FINANCIAL REVIEW

Operating Results

Net Sales and Operating Revenue
Net sales and operating revenue amounted to ¥580.5 billion,

Overview

an increase of 5.1%, or ¥28.2 billion. Net sales and operating

In the year ended March 31, 2006, the parent company and its

revenue rose in all segments. (For more details, please see

consolidated subsidiaries (collectively, “the Company”) took a

Segment Information below.)variety of steps aimed at enhancing their operations—whichcenter on security services and also include medical, insurance,

Costs and Expenses

geographic information, information and communication

Costs and expenses were up 4.6%, or ¥21.8 billion, to ¥498.6

related services, real estate development and sales, and real

billion. Cost of sales rose 4.5%, or ¥15.7 billion, to ¥364.9 bil-

estate leasing—by improving services and expanding marketing

lion, equivalent to 62.9% of net sales and operating revenue,

and product development. Firm gains in revenue in all segments

down from 63.2% in the previous period. The lower cost-of-

supported an increase in net sales and operating revenue ofsales ratio was primarily attributable to a decline in cost-of-sales

5.1%, or ¥28.2 billion, to ¥580.5 billion. Operating income rose

ratio of the insurance services segment. This was mainly caused

8.4%, or ¥6.3 billion, to ¥81.9 billion, reflecting higher net sales

by an increase in gains on the sales of investment securities,

and operating revenue and a decline in impairment loss on long-included in net sales and operating revenue, in the segment.

lived assets. Income from continuing operations totaled ¥51.2

Selling, general and administrative expenses rose 6.7%, orbillion, up 22.6%, or ¥9.4 billion, owing to such factors as¥8.0 billion, to ¥128.2 billion, equivalent to 22.1% of net sales

improved operating income and a gain on the sale of theand operating revenue, up from 21.8% a year earlier. This

Company’s stake in a cable television affiliate accounted forincrease was largely due to an increase in the provision for theunder the equity method. Despite an increase in income fromallowance for doubtful accounts in the medical services segment.

continuing operations, net income declined 3.5%, or ¥1.8 billion,

Impairment loss on long-lived assets shrank ¥3.7 billion, toto ¥50.3 billion, owing to the absence of ¥9.9 billion in income¥821 million. Losses on sales and disposal of property, plant andfrom discontinued operations, net of tax, recorded in the previous

equipment, net, amounted to ¥2.2 billion, a decline of ¥646

period generated by the sale of the Company’s education

million. In addition, the transfer of a portion of the cash balanceservices business and certain real estate properties for lease.

pension plan maintained by the parent company and certain

During the period, the Company decided to disclose theof its Japanese subsidiaries to a defined contribution pension

geographic information services, which was previously included

plan resulted in recognition of a portion of an unrecognizedin the information and communication related and other services

actuarial loss, which was included as a settlement loss of benefit

segment, separately from the segment due to an increase in

obligation on transfer to defined contribution pension plan ofimportance of its business. Accordingly, segment information of¥2.5 billion.

all prior periods has been restated to conform to the presentation
used for the year ended March 31, 2006.

SECOM CO., LTD. ANNUAL REPORT 2006

21

FINANCIAL REVIEW

Operating Income

Minority Interest in Subsidiaries and Equity in Net Income

Operating income rose 8.4%, or ¥6.3 billion, to ¥81.9 billion,of Affiliated Companies

and represented 14.1% of net sales and operating revenue,

Minority interest in subsidiaries amounted to ¥3.9 billion, an

compared with 13.7% the previous year. Factors influencing theincrease of ¥1.0 billion, mainly as a result of improved income

increase included increases in net sales and operating revenue

from insurance services. Equity in net income of affiliated com-and declines in the cost-of-sales ratio and impairment loss onpanies also rose ¥964 million, to ¥3.3 billion, owing primarily to

long-lived assets, although the impact was partially offset bysolid performances by equity-method affiliates in Taiwan andan increase in selling, general and administrative expenses. The

the ROK.

insurance services segment and the information and communication related and other services segment recorded operating

Income from Continuing Operations

income, in contrast to the previous period, when both recorded

As a consequence of the above factors, income from continuing

operating losses. These improvements contributed to the overall

operations rose 22.6%, or ¥9.4 billion, to ¥51.2 billion, and rep-increase in operating income. (For more details, please see

resented 8.8% of net sales and operating revenue, compared

Segment Information below.)with 7.6% in the previous period.

