FINANCIAL SECTIONCONTENTSMANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS ....

18

CONSOLIDATED FINANCIAL STATEMENTS .......................................

20

CONSOLIDATED BALANCE SHEETS.............................................

20

CONSOLIDATED STATEMENTS OF INCOME ...............................

22

CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY .................................

23

CONSOLIDATED STATEMENTS OF CASH FLOWS ......................

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...............

25

REPORT OF INDEPENDENT ACCOUNTANTS ...............................

39

SUMMARY OF SELECTED FINANCIAL DATA .....................................

40

COMMON STOCK DATA ...................................................................

41

17
SECOM CO., LTD. Annual Report 2000

MANAGEMENT’S DISCUSSION
AND ANALYSIS OFOPERATIONS

Operating Results
Cost of services edged up 1.5%, to ¥141.9 billion, or 52.4%
of revenue from services, compared to 52.5% in fiscal 1999,
as increases in security system subscriptions drove up personnel costs. Cost of merchandise, software, medical and realestate operations rose 13.5%, to ¥70.0 billion, equivalent to71.8% of revenue in this segment, down from 76.2% in theprevious period. Cost of insurance services totaled ¥18.9 billion, an increase of 4.7 times, and corresponded to 63.1% ofrevenue from insurance services, compared with 85.4% of
this segment’s revenue in the previous period. Selling, general and administrative (SGA) expenses advanced ¥2.3 billion, to ¥99.1 billion, equivalent to 24.0% of total revenue,compared with 24.6% in fiscal 1999. SGA expenses included¥6.0 billion invested in research and development, up from
¥4.8 billion. Other expenses advanced 4.1%, to ¥8.4 billion.
Owing to a ¥30.2 billion decline in the gain on sale ofsecurities, net, from the previous period—when a gain on
the sale of shares in three subsidiaries, totaling ¥35.9 billion,
was realized—income before income taxes fell 12.0%, to¥72.8 billion. Income taxes fell ¥9.7 billion, to ¥22.7 billion(see Note 15). Nonetheless, net income for the period
declined 5.0%, to ¥47.4 billion. Accordingly, return on revenue slipped to 11.5%, from 12.7%. Basic net income pershare was ¥203.67, compared to ¥214.51 at fiscal 1999 yearend, while fully diluted net income per share was ¥203.52,
down from ¥214.09 (see Note 2). Cash dividends of ¥40.00
per share were approved at the general shareholders’ meetingon June 29, 2000.

In the fiscal year ended March 31, 2000, SECOM continued
to enhance its operations in security services, as well as insuch fields as information systems, medical services, education, non-life insurance, GIS services and real estate development, and stepped up sales and product and systemdevelopment activities. These efforts, together with theaddition to its consolidated accounts of the revenues of
new consolidated subsidiaries Pasco and Secom General
Insurance, contributed to a 4.6% increase in revenue andother income, to ¥412.4 billion.
Services, which comprises revenues from centralized andother security services, generated ¥270.7 billion in revenue,a gain of 1.7% from the year ended March 31, 1999, andaccounted for 65.7% of consolidated revenue and otherincome, compared to 67.6% in the previous period. Revenue
from merchandise, software, medical and real estate operations climbed 20.5%, to ¥97.5 billion, and represented
23.6% of the total, up from 20.5%. Insurance services,which were accounted for as a separate segment for the firsttime, produced revenue of ¥30.0 billion, or 7.3% of consolidated revenue and other income, 6.4 times that of theprevious period, when these services accounted for 1.2%.
SECOM also posted a gain on sale of securities, net, of ¥5.5
billion, of which ¥4.3 billion resulted from the listing ofsubsidiary Secom Techno Service on the Second Section of
the Tokyo Stock Exchange. Interest and other amounted to¥8.8 billion.
Costs and expenses were ¥339.6 billion, an increase of
9.0%, as costs in each segment rose in tandem with revenue.

Capital Investment

Total Assets(In billions of yen)

(In billions of yen)

Basic Net Income
per Share

Cash Dividends Paid
per Share(In yen)(In yen)

250

40

50

1,000

200

32

40

800

150

24

30

600

100

16

20

400

50

8

10

200

96 97 98 99 00

0

0

0

0

96 97 98 99 00

96 97 98 99 00

18
SECOM CO., LTD. Annual Report 2000

96 97 98 99 00

Financial Position

Secom Home Life; and the increase in investment deposits
by policyholders of subsidiary Secom General Insurance, due
to an increase in insurance subscriptions.

Total assets of SECOM amounted to ¥779.5 billion as ofMarch 31, 2000, an increase of 21.2% from a year earlier.
Total current assets were ¥433.0 billion, up 19.6%. Cash andcash equivalents edged up 0.1%, to ¥131.3 billion, whiletime deposits decreased 8.8%, to ¥16.3 billion. As a consequence of the shift of time deposits with terms of more than
three months from cash and cash equivalents to this category, cash flow statement figures for the prior year have been
restated retroactively. Short-term investments rose 4.6%, to¥91.6 billion. Notes and accounts receivable, trade, soared
172.0%, to ¥47.9 billion, owing to the inclusion of thereceivables of newly consolidated subsidiary Pasco. Reflecting
the addition of the real estate assets of subsidiary Secom
Home Life, inventories jumped 123.9%, to ¥52.4 billion.
The current ratio was 2.0 times, compared with 2.4 times in
the preceding period.
Property, plant and equipment, less accumulated depreciation, totaled ¥170.7 billion, an increase of 9.6%. This gain
is attributable to increases in buildings and improvements;
control station signal equipment; signal equipment on subscribers’ premises; and machinery, equipment and automobiles. Other assets rose 43.7%, to ¥16.3 billion, reflecting an
increase in goodwill (see Note 5).
Current liabilities were ¥219.4 billion, up 45.1% fromthe previous fiscal year-end, owing primarily to the inclusionof the loans of subsidiary Pasco and an increase in loans tocover investment in condominium development by subsidiary
Secom Home Life, which boosted bank loans 128.3%, to¥74.7 billion. Long-term liabilities rose 5.3%, to ¥157.4
billion, reflecting a 32.3% increase in investment deposits bypolicyholders of subsidiary Secom General Insurance, to¥76.1 billion.
Shareholders’ equity rose 14.3%, to ¥373.9 billion,
owing to a ¥38.4 billion increase in retained earnings and a¥4.2 billion increase in the net unrealized gain in debt andequity securities. The equity ratio fell to 48.0%, from 50.8%
in the previous fiscal year, owing to factors such as theconsolidation of Pasco; the increase in bank loans to fundcondominium development investment by subsidiary

Cash Flows
SECOM maintains ample liquidity to ensure flexibility in its
operations and guarantee a sound financial foundation. To
this end, the Company finances forward-looking investmentswith cash generated by its operating activities.
During the period under review, net cash provided byoperating activities amounted to ¥69.1 billion, ¥37.9 billion
higher than in the previous period. This change primarilyreflected an increase in payables and deferred revenue of¥27.1 billion, up ¥25.8 billion from fiscal 1999, and an¥18.6 billion increase in investment deposits by policyholders resulting from a rise in insurance subscriptions.
Depreciation and amortization was ¥34.2 billion, an increaseof ¥3.7 billion.
Net cash used in investing activities rose ¥80.4 billion, to¥81.0 billion, mainly because of payments for purchases ofproperty, plant and equipment amounting to ¥37.5 billion, an
increase in short-term investments of ¥26.9 billion, and payments for long-term receivables amounting to ¥24.7 billion.
Net cash provided by financing activities was ¥12.7 billion,up ¥3.3 billion. This change was largely attributable to theshift of proceeds from minority shareholders to this category,from cash flows from operating activities. Proceeds fromminority shareholders amounted to ¥5.4 billion, up ¥4.8 billion from fiscal 1999, and were the result of capital increases
in their subsidiaries (see Note 22). A per-share dividend
increase to ¥70.00, from ¥65.00 the previous year (notadjusted to reflect the impact of the stock split), resulted in a¥592 million increase in dividends paid, to ¥8.1 billion.
As a consequence of SECOM’s operating, investing andfinancing activities during the period under review, cash andcash equivalents at end of year amounted to ¥131.3 billion,
an increase of ¥143 million from a year earlier.

19
SECOM CO., LTD. Annual Report 2000

CONSOLIDATEDFINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETSSECOM CO., LTD. and Subsidiaries
March 31, 2000 and 1999

In millions of yen

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

March 31

March 31

2000

1999

2000

¥(131,329
16,29137,492
91,64047,93012,151
52,40029,714
(974)
1,901
4,383
8,733
432,990¥(131,186
17,86043,70387,597
17,621
11,90523,403
20,559(1,590)
2,034
986
6,860
362,124$(1,238,953
153,689353,698
864,528
452,170
114,632
494,339
280,321(9,189)17,934
41,34982,387
4,084,811

77,143
24,63542,813
9,773
10,857(5,637)
159,584

46,46823,631
27,546
8,526
9,657(1,620)114,208

727,764
232,406
403,896
92,198102,424(53,179)
1,505,509

45,31960,76888,151
141,908
45,025
3,692
384,863(214,171)
170,692

41,24054,27680,540124,981
34,4503,163
338,650(182,857)
155,793

427,538
573,283
831,613
1,338,755
424,764
34,8303,630,783(2,020,481)
1,610,302

3,881
5,813
6,588
16,282¥(779,548

4,514
321
6,494
11,329¥(643,454

36,61354,84062,151
153,604$(7,354,226

ASSETS
Current assets:
Cash and cash equivalents (Notes 6 and 19)
Time deposits (Note 19)
Cash deposits (Note 7 and 19)
Short-term investments (Note 8)
Notes and accounts receivable, trade (Note 19)
Due from subscribers (Note 19)
Inventories (Note 9)
Short-term receivables (Note 19)
Allowance for doubtful accounts
Deferred insurance acquisition cost (Note 12)
Deferred income taxes (Note 15)
Other current assets
Total current assets

Investments and long-term receivables:
Investment securities (Note 8)
Investments in affiliated companies (Note 10)Long-term receivables (Note 19)
Lease deposits
Other investments
Allowance for doubtful accounts

Property, plant and equipment (Notes 11 and 18):
Land
Buildings and improvements
Control station signal equipment
Signal equipment on subscribers’ premises
Machinery, equipment and automobiles
Construction in progress
Accumulated depreciation

Other assets:
Telephone and telegraph utility rights
Goodwill (Note 5)
Intangibles and other

The accompanying notes are an integral part of these statements.

