FINANCIAL REVIEW
Operating Results
Overview
In the year ended March 31, 2011, SECOM CO., LTD., and its
subsidiaries (collectively, “the Company”) sought to provide
high-quality products and services that respond to the needs ofcustomers in its core security services segment, as well as in fire
protection services, medical services, insurance services, geographic
information services, real estate development and sales, andinformation and communication related and other services segments. Consolidated net sales and operating revenue rose 12.1%,
or ¥81.2 billion, to ¥751.9 billion, a result that was attributable to
newly consolidated organizations managing hospitals and healthcare-related institutions, which were determined to be variableinterest entities, as well as to robust sales of units in large-scalecondominium complexes in the real estate development and sales
segment. Operating income increased 3.3%, or ¥3.3 billion, to¥100.4 billion, owing to operating income in the real estatedevelopment and sales segment, compared with an operating loss
in the previous period, and to an increase in operating income in
the geographic information services segment, reflecting efforts topromote in-house manufacturing and stringent process control.
Net income attributable to SECOM CO., LTD., advanced 33.4%, or¥15.7 billion, to ¥62.7 billion, bolstered by the increase in operating income, as well as by a gain on private equity investments,
compared with a loss in the previous period, and by an increase inequity in net income of affiliated companies.
Net Sales and Operating Revenue
Consolidated net sales and operating revenue increased 12.1%, or¥81.2 billion, to ¥751.9 billion. Increases in net sales and operating
revenue were reported in the security services, medical services,
real estate development and sales, insurance services and geographic information services segments, while the fire protection
services and information and communication related and otherservices segments saw declines. (For more details, please see
Segment Information below.)
Costs and Expenses
Total costs and expenses, at ¥651.4 billion, were up 13.6%, or¥78.0 billion. Cost of sales increased 15.2%, or ¥65.8 billion, to¥499.0 billion, equivalent to 66.4% of net sales and operating
revenue, up from 64.6% in the previous period. Among factors
behind this increase were newly consolidated organizations managing hospitals and health care-related institutions and restorationrelated costs incurred in the wake of the Great East Japan
Earthquake.
Selling, general and administrative (SG&A) expenses increased
7.2%, or ¥9.9 billion, to ¥147.7 billion. SG&A expenses wereequivalent to 19.6% of net sales and operating revenue, improvingfrom 20.5% in the previous period. The increase in SG&A expenses
was a result of such factors as an increase in research and development costs, while the improvement in SG&A expenses as a percentage of net sales and operating revenue was due to efforts to
reduce costs, including lowering advertising costs. The Company
also recognized a ¥3.2 billion loss on settlement of pre-existing
relationship, owing to the settlement of a lease contract between
the Company and newly consolidated organizations managing
hospitals and health care-related institutions in the medical
services segment.
Operating Income
Operating income rose 3.3%, or ¥3.3 billion, to ¥100.4 billion,
equivalent to 13.4% of net sales and operating revenue, downfrom 14.5% in the previous period. The increase in operating
income was attributable primarily to operating income in the realestate development and sales segment, compared with an operating loss in the previous period, coupled with an increase in operating income in the geographic information services segment and adecrease in the operating loss in the insurance services segment,
although these factors were partially offset by declines in operating
income in the security services, fire protection services, informationand communication related and other services and medical services
segments. Segments contributing to operating income were—in
order of size of contribution—security services, geographic information services, information and communication related and otherservices, fire protection services, medical services and real estatedevelopment and sales. (For more details, please see Segment
Information below.)
Other Income and Expenses
Other income advanced ¥6.5 billion, to ¥11.9 billion, while otherexpenses fell ¥3.4 billion, to ¥4.5 billion, resulting in net otherincome of ¥7.4 billion, compared with net other expenses of¥2.5 billion in the previous period. Principal factors behind thisresult included a gain on private equity investments of ¥6.0 billion,
compared with a loss of ¥1.4 billion in the previous period; aloss on other-than-temporary impairment of investment securitiesof ¥84 million, down ¥1.7 billion from the previous period; and theabsence of a ¥1.3 billion loss related to spectrum reallocation
recognized in the previous period.
Income from Continuing Operations before Income Taxes
and Equity in Net Income of Affiliated Companies
Income from continuing operations before income taxes and equity
in net income of affiliated companies rose 13.9%, or ¥13.2 billion,to ¥107.8 billion, reflecting the increase in operating income andthe fact that other income exceeded other expenses.
Income Taxes
Income taxes declined ¥2.4 billion, to ¥43.3 billion, equivalent to40.1% of income from continuing operations before income taxes
and equity in net income of affiliated companies, down from
48.2% in the previous period. This result was due mainly to thefact that unrecognized tax benefits from subsidiaries in loss
­positions were higher in the previous period.
Equity in Net Income of Affiliated Companies
Equity in net income of affiliated companies, at ¥5.0 billion, wasup ¥2.4 billion. The principal factor behind this result was anincrease in equity in net income of overseas affiliated companies.
Net Income Attributable to Noncontrolling Interests
Net Income attributable to noncontrolling interests amounted to¥6.9 billion, up ¥900 million.
Net Income Attributable to SECOM CO., LTD.
Net income attributable to SECOM CO., LTD., climbed 33.4%, or¥15.7 billion, to ¥62.7 billion, equivalent to 8.3% of net sales andoperating revenue, compared with 7.0% in the previous period.
Net income attributable to SECOM CO., LTD., per share was¥287.41, up from ¥215.51. A proposal to pay cash dividends of¥90.00 per share, an increase of ¥5.00 per share from the previous
period, was approved at the general shareholders’ meeting held on
June 24, 2011.

