The Management

Strategic Highlights

Special Feature

SECOM Today

Financial Review

Financial Section

FINANCIAL REVIEW
Operating Results
Overview
In the year ended March 31, 2012, SECOM CO., LTD. and its
subsidiaries (collectively, “the Company”) sought to provide
high-quality products and services that respond to the needs ofcustomers in the core security services segment, as well as in thefire protection services, medical services, insurance services, geographic information services, real estate development and sales,and ­information and communication related and other services
segments.
Consolidated net sales and operating revenue rose 2.7%, or¥20.6 billion, to ¥772.5 billion. This result reflected higher net
sales and operating revenue in the security services s­ egment—due
to increases in revenue from subscriptions for the Company’s coreelectronic security services and in sales of merchandise—as wellas in the medical services, geographic information services andfire protection services segments. In contrast, operating income
declined 21.5%, or ¥21.6 billion, to ¥78.8 billion, as the Company
wrote down real estate inventories in light of dwindling demandin the condominium market, which prompted a dramatic reorganization of its related business, while flagging economic conditions
resulted in the recognition of an impairment loss on long-lived
assets, principally real estate. Net income attributable to SECOM
CO., LTD. fell 34.2%, or ¥21.4 billion, to ¥41.2 billion, a­consequence mainly of the decline in operating income.
Net Sales and Operating Revenue
Consolidated net sales and operating revenue rose 2.7%, or ¥20.6
billion, to ¥772.5 billion. Net sales and operating revenue increasedin the security services, medical services, insurance services, geographic information services, and information and communication
related and other services segments, but declined in the real estatedevelopment and sales segment. (For further details, please see
Segment Information below.)
Costs and Expenses
Total costs and expenses increased 6.5%, or ¥42.2 billion, to¥693.7 billion. Cost of sales, at ¥536.3 billion, was up 7.5%,
or ¥37.3 billion, and was equivalent to 69.4% of net sales andoperating revenue, up from 66.4% in the previous period. Thiswas due mainly to an increase in the write-down on real estate
inventories, to ¥20.7 billion, from ¥1.5 billion, as the Company
wrote down real estate inventories in light of dwindling demandin the condominium market, which prompted a dramatic­reorganization of its related business.
Selling, general and administrative (SG&A) expenses edged
down 0.7%, or ¥1.0 billion, to ¥146.7 billion. SG&A expenses
were equivalent to 19.0% of net sales and operating revenue, an
improvement from 19.6% in the previous period. These results
were attributable primarily to declines in research and development
expenses and advertising costs. Having taken into account flagging
economic conditions, the Company also recognized an impairment
loss on long-lived assets, principally real estate, of ¥8.1 billion.

Operating Income
Operating income declined 21.5%, or ¥21.6 billion, to ¥78.8
billion, equivalent to 10.2% of net sales and operating revenue,
down from 13.4% in the previous period. This result was due
mainly to increases in the write-down on real estate inventories andimpairment loss on long-lived assets, principally real estate, whichcountered the positive impact of higher net sales and operating
revenue and lower SG&A expenses. Segments contributing tooperating income were—in order of size of contribution—security
services, medical services, fire protection services and geographic
information ­services. (For further details, please see Segment
Information below.)
Other Income and Expenses
Other income decreased ¥4.3 billion, to ¥7.5 billion, while otherexpenses rose ¥775 million, to ¥5.2 billion, resulting in net otherincome of ¥2.3 billion, down ¥5.1 billion from the previous period.
Principal factors behind this result included a ¥2.5 billion decline
in gain on private equity investments, to ¥3.5 billion, and anincrease in loss on other-than-temporary impairment of investment
securities.
Income from Continuing Operations before Income Taxes
and Equity in Net Income of Affiliated Companies
Income from continuing operations before income taxes and equity
in net income of affiliated companies fell 24.8%, or ¥26.7 billion,to ¥81.1 billion, reflecting declines in operating income and net
other income.
Income Taxes
Income taxes declined ¥5.1 billion, to ¥38.2 billion, equivalent to47.1% of income from continuing operations before income taxes
and equity in net income of affiliated companies, up from 40.1%
in the previous period. This result was due primarily to changes
to Japanese tax regulations, which resulted in decreases in certain
components of net deferred tax assets.
Equity in Net Income of Affiliated Companies
Equity in net income of affiliated companies slipped ¥148 million,to ¥4.9 billion.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests amounted to¥6.6 billion, down ¥369 million.
Net Income Attributable to SECOM CO., LTD.
Net income attributable to SECOM CO., LTD. fell 34.2%, or ¥21.4
billion, to ¥41.2 billion, equivalent to 5.3% of net sales and operating revenue, compared with 8.3% in the previous period. Net
income attributable to SECOM CO., LTD. per share was ¥188.97,
down from ¥287.41. A proposal to pay cash dividends of ¥90.00
per share, level with the previous period, was approved at thegeneral shareholders’ meeting held on June 26, 2012.