20
SECOM CO., LTD. Annual Report 2000

In millions of yen

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

March 31

March 31

2000

1999

2000

¥074,660
5,715
16,34235,803
20,54926,087¥032,704
9,849
9,692
11,032
28,61723,750$0,704,340
53,915
154,170
337,764
193,858
246,104

13,647
11,915
14,698219,416

16,941
10,373
8,293
151,251

128,745
112,406
138,660
2,069,962

23,59917,174
10,021
25,884
76,103
4,620
157,401

21,511
17,325
21,23830,11057,532
1,828
149,544

222,632
162,019
94,538244,188717,953
43,585
1,484,915

28,81915,512271,877

66,097—79,713
7,587
222,344—
65,71079,318
6,677
183,968

623,557—
752,00971,576
2,097,585

17,272(765)(18,294)373,954

13,068(8,819)(12,656)
327,266

162,943(7,217)(172,585)
3,527,868

42
373,912

119
327,147396
3,527,472¥779,548¥643,454$7,354,226

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Bank loans (Notes 7, 11 and 19)
Current portion of long-term debt (Notes 11, 18 and 19)
Notes and accounts payable, trade (Note 19)
Other payables
Deposits received (Note 19)
Deferred revenue
Accrued liabilities—
Taxes on income
Payrolls (Note 19)
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt (Notes 11, 18 and 19)
Guarantee deposits received from subscribers
Accrued pension and severance costs (Note 13)
Unearned premiums and other insurance liabilities (Note 12)
Investment deposits by policyholders (Note 12)
Deferred income taxes (Note 15)

Minority shareholders’ interest in subsidiaries
Shareholders’ equity:
Common stock, ¥50 par value (Notes 16 and 21)—
Authorized—300,000,000 shares
Issued—2000—233,075,442 shares
Issued—1999—116,392,109 shares
Additional paid-in capital (Notes 16 and 21)
Legal reserve (Note 16)
Retained earnings
Accumulated other comprehensive income—Net unrealized gain in debt and equity securities (Note 8)
Additional minimum pension liabilities adjustments (Note 13)
Cumulative foreign currency translation adjustments
Less—Common stock in treasury, at cost;
Less— 4,840 shares in 2000 and 11,817 shares in 1999

Commitments and contingent liabilities (Note 20)

The accompanying notes are an integral part of these statements.

21
SECOM CO., LTD. Annual Report 2000

CONSOLIDATED STATEMENTS OF INCOME
SECOM CO., LTD. and Subsidiaries
The three years ended March 31, 2000

In millions of yen

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

Years ended March 31

Year ended March 31

2000

1999

1998

2000

¥270,741
97,46529,9855,454
8,752
412,397¥266,346
80,902
4,678
35,7006,520
394,146¥254,493
56,902
5,282
570
5,557
322,804$2,554,160
919,481282,877
51,45382,5663,890,537

141,901
70,01318,908
99,1081,229
8,431
339,590

139,764
61,682
3,995
96,8371,078
8,097
311,453

131,633
39,105
4,621
89,877
1,051
4,654
270,941

1,338,689
660,500
178,377
934,981
11,59479,5383,203,679

72,807

82,69351,863686,858

27,396(4,727)
22,66934,946(2,573)32,37331,533(683)
30,850258,452(44,594)
213,858

Income before minority interest in subsidiaries

50,13850,32021,013473,000

Minority interest in subsidiaries

3,837

1,241

1,676

36,198

Income from consolidated operations

46,30149,07919,337436,802

Equity in net income/(losses) of affiliated companies

1,131

839

(347)

10,670¥047,432¥049,918¥018,990$0,447,472

In exact yen

Translation into
U.S. dollars (Note 3)

Years ended March 31

Year ended March 31

Revenue and other income:
Services
Merchandise, software, medical and real estate
Insurance services
Gain on sale of securities, net (Note 22)
Interest and other (Note 14)

Costs and expenses:
Cost of services
Cost of merchandise, software, medical and real estate
Cost of insurance services
Selling, general and administrative (Note 17)
Interest
Other (Note 14)

Income before income taxes
Income taxes (Note 15):
Current
Deferred

Net income

Per share data (Note 4):
Net income—Basic
Net income—Diluted

2000

1999

1998

2000

¥203.67¥203.52¥214.51¥214.09¥81.70¥81.48

$1.92
$1.92

The accompanying notes are an integral part of these statements.

22
SECOM CO., LTD. Annual Report 2000

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYSECOM CO., LTD. and Subsidiaries
The three years ended March 31, 2000

In millions of yen

Commonstock

Additional
paid-in
capitalLegalreserve

116,203,824 ¥65,253¥78,850¥5,188¥131,076¥4,286(¥0,019)¥284,634

Number ofsharesissuedBalance, March 31, 1997
Comprehensive income—Net income
Other comprehensive income, net of tax (Note 16):
Unrealized gain on securities—
Unrealized holding loss arising during period
Minimum pension liabilities adjustments
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, 1998
Comprehensive income—Net income
Other comprehensive income, net of tax (Note 16):
Unrealized gain on securities—
Unrealized holding gain arising during period
Less: Reclassification adjustment for gain
Less: included in net income
Minimum pension liabilities adjustments
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, 1999
Comprehensive income—Net income
Other comprehensive income, net of tax (Note 16):
Unrealized gain on securities—
Unrealized holding gain arising during period
Less: Reclassification adjustment for gain
Less: included in net income
Minimum pension liabilities adjustments
Translation adjustments
Total comprehensive income
Cash dividends
Transfer to legal reserve
Conversion of convertible bonds
Stock split (Note 16)
Purchase of treasury stock
Reissuance of treasury stock
Balance, March 31, 2000

CommonAccumulated
stock
other comRetainedin treasury
prehensive
earnings
income stock, at cost

TOTAL

—

—

—

—

18,990——18,990

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(9,541)(3,977)
560

—
—
—

—
—
29,569——116,233,393

—
—
74
—
—
65,327——74—
478,928

—
768
—
—
—
5,956

(6,972)(768)———
142,326—————(8,672)———(1,945)
1,939(25)(9,541)(3,977)560
6,032(6,972)—148(1,945)
1,943
283,840

—

—

—

—

49,918——49,918

—

—

—

—

—

6,000

—

6,000

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(15)
(888)
(4,832)—————
158,716——
116,392,109

—
—
383
—
—
65,710——383—
779,318

—
721
—
—
—
6,677

(7,555)(721)———
183,968—————(8,407)———(1,640)
1,546
(119)

(15)
(888)
(4,832)50,183(7,555)—766(1,640)1,553
327,147

—

—

—

—

47,432——47,432

—

—

—

—

—

4,879

—

4,879

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(675)
8,054
(5,638)

—
—
—

—
—
—
—
273,686387
116,409,647
—
—
—
—
—
233,075,442 ¥66,097

—
—
387
—
—
8
¥79,713

—
910
—
—
—
—
¥7,587(8,146)
(910)
—
—
—
—
¥222,344

—
—
—
—
—
—
(¥1,787)————(4,945)
5,022(¥0,042)

(675)
8,054
(5,638)54,052(8,146)—774—(4,945)5,030¥373,912

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

Commonstock

Balance, April 1, 1999
Comprehensive income—Net income
Other comprehensive income, net of tax (Note 16):
Unrealized gain on securities—
Unrealized holding gain arising during period
Less: Reclassification adjustment for gain
Less: included in net income
Minimum pension liabilities adjustments
Translation adjustments
Total comprehensive income
Cash dividends
Transfer to legal reserve
Conversion of convertible bonds
Stock split (Note 16)
Purchase of treasury stock
Reissuance of treasury stock
Balance, March 31, 2000

$619,906

Additional
paid-in
capitalLegalreserve

Retainedearnings$748,283 $62,991$1,735,547

CommonAccumulated
stock
other comin treasury
prehensive
income stock, at cost

TOTAL($79,311) ($01,124) $3,086,292

—

—

—

447,472——

447,472

—

—

—

—

46,028—46,028

—
—
—

—
—
—

—
—
—

—
—
—

(6,368)75,981(53,189)

—
—
—

—
—
3,651
—
—
—
$623,557

—
—
—
8,585
3,651
—
—
—
—
—
75
—
$752,009 $71,576

The accompanying notes are an integral part of these statements.

23
SECOM CO., LTD. Annual Report 2000

(6,368)75,981(53,189)
509,924(76,849)——(76,849)(8,585)
—
—
—
—
—
—
7,302
—
—
—
—
—
—
(46,650)(46,650)——
47,37847,453$2,097,585 ($16,859) ($00,396) $3,527,472

CONSOLIDATED STATEMENTS OF CASH FLOWSSECOM CO., LTD. and Subsidiaries
The three years ended March 31, 2000
2000

Cash flows from operating activities:
Net income¥047,432
Adjustments to reconcile net income to net cash provided
by operating activities—
Depreciation and amortization
34,232
Pension and severance costs
525
Deferred income taxes(4,727)Net loss on sales and disposal of fixed assets
and investment securities
2,616
Gain on sales of shares of Secom Techno Service Co., Ltd. (Note 22)(4,291)Gain on sales of shares of Tokyo Internet Corporation—
Gain on sales of shares of Westec Residential Security, Inc. andValley Burglar and Fire Alarm Co., Inc.
—
Equity in undistributed net (income) losses of affiliated companies(1,131)
Minority interest in subsidiaries
3,837
Changes in assets and liabilities, net of effects from acquisitions
and disposals:(Increase) decrease in cash deposits (Note 7)
6,352
Increase in receivables and due from subscribers,
net of allowances(23,406)(Increase) decrease in inventories(26,350)
Increase in other current assets(373)
Increase in payables and deferred revenue
27,115
Increase (decrease) in deposits received(8,232)
Increase (decrease) in accrued taxes on income(3,445)
Increase in guarantee deposits received
669
Increase (decrease) in other current liabilities
3,931
Decrease in unearned premiums and other insurance liabilities(Note 12)
(4,226)
Increase in investment deposits by policyholders (Note 12)18,571Other(9)Net cash provided by operating activities
69,090Cash flows from investing activities:
Increase (decrease) in time deposits
1,619
Proceeds from sales of property, plant and equipment
1,551
Payments for purchases of property, plant and equipment(37,539)
Proceeds from sales of investment in securities
2,419
Payments for investments in securities(2,733)(Increase) decrease in short-term investments(26,855)
Proceeds from sales of shares of Secom Techno Service Co., Ltd. (Note 22)
4,512
Proceeds from sales of shares of Tokyo Internet Corporation—
Proceeds from sales of shares of Westec Residential Security, Inc.
and Valley Burglar and Fire Alarm Co., Inc.
—
Acquisition of Pasco Corporation, net of cash acquired(9,494)
Acquisition of Secom Toyo General Insurance Co., Ltd.,
net of cash acquired—
Payments for acquisition of Eclairer Co., Ltd.
—
Payments for long-term receivables(24,656)
Proceeds from long-term receivables
14,550
Increase in other assets(3,406)
Other(952)
Net cash used in investing activities(80,984)
Cash flows from financing activities:
Proceeds from long-term debt
2,614
Repayments of long-term debt
(4,480)
Increase (decrease) in bank loans
17,160
Proceeds from minority shareholders (Note 22)
5,443
Dividends paid
(8,147)(Increase) decrease in treasury stock77
Net cash provided by (used in) financing activities
12,667
Effect of exchange rate changes on cash and cash equivalents(630)
Net increase (decrease) in cash and cash equivalents
143
Cash and cash equivalents at beginning of year
131,186
Cash and cash equivalents at end of year
¥131,329

