AUDITED FINANCIAL STATEMENTSCONTENTSCONSOLIDATED FINANCIAL STATEMENTS ............................................................. 30
CONSOLIDATED BALANCE SHEETS..................................................................... 30
CONSOLIDATED STATEMENTS OF INCOME......................................................... 32
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY.................................... 33
CONSOLIDATED STATEMENTS OF CASH FLOWS .............................................. 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................................ 35
INDEPENDENT AUDITORS’ REPORT......................................................................... 59

Annual Report 2010

Secom Co., Ltd.

29

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETSSECOM CO., LTD. and Subsidiaries
March 31, 2010 and 2009		In millions of yen

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

March 31

March 31

2009

2010

Current assets:
Cash and cash equivalents (Notes 5 and 22)............................................................... ¥0,180,144 ¥ 159,393
Time deposits (Note 12)...............................................................................................
7,337
8,775
Cash deposits (Note 6)................................................................................................
48,862
56,668
Short-term investments (Notes 7 and 22).....................................................................
13,327
13,830Notes and accounts receivable, trade..........................................................................
76,84880,457
Due from subscribers...................................................................................................
29,322
29,384Inventories (Note 8)......................................................................................................
98,25596,071
Short-term receivables (Notes 12 and 20)....................................................................
16,16515,009Allowance for doubtful accounts..................................................................................
(2,223)(2,782)
Deferred insurance acquisition costs (Note 13).............................................................
6,145
6,559
Deferred income taxes (Note 16)..................................................................................
15,737
16,245
Other current assets....................................................................................................
10,873
12,932
			 Total current assets...............................................................................................
500,792
492,541$01,937,032
78,892525,398
143,301
826,323
315,290
1,056,505
173,817(23,903)
66,075
169,215
116,915
5,384,860

ASSETS

2010

Investments and long-term receivables:
Investment securities (Notes 2 (7), 7, 12 and 22) .........................................................
Investments in affiliated companies (Note 9).................................................................
Long-term receivables (Notes 12 and 20).....................................................................
Lease deposits............................................................................................................
Other investments........................................................................................................
Allowance for doubtful accounts..................................................................................
			

148,069
42,61370,852
13,438
9,412(7,848)276,536

161,668
40,072
74,962
13,213
9,943(8,940)290,918

1,592,140
458,204
761,849
144,495
101,205(84,387)
2,973,506

Property, plant and equipment (Notes 10, 12, 19 and 20):
Land............................................................................................................................
Buildings and improvements........................................................................................
Security equipment and control stations......................................................................
Machinery, equipment and automobiles.......................................................................
Construction in progress..............................................................................................
			Accumulated depreciation............................................................................................
			90,521
156,137
257,395
70,4993,022
577,574(314,246)
263,328

86,699147,881251,01366,8286,817
559,238(299,956)
259,282

973,344
1,678,892
2,767,688
758,054
32,495
6,210,473(3,378,989)
2,831,484

Other assets:
Deferred charges (Note 2 (12)).....................................................................................
44,125
Goodwill (Note 11).......................................................................................................
13,152Other intangible assets (Notes 11 and 12)....................................................................
22,497
Prepaid pension and severance costs (Note 14)...........................................................
4,742
Deferred income taxes (Note 16)..................................................................................
12,975
			
97,491
			 Total assets........................................................................................................... ¥1,138,147

46,196
15,44018,921
823
19,020100,400¥1,143,141

474,462
141,419
241,903
50,989139,516
1,048,289$12,238,139

See accompanying notes to consolidated financial statements.

30

Secom Co., Ltd.

Annual Report 2010

		In millions of yen

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

March 31

March 31

2009

2010

LIABILITIES AND EQUITY

2010

Current liabilities:
Bank loans (Notes 6 and 12)........................................................................................ ¥0, 43,025 ¥ 78,180
Current portion of long-term debt (Notes 12, 19 and 21)..............................................
10,801
15,967
Notes and accounts payable, trade..............................................................................
25,33628,942Other payables............................................................................................................
23,193
23,111
Deposits received (Note 6)...........................................................................................
28,34833,475
Deferred revenue.........................................................................................................
44,24842,646
Accrued income taxes.................................................................................................
21,064
19,126
Accrued payroll............................................................................................................
21,31623,526
Reserve for litigation loss (Note 24)..............................................................................
1,770
2,415
Other current liabilities (Note 16)...................................................................................
16,385
16,049283,437
			 Total current liabilities............................................................................................
235,486
Long-term debt (Notes 12, 19 and 21)............................................................................
Guarantee deposits received...........................................................................................
Accrued pension and severance costs (Note 14).............................................................
Deferred revenue.............................................................................................................
Unearned premiums and other insurance liabilities (Note 13)...........................................
Investment deposits by policyholders (Notes 13 and 21)..................................................
Deferred income taxes (Note 16).....................................................................................
Other liabilities (Notes 21, 22 and 23)..............................................................................
			 Total liabilities........................................................................................................

41,572
34,82916,50320,07874,46662,226
10,4038,120
503,683

36,40432,25817,81421,30868,86986,064
1,224
5,973
553,351$462,634
116,140
272,430
249,387
304,817475,785
226,495
229,204
19,032
176,183
2,532,107
447,011374,505
177,452
215,892
800,710
669,097
111,860
87,312
5,415,946

Commitments and contingent liabilities (Note 24)

Equity:SECOM CO., LTD. shareholders’ equity (Note 17):
Common stock:		 Authorized 900,000,000 shares;		 issued 233,288,717 shares in 2010 and 2009........................................................
66,37866,378Additional paid-in capital..............................................................................................
81,09679,995
Legal reserve...............................................................................................................
10,053
10,036
Retained earnings........................................................................................................
510,927
482,488
Accumulated other comprehensive income (loss):		 Unrealized holding gains (losses) on securities (Note 7).............................................
5,603(3,597)
		 Unrealized losses on derivative instruments (Note 23)...............................................
(18)
(187)
		 Pension liability adjustments (Note 14).......................................................................
(10,711)(11,878)
		 Foreign currency translation adjustments..................................................................
(18,622)(19,618)(35,280)			
(23,748)
Common stock in treasury, at cost:
15,254,334 shares in 2010 and 15,251,520 shares in 2009......................................
(74,907)(74,896)528,721
			 Total SECOM CO., LTD. shareholders’ equity........................................................
569,799
61,069Noncontrolling interests...................................................................................................
64,665
589,790
			 Total equity...........................................................................................................
634,464
			 Total liabilities and equity....................................................................................... ¥1,138,147 ¥1,143,141

Annual Report 2010

713,742872,000
108,097
5,493,839
60,247(194)(115,172)(200,237)(255,356)(805,452)
6,126,870
695,323
6,822,193$12,238,139

Secom Co., Ltd.

31

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED STATEMENTS OF INCOME
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2010
		In millions of yen

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

Years ended March 31

Year ended March 31

2008

2010

Net sales and operating revenue . ...................................................................... ¥670,644 ¥684,016 ¥701,836
Costs and expenses:
Cost of sales (Note 8).......................................................................................... 433,139 462,149 452,048
Selling, general and administrative expense (Notes 2 (19) and 18)....................... 137,720 141,960 142,390
Impairment loss on long-lived assets (Note 10)...................................................
292
76
16
Impairment loss on goodwill (Note 11).................................................................
245
1,578
1,128
Loss on sales and disposal of fixed assets, net...................................................
2,070
1,994
976

$7,211,226

2010

4,657,409
1,480,860
3,140
2,634
22,258

				

573,466

607,757

596,558

6,166,301				 Operating income.....................................................................................

97,17876,259105,278

1,044,925

Other income:Interest and dividends.........................................................................................
Reversal of reserve for litigation loss (Note 24).....................................................
Gain on sales of securities, net (Notes 7 and 9)...................................................
Gain on private equity investments......................................................................
Other (Note 15)...................................................................................................

1,317
781
—
—
3,254

2,232
—
—
1,403
2,124

3,007
—
2,020
4,070
3,920

14,161
8,398——
34,989

				

5,352

5,759

13,01757,548Other expenses:
Interest................................................................................................................
Loss on sales of securities, net (Note 7)..............................................................
Loss on other-than-temporary impairment of investment securities (Note 22)......
Loss on private equity investments.....................................................................
Loss related to spectrum reallocation (Note 24)...................................................
Provision for loss on litigation (Note 24)...............................................................
Other (Notes 15 and 23).....................................................................................

1,799
7
1,764
1,367
1,254
—
1,663

2,022
231
8,831
—
—
2,415
5,356

2,093
—
1,912
—
—
—
3,994

19,34475
18,968
14,69913,484—
17,882

				

7,854

18,855

7,999

84,452				 Income from continuing operations before income taxes and				 equity in net income of affiliated companies............................................

94,676

63,163

110,296

1,018,021

Income taxes (Note 16):
Current...............................................................................................................
Deferred..............................................................................................................

38,7496,882

41,682(5,423)42,4504,341

416,656
74,000				

45,631

36,25946,791490,656				 Income from continuing operations before equity				 in net income of affiliated companies .....................................................
Equity in net income of affiliated companies .....................................................

49,0452,620

26,904
8,733

63,505
5,238

527,365
28,173				 Income from continuing operations .........................................................
Income (loss) from discontinued operations, net of tax (Note 25)......................

51,665
1,354

35,637(149)

68,743(348)

555,538
14,559				 Net income .............................................................................................
Less: Net income attributable to noncontrolling interests.................................

53,019(6,030)35,488(4,928)68,395(6,639)570,097(64,839)				 Net income attributable to SECOM CO., LTD........................................... ¥ 46,989 ¥ 30,560 ¥ 61,756$ 505,258		In yenTranslation into
U.S. dollars (Note 3)

Years ended March 31

Year ended March 31

2008

2010

Per share data (Note 2 (21)):
Income from continuing operations attributable to SECOM CO., LTD..................
Income (loss) from discontinued operations attributable to SECOM CO., LTD.....
Net income attributable to SECOM CO., LTD......................................................

¥209.41 ¥138.05 ¥275.91
6.10(0.63)(1.40)
215.51137.42274.51

$2.25
0.07
2.32

Cash dividends per share....................................................................................

¥ 85.00 ¥ 85.00

$0.91

2010

See accompanying notes to consolidated financial statements.

32

2009

Secom Co., Ltd.

Annual Report 20102009

¥ 80.00

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYSECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2010
In millions of yen										 Accumulated					
Number of		 Additional			other com					shares Common
paid-in
Legal
Retainedprehensive
					issuedstock
capitalreserveearnings income (loss)

Commonstock intreasury,
at costTotal
SECOM CO., LTD.
shareholders’ Noncontrolling
equityinterest

Total

Balance, March 31, 2007 ................................................... 233,288,717 ¥66,378 ¥79,998 ¥ 9,923¥428,850¥11,433 (¥44,850)
Cumulative effect of a change in accounting principleadoption of ASC 710, net of tax (Note 2 (16))......................
————(1,227)——
Comprehensive income:Net income.......................................................................
————
61,756——
Other comprehensive income (loss), net of tax (Note 17):
		 Unrealized holding losses on securities........................
—
—
—
—
—
(11,238)—
		 Unrealized losses on derivative instruments.................
—
—
—
—
—
(41)
—
		 Pension liability adjustments........................................
—
—
—
—
—
(5,998)——
		 Foreign currency translation adjustments.....................
————(2,187)—
Total comprehensive income............................................
							Cash dividends paid to SECOM CO., LTD. shareholders.......
————(17,998)——
Cash dividends paid to noncontrolling interests.....................
—
—
—
—
—
—
—
Changes in scope of consolidation........................................
—
—
—
—
(218)
—
—
Transfer to legal reserve.........................................................
—
—
—
97
(97)
—
—
Equity transactions with noncontrolling interests and other....
—
—
—
—
—
—
—
Gains and losses on disposal of treasury stock......................
—
—
0
—
—
—
—
Net changes in treasury stock...............................................
—
—
—
—
—
—
(27)

¥551,732¥61,311¥613,043(1,227)(192)(1,419)61,756

6,639

68,395(11,238)(41)(5,998)(2,187)42,292(17,998)
—
(218)
—
—
0
(27)

(1,657)
(11)
(798)
96
4,269
—
(1,415)——(1,462)——(12,895)(52)(6,796)(2,091)
46,561(17,998)(1,415)(218)—(1,462)0(27)

Balance, March 31, 2008 ................................................... 233,288,717
66,37879,99810,020471,066(8,031)(44,877)
Comprehensive income:Net income.......................................................................
————
30,560——
Other comprehensive income (loss), net of tax (Note 17):
		 Unrealized holding losses on securities........................
—
—
—
—
—
(460)
—
		 Unrealized losses on derivative instruments.................
—
—
—
—
—
(93)
—
		 Pension liability adjustments........................................
—
—
—
—
—
(7,152)—
		 Foreign currency translation adjustments.....................
—
—
—
—
—
(19,544)—
Total comprehensive income............................................								Cash dividends paid to SECOM CO., LTD. shareholders.......
————(19,122)——
Cash dividends paid to noncontrolling interests.....................
—
—
—
—
—
—
—
Transfer to legal reserve.........................................................
—
—
—
16
(16)
—
—
Equity transactions with noncontrolling interests and other....
—
—
—
—
—
—
—
Gains and losses on disposal of treasury stock......................
—
—
(3)
—
—
—
—
Net changes in treasury stock...............................................
—
—
—
—
—
—
(30,019)574,554

62,511

637,065

30,5604,928

35,488(460)(93)(7,152)(19,544)
3,311(19,122)———(3)(30,019)

159
(20)
(959)
(622)
3,486
—
(1,701)—(3,227)
—
—

(301)
(113)
(8,111)(20,166)
6,797(19,122)(1,701)—(3,227)(3)(30,019)

Balance, March 31, 2009 ................................................... 233,288,717
66,37879,995
10,036482,488(35,280)(74,896)
Comprehensive income:Net income.......................................................................
————
46,989——Other comprehensive income (loss), net of tax (Note 17):
		 Unrealized holding gains on securities.........................
—
—
—
—
—
9,200
—
		 Unrealized gains on derivative instruments..................
—
—
—
—
—
169
—
		 Pension liability adjustments........................................
—
—
—
—
—
1,167
—
996
—
		 Foreign currency translation adjustments.....................
—
—
—
—
—
Total comprehensive income............................................
							Cash dividends paid to SECOM CO., LTD. shareholders.......
————(18,533)——
Cash dividends paid to noncontrolling interests.....................
—
—
—
—
—
—
—
Transfer to legal reserve.........................................................
—
—
—
17
(17)
—
—
Equity transactions with noncontrolling interests and other....
—
—
1,101
—
—
—
—
Gains and losses on disposal of treasury stock......................
—
—
(0)
—
—
—
—
Net changes in treasury stock...............................................
—
—
—
—
—
—
(11)

528,72161,069589,790

46,9896,030

53,019

9,200
169
1,167
996
58,521(18,533)
—
—
1,101
(0)
(11)

211
47
372
212
6,872
—
(1,759)—(1,517)
—
—

9,411
216
1,539
1,208
65,393(18,533)(1,759)
—
(416)
(0)
(11)

Balance, March 31, 2010 ................................................... 233,288,717¥569,799¥64,665¥634,464¥66,378¥81,096¥10,053¥510,927(¥23,748) (¥74,907)

Translation into thousands of U.S. dollars (Note 3)										 Accumulated							 Additional			other com						 Common
paid-in
Legal
Retainedprehensive						
stock
capitalreserveearnings income (loss)

Commonstock intreasury,
at costTotal
SECOM CO., LTD.
shareholders’ Noncontrolling
equityinterest

Total

Balance, March 31, 2009........................................................................... $713,742 $860,161 $107,914 $5,188,043($379,355) ($805,333)
Comprehensive income:Net income.............................................................................................
———
505,258——
Other comprehensive income (loss), net of tax (Note 17):
		 Unrealized holding gains on securities...............................................
————
98,924—
		 Unrealized gains on derivative instruments........................................
—
—
—
—
1,817
—
		 Pension liability adjustments..............................................................
————
12,548—
		 Foreign currency translation adjustments...........................................
————
10,710—Total comprehensive income.................................................................. 							Cash dividends paid to SECOM CO., LTD. shareholders.............................
———(199,279)——
Cash dividends paid to noncontrolling interests...........................................
—
—
—
—
—
—
Transfer to legal reserve...............................................................................
—
—
183
(183)
—
—
Equity transactions with noncontrolling interests and other..........................
—
11,839————Gains and losses on disposal of treasury stock............................................
—
(0)
—
—
—
—
Net changes in treasury stock.....................................................................
—
—
—
—
—
(119)

$5,685,172

Balance, March 31, 2010 ......................................................................... $713,742 $872,000 $108,097 $5,493,839$6,126,870$695,323 $6,822,193

Annual Report 2010

Secom Co., Ltd.

($255,356) ($805,452)$656,656 $6,341,828

505,258

64,839570,097

98,924
1,817
12,548
10,710629,257(199,279)——
11,839
(0)
(119)

2,269
505
4,000
2,280
73,893—(18,914)—(16,312)——101,193
2,322
16,54812,990703,150(199,279)(18,914)—(4,473)(0)(119)

See accompanying notes to consolidated financial statements.

