Financial Review
Operating Results

Net Income Attributable to
Noncontrolling Interests
Net income attributable to noncontrollinginterests amounted to ¥6.1 billion, down
¥498 million.
Net Income Attributable to SECOM
CO., LTD.
Net income attributable to SECOM CO.,LTD. climbed 71.2%, or ¥29.3 billion, to¥70.6 billion, equivalent to 8.2% of net
sales and operating revenue, comparedwith 5.3% in the previous period. Net
income attributable to SECOM CO., LTD.
per share was ¥323.36, up from ¥188.97.
Subsequent to the fiscal year ended
March 31, 2013, a proposal to pay cash
dividends of ¥105.00 per share, anincrease of ¥15.00 per share from theprevious period, was approved at thegeneral shareholders’ meeting held on
June 25, 2013.

SECOM Today
Financial Review

Other Income and Expenses
Other income increased ¥2.5 billion, to¥10.0 billion, while other expenses fell
¥2.1 billion, to ¥3.2 billion, resulting
in net other income of ¥6.8 billion, up¥4.5 billion from the previous fiscal year.
Principal factors behind this result includeda ¥1.6 billion increase in gain on private
equity investments, to ¥5.1 billion, and adecrease in loss on other-than-temporary
impairment of investment securities.

Equity in Net Income of AffiliatedCompanies
Equity in net income of affiliated companies slipped ¥1.0 billion, to ¥3.9 billion,
owing primarily to a decline in equity inthe net income of an overseas affiliatedcompany.

Special Feature

Income before Income Taxes andEquity in Net Income of AffiliatedCompanies
Income before income taxes and equity in
net income of affiliated companies rose
47.4%, or ¥38.5 billion, to ¥119.6 billion,
reflecting gains in operating income andnet other income.

Financial Section

Costs and Expenses
Total costs and expenses increased 8.0%,
or ¥55.5 billion, to ¥749.1 billion. Costof sales, at ¥583.1 billion, was up 8.7%,
or ¥46.8 billion, and was equivalent to67.7% of net sales and operating revenue,
an improvement from 69.4% in the preceding period due primarily to the impact
in the previous fiscal year of a ¥20.7 billion
write-down on real estate inventories,
which arose from a dramatic reorganization of the Company’s real estate businessin response to dwindling demand in thecondominium market.

Operating Income
Operating income advanced 43.1%, or¥33.9 billion, to ¥112.8 billion, equivalent
to 13.1% of net sales and operating
revenue, up from 10.2% in the previous
period. This result was due largely tohigher net sales and operating revenue
and decreases in write-down on real estate
inventories and impairment loss on longlived assets, which countered the negative
impact of increases in cost of sales andSG&A expenses. The Company’s segments,
in order of size of contribution, are security
services, fire protection services, information and communication related andother services, medical services, insurance
services, geographic information services
and real estate development and sales.
(For further details, please see Segment
Information below.)components of net deferred tax assets inthe previous fiscal year, a consequence ofchanges to Japanese tax regulations in theprevious period.

Strategic Highlights

Net Sales and Operating Revenue
Consolidated net sales and operating
revenue rose 11.6%, or ¥89.4 billion, to¥861.9 billion, bolstered by increases in all
segments. (For further details, please see
Segment Information below.)

Selling, general and administrative(SG&A) expenses increased 10.6%, or¥15.6 billion, to ¥162.2 billion. SG&A
expenses were equivalent to 18.8% of
net sales and operating revenue, an
improvement from 19.0% in the previous
fiscal year. In the preceding period, theCompany recognized an impairment
loss on long-lived assets, principally realestate, of ¥8.1 billion, in light of flagging
economic conditions.

The Management

Overview
In the year ended March 31, 2013,
SECOM CO., LTD. and its subsidiaries­(collectively, “the Company”) sought toprovide high-quality products and services
that respond to the needs of customers
in the core security services segment,
as well as in the fire protection services,­medical services, insurance services, geographic information services, real estatedevelopment and sales, and informationand ­communication related and other­services segments.
Consolidated net sales and operating
revenue rose 11.6%, or ¥89.4 billion,to ¥861.9 billion. This result was due
primarily to contributions of two newly
acquired subsidiaries in Japan—Nittan,
a major domestic provider of fire protection services, and At Tokyo, a leading
data center services firm, which wereconsolidated April 1, 2012, and October
31, 2012, respectively. This result also
reflected higher net sales and operating
revenue in the Company’s core electronic
security services business and in sales ofmerchandise, and the delivery of newly
completed large-scale condominium
complexes, beginning in the second
quarter of the period. Operating income
grew 43.1%, or ¥33.9 billion, to ¥112.8
billion, as the advance in net sales andoperating revenue exceeded increases
in cost of sales and selling, general andadministrative expenses and write-down
on real estate inventories and impairment
loss on long-lived assets declined. Net
income attributable to SECOM CO., LTD.
climbed 71.2%, or ¥29.3 billion, to ¥70.6
billion, owing mainly to the operating
income gain.