In millions of yen

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

Years ended March 31

Year ended March 31

1999

1998

2000

¥049,918¥018,990$0,447,472

30,542
1,733(2,573)29,7092,229(683)

322,943
4,953(44,594)

1,988—(13,054)

1,627
—
—

24,679(40,481)—(22,828)
(839)
1,241

—
347
1,676

—
(10,670)
36,198(10,673)(5,935)59,924(5,215)(7,203)
(419)
1,284
9,529
(2,120)462(343)(2,174)
38
(701)
2,690
1,526
2,211
1,471
4,507

(220,811)(248,585)(3,519)255,802(77,660)(32,500)
6,311
37,085——(199)
31,231——(167)
57,361(39,868)
175,198(85)
651,792(2,117)
1,774(46,332)606(13,214)
3,993—
11,757

1,407
399(42,389)5,208(12,589)
4,017——

15,274
14,632(354,142)
22,821(25,783)(253,349)
42,566—33,503————(89,566)

12,365—(454)
311(4,866)
2,056
(618)

—
(2,003)(68)
421(5,494)
2,405(48,686)——(232,604)
137,264(32,132)(8,981)(764,000)

7,445(5,016)
13,908660(7,555)
(94)
9,348
(635)
39,32691,860¥131,186

10,351(8,210)(11,488)
61(6,972)(6)(16,264)(570)(8,159)100,019¥091,860

24,660(42,264)
161,887
51,349(76,858)
726
119,500(5,943)
1,349
1,237,604$1,238,953

The accompanying notes are an integral part of these statements.

24
SECOM CO., LTD. Annual Report 2000

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

SECOM CO., LTD. and Subsidiaries

under the equity method. Consolidated income includes theCompany’s current equity net income (losses) of affiliated companies, after elimination of intercompany profits.
The difference between the cost and the underlying net equity
of investments in subsidiaries as well as companies accounted
for on an equity basis, is recognized as goodwill, and is amortizedon a straight-line basis over periods not exceeding 10 years.
On occasion, a subsidiary or affiliated company accounted forusing the equity method may issue its shares to third parties as
either in a public offering or upon conversion of convertible debt
to common stock at amounts per share in excess of or less thanthe Company’s average per share carrying value. With respect tosuch transactions, the resulting income or losses arising fromthe change in ownership interest are recorded in income for theyear the transaction occurs.

1. Nature of operations
The parent company and its subsidiaries (“the Company”) areengaged in security services, information and communication
related services, insurance services and medical 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 systems, 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, education, communication, information andmedical care, targeted at the needs of people and business.
To grow the Social System Industry concept, the Company isdiversifying its operations to cover information and communication services, including software development, system
integration activities and cyber security services, aerial surveying
and mapping services and Geographic Information System (GIS)
services, on-line education services, and development and saleof real estate and related services. Furthermore, the Company
also provides non-life insurance and home medical services andother medical services.

(2) 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 and reported
as part of other comprehensive income.
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.

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 acceptedin the United States of America. These adjustments were notrecorded in the statutory books of account.
The preparation of financial statements in conformity withaccounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Significant accounting policies followed in the preparationof the accompanying consolidated financial statements are
summarized below:(3) Cash equivalents
For the purpose of the statements of cash flows, the Company
considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents.
(4) 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 andequity securities which are classified as “available-for-sale” arerecorded at current market value. Unrealized gains and losses on
securities classified as “available-for-sale” are reported as part ofother comprehensive income, net of tax. Debt securities that are
expected to be “held-to-maturity” are reported at amortized cost.
Other investments in nonpublic companies are recorded at cost.
Realized gains or losses on the sale of investments are basedon the moving-average cost method and are credited or charged
to income.

(1) Basis of consolidation and investments in affiliatedcompanies
The consolidated financial statements include the accounts ofthe parent company and those of its majority owned subsidiarycompanies. All intercompany transactions and accounts havebeen eliminated in consolidation.
Investments in 20 to 50 percent owned companies, in which
the ability to exercise significant influence exists, are accounted(5) Inventories
Inventories, consisting of security-related products, real estate,
and information and other related products, are stated at lowerof cost or net realizable value. Cost is determined, in the case ofreal estate, based on a specific identification method and, in thecase of other inventories, using the moving-average method.

25
SECOM CO., LTD. Annual Report 2000

(12) Revenue recognition
Revenue is recognized from security services over thecontractual period or, in the case of specific services, when suchservices are performed. Merchandise and software sales are recognized as products are shipped or, in the case of installations,when such installations are completed.
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 the unexpired portion of premiums written.
Subscribers are generally requested to prepay a portion of service charges which are credited to deferred revenue and taken
into income ratably over the covered service period.

(6) Deferred insurance aquisition costs
Costs that vary with and are primarily related to acquiring
new insurance policies are deferred and are being amortized
mainly over the premium-paying period of the related insurance
policies applying a percentage relationship of cost incurredto premiums from contracts issued to applicable unearned premiums throughout the period of the contract.
(7) Property, plant and equipment and depreciation
Property, plant and equipment, including significant betterments, are carried at cost. When assets are retired or otherwise
disposed of, the cost and related depreciation are cleared fromthe respective accounts and the net difference, less any amounts
realized on disposition, is reflected in earnings. Depreciation iscomputed primarily using the declining-balance method at rates
based on the estimated useful lives of the assets. Depreciation
expense was ¥31,217 million ($294,500 thousand), ¥28,838
million and ¥27,054 million for the years ended March 31, 2000,
1999 and 1998, respectively. Maintenance, repairs and renewals
are charged to income as incurred.
The estimated useful lives of depreciable assets are as follows:
Buildings
15 to 50 years
Signal equipment
5 years
Machinery, equipment and automobiles 3 to 15 years(13) Research and development
Research and development costs are charged to expense
as incurred.
(14) Interest rate swap agreement
The Company enters into interest rate swap agreements inorder to limit the Company’s exposure to loss in relation tounderlying debt instruments resulting from adverse fluctuationsin interest rates or to provide higher interest income to theCompany. The related interest differentials paid or received
under these agreements are recognized over the terms of theagreements in interest expense.

(8) Telephone and telegraph utility rights
These rights are shown at the net amount of their original costless amortization thereof using the straight-line method over a
period of 20 years.

(15) 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. Basic and diluted EPS for the prioryears are restated to reflect the stock split.

(9) Intangibles and other
Intangibles, which mainly consist of customer contracts,
are amortized on a straight-line basis over their useful lives
which are not in excess of 10 years. The Company’s longlived assets, including goodwill and identifiable intangibles, arereviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not
be recoverable.

(16) Free distribution of common stock
A 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 either by(i) a transfer equal to par value or more from additional paid-in
capital to the common stock account or (ii) issuance of newshares without any change in the common stock account if thecommon stock account exceeds the aggregate par value of allissued shares including the newly issued shares. Such free share
distributions are clearly distinguished from “stock dividends”
which, under the Commercial Code of Japan, as amended effective April 1, 1991, 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 way ofstock split with respect to the amount appropriated by resolutionof the Board of Directors.
A corporation in the United States of America issuing shares,
comparable to less than 25 percent free share distributions,would be required to account for them as stock dividends and thefair value of the shares would be transferred from retained earnings to the appropriate capital accounts. Such transfers, however,would have no effect on total shareholders’ equity (Note 21).

(10) 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 theremaining 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 arecomputed based on past experience for unpaid losses.
(11) Income taxes
The provision for income taxes is computed based on thepretax income included in the consolidated statements of income.
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 thetax bases of assets and liabilities. Valuation allowances arerecorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized.

26
SECOM CO., LTD. Annual Report 2000

stock split that became effective on November 19, 1999.
Reconciliation of the differences between basic and diluted EPS
for the years ended March 31, 1998, 1999 and 2000 is as follows:Free distributions of common stock are included in the EPS
calculation in accordance with accounting principles generally
accepted in the United States of America.

In millionsof yen(17) Comprehensive income
In the fiscal year ended March 31, 1999, the Company adopted
Statement of Financial Accounting Standards 130 (“FAS 130”),“Reporting Comprehensive Income.” Comprehensive income isdefined in this standard as total change in stockholders’ equity
excluding capital transactions. The Company’s comprehensive
income comprises net income plus other comprehensive income
representing changes in cumulative foreign currency translation
adjustments, net unrealized gain in debt and equity securities
and additional minimum pension liability adjustment. The
Company has elected to disclose comprehensive income and its
components in the consolidated statements of changes in shareholders’ equity.

Thousandsof shares

Yen

WeightedNet Income average shares

EPS

For the year ended March 31, 1998
Basic EPS
Net income available tocommon stockholders¥18,990
Effect of dilutive securities
Convertible bonds
16
Diluted EPS
Net income for computation¥19,006
For the year ended March 31, 1999
Basic EPS
Net income available tocommon stockholders¥49,918
Effect of dilutive securities
Convertible bonds
9
Diluted EPS
Net income for computation¥49,927(18) Recent pronouncements
In June 1998, the Financial Accounting Standards Board(“FASB”) issued Statement of Financial Accounting Standards
133 (“FAS 133”), “Accounting for Derivative Investments andHedging Activities.” In June 1999, FASB issued Statement of
Financial Accounting Standards 137 (“FAS 137”), “Deferral of
the Effective Date of FASB Statement No. 133.”
FAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position
and measure those investments at fair value. If certain conditions are met, a derivative may be specifically designated as (a)a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b)a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of anet investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The effective date of
FAS 133 has been delayed for one year by FAS 137. In the caseof the Company, this statement is effective for the fiscal year
beginning April 1, 2001. However, the Company does not expect
the adoption of FAS 133 to have a significant impact on its consolidated results of operations and consolidated financial position.