Other Income and Expenses

Income from Discontinued Operations

Other income rose ¥9.4 billion, to ¥15.9 billion, while other

Discontinued operations include any component of an entity

expenses advanced ¥250 million, to ¥8.1 billion, resulting in net

with its own identifiable operations and cash flows which isother income of ¥7.8 billion, compared to net other expenses ofdisposed of or is classified as held for sale, and with which the¥1.3 billion in the previous year. The increase in other income wasCompany will not have significant continuing involvement. In

primarily due to an increase in a net gain on sales of securities,

the previous period, the Company sold its education servicesa result of the sale of the Company’s stake in a cable television

operation, and its security services operations in the United

affiliate accounted for under the equity method.

States, as well as certain real estate properties for lease. This
resulted in income from discontinued operations, net of tax, ofIncome Taxes¥9.9 billion in that period. (For more information, please see

Income taxes increased ¥6.0 billion, to ¥37.9 billion, owing toNote 25 of the accompanying Notes to Consolidated Financial

higher income from continuing operations before income taxes.

Statements.)

Income taxes were equivalent to 42.2% of income from continuing operations before income taxes, down from 43.0% in the

Net Income

previous year.

Net income totaled ¥50.3 billion. Both basic and diluted net
income per share were ¥223.69. Cash dividends per share of¥60.00 were approved at the general shareholders’ meeting
held on June 27, 2006.

SECOM CO., LTD. ANNUAL REPORT 2006

22

Segment Information

These include SECOM AX, a centralized system that employs

For detailed segment information, please see Note 27 of theadvanced image monitoring; SECOM DX, a versatile system

accompanying Notes to Consolidated Financial Statements.

suitable for a wide range of users; and SECOM IX, a remoteimaging system for retail premises that operate around the

Security Services

clock. Subscriptions for such services increased steadily, as did

This segment encompasses electronic security services, othersubscriptions for SECOM Home Security systems.

security services and merchandise and other. Net sales and oper-

Other security services include static guard services, staffedating revenue in the security services segment rose 4.6%, or

by highly trained professionals, for security situations that

¥17.6 billion, to ¥401.4 billion. Excluding intersegment transac-

require human judgment and flexible responses, and armoredtions, segment net sales and operating revenue was ¥400.0

car services, for the transport of cash and valuables by speciallybillion, equivalent to 68.9% of total net sales and operating

fitted armored cars and security professionals. In the period

revenue, down from 69.2% a year earlier.

under review, net sales and operating revenue from static guard

Electronic security services include centralized systems (on-services amounted to ¥41.5 billion, an increase of 8.3%, orline commercial and home security systems) and large-scale¥3.2 billion, while that from armored car services amounted

proprietary systems, which center on surveillance services at theto ¥19.4 billion, up 4.9%, or ¥907 million.

subscriber’s premises. Commercial and home on-line security

The merchandise and other category encompasses a wide

systems, the core of SECOM’s electronic security services busi-

range of security products, including access-control systems,

ness, use sensors installed at the customer’s premises to detect

CCTV surveillance systems, fire extinguishing systems, andevents, such as intrusions, fires and equipment malfunctions.

external and internal monitoring systems, which can be used

Sensors are linked to a SECOM control center via telecommuni-

alone or connected to on-line security systems. In the period

cations circuits to enable remote monitoring around the clock.

under review, these products and services generated net sales

Should an event be detected, the relevant information is relayedand operating revenue of ¥61.3 billion, an increase of 14.1%,

to the control center, where the staff dispatch emergencyor ¥7.6 billion. Increasing awareness of the need to ensure

response personnel and take other appropriate measures, asprotection against crime, as well as to properly manage informa-

well as notify the police or fire department if required. To ensuretion assets, supported brisk sales of access-control systems andits ability to deliver the level of quality customers expect, the

CCTV surveillance systems.

Company has established an integrated process that allows it toOperating income in the security services segment slippedmaintain control over every aspect of its electronic security ser-

4.2%, or ¥3.8 billion, to ¥86.7 billion. The operating margin

vices, from centralized systems research and development (R&D)

was 21.6%, compared with 23.6% for the previous period. Thisto equipment manufacturing, sales, installation, 24-hour moni-

primarily reflected a settlement loss of benefit obligation on

toring, dispatch of emergency response personnel and mainte-transfer to defined contribution pension plan and an increase innance. In the period under review, net sales and operating

advertising expenses. The settlement loss of benefit obligation

revenue from electronic security services amounted to ¥277.9

reflected the transfer of a portion of the cash balance pension

billion, an increase of 2.2%, or ¥6.0 billion. During the period

plan maintained by the parent company and certain of its

under review, we continued to market a number of security

Japanese subsidiaries to a defined contribution pension plan,systems suited to the diverse needs of commercial customers.

as described above.

