FINANCIAL REVIEW
Operating Results
Overview
In the year ended March 31, 2008, theparent company and its consolidated subsidiaries (collectively “the Company”)
sought to respond to the needs of its
customers by taking steps aimed at reinforcing its security services business—
including strengthening the performancefeatures of its on-line security systems
and products, and enhancing its lineup. At
the same time, the Company promoted
the expansion of its fire protection services, medical services, insurance services, geographic information services,
and information and communication
related and other services. Reflecting afull year of contributions from the fire protection services segment—newly established for the operations of Nohmi Bosai,
which became a consolidated subsidiary
in December 2006—and favorable
increases in security services, medical
services, geographic information services and insurance services, consolidated net sales and operating revenuerose 11.0%, or ¥70.0 billion, from theprevious period, to ¥706.7 billion. Higher
net sales and operating revenue, together
with a decline in impairment losses onlong-lived assets and goodwill, supported
an 11.9%, or ¥11.2 billion, increase inoperating income, to ¥105.6 billion. Net
income rose 10.5%, or ¥5.9 billion, to¥61.8 billion.
Net Sales and Operating Revenue
Net sales and operating revenue rose
11.0%, or ¥70.0 billion, from the previous
period, to ¥706.7 billion, reflecting a fullyear of contributions from the fire protection services segment—newly established
for the operations of Nohmi Bosai, whichbecame a consolidated subsidiary inDecember 2006—and favorable increases
in security services, medical services,
geographic information services andinsurance services. Net sales and operating revenue in the information and communication related and other services
segment decreased. (For more details,
please see Segment Information below.)

Costs and Expenses
Total costs and expenses increased
10.8%, or ¥58.8 billion, to ¥601.1 billion.
Cost of sales rose 10.7%, or ¥43.9 billion, to ¥454.2 billion, equivalent to 64.3%
of net sales and operating revenue,
edging down from 64.4% in the previous period. Selling, general and administrative expenses were up 13.9%, or¥17.7 billion, to ¥144.8 billion, or 20.5%of net sales and operating revenue, up
from 20.0% in the previous period. This
increase was primarily attributable to theinclusion of a full year of sales of the fire
protection services segment, net sales
and operating revenue of which tend to
be concentrated in the fourth quarter.
Impairment loss on long-lived assets
declined ¥1.2 billion, to ¥16 million, andimpairment loss on goodwill decreased¥1.8 billion, to ¥1.1 billion. Loss on
sales and disposal of property, plant and­equipment, net rose ¥195 million, to¥976 million.
Operating Income
Operating income increased 11.9%, or¥11.2 billion, to ¥105.6 billion, and rep­resented 14.9% of net sales and operating revenue, up slightly from 14.8% in
the previous period. This was attributable
to the increase in net sales and operating revenue and declines in the cost of
sales ratio and impairment losses on­long-lived assets and goodwill, althoughthese factors were partially countered byhigher selling, general and administrative
expenses. In terms of segment results,
increases in operating income in the­security services segment, the geographic
information services segment and thefire protection services segment, as well
as a decrease in the operating loss in the
medical services segment, were the primary contributors to the overall increase.
(For more details, please see Segment
Information below.)

Income before Income Taxes
Income before income taxes amounted
to ¥110.3 billion, up 15.7%, or ¥14.9 billion, from the previous period, owing toincreases in operating income and net
other income.
Income Taxes
Income taxes rose ¥6.5 billion, to ¥47.1
billion, reflecting the increase in income
before income taxes, and were equivalent to 42.7% of income before income
taxes, compared with 42.6% in the previous period.
Minority Interests in Subsidiaries andEquity in Net Income of AffiliatedCompanies
Minority interests in subsidiaries
amounted to ¥6.6 billion, an increaseof ¥2.0 billion from the previous period,
owing to the inclusion of a full year of
results for the fire protection services
segment. Equity in net income of affiliated companies declined ¥530 million,to ¥5.2 billion.
Net Income
As a consequence of the aforementioned
factors, net income increased 10.5%,
or ¥5.9 billion, to ¥61.8 billion, and wasequivalent to 8.7% of net sales and­operating revenue, compared with 8.8%in the previous period. Net income pershare was ¥274.51. A resolution to raiseannual cash dividends by ¥5.00, to ¥85.00
per share, was approved at the generalshareholders’ meeting on June 26, 2008.
The increase in dividends reflected theCompany’s aim of ensuring returns toshareholders that closely reflect its­operating performance by determining
dividends based on consolidated results
calculated using accounting principles­generally accepted in Japan, rather thanon nonconsolidated results, an approachthat was adopted in and has been in use
since the previous period.