In millionsof yen232,437 ¥081.70
828
233,265 ¥081.48

232,700 ¥214.51
510
233,210 ¥214.09
Thousandsof shares

WeightedNet Income average shares

For the year ended March 31, 2000
Basic EPS
Net income available tocommon stockholders¥47,432
Effect of dilutive securities
Convertible bonds
9
Diluted EPS
Net income for computation¥47,441EPS

U.S.
Yen Dollars
EPS

EPS

232,883 ¥203.67 $1.92
220
233,103 ¥203.52 $1.92

5. Acquisitions
In December 1997 and January 1998, the parent company
subscribed, in two installments, to purchase new shares issued
by Eclairer Co., Ltd. (“Eclairer”), a real estate development
company in Japan, for an aggregate amount of ¥1,990 million($18,774 thousand). As a result, the parent company now owns
99.9 percent of the outstanding shares of Eclairer.
In September 1998 and March 1999, the parent company subscribed, in two installments, to purchase new shares issued by
Secom Toyo General Insurance Co., Ltd. (“Secom Toyo”), a nonlife insurance company in Japan, for an aggregate amount of¥9,029 million ($85,179 thousand). As a result, the parent company
now owns 81.7 percent of the outstanding shares of Secom Toyo.
In August 1999, the parent company subscribed to purchasenew shares issued by Pasco Corporation (“Pasco”), which operates an aerial surveying and mapping business and Geographic
Information System in Japan, for an aggregate amount of¥15,000 million ($141,509 thousand). As a result, the parent company now owns 67.5 percent of the outstanding shares of Pasco.
The acquisitions referred to above have been accounted for aspurchases and the assets and liabilities of the acquired companies have been consolidated at their fair value. The results of
their operations have been included in the consolidated statements of income since the date of acquisition of the majority ofoutstanding shares. The difference between the purchase price(19) Reclassifications
Certain reclassifications of previously reported amounts havebeen made to conform with current classifications.
3. U.S. dollar amounts
U.S. dollar amounts have been included in these financial
statements, solely for convenience of the reader. Thesetranslations should not be construed as representing that the yenamounts actually represent, or have been or could be converted
into U.S. dollars. The translations of yen into U.S. dollars havebeen made at the rate at March 31, 2000, ¥106=US$1.
4. Reconciliation of the differences between basic anddiluted net income per share (“EPS”)
Basic and diluted EPS as well as the number of shares in the following table are restated for prior years to reflect the two-for-one

27
SECOM CO., LTD. Annual Report 2000

and the value assigned to the underlying net assets acquired isincluded in goodwill at March 31, 2000 and 1999 amounting to¥5,768 million ($54,415 thousand) and ¥330 million, respectively.
The goodwill is being amortized on a straight-line basis overperiods not exceeding 10 years.
The consolidated pro forma information that would show theresults of the Company’s consolidated operations for the years
ended March 31, 2000, 1999 and 1998 has not been disclosed
because prior year comparative accounting figures for theacquired companies under accounting principles generally
accepted in the United States of America are not available, andbased on materiality considerations, the effort to provide comparative pro forma financial information would not be commensurate with the benefits derived from such information.

In millions of yen
March 31, 2000
Gross unrealized

In thousands of
U.S. dollars

March 31

March 31

1999

2000

¥067,902 ¥065,673
35,203
24,40011,000—17,224
41,113¥131,329 ¥131,186$0,640,585
332,104
103,774
162,490$1,238,953

2000

Cash
Time deposits
Call loan
Investment securities

Gains

LossesFair value¥048,499
62,702¥111,201¥40,796849¥41,645¥7,1591,523¥8,682¥082,136
62,028¥144,164

Held to maturity:
Debt securities¥020,000¥00,836¥¥020,836—

In thousands of U.S. dollars
March 31, 2000
Gross unrealized
Cost

6. Cash and cash equivalents
Cash and cash equivalents as of March 31, 2000 and 1999 werecomprised as follows:
In millions of yen

Cost

Available for sale:
Equity securities
Debt securities
Total

Available for sale:
Equity securities
Debt securities
Total
Held to maturity:
Debt securities

Gains

LossesFair value$0,457,538
591,528$1,049,066$384,868 $67,538
8,010
14,368$392,878 $81,906$0,774,868
585,170$1,360,038$0,188,679$007,887 $$0,196,566—

In millions of yen
March 31, 1999
Gross unrealized

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 generally
within three months and the carrying values approximate
market. The Company has never experienced any losses throughdefault of the financial institutions and does not anticipate any
default on agreements outstanding.

Cost

Gains

LossesFair value

Available for sale:
Equity securities
Debt securities
Total¥37,286
45,880¥83,166¥29,288330¥29,618¥3,461469¥3,930¥063,113
45,741¥108,854

Held to maturity:
Debt securities¥20,000¥01,220¥¥021,220—

At March 31, 2000, debt securities mainly consisted of shortterm investments in monetary trusts, Japanese government
bonds, corporate bonds, U.S. treasury securities and U.S.
Government Agency Bonds.
The cost and fair value of “available-for-sale” and ”held-tomaturity” debt securities by contractual maturity at March 31,
2000 are as follows:
In millions of yen

7. Cash deposits
The Company operates cash collection and deposit services forbanks relating to cash dispensers outside of bank facilities. Cashdeposit balances, mostly in cash dispensers, of ¥37,492 million($353,698 thousand) and ¥43,703 million as of March 31, 2000
and 1999, respectively, are segregated from cash and cash
equivalents and are restricted as to use by the Company. The
Company funds most of the necessary cash through bank overdraft facilities with the related banks. Bank loans include ¥23,454
million ($221,264 thousand) and ¥21,058 million as of March 31,
2000 and 1999, respectively, relating to this operation. As part ofits fee arrangement for such services, the Company is reimbursed for the interest cost of the related overdrafts.

March 31, 2000
Available-for-saleDue within one year
Due after one year
through five years
Due after five years
through ten years
Due after ten years

Held-to-maturity
Cost

Cost

Fair value¥22,293¥22,285¥

Fair value

22,43022,591

20,00020,8368,853
9,126¥62,702

8,272
—
8,880
—
¥62,028 ¥20,000——¥20,836—¥—

In thousands of U.S. dollars
March 31, 2000
Available-for-sale

8. Short-term investments and investment securities
Short-term investments (current) and investment securities(noncurrent) include debt and equity securities, and the related
aggregate fair value, gross unrealized gains, gross unrealized
losses and cost pertaining to “available-for-sale” and “held-tomaturity” investments as of March 31, 2000 and 1999 were as
follows:

Fair value

Cost$210,311$210,236 $—

211,604

213,123 188,679

196,566

83,51986,094$591,528

78,038—83,773—$585,170 $188,679——$196,566

Cost

Due within one year
Due after one year
through five years
Due after five years
through ten years
Due after ten years

28
SECOM CO., LTD. Annual Report 2000

Held-to-maturity
Fair value$—Summarized financial information regarding the affiliatedcompanies accounted for under the equity method was asfollows:
In thousands ofDuring the years ended March 31, 2000 and 1999, the net
unrealized gain on “available-for-sale” securities included aspart of other comprehensive income, net of applicable taxes,
increased by ¥4,204 million ($39,660 thousand) and ¥5,985 million, respectively.
Proceeds from the sale of “available-for-sale” securities forthe years ended March 31, 2000, 1999 and 1998 were ¥17,561
million ($165,670 thousand), ¥1,282 million and ¥2,584 million,
respectively. On those sales, the gross realized gains and grossrealized losses, using specifically identified moving-average costbasis, for the years ended March 31, 2000, 1999 and 1998 wereas follows:
In thousands ofGross realized gains
Gross realized losses

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

In millions of yen

U.S. dollars

March 31

March 31

1999

2000

Current assets
Noncurrent assets
Total assets¥081,472 ¥077,465
99,43590,293¥180,907 ¥167,758$0,768,604
938,066$1,706,670

Current liabilities
Noncurrent liabilities
Shareholders’ equity
Total liabilities andshareholders’ equity¥055,994 ¥050,463
40,42739,724
84,486
77,571$0,528,245
381,387
797,038¥180,907 ¥167,758$1,706,670

2000

2000

1999

1998

2000

In millions of yen

In thousands of
U.S. dollars¥6,993
239

¥350
690

¥791
340

$65,972
2,255

Years ended
March 31

Year ended
March 31

1998

2000

Net sales¥163,882 ¥155,293 ¥162,967$1,546,057

Gross profit¥042,617 ¥038,722 ¥037,938$0,402,047

Net income¥005,641 ¥003,943 ¥000,262$0,053,217

2000

The Company maintains long-term investment securities,
included as investment securities, issued by a number ofnonpublic companies. The aggregate carrying amount of the investments in nonpublic companies, generally at cost, was ¥4,619
million ($43,575 thousand) and ¥5,211 million at March 31, 2000
and 1999, respectively. The corresponding fair value at that date
was not computed as such estimation was not practicable.

Dividends received from affiliated companies for the years
ended March 31, 2000, 1999 and 1998 were ¥726 million ($6,849
thousand), ¥562 million and ¥703 million, respectively.
Among the affiliated companies accounted for using theequity method, the stocks of three companies carried at equity of ¥18,729 million ($176,689 thousand) and ¥17,456 million atMarch 31, 2000 and 1999, respectively, had a quoted market
value of ¥40,045 million ($377,783 thousand) and ¥40,005 million
at March 31, 2000 and 1999, respectively.
The unamortized amounts of goodwill were included in the
carrying amount of investments in affiliated companies underthe equity method. The unamortized amount of goodwill, ¥136
million ($1,283 thousand) and ¥728 million at March 31, 2000
and 1999, respectively, is being amortized on a 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 thousands of

9. Inventories
Inventories mainly consist of operational equipment
and certain merchandise, including security-related products,
software, and real estate for sale.
Inventories comprise as follows:

Security-related products
Real estate
Information and other-related
products

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2000

1999

2000

¥06,390
40,459¥05,703
14,590$060,283
381,688

5,551¥52,400

3,110¥23,40352,368$494,339

1999

Work in process real estate inventories at March 31, 2000 and
1999, amounting to ¥34,848 million ($328,755 thousand) and¥8,097 million, respectively, are included in real estate.
10. Investments in affiliated companies
The Company has investments in affiliates that are accounted
for under the equity method. The principal investments are
Nohmi Bosai Ltd., a 28.6 percent owned affiliate, which isJapan’s largest manufacturer of fire alarms and listed on theFirst Section of the Tokyo Stock Exchange; Taiwan Secom Co.,
Ltd., a 24.9 percent owned affiliate, which is listed on the Taiwan
Stock Exchange Corp.; S1 Corporation, a 24.7 percent owned
affiliate, which is listed on the Korea Stock Exchange; Japan
Image Communications Co., Ltd., a 27.4 percent owned affiliate;and Musashino-Mitaka Cable Television Inc., a 39.0 percent
owned affiliate.