33

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED STATEMENTS OF CASH FLOWSSECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2010
		In millions of yen

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

Years ended March 31

Year ended March 31

2010

2009

2008

Cash flows from operating activities:
Net income............................................................................................................................ ¥ 53,019 ¥ 35,488 ¥ 68,395
Adjustments to reconcile net income to net cash provided by operating activities—
		 Depreciation and amortization, including amortization of deferred charges
		 (Notes 2 (11), 2 (12) and 11)............................................................................................
55,13054,62558,194
		 Accrual for pension and severance costs, less payments..................................................
(3,723)(5,313)(4,083)
		 Deferred income taxes, including discontinued operations.................................................
6,885(5,416)
4,337
		 Loss on sales and disposal of fixed assets, net.................................................................
2,070
1,994
976
		 Impairment loss on long-lived assets (Note 10)..................................................................
292
76
16
		 Write-down on real estate inventories (Note 8)...................................................................
1,285
8,366
—
		 (Gain) loss on private equity investments...........................................................................
1,367(1,403)(4,070)		 Provision (reversal of reserve) for litigation loss (Note 24)....................................................
(781)
2,415
—
		 Impairment loss on goodwill (Note 11)...............................................................................
245
1,578
1,128
		 Gain on sales of securities, net (Note 7).............................................................................
(1,302)(299)(4,593)
		 Loss on liquidation of subsidiaries.....................................................................................
—
32
485
		 Loss on other-than-temporary impairment of investment securities...................................
6,321
19,5142,562
		 Equity in net income of affiliated companies.......................................................................
(2,620)(8,733)(5,238)
		 Gain on sales of discontinued operations (Note 25)...........................................................
(777)
—
—
		 Changes in assets and liabilities, net of effects from acquisitions and disposals:
			 Decrease in cash deposits............................................................................................
7,806
7,030
11,632
3,845
8,525(4,766)
			 (Increase) decrease in receivables and due from subscribers, net of allowances............
			 (Increase) decrease in inventories..................................................................................
(3,386)
10,099(19,267)
			 Increase in deferred charges.........................................................................................
(14,502)(15,972) (16,336)
			 Decrease in deposits received.......................................................................................
(5,133)(3,136) (14,023)
			 Increase (decrease) in deferred revenue.........................................................................
255(1,037)
1,468
			 Increase (decrease) in accrued income taxes.................................................................
2,021(5,530)(332)
			 Increase in guarantee deposits received........................................................................
2,541
1,811
329
			 Increase in unearned premiums and other insurance liabilities.......................................
5,598
5,664
4,939
			 Other, net......................................................................................................................
233(2,968)
10,820$ 570,097
592,796(40,032)
74,032
22,2583,140
13,817
14,699(8,398)2,634(14,000)—
67,968(28,173)(8,355)83,93541,344(36,409)(155,935)(55,194)
2,742
21,731
27,32360,1942,506				 Net cash provided by operating activities..................................................................

116,689

107,410

92,573

1,254,720

Cash flows from investing activities:(Increase) decrease in time deposits......................................................................................
Proceeds from sales of property, plant and equipment..........................................................
Payments for purchases of property, plant and equipment....................................................
Payments for purchases of intangible assets.........................................................................
Proceeds from sales and redemptions of investment securities.............................................
Payments for purchases of investment securities...................................................................
(Increase) decrease in short-term investments.......................................................................
Proceeds from sales of discontinued operations....................................................................
Acquisitions, net of cash acquired (Note 4)............................................................................
Payments for investments in affiliated companies (Note 9).....................................................
(Increase) decrease in short-term receivables, net..................................................................
Payments for long-term receivables.......................................................................................
Proceeds from long-term receivables.....................................................................................
Other, net..............................................................................................................................

1,413
1,765
(38,283)(7,231)44,857(24,585)
3,776
5,185
996
—
250
(5,014)
6,043
226

(12)
206
(44,790)(4,166)
60,118(57,133)(3,317)—(1,498)—87(6,796)
7,160
222(1,612)
4,277(45,332)(5,134)87,439(99,262)
6,397
—
(317)
(1,741)(1,207)(3,773)
6,581
1,577

15,194
18,978(411,645)(77,752)
482,333(264,355)
40,60255,753
10,710—2,688(53,914)64,9782,430				 Net cash used in investing activities..........................................................................

(10,602)(49,919)(52,107)(114,000)

Cash flows from financing activities:
Proceeds from long-term debt...............................................................................................
Repayments of long-term debt..............................................................................................
Increase (decrease) in bank loans, net...................................................................................
Decrease in investment deposits by policyholders.................................................................
Dividends paid to SECOM CO., LTD. shareholders................................................................
Dividends paid to noncontrolling interests..............................................................................
Increase in treasury stock, net...............................................................................................
Other, net..............................................................................................................................

6,885(12,951)(35,156)(23,838)(18,533)(1,759)(11)(324)

11,396(13,411)(55,161)(1,188)(19,122)(1,701)(30,019)(711)

12,955(12,792)
6,075(6,109)(17,998)(1,415)(27)(15)

74,032(139,258)(378,021)(256,322)(199,279)(18,914)(119)(3,484)(921,365)				 Net cash used in financing activities..........................................................................

(85,687)(109,917)(19,326)

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

351(2,758)

222

3,774

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

20,751
159,393(55,184)
214,577

21,362
193,215

223,129
1,713,903¥159,393 ¥214,577$1,937,032

Cash and cash equivalents at end of year............................................................................. ¥180,144
See accompanying notes to consolidated financial statements.

34

2010

Secom Co., Ltd.

Annual Report 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2010

1. Nature of Operations
The parent company and its subsidiaries (collectively “theCompany”) are engaged in the areas of security services, fire
protection services, medical services, insurance services,
geographic information services, real estate development andsales, and information and communication related and otherservices. With these services combined, the Company is focusing
on the establishment of a “Social System Industry,” a network ofintegrated systems and services, targeted at the needs of people
and business.
The Company’s principal business activities are security services,
including on-line security services for commercial and residential
premises, static guard services, armored car services for cash
collection and deposit and security merchandise. The Company
has also been diversifying its services covering: fire protection services, including automatic fire alarm systems and fire extinguishingsystems; medical services, including home and other medical services; insurance services, focusing on non-life insurance services;
geographic information services using geographic information
system (“GIS”) and surveying and measuring technology; realestate development and sales, focusing on the development andsale of condominiums that feature security services and disasterprevention services; and information and communication related
services, centered on information security services and the provision of comprehensive information networks designed to assist
people and companies in the event of a major disaster; lease of realestate and other services.
2. Significant Accounting Policies
The parent company and its Japanese subsidiaries ­maintain theirrecords and prepare their statutory financial ­statements in accordance with accounting principles generally accepted in Japan(“Japanese GAAP”). Certain adjustments and reclassifications havebeen incorporated in the accompanying financial statements to­conform with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). These adjustments were
not recorded in the statutory books of account.
Significant accounting policies used in the preparation of theaccompanying consolidated financial statements are summarized
below:(1) Basis of Consolidation and Investments in Affiliated­Companies
The consolidated financial statements include the accounts ofthe parent company and those of its majority owned ­subsidiaries.
All significant intercompany transactions and accounts have been
eliminated in consolidation.
Investments in companies in which the ability to exercise significant influence exists (generally 20 to 50 percent owned companies), are accounted for under the equity method. Consolidated
income includes the Company’s current equity in the net income ofaffiliated companies, after elimination of intercompany profits.
The excess of cost over underlying identifiable net assets at
acquisition dates of investments in subsidiaries and affiliated­companies is recorded as goodwill.

(2) Consolidation of Variable Interest Entities
The consolidated financial statements also include variable­interest entities (“VIEs”) to which the Company is the primary
beneficiary.
The Company provides loans and guarantees to ­organizations
managing hospitals and health care-related institutions and to a PFI(Private Finance Initiative) organization which was established tobuild, maintain and operate correctional facilities. Certain organizations are considered VIEs under Accounting Standards Codification(“ASC”) 810, “Consolidation” (former FASB Interpretation (“FIN”)
No. 46 (revised December 2003), “Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51”).
Total assets held by VIEs to which the Company is the primary
beneficiary were ¥16,554 million ($178,000 thousand) and ¥16,594
million at March 31, 2010 and 2009, respectively. Total assets heldby VIEs to which the Company holds ­significant variable interests
but is not the primary beneficiary at March 31, 2010 and 2009 were¥48,301 million ($519,366 thousand) and ¥46,654 million, respectively. The Company’s maximum exposure to losses related to VIEs
at March 31, 2010 and 2009 were ¥9,309 million ($100,097
thousand) and ¥9,794 million, ­respectively.
(3) Revenue Recognition
The Company generates revenue principally through sales of
security services, merchandise and software, and insurance services under separate contractual arrangements. The Company
recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, title
and risk of loss have been transferred to the customer, the sales
price is fixed or determinable, and collectibility is probable.
Revenue from security services is recognized over the contractual period or, in the case of specific services, when such services
are rendered. Subscribers are generally requested to prepay a
portion of service charges which are credited to deferred revenue
and taken into income ratably over the ­covered service period.
Revenue from installation services of security equipment related toon-line centralized security ­services is deferred and recognized overthe contractual period of security services after completion of theinstallation. The related installation costs are also deferred andamortized over the ­contractual period (Note 2 (12)).
The Company enters into arrangements with multiple elements,
which may include any combination of security equipment, installation and security service. The Company allocates revenue to eachelement based on its relative fair value if such ­element meets
criteria for treatment as a ­separate unit of accounting as prescribedin ASC 605, “Revenue Recognition” (former Emerging Issues Task
Force (“EITF”) No. 00-21, “Accounting for Revenue Arrangementwith Multiple Deliverables”). Otherwise, revenue is deferred until theundelivered ­elements are fulfilled as a single unit of accounting.
Revenue from sales of merchandise and software is ­recognizedwhen the merchandise and software are received by the customer
and, in the case of installations, when such installations arecompleted.
Revenue from construction contracts is principally recognizedwhen construction is completed.

Annual Report 2010

Secom Co., Ltd.

35

CONSOLIDATED FINANCIAL STATEMENTS

Revenue from long-term contracts for fire protection services
and geographic i­nforma­tion services is recognized under thepercentage-of-­completion method.
Property and casualty insurance premiums are earned ­ratably
over the terms of the related insurance contracts. Unearned­premiums are earned ratably over the terms of the unexpired
portion of premiums written.
Revenue from sales of real estate is recognized when the­ownership of real estates are transferred to the customers.
Revenue from sales of equipment under sales-type leases isrecognized at the inception of the lease. Unearned income onsales-type leases and direct-financing leases is recognized over thelife of each respective lease using the interest method. Leases not
qualifying as sales-type leases or direct-financing leases areaccounted for as operating leases and the related ­revenue isrecognized over the lease term.
Taxes collected from customers and remitted to ­governmental
authorities on revenue-producing transactions are accounted for on
a net basis and therefore are excluded from net sales and operating
revenue in consolidated ­statements of income.
(4) Foreign Currency Translation
All asset and liability accounts of foreign subsidiaries and affiliates
are translated into Japanese yen at the rates of exchange in effectat year-end and all income and expense accounts are translated ataverage rates of exchange during the year. The resulting translation
adjustments are accumulated and reported as part of other­comprehensive income (loss).
Foreign currency receivables and payables of the Company aretranslated 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.
(5) Cash Equivalents
For the purpose of the consolidated statements of cash flows,
the Company considers all highly liquid investments purchased withinitial m­ aturities of three months or less to be cash equivalents.
(6) Investments in Debt and Equity Securities
The Company classifies investments in debt and equity securities
as “available-for-sale” or “held-to-maturity.” The Company has no
securities classified as “trading.” “Held-to-maturity” securities arethose securities in which the Company has the ability and intent tohold the security until maturity. All securities not included in­“trading” or “held-to-maturity” are classified as “available-for-sale”
securities. Market­able debt and equity securities which are classified as “available-for-sale” are recorded at fair value. Unrealized
holding gains and losses on securities classified as “available-forsale” are reported as part of other comprehensive income (loss),
net of tax. Debt securities classified as “held-to-maturity” arereported at a
­ mortized cost.
A decline in the fair value of any available-for-sale ­securities
below cost that is deemed to be other-than-­temporary results in a
reduction in carrying amount to fair value. The impairment ischarged to income and a new cost basis for the securities isestablished. To determine whether an impairment is other-thantemporary, the Company considers the length of time and extent towhich the market value of the security has been less than its

36

Secom Co., Ltd.

Annual Report 2010

original cost, the financial condition, other specific factors affecting
the market value, deterioration of the credit condition of the issuers,
and whether or not the Company is able to retain the investment
for a period of time sufficient to allow for the anticipated recovery inmarket value.
Other investments in non-public companies are recorded at cost
as fair value is not readily determinable. The Company periodicallyevaluates the values of other investments in ­non-public companies
for possible impairment by taking into consideration the financial
and operating conditions of the issuer, the general market
conditions in the issuer’s industry and the period of the decline in
the estimated fair value and other relevant factors. If the impairment
is determined to be other-than-temporary, other investments in
non-public companies are written down to their impaired value
through a charge to income.
Realized gains or losses on the sale of investments are based on
the moving-average cost method and are credited or charged toincome.
(7) Private Equity Investments
The Company accounts for private equity investments in accordance with ASC 946, “Financial Services—Investment Companies”(former AICPA Audit and Accounting Guide: Investment
Companies), in which investments are accounted for at fair value
based on the Company’s assessment of each underlying investment. The investments, by their nature, have little or no pricetransparency. Investments are initially carried at cost as an approximation of fair value. Adjustments to carrying value are made if thereis evidence of a change in fair value. Downward adjustments arealso made, in the absence of third-party transactions, if it is determined that the expected realizable value of the i­nvestment has
declined below the carrying value.
The carrying value of private equity investments was ¥23,520
million ($252,903 thousand) and ¥20,861 million at March 31, 2010
and 2009, respectively.
Private equity investments are included in investment securities in
the consolidated balance sheets.
(8) Inventories
Inventories, consisting of security-related products, fire
­protection-related products, real estate and information and otherrelated products, are stated at the lower of cost or market. Cost isdetermined, in the case of real estate, based on the specific identification method and, in the case of other inventories, primarily using
the ­moving-­average method.
(9) Allowance for Doubtful Accounts
The Company recognizes an allowance for doubtful accounts toensure trade and other receivables are not overstated due touncollectibility. Allowance for doubtful accounts is maintained for all
customers based on a variety of factors, including the length oftime receivables are past due, macroeconomic conditions, significant one-time events and historical experience. An additional
reserve for individual accounts is recorded when the Company
becomes aware of a customer’s inability to meet its financial­obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If
circumstances related to customers change, estimates of the­recoverability of receivables would be further adjusted.

(10) Deferred Insurance Acquisition Costs
Costs that vary with and are primarily related to acquiring new
insurance policies are deferred and amortized principally over thepremium-paying period of the related ­insurance policies applying
a percentage relationship of cost incurred to premiums from­contracts issued to applicable unearned ­premiums throughout
the period of the contract.
(11) Property, Plant and Equipment and Depreciation
Property, plant and equipment, including significant ­leasehold
improvements, are carried at cost and depreciated at rates basedon the estimated useful lives of the assets. From April 1, 2008,
depreciation is computed using the straight-line method for assets
other than security equipment and control stations. Prior to April 1,
2008, these assets were depreciated primarily using the decliningbalance method. Security equipment and control stations are
depreciated by using the declining-balance method. Assets leased
to others under operating leases are depreciated using the straightline method over the estimated useful lives. Depreciation expense
was ¥34,033 million ($365,946 thousand), ¥33,417 mil­lion and¥37,241 million for the years ended March 31, 2010, 2009 and2008, respectively. Maintenance, repairs and renewals are charged
to income as incurred.
The estimated useful lives of depreciable assets are as ­follows:		 Buildings
22 to 50 years
		 Security equipment and control stations
5 to 8 years
		 Machinery, equipment and automobiles
2 to 20 years
Effective April 1, 2008, the Company adopted the straight-line
method of depreciation for assets other than security equipment
and control stations. In accordance with ASC 250, “Accounting
Changes and Error Corrections” (former Statement of Financial
Accounting Standards (“SFAS”) No. 154, “Accounting Changes
and Error Corrections, a replacement of APB Opinion No. 20 and
FASB Statement No. 3”), this change in depreciation method istreated on a prospective basis as a change in estimate. Prior period
results have not been restated. The Company has unified its
accounting policy within the Group, as it believes that the change
of depreciation method for assets other than security equipment
and control stations better reflects the pattern of consumption of
the future benefits to be derived from those assets being
depreciated and provides a better matching of costs and revenues
over the assets’ estimated useful lives.
The Company recognizes an asset retirement liability if the fairvalue of the obligation can be reasonably estimated. Assetretirement obligations include those for which an entity has a legal
obligation to perform an asset retirement activity, however, thetiming and/or method of settling the obligation are conditional on afuture event that may or may not be within the control of the entity.
(12) Deferred Charges
Deferred charges primarily consist of costs related to installation
services of security equipment related to on-line security services.
The installation costs are deferred and amortized using the straightline method over the contractual period of security services after
completion of the installation. Amortiza­­tion expense was ¥15,312
million ($164,645 thousand), ¥15,359 million and ¥14,953 million
for the years ended March 31, 2010, 2009 and 2008, respectively.

