activate it again within a set

COCO-SECOM services with enhanced communica-

period of time, an emergency signal is automaticallytion options. In addition to being able to alert andtransmitted to SECOM.

COCO-SECOM Location and Emergency Response System
Request for Search(Telephone/Internet)
GPS Satellite

Notification of Police((If Warranted))

COCO-SECOM
COCO
COCO
O E
EC
COM
COM
Operations
i sC
Centern
pe tiontt
ent

Cellularl l Telephone
T l hBase Station
Subscriber

SECOM
SE
OM
Emergency
me ge cyy Depot
ep

Positioning
Information

Transmitter Device(Vehicle-Mounted)
Transmitter Device(Portable)

Police Dept.

POLIC
CE
C

Dispatch of Emergency
Response Personnel(If Requested)

11

SPECIAL FEATURE

When we first launched COCO-

mind. This is because our on-line

SECOM services, communication

security systems provide prior

was only possible in one direction,

protection, while non-life insurance

that is, it enabled someone at home

protects customers in the eventto confirm the location of a familyof misfortune. The combination

member carrying a transmitter whenoffers customers an enhanced levelthat person was out. Now, we offer
interactive security, providing loca-

Heavy ion radiation therapy© NIRStion data and a response by the
person carrying the transmitter.

of reassurance. We are using thisapproach to develop a series of
products that combines elements of

security and insurance.
Security Discount Fire Policy, for example, takes■ Business Synergies for
Unique Insurance Policies

into account the lowered risk of an office that subscribes to on-line security systems to offer discounted

At SECOM, we believe combining on-line security

premiums. The customer therefore not only breathes

systems with non-life insurance represents the ideal

more easily knowing that a security system is protect-in seamless services that provide security and peace ofing them, but also gains the peace of mind of being
insured against loss for less cost. The same concept
underlies the SECOM Anshin My Home policy forhouseholds. This policy offers lower premiums tohome security subscribers.
The New SECOM Anshin My Car policy has
several features. If the car is in an accident, at therequest of the insured party we send emergency
response personnel to the site to assist at any hour,
any day of the year. In addition, the policy offers safedriving discounts for families and a discount for using
an anti-theft service, such as COCO-SECOM.

MEDCOM consultants
12

SECOM—Social System Industry

Our approach has also given birth to MEDCOM,

scheme. With guaranteed coverage, our customers canan unrestricted cancer treatment policy that combines

focus on getting better without having to worry about

medical and insurance features. MEDCOM insuresmoney issues or forgo treatment.

against the costs involved with cancer treatments.

■ Security Needs for

Until MEDCOM, in many cases patients could not

the Information Agetake advantage of optimal cancer treatments that were
not covered by the national health insurance scheme

As the role of information increases in modern society,because of the prohibitive cost. This, in turn, slowed

so too does the importance of information security.

down the adoption of new treatments. With this prod-

Information security involves physical protection anduct, the policyholder is referred to the best medical insti-

access control as well as cyber protection against

tution for their particular needs and Secom Generalinterception and tampering perpetrated by hackers

Insurance Co., Ltd., covers all of the treatment costs.

or malicious computer programs, such as viruses. By

In November 2003, we substantially upgraded the

combining its expertise in physical and cyber security,

policy in response to user demand by having it cover

SECOM is responding to the needs of its clients in thethe portion of cancer treatment costs (30%) that indi-

information age.

viduals must meet under the national health insurance

Digital Certificate Authority Hosting Services(5) Real-Time Identity Verification
Certificate
Authority(2) Certificate
Issue
ue

Certificate
Authority
A BankB Bank(1) Application

X Company(6) Warranty(3) Transaction Order(With Certificate Attached)(4) Real-Time
Identity
Verification(7) Warranty

Y Company

13

SPECIAL FEATUREThe Secure Data Center—

The Secure Data Center operates

Integrated Physical and Cyberthe digital certificate authorities for

Security

a number of Japan’s preeminent

The Secure Data Center was inaugu-

financial institutions. It also oper-

rated in December 2000. Access toates the extranet and servers of thethe building is guarded around theJapanese subsidiary of a major

clock with static guards and zero-

Secure Data Center storage area

blind-spot cameras, applying all the

U.K. pharmaceuticals firm, and is
entrusted with their repair andyears of know-how that SECOM has accumulated inmaintenance. As of May 2004, we also began offering

the realm of physical security. In the area of cybera key activation report service and procedural services

security, our customers’ servers are guarded cease-to help prevent and combat the recent spate of cus-lessly by highly secure monitoring services that protect

tomer information and insider information leaks.

against unauthorized access and viruses, and by digital

With the key activation report service, a SECOM guardauthentication services.

records the date and time, company name, title andname of any person who opens or closes a server rack.
This information is relayed to the owner’s IT contact.
Under the procedural service, a SECOM guard accompanies the owner’s IT staff or maintenance vendor at
all times to prevent improper actions. As with bricks
and mortar assets, SECOM ensures its customers’
cyber assets are secure too.

Secure Data Center procedural services
14

SECOM—Social System Industry■ Toward a World Free from

Noncontact IC Card Systems—
Security for the Information Age

Apprehension

Demand has risen for security sys-

The SECOM Group’s growth to datetems that offer more reliability andreflects its adherence to its vision of

convenience as public safety erodes

building the infrastructure for aand technologies progress. We havesociety in which people can enjoy

responded with our access-control

security, convenience and comfort.

Noncontact IC card system

The fields of security, medical,

systems. Our noncontact IC card
systems control access to a building and each of its

insurance, information, GIS and education services

floors, provide definitive identification of individuals

are all part of the social infrastructure and essential

and control access to multiple servers—all with ato realizing the Social System Industry vision.

single card. These systems blend physical and cyber

As we develop the various integrated products andsecurity at an advanced level, providing security

services that will make the Social System Industry a

countermeasures that satisfy the demanding

reality, we will keep in mind the vital importance of

requirements of the information age.

offering high-value-added systems that serve thediverse needs of society. We will continue to adhere toa philosophy that seeks to transcend accepted boundaries and provide products and services that are truly
beneficial to society. Last but not least, the employeesof the SECOM Group will work to create and deliver
the services and products that ensure customers are
satisfied they chose SECOM.
Over the coming years, the SECOM Group will
strengthen the SECOM brand and rise to the challengeof taking the Social System Industry to the next stepby introducing revolutionary new products andservices. We urge you to expect the best from the
SECOM Group.

15

REVIEW OF OPERATIONS

Percentage of Revenue and Other Income*Security Services

Medical Services

Insurance Services

Information and Communication
Related and Other Services

68.4%

3.9%

6.2%

21.0%

*Excluding intersegment transactions

CONTENTSSECURITY SERVICES ......................................................17
MEDICAL SERVICES .......................................................18
INSURANCE SERVICES ...................................................18
INFORMATION AND COMMUNICATION RELATEDAND OTHER SERVICES..................................................19
OVERSEAS OPERATIONS ...............................................20

16

SECOM—Social System Industry

Commercial and Home Security Service Subscribers
by Category (At March 31, 2004)
the relevant information is relayed to the control center,
where the staff dispatch emergency response personnel, whotake the appropriate measures, and notify the police or fireHome
C
Commercialldepartment as required.
During the period under review, we continued to market
SECOM AX, a centralized system that employs advanced
image monitoring, to commercial users. We heightened thecompetitive advantages of the versatile SECOM DX centralized security system by adding DX Monitor, which incorporates a function that enables, through the image display
screen on the site, individuals operating the system and security controls to guard against ambush or forced entry. For
condominiums, we launched sales of SECOM MS-3, which
can be used for existing and new buildings of all sizes.
We continued to offer SECOM Home Security systems
to the residential market. For subscribers to these systems,
we monitor homes for intruders, fires, gas leaks, emergency
calls and medical alerts from our control centers, dispatch
emergency response personnel and notify the police, fire
department or gas company as required. Subscriptions
increased steadily during the period.

■ Security Services

Our large-scale proprietary systems are self-contained,
enabling monitoring to be performed at the subscribers’Electronic Security Services

premises, rather than remotely, through the combination of

For the year ended March 31, 2004, revenue from electronic

on-site patrols and electronic security and equipment man-security services, comprising commercial and home security

agement systems. The SECOM TOTAX ZETA system com-and large-scale proprietary systems, grew 2.7%, to ¥265.3 bil-bines our security expertise in large-scale applications withlion, and accounted for 49.3% of consolidated revenue andthe latest network technologies to protect major industrial

other income, compared with 49.6% in the previous period.

and commercial facilities.

To provide quality security services, the SECOM Grouphas established an integrated process that enables it to main-

Other Security Services

tain control of every aspect of its services, from the research

For security situations that require human judgment andand development of centralized systems and equipment toflexible responses, we provide static guard services staffedmanufacturing, sales and marketing, installation, 24-hourby highly trained professionals. We also offer armored car

monitoring, emergency dispatches, and maintenance andservices to transport cash and other valuables. Together,

repairs. Centralized systems use SECOM sensors installed

these services generated revenue of ¥56.2 billion, 5.6%

at customers’ premises to detect events, such as intrusions,higher than the prior period, and accounted for 10.5%

fires and equipment malfunctions. The sensors are linkedof consolidated revenue and other income, up slightly

to SECOM control centers via telecommunications circuits

from 10.2%.

to facilitate remote monitoring. When an event is detected,
17

REVIEW OF OPERATIONS

Merchandise and Other

institutions. Our home medical care services include home

We offer a variety of security products, including closed-

nursing, personal care and pharmaceutical dispensing andcircuit television (CCTV) monitoring systems, access-control

delivery, while institutional services feature remote image

systems, fire detection and extinguishing systems, and inter-diagnosis support and medical information systems.

nal and external monitoring systems, which can be usedHome medical care services performed strongly, andalone or connected to on-line security systems, as well as

we expanded our network of visiting nurse stations to 32

COCO-SECOM mobile security services. For the period,

nationwide. We also continued to market the Hospinet

these products and services yielded revenue of ¥46.1 billion,

remote image diagnosis support service to medical institu-

an increase of 4.5%, and provided 8.6% of consolidated

tions. This service relays images from advanced imaging

revenue and other income, compared with 8.5% in theequipment, such as magnetic resonance imaging (MRI) andprevious period.

computerized tomography (CT) scanners, to our Hospinet

In the CCTV area, the D-CCTV fully digital surveillance

center for examination by our diagnostic experts, who thencamera system again enjoyed steady sales, owing to its clar-

provide consultation to the primary physician. We also

ity and ability to display or record video images without

stepped up sales efforts for the SECOM Ubiquitous EMR

deterioration. We released a stream of new products for

system, which allows hospitals and clinics to effectively andthe home security market to thwart increasingly bold andsecurely manage large volumes of medical report data.

resourceful criminal behavior. This included SECOM

During the period, we introduced SECOM Medical Club,

Anshin Glass, a high-impact window glass with built-in sen-a membership-based service primarily aimed at SECOM

sors, and SECURIFACE, an intercom system that employs

Home Security subscribers, effectively combining security

an innovative face detection function to alert people toand medical services in an innovative package. In addition,

exercise diligence at the door.

we began sales of Medical Risk Management System to

We strengthened the line-up of COCO-SECOM mobile
security services in response to consumer demand. Duringassist institutional users in analyzing and minimizing therisk of medical accidents.

the period, we launched COCO-SECOM with Emergency
Call, a new package with an added feature that can confirm
the safety of a person carrying a COCO-SECOM transmitter,■ Insurance Services

and we introduced services for pets and motorized bicycles.
Revenue from insurance services increased 14.5%, to ¥33.4
billion, and provided 6.2% of consolidated revenue and■ Medical Services

other income, compared with 5.6% in the preceding period.

Revenue from medical services amounted to ¥21.2 billion,

insurance policies that draw on synergies with othera 6.4% rise, and represented 3.9% of consolidated revenue

SECOM Group businesses. During the term, we continued

and other income, up from 3.8% in the previous period.

to aggressively market the attractively priced Security

Secom General Insurance offers specialized non-life

In the period under review, this segment continued

Discount Fire Policy to commercial subscribers to on-line

to offer home medical care services, institutional services

security systems, as well as the residential version, SECOM

and medical equipment for sale, as well as operate residen-

Anshin My Home, to home security subscribers. Both poli-

tial facilities for seniors and lease real estate to medicalcies offer reduced premiums to security system subscribers,

18

SECOM—Social System Industry

recognizing these systems as risk-lowering factors. New

GIS Services

SECOM Anshin My Car is a comprehensive automobile

Pasco Corporation, Japan’s leader in GIS and aerial mapping

insurance policy that offers on-site support services of ourservices, continued to cultivate new markets by using its

emergency response personnel in the event of an automobile

leading-edge sensor technologies and GIS expertise toaccident and lower premiums if the vehicle is equipped with

develop innovative information services. During the period,

COCO-SECOM or other anti-theft devices. We also renewed

we continued to promote sales of PasCAL, a comprehensive

efforts to market MEDCOM, an unrestricted cancer treat-

GIS service integrating various data with digital maps thatment policy that covers the entire medical cost of advanced

is marketed to regional public agencies to increase efficiency

treatments not covered by national health insurance as welland share information. We also introduced a series ofas the patient’s portion of the cost of medical care covered

management systems for public facilities.

by the national scheme.

In the commercial area, we concentrated on marketing
the Management-Navigation series of packaged GIS systems.
We also introduced MarketPlanner, an Internet-compatible■ Information and Communication Related andOther Services

area marketing product.

Education Services
Revenue in this segment fell 0.2%, to ¥112.8 billion, andSecom Lines Co., Ltd., a pioneer in computer-aided learning

accounted for 21.0% of consolidated revenue and otherin Japan, develops and provides local area network (LAN)-

income, compared with 21.7% in the prior period.

based learning systems for classrooms, Internet-based learning support software and Web-based educational content

Information Services

primarily for elementary and middle schools.

Secom Information System Co., Ltd., which builds and operates information network systems for the SECOM Group,

Real Estate Sales

also uses its know-how and technological expertise to offer

Secom Home Life Co., Ltd., develops and sells highly innova-

these services to corporate customers. Secom Trust.net Co.,

tive condominiums based on the concept of “safe and secureLtd., offers high-quality protection for e-business and on-line

condominiums” that incorporate value-added elements, suchoperations, including the cyber security essential for IT

as the latest SECOM Group security systems, medical ser-systems and broadband systems; advanced digital authenti-

vices, personal care services, information services andcation services crucial to e-commerce and electronic applica-

insurance products. During the term, Secom Home Lifetion systems; and the Secure Data Center, which provides acontinued to develop and market quality condominiums

secure network environment and outsourcing of the opera-that emphasize security and peace of mind.

tion and maintenance of servers. During the term, theSecure Data Center secured a major contract to maintain

Real Estate Leasing

and operate the extranet and servers of a major U.K. phar-

Arai & Co., Ltd., continued to build on the expertise inmaceutical company’s Japanese subsidiary. We also launchedproperty management it has accumulated in the real estate

sales of a noncontact IC card-based security system that com-leasing business. In the period, the company focused onbines physical and cyber security to control building, floor

expanding its office leasing business.

and computer access using a single access card for eachauthorized person.

19

REVIEW OF OPERATIONS■ Overseas Operations
Security is a universal requirement for people and society.

of this strategy has let SECOM security services transcendWith this concept in mind, in 1978 SECOM launched

cultural differences to gain favor with subscribers world-

operations in Taiwan. Soon after, we branched out into thewide. We hope to make SECOM a brand trusted globally as

Republic of Korea and the United States. We then secured

we work to contribute to the security and peace of mind ofaccess to the markets of Europe and Oceania by setting up

people everywhere.

operations in the United Kingdom and Australia, andextended our presence in Asia by expanding into Thailand,
Malaysia, Singapore, Indonesia and the People’s Republic ofChina, bringing the total number of countries and territories
in which we operate, outside Japan, to 10.
The distinguishing characteristic of SECOM security
operations around the world is that we customize our systems and services to the needs of the particular country or
region while drawing on know-how gained in Japan. Pursuit

20

FINANCIAL SECTIONCONTENTSFINANCIAL REVIEW ................................................................................... 22
CONSOLIDATED FINANCIAL STATEMENTS............................................... 26
CONSOLIDATED BALANCE SHEETS .................................................... 26
CONSOLIDATED STATEMENTS OF INCOME ....................................... 28
CONSOLIDATED STATEMENTS OF CHANGESIN SHAREHOLDERS’ EQUITY ............................................................ 29
CONSOLIDATED STATEMENTS OF CASH FLOWS ............................. 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ....................... 31
INDEPENDENT AUDITORS’ REPORT .......................................................... 53
SUMMARY OF SELECTED FINANCIAL DATA ............................................. 54
COMMON STOCK DATA ........................................................................... 55

21

FINANCIAL REVIEW

Operating Results
Overview
In the fiscal year ended March 31, 2004, the parent
company and its consolidated subsidiaries (collectively,“the Company”) implemented a variety of assertive
measures aimed at enhancing their operations—whichcenter on security services and also encompass medical, insurance, information, GIS and education services, real estate sales and real estate leasing—byimproving services and expanding marketing, systemconstruction and product development.
Firm revenue in security services and certain
other areas supported an increase in consolidated
revenue and other income of 3.3%, or ¥17.1 billion,to ¥537.9 billion. Owing to such factors as an impairment loss on property, plant and equipment of ¥15.1
billion and losses on a revision of our pension plansamounting to ¥8.8 billion, however, net income was¥23.5 billion.
Revenue and Other Income
Owing to an increase in net sales and a gain on sales
and disposal of property, plant and equipment, net,revenue and other income increased 3.3%, or ¥17.1
billion, to ¥537.9 billion. Net sales increased 2.5%, or¥12.8 billion, to ¥525.5 billion, due to higher sales inthe security services segment, which focuses on
centralized security systems. The gain on sales anddisposal of property, plant and equipment, net, whichamounted to ¥4.1 billion, was largely attributable togains on the sale of real estate for lease, held as
investment assets (insurance services business)and for lease (real estate leasing business).
Costs and Expenses
Despite a sharp decline in loss on other-thantemporary impairment of investment securities,
costs and expenses rose 4.5%, or ¥21.0 billion, to¥488.8 billion, owing to increases in cost of sales,
selling, general and administrative expenses andimpairment loss on property, plant and equipment,
together with a settlement loss of benefit obligation
on transfer to defined contribution pension plan anda loss on transfer of the substitutional portion of
Employees’ Pension Fund.

22

Expanded net sales pushed cost of sales up
2.8%, or ¥8.9 billion, to ¥326.4 billion, equivalent to62.1% of net sales, up from 61.9% in the previous
period. The higher cost-of-sales ratio was primarily aconsequence of a decline in sales in the area of GIS
services, which reflected ongoing budget cuts bynational and local government agencies—the principal customers for these services—and intensifying
price competition.
Selling, general and administrative expenses
increased 6.6%, or ¥8.0 billion, to ¥128.0 billion.
Despite cost reduction efforts, these expenses
accounted for 23.8% of revenue and other income,up from 23.0%, owing to, among others, an increasein the allowance for doubtful accounts.
Although the Company registered a gain on sales
and disposal of property, plant and equipment, net,compared with a loss of ¥2.8 billion in the previous
period, the Company recorded an impairment loss onproperty, plant and equipment of ¥15.1 billion, up¥12.1 billion.
To reinforce its financial foundation, the Company
revised its pension plan by partially shifting to a defined
contribution pension plan and transferring the substitutional portion of the Employees’ Pension Fund to
the government. This resulted in a ¥4.6 billion settlement loss of benefit obligation on transfer to defined
contribution pension plan and a ¥4.2 billion loss ontransfer of the substitutional portion of Employees’
Pension Fund.
Modest gains in the Japanese stock market
underscored a decline of 91.7%, or ¥10.6 billion,
in loss on other-than-temporary impairment ofinvestment securities, to ¥963 million.
IncomeNotwithstanding the positive impact of higher net
sales and a decline in loss on other-than-temporary
impairment of investment securities, income before
income taxes slipped 7.3%, or ¥3.8 billion, to ¥49.0
billion, primarily reflecting the aforementioned impairment loss on property, plant and equipment, settlement loss of benefit obligation on transfer to defined
contribution pension plan and loss on transfer of thesubstitutional portion of Employees’ Pension Fund.

SECOM—Social System Industry

Income taxes rose 7.9%, or ¥1.9 billion, to¥25.9 billion. Income taxes were equivalent to 52.9%
of income before income taxes, compared with45.5% in the previous period—an increase due
largely to an increase in unrecognized tax benefits
from subsidiaries in loss positions.
Owing to these and other factors, net income
was ¥23.5 billion and represented 4.4% of revenue
and other income. Both basic net income per shareand diluted net income per share amounted to¥104.32.
Segment Information
For detailed segment information, please see Note
28 of the accompanying notes to the consolidated
financial statements.
Revenue and other income in the security services segment rose 3.3% from the previous period,or ¥11.8 billion, to ¥368.8 billion. Excluding intersegment transactions, segment revenue and otherincome amounted to ¥367.6 billion, equivalent to68.4% of total revenue and other income, up from
68.3%. Revenue and other income from mainstay
commercial and home security services amounted
to ¥261.8 billion, an increase of 2.7%, or ¥6.8 billion.
Large-scale proprietary systems accounted for ¥3.6
billion, an increase of 3.6%, or ¥123 million. Static
guard services generated ¥37.5 billion, an increaseof 4.5%, or ¥1.6 billion. Armored car services

represented ¥18.6 billion, up 7.9%, or ¥1.4 billion.
Merchandise and other contributed ¥46.1 billion, up
4.5%, or ¥2.0 billion. Despite higher revenue andother income, segment income before income taxes
decreased 4.8%, or ¥3.9 billion, to ¥76.2 billion, andaccounted for 20.7% of segment revenue and otherincome, down from 22.4%. This was largely attributable to the settlement loss of benefit obligation ontransfer to defined contribution pension plan andloss on transfer of the substitutional portion of
Employees’ Pension Fund.
In the medical services segment, revenue andother income advanced 6.4%, or ¥1.3 billion, to¥21.4 billion. Sales gains notwithstanding, the segment registered a loss before income taxes of ¥1.2
billion, compared with income before income taxesof ¥1.8 billion in the previous period, owing primarily
to the increase in the allowance for doubtful accounts
and impairment loss on property, plant and equipment.
The insurance services segment generated revenue and other income of ¥35.8 billion, up 14.8%, or¥4.6 billion, and income before income taxes of ¥3.2
billion, compared with a loss of ¥9.2 billion in the previous period. This segment’s improved performancereflected a gain on the sale of real estate for leaseheld as investment assets, and the decline in loss
on other-than-temporary impairment of investment
securities, underscored by an improved investment
environment.

