annualr e p o r t
In a constantly changing world, SECOM is working daily

1

9

9

9

to establish the Social System Industry—high-quality,
innovative services designed to promote peace of mind.

PROFILE
In the 37 years since its establishment, SECOM CO., LTD., has earned a reputation as a pioneerin the development of entirely new industries. SECOM’s on-line security system, introduced in
1966, marked a turning point, transforming SECOM from a vendor of manpower-intensive
security services into a provider of security systems combining computerized remote monitoringand human support and enabling it to expand the scope of its security services. SECOM has alsoutilized its security and network capabilities to diversify into areas such as medical care,educational and information services.
The Company has also expanded its security services worldwide through a network of
subsidiaries and joint ventures. This global network currently encompasses operations in the
United States, the Republic of Korea, Taiwan, Thailand, Malaysia, Singapore, Indonesia, thePeople’s Republic of China, the United Kingdom and Australia.
SECOM has also broadened the scope of its operations to include non-life insurance, realestate development, cyber security and geographic information services. In line with its core
objective of providing peace of mind to people everywhere, SECOM will continue to upgrade its
existing products and services and apply its expertise to diversify into high-potential new
business areas.

CONTENTSHIGHLIGHTS

1

TO OUR SHAREHOLDERS

2-4

SPECIAL FEATURE

5-11

REVIEW OF OPERATIONS

12-16

FINANCIAL SECTION

17-42

SUPPLEMENTAL NONCONSOLIDATED FINANCIAL DATA

43-46

CORPORATE INFORMATION

47-48

SECOM’S BASIC BUSINESS AREAS

49-50

BOARD OF DIRECTORSSECOM CO., LTD. Annual Report 1999

51

HIGHLIGHTSSECOM CO., LTD. and Subsidiaries
Years ended March 31, 1999, 1998 and 1997

In millions of yen

In thousandsof U.S. dollars

Year ended March 31

Year ended
March 31

1999

1998

1997

1999

¥,394,146¥,322,804¥,303,796$3,257,405

Net income

49,91818,99022,798412,545

Total assets

643,454479,841

461,071

5,317,802

Shareholders’ equity

327,147

283,840

284,634

2,703,695

In yenIn U.S. dollars

Revenue

Per share of common stock:
Net income (basic)
Cash dividends paid during the period
Shareholders’ equity¥0,429.03¥0,163.40¥,0197.37

$

3.55

65.00

60.00

50.00

0.54

2,811.02

2,442.05

2,449.50

23.23

Notes: 1. Japanese yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥121=US$1. Billion is used in theAmerican sense of one thousand million.
2. Per share amounts are based on the average number of shares outstanding during each period.
3. Per share amounts of shareholders’ equity are based on the number of shares outstanding at the end of each period, minus trea sury
stock.
4. Subsequent to March 31, 1999, cash dividends per share of ¥70.00 were approved at the general shareholders’ meeting on June 29,
1999 (see Note 16 of the accompanying Notes to Consolidated Financial Statements).

SECOM CO., LTD. Annual Report 1999

1

TO OUR SHAREHOLDERS

Operating Results
The Japanese economy remained sluggish during theperiod, with few signs that a recovery was in sight.
Instability in the financial system and unclear economic
prospects continued to weaken corporate profitability,
slow capital investment and hinder consumer spending,while stagnant corporate results caused the employment
situation to deteriorate further and lowered individual
earnings.
Against this subdued economic backdrop, we continued our advance on several business fronts, focusing on
expanding further our “Social System Industry,” a network of integrated systems and services centered on thefields of security, education, communication, information and medical care, targeted at the needs of people
and businesses. We actively expanded operations bystrengthening marketing, improving service quality anddeveloping new systems and products that respond to
the needs of society and brought us closer to realizing
the “Social System Industry.” As a consequence, ouroperating results for the period were largely in line withexpectations. Consolidated revenue amounted to ¥394.1

billion, up 22.1% from the previous year. By businesscategory, revenue from services totaled ¥266.3 billion,
while merchandise, software and medical activities generated revenue of ¥85.6 billion. We recorded a gain on
sales of investment in securities of ¥35.7 billion, whileinterest and other totaled ¥6.5 billion. Net income
soared 162.9%, to ¥49.9 billion, owing partly to extraordinary gains on the sale of a subsidiary. Accordingly, net
income per share rose to ¥429.03, from ¥163.40 in theprevious period.
Recognizing the importance of shareholder support,
cash dividends of ¥70.00 per share were approved at theannual general shareholders’ meeting in June 1999, up
from ¥65.00 for the previous period.

A Look at the Year
During the period under review, we continued to takesteps aimed at ensuring the realization of our “Social
System Industry” vision in the 21st century. The phrase“Social System Industry” describes a system combining
a wide range of services designed to ensure safety, convenience and comfort that are provided through our
information network—a network cultivated through theprovision of security services to date. In particular, we
continue to focus on security services, medical, education, information, non-life insurance services and realestate development, thereby reinforcing our reputation
for providing reliable and convenient services when andwhere they are needed.
In the security service field, we introduced SECOM
HOME SECURITY PLUS, a ground-breaking home
security system that offers integrated security and

Makoto Iida
Founder

2

SECOM CO., LTD. Annual Report 1999

TO OUR SHAREHOLDERS

information services. Incorporating an easy-to-use liquid
crystal display (LCD) touch panel with a voice navigation system, this system features not only home security,
but also an extensive range of other services, such as
lifestyle information, home shopping services, homebanking and medical assistance.
Other new products in the security services field
include SECOM AX, an innovative security system forbusinesses that features an image sensor incorporating
the latest image processing technology, enabling it todetect unauthorized entry. We also introduced SESAMOIDs, an upgraded version of our fingerprint-based
individual identification system that is easier to operate
and produced at a considerably lower cost than its predecessor; TOMAHAWK MACH I, specifically designed
to meet the needs of customers for compact and affordable fire extinguishers; and TOMAHAWK MACH II, aunit for home use.
In the medical services field, Secom Home Medical
System Co., Ltd., launched an in-home medical treatment support service called Medidata, which aims toassist patients during their convalescence by connecting
them on-line with their physicians, and an artificial
voice box activated by electronic impulse. Subsidiary
Secom Kampo System Co., Ltd., began mail-order salesof health food products.
In the area of home education services, subsidiary
Secom Lines Co., Ltd., a leader in the computer-aided
learning field, launched Lines Sensei Denjyuku, a highly
effective Internet and compact disc read-only memory(CD-ROM)-based educational system, and the School
Internet Series of materials designed to assist schools
tomaximize the benefits of Inter net access.

In the information and communications sector,
SECOM established Entrust Japan Co., Ltd., which isthe sole distributor for Public Key Infrastructure (PKI)
digital identification certification technologies, developed by U.S.-based Entrust Technologies in conjunction
with 15 Japanese companies.
SECOM also entered the non-life insurance businessduring the period by making an equity investment in
Toyo Fire and Marine Insurance Co., Ltd., which subsequently changed its name to Secom Toyo General
Insurance Co., Ltd. The combination of non-life insurance services with SECOM’s existing business lines will
enable the Company to provide a complete range of services for assurance against the risk of property loss orbodily injury due to crime or accident.

New Initiatives
Recent months have seen us expand operations in several
promising new areas. To facilitate the launch ofcybersecurity operations, we established the Cyber Security
Division and in April 1999 launched computer virus
detection, security assessment and cyber crime prevention

Toshitaka Sugimachi
President andRepresentative Director

SECOM CO., LTD. Annual Report 1999

3

TO OUR SHAREHOLDERS

services. In August 1999, SECOM became the majority
shareholder in Pasco Corporation, a leading survey company, by acquiring shares through a third-party allotment.
We anticipate significant synergies between Pasco’s operations, notably its Geographic Information System (GIS)
services, and our services.
In the firm belief that responding to the rapidly
evolving needs of society today demands fundamental
adjustments in our organization and in the mindset
ofour employees, we sought to encourage gr eater
flexibility by emphasizing change and accelerated
responsiveness.
We continue to respond to the diverse needs ofcustomers for security services, medical, education,
information services, non-life insurance and real estatedevelopment operations by anticipating these needs andoffering attractive products and services. We are promoting intensive research and development to facilitate theextension of high-quality security systems, equipment
and services. We recognize considerable untappeddemand in our core existing businesses, and will thus
focus on enhancing capabilities and improving efficiency
in these areas. At the same time, we will further expand

4

SECOM CO., LTD. Annual Report 1999

our operations byentering pr omising new businesses.
Inthese and other endeavors, we look for ward to thecontinued supportofour shar eholders.
August 31, 1999

Makoto Iida
Founder

Toshitaka Sugimachi
President and Representative Director

SPECIAL FEATURE

At the Threshold: The “Social System Industry”
In the decade following its announcement of the “Social System Industry” concept in January
1989, the SECOM Group has used its security network to launch successive new services andsystems as part of the social infrastructure for this new industry. We have expanded fromsecurity services to include medical, educational, information, non-life insurance and real estatedevelopment services providingvital assistance to people and companies in their e veryday
activities. Moreover, we have established the capability to offer these services as integrated
packages, not merely isolatedser vices.
We have used the past decade to prepare the groundwork. Our next challenge is to pick up
the pace to complete the establishment of our “Social System Industry.”

CONTENTS
AT THE THRESHOLD: THE “SOCIAL SYSTEM INDUSTRY”

6

CYBER SECURITY SERVICES

8

NON-LIFE INSURANCE SERVICES

9

GIS SERVICES

10

SECOM
SECOM CO.,CO., LTD.
LTD. Annual
Annual Report
Report 1999
1999

5

SPECIAL FEATUREThe SECOM Group offers more than 100 different types

lineup. These services are used in homes, offices,of services worldwide. Each service must satisfy strict

commercial buildings, banks, schools, hospitals,

conditions—i.e., be judged innovative, valuable tosupermarkets, department stores, temples, museums,

society and a service that SECOM can provide better

factories, amusement parks, airports andhundr eds ofthan any other company—before it is added to ourother settings throughout society.

6

SECOM CO., LTD. Annual Report 1999

SPECIAL FEATURE

INFORMATIONSERVICES

MEDICALSERVICESEDUCATIONSERVICESSECURITYSERVICESGISSERVICES

NON-LIFE
INSURANCECYBERSECURITY

Although we began by offering security services

entirely different level of convenience, security andexclusively, we now offer a myriad of services in the

cost-effectiveness. This is the aim of the “Social System

medical, educational, information, non-life insurance

Industry.” The introduction in June 1998 of SECOM

and real estate development fields. For the workplace,

HOME SECURITY PLUS was a giant step toward ourwe provide on-line centralized security systems, static

goal of integrating a large number of services in a single,

guard services, armored car services, access-control sys-easily operated system. By creating new services andtems, fire extinguishing systems, monitoring systems,

systems that satisfy peoples’ needs and integrating them

intranet integration services, network security andwith our existing services, we are coming closer togroupware for schools, to list but a few.

establishing the “Social System Industry,” an achieve-

For the home, we offer SECOM HOME SECURITY
PLUS, an emergency information system for elderly per-ment that will enable us to contribute significantly toahigher quality of life into the 21st centur y.

sons, fire extinguishers, fireproof safes, in-home medical
treatment, home-visit nursing services, self-administeredhealth management systems, artificial voice boxes, traditional Chinese medicine prescription services, healthfoods, mineral water filtration systems, on-line educational services, cable TV broadcasting, automobile
insurance and many other services.
Although these services and systems are valuable toindividuals or society as stand-alone items, when they
are presented in integrated packages they represent an

SECOM CO., LTD. Annual Report 1999

7

SPECIAL FEATURE

Cyber Security Services
As demonstrated by the explosive growth of the Internet
in Japan, this island nation is rapidly adapting to theinformation age. Today, telecommunications-based
information networks are indispensable to corporate
activities and home life. Many companies use complex
computer networks to manage critical information
assets, including confidential customer and productdevelopment information. However, inadequate networksecurity means that such assets may be highly
vulnerable to theft, tampering and damage.
As the undisputed leader in the security field,

New Synergies with Three
Businesses

SECOM is particularly well positioned to respond to the

The SECOM Group is steadily expanding the suite of

our expansion into this promising field, we marketed

services and systems that will form the “Social System

the IntraVerse line ofsecurity softwar e for e-commerce

Industry.” We recently launched cyber security services

and corporate intranets. We also set up Entrust Japan, toas an extension of our core security services and acquired

serve as the exclusive distributor in Japan of the prod-

a non-life insurance company and a GIS-related systems

ucts of Entrust Technologies, a leading digital certificate

and services provider, which will enjoy significant

developer with operations throughout North America. In

synergies with our existing portfolio of services.

addition, we formed an alliance with Trend Micro Co.,

8

SECOM CO., LTD. Annual Report 1999

growing need for effective cyber security. To facilitateSPECIAL FEATURE

INFORMATIONSERVICES

MEDICALSERVICESEDUCATIONSERVICESSECURITYSERVICESGISSERVICES

NON-LIFE
INSURANCECYBERSECURITY• Intrusion Detection Service: Intrusion sensors are
installed in corporate networks or servers to detect
unauthorized access and take appropriate measures.
• Certificate Authorization: Verification of personal
identity through a digital I.D. is indispensable toe-commerce or information exchanges over the Internet.
We are confident that these new services, coupledwith our existing security services, will be the vehicle
Ltd., to offer 24-hour virus monitoring services, andrequired to pave the way to future growth in the security

created the Cyber Security Division within the parent

business.

company to begin offering the following four services:• Security Consulting Service: This service analyzes

Non-Life Insurance Services

and tests to find security holes in firewalls and other

In September 1998, we entered the non-life insurance

weaknesses in corporate networks, and formulates

field by taking an equity stake in Toyo Fire and Marine

tailored security policies and procedures for customers.

Insurance. The firm’s name was subsequently changed• Virus Monitoring Service: The Cyber Security Service

toSecom T oyo General Insurance and additional shares

Center monitors customer systems for viruses 24 hours

were purchased in March 1999 to make SECOM thea day, 365 days a year, and takes appropriate measures

majority shareholder of this subsidiary.

to safeguard customer data. This service is offered as

Our purpose in entering the non-life insurance

part of a package that also includes insurance against

business is not to sell the conventional types of products

damage caused by viruses.

currently offered by other insurers, but to integrate

SECOM CO., LTD. Annual Report 1999

9

SPECIAL FEATURE

Cost-Reduced Automobile Insurance is also sold directly
to the public, enabling us to offer it at a price that isroughly 20% below conventional car insurance. Cost
savings are reflected in reduced premiums for all age
groups and categories.
By combining elements of insurance with the services
being developed by other members of the SECOM Group,
Secom Toyo General Insurance will seek to meet society’s
needs with innovative products that set new standards.
insurance products with the services we offer as part of
the “Social System Industry.” In other words, we view

GIS Services

this as an opportunity to offer comprehensive security

SECOM has taken a majority stake in Pasco, Japan’s

services that encompass everything from the prevention

leading provider of survey and GIS services, bringing itof crime and fire to insurance against damage and loss.

into the SECOM Group in August 1999. Our main

In December 1998, we launched sales of a new prod-

purpose in taking a stake in this company, which isuct, Cost-Reduced Automobile Insurance. This productlisted on the First Section of the Tokyo Stock Exchange,

incorporates an on-site emergency-response feature.

is to realize synergies between its GIS component andWhen an accident occurs, the policyholder can opt toour other “Social System Industry” services. Pasco

have SECOM emergency-response staff dispatched to

anticipated the development of the information society

the scene at any time of the day or night from the closest

well in advance and was quick to establish its GIS servicesof our emergency service depots around the country.

on a commercial basis, making it an attractive acquisition.

