Financial Review
Operating Results

Overview
In the year ended March 31, 2007, theparent company and its consolidated
subsidiaries (collectively “the Company”)
took a variety of steps aimed at reinforcing mainstay security services—including
offering new products and services, aswell as establishing new offices andrelocating existing offices—and promoting the expansion of fire protection
services, medical services, insurance
services, geographic information services, information and communication
related services, real estate development
and sales, and real estate leasing.
Favorable increases in all segments,
notably security services, and the inclusion of a new business, fire protection
services, in the Company’s consolidated
results during the period under review,supported an increase in net sales andoperating revenue of 9.7%, or ¥56.2
billion, from the previous period,to ¥636.7 billion. Higher net sales andoperating revenue, together with adecline in selling, general and administrative expenses and the absence of asettlement loss of benefit obligation ontransfer to defined contribution pension
plan recorded in the previous period,
pushed operating income up 15.3%, or¥12.5 billion, to ¥94.4 billion. Net income
advanced 11.0%, or ¥5.6 billion, to¥55.9 billion.
In December 2006, SECOM acquired
shares newly offered by Nohmi Bosai, until
then an affiliated company accounted forunder the equity method, which provides
automatic fire alarm, fire extinguishingand other fire protection systems. As aconsequence, Nohmi Bosai became aconsolidated subsidiary, and the results ofNohmi Bosai and its subsidiaries were
included in a newly established segment,
fire protection services. (For more details,
please see Notes 5 and 27 of the accompanying Notes to Consolidated Financial
Statements.)

Net Sales and Operating Revenue
Net sales and operating revenue
amounted to ¥636.7 billion, an increaseof 9.7%, or ¥56.2 billion. This result
reflected increases in net sales andoperating revenue in all segments andthe inclusion of the new fire protection
services business. (For more details,
please see Segment Information below.)
Costs and Expenses
Total costs and expenses rose 8.7%, or¥43.6 billion, to ¥542.3 billion. Cost of
sales increased 12.4%, or ¥45.3 billion, to¥410.3 billion, equivalent to 64.4% of net
sales and operating revenue, up from
62.9% in the previous period. The
increase in the cost-of-sales ratio was due
primarily to the inclusion of the new fire
protection services business, and theconsolidation at the previous fiscal yearend of three variable interest entities
engaged in the management of hospitals
and health care-related institutions.
Selling, general and administrative
expenses decreased 0.8%, or ¥1.0 billion,to ¥127.1 billion, equivalent to 20.0% of
net sales and operating revenue, downfrom 22.1% in the previous period. Thisdecline was mainly the result of adecrease in the provision for theallowance for doubtful accounts.
Impairment loss on long-lived assets
rose ¥355 million, to ¥1.2 billion, andimpairment loss on goodwill increased¥2.8 billion, to ¥3.0 billion, while losses onsales and disposal of property, plant andequipment, net, declined ¥1.4 billion, to¥781 million. In the previous period, thetransfer of a portion of the cash balance
pension plan maintained by the parent
company and certain domestic subsidiaries to a defined contribution pension plan resulted in recognition of a
portion of an unrecognized actuarial loss,
which was included as a settlement loss ofbenefit obligation on transfer to defined
contribution pension plan of ¥2.5 billion.

Annual Report 200722

Operating Income
Operating income rose 15.3%, or ¥12.5
billion, to ¥94.4 billion, and represented
14.8% of net sales and operating revenue,
up from 14.1% in the previous period.
This reflected such factors as an increasein net sales and operating revenue,
declines in selling, general and administrative expenses and losses on sales anddisposal of property, plant and equipment, net, and the absence of the settlement loss of benefit obligation on transfer
to defined contribution pension plan
recorded in the previous period. The
impact of these factors was partially offset
by an increase in cost of sales and anincrease in impairment loss on goodwill.
The security services segment, the information and communication related andother services segment and the newly
established fire protection services segment, contributed to the increase inoperating income. (For more details,
please see Segment Information below.)
Other Income and Expenses
Other income declined ¥7.5 billion, to¥8.4 billion, and other expenses
decreased ¥582 million, to ¥7.5 billion,
resulting in net other income of ¥918
million, compared with ¥7.8 billion in theprevious period. The decline in otherincome was due primarily to the absenceof a net gain on the sale of outstanding
shares of a cable television holding
company accounted for under the equity
method, which was recorded in theprevious period.
Income from Continuing Operations
before Income Taxes
Income from continuing operations
before income taxes amounted to ¥95.3
billion, an increase of 6.3%, or ¥5.6 billion,
as an increase in operating income waspartially offset by a decrease in net
other income, that is, the net of otherincome minus other expenses.

