FINANCIAL REVIEW
Operating Results

Overview
In the year ended March 31, 2009, the­parent company, SECOM Co., Ltd., and its
consolidated subsidiaries (collectively “theCompany”) sought to provide high-quality
products and services that respond to theneeds of customers in its core security services business, as well as in its fire protection services, medical services, insurance
services, geographic information services,
real estate development and sales, andinformation and communication related
and other services businesses. While net sales
and operating revenue increased steadily inthe security services, fire protection services, medical services and geographic
information services businesses, net sales
and operating revenue declined in theinsurance services business, due to anincrease in loss on other-than-temporary
impairment of investment securities,
reflecting a stagnant stock market; the realestate development and sales business,owing to flagging conditions in the condominium market; and the information andcommunication related and other services
business, a consequence of efforts to scaleback lower-margin services. Consolidated
net sales and operating revenue slipped
2.5%, or ¥17.9 billion, to ¥688.8 billion.
	The decline in net sales and operating
revenue, together with the write-down onreal estate inventories in the real estatedevelopment and sales business, pushed
operating income down 27.4%, or ¥28.9
billion, to ¥76.7 billion. Net income fell
50.5%, or ¥31.2 billion, to ¥30.6 billion,
owing mainly to an increase in loss onother-than-temporary impairment ofinvestment securities.
	During the year ended March 31, 2009,
the Company decided to separately disclose real estate development and sales,
which was previously included in information and communication related and otherservices, due to the fact that the reporting
loss exceeded the quantitative threshold.
Accordingly, segment information of allprior periods has been restated to conformto the presentation used for the year
ended March 31, 2009.
Net Sales and Operating Revenue
Despite increases in the security services,
fire protection services, medical services
and geographic information services businesses, net sales and operating revenue
slipped 2.5%, or ¥17.9 billion, to ¥688.8

billion, owing to decreases in the insurance
services, real estate development and sales
and information and communication
related and other services businesses.
(For more details, please see Segment
Information below.)
Costs and Expenses
Total costs and expenses were up 1.8%,
or ¥11.0 billion, to ¥612.1 billion. Costof sales rose 2.2%, or ¥10.0 billion, to¥464.2 billion, equivalent to 67.4% of
net sales and operating revenue, up from
64.3% in the previous period. This increase
was due mainly to the write-down onreal estate inventories in the real estate­development and sales business.
Selling, general and administrative(SG&A) expense edged down 0.4%, or¥512 million, to ¥144.3 billion. SG&A
expense was equivalent to 20.9% of
net sales and operating revenue, up from
20.5% in the previous period, owing
mainly to the decline in net sales and­operating revenue.
Loss on sales and disposal of property,
plant and equipment, net, rose ¥1.0 billion,to ¥2.0 billion. Impairment loss on goodwill,at ¥1.6 billion, was up ¥450 million.
Operating Income
Operating income, at ¥76.7 billion, wasdown 27.4%, or ¥28.9 billion, and wasequivalent to 11.1% of net sales and operating revenue, down from 14.9% in theprevious period. This was due largely tothe decline in net sales and operating revenue, and to increases in cost of sales andloss on sales and disposal of property,
plant and equipment, net. Segments contributing to operating income were—in
order of size of contribution—security services, fire protection services, informationand communication related and other services, geographic information services andmedical services. (For more details, pleasesee Segment Information below.)with a net gain in the previous period, bothowing to a stagnant stock market; a decline
in gain on private equity investments and aprovision for loss on litigation.
Income before Income Taxes
Income before income taxes fell 42.6%, or¥46.9 billion, to ¥63.3 billion, reflecting
the decrease in operating income, as well
as net other expenses, compared with net
other income in the previous period.
Income Taxes
Income taxes amounted to ¥36.6 billion,
down ¥10.5 billion, and were equivalent to57.8% of income before income taxes, up
from 42.7% in the previous period. This
was largely attributable to an increase inunrecognized tax benefits from subsidiaries
in loss positions.
Minority Interests in Subsidiaries andEquity in Net Income of AffiliatedCompanies
Minority interests in subsidiaries were
down ¥1.7 billion, to ¥4.9 billion, owing to
a decline in income in the insurance services business. Equity in net income ofaffiliated companies advanced ¥3.5 billion,to ¥8.7 billion, owing to a reversal of longterm deferred tax liabilities related toundistributed earnings of overseas affiliated companies, resulting from the revisionof Japanese tax regulations.
Net Income
As a consequence of the aforementioned
factors, net income fell 50.5%, or ¥31.2
billion, to ¥ 30.6 billion, and was equivalent to 4.4% of net sales and operating
revenue, down from 8.7% in the previous
period. Net income per share was ¥137.42.
A proposal to leave annual cash dividends
unchanged at ¥85.00 per share wasapproved at the general shareholders’meeting on June 25, 2009.