SECOM Annual Report 201233

The Management

Strategic Highlights

Special Feature

SECOM Today

Financial Review

Financial Section

FINANCIAL REVIEW
Segment Information(For further information, please see Note 28 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 2.3%, or ¥9.7 billion, to ¥436.5 billion. Excludingintersegment transactions, net sales and operating revenue in thissegment amounted to ¥434.7 billion, representing 56.3% of overall
net sales and operating revenue, down slightly from 56.5% in theprevious period.
Electronic security services include on-line commercial and home
security systems (centralized systems) and large-scale proprietary
security systems, which center on surveillance services at the subscriber’s premises. On-line commercial and home security systems,
the core of the Company’s electronic security services, use sensors
installed at the subscriber’s premises to detect events, including
intrusions, fires and equipment malfunctions. Sensors are linked toa 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 the police
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, monitoring, emergency response services and equipment maintenance. Net sales and operating revenue from electronic
security services rose 0.6%, or ¥1.9 billion, to ¥304.4 billion, owing
to, among others, the inclusion of the net sales and operating
revenue of newly consolidated subsidiaries overseas.
Other security services include static guard services and armoredcar services. The former is provided by highly trained professional
security guards for situations requiring human judgment andflexible responsiveness. The latter involves the transport of cash,
securities and other valuables using specially fitted armored cars
and security professionals. Net sales and operating revenue fromstatic guard services edged up 0.7%, or ¥317 million, to ¥46.7 billon, and that from armored car services rose 2.4%, or ¥480 million,to ¥20.6 billion.
The merchandise and other category encompasses sales of a wide
range of security products, including access control systems, CCTV
surveillance systems, automated fire extinguishing systems andexternal monitoring systems, which can be freestanding or linked
to on-line security systems. Net sales and operating revenue in thiscategory increased 13.1%, or ¥7.3 billion, to ¥63.0 billion, mainlyreflecting efforts to expand sales of security systems for rental
apartments and an increase in sales of CCTV surveillance systems.
Operating income in the security services segment rose 1.6%, or¥1.6 billion, to ¥101.4 billion, owing to the increase in segment net
sales and operating revenue. The operating margin edged down to
23.2%, from 23.4% in the previous period.
Fire Protection Services
This segment focuses on tailored 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.
Net sales and operating revenue from the fire protection services
segment advanced 5.9%, or ¥4.7 billion, to ¥84.8 billion, primarilyreflecting higher sales of specialized fire protection systems forplants, factories and other facilities, and of fire extinguishingsystems for roads, as well as the increase in revenue from inspection
and maintenance services. Operating income was ¥4.4 billion, an
increase of 40.7%, or ¥1.3 billion, and the operating margin, 3.9%in the previous period, improved to 5.2%. These results were due
mainly to the increase in segment net sales and operating revenue,