SECOM CO., LTD. ANNUAL REPORT 2006

23

FINANCIAL REVIEW

Medical Servicesof a favorable investment environment, recording gains from

Medical services encompasses home medical services, including

the sales of investment securities.

pharmaceutical dispensing and delivery and home nursing ser-

The insurance services segment registered operating income

vices; remote image diagnosis support services; electronic med-of ¥5.1 billion, up from an operating loss of ¥3.0 billion in theical report systems; sales of medical equipment; the operation

previous period. This improvement primarily reflected the afore-of nursing homes; personal care services; and the leasing of real

mentioned gains on sales of investment securities, as well as theestate for medical institutions. Net sales and operating revenue

fact that the loss ratio had worsened in the previous period duein the medical services segment amounted to ¥39.4 billion,

to damages sustained in typhoons.

an increase of 13.0%, or ¥4.5 billion. During the period underreview, sales in the home medical services area expanded,

Geographic Information Services

while a newly consolidated subsidiary that manages dispensing

This segment encompasses a variety of GIS services tailored topharmacies also contributed to an increase in net sales andthe needs of the public and private sector, as well as surveying

operating revenue.

and measuring and construction consulting services. Net sales

The medical services segment posted an operating loss ofand operating revenue in this segment edged up 0.6%, or ¥216

¥1.3 billion for the period under review, down from operating

million, to ¥35.4 billion. During the period under review, efforts

income of ¥1.6 billion in the previous period. This was attributable

included the provision of high-precision national spatial data to

to a provision for the allowance for doubtful accounts as a result

government and municipal offices using digital aerial cameras,of loans extended to health care facilities. This reflected changes

laser scanners and other aerial surveying technologies. The

in the business environment prompted by amendments to Japan’sCompany also provided GIS services for private-sector customers,

health care system, including a reduction of remuneration for

mainly companies, and cultivated markets for these services

medical treatment.

overseas, particularly in developing countries.

Insurance Services

to ¥900 million. This was primarily a consequence of the inclu-

This segment includes a variety of unique offerings thatsion of devaluation losses on inventories and an increase in loss

complement security services, which provide prior protection,

on disposal of software.

Segment operating income declined 27.2%, or ¥336 million,

with non-life insurance, which looks after customers in theevent of misfortune. For example, Security Discount Fire Policy,

Information and Communication Related and Othera commercial fire insurance policy, and SECOM Anshin My

Services

Home, a comprehensive fire insurance policy for residences,

This segment includes information and communication related

offer a discount on premiums to subscribers who have installed

services, including cyber security and information network system

on-line security systems, recognizing this as a risk-lowering factor.

operation services, real estate development and sales, and real

Other products include New SECOM Anshin My Car, a compre-

estate leasing. In the information and communication related

hensive automobile insurance policy that offers on-site support

and other services segment, net sales and operating revenue

services—provided by our emergency response personnel—inrose 5.2%, or ¥4.1 billion, to ¥82.9 billion. During the period

the event of an accident, and MEDCOM, an unrestricted cancer

under review, the real estate development and sales businesstreatment policy that covers the entire cost of medical treatments

performed well, bolstered by brisk sales of condominiums.

for cancer. The insurance services segment generated net sales

Solid results in the real estate development and sales business,and operating revenue of ¥32.0 billion, up 9.5%, or ¥2.8 billion.

together with a decline in impairment loss on long-lived assets,

In addition to expanding the marketing of non-life insurance

supported segment operating income of ¥5.6 billion, compared

during the period under review, the Company took advantage

with an operating loss of ¥816 million in the previous period.

SECOM CO., LTD. ANNUAL REPORT 200624

Other assets increased 0.2%, or ¥159 million, to ¥92.8 billion.