Other Income and Expenses
Other income fell ¥7.2 billion, to ¥5.8 billion, while other expenses rose ¥10.8 billion, to ¥19.2 billion, resulting in net otherexpenses of ¥13.4 billion, down from netother income of ¥4.6 billion in the previous
period. This result was due primarily to anincrease in loss on other-than-temporary
impairment of investment securities and a
net loss on sales of securities, compared

Secom Co., Ltd.

Annual Report 200925

FINANCIAL REVIEW

Segment Information

For detailed information, please see note 26 of the accompanying Notes to the Consolidated Financial Statements.

Security Services
The security services segment encompasses
electronic security services, other security
services, and merchandise and other. In
the period under review, net sales andoperating revenue in the segment edged
up 0.4%, or ¥1.8 billion, to ¥438.4 billion.
Excluding intersegment transactions, net
sales and operating revenue in the segment amounted to ¥436.9 billion, equivalent to 63.5% of overall net sales andoperating revenue, up from 61.6% in theprevious period.
	Electronic security services include­centralized systems (on-line commercial
and home security systems) and large-scale
proprietary security systems, which centeron 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 todetect events, such as intrusions, fires andequipment malfunctions. Sensors arelinked to a SECOM control center via telecommunications circuits to enable remotemonitoring around-the-clock. Should anirregularity be detected at the subscriber’s
premises, the relevant information isrelayed to the control center, where staff
dispatch emergency response personnel.
Control center staff also notify the police
or fire department if required while theemergency response personnel take otherappropriate measures. To ensure our ability
to deliver the level of quality subscribers
expect, we have established an integrated
approach, whereby we take full responsibility for maintaining control over every
aspect of our electronic security services,from R&D to manufacturing, sales, security
planning, installation, monitoring, emergency response services and equipment
maintenance. In the period under review,
net sales and operating revenue from­electronic security services amounted to¥303.5 billion, an increase of 2.5%, or¥7.3 billion, owing to efforts to reinforce
the Company’s sales activities, which
included making visits to potential
customers.
	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
services, for the transport of cash and valuables by specially fitted armored cars and26

Secom Co., Ltd.

Annual Report 2009security professionals. In the period underreview, net sales and operating revenue
from static guard services advanced 2.9%,
or ¥1.4 billion, to ¥48.0 billion, and thatfrom armored car services rose 3.9%, or¥763 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 external monitoring­systems, which can be free-standing or
connected to on-line security systems. Net
sales and operating revenue in this category decreased 10.7%, or ¥7.8 billion, to¥65.1 billion, owing to the absence of onetime orders received in the previous period.
	Operating income in the security services segment edged down 0.6%, or ¥662
million, to ¥102.5 billion. The operating
margin slipped to 23.4%, from 23.6% in
the previous period, owing to an increasein costs aimed at improving service quality.

Net sales and operating revenue in the
medical services segment increased 2.9%,
or ¥1.5 billion, to ¥52.3 billion. This
increase was primarily due to higher net
sales and operating revenue from home
medical services and the operation of­residences for seniors. Operating income
amounted to ¥11 million, up from an
operating loss of ¥1.1 billion in the previous period. This was attributable largely to
improved results from the operation of­residences for seniors.

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 of applications, including office buildings, plants,
tunnels, cultural properties, ships and residences. In the period under review, segment net sales and operating revenue
amounted to ¥89.8 billion, up 3.7%, or¥3.2 billion, from the previous period, asa partial revision of Japan’s Fire Services
Act boosted sales of fire alarm systems for­residential applications, while orders
remained firm for the replacement of fire
protection systems from the office renovations market. Operating income rose 8.2%,
or ¥405 million, from the previous period,to ¥5.4 billion, reflecting higher net sales
and operating revenue, while the operating
margin was 6.0%, up from 5.7% in theprevious period.