10

SECOM CO., LTD. Annual Report 1999

SPECIAL FEATURE

INFORMATIONSERVICES

MEDICALSERVICESEDUCATIONSERVICESSECURITYSERVICESGISSERVICES

NON-LIFE
INSURANCECYBERSECURITY

GIS services involve the superimposition of data onto

Pasco has offices in nearly every prefecture and its

topographic images to provide high-quality visual aids.

extensive technological capabilities allow it to provide

The same data can be used effectively in a variety ofservices carefully tailored to local needs. Although its

applications on personal computers (PCs). Information,

current focus is primarily on the public sector market,

such as land usage, population, land prices and road

Pasco plans to expand its services for the private sector.

networks, can be superimposed upon the base map andWe thus plan to promote GIS-based information services

then displayed, searched and analyzed. The output canas new components of our “Social System Industry.”

be presented as maps to assist governmental authorities
or private sector companies as planning tools.
Pasco uses its GIS capabilities and the high-quality
maps generated by its aerial surveying division to
engage in three main business segments primarily aimed
at public-sector clients. The first generates land survey
charts for use in city planning and public facility
construction. The second is a construction consulting
service used in emergency preparedness planning,
environmental and disaster response inspections, city
planning, as well as in civil engineering designs for roads,
parks, waterworks, sanitation systems and flood control.
The third develops and markets GIS based on the knowhow generated through the other two business segments.

SECOM CO., LTD. Annual Report 1999

11

REVIEW OF OPERATIONSSERVICES

13

MERCHANDISE, SOFTWARE, MEDICAL AND REAL ESTATE DEVELOPMENT

14

NON-LIFE INSURANCE16OVERSEAS OPERATIONS

16

Subscribers by Category
Year Ended March 31, 1999

Electronic Security Services

Other Security Services

Merchandise, Software, Medical
and Real Estate Development

12

Percentage of
Revenue

Percentage of
Revenue

Percentage of
Revenue

56.8%

10.8%

21.7%

SECOM CO., LTD. Annual Report 1999

REVIEW OF OPERATIONSSERVICESElectronic Security Services
In fiscal 1999, revenue from electronic security services,
including commercial, home and large-scale proprietary
security systems increased 4.6%, to ¥223.9 billion. This
represented 56.8% of total revenue, compared with
66.3% a year earlier.
On-line centralized security systems, the main component of revenue and operating profit for this division,use SECOM equipment located on the subscriber’s premises to monitor for fires, gas leaks, intruders, emergencysituations and equipment malfunctions ar ound theclock from a control center, which is linked via telecommunications circuits. If an alarm is triggered, staff at thecontrol center use the system data to judge whether totake any or all the measures of dispatching a patrol
team, notifying the appropriate authorities, such as
ambulances or the police, and taking other measures
asr equired.
During the fiscal period, we introduced several new
centralized security systems. Foremost among them isthe SECOM HOME SECURITY PLUS system, which
combines the standard features of our centralized security systems with lifestyle support services, such ashome shopping, home banking and medical consultation, made possible by a built-in multimedia Super
Terminal. We also released the SECOM AX on-line security system for corporate subscribers, which utilizes
image sensors incorporating the latest image processing
technology to detect unauthorized entry with high accuracy. It works by having the image sensors detect ananomaly, which is digitally reported to the control centerby the SECOM AX controller. If the alarm is caused byan intruder, the image shot at the time of the trigger
event and the 10 still frames shot by the monitoring
camera immediately before and after the trigger event
are transmitted to the control center. If the alarm is triggered by the pressing of an emergency button, an image

shot at the time of the pressing of the button and the
10still frames shot immediately befor e that and ongoing
images are transmitted to the control center. The images
are then visually scanned by the control center staff who
promptly assess the situation and take the appropriate
action. The system also includes an on-site microphone,which enables our staff to monitor the sounds from thepremises, as well as a speaker, which permits the staff toissue warning to the intruder.

Other Security Services
These services are chiefly centered on static guard andarmored car services, which generated revenues of ¥42.5
billion, a 5.1% gain over the prior period, and constituted
10.8% of total revenue compared with 12.5% last term.
CENTRALIZED SECURITY SERVICES

Dispatch

Alert asNecessary
Telephone Circuit Alert

Emergency
Response
Personnel
Gas
Company

PoliceFire
Department

SECOM CO., LTD. Annual Report 1999

13

REVIEW OF OPERATIONSMERCHANDISE, SOFTWARE, MEDICAL AND
REAL ESTATE DEVELOPMENT

Software and Information andCommunications-Related Services

Revenue for this division reached ¥85.6 billion, a 37.6%
advance, accounting for 21.7% of total revenue, up from
19.3% a year earlier.

We recently joined 15 Japanese companies in forming
Entrust Japan as the sole distributor in Japan of PKI
digital identification (ID) certification technologies
developed by Entrust Technologies of the United States,
a leading developer for the corporate market. Wealso
formed an alliance with the anti-virus software giant,
Trend Micro, to start a cyber security service aimed
atprivate- and public-sector companies andorganizations.

Merchandise
SECOM merchandise primarily consists of accesscontrol systems, fire-detection and extinguishingsystems, and intruder detection systems that can bepurchased as stand-alone equipment or incorporated
into a centralized system.
During the term, we released SESAMO-IDs, an
upgraded version of this fingerprint-based access-control
system that is faster and more accurate. Unlike systems
using keys, cards or code numbers, fingerprint-based
access-control systems are not subject to the problems of
duplication, loss or inappropriate disclosure, which has
positioned them as a strong selling item. However, customers have also asked for less expensive versions, towhich we have responded with SESAMO-IDs. We redesigned the system to be more compact and suitable foroutdoor installations, while significantly reducing thecost. As a consequence, this unit has become popular for
use in ordinary offices, shops and other small facilities.
Our TOMAHAWK MACH I fire extinguishing systems and TOMAHAWK MACH II home-use models havereceived extensive praise for features such as an extendible hose that eliminates the need to carry the entire
system around to reach a wide area, and for ease ofoperation, which is accomplished simply by pointing thenozzle at the base of the fire and pressing a button. We
introduced updated versions of both systems during theterm that are smaller, lighter and less expensive thantheir predecessors.

HOME EDUCATIONInternetCommunication(Guidance andCounseling)

InternetCommunication(Finished Assignment
Transfer and Questions)Internet Communication

14

SECOM CO., LTD. Annual Report 1999

REVIEW OF OPERATIONSSECOM is promoting its home-based medical services
asan alter native to more costly and less comfortable
extended hospital sojourns. We launched the Medidata

service package as part of the Secom Home Medical
System to allow patients at home to relay test results,
conducted with self-administered analytical equipment
rented as part of the service, to their primary physicians
on-line. We also released the SECOM Group’s first
health and welfare product, an electronically operated
artificial voice box marketed as My Voice. This device
isbetter than pr eviously available products because
itsspeech synthesis pr oduces a more natural sounding
intonation and it is easy to wear and operate, and theSecomNurse Center , which operates around-the-clock

HOME MEDICAL SERVICES

HOSPINET SERVICE

In our home education segment, Secom Lines
launched sales of the Lines Sensei Denjyuku homeeducation service, which is delivered via the Internet
and CD-ROM. It also began offering the Internet Series
for Schools educational software, which enables accessto unsuitable sites for children to be blocked.

Medical Services

Nurse
ReportPhysicianGuidance

Medical Examination

Coordination

Report(Fax)

Request for
Examination

Pharmaceutical
Delivery

Coordination

Visiting

Image
Transmission(ISDN)
Request for
Examination

Subscribing
MedicalInstitution (Image
Examination
Center)MedicalExamination

Prescription

Prescription

Request for
Examination

Request for
Examination

SECOM CO., LTD. Annual Report 1999

15

REVIEW OF OPERATIONS

throughout the year, responds promptly if the device
malfunctions.
Secom Kampo System launched mail-order sales of
its health food products during the year. These products
are made from natural ingredients and are recommended
by doctors in leading university hospitals.
We continued to promote sales of the “Hospinet”
service, which enables high-speed transmission of medical data between subscribing medical institutions andSECOM’s Hospinet Center, an image diagnosis facility,
via integrated services digital network (ISDN).

Real Estate Development
Subsidiary Eclairer Co., Ltd., develops and sells high-grade
condominiums. Synergies between the company’s residential real estate know-how and SECOM’s comprehensive
home security services are enabling the SECOM Group tooffer more convenient and safer living environments.

NON-LIFE INSURANCE
Secom Toyo General Insurance, which began operations
during the period, offers a wide range of innovative andaffordably priced products. These include Cost-Reduced
Automobile Insurance. Rates for Cost-Reduced Automobile Insurance are roughly 20% cheaper than those forconventional car insurance, regardless of the age or license class of the insured party. This product also
features an emergency response feature, which enables
policyholders to summon assistance from any one of
SECOM’s emergency service depots around-the-clock inthe event of an accident.
Secom Toyo General Insurance will continue to focus
on the development and marketing of groundbreaking
non-life insurance products that distinguish it from its
competitors.

OVERSEAS OPERATIONSThe SECOM overseas security network now serves
subscribers in 10 foreign countries: the United States,

16

SECOM CO., LTD. Annual Report 1999

Taiwan, the Republic of Korea, Thailand, Malaysia,
Singapore, Indonesia, China, the United Kingdom andAustralia. Our operations in the United States and other
Asian markets have turned in steady sales increases inrecent years despite a difficult operating environment.
In Asia, our subsidiaries in Taiwan and the Republic ofKorea have established strong presences in their local
markets and listed their shares on their respective stock
exchanges.
During the period, the Westec Security Group, Inc.,in the United States reorganized its operations, selling
off its residential customer base in order to concentrateon thecommer cial market with on-line security systems
incorporating remote imaging functions.

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

40COMMON STOCK DATA41

SECOM CO., LTD. Annual Report 1999

17

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

Operating Results
In the fiscal year ended March 31, 1999, SECOM endeavored to broaden its business activities by enhancing its
services, particularly in the area of security services, aswell as in such fields as information systems, medical services, home education, non-life insurance and real estatedevelopment, expanding marketing, and improving systemand product development capabilities. Consolidated revenue
climbed 22.1% from the preceding period, to ¥394.1 billion,
mainly because of a gain on sale of investment in securities
and full consolidation of Eclairer. Revenue from services,which includes revenue from centralized and other security
services, advanced 4.7%, to ¥266.3 billion, and accounted
for 67.6% of total revenue, down from 78.8% in the previous
fiscal year. Revenue generated by merchandise, software,
medical operations and real estate development amounted
to ¥85.6 billion, an increase of 37.6%, and accounted for
21.7% of the total, up from 19.3%. The net gain on saleofinvestment in securities totaled ¥35.7 billion, of which¥35.9 billion was generated by the sale of all shares held inthree subsidiaries, comprising ¥13.1 billion generated by
the saleof shar es in Tokyo Internet Corporation, in Japan,
and¥22.8 billion on the sale of shar es in U.S. subsidiaries
Westec Residential Security, Inc., and Valley Burglar andFire Alarm Co., Inc. Interest and other was ¥6.5 billion.
Costs and expenses were ¥311.5 billion, an increase of
15.0%, primarily due to rises in the cost of services and thecost of merchandise, software, medical operations and realestate development, paralleling the increase in revenues inboth categories. Cost ofser vices rose 6.2%, to ¥139.8 billion, or 52.5% of revenue from services, primarily due toincreases in personnel, depreciation and communication
expenses. Cost of merchandise, software, medical operations
and real estate development climbed 50.2%, to ¥65.7 billion,

18

SECOM CO., LTD. Annual Report 1999

equivalent to 76.7% of revenue in this category. Selling, general and administrative (SGA) expenses increased 7.7%, to¥96.8 billion, and corresponded to 24.6% of revenue, downfrom 27.8% the previous period. SGA expenses include ¥4.8
billion invested in research and development, down from
¥5.4 billion. Other expenses rose 74.0%, to ¥8.1 billion.
Income taxes rose ¥1.5 billion, to ¥32.4 billion (seeNote 15). Net income soared 2.6 times, to ¥49.9 billion.
Return on revenue was 12.7%, compared with 5.9% thepreceding year. Basic net income per share was ¥429.03,
upfr om ¥163.40, and fully diluted net income per sharerose to ¥428.17, from ¥162.96. Cash dividends per share of¥70.00 were approved at the general shareholders’ meetingon June 29, 1999.

Financial Position
Total assets of SECOM amounted to ¥643.5 billion on
March 31, 1999, an increase of 34.1% from the previous
fiscal year-end. Total current assets were ¥362.9 billion,
up58.2%. Cash and cash equivalents climbed 40.9%, to¥149.0 billion. Short-term investments soared 142.5%, to¥87.6 billion, owing to reinvestment of cash earned on thesale of shares in subsidiaries and the addition of securities
held by newly consolidated subsidiary Secom Toyo General
Insurance. Short-term receivables soared 165.0%, to ¥20.6
billion. The current ratio was 2.4 times, compared to 1.8
times in the preceding period, indicating a level of liquidity
sufficient for the Company to cover all of its debt obligations
and pursue active investment programs.
Property, plant and equipment, less accumulated depreciation, rose 3.9%, to ¥155.8 billion. This gain is primarily
attributable to increases in buildings and improvements,
control station signal equipment and signal equipment on
subscribers’ premises. Other assets declined 67.0%, to¥7.4billion.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

Total current liabilities were ¥151.3 billion, up 19.1%,
due largely to an increase in bank loans to cover investment costs for real estate subsidiary Eclairer Co., Ltd., andcash for replenishing cash dispensers for which SECOM
provides security services. Long-term liabilities also
expanded, as the consolidation of Secom Toyo General
Insurance added ¥30.1 billion in unearned premiums andother insurance liabilities and ¥57.5 billion in investment
deposits by policyholders.
Shareholders’ equity rose 15.3%, to ¥327.1 billion,
owing primarily to a ¥41.6 billion increase in retained
earnings and to a ¥6.0 billion net unrealized gain in debt
and equity securities. The equity ratio was 50.8%. downfrom 59.2% a year earlier, reflecting the increase in liabilities, which was caused by the consolidation of the accountof Secom Toyo General Insurance for the first time.