Financial Position

Total liabilities of the Company amounted to ¥680.6 billion,
Total assets of the Company as of March 31, 2006, stood at

up 1.0%, or ¥6.7 billion, from a year earlier. Total current¥1,225.2 billion, up 5.2%, or ¥61.0 billion, from the previous

liabilities advanced 22.6%, or ¥60.4 billion, to ¥328.1 billion,

fiscal year-end.

mainly owing to the shift of long-term debt due within one

Total current assets rose 10.0%, or ¥52.5 billion, to ¥578.6

year to current liabilities, which pushed the current portion ofbillion. This mainly reflected increases in cash and cash equiva-

long-term debt up ¥34.2 billon, to ¥44.7 billion. As a conse-lents (for more details, please see Cash Flows below) and real

quence, long-term debt declined ¥30.0 billion, to ¥35.8 billion.

estate for sale, which boosted inventories. Current assets were

Investment deposits by insurance policyholders declined ¥39.9

outpaced by current liabilities, however, reflecting such factors

billion, to ¥187.8 billion, and accounted for 15.3% of total

as an increase in the current portion of long-term debt. As aliabilities and shareholders equity.
Total shareholders’ equity increased 11.1%, or ¥50.9 billion,

consequence, the current ratio was 1.8 times, compared withto ¥508.7 billion. Retained earnings were ¥386.6 billion, up

2.0 times a year earlier.

¥39.0 billion. Accumulated other comprehensive income

Investments and long-term receivables declined 1.0%, or¥3.3 billion, to ¥310.7 billion, owing largely to an increase inamounted to ¥10.7 billion, compared to an accumulated otherpublic and corporate bonds redeemable within one year, which

comprehensive loss of ¥1.3 billion a year earlier, reflecting

boosted current assets and resulted in a decline in investmenta ¥5.5 billion increase in unrealized gains on securities, tosecurities.

¥11.1 billion, and an accumulated loss from foreign currencytranslation adjustments of ¥80 million, compared with a loss of

Property, plant and equipment, less accumulated depreciation, rose 5.0%, or ¥11.7 billion, to ¥243.1 billion. This was pri-

¥6.4 billion in the previous period. The equity ratio rose tomarily attributable to an increase in real estate for lease and, in

41.5%, from 39.3%.

the medical services business, an increase in real estate for
medical facilities, which contributed to an increase in buildings
and improvements and construction in progress.

Shareholders’Equity per ShareTotal Assets

Depreciation andAmortization(In billions of yen)

(In billions of yen)

(In yen)

2,500

1,250

60

2,000

1,000

48

1,500

750

36

1,000

500

24

500

250

12

0

0

02 03 04 05 06

02 03 04 05 06

0

02 03 04 05 06

SECOM CO., LTD. ANNUAL REPORT 2006

25

FINANCIAL REVIEW

and equipment totaled ¥44.3 billion, partly a result of the pur-Cash Flowschase of security equipment and control stations, prompted by
The Company is committed to maintaining sufficient liquidity

growth in the number of security service subscribers. The fact

to allow flexibility in its operations and ensure a solid financial

that investing activities, which used ¥24.0 billion in the previous

foundation. To the best of its ability, the Company is also firmly

period, provided net cash of ¥3.9 billion in the period undercommitted to financing related strategic investments with cash

review, was largely due to a decrease in short-term investments

generated by its operating activities.

and net proceeds from sale of investment securities, which were

In the period under review, net cash provided by operating
activities amounted to ¥78.5 billion. Important items contributing to this total included net income of ¥50.3 billion and depre-

used to fund the payout of investment deposits by insurance
policyholders.
Net cash used in financing activities amounted to ¥48.8 bil-

ciation and amortization, including amortization of deferredlion. This amount reflected a ¥39.9 billion decrease in invest-

charges, of ¥52.3 billion. Cash used in operating activities

ment deposits by insurance policyholders and dividends paid of

included inventories of ¥24.1 billion, owing to an increase in¥11.3 billion. Financing activities used ¥8.2 billion less than inreal estate for sale. Operating activities provided ¥6.7 billion

the previous period, reflecting a net increase in debt, that is, ofless cash than in the previous period, primarily a consequencelong-term debt and bank loans, of ¥3.6 billion, compared with aof the increase in inventories.

net outlay of ¥43.2 billion for repayment of debt, that is, net

Net cash provided by investing activities was ¥3.9 billion.
Significant factors were a decrease in short-term investments

repayments of long-term debt and decrease in bank loans, inthe previous period.

and net proceeds from sales of investment securities of ¥32.2

As a consequence of the operating, investing and financing

billion, proceeds from sales of property, plant and equipment ofactivities of the Company during the period under review, cash

¥11.0 billion and net proceeds from short- and long-term receiv-

and cash equivalents at end of year amounted to¥231.0 billion,

ables of ¥10.1 billion. Payments for purchases of property, plantup ¥34.0 billion from ¥197.0 billion a year earlier.

Capital Expenditures

Cash Flows(In billions of yen)

(In billions of yen)

150

100

120

50

90
0
60
–50

30
0

–100

02 03 04 05 06

04

05

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

SECOM CO., LTD. ANNUAL REPORT 2006

26

06