23

In the information and communication related
and other services segment, which encompasses
information-related services, GIS services, realestate sales and real estate leasing, revenue andother income edged up 0.5%, or ¥561 million, to¥116.6 billion. The segment posted an ¥11.9 billion
loss before income taxes, compared with a loss of¥2.0 billion in the previous period. The greater loss
was attributable to ongoing budget cuts by national
and local government agencies—the principal customers for GIS services—and intensifying price competition for these services, as well as to the impairment
loss on property, plant and equipment used exclusively in real estate leasing and an increase in theallowance for doubtful accounts.
Financial Position
Total assets of the Company as of March 31, 2004,
amounted to ¥1,165.1 billion, up 0.6%, or ¥7.0 billion,
from the previous fiscal year-end.
Total current assets increased 12.5%, or ¥54.0
billion, to ¥485.0 billion, as cash and cash equivalents
advanced 7.6%, or ¥13.7 billion, to ¥192.9 billion; theexpansion of armored car services boosted cash
deposits 34.6%, or ¥15.7 billion, to ¥60.9 billion; anda restructuring of the investment portfolio of our
insurance services business raised short-term investments 60.0%, or ¥13.5 billion, to ¥35.9 billion. A significant increase in total current assets, coupled witha slight decrease in total current liabilities, pushed
the current ratio up to 1.7 times, from 1.5 times ayear earlier.

Shareholders’Equity per ShareInvestments and long-term receivables rose
10.7%, or ¥27.6 billion, to ¥286.0 billion. This
increase reflected a review of our insurance
business’s investment portfolio, which resulted in theacquisition of investment securities.
Property, plant and equipment, less accumulated
depreciation, declined 17.7%, or ¥65.0 billion, to¥302.9 billion. This decline reflected the sale of realestate for lease in line with a review of our insurance
business’s investment portfolio, and an impairment
loss on property, plant and equipment.
Other assets were down 9.5%, or ¥9.6 billion, to¥91.2 billion, as a decrease in accrued pension andseverance costs prompted a decline in deferredincome taxes.
Total liabilities amounted to ¥719.0 billion, adecrease of 5.0%, or ¥38.2 billion, from a year earlier.
Total current liabilities came to ¥284.2 billion, edging down 0.1%, or ¥282 million. Bank loans declined
9.9%, or ¥12.3 billion, to ¥111.8 billion. In contrast,
the expansion of the Company’s armored car services boosted deposits received 33.8%, or ¥9.8
billion, to ¥38.6 billion.
Long-term debt decreased 11.4%, or ¥11.7 billion, to ¥91.1 billion. Accrued pension and severance
costs fell 69.3%, or ¥28.9 billion, to ¥12.8 billion.
This reflected the parent company and certain of its
Japanese subsidiaries obtaining approval to separate
the remaining benefit obligation of the substitutional
portion of the Employees’ Pension Fund (EPF), whichis related to past employee services and which it
subsequently transferred to the government, andTotal Assets

Depreciation andAmortization(In billions of yen)

(In yen)
2,000

1,250

60

1,600

1,000

48

1,200

750

36

800

500

24

400

250

12

0

0

0
00 01 02 03 04

24(In billions of yen)

00 01 02 03 04

00 01 02 03 04

SECOM—Social System Industry

the adoption of a defined contribution pension plan.
As a result, plan assets of the EPF exceeded theaccumulated benefit obligation, prompting a decline
in minimum pension liability adjustments. Investment
deposits by insurance policyholders amounted to¥230.3 billion and accounted for 19.8% of total
liabilities and shareholders’ equity.
Total shareholders’ equity rose 11.6%, or ¥43.3
billion, to ¥415.9 billion. Retained earnings increased
4.8%, or ¥14.4 billion, to ¥315.0 billion. For the reasons explained in the preceding paragraph, minimum
pension liability adjustments fell to ¥194 million, from
¥26.1 billion. The equity ratio rose to 35.7%, from
32.2% a year earlier.
Cash Flows
The Company is committed to maintaining sufficientliquidity to ensure flexibility in its operations andguarantee a solid financial foundation. To the bestof its ability, the Company is also committed tofinancing related strategic investments with cash
generated by its operating activities.
In the period under review, net cash provided byoperating activities amounted to ¥89.2 billion andincluded net income of ¥23.5 billion and depreciation
and amortization of ¥52.9 billion. Operating activities
provided ¥1.3 billion less than in the previous period,
partially owing to an increase in inventories—comparedwith a decrease in the previous period—prompted bya rise in inventories of real estate for sale.
Net cash used in investing activities amounted to¥28.6 billion. Principal components were ¥40.5 billion
in payments for purchases of property, plant andequipment, primarily security equipment and control
stations; a net ¥21.2 billion applied to short-term
investments and the purchase of investment
securities; and ¥32.3 billion in proceeds from sales ofproperty, plant and equipment, notably real estate forlease. Investing activities used ¥56.1 billion less thanin the previous period, primarily owing to a smaller
increase in the combined net outlay for short-term
investments and the purchase of investment securities. This reflected a decline in proceeds from salesof funded personal accident insurance policies, which
led to a decrease in payments for purchases ofinvestment securities.
Net cash used in financing activities came to¥46.8 billion. This amount included a net outlay of¥35.9 billion for repayments of debt—that is, net
repayments of long-term debt and decrease in bankloans—resulting from efforts to lower interestbearing debt, and dividends paid of ¥9.0 billion. Despitea significantly smaller increase in treasury stock, net,of ¥114 million, compared with ¥44.1 billion in theprevious period, net cash used in financing activities
rose ¥10.1 billion, largely as a consequence of theaforementioned net outlay for repayments of debt of¥35.9 billion, representing repayments of long-term
debt and decrease in bank loans, compared with net
proceeds from long-term debt and increase in bankloans of ¥13.7 billion in the previous period.
As a consequence of the Company’s operating,investing and financing activities during the period
under review, cash and cash equivalents at end ofyear amounted to ¥192.9 billion, up ¥13.7 billion from
¥179.2 billion a year earlier.

Capital Expenditures

Cash Flows(In billions of yen)

(In billions of yen)
150

150
120

75

90
0
60
–75

30

–150

0
00 01 02 03 04

02

03

Cash flows fromoperating activities
Cash flows frominvesting activities
Cash flows fromfinancing activities

04

25

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETSSECOM CO., LTD. and Subsidiaries
March 31, 2004 and 2003

ASSETS
Current assets:
Cash and cash equivalents (Note 6)........................................................................
Time deposits ...........................................................................................................
Cash deposits (Note 7) .............................................................................................
Short-term investments (Note 8).............................................................................
Notes and accounts receivable, trade ....................................................................
Due from subscribers ..............................................................................................
Inventories (Notes 9 and 13)....................................................................................
Short-term receivables ............................................................................................
Allowance for doubtful accounts ............................................................................
Deferred insurance acquisition costs (Note 14) .....................................................
Deferred income taxes (Note 17).............................................................................
Other current assets .................................................................................................
Total current assets ...........................................................................................
Investments and long-term receivables:
Investment securities (Note 8).................................................................................
Investments in affiliated companies (Note 10).......................................................
Long-term receivables .............................................................................................
Lease deposits ..........................................................................................................
Other investments ....................................................................................................
Allowance for doubtful accounts ............................................................................

Property, plant and equipment (Notes 11, 13, 20 and 21):Land ...........................................................................................................................
Buildings and improvements ..................................................................................
Security equipment and control stations ...............................................................
Machinery, equipment and automobiles................................................................
Construction in progress..........................................................................................
Accumulated depreciation .......................................................................................

Other assets:
Deferred charges (Note 2 (10)) ................................................................................
Goodwill (Notes 5 and 12) .......................................................................................
Intangibles and other (Note 12)...............................................................................
Prepaid pension and severance costs (Note 15) ....................................................
Deferred income taxes (Note 17).............................................................................
Total assets ........................................................................................................
The accompanying notes are an integral part of these statements.

26

In millions of yen

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

March 31

March 31

2003

2004

¥0,192,892 ¥0,179,228
3,912
4,432
60,93045,25135,933
22,46350,04447,02823,931
21,32945,69841,80147,855
46,796(4,925)(1,558)2,963
2,921
14,716
12,851
11,0298,420
484,978
430,962$ 1,819,736
36,906574,811
338,991
472,113
225,764
431,113451,462(46,462)
27,953
138,830
104,048
4,575,265

2004

170,429
39,31455,272
11,917
19,274(10,220)
285,986

152,406
34,94245,516
11,746
19,599(5,836)258,373

1,607,821
370,887
521,434
112,425
181,830(96,415)
2,697,982

111,800
148,961
209,505
54,4104,429
529,105(226,169)
302,936

157,230
167,303
198,651
53,921
3,456
580,561(212,587)
367,974

1,054,717
1,405,292
1,976,462
513,30241,783
4,991,556(2,133,670)
2,857,886

38,77238,374
15,59812,491
19,74022,958
8,801
—
8,294
26,95091,205
100,773¥1,165,105 ¥1,158,082

365,774
147,151
186,226
83,02878,245
860,424$10,991,557

SECOM—Social System Industry

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Bank loans (Notes 7 and 13) ....................................................................................
Current portion of long-term debt (Notes 13 and 20)............................................
Notes and accounts payable, trade.........................................................................
Other payables..........................................................................................................
Deposits received (Note 7).......................................................................................
Deferred revenue (Note 2 (2)) ..................................................................................
Accrued income taxes ..............................................................................................
Accrued payrolls .......................................................................................................
Other current liabilities (Note 17) ............................................................................
Total current liabilities ......................................................................................

In millions of yen

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

March 31

March 31

2003

2004

¥0,111,764 ¥0,124,048
13,43920,507
18,46015,554
17,782
19,86938,59028,83839,07539,06718,01010,813
14,522
15,20012,554
10,582
284,196
284,478$ 1,054,377
126,783
174,151
167,755
364,057
368,632
169,906
137,000
118,432
2,681,093

2004

Long-term debt (Notes 13 and 20) ..............................................................................
Guarantee deposits received.......................................................................................
Accrued pension and severance costs (Note 15).......................................................
Deferred revenue (Note 2 (2))......................................................................................
Unearned premiums and other insurance liabilities (Note 14) ................................
Investment deposits by policyholders (Note 14) .......................................................
Other liabilities (Note 17).............................................................................................
Total liabilities....................................................................................................

91,09535,03912,813
19,28741,364230,316
4,934
719,044

102,767
36,75841,704
18,71937,410231,109
4,334
757,279

859,387
330,557
120,877
181,953
390,226
2,172,792
46,547
6,783,432

Minority interest in subsidiaries ................................................................................

30,20928,285284,991

66,36979,987
9,715
314,962

66,36979,987
9,672
300,529

626,123754,594
91,651
2,971,340

4,546
89
(194)
(15,221)(10,780)(2,758)42(26,115)(10,921)(39,752)

42,887840(1,830)(143,594)(101,697)

Common stock in treasury, at cost (Note 18):
8,228,652 shares in 2004 and 8,200,245 shares in 2003.....................................
(44,401)(44,287)
Total shareholders’ equity ................................................................................
415,852
372,518
Total liabilities and shareholders’ equity ........................................................ ¥1,165,105 ¥1,158,082(418,877)
3,923,134$10,991,557

Commitments and contingent liabilities (Note 24)
Shareholders’ equity:
Common stock (Notes 18 and 25):
Authorized 900,000,000 shares;
issued 233,281,133 shares in 2004 and 2003 ....................................................
Additional paid-in capital (Notes 18 and 25) ..........................................................
Legal reserve (Note 18) ............................................................................................
Retained earnings (Note 18) ....................................................................................
Accumulated other comprehensive income (loss):
Unrealized gains (losses) on securities (Note 8) ................................................
Unrealized gains on derivative instruments (Note 23) ......................................
Minimum pension liability adjustments (Note 15).............................................
Foreign currency translation adjustments ..........................................................

27

CONSOLIDATED STATEMENTS OF INCOME
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2004

In millions of yen

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

Years ended March 31

Year ended March 31

2004

2003

2002

2004

Revenue and other income:Net sales .............................................................................................. ¥525,534
4,143
Gain on sales and disposal of property, plant and equipment, net...
1,389
Gain on sales of securities, net (Notes 8 and 26) .............................
Interest and other (Note 16) ...............................................................
6,793
537,859¥512,734——
8,009
520,743¥483,014
—
2,967
7,545
493,526$4,957,868
39,085
13,10464,084
5,074,141

326,367
127,959—
15,095

317,457
119,999
2,778
3,012

292,092
115,158
1,448—

3,078,934
1,207,160—
142,406

4,555

—

—

42,972

4,209

—

—

39,708

963
3,297
6,385
488,830

11,5463,729
9,350
467,871

9,004
1,596
9,455
428,753

9,085
31,10460,2344,611,603

49,02952,87264,773

462,538

31,982(6,045)25,937

27,877(3,829)24,04837,096(6,913)30,183

301,717(57,028)
244,689

Income before minority interest in subsidiaries, equity
in net income of affiliated companies and cumulative
effect of accounting change ..................................................

23,092

28,824

34,590217,849

Minority interest in subsidiaries ...........................................................

(540)

(950)

(1,862)(5,094)Equity in net income of affiliated companies .....................................

927

1,244

1,354

8,745

Income before cumulative effect of accounting change.......

23,47929,11834,082

221,500

Cumulative effect of accounting change, net of tax(Note 2 (12))...........................................................................................

—

1,157

—

—

Net income................................................................................

¥023,479¥030,275¥034,082$0,221,500

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

Years ended March 31

Year ended March 31

Costs and expenses:
Cost of sales ........................................................................................
Selling, general and administrative (Notes 2 (16) and 19) ..............
Loss on sales and disposal of property, plant and equipment, net
Impairment loss on property, plant and equipment (Note 11) .......
Settlement loss of benefit obligation on transfer to defined
contribution pension plan (Note 15)................................................
Loss on transfer of the substitutional portion of Employees’
Pension Fund (Note 15) ....................................................................
Loss on other-than-temporary impairment of investment
securities ...........................................................................................
Interest .................................................................................................
Other (Notes 8 and 16)........................................................................

Income before income taxes ...................................................
Income taxes (Note 17):
Current .................................................................................................
Deferred ...............................................................................................

Per share data (Note 4):
Income before cumulative effect of accounting change—
Basic .................................................................................................
Diluted ..............................................................................................
Cumulative effect of accounting change—
Basic .................................................................................................
Diluted ..............................................................................................
Net income—Basic .................................................................................................
Diluted ..............................................................................................
The accompanying notes are an integral part of these statements.
28

2004

2003

2002

2004

¥104.32¥104.32¥127.79¥127.79¥146.19¥146.11

$0.98
$0.98

¥
¥

—
—

¥005.08¥005.08

¥
¥

—
—

$ —
$ —

¥104.32¥104.32¥132.87¥132.87¥146.19¥146.11

$0.98
$0.98

SECOM—Social System Industry

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYSECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2004
Balance, March 31, 2001 ..........................................................................
Comprehensive income:Net income ............................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized losses on securities—
Unrealized holding gains or losses arising during the period ..........
Less: Reclassification adjustment for gains or losses
included in net income .......................................................
Unrealized gains on derivative instruments—
Unrealized holding gains or losses arising during the period .........
Less: Reclassification adjustment for gains or losses
included in net income .......................................................
Minimum pension liability adjustments.............................................
Foreign currency translation adjustments .........................................
Total comprehensive income.................................................................
Cash dividends ...........................................................................................
Transfer to legal reserve .............................................................................
Conversion of convertible bonds ................................................................
Purchase of treasury stock .........................................................................
Reissuance of treasury stock .....................................................................
Balance, March 31, 2002 .........................................................................
Comprehensive income:Net income ............................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized losses on securities—
Unrealized holding gains or losses arising during the period ..........
Less: Reclassification adjustment for gains or losses
included in net income .......................................................
Unrealized gains on derivative instruments—
Unrealized holding gains or losses arising during the period .........
Less: Reclassification adjustment for gains or losses
included in net income .......................................................
Minimum pension liability adjustments.............................................
Foreign currency translation adjustments .........................................
Total comprehensive income.................................................................
Cash dividends ...........................................................................................
Transfer to legal reserve .............................................................................
Conversion of convertible bonds ................................................................
Purchase of treasury stock .........................................................................
Balance, March 31, 2003 .........................................................................
Comprehensive income:Net income ............................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized gains on securities—
Unrealized holding gains or losses arising during the period ..........
Less: Reclassification adjustment for gains or losses
included in net income .......................................................
Unrealized gains on derivative instruments—
Unrealized holding gains or losses arising during the period .........
Less: Reclassification adjustment for gains or losses
included in net income .......................................................
Minimum pension liability adjustments.............................................
Foreign currency translation adjustments .........................................
Total comprehensive income.................................................................
Cash dividends ...........................................................................................
Transfer to legal reserve .............................................................................
Purchase of treasury stock .........................................................................
Balance, March 31, 2004 .........................................................................

In millions of yen

Number ofsharesissuedCommonstock

Additional
paid-in
capitalLegalreserve

Accumulated
Commonother comstockprehensive
Retainedin treasury
earnings income (loss) stock, at cost

233,099,744¥66,127¥79,745¥8,618¥255,880(¥33,063)(¥00,003)

Total¥377,304

—

—

—

—

34,082——

34,082

—

—

—

—

—

(6,082)—(6,082)

—

—

—

—

—

3,930

—

3,930

—

—

—

—

—

135

—

135

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(92)
(5,999)
7,043

—
—
—

—
—
175,025——
233,274,769

—
—
233
—
—
66,360——234—
079,979

—
1,045
—
—
—
9,663

(9,324)(1,045)———279,593—————(34,128)

—
—
—
(264)
126
(141)

(92)
(5,999)7,043
33,017(9,324)
—
467
(264)
126
401,326

—

—

—

—

30,275——30,275

—

—

—

—

—

(4,315)—(4,315)

—

—

—

—

—

6,038

—

6,038

—

—

—

—

—

105

—

105

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(106)
(3,006)(4,340)

—
—
—

—
—
6,364
—
233,281,133——
9—
66,369——8—
79,987

—
9
—
—
9,672

(9,330)(9)——300,529————(39,752)———(44,146)(44,287)(106)(3,006)(4,340)24,651(9,330)—17(44,146)
372,518

—

—

—

—

23,479——23,479

—

—

—

—

—

7,729

—

7,729

—

—

—

—

—

(425)

—

(425)

—

—

—

—

—

87

—

87

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(40)
25,921(4,300)

—
—
—

—
—
—
233,281,133———¥66,369———¥79,987—
43—¥9,715(9,003)(43)—¥314,962———(¥10,780)

—
—
(114)
(¥44,401)(40)
25,921(4,300)52,451(9,003)—(114)¥415,852

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

Balance, March 31, 2003....................................................................................................
Comprehensive income:Net income .....................................................................................................................
Other comprehensive income (loss), net of tax (Note 18):
Unrealized gains on securities—
Unrealized holding gains or losses arising during the period.................................
Less: Reclassification adjustment for gains or losses
included in net income ................................................................................
Unrealized gains on derivative instruments—
Unrealized holding gains or losses arising during the period.................................
Less: Reclassification adjustment for gains or losses
included in net income ................................................................................
Minimum pension liability adjustments......................................................................
Foreign currency translation adjustments ..................................................................
Total comprehensive income ..........................................................................................
Cash dividends.....................................................................................................................
Transfer to legal reserve ......................................................................................................
Purchase of treasury stock ..................................................................................................
Balance, March 31, 2004....................................................................................................

Accumulated
Commonother comstockprehensive
Retainedin treasury
earnings income (loss) stock, at cost

Commonstock

Additional
paid-in
capitalLegalreserve$626,123$754,594$91,245$2,835,179($375,019)($417,802)$3,514,320

—

—

—

221,500——

221,500

—

—

—

—

72,915—72,915————(4,009)—(4,009)

—

—

—

—

821

—

821

—
—
—

—
—
—

—
—
—

—
—
—

(377)
244,538(40,566)

—
—
—

—
—
—
$626,123———$754,594—
406—$91,651(84,933)(406)—$2,971,340———($101,697)——(1,075)($418,877)(377)
244,538(40,566)
494,822(84,933)—(1,075)$3,923,134

Total

The accompanying notes are an integral part of these statements.
29

CONSOLIDATED STATEMENTS OF CASH FLOWSSECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2004

In millions of yen

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

Years ended March 31

Year ended March 31

2004

2003

2002

2004

¥023,479¥030,275¥(034,082$0,221,500

52,943(870)

52,067
188

49,891
3,736

499,462(8,208)

4,555

—

—

42,972

4,209(6,045)(4,143)15,095(1,389)
963
(927)
540
—

—
(3,829)
2,778
3,012
177
11,546(1,244)950(1,157)—(6,913)
1,448—(2,967)
9,004(1,354)
1,862—

39,708(57,028)(39,085)
142,406(13,104)
9,085(8,745)
5,094—(15,678)(4,502)(4,152)(147,906)

10,721(5,279)(14,347)
9,768
556
7,321
(427)
3,954
4,200

1,483
10,073(13,668)
4,771
2,129
(12,375)
3,588
142
4,140

(6,727)(5,533)(14,295)
6,708
1,737
5,145
6,012
3,184
(2,250)101,141(49,802)(135,349)
92,151
5,245
69,066(4,028)37,302
39,623

Net cash provided by operating activities..........................................................

89,19990,54478,618

841,500

Cash flows from investing activities:
Decrease in time deposits ..............................................................................................
Proceeds from sales of property, plant and equipment ..............................................
Payments for purchases of property, plant and equipment ........................................
Proceeds from sales of investment securities ..............................................................
Payments for purchases of investment securities........................................................
Decrease in short-term investments..............................................................................
Proceeds from sales of subsidiaries’ shares (Note 26) ................................................
Payments for purchases of subsidiaries’ shares, net of cash acquired (Note 5) .......
Increase in short-term receivables, net .........................................................................
Payments for long-term receivables..............................................................................
Proceeds from long-term receivables ...........................................................................
Other, net .........................................................................................................................