(13) Impairment or Disposal of Long-Lived Assets
In accordance with ASC 360, “Property, Plant and Equipment”(former SFAS No. 144, “Accounting for Impairment or Disposal ofLong-Lived Assets”), the Company reviews the carrying amount of
its long-lived assets held and used, other than goodwill and intangible assets with indefinite lives, and assets to be disposed of,whenever events or changes in circumstances ­indicated that thecarrying amount may not be recoverable. Long-lived assets to beheld and used are reviewed for impairment by comparing thecarrying amount of the assets with their estimated future undiscounted cash flows. If it is determined that an impairment loss has
occurred, the loss would be recognized during the period. The
impairment loss would be calculated as the difference between theassets’ carrying amount and the fair value. Long-lived assets thatare to be disposed of other than by sale are considered held andused until they are disposed of. Long-lived assets that are to bedisposed of by sale are reported at the lower of their c­ arryingamount or fair value less cost to sell. Reductions in the carrying
amount are ­recognized in the period in which the long-lived assets
are classified as held for sale.
(14) Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over the fair value of
assets of business acquired. Pursuant to ASC 350, “Intangibles—
Goodwill and Other” (former SFAS No. 142, “Goodwill and Other
Intangible Assets”), goodwill and i­ntangible assets acquired in apurchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for
impairment at least annually. This accounting standard also requiresthat intangible assets with estimable u­ seful lives be amortized overtheir respective estimated useful lives to their estimated residual­values, and reviewed for impairment in accordance with ASC 360.
The Company conducts its annual impairment test at the end ofeach fiscal year.
(15) Unearned Premiums and Other Insurance Liabilities
Unearned premiums are related to unexpired periods of
insurance contracts and are earned on a pro-rata basis over theremaining contract period. Other insurance liabilities consist
principally of liabilities for unpaid claims and adjustment expenses,
which are estimates of payments to be made on reported claims
and incurred but not reported claims, which are computed basedon past experience for unpaid losses.
(16) Compensated Absences
In June 2006, the Financial Accounting Standards Board(“FASB”) ratified ASC 710, “Compensation—General” (former EITF
consensus on EITF Issue No. 06-2, “Accounting for Sabbatical
Leave and Other Similar Benefits Pursuant to FASB Statement
No. 43”). This accounting standard provides guidance for an
accrual of compensated absences that require a minimum service
period but have no increase in the benefit even with additional
years of service. On April 1, 2007, the Company adopted thisaccounting standard and increased the beginning balance ofaccrued payroll by ¥2,265 million and deferred income taxes(Other assets) by ¥846 million, respectively, and decreased the­beginning balance of retained ­earnings by ¥1,227 million.

Annual Report 2010

Secom Co., Ltd.

37

CONSOLIDATED FINANCIAL STATEMENTS(17) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets andliabilities and their respective tax bases, and operating loss
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences and carryforwards are
expected to be realized or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances arerecorded to reduce deferred tax assets when it is more likely than
not that a tax benefit will not be realized.
On April 1, 2007, the Company adopted ASC 740, “Income
Taxes” (former FIN No. 48, “Accounting for Uncertainty in Income
Taxes—an Interpretation of FASB Statement No. 109”), which
requires a more-likely-than-not threshold for financial statement
recognition and measurement of tax positions taken or expected tobe taken in a tax return. The benefit of the tax position is measured
at the largest amount of benefit that is greater than 50 percent likelyof being realized upon settlement with the appropriate tax authority.
The Company recognizes interest and penalties accrued related
to unrecognized tax benefits in income taxes in the consolidated
statements of income.

effective as a hedge, are recorded in other comprehensive income(loss), net of tax. Changes in the fair value of derivative financial
instruments not qualifying as a hedge are reported in income.
The Company meets the documentation requirements necessaryfor effective hedges which include their risk management objective
and strategy for undertaking various hedge transactions. In
addition, formal assessment is made at inception of the hedge andperiodically on an on-going basis, as to whether the derivatives
used in hedging activities are highly effective in off-setting changes
in fair values or cash flow of hedged items. Hedge accounting is
discontinued for ineffective hedges, if any. Discontinued hedges arerecognized in income.

(18) Research and Development
Research and development costs are charged to income
as incurred.

(22) Use of Estimates
The preparation of the consolidated financial statements requires
management of the Company to make a number of estimates andassumptions relating to the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the dateof the consolidated financial statements and the reported amountsof revenues and expenses during the period. Actual results could
differ from those estimates. Significant items subject to such
estimates and assumptions include the carrying amounts of inventories, investment securities, other investments, property, plant andequipment, goodwill and other intangible assets; valuation allowances for receivables and deferred income taxes; valuation ofderivative instruments; assets and obligations related to employee
benefits; income tax uncertainties; reserve for litigation loss; andother contingencies.

(19) Advertising Costs
Advertising costs are charged to income as incurred, except forthe costs related to insurance policies. Advertising costs for acquiring new insurance policies are deferred and amortized as part of
insurance acquisition costs. Advertising expenses included inselling, general and administrative expenses for the years ended
March 31, 2010, 2009 and 2008 were ¥4,665 million ($50,161
thousand), ¥5,292 million and ¥5,829 million, respectively.
(20) Derivative Financial Instruments
The Company accounts for derivative financial instruments inaccordance with ASC 815, “Derivatives and Hedging” (former SFAS
No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended).
The Company recognizes all derivative financial instruments inthe consolidated financial statements at fair value regardless of the
purpose or intent for holding them. Changes in the fair value ofderivative financial instruments are either recognized periodically inincome or in equity as a component of other comprehensive
income (loss) depending on whether the derivative financial instruments qualify for hedge accounting, and if so, whether they qualify
as a fair value hedge or a cash flow hedge. Changes in the fairvalues of derivative financial instruments accounted for as a fairvalue hedge are recorded in income along with the portion of thechange in the fair value of the hedged item that relates to thehedged risk. Changes in the fair value of derivative financial instruments accounted for as a cash flow hedge, to the extent it is38

Secom Co., Ltd.

Annual Report 2010(21) Per Share Data
Basic Earnings per Share (“EPS”) is computed based on the
average number of shares of common stock outstanding for theperiod. The average number of shares of common stock outstanding for the years ended March 31, 2010, 2009 and 2008 was
218,035 thousand shares, 222,378 thousand shares and 224,967
thousand shares, respectively. There were no potentially dilutive
shares outstanding during the years ended March 31, 2010, 2009or 2008.
Cash dividends per share shown in the accompanying consolidated statements of income are computed based on dividends
approved and paid in each fiscal year.

(23) Recent Pronouncements
In June 2009, the FASB issued the Accounting Standards
Codification, which compiles all generally accepted accounting
principles in the United States of America and establishes the
Accounting Standards Codification as the single official sourceof authoritative generally accepted accounting standards. Thisaccounting standard is effective for fiscal years ending after
September 15, 2009 and was adopted by the Company in thefiscal year ended March 31, 2010. The adoption of this accounting
standard had no impact on the Company’s consolidated results ofoperations and financial positions.
In December 2007, the FASB issued ASC 805, “Business
Combinations” (former SFAS No. 141(R), “Business Combinations”).
This accounting standard establishes principles and requirements
for how an acquirer recognizes and measures in its financial

statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquiree and the goodwill
acquired. This accounting standard also establishes disclosure
requirements to e
­ nable the evaluation of the nature and financial
effects of the business combination. This accounting standard iseffective for fiscal years beginning after December 15, 2008 and
was adopted by the Company in the fiscal year ended March 31,
2010. The adoption of this accounting standard did not have amaterial impact on the Company’s ­consolidated results of­operations and financial positions.
In December 2007, the FASB issued ASC 810, “Consolidation”(former SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51”). Thisaccounting standard requires that the noncontrolling interest in
the equity of a subsidiary be accounted for and reported as equity,
provides revised guidance on the treatment of net income andlosses attributable to the noncontrolling interest and changes inownership interests in a subsidiary. This accounting standard also
requires additional disclosures that identify and distinguish between
the interests of the controlling and noncontrolling owners. Thisaccounting standard is effective for fiscal years beginning after
December 15, 2008 and was adopted by the Company in thefiscal year ended March 31, 2010. Upon the adoption of thisaccounting standard, noncontrolling interests, which were previously referred to as minority interests and classified between total
liabilities and shareholders’ equity on the consolidated balance
sheets, are now included as a separate component of total equity.
The presentation of consolidated statements of income and cash
flows has also been changed. In addition, in accordance with therequirements of this accounting standard, certain reclassificationsof previously reported amounts have been made to the consolidated balance sheet at March 31, 2009, the consolidated statements of income and the consolidated statements of cash flows forthe years ended March 31, 2009 and 2008.
In December 2008, the FASB issued ASC 715, “Compensation—
Retirement Benefits” (former FSP FAS No. 132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets”). Thisaccounting standard requires additional disclosures about assets
held in an employer’s defined benefit pension or other postretirement plan. This accounting standard is effective for fiscal years ending after December 15, 2009 and was adopted by the Company inthe fiscal year ended March 31, 2010.
In April 2009, the FASB issued ASC 320, “Investment—Debt
and Equity Securities” (former FSP FAS No. 115-2 and 124-2,“Recognition and Presentation of Other-Than-Temporary
Impairments”). This accounting standard revises the recognitionand presentation requirements for other-than-­temporary impairments for debt securities, and contains additional disclosure
requirements related to debt and equity securities. This accounting
standard is effective for fiscal years ending after June 15, 2009 andwas adopted by the Company in the fiscal year ended March 31,
2010. The adoption of this accounting standard did not have amaterial impact on the Company’s consolidated results of­operations and financial positions.

In September 2009, the FASB issued Accounting Standards
Update (“ASU”) No. 2009-13, “Multiple-Deliverable Revenue
Arrangements, a consensus of the FASB Emerging Issues Task
Force.” This accounting standard addresses the accounting for
multiple-deliverable arrangements to enable the vender to accountfor products or services separately rather than as a combined unit,
and also addresses how to separate deliverables and how tomeasure and allocate arrangement consideration to one or moreunits of accounting. This accounting standard will be effective
prospectively for revenue arrangements entered into or materiallymodified in fiscal years beginning on or after June 15, 2010 and will
be adopted by the Company in the fiscal year beginning April 1,
2011. It is not anticipated that the adoption will have a material
impact on the Company’s consolidated results of operations or
financial positions.
In October 2009, the FASB issued ASU No. 2009-14, “Certain
Revenue Arrangements That Include Software Elements, aConsensus of the FASB Emerging Issues Task Force.” Thisaccounting standard modifies the scope of the software revenue
recognition guidance and excludes tangible products containing
software components and nonsoftware components that function
together to deliver the tangible product’s essential functionality
from the scope. This accounting standard is effective for the
fiscal years beginning after June 15, 2010, and will be adopted
by the Company in the fiscal year beginning April 1, 2011. It isnot ­anticipated that the adoption will have a material impact
on the Company’s consolidated results of operations or
financial positions.
In December 2009, the FASB issued ASU No. 2009-17,“Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities.” This accounting standard codifies former
SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),”issued in June 2009 in the ASC 810. This accounting standard
requires an enterprise to perform an analysis to identify the primary
beneficiary of a variable interest entity and also requires ongoingreassessments of whether an enterprise is the primary beneficiaryof a variable interest entity. This accounting standard is effective forthe fiscal years beginning after November 15, 2009, and will be
adopted by the Company in the fiscal year beginning April 1, 2010.
The Company is currently evaluating the effect of adopting this­accounting standard on its consolidated financial statements.
(24) Reclassifications
The accompanying consolidated financial statements forthe years ended March 31, 2009 and 2008 have been ­reclassified to conform to the presentation used for the year
ended March 31, 2010.
3. U.S. Dollar Amounts
U.S. dollar amounts have been included in these financial statements solely for the convenience of the reader. The translations of
yen into U.S. dollars have been made at the rate of ¥93=US$1, therate ­prevailing on the Tokyo Foreign Exchange Market on March
31, 2010. These ­translations should not be construed as representing that the yen amounts actually represent, or have been or could
be converted into U.S. dollars at that rate.

Annual Report 2010

Secom Co., Ltd.

39

CONSOLIDATED FINANCIAL STATEMENTS

4. Acquisitions
In July 2009, the Company acquired all outstanding shares of
MAC International Co., Ltd. by repossession of the Company’s
long-term receivables of ¥3,733 million ($40,140 thousand) andother short-term receivables of ¥1,000 million ($10,752 thousand).
The following table summarizes the estimated fair values of theassets acquired and liabilities assumed at the date of acquisition.
Short-term loans of ¥5,684 million ($61,118 thousand) andlong-term debt of ¥868 million ($9,333 thousand) to domestic
subsidiaries were eliminated in consolidation.
		In millions of yen

Cash and cash equivalents......................
Other current assets................................
Investments and long-term receivables....
Property, plant and equipment.................
Goodwill..................................................
Other assets............................................
Total assets acquired...........................
Current liabilities......................................
Other liabilities.........................................
Total liabilities assumed........................
Net assets acquired.............................

¥ 1,037
322
8,941
4,138
702
20
15,1605,798
4,629
10,427¥ 4,733

In thousands of
U.S. dollars$ 11,151
3,462
96,14044,495
7,548
215
163,01162,34549,774112,119$ 50,892

In February 2010, MAC International Co., Ltd. was merged into
Secom Medical System Co., Ltd., a subsidiary of the Company.
The pro-forma result related to this acquisition is not disclosed
because the impact on the consolidated financial statements is
not material.
5. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2010 and 2009 werecomprised as follows:		 In thousands ofIn millions of yen

U.S. dollars

March 31

March 31

2009

2010

Cash........................................... ¥125,552 ¥100,327
Time deposits..............................
15,42919,609Call loan......................................
36,50036,500Investment securities...................
2,663
2,957
			 . .......................................... ¥180,144 ¥159,393$1,350,022
165,903392,473
28,634$1,937,032

2010

Investment securities include negotiable certificates of deposit
and money management funds. These agreements mature within
three months and their carrying values approximate ­fair value. The
Company has not experienced any losses through default of
the financial institutions and does not a­ nticipate default of any­outstanding agreements.
6. Cash Deposits
The Company operates cash collection and deposit services forfinancial institutions relating to cash dispensers located outside offinancial institution facilities and also operates cash collection­service for entities other than financial institutions. Cash deposit

40

Secom Co., Ltd.

Annual Report 2010balances of ¥48,862 million ($525,398 thousand) and ¥56,668­million at March 31, 2010 and 2009, respectively, are segregatedfrom cash and cash equivalents and are restricted as to use by theCompany. The Company funds most of the cash for such operations through bank overdrafts and deposits. Bank loans anddeposits received, which relate to these operations, were ¥24,492
million ($263,355 thousand) and ¥23,790 million ($255,806 thousand), respectively, at March 31, 2010, and ¥26,894 million and¥29,084 million, respectively, at March 31, 2009. As part of its fee
arrangement, the Company is reimbursed for the interest cost of
the related overdrafts.
7. Short-Term Investments and Investment Securities
Short-term investments (current) and investment securities (noncurrent) include debt and equity securities. The related aggregate
fair value, gross unrealized gains, gross unrealized losses and cost
pertaining to “available-for-sale” and “held-to-maturity” investments
at March 31, 2010 and 2009 were as ­follows:
In millions of yen
March 31, 2010
Gross unrealized
Cost

Short-term investments:
Available-for-sale:
		 Debt securities............. ¥ 12,379
Held-to-maturity:
		 Debt securities.............
40		
¥ 12,419
Investment securities:
Available-for-sale:		 Equity securities........... ¥ 37,173
		 Debt securities.............
61,397
Held-to-maturity:
		 Debt securities.............
6,086
		
¥104,656

Gains

LossesFair value

¥ 908

¥ —

¥ 13,287

—
¥ 908

¥

0
0

40
¥ 13,327¥7,153
2,446

¥330
—

¥ 43,996
63,8438¥9,607

0
¥330

6,094
¥113,933

In millions of yen
March 31, 2009
Gross unrealized
Cost

Short-term investments:
Available-for-sale:		 Equity securities........... ¥710
		 Debt securities.............
11,962
Held-to-maturity:
		 Debt securities.............
1,485
		
¥ 14,157
Investment securities:
Available-for-sale:		 Equity securities........... ¥ 43,221
		 Debt securities.............
84,918
Held-to-maturity:
		 Debt securities.............
6,232
		¥134,371

Gains

Losses

—
22

¥ 133
216

¥

2
24

—
¥ 349

1,487
¥ 13,832¥2,408534¥3,8403,380¥ 41,789
82,072—¥2,942102¥7,3226,130¥129,991¥¥

Fair value

577
11,768

In thousands of U.S. dollars
March 31, 2010
Gross unrealized
Cost

Gains

Short-term investments:
Available-for-sale:
		 Debt securities............ $ 133,108 $Held-to-maturity:
		 Debt securities............
430
		$ 133,538 $LossesFair value

In millions of yen
March 31, 2010

9,763 $

— $ 142,871—
9,763 $

0430
0 $ 143,301

Investment securities:
Available-for-sale:		 Equity securities.......... $ 399,709 $ 76,914 $3,548 $ 473,075
		 Debt securities............
660,183
26,301—
686,484
Held-to-maturity:
		 Debt securities............
65,44186
065,527
		
$1,125,333 $103,301 $3,548 $1,225,086

Gross unrealized losses on, and fair value of, “available-forsale” and “held-to-maturity” securities, aggregated by invest­ment
category and the length of time that individual securities have been
in a continuous unrealized loss position, at March 31, 2010 wereas follows:		

In millions of yen

		March 31, 2010

Less than 12 months				
Fair value

The cost and fair value of “available-for-sale” and ”held-to-­maturity” debt securities by contractual maturity at March 31, 2010
are as follows:

12 months or longer

Gross		Grossunrealized		 unrealized
lossesFair value
lossesAvailable-for-sale:
Equity securities...........
Debt securities.............
		 Total..........................