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 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 for households—both of which offer
discounts on premiums to customers who
have installed home security systems, recognizing this as 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
the subscriber be involved in an accident,
and MEDCOM, an unrestricted cancer
treatment policy that covers the entire costof medical treatment for cancer.
Segment net sales and operating­revenue were ¥24.4 billion, down 32.3%,
or ¥11.7 billion. The segment generated
an operating loss of ¥8.2 billion, comparedwith operating income of ¥3.8 billion in
the previous period. These results werelargely attributable to a decline in net gainon sales of investment securities and anincrease in loss on other-than-temporary
impairment of investment securities.

Medical Services
The medical services segment includes
home medical services, comprising pharmaceutical dispensing and delivery andhome nursing services, remote image­diagnosis support services, electronic­medical report systems, sales of medical
equipment, the operation of residences forseniors, personal care services, the ­leasingof real estate for medical institutions,and others.

Geographic Information Services
This segment comprises a variety of GISbased services tailored to the needs of the
public and private sectors, as well as surveying and measuring, and construction
consulting services.
Net sales and operating revenue in thegeographic information services segmentrose 1.6%, or ¥627 million, to ¥40.3 b­ illion.
This result reflected steadily expanding
sales of geospatial data-based services andFinancial Position

merchandise to public- and private-sector
customers and contributions from our newsatellite image data business.
	Operating income amounted to ¥2.0
billion, up 42.1%, or ¥606 million, lifting
the operating margin to 5.1%, from 3.6%in the previous period. This improvement
was due primarily to the increase in thesegment’s net sales and operating revenue, as well to improvements in, andexhaustive efforts to improve managementof, production processes, which reduced
cost of sales.
Real Estate Development and Sales
This segment comprises the development
and sales of condominiums that are
equipped with advanced security and­contingency planning features. Net sales
and operating revenue in the real estatedevelopment and sales segment declined
18.4%, or ¥5.5 billion, to ¥24.4 billion, as
we have carefully selected our properties
for development and sales in order to correspond with the flagging conditions in
the condominium market. Sales price revisions, implemented to counter flagging
market conditions, together with the selling off of units to reduce inventories andthe write-down on real estate inventories,
triggered an operating loss of ¥17.6 billion, down from operating income of ¥673
million in the previous period.
Information and Communication Related
and Other Services
This segment consists primarily of information and communication related services—
including information security systems andnetwork system operations services, which
protect subscribers’ information security inthe event of a major disaster—and realestate leasing.
Segment net sales and operating revenue amounted to ¥40.5 billion, a declineof 8.6%, or ¥3.8 billion. Nevertheless,operating income increased 4.2%, or ¥200
million, to ¥4.9 billion, and the operating
margin rose to 12.1%, from 10.6% in theprevious period. These results reflected
efforts to scale back lower-margin s­ ervices
and expand high-margin, highly competitive
services.

Total assets as of March 31, 2009,amounted to ¥1,143.1 billion, 9.7%, or¥122.4 billion, lower than at the end of
the previous fiscal year.
	Total current assets, at ¥492.5 billion,
were down 15.2%, or ¥88.0 billion. This
was attributable largely to decreases incash and cash equivalents (for more details,
please see Cash Flows, which follows thissection), as well as to decreases in inventories in the real estate development andsales business and notes and accounts
receivable, trade. Despite a decrease intotal current assets, the current ratio
remained level at 1.7 times, as current­liabilities also decreased (see below).
Investments and long-term receivables
declined 11.7%, or ¥38.7 billion, to ¥290.9
billion, reflecting an increase in loss onother-than-temporary impairment of investment securities—owing to a stagnant stock
market—and a decrease in foreign currencytranslation adjustments relating to investments in overseas affiliated companies,
owing to the appreciation of the yen.
Property, plant and equipment, lessaccumulated depreciation, rose 3.1%, or¥7.8 billion, to ¥259.3 billion. This was due
primarily to an increase in land resulting
from the purchase of land for the realestate leasing business. An increase in thenumber of security services subscribers
also necessitated an increase in security
equipment and control stations, but
this was offset by an increase in accumulated depreciation resulting from thedepreciation of assets.
	Other assets were down 3.3%, or¥3.5 billion, to ¥100.4 billion. This