Secom Co., Ltd.
Annual Report 2011

31

FINANCIAL REVIEW
Segment Information(For more detailed information, please see Note 28 of the accompanying Notes to the Consolidated Financial Statements)

Security Services
The security services segment comprises electronic security services,other security services, and merchandise and other. In the period
under review, net sales and operating revenue in this segment
increased 0.1%, or ¥441 million, to ¥426.8 billion. Excludingintersegment transactions, net sales and operating revenue inthis segment amounted to ¥424.7 billion, representing 56.5% of
overall net sales and operating revenue, down from 63.3% in the­previous period.
Electronic security services include on-line commercial and home
security systems (centralized systems) and large-scale proprietary
security systems, which center on surveillance services at the subscriber’s premises. On-line commercial and home security systems,
the core of our electronic security services, use sensors installedat the subscriber’s premises to detect events, including intrusions,fires and equipment malfunctions. Sensors are linked to a SECOM
control center via telecommunications circuits to facilitate aroundthe-clock remote monitoring. Should an irregularity be detected,
relevant information is relayed to the control center, where staff
dispatch emergency response personnel to take appropriate
measures. Control center staff also notify the police or fire department, if necessary. We have established an integrated approach,whereby we take full responsibility for all aspects of our on-line
security commercial and home security systems, from R&D throughto equipment manufacturing, sales, security planning, installation,
monitoring, emergency response services and equipment maintenance. Net sales and operating revenue from electronic security
services slipped 0.4%, or ¥1.3 billion, to ¥297.8 billion, owing
primarily to declines in the installation of both on-line commercial
and home security systems and large-scale proprietary security
systems.
Other security services include static guard services and armoredcar services. The former is provided by highly trained professional
security guards for situations requiring human judgment andflexible responsiveness. The latter involves the transport of cash,
securities and other valuables using specially fitted armored cars
and security professionals. Net sales and operating revenue fromstatic guard services edged up 0.3%, or ¥159 million, to ¥46.4
billon, and that from armored car services rose 1.5%, or ¥306
million, to ¥20.1 billion.
The merchandise and other category encompasses sales of awide range of security products, including access control systems,
CCTV surveillance systems, automated fire extinguishing systems
and external monitoring systems, which can be free-standing or
linked to on-line security systems. Net sales and operating revenue
in this category increased 1.9%, or ¥1.1 billion, to ¥60.4 billion,
mainly reflecting an increase in sales of large-scale equipment.
Operating income in the security services segment declined
1.7%, or ¥1.8 billion, to ¥99.9 billion. The operating margin
slipped to 23.4%, from 23.8% in the previous period, owing primarily to an increase in operating expenses, a result of restoration
efforts in areas affected by the Great East Japan Earthquake, andto an increase in R&D expenses.
Fire Protection Services
The fire protection services segment focuses on tailored automatic
fire alarm systems, fire extinguishing systems and other fire protection systems for a wide range of applications, including officebuildings, plants, tunnels, cultural properties, ships and residences.
Net sales and operating revenue from the fire protection services
segment declined 5.2%, or ¥4.4 billon, to ¥80.1 billion. Operating
income was ¥3.2 billion, down 24.7%, or ¥1.0 billion, while theoperating margin was 3.9%, compared with 5.0% in the previous
period. These results were attributable largely to the absence oflarge-scale replacement sales of fire protection systems, which­bolstered results in the previous period, despite efforts to enhance