522
32,271(40,511)32,959(61,712)
7,603
16
(86)
(547)
(11,349)
19,258(7,024)430
25,512(50,171)
16,492(80,170)
10,29290(18)(3,362)(10,910)
12,147(5,050)

7,950
3,693
(144,229)
10,149(22,602)15,4592,654
1,270(10,301)(8,346)
1,654(5,371)

4,925
304,443(382,179)
310,934(582,189)
71,726151(811)(5,160)(107,066)
181,679(66,264)

Cash flows from operating activities:
Net income.......................................................................................................................
Adjustments to reconcile net income to net cash provided
by operating activities—
Depreciation and amortization, including amortization of deferred charges ........
Accrual for pension and severance costs, less payments .......................................
Settlement loss of benefit obligation on transfer to defined contribution
pension plan (Note 15)
Loss on transfer of the substitutional portion of Employees’ Pension Fund
(Note 15).....................................................................................................................
Deferred income taxes................................................................................................
(Gain) loss on sales and disposal of property, plant and equipment, net..............
Impairment loss on property, plant and equipment (Note 11)................................
(Gain) loss on sales of securities, net (Note 26) .......................................................
Loss on other-than-temporary impairment of investment securities.....................
Equity in net income of affiliated companies ...........................................................
Minority interest in subsidiaries ................................................................................
Cumulative effect of accounting change, net of tax (Note 2 (12))...........................
Changes in assets and liabilities, net of effects from acquisitions and disposals:
Increase in cash deposits........................................................................................
(Increase) decrease in receivables and due from subscribers,
net of allowances ..................................................................................................
(Increase) decrease in inventories .........................................................................
Increase in deferred charges ..................................................................................
Increase in deposits received .................................................................................
Increase in deferred revenue .................................................................................
Increase (decrease) in accrued income taxes .......................................................
Increase (decrease) in guarantee deposits received ............................................
Increase in unearned premiums and other insurance liabilities .........................
Other, net .................................................................................................................

Net cash used in investing activities ..................................................................

(28,600)(84,718)(148,020)(269,811)

Cash flows from financing activities:
Proceeds from long-term debt .......................................................................................
Repayments of long-term debt ......................................................................................
Increase (decrease) in bank loans ..................................................................................
Increase (decrease) in investment deposits by policyholders.....................................
Proceeds from minority shareholders ...........................................................................
Dividends paid .................................................................................................................
Increase in treasury stock, net (Note 18) .......................................................................
Other, net .........................................................................................................................

10,523(28,944)(17,438)(793)
7(9,003)
(114)
(998)

10,803(53,817)56,7534,702
135(9,330)(44,146)(1,754)

69,773(15,948)(6,284)96,221
1,137(9,324)
(138)
(585)

99,273(273,057)(164,510)(7,481)
66(84,933)(1,075)(9,415)(441,132)

Net cash provided by (used in) financing activities ..........................................

(46,760)(36,654)

134,852

Effect of exchange rate changes on cash and cash equivalents ....................................

(175)

(421)

525

(1,651)

Net increase (decrease) in cash and cash equivalents ...................................................
Cash and cash equivalents at beginning of year .............................................................

13,664
179,228(31,249)
210,477

65,975
144,502

128,906
1,690,830

Cash and cash equivalents at end of year ........................................................................

¥192,892¥179,228¥(210,477$1,819,736

The accompanying notes are an integral part of these statements.

30

SECOM—Social System Industry

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2004

1. Nature of Operations
The parent company and its subsidiaries (collectively “theCompany”) are engaged in security services, medical services, non-life insurance services, information and communication related services and other services. The Company’s
principal business activities are security services including
on-line centralized security services for commercial and residential premises, as well as large-scale proprietary security
services, static guard services, armored car services formoney collection and deposit, and the development,
manufacturing and sale of various security equipment.
The Company is focusing on its “Social System Industry”,
a network of integrated systems and services centered on thefields of security, medical care, non-life insurance, and information and communication related services, targeted at theneeds of people and business. To develop this Social System
Industry concept, the Company has been diversifying the operation of its services covering: home and other medical services;non-life insurance services; information and communication
services, including cyber security services, software development and system integration activities; Geographic Information
System services using aerial surveying technology; school
education systems; development and sale of real estate; leaseof real estate and other services. The Company is also expanding its business into broadband services using cable television
networks through its affiliated companies.
2. Significant Accounting Policies
The parent company and its Japanese subsidiaries maintain their records and prepare their statutory financial statements in accordance with accounting principles generally
accepted in Japan. Certain adjustments and reclassifications
have been incorporated in the accompanying financial statements to conform with accounting principles generally
accepted in the United States of America. These adjustments
were not recorded in the statutory books of account.
The preparation of the consolidated financial statements
requires management of the Company to make a number of
estimates and assumptions relating to the reported amountsof assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues andexpenses during the period. Significant items subject to such
estimates and assumptions include the carrying amounts ofinventories, investment securities, investments, property,
plant and equipment, goodwill and other intangible assets;
valuation allowances for receivables and deferred income
taxes; valuation of derivative instruments; and assets andobligations related to employee benefits. Actual results could
differ from those estimates.
Significant accounting policies followed in the preparationof the accompanying consolidated financial statements are
summarized below:(1) Basis of Consolidation and Investments in AffiliatedCompanies
The consolidated financial statements include the accountsof the parent company and those of its majority owned
subsidiary companies. All intercompany transactions andaccounts have been eliminated in consolidation.
Investments in 20 to 50 percent owned companies, in which
the ability to exercise significant influence exists, are accounted
under the equity method. Consolidated income includes
the Company’s current equity in the net income of affiliatedcompanies, after elimination of intercompany profits.
The excess of cost over underlying identifiable net assets at
acquisition dates of investments in subsidiaries and affiliatedcompanies is recorded as goodwill.
On occasion, a consolidated subsidiary or affiliated company accounted for using the equity method may issue its
shares to third parties as either a public or private offeringor upon conversion of convertible bonds to common stockat amounts per share in excess of or less than the Company’s
average per share carrying value. With respect to such transactions, where the sale of such shares is not a part of abroader corporate reorganization contemplated or plannedby the Company, the resulting gains or losses arising fromthe change in ownership interest are recorded in income forthe year the transaction occurs.
(2) Revenue Recognition
The Company generates revenue principally through salesof security services, merchandise and software, and insurance
services under separate contractual arrangements for each.
The Company recognizes revenue when persuasive evidenceof an arrangement exists, delivery has occurred, title and riskof loss have been transferred to the customer, the sale price isfixed or determinable, and collectibility is probable.
Revenue from security services is recognized over the contractual period or, in the case of specific services, when suchservices are performed. Subscribers are generally requested
to prepay a portion of service charges which are credited todeferred revenue and taken into income ratably over thecovered service period. Revenue from installation services of
security equipment related to on-line centralized security services is deferred and recognized over the contractual periodof security services after completion of the installation. The
related installation costs are also deferred and amortized overthe contractual period (Note 2 (10)).
Revenue from sales of merchandise and software isrecognized when the merchandise and software are received
by the customer and, in the case of installations, when such
installations are completed.
Revenue from long-term contracts for Geographic Information System services is recognized under the percentage-ofcompletion method.
Property and casualty insurance premiums are earned
ratably over the terms of the related insurance contracts.
Unearned premiums are earned ratably over the terms of theunexpired portion of premiums written.

31

(3) Foreign Currency Translation
All asset and liability accounts of foreign subsidiaries andaffiliates are translated into Japanese yen at appropriate yearend current rates and all income and expense accounts aretranslated at average rates of exchange during the year.
The resulting translation adjustments are accumulated andreported as part of other comprehensive income (loss).
Foreign currency receivables and payables of the Company
are translated into yen at the rate in effect at the balance
sheet date and the resulting translation gains and losses are
credited or charged to income for the year.
(4) Cash Equivalents
For the purpose of the statements of cash flows, the Company considers all highly liquid investments purchased withinitial maturities of three months or less to be cash equivalents.
(5) Investments in Debt and Equity Securities
The Company classifies investments in debt and equity
securities as “available-for-sale” or “held-to-maturity”. The
Company has no securities classified as “trading”. Marketable debt and equity securities which are classified as“available-for-sale” are recorded at fair value. Unrealized
gains and losses on securities classified as “available-forsale” are reported as part of other comprehensive income(loss), net of tax. Debt securities that are expected to be“held-to-maturity” are reported at amortized cost.
A decline in the fair value of any available-for-sale securities
below cost that is deemed to be other-than-temporary results
in a reduction in carrying amount to fair value. The impairment is charged to income and a new cost basis for the securities is established. To determine whether an impairment isother-than-temporary, the Company periodically reviews thefair value of available-for-sale securities for possible impairment by taking into consideration the financial and operating
conditions the issuer, the general market conditions in theissuer’s industry, the degree and period of the decline in fairvalue and other relevant factors.
Other investments in non-public companies are recorded atcost as fair value is not readily determinable. The Company periodically evaluates the values of other investments in non-publiccompanies for possible impairment by taking into consideration
the financial and operating conditions of the issuer, the generalmarket conditions in the issuer’s industry and the period of thedecline in the estimated fair value and other relevant factors.
If the impairment is determined to be other-than-temporary,other investments in non-public companies are written down
to their impaired value through a charge to income.
Realized gains or losses on the sale of investments are
based on the moving-average cost method and are credited
or charged to income.
(6) Inventories
Inventories, consisting of security-related products, realestate, and information and other related products, are statedat the lower of cost or net realizable value. Cost is determined,
in the case of real estate, based on a specific identification
method and, in the case of other inventories, using themoving-average method.

32(7) Allowance for Doubtful Accounts
The Company recognizes allowance for doubtful accounts
to ensure trade and other receivables are not overstated due
to uncollectibility. Allowance for doubtful accounts is maintained for all customers based on a variety of factors, including
the length of time receivables are past due, macroeconomic
conditions, significant one-time events and historical experience. An additional reserve for individual accounts is recorded
when the Company becomes aware of a customer’s inability
to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating
results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables
would be further adjusted.
(8) Deferred Insurance Acquisition Costs
Costs that vary with and are primarily related to acquiring
new insurance policies are deferred and are being amortizedprincipally over the premium-paying period of the related
insurance policies applying a percentage relationship of cost
incurred to premiums from contracts issued to applicable
unearned premiums throughout the period of the contract.
(9) Property, Plant and Equipment and Depreciation
Property, plant and equipment, including significant betterments, are carried at cost. Depreciation is computed primarily
using the declining-balance method at rates based on theestimated useful lives of the assets. Assets leased to others
under operating leases are primarily depreciated using thestraight-line method over the estimated useful lives.
Depreciation expense was ¥34,943 million ($329,651 thousand), ¥34,735 million and ¥32,084 million for the years ended
March 31, 2004, 2003 and 2002, respectively. Maintenance,
repairs and renewals are charged to income as incurred.
The estimated useful lives of depreciable assets are
as follows:
Buildings
22 to 50 years
Security equipment and control stations
5 years
Machinery, equipment and automobiles 3 to 15 years(10) Deferred Charges
Deferred charges primarily consist of costs related to installation services of security equipment related to on-line centralized security services. The installation costs are deferred andamortized using the straight-line method over the contractual
period of security services after completion of the installation.
Amortization was ¥13,323 million ($125,689 thousand),¥13,197 million and ¥12,490 million for the years ended March
31, 2004, 2003 and 2002, respectively.
(11) Impairment or Disposal of Long-Lived Assets
The Company adopted Statement of Financial AccountingStandards (“SFAS”) No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets”, on April 1, 2002. The adoption of SFAS No. 144 did not have a material effect on the
Company’s consolidated financial position and results ofoperations.

SECOM—Social System Industry

The Company periodically reviews the carrying amountof its long-lived assets held and used, other than goodwill
and intangible assets with indefinite lives, and assets to bedisposed of, whenever events or changes in circumstancesindicated that the carrying amount may not be recoverable.
Long-lived assets to be held and used are reviewed for
impairment by comparing the carrying amount of the assets
with their estimated future undiscounted cash flows. If it isdetermined that an impairment loss has occurred, the loss
would be recognized during the period. The impairment loss
would be calculated as the difference between the asset carrying amount and the fair value. Long-lived assets that are
to be disposed of other than by sale are considered held andused until they are disposed of. Long-lived assets that are
to be disposed of by sale are reported at the lower of theircarrying amount or fair value less cost to sell. Reductions incarrying amount are recognized in the period in which thelong-lived assets are classified as held for sale.
Prior to the adoption of SFAS No. 144, the Company
accounted for long-lived assets in accordance with SFAS
No. 121, “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of”.
(12) Goodwill and Other Intangible Assets
The Company adopted the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 141, “Business
Combinations”, and SFAS No. 142, “Goodwill and Other
Intangible Assets”, on April 1, 2002, with the exception of theimmediate requirement to use the purchase method of
accounting for all business combinations completed afterJune 30, 2001. As a result of the adoption of SFAS No. 141,
the Company recorded a transition gain, as a cumulative
effect of accounting change, due to the write-off of unamortized deferred credits of ¥1,157 million which existed at
March 31, 2002.
Pursuant to SFAS No. 142, goodwill and intangible assets
acquired in a purchase business combination and determined
to have an indefinite useful life are not amortized, but instead
tested for impairment at least annually. SFAS No. 142 also
requires that intangible assets with estimable useful lives beamortized over their respective estimated useful lives to theirestimated residual values, and reviewed for impairment inaccordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”.
(13) Unearned Premiums and Other Insurance Liabilities
Unearned premiums are related to unexpired periods of
insurance contracts and are earned on a pro-rata basis over
the remaining contract period. Other insurance liabilities consist principally of liabilities for unpaid claims and adjustment
expenses, which are estimates of payments to be made onreported claims, and incurred but not reported claims, which
are computed based on past experience for unpaid losses.
(14) Income Taxes
The provision for income taxes is computed based on thepretax income included in the consolidated statements ofincome. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Valuation
allowances are recorded to reduce deferred tax assets when it
is more likely than not that a tax benefit will not be realized.
The effect on deferred tax assets and liabilities of a change intax rates is recognized in income in the period that includes
the enactment date.
(15) Research and Development
Research and development costs are charged to income
as incurred.
(16) Advertising Costs
Advertising costs are charged to income as incurred, except
for the costs related to insurance policies. Advertising costs
for acquiring new insurance policies are deferred and amortized as part of insurance acquisition costs. Advertisingexpenses included in selling, general and administrative
expenses for the years ended March 31, 2004, 2003 and 2002
were ¥5,366 million ($50,623 thousand), ¥5,315 million and¥5,602 million, respectively.
(17) Derivative Financial Instruments
The Company adopted Statement of Financial AccountingStandards (“SFAS”) No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, and SFAS No. 138,
“Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133”,
on April 1, 2001. Both standards establish accounting andreporting standards for derivative instruments and for hedging
activities, and require that an entity recognizes all derivatives
as either assets or liabilities in the balance sheet and measures those instruments at fair value. The cumulative effectadjustment upon the adoption of SFAS No. 133 and No. 138,
net of the related income tax effect, resulted in an increase toother comprehensive income of ¥129 million.
The Company recognizes all derivative financial instruments in the consolidated financial statements at fair value
regardless of the purpose or intent for holding them. Changes
in the fair value of derivative financial instruments are either
recognized periodically in income or in shareholders’ equity
as a component of other comprehensive income (loss)
depending on whether the derivative financial instruments
qualify for hedge accounting, and if so, whether they qualify
as a fair value hedge or a cash flow hedge. Changes in the fairvalues of derivative financial instruments accounted for as afair value hedge are recorded in income along with the portion of the change in the fair value of the hedged item that
relates to the hedged risk. Changes in the fair value of derivative financial instruments accounted for as a cash flow hedge,
to the extent it is effective as a hedge, are recorded in othercomprehensive income (loss), net of tax. Changes in the fairvalue of derivative financial instruments not qualifying as ahedge are reported in income.

33

The Company meets the documentation requirements asprescribed by SFAS No. 133 and No. 138, which include theirrisk management objective and strategy for undertaking various hedge transactions. In addition, formal assessment ismade at the hedge’s inception and periodically on an on-goingbasis, as to whether the derivatives used in hedging activities
are highly effective in off-setting changes in fair values orcash flow of hedged items. Hedge accounting is discontinued
for ineffective hedges, if any. Discontinued hedges are recognizedin current income.
(18) Earnings per Share
Basic Earnings per Share (“EPS”) is computed based on the
average number of shares of common stock outstanding forthe period. Diluted EPS assumes the dilution that could occur
if securities or other contracts to issue common stock were
exercised or converted into common stock, or resulted in theissuance of common stock.
(19) Free Distribution of Common StockA corporation in Japan may make free distributions of its
common stock to shareholders at the discretion of its Boardof Directors. Free share distributions are accounted for eitherby (1) a transfer from additional paid-in capital to the common
stock account, or (2) no entry if free shares are distributed
from the portion of previously issued shares in the common
stock account. Under the Japanese Commercial Code, stock
dividends are effected by an appropriation of retained earnings to the common stock account by a resolution of theshareholders and an issuance of additional shares by wayof a stock split with respect to the amount appropriated byresolution of the Board of Directors.
A corporation in the United States of America issuingshares, comparable to less than 25 percent free share distributions, would be required to account for them as stock dividends and the fair value of the shares would be transferredfrom retained earnings to the appropriate capital accounts.
Such transfers, however, would have no effect on total
shareholders’ equity (Note 25).
Free distributions of common stock are included in the EPS
calculation in accordance with accounting principles generally
accepted in the United States of America.
(20) Recent Pronouncements
In December 2003, the Financial Accounting Standards
Board (“FASB”) issued FASB Interpretation No. 46 (revised
December 2003) (“FIN No. 46R”), “Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51”. FIN No. 46R
replaces FASB Interpretation No. 46, “Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51”, which was
issued in January 2003. FIN No. 46R addresses the consolidation and disclosure by business enterprise of a variable interest entity (“VIE”) as defined in the Interpretation. FIN No. 46R
requires that the primary beneficiary—a party that absorbs amajority of the entity’s expected loss and receives a majority

34of the entity’s expected residual returns, or both, as a result ofholding variable interests—consolidates the VIE and an enterprise that holds significant variable interests but is not the
primary beneficiary discloses certain required information
about the VIE. FIN No. 46R is effective immediately for all new
VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, FIN No. 46R iseffective for the Company on April 1, 2004. The Company did
not enter into any new arrangements with VIEs during theperiod from February 1, 2003 through March 31, 2004.
The Company provides loans and guarantees to organizations managing hospitals and related institutions. Certain organizations are considered as VIEs under FIN No. 46R, and theCompany is either a primary beneficiary of the VIEs or holds
significant variable interests but is not the primary beneficiaryof the VIEs. Total assets held by the VIEs at March 31, 2004
were ¥35,076 million ($330,906 thousand). The Company’s
maximum exposure to loss is ¥27,220 million ($256,792
thousand) at March 31, 2004.
The Company also provides loans and guarantees to realestate investment companies. Certain investment companies
are considered as VIEs under FIN No. 46R. As the Company
has been consolidating these companies, the adoption of FIN
No. 46R for these entities did not have a material effect on
the Company’s consolidated financial position and resultsof operations.
The Company adopted the provisions of FIN No. 46R for
VIEs created or acquired prior to February 1, 2003 on April 1,
2004. Under FIN No. 46R, any difference between the net
amount added to the consolidated balance sheet and any
previously recognized interest in the VIE shall be recognized
as a cumulative effect of accounting change. As a result of
the adoption of FIN No. 46R, one organization managing
hospitals and related institutions was consolidated and theCompany recognized a one-time income of ¥507 million($4,783 thousand) as a cumulative effect of accountingchange, and the Company’s assets and liabilities increasedby ¥3,636 million ($34,302 thousand) and ¥3,119 million($29,425 thousand), respectively.
In May 2003, the Emerging Issues Task Force (“EITF”)
reached a final consensus on EITF No. 00-21, “Accounting for
Revenue Arrangements with Multiple Deliverables”, which
addresses (1) how to determine whether an arrangement
involving multiple deliverables contains more than one unitof accounting and (2) how arrangement consideration shouldbe measured and allocated to the separate units of accounting
in the arrangements. EITF No. 00-21 does not change otherwise applicable revenue recognition criteria. EITF No. 00-21 iseffective for the Company on April 1, 2004. The adoption of
EITF No. 00-21 did not have a material effect on the Company’s
consolidated financial position and results of operations.
(21) Reclassifications
Certain reclassifications of previously reported amounts
have been made to conform with current classifications.

SECOM—Social System Industry

3. U.S. Dollar Amounts
U.S. dollar amounts have been included in these financial
statements solely for the convenience of the reader. The
translations of yen into U.S. dollars have been made at therate of ¥106=US$1, the rate prevailing on the Tokyo Foreign
Exchange Market on March 31, 2004. These translations
should not be construed as representing that the yen amounts
actually represent, or have been or could be converted into
U.S. dollars at that rate.
4. Reconciliation of the Differences between Basicand Diluted Net Income per Share (“EPS”)
Reconciliation of the differences between basic and diluted
EPS for the years ended March 31, 2004, 2003 and 2002 is
as follows:

For the year ended March 31, 2004:
Basic EPS—
Income before cumulative
effect of accounting change..
Effect of dilutive securities—
Convertible bonds ...................
Diluted EPS—
Income before cumulative effectof accounting change fordiluted EPS computation ......
For the year ended March 31, 2003:
Basic EPS—
Income before cumulative
effect of accounting change..
Effect of dilutive securities—
Convertible bonds ...................
Diluted EPS—
Income before cumulative effectof accounting change fordiluted EPS computation ......
For the year ended March 31, 2002:
Basic EPS—
Income before cumulative
effect of accounting change..
Effect of dilutive securities—
Convertible bonds ...................
Diluted EPS—
Income before cumulative effectof accounting change fordiluted EPS computation ......