reflected decreases in prepaid pension
and severance costs, a consequence of adeteriorating asset-management environment, and other intangible assets, bothof which were partially countered by anincrease in deferred income taxes promptedby increases in loss carryforwards and loss
on other-than-temporary impairment ofinvestment securities.
	Total liabilities fell 12.0%, or ¥75.1­billion, to ¥553.4 billion. Total current­liabilities amounted to ¥283.4 billion,
down 18.4%, or ¥63.8 billion, owing toefforts to reinforce cash management,
which resulted in a decrease in bank loans,
as well as to a decrease in accrued income
taxes. The decrease in total liabilities also
reflected decreases in accrued pension andseverance costs, and in deferred income
taxes—the latter due to a reversal of longterm deferred tax liabilities related toundis­tributed earnings of overseas affiliated ­companies resulting from the revisionof Japanese tax regulations.
	Total shareholders’ equity amounted to¥528.7 billion, down 8.0%, or ¥45.8 billion. This primarily reflected a ¥30.0 billion
increase in common stock in treasury, atcost, and a higher accumulated other comprehensive loss, which were partially offset
by an increase in retained earnings. The
increase in the accumulated other comprehensive loss was largely attributable to adecrease in foreign currency translation
adjustments—a consequence of the strong
yen—and an increase of losses in pension
liability adjustments, owing to a deteriorating asset-management environment. The
equity ratio rose to 46.3%, from 45.4%.

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

05 06 07 08 09

0

05 06 07 08 09

Secom Co., Ltd.

Annual Report 200927

FINANCIAL REVIEWCash Flows

SECOM is committed to maintaining­sufficient 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 ¥107.4 billion. The principal items contributing to this total were net income of¥30.6 billion, depreciation and amortization of ¥54.6 billion, loss on other-thantemporary impairment of investment
securities of ¥19.5 billion, write-down
on real estate inventories of ¥8.4 billion,
and decrease in inventories of ¥10.1 billion
accounted for largely by the reduction ofreal estate inventories. Cash used in operating activities included an increase indeferred charges of ¥16.0 billion. Operating
activities provided ¥14.8 billion more cashthan in the previous period. Despite thedecline in net income, increases in noncash expenses—including loss on otherthan-temporary impairment of investment
securities and write-down on real estate
inventories—and decrease in inventories,
due largely to the reduction of real estate
inventories, contributed to the increase in
net cash provided by operating activities.
Net cash used in investing activities was¥49.9 billion. Significant factors included
payments for purchases of property, plantand equipment of ¥44.8 billion, a result of
the purchase of security equipment andcontrol stations, necessitated by anincrease in the number of security services
subscribers, and payments for long-term
receivables of ¥6.8 billion. Cash provided
by investment activities included proceedsfrom long-term receivables of ¥7.2 billion.
Investing activities in the period underreview used ¥2.2 billion less cash than in
the previous period, as net payments forsales and purchases of short-term

Depreciation andAmortization

investments and investment securities
decreased, despite the decrease in proceeds from sales of property, plant andequipment.
Net cash used in financing activities
amounted to ¥109.9 billion. Contributing
to this were a decrease in bank loans of¥55.2 billion, an increase of treasury stock,net, of ¥30.0 billion, and dividends paid of¥19.1 billion. Financing activities used
¥90.6 billion more cash than in the previous period, owing to a decrease in bankloans of ¥55.2 billion—compared with a¥6.0 billion increase in bank loans in theprevious period—and an increase in­treasury stock, net, of ¥30.0 billion.
As a result of operating, investing andfinancing activities during the period underreview, cash and cash equivalents at endof year totaled ¥159.4 billion, down ¥55.2
billion from ¥214.6 billion at the end of
the previous period.

Capital Expenditures

Cash Flows(In billions of yen)

(In billions of yen)

(In billions of yen)

150

60

60

100

48

45

50

36

0

30
24

–50
15

12
0

0
05 06 07 08 09

–100
–150
05 06 07 08 09

07

08

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

28

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Annual Report 200909