34

SECOM Annual Report 2012

as well as to efforts to reduce cost of sales and an improvement in
the segment SG&A ratio.
Medical Services
The medical services segment encompasses home medical services,comprising pharmaceutical dispensing and home nursing services,
as well as the operation of residences for seniors, electronic medical
report systems, sales of medical equipment, personal care services,
the leasing of real estate for hospitals and health care-related
institutions and others. The segment also includes the operationsof variable interest entities of which the Company is the primary
beneficiary, which manage hospitals and health ­care-related
institutions.
Segment net sales and operating revenue rose 7.6%, or ¥9.5 billion, to ¥134.7 billion. The principal factors behind this result wereincreases in revenue from variable interest entities, which manage
hospitals and health care-related institutions, and from the pharmaceutical dispensing business. Owing largely to the improved resultsof these entities, operating income soared 345.2%, or ¥6.1 billion,to ¥7.9 billion. The segment’s performance in the previous period
reflected a loss of ¥3.2 billion on settlement of pre-existing relationship related to the settlement of a lease contract between the
Company and the aforementioned variable interest entities.
Insurance Services
In addition to security services, which are preventative by nature,
the Company offers non-life insurance, which looks after customers
in the event of misfortune, and has developed and marketed abroad 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 homes—both of which offer discounts on premiums tocustomers who have installed on-line security systems, recognizing
this as 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 theentire cost of medical treatment for cancer.
Despite a decline in net realized investment gains, net sales andoperating revenue in this segment increased 1.5%, or ¥540 million,to ¥36.3 billion, owing primarily to firm sales of fire insurance policies and the MEDCOM unrestricted cancer treatment policy, whichstrengthened revenue from net premiums written. The segment’s
operating loss narrowed to ¥80 million, from ¥180 million in theprevious period.
Geographic Information Services
The geographic information services segment includes the use ofhighly advanced measuring equipment and surveying technologies
to provide a variety of GIS services to national and local governments, as well as to public- and private-sector entities in Japan.
The Company also provides geospatial information services togovernment agencies in foreign 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 of customer needs in areas
ranging from map production to environmental monitoring andfire and disaster prevention. In the wake of the Great East Japan
Earthquake, the Company analyzed data from several satellites
to help pinpoint areas devastated by the disaster, enabling it toprovide crucial information to the national government and related
agencies in a timely manner.
Segment net sales and operating revenue rose 15.3%, or¥6.7 ­billion, to ¥50.4 billion, owing to increased sales of satellitemonitoring services to public-sector customers and the inclusion ofa full year of net sales and operating revenue from a consolidated
subsidiary acquired in December 2010, as well as to the progress of
system development projects for overseas customers.
Operating income edged up 1.7%, or ¥56 million, to ¥3.4 billion.
Despite higher production efficiency in services for public- andprivate-sector customers in Japan, the operating margin slipped to
6.8%, from 7.8% in the previous period, reflecting the impact of
unfavorable weather conditions, which resulted in significant delays
and cost increases for certain projects for overseas customers.
Real Estate Development and Sales
The real estate development and sales segment comprises the development and sales of condominiums equipped with advanced security and contingency planning systems. Amidst sluggish conditions in
the condominium market, the Company continued to promote thecareful selection of properties for development and sales.
Net sales and operating revenue in this segment dropped 50.8%,
or ¥12.7 billion, to ¥12.3 billion, as the condominium market failed
to improve noticeably. The segment reported an operating loss of¥21.6 billion, compared with ­operating income of ¥525 million in

the previous period, owing to a ¥20.7 billion write-down on realestate inventories, a consequence of dwindling demand in thecondominium market, which prompted a dramatic reorganizationof this business.
Information and Communication Related and Other Services
This segment consists mainly of information and communication
related services—including information security systems and network services, which protect subscribers’ information in the eventof a major disaster—and real estate leasing.
Segment net sales and operating revenue advanced 6.0%, or¥1.9 billion, to ¥33.9 billion, shored up by an increase in subscriptions for Secure Data Center services, part of the information andcommunication related services business. Despite higher incomein the information and communication related services category,
the Company recognized an ¥8.1 billion impairment loss on longlived assets, principally real estate, having reassessed the potential
profitability of its businesses in light of flagging economic conditions. As a consequence, the segment reported an operating loss of¥4.0 billion, compared with operating income of ¥3.2 billion in theprevious period.