In millions Thousandsof sharesof yenIn U.S.
In yen dollars

Income before
cumulative
effect of
Weightedaccountingchange average shares

EPS¥23,479

225,066 ¥104.32 $0.98

5. Acquisitions
In August 2001, the parent company acquired all issued
shares of Yoshikikaku Co., Ltd., which engages in sales andlease services for medical facilities and equipment, for an
aggregate amount of ¥3,457 million. The estimated fair valuesof the assets acquired and liabilities assumed at the date ofacquisition are as follows:
In millions of yen

Current assets.........................................................
Investments and long-term receivables ...............
Other........................................................................
Total assets acquired .........................................
Current liabilities ....................................................
Long-term debt.......................................................
Other........................................................................
Total liabilities assumed ....................................
Net assets acquired ............................................

¥1,088
7,154
743
8,985
1,430
2,295
1,803
5,528
¥3,457In March 2002, the parent company acquired all issued sharesof Arai & Co., Ltd., which engages in sales and leasing servicesof real estate, for an aggregate amount of ¥1,500 million. The
estimated fair values of the assets acquired and liabilities
assumed at the date of acquisition are as follows:
In millions of yen

0

8¥23,479

225,074 ¥104.32 $0.98¥29,118

227,849 ¥127.79

0

9¥29,118

227,858 ¥127.79¥34,082

233,138 ¥146.19

3¥34,085150

233,288 ¥146.11

Current assets.........................................................
Property, plant and equipment .............................
Goodwill..................................................................
Other........................................................................
Total assets acquired .........................................
Current liabilities ....................................................
Long-term debt.......................................................
Other........................................................................
Total liabilities assumed ....................................
Minority interest in subsidiaries ...........................
Net assets acquired ............................................

¥07,282
41,762
2,743
13,17264,95923,49434,0085,944
63,446
13¥01,500

The acquisitions referred to above have been accounted forunder the purchase method of accounting, and the identifiable
assets and liabilities of the acquired companies have beenrecorded at their fair value at the date of acquisition. The resultsof their operations have been included in the consolidated
statement of income since the date of acquisition of the majority of outstanding shares. The difference between the purchaseprice and the value assigned to the underlying net assets
acquired is included in goodwill.
The consolidated pro forma information that would show
the Company’s consolidated results of operations for the year
ended March 31, 2002 has not been disclosed based onmateriality considerations.

35

6. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2004 and 2003 werecomprised as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2003

2004

¥124,855 ¥106,949
18,62628,33938,00030,00011,411
13,940¥192,892 ¥179,228$1,177,877
175,717358,491
107,651$1,819,736

2004

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

Investment securities include marketable bonds of theJapanese government and deposits with financial institutions,most of which are held for safekeeping in the name of therelevant company by financial institutions such as banks andsecurities companies. These agreements mature within threemonths and the carrying values approximate market. The
Company has never experienced any losses through defaultof the financial institutions and does not anticipate any
default on agreements outstanding.
7. Cash Deposits
The Company operates cash collection and deposit services
for financial institutions relating to cash dispensers located outside of financial institution facilities and also operates cash collection service for entities other than financial institutions. Cashdeposit balances of ¥60,930 million ($574,811 thousand) and¥45,251 million at March 31, 2004 and 2003, respectively, aresegregated from cash and cash equivalents and are restricted
as to use by the Company. The Company funds most of the necessary cash through bank overdrafts and deposits. Bank loans
and deposits received include ¥24,263 million ($228,896 thousand) and ¥36,512 million ($344,453 thousand), respectively,
at March 31, 2004, and ¥17,203 million and ¥26,738 million,
respectively, at March 31, 2003, relating to these operations.
As part of its fee arrangement, the Company is reimbursed
for the interest cost of the related overdrafts.
8. Short-Term Investments and Investment Securities
Short-term investments (current) and investment securities(non-current) include debt and equity securities. The related
aggregate fair value, gross unrealized gains, gross unrealized
losses and cost pertaining to “available-for-sale” and “heldto-maturity” investments at March 31, 2004 and 2003 wereas follows:
In millions of yen
March 31, 2004
Gross unrealized
Cost

Gains

LossesFair value

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

¥042,296
118,190¥160,486¥12,117760¥12,877¥0,926164¥1,090¥053,487
118,786¥172,273

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

¥005,755¥¥0,005¥005,750

360

In millions of yen
March 31, 2003
Gross unrealized
Cost

Gains

LossesFair value

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

¥051,251
87,946¥139,197¥1,592
1,243¥2,835¥4,180475¥4,655¥048,663
88,714¥137,377

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

¥014,251¥ 0,010¥0,042¥014,219

In thousands of U.S. dollars
March 31, 2004
Gross unrealized
Cost

LossesFair value

Available-for-sale:
Equity securities ... $ 399,019
Debt securities ...... 1,115,000
Total ......................... $1,514,019$114,311 $ 8,736
7,170
1,547
$121,481 $10,283$ 504,594
1,120,623$1,625,217

Held-to-maturity:
Debt securities ...... $$$54,293

Gains

0 $

46

54,245Gross unrealized losses on, and fair value of, “available-forsale” and “held-to-maturity” securities, aggregated by investment category and the length of time that individual securities
have been in a continuous unrealized loss position, at March 31,
2004 were as follows:
In millions of yen
March 31, 2004
Less than 12 months
Grossunrealized
lossesFair value

12 months or longer
Gross
unrealized
lossesFair value

Available-for-sale:
Equity securities ........ ¥ 4,359
Debt securities ...........
7,841
Total .............................. ¥12,200

¥ 87
50
¥137

¥4,311
1,036¥5,347

¥839
114
¥953

Held-to-maturity:
Debt securities ........... ¥ 1,500¥¥2,198¥4

1

In thousands of U.S. dollars
March 31, 2004
Less than 12 months
Grossunrealized
lossesFair value

12 months or longer
Gross
unrealized
lossesFair value

Available-for-sale:
Equity securities ........$ 41,123
Debt securities ........... 73,971
Total ..............................$115,094

$ 820
472
$1,292$40,670
9,773$50,443$7,916
1,075$8,991

Held-to-maturity:
Debt securities ...........$ 14,151$$20,736$37

9

SECOM—Social System Industry

At March 31, 2004, debt securities principally consisted ofshort-term investments in monetary trusts, Japanese government bonds, corporate bonds, U.S. treasury securities andU.S. Government Agency Bonds.
The cost and fair value of “available-for-sale” and ”held-tomaturity” debt securities by contractual maturity at March 31,
2004 are as follows:

Proceeds from the sale of “available-for-sale” securities forthe years ended March 31, 2004, 2003 and 2002 were ¥20,791
million ($196,142 thousand), ¥8,228 million and ¥5,126 million, respectively. On those sales, the gross realized gains andgross realized losses, using a specifically identified movingaverage cost basis, for the years ended March 31, 2004, 2003
and 2002 were as follows:

In millions of yen
March 31, 2004
Available-for-saleDue within 1 year .....
Due after 1 year
through 5 years ......
Due after 5 years
through 10 years ....
Due after 10 years ...
..............................

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

Held-to-maturity

Cost

Fair value

Cost

Fair value

2004

2003

2002

2004

¥ 34,373¥ 34,472¥1,451¥1,45160,48960,922

3,504

3,499

Gross realized gains..... ¥2,175
Gross realized losses ...
556¥0,7591,266¥2,556
470$20,519
5,245

19,723
3,605¥118,190

19,8103,582¥118,786—
800¥5,755—800¥5,750In thousands of U.S. dollars
March 31, 2004
Available-for-sale

Held-to-maturity

Cost

Fair value

Cost

Fair value

Due within 1 year ..... $ 324,274
Due after 1 year
through 5 years ......
570,651
Due after 5 years
through 10 years ....
186,066
Due after 10 years ...
34,009.............................. $1,115,000$ 325,208$13,689$13,689574,736

33,05733,009186,887
33,792$1,120,623—
7,547$54,293—
7,547$54,245

During the years ended March 31, 2004, 2003 and 2002,
the net unrealized gains on “available-for-sale” securities
included as part of other comprehensive income (loss), netof tax, increased by ¥7,304 million ($68,906 thousand) and¥1,723 million, and decreased by ¥2,152 million, respectively.

The Company maintains long-term investment securities,
included as investment securities, issued by a number of
non-public companies. The aggregate carrying amount of theinvestments in non-public companies, at cost net of otherthan-temporary impairment, was ¥28,334 million ($267,302
thousand) and ¥23,241 million at March 31, 2004 and 2003,
respectively. The corresponding fair value at that date was
not computed as such estimation was not practicable.
9. Inventories
Inventories principally consist of operational equipment
and certain merchandise, including security-related products,
software and real estate for sale.
Inventories at March 31, 2004 and 2003 comprised thefollowing:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2004

2003

2004

Security-related products .......... ¥ 6,655
Real estate................................... 33,410
Information and other-related
products ....................................
5,633¥45,698¥07,504
28,662$062,783
315,189

5,635¥41,801

53,141$431,113

Work in process real estate inventories at March 31, 2004
and 2003, amounting to ¥32,170 million ($303,491 thousand)and ¥20,931 million, respectively, are included in real estate.

37

10. Investments in Affiliated Companies
The Company has investments in affiliated companies thatare accounted for under the equity method. The principal
investments are Nohmi Bosai Ltd., a 28.6 percent owned
affiliate, which is Japan’s largest manufacturer of fire alarms andlisted on the First Section of the Tokyo Stock Exchange; Taiwan
Secom Co., Ltd., a 28.1 percent owned affiliate, which is listedon the Taiwan Stock Exchange; S1 Corporation, a 25.6 percent
owned affiliate, which is listed on the Korea Stock Exchange; andJapan Cablenet Holdings Limited, a 26.0 percent owned affiliate.
Summarized financial information regarding the affiliatedcompanies accounted for under the equity method was asfollows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2003

2004

Current assets ..........................
Non-current assets ..................

¥ 99,233 ¥102,363
142,588 139,396$ 936,160
1,345,170

Total assets ..........................

¥241,821 ¥241,759$2,281,330

Current liabilities......................
Non-current liabilities..............
Shareholders’ equity ...............

¥057,846 ¥063,570
64,45863,326
120,649 113,731$0,545,717
597,415
1,138,198

Total liabilities andshareholders’ equity ..........

¥241,821 ¥241,759$2,281,330

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2002

2004

Among the affiliated companies accounted for using theequity method, the stocks of three companies carried atequity of ¥24,088 million ($227,245 thousand) and ¥22,457
million at March 31, 2004 and 2003, respectively, had aquoted market value of ¥44,026 million ($415,340 thousand)and ¥33,884 million at March 31, 2004 and 2003, respectively.
The unamortized amounts of goodwill were ¥979 million($9,236 thousand) and ¥729 million at March 31, 2004 and2003, respectively. In accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 142, “Goodwill andOther Intangible Assets”, this equity-method goodwill is nolonger amortized, but is being analyzed for impairment. Prior
to the adoption of SFAS No. 142, goodwill was amortized ona straight-line basis over periods not exceeding 10 years.
A summary of transactions and balances with the affiliatedcompanies accounted for using the equity method is presented
below:In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2004

2003

2002

2004

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

¥1,840¥01,862¥1,595$17,358

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

¥7,858¥10,061¥9,704$74,132

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2004

2003

2004

2004

Notes and accounts
receivable, trade......................... ¥ 645¥00,606$ 6,085

Net sales................... ¥188,570 ¥178,397 ¥158,770$1,778,962

Loan receivables .......................... ¥ 992¥00,987$ 9,358

Gross profit .............. ¥059,894 ¥055,179 ¥045,621$0,565,038

Notes and accounts payable....... ¥1,750¥02,672$16,509$0,091,991

Guarantees for bank loans .......... ¥3,824¥10,101$36,075

2004

2003

Net income............... ¥009,751 ¥006,996 ¥007,384

Dividends received from affiliated companies for the years
ended March 31, 2004, 2003 and 2002 were ¥1,140 million($10,755 thousand), ¥924 million and ¥655 million, respectively.

38

11. Long-Lived Assets
The Company has assessed the potential impairment for allmaterial long-lived assets. As a result of significant decreasesof rental rates and market prices, and changes of assumptions
regarding useful lives before sale, the Company recognizedimpairment losses on properties held for lease and properties
held by real estate investment companies as part of investment
assets of the insurance services segment. Fair value used wasdetermined mainly based on appraisal value.

SECOM—Social System Industry

Impairment losses on property, plant and equipment bybusiness segment for the years ended March 31, 2004 and2003 were as follows:
In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2003

2004

2004

Medical services .............................. ¥ 511 ¥—
3,719 3,012
Insurance services...........................
Information and communication
9,081
related and other services ............
—
1,784
Corporate items...............................
—$

Total.................................................. ¥15,095 ¥3,012$142,406

4,821
35,08585,67016,83012. Goodwill and Other Intangible Assets
The components of acquired intangible assets excluding
goodwill at March 31, 2004 and 2003 were as follows:

Aggregate amortization expense for the years ended March
31, 2004 and 2003 was ¥4,537 million ($42,802 thousand) and¥4,134 million, respectively.
The estimated aggregate amortization expense for intangible
assets for the next five years is as follows:
Years ending March 31

Accumulated
amortization

Amortized intangible assets:
Software..................................... ¥022,133
Other...........................................
4,569
Total ............................................... ¥026,702(¥ 9,304) ¥012,829(2,348)2,221(¥11,652) ¥015,050

Unamortized intangible assets ... ¥004,690¥—¥004,690

In millions of yen
March 31, 2003
Gross
carrying
amountAccumulated
amortization

Net
carrying
amountAmortized intangible assets:
Software..................................... ¥022,065
Other...........................................
5,560
Total ............................................... ¥027,625(¥06,311) ¥015,754(2,959)2,601(¥09,270) ¥018,355

Unamortized intangible assets ... ¥004,603¥—¥004,603

In thousands of U.S. dollars
March 31, 2004
Gross
carrying
amountAccumulated
amortization

Net
carrying
amountAmortized intangible assets:
Software..................................... $208,802
Other...........................................
43,104
Total ............................................... $251,906($ 87,774) $121,028(22,151)
20,953($109,925) $141,981

Unamortized intangible assets ... $ 44,245$—¥4,191
4,017
3,069
1,738
777

$39,538
37,89628,953
16,396
7,330

The changes in the carrying amount of goodwill by businesssegment for the years ended March 31, 2004 and 2003 wereas follows:
In millions of yen

Security
services

March 31, 2004
Net
carrying
amountIn thousands of
U.S. dollars

2005 ....................................................
2006 ....................................................
2007 ....................................................
2008 ....................................................
2009 ....................................................

In millions of yen
Grosscarrying
amountIn millions of yen

April 1, 2002 ...........
Goodwill acquired
during the year.....
Impairment
losses ....................
Translation
adjustment ...........
March 31, 2003.......
Goodwill acquired
during the year.....
Impairment
losses ....................
Translation
adjustment ...........
March 31, 2004.......

Information
andcommunication
Medical Insurance
related andservices services other services

Total¥1,239¥5,063¥—¥5,637¥11,939

—

—

—

708

708

—

(161)

—

—

(161)

5
1,244

—
4,902

—
—

—
6,345

5
12,491

—

—

—

3,549

3,549

—

(89)

—

(340)

(429)

(13)
—
¥1,231 ¥4,813—¥——¥9,554(13)¥15,598

In thousands of U.S. dollars

Security
services

Information
andcommunication
Medical Insurance
related andservices services other services

March 31, 2003....... $11,736 $46,246
Goodwill acquired
during the year.....
——
Impairment
losses ....................
—(840)
Translation
adjustment ...........
(123)—
March 31, 2004....... $11,613 $45,406

Total

$—

$59,858 $117,840—

33,481

33,481—(3,207)(4,047)

—
$—

—
(123)
$90,132 $147,151$ 44,245

39

Reconciliations of reported income before cumulative effectof accounting change and net income and basic and diluted
Earnings per Share (“EPS”) to the amounts adjusted for the
exclusion of goodwill amortization for the year ended March 31,
2002 were as follows:

Long-term debt at March 31, 2004 and 2003 comprised thefollowing:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2003

2004

In millions of yen
Year ended
March 312002

Reported income before cumulative
effect of accounting change.......................................
Addback: Goodwill amortization .................................
Adjusted income before cumulative
effect of accounting change.......................................

¥36,279

Reported net income ....................................................
Addback: Goodwill amortization .................................
Adjusted net income ...................................................

¥34,082
2,197¥36,279¥34,082
2,197

Per share data:
In yenYear ended
March 31
2002

Income before cumulative
effect of accounting change:
Reported basic EPS ..................................................
Addback: Goodwill amortization .............................
Adjusted basic EPS ...................................................

¥146.199.42¥155.61

Reported diluted EPS ...............................................
Addback: Goodwill amortization .............................
Adjusted diluted EPS ................................................

¥146.119.42¥155.53

Net income:
Reported basic EPS ..................................................
Addback: Goodwill amortization .............................
Adjusted basic EPS ...................................................

¥146.199.42¥155.61

Reported diluted EPS ...............................................
Addback: Goodwill amortization .............................
Adjusted diluted EPS ................................................

¥146.119.42¥155.53

2004

Loans, principally from banks
due 2004 to 2016 with interest
rates ranging from 0.00 to 6.60%
in 2004 and 2003:
Secured .......................................... ¥ 46,787 ¥053,032
Unsecured ..................................... 12,784
27,343
1.60% unsecured convertible
bonds due 2004, convertible
currently at ¥2,372.4 ($22.38) for
one common share, redeemablebefore due date...............................
18
18
0.53% unsecured bonds due 2006.. 30,000
30,0000.46% unsecured bonds due 2007..
1,500
1,500
0.48% unsecured bonds due 2007..
1,000—
1.80% secured bonds due 2004 ......
200
200
1.21% secured bonds due 2006 ......
300
300
Obligations under capital leases,
due 2004 to 2026 (Note 20)............ 11,945
10,881
104,534 123,274
Less:
Portion due within one year .......... 13,439
20,507¥ 91,095 ¥102,767

40

169
283,019
14,151
9,434
1,887
2,830
112,689
986,170
126,783$859,387

Property, plant and equipment with a carrying amount of¥67,995 million ($641,462 thousand), inventories with a carrying amount of ¥28,503 million ($268,896 thousand), investment securities with a carrying amount of ¥772 million ($7,283
thousand), time deposits of ¥192 million ($1,811 thousand) andintangibles and other with a carrying amount of ¥1,593 million($15,028 thousand) were pledged as collateral for bank loans
and long-term debt at March 31, 2004.
The Company has no compensating balance arrangementswith any lending bank. However, as is the customary practicein Japan, the Company had time deposits aggregating ¥1,597
million ($15,066 thousand) with such banks at March 31, 2004.
The aggregate annual maturities on long-term debt after March
31, 2004 are as follows:
Years ending March 31

13. Bank Loans and Long-Term Debt
Bank loans of ¥111,764 million ($1,054,377 thousand) and¥124,048 million at March 31, 2004 and 2003, respectively, aregenerally comprised of 30 to 365 day notes. Their interest
rates ranged from 0.49 to 2.36 percent at March 31, 2004 andfrom 0.49 to 1.88 percent at March 31, 2003. Substantially allof these loans are with banks. The Company has entered into
basic agreements with these banks that state that, with respect
to all present or future loans with such banks, collateral (including sums on deposit with such banks) or guarantors shall be
provided immediately upon request. Further, any collateral
furnished pursuant to such agreements or otherwise will beapplicable to all indebtedness to such banks. The Company
has never been requested to submit such additional security.

$441,387
120,604

2005.....................................................
2006.....................................................
2007.....................................................
2008.....................................................
2009.....................................................
Later years ..........................................
............................................................

In millions of yen

In thousands of
U.S. dollars¥ 13,439
27,54549,445
2,974
3,022
8,109
¥104,534$126,783
259,858
466,462
28,05728,51076,500$986,170

SECOM—Social System Industry

14. Insurance-Related Operations
Secom General Insurance Co., Ltd. (“Secom Insurance”),
a subsidiary of the parent company, maintains accounting
records as noted in Note 2 in accordance with the accounting
principles and practices generally accepted in Japan, whichvary in certain respects from accounting principles generally
accepted in the United States of America. Those differences
are principally, (a) that insurance acquisition costs arecharged to income when incurred in Japan whereas in the
United States of America those costs are deferred and amortized generally over the premium-paying period of the insurance policies, (b) that liabilities related to incurred but notreported claims are computed based on related regulations inJapan whereas in the United States of America those liabilities are computed based on past experience for unreported
losses, and (c) that unearned premiums are calculated basedon the documents authorized by the Supervisory Authorities
in Japan whereas in the United States of America unearned
premiums are reflected based on the lapse and surrender
over the contract period.
In addition, under certain property and casualty insurance
contracts with a refund clause and long-term insurance policies that provide refunds at maturity, such as personal accident and fire, the policyholder receives a refund if premiums
have been fully paid unless a substantial settlement (as definedin the policy) has occurred. The Company has provided forsuch refundable amounts by classifying a portion of the net
premiums written, together with interest thereon, as investment deposits by policyholders. Contract and policy terms are
principally five years.
For purposes of preparing the consolidated financial statements, appropriate adjustments have been made to reflect
such items in accordance with accounting principles generally
accepted in the United States of America.
The amounts of net equity of Secom Insurance at March 31,
2004 and 2003 were ¥23,154 million ($218,434 thousand) and¥15,902 million, respectively.
15. Pension and Severance Costs
Employees of the parent company and its Japanese subsidiaries whose services are terminated are, under mostcircumstances, eligible for lump-sum severance indemnities
and/or eligible for pension benefits. Lump-sum severance
indemnities are provided to employees with three to 10 service
years and are determined based on current basic rates ofpay, length of service and conditions under which thetermination occurs.
The parent company and certain of its Japanese subsidiaries
maintain an Employees’ Pension Fund (“EPF”) plan which is adefined benefit pension established under the Japanese
Welfare Pension Insurance Law, covering substantially all of
their employees. The EPF plan is composed of the substitutional portion and the corporate portion. The pension benefits
for the substitutional portion are determined based on standard

remuneration scheduled by the Japanese Welfare Pension
Insurance Law and the length of participation. The pension
benefits of the corporate portion are determined based on current basic rates of pay, length of service and conditions underwhich the termination occurs. The EPF plan is funded in conformity with the funding requirements of the Japanese
Welfare Pension Insurance Law.
To supplement the EPF plan, the parent company andits major Japanese subsidiaries act as trustees for noncontributory defined benefit pension plans which cover substantially all of the eligible employees having 10 years ormore of service. The benefits are in the form of lump-sum
and/or pension payments and are determined by formulabased upon length of service and age at time of termination.
The Company contributes amounts required to maintain sufficient plan assets to provide for accrued benefits, subject tolimitations on deductibility imposed by Japanese income
tax laws.
In March 2002, the parent company and certain of its
Japanese subsidiaries integrated and amended the threepension plans as described above, comprised of a lump-sum
payment plan, the corporate portion of the EPF plan and a
non-contributory defined benefit pension plan, to a cash balance pension plan, effective April 1, 2002. Under the cash balance pension plan, each participant has an account which iscredited annually based on the current rate of pay and market-related interest rate. With this plan amendment, the benefit obligation decreased and the resulting prior service benefit
is amortized based on the remaining service period.
In March 2003, the parent company and certain of its
Japanese subsidiaries decided to transfer the 20 percent
portion of their cash balance pension plan for the eligible
employees having three years or more of service to a newly
established defined contribution pension plan and amend thecalculation method of a market-related interest rate for theremaining 80 percent portion, effective April 1, 2003. With thedecision of the transfer to the defined contribution pension
plan, the EPF plan made contributions of ¥7,091 million($66,896 thousand), which was equivalent to the benefit transferred to the defined contribution pension plan in April 2003.
In accordance with Statement of Financial AccountingStandards No. 88, “Employers’ Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits”, the Company accounted for this transfer as a partial settlement of benefit obligation and recognized a settlement loss of ¥4,555 million ($42,972 thousand)as “Settlement loss of benefit obligation on transfer todefined contribution pension plan“ in the consolidated statement of income for the year ended March 31, 2004. The
amendment for the remaining 80 percent portion was
accounted for as a plan amendment in March 2003 and theresulting prior service benefit is amortized based on theremaining service period.