Cash Flows
SECOM maintains ample liquidity to ensure flexibility in
its operations and support a sound financial foundation.
Tothis end, the Company finances its various investing
activities with cash generated by its operating activities.
During the period under review, net cash provided byoperating activities declined ¥25.5 billion, to ¥31.9 billion,
primarily owing to increases in inventories of real estate
for sales by Eclairer and receivables and due from subscribers, net of allowances. Depreciation and amortization
increased ¥0.8 billion, to ¥30.5 billion.
Although payments for purchases of property, plant andequipment rose ¥3.9 billion, to ¥46.3 billion, an increase inproceeds from sales of shares in three subsidiaries and cash
provided by the acquisition of Secom Toyo General Insurance contributed to ¥3.3 billion in net cash provided byinvesting activities, compared with ¥50.1 billion in cashused in these activities in the preceding period.
Net cash provided by financing activities amounted to¥8.7billion, owing to an incr ease in bank loans related tothe investments by subsidiary Eclairer. In the previous
fiscal year, these activities used ¥16.3 billion.
Dividends paid climbed ¥0.6 billion for the year underreview, owing to a per share dividend increase to ¥65.00,
up from ¥60.00 a year earlier.
As a consequence of SECOM’s operating, investing andfinancing activities, cash and cash equivalents at the end of
the year amounted to ¥149.0 billion, an increase of ¥43.2
billion from ayear earlier .

Subsequent Event
On August 11, 1999, SECOM acquired a 67.5% stake in
Pasco. The total amount of SECOM’s investment was¥15.0billion.

The Year 2000 Issue
SECOM recognized the importance of dealing with the
Year2000 Issue at an early stage of its appearance, and hastaken steps to ensure compliance. The Company has concluded reconstruction of its centralized security service
and accounting and personnel systems, and has completed
both the modification of systems used by customers, including monitoring systems for automatic teller machines,
andthe installation of adjusted systems. In Januar y 1999,
SECOM launched a Year 2000 Action Program and established a Year 2000 Compliance Committee, which is chairedby the president and comprises directors of the Company
and presidents of subsidiaries andaf filiates. The committee
is responsible for overseeing research, the determinationand implementation of modifications, and follow-up
activities, and reports directly to the Board of Directors.
Priority modifications to all customer rental systems
and equipment, as well as internal computer systems,
external interfaces and building facilities, were concludedin June 1999. The Company expects to complete all othermodifications by September 1999, in line with the schedule
set out inits Y ear 2000 Action Program.
Measures aimed at achieving Year 2000 compliance forexisting systems and equipment have been implemented aspart of regular modification and redevelopment, while Year
2000 compliance has been built into new product development and internal system reconstruction procedures.
Accordingly, itis impossible to separate costs exclusively
for Year 2000 compliance.
SECOM does not expect costs incurred in the future toachieveY ear 2000 compliance to have any significant effecton itsconsolidated operations or financial condition.
SECOM is currently formulating contingency plans
tominimize pr oblems should unforeseen circumstances
related to the Year 2000 Issue cause a system breakdown
orother wise interrupt the Company’s services.
SECOM is making every possible effort to ensure Year
2000 compliance. However, because the potential impact
ofthe Y ear 2000 Issue involves not only the SECOM
Group’s own systems, but also those of its customers,
communications and other general infrastructure, andbecause unforseen circumstances may develop, there isnoguarantee that Y ear 2000 problems will not materiallyaffect SECOM’s operations and financial results.

SECOM CO., LTD. Annual Report 1999

19

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETSSECOM CO., LTD. and Subsidiaries
March 31, 1999 and 1998ASSETS
Current assets:
Cash and cash equivalents (Notes 6 and 19)
Cash deposits (Notes 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
Deferred income taxes (Note 15)
Goodwill (Note 5)
Intangibles and other

The accompanying notes are an integral part of these statements.

20

SECOM CO., LTD. Annual Report 1999

In millions of yen

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

March 31

March 31

1999

1998

1999

¥149,046
43,70387,597
17,621
11,90524,186
20,559(1,590)
2,034
986
6,860

¥105,808
33,03036,11912,715
10,263
17,592
7,757(1,317)
—
1,388
6,067

$1,231,785
361,182
723,942
145,628
98,389199,884
169,909(13,141)
16,8108,149
56,694362,907229,422

2,999,231

46,46823,631
27,546
8,526
12,847(1,620)28,97621,0987,691
8,171
12,470(208)

384,033
195,297
227,653
70,463
106,174(13,388)

117,398

78,198970,232

41,24054,27680,540124,981
34,4503,163

38,59352,07977,922
113,066
36,651
4,040

340,826
448,562
665,620
1,032,901
284,711
26,140338,650(182,857)

322,351(172,453)

2,798,760(1,511,215)

155,793

149,898

1,287,545

4,514
—
321
2,521

4,956
8,537
3,252
5,578

37,306—
2,653
20,835

7,356

22,32360,794¥643,454¥479,841$5,317,802

In millions of yen

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

March 31

March 31

1999

1998

1999

¥ 32,704
9,849
9,692
11,032
28,61723,750¥018,790
5,637
8,114
9,025
19,08925,683$0,270,281
81,39780,09991,174
236,504
196,281

16,941
10,373
8,293

19,106
11,9389,662

140,008
85,727
68,537

151,251

127,044

1,250,008

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

23,227
16,208
16,975———

177,777
143,182
175,521248,843
475,471
15,107

149,544

56,4101,235,901

Minority shareholders’ equity in subsidiaries

15,512

12,547

128,198

Shareholders’ equity:
Common stock, ¥50 par value (Notes 16 and 21)—
Authorized—300,000,000 shares
Issued—1999—116,392,109 shares
1998—116,233,393 shares
Additional paid-in capital (Notes 16 and 21)
Legal reserve (Note 16)
Retained earnings
Net unrealized gain in debt and equity securities (Note 8)
Additional minimum pension liabilities adjustments (Note 13)
Cumulative foreign currency translation adjustments

65,710—79,318
6,677
183,968
13,068(8,819)(12,656)—
65,32778,928
5,956
142,326
7,083(7,931)(7,824)543,058—
655,520
55,182
1,520,397
108,000(72,884)(104,595)

327,266

283,865

2,704,678

119

25

983

327,147

283,840

2,703,695¥643,454¥479,841$5,317,802

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Bank loans (Notes 7, 11 and 19)
Current portion of long-term debt (Notes 11 and 19)
Notes and accounts payable, trade (Note 19)
Other payable
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 and 19)
Guarantee deposits received from subscribers
Accrued pension and severance cost (Note 13)
Unearned premiums and other insurance liabilities (Note 12)
Investment deposits by policyholders
Deferred income taxes (Note 15)

Less—Common stock in treasury, at cost;
3,185 11,817 shares in 1999 and 3,185 shares in 1998

Commitments and contingent liabilities (Note 20)

The accompanying notes are an integral part of these statements.

SECOM CO., LTD. Annual Report 1999

21

CONSOLIDATED STATEMENTS OF INCOME
SECOM CO., LTD. and Subsidiaries
The three years ended March 31, 1999
In millions of yen

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

Years ended March 31

Year ended March 31

1999

1998

1997

1999

¥266,346
85,58035,7006,520¥254,493
62,184570
5,557¥240,523
57,459732
5,082$2,201,207
707,273
295,041
53,884394,146

322,804

303,796

3,257,405

139,764
65,677
96,837
1,078
8,097

131,633
43,72689,877
1,051
4,654

122,70940,80980,642
1,195
4,150

1,155,075
542,785
800,306
8,909
66,917

311,453

270,941

249,505

2,573,992

Income before income taxes

82,69351,86354,291

683,413

Income taxes (Note 15):
Current
Deferred

34,946(2,573)31,533(683)

29,707514

288,810(21,265)

32,37330,85030,221

267,545

Income before minority interest in subsidiaries

50,32021,01324,070415,868

Minority interest in subsidiaries

1,241

1,676

971

10,256

Income from consolidated operations

49,07919,33723,099405,612

839

(347)

(301)

6,933

¥ 49,918¥ 18,990¥ 22,798$ 412,545

In exact yen

Translation into U.S.
dollars (Note 3)

Year ended March 31

Year ended March 31

Revenue:
Services
Merchandise, software and medical
Gain on sale of investment in securities (Note 22)
Interest and other (Note 14)

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

Equity in net gains/(losses) of affiliated companies
Net income

Per share data (Note 4):
Net income — Basic— Diluted
The accompanying notes are an integral part of these statements.

22

SECOM CO., LTD. Annual Report 1999

1999

1998

1997

1999

¥429.03¥428.17¥163.40¥162.96¥197.37¥197.03

$3.55
$3.54

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYSECOM CO., LTD. and Subsidiaries
The three years ended March 31, 1999
In millions of yen

Balance, March 31, 1996
Comprehensive income—Net income
Other comprehensive income, net of tax (Note 16):
Unrealized gains 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
Sale of treasury stock, net of tax
Balance, March 31, 1997
Comprehensive income—Net income
Other comprehensive income, net of tax (Note 16):
Unrealized gains 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
Sale of treasury stock, net of tax
Balance, March 31, 1998
Comprehensive income—Net income
Other comprehensive income, net of tax (Note 16):
Unrealized gains on securities—
Unrealized holding gains arising during period
Less: Reclassification adjustment for gains
Less: included in net income
Minimum pension liabilities adjustments
Translation adjustments
Total comprehensive income
Cash dividends
Transfer to legal reserve
Conversion of convertible bonds
Sale of treasury stock, net of tax
Balance, March 31, 1999

Number ofsharesissuedCommonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings

Accumulated
othercomprehensive
income114,378,620¥59,865¥73,462¥4,536¥114,649¥(8,355¥260,867

—

—

—

—

22,798—22,798

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(3,287)(3,954)
3,172——
1,825,204—
116,203,824

—
—
5,388
—
65,253——5,387
178,850

—
652
—
—
5,188

(5,719)(652)———
131,076

—
—
—
—
4,286

(3,287)(3,954)
3,172
18,729(5,719)—10,775
1284,653

—

—

—

—

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)(9,541)(3,977)560
6,032(6,972)—148
4283,865

—

—

—

—

49,918—49,918

—

—

—

—

—

6,000

6,000

—
—
—

—
—
—

—
—
—

—
—
——

—
—
—

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

—
—
383
—
¥65,710——383
7¥79,318—721——¥6,677(7,555)(721)——¥183,968————¥(8,407)

(15)
(888)
(4,832)50,183(7,555)—766
7¥327,266

TOTAL

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

Balance, April 1, 1998
Comprehensive income—Net income
Other comprehensive income, net of tax (Note 16):
Unrealized gains on securities—
Unrealized holding gains arising during period
Less: Reclassification adjustment for gains
Less: included in net income
Minimum pension liabilities adjustments
Translation adjustments
Total comprehensive income
Cash dividends
Transfer to legal reserve
Conversion of convertible bonds
Sale of treasury stock, net of tax
Balance, March 31, 1999

Accumulated
othercomprehensive
incomeCommonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings$539,893$652,297$49,223$1,176,248

—

—

—

412,545—

412,545

—

—

—

—

49,58749,587

—
—
—

—
—
—

—
—
—

—
—
—

(124)
(7,339)(39,934)

—
—
3,165
—
$543,058

—
—
3,165
58
$655,520

—
5,959
—
—
$55,182(62,437)(5,959)——$1,520,397

TOTAL$(71,669) $2,345,992(124)(7,339)(39,934)
414,735—(62,437)
—
—
—
6,330
—
58
$(69,479) $2,704,678

The accompanying notes are an integral part of these statements.
SECOM CO., LTD. Annual Report 1999

23

CONSOLIDATED STATEMENTS OF CASH FLOWSSECOM CO., LTD. and Subsidiaries
The three years ended March 31, 1999

1999

Cash flows from investing activities:
Proceeds from sales of property, plant and equipment
Payments for purchases of property, plant and equipment
Proceeds from sales of investment in securities
Payments for investments in securities
Decrease in short-term investments
Proceeds from sales of Tokyo Internet Corporation
Proceeds from sales of Westec Residential Security, Inc. andValley Burglar and Fire Alarm Co., Inc.
Acquisition of Secom Toyo General Insurance Co., Ltd.,
net of cash acquired
Payments for acquisition of Eclairer Co., Ltd.
Increase in other assets
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Repayments of long-term debt
Increase (decrease) in bank loans
Dividends paid
Increase in treasury stock
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents

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

Years ended March 31

Year ended March 31

1998

1997

1999

¥018,990¥022,798$0,412,545

29,7092,229(683)

28,917892
514

252,413
14,323(21,265)

1,627
—

887
—

16,430(107,884)

—
347
1,676

—
301
971

(188,661)(6,933)
10,256(5,935)(3,963)(88,206)(2,174)
38
(701)
2,690
1,526
2,211
1,471
4,507
(106)

(2,958)
(848)
365
1,891
(590)
257
1,083
799
46

(43,099)(59,529)(3,463)
10,61178,752(17,521)
3,818(2,835)3,810

31,891

57,42251,362

263,562

1,774(46,332)606(13,214)
3,993
11,757399(42,389)5,208(12,589)
4,017
—

245
(27,033)862(13,205)
4,982—

14,661(382,909)
5,008(109,206)
33,00097,16533,503——276,884

14,166—(4,866)
1,913—(1,990)(5,494)
2,758——(2,256)
1,557

117,075—(40,215)
15,8103,300(50,080)(34,848)

27,273

7,445(5,016)
13,908(7,555)(94)

10,351(8,210)(11,488)(6,972)(6)393(7,727)(323)(5,718)(6)

61,529(41,454)
114,942(62,438)
(777)

8,688

(16,325)(13,381)

71,802

(641)

(571)

620

(5,298)Cash flows from operating activities:
Net income¥ 49,918
Adjustments to reconcile net income to net cash provided
by operating activities—
Depreciation and amortization
30,542
Pension and severance costs
1,733
Deferred income taxes(2,573)Net loss on sales and disposal of fixed assets
and investment securities
1,988
Gain on sales of Tokyo Internet Corporation(13,054)
Gain on sales of Westec Residential Security, Inc. andValley Burglar and Fire Alarm Co., Inc.
(22,828)
Equity in undistributed (income) losses of affiliated companies(839)
Minority interest in income of consolidated subsidiaries
1,241
Changes in assets and liabilities, net of effects from acquisitions
and disposals:
Increase in cash deposits (Note 7)(10,673)
Increase in receivables and due from subscribers,
net of allowances(5,215)(Increase) decrease in inventories(7,203)(Increase) decrease in other current assets(419)
Increase in payables and deferred revenue
1,284
Increase (decrease) in deposits received
9,529
Increase (decrease) in accrued taxes on income(2,120)
Increase in guarantee deposits received
462
Increase (decrease) in other current liabilities
(343)
Other
461
Net cash provided by operating activities

In millions of yen

Net increase (decrease) in cash and cash equivalents

43,238(9,554)

3,753

357,339

Cash and cash equivalents at beginning of year

105,808

115,362

111,609874,446

Cash and cash equivalents at end of year

¥149,046¥105,808¥115,362$1,231,785

The accompanying notes are an integral part of these statements.