¥4,085—¥4,085

¥330
—
¥330

¥—
—
¥—

¥—
—
¥—

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

¥ 231

¥

¥—

¥—

0

In thousands of U.S. dollars
March 31, 2010
Less than 12 months

12 months or longer				
Fair value

Gross		unrealized		
lossesFair value

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

$43,925—$43,925$3,548—$3,548

$—
—
$—

$—
—
$—

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

$ 2,484

$

$—

$—

0

Gross
unrealized
lossesBased on the Company’s ability and intent to hold the investment
for a reasonable period of time sufficient for a recovery of fair value,
the credit condition of the issuers and other relevant factors, theCompany does not consider these investments to be other-thantemporary impaired at March 31, 2010.
At March 31, 2010, debt securities principally consisted of shortterm investments in monetary trusts, Japanese ­govern­ment bonds,
corporate bonds, U.S. treasury securities and U.S. Government
Agency Bonds.

Available-for-saleDue within 1 year.............
Due after 1 year
through 5 years.............
Due after 5 years
through 10 years...........
Due after 10 years ..........
		 ..................................

Held-to-maturity

Cost

Fair value¥12,379¥13,287

33,21733,74910

1017,520
10,660¥73,776

19,038
11,056¥77,130—
6,076¥6,126—
6,084¥6,134¥

Cost

Fair value

40

¥

40

In thousands of U.S. dollars
March 31, 2010
Available-for-sale
Cost

Fair value

Due within 1 year............. $133,108
Due after 1 year
through 5 years............. 357,172
Due after 5 years
through 10 years........... 188,387
Due after 10 years .......... 114,624
		 .................................. $793,291$142,871

Held-to-maturity
Cost$362,892
204,710
118,882$829,355

Fair value

430 $

430

108

108

—
—
65,333 65,419$65,871 $65,957

During the years ended March 31, 2010, 2009 and 2008, the net­ nrealized gains and losses on “available-for-sale” securitiesu
included as part of other comprehensive income (loss), net of tax,
increased by ¥9,200 million ($98,924 thousand), and decreased by¥460 ­million and ¥11,238 million, respectively.
Proceeds from the sale of “available-for-sale” securities for theyears ended March 31, 2010, 2009 and 2008 were ¥31,328 million($336,860 thousand), ¥59,340 million and ¥106,925 million,
respectively. On those sales, the gross r­ealized gains and grossrealized losses, using moving-­average cost basis, for the years
ended March 31, 2010, 2009 and 2008 were as follows:		 In thousands ofIn millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2010

2009

2008

2010

Gross realized gains........... ¥1,499
Gross realized losses..........
383

¥679
325

¥3,005623$16,118
4,118

The Company maintains long-term investment securities,
included as investment securities, issued by a number of­non-­public companies. The aggregate carrying amount of theinvestments in non-public companies, at cost net of other-thantemporary impairment, was ¥10,624 million ($114,237 thousand)and ¥10,714 million at March 31, 2010 and 2009, respectively. The
corresponding fair value at that date was not computed as such
estimation was not practical.

Annual Report 2010

Secom Co., Ltd.

41

CONSOLIDATED FINANCIAL STATEMENTS

8. Inventories
Inventories at March 31, 2010 and 2009 comprised the­following:

		 In thousands of		 In thousands of		

U.S. dollars

Years ended
March 31

Year ended
March 31

2008

2010

2009

2010

In millions of yen

U.S. dollars

March 31

March 31

Net sales....................... ¥153,990 ¥177,465 ¥202,335$1,655,806

2009

2010

Gross profit.................... ¥ 44,395 ¥ 54,621 ¥ 64,213$ 477,366

85,376132,032
800,247

Net income
attributable toaffiliated companies..... ¥ 14,105 ¥ 18,574 ¥ 22,576$ 151,667

2010

Security-related products.................. ¥ 7,940 ¥ 7,333
Fire protection-related products......... 12,279 16,241
Real estate........................................ 74,423 67,614
Information and other-related
products..........................................
3,613
4,883
			 .............................................. ¥98,255 ¥96,071$

38,850$1,056,505

Work in process for real estate inventories at March 31, 2010
and 2009, amounting to ¥55,916 million ($601,247 thousand) and¥61,437 million, respectively, are included in real estate.
The amount of write-down on real estate inventories included incost of sales for the years ended March 31, 2010 and 2009 were¥1,285 million ($13,817 thousand) and ¥8,366 million, respectively.
9. Investments in Affiliated Companies
The Company has investments in affiliated companies that are
accounted for under the equity method. Investments principallyconsist of Taiwan Secom Co., Ltd., a 28.8 percent owned affiliate,
which is listed on the Taiwan Stock Exchange; S1 Corporation, a27.1 percent owned affiliate, which is listed on the Korea Exchange;
Toyo Tech Co., Ltd., a 27.8 percent owned affiliate, which is listedon the Second Section of the Osaka Securities Exchange; andTokyo Biso Kogyo Corporation, a 36.6 percent owned new affiliate
by additionally acquiring ¥1,740 m­ illion—equivalent to 16.6 percent
of total outstanding common stock—in May 2007 and March 2008,
which is listed on the Second Section of the Tokyo Stock
Exchange.
Combined financial information regarding the affiliated ­companies
accounted for under the equity method was as ­follows:		 In thousands ofIn millions of yen		In millions of yen

2010

U.S. dollars

March 31

March 31

2009

2010

Dividends received from affiliated companies for the years ended
March 31, 2010, 2009 and 2008 were ¥2,295 million ($24,677
thousand), ¥2,503 million and ¥2,657 million, respectively.
Four listed affiliated companies accounted for under the equity
method with an aggregated carrying amount of ¥31,834 million($342,301 thousand) and ¥29,752 m­ illion at March 31, 2010 and2009, respectively, had a quoted market value of ¥60,911 million($654,957 thousand) and ¥53,118 m­ illion at March 31, 2010 and2009, respectively.
The amounts of goodwill were ¥2,175 million ($23,387 thousand)and ¥2,710 million at March 31, 2010 and 2009, respectively.
A summary of transactions and balances with the affiliatedcompanies accounted for under the equity method is presented
below:
		 In thousands ofIn millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2010

2009

2008

2010

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

¥1,597¥1,737¥2,584$17,172

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

¥6,504¥8,293¥6,237$69,935

		 In thousands ofIn millions of yen

U.S. dollars

March 31

March 31

2010

2009

2010

Notes and accounts
receivable, trade.............................. ¥ 432¥ 461$ 4,645¥$

		Current assets................................ ¥ 85,620 ¥ 90,419
Non-current assets......................... 122,321 106,004$ 920,645
1,315,280

Loans receivable................................ ¥Notes and accounts payable............. ¥2,189¥2,949$23,538

Total assets................................ ¥207,941 ¥196,423$2,235,925

Guarantees for bank loans................. ¥¥$Current liabilities............................. ¥ 39,388 ¥ 39,994
Non-current liabilities......................
35,512
34,486Equity............................................. 133,041 121,943$ 423,527
381,850
1,430,548

Total liabilities and equity............. ¥207,941 ¥196,423$2,235,925

87
—

92
8

935

The Company's equity in undistributed income of affiliates at
March 31, 2010 and 2009 included in retained earnings was¥22,819 million ($245,366 thousand) and ¥23,147 million,
respectively.
10. Long-Lived Assets
The Company has assessed the potential impairment for its
long-lived assets. The fair value was determined by the estimatedpresent value of future cash flows or appraisal value.

42

Secom Co., Ltd.

Annual Report 2010—

Impairment loss on long-lived assets by ­business segment for
the years ended March 31, 2010, 2009 and 2008 was as follows:		 In thousands ofIn millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31Aggregate amortization expense for the years ended March 31,
2010, 2009 and 2008 was ¥5,785 million ($62,205 thousand),¥5,850 million and ¥5,999 million, respectively. Amortized intangible
assets are amortized using the straight-line method over the estimated useful lives. The weighted average amortization period forinternal use software is approximately five years.
The estimated aggregate amortization expense for ­intangible
assets for the next five years is as follows:

2010

2009

2008

2010

Security services....................
Fire protection services..........
Medical services....................
Insurance services.................
Geographic information
services...............................
Real estate development
and sales.............................
Information andcommunication related
and other services...............
Corporate items.....................

¥ 83
15
—
—

¥34
—
—
—

¥—
16
0
—

$ 893
161
—
—

149

42

—

1,602

—

—

—

—

2011......................................................
2012......................................................
2013......................................................
2014......................................................
2015......................................................

45
—

—
—

—
—

484
—

The changes in the carrying amount of goodwill by businesss­ egment for the years ended March 31, 2010 and 2009 were as
follows:

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

¥292

¥76

¥16

$3,14011. Goodwill and Other Intangible Assets
The components of acquired intangible assets excluding goodwill
at March 31, 2010 and 2009 were as ­follows:
In millions of yen
March 31, 2010
Gross		carrying Accumulated
amountamortization

Net
carrying
amountAmortized intangible assets:
Software........................................ ¥33,989
Other.............................................
5,024
		 Total . ........................................ ¥39,013(¥18,041)(2,532)(¥20,573)¥15,948
2,492¥18,440

Unamortized intangible assets........... ¥ 4,057¥¥ 4,057—

In millions of yen
March 31, 2009
Gross		carrying Accumulated
amountamortization

Net
carrying
amountAmortized intangible assets:
Software........................................ ¥30,725
Other.............................................
5,058
		 Total . ........................................ ¥35,783(¥18,739)(2,179)(¥20,918)¥11,986
2,879¥14,865

Unamortized intangible assets........... ¥ 4,056¥¥ 4,056—

In thousands of U.S. dollars
March 31, 2010
Gross		carrying Accumulated
amountamortization

Net
carrying
amountAmortized intangible assets:
Software........................................ $365,472
Other............................................. 54,022
		 Total . ........................................ $419,494($193,989) $171,483(27,226)
26,796($221,215) $198,279

Unamortized intangible assets........... $ 43,624$

		Years ending March 31
In millions of yen

In thousands of
U.S. dollars¥5,448
4,527
3,365
2,482
1,402

$58,581
48,67736,183
26,68815,075In millions of yen						
				 Geographic
Real estate		Security
Medical information development		
services
services
servicesand sales

Information andcommunication
related andother services

Total

¥135

¥5,399¥20,790

(135)
—

(478)
4,921

(4,649)16,141

—
—

—
—

1,541
—

—

(175)

(1,578)

—
135

—
5,399

(664)
21,549

(135)
—

(653)
4,746

(6,109)15,440———(2,919)702(2,919)

—

—

(245)

—
135

—
2,002

174
18,698(135)¥ —(175) (5,546)¥1,827 ¥13,152

Annual Report 2010

Secom Co., Ltd.

Goodwill................ ¥1,544 ¥9,598 ¥4,114
Accumulated
impairment
losses..................
(117) (3,427)(492)
March 31, 2008..... 1,427 6,171 3,622
Goodwill acquired
during the year.... 1,386—
155
Disposal................
———
Impairment
losses..................
(407)
(996)
—
Translation
adjustment..........
(664)
—
—
Goodwill................ 2,148 9,598 4,269
Accumulated
impairment
losses..................
(406) (4,423)(492)
March 31, 2009..... 1,742 5,175 3,777
Goodwill acquired
during the year....
—702—
Disposal................
———
Impairment
losses..................
—
(245)
—
Translation
adjustment..........
174——
Goodwill................ 2,322 9,970 4,269
Accumulated
impairment
losses..................
(406) (4,338)(492)
March 31, 2010.... ¥1,916 ¥5,632 ¥3,777— $ 43,624

43

CONSOLIDATED FINANCIAL STATEMENTS

In thousands of U.S. dollars						 Information and				 Geographic Real estate communication
		
Security
Medicalinformation development
related and		services
services
servicesand sales other services

Total

Goodwill................ $23,097 $103,204 $45,903 $1,452 $58,054 $231,710
Accumulated
impairment
losses.................. (4,366) (47,559) (5,290) (1,452)(7,022) (65,689)
March 31, 2009..... 18,731
55,645 40,613— 51,032 166,021
Goodwill acquired
during the year....
—
7,548
—
—
—
7,548
Disposal................
———— (31,387) (31,387)
Impairment
losses..................
—(2,634)———(2,634)
Translation
adjustment.......... 1,871
—
—
—
—
1,871
Goodwill................ 24,968 107,204 45,903 1,452 21,527 201,054
Accumulated
impairment
losses.................. (4,366) (46,645) (5,290) (1,452) (1,882) (59,635)
March 31, 2010.... $20,602 $ 60,559 $40,613 $ — $19,645 $141,419

The Company principally recognized impairment losses related
to goodwill allocated to reporting units in the medical services­segment of ¥245 million ($2,634 thousand) and ¥996 million forthe years ended March 31, 2010 and 2009, respectively, and in
the security services segment of ¥407 million for the year ended
March 31, 2009, due to decreases in the estimated fair value ofthese reporting units mainly caused by decreases of projectedcash flows.
The fair value was deter­mined by the estimated present value of
future cash flows or quoted market prices.
12. Bank Loans and Long-Term Debt
Bank loans of ¥43,025 million ($462,634 thousand) and ¥78,180
million at March 31, 2010 and 2009, respectively, are generallycomprised of 30 to 365 day notes. Their weighted average interest
rates were 1.24 percent and 1.28 percent at March 31, 2010 and2009, respectively. Substantially all of these loans are borrowed
from banks. The Company has entered into basic agreements withthese banks which state that, with respect to all present or futureloans with such banks, collateral (including sums on deposit withsuch banks) or guarantors shall be provided immediately uponrequest. Further, any collateral furnished pursuant to such agreements or otherwise will be applicable to all indebted­ness to suchbanks. The Company has not been requested to submit such
additional security.
At March 31, 2010, Nohmi Bosai Ltd., a subsidiary of the parent
company, had an unused committed line of credit from a shortterm arrangement of ¥4,000 million ($43,011 thousand). The line ofcredit expires in March 2013. Under the agreement, Nohmi Bosai
Ltd. is required to pay committed fees at an annual rate of 0.15
percent, on the unused portion of the line of credit. At March 31,
2010, the Company had overdraft agreements with 16 banks andits unused lines of credit amounted to ¥105,625 million ($1,135,753
thousand). The Company incurs no fee on the unused portion of
the lines of credit. The overdraft agreements expire in the period
from April 2010 to March 2011. The Company has the ability and44

Secom Co., Ltd.

Annual Report 2010

intent to extend these overdraft agreements under similar terms
and conditions.
Long-term debt at March 31, 2010 and 2009 comprisedthe ­following:
		 In thousands of		In millions of yen

U.S. dollars

March 31

March 31

2009

2010

2010

Loans, principally from banks
due 2009–2027 with interest
rates ranging from 0.76% to10.05% in 2010 and 2009:
Secured............................................ ¥20,461 ¥20,811
Unsecured........................................ 3,037
4,336
0.61% unsecured bonds due 2010......
150
450
0.91% unsecured bonds due 2010......
220
440
1.14% unsecured bonds due 2013...... 4,080
4,590
1.13% unsecured bonds due 2014...... 1,730—
Unsecured bonds due 2009–2015
with floating interest rates basedon 6-month TIBOR plus
0.00%–0.20%.................................... 12,588 12,230
Obligations under capital leases,
due 2009–2026 (Note 19)................... 10,107
9,514
			 ................................................. 52,373 52,371
Less: Portion due within one year......... 10,801 15,967
			 ................................................. ¥41,572 ¥36,404$220,011
32,6561,613
2,366
43,871
18,602

135,355
108,677
563,151
116,140$447,011

Property, plant and equipment with a carrying amount of ¥60,411
million ($649,581 thousand), investment securities with a carrying
amount of ¥646 million ($6,946 thousand), time deposits of ¥1,741
million ($18,720 thousand), short-term and long-term receivables of¥1,295 million ($13,925 thousand) and other intangible assets andother with a carrying amount of ¥818 million ($8,796 thousand)were pledged as ­collateral for bank loans and long-term debt at
March 31, 2010.
The aggregate annual maturities on long-term debt after March
31, 2010 are as follows:		Years ending March 31
In millions of yen

2011.....................................................
2012.....................................................
2013.....................................................
2014.....................................................
2015.....................................................
Thereafter..............................................
............................................................

¥10,801
8,521
12,892
7,718
5,918
6,523
¥52,373

In thousands of
U.S. dollars$116,140
91,624
138,624
82,98963,634
70,140$563,151

13. Insurance-Related Operations
Secom General Insurance Co., Ltd. (“Secom Insurance”), a­subsidiary of the parent company, maintains accounting records as
noted in Note 2 in accordance with Japanese GAAP, which vary incertain respects from U.S. GAAP. Those differences are principally,(a) that insurance acqui­sition costs are charged to income whenincurred under Japanese GAAP whereas under U.S. GAAP, thosecosts are deferred and amortized generally over the premium-­
paying period of the insurance policies, (b) that liabilities related toincurred but not reported claims are computed based on related
regulations in Japan whereas under U.S. GAAP, those liabilities arecomputed based on past experience for unreported losses, and(c) that unearned premiums are calculated based on the documents authorized by the Supervisory Authorities in Japan whereas
under U.S. GAAP, unearned premiums are reflected based on thelapse and ­surrender over the contract period.
In addition, under certain property and casualty insurance
contracts with a refund clause and long-term insurance policies
that p­ rovide refunds at maturity, such as personal accident and fire,the policyholder receives a refund if premiums have been fully paid
unless a substantial settlement (as defined in the ­policy) has
occurred. The Company has provided for such refundable amounts
by classifying a portion of the net pre­mi­ums written, together withinterest thereon, as investment deposits by policyholders. Contract
and policy terms are p­ rincipally five years.
For purposes of preparing the consolidated financial ­state­ments,
appropriate adjustments have been made to reflect such items inaccordance with U.S. GAAP.
The net equity of Secom Insurance at March 31, 2010 and 2009was ¥52,262 million ($561,957 thousand) and ¥47,753 million,
respectively.
Net sales and operating revenue of Secom Insurance include net
realized investment gains and losses, including the results on salesof securities, loss on other-than-temporary impairment of investment securities and impairment loss on long-lived assets. Net
realized investment gains and losses for the years ended March 31,
2010, 2009 and 2008 were losses of ¥3,309 million ($35,581 thousand) and ¥10,152 million, and gains of ¥1,922 million, respectively.
Loss on other-than-temporary impairment of investment securities
for the years ended March 31, 2010, 2009 and 2008 were ¥4,558
million ($49,011 thousand), ¥10,683 million and ¥650 million,
respectively.