Other Income and Expenses
Other income rose ¥4.6 billion, to ¥13.0
billion, and other expenses increased¥857 million, to ¥8.4 billion, resulting
in net other income of ¥4.6 billion, up
from ¥918 million in the previous
period. The increase in other income
was due ­primarily to a gain on p
­ rivate
equity investments.

Secom Co., Ltd.

Annual Report 2008

25

FINANCIAL REVIEW

Segment Information

For detailed segment information, please see Note 25 of the accompanying Notes to the Consolidated
Financial Statements.

Security Services
The security services segment encompasses electronic security services, othersecurity services, and merchandise andother. In the period under review, net
sales and operating revenue in the segment rose 4.7%, or ¥19.8 billion, to¥436.7 billion. Excluding intersegment
transactions, net sales and operating revenue in the segment amounted to ¥435.3
billion, equivalent to 61.6% of overall net
sales and operating revenue, down from
65.3% in the previous period.
Electronic security services include
centralized systems (on-line commercial
and home security systems) and largescale proprietary security systems, whichcenter on surveillance services at the subscriber’s premises. On-line commercial
and home security systems, the core of
our electronic security services business,
use sensors installed at the subscriber’s
premises to detect events, such as intrusions, fires and equipment malfunctions.
Sensors are linked to a SECOM control
center via telecommunications circuits
to enable remote monitoring around-theclock. Should an event be detected at
the subscriber’s premises, the relevant
information is relayed to the control center, where staff dispatch emergency
response personnel. Control center staff
also notify the police or fire department if
required while the emergency response
personnel take other appropriate measures. To ensure our ability to deliver
the level of quality subscribers expect,
we have established an integrated
approach, whereby we take full respon­
sibility for maintaining control over every
aspect of our electronic security services,from R&D to manufacturing, sales, security planning, installation, monitoring,
emergency response services and­equipment maintenance.
In the period under review, net sales
and operating revenue from electronic
security services amounted to ¥296.2 billion, an increase of 3.6%, or ¥10.3 billion.
In the area of on-line security systems
for commercial subscribers, we focusedon reinforcing performance features andenhancing our lineup in response to customer needs. In on-line security systems
for the home, we worked to increase subscriptions for SECOM Home Security bycarefully promoting products and services
tailored to customers’ requirements.
Other security services include static
guard services—which are staffed byhighly trained professionals—for security
situations that require human judgment
and flexible responses, and armored car

26

Secom Co., Ltd.

Annual Report 2008services, for the transport of cash andvaluables by specially fitted armoredcars and security professionals. In the
period under review, net sales and operating revenue from static guard services
increased 10.7%, or ¥4.5 billion, to ¥46.6
billion, while that from armored car services declined 3.7%, or ¥761 million, to¥19.5 billion.
The merchandise and other category
encompasses a wide range of security products, including access-control
systems, CCTV surveillance systems,
fire extinguishing systems and external monitoring systems, which can befree-standing or connected to on-line
security systems. In the period underreview, net sales and operating revenue
in this category amounted to ¥72.9 billion, an increase of 8.7%, or ¥5.8 billion.
Favorable sales were supported by major
orders for access-control systems.
Operating income in the security­services segment rose 7.3%, or ¥7.0 billion, to ¥103.1 billion. The operating margin rose to 23.6%, from 23.1% in theprevious period, as the increase in­operating income outpaced that ofcosts and expenses.
Fire Protection Services
The fire protection services segment
includes automatic fire alarm systems,
fire extinguishing systems and other fire
protection systems for a wide range ofapplications, including office buildings,
plants, tunnels, cultural properties, ships
and residences.
In the period under review, net sales
and operating revenue amounted to¥86.6 billion, up from ¥28.4 billion in theprevious period. Operating income was¥4.9 billion, compared with ¥1.8 billion
in the previous period, while the operating margin was 5.7%, down from 6.4%
in the previous period. The principal factor behind the significant increases in
net sales and operating revenue andoperating income was the inclusion ofa full year of results for Nohmi Bosai,
which became a consolidated subsidiary
in December 2006. The decline in operating margin reflects the fact that net
sales and operating revenue for fire protection services from the constructionindustry tend to be concentrated in the
fourth quarter.
Medical Services
The medical services segment includes
home medical services, comprising pharmaceutical dispensing and delivery andhome nursing services, remote image