24

SECOM CO., LTD. Annual Report 1999

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECOM CO., LTD. and Subsidiaries

1. Nature of operations
The Company is engaged in security services, informationand communication related services, insurance services andmedical services. The Company’s principal business activities
are security services including on-line centralized security
services for commercial and residential premises, as well aslarge-scale proprietary security systems, static guard services, armored car services for money collection and deposit,
and the development, manufacturing and sale of various
security equipment.
To grow the Social System Industry concept, the Company
is diversifying its operations to cover information and communication services, including software development andsystem integration activities, on-line home education services, and home medical services and other medical services.
Furthermore, the Company also provides non-life insurance
and real estate development services .
2. Significant accounting policies
The parent company and its Japanese subsidiaries maintain their records and prepare their statutory financial statements in accordance with accounting principles generally
accepted in Japan. Certain adjustments and reclassifications
have been incorporated in the accompanying financial statements to conform with accounting principles generally
accepted in the United States of America. These adjustments
were not recorded in the statutory books of account.
The preparation of financial statements in conformity withgenerally accepted accounting principles requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues andexpenses 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:(1) Basis of consolidation and investments in affiliatedcompanies
The consolidated financial statements include those of
the parent company and its subsidiaries (“the Company”).
All intercompany transactions and accounts have been
eliminated in consolidation.
Investments in 20 to 50 percent owned companies, inwhich the ability to exercise significant influence exists, areaccounted under the equity method. Consolidated income
includes the Company’s current equity net gains (losses)
ofaffiliated companies, after elimination of intercompany
profits.
The excess of the cost over the underlying net equity ofinvestments in subsidiaries as well as companies accounted
for on an equity basis, is recognized as goodwill, and isamortized on a straight-line basis over periods not exceeding
10 years.
(2) Foreign currency translation
All asset and liability accounts of foreign subsidiaries andaffiliates are translated into Japanese yen at appropriate
year-end exchange rates and all income and expense accounts
are translated at average rates of exchange during the year.
The resulting translation adjustments are accumulated andreported as a separate component of shareholders’ equity.
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.
(3) Cash equivalents
For the purpose of the statements of cash flows, theCompany considers all highly liquid investments purchasedwith 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 and equity securities which are classified as“available-for-sale” are recorded at current market value.
Unrealized gains and losses on securities classified as“available-for-sale” are reported in a separate component
ofshareholders’ equity , net of tax. Debt securities that are
expected to be “held-to-maturity” are reported at amortizedcost. Other investments in nonpublic companies are recorded
at cost.
Realized gains or losses on the sale of investments are
based on the moving-average cost method and are credited
or charged to income.
(5) Inventories
Inventories are stated at cost not in excess of net realizablevalue. Cost is determined principally by the moving-averagemethod.
(6) Deferred insurance aquisition costs
Costs that vary with and are primarily related to acquiring
newinsurance policies are deferred and are being amortized
mainly over the premium-paying period of the related insurance policies applying a percentage relationship of cost
incurred to premiums from contracts issued to applicable
unearned premiums throughout the period of the contract.
(7) Property, plant and equipment and depreciation
Property, plant and equipment, including significant
betterments, are carried at cost. When retired or otherwise disposed of, the cost and related depreciation are cleared from the
SECOM CO., LTD. Annual Report 199925

respective accounts and the net difference, less any amounts
realized on disposition, is reflected in earnings. Depreciation iscomputed primarily by the declining-balance method at rates
based on the estimated useful lives of the assets. Depreciation
expense was ¥28,838 million ($238,331 thousand), ¥27,054 million and ¥26,243 million for the years ended March 31, 1999,
1998 and 1997, 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(8) Telephone and telegraph utility rights
These rights are shown at the net amount of their original
cost less amortization thereof using the straight-line method
over a period of 20 years.
(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,
held and used are reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying
amount of the assets may not be recoverable.
(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
the remaining contract periods. Other insurance liabilities consist principally of liabilities for unpaid claims and adjustment
expenses which are estimates of payments to be made onreported claims and incurred but not reported claims which
are computed based on past experience for unpaid losses.
(11) Income taxes
The provision for income tax is computed based on thepretax income included in the consolidated statements ofincome. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Valuation
allowances are recorded to reduce deferred tax assets when
it is more likely than not that a tax benefit will not be realized.
(12) Revenue recognition
Revenue is recognized from security services over thecontractual period or, in the case of specific services, whensuch services are performed. Merchandise and softwaresales are recognized as products are shipped or, in the caseof installations, when such installations are completed.

26

SECOM CO., LTD. Annual Report 1999

Property and casualty insurance premiums are earned
ratably over the terms of the related insurance contracts.
Unearned premiums are recognized to cover the unexpired
portion of premiums written.
Subscribers are generally requested to prepay a portion ofservice charges which are credited to deferred revenue andtaken into income as earned.
(13) Research and development
Research and development costs are charged to expense
as incurred.
(14) Interest rate swap and currency swap agreement
The Company enters into interest rate swap or currency
swap agreements in order to limit the Company’s exposure
to loss in relation to underlying debt instruments resulting
from adverse fluctuations in interest rates or foreign currency
exchange rates. The related interest differentials paid or
received under these agreements are recognized over theterms of the agreements in interest expense.
(15) Earnings per share
Basic Earnings per Share (“EPS”) is computed based on
the average number of shares of common stock outstanding
for the 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 the issuance of common stock. All prior-period EPS data
presented have been restated to conform with FAS 128.
(16) 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 eitherby (i) a transfer equal to par value or more from additional
paid-in capital to the common stock account or (ii) issuanceof new shares without any change in the common stock
account if the common stock account exceeds the aggregate
par value of all issued shares including the newly issued
shares. Such free share distributions are clearly distinguishedfrom “stock dividends” which, under the Commercial Codeof Japan, as amended effective April 1, 1991, are effected by
an appropriation of retained earnings to the common stock
account by a resolution of the shareholders and an issuanceof additional shares by way of stock split with respect to theamount appropriated by resolution of the Board of Directors.
A corporation in the United States of America issuingshares, comparable to less than 25 percent free share distributions, would be required to account for them as stock dividends and the fair value of the shares would be transferredfrom retained earnings to the appropriate capital accounts.
Such transfers, however, would have no effect on total
shareholders’ equity (Note 21).

Free distributions of common stock are included in the EPS
calculation in accordance with accounting principles generally
accepted in the United States of America.
(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 is defined in this standard as total change instockholders’ 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 todisclose comprehensive income and its components in the
consolidated statements of changes in shareholders’ equity.
(18) Recent pronouncements
In June 1998, FASB issued Statement of Financial Accounting Standards 133 (“FAS 133”), “Accounting for Derivative
Investments and Hedging 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 arecognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of
aforecasted transaction, or (c) a hedge of the foreign cur rency exposure of a net investment in a foreign operation,
anunrecognized 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 case of the Company, this statement
is effective for the fiscal year beginning April 1, 2001.
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position (“SOP”) 98-1,“Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use.” This SOP, which is effective forfinancial statements for fiscal years beginning after December 15, 1998, provides guidance on accounting for the costsof computer software developed or obtained solely to meet
the Company's internal needs. At this stage, it is not possible
to estimate the impact of adoption of this SOP on the
Company’s financial position or results of operations.
(19) Reclassifications
Certain reclassifications of previously reported amounts
have been 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 thattheyen amounts actually represent, or have been or could be
converted into U.S. dollars. The translations of yen into U.S.
dollars have been made at the rate at March 31, 1999,¥121=US$1.
4. Reconciliation of the differences between basic anddiluted EPS
Reconciliation of the differences between basic and diluted
EPS for the years ended March 31, 1997, 1998, and 1999, is asfollows:
In millionsof yenThousandsof shares

IncomeWeightedaverage shares

EPS

115,509¥197.37

For the year ended March 31, 1997
Basic EPS
Net income available to common
stockholders¥22,798
Effect of dilutive securities
Convertible bonds

In yen48

444¥22,846

115,953¥197.03

For the year ended March 31, 1998
Basic EPS
Net income available to common
stockholders¥18,990

116,218¥163.40

Diluted EPS
Net income for computation

Effect of dilutive securities
Convertible bonds
Diluted EPS
Net income for computation

16

414

¥19,006

116,632

In millions Thousandsof yenof shares
IncomeFor the year ended March 31, 1999
Basic EPS
Net income available tocommon stockholders¥49,918¥162.96

In yen In dollars

Weightedaverage
sharesEPS

EPS

116,350¥429.03$3.55

Effect of dilutive securities
Convertible bonds

9

16255

414

Diluted EPS
Net income for computation¥49,927

116,605¥428.17$3.54

5. Acquisition
In December 1997 and January 1998, the parent company
subscribed, in two installments, to new shares issued byEclairer Co., Ltd. (“Eclairer”), a real estate development company in Japan, for an aggregate amount of ¥1,990 million($16,446 thousand). As a result, the parent company now
owns 99.8 percent of the outstanding shares of Eclairer.

SECOM CO., LTD. Annual Report 1999

27

In September 1998 and March 1999, the parent company
subscribed, in two installments, to new shares issued by
Secom Toyo General Insurance Co., Ltd. (“Secom Toyo”),
anon-life insurance company in Japan, for an aggregate
amount of ¥9,029 million ($74,620 thousand). As a result, theparent company now owns 75.9 percent of the outstanding
shares of Secom Toyo.
The acquisitions referred to above have been accounted for
as a purchase and the assets and liabilities of the acquiredcompany have been consolidated at their fair value. The
results of its operations have been included in the consolidated statements of income since the date of acquisition of
the majority of outstanding shares. The excess of the purchaseprice over the value assigned to the underlying net assets
acquired is included in goodwill at March 31, 1999 and 1998
amounting to ¥300 million ($2,479 thousand) and ¥3,252
million, respectively. The goodwill is being amortized on
astraight-line basis over periods not exceeding 10 years.
The consolidated pro forma information which would show
the results of the Company’s consolidated operations for theyears ended March 31, 1999, 1998 and 1997, have not been
disclosed because prior year comparative accounting figures
for the acquired companies are not available.
6. Cash and cash equivalents
Cash and cash equivalents as of March 31, 1999 and 1998,
were comprised as follows:

Cash
Time deposits
Investment securities

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

8. Short-term investments and investment securities
Short-term investments (current) and investment securities(noncurrent) include debt and equity securities, of which theaggregate fair value, gross unrealized gains, gross unrealized
losses and cost pertaining to “available-for-sale” and “heldto-maturity” investments as of March 31, 1999 and 1998,
were as follows:
In millions of yen
March 31, 1999
Gross unrealized
Cost

Gains

LossesFair value

Available for sale:
Equity securities¥37,286
Debt securities
23,00845,880¥29,288330¥3,461
469¥063,113
45,741

Total¥83,166¥29,618¥3,930¥108,854

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

In thousands of U.S. dollars
March 31, 1999
Gross unrealized

1999

1998

1999

Cost

Gains

LossesFair value¥ 65,673
42,26041,113¥043,388
37,422
24,998$ 542,752
349,256
339,777

Available for sale:
Equity securities
Debt securities$308,149
379,174$242,049
2,727$28,603
3,876$521,595
378,025¥149,046¥105,808$1,231,785

Total$687,323$244,776$32,479$899,620

Held to maturity:
Debt securities$165,289$010,083$$175,372

Investment securities include marketable bonds of theJapanese Government, deposits with financial institutions,and assets purchased under agreements to resell, most ofwhich are held for safekeeping in the name of the relevant
company by financial institutions such as banks and securities companies. These agreements mature generally within
three months and the carrying values approximates market.
The Company has never experienced any losses by default of
the financial institutions and does not anticipate any default
on agreements outstanding.
7. Cash deposits
The Company operates cash collection and deposit services for banks relating to cash dispensers outside of bankfacilities. Cash deposit balances, mostly in cash dispensers,of ¥43,703 million ($361,182 thousand) and ¥33,030 million
asof March 31, 1999 and 1998, respectively , are segregated28

from cash and cash equivalents and are restricted as to useby the Company. The Company funds most of the necessary
cash by use of bank overdrafts with the related banks. Bankloans include ¥21,058 million ($174,033 thousand) and¥10,193 million as of March 31, 1999 and 1998, respectively,
relating to this operation. As part of its fee arrangement forsuch services, the Company is reimbursed for the interest
cost of the related overdrafts.

SECOM CO., LTD. Annual Report 1999—

In millions of yen
March 31, 1998
Gross unrealized
Cost

Gains

LossesFair value

Available for sale:
Equity securities
Debt securities¥11,576
23,008¥18,099347¥3,434675¥26,241
22,680Total¥34,584¥18,446¥4,109¥48,921

Held to maturity:
Debt securities¥10,000¥00,376¥¥10,376—

At March 31, 1999, 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,
1999, are as follows:
In millions of yen
March 31, 1999

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

Available-for-sale

Held-to-maturity

Cost

Fair value

Cost¥15,425¥15,416¥

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

Fair value

—

¥

—

20,47020,56320,00021,220

7,938
2,047

7,660
2,102

—
—

—
—

¥45,880¥45,741¥20,000¥21,220

Security-related products
Software
Real estate
Other

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

1999

1998

1999

¥ 5,703
2,145
14,5901,748¥05,162
3,138
7,350
1,942

$ 47,132
17,727
120,579
14,446¥24,186¥17,592$199,884

In thousands of U.S. dollars
March 31, 1999

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

Available-for-sale

Held-to-maturity

Cost

Cost

Fair value

Fair value$127,479$127,405 $

169,174

169,942

165,289

175,372

65,603
16,91863,306
17,372————$379,174— $—$378,025 $165,289 $175,372

During the years ended March 31, 1999 and 1998, the net
unrealized gain on “available-for-sale” securities included in
the separate component of shareholders’ equity, net of applicable taxes, increased by ¥5,985 million ($49,463 thousand)and decreased by ¥9,541 million, respectively.
Proceeds from the sale of “available-for-sale” securities forthe years ended March 31, 1999, 1998 and 1997, were ¥1,282
million ($10,595 thousand), ¥2,584 million and ¥1,471 million,
respectively. On those sales, the gross realized gains andgross realized losses on a specifically identified movingaverage cost basis for the years ended March 31, 1999, 1998
and 1997, were as follows:

Gross realized gains
Gross realized losses

In millions of yen

In thousands of
U.S. dollars

Year ended
March 31

Year ended
March 31

1999

1998

1997

1999

¥350
690

¥791
340

¥086
141

$2,893
5,702

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 ¥5,211 million ($43,066 thousand) and ¥6,174 million atMarch 31, 1999 and 1998, respectively. The corresponding
fair value at that date was not computed as such estimation
was not practicable.