In March 2009, Pasco Corporation and its domestic
subsidiaries settled and transferred a portion of the tax-qualified
non-­contributory pension plan to the defined contribution pension
plan. In accordance with ASC 715, “Compensation—Retirement
Benefits” (former SFAS No. 88 “Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits”), the Company accounted for thesetransfers as a partial settlement of benefit obligation. The amount ofsettlement loss was immaterial for the year ended March 31, 2009.
Net periodic pension and severance costs for the years ended
March 31, 2010, 2009 and 2008 were as follows:

14. Pension and Severance Costs
Employees of the parent company and its domestic ­subsidiaries
whose services are terminated are, under most ­circumstances,eligible for lump-sum benefits and/or ­eligible for pension benefits.
The parent company and certain domestic subsidiaries haveadopted a cash balance pension plan and a defined contribution
pension plan. Benefits under the cash balance pension plan arecalculated by the amount equal to a certain percentage of employee’s annual income over their period of service, plus interest calculated by the 3-year average yield for 10-year government bonds.
The defined contribution pension plan was established in April
2003, by transferring a portion equivalent to 20 percent of the cash
balance pension plan, including portions funded in prior periods.
Specified percentage of employees’ annual income is contributed
to the defined contribution pension plan.
In April 2005, the parent company and certain domestic subsidiaries transferred an additional portion of the cash balance pension
plan to the defined contribution pension plan. Accord­ingly, the ratioof the accumulated amount in the cash balance pension plan andthe amount of contributions to the defined contribution pension
plan changed to 70 percent and 30 percent, including portions
funded in prior periods.

				 In thousands of2010

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2009

2008

Net periodic pension andseverance costs:
Service cost......................... ¥4,424 ¥4,694 ¥4,511
Interest cost......................... 1,476 1,430 1,424
Expected return onplan assets........................ (1,997) (1,952) (1,808)
Amortization of priorservice benefit................... (1,682) (1,713) (1,715)
Recognized actuarial loss....
901
861 1,005
		 Net periodic pension
		 and severance costs...... ¥3,122 ¥3,320 ¥3,417

2010$47,570
15,871(21,473)(18,086)
9,688$33,570

The changes in benefit obligation, assets and funded s­ tatus wereas follows:		 In thousands ofIn millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2009

2010

2010

Change in benefit obligation:
Benefit obligation
at beginning of year.................. ¥72,090 ¥71,820
Service cost................................
4,424
4,694
Interest cost................................
1,476
1,430
Actuarial (gain) loss.....................
(873)
818
Benefits paid...............................
(4,593)(4,989)Settlement..................................
—(1,683)
Benefit obligation
at end of year...........................
72,52472,090Change in plan assets:
Fair value of plan assets
at beginning of year..................
55,09962,536
Actual return (loss) on plan
assets.......................................
3,436(9,887)
Employer contribution.................
5,323
5,979
Benefits paid...............................
(3,095)(3,529)Fair value of plan assets
at end of year...........................
60,76355,099Funded status
at the end of year......................... (¥11,761) (¥16,991)

Annual Report 2010

$775,161
47,57015,871(9,387)(49,387)—
779,828

592,462
36,94657,237(33,280)
653,365($126,463)

Secom Co., Ltd.

45

CONSOLIDATED FINANCIAL STATEMENTS

Amounts recognized in the consolidated balance sheet at March
31, 2010 and 2009 consist of:		 In thousands of		In millions of yen

U.S. dollars

March 31

March 31

2009

2010

2010

Prepaid pension andseverance costs............................ ¥ 4,742 ¥ 823
Accrued pension andseverance costs............................ (16,503) (17,814)
			 Net amount recognized........ (¥11,761) (¥16,991)$ 50,989(177,452)($126,463)

Other changes in plan assets and benefit obligations ­recognizedin other comprehensive income (loss) for the year ended March 31,
2010 were summarized as follows:		 In thousands ofIn millions of yen

U.S. dollars(¥2,312)
(901)
1,682
(¥1,531)($24,860)(9,688)18,086($16,462)

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

Amounts recognized in accumulated other comprehensive
income (loss) at March 31, 2010 and 2009 consist of:		 In thousands of		In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2009

2010

Actuarial loss...................................... ¥30,690 ¥33,903
Prior service benefit............................ (10,854) (12,536)
			 Net amount recognized........... ¥19,836 ¥21,367$330,000(116,710)$213,290

2010

The estimated prior service benefit and actuarial loss for thedefined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit
cost over the next year are ¥1,682 million ($18,086 thousand) and¥901 million ($9,688 thousand), respectively.
The accumulated benefit obligation for the pension plan was¥66,486 million ($714,903 thousand) and ¥66,154 million at March
31, 2010 and 2009, respectively.
The projected benefit obligation, accumulated benefit ­obligationand fair value of plan assets for the pension plans with­accumulated benefit obligation in excess of plan assets were¥26,563 million ($285,624 thousand), ¥23,411 million ($251,731
thousand) and ¥10,142 million ($109,054 thousand), respectively,
at March 31, 2010, and ¥26,072 million, ¥23,093 million and¥8,361 million, respectively, at March 31, 2009.
The Company uses March 31 as the measurement date for thedomestic pension plan.
Weighted-average assumptions used to determine the benefit
obligation at March 31, 2010 and 2009 were as follows:		 March 31

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

46

Secom Co., Ltd.

Annual Report 2010

2010

2009

2.2%
2.6

2.1%
2.7

Weighted-average assumptions used to determine net p­ ensionand severance costs for the years ended March 31, 2010, 2009
and 2008 were as follows:
Years ended March 31
2010

2009

2008

2.1%
3.0
2.7

2.0%
3.0
2.7

2.0%
3.0
2.7

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

The Company determines the expected long-term rate of return
based on the expected long-term return of the various asset categories in which it invests. The Company considers the current
expectations for future returns and the actual h­ istorical returns ofeach plan asset category.
The weighted-average asset allocation of the Company’s ­pension
plans at March 31, 2009 was as follows:
Asset category:
Equity securities......................................................................
Debt securities........................................................................
Call loan.................................................................................
Other......................................................................................
		 Total....................................................................................

6.9%
43.5
16.2
33.4
100.0%The Company’s investment policy is designed to ensure thatsufficient plan assets are available to provide future ­payments ofpension benefits to the eligible plan participants. The policy does
not use target allocations for the individual asset catego­ries. Plan
assets are invested primarily in equity and debt securities, andpooled funds with the objective to minimize risk and achieve theexpected rate of return. The investment results are periodicallychecked and asset allocation is adjusted as necessary.
The following table represents the fair value of the Company’s
pention plan assets at March 31, 2010. The three levels of input
used to measure fair value are more fully described in Note 22.
		Level 1

Cash and cash
equivalents................
Equity securities
Japanesecompanies.............
Foreigncompanies.............
Debt securities
Government
bonds....................
Nongovernment
bonds....................
Pooled funds...............
Call loans.....................
Insurance contracts.....
Other...........................
Total............................

¥ 1,222

Level 2¥—¥In millions of yen
Level 3

Total—

¥ 1,222

3,371

—

7

3,378

0

—

—

0

8,878

837

61

9,776

1,418
33
—
—
—
¥14,922—18,040
8,998
3,428
377
¥31,680702
12,994——397¥14,161

2,120
31,067
8,998
3,428
774
¥60,763

In thousands of U.S. dollars
Level 1

Level 2

Level 3

Cash and cash
equivalents................ $ 13,140 $— $—Equity securities
Japanesecompanies.............
36,247—75
Foreigncompanies.............
0——
Debt securities
Government
bonds....................
95,462
9,000
656
Nongovernment
bonds....................
15,247—
7,548
Pooled funds...............
355
193,978 139,720
Call loans.....................
—
96,753—
Insurance contracts.....
—
36,860—
Other...........................
—
4,054
4,270
Total............................ $160,451 $340,645 $152,269$ 13,140
36,322
0
105,118
22,795334,053
96,75336,8608,324$653,365* The plan’s equity securities include common stock of the Company and its
domestic subsidiaries in the amount of ¥23 million ($247 thousand) at March 31,
2010.
* The plan’s government bonds invest approximately 80% in Japanese bonds and
20% in foreign bonds. The nongoverment bonds invest approximately 70% inJapanese bonds and 30% in foreign bonds.
* The pension investment trust fund included in the plan’s pooled funds isclassified into level 2, and invests approximately 40% in equity securities, 50% in
debt securities and 10% in other investments. The unquoted beneficial certificate
of security investment trust included in the plan’s pooled funds is classified intolevel 3.

The following table represents the changes in level 3 investments
for the year ended March 31, 2010.

In millions of yen

Equitysecurities

Debt
securities

			
NonJapanese Government government
companies
bonds
bonds

Balance at
beginning of year..............
Actual returnon plan assets:
Relating to assets soldduring the year.............
Relating to assets heldat end of year..............
Purchases, sales andsettlements, net................
Transfer in/out of level 3......
Balance at end of year........

¥—

¥26

Pooledfunds¥ 55 ¥11,177

Other

Total

¥250 ¥11,508

—

(1)

—

(301)

—

(302)

—

5

647

431

181

1,264

4
3
¥ 7

31
—
¥61

—
1,687
—
—
¥702 ¥12,994

In thousands of U.S. dollars

Total

Equitysecurities

Debt
securities

			
NonJapanese Government government
companies
bonds
bonds

Balance at
beginning of year..............
Actual returnon plan assets:
Relating to assets soldduring the year.............
Relating to assets heldat end of year..............
Purchases, sales andsettlements, net................
Transfer in/out of level 3......
Balance at end of year........

$—

$280

—

(10)

—

—

54

6,957

43
32
$75

332
—
$656

Pooled
funds

Other

Total

$ 591 $120,183 $2,689 $123,743(3,237)—(3,247)

4,634 1,946

13,591— 18,140 (365) 18,150———
32$7,548 $139,720 $4,270 $152,269

The Company expects to contribute ¥5,588 million ($60,086
thousand) to its domestic defined benefit plans in the year e­ nding
March 31, 2011.
The following benefit payments, which reflect future s­ ervices, as
appropriate, are expected to be paid.
		 In thousands ofYears ending March 31
In millions of yen
U.S. dollars

2011.....................................................
2012.....................................................
2013.....................................................
2014.....................................................
2015.....................................................
2016–2020............................................

¥ 4,112
4,201
4,443
4,612
3,871
23,687$ 44,215
45,172
47,774
49,591
41,624
254,699

The parent company and certain subsidiaries have defined contribution pension plans. The contributions to the defined contribution pen­sion plans for the years ended March 31, 2010, 2009 and2008 were ¥1,468 million ($15,785 thousand), ¥1,469 million and¥1,413 ­million, respectively.
15. Exchange Gains and Losses
Other income for the year ended March 31, 2010 includes net
exchange gains of ¥552 million ($5,935 thousand). Other expense
for the year ended March 31, 2009 and 2008 include net exchange
losses of ¥1,564 million and ¥826 million, respectively.

(34) 1,688—
3¥397 ¥14,161

Annual Report 2010

Secom Co., Ltd.

47

CONSOLIDATED FINANCIAL STATEMENTS

16. Income Taxes
Total income taxes for the years ended March 31, 2010, 2009
and 2008 were allocated as follows:		 In thousands of2010

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2009

2008

Income fromcontinuing operations.......... ¥45,631 ¥36,259 ¥46,791
Income (loss) fromdiscontinued operations......
(317)
316
315
Shareholders’ equity—
accumulated othercomprehensive
income (loss):
Unrealized holding gains(losses) on securities........ 5,401(452) (8,189)
Unrealized gains(losses) on derivative
instruments......................
107
(102)
(8)
Pension liability
adjustments.....................
857 (4,863) (3,901)
Foreign currencytranslation
adjustments..................... 1,020
(859)
(497)
Cumulative effect ofchange in accounting
principle-adoptionof ASC 710..........................
—
—
(846)
		 . .................................... ¥52,699 ¥30,299 ¥33,665

2010$490,656(3,409)58,076
1,151
9,215
10,967—$566,656

The parent company and its domestic subsidiaries were ­subject
to a corporate tax of 30 percent, an inhabitants tax of approximately 20.3 percent, and a deductible enterprise tax of approximately 7.4 percent, which, in the aggregate, indicate a statutory tax
rate in Japan of approximately 40.5 ­percent for the years ended
March 31, 2010, 2009 and 2008.
Reconciliations of the differences between income taxes­computed at statutory tax rates and income taxes from continuing
operations were as follows:		 In thousands of2010

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2009

2008

Income taxes computed
at statutory tax rate of
40.5%................................. ¥38,344 ¥25,581 ¥44,670
Increase (decrease)resulting from:
Unrecognized tax
benefits fromsubsidiaries in loss
positions.......................... 7,280 10,124
2,308
Reversal of valuation
allowance due toutilization of operating
loss carryforwards...........
(955)(187) (1,260)
Per capita tax....................
817
807
802
Other, net..........................
145
(66)
271
		 Income taxes
		 from continuing		 operations.................... ¥45,631 ¥36,259 ¥46,791

48

Secom Co., Ltd.

Annual Report 20102010

$412,301

78,280(10,269)
8,785
1,559

$490,656

The significant components of deferred tax assets and liabilities­
at March 31, 2010 and 2009 were as follows:		 In thousands of		In millions of yen

U.S. dollars

March 31

March 31

2009

2010

2010

Deferred tax assets:
Loss carryforwards......................... ¥19,489 ¥17,465
Deferred revenue............................ 12,118 12,896
Adjustment of book value atthe date of acquisition—
		 Land and buildings.....................
6,887
7,320
		 Other assets...............................
405
462
Property, plant andequipment...................................
6,184
6,137
Accrued pension andseverance costs...........................
6,144
6,810
Accrued bonus...............................
5,166
5,323
Allowance for doubtful
accounts......................................
3,742
3,957
Vacation accrual.............................
3,649
3,589
Investment securities......................
2,593
3,505
Intangible assets.............................
2,213
4,006
Write-down on real estate
inventories....................................
1,467
2,573
Unrealized holding losses on
securities......................................
—
1,405
Other.............................................. 10,145
9,387
		 Gross deferred tax assets........... 80,202 84,835
		 Less: Valuation allowance........... (32,095) (26,863)
		 Total deferred tax assets............. 48,107 57,972
Deferred tax liabilities:
Deferred installation costs............... (7,721) (8,137)
Adjustment of book value atthe date of acquisition—
		 Land and buildings..................... (5,871) (4,514)
		 Other assets............................... (1,591) (1,734)
Investments in affiliatedcompanies.................................... (4,611) (2,705)
Unrealized holding gains on
securities...................................... (3,002)—
Unearned premiums andother insurance liabilities............... (2,166) (2,679)
Prepaid pension andseverance costs........................... (1,506)(104)
Other.............................................. (4,687) (4,982)
		 Gross deferred tax liabilities......... (31,155) (24,855)
			 Net deferred tax assets .......... ¥16,952 ¥33,117$209,559
130,301
74,054
4,355
66,49566,06455,54840,23739,23727,882
23,797
15,774—
109,085
862,388(345,108)
517,280(83,021)(63,129)(17,107)(49,581)(32,280)(23,290)(16,194)(50,398)(335,000)$182,280

The valuation allowance principally relates to deferred tax assetsof the subsidiaries with operating loss carryforwards, for tax purposes, that are not expected to be realized. The net change in the
total valuation allowance for the years ended March 31, 2010, 2009
and 2008 was an increase of ¥5,232 million ($56,258 thousand),¥9,795 million and ¥1,477 million, respectively.

In assessing the realizability of deferred tax assets, the Company
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in whichthose temporary differences become deductible. The Company
management considered the sched­uled reversal of deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based upon the level ofhistorical taxable income and projec­tions for future taxable income
over the periods in which the deferred tax assets are deductible,
the Company management believes it is more likely than not that
the Company will realize the benefits of these deductible
differences, net of the existing valuation allowance at March 31,
2010 and 2009.
Net deferred tax assets at March 31, 2010 and 2009 arereflected in the accompanying consolidated balance sheets under
the following captions:
		 In thousands of		In millions of yen

U.S. dollars

March 31

March 31

2009

2010

2010

Deferred income taxes(Current assets)............................... ¥15,737 ¥16,245
Deferred income taxes(Other assets).................................. 12,975 19,020
Other current liabilities.......................
(1,357)(924)
Deferred income taxes(Liabilities)........................................ (10,403) (1,224)
		 Net deferred tax assets ............. ¥16,952 ¥33,117$169,215
139,516(14,591)(111,860)$182,280

The Company has not recognized deferred tax liabilities of ¥588
million ($6,323 thousand) for a portion of undistributed earnings offoreign subsidiaries totaling ¥10,127 million ($108,892 thousand) at
March 31, 2010 as they are not expected to be remitted in theforeseeable future.
At March 31, 2010, the operating loss carryforwards of domestic
subsidiaries amounted to ¥45,549 million ($489,774 thousand) andare available for offsetting against future taxable earnings of such
subsidiaries for up to seven years, as follows:		 In thousands ofExpires in the years ending March 31
In millions of yen
U.S. dollars

2011......................................................
2012......................................................
2013......................................................
2014......................................................
2015......................................................
2016......................................................
2017......................................................
..............................................................