Income Taxes
Income taxes rose ¥8.6 billion, to ¥46.8
billion, equivalent to 39.2% of income
before income taxes and equity in net
income of affiliated companies, comparedwith 47.1% in the preceding period.
This result was due mainly to a decline
in the statutory tax rate in Japan and acorresponding write-down of certain

SECOM Annual Report 201333

Financial Review
Segment Information (For further information, please see Note 26 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
4.2%, or ¥18.4 billion, to ¥454.9 billion.
Excluding intersegment transactions,net sales and operating revenue in thissegment amounted to ¥452.4 billion,
representing 52.5% of overall net sales
and operating revenue, down from 56.3%
in the previous fiscal year.
Electronic security services include
on-line commercial and home security
systems (centralized systems) and largescale proprietary security systems, whichcenter on surveillance services at thesubscriber’s premises. On-line commercial
and home security systems, the core of theCompany’s electronic security services, use
sensors, controllers and other equipment
installed at the subscriber’s premises todetect events, including intrusions, fires
and equipment malfunctions. Equipment
is linked to a SECOM control center via
telecommunications circuits to facilitate
around-the-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 employees also notify thepolice or fire department, if necessary. The
Company has established an integrated
approach, whereby it takes full responsibility for all aspects of its on-line commercial
and home security systems, from R&D
through to equipment manufacturing,sales, security planning, installation,around-the-clock monitoring, emergency
response services and equipment maintenance. Net sales and operating revenue
from electronic security services rose 2.4%,
or ¥7.2 billion, to ¥311.6 billion, a consequence mainly of the expansion of theCompany’s lineup of value-added services
that respond to diverse security needs.
Other security services include static
guard services and armored car services.
Static guard services, which are provided byhighly trained professional security guards
for situations requiring human judgment
and flexible responsiveness, generated
net sales and operating revenue of ¥47.9
billon, up 2.5%, or ¥1.2 billion, owing
principally to the addition of the net sales
and operating revenue of a subsidiary
newly consolidated in the fourth quarter.
Armored car services, which involve thesafe transport of cash, securities and othervaluables using specially fitted armoredcars and security professionals, reported
net sales and operating revenue of ¥20.5
billion, down 0.4%, or ¥77 million.
The merchandise and other category
encompasses sales of a wide range of
security products, including access control
systems, CCTV surveillance systems,