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 is Japan’s largest manufacturer of fire alarms andlisted on the First 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 25.1 percent owned affiliate, which is listed on the Korea
Stock Exchange; Japan Image Communications Co., Ltd., a27.3 percent owned affiliate; and Musashino-Mitaka Cable
Television Inc., a 39.0 percent owned affiliate.
Summarized financial information of affiliated companies
accounted for under the equity method was as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

1999

1998

1999

Current assets
Noncurrent assets¥ 77,465
90,293¥078,271
82,872$ 640,207
746,223

Total assets¥167,758¥161,143$1,386,430¥ 50,463
39,72477,571¥053,118
40,54967,476$ 417,050
328,297
641,083¥167,758¥161,143$1,386,430

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

Current liabilities
Noncurrent liabilities
Shareholders’ equity
Total liabilities andshareholders’ equity

1999

1998

1997

1999

Net sales¥155,293¥162,967¥150,908$1,283,413

Gross profit¥ 38,722¥037,938¥037,155$ 320,017

Net income¥¥000,262¥001,207$

3,943

SECOM CO., LTD. Annual Report 1999

32,58729

Dividends received from affiliated companies for the years
ended March 31, 1999, 1998 and 1997, were ¥562 million($4,645 thousand), ¥703 million and ¥475 million, respectively.
Among the affiliated companies accounted for using theequity method, the stocks of three companies carried atequity of ¥17,456 million ($144,264 thousand) and ¥14,785
million at March 31, 1999 and 1998, respectively had a quoted
market value of ¥40,005 million ($330,620 thousand) and¥43,234 million at March 31, 1999 and 1998, respectively.
The unamortized amounts of goodwill represent the excessof the carrying amount of investments in affiliated companies
under the equity method over the amount of underlying equity
in net assets. The unamortized amounts of goodwill, ¥728
million ($6,017 thousand) and ¥805 million at March 31, 1999
and 1998, respectively, are being amortized on a straight-line
basis over periods not exceeding 10 years.
A summary of transactions and balances with the affiliatedcompanies accounted for by the equity method is presented
below:

Sales
Purchases

In millions of yen

In thousands of
U.S. dollars

Year ended
March 31

Year ended
March 31

1999

1998

1997

1999

¥1,394¥1,692¥1,647¥2,020¥1,895¥1,353$11,521$13,983

Notes and accounts
receivable, trade
Loan receivables
Notes and accounts
payableGuarantees forbank loans

Property, plant and equipment with a book value of ¥4,291
million ($35,463 thousand) and inventories with a book valueof ¥13,939 million ($115,198 thousand) were pledged ascollateral for short-term and long-term debt at March 31, 1999.

30

SECOM CO., LTD. Annual Report 1999

In thousands of
U.S. dollars

March 31

March 31

1999

1998

1999

¥ 520
¥1,528¥ 539¥1,319$ 4,298$12,628

¥ 204

¥ 195

$ 1,686¥8,531¥6,453$70,504

11. Bank loans and long-term debt
Bank loans of ¥32,704 million ($270,281 thousand) at March
31, 1999, are represented generally by 90- to 365-day notes
with interest rates ranging from 0.5 to 7.0 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 withsuch banks, collateral (including sums on deposit with suchbanks) or guarantors shall be provided immediately uponrequest. Further, any collateral furnished pursuant to suchagreements 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, 1999 and 1998, was comprised
as follows:

Loans, principally from banks due 1999 to 2015 with interest ranging from 1.0 to 4.40%:
SecuredUnsecured
5.00% convertible U.S. dollar bonds ($- thousand) due 1998, convertible currentlyat ¥1,939.4 ($8.33 calculated at ¥232.80=$1) for one common share,
redeemable before due date
3.75% convertible U.S. dollar bonds ($20 thousand) 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 ¥5,335.6 ($44.10)
for one common share, redeemable before due date
1.60% convertible bonds due 2004, convertible currently at ¥4,744.7 ($39.21)
for one common share, redeemable before due date
1.50% convertible bonds due 1998, convertible currently at ¥4,744.7 ($39.21)
for one common share, redeemable before due date
1.85% floating rate notes due 2002
2.05% floating rate notes due 2003
Obligations under capital leases, due 1999 to 2026 (Note 18)
Less—Portion due within one year

In millions of yen

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

1999

1998

1999

¥ 9,401
1,015¥ 3,884
1,889$ 77,694
8,389

—

0

—

2

3

17

1,283

1,405

10,603

64

314

529

—
5,000
5,000
9,595

393
5,000
5,000
10,976—
41,322
41,322
79,29831,3609,849

28,864
5,637

259,174
81,397¥21,511¥23,227$177,777

The Company has no compensating balance arrangementswith any lending bank. However, as is the customary practicein Japan, the Company had time deposits aggregating ¥1,788 million($14,777 thousand) with such banks at March 31, 1999.

The convertible bonds can be converted into common
stock atany time by the bondholders. Under the terms ofeach subscription and underwriting agreement for convertible bonds, the conversion price of convertible bonds issubject to adjustment in certain 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 (as defined 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 ($28,926 thousand) plus
the aggregate amount of ordinary income after income taxes(as defined in the agreement) of the Company, beginningwith the fiscal 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 isrequired.
The aggregate annual maturities and sinking fund requirements on long-term debt during the five years ending March
31, 2004, are as follows:
Years ending
March 31

2000
2001
2002
2003
2004

In millionsof yenIn thousands of
U.S. dollars¥9,849
2,213
6,610
7,228
412

$81,397
18,28954,62859,7363,405

12. Insurance-related operations
Secom Toyo maintains accounting records as noted in
Note2 in accordance with the accounting principles andpractices prescribed by the Japanese Financial Supervisory
Agency (“FSA”), which vary in some respects from accounting principles generally accepted in the United States ofAmerica. Those differences are mainly; that insurance acquisition costs are charged to income when incurred in Japan
whereas in the U.S. those costs are deferred and amortized
generally over the premium-paying period of the insurance
policies; that liabilities estimated unpaid claims for the
incurred but not reported claims are computed based onrelated regulations in Japan whereas in the U.S. those liabilities are computed based on past experience for unreported
losses; and that unearned premiums are calculated based
onthe documents authorized by the supervisory authority inJapan whereas in theU.S. unearned premiums are reflectedbased on the lapseand surrender , assumed interest rate andcertain other assumptions in the calculation formula.
For purposes of preparing the consolidated financial statements, appropriate adjustments have been made to reflect
such items in accordance with accounting principles generally
accepted in the United States of America.

The net equity of Secom Toyo as of March 31, 1999, was¥15,506 million ($128,149 thousand).
13. 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 and are determined by reference to current
basic rates of pay, length of service and conditions underwhich 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 underwhich the termination occurs. The welfare pension plan isfunded in conformity with the funding requirements of theJapanese 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 more of service. The benefits are in the form of
lump-sum and/or pension payments and are determinedby formula based upon length of service and age at time oftermination. 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,
1999, 1998 and 1997, were as follows:

1999

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

1998

1997

Net pension and severance
cost (credit):
Service cost
¥5,413 ¥4,619 ¥3,703
Interest cost
2,952 2,724
2,470
Expected return onplan assets(2,463) (2,214) (2,010)
Amortization oftransition assets
(46)
(46)
(46)
Amortization ofprior service cost
105
105
105
Recognized actuarial loss 1,200
695
246
Net periodic benefit cost

¥7,161 ¥5,883 ¥4,468

1999$(44,735
24,397(20,355)
(380)
868
9,917
$(59,182

SECOM CO., LTD. Annual Report 199931

Years ended
March 31

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

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

1999

1998

Change in benefit obligation:
Benefit obligation
at beginning of year¥(84,343 ¥(68,110
Service cost
5,413
4,619
Interest cost
2,952
2,724
Plan participants’ contributions 2,209
1,674
Actuarial (gain) loss
(2,292)
8,754
Benefits paid
(1,362) (1,538)
Benefit obligation
at end of year
Benefit obligation for
Secom Toyo at end of year1999$(697,050
44,736
24,396
18,256(18,942)(11,256)

91,26384,343754,240

3,113—

25,727

94,376

84,343779,967

Change in plan assets:
Fair value of plan assets
at beginning of year
58,259 53,575
Actual return on plan assets
28
1,326
Employer contribution
4,474
3,131
Plan participants’ contributions 2,209
1,674
Benefits paid
(1,338) (1,447)

481,480
231
36,975
18,256(11,058)

Total benefit obligation
at end of year

Fair value of plan assets
at end of year
Fair value of plan assets for
Secom Toyo at end of year

63,63258,259525,884

398

—

3,289

64,03058,259529,173

Funds status
Unrecognized actuarial loss
Unrecognized transition assets
Unrecognized prior service cost

30,346 26,084(23,192) (24,249)
274
320
(852)
(957)

250,793(191,669)
2,264(7,041)

Net amount recognized¥(06,576 ¥(01,198$(054,347

Total fair value of plan assets
at end of year

Amounts recognized in thestatement of financial position
consists of:
Accrued pension andseverance costs¥(22,608 ¥(17,263
Intangible asset
(852)
(957)
Accumulated othercomprehensive income(15,180) (15,108)
Net pension liability
recognized in the balance sheet ¥(06,576 ¥(01,198

32

SECOM CO., LTD. Annual Report 1999$(186,843(7,041)(125,455)$(054,347

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

1999

1998

3.5%.

3.5%.

2.5–2.8%. 2.5–2.9%.
4.0%.

4.0%.

As of March 31, 1999, approximately 44 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 priorservice cost was recorded as a component of accumulated
other comprehensive income, net of tax, of ¥7,847 million($64,851 thousand) and ¥7,931 million as of March 31, 1999
and 1998, respectively.
Most subsidiaries outside Japan have various retirement
plans covering substantially all of their employees, which areprimarily defined contribution plans. The funding policy forthe defined contribution plans is to annually contribute an
amount equal to a certain percent of the participants’ annual
salaries. The contributions to the defined contribution pension plans for the years ended March 31, 1999, 1998 and1997, were ¥19 million ($157 thousand), ¥38 million and ¥28
million, respectively.
14. Exchange gains and losses
Other expenses for the years ended March, 1999 and 1997,
include net exchange losses of ¥178 million ($1,471 thousand)and ¥29 million, respectively. Interest and other revenue forthe year ended March 31, 1998, include net exchange gainsof ¥609 million.
15. Income taxes
The Company is subject to a number of different income
taxes which, in the aggregate, indicate a statutory tax ratein Japan of approximately 51 percent for the years ended
March 31, 1998 and 1997, and approximately 47.5 percent
forthe year ended March 31, 1999, respectively . Due to thechanges in Japanese income tax regulations, a normal
statutory tax rate in Japan was reduced to approximately
47.5 percent for the year beginning on April 1, 1998, and wasfurther reduced to approximately 41.9 percent for the year
beginning on April 1, 1999. The respective revised tax rates
were used inthe measurement of deferred tax assets andliabilities at March 31, 1998 and 1999.

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 47.5% in 1999, 51.0% in 1998 and 1997
Increase resulting from:
Unrecognized tax benefits from subsidiaries in loss positions
Amortization of non-deductible goodwill
Utilization of tax loss carryforwards
Effect of change in normal statutory tax rate in Japan
Other
Consolidated income taxes

In millions of yen

In thousands of
U.S. dollars

Years ended March 31

Year ended
March 31

1999

1998

1997

1999

¥39,279¥26,450¥27,688$324,620

1,936
1,213
(8,713)(4)(1,338)

4,603
147
(423)
203
(130)

2,149
145
(224)
—
463

16,00010,024(72,008)(33)(11,058)¥32,373¥30,850¥30,221$267,545

The significant components of deferred tax assets and liabilities at March 31, 1999 and 1998, were as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

1999

1998

1999

¥(08,949
8,158
4,280
3,303
2,727
2,160
2,212
680
513
371
160
3,420

¥(14,681
7,462
4,731
—
3,164
1,994
783
807
10
653
363
1,925

$(073,959
67,42235,372
27,29822,537
17,851
18,281
5,620
4,240
3,066
1,322
28,264Gross deferred tax assets
Less: Valuation allowance

36,933(17,926)

36,573(17,405)

305,232(148,149)

Total deferred tax assets

19,007

19,168157,083(13,264)(3,777)(1,569)(65)(1,174)(6,661)—(1,737)
(104)
(741)

(109,620)(31,215)(12,967)(537)(9,702)Gross deferred tax liabilities(19,849)(9,243)(164,041)

Net deferred tax assets / (liabilities)¥00,(842)¥)09,925$00(6,958)

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
Vacation accrual
Accrued bonus
Inventory devaluation
Amortization of subsidiary’s goodwill not yet deductible
Other

Deferred tax liabilities:
Unrealized gain on securities
Unearned premiums and other insurance liabilities
Reversal of securities devaluation
Convertible bond issue expense
Other

SECOM CO., LTD. Annual Report 1999

33

The valuation allowance mainly relates to deferred tax
assets of the subsidiaries with temporary differences andoperating loss carryforwards for tax purposes that are notexpected to be realized. A full valuation allowance has been
provided for these subsidiaries. The net change in the total
valuation allowance for the year ended March 31, 1999, wasan increase of ¥521 million ($4,306 thousand).
No deferred income taxes have been provided on undistributed earnings of overseas subsidiaries totalling ¥1,467
million ($12,124 thousand) at March 31, 1999, because they
are not expected to be remitted in the foreseeable future.
At March 31, 1999, tax loss carryforwards of domestic subsidiaries amounted to ¥16,668 million ($137,752 thousand)and are available for offset against future taxable earnings ofsuch subsidiaries for up to five years, as follows:

Accumulated other comprehensive income/(loss)
An analysis of the changes in accumulated other comprehensive income/(loss) for the years ended March 31, 1997,
1998 and 1999, was as follows:

Expires in the year
ending March 31

In millionsof yenIn thousands of
U.S. dollars

2000
2001
2002
2003
2004

¥ 1,324
1,853
5,678
2,284
5,529

$ 10,942
15,31446,926
18,87645,694¥16,668$137,752

For the year ended March 31, 1998:
Unrealized gains on securities—
Unrealized holding losses
arising during the period
Minimum pension liability
adjustment
Foreign currency translation
adjustments

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

For the year ended March 31, 1997:
Unrealized gains on securities—
Unrealized holding losses
arising during the period
Minimum pension liability
adjustment
Foreign currency translation
adjustments¥0(6,501) ¥03,214 ¥0(3,287)(8,070)4,116(3,954)

3,172

—

3,172

Other comprehensive income ¥(11,399) ¥07,330 ¥0(4,069)¥(19,546) ¥10,005 ¥0(9,541)(7,037)

3,060(3,977)

560

—

560

Other comprehensive income ¥(26,023) ¥13,065 ¥(12,958)

The tax loss carryforwards of overseas subsidiaries at
March 31, 1999, amounted to ¥9,367 million ($77,413 thousand),a part of which will begin to expire in the year 2000.
16. Shareholders’ equity
Retained earnings
The Commercial Code of Japan provides that an amountequal to at least 10 percent of cash dividends and other distributions from retained earnings paid in cash by the parent
company and its Japanese subsidiaries be appropriated as alegal 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, 1999, 1998 and 1997, 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 approvedat the general shareholders’ meeting to be held within threemonths after the end of accounting period.
Subsequent to March 31, 1999, the Company’s Board of
Directors declared an annual cash dividend of ¥8,147 million($67,331 thousand) to shareholders of record on March 31,
1999. The dividend declared is subject to approval at thegeneral shareholders’ meeting scheduled for June 29, 1999.
Dividends are recorded in the period they are declared.