¥ 1,919
3,177
1,617
3,740
3,051
22,7689,277¥45,549$ 20,634
34,161
17,387
40,21532,806244,81799,754$489,774

The operating loss carryforwards of overseas subsidiaries at
March 31, 2010 amounted to ¥4,095 million ($44,032 thousand), apart of which will begin to expire in the year ending March 31, 2011.

The Company adopted the provisions of ASC 740, “Income
Taxes” (former FIN No. 48), on April 1, 2007. The adoption of thisaccounting standard did not have a material effect on the
Company’s consolidated results of operations and financial
positions.
The total amount of unrecognized tax benefits as of the dateof adoption of this accounting standard and for the years ended
March 31, 2010, 2009 and 2008 were insignificant. Also there were
no movements of the gross amounts in unrealized tax benefits
and the amounts of interest and penalties recognized due to theunrecognized tax benefits during the years ended March 31, 2010,2009 and 2008.
Although the Company believes its estimates of unrecognizedtax benefits are reasonable, uncertainties regarding the final
determination of income tax audit settlements and any related
litigation could affect the total amount of unrecognized tax benefits
in the future periods. Based on the information available as ofMarch 31, 2010, the Company does not expect significant changes
to the unrecognized tax b­ enefits within the next twelve months.
The Company files tax returns in Japan and various foreign jurisdictions. In Japan, the Company is no longer subject to regularincome tax examinations by the tax authorities for years before
2007. In other foreign tax jurisdictions, major subsidiaries are nolonger subject to income tax examinations by tax authorities foryears before 2009 with few exceptions.
17. Shareholders’ Equity(1) Retained Earnings
The Japanese Corporate Law provides that an amount equal to
10 percent of surplus distributed by the parent company and its
Japanese subsidiaries be appropriated as a legal reserve until theaggregate amount of additional paid-in capital and legal reserve
equals 25 percent of the c­ ommon stock account.
The amount available for dividends under the Japanese­Corporate Law is based on the amount recorded in the p­ arent
company’s nonconsolidated statutory financial statements inaccordance with Japanese GAAP. Such amount was ¥373,683
million ($4,018,097 thousand) at March 31, 2010.
Subsequent to March 31, 2010, the parent company’s Board of
Directors declared an annual cash dividend of ¥85.00 ($0.91) per
share, totaling ¥18,533 million ($199,279 thousand), to shareholders of record on March 31, 2010. The dividend declared wasapproved at the general shareholders’ meeting held on June 25,
2010. Dividends are recorded in the year they are declared.
The Japanese Corporate Law provides that a company
can make dividends of surplus anytime with resolution of
the shareholders.
(2) Common Stock in Treasury
The Company may repurchase its common stock from the market pursuant to the Japanese Corporate Law. For the year ended
March 31, 2009, 6,928 thousand shares were repurchased for theaggregate cost of ¥30,019 million.

Annual Report 2010

Secom Co., Ltd.

49

CONSOLIDATED FINANCIAL STATEMENTS(3) Other Comprehensive Income (Loss)
Components of other compre­hensive income (loss) for the years
ended March 31, 2010, 2009 and 2008 is as follows:
In millions of yen
Pre-tax
amountTax(expense)or benefit

Net-of-tax
amount

For the year ended March 31, 2010:
Unrealized holding gains on
securities—
		 Unrealized holding gains or losses
		 arising during the period................. ¥11,598 (¥4,382) ¥ 7,216
		 Less: Reclassification
		 Less: adjustment for gains
		 Less: or losses included in		 Less: net income............................
3,003(1,019)1,984
Unrealized gains on derivative
instruments—
		 Unrealized gains or losses
		 arising during the year.....................
(5)
—
(5)
		 Less: Reclassification
		 Less: adjustment for gains
		 Less: or losses included in		 Less: net income............................
281
(107)
174
Pension liability adjustments—
		 Unrealized gains or losses
		 arising during the period.................
2,724(1,140)1,584		 Less: Reclassification		adjustment for gains
		or losses realized		in net income........................
(700)
283
(417)
Foreign currencytranslation adjustments.......................
2,016(1,020)996
			 Other comprehensive
			 income (loss)............................... ¥18,917 (¥7,385) ¥11,532
For the year ended March 31, 2009:
Unrealized holding losses on
securities—
		 Unrealized holding gains
		 or losses arising during
		 the period....................................... (¥17,054)
		 Less: Reclassification
		 Less: adjustment for gains
		 Less: or losses included in		 Less: net income............................ 16,142
Unrealized losses on derivative
instruments—
		 Unrealized gains or losses
		 arising during the year.....................
(263)
		 Less: Reclassification
		 Less: adjustment for gains
		 Less: or losses included in		 Less: net income............................
68
Pension liability adjustments—
		 Unrealized gains or losses
		 arising during the period................. (11,602)
		 Less: Reclassification		adjustment for gains
		or losses realized		in net income........................
(413)
Foreign currencytranslation adjustments....................... (20,403)
			 Other comprehensive
			 income (loss)............................... (¥33,525)

50

Secom Co., Ltd.

Annual Report 2010

In millions of yen
Pre-tax
amount(6,080)10,062

106

(157)

(4)

64

4,559

(7,043)

304

(109)

859

(19,544)¥6,276 (¥27,249)

Net-of-tax
amount

For the year ended March 31, 2008:
Unrealized holding losses on
securities—
		 Unrealized holding gains
		 or losses arising during
		 the period....................................... (¥18,914) ¥ 7,880 (¥11,034)
		 Less: Reclassification
		 Less: adjustment for gains
		 Less: or losses included in		 Less: net income............................
(513)
309
(204)
Unrealized losses on derivative
instruments—
		 Unrealized gains or losses
		 arising during the year.....................
(61)
7
(54)
		 Less: Reclassification
		 Less: adjustment for gains
		 Less: or losses included in		 Less: net income............................
121
13
Pension liability adjustments—
		 Unrealized gains or losses
		 arising during the period................. (9,209)
3,645(5,564)
		 Less: Reclassification		adjustment for gains
		or losses realized		in net income........................
(690)
256
(434)
Foreign currencytranslation adjustments....................... (2,684)
497(2,187)
			 Other comprehensive
			 income (loss)............................... (¥32,059) ¥12,595 (¥19,464)
In thousands of U.S. dollars
Pre-tax
amount¥6,532 (¥10,522)

Tax(expense)or benefit

Tax(expense)or benefit

Net-of-tax
amount

For the year ended March 31, 2010:
Unrealized holding gains on
securities—
		 Unrealized holding gains
		 or losses arising during
		 the period................................... $124,710 ($47,119) $ 77,591
		 Less: Reclassification
		 Less: adjustment for gains
		 Less: or losses included in		 Less: net income........................
32,290 (10,957) 21,333
Unrealized gains on derivative
instruments—
		 Unrealized gains or losses(54)		 arising during the year.................
—(54)
		 Less: Reclassification
		 Less: adjustment for gains
		 Less: or losses included in		 Less: net income........................
3,022 (1,151)
1,871
Pension liability adjustments—
		 Unrealized gains or losses
		 arising during the period.............
29,290 (12,258) 17,032
		 Less: Reclassification		adjustment for gains
		or losses realized		in net income....................
(7,527) 3,043(4,484)Foreign currencytranslation adjustments...................
21,677 (10,967) 10,710
			 Other comprehensive
			 income (loss)........................... $203,408 ($79,409) $123,999

18. Research and Development Expenses
Research and development expenses included in selling, generaland administrative expenses for the years ended March 31, 2010,2009 and 2008 were ¥5,952 million ($64,000 thousand), ¥5,943
million and ¥5,792 million, respectively.
19. Lessee
The Company leases certain office space, employee residen­tial
facilities, computer and transportation equipment. Some leased
buildings, computer and transportation equipment are held undercapital leases. Other leases are classified as ­operating leases.
On April 23, 1996, the Company entered into a long-term leaseagreement for a building and land in Mitaka, Tokyo. The leaseagreement extends for 30 years beginning May 1, 1996. For­financial reporting purposes, the portion of the lease relating to thebuilding has been classified as a capital lease; accordingly, an assetof approximately ¥5,086 million ($54,688 thousand) has beenrecorded in the building and improvements account. The portion of
the lease relating to the land has been classified as an operatinglease. The future minimum lease payments for the site at March 31,
2010 were ¥5,266 ­million ($56,624 thousand).
A summary of leased assets under capital leases at March 31,
2010 and 2009 is as follows:		 In thousands of		Buildings and improvements..............
Machinery, equipment
and automobiles..............................
Other intangible assets......................
Accumulated depreciation.................
		 . ................................................

In millions of yen

U.S. dollars

March 31

March 31

2009

2010

¥ 5,243 ¥ 5,243$ 56,376

13,359 12,043
409
593(10,085) (9,811)¥ 8,926 ¥ 8,068

143,645
4,398(108,441)$ 95,9782010

Depreciation expenses under capital leases for the years ended
March 31, 2010, 2009 and 2008 were ¥3,402 million ($36,581
thousand), ¥3,328 million and ¥4,089 million, ­respectively.
The following is a schedule by year of future minimum lease­payments under capital leases together with the present value ofthe net minimum lease payments at March 31, 2010:
		 In thousands ofYears ending March 31
In millions of yen
U.S. dollars

2011........................................................
2012........................................................
2013........................................................
2014........................................................
2015........................................................
Thereafter.................................................
Total minimum lease payments.................
Less: Amount representing interest...........
Present value of net minimum
lease payments (Note 12).......................
Less: Current portion................................
Long-term capital leaseobligations..........................................

¥ 3,143
2,132
1,372
906
645
3,817
12,015
1,908$ 33,796
22,925
14,752
9,742
6,935
41,043
129,193
20,516

10,107
2,877

108,677
30,935¥ 7,230$ 77,742

Rental expenses under operating leases for the years ended
March 31, 2010, 2009 and 2008 were ¥14,290 million ($153,656
thousand), ¥15,494 million and ¥15,912 million, respectively. A­significant portion of such rentals relates to cancelable short-termleases for office space and employee residential facilities, many ofwhich are renewed upon ­expiration.
On December 8, 2000, the Company entered into a lease­agreement for a building and land in Shibuya, Tokyo. The leaseagreement extends for 20 years beginning December 8, 2000. For
financial reporting purposes, the lease has been classified as an
operating lease. Based on the agreement, annual lease payments
for the site are approximately ¥1,339 million ($14,398 thousand)over a 20-year period.
The future minimum lease payments required under operat­ing
leases that have initial or remaining non-­cancelable lease terms inexcess of one year at March 31, 2010 are as follows:		 In thousands ofYears ending March 31
In millions of yen
U.S. dollars

2011........................................................
2012........................................................
2013........................................................
2014........................................................
2015........................................................
Thereafter.................................................
Total future minimum lease
payments...........................................

¥ 2,350
2,291
2,210
2,191
2,188
16,527$ 25,269
24,63423,76323,55923,527
177,710¥27,757$298,462

20. Lessor
The Company’s leasing operations consist principally of leasingof security equipment and real estate for office and medical
institutions. Most of the security equipment and certain real estate
for medical institutions on lease are classified as sales-type leases
or direct-financing leases. Other leases are ­classified as ­operatingleases.
A summary of lease receivables under sales-type and directfinancing leases at March 31, 2010 and 2009 is as follows:		 In thousands of		Total minimum lease payments
to be received..................................
Estimated executory cost..................
Estimated unguaranteed
residual value...................................
Unearned income..............................
Lease receivables, net.......................
Less: Current portion.........................
Long-term lease receivables, net...

In millions of yen

U.S. dollars

March 31

March 31

2009

2010

¥57,334 ¥48,511(4,746) (3,620)$616,495(51,032)

7,190 3,474(16,049) (12,264)
43,729 36,101(8,778) (8,287)¥34,951 ¥27,814

77,312(172,571)
470,204(94,387)$375,817

2010

Annual Report 2010

Secom Co., Ltd.

51

CONSOLIDATED FINANCIAL STATEMENTS

The following is a schedule by year of future minimum lease­ ayments to be received under sales-type leases and direct-­pfinancing leases at March 31, 2010:
		 In thousands ofYears ending March 31
In millions of yen
U.S. dollars

2011........................................................
2012........................................................
2013........................................................
2014........................................................
2015........................................................
Thereafter.................................................
Total future minimum lease
payments to be received.....................

¥10,992
9,068
7,030
5,005
3,240
21,999$118,194
97,50575,59153,817
34,839236,549(5) Investment Deposits by Policyholders
The fair values of investment deposits by policyholders are­estimated by discounting future cash flows using the interest rates
currently being offered for similar contracts.

¥57,334$616,495(6) Derivatives
The fair values of interest rate swaps are estimated using current
market pricing models by obtaining quotes from f­inancial institutions.

A summary of investment in property on operating leases andproperty held for lease at March 31, 2010 and 2009 is as follows:		 In thousands ofIn millions of yen

U.S. dollars

March 31

March 312010

		In millions of yen¥34,822 ¥32,579
31,029 29,660
662
662(9,689) (8,539)¥56,824 ¥54,362$374,430
333,645
7,118(104,182)$611,011

		March 312010

The future minimum rentals on non-cancelable operating leases
at March 31, 2010 are as follows:		 In thousands ofYears ending March 31
In millions of yen
U.S. dollars

2011........................................................
2012........................................................
2013........................................................
2014........................................................
2015........................................................
Thereafter.................................................
Total future minimum rentals.................

¥ 2,790
1,113
1,113
1,113
1,113
12,786¥20,028$ 30,000
11,968
11,968
11,968
11,968137,483$215,355

21. Fair Value of Financial Instruments
The following methods and assumptions were used to ­estimate
the fair value of financial instruments in cases for which it is­practicable.
(1) Cash and Cash Equivalents; Time Deposits; Cash Deposits;
Notes and Accounts Receivable, Trade; Due from Subscribers;
Short-Term Receivables; Bank Loans; Notes and Accounts
Payable, Trade; Other Payables; Deposits Received; andAccrued ­Payrolls
The carrying amounts approximate fair value because of theshort-term maturities of such instruments.
(2) Short-Term Investments; Investment Securities
The fair values of short-term investments and investment­securities are principally based on quoted market price.
(3) Long-Term Receivables
The fair values of long-term receivables are based on the present
value of future cash flows through estimated maturity, discounted
using estimated market discount rates. The carrying amount oflong-term receivables approximates fair value.

52

Secom Co., Ltd.

Annual Report 2010

The carrying amounts and estimated fair values of the finan­cial
instruments excluding debt and equity securities which are­disclosed in Notes 2 (7) and 7 at March 31, 2010 and 2009 are
as follows:

2009

		

Land..................................................
Buildings and improvements..............
Other intangible assets......................
Accumulated depreciation.................
		 . ................................................

(4) Long-Term Debt Including Current Portion
The fair value of long-term debt including the current ­portion was
estimated based on the discounted amounts of future cash flows ofeach instrument at the Company’s current incremental borrowing
rates for similar liabilities.

2009

2010
Carrying
amountNon-derivatives:
Liabilities—
		 Long-term debt
		 including current		 portion............................ ¥52,373
		 Investment deposits
		 by policyholders.............. 62,226
Derivatives:
Liabilities—
		 Interest rate swaps
		 (Other liabilities)...............
203

Estimated
fair value

Carrying
amountEstimated
fair value¥52,582 ¥52,371¥52,451

63,80386,06487,891

203

242

242

In thousands of U.S. dollars
March 31, 2010
Carrying
amountNon-derivatives:
Liabilities—
		 Long-term debt including current		 portion....................................................
		 Investment deposits
		 by policyholders......................................
Derivatives:
Liabilities—
		 Interest rate swaps (Other liabilities)..........

Estimated
fair value$563,151 $565,398
669,097 686,054
2,183

2,183

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

22. Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures” (former
SFAS No. 157), defines fair value as the price that would bereceived to sell an asset or paid to transfer a liability (an exit price)in the principal or most advantageous market for the asset or­liability in an orderly transaction between market participants at themeasurement date. This accounting standard establishes a threelevel fair value hierarchy that prioritizes the inputs used to measurefair value as follows:
Level 1— Inputs are quoted prices in active markets for identicalassets or liabilities.
Level 2— Inputs are quoted prices for similar assets or liabilities
in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable,
and inputs that are derived principally from or corroborated by observable market data by correlation orother means.
Level 3— Inputs are derived from valuation techniques in which
one or more significant inputs or value drivers areunobservable, which reflect the reporting entity’ own
assumptions about the assumptions that market­participants would use in establishing a price.
The following table presents the Company’s assets andliabilities that are measured at fair value on a recurring basis at
March 31, 2010 and 2009, consistent with the fair value hierarchy
provisions of ASC 820.
		

In millions of yen
March 31, 2010

Assets:Cash equivalents.....
Short-term
investments andinvestment
securities...............
Total assets.................

Level 1

Level 255

¥ 2,608¥

76,09376,14839,39842,00629,155
29,155

144,646
147,309

—
—

203
203

—
—

203
203

¥

Liabilities:
Derivatives(Other liabilities)......
Total liabilities...............

Level 3

—

		

Total

¥

2,663

Liabilities:
Derivatives(Other liabilities)......
Total liabilities...............

