FINANCIAL REVIEW
Operating Results

Overview

Operating Income

In the year ended March 31, 2010, SECOM CO., LTD. and its

Operating income rose 27.4%, or ¥20.9 billion, to ¥97.2 billion,­subsidiaries (collectively “the Company”) sought to provide high-equivalent to 14.5% of net sales and operating revenue, up from

quality products and services that respond to the needs of cus-

11.1% in the previous period. This was due largely to an increase

tomers in its core security services segment, as well as in its firein net sales and operating revenue in the insurance services seg-

protection services, medical services, insurance services, geo-ment, owing to the decrease in loss on other-than-temporary

graphic information services, real estate development and sales,

impairment of investment securities, and to declines in cost of sales

and information and communication related and other services

and SG&A expense. Segments contributing to operating income

segments. Nonetheless, consolidated net sales and operating rev-

were—in order of size of contribution—security services, fire pro-enue for the period slipped 2.0%, or ¥13.4 billion, to ¥670.6 billion,

tection services, information and communication related and otherowing to decreased sales of security merchandise in its core secu-

services, medical services and geographic ­information services.

rity services segment, combined with declines in net sales and(For more details, please see Segment Information below.)

operating revenue at its overseas subsidiaries due to foreign currency rate fluctuations, and efforts to restrict its selection of prop-

Other Income and Expenses

erties for development and sales in the real estate development

Other income slipped ¥407 million, to ¥5.4 billion, and otherand sales segment.

expenses fell ¥11.0 billion, to ¥7.9 billion, resulting in net otherIn contrast, operating income rose 27.4%, or ¥20.9 billion, to

expenses of ¥2.5 billion, down substantially from ¥13.1 billion in¥97.2 billion, reflecting decreases in loss on other-than-temporary

the previous period. Factors behind this result included a ¥7.1

impairment of investment securities in the insurance services­billion decrease in loss on other-than-temporary impairment of­segment and write-down on real estate inventories in the real

investment securities, to ¥1.8 billion, the reversal of reserve for

estate development and sales segment. Net income attributable­litigation loss, and a net exchange gain compared with a net

to SECOM CO., LTD., advanced 53.8%, or ¥16.4 billion, toexchange loss in the previous period. These were partially offset by¥47.0 billion.

a ¥1.4 billion loss on private equity investments, compared with a¥1.4 billion gain in the previous period. The Company also incurred

Net Sales and Operating Revenuea ¥1.3 billion loss related to spectrum reallocation, for disposal and

Despite increases in the medical services, insurance services andreplacement of equipments, since the allotted spectrum currently

geographic information services segments, net sales and operat-

used for COCO-SECOM will no longer be available after July 2012

ing revenue slipped 2.0%, or ¥13.4 billion, to ¥670.6 billion, owing

as a result of spectrum reallocation by the Japanese government.

to decreases in the security services, real estate development andsales, fire protection services, and information and communication

Income from Continuing Operations before Income Taxes andrelated and other services segments. (For more details, please see

Equity in Net Income of Affiliated Companies

Segment Information below.)

Income from continuing operations before income taxes andequity in net income of affiliated companies climbed 49.9%, or

Costs and Expenses¥31.5 billion, to ¥94.7 billion, bolstered by the increase in

Total costs and expenses, at ¥573.5 billion, were down 5.6%,­operating income and decline in net other expenses.

or ¥34.3 billion. Cost of sales declined 6.3%, or ¥29.0 billion, to¥433.1 billion, equivalent to 64.6% of net sales and operating

Income Taxes­revenue, an improvement from 67.6% in the previous period. This

Reflecting the increase in income from continuing operations

result primarily reflected a decrease in write-down on real estate

before income taxes and equity in net income of affiliated compa-

inventories in the real estate development and sales segment.

nies, income taxes increased ¥9.4 billion, to ¥45.6 billion. Income

Selling, general and administrative (SG&A) expense dipped

taxes were equivalent to 48.2% of income from continuing opera-

3.0%, or ¥4.2 billion, to ¥137.7 billion. SG&A expense was equiva-

tions before income taxes and equity in net income of affiliatedlent to 20.5% of net sales and operating revenue, a slight improve-companies, down from 57.4% in the previous period, due mainly

ment from 20.8% in the previous period, attributable primarily toto the fact that unrecognized tax benefits from subsidiaries in loss

the reduction of costs, particularly personnel expenses and adver-

positions increased in the previous period.

tising costs. In addition, impairment loss on goodwill amounted to¥245 million, a decrease of ¥1.3 billion.

24

Secom Co., Ltd.