34

SECOM CO., LTD. Annual Report 1999

For the year ended March 31, 1999:
Unrealized gains on securities—
Unrealized holding gains
arising during the period
Less: Reclassification
Less: adjustment for gains
Less: included in net income
Minimum pension liability
adjustment
Foreign currency translation
adjustments¥(11,381 ¥ (5,381) ¥ (6,000

(29)

14

(15)

(73)

(815)

(888)

(4,832)—(4,832)Other comprehensive income ¥ 6,447 ¥ (6,182) ¥265

Translation into
thousands of U.S.dollars
Tax
Pre-tax (expense) Net-of-tax
amount or benefit
amount

For the year ended March 31, 1999:
Unrealized gains on securities—
Unrealized holding gains
arising during the period
Less: Reclassification
Less: adjustment for gains
Less: included in net income
Minimum pension liability
adjustment
Foreign currency translation
adjustments
Other comprehensive income$94,058 $(44,471) $49,587

(240)

116

(124)

(603)

(6,736)(7,339)(39,934)—(39,934)$53,281 $(51,091) $02,190

17. Research and development expenses
Research and development expenses included in selling,
general and administrative expenses for the years ended
March 31, 1999, 1998 and 1997, were ¥4,820 million ($39,835
thousand), ¥5,405 million and ¥5,090 million, respectively.
18. Leased assets
The Company leases certain office space, employee residential facilities, and computer and transportation equipment.
Some leased computer and transportation equipment areheld under capital leases. Other leases are classified as
operating leases.
On April 23, 1996, the Company entered into a long-termlease agreement for a building and land in Mitaka, Tokyo. The
lease agreement extends for 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, an asset of approximately ¥5,086 million ($42,033
thousand) has been recorded in the building and improvements
account. The portion of the lease relating to the land has beenclassified as operating lease. The future minimum lease payments for the site at March 31, 1999, were ¥8,867 million($73,281 thousand) payable equally over a thirty years period.
Total assets under capital leases at March 31, 1999 and
1998, amounted to ¥13,774 million ($113,835 thousand) and¥15,427 million; accumulated depreciation thereon amounted
to ¥4,574 million ($37,802 thousand) and ¥4,736 million,
respectively. Depreciation expenses under capital leases forthe years ended March 31, 1999, 1998 and 1997, were ¥2,426
million ($20,050 thousand), ¥2,555 million and ¥2,536 million,
respectively.
The following is a schedule by year of future minimum lease
payments under capital leases together with the present valueof the net minimum lease payments as of March 31, 1999:
Years ending
March 31

In millionsof yenIn thousands of
U.S. dollars

2000
2001
2002
2003
2004
Later years¥ 2,280
1,862
1,358
766
437
7,866

$ 18,843
15,388
11,2236,331
3,612
65,008

Total minimum lease payments
Less—Amount representing interest

14,5694,974

120,405
41,107

Present value of net minimum lease
payments
Less—Current obligations

9,595
1,889

79,29815,612Long-term capital lease obligations¥ 7,706$ 63,686

Rental expenses under operating leases for the years ended
March 31, 1999, 1998 and 1997, were ¥10,458 million ($86,430
thousand), ¥10,378 million and ¥10,364 million, respectively. A
significant portion of such rentals relate to cancelable short-termleases for office space and employee residential facilities, manyof which are renewed upon expiration.

19. Financial instruments
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 eventof nonperformance by counterparties, it does not anticipate
significant losses due to the nature of its counterparties.
Following are explanatory notes regarding the financial assets and liabilities and off-balance-sheet financial
instruments excluding debt and equity securities which aredisclosed in Note 8.
(1) Cash and cash equivalents, cash deposits, notes andaccounts receivable, trade, due from subscribers, short-term
receivables, long-term receivables, bank loans, notes andaccounts payable, trade, deposits received and accrued
payrolls
The carrying amounts approximate fair value because of
the short maturities of such instruments.
(2) Long-term debt including current portion
The fair value of long-term debt including the current
portion was estimated based on the discounted amounts offuture cash flows using the Company’s current incremental
borrowing rates for similar liabilities. The estimated fair values of total long-term debt, including the current portion andexcluding obligations under capital lease, at March 31, 1999
and 1998, were ¥23,290 million ($192,479 thousand) and¥19,197 million, respectively. As long-term interest rates havenot fluctuated significantly in recent years in Japan, the carrying amounts of obligations under capital lease approximate
estimated fair value.
(3) Interest rate swap agreements
An overseas subsidiary enters into interest rate swap
agreements to manage interest rate exposures arising in thenormal course of business. These agreements are designed
to limit exposures tolosses resulting from fluctuations ininterest rates related to investment securities and floating
rate notes debt. The notional value of interest rate swap
agreements in effect at March 31, 1999 and 1998, totaled

SECOM CO., LTD. Annual Report 199935

¥10,000 million ($82,645 thousand) and ¥10,000 million,
respectively, of which ¥5,000 million will mature by 2002 and¥5,000 million will mature by 2003. The amounts to be paidor received under the interest rate swap agreements are recognized over the terms of the agreements. The estimated fairvalues of such agreements, based on the discounted future
cash flows of the differentials, were insignificant at March 31,
1999 and 1998, respectively.

23. Supplemental cash flow information
Supplemental cash flow information is as follows:

1999

Cash paid during the year:
Interest
Income taxes

20. Commitments and contingent liabilities
Commitments outstanding at March 31, 1999, for thepurchase of property, plant and equipment approximated¥1,236 million ($10,215 thousand).
Contingent liabilities at March 31, 1999, for guarantees
given in the ordinary course of business amounted toapproximately ¥10,143 million ($83,826 thousand).
On December 8, 1998, the Company entered into a leaseagreement 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, expected in December 2000. Based on theagreement, annual lease payments for the site are expected
to be approximately ¥1,339 million ($11,066 thousand) over
the twenty years period.
21. Free share distributions of less than 25 percent
The method of accounting for the Company’s less than
25percent free share distributions is described in Note 2. Had
the Company accounted for such free share distributions
made during the period from 1974 to 1990 in the mannerused by companies in the United States of America,¥98,388
million ($813,124 thousand) would have been transferredfrom retained earnings to the appropriate capital accounts.
However, there would be no effect on totalshareholders' equity .
22. Sale of subsidiaries
On August 31, 1998, The Westec Security Group, Inc., awholly owned subsidiary in the United States of America, soldall of the outstanding 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 ($305,992 thousand) in cash. The sale
resulted in a gain in the aggregate of ¥22,828 million ($188,661
thousand). The sales price is subject to a final salespriceadjustment.
On October 1, 1998, the parent company sold all of theoutstanding shares of Tokyo Internet Corporation, to PSINet
Japan Inc. for ¥17,834 million ($147,388 thousand). The sale
resulted in a gain of ¥13,054 million ($107,884 thousand). The
sales price is subject to a final sales price adjustment.

36

SECOM CO., LTD. Annual Report 1999

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

1997

1999

¥ 1,599 ¥ 1,409 ¥ 1,454$ 13,215¥37,209 ¥29,514 ¥29,242$307,512

Noncash investing andfinancing activities:
Conversion of long-term
debt to common stock andadditional paid-in capital ¥1998

766 ¥00,148 ¥10,775

$

6,330

Addition to obligations
under capital leases¥ 2,032 ¥02,489 ¥10,132$ 16,793

Liabilities assumed inconjunction withacquisition¥99,594 ¥09,285 ¥00,0—.

$823,091

24. Segment information
Effective for the year ended March 31, 1999, the Company
adopted FAS 131, “Disclosures about Segments of an Enterprise and Related Information,” which requires disclosure
offinancial and descriptive information about the Company’ sreportable operating segments. The operating segments
reported below are the segments of the Company for which
separate financial information is available and for which
operating profit/loss amounts are evaluated regularly byexecutive 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
information and communication related and other services
segment represents the Company’s network business which
utilizes its proprietary computer network and develops andsells computer software and other products. The insurance
services segment represents non-life insurance-related underwriting business in the Japanese market. The medical services segment provides intravenous solutions topatients at
home, home-based nursing care services, andmedical 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 ofthese two companies.
Intersegment sales are priced on a basis intended toapproximate amounts charged to unaffiliated customers.
Identifiable assets are those assets used exclusively in theoperations of each segment or which are allocated whenused jointly. Corporate assets, which are held by the above
two companies for general and administrative facilities,
consist principally of cash and cash equivalents, shortterm investments, investment securities, land, buildings,
machinery and equipment.
Information by business and geographic segments for theyears ended March 31, 1999, 1998 and 1997, follows:(1) Business segment information
Translation
into thousands
In millions of yen of U.S. dollars
Years ended
March 31
1999

Revenue:
Security services—
Customers
Intersegment
Subtotal
Information andcommunication
related and otherservices—
Customers
Intersegment

1998

1997

¥293,104 ¥282,066 ¥266,209
975
877
896

$2,422,347
8,058

294,079 282,943 267,105

2,430,405

29,301
1,311

457,579
24,70258,35632,24730,612482,281

4,775
2,099

5,365
2,156

4,633
1,985

39,463
17,347

6,874

7,521

6,618

56,810

1,075
117

855
100

681
90

8,884
967

1,192

955

771

9,851

360,501 323,666 305,106(6,180) (4,470) (4,282)
39,825
3,608
2,972

2,979,347(51,074)
329,132

Consolidated revenue ¥394,146 ¥322,804 ¥303,796$3,257,405

Subtotal
Medical services—
Customers
Intersegment
Subtotal
Total
Eliminations
Corporate items

Income (loss) before
income taxes:
Security services
Information andcommunication
related and otherservices
Insurance services
Medical services¥069,890 ¥069,003 ¥069,117

Assets:Security services
Information andcommunication
related and otherservices
Insurance services
Medical services

1997

1999

¥311,339 ¥299,774 ¥261,932$2,573,050

51,396113,210
1,462

1998

Year ended
March 31

30,007
1,717
1,393

424,760
935,620
12,083

Total
Corporate items
Investments in andloans to affiliatedcompanies

477,407 340,498 295,049
141,037 117,059 143,252

3,945,513
1,165,595

22,770206,694

Total assets¥643,454 ¥479,841 ¥461,071$5,317,802

In millions of yen

Translation
into thousandsof U.S. dollars

Years ended
March 31

Year ended
March 3125,01037,6371,773
1,314

22,2841999

Depreciation andamortization:
Security services
Information andcommunication
related and otherservices
Insurance services
Medical services

1998

1997

1999

¥28,913 ¥27,620 ¥27,166$238,950

1,315
3
69

1,861
3
56

1,374
1
159

10,868
25
570

Total
Corporate items

30,300242

29,540169

28,700217

250,413
2,000

Total depreciation
and amortization¥30,542 ¥29,709 ¥28,917$252,413¥42,758 ¥45,770 ¥38,410$353,372

Capital expenditures:
Security services
Information andcommunication
related and otherservices
Insurance services
Medical services

1,119
—
79

1,526
—
99

2,836
10
14

9,248
—
653

Total
Corporate items

43,956
1,542

47,395535

41,270128

363,273
12,744

Total capital
expenditures¥45,498 ¥47,930 ¥41,398$376,017$0,577,603

The Company has no single customer that accounts formore than 10 percent of total revenue.
(3,517)291(987)(3,130)202(716)(8,083)
2,190(8,702)

68,124 64,790
15,647 (11,876)(1,078) (1,051)

65,473(9,987)(1,195)563,008
129,314(8,909)Consolidated income
before income taxes ¥082,693 ¥051,863 ¥054,291$0,683,413

Total
Corporate items
Interest expense

1999

1999

30,9101,337

Insurance services—
Customers
Intersegment

Years ended
March 31

Year ended
March 31

55,3672,989

Subtotal

Translation
into thousands
In millions of yen of U.S. dollars

(978)
265
(1,053)

SECOM CO., LTD. Annual Report 1999

37

The following table is a breakdown of security services revenue to external customers by service category. The security
services business is managed as a single operating segmentby the Company’s management.
Translation
into thousands
In millions of yen of U.S. dollars
Years ended
March 31
1999

1998

1997

Electronic security
services:
Commercial security
and home security ¥219,670 ¥209,855 ¥199,498
Large-scale
proprietary systems
4,223
4,264
3,980
Other security services:
Static guard services
30,178 28,852
26,487
Armored car services
12,275 11,522
10,558Merchandise and other 26,758 27,573
25,686
Total security services ¥293,104 ¥282,066 ¥266,209

Year ended
March 311999

$1,815,455
34,901
249,405
101,446
221,140$2,422,347(2) Geographic segment information
Revenues which are attributed to countries based on locationof customers and long-lived assets for the years ended
March 31, 1999, 1998 and 1997, are as follows:

1999

Revenue:Japan
United States
OthersTotal
Long-lived assets:
Japan
United States
OthersTotal

In millions of yen

Translation
into thousandsof U.S. dollars

Years ended
March 31

Year ended
March 31

1998

1997

1999

¥349,702 ¥300,459 ¥285,988
33,580 11,234
8,562
10,864 11,111
9,246$2,890,099
277,52189,785¥394,146 ¥322,804 ¥303,796$3,257,405¥169,737 ¥161,171 ¥149,992
584
8,231
4,780
6,627
6,784
6,473

$1,402,785
4,826
54,769¥176,948 ¥176,186 ¥161,245$1,462,380

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

38

SECOM CO., LTD. Annual Report 1999

25. Subsequent events
On August 11, 1999, the parent company purchased newly
issued shares of Pasco Corporation (“Pasco”) for ¥15,000 million ($123,967 thousand), subsequent to approval by Pasco’s
general shareholders’ meeting held on June 29, 1999. As aresult, the parent company now owns 67.5 percent of the outstanding shares of Pasco. The acquisition will be accounted
for as a purchase, and accordingly, the purchase price will beallocated to the underlying assets and liabilities based on
their respective estimated fair values at the date of the acquisition. Pasco operates an aviation photograph measurementbusiness and Geographic Information System in Japan, andhas been listed on the first section of the Tokyo Stock Exchange.
Total revenue of Pasco for the year ended March 31, 1999,
was ¥52,984 million ($437,884 thousand).

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directorsof Secom Co., Ltd.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes
in shareholders’ equity and of cash flows, expressed in yen, present fairly, in all material respects, the financial position o f
Secom Co., Ltd. and its subsidiaries at March 31, 1999 and 1998, and the results of their operations and their cash flows for eachof the three years in the period ended March 31, 1999, in conformity with accounting principles generally accepted in the UnitedStates of America. These financial statements are the responsibility of the Company’s management; our responsibility is toexpress 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 theaudit 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 and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed above.