34

SECOM Annual Report 2013

automated fire extinguishing systems andexternal monitoring systems, which can be
freestanding or linked to on-line security
systems. Net sales and operating revenue
in this category increased 15.0%, or ¥9.4
billion, to ¥72.4 billion, reflecting ongoing
efforts to expand sales of security systems
for rental apartments and an increase insales of CCTV surveillance systems.
Operating income in the security services segment rose 1.4%, or ¥1.4 billion,to ¥102.9 billion, owing to higher segment
net sales and operating revenue. The
operating margin edged down to 22.6%,
from 23.2% in the preceding period, as
the percentage increase in net sales andoperating revenue for merchandise andstatic guard services exceeded that for
on-line security systems, which have acomparatively higher operating margin.
Fire Protection Services
This segment focuses on tailored automatic
fire alarm systems, fire extinguishingsystems and other fire protection systems
for a wide range of applications, including
office buildings, plants, tunnels, culturalproperties, ships and residences. On April
1, 2012, the Company enhanced thissegment, which centers on the operationsof fire protection services subsidiary Nohmi
Bosai, by acquiring Nittan, a major domestic fire protection services provider. During
the period, the two companies leveraged
their respective business foundations andproduct development capabilities to secureorders for an extensive range of high-grade
fire protection systems.
Net sales and operating revenue fromthe fire protection services segment
advanced 39.7%, or ¥33.7 billion, to¥118.4 billion, reflecting contributions
from Nittan and active efforts to market
systems that respond to market needs.
Operating income was ¥6.0 billion, an
increase of 34.6%, or ¥1.5 billion, fromthe previous fiscal year.
Medical Services
The medical services segment encompasses
home medical services, which centeron home nursing and pharmaceuticaldispensing services, as well as the operation of residences for seniors, electronic
medical report systems, sales of medical
equipment, nursing care services, theleasing of real estate for hospitals andhealth care-related institutions and others.
The segment also includes the operationsof variable interest entities of which theCompany is the primary beneficiary, which
manage hospitals and health care-related
institutions.
Segment net sales and operating
revenue rose 4.8%, or ¥6.4 billion, to¥141.1 billion. The principal factors behind
this result were the inclusion of a full yearof net sales and operating revenue from a
hospital, the operation of which was takenover by one of the aforementioned variableinterest entities in October 2011. Operating
income declined 30.8%, or ¥2.4 billion,to ¥5.5 billion. This was due principally tostart-up costs related to the opening of
new hospitals by variable interest entities.
Insurance Services
The Company continues to market a broad
range of distinctive non-life insurance
policies, including Security DiscountFire Policy, a commercial fire insurance
policy, and SECOM Anshin My Home, acomprehensive fire insurance policy forhomes—both of which offer discounts onpremiums to customers who have installed
on-line security systems, recognizing thisas a risk-mitigating factor. Other offerings
include SECOM Anshin My Car, a comprehensive automobile insurance policy thatoffers on-site support services—provided
by 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.
Net sales and operating revenue in thissegment increased 6.5%, or ¥2.4 billion, to¥38.7 billion, primarily reflecting firm salesof fire insurance policies and the MEDCOM
unrestricted cancer treatment policy, whichstrengthened revenue from net premiums
written, and to a decrease in loss on otherthan-temporary impairment of investment
securities. The segment reported operating
income of ¥2.7 billion, compared with
an operating loss of ¥80 million in thepreceding period, bolstered by a decline inloss on other than temporary impairmentof investment securities, which pushed
up net sales and operating revenue,
and by a decline in selling, general and­administrative expenses.
Geographic Information Services
The geographic information services segment includes the use of highly advanced
measuring equipment and surveying
technologies to provide a variety of GIS
services to public service entities, including
national and local governments, as well as
to private-sector customers in Japan. The
Company also provides geospatial information services to government agencies inforeign countries, including emerging
economies and developing countries. In
the period under review, the Company
procured high-resolution satellite data and,leveraging its processing technologies,
provided geographic information services
that responded to a wide variety ofcustomer needs in areas ranging from map
production to environmental monitoring
and fire and disaster preparedness.
Segment net sales and operating
revenue edged up 1.9%, or ¥933 million,to ¥51.3 billion, owing to firm sales topublic- and private-sector customers inJapan, as well as to customers in overseas

Special Feature

Information and Communication
Related and Other Services
This segment consists mainly of information and communication related services
and real estate leasing. In the informationand communication related services, theCompany continued to provide a varietyof uniquely SECOM services, focusing ondata center services as well as business
continuity support services, information
security services and cloud-based services.
Highlights included the acquisition on
October 31, 2012, of At Tokyo, one ofJapan’s leading providers of data center
services in terms of stability of power supply and security level, thereby strengthening the foundation of our information andcommunication related services business.

Segment net sales and operating
revenue rose 40.0%, or ¥13.6 billion,to ¥47.5 billion, shored up by the acquisition of At Tokyo and by an increase insubscriptions for Secure Data Center
services, which bolstered results in theinformation and communication related
services business. The segment reported
operating income of ¥5.8 billion, comparedwith an operating loss of ¥4.0 billion in
the previous fiscal year. This improvement
was attributable largely to an ¥8.1 billion
impairment loss on long-lived assets,principally real estate—the result of areassessment of the potential profitabilityof certain businesses in light of flagging
economic conditions—in the preceding
period and to the inclusion of At Tokyoin consolidated results, which boosted
operating income in the information andcommunication related services business inthe period under review.