Financial Position
Total assets as of March 31, 2012, amounted to ¥1,179.8 billion,¥8.7 billion higher than at the end of the previous period.
Total current assets, at ¥535.6 billion, rose ¥14.2 billion, andaccounted for 45.4% of total assets. Cash and cash equivalents
totaled ¥213.0 billion, an increase of ¥19.1 billion, owing to thefact that net cash provided by operating activities exceeded net
cash used in investing and financing activities. (For further details,
please see Cash Flows, which follows this section.) Notes andaccounts receivable, trade, rose ¥13.2 billion, to ¥99.7 billion,
pushed up primarily by increases in net sales and operating revenue
in the fire protection services and geographic information services
segments. Inventories, at ¥67.1 billion, were down ¥14.7 billion,
reflecting a decline in real estate for sale, a consequence of salesof condominiums and the write-down on real estate inventories.
Short-term investments amounted to ¥17.3 billion, up ¥10.9 billion,
largely as a result of the reclassification of investment securities in
the insurance services segment. Time deposits were ¥7.7 billion, adecline of ¥9.5 billion, as certain deposits reached maturity. With
both current assets and current liabilities up, the current ratio
remained level at 2.1 times.

Investments and long-term receivables were down ¥10.6 billion,to ¥235.7 billion, or 20.0% of total assets. This was mainly aconsequence of the aforementioned reclassification of investment
securities as short-term investments, which pushed investment
securities down ¥9.0 billion, to ¥140.0 billion.
Property, plant and equipment, less accumulated depreciation,rose ¥8.3 billion, to ¥310.8 billion, equivalent to 26.3% of total
assets. Land increased ¥6.7 billion, to ¥103.1 billion, a result of thepurchase of a rental property in the information and communication related and other services segment. Additionally, a higher
number of security services subscribers necessitated an increase in
security equipment and control stations, although this was offset bydepreciation.
Other assets were down ¥3.3 billion, to ¥97.7 billion, andaccounted for 8.3% of total assets. Deferred charges, that is,service charges for the installation of security equipment related
to on-line security systems that have been deferred, declined¥2.5 billion, to ¥43.1 billion.

Percentage of Consolidated
Net Sales and Operating Revenue*

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets

1.5%
6.5%
4.4%

3,000

1,500

2,400

1,200

1,800

900

1,200

600

600

300

(Year ended March 31, 2012)

3.5%

56.3%

17.4%
10.4%

Security Services
Fire Protection Services
Medical Services
Insurance Services
Geographic Information Services
Real Estate Development and Sales
Information and Communication Related and Other Services(In billions of yen)

(In yen)0

08 09 10 11 12

0

08 09 10 11 12* Pie chart shows percentage of consolidated net sales and operating revenue(Excluding intersegment transactions)

SECOM Annual Report 201235

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Strategic Highlights

Special Feature

SECOM Today

Financial Review

Financial Section

FINANCIAL REVIEW

Total liabilities declined ¥14.2 billion, to ¥502.2 billion, equivalent
to 42.6% of total liabilities and equity. Total current liabilities rose
¥13.7 billion, to ¥256.3 billion, and accounted for 21.7% of total
liabilities and equity. This was due primarily to an increase in notes
and accounts payable. Long-term debt, at ¥37.0 billion, was down
¥16.0 billion. Investment deposits by policyholders declined ¥10.9
billion, to ¥30.8 billion, as insurance policies with maturity refunds
reached maturity.
Interest-bearing debt, comprising bank loans, long-term debt
and the current portion of long-term debt, declined ¥12.8 billion,to ¥99.8 billion. This result reflected the effective use of available
funds to reduce interest-bearing debt.