Level 1

Level 2350

¥ 2,607¥

76,55676,90653,52856,13526,983
26,983

¥

—
—

242
242

March 31, 2010
Level 1

Level 3

—

—
—

Total

¥

2,957

157,067
160,024242
242

Level 2

Level 3

Assets:Cash equivalents..... $591 $ 28,043 $—Short-term
investments andinvestment
securities...............
818,204 423,634 313,495
Total assets.................
818,795 451,677 313,495
Liabilities:
Derivatives(Other liabilities)......
Total liabilities...............

—
—

2,183
2,183

—
—

Total

$

28,634

1,555,333
1,583,967

2,183
2,183

Cash Equivalents
All highly liquid investments with initial maturities of three months orless are considered to be cash equivalents, and principally valued
using quoted prices for identical assets in markets that are notactive.
Short-Term Investments and Investment Securities
Equity securities and debt securities classified as Level 1 assets arevalued using unadjusted quoted market price in active markets with
sufficient volume and frequency of transactions.
Level 2 assets are comprised principally of debt securities, which
are valued using quoted prices for similar assets in active markets,or quoted price for identical or similar assets in markets that are
not active.
Non-marketable securities classified as Level 3 assets are valued
based on unobservable inputs as the market for the assets was not
active at the measurement date.
Derivative Financial Investments
Derivative financial instruments are comprised of interest rate
swaps. These derivative instruments are valued using observable
market data and classified as Level 2 liabilities.
The following table presents the changes in Level 3 assets­ easured on a recurring basis for the years ended March 31, 2010mand 2009.
		 In thousands ofIn millions of yen
March 31, 2009

Assets:Cash equivalents.....
Short-term
investments andinvestment
securities...............
Total assets.................

In thousands of U.S. dollars

		In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2009

2010

Balance at beginning of year............... ¥26,983 ¥40,980
Total gains or losses(realized or unrealized):		 Included in earnings....................
(1,808) (3,907)
		 Included in other		 comprehensive income (loss)....
504 (1,705)
Purchase, issuances andsettlements, net............................
3,229 (2,393)
Foreign currency translation
adjustments..................................
247 (5,992)
Balance at end of year........................ ¥29,155 ¥26,983$290,140

2010

Annual Report 2010

(19,441)5,419
34,721
2,656$313,495

Secom Co., Ltd.

53

CONSOLIDATED FINANCIAL STATEMENTS

Assets and Liabilities Measured at Fair Value on a
Nonrecurring Basis
Non-marketable equity securities with carrying amount of ¥10,973
million ($117,989 thousand) were written down to their fair value of¥10,623 million ($114,226 thousand), resulting in an other-thantemporary impairment charge of ¥350 million ($3,763 thousand),
which was included in earnings for the year ended March 31,
2010. For the year ended March 31, 2009, non-marketable
equity s­ ecurities with carrying amount of ¥10,830 million were
written down to their fair value of ¥10,714 million, resulting in another-than-­temporary impairment charge of ¥116 million, which
was included in earnings. All impaired non-marketable equity
securities were classified as Level 3 assets, as the Company uses
unobservable inputs to value these investments.
Long-lived assets (Note 10) and goodwill (Note 11) are also­measured at fair value on a nonrecurring basis. All impaired longlived assets and goodwill were classified as Level 3 assets, as theCompany uses ­unobservable inputs to value these assets.
23. Derivative Financial Instruments(1) Risk Management Policy
The Company utilizes derivative financial instruments in thenormal course of business to reduce exposure to fluctuations ininterest rate. The Company assesses interest rate risk by con­tinually monitoring changes in the exposure and by evaluating
hedging opportunities. The Company does not hold or issue
derivative financial instruments for trading purposes. The Company
is also exposed to credit-related losses in the event of non-­perfomance by counterparties to derivative financial instru­ments,
but it is not expected that any counterparties will fail to meet their
obligations, because most of the counterparties are internationallyrecognized financial institutions and contracts are diversified to a­number of major financial institutions.
(2) Interest Rate Risk Management
The Company’s exposure to the market risk of changes ininterest rates relates ­primarily to its debt obligations. The Company
principally enters into interest rate swap agreements to manage
fluctuations in cash flows resulting from changes in interest rates.
Interest rate swaps are used to change floating rates on debt
obligations to fixed rates by entering into receive-floating, pay-fixedinterest rate swaps under which the Company receives floatinginterest rate ­proceeds and makes fixed interest rate payments,
thereby e­ ffectively creating fixed-rate debt.
(3) Cash Flow Hedge
The Company ­designates interest rate swap agreements as cash
flow hedges for variability of cash flows originated from floating
rate borrowings. The interest rate swap ­agreements mature atvarious dates through 2012. The ­effective portion of changes in fairvalues of derivative i­nstruments designated as cash flow hedgesof these debt obligations are reported in other comprehensive
income (loss). These amounts are reclassified into current incomein the same period that hedged items affect current income. The
ineffective portion of changes in fair values are reported in income

54

Secom Co., Ltd.

Annual Report 2010

immediately. The sum of the amount of the hedge ineffectivenessand net gains or losses excluded from the assessment of hedge
effectiveness is not material for the years ended March 31, 2010,2009 and 2008 as the critical terms of most of the interest rate
swap agreements match the terms of the hedged debt obligations.
Approximately ¥10 million ($108 thousand) of net derivative losses
included in other comprehensive income (loss), net of tax at March
31, 2010, will be reclassified into current income within 12 months
from that date. At March 31, 2010 and 2009, the notional principal
amounts of interest rate swap agreements designated as cash flow
hedges were ¥2,000 million ($21,505 thousand) and ¥8,723 million,
respectively.
(4) Derivative Instruments Not Designated as Hedges
Certain subsidiaries enter into interest rate swap agreements to
reduce exposure to fluctuations in interest rates relating primarily todebt obligations. Changes in fair value of the above noted derivative financial instruments, which are not ­designated as hedges, arereported in current income.
Fair values of derivative instruments reflected in the consolidatedbalance sheet as of March 31, 2010 are as follows:
Derivatives designated as hedging instruments
Liabilities:
		 In thousands ofLocationInterest rate swaps

Other liabilities

In millions of yen

U.S. dollars

Fair value

Fair value

¥25

$269

Derivatives not designated as hedging instruments
Liabilities:
		 In thousands ofLocationInterest rate swaps

Other liabilities

In millions of yen

U.S. dollars

Fair value

Fair value¥178$1,914

Effects of derivative instruments on the consolidated statements
of income for the year ended March 31, 2010 are as follows:
Derivatives designated as cash flow hedging instruments
Gains (losses) recognized in other comprehensive income(effective portion)

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

Interest rate swaps		

(¥6)

($65)

Gains (losses) reclassified from accumulated other comprehensive
income into income (effective portion)

			 In thousands ofLocation
In millions of yen
U.S. dollars

Interest rate swaps

Other expenses(¥358)($3,849)

Derivatives not designated as hedging instruments

			 In thousands ofLocation
In millions of yen
U.S. dollars

Interest rate swaps

Other expenses(¥81)($871)

24. Commitments and Contingent Liabilities
The Company has commitments outstanding at March 31, 2010
for the p­ urchase of property, plant and equipment of approximately¥4,684 million ($50,366 thousand).
The Company provides guarantees to third parties mainly withrespect to bank loans extended to its affiliated companies andother entities. Such guarantees are provided to enhance the credit
standing of the affiliated companies and other entities. For eachguarantee provided, the Company would have to per­form under
the guarantee, if the affiliated companies and other entities default
on a payment within the guaranteed period of one to four years.
The maximum amount of undiscounted pay­ments the Company
would have to make in the event of default amounts to ¥3,532
million ($37,978 thousand) at March 31, 2010. The carrying
amounts of the liabilities recognized for the Company’s obligations
under these g­ uarantees at March 31, 2010 and 2009 were deemed
insignificant.
Loss related to spectrum reallocation is for disposal andreplacement of equipments, since the allotted spectrum currently
used in COCO-SECOM will no longer be available after July 2012as a result of spectrum reallocation by the government.
Pasco Corporation filed a lawsuit against Sumitomo Mitsui
Banking Corporation asking for a confirmatory judgment to theeffect that it does not owe an obligation in the amount of ¥2,010
million ($21,613 thousand) to Sumitomo Mitsui Banking
Corporation with the Tokyo District Court on October 31, 2005.
Sumitomo Mitsui Banking Corporation alleged that it made a loan
to a third party and acquired from the third party its claim against
Pasco Corporation for an alleged sale of equipment to Pasco
Corporation, as collateral for the loan, and demanded Pasco
Corporation to pay such claim to Sumitomo Mitsui Banking
Corporation. On December 5, 2005, Sumitomo Mitsui Banking
Corporation brought a cross action against Pasco Corporation in­relation to a demand for payment of a transferred receivable.
Subsequently, both actions were consolidated according to a court
procedure. The oral argument was concluded on October 31,
2008, and on March 27, 2009 Tokyo District Court rendered thefollowing judgement;

Pasco Corporation appealed the case to the Tokyo High Court
on April 6, 2009.
Following the decision, Pasco Corporation provided a reserve for
litigation loss of ¥2,415 million for the year ended March 31, 2009.
On May 10, 2010, Pasco Corporation and Sumitomo Mitsui
Banking Corporation reached a settlement under which Pasco
Corporation will pay to Sumitomo Mitsui Banking Corporation an
amount of ¥1,750 million ($18,817 thousand), after several oralproceedings and ­settlement negotiations at the Tokyo High Court.
Pursuant to the settlement, Pasco Corporation accounted ¥781
million ($8,398 thousand) as a reversal of reserve for litigation loss
for the year ended March 31, 2010, and provided anew ¥1,770
million ($19,032 thousand), a sum of the above settlement amountand related litigation expenses, on the consolidated balance sheet
as of March 31, 2010.
Other than those above, it is not anticipated that damages, if any,
resulting from other legal actions will have a material impact on the
Company’s consolidated financial statements.

1.		Pasco Corporation must pay money to Sumitomo Mitsui
Banking Corporation in an amount of ¥2,010 million ($21,613
thousand) as well as interest at the rate of 6 percent per annumon ¥600 million ($6,452 thousand), from November 1, 2005, andon ¥1,410 million ($15,161 thousand), from December 1, 2005,
up to the full payment of the respective amounts;
2.		Pasco Corporation incurs the cost of lawsuits including the costcaused by supplementary participation; and3.		The judgement can be provisionally executed.

2,795

25. Discontinued Operations
The Company accounted for the sale of certain businesses inaccordance with ASC 205-20, “Discontinued Operations” (former
SFAS No. 144). The Company sold all of the shares of Japan Image
Communications Co., Ltd., and Asia Pacific Business Link Ltd.,
included in the information and communication related and otherservices segment, in August and December 2009, respectively. The
Company reported the operating results related to these ­operations
as discontinued operations. Prior period figures have been restated.
Discontinued operations for the years ended March 31, 2010,2009 and 2008 were as follows:		 In thousands of2010

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2009

2008

Net sales andoperating revenue................ ¥2,135 ¥4,755 ¥4,859
Income (loss) form
discontinued operations
before income taxes............
260
167
(33)
Gain on sales of
discontinued operations......
777——
Income taxes.........................
317
(316)
(315)
Income (loss) fromdiscontinued operations,net of tax............................. ¥1,354 (¥ 149) (¥ 348)
Attributable tononcontrolling interests........ (¥ 23) ¥ 10 ¥ 33
Attributable to
SECOM CO., LTD. . ............ ¥1,331 (¥ 139) (¥ 315)

Annual Report 20102010

$22,957

8,355
3,409

$14,559($247)$14,312

Secom Co., Ltd.

55

CONSOLIDATED FINANCIAL STATEMENTS

Income (loss) from discontinued operations, net of tax, by business segment for the years ended March 31, 2010, 2009 and 2008
were as follows:		 In thousands ofIn millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2010

2009

2008

2010

Security services....................
¥110
Medical services....................
1
Real estate development
and sales.............................
—
Information andcommunication related
and other services............... 1,243
Income (loss) fromdiscontinued operations,net of tax............................. ¥1,354

¥231
3

¥252
—

$1,183
11

0

4

—

(383)

(604)

13,365(¥149)(¥348)$14,559

26. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:		 In thousands of2010

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2009

2008

Cash paid during theyear for:
Interest................................ ¥ 1,830 ¥ 1,978 ¥ 2,082
Income taxes...................... 36,719 47,419 43,067
Non-cash investing andfinancing activities:
Additions to obligations
under capital leases.......... 3,963
803 2,668
Acquisitions (Note 4)—
		 Fair value of		 assets acquired.............. 15,160——
		 Fair value of		 liabilities assumed........... 10,427——
		 Total considerations.......... ¥ 4,733 ¥
—¥
—

2010

$ 19,677
394,828

42,613163,011
112,119$ 50,892

27. Segment Information
The Company has applied ASC 280, “Segment Reporting”­(former SFAS No. 131, “Disclosures about Segments of anEnterprise and Related Information”), which requires disclosure offinancial and descriptive ­information about the Company’s reportable operating segments. The o­ perating segments reported below
are the segments of the Company for which separate financial
information is available and for which o­ perating profit/loss amounts
are evaluated regu­larly by ­management in deciding how to allocate
resources and assess performance.

56

Secom Co., Ltd.

Annual Report 2010

The Company has seven reportable business segments: security
services, fire protection services, medical services, insurance services, geographic information services, real estate development
and sales, and information and communication related and otherservices. During the year ended March 31, 2009, the Company
decided to separately disclose the real estate development andsales, which was previously included in the information and­communication related and other services segment, due to thefact that the reporting loss exceeded the quantitative threshold.
Accordingly, segment information of all prior periods has been
restated to conform to the presentation used for the year ended
March 31, 2009.
The security services segment provides various types of secu­rity
services by utilizing the Company’s unique security systems andmanufacturing and selling security equipment. The fire protection
services segment provides various types of fire protection equipment, such as automatic fire alarm and fire extinguishing and otherfire protection systems for office buildings, plants, tunnels, ships,
residences and cultural monuments. The medical ser­vices segmentprovides intravenous solutions to patients at home, home-based­nursing care services, medical data trans­mission services byutilizing the Company’s network and leas­ing of real estate for
medical institutions. In addition, the VIEs to which the Company isprimary beneficiary manage hospitals and health ­care-related
institutions. The insurance services s­ egment represents non-life
insurance-related underwriting business in the Japanese market.
The geographic information services segment represents surveying
and measuring services and GIS services. The real estate development and sales ­segment represents development and sales ofcondominiums that reinforce security. The information and communication related and other services ­segment represents theCompany’s network business, leasing of real estate and­management of hotel business.
Corporate expenses consist principally of general andadministrative expenses of the planning, personnel and admin­
istrative departments of the parent company and administrative
departments of the foreign holding company.
Intersegment sales are priced on a basis intended to­approximate amounts charged to unaffiliated customers.
Identifiable assets are those assets used exclusively in the­operations of each segment or which are allocated when used
jointly. Corporate assets, which are held by the parent company
and the foreign holding company for general and administra­tive
facilities, ­consist principally of cash and cash equivalents, short­term investments, investment securities, land, buildings, machineryand equipment.

Information by business and geographic segments for the years
ended March 31, 2010, 2009 and 2008 is as follows:(1) Business Segment Information
		 In thousands of2010

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2008

2010

2009

Net sales andoperating revenue:
Security services—		 Customers.................... ¥424,385 ¥436,918 ¥435,306
		 Intersegment.................
1,975
1,516
1,375
			 .................................. 426,360
438,434
436,681
Fire protection services—		 Customers.................... 80,132
84,17582,572
		 Intersegment.................
4,297
5,659
4,046
			 .................................. 84,429
89,834
86,618
Medical services—		 Customers.................... 56,309
52,22050,741
		 Intersegment.................
123
123
127
			 .................................. 56,432
52,34350,868Insurance services—		 Customers.................... 29,142
21,53033,229
		 Intersegment.................
2,982
2,919
2,894
			 .................................. 32,124
24,44936,123
Geographic information
services—
		 Customers.................... 41,918
40,20739,376
		 Intersegment.................
140
117
321
			 .................................. 42,058
40,324
39,697
Real estate development
and sales—
22,07229,928		 Customers.................... 13,268
		 Intersegment.................
188
2,361
—
			 .................................. 13,456
24,43329,928
Information andcommunication related
and other services—		 Customers.................... 25,490
26,89430,684
		 Intersegment.................
8,044
8,671
8,571
			 .................................. 33,534
35,56539,255
Total................................ 688,393
705,382
719,170
Eliminations..................... (17,749)(21,366)(17,334)
		 Total net sales and		 operating revenue....... ¥670,644 ¥684,016 ¥701,836$4,563,280
21,236
4,584,516
861,634
46,205907,839
605,473
1,323
606,796
313,355
32,064345,419450,7311,505
452,236

		 In thousands of2010

274,086
86,495360,581
7,402,075(190,849)$7,211,226

U.S. dollars

Years ended
March 31

Year ended
March 31

2008

2010

2009

Operating income (loss):
Security services............ ¥101,623 ¥102,475 ¥103,137
Fire protection
services.......................
4,193
5,353
4,948
Medical services............
2,254
11(1,083)
Insurance services.........
(1,503)(8,222)
3,766
Geographic information
services.......................
2,177
2,045
1,439
Real estate development
and sales.....................
(3,702)(17,577)
673
Information andcommunication related
and other services.......
3,850
4,478
4,368
Total.............................. 108,892
88,563
117,248
Corporate expenses
and eliminations...........
(11,714)(12,304)(11,970)
Operating income.......... ¥ 97,178 ¥ 76,259 ¥105,278
Other income.................
5,352
5,759
13,017
Other expenses.............
(7,854)(18,855)(7,999)
		 Income from continuing		 operations before		 income taxes
		 and equity in net
		 income of affiliated		 companies................ ¥ 94,676 ¥ 63,163 ¥110,296$1,092,719
45,08624,237(16,161)
23,409(39,806)
41,3981,170,882(125,957)$1,044,925
57,548(84,452)$1,018,021

		 In thousands of2010

142,667
2,021
144,688

In millions of yen

In millions of yen

U.S. dollars

March 31

March 31

2008

2010

2009

Assets:Security services............ ¥ 398,333 ¥ 390,414 ¥ 468,182
Fire protection
services.......................
79,761
81,40480,777
Medical services............ 131,061
122,960
119,251
Insurance services......... 190,329
197,844
188,538
Geographic
information services.....
58,09258,141
58,038
Real estatedevelopment
and sales.....................
77,94876,09597,261
Information andcommunication related
and other services.......
89,911
96,47698,081
Total.............................. 1,025,435 1,023,334 1,110,128
Corporate items.............
70,09979,735
108,583
Investments in andloans to affiliatedcompanies...................
42,61340,072
46,814
		 Total assets................. ¥1,138,147 ¥1,143,141 ¥1,265,525

Annual Report 2010

$ 4,283,151
857,645
1,409,258
2,046,548
624,645
838,150
966,785
11,026,182
753,753458,204$12,238,139

Secom Co., Ltd.