Segment Infor mation
For detailed segment information, please see Note 27 of the accompanying Notes to theConsolidated Financial Statements.

Income Taxes
Income taxes increased ¥2.7 billion, to¥40.6 billion, and were equivalent to42.6% of income from continuing operations before income taxes, up from 42.2%
in the previous period.
Minority Interests in Subsidiaries andEquity in Net Income of AffiliatedCompanies
Minority interests in subsidiaries amounted
to ¥4.6 billion, an increase of ¥722 million,
owing mainly to the inclusion of the newfire protection services business.
Equity in net income of affiliatedcompanies increased ¥2.5 billion, to¥5.8 billion, owing partially to solid
performances by affiliated companies
accounted for under the equity method
in Taiwan and the ROK.
Net Income
Income from continuing operations andincome before cumulative effect ofaccounting change were both ¥55.9
billion, an increase of 9.2%, or ¥4.7
billion, and equivalent to 8.8% of net
sales and operating revenue, the sameas in the previous period.
As a consequence of these and otherfactors, net income rose 11.0%, or ¥5.6
billion, to ¥55.9 billion. Net income pershare was ¥248.42. A resolution to raisecash dividends by ¥20.00, to ¥80.00 per
share, was approved at the generalshareholders’ meeting on June 27, 2007.
This increase in dividends reflected solid
operating results, and was in line with theCompany’s aim of ensuring returns toshareholders that accurately reflect its
operating performance by shifting thebasis for determining dividends—
calculated using Japanese accounting
principles—to consolidated results,
from nonconsolidated results, which it
previously used.

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 segmentrose 3.9%, or ¥15.5 billion, to ¥416.9 billion.
Excluding intersegment transactions,segment sales and operating revenue was¥415.4 billion, equivalent to 65.3% of total
net sales and operating revenue, downfrom 68.9% 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 thesubscriber’s premises. Commercial andhome on-line security systems, the coreof the Company’s electronic security
services business, use sensors installedat the customer’s premises to detect
events, such as intrusions, fires andequipment malfunctions. Sensors arelinked to a SECOM control center via
telecommunications circuits to enableremote monitoring around-the-clock.
Should an event be detected, the relevant information is relayed to the control
center, where control center staff dispatch emergency response personnel.
Control center staff also notify the police
or fire department if required, while
emergency response personnel takeother appropriate measures,. To ensure
its ability to deliver the level of quality
customers expect, the Company has
established an integrated process thatallows it to maintain control over every
aspect of its electronic security services,from centralized systems research anddevelopment (R&D) to equipment manufacturing, sales, installation, 24-hourmonitoring, dispatch of emergency
response personnel and maintenance.
In the period under review, net sales
and operating income from electronic
security services amounted to ¥285.9

SECOM Co., Ltd.

23

billion, an increase of 2.9%, or ¥8.0
billion. Commercial subscriptions foron-line security systems suited to a wide
range of buildings and applications
continued to increase steadily. In thearea of home security systems, theCompany enhanced its product lineup,
thereby enabling customers to choose
the most appropriate system based on
the size and configuration of their home,
as well as positioning the Company toserve a broader range of customers.
Other security services include static
guard services, staffed by highly trained
professionals, for security situations that
require human judgment and flexible
responses, and armored car services, forthe transport of cash and valuables byspecially fitted armored cars and security
professionals. In the period under review,
net sales and operating revenue fromstatic guard services increased 1.6%, or¥664 million, to ¥42.1 billion, and thatfrom armored car services rose 4.8%, or¥939 million, to ¥20.3 billion.
The merchandise and other category
encompasses a wide range of security
products, including access-control systems, CCTV surveillance systems, fire
extinguishing systems and externalmonitoring systems, which can be usedalone or connected to on-line security
systems. In the period under review,
these products and services generated
net sales and operating revenue of ¥67.1
billion, an increase of 9.5%, or ¥5.8
billion. Increasing awareness of the needto ensure protection against crime, as
well as to properly manage information
assets, continued to support brisk salesof access-control systems and CCTV
surveillance systems.
Operating income in the security
services segment advanced 11.0%, or¥9.5 billion, to ¥96.2 billion, and theoperating margin rose to 23.1%, from
21.6% in the previous period. The
increase in segment operating income