41

In April 2002, following the enactment of changes to theJapanese Welfare Pension Insurance Law, the parent company and certain of its Japanese subsidiaries obtained
approval from the Japanese Ministry of Health, Labour andWelfare for exemption from the future benefit obligation withrespect to the substitutional portion of the EPF plan. Afterobtaining the approval, in October 2003 these companies
obtained another approval for separation of the remaining
benefit obligation of the substitutional portion that is related
to past employee services. The transfer to the Government
was completed in February 2004.
The Company accounted for the transfer in accordance with
the Emerging Issues Task Force No. 03-2, “Accounting for theTransfer to the Japanese Government of the Substitutional
Portion of Employee Pension Fund Liabilities”. As a result of
the transfer, the Company recognized a loss of ¥4,209 million($39,708 thousand) as “Loss on transfer of the substitutional
portion of Employees’ Pension Fund” in the consolidated
statement of income for the year ended March 31, 2004. Thisconsists of ¥24,272 million ($228,981 thousand) of a subsidy
from the Government calculated as the difference between
accumulated benefit obligation settled and the amount transferred to the Government, ¥7,719 million ($72,821 thousand)of derecognition of previously accrued salary progression and¥36,200 million ($341,510 thousand) of recognition of related
unrecognized actuarial loss, at the time when the past benefit
obligation was transferred.
Net pension and severance costs for the years ended March
31, 2004, 2003 and 2002 were as follows:

2004

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2003

2002

Net pension andseverance costs:
Service cost ..................... ¥3,360 ¥4,200 ¥08,032
3,930Interest cost..................... 3,083 3,449
Expected return onplan assets..................... (2,678) (2,749) (3,488)
Amortization of(46)
transition assets............
(44)
(46)
Amortization of prior(85)
service benefit............... (1,642) (1,172)
Recognized actuarial
1,872
loss................................. 2,509 3,336
Net pension andseverance costs............... ¥4,588 ¥7,018 ¥10,215

42

2004

$31,698
29,085(25,264)

The changes in benefit obligation and plan assets, funded
status and composition of the amounts recognized in the
consolidated balance sheets were as follows:
In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2003

2004

2004

Change in benefit obligation:
Benefit obligation
at beginning of year ............... ¥135,488 ¥137,867
Service cost...............................
3,360
4,200
Interest cost ..............................
3,083
3,449
Plan participants’contributions...........................
—
7
Actuarial (gain) loss .................
(2,086)554
Amendments ............................
(344)(6,786)
Benefits paid .............................
(3,922)(3,803)
Settlement.................................
(7,091)—
Transfer of the substitutional
portion of EPF ......................... (66,028)—
Benefit obligation
at end of year..........................
62,460 135,488
Change in plan assets:
Fair value of plan assets
at beginning of year ...............
82,717
88,249Actual return on plan assets....
6,172(8,521)
Employer contribution .............
5,043
6,414
Plan participants’contributions...........................
—
7
Benefits paid .............................
(3,243)(3,432)
Settlement.................................
(7,091)—
Transfer of the substitutional
portion of EPF ......................... (34,037)—
Fair value of plan assets
at end of year..........................
49,561
82,717
Funded status................................
12,89952,771
Unrecognized actuarial loss ........ (30,395) (79,511)
Unrecognized transition assets...
40
89
Unrecognized prior service
benefit ..........................................
21,12722,425
Net amount recognized .............. ¥ 3,671 (¥004,226)$1,278,189
31,69829,085—(19,679)(3,245)(37,000)(66,896)(622,906)
589,246

780,349
58,22647,576—(30,594)(66,896)(321,104)
467,557
121,689(286,745)
377$

199,31134,632(415)(15,491)
23,670$43,283

Amounts recognized in the
consolidated balance sheets
consist of:Prepaid pension and— ($ 83,028)
severance costs.................... (¥ 8,801) ¥Accrued pension and
41,704
120,877
severance costs....................
12,813
Accumulated othercomprehensive income(loss) .....................................
(341) (45,930)(3,217)
Net amount recognized .............. ¥ 3,671 (¥004,226) $ 34,632

SECOM—Social System Industry

The accumulated benefit obligation for the pension plan was¥58,249 million ($549,519 thousand) and ¥123,916 million atMarch 31, 2004 and 2003, respectively.
The Company recognizes a minimum pension liability inthe consolidated balance sheets for pension plans with anaccumulated benefit obligation in excess of plan assets. The
minimum pension liability which exceeded the unrecognizedprior service cost was recorded as a component of accumulated other comprehensive income (loss), net of tax, of ¥194
million ($1,830 thousand) and ¥26,115 million at March 31,
2004 and 2003, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans withaccumulated benefit obligation in excess of plan assets were
¥15,890 million ($149,906 thousand), ¥14,987 million($141,387 thousand) and ¥2,832 million ($26,717 thousand),
respectively, at March 31, 2004, and ¥135,488 million, ¥123,916
million and ¥82,717 million, respectively, at March 31, 2003.
The Company uses March 31 as the measurement date forthe domestic pension plan.
Weighted-average assumptions used to determine benefit
obligation at March 31, 2004 and 2003 were as follows:
March 31

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

2004

2003

2.0%
2.7

2.5%
2.7

Weighted-average assumptions used to determine net pension and severance costs for the years ended March 31, 2004,
2003 and 2002 were as follows:

The Company’s investment policy is designed to ensuresufficient plan assets are available to provide future paymentsof pension benefits to the eligible plan participants. The policy
does not use target allocations for the individual asset categories. Plan assets are invested primarily in equity and debt
securities, and mutual funds with the objective to minimize
risk and achieve the expected rate of return. The investment
results are periodically monitored and asset allocation isadjusted as necessary.
The Company expects to contribute ¥4,073 million ($38,425
thousand) to its domestic defined benefit plans in the year
ending March 31, 2005.
The parent company and certain subsidiaries have defined
contribution pension plans. The contributions to the defined
contribution pension plans for the years ended March 31,
2004, 2003 and 2002 were ¥865 million ($8,160 thousand), ¥22
million and ¥20 million, respectively.
16. Exchange Gains and Losses
Other expenses for the year ended March 31, 2004 include net
exchange losses of ¥469 million ($4,425 thousand). Interest andother revenue for the years ended March 31, 2003 and 2002
includes net exchange gains of ¥389 million and ¥321 million,
respectively.
17. Income Taxes
Total income taxes for the years ended March 31, 2004,
2003 and 2002 were allocated as follows:

Years ended
March 31
2004

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

2.5%
3.0
2.7

2003

2.5%
3.0
2.7

2002

3.0%
4.0
2.7

The Company determines the expected long-term rate of
return based on the expected long-term return of the various
asset categories in which it invests. The Company considers
the current expectations for future returns and the actual
historical returns of each plan asset category.
The weighted-average asset allocation of the Company’s
pension plans at March 31, 2004 and 2003 were as follows:
March 31

Asset category:
Equity securities...............................................
Debt securities..................................................
Call loan ............................................................
Other .................................................................
Total ..................................................................

2004

2003

32.1%
35.3
23.6
9.0
100.0%

27.1%
30.3
32.7
9.9
100.0%In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2002

2004

Income.......................... ¥25,937 ¥24,048 ¥30,183
Shareholders’ equity—
accumulated othercomprehensive
income (loss):
Unrealized gains(losses) on
securities ................
4,640
439
(1,273)
Unrealized gains
on derivative
instruments ............
30
6
24
Minimum pension
liability
adjustments............
17,226(1,379) (3,633)
Foreign currencytranslation
adjustments............
72
(279)
—
¥47,905 ¥22,835 ¥25,301$244,689

2004

2003

43,774283
162,509679$451,934

43

The parent company and its subsidiaries in Japan are
subject to a corporate tax of 30 percent, an inhabitants tax ofapproximately 20.3 percent, and a deductible enterprise tax ofapproximately 9.9 percent, which, in the aggregate, indicate astatutory tax rate in Japan of approximately 41.9 percent for
the years ended March 31, 2004, 2003 and 2002.
Amendments to Japanese tax regulations were enacted on
March 24, 2003. As a result of this amendment, the statutory
tax rate was reduced from approximately 41.9 percent to40.5 percent effective from April 1, 2004. Deferred tax assets
and liabilities expected to be settled or realized on or after
April 1, 2004 were calculated at the rate of approximately
40.5 percent.
Reconciliations of the differences between income taxes
computed at statutory tax rates and consolidated income
taxes were as follows:
In thousands ofIn millions of yen
U.S. dollars
Years ended
March 31
2004

2003

2002

Income taxes
computed at statutory
tax rate of 41.9% ....... ¥20,543 ¥22,153 ¥27,140
Increase (decrease)resulting from:
Unrecognized tax
benefits fromsubsidiaries in loss
positions .................
5,725
2,537
2,081
Reversal of valuation
allowance due toutilization ofoperating loss
carryforwards.........
(1,330) (1,545)(670)
Amortization of
non-deductible
goodwill..................
——
763
Other, net..................
999
903
869
Consolidated
income taxes ...... ¥25,937 ¥24,048 ¥30,183

Year ended
March 31
2004

$193,802

54,009(12,547)—
9,425$244,689

The significant components of deferred tax assets andliabilities at March 31, 2004 and 2003 were as follows:
In millions of yen
March 31

In thousands of
U.S. dollars
March 31

2003

2004

¥11,880
23,019$114,245
109,123

9,432
2,593

84,01924,3491,897

69,226

2,399
2,650
3,116
1,953

40,651
39,20832,34915,481

17,081
8,771
84,791(21,889)
62,902

14,46280,123
623,236(158,123)
465,113

2004

Deferred tax assets:
Deferred revenue .................... ¥12,110
Loss carryforwards ................. 11,567
Adjustment of book value atthe date of acquisition—
Land and buildings .............
8,906
Other assets.........................
2,581
Property, plant andequipment ............................
7,338
Allowance for doubtful
accounts.................................
4,309
Investment securities..............
4,156
Accrued bonus ........................
3,429
Vacation accrual ......................
1,641
Accrued pension andseverance costs .....................
1,533
Other ........................................
8,493
Gross deferred tax assets... 66,063
Less: Valuation allowance .. (16,761)
Total deferred tax assets .... 49,302

Deferred tax liabilities:
Deferred installation costs .....
(8,076)(8,060)Adjustment of book value atthe date of acquisition—
Land and buildings .............
(6,589)(6,529)Other investments...............
(2,523)(2,523)Long-term receivables ........
(1,955)(1,897)
Unrealized gains on securities..
(469)(4,841)
Unearned premiums andother insurance liabilities .....
(1,454)(1,748)
Capitalization of property
acquisition tax .......................
(1,592)(868)
Other ........................................
(2,056)(2,894)Gross deferred tax
liabilities............................. (29,360) (24,714)
Net deferred tax assets ...... ¥ 19,942 ¥(38,188(76,038)(61,594)(23,802)(17,896)(45,670)(16,491)(8,189)(27,301)(276,981)$188,132

The valuation allowance principally relates to deferred tax
assets of the subsidiaries with operating loss carryforwards,
for tax purposes, that are not expected to be realized. The netchange in the total valuation allowance for the years ended
March 31, 2004 and 2003 was a decrease of ¥5,128 million($48,377 thousand) and an increase of ¥633 million, respectively.

44

SECOM—Social System Industry

In assessing the realizability of deferred tax assets, theCompany management considers whether it is more likely
than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. The Company management considered the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies
in making this assessment. Based upon the level of historicaltaxable income and projections for future taxable income
over the periods in which the deferred tax assets are
deductible, the Company management believes it is more
likely than not that the Company will realize the benefits ofthese deductible differences, net of the existing valuation
allowance at March 31, 2004 and 2003.
Net deferred tax assets at March 31, 2004 and 2003 arereflected in the accompanying consolidated balance sheets
under the following captions:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2003

2004

2004

Deferred income taxes(Current assets) ........................
Deferred income taxes(Other assets) ...........................
Other current liabilities ..............
Other liabilities ...........................
Net deferred tax assets .....

¥12,851$138,830

26,950
8,294
—
(360)
(1,613)(2,708)¥19,942 ¥38,188

78,245(3,396)(25,547)$188,132¥14,716

No deferred income taxes have been provided on undistributed earnings of overseas subsidiaries totaling ¥3,092 million ($29,170 thousand) at March 31, 2004 because they are
not expected to be remitted in the foreseeable future.
At March 31, 2004, tax loss carryforwards of domestic subsidiaries amounted to ¥23,764 million ($224,189 thousand)and are available for offsetting against future taxable earningsof such subsidiaries for up to seven years, as follows:
Expires in the years ending March 31

2005 ......................................................
2006 ......................................................
2007 ......................................................
2008 ......................................................
2009 ......................................................
2010 ......................................................
2011 ......................................................
..............................................................

In millions of yen

In thousands of
U.S. dollars¥ 2,557
2,238
544
—
1,640
5,827
10,958¥23,764$ 24,123
21,113
5,132—
15,472
54,972
103,377$224,189

The tax loss carryforwards of overseas subsidiaries at
March 31, 2004 amounted to ¥5,255 million ($49,575 thousand), a part of which will begin to expire in the year ending
March 31, 2005.
18. Shareholders’ Equity(1) Treasury StockOn August 13, 2002, the parent company repurchased its
own stock, in accordance with the resolution approved by
the shareholders’ meeting held on June 27, 2002. The shares
repurchased were 8,000,000 shares at ¥5,420 per share for an
aggregate amount of ¥43,360 million. The purchase price pershare was determined based on the closing price on theTokyo Stock Exchange on August 12, 2002.
The transaction for repurchase of treasury stock included
a portion with related parties, Yugen Kaisha Iida Kosan andYugen Kaisha Toda Zenken, which are asset managementcompanies with a majority of voting interests held by the parent company’s directors and their immediate families. The
amounts purchased from these related parties, Yugen Kaisha
Iida Kosan and Yugen Kaisha Toda Zenken, were ¥25,530
million and ¥16,512 million, respectively.
(2) Retained Earnings
The Japanese Commercial Code, amended effective
October 1, 2001, provides that an amount equal to at least 10
percent of cash dividends and other distributions fromretained earnings paid in cash by the parent company and its
Japanese subsidiaries be appropriated as a legal reserve until
the aggregate amount of additional paid-in capital and legal
reserve equals 25 percent of the common stock account.
The Japanese Commercial Code requires that dividends
at year-end, which the Board of Directors resolved to declarecustomarily in the first month following year-end, be approvedat the general shareholders’ meeting to be held within threemonths after the end of the accounting period.
Subsequent to March 31, 2004, the parent company’s Boardof Directors declared an annual cash dividend of ¥10,127 million ($95,538 thousand) to shareholders of record on March 31,
2004. The dividend declared is subject to approval at thegeneral shareholders’ meeting scheduled for June 29, 2004.
Dividends are recorded in the period they are declared.

45

(3) Accumulated Other Comprehensive Income (Loss)
An analysis of the changes in accumulated other comprehensive income (loss) for the years ended March 31, 2004,
2003 and 2002 is as follows:
In millions of yen
Pre-tax
amountTax(expense)or benefit

Net-of-tax
amount

For the year ended March 31, 2004:
Unrealized gains on securities—
Unrealized holding gains or losses
arising during the period.............. ¥12,639 (¥ 4,910) ¥ 7,729
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income............................
(695)
270
(425)
Unrealized gains on derivative
instruments—
Unrealized holding gains or losses
arising during the year..................
145
(58)
87
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income............................
(68)
28
(40)
Minimum pension
liability adjustments .......................... 43,147 (17,226) 25,921
Foreign currencytranslation adjustments .................... (4,228)(72)(4,300)
Other comprehensive
income (loss).............................. ¥50,940 (¥21,968) ¥28,972
For the year ended March 31, 2003:
Unrealized losses on securities—
Unrealized holding gains or losses
arising during the period.............. (¥07,053) ¥02,738 (¥04,315)
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income............................
9,215(3,177)
6,038
Unrealized gains on derivative
instruments—
Unrealized holding gains or losses
arising during the year..................
177
(72)
105
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income............................
(172)
66
(106)
Minimum pension
liability adjustments .......................... (4,385)
1,379(3,006)
Foreign currencytranslation adjustments .................... (4,619)
279(4,340)
Other comprehensive
income (loss).............................. (¥06,837) ¥01,213 (¥05,624)

46

In millions of yen
Tax
Pre-tax (expense) Net-of-tax
amount or benefit
amount

For the year ended March 31, 2002:
Unrealized losses on securities—
Unrealized holding gains or losses
arising during the period.............. (¥09,379) ¥03,297 (¥06,082)
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income............................
5,954(2,024)
3,930
Unrealized gains on derivative
instruments—
Unrealized holding gains or losses
arising during the year..................
209
(74)
135
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income............................
(142)
50
(92)
Minimum pension
liability adjustments .......................... (9,632)
3,633(5,999)Foreign currencytranslation adjustments ....................
7,043
—
7,043
Other comprehensive
income (loss).............................. (¥05,947) ¥04,882 (¥01,065)
In thousands of U.S. dollars
Pre-tax
amountTax(expense) Net-of-tax
or benefit
amount

For the year ended March 31, 2004:
Unrealized gains on securities—
Unrealized holding gains or losses
arising during the period.............. $119,236 ($ 46,321) $ 72,915
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income............................ (6,556)
2,547(4,009)Unrealized gains on derivative
instruments—
Unrealized holding gains or losses
arising during the year..................
1,368
(547)
821
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income............................
(641)
264
(377)
Minimum pension
liability adjustments .......................... 407,047 (162,509) 244,538
Foreign currencytranslation adjustments .................... (39,887)(679) (40,566)
Other comprehensive
income (loss).............................. $480,567 ($207,245) $273,322

SECOM—Social System Industry

19. Research and Development Expenses
Research and development expenses included in selling,
general and administrative expenses for the years ended
March 31, 2004, 2003 and 2002 were ¥4,088 million ($38,566
thousand), ¥5,003 million and ¥5,121 million, respectively.
20. Leased Assets—Lessee
The Company leases certain office space, employee residential facilities, computer and transportation equipment.
Some leased buildings and computer and transportationequipment are held under capital leases. Other leases areclassified as operating leases.
On April 23, 1996, the Company entered into a long-termlease agreement for a building and land in Mitaka, Tokyo. The
lease agreement extends for 30 years beginning May 1, 1996.
For financial reporting purposes, the portion of the lease
relating to the building has been classified as a capital lease;accordingly, an asset of approximately ¥5,086 million($47,981 thousand) has been recorded in the building andimprovements account. The portion of the lease relating to
the land has been classified as an operating lease. The future
minimum lease payments for the site at March 31, 2004 were
¥7,230 million ($68,208 thousand).
A summary of leased assets under capital leases at March
31, 2004 and 2003 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2003

2004

Buildings and improvements..... ¥ 5,185 ¥05,185
Machinery, equipment
and automobiles ....................... 13,273
11,888Intangibles and other..................
151
123
Accumulated depreciation ......... (7,498)(7,076)¥11,111 ¥10,120$ 48,915

2004

125,217
1,425(70,736)$104,821

The following is a schedule by year of future minimum
lease payments under capital leases together with the present
value of the net minimum lease payments at March 31, 2004:
Years ending March 31

2005 .......................................................
2006 .......................................................
2007 .......................................................
2008 .......................................................
2009 .......................................................
Later years ............................................
Total minimum lease payments .........
Less: Amount representing interest ...
Present value of net minimum
lease payments (Note 13)..................
Less: Current portion ...........................
Long-term capital lease obligations ...

In thousands of
U.S. dollars¥ 3,218
2,520
1,700
1,285
663
6,237
15,623
3,678$ 30,358
23,774
16,03812,123
6,255
58,839147,387
34,698

11,9452,830¥ 9,115

112,689
26,698$ 85,991

Rental expenses under operating leases for the years ended
March 31, 2004, 2003 and 2002 were ¥14,540 million ($137,170
thousand), ¥15,182 million and ¥12,961 million, respectively.
A significant portion of such rentals relates to cancelable
short-term leases for office space and employee residential
facilities, many of which are renewed upon expiration.
On December 8, 2000, the Company entered into a leaseagreement for a building and land in Shibuya, Tokyo. The
lease agreement extends for 20 years beginning December 8,
2000. For financial reporting purposes, the lease has beenclassified as an operating lease. Based on the agreement,
annual lease payments for the site are approximately ¥1,339
million ($12,632 thousand) over a 20-year period.
The future minimum lease payments required under operating leases that have initial or remaining non-cancelable leaseterms in excess of one year at March 31, 2004 are as follows:
Years ending March 31

Depreciation expenses under capital leases for the years
ended March 31, 2004, 2003 and 2002 were ¥3,186 million($30,057 thousand), ¥2,991 million and ¥3,195 million,
respectively.