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2000

1999

1998

2000

Sales

¥1,748¥1,394¥1,647$16,491

Purchases¥6,984¥1,692¥2,020$65,887

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2000

1999

2000

Notes and accounts
receivable, trade¥00,914¥0,520$08,623

Loan receivables¥00,647¥1,528$06,104

Notes and accounts
payable¥02,883¥0,204$27,198

Guarantees forbank loans¥10,499¥8,531$99,047

29
SECOM CO., LTD. Annual Report 2000

guarantors shall be provided immediately upon request. Further,
any collateral furnished pursuant to such agreements or otherwise will be applicable to all indebtedness to such banks. The
Company has never been requested to submit such additional
security.
Long-term debt at March 31, 2000 and 1999 comprised of thefollowing:

11. Bank loans and long-term debt
Bank loans of ¥74,660 million ($704,340 thousand) at March
31, 2000 are represented generally by 90- to 365-day notes withinterest rates ranging from 0.37 to 3.125 percent per annum.
Substantially all of these loans are with banks. The Company
has entered into basic agreements with these banks thatstate that, with respect to all present or future loans with suchbanks, collateral (including sums on deposit with such banks) or

Loans, principally from banks due 2000 to 2016 with interest rates ranging from 0.00 to 6.60%:
SecuredUnsecured
3.75% convertible U.S. dollar bonds due 1999, convertible currentlyat ¥3,609.2 ($14.93 calculated at ¥241.70=$1) for one common share,
redeemable before due date
1.60% convertible bonds due 2002, convertible currently at ¥2,667.8 ($25.17)
for one common share, redeemable before due date
1.60% convertible bonds due 2004, convertible currently at ¥2,372.4 ($22.38)
for one common share, redeemable before due date
1.85% notes due 2002
2.05% notes due 2003
Obligations under capital leases, due 2000 to 2026 (Note 18)
Less—Portion due within one year

Property, plant and equipment with a book value of ¥6,369
million ($60,085 thousand), inventories with a book value of¥9,154 million ($86,358 thousand) and investment securities witha book value of ¥783 million ($7,387 thousand) were pledged ascollateral for short-term and long-term debt at March 31, 2000.
The Company has no compensating balance arrangementswith any lending bank. However, as is the customary practice inJapan, the Company had time deposits aggregating ¥1,579 million ($14,896 thousand) with such banks at March 31, 2000.
The convertible bonds can be converted into common stockat any time by the bondholders. Under the terms of each subscription and underwriting agreement for convertible bonds, theconversion price of convertible bonds is subject to adjustment incertain instances, such as for stock dividends, stock splits or free
distributions of common stock, and an acceleration clause may
be invoked if the Company experiences ordinary losses (asdefined in each agreement) for three consecutive years.
Under the terms of the agreement for the 1.60 percent convertible bonds due 2002, the cumulative amount of cash dividends may not exceed ¥3,500 million ($33,019 thousand) plus
the aggregate amount of ordinary income after income taxes (asdefined in the agreement) of the Company, beginning with thefiscal year ended November 30, 1987.
An acceleration clause and limitation of cash dividends will
not be applied if the Company provides collateral which isaccepted by the trustees.
Under the terms of the agreements for the 1.60 percent
convertible bonds due 2002, a sinking fund payment is required.

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2000

1999

2000

¥03,962
4,185¥09,401
1,015$037,377
39,481

—

2

—

521

1,283

4,915

57
5,000
5,000
10,58929,314
5,715¥23,599

64
5,000
5,000
9,595
31,3609,849¥21,511538
47,17047,17099,896
276,547
53,915$222,632

The aggregate annual maturities and sinking fund requirements
on long-term debt after March 31, 2000 are as follows:

Years ending March 31

2001
2002
2003
2004
2005
Later years

In millions of yen

In thousands of
U.S. dollars¥05,715
10,042
7,225
909
551
4,872
¥29,314$053,915
94,736
68,1608,575
5,198
45,963$276,547

12. Insurance-related operations
Secom Toyo maintains accounting records as noted in Note 2
in accordance with the accounting principles and practices prescribed by the Supervisory Authorities in Japan, which vary insome respects from accounting principles generally accepted in
the United States of America. Those differences are mainly, (a)that insurance acquisition costs are charged to income whenincurred in Japan whereas in the U.S. those costs are deferred
and amortized generally over the premium-paying period of theinsurance policies, (b) that liabilities related to incurred but notreported claims are computed based on related regulations inJapan whereas in the U.S. those liabilities are computed basedon past experience for unreported losses, and (c) that unearned
premiums are calculated based on the documents authorized by
the Supervisory Authorities in Japan whereas in the U.S.
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 that30
SECOM CO., LTD. Annual Report 2000

The changes in benefit obligation and plan assets, funded
status, composition of amount recognized in the consolidatedbalance sheet and assumptions used were as follows:

provide refunds at maturity, the policyholder receives a refund if
premiums have been fully paid unless a total loss (as defined in
the policy) has occurred. The Company has provided for suchrefundable amounts by classifying a portion of the net premiums written, together with interest thereon, as investment
deposits by policyholders.
For purposes of preparing the consolidated financial statements, appropriate adjustments have been made to reflect suchitems in accordance with accounting principles generally
accepted in the United States of America.
The amounts of net equity of Secom Toyo as of March 31,
2000 and 1999 were ¥25,175 million ($237,500 thousand) and¥15,506 million, respectively.

2000

U.S. dollars

Years ended
March 31

Year ended
March 31

1999

1998

Net pension and severance
costs (credit):
Service cost¥(5,638 ¥(5,413 ¥(4,619
Interest cost
3,390 2,952 2,724
Expected return onplan assets(2,712) (2,463) (2,214)
Amortization oftransition assets
(46)
(46)
(46)
Amortization ofprior service cost
105
105
105
Recognized actuarial loss
804 1,200695
Net periodic benefit cost¥(7,179 ¥(7,161 ¥(5,883

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

1999

2000

2000

Change in benefit obligation:
Benefit obligation
at beginning of year
¥094,376 ¥(84,343
Benefit obligation for Pasco
at the date of acquisition
5,839—
Service cost
5,638
5,413
Interest cost
3,390
2,952
Plan participants’ contributions
2,087
2,209
Actuarial (gain) loss
582
(2,292)
Benefits paid
(2,383) (1,362)
Benefit obligation
at end of year
109,529
91,263
Benefit obligation for
Secom Toyo at end of year—
3,113
Total benefit obligation
at end of year
109,529
94,376
Change in plan assets:
Fair value of plan assets
at beginning of year
64,03058,259Fair value of plan assets for
Pasco at the date of acquisition
2,927—
Actual return on plan assets
14,58428
Employer contribution
5,403
4,474
Plan participants’ contributions
2,087
2,209
Benefits paid
(2,083) (1,338)
Fair value of plan assets
at end of year
86,94863,632
Fair value of plan assets for
Secom Toyo at end of year—
398
Total fair value of plan assets
at end of year
86,94864,03013. Pension and severance costs
Employees of the parent company and its Japanese subsidiaries whose services are terminated are, under mostcircumstances, entitled to lump-sum severance indemnities or are
eligible for pension benefits. Lump-sum severance indemnities
are provided for employees with three to ten service years andare determined by reference to current basic rates of pay, lengthof service and conditions under which the termination occurs.
The parent company and certain Japanese subsidiaries
maintain a contributory defined benefit welfare pension plan,
covering substantially all of their employees. The pension
benefits thereunder are determined by reference to current basic
rates of pay, length of service and conditions under which thetermination occurs. The welfare pension plan is funded in conformity with the funding requirements of the Japanese Welfare
Pension Insurance Law.
To supplement the above welfare pension plan, the parent
company and its major Japanese subsidiaries act as trustees for
non-contributory defined benefit pension plans which cover substantially all of the eligible employees having ten years or moreof service. The benefits are in the form of lump-sum and/or pension payments and are determined by formula based 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 to limitations on
deductibility imposed by Japanese income tax laws.
Net pension and severance costs under Statement of Financial
Accounting Standards 87 (“FAS 87”), “Employers’ Accounting
for Pensions” for the years ended March 31, 2000, 1999 and 1998
were as follows:
In thousands ofIn millions of yen

In millions of yen

Funds status
Unrecognized actuarial loss
Unrecognized transition assets
Unrecognized prior service cost
Net amount recognized

2000$(53,189
31,981$0,890,339
55,08553,18931,981
19,6895,490(22,481)
1,033,292—
1,033,292

604,056
27,613
137,585
50,972
19,689(19,651)
820,264—
820,264

22,581
30,346(11,085) (23,192)
227
274
(746)
(852)
¥010,977 ¥(06,576

213,028(104,575)
2,142(7,038)$0,103,557

Amounts recognized in
the consolidated balance sheets
consist of:
Accrued pension andseverance costs¥012,293 ¥(22,608
Intangible asset—(852)
Accumulated othercomprehensive income(1,316) (15,180)
Net pension liability
recognized in the balance sheet ¥010,977 ¥(06,576$0,115,972—(25,585)
(434)
990
7,585
$(67,726

31
SECOM CO., LTD. Annual Report 2000

(12,415)$0,103,557

defined contribution plans is to annually contribute an amountequal to a certain percent of the participants’ annual salaries.
The contributions to the defined contribution pension plans forthe years ended March 31, 2000, 1999 and 1998 were ¥25 million($236 thousand), ¥19 million and ¥38 million, respectively.

Years ended
March 31

Assumptions in determinationof pension costs andobligations at March 31:
Discount rateLong-term rate of salary
increase
Long-term rate of returnon funded assets

2000

1999

3.5%

3.5%

2.7–2.8%

2.5–2.8%

5.0%

4.0%

14. Exchange gains and losses
Other expenses for the years ended March 31, 2000 and 1999
include net exchange losses of ¥631 million ($5,953 thousand)and ¥178 million, respectively. Interest and other revenue for theyear ended March 31, 1998 include net exchange gains of ¥609
million.