Total SECOM CO., LTD. shareholders’ equity rose ¥19.4 billion,
to ¥612.9 billion, and was equivalent to 51.9% of total liabilities
and equity. This was attributable to a ¥21.5 billion increase inretained earnings, to ¥572.7 billion, owing to net income attributable to SECOM CO., LTD. and to the payment of cash dividends.
Accumulated other comprehensive loss, at ¥37.3 billion, was up¥2.5 billion. The loss resulting from foreign currency translation
adjustments rose ¥3.4 billion, to ¥28.5 billion, a consequence of
the appreciation of the yen. As a result, the equity ratio increased to51.9%, from 50.7% at the end of the previous period.

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 strategic investments with cash generated
by its ­operating activities.
In the period under review, net cash provided by operating activities amounted to ¥112.2 billion. Significant factors contributing tothis result included net income of ¥47.8 billion and non-cash items,
notably depreciation and amortization of ¥58.1 billion, a ¥20.7­billion write-down on real estate inventories and an ¥8.1 billion
impairment loss on long-lived assets. Cash used in operating activities included ¥15.7 billion in deferred charges and a ¥12.3 billion inreceivables and due from subscribers, net of allowances. At ¥413
million less than in the previous period, net cash provided by operating activities was essentially level. This was despite an increasein the aggregate of net income and reconciliation items—namely,
write-down on real estate inventories, impairment loss on longlived assets and other gains and losses generated by operating
activities—and reflected an increase in inventories, a consequenceof condominium development, compared with a decrease in theprevious period.
Net cash used in investing activities came to ¥45.0 billion.
Principal items behind this result included payments for purchasesof property, plant and equipment of ¥53.5 billion—namely, the­purchase of a rental property, and security equipment and control­stations, necessitated by an increase in the number of security­services subscribers—and a decrease in time deposits of ¥9.2
billion, as certain deposits reached maturity. Owing to a review
of investment assets in the insurance services segment, and to

gains attributable to private equity investments in the United States,
net proceeds from the sales and redemption of short-term investments and investment securities amounted to ¥3.1 billion. Despite
the absence of proceeds from sales in investments in affiliated­companies and an increase in payments for purchases of property,
plant and equipment, the fact that time deposits reflecting efforts
to strengthen relations with subscribers reached maturity resulted ina ¥1.9 billion decrease in net cash used in investing ­activities fromthe previous period.
Net cash used in financing activities amounted to ¥47.7 billion.
This included dividends paid to SECOM CO., LTD. shareholdersof ¥19.6 billion, repayments of long-term debt of ¥11.7 billion, adecrease in investment deposits by policyholders of ¥10.9 billion
and a decrease in bank loans, net, of ¥6.9 billion. Repayments oflong-term debt and the decrease in bank loans reflected efforts
during the period to reduce long-term debt by promoting theeffective use of available funds. Net cash used in financing activities
was down ¥7.6 billion from the previous period, when an increasein the use of cash to reduce interest-bearing debt was counteredby payments for acquisition of shares of consolidated subsidiaries
from noncontrolling interests, owing to a tender offer to acquire
shares of common stock issued by consolidated subsidiary Secom
Techno Service Co., Ltd., which has since been merged into
SECOM CO., LTD.
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 ¥213.0 billion, an increase of ¥19.1 billion fromnet cash and cash equivalents at beginning of year, which were¥193.9 billion.

Depreciation andAmortization

Capital Expenditures

Cash Flows

60

60

150

48

48

36

36

24

24

12

12

(In billions of yen)

(In billions of yen)

(In billions of yen)

100
50
0

0

08 09 10 11 12

0

–50
–100

08 09 10 11 12

–150

10

11

12

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

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SECOM Annual Report 2012