Annual Report 2010

Segment Information(For detailed information, please see Note 27 of the accompanying Notes to
the Consolidated Financial Statements)

Equity in Net Income of Affiliated Companies

Security Services

Equity in net income of affiliated companies was down ¥6.1 billion,

The security services segment encompasses electronic security

to ¥2.6 billion. This reflected declines in equity in net income ofservices, other security services, and merchandise and other. Net

overseas affiliated companies attributable to currency exchange

sales and operating revenue in the segment decreased 2.8%, orrate fluctuations. Another factor was a reversal of long-term¥12.1 billion, to ¥426.4 billion. Excluding intersegment transac-

deferred tax liabilities related to undistributed earnings of overseas

tions, the segment’s net sales and operating revenue amounted

affiliated companies arising from the revision of Japanese tax

to ¥424.4 billon, equivalent to 63.3% of overall net sales and­regulations in the previous period.

­operating revenue, down from 63.9% in the previous period.
Electronic security services include on-line commercial andIncome (Loss) from Discontinued Operations

home security systems (centralized systems) and large-scale pro-

The Company sold Japan Image Communications Co., Ltd., andprietary security systems, which center on surveillance services at

Asia Pacific Business Link Ltd. in August and December 2009,

the subscriber’s premises. On-line commercial and home security

respectively. Income from these companies is included insystems, the core of our electronic security services, use sensors­discontinued operations. Prior period figures have been restated.

installed at the subscriber’s premises to detect events, such as

Income from discontinued operations amounted to ¥1.4 billion,

intrusions, fires and equipment malfunctions. Sensors are linked tocompared with a loss from discontinued operations of ¥149 million

a SECOM control center via telecommunications circuits to enable

in the previous period. This was due primarily to the gain on sales

remote monitoring around-the-clock. Should an event be detectedof discontinued operations. (For more details, please seeat the subscriber’s premises, the relevant information is relayed toNote 25 of the accompanying Notes to the Consolidated

the control center, where staff dispatch emergency response per-Financial Statements.)

sonnel. Control center staff also notify the police or fire department
if required while the emergency response personnel take other

Net Income Attributable to Noncontrolling Interests

appropriate measures. We have established an integrated

Net income attributable to noncontrolling interests rose ¥1.1 billion,

approach, whereby we take full responsibility for maintaining

to ¥6.0 billion.

­control over every aspect of our electronic security services, from
R&D to manufacturing, sales, security planning, installation, moni-

Net Income Attributable to SECOM CO., LTD.

toring, emergency response services and equipment maintenance.

As a consequence of the aforementioned factors, net income

Net sales and operating revenue from electronic security services

attributable to SECOM CO., LTD., climbed 53.8%, or ¥16.4 billion,

amounted to ¥299.1 billion, a decline of 1.5%, or ¥4.4 billion,to ¥47.0 billion, and represented 7.0% of net sales and operating

owing to the impact of currency exchange rate fluctuations onrevenue, up from 4.5% in the previous period. Net income attribut-

the results of overseas subsidiaries.

able to SECOM CO., LTD. per share was ¥215.51, up from

Other security services include static guard services—which are¥137.42. A proposal to pay annual cash dividends of ¥85.00 per

staffed by highly trained professionals—for security situations thatshare was approved at the general shareholders’ meeting on

require human judgment and flexible responses, and armored carJune 25, 2010.

services, for the transport of cash and valuables by specially fittedarmored cars and security professionals. Net sales and operating
revenue from static guard services was down 3.7%, or ¥1.8 billion,to ¥46.2 billion, and that from armored car services slipped 2.4%,
or ¥487 million, to ¥19.8 billion.
The merchandise and other category encompasses sales of awide range of security products, including access-control systems,
CCTV surveillance systems, fire extinguishing systems and external monitoring systems, which can be free-standing or connected
to on-line security systems. Net sales and operating revenue in thiscategory declined 9.0%, or ¥5.8 billion, to ¥59.3 billion.

Annual Report 2010

Secom Co., Ltd.