As of March 31, 2000, approximately 56 percent of plan assets
were invested in equity securities. The remainder was mainly
invested in fixed income securities.
The provisions of FAS 87 require recognition in the balance
sheet of an additional minimum pension liability and related
intangible asset for pension plans with an accumulated benefit obligation in excess of plan assets. The additional minimum
pension liability which exceeded the unrecognized prior service
cost was recorded as a component of accumulated other comprehensive income, net of tax, of ¥765 million ($7,217 thousand)and ¥8,819 million as of March 31, 2000 and 1999, respectively.
Most subsidiaries outside Japan have various retirement
plans, which are primarily defined contribution plans, covering
substantially all of their employees. The funding policy for the

15. Income taxes
The Company is subject to a number of different income taxes
which, in the aggregate, indicate a statutory tax rate in Japan ofapproximately 51.0 percent for the year ended March 31, 1998,
approximately 47.5 percent for the year ended March 31, 1999,
and approximately 41.9 percent for the year ended March 31,
2000. Due to the changes in Japanese income tax regulations,the normal statutory tax rate in Japan was reduced to approximately 41.9 percent for the year beginning on April 1, 1999. The
revised tax rate was used in the measurement of deferred tax
assets and liabilities at March 31, 1999 and 2000, respectively.

Reconciliations of the differences between income taxes computed at statutory tax rates
and consolidated income tax expense were as follows:

Income taxes computed at statutory tax rate of 41.9% – 2000, 47.5% – 1999 and 51.0% – 1998
Increase resulting from:
Unrecognized tax benefits from subsidiaries in loss positions
Utilization of tax loss carryforwards
Amortization of non-deductible goodwill
Effect of change in normal statutory tax rate in Japan
Other
Consolidated income taxes

32
SECOM CO., LTD. Annual Report 2000

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2000

1999

1998

2000

¥30,506¥39,279¥26,450$287,792

1,344(8,689)118—(610)¥22,669

1,936(8,713)1,213(4)(1,338)¥32,373

4,603
(423)
147
203
(130)
¥30,850

12,679(81,972)
1,113—(5,754)$213,858

The significant components of deferred tax assets and liabilities at March 31, 2000 and 1999 were as follows:

Deferred tax assets:
Loss carryforwards
Accrued pension and severance costs
Intercompany profit
Insurance reserve
Research and development expenses
Enterprise and state income taxes
Allowance for doubful accounts
Accrued bonus
Vacation accrual
Inventory devaluation
Other
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized gain on securities
Unearned premiums and other insurance liabilities
Reversal of securities devaluation
Other
Gross deferred tax liabilities
Net deferred tax liabilities

The valuation allowance mainly relates to deferred tax assetsof the subsidiaries with operating loss carryforwards, for tax purposes, that are not expected to be realized. The net change in the
total valuation allowance for the year ended March 31, 2000 was
an increase of ¥1,915 million ($18,066 thousand).
No deferred income taxes have been provided on undistributed
earnings of overseas subsidiaries totaling ¥1,731 million ($16,330
thousand) at March 31, 2000 because they are not expected to beremitted in the foreseeable future.
At March 31, 2000, tax loss carryforwards of domestic subsidiaries amounted to ¥48,075 million ($453,538 thousand)and are available for offset against future taxable earnings ofsuch subsidiaries for up to five years, as follows:
Expires in the years ending March 31

2001
2002
2003
2004
2005

In millions of yen

In thousands of
U.S. dollars¥01,7115,020
2,419
36,776
2,149¥48,075$016,142
47,35822,821
346,943
20,274$453,538

In millions of yen
March 31

In thousands of
U.S. dollars
March 31

2000

1999

2000

¥22,331
2,752
4,560
3,244
1,707
1,273
1,823
1,070
882
305
2,894
42,841(19,841)
23,000¥08,949
8,158
4,280
3,303
2,727
2,160
2,212
513
680
371
3,580
36,933(17,926)
19,007$210,670
25,96243,01930,604
16,10412,00917,198
10,0948,321
2,877
27,302404,160(187,179)
216,981(16,114) (13,264)(3,917)(3,777)(1,659)(1,569)(1,547)(1,239)(23,237) (19,849)(¥ 237) (¥ 842)

(152,019)(36,953)(15,651)(14,594)(219,217)($ 2,236)

on September 30, 1999. The number of shares issued was
116,409,647. There was no increase in the common stock
account because the new shares were distributed from the portion of previously issued shares accounted for as excess of parvalue in the common stock account in accordance with theJapanese Commercial Code.
(2) Retained earnings
The Commercial Code of Japan provides that an amount equal
to at least 10 percent of cash dividends and other distributions
from retained earnings paid in cash by the parent company andits Japanese subsidiaries be appropriated as a legal reserve until
such reserve equals 25 percent of the common stock account.
The only changes in the legal reserve during the years ended
March 31, 2000, 1999 and 1998 consisted of such appropriations
made by the parent company and its Japanese subsidiaries.
The Commercial Code of Japan requires that dividends atyear-end, which the Board of Directors resolved to declare customarily in the first month following year end, be approved at
the general shareholders’ meeting to be held within threemonths after the end of accounting period.
Subsequent to March 31, 2000, the Company’s Board of
Directors declared an annual cash dividend of ¥9,323 million($87,953 thousand) to shareholders of record on March 31, 2000.
The dividend declared is subject to approval at the generalshareholders’ meeting scheduled for June 29, 2000. Dividends
are recorded in the period they are declared.

The tax loss carryforwards of overseas subsidiaries at
March 31, 2000 amounted to ¥6,400 million ($60,377 thousand),a part of which will begin to expire in the year 2001.
16. Shareholders’ equity(1) Stock split
On September 14, 1999, the Board of Directors approved a
two-for-one stock split on the Company’s common stock, which
was distributed on November 19, 1999, to shareholders of record

33
SECOM CO., LTD. Annual Report 2000

(3) Accumulated other comprehensive income/(loss)
An analysis of the changes in accumulated other comprehensive income/(loss) for the years ended March 31, 1998, 1999 and2000 is as follows:
In millions of yen
Pre-tax
amount

For the year ended March 31, 1998:
Unrealized gain on securities—
Unrealized holding loss
arising during the period
Minimum pension liability
adjustment
Foreign currency translation
adjustments
Other comprehensive income/(loss)For the year ended March 31, 1999:
Unrealized gain on securities—
Unrealized holding gain
arising during the period
Less: Reclassification
Less: adjustment for gain
Less: included in net income
Minimum pension liability
adjustment
Foreign currency translation
adjustments
Other comprehensive income/(loss)For the year ended March 31, 2000:
Unrealized gain on securities—
Unrealized holding gain
arising during the period
Less: Reclassification
Less: adjustment for gain
Less: included in net income
Minimum pension liability
adjustment
Foreign currency translation
adjustments
Other comprehensive income/(loss)

17. Research and development expenses
Research and development expenses included in selling, general and administrative expenses for the years ended March 31,
2000, 1999 and 1998 were ¥5,970 million ($56,321 thousand),¥4,820 million and ¥5,405 million, respectively.

Tax(expense) Net-of-tax
or benefit
amount18. Leased assets
The Company leases certain office space, employee residential
facilities, and computer and transportation equipment. Someleased computer and transportation equipment are held undercapital leases. Other leases are classified as operating leases.
On April 23, 1996, the Company entered into a long-term leaseagreement for a building and land in Mitaka, Tokyo. The leaseagreement extends for thirty years beginning May 1, 1996. For
financial reporting purposes, the portion of the lease relating to
the building has been classified as capital lease; accordingly, anasset of approximately ¥5,086 million ($47,981 thousand) has
been recorded in the building and improvements 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, 2000 were ¥8,540 million ($80,566 thousand).
Total assets under capital leases at March 31, 2000 and 1999
amounted to ¥16,707 million ($157,613 thousand) and ¥13,774
million; accumulated depreciation thereon amounted to ¥6,632
million ($62,566 thousand) and ¥4,574 million, respectively.
Depreciation expenses under capital leases for the years ended
March 31, 2000, 1999 and 1998 were ¥2,527 million ($23,840
thousand), ¥2,426 million and ¥2,555 million, respectively.
The following is a schedule by year of future minimum lease
payments under capital leases together with the present value ofthe net minimum lease payments as of March 31, 2000:(¥19,546) ¥10,005 (¥ 9,541)(7,037)

3,060(3,977)

560

—

560

(¥26,023) ¥13,065 (¥12,958)¥11,381 (¥05,381) ¥06,000

(29)

14

(15)

(73)

(815)

(888)

(4,832)—(4,832)¥ 6,447 (¥06,182) ¥00,265¥08,436 (¥03,557) ¥04,879(1,162)

487

(675)

13,863(5,809)8,054(5,638)—(5,638)Years ending March 31:

2001
2002
2003
2004
2005
Later years
Total minimum lease payments
Less—Amount representing interest
Present value of net minimum lease
payments
Less—Current obligations
Long-term capital lease obligations¥15,499 (¥08,879) ¥06,620
Translation into
thousands of U.S. dollars
Tax
Pre-tax (expense) Net-of-tax
amount or benefit
amount

For the year ended March 31, 2000:
Unrealized gain on securities—
Unrealized holding gain
arising during the period
Less: Reclassification
Less: adjustment for gain
Less: included in net income
Minimum pension liability
adjustment
Foreign currency translation
adjustments
Other comprehensive income/(loss)

4,594(6,368)130,783(54,802)75,981(53,189)—(53,189)

In thousands of
U.S. dollars¥02,892
2,215
1,403
807
480
7,511
15,3084,719$027,283
20,896
13,236
7,613
4,528
70,859144,415
44,51910,5892,489¥08,100

99,89623,481$076,415

Rental expenses under operating leases for the years ended
March 31, 2000, 1999 and 1998 were ¥12,534 million ($118,245
thousand), ¥10,458 million and ¥10,378 million, respectively. A
significant portion of such rentals relates to cancelable short-termleases for office space and employee residential facilities, manyof which are renewed upon expiration.

$079,585 ($33,557) $46,028(10,962)

In millions of yen$146,217 ($83,765) $62,452

34
SECOM CO., LTD. Annual Report 2000

the parent company and its two Japanese subsidiaries pays a
LIBOR-based floating rate of interest and receives a long-termbased floating swap rate. The Company believes that the longterm based floating swap rate will provide higher interest income
to the Company compared to the LIBOR-based floating rate. Thisswap agreement is designed to replace LIBOR-based interest
income with long-term swap rate interest income for the investment securities. This agreement is scheduled to mature in 2004.
The total notional value of interest rate swap agreements ineffect at March 31, 2000 and 1999 totaled ¥21,183 million($199,840 thousand) and ¥10,000 million, respectively, of which¥5,000 million ($47,170 thousand) will mature by 2002, ¥5,000
million ($47,170 thousand) will mature by 2003, ¥10,000 million($94,340 thousand) will mature by 2004 and ¥1,183 million($11,160 thousand) will mature by 2010. The amounts to be paidor received under the interest rate swap agreements are recognized over the terms of the agreements. The estimated fair valuesof such agreements, based on the discounted future cash flowsof the differentials, were insignificant at March 31, 2000 and 1999,
respectively.