diagnosis support services, electronic
medical report systems, sales of medical equipment, the operation of nursing
homes, personal care services, the leasing of real estate for medical institutions,and others.
Net sales and operating revenue in the
medical services segment amounted to¥50.9 billion in the period under review,
an increase of 10.4%, or ¥4.8 billion. This
increase was primarily due to higher net
sales and operating revenue from medical equipment sales and the provision ofhome medical services.
The segment reported an operating
loss of ¥1.1 billion, an improvement fromthe ¥2.9 billion loss posted in the previous period. This was attributable largely
to declines in impairment losses on longlived assets and goodwill.
Insurance Services
In addition to security services, which arepreventative by nature, we offer non-life
insurance, which looks after customers in
the event of misfortune. We have developed and market 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 for households—bothof which offer discounts on premiums
to customers who have installed home
security systems, thus recognizing thisas a risk-mitigating factor. Other offerings include New SECOM Anshin My
Car, a comprehensive automobile insurance policy that offers on-site support
services—provided by our on-line emergency response personnel—should thesubscriber be involved in an accident, and
MEDCOM, an unrestricted cancer treatment policy that covers the entire cost of
medical treatment for cancer.
In the period under review, the insurance services segment generated net
sales and operating revenue of ¥36.1 billion, an increase of 4.2%, or ¥1.4 billion,
as expanded marketing of non-life insurance policies boosted net premiums written and exceeded the impact of a decline
in the net gain on sales of securities.
The insurance services segment registered operating income of ¥3.8 billion, edging up 0.4%, or ¥14 million.
This result primarily reflected a decline
in net claims paid, which had risen in
the previous period owing to the impact
of typhoons, which partially offset the
impact of a decline in the net gain on
sales of securities.

Financial Position
Geographic Information Services
This segment encompasses a variety of
GIS services tailored to the needs of the
public and private sectors, as well as surveying and measuring, and construction
consulting services.
In the period under review, net sales
and operating revenue in the geographic
information services segment increased
8.5%, or ¥3.1 billion, to ¥39.7 billion. This
result reflected firm revenues from theprovision of map data to public agencies
and government offices for use in the
preparation of land development, preservation, urban planning and disaster prevention plans, and in the preparation andmaterials for the assessment and management of property taxes, as well as
an increase in overseas orders.
Segment operating income amounted
to ¥1.4 billion, an increase of 265.2%,
or ¥1.0 billion, boosting the operating
margin to 3.6%, from 1.1% in the previous period. This improvement was primarily attributable to the increase in net
sales and operating revenue, and also
reflected a decrease in selling, generaland administrative expenses.
Information and Communication
Related and Other Services
This segment comprises information andcommunication related services, including information security systems and network system operations services, which
protect subscribers’ information security in the event of a major disaster; realestate development and sales; and realestate leasing.
Net sales and operating revenue forthe segment in the period under review
amounted to ¥74.2 billion, a declineof 16.3%, or ¥14.5 billion. This result
reflected such factors as rising condominium prices, a consequence of higher construction costs, and flagging consumer
confidence, owing to the current unclear
economic outlook, which combined topush down the condominium market in
the second half of the period, hampering
net sales and operating revenue from realestate development and sales.
Operating income declined 26.5%, or¥1.9 billion, to ¥5.4 billion. The operating
margin slipped to 7.3%, from 8.3% in theprevious period.