57

CONSOLIDATED FINANCIAL STATEMENTS

		 In thousands of2010

Depreciation andamortization:
Security services............
Fire protection
services.......................
Medical services............
Insurance services.........
Geographic
information services.....
Real estate development
and sales.....................
Information andcommunication related
and other services.......
Total..............................
Corporate items.............
		 Total depreciation
		 and amortization.......
Capital expenditures:
Security services............
Fire protection
services.......................
Medical services............
Insurance services.........
Geographic
information services.....
Real estate development
and sales.....................
Information andcommunication related
and other services.......
Total..............................
Corporate items.............
		 Total capital		 expenditures.............

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2008

2010

2009

¥45,694¥45,428¥47,191$491,333

1,428
2,253
1,017

1,250
2,026
1,220

1,171
3,816
1,225

15,35524,226
10,935

1,857

1,675

1,666

19,968

46

58

51

495

2,577
54,872258

2,680
54,337288

2,707
57,827367

27,710590,0222,774¥55,130¥54,625¥58,194$592,796¥27,154¥29,722¥33,192$291,978

1,804
4,069
275

1,524
2,153
309

1,556
4,674
8

19,39843,753
2,957

883

299

1,450

9,495

2

7

258

21

4,477
38,66455

10,614
44,628227

5,622
46,76063

48,140415,742591¥38,719¥44,855¥46,823$416,333

The capital expenditures in the above table represent the­additions to property, plant and equipment of each segment.
The Company has no single customer that accounts for morethan 10 percent of total revenues.

The following table is a breakdown of security services revenue
to external customers by service category. The security services
business is managed as a single operating segment by the­Company’s management.
		 In thousands of2010

In millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2008

2010

2009

Electronic security
services....................... ¥299,089 ¥303,505 ¥296,167
Other security services:
Static guard
services...................
46,21347,99946,648
Armored car
services...................
19,823
20,31019,547
Merchandise andother ..........................
59,26065,10472,944
Total security
services................... ¥424,385 ¥436,918 ¥435,306$3,216,011
496,914
213,151
637,204$4,563,280(2) Geographic Segment Information
Net sales and operating revenue attributed to countries based on
location of customers and long-lived assets for the years ended
March 31, 2010, 2009 and 2008 were as follows:		 In thousands ofIn millions of yen

U.S. dollars

Years ended
March 31

Year ended
March 31

2008

2010

Net sales andoperating revenue:
Japan........................ ¥651,161 ¥663,984 ¥680,334
Other.........................
19,483
20,03221,502
		 Total....................... ¥670,644 ¥684,016 ¥701,836$7,001,731
209,495$7,211,226

2010

2009

		 In thousands ofIn millions of yen

U.S. dollars

March 31

March 31

2008

2010

Long-lived assets:
Japan....................... ¥352,028 ¥351,143 ¥345,318
Other........................
3,834
4,925
6,185
		 Total...................... ¥355,862 ¥356,068 ¥351,503$3,785,247
41,226$3,826,473

2010

2009

There are no individually material countries with respect to
net sales and operating revenue and long-lived assets included inother areas.
28. Subsequent Events
The Company has evaluated subsequent events through June25, 2010, the date at which the financial statements were available
to be issued, and determined there are no other items to disclose.

58

Secom Co., Ltd.

Annual Report 2010

INDEPENDENT AUDITORS’ REPORTThe Board of Directors and Shareholders
Secom Co., Ltd.:

ラインは、ロゴに必要なクリアスペースです。
に、他のオブジェクトやテキストが入らないよう、ご留意ください。

We have audited the accompanying consolidated balance sheets of SECOM CO., LTD. and subsidiaries (the “Company”) as of March 31,
2010 and 2009, and the related consolidated statements of income, changes in equity and cash flows for each of the years in the threeyear period ended March 31, 2010, all expressed in Japanese yen. These consolidated financial statements are the responsibility of theCompany’s m­ anagement. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material­misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, e­ vidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by­management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis forour opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
SECOM CO., LTD. and subsidiaries as of March 31, 2010 and 2009, and the results of their operations and their cash flows for each of theyears in the three-year period ended March 31, 2010, in conformity with accounting principles generally accepted in the United States ofAmerica.
As discussed in Note 2 to the consolidated financial statements, the Company changed their method of accounting for noncontrollinginterests with the adoption of Accounting Standards Codification Topic 810, Consolidation, in the year ended March 31, 2010.
The accompanying consolidated financial statements as of and for the year ended March 31, 2010 have been translated into UnitedStates dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial­statements expressed in Japanese yen have been translated into United States dollars on the basis set forth in Note 3 to the consolidated
financial statements.

Tokyo, Japan
June 25, 2010

Annual Report 2010

Secom Co., Ltd.

59

OTHER FINANCIAL DATACONTENTSSUMMARY OF SELECTED FINANCIAL DATA............................................................. 61
COMMON STOCK DATA............................................................................................ 63

60

Secom Co., Ltd.

Annual Report 2010

SUMMARY OF SELECTED FINANCIAL DATASECOM CO., LTD. and Subsidiaries
Years ended March 31
In millions of yen
2010

2009

2008

2007

2006

2005

Composition of consolidated net sales andoperating revenue by segment
Net sales and operating revenue........................................................ ¥670,644 ¥684,016 ¥701,836 ¥631,945 ¥575,856 ¥547,799
436,918
435,306
415,410400,044382,360
Security services:............................................................................ 424,385
63.9%
63.3%
62.0%
65.7%
69.5%
69.8%
				 As a percentage of net sales and operating revenue............
303,505
299,089
296,167
285,858
277,892
271,872
		 Electronic security services—
44.4
44.6
42.2
45.2
48.3
49.6
				 As a percentage of net sales and operating revenue............
		 Other security services—
47,99946,64842,144
41,48038,302
			 Static guard services............................................................... 46,213
7.0
6.9
6.6
6.7
7.2
7.0
				 As a percentage of net sales and operating revenue............
20,31019,547
20,30819,36918,462
			 Armored car services.............................................................. 19,823
3.0
3.0
2.8
3.2
3.4
3.4
				 As a percentage of net sales and operating revenue............
68,30966,19562,452
60,84956,764					 Subtotal........................................................................... 66,036
65,10472,944
67,10061,30353,724
		 Merchandise and other............................................................... 59,260
9.5
8.8
10.4
10.6
10.6
9.8
				 As a percentage of net sales and operating revenue............
84,17582,57227,448——Fire protection services................................................................... 80,132
12.3
11.9
11.8
4.3
—
—
				 As a percentage of net sales and operating revenue............
52,22050,74145,852
39,21534,688
Medical services............................................................................. 56,309
7.6
8.4
7.2
7.3
6.8
6.3
				 As a percentage of net sales and operating revenue............
21,53033,22931,97829,537
26,465
Insurance services.......................................................................... 29,142
3.2
4.3
4.7
5.1
5.1
4.8
				 As a percentage of net sales and operating revenue............
40,20739,37636,43835,271
34,915
Geographic information services..................................................... 41,918
5.9
6.3
5.6
5.8
6.1
6.4
				 As a percentage of net sales and operating revenue............
22,07229,92845,431
41,967
39,699Real estate development and sales................................................ 13,268
3.2
2.0
4.3
7.2
7.3
7.3
				 As a percentage of net sales and operating revenue............
Information and communication related
26,89430,68429,38829,822
29,672and other services........................................................................ 25,490
3.9
3.8
4.4
4.6
5.2
5.4
				 As a percentage of net sales and operating revenue............
Net income attributable to SECOM CO., LTD., cash dividends
and SECOM CO., LTD. shareholders’ equity
Net income attributable to SECOM CO., LTD..................................... ¥ 46,989
Cash dividends (paid)(2)....................................................................... 18,533
SECOM CO., LTD. shareholders’ equity............................................. 569,799
Consolidated financial ratios
Percentage of working capital accounted for by:
Debt
		 Bank loans..................................................................................
		 Current portion of long-term debt...............................................
		 Straight bonds............................................................................
		 Other long-term debt..................................................................
			 Total debt................................................................................
SECOM CO., LTD. shareholders’ equity.........................................
			 Total capitalization...................................................................
Return on total assets (percentage) (a). ................................................
Return on equity (percentage) (b)..........................................................
Percentage of net sales and operating revenue absorbed by (c):Depreciation and amortization........................................................
Rental expense under operating leases..........................................
Ratio of accumulated depreciation to depreciable
assets (percentage)..........................................................................
Net property turnover (times) (c)...........................................................
Before-tax interest coverage (times) (c)(d)...............................................

¥ 30,560
19,122528,721¥ 61,756
17,998574,554¥ 55,889
13,499551,732¥ 50,331
11,251
508,696¥ 52,133
10,127457,837

6.5
1.6
2.6
3.6
14.3
85.7
100.0
4.1
8.2

11.9
2.4
1.9
3.6
19.8
80.2
100.0
2.7
5.8

17.5
1.2
1.8
4.0
24.5
75.5
100.0
4.9
10.7

17.4
1.4
1.9
3.6
24.3
75.7
100.0
4.5
10.1

15.2
6.4
1.6
3.6
26.8
73.2
100.0
4.1
9.9

16.1
1.7
6.4
3.9
28.1
71.9
100.0
4.5
11.4

8.2
2.1

7.9
2.2

8.2
2.3

9.1
2.5

9.0
2.7

9.1
2.6

64.9
2.55
53.5

64.4
2.66
32.4

63.8
2.81
53.7

62.3
2.54
53.5

60.5
2.39
48.8

60.0
2.43
39.3

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

Annual Report 2010

Secom Co., Ltd.

61

SUMMARY OF SELECTED FINANCIAL DATA

2010

2009

2008

2007

2006

2005

Number of shares outstanding
233,288,717 233,288,717 233,288,717 233,288,717 233,288,717 233,288,717
Issued8,323,599
8,318,900
8,301,997
8,266,043
Owned by the Company........................................... 15,254,334 15,251,520
Balance.................................................................... 218,034,383 218,037,197 224,965,118 224,969,817 224,986,720 225,022,674
Per share information
Net income attributable to SECOM CO., LTD.
¥ 137.42¥ 274.51¥ 248.42¥ 223.69¥ 231.66¥ 215.51
per share (in yen) (1) .................................................
85.00
80.00
60.00
50.00
45.00
85.00
Cash dividends paid per share (in yen) (2) ..................
2,424.91
2,553.97
2,452.47
2,261.00
2,034.63
2,613.34
SECOM CO., LTD. shareholders’ equity
per share (in yen) (3) .................................................
299.72448.19427.34396.31410.29383.36
Cash flow per share (in yen) (1) (e) ................................
1.50
1.90
2.23
2.66
2.19
1.57
Price/Book value ratio...............................................
26.41
17.63
22.02
26.91
19.25
18.98
Price/Earnings ratio..................................................
12.11
10.80
12.80
15.19
10.87
10.67
Price/Cash flow ratio................................................
3,630
4,840
5,470
6,020
4,460
4,090
Stock price at year-end (in yen).................................
Notes: (a) Net income attributable to SECOM CO., LTD. / Total assets(b) Net income attributable to SECOM CO., LTD. / SECOM CO., LTD.
shareholders’ equity(c) Including discontinued operations(d)		(Income before income taxes and equity in net income of affiliatedcompanies + Interest expense)/Interest expense(e) (Net income attributable to SECOM CO., LTD. + Depreciation andamortization - Dividends approved) / Average number of shares
outstanding during each period

62

Secom Co., Ltd.

Annual Report 2010

(1) Per share amounts are based on the average number of shares
outstanding during each period.
(2) Subsequent to March 31, 2010, cash dividends of ¥18,533 million (¥85.00
per share) were approved at the general shareholders’ meeting on June 25,2010 (see Note 17 of the accompanying notes to consolidated financial
statements).
(3) Per share amounts are based on the number of shares outstanding at theend of each period, minus treasury stock.

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

Shareholder Information
Number of shareholders............................................
Common shares held by:
Japanese government and local public entities......
Financial institutions...............................................
Securities firms......................................................
Other domestic corporations..................................
Foreign investors....................................................
Individuals and others............................................
		 Total...................................................................

2010

2009

2008

2007

2006

2005

31,48830,85928,51230,68319,807

21,327

0.08%
31.34
4.28
3.73
40.77
19.80
100.00%

0.00%
35.67
2.55
3.76
38.17
19.85
100.00%

—%
33.84
3.86
3.81
41.71
16.78
100.00%

—%
32.21
3.68
3.86
42.43
17.82
100.00%

—%
33.04
2.16
3.92
43.40
17.48
100.00%

—%
34.32
1.99
4.13
40.75
18.81
100.00%

PRICE INFORMATION (TOKYO STOCK EXCHANGE)
2008
2009

2010

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

Price per share (in yen)

Nikkei Stock Average (in yen)

High

Low

High

Low

¥5,330
5,310
4,700
4,700
4,100
4,600
4,640
4,540

¥4,710
4,300
2,790
3,100
3,420
3,900
3,940
3,965

¥14,489.44
13,603.31
11,368.26
9,239.24
10,135.82
10,639.71
10,638.06
11,097.14¥12,656.42
11,259.86
7,162.90
7,054.98
8,351.91
9,050.33
9,081.52
9,932.90

Annual Report 2010

Secom Co., Ltd.

63

COMMON STOCK DATACOMMON STOCK ISSUES
			
		
		
Date

Additional
shares issued(In thousands)

Sharesoutstanding
after issue(In thousands)

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

June 15, 1974
Dec. 21, 1974
May 21, 1975
May 21, 1975
Dec. 1, 1975
May 31, 1976
June 1, 1976
Dec. 1, 1976
Nov. 30, 1977
Dec. 1, 1977
Dec. 1, 1978
June 1, 1981
Dec. 1, 1981
Jan. 20, 1983
Nov. 30, 1983
Nov. 30, 1984
Nov. 30, 1985
Jan. 20, 1986
Nov. 30, 1986
Nov. 30, 1987
Jan. 20, 1988
Nov. 30, 1988
Nov. 30, 1989
Jan. 19, 1990
Mar. 31, 1990
Mar. 31, 1991
Mar. 31, 1992
Mar. 31, 1993
Mar. 31, 1994
Mar. 31, 1995
Mar. 31, 1996
Mar. 31, 1997
Mar. 31, 1998
Mar. 31, 1999
Nov. 19, 1999
Mar. 31, 2000
Mar. 31, 2001
Mar. 31, 2002
Mar. 31, 2003
Mar. 31, 2005

1,968
2,760
1,196
1,244
4,320
1,880
2,060
6,798
2,042
6,300
7,560
3,000
4,836
5,320
194
1,418
186
6,031
2,878
1,609
3,541
439
1,808
22,986
1,446
2,949
2,035
267
6,986
477
613
1,825
29
159
116,410
273
25
175
6
8

9,200
11,96013,156
14,40018,72020,60022,66029,45831,50037,80045,36048,36053,19658,51658,71060,12860,314
66,34569,22370,832
74,37374,812
76,62099,606
101,052
104,001
106,036
106,303113,289
113,766
114,379
116,204
116,233
116,392
232,802
233,075
233,100
233,275
233,281
233,289¥00,460,000
598,000
657,800
720,000
936,000
1,030,000
1,133,000
1,472,900
1,575,000
1,890,000
2,268,000
2,418,000
2,659,800
3,000,000
3,280,942
5,329,282
5,602,945
5,602,945
11,269,932
15,021,200
15,021,200
16,063,099
21,573,139
21,573,139
25,070,104
32,244,732
37,338,751
37,991,568
56,756,263
58,214,178
59,865,105
65,253,137
65,327,060
65,709,927
65,709,927
66,096,852
66,126,854
66,360,338
66,368,827
66,377,829—
3 for 10
1 for 10—
3 for 10—
1 for 10
3 for 10—
2 for 10
2 for 10—
1 for 10
1 for 10———
1 for 10——
0.5 for 10——
3 for 10
—
—
—
—
—
—
—
—
—
—
10 for 10*
—
—
—
—
—

Remarks

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

Notes: 1. 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.
2. As of March 31, 2010, the number of shares outstanding was 233,289 thousand and share capital was ¥66,377,829 thousand.
*One share was split into two.

64

Secom Co., Ltd.

Annual Report 2010