Financial Review

was due mainly to the absence of asettlement loss of benefit obligation ontransfer to defined contribution pension
plan recorded in the previous period,
and to a decline in advertising costs.
Fire Protection Services
Fire protection services include automatic fire alarm systems, fire extinguishing systems and other fire protection
systems for a wide range of applications,
including office buildings, plants, tunnels,
cultural properties, ships and residences.
In the period under review, net sales
and operating revenue in the fire protection services segment amounted to ¥28.4
billion. Operating income was ¥1.8
billion, while the operating margin was
6.4%. Results for this segment include theoperating results of Nohmi Bosai and its
subsidiaries subsequent to its acquisitionin December 2006.
Medical Services
The medical services segment encompasses home medical services, including
pharmaceutical dispensing and delivery
and home nursing services; remote
image diagnosis support services; electronic medical report systems; sales of
medical equipment; the operation ofnursing homes; personal care services;and the leasing of real estate for medical
institutions.
In the period under review, net sales
and operating revenue in the medical
services segment amounted to ¥46.1
billion, up 16.9%, or ¥6.7 billion. Key
factors behind this result included anincrease in net sales and operating
revenue from the operation of nursing
homes and the consolidation of threevariable interest entities engaged in the
management of hospitals and healthcare-related institutions at the previous
fiscal year-end.

The segment registered an operating
loss of ¥2.9 billion in the period underreview, compared with an operating lossof ¥1.3 billion in the previous period. This
primarily reflected an increase in impairment loss on goodwill and an impairment
loss on long-lived assets.
Insurance Services
In addition to security services, which
provide prior protection, the Company
offers non-life insurance, which looks
after customers in the event of misfortune. The Company has developed andmarkets a variety 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 residences, which offer a
discount on premiums to subscribers
who have installed on-line security
systems, recognizing this as a risklowering factor. Other offerings include
New SECOM Anshin My Car, a comprehensive automobile insurance policythat offers on-site support services—
provided by the Company’s on-line
emergency response personnel—in theevent of an accident, and MEDCOM, anunrestricted cancer treatment policythat covers the entire cost of medical
treatments for cancer.
In the period under review, net sales
and operating revenue in the insurance
services segment rose 8.3%, or ¥2.6
billion, to ¥34.7 billion, owing to
expanded marketing of non-life insurance policies, which boosted net
premiums written.
The insurance services segment
posted operating income of ¥3.8 billion,
down 25.9%, or ¥1.3 billion. This result
primarily reflected an increase in net
claims paid, owing to the impact of
typhoons occurring during the period.

Annual Report 200724

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 amounted
to ¥36.6 billion, an increase of 3.4%, or¥1.2 billion. Efforts included the provisionof high-precision national geospatial
data using laser scanners and digitalsensors. The Company also provided GIS
services tailored to the needs of privatesector customers, primarily companies.
Segment operating income fell 56.2%,
or ¥506 million, to ¥394 million, and theoperating margin slipped to 1.1%, from
2.5%. This result was due primarily to anincrease in the cost-of-sales ratio
prompted by increasingly intense pricing
competition in the market.
Information and Communication Related
and Other Services
This segment includes information andcommunications related services, including cyber security and information network system operation services, realestate development and sales, and realestate leasing.
In the period under review, net sales
and operating revenue in the informationand communication related and otherservices segment rose 7.0%, or ¥5.8
billion, to ¥88.6 billion. This result primarilyreflected a strong performance by the realestate development and sales business,bolstered by brisk sales of condominiums.
Robust results boosted operating
income in the real estate development andsales business. As a consequence, segment operating income increased 30.0%,
or ¥1.7 billion, to ¥7.3 billion, and theoperating margin rose to 8.3%, from 6.8%.

Financial Position

Total assets of the Company as of March
31, 2007, amounted to ¥1,241.2 billion, up
1.3%, or ¥16.0 billion, from the previous
fiscal year-end.
Total current assets declined 4.2%, or¥24.4 billion, to ¥554.2 billion. This mainlyreflected declines in cash and cash
equivalents (for more details, please see
Cash Flows below) and short-term investments, the latter a consequence of theredemption of public and corporate
bonds in the insurance services business,
which were partially offset by increases ininventories in the real estate development and sales business, and an increase
in inventories and notes and accounts
receivable, trade, in the fire protection
services business, newly included in the
Company’s consolidated accounts.
Owing to the decline in current assets
and an increase in current liabilities, anexplanation of which is presented below,
the current ratio edged down to 1.6
times, from 1.8 times at the previous
fiscal year-end.