In millions of yen

2005 ......................................................
2006 ......................................................
2007 ......................................................
2008 ......................................................
2009 ......................................................
Later years ...........................................
Total future minimum
lease payments .................................

In millions of yen

In thousands of
U.S. dollars¥ 1,763
1,737
1,686
1,674
1,667
21,244$ 16,632
16,387
15,906
15,792
15,726200,415¥29,771$280,8584721. Property on Operating Leases—Lessor
The Company’s leasing operations consist principally ofleasing of certain office space and related properties. The
properties on operating leases are primarily held by realestate investment companies as part of investment assets of
the insurance services segment and by the companies which
are engaged in leasing services of real estate.
A summary of investment in property on operating leases andproperty held for lease at March 31, 2004 and 2003 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2004

2003

2004

Land ............................................. ¥ 66,093 ¥105,052
86,540
Buildings and improvements..... 70,163
901
1,271
Construction in progress............
1,711
1,681
Intangibles and other..................
Accumulated depreciation ......... (12,498) (10,712)¥126,370 ¥183,832$ 623,519
661,915
8,500
16,142(117,906)$1,192,170

The future minimum rentals on non-cancelable operatingleases at March 31, 2004 are as follows:
Years ending March 31

2005 ......................................................
2006 ......................................................
2007 ......................................................
2008 ......................................................
2009 ......................................................
Later years ...........................................
Total future minimum rentals ............

In millions of yen

In thousands of
U.S. dollars¥ 6,721
1,708
739
739
739
12,556¥23,202$ 63,406
16,113
6,972
6,972
6,972
118,453$218,888

22. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of financial instruments in cases for which
it is practicable.
(1) Cash and Cash Equivalents; Time Deposits; Cash
Deposits; Notes and Accounts Receivable, Trade; Due fromSubscribers; Short-Term Receivables; Bank Loans; Notes
and Accounts Payable, Trade; Other Payables; Deposits
Received; and Accrued Payrolls
The carrying amounts approximate fair value because of
the short maturities of such instruments.
(2) Long-Term Receivables
The fair values of long-term receivables are based on the present value of future cash flows through estimated maturity, discounted using estimated market discount rates. The carrying
amount of long-term receivables approximates fair value.
(3) Long-Term Debt Including Current Portion
The fair value of long-term debt including the current
portion was estimated based on the discounted amounts offuture cash flows using the Company’s current incremental
borrowing rates for similar liabilities. As long-term interest
rates have not fluctuated significantly in recent years inJapan, the carrying amounts of obligations under capitallease approximate estimated fair value.
(4) Investment Deposits by Policyholders
The fair values of investment deposits by policyholders are
estimated by discounting future cash flows using the interest
rates currently being offered for similar contracts.
(5) Derivatives
The fair values of interest rate swaps and embedded
derivatives are estimated by obtaining quotes from financial
institutions.

48

SECOM—Social System Industry

The carrying amounts and estimated fair values of thefinancial instruments excluding debt and equity securities
which are disclosed in Note 8 at March 31, 2004 and 2003 are
as follows:
In millions of yen
March 31
2004
Carrying
amountEstimated
fair value

2003
Carrying
amountEstimated
fair value

Non-derivatives:
Liabilities—
Long-term debt
including current
portion ...................... ¥104,534 ¥104,792 ¥123,274 ¥123,628
Investment deposits
by policyholders ...... 230,316 241,423 231,109 246,057
Derivatives:
Assets—Interest rate swaps ....
19
19
1
1
Embedded
derivatives ................
16
16
—
—
Liabilities—
Interest rate swaps ....
536
536
921
921
In thousands of U.S. dollars
March 31
2004
Carrying
amountEstimated
fair value

Non-derivatives:
Liabilities—
Long-term debt including current
portion ................................................. $ 986,170 $ 988,604
Investment deposits
by policyholders ................................. 2,172,792 2,277,575
Derivatives:
Assets—Interest rate swaps ...............................
179
179
Embedded
derivatives...........................................
151
151
Liabilities—
Interest rate swaps ...............................
5,057
5,057

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

23. Derivative Financial Instruments(1) Risk Management Policy
The Company utilizes derivative financial instruments in thenormal course of business to reduce exposure to fluctuationsin interest and foreign currency rates. The Company assesses
interest rate risk and foreign currency exchange risk by continually monitoring changes in these exposures and by evaluating hedging opportunities. The Company does not hold or
issue derivative financial instruments for trading purposes.
The Company is also exposed to credit-related losses in theevent of non-perfomance by counterparties to derivative
financial instruments, but it is not expected that any counterparties will fail to meet their obligations, because most of thecounterparties are internationally recognized financial institutions and contracts are diversified into a number of major
financial institutions.
(2) Interest Rate Risk Management
The Company’s exposure to the market risk of changes ininterest rates relates primarily to its debt obligations. The
Company principally enters into interest rate swap agreements to manage fluctuations in cash flows resulting fromchanges in interest rates. Interest rate swaps are used tochange floating rates on debt obligations to fixed rates byentering into receive-floating, pay-fixed interest rate swaps
under which the Company receives floating interest rate
proceeds and makes fixed interest rate payments, thereby
effectively creating fixed-rate debt.
(3) Cash Flow Hedge
The Company designates interest rate swap agreements as
cash flow hedges for variability of cash flows originated fromfloating rate borrowings. The interest rate swap agreements
mature at various dates through 2009. The effective portion ofchanges in fair values of derivative instruments designated as
cash flow hedges of these debt obligations are reported inother comprehensive income (loss). These amounts arereclassified into current income in the same period as hedged
items affect current income. The ineffective portion of changes
in fair values are reported in income immediately. The sum of
the amount of the hedge ineffectiveness and net gains orlosses excluded from the assessment of hedge effectivenessis not material for the years ended March 31, 2004, 2003 and2002. Approximately ¥73 million ($689 thousand) of net derivative gains included in other comprehensive income (loss),
net of tax at March 31, 2004, will be reclassified into current
income within 12 months from that date. At March 31, 2004
and 2003, the notional principal amounts of interest rate swap
agreements designated as cash flow hedges were ¥35,909
million ($338,764 thousand) and ¥36,093 million, respectively.

49

(4) Derivative Instruments not Designated as Hedges
Certain subsidiaries enter into interest rate swap agreements to change the effective interest rates on debt securities
held as investments with the objective of increasing current
interest income. Secom Insurance holds embedded derivatives that must be separated from the host debt securities andaccounted for as derivative instruments, which are also toincrease investment income. Changes in fair value of theabove noted derivative financial instruments, which are notdesignated as hedges, are reported in current income.
24. Commitments and Contingent Liabilities
Commitments outstanding at March 31, 2004 for thepurchase of property, plant and equipment approximated¥3,491 million ($32,934 thousand).
The Company provides guarantees to third parties withrespect to bank loans extended to its affiliated companies andother entities. Such guarantees are provided to enhance thecredit standing of the affiliated companies and other entities.
For each guarantee provided, the Company would have toperform under the guarantee, if the affiliated companies andother entities default on a payment within the guaranteed
period of one to 14 years. The maximum amount of undiscounted payments the Company would have to make in theevent of default amounts to ¥19,101 million ($180,198 thousand) at March 31, 2004. The carrying amounts of the liabilities recognized for the Company’s obligations under theseguarantees at March 31, 2004 and 2003 were insignificant.
25. Free Share Distributions of Less than 25 Percent
The method of accounting for the Company’s less than
25 percent free share distributions is described in Note 2.
Had the Company accounted for such free share distributions
made during the period from 1974 to 1990 in the mannerused by companies in the United States of America, ¥98,388
million ($928,189 thousand) would have been transferredfrom retained earnings to the appropriate capital accounts.
However, there would be no effect on total shareholders’ equity.
26. Gain on Sale of Subsidiaries’ Shares
On February 19, 2002, Secom Joshinetsu Co., Ltd. (“Secom
Joshinetsu”), a 62.0 percent owned subsidiary, completed an
initial public offering on the Second Section of the Tokyo Stock
Exchange. In conjunction with the offering, the parent company

50

sold 1,000,000 outstanding shares of Secom Joshinetsu fora sale price of ¥2,162 million. Through a secondary offering,
Secom Joshinetsu issued an additional 500,000 shares for
total proceeds of ¥1,081 million. As a result of these transactions, the parent company’s ownership in Secom Joshinetsu
declined to 52.1 percent. The resulting pre-tax gains on
the sale of Secom Joshinetsu’s shares and new issuance ofSecom Joshinetsu’s shares of ¥700 million and ¥160 million,
respectively, are recognized in the consolidated statement ofincome for the year ended March 31, 2002. In the consolidated statement of cash flows for the year ended March 31,
2002, the gain on sale of subsidiary shares is excluded fromcash flows from operating activities and the related cash proceeds are classified in cash flows from investing activities.
The cash proceeds from the new issuance by Secom
Joshinetsu to minority shareholders are classified in cash
flows from financing activities.
27. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:

2004

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2003

2004

2002

Cash paid during theyear for:
Interest ............................ ¥ 3,307 ¥03,527 ¥01,568
Income taxes .................. 24,718 40,263 31,952
Non-cash investing andfinancing activities:
Conversion of
convertible bond............
—
17
467
Additions to obligations
under capital leases ..... 4,173
2,739
3,959
Acquisition—
Fair value of assets
acquired...................... ¥— ¥— ¥73,944
Cash paid for capitalstock............................
—— (4,957)
Minority interestin subsidiaries............
——(13)
Net liabilities
assumed .................. ¥— ¥— ¥68,974$ 31,198
233,189—
39,368
$

—
—
—

$

—

SECOM—Social System Industry

28. Segment Information
The Company has applied Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of anEnterprise and Related Information”, which requires disclosure of financial and descriptive information about theCompany’s reportable operating segments. The operating
segments reported below are the segments of the Company
for which separate financial information is available and forwhich operating profit/loss amounts are evaluated regularly
by executive management in deciding how to allocate
resources and assess performance.
The Company has four reportable business segments:
security services, medical services, insurance services, andinformation and communication related and other services.
The security services segment provides various types of security services by utilizing the Company’s unique security systems
and manufactures and sells security equipment. The medical
services segment provides intravenous solutions to patients at
home, home-based nursing care services, medical data transmission services by utilizing the Company’s network and leasing of real estate for medical institutions. The insurance
services segment represents non-life insurance-related underwriting business in the Japanese market. The information andcommunication related and other services segment represents
the Company’s network business, aerial surveying and mapping services, Geographic Information System services anddevelopment and sales of real estate as well as leasing of realestate. The Company develops real estate, principally condominiums, for consumers, to promote a network of integrated
communication systems to create synergies with home security
services. These communication services are considered asubset or an integrated part of the real estate package.
Revenue and other income by segment includes interest
income and other revenue reasonably allocated to thesegments. Corporate revenue includes interest income,investment income, net exchange gains and dividend income
from companies unaffiliated with the parent company or The
Westec Security Group, Inc., a wholly owned subsidiary as aholding company in the United States of America. Corporate
expenses include general and administrative expenses and net
exchange losses of these two companies.
Intersegment sales are priced on a basis intended toapproximate amounts charged to unaffiliated customers.
Identifiable assets are those assets used exclusively in theoperations of each segment or which are allocated when used
jointly. Corporate assets, which are held by the above two companies for general and administrative facilities, consist principallyof cash and cash equivalents, short-term investments, investment
securities, land, buildings, machinery and equipment.

Information by business and geographic segments for theyears ended March 31, 2004, 2003 and 2002 is as follows:(1) Business Segment Information

2004

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2003

2004

2002

Revenue and otherincome:Security services—
Customers .................. ¥367,628 ¥355,702 ¥342,169
Intersegment ..............
1,162
1,321
2,448
368,790 357,023 344,617
Medical services—
19,951
13,507
Customers .................. 21,223
Intersegment ..............
195
171
166
21,41820,122
13,673
Insurance services—
29,14428,759Customers .................. 33,362
Intersegment ..............
2,420
2,026
1,920
35,782
31,17030,679
Information andcommunication
related and otherservices—
Customers .................. 112,820 112,994 103,315
Intersegment ..............
3,730
2,995
4,213
116,550 115,989 107,528
Total ............................... 542,540 524,304 496,497
Eliminations ..................
(7,507) (6,513) (8,747)
Corporate items ............
2,826
2,952
5,776
Total revenue andother income............... ¥537,859 ¥520,743 ¥493,526
Income (loss) before
income taxes:
Security services........... ¥ 76,229 ¥080,108 ¥082,984
Medical services ...........
(1,181)
1,810(698)
Insurance services........
3,217(9,181)
304
Information andcommunication
related and otherservices ........................ (11,865) (1,998)(130)
Total ............................... 66,400
70,73982,460
Corporate items
and eliminations ......... (14,074) (14,138) (16,091)
Interest expense ...........
(3,297) (3,729) (1,596)
Total income before
income taxes............... ¥ 49,029 ¥052,872 ¥064,773$3,468,188
10,962
3,479,150
200,217
1,840
202,057
314,735
22,830337,565

1,064,340
35,1891,099,529
5,118,301(70,821)
26,661$5,074,141$ 719,142(11,142)
30,349(111,934)
626,415(132,773)(31,104)$ 462,538

51

2004

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2003

2002

2004

Assets:Security
services .............. ¥ 428,034 ¥0,396,850 ¥0,408,657
Medicalservices ..............
73,57367,214
61,615
Insuranceservices ..............
317,102319,750
352,454
Information andcommunication
related andother services....
205,374
209,954
179,383
Total...................... 1,024,083
993,768 1,002,109
Corporate items...
101,708
129,372
129,061
Investments
in and loans
to affiliatedcompanies .........
39,31434,942
34,943
Total assets ......... ¥1,165,105 ¥1,158,082 ¥1,166,113

370,887$10,991,557

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2002

2004

2004

2003

Depreciation andamortization:
Security services ...... ¥44,833 ¥44,014 ¥042,106953
Medical services .......
1,164
1,301
2,305
Insurance services....
1,586
1,253
Information andcommunication
related and other
4,200
services ...................
4,766
4,234
Total...........................
52,349 51,472
48,894595
Corporate items........
594
997
Total depreciation
and amortization .... ¥52,943 ¥52,067 ¥049,891$ 4,038,057
694,085

The capital expenditures in the above table represent theadditions to property, plant and equipment of each segment.
The Company has no single customer that accounts formore than 10 percent of total revenue.
The following table is a breakdown of security services revenue to external customers by service category. The security
services business is managed as a single operating segmentby the Company’s management.

2,991,528
2004

1,937,491
9,661,161
959,509$422,953
10,981
14,962

44,962493,858
5,604

53,132
418,12366$418,189

Years ended
March 31

Year ended
March 31

2003

2002

2004

$2,469,349
33,811

354,123
175,642435,263$3,468,188(2) Geographic Segment Information
Revenue and other income attributed to countries based on
location of customers and long-lived assets for the years
ended March 31, 2004, 2003 and 2002 was as follows:$499,462$313,255
15,33036,406In thousands of
U.S. dollars

Electronic security
services:
Commercial
security andhome security........ ¥261,751 ¥254,931 ¥244,494
Large-scale
proprietary
3,584
systems ..................
3,461
3,438
Other security
services:
Static guard
37,537
services ..................
35,90834,107
Armored car
18,618services ..................
17,261
17,001
Merchandise and46,138other...........................
44,141
43,129Total security
services ...................... ¥367,628 ¥355,702 ¥342,169

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2002

2004

Revenue and otherincome:Japan........................ ¥523,321 ¥506,554 ¥480,165
14,18914,538Other ........................
13,361
Total ......................... ¥537,859 ¥520,743 ¥493,526$4,936,990
137,151$5,074,141

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2002

2004

Long-lived assets:
Japan........................ ¥384,423 ¥445,632 ¥463,144
6,874
Other ........................
5,528
6,384
Total ......................... ¥391,297 ¥451,160 ¥469,528$3,626,632
64,849$3,691,481

2004

Capital expenditures:
Security services ...... ¥33,205 ¥29,586 ¥037,152
5,115
Medical services .......
1,625
2,717
Insurance services....
3,859 12,899 104,398
Information andcommunication
related and other
4,726
services ...................
5,632
2,928
Total...........................
44,321 52,326 147,195
612
Corporate items........
7
13
Total capital
expenditures ........... ¥44,328 ¥52,938 ¥147,208

In millions of yen

2004

2003

2003

There are no individually material countries with respect tothe revenue and other income and long-lived assets included
in other areas.

52

SECOM—Social System Industry

INDEPENDENT AUDITORS’ REPORTThe Board of Directors and Shareholders
SECOM CO., LTD.:

We have audited the accompanying consolidated balance sheets of SECOM CO., LTD. and subsidiaries as of March 31, 2004 and2003, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years
in the three-year period ended March 31, 2004, all expressed in Japanese yen. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SECOM CO., LTD. and subsidiaries as of March 31, 2004 and 2003, and the results of their operations and their cash flows
for each of the years in the three-year period ended March 31, 2004, in conformity with accounting principles generally acceptedin the United States of America.
As discussed in Note 2 of the notes to the consolidated financial statements, SECOM CO., LTD. and subsidiaries changed their
method of accounting for goodwill and other intangible assets in the year ended March 31, 2003.
The accompanying consolidated financial statements as of and for the year ended March 31, 2004 have been translated into
United States dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements expressed in Japanese yen have been translated into United States dollars on the basis set forthin Note 3 of the notes to the consolidated financial statements.

Tokyo, JapanMay 20, 2004

53

SUMMARY OF SELECTED FINANCIAL DATASECOM CO., LTD. and Subsidiaries
Years ended March 31

In millions of yen
2004

2003

2002

2001

2000

1999

Composition of consolidated revenue
and other income by segment
Revenue and other income ........................................................... ¥537,859 ¥520,743 ¥493,526 ¥468,293 ¥412,424 ¥394,146
355,702342,169
316,139
295,834
293,104
Security services:........................................................................ 367,628
68.4%
68.3%
69.3%
67.5%
71.8%
74.4%
As a percentage of revenue and other income .............
Electronic security services—254,931244,494
230,763
221,765
219,670
Commercial security and home security........................... 261,751
48.6
48.9
49.5
49.3
53.8
55.7
As a percentage of revenue and other income .............
3,584
3,461
3,438
3,647
3,773
4,223
Large-scale proprietary systems ........................................
0.7
0.7
0.7
0.8
0.9
1.1
As a percentage of revenue and other income .............
258,392
247,932
234,410
225,538
223,893
Subtotal......................................................................... 265,335
Other security services—
37,53735,90834,10732,204
31,66330,178
Static guard services ...........................................................
7.0
6.9
6.9
6.9
7.7
7.7
As a percentage of revenue and other income .............
18,61817,261
17,001
15,10913,54012,275
Armored car services ..........................................................
3.5
3.3
3.5
3.2
3.3
3.1
As a percentage of revenue and other income .............
56,15553,16951,10847,31345,20342,453
Subtotal.........................................................................
46,13844,141
43,12934,41625,09326,758Merchandise and other...........................................................
8.6
8.5
8.7
7.3
6.1
6.8
As a percentage of revenue and other income .............
21,223
19,951
13,507
6,347
1,326
1,075
Medical services .........................................................................
3.9
3.8
2.7
1.4
0.3
0.3
As a percentage of revenue and other income .............
33,362
29,14428,75923,30330,462
4,775
Insurance services ......................................................................
6.2
5.6
5.8
5.0
7.4
1.2
As a percentage of revenue and other income .............
Information and communication related
112,994
103,315
92,552
72,68455,367and other services .................................................................... 112,820
21.0
21.7
20.9
19.8
17.6
14.0
As a percentage of revenue and other income .............
2,826
2,952
5,776
29,952
12,11839,825
Corporate items ..........................................................................
0.5
As a percentage of revenue and other income .............
0.6
1.3
6.3
2.9
10.1
Net income, cash dividends andshareholders’ equity
Net income...................................................................................... ¥ 23,479 ¥ 30,275 ¥ 34,082 ¥ 43,996 ¥ 47,326 ¥ 49,918
9,003
Cash dividends (paid)(3) ..................................................................
9,330
9,324
9,323
8,146
7,555
Shareholders’ equity...................................................................... 415,852
372,518
401,326
377,304
373,806
327,147
Consolidated financial ratios
Percentage of working capital accounted for by:
Debt—
Bank loans ...............................................................................
Current portion of long-term debt .........................................
Convertible bonds...................................................................
Straight bonds.........................................................................
Other long-term debt ..............................................................
Total debt .............................................................................
Shareholders’ equity ..................................................................
Total capitalization ..............................................................
Return on total assets (percentage) (a) ........................................
Return on equity (percentage) (b).................................................
Percentage of revenue and other income absorbed by:Depreciation and amortization ..................................................
Rental expense............................................................................
Ratio of accumulated depreciation to depreciable
assets (percentage) ......................................................................
Net property turnover (times) .......................................................
Before-tax interest coverage (times) (c) .......................................
Before-tax interest and rental coverage (times) (d).....................

17.7
2.1
0.0
5.2
9.2
34.2
65.8
100.0
2.0
5.6

20.0
3.3
0.0
5.2
11.4
39.9
60.1
100.0
2.6
8.1

10.7
4.4
0.0
5.6
16.1
36.8
63.2
100.0
2.9
8.5

14.5
1.9
0.1
2.0
6.1
24.6
75.4
100.0
5.0
11.7

15.6
1.2
0.1
2.1
3.2
22.2
77.8
100.0
6.1
12.7

8.4
2.5
0.3
2.6
2.6
16.4
83.6
100.0
7.8
15.3

9.8
2.7

10.0
2.9

10.1
2.6

9.6
2.6

8.3
3.0

7.8
2.7

54.8
1.78
15.9
7.0

50.6
1.42
15.2
7.0

48.9
1.27
41.6
11.9

54.0
1.99
43.9
14.8

60.0
2.71
60.0
14.4

59.3
3.09
77.7
19.1

Note: Installation revenue is included in the corresponding electronic security services.