19. Financial instrument
The Company has certain financial instruments including
financial assets and liabilities and off-balance-sheet financial
instruments incurred in the normal course of business. Although
the Company may be exposed to losses in the event of nonperformance by counter parties, it does not anticipate significant
losses due to the nature of its counter parties.
Following are explanatory notes regarding the financial assets
and liabilities and off-balance-sheet financial instruments
excluding debt and equity securities which are disclosed in
Note 8.
(1) Cash and cash equivalents, time deposits, cash deposits,
notes and accounts receivable, trade, due from subscribers,
short-term receivables, bank loans, notes and accounts
payable, trade, deposits received and accrued payrolls
The carrying amounts approximate fair value because of
the short maturities of such instruments.
(2) Long-term receivables
Long-term receivables include loans to real estate investmentcompanies of ¥18,107 million ($170,821 thousand) as of March
31, 2000, which are primarily mortgage loans on land and commercial buildings. The mortgage loans are scheduled to mature
over a period from two years to ten years with interest rates
ranging from 6.0 to 7.0 percent. The fair values of long-term
receivables would need to be calculated based on the present
value of the future cash flows based on estimated maturity andestimated market discount rates. However, these estimatedmarket discount rates are subjective in terms of each borrower’s
credit risks and involve uncertainties and matters of significant
judgement. Therefore, it is not practicable to estimate the fair valueof long-term receivables to the Company.

20. Commitments and contingent liabilities
Commitments outstanding at March 31, 2000 for the purchaseof property, plant and equipment approximated ¥1,438 million($13,566 thousand).
Contingent liabilities at March 31, 2000 for guarantees given in
the ordinary course of business amounted to approximately¥17,815 million ($168,066 thousand).
On December 8, 1998, the Company entered into a lease agreement for land and a new building which will be completed in
December 2000 in Harajuku, Tokyo. The lease agreement extends
for twenty years beginning after delivery of the new building,which is expected in December 2000. Based on the agreement,
annual lease payments for the site will be approximately ¥1,339
million ($12,632 thousand) over a twenty-year period.
On May 23, 2000, The Japan Fair Trade Commission started aninvestigation of Pasco together with other companies in thesame profession on suspicion of unfair competitive practices
concerning the tender for aerial surveying and mapping services. The investigation is still in its early stages. Pasco considers this investigation as a serious matter and will soon
conduct its own investigation. The Company management could
not estimate the impact on the Company’s future consolidated
results of operations and consolidated financial position basedon facts currently known to it, however, the Company management intends to rebuild and reinforce its organization to ensurethat its business practices rigorously conform with commercial
laws and regulations.

(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 of future cash
flows using the Company’s current incremental borrowing rates
for similar liabilities. The estimated fair values of total long-term
debt, including the current portion and excluding obligations
under capital lease, at March 31, 2000 and 1999 were ¥18,982
million ($179,075 thousand) and ¥23,290 million, respectively.
As long-term interest rates have not fluctuated significantly inrecent years in Japan, the carrying amounts of obligations undercapital lease approximate estimated fair value.
(4) Interest rate swap agreements
An overseas subsidiary enters into interest rate swap agreements to manage interest rate exposures arising in the normal
course of business. These agreements, amounting to ¥10,000
million ($94,340 thousand), are designed to limit exposures tolosses resulting from fluctuations in LIBOR-based interest rates
related to investment securities and notes debt. These agreements are scheduled to mature in 2002 and 2003.
On December 22, 1999, the parent company and its two
Japanese subsidiaries entered into interest rate swap agreements,
amounting to ¥10,000 million ($94,340 thousand) related to
LIBOR-based floating interest rate investment securities, whereby

21. 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 theCompany accounted for such free share distributions made during the period from 1974 to 1990 in the manner used by companies in the United States of America, ¥98,388 million ($928,189
thousand) would have been transferred from retained earnings
to the appropriate capital accounts. However, there would be noeffect on total shareholders’ equity.

35
SECOM CO., LTD. Annual Report 2000

24. Segment information
Effective for the year ended March 31, 1999, the Company
adopted Statement of Financial Accounting Standards 131,
“Disclosures about Segments of an Enterprise and RelatedInformation” which requires disclosure of financial and descriptive information about the Company’s reportable operating segments. The operating segments reported below are the segmentsof the Company for which separate financial information is available and for which operating profit/loss amounts are evaluatedregularly by executive management in deciding how to allocate
resources and assessing performance.
The Company has four reportable business segments: security
services, information and communication related and other services, insurance services, and medical 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 informationand communication related and other services segment represents the Company’s network business, aerial surveying andmapping services, and GIS services as well as development andsale of real estate services. The Company develops real estate,mainly condominiums, for consumers, to promote a network ofintegrated communication systems to create synergies with home
security services. These communication services are considered asubset or an integrated part of the real estate package. The insurance services segment represents non-life insurance-related
underwriting business in the Japanese market. The medical services segment provides intravenous solutions to patients at
home, home-based nursing care services, and medical datatransmission services by utilizing the Company’s network.
Revenues by segment include interest income and otherrevenue reasonably allocated to the segments. Corporate
revenues include interest income, investment income anddividend income from companies unaffiliated with theparent company or The Westec Security Group, Inc., a wholly
owned subsidiary in the United States of America. Corporate
expenses include general and administrative expenses,
amortization of deferred assets and net exchange losses of thesetwo 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.

22. Gain on sale of subsidiaries’ shares
On August 31, 1998, The Westec Security Group, Inc., a wholly
owned subsidiary in the United States of America, sold all of theoutstanding shares of Westec Residential Security, Inc. and all of
the outstanding shares of Valley Burglar & Fire Alarm Company,
Inc. to Edison Select for an aggregate sales price of ¥37,025 million ($349,292 thousand) in cash. The sale resulted in a gain in
the aggregate of ¥22,828 million ($215,358 thousand).
On October 1, 1998, the parent company sold all of theoutstanding shares of Tokyo Internet Corporation to PSINet
Japan Inc. for ¥17,834 million ($168,245 thousand). The sale
resulted in a gain of ¥13,054 million ($123,151 thousand). The
sales price is subject to a final sales price adjustment.
On October, 15, 1999, Secom Techno Service Co., Ltd. (“Secom
Techno”), a 98.3 percent owned subsidiary, completed an initialpublic offering on the Second Section of the Tokyo Stock
Exchange. In conjunction with the offering, the parent company
sold 2,000,000 outstanding shares of Secom Techno for a sales
price of ¥4,512 million ($42,566 thousand). Through a secondaryoffering, Secom Techno issued an additional 2,000,000 shares for
total proceeds of ¥4,512 million ($42,566 thousand). As a result of
these transactions, the parent company’s ownership in Secom
Techno declined to 67.8 percent. The resulting pre tax gains on thesale of subsidiary shares and new issuance of Secom Techno’s
shares of ¥2,313 million ($21,821 thousand) and ¥1,978 million($18,660 thousand), respectively, are recognized in the consolidated statements of income for the year ended March 31, 2000. In
the consolidated statement of cash flows for the year ended
March 31, 2000, the gain on sale of subsidiary shares are
excluded from cash flows from operating activities and therelated cash proceeds are classified in the cash flows frominvesting activities. The cash proceeds from the new issuance bySecom Techno to minority shareholders are classified in the
cash flows from financing activities.
23. Supplemental cash flow information
Supplemental cash flow information is as follows:2000

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

1999

1998

2000

Cash paid during the year:
Interest¥01,073 ¥01,599 ¥01,409$010,123

Income taxes¥30,841 ¥37,209 ¥29,514$290,953

Noncash investing andfinancing activities:
Conversion of convertible
bond to common stock andadditional paid-in capital ¥00,774 ¥00,766 ¥00,148$007,302

Additions to obligations
under capital leases¥03,344 ¥02,032 ¥02,489$031,547

Liabilities assumed inconjunction withacquisition¥29,038 ¥99,594 ¥09,285$273,943

36
SECOM CO., LTD. Annual Report 2000

Information by business and geographic segments for theyears ended March 31, 2000, 1999 and 1998 follows:

Translation
into thousands
In millions of yen of U.S. dollars
Years ended
March 31

(1) Business Segment Information

1998

2000

¥322,681 ¥311,339 ¥299,774$3,044,160

154,045
51,396
37,637142,289 113,210
1,773
2,061
1,462
1,314
621,076 477,407 340,498
133,522 141,037 117,059

1,453,255
1,342,349
19,444
5,859,208
1,259,641

24,95025,01022,284¥779,548 ¥643,454 ¥479,841

235,377$7,354,226

2000
Translation
into thousands
In millions of yen of U.S. dollars
Years ended
March 31
2000

1999

1998

Assets:Security services
Information andcommunication
related and otherservices
Insurance services
Medical services
Total
Corporate items
Investments in andloans to affiliatedcompanies
Total assets

Year ended
March 31
2000

Revenue and otherincome:Security services—
Customers¥295,834 ¥293,104 ¥282,066 $2,790,887
Intersegment
3,305
975
877
31,179Subtotal
299,139 294,079 282,943
2,822,066
Information andcommunication
related and otherservices—
Customers
72,68455,36730,910685,698
Intersegment
1,821
2,989
1,337
17,179Subtotal
74,50558,35632,247
702,877
Insurance services—
Customers
30,4354,775
5,365
287,123
Intersegment
2,250
2,099
2,156
21,226
Subtotal
32,685
6,874
7,521
308,349
Medical services—
Customers
1,326
1,075
855
12,509Intersegment
140
117
100
1,321
Subtotal
1,466
1,192
955
13,830
Total
407,795 360,501 323,666
3,847,122
Eliminations(7,516) (6,180) (4,470)(70,906)
Corporate items
12,11839,825
3,608
114,321
Consolidated revenue
and other income¥412,397 ¥394,146 ¥322,804 $3,890,537
Income (loss) before
income taxes:
Security services
Information andcommunication
related and otherservices
Insurance services
Medical services
Total
Corporate items
Interest expense
Consolidated income
before income taxes¥076,073 ¥069,890 ¥069,003

2,137
4,455
(566)
82,099(8,063)(1,229)Translation
into thousands
In millions of yen of U.S. dollars
Years ended
March 31

20,16042,029(5,340)774,519(76,066)(11,595)¥072,807 ¥082,693 ¥051,863$0,686,858

Capital expenditures:
Security services
Information andcommunication
related and otherservices
Insurance services
Medical services
Total
Corporate items
Total capital
expenditures

1999

Year ended
March 31

1998

2000

¥31,361 ¥28,913 ¥27,620$295,858

3,234
(625)
94
34,064
168

1,861
3
56
29,540169

30,509(5,896)887
321,358
1,585¥34,232 ¥30,542 ¥29,709$322,943¥36,459 ¥42,758 ¥45,770$343,953

3,449
278
132
40,318
983

1,526
—
99
47,395535

32,5382,622
1,245
380,358
9,274¥41,301 ¥45,498 ¥47,930$389,632

2000

Depreciation andamortization:
Security services
Information andcommunication
related and otherservices
Insurance services
Medical services
Total
Corporate items
Total depreciation
and amortization$0,717,670(978) (3,517)
265
291(1,053)(987)
68,12464,79015,647 (11,876)(1,078) (1,051)

1999

Year ended
March 31

1,315
3
69
30,300
242

1,119
—
79
43,956
1,542

The Company has no single customer that accounts for morethan 10 percent of total revenue.