Total assets as of March 31, 2008,
amounted to ¥1,265.5 billion, up 2.0%,
or ¥24.3 billion, from the end of the­previous period.
Total current assets increased 4.7%,
or ¥26.3 billion, to ¥580.5 billion. Thiswas due primarily to increases in cash
and cash equivalents (for more details,
please see Cash Flows below), and anincrease in inventories in the real estatedevelopment and sales business—a portion of which was offset by a decline in
cash deposits and sales of short-term
investment securities accompanying
an increase in new investments by our
U.S. investment company. While current assets increased, current liabilities
declined (see below), as a consequenceof which the current ratio rose only
slightly to 1.7 times, from 1.6 times
at the end of the previous period.
Investments and long-term receivables
edged up 0.3%, or ¥1.0 billion, to ¥329.6
billion. An increase in investments in affiliated companies attributable to a transfer from investment securities—related
to the acquisition of additional sharesin Tokyo Biso Kogyo—and equity in net
income of affiliated companies was offset by a decline in investment securities.
The decline in investment securities wasdue to the fact that unrealized losses on
securities—a consequence of flagging
stock market conditions—and the aforementioned transfer exceeded the amountof new investments.
Property, plant and equipment, lessaccumulated depreciation, was alsoessentially level, rising 0.4%, or ¥1.0 billion, to ¥251.5 billion. This reflected anincrease in security equipment and control stations necessitated by an increase
in security systems subscribers andthe purchase of land for the real estateleasing business, as well as an increase inaccumulated depreciation resulting fromthe depreciation of assets.
Other assets were down 3.7%,
or ¥4.0 billion, to ¥103.9 billion. This
reflected declines in prepaid pension
and severance costs, a consequenceof a deteriorating investment environment, and other intangible assets—theimpact of which was partially offset by anincrease in deferred income taxes resulting from the aforementioned unrealized
losses on securities.
Total liabilities were level, edging up
0.1%, or ¥321 million, to ¥628.5 billion.
Current liabilities edged down 0.3%, or¥883 million, to ¥347.2 billion, as thedecline in deposits received, including
deposits related to armored car services,
was largely offset by increases in bankloans related to the purchase of realestate for sale, accrued payrolls andnotes and accounts payable, trade.
Unearned premiums and other insurance
liabilities rose, reflecting an increase
in insurance contracts. Long-term debt
rose, owing primarily to the opening of
the Kitsuregawa Rehabilitation Program
Center. Investment deposits by policyholders declined, as certain policies designed
for payout at maturity came due.
Total shareholders’ equity rose 4.1%,
or ¥22.8 billion, to ¥574.6 billion. Retained
earnings were ¥471.1 billion, an increaseof ¥42.2 billion. This was partially offset
by an accumulated other comprehensive loss of ¥8.0 billion, compared withincome of ¥11.4 billion in the previous
period, resulting primarily from unrealized
losses on securities and losses from pension liability adjustments, a consequenceof flagging stock market conditions. The
equity ratio rose to 45.4%, from 44.5%.

Total Assets

Shareholders’Equity per Share(In billions of yen)

(In yen)

3,000

1,500

2,400

1,200

1,800

900

1,200

600

600

300

0

04 05 06 07 08

0

04 05 06 07 08

Secom Co., Ltd.

Annual Report 2008

27

FINANCIAL REVIEWCash Flows
SECOM is committed to maintaining sufficient liquidity to allow flexibility in its
operations and ensure a solid financial
foundation. To the best of our ability, we
are also firmly committed to financing
related strategic investments with cash
generated by our operating activities.
In the period under review, net cash
provided by operating activities amounted
to ¥92.6 billion. The principal items contributing to this total were net income of¥61.8 billion and depreciation and amortization of ¥58.2 billion. Cash used in operating activities included an increase ininventories of ¥19.3 billion, owing to thepurchase of real estate for sale, and anincrease in deferred charges of ¥16.3 billion. Operating activities provided ¥24.7
billion more than in the previous period,
owing mainly to higher net income, as
well as to a considerably lower increase
in receivables and due from subscribers,
net of allowances. A decline in deposits
received related to armored car services
led to a decrease in cash deposits.
Net cash used in investing activities
amounted to ¥52.1 billion. Significant factors included ¥45.3 billion in payments forpurchases of property, plant and equipment, a result of the purchase of security
equipment and control stations, necessitated by an increase in security systems
subscribers, and a net total of ¥5.4 billion
in payments for purchase of short-term

investments and investment securities.
In the previous period, investment activities provided a net total of ¥22.0 billion.
The difference in the period under review
was net payments for purchases of shortterm investments and investment securities, compared with net proceeds fromsales of short-term investments andinvestment securities in the previous
period to fund the payout of investment
deposits received from insurance policyholders. Similarly, net proceeds fromshort-term receivables and long-term
receivables in the period under review
decreased from the previous period.
Net cash used in financing activitieswas ¥19.3 billion. This amount reflected¥18.0 billion in dividends paid and a ¥6.1
billion decrease in investment deposits bypolicyholders, as well as net proceedsfrom bank loans and long-term debt of¥6.2 billion. Financing activities used
¥109.0 billion less than in the previous
period, owing to a ¥6.1 billion decrease
in investment deposits by policyholders,compared with a ¥94.4 billion decreasein the previous period.
As a result of operating, investing
and financing activities during the period
under review, cash and cash equivalents
at end of year amounted to ¥214.6 billion,up ¥21.4 billion from ¥193.2 billion at theend of the previous period.

Depreciation andAmortization

Capital Expenditures(In billions of yen)60

(In billions of yen)

100

60

48

Cash Flows(In billions of yen)

50

45

36

0
30

24

–50
15

12
0

04 05 06 07 08

0

–100
–150
04 05 06 07 08

06

07

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

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Annual Report 200808