54

SECOM—Social System Industry

2004

2003

2002

2001

2000

1999

Number of shares outstanding(1)Issued......................................................................... 233,281,133 233,281,133 233,274,769 233,099,744 233,075,442 116,392,109
510
8,228,652
Owned by the Company ..........................................
8,200,245
22,512
4,840
11,817
Balance ...................................................................... 225,052,481 225,080,888 233,252,257 233,099,234 233,070,602 116,380,292
Per share information(1)Basic net income per share (in yen)(2) .....................
¥ 104.32¥ 188.76¥ 132.87¥ 146.19¥ 203.22¥ 214.51
Cash dividends paid per share (in yen)(3) ...............
40.00
40.00
40.00
40.00
35.00
32.50
1,847.80
1,618.64
Shareholders’ equity per share (in yen)(4) ..............
1,655.04
1,720.57
1,603.83
1,405.51
294.56341.91321.88320.17310.28310.76
Cash flow per share (in yen)(2) (e) ..............................
2.46
4.39
1.84
3.33
5.49
3.99
Price/Book value ratio...............................................
43.52
37.61
22.88
39.20
43.30
26.15
Price/Earnings ratio ..................................................
15.41
20.77
9.44
17.90
28.36
18.05
Price/Cash flow ratio.................................................
7,100
Stock price at year-end (in yen)...............................
4,540
3,040
5,730
8,800
5,610
Notes: (a) Net income/Total assets(b) Net income/Shareholders’ equity(c) (Income before income taxes + Interest expense)/Interest
expense(d) (Income before income taxes + Interest expense + 1/3 Rental
expense)/(Interest expense + 1/3 Rental expense)(e) (Net income + Depreciation and amotization - Dividend
approved) / Average number of shares outstanding during eachperiod

(1)

(2)
(3)

(4)

Per share amounts have been adjusted to reflect the impactof a stock split on November 19, 1999. The number of shares
outstanding at the end of each year ended March 31, has notbeen adjusted to reflect this stock split.
Per share amounts are based on the average number of shares
outstanding during each period.
Subsequent to March 31, 2004, cash dividends of ¥10,127 million(¥45 per share) were approved at the general shareholders‘meeting on June 29, 2004 (see Note 18 of the accompanying
notes to consolidated financial statements).
Per share amounts are based on the number of shares
outstanding at the end of each period, minus treasury stock.

COMMON STOCK DATASECOM CO., LTD.
As of March 31

SHAREHOLDER INFORMATION

Number of shareholders .............................................
Common shares held by:
Financial institutions ................................................
Securities firms .........................................................
Other corporations ...................................................
Foreign investors ......................................................
Individuals and others..............................................
Total .......................................................................

2004

2003

2002

2001

2000

1999

21,72020,23017,60915,621

15,0199,458

37.04%
2.19
4.29
37.22
19.26
100.00%46.14%
2.04
4.60
28.64
18.58
100.00%45.31%
1.61
13.78
24.64
14.66
100.00%44.44%
1.73
13.84
25.76
14.23
100.00%42.74%
2.66
13.86
25.96
14.78
100.00%45.71%
0.90
13.67
26.90
12.82
100.00%55

PRICE INFORMATION (TOKYO STOCK EXCHANGE)
Price per share (in yen)

2002

2003

2004

April–June ..............................................................................................
July–September.....................................................................................
October–December................................................................................
January–March ......................................................................................
April–June ..............................................................................................
July–September.....................................................................................
October–December................................................................................
January–March ......................................................................................

Nikkei Stock Average (in yen)

High

Low

High

Low

¥6,780
6,250
4,950
4,220
3,900
4,430
5,120
4,620

¥5,550
4,520
3,780
2,950
2,655
3,260
3,620
3,930

¥11,979.85
10,960.25
9,215.56
8,790.92
9,137.14
11,033.32
11,161.71
11,770.65¥10,074.56
9,075.09
8,303.39
7,862.43
7,607.88
9,265.56
9,614.60
10,365.40

Remarks

COMMON STOCK ISSUES

Date

Additional
shares issued(In thousands)

Sharesoutstanding
after issue(In thousands)

Share capital
after issue(In thousandsof yen)Allotment ratio
to shareholders

June 15, 1974
Dec. 21, 1974
May 21, 1975
May 21, 1975
Dec. 1, 1975
May 31, 1976
June 1, 1976
Dec. 1, 1976
Nov. 30, 1977
Dec. 1, 1977
Dec. 1, 1978
June 1, 1981
Dec. 1, 1981
Jan. 20, 1983
Nov. 30, 1983
Nov. 30, 1984
Nov. 30, 1985
Jan. 20, 1986
Nov. 30, 1986
Nov. 30, 1987
Jan. 20, 1988
Nov. 30, 1988
Nov. 30, 1989
Jan. 19, 1990
Mar. 31, 1990
Mar. 31, 1991
Mar. 31, 1992
Mar. 31, 1993
Mar. 31, 1994
Mar. 31, 1995
Mar. 31, 1996
Mar. 31, 1997
Mar. 31, 1998
Mar. 31, 1999
Nov. 19, 1999
Mar. 31, 2000
Mar. 31, 2001
Mar. 31, 2002
Mar. 31, 2003
Mar. 31, 2004

1,968
2,760
1,196
1,244
4,320
1,880
2,060
6,798
2,042
6,300
7,560
3,000
4,836
5,320
194
1,418
186
6,031
2,878
1,609
3,541
439
1,808
22,986
1,446
2,949
2,035
267
6,986
477
613
1,825
29
159
116,410
273
25
175
6
—

9,200
11,96013,156
14,40018,72020,60022,66029,45831,50037,80045,36048,36053,19658,51658,71060,12860,314
66,34569,22370,832
74,37374,812
76,62099,606
101,052
104,001
106,036
106,303113,289
113,766
114,379
116,204
116,233
116,392
232,802
233,075
233,100
233,275
233,281
233,281¥00,460,000
598,000
657,800
720,000
936,000
1,030,000
1,133,000
1,472,900
1,575,000
1,890,000
2,268,000
2,418,000
2,659,800
3,000,000
3,280,942
5,329,282
5,602,945
5,602,945
11,269,932
15,021,200
15,021,200
16,063,099
21,573,139
21,573,139
25,070,104
32,244,732
37,338,751
37,991,568
56,756,263
58,214,178
59,865,105
65,253,137
65,327,060
65,709,927
65,709,927
66,096,852
66,126,854
66,360,338
66,368,827
66,368,827—
3 for 10
1 for 10—
3 for 10—
1 for 10
3 for 10—
2 for 10
2 for 10—
1 for 10
1 for 10———
1 for 10——
0.5 for 10——
3 for 10
—
—
—
—
—
—
—
—
—
—
10 for 10*
—
—
—
—
—

Issue at market price (¥900)
Stock split
Stock split
Issue at market price (¥1,134)
Stock split
Issue at market price (¥2,570)
Stock split
Stock split
Issue at market price (¥1,700)
Stock split
Stock split
Issue at market price (¥2,230)
Stock split
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds—

Note: The above is a record of SECOM’s common stock issues since the common stock was listed on the Tokyo Stock Exchange in June 1974.
*One share was split into two.
56

SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA(BASED ON JAPANESE GAAP)CONTENTSCONDENSED CONSOLIDATED BALANCE SHEETS ............................... 58
CONDENSED CONSOLIDATED STATEMENTS OF INCOME................... 60

57

CONDENSED CONSOLIDATED BALANCE SHEETSSECOM CO., LTD. and Subsidiaries
As of March 31

ASSETS

In millions of yen
2004

2003

2002

2001

2000

1999

Current assets:
Cash on hand and in banks.......................................
Call loans ....................................................................
Notes and accounts receivable, trade ......................
Due from subscribers ................................................
Short-term investments ............................................
Inventories..................................................................
Deferred income taxes ..............................................
Short-term loans ........................................................
Other current assets ..................................................
Allowance for doubtful accounts..............................
Total current assets.........................................

¥0,202,630
38,00046,813
17,56147,34345,477
9,768
58,793
17,205(4,925)
478,668¥175,776
30,00043,922
16,33636,402
41,3397,678
51,355
19,650(1,558)420,903¥192,437
40,00046,04814,39531,321
55,387
9,111
90,61017,441(1,501)
495,251¥135,820
35,69045,904
12,13741,03349,8605,785
36,682
14,334(1,092)
376,156¥156,888
11,00045,112
11,713
98,47952,4005,541—
38,707(973)
418,870¥151,627—
15,334
11,588113,321
24,1862,595—
27,593(1,590)344,656

Fixed assets:
Tangible assets:
Buildings and improvements ................................
Security equipment and control stations .............
Land.........................................................................
Other tangible assets .............................................

79,07265,31580,507
19,05090,82365,02687,853
17,31368,80478,32863,547
19,321

34,83573,16948,427
19,54033,18068,52145,31819,06530,29164,65841,23915,563

Intangible assets ........................................................

33,82034,544

37,46032,22523,193

14,711

207,654
188,880
158,438
63,799102,448
86,42022,52338,05638,29955,52852,09837,452(14,060)(8,010)(12,341)
613,211
669,034
575,731
187
192
207
—
—
—
¥1,092,067 ¥1,090,131 ¥1,071,190

153,553
59,586
12,21430,449(7,567)456,435410—¥833,001

70,17034,02012,73624,972(5,637)
325,541
1,294
18,784¥764,491

51,482
21,238
5,954
27,069(1,619)270,589666
11,153¥627,066

Investments and others:
Investment securities .............................................
Long-term loans .....................................................
Deferred income taxes...........................................
Other investments..................................................
Allowance for doubtful accounts ..........................
Total fixed assets ............................................
Deferred assets..............................................................
Foreign currency translation adjustments..................
Total assets .....................................................

58

SECOM—Social System Industry

In millions of yen

LIABILITIESCurrent liabilities:
Notes and accounts payable, trade ..........................
Bank loans ..................................................................
Current portion of straight bonds ..............................
Current portion of convertible bonds........................
Payables—other .........................................................
Accrued income taxes ...............................................
Accrued consumption taxes .....................................
Accrued expenses......................................................
Deferred revenue .......................................................
Accrued bonus ...........................................................
Other current liabilities..............................................
Total current liabilities ....................................

2004

2003

2002

2001

2000

1999

¥0,018,460 ¥0,015,529 ¥0,016,401
119,344
135,540
90,194
200
—
5,000
18
—
33
17,743
19,58020,22917,083
10,75623,002
3,792
3,444
3,030
2,304
1,837
1,828
28,45928,851
27,373
8,490
8,852
8,834
45,28335,14029,045
261,181259,531
224,972¥015,854
79,4095,000—
19,243
18,263
3,196
10,56327,433—
23,595202,560¥016,342
77,896——35,803
13,6472,939
9,899
26,087—31,646214,261¥009,691
40,676—
4
11,031
16,9402,514
8,617
23,749—33,979147,208

Fixed liabilities:
Straight bonds............................................................
Convertible bonds......................................................
Long-term loans.........................................................
Guarantee deposits received ....................................
Deferred income taxes ..............................................
Accrued severance indemnities................................
Accrued pension and severance costs.....................
Investment deposits by policyholders, unearned
premiums and other insurance liabilities ..............
Other fixed liabilities..................................................
Total fixed liabilities........................................
Total liabilities .................................................

32,800—43,53029,160371—
12,89932,00018
48,301
28,304459—
45,21030,50018
48,671
26,174
1—
49,6175,000
518
10,742
17,938
1,320
—
7,181

10,000578
4,934
17,086—
2,651—

10,0001,347
2,468
16,410—2,191—

276,979
2,117
397,858
659,040

274,476
4,033
432,803692,335

268,519
3,164
426,666
651,639

168,648
2,448
213,799
416,360

112,8311,932
150,014364,275

95,3201,051
128,790
275,999

MINORITY INTEREST IN SUBSIDIARIES .....................

29,77028,042

27,401

27,04927,442

13,55366,36882,544308,268
6,079(15,603)(44,400)
403,257

66,36882,544
276,397
116(11,386)(44,287)369,753

66,36082,536
250,400(246)(6,759)(141)392,149

66,12682,302
250,409
4,846(14,089)(3)
389,592

66,09682,272
224,446——(42)
372,773

65,70981,781
190,141——(119)
337,513¥1,092,067 ¥1,090,131 ¥1,071,190¥833,001¥764,491¥627,066

SHAREHOLDERS’ EQUITY
Common stock ...........................................................
Capital surplus ...........................................................
Retained earnings ......................................................
Unrealized gains (losses) on securities....................
Foreign currency translation adjustments...............
Common stock in treasury, at cost...........................
Total shareholders’ equity..............................
Total liabilities, minority interest in
subsidiaries and shareholders’ equity .......

59

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

SECOM CO., LTD. and Subsidiaries
Years ended March 31

In millions of yen
2004

2003

2002

2001

2000

1999

Revenue ....................................................................... ¥527,409
Percentage change from prior year....................
0.8%¥523,271
5.1%¥497,921
9.4%¥454,960
10.8%¥410,492
16.5%¥352,361
11.3%

Cost of revenue ..........................................................
As a percentage of revenue ................................

324,759
61.6

325,95262.3

319,82664.2

278,91161.3

245,31759.8

204,203
58.0

Gross profit .................................................................
As a percentage of revenue ................................

202,650
38.4

197,31937.7

178,09435.8

176,04938.7

165,17440.2

148,157
42.0

Selling, general and administrative expenses..........
As a percentage of revenue ................................

121,363
23.0

124,41623.8

135,07127.2

110,787
24.4

103,658
25.2

93,433
26.5

Operating profit...........................................................
As a percentage of revenue ................................

81,28615.4

72,902
13.9

43,022
8.6

65,261
14.3

61,51515.0

54,724
15.5

Non-operating income................................................
Non-operating expenses ............................................

7,798
12,841

8,672
11,512

8,088
9,569

11,333
10,32015,894
8,411

6,738
8,110

Ordinary profit.............................................................
As a percentage of revenue ................................

76,24314.5

70,063
13.4

41,541
8.3

66,27414.6

68,99716.8

53,352
15.1

Extraordinary profit.....................................................
Extraordinary loss .......................................................

31,86024,892

13,587
15,72833,491
53,15024,61826,597

6,739
4,170

36,017
4,622

Income before income taxes......................................
As a percentage of revenue ................................

83,211
15.8

67,921
13.0

21,882
4.4

64,295
14.1

71,56617.4

84,746
24.1

Income taxes—current................................................
Income taxes—deferred .............................................
Minority interest in subsidiaries ................................

30,9628,985
2,152

27,8082,171
2,358

37,095(23,550)(1,246)30,011(2,057)801

27,395(1,757)
3,111

34,945(531)
1,238

Net income ..................................................................
As a percentage of revenue ................................
Percentage change from prior year....................

41,111
7.8
15.5

35,583
6.8
271.3

9,583
1.9
(73.0)

35,540
7.8(17.0)

42,817
10.4(12.8)

49,093
13.9
145.4

60

SUPPLEMENTAL NONCONSOLIDATED FINANCIAL DATA(BASED ON JAPANESE GAAP)CONTENTSCONDENSED NONCONSOLIDATED BALANCE SHEETS ........................ 62
CONDENSED NONCONSOLIDATED STATEMENTS OF INCOME ........... 64

61

CONDENSED NONCONSOLIDATED BALANCE SHEETSSECOM CO., LTD.
As of March 31

ASSETS

In millions of yen
2004

2003

2002

2001

2000

1999

Current assets:
Cash on hand and in banks....................................... ¥117,302
Notes receivable ........................................................
292
Due from subscribers ................................................
8,856
Accounts receivable, trade........................................
5,372
Receivables—other ....................................................
5,680
Short-term investments ............................................
451
Common stock in treasury ........................................
—
Merchandise...............................................................
5,673
Supplies ......................................................................
1,123
Prepaid expenses.......................................................
1,610
Deferred income taxes ..............................................
5,890
Short-term loans ........................................................
38,398Other current assets ..................................................
2,526
Allowance for doubtful accounts..............................
(5,216)
Total current assets......................................... 187,961¥093,044
365
8,311
4,695
3,047
7,951
—
6,738
1,420
1,507
4,642
53,111
2,367(3,602)
183,602¥101,946
741
7,726
6,719
3,536
1,479
—
9,563
1,649
1,857
4,096
40,6592,458(2,959)179,475¥077,581
538
7,072
5,089
3,123
6,312
3
6,625
1,326
1,605
3,063
28,897
2,683(2,245)
141,676¥092,077
324
6,242
4,172
3,457
15,482
42
5,524
1,121
1,369
1,961
33,1894,274(137)
169,104¥093,901
458
5,564
3,237
1,242
25,887
119
4,805
948
1,241
—
29,0301,512(146)167,804

Fixed assets:
Tangible assets:
Buildings and improvements ................................
Automobiles ...........................................................
Security equipment and control stations .............
Machinery and equipment ....................................
Tools, furniture and fixtures..................................
Land.........................................................................
Construction in progress .......................................
Other........................................................................

25,836
145
60,6841,427
3,990
36,4392,862
72

28,777525
60,2201,501
3,678
42,1971,463
18

20,576634
75,216
3,571
3,383
37,9072,011
25

23,006679
70,511
4,104
3,316
37,8372,327
16

23,696578
65,8252,906
2,335
35,152
1,616
18

24,294
737
62,686
1,508
2,166
34,9961,693
19Intangible assets:
Telephone rights and other ...................................
Telephone and telegraph utility rights .................
Software..................................................................

2,592
207
8,935

2,834
540
10,957

3,602
634
10,535

4,702
803
11,422

6,518
1,156
3,313

4,533
1,975
—

20,79623,57827,284

10,706

12,519159,901
10,0598,489
19,70918,37910,650(1,596)399,104¥582,707

160,870
9,748
8,504
1,025
19,223
11,555(1,311)
391,293¥570,769

145,227
11,242
8,697
1,263
—
11,423(1,205)
362,662¥504,339

129,771
2,636
6,802
1,540
1,631
9,428
(13)
305,622¥474,726

112,714
3,112
6,889
9,436
—
6,670
(14)
285,941¥453,745

Investments and other:
Investment securities .............................................
23,874
Investments in subsidiaries andaffiliated companies............................................. 158,279
Long-term loans .....................................................
23,385
Lease deposits ........................................................
8,533
Long-term prepaid expenses ................................
19,889Deferred income taxes...........................................
13,728Other investments..................................................
13,007
Allowance for doubtful accounts ..........................
(11,306)
Total fixed assets ............................................ 392,586
Total assets ..................................................... ¥580,547

62

SECOM—Social System Industry

In millions of yen

LIABILITIES

2004

2003

2002

Current liabilities:
Accounts payable....................................................... ¥002,160
Bank loans ..................................................................
35,663Current portion of straight and convertible bonds...
18
Payables—other .........................................................
10,358
Accrued expenses......................................................
634
Deposits received.......................................................
33,958Deferred revenue—service charges .........................
21,247
Accrued income taxes ...............................................
10,570
Payables—construction.............................................
4,666
Accrued bonus ...........................................................
4,710
Other current liabilities..............................................
4,029
Total current liabilities .................................... 128,019¥002,121
53,503—
9,605
576
24,74921,048
6,806
3,535
4,920
3,837
130,706¥001,813
15,23433
10,167619
20,867
20,10818,163
3,514
4,939
2,772
98,234¥

1,908
20,157—
10,722
5,713
15,681
19,583
13,904
4,328
—
2,437
94,436¥

1,683
23,454
—
7,590
5,484
18,784
19,254
9,858
4,123
—
3,330
93,564¥

Fixed liabilities:
Straight and convertible bonds ................................
Long-term loans.........................................................
Guarantee deposits received ....................................
Deferred income taxes ..............................................
Accrued severance indemnities................................
Accrued pension and severance costs.....................
Other fixed liabilities..................................................
Total fixed liabilities........................................
Total liabilities .................................................

30,0002,300
17,009——5,356—
54,665
182,684

30,0183,700
16,721——30,378—80,818211,524

30,018—16,445——31,341—77,805
176,039518—
15,784
581
—
1,999
120
19,003
113,439578—
15,046—368——
15,993
109,557

1,347—
14,606—378—
557
16,889115,016SHAREHOLDERS’ EQUITY
Common stock ...........................................................

66,36866,36866,36066,126

66,09665,709

Capital surplus:
Additional paid-in capital.......................................
Total capital surplus........................................

82,54482,54482,54482,54482,536
82,53682,30282,30282,27282,272

81,781
81,781

9,028

9,028

9,028

8,077

7,126

6,294

800

800

800

800

800

800

26
2,212
3,038
279,338
291,405

27
2,212
3,039
254,364
266,431

28
2,212
3,040
233,263245,332

30
2,212
3,042
226,776
237,895

31
2,212
3,043
206,629
216,799

56
2,212
3,068
181,874
191,237

Unrealized gains on securities..................................
1,944
Common stock in treasury, at cost...........................
(44,400)
Total shareholders’ equity.............................. 397,862
Total liabilities and shareholders’ equity ..... ¥580,547

124(44,287)
371,182¥582,707642(141)
394,729¥570,769

4,575—
390,899¥504,339——
365,169¥474,726——
338,729¥453,745

Retained earnings:
Legal reserve ..........................................................
Voluntary reserve:
Reserve for systems development....................
Reserve for tax deferral on
asset replacement.............................................
General reserve...................................................
Total voluntary reserve...................................
Unappropriated retained earnings .......................
Total retained earnings...................................

2001

2000

1999

1,671
21,058
4
6,707
5,356
25,43918,734
13,771
3,173
—
2,210
98,12763

CONDENSED NONCONSOLIDATED STATEMENTS OF INCOME

SECOM CO., LTD.
Years ended March 31

In millions of yen
2004

2003

2002

2001

2000

1999

Revenue ....................................................................... ¥288,493
Percentage change from prior year....................
3.5%
Service charges ....................................................... 256,883
Percentage change from prior year....................
2.7
Sales of merchandise..............................................
31,610Percentage change from prior year....................
11.4¥278,610
1.4%
250,237
2.5
28,373(7.4)¥274,669
6.9%
244,0145.8
30,65416.6¥257,008
6.0%
230,722
5.4
26,28511.9¥242,461
4.7%
218,977
4.2
23,48410.4¥231,505
4.0%
210,239
4.1
21,265
3.2

Costs ............................................................................
As a percentage of revenue ................................
Cost of service .........................................................
As a percentage of service charges....................
Cost of sales.............................................................
As a percentage of merchandise sales ..............