32

Secom Co., Ltd.
Annual Report 2011

the segment’s earnings base by securing renovations-relatedorders, as persistently unfavorable economic conditions further
intensified competition for orders.
Medical Services
The medical services segment encompasses home medical services,comprising pharmaceutical dispensing and home nursing services,
as well as the operation of residences for seniors, electronic
medical report systems, sales of medical equipment, personalcare services, the leasing of real estate for hospitals and healthcare-related institutions and others. The segment also includes theoperations of variable interest entities of which the Company is
the primary beneficiary, which manage hospitals and health carerelated institutions.
Segment net sales and operating revenue climbed 121.8%,
or ¥68.7 billion, to ¥125.2 billion. The principal factor behind
this result was the newly consolidated organizations managing
hospitals and health care-related institutions, which were determined to be variable interest entities. Operating income declined
21.4%, or ¥483 million, to ¥1.8 billion, owing primarily to a lossof ¥3.2 billion on settlement of pre-existing relationship related tothe settlement of a lease contract between the Company and theaforementioned newly consolidated organizations.
Insurance Services
In addition to security services, which are preventative by nature,
we offer non-life insurance, which looks after customers in theevent of misfortune. We have developed and marketed a broad
range of distinctive non-life insurance policies, including Security
Discount Fire Policy, a commercial fire insurance policy, and SECOM
Anshin My Home, a comprehensive fire insurance policy forhomes—both of which offer discounts on premiums to customers
who have installed on-line security systems, recognizing this as
a risk-mitigating factor. Other offerings include SECOM Anshin
My Car, a comprehensive automobile insurance policy that offers
on-site support services—provided by our emergency response­personnel—should the subscriber be involved in an accident, and
MEDCOM, an unrestricted cancer treatment policy that covers theentire cost of medical treatment for cancer.
Net sales and operating revenue in the insurance services­segment rose 11.3%, or ¥3.6 billion, to ¥35.8 billion. The segment’s operating loss improved to ¥180 million, from ¥1.5 billion
in the previous period. This result was due primarily to a decreasein loss on other-than-temporary impairment of investment
securities.
Geographic Information Services
This segment includes the use of highly advanced measuring
equipment and surveying technologies to provide a variety ofgeospatial information services to national and local governments
and public- and private-sector entities in Japan. We also provide
geospatial information services to foreign countries, including
emerging economies and developing countries. During the period,
we procured high-resolution data and, leveraging our processing
technologies, provided geographic information services that
responded to a wide variety of customer needs in areas ranging
from map production to environmental monitoring and fireand disaster prevention. We also provided a variety of pertinent
information in the wake of the Great East Japan Earthquake.
Net sales and operating revenue in this segment rose 3.9%, or¥1.6 billion, to ¥43.7 billion, reflecting increased sales to overseas
customers, as well as contributions from newly consolidated
subsidiaries. Operating income advanced 55.9%, or ¥1.2 billion, to¥3.4 billion, bolstered by efforts to promote in-house manufacturing and stringent process control. The operating margin was 7.8%,
up from 5.2% in the previous period.