May 14, 1999, except as to Note 25, which is as of August 11, 1999.

SECOM CO., LTD. Annual Report 1999

39

SUMMARY OF SELECTED FINANCIAL DATASECOM CO., LTD. and Subsidiaries
Years ended March 31
In millions of yen
1999

Composition of consolidated revenue
Revenue:
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, software, medical andreal estate development
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)1998

SECOM CO., LTD. Annual Report 1999

1996

1995

1994

¥394,146 ¥322,804 ¥303,796 ¥ 281,547 ¥258,947 ¥245,264
266,346
254,493
240,523
223,019
210,606
202,560
67.6%
78.8%
79.2%
79.2%
81.3%
82.6%
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
67.3
3,935
1.5
178,310

167,323
68.2
3,864
1.6
171,187

30,178
7.7
12,275
3.1
42,45328,852
8.9
11,522
3.6
40,374

26,487
8.7
10,5583.5
37,04524,768
8.8
9,566
3.4
34,33423,755
9.2
8,541
3.3
32,29623,327
9.5
8,046
3.3
31,37385,58021.7
35,700
9.1
6,520
1.6

62,184
19.3
570
0.2
5,557
1.7

57,459
18.9
732
0.2
5,082
1.7

46,722
16.6
7,074
2.5
4,732
1.7

40,982
15.8
2,989
1.2
4,370
1.7

37,953
15.5
617
0.2
4,134
1.7

¥ 49,918
7,555
327,147¥ 18,990
6,972
283,840¥022,798
5,719
284,634¥023,264
5,459
260,854¥0 9,896
5,438
238,239¥010,566
4,784
213,717

8.4
2.5
0.3
5.2
16.4
83.6
100.0

5.7
1.7
0.6
6.4
14.4
85.6
100.0

8.3
2.3
0.7
3.7
15.0
85.0
100.0

8.8
5.2
0.9
3.4
18.3
81.7
100.0

9.9
0.8
6.8
3.5
21.0
79.0
100.0

10.6
4.4
7.3
3.6
25.9
74.1
100.0

7.8
15.3

4.0
6.7

4.9
8.0

5.3
8.9

2.5
4.2

2.8
4.9

7.8
2.7

9.2
3.2

9.5
3.4

11.5
3.7

10.4
4.1

12.4
4.9

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

59.5
2.27
16.8
6.7

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

40

1997

1999

1998

1997

1996

1995

1994

Number of shares outstanding
IssuedOwned by the Company

116,392,109
11,817116,233,393
3,185

116,203,824
2,926

114,378,620
2,016

113,766,167
24,941

113,289,040
10,086

Balance

116,380,292

116,230,208

116,200,898

114,376,604

113,741,226

113,278,954¥ 429.03
65.00
2,811.02
621.51
3.99
26.15
18.05
11,220¥ 163.40
60.00
2,442.05
354.02
3.34
49.88
23.02
8,150

¥0,197.37
50.00
2,449.50
387.35
2.84
35.21
17.94
6,950

¥0,204.18
48.00
2,280.66
438.27
3.06
34.23
15.95
6,990

¥0,087.14
48.00
2,094.57
275.57
2.55
61.40
19.41
5,350

¥0,096.71
45.00
1,886.64
325.84
3.60
70.31
20.87
6,800

Per share information
Basic net income per share (in yen)(2)Cash dividends paid per share (in yen)(1)Shareholders’ equity per share (in yen)(3)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)

Notes: (a) Net income/Total assets(d) Years ended March 31, 1999, 1998, 1997 and 1996(b) Net income/Shareholders’ equity(Income before income taxes + Interest expense + 1/3 Rental expense)/(c) Years ended March 31, 1999, 1998, 1997 and 1996
(Interest expense + 1/3 Rental expense)(Income before income taxes + Interest expense)/Interest expense Year ended March 31, 1995 and 1994
Year ended March 31, 1995 and 1994
(Income from continuing operations before income taxes + Interest expense(Income from continuing operations before income taxes+ 1/3 Rental expense)/(Interest expense + 1/3 Rental expense)+ Interest expense)/Interest expense(1) Subsequent to March 31, 1999, cash dividends of ¥8,147 million (¥70 per share) were approved at the general shareholders’ meeting on June 29, 1999,(see Note 16 of the accompanying Notes to Consolidated Financial Statements).
(2) Per share amounts are based on the average number of shares outstanding during each period.
(3) Per share amounts are based on the number of shares outstanding at the end of each period, minus treasury stock.

COMMON STOCK DATASECOM CO., LTD.
Year ended March 31

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

1999

1998

1997

1996

1995

1994

9,458

9,911

10,84911,223

11,696

11,77145.71%
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%42.74%
1.16
14.73
24.26
17.11
100.00%

SECOM CO., LTD. Annual Report 1999

41

PRICE INFORMATION (TOKYO STOCK EXCHANGE)
Price per share

1997 April–June
July–September
October–December
1998 January–March
April–June
July–September
October–December
1999 January–March

Nikkei stock average

High

Low

High

Low

¥08,640
9,000
8,870
8,930
8,490
8,660
9,450
11,770¥6,850
7,860
7,130
7,520
7,700
7,630
7,930
8,800

¥20,681.07
20,575.26
17,842.16
17,264.34
16,536.66
16,731.92
15,207.77
16,378.78¥17,485.75
17,683.27
14,775.22
14,664.44
14,715.38
13,406.39
12,879.97
13,232.74

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(pertains to free
distributions only)

Remarks

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, 1981Jan. 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

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

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¥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—
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
—
—
—
—
—
—
—
—
—
—

Issue at market price (¥900)
Free distribution of shares
Free distribution of shares
Issue at market price (¥1,134)
Free distribution of shares
Issue at market price (¥2,570)
Free distribution of shares
Free distribution of shares
Issue at market price (¥1,700)
Free distribution of shares
Free distribution of shares
Issue at market price (¥2,230)
Free distribution of shares
Free distribution of shares
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Free distribution of shares
Conversion of convertible bonds
Conversion of convertible bonds
Free distribution of shares
Conversion of convertible bonds
Conversion of convertible bonds
Free distribution of shares
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

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.

42

SECOM CO., LTD. Annual Report 1999

SUPPLEMENTAL NONCONSOLIDATED FINANCIAL DATACONTENTSNONCONSOLIDATED BALANCE SHEETS

44

NONCONSOLIDATED STATEMENTS OF INCOME

46

SECOM CO., LTD. Annual Report 1999

43

NONCONSOLIDATED BALANCE SHEETSSECOM CO., LTD.
As at March 31
In millions of yen

ASSETS

1999

1998

1997

1996

1995

1994

Current assets:
Cash on hand and in banks
Notes receivable
Due from subscribers
Accounts receivable, trade
Receivables—otherMarketable securities
Common stock in treasury
Merchandise
Supplies
Prepaid expenses
Short-term loans
Other current assets
Allowance for doubtful accounts¥093,901
459
5,564
3,238
1,243
25,888
119
4,805
948
1,241
29,031
1,513(146)¥ 83,462
392
5,218
3,409
1,003
31,151
25
3,642
967
1,084
23,6831,390(136)¥095,566
481
5,034
3,010
1,512
26,115
19
3,972
821
1,221
17,2631,413(102)¥097,630
436
4,111
3,636
1,603
20,250
13
2,939
726
570
17,0232,601(114)¥076,912
497
4,018
2,721
1,650
19,815
142
2,744
810
658
14,7442,102(123)¥079,206
413
3,253
1,800
1,437
22,846
70
2,621
864
607
11,9802,415(133)

Total current assets

167,804

155,290

156,325

151,424

126,690

127,379

24,295
737
44,244
18,442
1,509
2,167
34,9971,693
1923,617815
36,57919,1601,535
2,167
34,5251,630
1121,247925
32,637
21,2591,584
2,269
27,297
1,459
12

22,148816
30,97422,0301,121
2,087
27,3431,577
14

20,529604
27,871
20,487
1,168
2,056
27,2582,278
22

20,974551
26,38419,014
1,172
1,808
26,569
1,284
34

4,533
1,976

4,458
2,957

4,141
4,047

3,891
5,220

1,118
7,081

1,526
7,558

12,519

5,535

5,674

5,655

5,253

4,197

112,714
3,112
6,890
9,437
6,671
(14)

105,145
2,951
6,494
7,292
4,177
(30)

99,603
3,238
6,572
6,820
4,232
(33)

91,223
896
6,570
7,265
3,854
(6)

86,726924
7,064
10,6433,447(9)84,047
2,205
7,190
7,902
2,522
(22)

285,941

259,018

242,983

232,678

224,520

214,915¥453,745¥414,308¥399,308¥ 384,102¥351,210¥342,294

Fixed assets:
Tangible assets:
Buildings and improvements
Automobiles
Signal equipment on subscribers’ premises
Control station signal equipment
Machinery and equipment
Tools, furniture and fixtures
Land
Construction in progress
Other
Intangible assets:
Telephone rights and other
Telephone and telegraph utility rights
Investments and other:
Investment securities
Investments in subsidiaries andaffiliated companies
Long-term loans receivable
Lease deposits
Long-term prepaid expenses
Other investments
Allowance for doubtful accounts
Total fixed assets
Total assets

44

SECOM CO., LTD. Annual Report 1999

In millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Accounts payable
Bank loans
Current portion of long-term debt
Payables—otherAccrued expenses
Deposits received
Deferred revenue—service charges
Income taxes payable
Payables—construction
Other current liabilities

1999

¥

1,671
21,058
5
6,707
5,356
25,44018,735
13,771
3,173
2,211

¥

1998

1997

1996

1995

1994

1,256
10,193
394
5,640
6,248
17,54818,087
14,8083,326
4,157¥001,032
20,884
—
5,018
5,621
16,081
16,64013,9183,474
1,787¥0 ,1,273
21,137
14,296
4,029
5,545
17,165
15,53013,3313,188
1,906¥ 0 995
19,277
—
4,091
5,305
4,723
14,58011,813
3,571
1,957¥00,1,103
19,305
9,996
4,428
5,163
1,321
14,63912,0963,187
2,851

Total current liabilities

98,12781,65784,45597,40066,312

74,089Fixed liabilities:
Long-term debt
Guarantee deposits received
Accrued severance indemnities
Other fixed liabilities

1,347
14,607378
000557

1,724
14,194397—

2,266
12,821409—

2,850
11,480424—

20,448
10,741436—

21,01910,056436—

Total fixed liabilities

16,88916,315

15,496

14,754

31,62531,511

Total liabilities

115,016

97,972

99,951

112,154

97,937

105,600

65,71065,32765,25359,86558,21456,756

81,782
6,294

78,1105,521

78,036
4,805

72,6504,216

70,9993,651

69,542
3,088

88,076

83,631

82,841

76,86674,65072,630

800
56
2,212

800
58
2,212

800
60
2,212

800
62
2,212

800
65
2,212

800
67
2,212

Total voluntary reserve

3,068

3,070

3,072

3,074

3,077

3,079

Unappropriated earned surplus

181,875

164,308

148,191

132,143

117,332

104,229

Total shareholders’ equity

338,729

316,336

299,357

271,948

253,273

236,694

Total liabilities and shareholders’ equity¥453,745¥414,308¥399,308¥ 384,102¥351,210¥342,294

Shareholders’ equity:
Common stock
Statutory reserve:
Additional paid-in capital
Legal reserve
Total statutory reserve
Voluntary reserve:
Reserve for systems development
Reserve for tax deferral on assets replacement
General reserve

SECOM CO., LTD. Annual Report 1999

45

NONCONSOLIDATED STATEMENTS OF INCOME
SECOM CO., LTD.
Years ended March 31
In millions of yen, %
1999

1998

1997

1996

1995

1994

Revenue:
Percent change from prior year
Service charges
Percent change from prior year
Sales of merchandise
Percent change from prior year

¥231,505 ¥222,541 ¥212,887 ¥ 200,165 ¥186,562 ¥178,311
4.0%
4.5%
6.4%
7.3%
4.6%
7.5%
210,239
201,929
191,465
179,902
171,460
163,922
4.1
5.5
6.4
4.9
4.6
6.7
21,266
20,612
21,422
20,263
15,102
14,389
3.2
(3.8)
5.7
34.2
4.9
17.1

Costs:As a percent of revenue
Cost of service
As a percent of service charges
Cost of sales
As a percent of merchandise sales

123,18053.2
108,34951.5
14,831
69.7

117,801
52.9
103,887
51.4
13,914
67.5

113,495
53.3
98,381
51.4
15,114
70.6

105,153
52.5
91,15750.7
13,996
69.1

97,37652.2
86,57450.5
10,802
71.5

91,693
51.4
82,378
50.3
9,315
64.7

Gross profit:
As a percent of revenue
Gross profit on service
As a percent of service charges
Gross profit on sales
As a percent of merchandise sales

108,32546.8
101,890
48.5
6,435
30.3

104,74047.1
98,042
48.6
6,698
32.5

99,392
46.7
93,084
48.6
6,308
29.4

95,01247.5
88,745
49.3
6,267
30.9

89,18647.8
84,886
49.5
4,300
28.5

86,61848.6
81,544
49.7
5,074
35.3

Selling, general and administrative expenses
As a percent of revenue

58,186
25.1

61,572
27.7

58,627
27.6

57,11528.6

54,28929.1

54,053
30.3

Operating profit
As a percent of revenue

50,13921.7

43,16819.4

40,76519.1

37,89718.9

34,89718.7

32,565
18.3

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

5,198
(18)
(4,804)4,230(36)(3,887)

3,731
(101)
(3,091)

3,653
(606)
(2,215)

4,426
(794)
(2,850)4,539(1,046)(2,999)Ordinary profit
As a percent of revenue

50,51521.8

43,47519.5

41,30419.4

38,72919.3

35,67919.1

33,05918.6

Extraordinary profit

12,073

—

—

7,036

—

535

Extraordinary loss

(12,168)——(7,040)—(375)

Income before income taxes
As a percent of revenue

50,42021.8

43,47519.5

41,30419.4

38,725
19.3

35,67919.1

33,21918.6

Provision for income taxes
Effective tax rate

24,34348.3

19,49144.8

18,77345.5

17,71045.7

16,38645.9

15,75847.4

Net income
As a percent of revenue
Percent change from prior year

26,00711.3
8.4

23,98410.8
6.4

22,531
10.6
7.2

21,015
10.5
8.9

19,293
10.3
10.5

17,461
9.8
13.2

46

SECOM CO., LTD. Annual Report 1999

CORPORATE INFORMATION

Headquarters:

Shinjuku Nomura Building, 26-2, Nishi-Shinjuku 1-chome, Shinjuku-ku, Tokyo 163-0555, Japan

Independent accountants:

Price Waterhouse

Transfer agent:

The Mitsubishi Trust and Banking Corporation,
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, JapanCONSOLIDATED SUBSIDIARIES(As of July 31, 1999)
Issued capital(million ¥)Percentageof equity

Secom Joshinetsu Co., Ltd.
Secom Hokuriku Co., Ltd.
Secom Yamanashi Co., Ltd.
Secom Mie Co., Ltd.
Secom Sanin Co., Ltd.
Secom Hiroshima Co., Ltd.
Secom Miyazaki Co., Ltd.
Minami Nippon Security Patrol Co., Ltd.
Jastic Co., Ltd.
Jastic Joshinetsu Co., Ltd.
Secom Static Hokkaido Co., Ltd.
Secom Static Tohoku Co., Ltd.
Secom Static Nishi-Nihon Co., Ltd.
Secom Maintenance Joshinetsu Co., Ltd.
Secom Techno Service Co., Ltd.
Secom Industries Co., Ltd.
Secom Equipment Sales Corporation
Secom Credit Co., Ltd.
Secom Corporation
Secom Insurance Service Co., Ltd.
Secom Information System Co., Ltd.