25

FINANCIAL REVIEW

Operating income in the security services segment edged down

response personnel—should the subscriber be involved in an

0.8%, or ¥852 million, to ¥101.6 billion, while the operating margin­accident, and MEDCOM, an unrestricted cancer treatment ­policyrose to 23.8%, from 23.4%. The decline in segment operatingthat covers the entire cost of medical treatment for cancer.

income reflected lower net sales and operating revenue, while

Segment net sales and operating revenue climbed 31.4%,

the improvement in the operating margin was attributable toor ¥7.7 billion, to ¥32.1 billion. The segment generated an operat-­successful cost-cutting efforts.

ing loss of ¥1.5 billion, compared with an operating loss of ¥8.2
billion in the previous period. This improvement was attributable

Fire Protection Services

largely to a decrease in loss on other-than-temporary impairment

The fire protection services segment includes automatic fire alarmof investment securities, combined with an increase in net

systems, fire extinguishing systems and other fire protection sys-

­premiums written.

tems for a wide range of applications, including office buildings,
plants, tunnels, cultural properties, ships and residences. Segment

Geographic Information Services

net sales and operating revenue amounted to ¥84.4 billion, downThis segment comprises a variety of GIS-based services tailored to

6.0%, or ¥5.4 billion, reflecting decreased sales of fire alarm sys-

the needs of the public and private sectors, as well as surveying

tems for residences. Segment operating income fell 21.7%, orand measuring, and construction consulting services. Net sales¥1.2 billion, to ¥4.2 billion, and the operating margin declined toand operating revenue in the geographic information services seg-

5.0%, from 6.0% in the previous period.

ment rose 4.3%, or ¥1.7 billion, to ¥42.1 billion. This reflected
steadily expanding sales of geospatial data-based services to

Medical Services

national and local governments in Japan and government agen-The medical services segment includes home medical services,cies in foreign countries, as well as operational support services forcomprising pharmaceutical dispensing and delivery and homeprivate-sector customers. Segment operating income rose 6.5%,

nursing services, remote image diagnosis support services, elec-or ¥132 million, to ¥2.2 billion, owing to strict process manage-

tronic medical report systems, sales of medical equipment, thement and cost-cutting efforts. The operating margin was 5.2%,

operation of residences for seniors, personal care services, theup from 5.1% in the previous period.

leasing of real estate for medical institutions, and others. The­segment also includes the operations of variable interest entities

Real Estate Development and Sales

to which the Company is primary beneficiary, which manage

This segment comprises the development and sales of condomini-­hospitals and health care-related institutions.

ums that are equipped with advanced security and contingency

Net sales and operating revenue in the medical services seg-planning features. Net sales and operating revenue in the real

ment increased 7.8%, or ¥4.1 billion, to ¥56.4 billion. Operating

estate development and sales segment fell 44.9%, or ¥11.0 billion,

income amounted to ¥2.3 billion, up from ¥11 million in the previ-to ¥13.5 billion, owing to efforts to restrict the selection of proper-

ous period. This increase was attributable to improved results forties for development and sales in response to flagging market con-the entities managing hospitals and health care-related institutions

ditions. The segment reported an operating loss of ¥3.7 billion,

and contributions from a newly consolidated subsidiary.

compared with ¥17.6 ­billion in the previous period. This improvement was due mainly to a decrease in write-down on real estate

Insurance Services

inventories.

In addition to security services, which are preventative by nature,26

we offer non-life insurance, which looks after customers in the

Information and Communication Related and Other Services

event of misfortune. We have developed and marketed a broad

This segment consists primarily of information and communication

range of distinctive non-life insurance policies, including Security

related services—including information security systems and net-

Discount Fire Policy, a commercial fire insurance policy, andwork system operations services, which protect subscribers’ infor-

SECOM Anshin My Home, a comprehensive fire insurance policy

mation security in the event of a major disaster—and real estatefor households—both of which offer discounts on premiums toleasing. Segment net sales and operating revenue amounted tocustomers who have installed on-line security systems, recogniz-¥33.5 billion, down 5.7%, or ¥2.0 billion, owing to a temporary

ing this as a risk-mitigating factor. Other offerings include SECOM

dip in business conditions. Segment operating income declined

Anshin My Car, a comprehensive automobile insurance policy that

14.0%, or ¥628 million, to ¥3.9 billion, pushing the operatingoffers on-site support services—provided by our on-line emergency­margin down to 11.5%, from 12.6% in the previous period.

Secom Co., Ltd.

Annual Report 2010

Financial Position

Total assets as of March 31, 2010, amounted to ¥1,138.1 billion,

necessitated an increase in security equipment and control

0.4%, or ¥5.0 billion, lower than at the end of the previous period.

­stations, although this was offset by an increase in accumulated

Total current assets, at ¥500.8 billion, were up 1.7%, or ¥8.3 bil-

depreciation ­resulting from the depreciation of assets.

lion. This was attributable largely to increases in cash and cash

Other assets were down 2.9%, or ¥2.9 billion, to ¥97.5 billion.

equivalents (for more details, please see Cash Flows, which fol-This reflected such factors as a decline in deferred income taxes

lows this section), although these were partially offset by a decline

attributable to an increase in valuation allowances for certainin cash deposits and collection of notes and accounts receivables,­subsidiaries, which was partially offset by an increase in software.

trade. Owing to the increase in total current assets, as well as to a

Total liabilities fell 9.0%, or ¥49.7 billion, to ¥503.7 billion. Total

decrease in total current liabilities (see below), the current ratio

current liabilities amounted to ¥235.5 billion, down 16.9%, orrose to 2.1 times, from 1.7 times at the end of the previous period.