Investments and long-term receivables rose 5.7%, or ¥17.8 billion, to¥328.6 billion, owing primarily to anincrease in investment securities in theinsurance services business.
Property, plant and equipment, lessaccumulated depreciation, increased
3.1%, or ¥7.4 billion, to ¥250.5 billion.
This was primarily attributable to theinclusion of the new fire protection
services business in the Company’s
consolidated accounts and the acquisition of real estate for lease in the realestate leasing business.
Other assets rose 16.3%, or ¥15.1
billion, to ¥107.9 billion. This was mainly
due to an increase in other intangible
assets related to the inclusion of the
new fire protection services business in
the Company’s consolidated accounts,
an increase in prepaid pension andseverance costs, and an increase indeferred charges attributable to anincrease in the number of security
services subscribers.

Shareholders’Equity per ShareTotal Assets(In billions of yen)

(In yen)

SECOM Co., Ltd.

25

Total liabilities of the Company
declined 7.7%, or ¥52.5 billion, to ¥628.1
billion. Total current liabilities were ¥348.1
billion, up 6.1%, or ¥20.0 billion, as
increases in bank loans in the real estatedevelopment and sales business; notes
and accounts payable, trade, in the fire
protection services business, newly
included in the Company’s consolidated
accounts; and deposits received related toarmored car services, were partially offset
by a decline in current portion of longterm debt prompted by the redemption ofbonds. The decline in total liabilities also
reflected a ¥94.4 billion decline in investment deposits by policyholders, to ¥93.4
billion, owing to the payout at maturity of
insurance policies with fixed maturities.
Total shareholders’ equity rose 8.5%,
or ¥43.0 billion, to ¥551.7 billion. Retained
earnings were ¥428.9 billion, up ¥42.3
billion. Accumulated other comprehensive income amounted to ¥11.4 billion, an
increase of ¥744 million. The equity ratiorose to 44.5%, from 41.5%.

Financial Review

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.
In the period under review, net cash
provided by operating activities
amounted to ¥67.9 billion. The principal
items contributing to this total were net
income of ¥55.9 billion and depreciation
and amortization of ¥58.2 billion, whichrose due to an increase in property, plantand equipment, while cash used inoperating activities included an increasein deferred charges of ¥18.3 billion andan increase in inventories of ¥17.3 billion.
Operating activities provided ¥10.6
billion less than in the previous period,
owing mainly to an increase in receivables
and due from subscribers, net ofDepreciation andAmortization

allowances, of ¥13.8 billion, up from ¥668
million in the previous period.
Net cash provided by investing activities amounted to ¥22.0 billion. Significant
factors included net proceeds from salesof short-term investments and investment securities of ¥62.2 billion, netproceeds from short-term and long-term
receivables of ¥8.4 billion. Payments forpurchases of property, plant and equipment totaled ¥46.4 billion, partially as aresult of the purchase of security equipment and control stations, prompted byan increase in the number of security
service subscribers. Investing activities
provided ¥18.2 billion more than in theprevious period, primarily as a consequence of the sale of short-term investments and investment securities to fundthe payout of investment deposits byinsurance policyholders.
Net cash used in financing activitieswas ¥128.4 billion. This amount includeda ¥94.4 billion decrease in investment
deposits by policyholders, a consequenceof the payout of insurance policies atmaturity, and repayments of long-term
debt—primarily the redemption ofbonds—of ¥52.3 billion. Financing activities used ¥79.6 billion more than in theprevious period, owing to the aforementioned decrease in investment deposits
by policyholders of ¥94.4 billion, compared with a decrease of ¥39.9 billion in
the previous period, and repayments oflong-term debt of ¥52.3 billion, up from
¥11.4 billion in the previous period.
As a result of the operating, investing
and financing activities of the Company
during the period under review, cash
and cash equivalents at end of year
amounted to ¥193.2 billion, down ¥37.8
billion from ¥231.0 billion at the previous
fiscal year-end.

Capital Expenditures

Cash Flows(In billions of yen)

(In billions of yen)

(In billions of yen)

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

Annual Report 200726