159,01855.1
136,14453.0
22,873
72.4

155,49955.8
135,315
54.1
20,184
71.1

162,42759.1
140,000
57.4
22,42773.2

141,31055.0
122,45653.1
18,853
71.7

130,58553.9
113,81552.0
16,76971.4

123,18053.2
108,34951.5
14,83069.7

Gross profit .................................................................
As a percentage of revenue ................................
Gross profit on service............................................
As a percentage of service charges....................
Gross profit on sales ...............................................
As a percentage of merchandise sales ..............

129,47544.9
120,738
47.0
8,736
27.6

123,11144.2
114,921
45.9
8,189
28.9

112,24140.9
104,013
42.6
8,227
26.8

115,69845.0
108,266
46.9
7,432
28.3

111,87646.1
105,161
48.0
6,714
28.6

108,32446.8
101,889
48.5
6,434
30.3

Selling, general and administrative expenses..........
As a percentage of revenue ................................

65,244
22.6

68,94324.8

73,33926.7

62,48424.3

60,21224.8

58,185
25.1

Operating profit...........................................................
As a percentage of revenue ................................

64,231
22.3

54,16719.4

38,901
14.2

53,214
20.7

51,66321.3

50,138
21.7

Other income (expenses):
Interest, dividends and other income ....................
Interest expense ......................................................
Other expense..........................................................

4,817
695
6,196

4,288
494
4,448

4,661
354
4,317

7,211
269
6,917

5,210
15
4,821

5,198
18
4,803

Ordinary profit.............................................................
As a percentage of revenue ................................

62,15621.5

53,51319.2

38,891
14.2

53,23920.7

52,03621.5

50,51521.8

Extraordinary profit.....................................................
Extraordinary loss .......................................................

25,462
29,860

6,543
7,535

28,211
38,712

23,246
24,570

5,427
5,810

12,072
12,167

Income before income taxes......................................
As a percentage of revenue ................................

57,75820.0

52,521
18.9

28,39010.3

51,91520.2

51,65321.3

50,42021.8

Provision for income taxes.........................................
Effective tax rate ..................................................

23,475
40.6

21,73641.4

11,441
40.3

21,31941.1

21,381
41.4

24,343
48.3

Net income ..................................................................
As a percentage of revenue ................................
Percentage change from prior year....................

34,282
11.9
11.4

30,784
11.0
81.6

16,9486.2(44.6)

30,59511.9
1.1

30,272
12.5
16.1

26,077
11.3
8.7

64

SECOM—Social System Industry

CORPORATE INFORMATION

Headquarters:
Independent auditors:
Transfer agent:

5-1, Jingumae 1-chome, Shibuya-ku, Tokyo 150-0001, Japan
KPMG AZSA & Co.
The Mitsubishi Trust and Banking Corporation
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8212, Japan

MAJOR CONSOLIDATED SUBSIDIARIES(As of July 31, 2004)

Issued capital(In millions of yen)

Percentageof equity/
voting rights¥3,530
201
15
50
175
30
210
40
10
10
10
10
10
50
50
50
50
24
308
10
10
100
30
2,358
23
20
15
10
20
10
499
200
271
100
100
45

(52.5)%
59.1
70.0
51.0
60.2
68.3
100.0
(100.0)(100.0)(100.0)100.0(100.0)(100.0)
100.0
100.0
100.0
100.0
(52.3)
82.5(100.0)(100.0)60.0
51.0(67.8)(52.2)(76.6)(66.7)(100.0)(100.0)(100.0)
100.0
76.0
100.0
100.0
100.0
100.0

Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Installation and maintenance of security equipment
Installation of security equipment
Installation of security equipment
Installation of security equipment and facilities
Maintenance of equipment
Maintenance of equipment
Maintenance of facilities
Manufacturing of security equipment
Manufacturing and sales of security systems
Sales of security and water-treatment equipment
Printing services
Specialized security services
Car maintenance

200
10
10
10
95
20
100
210
50
10
10
185

100.0
(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)51.8(100.0)(100.0)(100.0)(100.0)Home health/nursing care and other medical-related services
Maintenance of medical facilities
Sales of medical and other supplies
Management of real estate
Sales of medical equipment
Operation of restaurants and shops at medical facilities
Management of pharmacies
Management of nursing homes
Management of nursing homes
Medical-related services
Medical staffing solutions
Development and sales of health-, medical-, andwelfare-related software

165
5,611

(100.0)82.6

Non-life insurance agency
Non-life insuranceLines of business

Domestic<Security services>
Secom Joshinetsu Co., Ltd.
Secom Hokuriku Co., Ltd.
Secom Yamanashi Co., Ltd.
Secom Mie Co., Ltd.
Secom Sanin Co., Ltd.
Secom Miyazaki Co., Ltd.
Secom Jastic Co., Ltd.
Secom Jastic Joshinetsu Co., Ltd.
Secom Jastic Hokuriku Co., Ltd.
Secom Jastic Miyazaki Co., Ltd.
Secom Jastic Akita Co., Ltd.
Secom Jastic Sanin Co., Ltd.
Secom Jastic Yamanashi Co., Ltd.
Secom Static Hokkaido Co., Ltd.
Secom Static Tohoku Co., Ltd.
Secom Static Nishi-Nihon Co., Ltd.
Secom Static Kansai Co., Ltd.
Secom Sado Co., Ltd.
Chuo Bohan Co., Ltd.
Chuo Bohan Act Service Co., Ltd.
JK. Siress Co., Ltd.
Japan Safety Guard Co., Ltd.
Meian Co., Ltd.
Secom Techno Service Co., Ltd.
Secom Tech Sanin Co., Ltd.
Secom Techno Joshinetsu Co., Ltd.
Secom Win Co., Ltd.
Secom Maintenance Joshinetsu Co., Ltd.
TES Co., Ltd.
Riken Maintenance Co., Ltd.
Secom Industries Co., Ltd.
Otec Electronics Co., Ltd.
Secom Alpha Co., Ltd.
Secom Corporation
Secom HGS Co., Ltd.
Secom Auto Service Co., Ltd.
<Medical services>
Secom Medical System Co., Ltd.
Seisho Corporation
Koyu Co., Ltd.
Kyokushin Shoji Co., Ltd.
Mac Corporation
Yoshikikaku Co., Ltd.
Kensei Co., Ltd.
Ryomay Royal Life Co., Ltd.
Central Medical Service Co., Ltd.
Japan Life Plus Medical Co., Ltd.
Secom Medical Resource Co., Ltd.
Japan Medical Information System Co., Ltd.
<Insurance services>
Secom Insurance Service Co., Ltd.
Secom General Insurance Co., Ltd.

Notes: 1. ( ) indicates the percentage of equity/voting rights held by both SECOM Co., Ltd., and certain of its subsidiaries, or by certain subsidiaries independently.
2. Subsidiaries are categorized into segments above according to their major lines of business.

(Continued )65

MAJOR CONSOLIDATED SUBSIDIARIES
Issued capital(In millions of yen)

<Information and communication related
and other services>
Secom Trust.net Co., Ltd.
Secom Information System Co., Ltd.
Laboratory for Innovators of Quality of Life
Cable Net Niigata Co., Ltd.
Japan Image Communications Co., Ltd.
Pasco Corporation
Pasco Road Center Co., Ltd.
GIS Tokyo Co., Ltd.
GIS Hokkaido Co., Ltd.
GIS Hokuriku Co., Ltd.
GIS Kyushu Co., Ltd.
GIS Tokai Co., Ltd.
Urban Environmental Improvement Center Co., Ltd.
ESRI Japan, Inc.
Environmental Information Technology
Center Co., Ltd.
Tokyo Digital Map Co., Ltd.
Pasco Geographia Co., Ltd.
Secom Lines Co., Ltd.
Masterpiece Co., Ltd.
Secom Home Life Co., Ltd.
Arai & Co., Ltd.
Stappy, Inc.
Arai Corporation, Inc.
Secom Credit Co., Ltd.
Wonder Dream Co., Ltd.
Secom Staff Service Co., Ltd.
Veggiefruit Co., Ltd.
The Windsor Hotels International Co., Ltd.
Ena Urbane Properties Co., Ltd.

Percentageof equity/
voting rights

Lines of business¥1,469
350
100
1,942
487
8,758
50
100
190
20
50
10
50
50

76.0%
100.0
(94.5)(91.1)
94.8
70.0(72.2)(100.0)(100.0)(100.0)(92.4)(100.0)(94.0)(75.0)

Information, communication and cyber security services
Software development
Research and planning of social life
CATV broadcasting service
Commissioned broadcasting service
Geographic information system services
Geographic information system services
Geographic information system services
Geographic information system services
Geographic information system services
Geographic information system services
Geographic information system services
Geographic information system services
Geographic information system services

50
60
25
1,398
21
3,700
2,000
5
10
400
490
50
300

(70.9)(66.7)(100.0)97.6(100.0)99.9(87.0)
100.0(100.0)100.0
100.0(100.0)
100.0

165
3

90.0
100.0

Geographic information system services
Geographic information system services
Geographic information system services
Sales of educational systems
Sales and development of software
Development of residential buildings
Real estate leasing
Management of real estateManagement of real estate
Credit services
Employee welfare for SECOM Group
Employment agency
Processing and marketing of agricultural and fisheries
products
Hotel management
Real estate leasing

US$0.3 thousand
US$95 thousand
US$9 thousand
US$100 thousand£39,126 thousand
Rmb312,968 thousand
Rmb17,228 thousand
Rmb29,122 thousand

100.0(100.0)(93.5)(100.0)100.0
100.0(95.0)(90.0)

Holding company
Security services
Security services
Sales of franchises with Westec trademark
Security services
Holding company
Security services
Security services

Rmb20,792 thousand
Rmb8,298 thousand
US$3,950 thousand
THB300 million
AUD31.5 million
AUD32.0 million(80.0)(80.0)
94.9
88.4
100.0
(100.0)

Security services
Security services
Security services
Security services
Holding company
Security services

78.3(100.0)(100.0)(70.0)

Holding company; housing-related businessHousing-related business
Software development
Geographic information system services(52.0)(100.0)Geographic information system services
Geographic information system services(100.0)(99.7)(100.0)Development of information systems
Investment
Investment

Overseas<Security services>
The Westec Security Group, Inc.
Westec Security, Inc.
Westec Interactive Security, Inc.
Westec Franchising, Inc.
Secom Plc
Secom (China) Co., Ltd.
Dalian Secom Security Co., Ltd.
Shanghai Secom Security Co., Ltd.
Beijing Jingdun Secom
Electronic Security Co., Ltd.
Qingdao Secom Security Co., Ltd.
P.T. Secom Indopratama
Thaisecom Pitakkij Co., Ltd.
Secominter (Australia) Pty. Ltd.
Secom Australia Pty. Ltd.

<Other services>
Asia Pacific Business Link Ltd.
US$9,670 thousand
Shanghai Asia Pacific Property Co., Ltd.
US$5,000 thousand
P.T. Nusantara Secom Infotech
US$3,304 thousand
Pasco Certeza Computer-Mapping Corporation
PHP8,400 thousand
Super Dimension Earth Science Researchand Development Co., Ltd.
Rmb1,000 thousand
Pasco Thailand Co., Ltd.
THB26,179 thousand
Beijing Secom Information
Technology Co., Ltd.
US$2,500 thousand
ClearLight Partners, LLC
US$124,990 thousand
Gold Stone Investment Inc.
US$3 thousand

Notes: 1. ( ) indicates the percentage of equity/voting rights held by both SECOM Co., Ltd., and certain of its subsidiaries, or by certain subsidiaries independently.
2. Subsidiaries are categorized into segments above according to their major lines of business.

66

SECOM—Social System Industry

SECOM GROUP’S BASIC BUSINESS AREAS

Armored Car Services

Centralized Security Systems

SECOM offers a wide range of services and productsthat help provide peace of mind in today’s rapidlychanging society.

Dispatch

Security Services
Centralized Security Systems
Commercial Use:
SECOM AXSECOM AX is an on-line security control system with advanced on-site image
sensors that incorporate microphones to enable the SECOM control center staff
to visually check the subscriber’s premises.
SECOM IXSECOM IX is a remote imaging security system for commercial facilities offering
around-the-clock services.
SECOM DXSECOM DX is an on-line security system developed to meet the needs ofshops, offices, warehouses, factories and other commercial and industrial
establishments.
SECOM TXSECOM TX provides on-line protection for commercial buildings with more than
one tenant.
HANKS SYSTEMHANKS SYSTEM is an on-line security control system for automated banking
facilities.
SECOM CXSECOM CX offers a comprehensive building management system that monitorsand manages large building complexes.

SECOM
Control Center

Alert as Necessary

SECOM
Emergency Response
Emergency
Depot

Police Department
Fire Department
Utility Companies
Other Organizations

SECOM CONDOMINIUM SECURITY SYSTEMSSECOM condominium security systems provide comprehensive building management functions for condominiums and total safety with a centralized security system for each unit in the building. SECOM MS-3, the top-of-the-line system, canbe used for buildings of any size, either as a retrofit or a new installation.

Residential Use:
SECOM HOME SECURITY
SECOM Home Security is a comprehensive home security system combining
basic intrusion- and fire-prevention services and emergency call services, as well
as gas leak monitoring and medical emergency call service options. The system
is linked around-the-clock with a SECOM control center, where personnel respond
immediately in the event of a problem by dispatching emergency response
personnel and, if necessary, contacting the appropriate authorities. Subscribers
are also eligible for preventive treatment, health care and other services offeredthrough SECOM Medical Club.

Medical Services
HOME MEDICAL SERVICESSECOM’s medical services for patients at home include pharmaceutical services,encompassing the preparation—in the SECOM Pharmacy cleanroom—and deliveryof prescription pharmaceuticals, and home nursing services provided throughvisiting nurse stations. SECOM also provides consulting and support services forphysicians opening home medical care clinics.
HOME-BASED PERSONAL CARE SERVICESSECOM provides patients recovering at home with helpers to assist withpersonal hygiene, bathing, exercise and other daily activities, as well as provide
light housekeeping.
SECOM UBIQUITOUS ELECTRONIC MEDICAL REPORT (EMR)
SECOM Ubiquitous EMR is a medical report system for home medical care thatenables the sharing of data among members of the home care team, including
the primary physician, visiting nurse and pharmacy.
HOSPINET
Hospinet, a remote image diagnosis support service, transmits magnetic
resonance imaging (MRI), computerized tomography (CT) and other images to
SECOM’s Hospinet center, where diagnostic experts examine them and provide
consultation to the primary physician.
MY SPOONMy Spoon is a robot that enables people with impaired upper body mobility to
eat with minimal assistance. This is the first robot of its kind in Japan.
CONDOMINIUMS WITH FULL-TIME PERSONAL CARE SERVICESSECOM manages Sacravia Seijo and Royal Life Tama, condominiums in Tokyo forsenior citizens (60 years of age and older) with full-time personal care services.
ADULT DAY SERVICESSECOM manages SECOM Senior Club Tama Plaza, a facility that provides adultday services for senior citizens.

67

Subscribers

Alarm Sent

Large-Scale Proprietary Systems
SECOM TOTAX ZETASECOM TOTAX ZETA integrates cutting-edge networking capabilities and asecurity system into a comprehensive local control system for industrial
complexes and buildings.

COCO-SECOM
COCO-SECOM is an innovative system that uses signals from Global Positioning
System (GPS) satellites and cellular telephone base stations to locate moving

Insurance Services
SECURITY DISCOUNT FIRE POLICY
Security Discount Fire Policy is a commercial fire insurance policy that features
reduced premiums for subscribers to commercial security systems.
SECOM ANSHIN MY HOME
SECOM Anshin My Home is a comprehensive fire insurance policy that features
reduced premiums for subscribers to home security systems.
MEDCOM
MEDCOM is an unrestricted treatment policy that covers the cost of cancer
treatment not covered by Japan’s national health insurance scheme, as wellas the patient’s portion of the cost of medical care covered by the national
scheme. MEDCOM also provides hospital referrals and treatment-related
consulting services.
NEW SECOM ANSHIN MY CAR
New SECOM Anshin My Car is a comprehensive automobile insurance policythat includes on-site emergency services in the event of an accident, as well as
discounts for drivers without a traffic violation history or on cars equipped withantitheft devices.

subjects, such as people, vehicles and property. As an option, customers canalso request to have emergency response personnel dispatched to the locationof the subject or an emergency alert relayed to a predetermined telephone
number. The services include COCO-SECOM EZ and COCO-SECOM-i, mobile
phone-based medical emergency alert services; Automobile Emergency
Monitoring Service, a car alarm service that monitors parked vehicles; COCOSECOM G-Manager, a service with a group search function that allows thesubscriber to pinpoint simultaneously the location of a number of automobiles
or people; COCO-SECOM for Pets, featuring compact transmitters; and such
options as COCO-SECOM Inquiry Call and COCO-SECOM Watch Me Call,
which monitor customers’ safety.

Static Guard Services
Static guard services are provided for facilities where customer needs are best
served by professionally trained on-site personnel.

SECOM provides armored car services for the collection and transportationof cash and other valuables.

Merchandise
SECOM CCTV SYSTEMSECOM CCTV system is a multifunctional, cost-effective closed-circuit
surveillance camera system. The system is fully digital, eliminating the riskof image degradation. It is also capable of detecting attempts to disable ordestroy the camera.
SECURILOCKSECURILOCK uses identification numbers, integrated circuit (IC) pass cards
and other methods to control access to restricted areas.
SESAMO SERIESThe SESAMO series comprises access-control systems for use in corporate
offices, factories, parking facilities and any other security-sensitive areas.
These systems employ such technologies as wireless IC pass cards, magnetic
cards, personal identification numbers, microwave transmission and fingerprint
identification.
TOMAHAWK SERIESThe TOMAHAWK series is an extensive lineup of innovative extinguishingsystems, including TOMAHAWK MACH II residential-use fire extinguisher
and TOMAHAWK III high-speed automated fire extinguishing system withgas suppression.
PYTHAGORAS SERIESPYTHAGORAS is a series of security vaults with superior protection, heat
resistance and performance.
SENSOR LIGHTSENSOR LIGHT is a sensor-equipped light activated automatically when thesensor detects human body temperature.
SECURIFACESECURIFACE is a residential intercom system that combines a face detection
function with SECOM Home Camera System, enhancing security for people
at home.
PHYSICAL SECURITY PRODUCTS FOR HOMESSECOM offers a broad range of physical security products for homes. These
include SECOM Anshin Glass, a high-impact window glass designed toprevent intruders from entering through broken windows; SECOM Window
Frame, a window frame with reinforced stainless bars; and Strong Door, adoor that cannot be forced open for an extended period of time after it has
been engaged.

Information and Communication Related and Other Services
SECURE DATA CENTER
Secure Data Center provides a comprehensive service for e-business thatcombines SECOM’s expertise in both physical and cyber security.
SECOM DATA SAFESECOM Data Safe is a high-security computer server repository that combines
advanced physical and cyber security.
DIGITAL AUTHENTICATION SERVICESSECOM offers public key infrastructure (PKI) services that provide an effectivemeans of establishing credibility among Internet users, including issuance ofdigital certificates and a set-up and operating service for organizations thatwish to establish their own digital certificate authority.
NETWORK SECURITY MONITORING SERVICESSECOM provides security and stability for clients’ IT systems around-theclock. SECOM monitors and reports on threats to security, and on network
operating status and network traffic.
GEOGRAPHIC INFORMATION SYSTEM (GIS) SERVICESSECOM provides a range of services based on aerial mapping and GIS
technologies, including PasCAL, a comprehensive service for local governments, and the Management-Navigation and MarketPlanner series ofcorporate management support services.

COMPUTER EDUCATION SERVICES FOR SCHOOLSSECOM promotes a better educational environment by providing a range ofmultimedia resources, including local area network (LAN) systems forclassrooms, an educational groupware system and educational software.
SECOM FINE FOODSSECOM Fine Foods is a line of quality food products marketed through mailorder catalogs and the Internet.
REAL ESTATE DEVELOPMENTSECOM offers Glorio condominiums.
CABLE TELEVISIONSECOM provides cable television (CATV)-based broadband services.

68DIRECTORS, CORPORATE AUDITORS AND EXECUTIVE OFFICERS

Makoto Iida

Juichi Toda

Directors

Executive Officers

Founder
Makoto Iida

President
Shohei Kimura

Co-Founder
Juichi Toda

Executive Vice President
Kanemasa Haraguchi

ChairmanToshitaka Sugimachi

Senior Managing Executive
Officers
Nobuyuki Sasaki
Shigemi Tanaka

Representative
Director
Shohei Kimura

Toshitaka Sugimachi

Directors
Kanemasa Haraguchi
Nobuyuki Sasaki
Katsuhisa Kuwahara
Shuji Maeda
Katsuo Akiyama
Yoichi Tao
Fumio Obata

Shohei Kimura

Corporate Auditors
Kanemasa Haraguchi

Nobuyuki Sasaki

Katsuhisa Kuwahara

Shuji Maeda

Yoichi Tao

Fumio Obata

Teruo Ogino
Ken Tsunematsu
Hiroshi Yasuda
Kohei Yamashita

Katsuo Akiyama

Managing Executive Officers
Katsuhisa Kuwahara
Seiichiro Kobayashi
Shoichi Kake
Shuji Maeda
Katsuo Akiyama
Executive Officers
Yoichi Tao
Seiichi Mori
Seiji Yamanaka
Shinobu Iida
Yushiro Ito
Fumio Obata
Hiroshi Ito
Shunji Ogahara
Masaaki Saida
Kiyomasa Sugii
Koichi Sato
Minoru Takaoka
Yoshihiro Chino
Mamoru Sasaki
Akira Tsutsumi
Tomoo Toya

(As of July 31, 2004)

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