¥48.0 billion, owing to the application of firm cash flows to theInvestments and long-term receivables declined 4.9%, or ¥14.4

repayment of bank loans. The decrease in total liabilities alsobillion, to ¥276.5 billion, reflecting sales of investment securities

reflected a decline in investment deposits by policyholders as

and the redemption of bonds to prepare for the payment of­insurance policies with maturity refunds reached maturity.

refunds on insurance policies at maturity.

Total SECOM CO., LTD. shareholders’ equity amounted toProperty, plant and equipment, less accumulated depreciation,¥569.8 billion, up 7.8%, or ¥41.1 billion, owing primarily to anrose 1.6%, or ¥4.0 billion, to ¥263.3 billion. This was due primarily

increase in retained earnings, as well as to unrealized holding gains

to the addition of a subsidiary, engaged in the leasing of real estate

on securities—compared with unrealized holding losses on securi-

to medical institutions, to the medical services segment, resulting

ties for the previous period—which reduced accumulated otherin increases in buildings and improvements and in land. An

comprehensive loss, a net figure. Shareholders’ equity ratio roseincrease in the number of security services subscribers also

to 50.1%, from 46.3% at the end of the previous period.

SECOM CO., LTD.
Shareholders’ Equity
per Share

Total Assets(In billions of yen)

(In yen)

3,000

1,500

2,400

1,200

1,800

900

1,200

600

600

300

0

06 07 08 09 10

0

06 07 08 09 10

Annual Report 2010

Secom Co., Ltd.

27

FINANCIAL REVIEWCash Flows

The Company is committed to maintaining sufficient liquidity toincrease in the number of security services subscribers, and pay-allow flexibility in its operations and ensure a solid financial founda-

ments for long-term receivables of ¥5.0 billion. Cash provided bytion. To the best of its ability, the Company is also firmly committed

investing activities included net proceeds from sales and redemp-

to financing related strategic investments with cash generated bytion of short-term investments and investment securities of ¥24.0

its operating activities.

billion and proceeds from long-term receivables of ¥6.0 billion.

Net cash provided by operating activities amounted to ¥116.7

Investing activities used ¥39.3 billion less cash than in the previous

billion. The principal items contributing to this result were net

period, as net proceeds from sales and redemptions of short-term

income of ¥53.0 billion, depreciation and amortization of ¥55.1

investments and investment securities amounted to ¥24.0 billion,­billion, a decrease in cash deposits of ¥7.8 billion, loss on other-compared to net payments of ¥332 million in the ­previous period

than-temporary impairment of investment securities of ¥6.3 billion.

and purchases of property, plant and equipment decreased.

Cash used in operating activities included an increase in deferred

Net cash used in financing activities amounted to ¥85.7 billion.

charges of ¥14.5 billion. Net cash provided by operating activities

This included a decrease in bank loans, net, of ¥35.2 billion, awas ¥9.3 billion higher than in the previous period, owing to thedecrease in investment deposits by policyholders of ¥23.8 billion

increase in net income, which was partially offset by decreases

and dividends paid to SECOM CO., LTD. shareholders of ¥18.5

in non-cash expenses, including loss on other-than-temporary

billion. Financing activities used ¥24.2 billion less than in the previ-

impairment of investment securities and write-down of real estateous period. This was due largely to the absence of a ¥30.0 billion­inventories, and to an increase in inventories, compared with aoutlay for the purchase of treasury stocks in the previous period.

decrease in the previous period.

The Company’s operating, investing and financing activities

Net cash used in investing activities came to ¥10.6 billion.

resulted in cash and cash equivalents at the end of the year of

Significant factors included payments for purchase of property,¥180.1 billion, an increase of ¥20.8 billion from ¥159.4 billion atplant and equipment of ¥38.3 billion, a result of the purchase of

the end of the ­previous period.

security equipment and control stations necessitated by an

Depreciation andAmortization

Capital Expenditures(In billions of yen)

Cash Flows(In billions of yen)

(In billions of yen)

60

50

48

40

36

30

24

20

12

10

150
100
50
0

0

06 07 08 09 10

0

–50
–100
–150
06 07 08 09 10

08

09

10

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

28

Secom Co., Ltd.

Annual Report 2010