Information and Communication Related and Other Services
This segment consists primarily of information and communication
services—including information security systems and network
services, which protect subscribers’ information in the event of amajor disaster—and real estate leasing.
Segment net sales and operating revenue declined 4.5%, or¥1.5 billion, to ¥32.0 billion, owing primarily to the impact of theGreat East Japan Earthquake. Operating income fell 15.9%, or¥611 million, to ¥3.2 billion. The operating margin was 10.1%,
compared with 11.5% in the previous period. These results werelargely attributable to the opening of a new Secure Data Center
facility, which began providing services in August 2010.

Real Estate Development and Sales
This segment comprises the development and sales of condominiums equipped with advanced security and contingency planningfeatures. Amidst a slump in the market for condominiums, we
actively promoted sales to customer groups we had not been able
to approach in the past. For condominiums on the market since
the previous period, we also sought to adjust prices in response to
flagging market conditions.
Net sales and operating revenue in this segment climbed 85.1%,
or ¥11.5 billion, to ¥24.9 billion, bolstered by an increase in salesof units in large-scale condominium complexes. Operating income
was ¥525 million, compared with a ¥3.7 billion operating loss inthe previous period, owing to an increase in net sales and operating revenue and other factors.

Financial Position

organizations managing hospitals and health care-related institutions; in buildings and improvements as a result of the opening ofa new Secure Data Center facility in the information and commu­
nication related and other services segment; and in land as a resultof the purchase of land for the new hospital facilities in the medical
services segment. Additionally, an increase in the number of security
services subscribers necessitated an increase in security equipment
and control stations, although this was offset by depreciation.
Other assets were up ¥3.5 billion, to ¥101.0 billion. This
primarily reflected increases in prepaid pension and severance
costs—a result of the investment of plan assets—as well as indeferred charges and goodwill, the latter due to acquisitions in the
security services and geographic information services segments.
These increases were partially offset by a decline in deferredincome taxes.
Total liabilities rose 2.5%, or ¥12.7 billion, to ¥516.3 billion.
Total current liabilities amounted to ¥242.6 billion, up ¥7.1 billion.
Long-term debt, at ¥53.0 billion, was up ¥11.4 billion. These
increases were attributable largely to newly consolidated organizations managing hospitals and health care-related institutions.
In addition, unearned premiums and other insurance liabilities
increased ¥9.1 billion. These factors were offset to a certain extent
by a ¥20.6 billion decline in investment deposits by policyholders.

Total assets as of March 31, 2011, amounted to ¥1,171.2
billion, 2.9%, or ¥33.0 billion, higher than at the end of theprevious period.
Total current assets, at ¥521.4 billion, increased ¥20.6 billion.
The principal factors behind this result were increases in cash andcash equivalents (for more details, please see Cash Flows, which
follows this section), time deposits and notes and accounts receivable, trade, the latter due to newly consolidated organizations
managing hospitals and health care-related institutions, whichwere determined to be variable interest entities. These increases
were partially offset by a decline in inventories, owing to favorable
sales of condominiums in the real estate development and sales
segment. With both current assets and current liabilities up, thecurrent ratio remained level at 2.1 times.
Investments and long-term receivables were down ¥30.3 billion,to ¥246.3 billion, a consequence primarily of a decline in long-term
receivables. Long-term loans receivable to organizations managing
hospitals and health care-related institutions were eliminated, as
these entities were newly consolidated.
Property, plant and equipment less accumulated depreciation,rose ¥39.2 billion, to ¥302.5 billion. This was due mainly toincreases in land, buildings and improvements, and machinery,equipment and automobiles related to newly consolidated
Percentage of Consolidated
Net Sales and Operating Revenue*

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets

3.3%
5.8%
4.4%

3,000

1,500

2,400

1,200

1,800

900

1,200

600

600

300

(Year ended March 31, 2011)

3.4%

56.5%

16.6%
10.0%

Security Services
Fire Protection Services
Medical Services
Insurance Services
Geographic Information Services
Real Estate Development and Sales
Information and Communication Related and Other Services(In billions of yen)

(In yen)0

07 08 09 10 11

0

07 08 09 10 11* Pie chart shows percentage of consolidated net sales and operating revenue(Excluding intersegment transactions)

Secom Co., Ltd.
Annual Report 2011

33

FINANCIAL REVIEW

Total SECOM CO., LTD. shareholders’ equity rose 4.2%, or¥23.7 billion, to ¥593.5 billion. This was due primarily to anincrease in retained earnings, which was partially offset by anincrease in the loss resulting from foreign currency translation
adjustments—owing to the appreciation of the yen—and by

a decrease in additional paid-in capital resulting from a tender
offer to acquire shares of common stock issued by consolidated
subsidiary Secom Techno Service Co., Ltd. As a consequence, theshareholders’ equity ratio rose to 50.7%, from 50.1% at the endof the previous period.