1,653
201
15
50
45
48
30
10
100
40
50
50
50
10
658
499
271
400
100
50
5,000

61.5
59.1
70.0
51.0
57.3
100.0
68.3
100.0
100.0
(100.0)
100.0
100.0
100.0
(100.0)
98.3
100.0
99.6
100.0
100.0
100.0
100.0

Security World Co., Ltd.
Secom Home Medical System Co., Ltd.
Secom HGS Co., Ltd.
SIS Co., Ltd.
Laboratory for Innovators of Quality of Life
Secom High-Plant Co., Ltd.

10
1,800
100
10
100
400

(100.0)
100.0
100.0
100.0
(94.5)(100.0)

Secom Auto Service Co., Ltd.
President Channel Network Co., Ltd.
Jastic Minami Nippon Co., Ltd.
Wonder Dream Co., Ltd.
Jastic Akita Co., Ltd.
Secomnet Co., Ltd.
TES Co., Ltd.
ME Jastic Co., Ltd.
Next Wave Co., Ltd.
La Pisara Co., Ltd.
Cosmo Keiso Co., Ltd.

45
206
10
1,000
10
540
20
50
300
100
60

100.0
100.0
(100.0)
100.0
100.0
63.0
(100.0)(100.0)100.0
80.0(100.0)SP Alarm Sado Co., Ltd.
Secom Lines Co., Ltd.

24
1,398

(51.1)
90.0

Parentheses () indicate subsidiaries indirectly owned by SECOM Co., Ltd.

Lines of business

Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Maintenance of equipment
Installation and maintenance of security equipment
Manufacture of electronic detection products
Sales of equipment
Credit services
Printing services
Non-life insurance agency
Integration of computer network systems and softwaredevelopment
Publication of magazines on security
Home health-care service
Specialized security services
Non-life insurance agency
Research and planning social life
Development and sale of high-technology agricultural
products
Car maintenance
Development and sale of CATV systems
Security services
Employee welfare for SECOM group
Security services
Information and communication service
Maintenance of equipment
Maintenance of equipment
Management of entertainment facilities
Management of leisure facilities
Manufacture of automatic electronic control equipment
Security services
Sales of home educational systems using a personal
computer network(continued)

SECOM CO., LTD. Annual Report 1999

47

CONSOLIDATED SUBSIDIARIES(As of July 31, 1999)
Issued capital(million ¥)Percentageof equity

400
10
23
21
50
80
300
10
308
10

100.0
(100.0)(52.2)(100.0)(96.0)
100.0
100.0
100.0
82.5
(100.0)

10
40
20
20
200
3,500
150
20
100
10
5,611
10
10
100
100
DFI0.5 million
A$27.5 million
A$28.0 million
US$0.3 thousand
US$0.01 thousand
US$95 thousand—
US$4 thousand
US$9 thousand
US$100 thousand
S$1,000 thousand£39,126 thousand£7.7 thousand£0.1 thousand
Rmb278,406 thousand
Rmb17,228 thousand
Rmb16,938 thousand
Rmb29,122 thousand
Rmb20,792 thousand(100.0)(72.5)(100.0)(100.0)
100.0
99.9
100.0
(76.6)
100.0(100.0)80.1(100.0)(100.0)
55.0
60.0
100.0
100.0
(100.0)100.0(100.0)(100.0)(100.0)(94.9)(92.8)(100.0)100.0
100.0(100.0)(100.0)100.0(80.0)(80.0)(65.0)(80.0)

Sales of water-treatment equipment
Security services
Installation of security equipment
Sales and development of software
Sales of home educational systems
Dispatch of personal-care staff
Software development
Security services
Security services
Sales and maintenance of communicationequipment
Security services
Management of soccer school
Installation of security equipment
Internet provider
Pharmacy management
Development of residential buildings
Development and sale of software
Installation of security equipment
Security services
Security services
Non-life insurance
Claims research for non-life insurance
Administration of non-life insurance
Installation of fire equipment
Security services
Holding company
Holding company
Security services
Holding company
Holding company
Security services
Financing
Security services
Security services
Selling franchises with Westec trademark
Non-life insurance agency
Security services
Security services
Security services
Holding company
Security services
Security services
Security services
Security services

Rmb8,298 thousand
US$8,470 thousand
US$5,000 thousand
US$3,750 thousand
US$10,649 thousand
HK$3,500 thousand
THB180 million(80.0)
68.1(100.0)80.0(58.5)
100.0
91.1

Security services
Holding company
Housing related business
Security services
Software development
Export-import
Security services

Secom Aqua Co., Ltd.
Jastic Hokuriku Co., Ltd.
Secom Tech Sanin Co., Ltd.
Masterpiece Co., Ltd.
Kansai Lines Co., Ltd.
Secom Care Service Co., Ltd.
SIS Development Co., Ltd.
Secom FD Co., Ltd.
Chuo Bohan Co., Ltd.
Shizuoka Mobile Communication Service Co., Ltd.
Chuo Bohan Act Service Co., Ltd.
ACM Enterprise Co., Ltd.
Secom Techno Miyazaki Co., Ltd.
Secom Wintech Yamanashi Co., Ltd.
Secom Kampo System Co., Ltd.
Eclairer Co., Ltd.
Dascom Japan Co., Ltd.
Nikkei Dengyo Co., Ltd.
Jastic Kansai Co., Ltd.
JK. Siress Co., Ltd.
Secom Toyo General Insurance Co., Ltd.
Secom Toyo Claims Research Co., Ltd.
Secom Toyo Business Services Co., Ltd.
Secom Pasec Co., Ltd.
Japan Safety Guard Co., Ltd.
Secominter Europe B.V.
Secominter (Australia) Pty., Ltd.
Secom Australia Pty., Ltd.
The Westec Security Group, Inc.
SA Oklahoma, Inc.
Westec Security, Inc.
Westec Finance Company
Westec Business Security, Inc.
Westec Interactive Security, Inc.
Westec Franchising, Inc.
SIS Insurance Pte Ltd.
Secom Plc
Carroll Security Group Ltd.
Carroll Security Ltd.
Secom (China) Co., Ltd.
Dalian Secom Security Co., Ltd.
Hainan Secom Security Co., Ltd.
Shanghai Secom Security Co., Ltd.
Beijing Jingdun Secom Electronic Security
Co., Ltd.
Qingdao Secom Security Co., Ltd.
Asia Pacific Business Link Ltd.
Shanghai Asia Pacific Property Co., Ltd.
P.T. Secom Indopratama
P.T. Nusantara Systems International
Secom Trading (Hong Kong) Ltd.
Thaisecom Pitakkij Co., Ltd.
Parentheses (48) indicate subsidiaries indirectly owned by SECOM Co., Ltd.

SECOM CO., LTD. Annual Report 1999

Lines of businessSECOM’S BASIC BUSINESS AREAS
SECOM offers a wide range of
security systems and productsthat help provide peace of mind
in today’s rapidly changing
society. The Company’s centralized and localized systems meetthe security-related needs ofhomes, businesses and public
institutions. Centralized on-line
systems initiate immediate
response by highly trained
professionals, while selfcontained proprietary security
and building management
systems facilitate on-site
automated monitoring.
SECOM and its subsidiaries
manufacture key components
and research, develop, installand maintain all systems toensure that customers receive
consistent, high-quality services.
The accompanying diagram
outlines SECOM’s comprehensive products and top-notch
services which are backed by the
resources and skills of the entire
SECOM Group.

SECOM Emer
SECOM Control Center

Dispatch

Alarm Sent

Alert as Necessary

Police Department

Utility Comp

Fire Department

Other Organ

Merchandise
Access-Control Systems
SECURILOCKSECURILOCK uses magnetic identification cards to control access torestricted areas.
SESAMO SERIESSESAMO SERIES comprises access-control systems for use in corporate offices, factories, parking facilities and any other securitysensitive area. These systems employ such high-technology
equipment as light-beam and microwave activated remote control,
magnetic cards and fingerprint identification devices, as well
as PC-operated access-control systems. These services include
advanced electronic product-tagging systems that help store
ownersprevent shoplifting.
Fire Detection and Extinguishing Systems
TOMAHAWK III
TOMAHAWK III is a new high-speed fire-detection and-extinguishingsystem.
TOMAHAWK EX
TOMAHAWK EX is a compact, general-use system that automaticallydetects and extinguishes fire.
TOMAHAWK JET
TOMAHAWK JET, designed for use in restaurant kitchens andductwork, is an automatic fire-detection and-extinguishing system.
TOMAHAWK MACH I/II
TOMAHAWK MACH I, designed for homes and smaller businesses, isa highly effective and convenient fire-extinguishing system based ona central canister and flexible hose. TOMAHAWK MACH II is a morecompact home-use model.
Intrusion- and Fire-Detection Systems for Building Perimeters
FLAME CHECKER
FLAME CHECKER detects fire indoors and outdoors.

49

SECOM CO., LTD. Annual Report 1999

BORDER SERIESBORDER SERIES uses infrared beams to detect intrusions into large
sites and buildings.
Equipment for Safeguarding Cash and Valuables
PYTHAGORAS SERIESPYTHAGORAS SERIES is a large security vault composed of individual
panels for easy transport and on-site assembly.
HANKS-Σ
HANKS-Σ is an easily assembled, durable security booth forunattended cash dispensers and ATMs.
CD PROTECTOR
CD PROTECTOR is a specially constructed hard shell that makes cash
dispensers and ATMs virtually invulnerable to break-ins.
OthersSECOM CCTV SYSTEMSECOM CCTV SYSTEM is a sophisticated, cost-effective closed-circuit
surveillance camera system designed for local security systems. The
SUPER CCTV SYSTEM version detects attempts to interfere with thesurveillance camera.
SECOM VIDEO IMAGE TRANSMISSION SYSTEM
This system makes it possible to transmit moving images to remotelocations in real-time and full-color.
PICTURE RECORDERPICTURE RECORDER is a system that detects an intruder and takes
a series of high-resolution still images in conjunction with security
sensors. This helps to establish the causes of any accident by
providing visual data on the scene just prior to the warning signal.

Centralized Systems

rgency Depot

Emergency Response

paniesnizations

SECOM FOGGY PROTECTION SYSTEMSECOM FOGGY PROTECTION SYSTEM deters would-be burglars byfilling the room with a thick, harmless chemical mist.
SECURICASE SERIESSECURICASE SERIES is an anti-theft showcase with a speciallydesigned glass and cover to protect valuables.

Local Systems

Commercial Use
SECOM SXSECOM SX meets the special needs of small commercial buildings andoffices.
SECOM MXSECOM MX is a comprehensive security package for medium-sizedcommercial establishments and schools.
SECOM TXSECOM TX provides protection for commercial buildings with morethan one tenant.
SECOM BXSECOM BX meets the exacting security requirements of financial
institutions.
HANKS SYSTEMHANKS SYSTEM is designed to meet the security requirements ofautomated banking facilities.
SECOM CXSECOM CX monitors and manages large building complexes aroundthe-clock, eliminating the need for costly on-site computers and large
custodial staff.
SECOM AXSECOM AX, a new-generation on-line security control system withan advanced visual and voice sensor, has redefined the concept of
security.
SECOM IX
An on-line visual security system for commercial facilities offering
around-the-clock service.
Residential Use
SECOM HOME SECURITY PLUS
SECOM HOME SECURITY PLUS is a residential security system
featuring a wide variety of functions, including the detection of fires,gas leaks and intrusions, through telephone lines. An emergency
medical alert system is also provided. This system is an innovative
and advanced security system which will play a major role in integrating SECOM’s wide variety of services in the residential market. In
addition to information on SECOM’s business, products and services
as well as security literature, it further provides memory functions(hand-written and voice memos, as well as a dictionary) and lifestylesupport services, called “Super Terminal.” These services can be
operated using a new Home Controller which has a touch-sensitive
color LCD panel.
SECOM MS-1, SECOM MS-2 and MS-2S
SECOM MS-1 security system provides comprehensive building
management functions for condominiums, while SECOM MS-2 andMS-2S security systems offer these capabilities plus total safety witha centralized security system for each unit in the building.

TOTAX-T
TOTAX-T is a self-contained, local control system for industrial andbuilding complexes.
SECOM MUSEUM SYSTEMSECOM MUSEUM SYSTEM provides full protection for museums andexhibition halls.

Armored Car Services
SECOM provides armored car services for the collection andtransportation of cash.

Static Guard Services
Static guard services are provided for facilities where customer
needs are best served by on-site personnel.
SECOM V-REX
SECOM V-REX is an integrated security package which offers highgrade security management system.

SECOM CO., LTD. Annual Report 199950

BOARD OF DIRECTORSFounder:
Makoto lida
Co-Founder:
Juichi Toda
Executive Vice Chairman:
Masahiro Tsubakihara
President and Representative
Director:
Toshitaka Sugimachi

Senior Executive Directors:
Shohei Kimura
Nobuyuki Sasaki
Kanemasa Haraguchi
Executive Directors:
Hirohisa Masahata
Saiji Miyauchi
Mitsuo Kawaguchi
Katsuhisa Kuwahara
Shinichiro Hashimoto
Teruo Ogino
Seiichiro Kobayashi

Directors:
Shoichi Kimura
Akio Yoshida
Shigemi Tanaka
Kuniharu Takahashi
Shoichi Kake
Yoichi Tao
Seiichi Mori
Katsuo Akiyama
Kazuhiko Tsushima
Seiji Yamanaka
Shinobu Iida

Shuji Maeda
Tohru Fukumi
Yushiro Ito
Corporate Auditors:
Yoshihiro Nao
Takeshi Motohashi
Hisaaki Tanabe
Shunzo Tamai(As of June 29, 1999)

SECOM CO., LTD. Annual Report 1999

51

SECOM CO., LTD. Annual Report 1999

SECOM CO., LTD.
Shinjuku Nomura Building,26-2, Nishi-Shinjuku 1-chome,
Shinjuku-ku, Tokyo 163-0555, Japan
Tel: (03)3348-7511
Fax: (03)3348-1799
World Wide Web Site: http://www.secom.co.jp/

Printed in Japan