Strategic Highlights

Real Estate Development and Sales
The real estate development and sales segment comprises the development and salesof condominiums equipped with advanced
security and contingency planning systems.
Amidst sluggish conditions in the condominium market, the Company continued topromote the careful selection of properties
for development and sales. Bolstered by
the delivery of newly completed large-scalecondominium complexes, beginning in thesecond quarter, net sales and operating
revenue in this segment soared 150.3%, or¥18.4 billion, to ¥30.7 billion. The segment
reported operating income of ¥1.6 billion,
compared with operating loss of ¥21.6

billion in the previous period. This improvement was due primarily to a ¥20.7 billion
write-down on real estate inventories in
the preceding period, which arose from a
dramatic reorganization of the Company’s
real estate business in response to dwindlingdemand in the condominium market.

The Management

markets. Operating income fell 33.3%, or¥1.1 billion, to ¥2.3 billion. The segment’s
operating margin declined to 4.5%, from
6.8% in the previous fiscal year, reflecting
increases in impairment loss on goodwill
and impairment loss on long-lived assets,
both due to the deterioration of results
at overseas subsidiaries, a consequence
mainly of the Eurozone crisis.

Financial Position
Investments and long-term receivablesrose ¥22.0 billion, to ¥257.7 billion, or
19.2% of total assets. Investment securities
increased ¥15.1 billion, to ¥155.1 billion,
mainly because of higher unrealized holding gains on securities—underscored by abuoyant stock market—and an increase in
the fair value of private equity investments.
Property, plant and equipment, lessaccumulated depreciation, advanced¥74.4 billion, to ¥385.3 billion, equivalent
to 28.7% of total assets. Buildings andimprovements, including depreciation, rose
¥92.4 billion, to ¥285.6 billion, while land
increased ¥11.4 billion, to ¥114.5 billion,a result of the acquisition of At Tokyo.

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets(Year ended March 31, 2013)(In yen)(In billions of yen)

3,500

1,500

2,800

1,200

2,100

900

1,400

600

700

300

3.1%

4.7%

5.9%
4.2%

16.4%

Financial Section

Percentage of Consolidated
Net Sales and Operating Revenue*

Financial Review

at ¥58.0 billion, were down ¥9.1 billion,
reflecting a decline in real estate for sale,a consequence of the delivery of newly
completed condominiums, which waspartially offset by an increase in inventories
related to fire protection services resulting
from the acquisition of Nittan. Short-term
receivables amounted to ¥21.5 billion,up ¥6.8 billion, largely as a result of anincrease in lease receivables related tosecurity equipment belonging to another
newly acquired consolidated subsidiary.
With both current assets and current
liabilities up, the current ratio was
2.0 times, compared with 2.1 times
a year earlier.

SECOM Today

Total assets as of March 31, 2013,
amounted to ¥1,340.4 billion, ¥160.5
billion higher than at the end of theprevious fiscal year. Total current assets,
at ¥565.9 billion, advanced ¥30.3 billion,
and accounted for 42.2% of total assets.
Cash and cash equivalents totaled ¥222.7
billion, an increase of ¥9.7 billion, owing
to the fact that net cash provided byoperating activities exceeded net cashused in investing and financing activities.
(For further details, please see Cash Flows,which follows this section.) Notes andaccounts receivable, trade, rose ¥20.2 billion, to ¥119.9 billion, pushed up primarily
by the acquisition of Nittan. Inventories,

52.5%

13.2%
Security Services
Medical Services
Geographic Information Services
Information and Communication
Related and Other Services

Fire Protection Services
Insurance Services
Real Estate Development
and Sales00

09 10 11 12 13

09 10 11 12 13* Pie chart shows percentage of consolidated net sales andoperating revenue (excluding intersegment transactions)

SECOM Annual Report 201335

Financial Review

Other assets were up ¥33.7 billion, to¥131.4 billion, and accounted for 9.8% of
total assets. Goodwill rose ¥18.5 billion, to¥32.7 billion and other intangible assets
increased ¥16.1 billion, to ¥38.4 billion,
both owing principally to the acquisition of
At Tokyo, which yielded goodwill of ¥17.5
billion and identifiable intangible assets of¥15.2 billion.
Total liabilities increased ¥58.5 billion,to ¥560.7 billion, equivalent to 41.8%
of total liabilities and equity. Total current
liabilities rose ¥31.3 billion, to ¥287.5
billion, and accounted for 21.5% of total
liabilities and equity. Notes and accounts
payable, trade, at ¥45.0 billion, wereup ¥11.8 billion, owing primarily to theacquisition of Nittan. Accrued income taxes
climbed ¥15.5 billion, to ¥31.0 billion,
owing to a debt-for-equity swap undertaken at the end of the previous fiscal year