Cash Flows
The Company is committed to maintaining sufficient liquidity
to allow flexibility in its operations and ensure a solid financial
foundation. To the best of its ability, the Company is also firmly
committed to financing related strategic investments with cash
generated by its operating activities.
Net cash provided by operating activities amounted to ¥112.6
billion. Cash provided by operating activities included net incomeof ¥69.6 billion, depreciation and amortization of ¥57.0 billion anda decrease in inventories of ¥14.6 billion. Cash used in operating
activities included increases of ¥15.1 billion in deferred charges,¥7.7 billion in cash deposits and ¥6.9 billion in receivables and duefrom subscribers, net of allowances. The decrease in inventories
was attributable largely to favorable sales of condominiums in thereal estate development and sales segment, which pushed down
inventories of real estate for sale. The increase in deferred charges
was due to the deferral of installation service charges for security
equipment related to on-line security systems, which are recognized over the contractual period for the security services. The
increase in cash deposits primarily reflected the Company’s business expansion efforts. The increase in receivables and due fromsubscribers, net of allowances, arose mainly as a result of newly
consolidated organizations managing hospitals and health-careinstitutions, which were determined to be variable interest entities.
Net cash provided by operating activities was ¥4.1 billion lower
than in the previous period, owing principally to the increases incash deposits and in receivables and due from subscribers, netof allowances, which were partially offset by the increase in
net income.
Net cash used in investing activities came to ¥46.9 billion.
Principal uses of cash included payments for purchases of property,
plant and equipment of ¥41.7 billion—a result of the purchaseof security equipment and control stations necessitated by anincrease in the number of security services subscribers—andincrease in time deposits of ¥9.7 billion. Cash was provided mainly
by net proceeds from sales and redemption of short-term investments and investment securities of ¥3.2 billion. This was due mainly
to a reassessment of investment assets in the insurance services
segment and investment results of U.S. investment companies. The
increase in time deposits was attributable to the expansion of shortterm deposits, the purpose of which was to reinforce relations with
subscribers. Net cash used in investing activities was ¥36.3 billion
higher than in the previous period, owing to net proceeds fromsales and redemption of short-term investments and investment
securities of ¥3.2 billion, down considerably from ¥24.0 billion in
the previous period, and an increase in time deposits of ¥9.7
­billion, compared with a decrease of ¥1.4 billion.
Net cash used in financing activities amounted to ¥55.3 billion.
This included a decrease in investment deposits by policyholders of¥20.6 billion, dividends paid to SECOM CO., LTD. shareholders of¥18.5 billion and payments for acquisition of shares of consolidated subsidiaries from noncontrolling interest holders of ¥13.7
billion, the result of a tender offer to acquire shares of common
stock issued by consolidated subsidiary Secom Techno Service. Net
cash used in financing activities was down ¥30.4 billion, a consequence of efforts to reduce both bank loans and long-term debt
implemented in earlier periods.
The Company also posted cumulative effect adjustments resulting from the adoption of a new accounting standard on variableinterest entities of ¥3.9 billion, owing to newly consolidated organizations managing hospitals and health care-related institutions.
As a result of the aforementioned factors, net cash and cash
equivalents at end of year were ¥193.9 billion, an increase of ¥13.8
billion from net cash and cash equivalents at beginning of year of¥180.1 billion.

Depreciation andAmortization

Capital Expenditures

Cash Flows

60

50

150

48

40

36

30

24

20

12

10

(In billions of yen)

(In billions of yen)

(In billions of yen)

100
50
0

0

07 08 09 10 11

0

–50
–100

07 08 09 10 11

–150

09

10

11

Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities

34

Secom Co., Ltd.
Annual Report 2011