37
SECOM CO., LTD. Annual Report 2000

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 segment by
the Company’s management.
Translation
into thousands
In millions of yen of U.S. dollars
Years ended
March 31
2000

1999

1998

Electronic security
services—
Commercial security
and home security¥221,765 ¥219,670 ¥209,855
Large-scale
proprietary systems
3,773
4,223
4,264
Other security services—
Static guard services
31,66330,17828,852
Armored car services
13,54012,275
11,522Merchandise and other
25,09326,75827,573
Total security services ¥295,834 ¥293,104 ¥282,066

Year ended
March 312000

$2,092,123
35,594
298,708
127,736
236,726$2,790,887(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, 2000, 1999 and 1998 was as follows:
Translation
into thousands
In millions of yen of U.S. dollars
Years ended
March 31
1998

2000

Revenue and otherincome:Japan
United States
OthersTotal¥398,838 ¥349,702 ¥300,459
4,330
33,580
11,234
9,229
10,864
11,111¥412,397 ¥394,146 ¥322,804$3,762,622
40,84987,066$3,890,537

Long-lived assets:
Japan
United States
OthersTotal¥191,628 ¥169,737 ¥161,171
536
584
8,231
6,134
6,627
6,784
¥198,298 ¥176,948 ¥176,186$1,807,811
5,057
57,868$1,870,736

2000

1999

Year ended
March 31

There are no individually material countries with respect to therevenue and other income, and long-lived assets included inother areas.

38
SECOM CO., LTD. Annual Report 2000

REPORT OF INDEPENDENTACCOUNTANTS

Kasumigaseki Bldg. 32nd Floor
3-2-5, Kasumigaseki, Chiyoda-ku,
Tokyo 100-6088, JapanTo the Shareholders and Board of Directorsof Secom Co., Ltd.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, ofchanges in shareholders’ equity and of cash flows, expressed in yen, present fairly, in all material respects, the financial
position of Secom Co., Ltd. and its subsidiaries at March 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended March 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements are the responsibility of the Company’s
management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally accepted in the United States of America
which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for the opinion expressed above.

May 15, 2000, except for the fourth paragraph of Note 20,
as to which is as of May 23, 2000.

39
SECOM CO., LTD. Annual Report 2000

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

In millions of yen
2000

Composition of consolidated revenue by segment
Revenue:
Security services:
As a percent of revenue
Electronic security services—
Commercial security and home security
As a percent of revenue
Large-scale proprietary systems
As a percent of revenue
Subtotal
Other security services—
Static guard services
As a percent of revenue
Armored car services
As a percent of revenue
Subtotal
Merchandise
As a percent of revenue
Information and communication related
and other services
As a percent of revenue
Insurance services
As a percent of revenue
Medical services
As a percent of revenue
Gain on sale of investment in securities
As a percent of revenue
Interest and otherAs a percent of revenue
Net income, cash dividends andshareholders’ equity
Net income
Cash dividends (paid)(1)
Shareholders’ equity
Consolidated financial ratios
Percent of working capital accounted for by:
Debt:
Bank loans
Current portion of long-term debt
Convertible bonds
Other long-term debt
Total debt
Shareholders’ equity
Total capitalization
Return on total assets (percent) (a)Return on equity (percent) (b)Percent of revenue absorbed by:Depreciation and amortization
Rental expense
Ratio of accumulated depreciation to depreciable
assets (percent)
Net property turnover (times)
Before-tax interest coverage (times) (c)Before-tax interest and rental coverage (times) (d)

1999

1998

1997

1996

1995

¥412,397
295,83471.8%¥394,146
293,104
74.4%¥322,804
282,066
87.3%¥303,796
266,20987.7%¥281,547
248,406
88.2%¥258,947
231,125
89.3%

221,765
53.8
3,773
0.9
225,538

219,670
55.7
4,223
1.1
223,893

209,855
65.0
4,264
1.3
214,119

199,498
65.7
3,980
1.3
203,478

184,657
65.6
4,028
1.4
188,685

174,375
67.4
3,935
1.5
178,310

31,663
7.7
13,5403.3
45,20325,093
6.1

30,178
7.7
12,275
3.1
42,45326,7586.8

28,852
8.9
11,522
3.6
40,37427,573
8.5

26,487
8.7
10,5583.5
37,04525,686
8.5

24,768
8.8
9,566
3.4
34,33425,3879.0

23,755
9.2
8,541
3.3
32,296
20,5197.972,68417.6
30,435
7.4
1,326
0.3
5,454
1.3
6,664
1.6

55,367
14.0
4,775
1.2
1,075
0.3
35,700
9.1
4,125
1.0

30,910
9.6
5,365
1.7
855
0.3
570
0.2
3,038
0.9

29,301
9.7
4,633
1.5
681
0.2
732
0.2
2,240
0.7

19,353
6.9
3,917
1.4
532
0.2
7,074
2.5
2,265
0.8

19,677
7.6
3,451
1.3
388
0.1
2,989
1.2
1,317
0.5

¥ 47,432
8,146
373,912¥ 49,918
7,555
327,147¥ 18,990
6,972
283,840¥ 22,798
5,719
284,634¥ 23,264
5,459
260,854

15.7
1.2
0.1
4.8
21.8
78.2
100.0
6.1
12.7

8.4
2.5
0.3
5.2
16.4
83.6
100.0
7.8
15.3

5.7
1.7
0.6
6.4
14.4
85.6
100.0
4.0
6.7

8.3
2.3
0.7
3.7
15.0
85.0
100.0
4.9
8.0

8.8
5.2
0.9
3.4
18.3
81.7
100.0
5.3
8.9

9.9
0.8
6.8
3.5
21.0
79.0
100.0
2.5
4.2

8.3
3.0

7.8
2.7

9.2
3.2

9.5
3.4

11.5
3.7

10.4
4.1

63.8
2.42
60.2
14.5

62.1
2.53
77.7
19.1

61.7
2.15
50.3
12.5

60.8
2.27
46.4
12.7

60.6
2.22
37.8
11.6

61.2
2.17
26.4
9.6

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

40
SECOM CO., LTD. Annual Report 2000

¥

9,896
5,438
238,239

2000

Number of shares outstanding
IssuedOwned by the Company
Balance
Per share information(1)Basic net income per share (in yen)(2)Cash dividends paid per share (in yen)(3)Shareholders’ equity per share (in yen)(4)Cash flow per share (in yen)(2)Price/Book value ratio
Price/Earnings ratio
Price/Cash flow ratio
Stock price at year-end (in yen)

1999

1998

1997

1996

1995

(1)

233,075,442 116,392,109 116,233,393 116,203,824 114,378,620 113,766,167
4,840
11,817
3,185
2,926
2,016
24,941
233,070,602 116,380,292 116,230,208 116,200,898 114,376,604 113,741,226¥ 203.67
35.00
1,604.29
310.63
5.49
43.21
28.33
8,800

¥ 214.51
32.50
1,405.51
310.76
3.99
26.15
18.05
5,610

¥

81.70
30.00
1,221.03
177.01
3.34
49.88
23.02
4,075

¥

98.69
25.00
1,224.75
193.68
2.84
35.21
17.94
3,475

¥ 102.09
24.00
1,140.33
219.14
3.06
34.23
15.95
3,495

¥

43.57
24.00
1,047.29
137.78
2.55
61.40
19.41
2,675

(d) Years ended March 31, 2000, 1999, 1998, 1997 and 1996
(Income before income taxes + Interest expense + 1/3 Rental expense)/(Interest expense + 1/3 Rental expense)
Year ended March 31, 1995
(Income from continuing operations before income taxes + Interest expense+ 1/3 Rental expense)/(Interest expense + 1/3 Rental expense)

Notes: (a) Net income/Total assets(b) Net income/Shareholders’ equity(c) Years ended March 31, 2000, 1999, 1998, 1997 and 1996
(Income before income taxes + Interest expense)/Interest expense
Year ended March 31, 1995
(Income from continuing operations before income taxes+ Interest expense)/Interest expense

Per share amounts have been adjusted to reflect the impact of a stock split on November 19, 1999.
The number of shares outstanding at the end of each year ended March 31, has not been adjusted to reflect this stock split.
(2) Per share amounts are based on the average number of shares outstanding during each period.
(3) Subsequent to March 31, 2000, cash dividends of ¥9,323 million (¥40 per share) were approved at the general shareholders’ meeting on June 29, 2000
(see Note 16 of the accompanying Notes to Consolidated Financial Statements).
(4) Per share amounts are based on the number of shares outstanding at the end of each period, minus treasury stock.
(1)

COMMON STOCKDATASECOM CO., LTD.
Years ended March 31

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

2000

1999

1998

1997

1996

1995

15,019

9,458

9,911

10,84911,223

11,69642.74%
2.66
13.86
25.96
14.78
100.00%45.71%
0.90
13.67
26.90
12.82
100.00%44.26%
0.98
13.73
27.40
13.63
100.00%42.57%
1.31
14.05
27.03
15.04
100.00%40.00%
1.35
14.49
28.04
16.12
100.00%45.10%
1.25
15.02
21.65
16.98
100.00%41
SECOM CO., LTD. Annual Report 2000

PRICE INFORMATION (TOKYO STOCK EXCHANGE)
Price per share

1998

1999

2000

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

Nikkei stock average

High

Low

High

Low

¥ 8,490
8,660
9,450
11,77013,37022,15012,64011,490¥07,700
7,630
7,930
8,800
10,63012,7009,300
7,650¥16,536.66
16,731.92
15,207.77
16,378.78
17,782.79
18,532.58
18,934.34
20,706.65¥14,715.38
13,406.39
12,879.97
13,232.74
15,972.68
16,821.06
17,254.17
18,168.27

Note: Price amounts have not been adjusted to reflect a two -for-one stock split, which was reflected in the market from September 27, 1999.

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

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
116,410273

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¥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—
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*—

Remarks

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

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.

42
SECOM CO., LTD. Annual Report 2000