as part of a refinancing package aimed at
restructuring the Company’s real estatedevelopment and sales subsidiary, which
resulted in a decline in accrued income
taxes in the preceding period.
Long-term debt, at ¥48.8 billion, wasup ¥11.7 billion. Accrued pension andseverance costs totaled ¥29.3 billion,
an increase of ¥7.9 billion, reflecting an
increase in the scope of consolidation.
Higher sales of fire insurance polices led
to an increase in the reserve for unearned
premiums, pushing unearned premiums
and other insurance liabilities up ¥6.4
billion, to ¥90.4 billion.
Interest-bearing debt, comprising bankloans, long-term debt and the current
portion of long-term debt, advanced¥5.2 billion, to ¥105.1 billion. This result
was due largely to the acquisition of new
subsidiaries, including Nittan and At Tokyoand was despite efforts to reduce interestbearing debt through the effective use ofavailable funds.
Total SECOM CO., LTD. shareholders’equity rose ¥66.3 billion, to ¥679.2 billion,
and was equivalent to 50.7% of total
liabilities and equity. This was attributable
to a ¥50.9 billion increase in retained
earnings, to ¥623.6 billion, owing mainly
to net income attributable to SECOM CO.,LTD. and to the payment of cash dividends.
Accumulated other comprehensive loss,
at ¥21.2 billion, was down ¥16.1 billion.
The loss resulting from foreign currencytranslation adjustments declined ¥9.7
billion, to ¥18.7 billion, a consequence ofthe yen correction that began in late 2012.
As a result, the equity ratio decreased to50.7%, from 51.9% at the end of theprevious fiscal year.

Net cash used in investing activities
came to ¥118.6 billion. Principal items
behind this result were acquisitions, net ofcash acquired, of ¥63.7 billion, that is, payments for the acquisition of new subsidiaries, including Nittan and At Tokyo, andpayments for purchases of property, plantand equipment of ¥64.3 billion—namely,
the purchase of security equipment andcontrol stations, dictated by a greater number of security services subscribers, and ofbuildings and improvements, as well as
equipment, for new hospitals managed byvariable interest entities. Owing to a review
of investment assets in the insurance
services segment, and to gains attributableto private equity investments in the UnitedStates, net proceeds from the sales andredemption of short-term investments andinvestment securities rose ¥10.3 billion.
Net cash used in investing activities was up¥73.6 billion from the previous fiscal year,

attributable to the greater application of
cash to acquisitions, net of cash acquired,
and to purchases of property, plant andequipment.
Net cash used in financing activities
amounted to ¥30.4 billion. This included
dividends paid to SECOM CO., LTD.
shareholders of ¥19.6 billion, net repayments of long-term debt of ¥4.9 billion
and a decrease in bank loans, net, of ¥3.6
billion. Net cash used in financing activities
was down ¥17.3 billion from the previous
period, owing to decreases in investment
deposits by policyholders, bank loans, net
and net repayments of long-term debt.
The Company’s operating, investing
and financing activities in the period
under review resulted in net cash and cash
equivalents at end of year of ¥222.7 billion,up ¥9.7 billion from net cash and cash
equivalents at beginning of year, whichwere ¥213.0 billion.

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, theCompany is also firmly committed tofinancing strategic investments with cash
generated by its operating activities.
In the period under review, net cash
provided by operating activities amounted
to ¥157.4 billion. Significant factors­contributing to this result included net
income of ¥76.6 billion and non-cash
items, notably depreciation andamortization—­including amortizationof deferred charges—of ¥60.7 billion
and a decrease in inventories of ¥20.7
billion. Net cash provided by operating
activities was ¥45.2 billion higher thanin the previous period, reflecting higher
net income and an increase in accrued
income taxes, compared with a decreasein the ­preceding period.

Cash Flows

Depreciation andAmortization

Capital Expenditures(In billions of yen)

(In billions of yen)

(In billions of yen)

75

75

200

60

60

45

45

30

30

15

15

150
100
50
0
–50

0

09 10 11 12 13

0

–100

09 10 11 12 13

–150

11

12

13

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

36

SECOM Annual Report 2013